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How Do National Corporate Governance Systems Influence Global Strategies?


5/25/2005

Ruth Aguilera Ruth V. Aguilera, assistant professor in business administration, and colleague George Yip of the London Business School co-authored an article in the Financial Times about the impact of local constraints on the global strategies of corporations. Published in the special survey section on Mastering Corporate Governance in the May 27th issue, the pair looked at variations in national corporate governance systems and the influence of stakeholders on strategy decisions.

Aguilera and Yip study comparative corporate governance and global strategy decisions across advanced industrial countries with a particular focus on the United States, United Kingdom, Germany, France, Italy, and Japan. They identified five critical stakeholders who most affect a company’s decisions about a global strategy: employees, boards of directors, the top management team, shareholders, and governments, including “supranational governments” such as the European Union.

The role and influence of each of the stakeholders varies from country to country, providing Aguilera and Yip with a host of combinations to study. For example, top management teams in the six countries vary in the functional backgrounds of personnel, their international experience, and patterns of mobility. Having foreign nationals and managers with international experience and open labor markets tends to create teams that push global strategies. Those countries with closed labor markets and stronger ties to government or controlling family interests tend to be less globally focused, mostly due to their preference for keeping control domestically.

Among the pair’s observations based on their data: 

  • Managers, who may think they are in sole charge of their companies but aren’t, need to work on building coalitions and aligning interests behind a common approach to enhancing their companies’ global competitiveness. Managers in the US and UK, Aguilera and Yip say, are “generally in luck” because corporate governance structures support a global competitive advantage. So-called “continental” managers need to build consensus and social cohesion through language and rhetoric. The “extended” system in Japan is has to exploited the culture’s export-oriented model and the high level of innovation made possible by the loyalty of their employees.
  • Governments can do more to sustain global competitiveness by looking at “the degree to which the players in their corporate governance system are aligned with each other and with their intended global strategies.” Aguilera and Yip write that governmental policies should be more inimical to foreign owners who offer much-needed global knowledge. “We think that governments have the responsibility as well as the policy tools to gear the country’s corporate governance system so that it enhances national competitiveness.”

Ruth V. Aguilera holds a PhD and MA in sociology from Harvard University and degrees in economics from the University of Barcelona and business administration from the University of Lancaster. She has a joint appointment with the Institute of Labor and Industrial Relations and teaches courses in multinational management, global strategy, and comparative employment relations systems. Her research interests include comparative corporate governance, corporate social responsibility, cross-border merger and acquisitions, and inter-organization networks.

A professor at the London Business School, George Yip is the lead fellow of the Advance Institute of Management Research. The author of “Total Global Strategy” (Prentice Hall 2003), he is current writing a book on managing global customers.

The Financial Times article is available online to subscribers.

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