Corporate governance in an MNC is generally composed of two tiers:Parent-Level Corporate GovernanceSubsidiary-Level Corporate Governance
How the parentcompany’s right powerand responsibilities aredivided and monitored.
Foreign subsidiaries thathave their own board ofdirectors deals with theirshareholders and otherlocal stakeholder whilesimultaneously answeringto and integrating with theparent firm.
1st case: when a subsidiaries is listed on a host country’s stock exchange, then corporate governance structure in this subsidiary is not much different from governance structure in host country corporations traded in local stock exchanges.2nd case: when a subsidiaries is not listed on a local exchange but has its own board to meet a host country’s legal requirement .
3rd case: when a subsidiary board is established to meet a parent firm’s strategic considerations. Subsidiaries boards play an important part in an MNCs global coordination, accountability and governance.
The above section explain the corporate governance link between parent firm and foreign subsidiaries.
Subsidiary strategies are a critical mechanism for dealing with the parent-subsidiary relationship. As a strategic-oriented approach is emerging in lieu of traditional control- centered approach. It plays an increasingly important part in corporate governance design for global operations and management.
An MNC’s corporate strategy for the purpose of global coordination and integration entails three options:Multidomestic Strategy: strategic and operating decision are decentralized to strategic business until in each country in order to tailor products to the local market.
Global Strategy: assumes more standardization of products across country markets. As s result. The competitive strategy is centrally by the home office.Transnational Strategy: corporate strategy that seeks to achieve both global efficiency and local responsiveness.
Managerial Governance and Corporate together comprise total governance or organizational governance. Corporate governance involves governance and control of corporate affairs.Managerial governance includes the system that bring about internal adherence within the corporation to set of strategic goal designed by top management through using corporate power or authority.
1st, the diversity of countries in which the firm operates. 2nd, maintaining the proper global integration-local responsiveness, balance is an ongoing process which requires occasional reassessment.
Breadth of coordination refers to the number of other units with which a subsidiary coordinates.Diversity of coordination (the number of functions coordinated) are both important aspect of the degree to which a subsidiary is integrated into the MNC network.
the formal group contains 4 mechanisms comprising centralization, Formalization, Planning and Behavioral control Formalization: extent to which policies, rules and job description. Planning: refers to systems and processes like strategic planning budgeting, scheduling, and goal setting.
the formal group contains 4 mechanisms comprising centralization, Formalization, Planning and Behavioral control Centralization: extent to which the locus of decision making lies in the higher levels of the chain of command. Behavioral control: based on direct, personal surveillance of individual behavior.
The subtle group includes 3 kinds of managerial mechanisms namely lateral relations. Informal communication and organizational culture. Lateral relations cut across the vertical structure and includes direct contact between managers of different departments that share a problem, task force, team, integrating role.
Informal communication differs from lateral relations in that is not structured around specific tasks.Finally, organizational culture can be developed through a process of socialization of individuals by communicating ways of doing things.