The role of procedural justice for global strategy and subsidiary initiatives

Abstract

Abstract Research SummaryThe global strategy literature highlights 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 creation 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 opportunities for value creation, and that procedural justice systems may sometimes be counterproductive. Managerial SummaryHeadquarters (HQ) in multinational corporations are required to balance global integration and local autonomy within the organization. This balancing act sometimes requires HQ to intervene in subsidiary 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 motivational issues and investigate how fair decision‐making processes applied by the HQ influence subsidiaries’ entrepreneurial behavior and their reactions to the overruling. Our findings show that, under specific conditions, HQ need to forgo value‐creating interventions, and that a strong focus on a procedural justice culture within the firm can be detrimental.