Creating Strategic Windows:

The Increasing Role of Subsidiary Boards in Japanese, European, and

North American MNCs
Mark P. Kriger, Northeastern University
ABSTRACT
Little research has been done to date on the role of
subsidiary boards in MNCs. A two-phase survey
research design yielded responses from 89 subsidiaries
in 36 MNCs based in Europe, North America, and Japan.
Results indicate an increasingly active use of these
boards in advisory, environmental sensing, and
strategic roles.
INTRODUCTION
In the last several years the use of subsidiary boards
of directors in multinational corporations has become
increasingly active. A number of forces of change
have been occurring: ( D a marked increase in the
number of joint ventures and consortia between MNCs
whose parent corporations are based in the three
primary regions of North America, Europe, and Japan
(Harrigan, 1985); (2) the need for multinationals to
understand more closely the local political, economic,
and social forces in host countries; and (3) the
increasing trend of making boards of directors
responsible for corporate crises.
this paper reports on the forces behind the changing
roles of these boards and the advantages and disad-
vantages of having active subsidiary boards. It also
raises some larger philosophical issues about how
multinationals are to govern far-flung and complex
relationships in host countries where the representa-
tion of local issues is being voiced with greater
concern by host country governments and interest
groups.
tions and their environments, fbne of the preceding
studies, however, examine the role of subsidiary
boards as intermediaries between host country pres-
sures and international MNC strategic pressures.
Leksell and Undgren (1982) exanine the role of sub-
sidiary boards (SBs) of directors in wholly and partly
owned foreign subsidiaries of Swedish MNCs. Their
findings are highly suggestive, but are limited to a
Semple of six Swedish MNCs with approximately four
affiliates from each.
Indeed, until recently, most references to subsidiary
boards have often included descriptions such as
"dunmy board" or "captive board," conjuring up the
image of an artificial governance body which has been
mainly kept in existence to comply with local laws and
regulations. As a result, there has been very little
available literature on the subject. Mak (1982),
Leksell and Lindgren (1982), and Hedlund (1980) are
the only recently published works known to the author.
Lately, the question of whether subsidiary boards of
directors are underutilized resources has begun to
surface. The topic has recently sparked interest
within foruns which specialize in the study of
board-related issues. The Conference Board in the
Uhited States, PRO NED (Promotion of Nan-Executive
Directors) in England, and The International
Management Institute in Switzerland have been some of
the more active forums. Why this interest? Could
there, after all, be more to subsidiary boards than
meet the eye? Our answer is an emphatic YES! , based
upon interviews with executives and directors and on a
survey of 210 multinational corporations.
SUBSIDIARY BOARD PROJECT
PREVIOUS AND RELATED RESEARCH
A number of organizational researchers have portrayed
the existence of multiple tensions within multi-
national corporations (MNCs), i.e., corporations with
parent company headquarters in one country and sub-
stantial sales in foreign subsidiaries. Dsz, et al.
(1981) report on the constraints which exist in MNCs
between host country demands and global competitive
pressures for integrated strategies. Bartlett (1982)
exanines the quest for the ideal structural fit for
companies engaged in a strategy of internationaliza-
tion and notes the existence of two simultaneous
demands: (1) the demand for greater national respon-
siveness, and (2) the pressure for more integrated
operations and centrally controlled decisions result-
ing from the strategic imperative of increased global
efficiency.
The preceding authors, as well as Grieco (1982),
Prahalad (1976), and Stopford and Wells (1972), all
add international dimensions to the dual but con-
tingent demands for differentiation of local sub-units
and integration of those sub-units noted in the
Lawrence and Lorsch (1967) classic study of organiza-
In the spring of 1984, a survey was designed by the
author in conjunction with Patrick J.J. Rich, the CEO
and Chairman of Alcan Aluninum (Europe) and distribut-
ed by Harvard Business Review to the CEOs of 210 MNCs.
The purpose of this survey was to examine in detail
three broad questions:
1. Is the role of board of directors in subsidaries
of multinational corporations changing, and if so,
in what way?
