Why a multinational company introduces a competency-based leadership model: a two-theory approach

Abstract

This paper studies the case of a French multinational company which doubled its size and geographical spread of activities because of acquisitions of Anglo-Saxon multinational companies. It analyses the rationale behind the introduction of a competency-based leadership model in this multinational company through the frameworks of agency and neoinstitutional theories. The interpretation of the data through agency theory leads to the following conclusion: globalization means strengthening agency problems and therefore an increase in agency costs. It is argued that the multinational company introduced the competency-based leadership model as a means of cultural control. A formalized and common reference for leadership development and evaluation makes it possible to reduce information asymmetry, diminish the possibility of opportunistic behaviour among managers and thereby reduce agency costs. While agency theory justifies the introduction of the competency-based leadership model, it does not explain the modalities of its choice. This theoretical perspective ignores the institutional context of HRM choices. The results obtained through the frameworks of neoinstitutional theory show that the choice of the competency model was based on the mimetic mechanisms of institutional isomorphism. Furthermore, the introduction of the competency-based leadership model allows the multinational company to gain both internal and external organizational legitimacy. Consequently, the paper suggests that agency theory has to be combined with insights from the neoinstitutional theory in order to explain the introduction of organizational practices. While agency theory provides the rationale of the model's introduction, neoinstitutional theory explicates the nature of the selected organizational practice.