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Chapter 4
Corporate governance in an MNC is
 generally composed of two tiers:

Parent-Level Corporate Governance


Subsidiary-Level Corporate
 Governance
How the parent
company’s right power
and responsibilities are
divided and monitored.
Foreign subsidiaries that
have their own board of
directors deals with their
shareholders and other
local stakeholder while
simultaneously answering
to and integrating with the
parent 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.
Parent board   Subsidiary board

1st tier                                             Second-tier
corporate                                            corporate
governance                                           governance
(parent level)                                       ( subsidiary level)



                 Parent           Subsidiary
                 management       management
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.

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Corporate governance at multilevels

  • 2. Corporate governance in an MNC is generally composed of two tiers: Parent-Level Corporate Governance Subsidiary-Level Corporate Governance
  • 3. How the parent company’s right power and responsibilities are divided and monitored.
  • 4. Foreign subsidiaries that have their own board of directors deals with their shareholders and other local stakeholder while simultaneously answering to and integrating with the parent firm.
  • 5. 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 .
  • 6. 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.
  • 7. Parent board Subsidiary board 1st tier Second-tier corporate corporate governance governance (parent level) ( subsidiary level) Parent Subsidiary management management
  • 8. The above section explain the corporate governance link between parent firm and foreign subsidiaries.
  • 9. 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.
  • 10. 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.
  • 11. 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.
  • 12. 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.
  • 13.  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.
  • 14. 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.
  • 15. 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.
  • 16. 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.
  • 17. 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.
  • 18. 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.