The Roles of Subsidiary Boards in Multinational Enterprises
Du, Y., Deloof, M. and Jorissen, A.
- A subsidiary board is a key internal governance mechanism available to the MNE.
- The extent to which subsidiary boards engage in performing board roles can vary.
- This study investigates the determinants of the roles of subsidiary boards in MNEs.
- A subsidiary board can help to manage the tension in headquarters-subsidiary
relationships by performing various roles.
- Because they are representatives of headquarters in the subsidiary, headquarters
country nationals on the subsidiary board can be expected to help monitor and
ensure the transparency and accountability of the MNE’s actions beyond the
- These directors’ experience and knowledge of headquarters countries may help to
integrate the subsidiary into the MNE group.
- Survey data: sample of 428 MNE subsidiaries operating in Belgium with
headquarters in 14 different countries.
- A subsidiary board is more involved in control, strategy and service roles if the
subsidiary is a local implementer, which operates only in the local market and carries
out specific value-added activities independently from the headquarters.
- Given the difficulties faced by the headquarters in controlling the activities of a local
implementer subsidiary centrally, the subsidiary board becomes a particularly
important mechanism for watching over the actions and strategic decisions of the
- While a local implementer subsidiary is tightly embedded in the local market, the
subsidiary board may span boundaries to bring critical resources to the subsidiary.
- The board of the local implementer subsidiary is more involved in strategy and
coordination roles when more directors are nationals of the headquarters countries.
- Headquarters country nationals on a subsidiary board have the knowledge and
authority to ensure that subsidiary’s strategy is in harmony with the MNE’s goals.
- These directors’ professional ties and experience in headquarters countries facilitate
headquarters-subsidiary information processing and internal coordination within the
2. Literature review and hypothesis development
The roles of boards in stand-alone firms
- Control role: evaluating top management and monitoring managerial behavior in the
interests of shareholders. Mainly explained by agency theory.
- Strategy role: providing advice and counsel on strategic issues of the firm to top
management. Mainly explained by resource dependency theory and agency theory.
- Service role: representing firms’ interests in external communities, providing advice
and counsel on environmental contingencies to top management, and linking firms
to critical resources in the external environment. Mainly explained by resource
dependence theory and resource-based view of the firm.