Adrian Schulte Steinberg

In this paper, we propose and test an agency model for HQ-subsidiary relations. Drawing on classical agency assumptions, we develop a baseline hypothesis that links informal controls (i.e., socialization), HQ-subsidiary goal conflicts, and the HQ’s use of formal controls (i.e., behavioral controls). We subsequently introduce an important boundary condition, which reflects subsidiaries’ internal agency relations with subsidiary CEOs as second principals. More specifically, we argue that the baseline relationship only holds under low levels of second principal power. To test our model, we employed a unique study design with three parallel surveys addressing the agents and the two principals involved in 131 agency relations within one MNC.

When applied in headquarters-subsidiary contexts, agency theory traditionally promotes behavioral vs. output controls for principals (headquarters) to manage their agents (subsidiaries). Existing studies, however, have both theoretically and empirically largely neglected the role of social controls. Two reasons support this: (1) Agency theory as-sumes within-subsidiary homogeneity when it comes to subsidiaries and control strategies, and (2) goal conflicts are not precisely conceptualized. In this study, we acknowledge within-subsidiary heterogeneity and advance a nuanced view on goal conflicts, differentiating between conflicts pushed by central vs. pushed by local units. Examining 131 function-specific dyads between a headquarters and its six subsidiaries of a European MNC, we find the distinction of goal conflicts to matter for the effects of socialization and choice of behavioral vs. output control strategies.

Although agency theory is a prominent perspective to investigate behavioral and outcome control in relationships between headquarters and subsidiaries with conflicting goals, the role of social control has largely been overlooked. Yet socialization can be a potent driver for reducing goal conflicts and hence agency problems. In this study, we theoretically advance and empirically test this basic hypothesis and the underlying mechanisms of socialization in their effect on goal conflicts, and subsequently other corporate controls. To do so, we look into bilateral relationships between central functions and their local counterparts, and distinguish between conflicts pushed by central vs. pushed by local units. Examining 131 agency relationships inside a headquarters and its six subsidiaries of a European MNC, we find the distinction of goal conflicts to matter for the use of corporate control strategies.

In this study, we investigate the interaction of socialization, goal conflicts and behavioral control in headquarters-subsidiary relationships. We take a modern agency perspective and test assumptions of relationship multiplicity, within-subsidiary heterogeneity and multiple principals in an empirical model using 131 observations that cover the full configuration of a European insurance corporation. Our findings suggest that socialization reduces goal conflicts between central and local organizational units, contingent upon task programmability and influence of a second principal. Further, we qualify that goal conflicts mediate the relationships between socialization and behavioral controls only under certain circumstances. The primary contribution of this study is that it advances agency theory to more complex conceptualizations for applications in headquarters-subsidiary relationships.

Although the adoption of organizational practices by subsidiaries is a key concern in multinational corporations (MNCs), research on the individuals involved in practice adoption is lacking. Despite calls in the MNC literature for investigations of the psychological foundations of managers' behavior, such investigations are rare and have been complicated by difficulties in obtaining intimate assessments from managers. Building on personality research, we propose that subsidiary managers' core self-evaluations (CSE) positively influence their practice-adoption behavior. Consistent with personality and organizational control research, we also posit that formal and informal controls play contingent roles. Our analysis of a unique dataset of individuals involved in 130 practice-adoption cases within one European MNC offers large support for our hypotheses.

The relationship between headquarters and subsidiaries has been the focus of many studies applying diverse theories. A common yet somewhat dormant perspective is agency theory, which views headquarters as principals and subsidiaries as agents. While this perspective has facilitated analyses on e.g., subsidiary-specific control strategies, it falls short in recognizing the complexities found in contemporary MNCs. It is argued that agency relationships are not limited to the ones between headquarters and subsidiary top managers, but can be found on many levels. We build on the traditional notion, and theoretically advance it by allowing for internal units inside headquarters and subsidiaries. As a consequence, we find multiple agency relationships, as well as multiple principals to the same agent. Theoretical implications are discussed and propositions put forward.

The adoption of organizational practices is known to be elementary in the creation of sustained competitive advantage for the multinational corporation (MNC). In this study, we explore the role of the subsidiary managers' personality in the adoption of practices mandated by a corporate headquarters to subsidiary units in a large European MNC. We analyzed 130 cases of practice adoption a large European MNC and found that managers' core self-evaluation (CSE) is a significant factor with respect to the implementation of practices. In addition, the empirical findings suggest that the organizational context moderates the relationship between managers' personality and practice adoption. The study contributes to the emerging literature on the role of individual's personality in practice adoption and the microfoundations of knowledge transfers in large organizations.