Learning from Ancient Athens: Demarchy and Corporate Governance

Abstract: The corporate governance literature increasingly recognizes that firms can benefit from protecting and thereby inducing firm-specific investments of various stakeholders. Such investments by shareholders, employees, suppliers, customers, and the local community strengthen the sustainable competitive advantage of the firm. However, substantial implementation problems exist with regard to the protection of multiple stakeholders’ interests. This paper explores a novel approach to do so, based on the creative use of random selection procedures in the appointment of stakeholder representatives on the board. These procedures are the foundation of demarchy, a form of governance that was successfully implemented in ancient Athenian democracy. The paper presents advantages and disadvantages of demarchy, develops a corporate governance proposal that combines demarchy with representative voting, and addresses key issues concerning its implementation. It is suggested that the use of demarchy opens new avenues for stakeholder involvement in corporate governance.