Innovations in Corporate Governance: The Mondragon Experience

Abstract

The stakeholder co-operatives formed around the town of Mondragon in the Basque region of Spain have been outstandingly successful on a number of measures in comparison with other forms of firms. The control architecture within and between Mondragon firms contains a number of innovations and lessons for developing the theory and practice of corporate governance. This paper outlines the 38 year evolution of Mondragon worker and consumer co-operatives and their innovative governance structures. The control and incentive architecture of Mondragon firms was custom designed according to the nature of both their activities and their principal stakeholders. The resulting unique control arrangements and outstanding performance supports the hypothesis that the structure of governance is a determinant of sustainable competitive advantages. The evolution of Mondragon firms also illustrates the need to consider corporate architecture as a variable at any one time or over time. The Mondragon experience illustrates how the social research approach of 'action science' can be used to create competitive enterprises. The paper recommends this approach for developing the theory and practice of corporate governance.