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The study of corporate governance has expanded both its theoretical and its empirical scope. We define governance broadly to include the social organization of firms and their relations to their suppliers, customers, competitors,and states. This review examines both economic and sociological theories to evaluate their efficacy at accounting for the comparative data on firms. Our review of the comparative literature suggests that there is no evidence of convergence across societies toward a single form of governance, and that this is mainly a function of three factors: the timing of entry into industrialization and the institutionalization of that process, the role of states in regulating property fights and rules of cooperation and competition between firms, and the social organization of national elites. The theories that function best are those that consider political, institutional, and evolutionary factors as causal. This is a cautious conclusion as many of the theories have not been evaluated because of the difficulty in producing comparative measures.

The firm's continued importance for coordinating economic activity is puzzling given that (1) economists have not demonstrated that the greater alignment of effort they expect from hierarchical coordination overcomes the reduction in employee effort created by "low-powered" incentives, (2) employee effort is further threatened by the alienating effects of hierarchical control, and (3) firms, as we show, are necessarily hierarchical. Why, then, do firms dominate the capitalist economy? Our theory is rooted in a more subtle set of rights that is also intrinsic to the firm hierarchy: "voice rights" (who can speak within and on behalf of the firm). Control of voice is crucial for endowing the firm with a capacity that cannot be acquired by a mere "nexus" of contractors: it can become a reliable and accountable actor. This, in turn, gives the firm three necessary (if insufficient) ingredients for creating strong identification with the collective enterprise. Our theory thus suggests why firms remain important despite their inherent limitations and why some firms are marked by alienation and perfunctory performance while others are marked by strong identification and consummate performance.