This paper is due to be published in May 2014 in Transfer:

European Review of Labour and Research, 20(2): 1-9

Power and politics in multinational

corporations: towards more effective workers’

involvement1

Christoph Dörrenbächer and Mike Geppert

Introduction

Sometimes researchers have the luck to see behind the curtain.

A few years ago one of the authors of this short essay happened

to interview the CEO of a subsidiary just a few hours after

this person, a 45-year-old manager strongly committed to his

subsidiary, was communicated the corporate decision to close

down production at his subsidiary. A few days later the head of

the subsidiary’s works council was similarly interviewed. Both

interviewees were furious about the decision. One reason was

that corporate management had not deemed it necessary to

communicate the closure in person but had conveyed the bad news

in a conference call, even though headquarters executives had

often visited the subsidiary in the preceding months. What is

more, corporate management left it completely up to the

subsidiary’s CEO to break the news to the workforce. A second,

probably more important reason for the deep frustration both of

the subsidiary’s CEO and the workforce were ‘dashed hopes’.

1

Acquired some 10 years previously, the subsidiary had done a

very good job both in terms of developing the local market and

of enhancing workforce skills. This had resulted in a steady

flow of profits to corporate headquarters and in the

subsidiary’s quite successful lobbying for a constant

modernizing of the production facilities. Emerging hopes to

develop into a regional production hub for Europe, however,

were completely dashed by the conference call. A last reason

for the workforce’s fury was the feeling of being unfairly

treated, with production being relocated to a plant

neighbouring corporate headquarters. This move was not only

seen as devoid of any strategic foresight but also as a direct

outcome of that plant’s constant lobbying of headquarters and

of ‘cronyism’.

Even though it was beyond our scope to look into these

accusations in detail, the case nevertheless shows that power

and politics do matter in multinational corporations (MNCs).

There are many different actors in and around multinational

corporations with vested interests, arising from them belonging

to different subunits of the multinational corporation and,

from a more general and sometimes overlapping perspective, from

them coming from different classes, countries, welfare levels,

cultures and religions. Once something of importance to one of

these actors is at stake, power and politics come to the fore,

with political manoeuvring (or politicking, to use another

word) starting and other actors being drawn into the game.

This, in our view, is the raw truth of any organization, and in

particular of MNCs. This is a view however that strongly

2

deviates from the mainstream international business and

management literature, which sees power and politics in

organizations as the exception, being nothing more than ‘dirty

business’ preventing organizations from doing their normal

work.

In the remainder of this short paper we will first try to

explain what power and politics in MNCs means. We will focus on

strategic conflicts that emerge between corporate headquarters

and subsidiaries. Based on a discussion of the genuinely

different interests of headquarters and subsidiaries, we will

look at two typical situations in which political manoeuvring

arises. The first is when corporate management adopts cross-

border standardization strategies, while the second is when

subsidiaries engage in entrepreneurial activities going beyond

their assigned remit. This is followed by a discussion on how

workers and their representatives are involved in such

conflicts. In the concluding section we discuss the conditions

for more effective involvement of workers and their

representatives in headquarters-subsidiary politics.

A definition of power politics in multinational corporations

Let us take a look at another example further to elucidate

power and politics in MNCs. It is the case of Scanfood, a

Norwegian food sector MNC that has recently invested heavily in

central and eastern Europe (CEE) (Fenton-O’Crevy et al., 2011).

From the outset, the newly acquired subsidiaries in Poland and

the Czech Republic ran into serious conflicts with the

3

Norwegian side of the business over quality standards. The

Norwegians were reluctant to share their knowledge and invest

time and effort in improving quality at the Czech and Polish

plants, as they feared both a further relocation of production

to these low-cost locations and a decrease in the efficiency of

their own operations. For their part, the Czech and Polish

plants similarly did not trust the Norwegians. They felt

frustrated, missing transfer of knowledge from the Norwegian

plants and unhappy that these plants were ignoring or even

actively rejecting existing best practices implemented at CEE

subsidiaries. Mistrust went so far that the CEE subsidiaries

became reluctant to report production problems as they feared

sanctions for ongoing quality problems.

