Organizational Governance, Individual Wellbeing, and Needs Theory

Introduction

This article presents a theory linking the governance of production to the well-being of individuals participating in production. Individual well-being is also a measure of governance performance. The basic idea of the paper stems from the observation that a clear and structured theoretical link between governance and individual well-being is still understudied, while governance should be evaluated in terms of its ability to sustain well-being. We take the model of human psychology proposed by Abraham Maslow (1943, 1968, 1998) as an example of how well-being can be related to the structure of the organization, as this structure emerges and evolves to meet different kinds of needs of various stakeholders, thus generating well-being. Specific reference is made to the well-being of employees, but customers can also be considered.

The initial behavioral hypothesis, drawn from Oliver Williamson’s (1975, 2000) neo-institutionalist approach, is that individuals behave opportunistically if there is sufficient information asymmetry and if the sanctions are less than the benefit gained through self-seeking behavior. Governance structures are characterized by exclusive decision-making (to save internal costs) and supported by command-and-control mechanisms to impose direction, order, and punish opportunism (Sacchetti, 2015). In our approach, however, needs can influence or even define the basic organizational dimensions of formal governance and organizational routines, because when needs are better met, stakeholder well-being improves. A sense of fulfillment can lead to improved organizational behavior and even customer satisfaction. For example, an organization that is able to provide greater job protection and stability for its workforce will likely be rewarded with better organizational citizenship behaviors, professional growth, and performance (Akerlof, 1982). Therefore, we expect the evolution of governance structures to take into account the satisfaction of stakeholder needs. Consistently, we develop a theory based on multiple individual motivations, which emphasizes multiple and coexisting individual needs (needs for survival, security, belonging, self-esteem, self-actualization) as in Maslow's pyramid. These needs cannot be consistently met through opportunistic behaviors at the individual level and the use of authority at the organizational level, as research in social and organizational psychology has highlighted the importance of intrinsic motivation and the dangers associated with exclusion, direction and extrinsic incentives (cfr. Frey, 1997, in economics; Deci & Ryan, 2000). Building a theory of individual need satisfaction requires modification of the mainstream behavioral assumptions implicit in the principal-agent model and the contributions of the new institutional economics. Consequently, so does the justification of the exclusive governance structures advocated by transaction cost theory (Williamson, 1975; Jensen & Mackling, 1976). The perspective introduced here emphasizes that individual needs and their satisfaction require to be nurtured at the organizational level by structures and practices that integrate productive resources not yet by authority, but by reciprocity, cooperation and inclusive decision-making processes (Tortia & Valentinov, 2018).

In our framework, opportunism, understood as “seeking self-interest with cunning” (Williamson, 1975: 255), represents only one of the possible (and deviant) behavioral traits. From an organizational perspective, it must be understood as behavioral risk and danger, which can emerge and spread under negative organizational conditions, but which can be kept at bay when appropriate rules (involvement, constraints, incentives, and sanctions) are put in place (Ostrom, 1990).