Globalizing Institutions

Case Studies in Regulation and Innovation

Jane Jenson, Boaventura de Sousa Santos

• Publisher: Routledge
• Year: 2018
• Print ISBN:
  9781138720749
• eBook ISBN:
  9781351762564
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

This title was first published in 2000: The contributors to this fully documented volume address the debate surrounding the nature, impact and desirability of the complex set of phenomena collectively referred to as 'globalization'. The book breaks new ground by showing globalization in a wide range of areas, including national and transnational corporations, welfare policies, adoption, gendered politics and democratic institutions, citizenship, religion and judicial systems. It is also a truly international volume, including studies from North and South America, Africa and Europe. The book illustrates how globalization entails localization and is best explored through the analysis of institutions. It will be of particular interest to political scientists, sociologists, lawyers and anyone interested in the continual processes of global change.

PART I
GOING GLOBAL: BUSINESS AND TRADE

1	The Hollowing Out of Corporate Canada? HARRY W. ARTHURS^1

The business corporation – seldom used by 19th century business – became the indispensable and characteristic institution of capitalism during the 20th century. In the specific context of globalization, transnational corporations hold sway as objects of admiration and fear, as repositories of vast power and wealth,² and especially as dominant actors in the construction and operation of markets. These corporations claim credit – and are assigned blame – for world-wide flows of trade, investment, technology, products and ideas and for consequential changes in society, culture, politics and the natural environment. Without the transnational corporation, globalization is almost unthinkable.³

The impact of globalization on specific places and populations is very much tied to the particular aspect of corporate activity with which they are associated (Storper 1993). Traditional entrepôts such as Singapore, the degraded maquiladora zones of Mexico, and born-again Welsh manufacturing towns are very different from each other and from the high-skill, high-trust production centres of Emilia-Romagna. Thus, transnational corporations can be viewed as institutions (Robé 1997; Muchlinski 1997) whose governance structures, deliberative processes, business practices and market decisions not only produce the aggregate effects which we call the global economy, but as well the “localized globalisms” (Santos 1995) experienced by particular communities and their populations.

At the same time, transnational corporations are neither immune from these aggregate effects nor immutable in the face of them. New technologies of production, distribution and communication, liberalized trade regimes and deregulation are changing not only how corporations operate but how they are governed. Changes in governance structures, in turn, have particular consequences for “global cities” like London, New York or Tokyo, with their characteristic concentrations of corporate head offices and of the specialized service enterprises which support them (Sassen 1994). Moreover, the growing concentration of corporate power in these global cities has potential implications for other communities quite distant from them, which are experiencing a commensurate “hollowing out” of their corporate cadres. This chapter uses the experience of Canada to explore the possibility that by intensifying concentrations of economic power within and around transnational companies, globalization may directly and indirectly contribute to a “hollowing out” not only of business communities but of cities, regions and countries around the world.

The Changing Governance of Transnational Corporations

Lawyers and economists tend to perceive the corporation as simply “a structure through which production is made to occur,” as a “nexus of contracts,” as a rational economic actor or as a disembodied juridical person pursuing profit under the direction of a single intelligence (Flannigan 1995). By contrast, Galbraith argued decades ago that a corporation is “a large and complex organization [in which] individuals align themselves with its goals in response to diverse motives” (Galbraith 1967:149). His definition enables us to see the corporation as a site of multiple intelligences and competing “rationalities,” of ongoing contestation and tenuous cooperation between holders of debt and equity, between shareholders and other “stakeholders” such as workers, between management and directors, and amongst members of its “technostructure” with differing degrees of influence on the central direction of the company and differing mandates and technical skills (Galbraith 1967). At some level, all these groups and individuals share a commitment to the corporation’s financial success, but they compete for power and influence within corporate structures, and favour corporate strategies which incidentally enhance their own financial prospects, careers or human capital. This insight also surfaces in studies of organizational change (Mastenbroek 1993), industrial innovation (Wiseman and Gomez-Mejia 1998), responsibility for corporate wrong-doing (Lee and Sanders 1996), labour relations (Burawoy 1979; O Connor 1997) and the effects of national culture on transnational management (Jackson 1993; Kustin and Jones 1995).

The ensuing variability and volatility in decision-making poses a special problem for large, transnational corporations. Such corporations usually comprise a congeries of units, each with its own history, mandate and managers. Some of these units may have been designed to deflect regulatory, anti-trust or tax laws; others may have emerged from financial manœuvres such as leveraged buy-outs; and still others may have been defined in terms of product, function or geography. Some may be organized as departments or divisions within the corporation’s “core” organization; others – for various reasons: to facilitate specialization and flexibilization, to enhance accountability and competitiveness, to access particular supplies or penetrate specific markets – may function as subsidiaries. And all of these may be linked in turn to a network of suppliers and distributors, corporate allies, franchisees and licensees, partners and co-venturers, some genuinely autonomous enterprises, others merely the alter ego of the firm itself.

