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. REFERENCES Barlett, C.A. 1982. Multinational organization: Where to after the structural stages? Working Paper HBS-82-60, Harvard University, Graduate School of Business Administration, Cambridge. Doz, I.L., Bartlett, C.A., and Prahalad, C.K. 1981. Global competitive pressures and host country demands: Managing tensions in MNCs. California Management Review, 23(3):63-71. Grieco, J.M. 1982. Between dependency and autonomy: India's experience with the international computer industry. International Organization, 36(3):6O9-632. Harrigan, K.R. 1985. Strategies for Joint ventures. Lexington, MA: D.C. Heath and Company. Hedlund, G. 1980. The role of foreign subsidiaries in strategic decision making in Swedish multinational corporations. Journal of Strategic Management, 1:23-36. Lawrence, P.R. and Lsrsch, J.W. 1967. Organization and Environment. Boston, MA: Harvard Business School, Division of Research. Leksell, L. and Lindgren, U. 1982. The board of directors in foreign subsidiaries. Journal of International Business Studies. Spring/Summer, 27-38. Mak, J.H. 1982. Subsidiary boards in transition. Unpublished draft report. International Management Institute, Geneva, Switzerland. Negandhi, A.R. and Baliga, B.R. 1979. Quest for survival and growth: A comparative study of American, European and Japanese multinationals. New Yprk: Praeger. Negandhi, A.R. and Baliga, B.R. 1981. Tables are turning: German and Japanese multinationals in the United States. Cambridge, MA: Oelgeschlager, Gunn & Hain Publishers. Prahalad, C.K. 1976. Strategic choices in diversified MNCs. Harvard Business Review, 54(10:67-78. Stopford, J.M. and Wells, L.T., Jr. 1972. Managing the multinational enterprise. New York: Basic Books. 96
Disarmament: The Human Factor: Proceedings of a Colloquium on the Societal Context for Disarmament, Sponsored by Unitar and Planetary Citizens and Held at the United Nations, New York