Abstract
In this paper, we articulate the meaning of understanding the firm as nexus of promises, showing how the tendency towards null contracts in a world of increasing complexity makes promises central to governing the firm. Based on the specific case of the promise to increase return on equity in the publicly listed firm, we work out the structural determinants of the hierarchy of promises where the interests of employees and shareholders are contradictory, developing propositions about the relationship between the organization and composition of employees, on the one hand, and the organization and composition of shareholders on the other, and the propensity of firms to make promises. In the concluding discussion, we move beyond a structural explanation to explore how executives choose to ally with employees or shareholders, drawing on a discussion of the recent history of the financial services industry.