This dispersal and complexification of corporate functions and structures obviously creates a problem of integration and coordination. In a superficial sense, the problem has been addressed by the development of advanced communications technologies which facilitate the movement of information from the corporate periphery to the centre, and of detailed direction from the centre to the periphery. However, technology does not invent or deploy itself. It is adopted because it performs some necessary or desired function; and once adopted, it is likely to bring about significant changes in management strategies and structures.

Thus, the ultimate resolution of the problem of coordination and integration is, indeed, found in the realm of corporate governance. Conventional wisdom once favoured the “control” model: the board and senior executives of the parent company were perceived as the directing intelligence – the technologically-enhanced “brain” of the extended corporate family – making use of defined mandates, hierarchical reporting relationships and performance measures to direct, coordinate and integrate the activities of all core and subsidiary units, as well as those of external organizations such as suppliers, vendors and partners.

By contrast, more recent management theories (Hoffman 1994) argue that technology makes possible – and globalization makes necessary – leaner, less hierarchical, more “hetrarchical” and reflexive organizations in which considerable authority is devolved to units and partners. Adherence of the components to the organization’s overall goals – they contend – is to be achieved by “normative means [transmitted] through corporate culture” (Sölvell and Zander 1995: 26) rather than by explicit commands, as in the “control” model. This more flexible model of management envisages a more “strategic” relationship in which corporate headquarters, widely-dispersed functional service units, subsidiaries, and outside firms are all linked through strategies of “complex integration” (UNCTAD 1994: 139-140).

However, it is not at all clear whether, and to what extent, these new management theories have taken hold. Undoubtedly, flexibilization and globalization did generate a new logic of intra-firm governance. Down to the 1970s and 1980s, most subsidiaries of transnationals – Ford (United Kingdom) or GE (Canada) – were “local implemented” or “miniature replicas” of the transnational itself (Birkinshaw and Morrison 1995). They produced a variety of goods and services, raised capital from local investors, reported to their own boards of directors, supported a significant management cadre responsible for functions ranging from human resources to production to marketing, and often developed their own networks of local subsidiaries and contractors. True, we must be careful not to apply too much gilt to this particular lily: for good reasons “branch plants” acquired a pejorative connotation in host countries such as Canada. “Miniature replica” subsidiaries seldom undertook their own research and development (R&D), produced a full range of product lines, or enjoyed complete financial autonomy. Their presidents and senior officers – individuals of some importance in the host country – were not necessarily influential within the parent firm; their boards – mostly appointees of the parent transnational, the subsidiary’s dominant shareholder – usually had to acquiesce in decisions emanating from the parent board or its proconsul, the president of the subsidiary. Nonetheless, for all their limitations, semi-autonomous “miniature replica” subsidiaries were a powerful presence in the local corporate community and in the host country more generally.

More recently, however, the attraction of “miniature replica” subsidiaries has diminished and their numbers have dwindled. Parent transnationals have rationalized and restructured their operations in order to achieve efficiency gains through a new division of labour, by which subsidiaries each produce a narrow range of products in large numbers for world or regional markets (Morrison, Ricks, and Roth 1991), rather than many products in small numbers for local consumption. In many cases, indeed, subsidiaries were restructured, so that they could function as “specialized contributors” of particular components destined to be incorporated into products made or assembled elsewhere.

By creating narrowly-mandated and “specialized contributor” subsidiaries, transnationals sought greater coherence and more complex integration of local and transnational managerial functions. It could hardly be otherwise. The international division of labour implied its ultimate re-integration. The activities of “specialized contributors” to an integrated product line ultimately had to be closely coordinated with those of the other contributors. Subsidiaries with world or regional product mandates had to live within them, geographically and functionally, so that they would not impinge on the mandates of other units. All parts of a transnational company had to adhere to financial targets and maintain quality standards, in order to avoid threatening the stability and reputation of the rest. For all of these reasons, transnational corporations had to seek greater coherence amongst, and integration of, their constituent units.

The new logic of globalization also required a change in the governance of what were formerly “miniature replica” subsidiaries. These subsidiaries were until fairly recently organized as publicly-held “national” companies whose relative autonomy was emphasized, symbolically and functionally, by the presence of a significant body of local shareholders, local boards of directors, and CEOs with a considerable degree of authority. But as autonomy has increasingly come to be seen as counter-productive, many of these companies have been wound-up and either closed down altogether or reconstituted as private companies wholly-owned by the foreign parent or one of its proxies. And even where economic logic or political expediency has required that the previous formal structure of a particular subsidiary should be preserved, it is likely to operate with reduced autonomy, a smaller, less powerful executive cadre, and a more limited repertoire of managerial and technical functions.

