A European Analysis
Chapter 1: Corporate Governance and Innovation in Construction in Five European Countries
INTRODUCTION It has been argued that different institutional frameworks have comparative advantages in solving the organizational problems of different innovation strategies (CPB 1997, OECD 1995). The general conclusion is that technological development through radical innovations may be encouraged by more market-oriented or Anglo-Saxon models of corporate governance while, in contrast, incremental technological change may be supported by network or Germanic models of corporate governance. This is because radical innovations make use of marketable assets, such as general human capital or external know-how, rather than firm-specific assets and knowledge that need to be developed internally, and demand flexible financial institutions and a high amount of risk finance (CPB 1997). Instead, incremental innovations shift the balance towards long-term finance opportunities to meet idiosyncratic customer requirements. Because banks, workers, governments and large shareholders have better information and more power to use that information than the widely dispersed shareholders of the typical UK or US firm, it is argued that financing for innovation is more readily available for valueincreasing, long-term projects in the Germanic model. Other institutions such as vocational training reinforce the impact of these features of the Germanic model. Missing from this analysis is an explanation of the particular relationships between corporate governance and the different types of innovative activities at the firm level. By examining the mechanisms of innovation at the firm level we are able to understand that although corporate governance systems may be broadly similar between groups of countries, differences in particular features of firm ownership, finance, organizational and...
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