Fairness in Coalition Building as a Superior Strategy

Abstract

Poor governance can lead to costs that threaten the survival of an organization. These costs arise as agents go outside the normal channels for decision making and management in a fine's system of governance. Such behavior occurs when agents believe they have a better chance to achieve what they want outside normal channels than by staying within them. If a fine is managed with a fair governance structure then agents are more likely to believe they can achieve what they want within channels rather than outside of them. However, as shown in a simple model of coalition building, a "fair" procedure may actually produce a bias against incumbent management. The organizations which accept this bias and still trust in the results from coalition building are able to embark on a superior su1Vival strategy. Any organization which is poorly governed faces sudden, enormous costs which can threaten its competitiveness, and ultimately its survival. A system of governance is rooted in a firm's charter and constitution, which in tum provide the foundation for its standard operating procedures and management. This paper examines how fairness can help to minimize the costs that result from a poor system of governance.