Democracy on Two Levels in Companies and Innovative Startups
Democracy is not a recurring word in economic organization and management theory, yet the concepts of firm and democracy may be closer than we think. Because of the need to attract investments of knowledge and human capital assets, the governance of a startup enterprise is more pluralistic and representative than the typical 20th century industrial enterprise. Something similar occurs in the innovation units of established firms where the allocation of decision rights is diffused.
However, "if it is true that innovation favors a democratic governance, it is also true that companies are democratic societies at the institutional level", says Anna Grandori, Professor of Business Organization. The distinction between the institutional and the organizational levels lies at the heart of one of her most recent publications on the subject, Democratic governance and the firm (2017). "All firms operating in a democracy are democracies themselves in the sense that the core mechanism for sharing decision rights among the constituency is democracy, simple (one person one vote) or weighted (accordingly to the number of shares)".
The paper also features the results of a study based on quantitative data from questionnaires received from a sample of the largest 500 Italian firms. The authors enquired into which combinations of four organizational practices made a difference in firm performance: market-like, bureaucratic, communitarian, democratic (diffusion of property and representation rights, task self-determination rights). It turned out that what makes a difference are the democratic mechanisms (as well as market-like, such as pay for performance). "The democratization of firms has a positive effects in terms of performance that goes beyond any ethical consideration", professor Grandori says. "The effects are significant in 'normal' firms, outside knowledge-intensive contexts or startup enterprises. And this is rarely acknowledged".
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