This example reflects what is at the heart of organizational

politics: engaging in activities going beyond or even against

one’s formal role, in order to influence the distribution of

advantages or disadvantages within an organization (Robbins and

Judge, 2009).

The HQ-subsidiary divide

The example of Scanfood is further proof of what Howard

Perlmutter (1969) termed ‘the torturous evolution of an MNC’

more than 40 years ago. Many of the problems associated with

turning large and diversified MNCs into effective and efficient

organizations can be traced back to a very basic divide between

the interests and expectations of corporate management and MNC

subsidiaries. From the many interviews we conducted in MNCs of

4

all kinds it transpired that corporate management expect in

essence two things from their subsidiaries. The first is that

their subsidiaries contribute in some way to the MNC’s overall

success. This can take various forms depending on the

particular role of the subsidiary. Subsidiaries that act as

extended workbenches – such as Scanfood’s CEE subsidiaries –

contribute in the form of timely delivery of efficiently

produced high-quality products. Subsidiaries acting as

‘listening posts’ in foreign markets are expected to deliver

information on business opportunities, new suppliers,

innovative technologies, etc. A second crucial issue for

corporate management is its desire to exert a certain amount of

control over subsidiaries, not only to monitor and safeguard

investments, but also due to the fact that subsidiaries

explicitly or implicitly bear the name of the MNC. Any fraud,

management deficits or PR blunders occurring in a subsidiary

reflect poorly on the MNC as a whole. Companies like Nestlé can

sing a song about this.

On the other side of the coin we have the interests and

expectations of the subsidiaries. Two expectations turn out to

be of particular importance for subsidiaries. Functionally

truncated subsidiaries expect support and resources from

corporate management, as seen in budget negotiations, a

constant source of conflict. The headquarters-subsidiary divide

widens further when we look at the second major expectation of

subsidiaries: autonomy. In many interviews subsidiary autonomy,

i.e. leeway to conduct business as deemed fit, was named as the

single most important factor subsidiaries expect from corporate

5

management. For good reason: on the one hand subsidiaries need

a certain amount of autonomy properly to fulfil their tasks in

a foreign market; on the other hand autonomy is also called for

by subsidiaries in order to adapt to the changing local

environment. However, subsidiary autonomy does not always

concur with the strategic leadership and control missions of

headquarters. Control can be pursued in two ways by corporate

management – by treating local subsidiaries as strategic

partners or as strategic dependents (Clark and Geppert, 2011).

Contested issues

Given such fundamental clashes of interest it comes as no

surprise that conflicts emerge in MNCs. One highly contested

issue triggering a large amount of political manoeuvring are

corporate standardization strategies. Allowing economies of

scale and scope, these are often of direct corporate benefit,

not only in terms of profits and competitiveness but also in

terms of subsidiary control. Such corporate standardization

strategies can relate to particular products, cutting

production and marketing expenses by selling identical products

in similar markets. They also often relate to specific business

processes, for instance, when headquarters implements corporate

systems and solutions for enterprise resource planning, job

evaluation or quality control. Sometimes corporate

standardization strategies even affect the configuration of the

subsidiary network, as seen with Opel, the European subsidiary

of General Motors. GM has taken several decisions to reduce the

number of manufacturing plants in Europe with the intention of

6

achieving better economies of scale in the oversupplied

European car market. Car assembly in Antwerp/Belgium closed

down in 2010, a move to be repeated in Bochum/Germany in 2014.

Naturally, both decisions were strongly contested by the

subsidiaries in question, as they seriously threaten their

survival (Blazejewski, 2009). Subsidiary protests against

corporate standardization strategies can also be observed in

cases where subsidiaries are much less affected, possibly only

losing certain tasks or a certain amount of functional scope.

