Introduction to ‘The Global Corporate Organization’
Liisa Välikangas
Aalto University and Hanken School of Economics, Finland
I feel very fortunate to be able to open the MOR Dialogue, Debate, and Discussion editorial section with a striking perspective advanced by Shawn Pope and John W. Meyer of Stanford University. They point to the rise of a global corporate organization that is shedding its national distinctiveness and any remaining local rooting. Instead, they envision global standardization as no longer related to national origins and as managed according to abstract, universalistic principles. The global standard is furthermore run by managers who graduated from the same homogenous business programs, who gain advice from like-minded consultants, and who, of course, go to the same Davos meetings. The new standard, the universal corporation, seeks to convey its socially responsible character by confirming, sometimes voluntarily, to the standards of excellence as decreed by other organizations perhaps increasingly like itself. This provocative perspective invites debate – refutations and support alike – in future MOR issues and blogs. Where does your research lead you to take a stand?
The Global Corporate Organization
Shawn Pope and John W. Meyer
Stanford University, USA
A few decades ago the international organizational arena was seen as limited to a few major corporate organizations in a few core countries. The international corporations were understood to vary with national ‘business systems’ or regional ‘varieties of capitalism’ (Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010; Whitley, Reference Whitley1999). Given that their structures were thought to reflect local institutional arrangements, differences across the organizations, rather than similarities, were seen as more prominent cross-nationally (Guillén, Reference Guillén1994; Hofstede, Reference Hofstede2001). The creation of genuinely international corporations was thought to be very difficult.
This earlier perspective of international organization, we argue, has become less realistic with the rise of a massively expanded global organizational system, supported by putatively universalistic managerial, social and organizational principles. Standardization in this system has become so commonplace that it is often taken for granted, as with the international ubiquity of highly similar organizational logos, mission statements, slogans, executive board structures, executive compensation schemes, annual meetings, sustainability reports, standardized job titles, and so on. Here, we proceed by briefly describing the current environment of international organizations on several dimensions. We then suggest that international organizations are increasingly embedded in a distinctive ‘world society’ that tends to supersede national business contexts (Meyer, Reference Meyer2010; Meyer, Pope, & Isaacson, Reference Meyer, Pope, Isaacson, Tsutsui and Lim2015). We note that, in addition to universalistic principles of management, the international corporate arena has developed general principles of social responsibility. These latter principles attempt to ensure legitimacy, regularity, transparency, and consensus in an international corporate arena that lacks a powerful, centralized regulatory regime. Our aim is to encourage more research on the universalistic claims of the international organizational system, beyond national business contexts, and on the socialization of international organizations as legitimate actors rather than as narrow economic entities.
As empirical background, international corporations have in fact exploded in number. By one count, they experienced a sharp increase from 500 in the 1600s to 3,000 in 1914 to more than 63,000 at the turn of the millennium (Gabel & Bruner, Reference Gabel and Bruner2003). All available counts show similarly explosive expansion, with the greatest increases in the decades since the Second World War. Further, many of these organizations have come to operate on a greatly enlarged scale. As one example, sixty-three percent of the largest 175 economic entities in 2011 were corporations rather than nations. Royal Dutch Shell, Exxon Mobil, Wal-mart, BP, Sinopec, and China National Petroleum each have more annual revenues than the GDP of Thailand (White, Reference White2012).
Beyond simple expansion, many corporations have greatly extended their international reach. From the first year of publication (1953) to the last (2009), the Directory of American Firms with Foreign Operations reports that the number of host countries per company grew nearly seven-fold from 1.4 to 9.2 (Uniworld Business Publications, 2009). And the Global Accounts report of Advertising Age notes that the average number of countries in which the world's largest 300 marketers employed marketing agencies was 20, with more than thirty marketers active in more than 50 nations (Advertising Age, 2009).
One could argue that this whole growth process is consistent with conceptions of corporations as carriers of distinctive home-country business practices across national borders. But other basic characteristics of the present situation would run against such a perspective. The management of corporations, for example, has become increasingly globalized, as is evident in the increasing geographical dispersion of executive and oversight boards (Russell Reynolds Associates, 2015). And the ownership of many corporations has become increasingly international, as is evident in the rise over the past century in stock-exchange cross-listings (Sarkissian & Schill, Reference Sarkissian and Schill2010). International corporations, then, have become not only more numerous, more sizeable, and more geographically dispersed in terms of audiences, but also more geographically dispersed in terms of management and ownership. These trends make it more difficult to argue that largest international organizations are principally servants of home-country interests or reflections of national institutional environments. Rather than a national or even regional context, international organizations are increasingly embedded in a global context.
