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Leaderships Styles and Corporate Culture of International Subsidiaries at Multinationals

1 Introduction: Corporate Culture and Leadership

Every company has distinctive attributes that make them unique, among which are the corporate culture and the leadership style. Both features are claimed to have a direct connection with the companies’ success. Multinational enterprises put high emphasis on their corporate culture to “improve control, coordination and integration of their subsidiaries” (Schneider, 1988, p. 231), and research shows that corporate culture has different interpretations depending on the country (Kustin and Jones, 1995). Thus, a paradox emerges from the interrelation of these topics: if CEOs share the values of their companies (Giberson et al., 2009), they influence the company’s performance (Thomas, 1988) while they show differences across countries (Jepson, 2009), maybe because their ideologies can be influenced by their national origin (Suutari, 1996), yet they have the power to change the corporate culture (Lorsch, 1985). The aim of this literature review is to critically assess the body of research about how leaderships styles interact with the corporate culture of international subsidiaries at multinational companies.

 

2 Corporate/Organizational Culture

The term corporate culture is reported to be embodied in the 1980s and the main theories and concepts around it were developed within the following decade. A major challenge of defining it is to develop a process that aims at providing an analysis that is not restricted to identifying the organizational structure and not all-embracing to misuse the sociological and anthropological theories about culture (Warwick Organizational Behavior Staff, 2001). Some agree that corporate culture should be analyzed from a broad perspective, considering a variety of factors, including what the company claims to be important, the values shared among the employees (goals, principles, ethics, and norms for example), systems, structures and behavioral patterns, as Peters and Waterman (1982) and Schein (1984) pointed out. Others tend to focus on specific parts of this spectrum: Hofstede (2011) focused on describing what influences and impacts human behavior, and Kotter and Heskett (1992) mainly approached organizational culture as being the behavioral patterns and the shared goals among members. On the other end, there are still those who analyze the term in a much wider way, considering corporate culture as everything that is human within an organization and was socially created (Warwick Organizational Behavior Staff, 2001) and “he informal rules and expectations that affect operations” (Gibbons and Roberts, 2013, p.432). Moreover, numerous contemporary works in this field refer to such well-established concepts and theories when addressing modern issues, and there is no evidence of revolutionary approaches in current years, even though technology has drastically affected the way people, companies, and the environment interact with one another.

The definition of corporate culture lacks a unanimous agreement among authors and scholars but utilizing one concept is essential to the development of this research as it will extract qualitative data to perform analysis on this field. Even though each of the studies mentioned above had considerations and are still referred to as being relevant, the narrow concepts (such as Hofstede, 2011; Kotter and Heskett, 1992) may only reveal a fraction of what the culture in a company can be, and the wider ones (such as Gibbons and Roberts, 2013; Warwick Organizational Behavior Staff, 2001) are too general and difficult to be used as a tool to assess an organization. Peters and Waterman (1982) and Schein (1984) established concepts that cover a broad variety of elements. The work of Peters and Waterman had a focus on increasing performance by suggesting that companies should enhance their participation in developing their own culture, whereas Schein developed a theory that helps identify cultural elements within an organization, determining that each company has its own culture, and it cannot be classified as right or wrong, better or worse, denying the idea communicated by many authors that there are successful corporate culture models that can be copied. Therefore, Schein’s concept is more applicable to the intended goal of this research and the term organizational/corporate culture will be understood as the “assumptions that a given group has invented, discovered, or developed in learning to cope with its problems […], taught to new members as the correct way to perceive, think, and feel in relation to those problems” (Schein, 1984, p. 3,).

 

3 Leadership

Defining leadership has been a task attempted for millennia. When producing their theories, many specialists on the subject travel back in time to refer to kings, prophets, emperors and even esteemed members of ancient communities as models of leaders, like Lussier and Achua (2013) and Bass (1990) do in their studies. This across-time-correlation is created due to similarities found between company’ leaders having to conduct the evolution of their environment and historical leaders being considered ‘important in the development of civilized societies’ (Bass, 1990, p. 3). Thus, the interpretation of leadership goes through constant modification.