Protest forms can range from simply ignoring standardization

strategies, to ceremonial adoption, shifting of emphasis and

obstructing (Schotter and Beamish, 2011). In some cases,

corporate management is even openly attacked, as was the case

at Opel, where GM was denounced for its poor overall strategy.

Alongside corporate standardization strategies, subsidiary

entrepreneurship is a second major source of conflict. As

indicated above, subsidiaries often do not comply with the role

initially assigned to them by headquarters. This can have

several causes. One is that subsidiaries see lucrative business

opportunities in their environment going beyond their remit.

One example here is Agrotool, a French subsidiary of a medium-

sized German MNC in the agricultural equipment industry

(Dörrenbächer and Geppert, 2010), where French subsidiary

management saw the opportunity to diversify into the public

gardening market and successfully developed an innovative

product to meet this demand. This case also reveals that going

beyond the remit assigned by headquarters is often a matter of

entrepreneurial spirit in the subsidiary (even though many MNCs

7

are quite often rather bureaucratic organizations). Finally, as

discussed above, subsidiary entrepreneurship is also spurred by

subsidiaries’ will to survive in a changing environment. One

example here are CEE manufacturing subsidiaries that survived

the cost-driven relocation of production to Asia by venturing

into more demanding value chain steps such as process-related

R&D (Dörrenbächer and Gammelgaard, 2006). Corporate ‘protest’

against such subsidiary entrepreneurship can emerge when

corporate management feels bypassed or over-burdened with

evaluating a large number of potentially self-serving

subsidiary initiatives.

Influence tactics

Faced with emerging and/or worsening conflicts, actors in MNCs

typically resort to a wide range of influence tactics. These

tactics, described in seminal organizational behaviour

contributions as for instance rational persuasion,

inspirational appeals, coalition-building or pressuring, are

also used in MNCs. Their use is often strictly goal-oriented

and insistent, as shown by the following quote from the CEO of

a global telecommunication service provider subsidiary: ‘From a

theoretical perspective, one would assume that a corporation as

large as ours follows a rational, strategic approach, but the

opposite is the case. It is a highly political process, where

who you know, who trusts you and what reputation you have [are

the most important things]. Antechamber lobbying [walking the

corridors of power] is exactly what you have to do – you have

to talk to people, you have to convince them and you must not

8

annoy them. .... That takes time and continual effort. For me,

it is a bit like “small strokes fell big oaks”.’ (cited in

Dörrenbächer et al., 2014: 391)

Two particular characteristics of influence tactics deployed in

MNCs are worth noting. The first characteristic stems from the

fact that MNC headquarters often have to oversee a large number

of subsidiaries. For subsidiaries this means first and foremost

the need to attract positive attention at headquarters.

Agrotool for instance followed a ‘boy scout strategy’, avoiding

any behaviour that could offend headquarters combined with,

whenever possible, referring to the subsidiary’s good track

record. The difficult thing for corporate management is to

distinguish between real achievements (such as at Agrotool) and

impression management. This is a problem not only because

corporate management has to oversee a large number of (often)

distant subsidiaries, but also because certain subsidiaries

have over the years become very adept at issue-selling. This

can be a real danger, as the following example of a well-known

global parcel service shows. Through intensive lobbying, the

Pakistani subsidiary convinced regional headquarters for Asia

to roll out their human resource management IT system to other

subsidiaries in the region. However, in doing so it became

apparent that while the system had certain advantages for the

regional HQ’s reporting duties it offered insufficient

functionality for other subsidiaries. Overconfidence on the

part of the subsidiary combined with a regional headquarters

that somewhat uncritically bought the arguments of a lobbying

subsidiary ended in a big mess (Merchant and Chand, 2008).

