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Corporate Governance and Firm OrganizationMicrofoundations and Structural Forms$
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Anna Grandori

Print publication date: 2004

Print ISBN-13: 9780199269761

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780199269761.001.0001

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Corporate Governance for Crooks? The Case for Corporate Virtue

Corporate Governance for Crooks? The Case for Corporate Virtue

(p.191) 8 Corporate Governance for Crooks? The Case for Corporate Virtue
Corporate Governance and Firm Organization

Margit Osterloh

Bruno S. Frey

Oxford University Press

This chapter highlights some important unintentional adverse consequences of mechanisms that are commonly recommended for improving CG. It argues that the circle of reinforcement of monitoring, sanctions and incentives in response to scandals configures a ‘governance for crooks’ that tends to worsen the very problem it is designed to solve. It highlights that one important underlying mechanism explaining this adverse consequence is the ‘crowding out effect’, whereby an excess of extrinsic motivation crowds out intrinsic motivation and undermines corporate virtue. The chapter offer a stylized model of the phenomenon and draws implications for human resource management — HRM — (personnel selection and reward policies).

Keywords:   pay for performance, crowding out theory, motivation, monitoring and control, human resource management

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