The increasing role of subsidiary boards in MNCs: An empirical study

Abstract

c Little research has been done to date on the role of subsidiary boards (SBs) in MNCs. A two-phase survey research design has yielded responses from 90 subsidiaries in 36 MNCs based in Europe, North America, and Japan. The sample provides evidence that: (1) SBs are perceived to be in transition from lesser to greater proactivity, and (2) MNCs with parent headquarters in North America, Europe, and Japan perceive the usefulness of these boardr in different ways. The results indicate an increasingly active use of these boards in selective advisory and strategic roles. Some recommendations are presented for CEOs, chairmen, and subsidiary directors who are interested in designing their SBs to take better advantage of already legally mandated, but often underutilized, structures. SBs are not a panacea for resolving tensions between parents and subsidiaries and for monitoring changes in host country environments; however, they can provide added strategic governance for subsidiaries .

The Roles of Subsidiary Boards in Multinational Enterprises

“…The strategy role is similar to that of boards in stand-alone firms and refers to the board tasks of participating in the formulation of a subsidiary's strategy, identifying its strategic directions, and debating its strategic plan (Alpay et al, 2005;Kiel et al, 2006;Kriger, 1988). The coordination role denotes the board tasks of transferring information and knowledge between headquarters and a foreign subsidiary (Kriger, 1988;Leksell and Lindgren, 1982;Reuer et al, 2014). Finally, the service role of subsidiary boards concerns the board tasks of providing local knowledge to subsidiary management, communicating with local stakeholders, and facilitating access to local resources (Alpay et al, 2005;Kiel et al, 2006;Kriger, 1988;Leksell and Lindgren, 1982).…”

“…The control role refers to the board tasks of monitoring and ratifying important subsidiary-level decisions and evaluating the performance of a foreign subsidiary and its management (Alpay et al, 2005;Jaussaud and Schaaper, 2006;Kiel et al, 2006;Kriger, 1988;Leksell and Lindgren, 1982;Reuer et al, 2014). The strategy role is similar to that of boards in stand-alone firms and refers to the board tasks of participating in the formulation of a subsidiary's strategy, identifying its strategic directions, and debating its strategic plan (Alpay et al, 2005;Kiel et al, 2006;Kriger, 1988). The coordination role denotes the board tasks of transferring information and knowledge between headquarters and a foreign subsidiary (Kriger, 1988;Leksell and Lindgren, 1982;Reuer et al, 2014).…”

“…The subsidiary board can oversee the performance of subsidiary management on behalf of headquarters, review a subsidiary's strategic plans and internal policies, and ensure the sound governance at the subsidiary level (Kriger, 1988;Leksell and Lindgren, 1982). Moreover, the subsidiary board can help to integrate the subsidiary into the MNE, facilitating the subsidiary's access to critical resources and knowledge (Kriger, 1988;Leksell and Lindgren, 1982).…”

Exceptional boards: Environmental experience and positive deviance from institutional norms

“…Fourth, we used the information on director's historical board positions to identify if directors had been members of a board's sub-committee with environmental goals. Dedicated environmental committees not only encourage directors to be extra vigilant (Kassinis & Vafeas, 2002) but sub-committees are also a source of building domain-specific knowledge (Kriger, 1988;Leksell & Lindgren, 1982). Moreover, the influence of individual directors to transfer knowledge may be stronger when directors sit on relevant sub-committees (Shropshire, 2010).…”

Bringing corporate governance to international joint ventures

“…Finally, the fact that international joint ventures are foreign subsidiaries, or are hierarchically related to the parent firms, also potentially changes the functions fulfilled by IJV boards (e.g., Leksell and Lindgren, 1982;Kriger, 1988;Zaheer and Hernandez, 2011). Board members' roles are likely to be shaped by the parent firms' strategies as well as their IJV capabilities and experience in the host country.…”