9

The second characteristic of influence tactics used in MNCs is

rooted in the cross-border nature of MNCs, bridging national

cultures and institutional systems. Stakeholders are often able

to exploit these differences in their political manoeuvring. In

certain cases cultural differences are talked about and

cultivated when they are of use for political strategies, while

in others they are not mentioned or even suppressed. One

example nicely illustrating this is the recent study on

Japanese-Dutch joint ventures by Ybema and Byun (2011). While

Dutch managers at Japanese subsidiaries in the Netherlands

complained bitterly about the strict hierarchical attitude of

Japanese expatriates which in their view went against the

traditional egalitarian values of Dutch culture and hindered

performance, Dutch expatriates in Japan did not see any problem

in applying strict hierarchies themselves. In other cases,

institutional differences can be leveraged. Pulignano (2006a),

for instance, has shown that the effectiveness of tactics

influencing the transfer of employment practices from corporate

headquarters to subsidiaries is affected by local institutions.

The study found that the Italian employment relations system

is, in comparison to the UK one, more supportive of local

subsidiary actors’ upgrading strategies within (US-based) MNCs.

The study also stresses sector-specific differences, mainly

attributable to the role of local production systems and

whether these can easily be offshored.

Sources of power and workers’ involvement

10

The fact that skilful use of influence tactics can empower an

actor and add to his structural power is basically a function

of his dependency situation. While MNC subsidiaries are

obviously dependent on their corporate management for legal

reasons and in most cases also due to the fact that they are

geographically and functionally truncated units, corporate

management also depend to varying degrees on their

subsidiaries, whereby the latter is a function of the sources

of power subsidiaries control and can draw on. This is also

where workers and their representatives come into play.

There are four sources of power subsidiaries can draw on

(Dörrenbächer and Gammelgaard, 2011). First, as already

discussed above, subsidiaries can have micro-political

bargaining power. This encompasses lobbying and negotiation

skills, issue-framing skills and the ability to form coalitions

with actors both in the subsidiary and across the MNC. By

itself, micro-political bargaining power is neither a very

strong nor a very sustainable power resource. Nevertheless it

is often a prerequisite for building stronger power resources

(see below). A subsidiary’s micro-political bargaining power

typically resides in local management’s relations with employee

representatives. Research has shown that, alongside such

aspects as the nature of the market and the degree of

production integration, employment relations also play a role

in determining how much micro-political bargaining power local

managers and employee representatives are able to build

(Edwards and Belanger, 2009). Better regulated national and

sectoral employment relations systems together with stronger

11

unions force management constantly to negotiate and seek

agreements with labour representatives. In weakly regulated

countries and sectors (e.g. fast food or hospitality), such

negotiations, as well as the resulting trust and negotiation

skills, are far less pronounced.

A second source of power involves a subsidiary’s position in

the MNC’s production value chain, i.e. systemic power. Such

power arises when a subsidiary has gained, either through

lobbying or a corporate decision, a prominent position in the

value chain, controlling specific functions critical to the

proper functioning of the overall value chain. Even though the

power derived from such a position can be very strong, it is

often only temporary – as seen in the Opel case, where Bochum

workers strongly resisted initial corporate plans in 2004 to

close one of GM´s European factories. On account of the fact

that the Bochum plant was the sole source of certain components

used throughout other Opel/GM plants in Europe, the Bochum

factory was able to deploy the tactic of going on a wildcat

strike. Within just a few days, this strike brought production

in other European plants to a halt, forcing GM to shelve its

plant closure plans (Blazejewski, 2009). This however turned

out to be a Pyrrhic victory, with the production of those

components – the basis of Bochum’s systemic power – being

transferred to another plant shortly after the strike. What

followed were the decisions to close the car assembly plants in

Antwerp and Bochum.

12

A third source of power is resource dependency. This emerges

when a subsidiary controls resources that are rare, valuable,

unique and/or non-substitutable. Such resources can be

specialized knowledge, technology, an innovative product or a

particular strength to leverage domestic business

opportunities. It goes without saying that building up resource

dependency power within a subsidiary involves not only

subsidiary management but also the numerous efforts of workers

and their representatives. A good example here is Agrotool’s

product innovation initiative mentioned above. Workers and

their representatives greatly contributed to the initiative,

engaging in the innovation process, upgrading their skills in

line with the new product’s more demanding production

requirements and meticulously fulfilling stricter corporate

performance standards for existing products in order not to

endanger the initiative. Even though resource-based power is

likely to be more sustainable than for instance systemic power,

maintaining control over rare, valuable, inimitable and non-

substitutable resources is not easy, at least in the long run,

as the uniqueness of the resources might diminish over time.