2. What are the forces behind such changes in role?
3. What are the characteristics of an active and
useful subsidiary board?
A subsidiary will be defined as an incorporated legal
entity in which the parent corporation owns a con-
trolling interest, possessing legal liability dis-
tinct from the parent. An effective controlling
interest by the parent may occur, in some instances,
with less than 50? ownership if the remaining
ownership is either widely held or shared by a nunber
of owners unlikely to vote as a block.
92
It w a s h y p o t h e s i z e d t h a t t h e r e w e r e v a r i a t i o n s in t h e
a c t i v e u s e o f s u b s i d i a r y b o a r d s d e p e n d i n g u p o n a n u m -
b e r o f f a c t o r s i n c l u d i n g : t h e c o u n t r y o f t h e p a r e n t
c o m p a n y o f t h e s u b s i d i a r y ; t h e t y p e o f i n d u s t r y ; t h e
l o c a l l e g a l , e c o n o m i c , s o c i a l a n d m a r k e t c o n d i t i o n s o f
the h o s t c o u n t r y o f t h e s u b s i d i a r y ; a n d t h e p e r s o n a l
m a n a g e m e n t s t y l e s o f t h e C E O s r e s p e c t i v e l y o f t h e
p a r e n t and s u b s i d i a r y c c m p a n i e s .
As a r e s u l t , a c o m p r e h e n s i v e s u r v e y w a s d e s i g n e d w h i c h
asked a r a n g e o f q u e s t i o n s ( 1 7 0 in t o t a l ) a b o u t s u b -
s i d i a r y b o a r d s ( S B s ) . I h i s " h e a d q u a r t e r " o r " p a r e n t "
s u r v e y w a s t h e n m a i l e d t o t h e C E O s o f 2 1 0 M N C s l o c a t e d
in N o r t h A n e r i c a , J a p a n , a n d E u r o p e . In a d d i t i o n t o
the p a r e n t s u r v e y w e i n c l u d e d t h r e e s u r v e y s t o b e
m a i l e d o n t o t h e C E O s o f t h r e e r e p r e s e n t a t i v e s u b s i -
d i a r i e s . T h i s s u r v e y f o r t h e s u b s i d i a r y w a s n e a r l y
i d e n t i c a l t o t h e p a r e n t s u r v e y e x c e p t t h a t s o m e
q u e s t i o n s f o c u s e d o n l y o n t h e p a r t i c u l a r s u b s i d i a r y
and n o t o n t h e M N C a s a w h o l e .
In a l l , 3 6 p a r e n t c o m p a n i e s a n d 89 f o r e i g n s u b s i -
d i a r i e s in 3 0 c o u n t r i e s r e s p o n d e d w i t h c o m p l e t e d
s u r v e y s . A n o t h e r 5 0 p a r e n t c o m p a n i e s r e s p o n d e d w i t h
l e t t e r s o f r e g r e t o r d e t a i l e d r e s p o n s e s w h i c h t h e y
felt a s u r v e y w o u l d n o t e a s i l y c a p t u r e . A l l o f t h e
HNCs a r e w i t h i n t h e t o p 2 5 0 i n s a l e s o n t h e F o r t u n e
" 5 0 0 " l i s t i n g s for U . S . and F o r e i g n I n d u s t r i a l
C o r p o r a t i o n s in 1 9 8 3 . T h e i n i t i a l s a m p l e o f 2 1 0
c o m p a n i e s w a s c o n s t r u c t e d t o c o m p r i s e H N C s w i t h t o t a l
r e v e n u e s l a r g e r t h a n $ 1 b i l l i o n , f o r e i g n r e v e n u e s
g r e a t e r t h a n 2 5 ? o f t h e t o t a l , a n d w i t h s u b s i d i a r i e s
in at l e a s t h a l f a d o z e n d i f f e r e n t c o u n t r i e s ( s e e
Table 1 ) .