Defining leadership is also paradoxical. Winston and Patterson (2006) reported that among scholars and researchers such paradox is highlighted by the abundant number of studies conducted on the subject, taking various approaches that lack a shared conclusion. Additionally, there seems to be a low frequency of connection and criticism between these approaches. With a relevant study that calls for a new school of leadership, Rost (1993) devotes many pages of his book ‘Leadership for the Twenty-First Century’, to extensively review the literature produced between 1900 and 1980 and yet he struggles to accurately define leadership. Even though a common agreement does not exist, a small fragment of similarity can be drawn from the literature: leadership is seen as the action of a few people engaging and influencing a bigger group of followers.

Likewise, the modern conceptions of leadership are also dispersed, but they reveal a pattern. To produce and position their writing among the literature, contemporary authors use irreconcilable criteria to group past studies. While Uhl-Bien, Marion, and McKelvey (2007) divided their literature review into what they considered leadership concepts from the industrial age and the knowledge era, Bass and Avolio (1993) separated it between transactional leadership that focus on controlling the mass by forcing a desired behavior and transformational leaders, who aim at extracting the full potential of their subordinates through coaching. Even though the modern classifications are mismatched, they tend to channel their focus on how leaders perceive followers individually as opposed to considering them a homogenous group.

The ability to guide – or variations of it – is broadly used when describing the role of a leader. In the past, this task had a connotation of directing people, telling them what to do. Stogdill (1950, p. 1) described leadership as a ‘phenomenon of organizations’, where the companies define the scope of the leaders and leaders clarify for their group which activity they must deliver and with whom they are expected to interact; a directive perspective. In less undemocratic versions of this approach, Pfeffer (1977, p. 111) interpreted leadership as a process of ‘individual control’ but with ‘social influence’, which is seen by Conger and Kanungo (1988) as a charismatic approach, with which leaders can gain the devotion of their followers to accept and execute tasks without hesitation. Still concentrating on personal qualities, Organ (1996) is in favor of the great man theory which says that leaders are born and not made due to a set of traits that Kirkpatrick and Locke (1991) explain to have a big impact in distinguishing leaders from non-leaders, including self-confidence, emotional stability, and cognitive ability. Despite some particularities in these definitions, they all produced a one-way communication with the subordinates that transmitted the orders and disseminated the directions.

On the other hand, current studies on leadership present a solid contrast when compared to past theories. The major shift was moving from metrics that calculated leaders’ success based on numerical outcomes to analyzing the positive impact that leaders produced in their followers’ routines and the engagement between both sides. Mullins (2016) stated that companies have a complex nature that is constantly evolving, and the current situation requires leaders that change their direction from a vertical and hierarchized structure to a flat and collective construction, because this contributes to the ‘enthusiastic behavior of the followers’ (p. 312). Uhl-Bien, Marion, and McKelvey (2007) agree with this statement, adding that the dynamism of the relationships between different functions requires new techniques to deal with a ‘knowledge-oriented economy’ (p. 298). To do so, Robinson and Rose (2006) claim that leaders must identify and overcome their own fears before trying to change others because by understanding themselves, they will be more prepared to identify people’s needs, which is seen as the foundation to construct a leader that will act with the participation of the people. According to Spillane (2005, p. 143), such participation is crucial because effectively leading an organization “involves an array of individuals with various tools and structures”. Nevertheless, there are many studies connecting previous and new approaches to leadership: Bass and Avolio (1993) established the steps to move from an outdated transactional style to a modern transformational way that is aligned with a multi-engagement strategy.

Although a considerable body of research is available, there are still some gaps in the literature. There are scholars who spot the controversies in past studies about leadership and attempt to unify them all to manifest a unique, across-the-board definition that could fit all situations. Winston and Patterson (2006, p.8) accused past studies of having a “blind view of leadership”, blaming the academic society for analyzing only facets of leadership, and therefore, producing fragmented concepts that do not cover the whole spectrum. They are right in that there seems to be a complete disagreement in literature about the definition of leadership, yet their own, integrative definition does not produce a better result. By gathering ideas from 160 articles and books on the subject, Winston and Patterson suggested a holistic definition of leadership that is described using more than 13,000 words, yet it is inaccurate to indicate that leaders and followers should make decisions and take risks together. However, this may not be applicable to environments where risks must be minimized, and decisions should be carefully made as in the airline and health industries. Leadership is more art than science because as Pirsig (1999) points out, it is a perceptual interpretation derived from personal experiences, and a fixed definition seems useless under such circumstances. In agreement with Bass (1990), before defining leadership, the purposes for which the definition will be used must be specified because different concepts may produce incompatible results. For that reason, a more efficient way to interpret the literature and to produce new studies about leadership is to clarify the underlying motivation and desired intention beforehand.

