How to Combine a Group Strategy with Subsidiary Governance?

Abstract

The traditional policy of most multinational corporations (MNC) with respect to their subsidiary boards was or even still is to reduce these boards through composition, information and superseding these through an integrated management system to the bare local legal requirements and not having these play a role in the control of the firm. As far subsidiary boards play a role in the control it is for ownership control, not for (value creating) coordination control. Although this policy appears to be reinforced by requirements induced by the international finance market to the governance of firms, especially the requirement to be in-control, and by NGOs with respect to social accountability, two other opposing forces can be identified. First is that immobile local sources and the emancipation of host country’s political and economic system increase the power of subsidiary boards. Second is that the changing strategies of MNCs, new operating models, mobility of people as resources and the declining costs of information, force MNC to switch from resource allocation and its corresponding type of control to resource mobilization. Thus creating up the need to include the boards of subsidiaries in the process of coordination control, not just ownership control. This will MNCs make to reconsider the tasks, roles, composition and the powers of their subsidiary boards.