T A B L E 1
O v e r v i e w o f t h e C o m p a n i e s in t h e S u r v e y
P a r e n t C o m p a n i e s
Number o f e m p l o y e e s
1983 t o t a l r e v e n u e s
T o t a l n u m b e r o f
s u b s i d i a r i e s
R e s u l t s o f t h e S u r v e y
L o w H i g h M e d i a n
8 , 0 0 0 3 7 0 , 0 0 0 1(0,000
$1 $ 3 5 $ K . 1
b i l l i o n b i l l i o n b i l l i o n
1(00 63
A n u m b e r o f H N C s p o i n t e d t o p r o l o n g e d e x p e r i e n c e w i t h
a c t i v e s u b s i d i a r y b o a r d s . T h e s e M N C s l o o k a t t h e i r
e f f o r t s t o i m p r o v e t h e q u a l i t y a n d s c o p e o f a c t i v i t i e s
of t h e i r s u b s i d i a r y b o a r d s a s a w o r t h w h i l e i n v e s t m e n t .
The s u r v e y i n d i c a t e s t h a t t h i s u t i l i t a r i a n p o i n t o f
v i e w , t h e v a l u i n g o f a c t i v e s u b s i d i a r y b o a r d s , i s
s p r e a d i n g , b u t at d i f f e r e n t r a t e s d e p e n d i n g o n w h e t h e r
the p a r e n t c o r p o r a t i o n i s h e a d q u a r t e r e d in E u r o p e ,
North A n e r i c a o r J a p a n a n d t h e l o c a l s i t u a t i o n f a c i n g
the s u b s i d i a r y . L e t u s t a k e a c l o s e r l o o k f i r s t a t
s o m e o f t h e q u a l i t a t i v e r e s p o n s e s .
The e x e c u t i v e s a n d c h a i r m e n o f t h e M N C s r e c e i v i n g t h e
p a r e n t c o m p a n y s u r v e y w e r e a s k e d t o r e s p o n d t o t h e
q u e s t i o n : " W h a t d o y o u s e e a s t h e a d v a n t a g e s o r d i s -
a d v a n t a g e s o f h a v i n g a s u b s i d i a r y w i t h a n a c t i v e
b o a r d ? "
The e x e c u t i v e v i c e p r e s i d e n t o f o n e J a p a n e s e m u l t i -
n a t i o n a l in c o n s u n e r e l e c t r o n i c s r e p l i e d ,
"We t h i n k , it i s t o o u r a d v a n t a g e t o h a v e an a c t i v e
board in o u r s u b s i d i a r y , b e c a u s e o f t h e f o l l o w i n g :
1 . An a c t i v a t e d b o a r d c a n g i v e m o r e c o n c r e t e i n s t r u c -
t i o n s t o o f f i c e r s c o n c e r n i n g b o t h r e s p o n s i b i l i t y
a n d m a n a g e m e n t .
2 . A m e m b e r o f a b o a r d , w h o o b t a i n s a f a i r k n o w l e d g e
o f t h e p r e s e n t s i t u a t i o n o f t h e c o m p a n y , c a n
p e r f o r m t h e f u n c t i o n o f a s i n c e r e a d v i s i n g a g e n t .
3 . A n a c t i v a t e d b o a r d c a n e n c o u r a g e o f f i c e r s t o h a v e
a g r e a t e r i n t e r e s t ( i n t h e c o r p o r a t i o n ) a n d a
s t r o n g s e n s e o f r e s p o n s i b i l i t y . "
In a s i m i l a r v e i n , t h e e x e c u t i v e v i c e p r e s i d e n t o f a
S w e d i s h M N C in t h e h e a v y m a n u f a c t u r i n g o f i n d u s t r i a l
a n d c o n s u n e r p r o d u c t s r e s p o n d e d t h a t a n a c t i v e s u b -
s i d i a r y b o a r d c o u l d :
1 . " P r e s e n t a n i n d e p e n d e n t v i e w o n h o w t h e s u b s i -
d i a r y ' s b u s i n e s s s h o u l d b e c o n d u c t e d w i t h t h e g o a l
o f m a k i n g t h e s u b s i d i a r y b o t h a b u s i n e s s s u c c e s s
a n d a g o o d c o r p o r a t e c i t i z e n in i t s h o s t n a t i o n .
