Governance for Innovation-Driven Companies: The Legacy of Walther Rathenau on the German Model

With the current economic context, there has been increasing criticisms of the standard approach to corporate governance, not only at the ethics for ethical issues, but for its negative impact on economic efficiency as it focuses on controlling managers instead of the conditions required for firms to innovate and create value (Bosse et al., 2009; Freeman, 1999; Harrison et al., 2010; Lazonick, 2014). In this conditions, the German model of codetermination is extensively discussed by the literature (Doellgast, 2009; Hackethal et al., 2005; Hassel, 1999; Kriechel et al., 2014; Steger et Hartz, 2006; Wächter et Muller-Camen, 2002), but its link to innovation is only rarely put forward (Addison et al., 1996; Lehrer, 2005).

Although its historical origins have been extensively studied, our article aims at shedding light on some overlooked historical roots of the German model of co-determination: building on historical data on the works and influence of Walther Rathenau, we suggest that co-determination may have resulted from an effort to redesign corporate institutions and governance in line with the purpose of leveraging innovation capabilities.

Walther Rathenau was the son of Emil Rathenau, the founder of the AEG. He himself had an extraordinary industrial career, as a chief executive officer and a director of more than 80 companies, but also as a theoretician and a political thinker. Based on historical documents and on texts that were not, to our knowledge, translated into English (e.g. Von Aktienwesen), we revisit Walter Rathenau’s work as an attempt to conceptualize of the role of modern management as well as the function of business companies. The result of our analysis is twofold.

-          First, we show that Rathenau attempted to ground management as a creative and innovative function. His own experience as a corporate officer leads him to deeply invest in science and to explore continuously new organizational capabilities. But as Rathenau wrote himself, the type of competences required to lead new business organizations was difficult to characterize and even to name: « Its characteristic is the power of imaginatively realizing that which does not yet exist; the talent for the unconscious imaginative reconstruction and experience of the organic world; (…) It is not surprising that the German language should have no name for this complex of energies. I shall employ the expression "aptitude for business” (Geschäftskunst), a compound term in which the primary significance of the word Geschäft is perceptible, since Geschäft is derived from schaffen (creation)” (Rathenau, 1921).

-          Second, we suggest that this new conceptualization of management as a creative function called for a revision of the institutional frameworks and governance of the corporation: Rathenau was one of the pioneers of the movement of  “Unternehmen an sich”, calling for an autonomous law for modern enterprise.

Together with other authors (e.g. (Fayol, 1916) (Berle et Means, 1932)), Rathenau’s analysis is worth reappraising, as the governance for innovation is probably more critical today than ever before.