The Role of Procedural Justice for Global Strategy and Subsidiary Initiatives

Abstract

The 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.