2 . C o u n s e l t h e s u b s i d i a r y ' s m a n a g e m e n t o n i t s r e l a -
t i o n s w i t h p e r s o n n e l , f i n a n c i a l i n s t i t u t i o n s ,
g o v e r r m e n t a l b o d i e s , a n d t h e p u b l i c .
3 . P e r i o d i c a l l y a p p r a i s e t h e p e r f o n n a n c e o f t h e s u b -
s i d i a r y ' s m a n a g e m e n t , p r i m a r i l y t h r o u g h r e v i e w o f
i t s f i n a n c i a l r e p o r t s .
H . C o u n s e l t h e c o m p a n y r e g a r d i n g l o c a l c o m p e n s a t i o n
s t a n d a r d s . "
T r e n d s i n S B R o l e s
T h e s u r v e y i n d i c a t e s a n u n b e r o f t r e n d s a s r e g a r d s
b o a r d r o l e s o f i n t e r e s t t o m a n a g e r s o f s u b s i d i a r i e s
a n d p a r e n t c o m p a n y m u l t i n a t i o n a l s . C o m p a n i e s p a r t i c i -
p a t i n g in t h e s u r v e y w e r e a s k e d t o r a t e t h e i m p o r t a n c e
o f s u b s i d i a r y b o a r d r o l e s f o r t h r e e t i m e p e r i o d s ( t h e
p a s t 5 - 1 0 y e a r s , t h e p r e s e n t , a n d t h e n e x t 5 - 1 0 y e a r s
u s i n g a L i k e r t s c a l e r a n g i n g f r o m 1 = " V e r y L o w " t o
5= " V e r y H i g h " w i t h 3 = " M o d e r a t e I m p o r t a n c e " a n d a " 0 "
r e s p o n s e f o r "lfo I m p o r t a n c e . " T h e 8 9 s u b s i d i a r y
r e s p o n d e n t s r e p o r t a n i n c r e a s i n g a c t i v a t i o n o f t h e
b o a r d r o l e , a s w e m o v e f r o m t h e p a s t t o p r e s e n t t o
f u t u r e ( s e e T a b l e 2 ) . T h e m o s t i m p o r t a n t o f t h e s e
r o l e s a r e :
1 . A d v i s i n g l o c a l m a n a g e m e n t (X = 3 . 3 2 ; X . = 3 . 7 6 ;
P = . O O O ) ; P
2 . E n s u r i n g c o m p l i a n c e w i t h l o c a l l e g a l r e q u i r e m e n t s
( X p = 3 . 3 6 ; 5(j.=3.51; P = . O 1 ) ;
3 . P r o v i d i n g k n o w l e d g e o f l o c a l e c o n o m i c , p o l i t i c a l ,
a n d s o c i a l c o n d i t i o n s (X = 3 . 3 7 ; X ^ = 3 . 6 6 ; P = . O O O ) ;
H . F a c i l i t a t i n g c o n t a c t w i t h l o c a l l e a d e r s a n d i n s t i -
t u t i o n s ( X = 3 . 0 0 ; 5?j.=3.36; P = . O O O ) .
M a r k e d d i f f e r e n c e s a l s o o c c u r w h e n w e l o o k at t h e
l o c a t i o n s o f t h e p a r e n t c o m p a n i e s . J a p a n e s e m u l t i -
n a t i o n a l s w h e n c o m p a r e d t o N o r t h A m e r i c a n and E u r o p e a n
M N C s d i s p l a y s o m e c l e a r d i f f e r e n c e s in t e r m s o f t h e
i m p o r t a n c e o f r o l e s o f s u b s i d i a r y b o a r d s o v e r t i m e .