4 Interconnections Between the Variables

Although previous sections showed that corporate culture and leadership are topics that emerged in different periods, the interrelation between them has been extensively exploited to address business issues. Due to a lack of academic agreement in defining these topics, the level of which one can influence the other is imprecise. Bass and Avolio (1993) allege that depending on the style that leaders have, they can either mold the culture in their organizations or be molded by it. However, the problems that can arise from this interconnection may not be as simplistic as this view suggests.

If the culture in a company is understood by the way tasks are accomplished and how the company wants to be seen by the market (as customer-oriented, innovation-driven or sustainable, for example), then it is changeable. Focusing on this direction to explain how the changes can be made, Kilmann, Saxton, and Serpa (1985, as cited in Dyer, 1987) defended that there are tools that can be used to gain control of the corporate culture, among which are the rules (Spillane, 2005) and the norms through which managers can affect the culture and “powerfully shape the behavior of individuals and groups in the organization” (Schwartz and Davis, 1981, p. 33). Others go further in this direction. Lorsch (1985) insists that by the way top managers define how every person in the company is managed including themselves, they are already in control of the corporate culture. Some of these interpretations produced tools that aim at guiding the leaders to effectively modify the culture in their companies.

The reasons why researchers apply culture-changing instruments in their studies vary. With a preference to the noted concept of transactional against transformational leadership created by Bass and Avolio (1993), they tend to use it to evaluate how the different leadership styles, derived from this concept, influence the organizational culture and affect many metrics such as the employees’ performance in North American hospitals (Casida and Pinto-Zipp, 2008) and Taiwanese enterprises (Yuan and Lee, 2011), the level of innovation in Australian private institutions (Sarros, Cooper, and Santora, 2008), the job satisfaction in Canadian sport organizations (Wallace and Weese, 1995), and the quality of work environments in the USA (Shirey, 2009). Besides the existence of divergent conceptual definitions about both topics, there has been a growing number of research studies utilizing this operational definition, namely that leadership style constructs the corporate culture, and both affect one specific metric  to argue in favor of a causation. However, this claim needs further investigation.

5 Conclusions

Delving deeper into the interpretations of corporate culture has revealed the fact that some authors take it as a more compound subject that is harder to change. Such profound approach is common among a few academics, but it is not widespread in research studies, maybe due to its complexity and abstract applicability. Kotter and Heskett (1992) affirm that a corporate culture has its roots in specific visions, business strategies, values and desires that the founder had when they had created the organization and, subsequently, future employees may rely on such aspects without being aware of them. Due to such unawareness, they even added that culture in an organization is hard to change and new managers’ beliefs and visions can only transform it if the whole group adopts their thinking (not only their orders). Of a similar opinion, Schein (2010) claims that culture is formed by and not limited to shared assumptions, principles, values, and beliefs and as leaders are part of it, they cannot shape it as they wish. In their study, Kotter and Heskett (1992) also included the working methods of a company and its desired image (see above) as its culture, but these are considered a facet of a many-sided prism, which again would necessitate further research into investigating the interaction between corporate culture and leadership style. Few studies have addressed this relationship in the case of wholly-owned subsidiaries of Multinational Enterprises (MNEs); more specifically how endorsed leadership styles (House et al., 2004) in particular countries of the subsidiaries interact with the corporate culture endowed by the headquarters.

 

6 Research Guidelines

This research aims to answer the following question:

To what extent can the corporate culture of MNEs be transmitted to wholly-owned subsidiaries internationally in the FMCG sector?

After reviewing the literature on this topic, the hypothesis is:

Leadership styles exercised in wholly-owned MNE subsidiaries in the FMCG sector induce changes in the HQ’s original corporate culture.

The following objectives were defined to guide the course of this research:

  1. To identify the organizational culture at the headquarters of the Multinational Enterprise;
  2. To identify the predominant leadership style at the headquarters of the Multinational Enterprise;
  3. To identify the organizational culture at foreign wholly-owned subsidiaries of the Multinational Enterprise;
  4. To identify the predominant leadership style at foreign wholly-owned subsidiaries of the Multinational Enterprise;
  5. To compare and contrast organizational cultures at headquarters vs. the subsidiaries;
  6. To compare and contrast leadership styles at headquarters vs. the subsidiaries;
  7. To establish causation between leadership style and organizational culture.
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