A fourth and last source of a subsidiary’s power lies in the

domestic institutional structures it is subject to, i.e.

institutional power. Such structures, including customary

practices, specific regulations and laws constitute strong and

sustainable power for subsidiaries. These sources can be used

in a proactive way, with for instance subsidiaries in

interventionist states asking their governments for subsidies,

e.g. to develop new products or to counteract the negative

13

effects of corporate decisions. Workers’ representatives can

play an important role here. In the GM case for instance union

representatives at the GM/SAAB plant in Sweden negotiated an

€1.1bn fund for regional infrastructure improvements to offset

a potential plant closure (something considered to be normal

practice in Swedish industrial relations, cf. Pulignano, 2006b;

Blazejewski, 2009). Moreover, institutional structures can

serve as a shield against undesired corporate policies. For

instance the comparatively high cost of closing down a plant

may prevent such closures, with labour representatives being

able to drive costs by negotiating severance payments and other

benefits such as training funds. Similarly, workers’

representatives can also play a major role in ensuring that

corporate standardization strategies comply with national laws

and regulations, not only in the fields of HRM and IR but also

in terms of (data) privacy and health and safety. Attempts to

introduce either country-of-origin or Anglo-American practices,

often considered best practices by corporate management, are

well documented in such industries as transport, fast food and

retail where labour representation is often weak (see e.g.

Gautié and Schmitt, 2010), but they also extend to core

industrial sectors, as illustrated by a recent example in the

German automotive industry. In this case, Hyundai Motors was

accused by the trade union IG Metall of running the German

operations in an ethnocentric, strongly authoritarian

management style, hindering German works council members and

trade union representatives in the execution of their statutory

tasks (Ruhkamp, 2013).

14

Towards more effective workers’ involvement

Workers and their representatives have no other choice but to

get involved in political processes and power struggles between

corporate management and their subsidiary, as there is too much

at stake for them: quality of work, levels of employee

involvement and voice, and last but not least jobs. The

previous section has shown that there are opportunities for

workers’ involvement in political processes at headquarters-

subsidiary level. However, these opportunities are full of

preconditions, and the better these are met, the more effective

worker involvement can be.

Leveraging the power deriving from the institutional

environment first and foremost depends on the quality of the

institutional environment itself (e.g. its ability to block

undesired corporate standardization strategies). One key

condition is that the institutional environment, in particular

the employment relations system, offers a ‘toolkit’ for the

political strategizing of workers and their representatives

(Williams and Geppert, 2011). Research in this field reveals

that certain countries (e.g. France and Finland) also provide

such toolkits for sectors in which worker representation is

considered weak, such as in the retail industry (see e.g.

Geppert et al., forthcoming).

A second important condition is that workers and their

representatives are aware of the options open to them (often

dependent on experience and their level of legal knowledge) and

15

have the political will, resources and skills to develop and

make use of these toolkits. In countries with strong welfare

institutions, these conditions can be a viable co-evolution

path. Downward spirals are more likely in countries with weak

welfare institutions and with a lack of opportunities to build

robust tools to influence and resist corporate decisions. In

both cases, strong and enduring efforts on the part of unions

and workers’ representatives are needed to motivate and

properly qualify workers and their representatives to support

the development of effective political bargaining and

opposition strategies.