C o m p a n i e s in t h e s u r v e y w e r e a s k e d , " W h a t i m p o r t a n c e
in M N C s , in g e n e r a l , d o y o u t h i n k t h e r o l e o f t h e
s u b s i d i a r y b o a r d w i l l h a v e in t h e n e x t 5 t o 1 0 y e a r s ? "
S u b s i d i a r i e s o f N o r t h A m e r i c a n ( C a n a d i a n and U . S . )
f i r m s r e s p o n d e d t h a t t h e S B r o l e w i l l b e o f " m o d e r a t e "
i m p o r t a n c e w h e r e a s t h e s u b s i d i a r i e s o f J a p a n e s e M N C s
P a i r e d c o m p a r i s o n s o f d i f f e r e n c e s b e t w e e n m e a n s w e r e
c o m p u t e d v i a t w o - t a i l e d t - t e s t s .
93
TABLE 2
Importance of Subsidiary Board Roles
By Time Period
In the Past/ ^ Present/ In the
Present Future next 5 to past 5 to present Present Future
10 years P= 1981 P= 10 years
A. ADVISING, APPROVING, APPRAISING LOCAL MANAGEMENT
1. Advising local management.
2. Approving budgets and short-term plans of the
subsidiary.
3. Monitoring operating performance and corrective
measures in the subsidiary.
1). Appraising the subsidiary's top management performance
and top officers' compensation.
B. LOCAL COUNTRY CONTACTS AND CONDITIONS
1. Facilitating the establishment of contacts with local
leaders and institutions.
2. Ensuring compliance with local legal requirements.
3. Providing knowledge of local economic, political, and
social conditions.
14. Appraising and minimizing the subsidiary's political
risk.
3.06
2.11
2.52
2.03
(.01)
(.01)
(.05)
3.32
2.66
2.78
2.26
(.000)
(.000)
(.000)
(.000)
3.76
2.97
3.03
2.52
2.87
3.27
3.22
2.1)1 (.01)
3.00
36
37
2.69
(.000)
(.01)
(.000)
(.000)
3.36
3.51
3.66
3.01
C. STRATEGIC PLAN PARTICIPATION
1. Participating in drawing up the subsidiary's strategic
plan.
2.12 (.01) 2.16 (.000)
D. ETHICAL ISSUES
1. Supervising the subsidiary's ethical conduct. 2.70 2.82 (.01) 2.97
^P=The probability that the mean values for past and present, present and future are not
Paired comparisons of differences between means were computed via twD-tailed t-tests.
^X^="Historical," in the past 5 to 10 years; X ="Present" ; X.="Future," in the next 5 to
n * P ^
significantly different.
10 years.
reported that the subsidiary board role will be "high"
in importance in the future: (X,=3.O8; X =3.29;
X,=3.71; F=2.80; P=.O3) .^
J
Examining more closely ten different specific roles we
find that J apanese MNCs see all of the roles as higher
in importance than European and North American MNCs
(see Table 3 ) .
Several roles are particularly salient according to
the J apanese survey participants:
1. Approximating budgets and short-term plans of the
subsidiary (X,=1.07; F=8.31; P=.OO1) ;
J
2. Monitoring operating performance and corrective
measures (X,=3.61; F=3.58; P=.O3) ;
J
3. Participating in drawing up the subsidiary's
strategic plan (X,=3.71; F=8.18; P=.OO1) ;
J
1. Appraising and minimizing the subsidiary's
political risk (X =3.61; F=1.50; P=.O1) .
Previous researchers have found that American sub-
sidiaries enjoy much less autonomy in decision making
Analysis of variance of responses by geographic ori-
gin of parent company was performed to test for sig-
nificant differences among means for (forth America,
European, and J apanese MNCs.
than European or J apanese subsidiaries (Negandhi and
Baliga, 1979; 1981) . This difference in level of
autonomy also extends to the board level. Thus,
J apanese MNCs see active use of these boards as man-
dated by law, as legally responsible, and as important
mechanisms for understanding local country conditions.
In contrast, [forth American MNCs appear to be lagging
the J apanese in the use of these boards as strategic
and operational windows to cope with some of the
multiple uncertainties at local country levels.
