Governance and Regulation of New Economy Companies: The Role of Human Capital.

Abstract

There has been much publicity surrounding “new economy” companies, a term embracing “dot.com”, “high-tech” and “innovative high growth” companies, amongst others. Whilst such generic terminology serves to obscure the very real differences between such companies, they are generally thought to be an important factor in economic growth despite fears as to their volatility. In economic terms such companies potentially present a number of difficulties relating to judgement problems, information asymmetry, asset specificity, imperfectly competitive markets and measurement. Such distinguishing features give rise to a high probability of market failure and may be argued to have played a significant role in the “dot.com crash”. In particular, it is thought that the role played by human capital and the associated problem of human asset specificity, poses special problems. Such difficulties may provide a justification for state intervention to regulate such companies and, in particular, their governance. This paper evaluates the the legal and regulatory framework for the governance of human capital in new economy companies by reference to the competing or complementary regulatory goals of efficiency, good governance, innovation and human capital. It further illustrates the practical effect of this framework by means of a survey of prospectuses of a sample of 50 companies listed on the Techmark index selected from three relevant groupings of sectors, which included health related, computer hardware, telecommunications and computing services companies, and related annual reports and accounts. It concludes by identifying examples of inappropriate regulation and making proposals for reform.