A chief characteristic of this global context is the universalistic posture of its principles, values, and ideas. Abstract and general management principles, for example, are seen as necessary for businesses to conduct themselves across increasingly dispersed sets of stakeholders: communities, activists, shareholders, media, regulatory bodies, and employees. Universalism in these management principles also reflects their manner of production – academic journals now compete in a hierarchy of prestige explicitly global in character. Indeed, these same journals are criticized for fetishizing abstract theory over locally relevant conditions (Hambrick, Reference Hambrick2007; Sutton & Staw, Reference Sutton and Staw1995). Meanwhile, business schools (which have increased in number quite dramatically) aid in the prioritization of management principles that are universalistic. Many of these schools present themselves as ‘world class’, emphasize English as a common global language, and strive to climb ranking systems built around globally standardized criteria (Altbach, Reference Altbach2004; Deem, Mok, & Lucas, Reference Deem, Mok and Lucas2008; Mok, Reference Mok2005). Skill at deploying the management principles has increased in market value, with top executives taking home a larger and larger multiple of the pay of lower-level employees (Gabaix & Landier, Reference Gabaix and Landier2008).
A key characteristic of the global context in which this organizational expansion occurring is the lack of a powerful supranational authority to govern and protect international organizations that operate large-scale, complex supply chain across a multitude of national borders. The international arena lacks the legitimacy and power of regulatory structures that are found within nation-states. To provide the regularity, predictability and legitimacy that is needed for large-scale cross-national organizing, a whole social field has grown to construct universalistic social principles. More specifically, the last few decades have a seen a dramatic rise in the Corporate Social Responsibility (CSR) movement that advances human rights and the protection of a globally interconnected natural environment (Meyer et al., Reference Meyer, Pope, Isaacson, Tsutsui and Lim2015). The CSR movement has been championed by the United Nations system (as with the Global Compact, or Principles for Responsible Investing), but is much broader than this. Other participatory, multilateral organizations are central as well, including the World Business Council for Sustainability, IBLF Global, and the International Chamber of Commerce. Thousands of business leaders, to take another example, converge each year at the World Economic Forum to discuss with their international colleagues the virtues and responsibilities of enlightened capitalism (Pigman, Reference Pigman2007). The whole movement also operates heavily at the industry level. Initiatives have arisen in rapid succession for the social regulation of the commodities (Fair Trade Standards, 1997), apparel (Fair Labor Association, 1990), diamonds (Kimberley Process, 2000), chemicals (Responsible Care Program, 1988), manufacturing (ISO 14001 Standards, 1992), mining (Extractive Industries Transparency Initiative, 2003), banking (Equator Principles, 2003), fishing (Marine Stewardship Council, 1996), logging (Forest Stewardship Council, 1993), and asset management industries (Principles for Responsible Investing, 2005). International organizations have embraced the CSR movement to a much a stronger extent than one might expect based on a narrow calculation of economic interests.
In our view, the universalistic management and social-responsibility ideologies that characterize the current world order pursue legitimacy with some success. They thus tend to impact local business organizations from without. In the extreme, this view turns the national business systems literature on its head: locally bound organizations come to be impacted by business practices that have very distant origins (though generating a good deal of decoupling in practice). We also suppose that the adoption of formal organizational practices can be predicted not only from narrow economic needs and local efficiency considerations but also from connections at the national level to international social institutions. For example, Lim and Tsutsui (Reference Lim and Tsutsui2012) have shown that developing nations are more likely to participate in CSR initiatives if their citizens are more active in international nongovernmental organizations (whereas local economic and political considerations have little effect). Likewise, Drori, Jang, and Meyer (Reference Drori, Jang and Meyer2006) have demonstrated that the extent to which organizations within a country have adopted rationalized governance models is less dependent on economic development or the type of political governance than on its linkages to international non-governmental groups.
In conclusion, the proliferation, enlargement, international expansion, ownership dispersion, and management diversity of international organizations are relatively new characteristics that have rendered the national institutional environment as less consequential. These are also fertile conditions for the further development of universalistic principles of business management across national boundaries and disparate stakeholders. In addition, the decentralized nature of the international political system continues to give rise to abstract principles of good business conduct, protecting and legitimating the interests of international organizations and facilitating the further expansion of trade and international organization itself. The contemporary managerial principles can spread far and wide exactly because they are universalistic, deracinated from any particular national and often industrial context. The spread of the principles is also increased because they are championed by sizable and recognizable international organizations, which endows them with high legitimacy in the eyes of even locally bounded organizations. The result is a system with increasing standardization globally, some still relevant local considerations, and a good deal of decoupling between the global principles and local practices.