European MNCs also lag behind the J apanese in the use
of these boards, but are slightly ahead of the North
Americans. An exception, however, is the Swedish MNCs
who are closer to the J apanese in their use of subsi-
diary boards to understand local situations. This has
been found to be mandated by explicit policy decisions
from the Swedish parent companies. ^
DISCUSSION OF FINDINGS
In many ways the evolution of the role of foreign sub-
sidiary boards is closely tied to the quality of MNC
activities around the world and to host country pre-
occupation with these activities. Below we examine a
few of the significant forces which are at work in
changing the roles and responsibilities of the subsi-
diary board.
TABLE 3
Importance of Subsidiary Board Roles
By Region
F Statistic Level of
A E J
America Europe Japan of Significance
(NrtO) (N=35) (Nrit) Significance P=
A. ADVISING, APPROVING. APPRAISING LOCAL MANAGEMENT
1. Advising local management.
2. Approving budgets and short-term plans of the
subsidiary.
3. tonitoring operating perfonnance and corrective
measures in the subsidiary.
i(. Appraising the subsidiary's top management
performance and top officers' compensation.
5. Deciding the anount to remit as dividends.
B. LOCAL COUNTRY CONTACTS AND CONDITIONS
1. Facilitating the establishment of contacts with
local leaders and institutions.
2. Identifying and responding to concerned stakeholders
(e.g., environmentalists and consumer groups).
2. Ensuring compliance with local legal requirements.
3. Providing knowledge of local economic, political, and
social conditions.
1. Appraising and minimizing the subsidiary's political
risk.
C. STRATEGIC PLAN PARTICIPATION
3.18
2.65
2.60
1.83
2.18
2.JI9
1.63
3.15
3.08
3.18
2.56
2.61
2.33
1.92
2.92
1.31
3.00
3.39
3.69
1.07
3.61
3.29
3.13
2.92
3.00
1.08
3.77
1.70
8.31
3.58
5.03
5.85
1.16
9.91
2.51
1.69
.001
.03
.009
.001
.0001
.09
2.53 2.31 3.61
1.50 . 01
1. Part i ci pat i ng in drawing up the subsi di ar y' s s t r at egi c 2.20
plan.
D. ETHICAL ISSUES
1. Supervising the s ubs i di ar y' s et hi cal conduct.
2.65
2.25
2.72
3.71
3.57
8.18
2.13
.001
P=the probability that the observed means are not significantly different.
Director Liability and Ethics
A number of recent "corporate debacles" (e.g., Lock-
heed in Japan; Hitachi in the United States) in the
area of corporate ethics have vividly brought the
point home that executive expediency or a misguided
sense of priorities can sometimes overwhelm the sense
of ethics of a management group. It is essential that
support for ethical conduct be given to subsidiary
executives in the field. A subsidiary board, which is
mandated to ensure that ethical considerations are
fully taken into account, can be of immeasurable help.
As a consequence, as MNCs look at decisions to
rationalize their international system and consider
comparative economics they are closing down manufac-
turing facilities in one country and shifting produc-
tion to more efficient subsidiaries from an overall
system point of view. The presence of a strong subsi-
diary board which can discuss such policy decisions
with the parent company can help to bring about alter-
natives which are more sensitive to host country needs
and strike a workable compromise.
Stakeholder Interests
In addition, increasingly diverse groups are claiming
an interest in influencing the decision.-making pro-
cesses of MNCs because their decisions affect them in'
one way or another. As a result, consuner protection
groups, environmentalists, and public interest groups
all addressing themselves to a multitude of specializ-
ed issues and political activists (e.g., objecting to
the apartheid policies of South Africa) have increas-
ingly emerged. They are putting challenges at the
doorsteps of subsidiary and parent company boards
alike. Responsiveness to legitimate claims, informa-
tion and education, and policy statements to correct
misrepresentations all require close coordination of
effort between the parent company and subsidiaries.
For example, while an MNC might be attacked by anti-
apartheid groups in North America, it might be the
representatives on the South African subsidiary board
who have to make sure that more enlightened personnel
policies are pursued.