As shown above, workers’ involvement in political processes at

the headquarters-subsidiary level is not only exercised by

blocking, delaying or modifying undesired corporate decisions

but also by promoting subsidiary initiatives leveraging

systemic power or resource dependency. Here too certain

important preconditions need to be met for workers’ involvement

to be effective, with workers’ representatives playing an

important intermediary role. First, they need to raise

awareness and encourage support for innovation projects among

the workforce. This often falls on fertile ground, as labour-

management cooperation on future-oriented projects is often

viewed positively by workers (Rolfsen, 2011). Secondly, they

need to build up a long-term, trust-based relationship with

subsidiary management as it is usually the latter that drives

the innovation process and sells the initiative to corporate

headquarters. Building up such a relationship with the

subsidiary management, however, is problematic, as management

16

commitment to the location is often hard to evaluate. In some

cases, such a relationship is clearly beyond reach, e.g. when

the subsidiary management has no power, is non-existent or is

made up of managers rotating within short periods of time. In

other cases however a difficult-to-answer question remains.

Research has shown that subsidiary managers’ location

commitment is only to a minor extent determined ex-ante by

their nationality (whether a local or expatriate manager), and

is much more influenced by many other factors such as family

situation, age and career orientation (Becker-Ritterspach and

Dörrenbächer, 2011). For workers and their representatives,

this often amounts to a frustrating trial-and-error process

when pushing subsidiary management to take the initiative and

sell an idea to headquarters. This is aggravated by limited

knowledge of what kind of strategy to follow and what kind of

influence tactics to use in such instances.

But even successful subsidiary initiatives can have a downside

for workers and their representatives. This is due to the fact

that initiatives enhancing the power of one subsidiary might at

the same fuel inter-subsidiary competition, putting pressure on

fellow subsidiaries (Becker-Ritterspach and Dörrenbächer,

2009). While it would be naïve to think that such problems

prevent subsidiaries and their workforces from taking their

fate into their own hands, these initiatives nevertheless need

to be accompanied by a long-term cooperation strategy in such

cross-border interest representation bodies as European works

councils. Alongside discussing the ‘terms of trade’ of workers’

involvement in subsidiary initiatives and related political

17

processes at the headquarters-subsidiary level (e.g. a ban on

workers’ involvement in initiatives with explicit and strong

negative effects on fellow subsidiaries), cross-border interest

representation bodies also enhance the power position of

workers throughout the corporation. This is accomplished for

instance through the additional information such bodies can

provide to domestic workers’ representatives, facilitating

coordinated action and resistance in cases of cross-border

relocations or coercive comparisons. Another vehicle allowing

cross-border interest representation bodies such as European

works councils to provide institutional support for worker’s

representatives and unionists are negotiations on transnational

company agreements. These agreements apply to all subsidiaries,

whether strong or weak, and address such crucial issues as

minimum social standards, health and safety, cross-border

restructuring procedures and profit-sharing schemes (Müller et

al., 2013).

Conclusion

Power and politics are ubiquitous in headquarters-subsidiary

relations. Enhancing workers’ involvement in political

processes between corporate headquarters and subsidiaries is

difficult. Notwithstanding national and sectoral differences,

this sees workers’ representatives constantly caught between

two stools, needing to invest in volatile relationships, to

muddle through and to find and communicate appropriate

strategies. This involves a lot of painstaking political

legwork with no guarantee of success. But there is no

18

alternative: ‘He who fights can lose, but he who does not fight

has already lost!’ (B Brecht)

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Christoph Dörrenbächer

Professor of Organizational Design and Behaviour in International Business at the Berlin School of

Economics and Law, Germany

Mike Geppert

Professor of Comparative International Management and Organization Studies at the Surrey Business

School, UK

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1 This paper is based on previous work by the authors as well as on a presentationat the Monthly Forum of the ETUI in Brussels, on 18 September 2013. Parts of Sections 3to 5 are reprinted with permission from an article the authors published in TheEuropean Financial Review (C Dörrenbächer and M Geppert, The Dark Side of the Moon:Power and Politics in the Multinational Corporation, The European Financial Review,April/March edition 2013; http://www.europeanfinancialreview.com/?p=6524).

The authors thank The European Financial Review for permission to reprint parts of the article mentioned above and all participants of the Forum, most notably Jan Drahokoupil, Aline Hoffmann and Evelyne Léonard for their very helpful comments.