The Roles of Subsidiary Boards in Multinational Enterprises

Abstract

Available online xxxxIn recent years, shareholders, regulators, and academics have become increasingly interested in how multinational enterprises (MNEs) can ensure sound corporate governance throughout all entities within a firm. One important mechanism available to MNEs for improving their global governance is the subsidiary board of directors. However, to date scant academic research has focused on the roles of subsidiary boards and the factors that influence their involvement in different roles. Using survey data from a sample of MNE subsidiaries operating in Belgium with headquarters in 14 different countries, we find that a subsidiary board performs four roles: control, strategy, coordination, and service. Further, a subsidiary board is more involved in control, strategy, and service roles if the subsidiary operates only in the local market, independently from the headquarters (the local implementer subsidiary). In particular, the board of the local implementer subsidiary is more involved in strategy and coordination roles when more directors are headquarters country nationals. Our findings collectively suggest that the subsidiary board facilitates a subsidiary's pursuit of its strategic objective and helps to manage the headquarters-subsidiary agency problem. Moreover, subsidiary directors' characteristics influence the subsidiary board's ability to perform its roles.

Management control in multinational companies: a systematic literature review

“…Expatriate managers hold also positions on the management board with extensive control and coordination responsibilities (Du et al 2015). Hence, expatriates perform output and process control tasks besides social control.…”

“…Similarly to expatriates, the board of subsidiary directors assumes a predominantly coordinating role by transferring information between headquarters and a subsidiary. Moreover, it participates in the strategy formulation, monitoring and performance evaluation (Du et al 2015).…”

“…Also, growing staff numbers raise the influence of headquarters on personnel management (Taylor 1999). In larger subsidiaries the board of directors engage more in coordinating activities to align them with corporate goals (Du et al 2015). However, Richards (2000) did not find significant effects on overall control.…”

“…The influence of headquarters on subsidiary decisions is higher in case of wholly-owned subsidiaries than of joint ventures (Yu et al 2006). In partly-owned subsidiaries, the board of directors is deeply involved in strategy development to safeguard corporate goals (Du et al 2015). With green-field operations, reporting structures can be implemented from scratch according to their respective requirements (Moilanen 2007), whereas with acquisitions a higher effort is needed to integrate the subsidiary into the MNC (Andersson and Forsgren 1996;Moilanen 2007).…”

“…Unsurprisingly, MNCs concede more autonomy to experienced managers (Du et al 2015;Moilanen 2008;Mongiello and Harris 2006). CEOs with longer tenure are controlled less by the subsidiary's board of directors (Du et al 2015). Managerial commitment seems to facilitate the implementation of corporate culture (Lowe et al 2000).…”