Consistent with this is the finding in our survey that
"director's liability" is rated by subsidiary's of
Japanese MNCs to be an important reason behind changes
in the role of subsidiary boards (X =1.87, 5Cp=2.22;
!fj = 3.50; F=1.58; P=.OOO1). In addition, "local legal
and regulatory pressures" are rated by all subsidaries
sampled to be moderately high to high in importance as
factors behind subsidiary board activation (!(, = 3.51;
3(p.=3.5O; X =3.77). Increasingly, subsidiary directors
are viewed as an additional means to understand and
stay on top of local host country situations.
Changing Economic Conditions
In the 198O's, many countries are experiencing slower
economic growth rates which are being accompanied by
painful structural adjustments in their less competi-
tive industrial sectors. Conversely, some countries
95
are outperforming the average, creating industrial
opportunities. This diversity of national development
scenarios is having a series of impacts on subsidiar.-
ies, their boards, and their relations with the parent
company. As a result, two other factors emerge as
reasons for cnanges in subsidiary board roles:
1. Parent corporations (particularly in Europe and
Japan) increasingly are recognizing that_change
might be beneficial to the corporation (X^=3.11;
X^::3.33; X, = 3.71; F=2.H2; P=.O2);
2. Explicit policy decisions by the parent company to
activate the board (X =2.87; Xg=3.3t; Xj=3.57;
F=1.65; P=nonsignificant).
Subsidiaries and their boards operating in a vulnera-
ble industry or a particularly sluggish economic
environment are having to be particularly vigilant
with regard to their company's performance and the
actions required to improve at a time when a parent
company night be unable to provide financial assist-
ance in case of trouble. In such a situation, the
directors of a sutosidiary often discover the meaning
of "director's responsibility," together with the need
to have the authority required to discharge that
responsibility.
Local Laws and Regulations
Many of the forces described above have either found
or will find their formal expression in laws, regula-
tions, and company codes of conduct. Below are a few
examples:
1. OECD voluntary guidelines for MNCs in Europe
stress the need for MNCs to give "due consider-
ation to those (member) countries' aims and
priorities with regards to economic and social
progress." The guidelines also deal with dis-
closure of information, competition, financing,
taxation, employment and industrial relations.
2. Legislation in many countries increasingly addres-
ses the issue of the structure and composition of
boards of directors and apply "ipso facto" to
local subsidiaries of an MNC (e.g., workers'
representation on boards in Scandinavian countries
and the German two-tier board with workers' repre-
sentation on the supervisory board).
3. The extent of directors' liability in the United
States, which is in practice much greater than
anywhere else, is having an increasing impact on
the composition of boards of directors of foreign
subsidiaries in the Uhited States.
CONCLUSION
The forces described above are eliciting a corporate
response to deal with a multitude of challenges posed
to the governance systems of MNCs. The proactive use
of subsidiary boards is a mechanism for both coping
with local legal and political pressures and for in-
creasing the access to information about local econo-
mic developments. Much depends upon the internal
processes of these boards and their ongoing relation-
ships with local governments. If managed properly,
the relationship between subsidiary and host govern-
ment can become a "plus" for both sides.
Thus, we find two major sets of forces at work in the
activation of SBs:
1. Strategic considerations of trying to understand
local host country changes as early as possible
and, in the process, not overlooking channels for
early learning of those changes, i.e., "strategic
windows."
2. Ftiilosophical considerations that the subsidiary
board of directors of a foreign MNC should include
the representation of key, locally prominent,
people to help create "windows of understanding"
between host countries and foreign subsidiaries.
Only selective MNCs are currently structured to take
advantage of these considerations. Furthermore, many
CEOs of subsidiaries and parent companies do not feel
"comfortable" with active subsidiary boards, ftowever,
the proactive use of subsidiary boards is increasing,
requiring in those instances an enlightened sensitivi-
ty to the balancing of global and regional strategies,
operating styles, and governance bodies.
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