This article explores how both corporate governance and corporate social responsibility can be improved by using insights from complexity theory. Complexity theory reveals that decentralized governance architecture is required for firms to absorb competently the increased intricacies, variety of variables, and objectives introduced by CSR. The current predominant form of centralized governance based on command-and-control hierarchies copes with complexities by reducing data inputs. This approach results in firms reducing their objectives, concerns, and insights about CSR. Firms with a decentralized “network” (...) form of governance architecture are used to illustrate how the data inputs of each manager can be reduced through the decomposition of decision-making labor to improve the capability of the firm to intelligently absorb and manage complexity. Network governance also introduces a division of powers with stakeholders to facilitate information flow and strengthen incentives to manage the enterprise to enhance both shareholder value and CSR. (shrink)

This conceptual article suggests a reexamination of current governance structures, specifically those of unitary boards after the financial crisis of 2008.We suggest that the existing governance structures are based on an outdated paradigm of business, rooted in economics. We propose an alternative paradigm, a more humanistic paradigm, which allows conceiving alternative, network-oriented governance structures. As hierarchical firms grow larger and more complex, the risk of failure increases from biases, errors, and missing data in communication and control systems. These problems are (...) exacerbated by information overload on senior managers, directors, and their respective regulators. In contrast to traditional corporate governance, network governance introduces a division of power via multiple boards, checks and balances, and active stakeholder engagement. We argue that those features could have prevented the stresses and failures of financial firms in 2008, since they were anticipated by both individuals within firms and external commentators. However, those exposed to risks possessed insufficient influence in either governing and/or regulating firms to take corrective action. (shrink)