A commensurate change in the managerial culture of transnational corporations seems likely to ensue. In the new dispensation, local managers of subsidiaries must learn to become more responsive to the corporation’s global aspirations, strategies and interests, and less so to those of their particular unit – even if it means putting their own personal interests at risk. This may entail, for example, disclosing to the parent company their special knowledge of local conditions (Holm, Johanson, and Thilenius 1995) – the source of their indispensability as managers – or performing such self-effacing assignments as downsizing or closing their own operations. One might expect that in return the central direction of transnationals would respond more sensitively to local interests, sensibilities and ways of doing business. But the contrary is often true. With few exceptions,⁴ transnational companies remain closely identified with their country of origin. Their global boards of directors continue to be almost entirely composed of appointees from the home country,⁵ and very much attuned to its interests (UNCTAD 1994:146), and management styles from the home country to a surprising degree continue to shape those of foreign subsidiaries (Kustin and Jones 1995).

To recapitulate, changes in manufacturing technology and flexibilization strategies have indeed made possible the rapid adjustment of output to changing markets and new manufacturing techniques, and have facilitated cost-effective spatial and functional divisions of labour, economies of scale and the pursuit of comparative advantage; but they have also narrowed the range of activities conducted in any particular location, and subordinated each to the discipline of a collective bottom line. Changes in communications and information technology may have made possible the wider dispersal of corporate activities; but they have also extended the reach of head office control. Changes in management theory may have revealed the logic of leaner, less hierarchical, more reflexive organizations; but management practice has, in many respects, become more centralized. And the rhetoric of networks, co-ventures, alliances and partnerships has conjured up the possible dawn of a new era of corporate comity and interdependence; but the reality is that flexibilization, enshrined in onerous relational contracts, has made smaller enterprises intensely vulnerable to the variable requirements of larger ones (Macneil 1980: 72 ff; UNCTAD 1994: 138 ff; Schanze 1991; Storper 1992). In short, transnational corporations seem less to have adopted new and open management cultures or more supple, disseminated institutions of governance than to have reinforced the centripetal forces already at work within the old, hierarchical arrangements.

Why does this matter? Perhaps – as the conventional wisdom contends – globalization and flexibilization will enhance the profitability of transnationals, and the prosperity of at least some host communities, managers, workers and suppliers; perhaps some of that profit will drift out to the periphery of the corporation rather than accumulating at the centre. But the restructuring of corporate governance, the increase of power at the centre, is not a neutral fact. The enterprise as a whole may profit; some of its subsidiaries may prosper in the short-to mid-term; but the parent corporation’s directors and executives have assumed tighter control of its subsidiaries with the specific objective of generating “new” corporate behaviours and “improving” corporate results. They are, at least to some extent, people working within different frames of reference, national and local contexts, corporate-cultural environments, and reward structures. Their notion of what is “new” and “improved” will almost certainly differ from that of the dismissed directors and disempowered managements of restructured subsidiaries. And the effects are likely to be experienced by the host communities and countries whose fortunes wax and wane with the arrival or departure of transnational corporate activity, jobs and taxes.

The Local Consequences of Changes in Corporate Governance: the Impact on Producer Services

Of all the possible effects, none are more explicitly related to the restructuring of corporate governance than those involving so-called “producer services.” As Sassen (1995:778) has argued, “the more globalized the economy becomes the higher the agglomeration of central functions.” A limited number of cities, she says, “concentrate the infrastructure and the servicing that produce a capability for global control. The latter is essential if geographic dispersal of economic activity … is to take place under continued concentration of ownership and profit appropriation” (1995:778-79). Corporate head offices thus tend to function as economic nuclei, around which cluster providers of advanced and specialized producer services – consultants, lawyers, accountants, software houses, designers, advertising agencies – whose physical proximity to head office facilitates efficient interaction (Sassen 1994; Daniels and Moulaert 1991; Daniels 1993; Medcalf 1996).

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Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Contributing Authors
• Acknowledgements
• Introduction: Case Studies and Common Trends in Globalizations
• PART I – GOING GLOBAL: BUSINESS AND TRADE
• PART II – MOBILIZING WITHIN GLOBALIZATIONS
• PART III - DEMOCRACY, DEMOCRATIC INSTITUTIONS AND GLOBALIZATIONS