The role of procedural justice for global strategy and subsidiary initiatives

• Author: Christian Geisler Asmussen,Phillip C. Nell,Nicolai J. Foss
• Date: 01 November 2019
• DOI: http://doi.org/10.1002/gsj.1341
• Published date: 01 November 2019

RESEARCH ARTICLE

The role of procedural justice for global strategy

and subsidiary initiatives

Christian Geisler Asmussen

1,2

| Nicolai J. Foss

3

| Phillip C. Nell

4,2

1

King’s Business School, King’s College

London, London, UK

2

Department of Strategy and Innovation,

Copenhagen Business School,

Frederiksberg, Denmark

3

iCRIOS--Department of Management and

Technology, Bocconi University, Milano,

Italy

4

Institute for International Business, WU

Vienna (Vienna University of Economics

and Business), Vienna, Austria

Correspondence

Nicolai J. Foss, iCRIOS--Department of

Management and Technology, Bocconi

University, Via G Roentgen, 1, 20136

Milano, Italy.

Email: nicolai.foss@unibocconi.it

Abstract

Research Summary:The global strategy literature high-

lights the role of headquarters (HQ) in realizing global

integration benefits while enabling independent subsidiary

strategic initiatives. We construct a game-theoretic model

of the interaction between HQ and subsidiaries, and,

building on procedural justice theory, we analyze the

motivational costs that can result from the anticipation or

realization of HQ intervention in subsidiary initiatives. We

also analyze the implications for MNC-level value crea-

tion when HQ managers, fearing subsidiary managers’

emotion-based reactions, refrain from intervening. We

derive a number of counter-intuitive results, for example,

that good HQ behavior may involve forgoing opportuni-

ties for value creation, and that procedural justice systems

may sometimes be counterproductive.

Managerial Summary:Headquarters (HQ) in multina-

tional corporations are required to balance global integra-

tion and local autonomy within the organization. This

balancing act sometimes requires HQ to intervene in sub-

sidiary matters and to overrule the subunits’decisions.

While an intervention might create integration advantages,

it may also have a negative impact on the motivation of

subsidiary managers, who might feel that their effort and

their decisions are overruled. We focus on such motiva-

tional issues and investigate how fair decision-making

processes applied by the HQ influence subsidiaries’entre-

preneurial behavior and their reactions to the overruling.

Our findings show that, under specific conditions, HQ

need to forgo value-creating interventions, and that a

Received: 6 July 2017 Revised: 24 November 2018 Accepted: 22 February 2019

DOI: 10.1002/gsj.1341

Global Strategy Journal. 2019;9:527–554. wileyonlinelibrary.com/journal/gsj © 2019 Strategic Management Society 527

strong focus on a procedural justice culture within the firm

can be detrimental.

KEYWORDS

headquarters, subsidiaries, procedural justice, motivation, initiatives

1|INTRODUCTION

An important theme in global strategy is the role of subsidiaries’strategic initiatives (Ambos,

Andersson, & Birkinshaw, 2010; Birkinshaw & Hood, 1998). Such “entrepreneurial proactive behav-

ior in organizational subunits”(Strutzenberger & Ambos, 2014, p. 314) may include developing a

new product or process and may contribute to corporate renewal and competitive advantage

(Birkinshaw, 1997; Verbeke, Chrisman, & Yuan, 2007). Subsidiary initiatives thrive when subsidi-

aries benefit from autonomy (Birkinshaw, 1997). However, given its mandate to leverage interna-

tional diversity (Doz, Santos, & Williamson, 2001; Ghoshal, 1987) and to generate global integration

benefits (Nohria & Ghoshal, 1994; Rugman & Verbeke, 2001), headquarters (HQ)

1

may sometimes

overrule subsidiary-level decision-making to fully leverage the global strategic potential of the local

initiative (Birkinshaw, Hood, & Jonsson, 1998; Strutzenberger & Ambos, 2014)—which we refer to

as “HQ interventions”(Foss, Foss, & Nell, 2012; Williamson, 1996). Furthermore, while such inter-

ventions often seem valuable from a global strategy perspective, they also destroy value if entrepre-

neurially active subsidiary managers perceive the intervention as undue meddling, which may reduce

subsidiary motivation (e.g., Foss et al., 2012; Mudambi, 2011). HQ therefore needs to adopt an

approach to manage subsidiary initiatives that takes subsidiary motivation into account (Decreton,

Nell, & Stea, 2018). However, the current literature on subsidiary initiatives does not go sufficiently

far here.

A case in point is the use of procedural justice in dealing with subsidiaries (cf. Johnson,

Korsgaard, & Sapienza, 2002; Kim & Mauborgne, 1991, 1993; Luo, 2008). Procedural justice refers

to the fairness of procedures that govern decisions in organizations as perceived by those that are

affected by the decision (Kim & Mauborgne, 1991). Procedural justice may alleviate subsidiary moti-

vation problems, while allowing HQ to intervene and to realize global integration benefits (Kim &

Mauborgne, 1991, 1995, 1996; Korsgaard, Sapienza, & Schweiger, 2002). However, our understand-

ing of the costs and benefits of procedural justice in MNCs is still highly incomplete. For example,

complex and turbulent environments might make fair processes prohibitively costly, as they become

very lengthy (Ellis, Reus, & Lamon, 2009), and there is little insight into the effect of varying levels

of normative procedural justice expectations that subsidiary managers might have. Relatedly, we do

not know much about the contingencies that shape initiative management and procedural justice. Is

procedural justice equally valuable for MNCs that operate in a diverse set of host countries as for

MNCs that operate in countries that are similar to each other? How does the importance of the sub-

sidiary, or the attractiveness of the initiative project, influence intervention dynamics?

Accordingly, the purpose of this article is to develop a precise understanding of the challenges of

managing MNC subsidiaries in a procedurally just way, taking into account contingencies like the

importance of the subsidiary and country diversity, as well as the dynamics between the HQ and sub-

sidiaries. To handle this complexity, we build a game-theoretical model of HQ intervention during

the subsidiary initiative process. We define an intervention as a decision by HQ to overrule the

528 ASMUSSEN ET AL.