Matt Yglesias, responding to the automotive bailout debate, argues that it does:
What I find interesting, however, is not so much how irrational it is to attribute nationality to a business enterprise but how much nationality really does seem to matter. For example, the oil business is an global business. And the six “supermajor” firms are all global firms. But the CEO of Royal Dutch/Shell is Dutch. The CEO of Total is French. The CEO of BP is British. And the CEOs of ConocoPhillips and ExxonMobil are Americans. It’s a bit hard to understand why a competitive international labor market would work out that way. And beyond CEO nationality, local norms seem to make a big difference. The CEO of Total earns way less money than the CEOs of the other supermajors and to a first approximation the reason is that he’s French, and French CEOs just don’t get paid very well. More broadly, European and Japanese executives earn less money than American executives, with British executives in the middle. I recall that one of the issues with the DaimlerChrysler merger was that the executive pay scales were totally out of whack.
Beyond CEOs, Nestle has 15 directors. Of them one is Indian, one is Swiss/American, seven are Swiss, and the rest are from other European countries. But there’s nothing especially “European”—and certainly nothing Swiss—about the company’s actual operations. They earn a lot of money in Europe, but the majority of their revenue is from outside of Europe, and there’s production all over the world. It’s also totally normal for large multinational firms to be disproportionately owned by shareholders located in their “home country” and home continent.
Corporate nationality, in other words, doesn’t matter. But it seems as if it actually does. And for somewhat mysterious reasons.
Reasonable points all. (BTW, this is a huge deal in Canada, maybe even more so than in the U.S.).
But GM and Chrysler had U.S. management and ran their companies into the ground. Toyota, Honda, and the transplants have created jobs in America. Nationality cuts several ways.
Some time ago, when I was studying the globalization of the automotive industry and the rise of off-shore transplants, I discovered something interesting. U.S. and European companies all said it was much easier to set up cutting-edge plants outside their home company. New greenfield plants could be built from scratch, filled with new equipment, laid out flexibly, and staffed with “fresh” managers and workers. Older plants back home suffered less from being in old buildings but from built-up and near-impossible-to-change organizational structures and relationships.
Seems to me the real issue isn’t nationality of ownership or management but its quality. From an economic development perspective, I’d much rather encourage companies and plants with great management to invest and develop in my country or location than to protect and shield ones owned by my far less capable compatriots.
UPDATE: The governments of Canada and Ontario apparently now own a two percent equity stake in Chrysler, according the Conor Clarke of The Atlantic who notes: ”Chrysler is going to become part of an Italian car company. And it’s doing so with Canadian dollars”
May 1st, 2009 at 12:12 pm
Richard, this is an interesting point that has been raised for many years, particularly in the case of the oil industry. Looking at the case of Shell, we see fine lines between the placement of British and Dutch nationals in key executive management conditions. Interestingly, large Swiss companies have always had a high foreign contingent on BoD and executive management teams.
Rob van Tulder’s book “The Logic of International Restructuring, The Management of Dependencies in Rival Industrial Complexes” is absolutely essential in this field and reveals much of what you are talking about. If I remember correctly, the extent to which a company “globalizes” its management rank is determined by where its’ key economies are; if an American company largely relies on the domestic market, it will have a largely American BoD or executive management team. A large Swiss company will typically have a very international team given the relatively small size of the domestic market.
While by no means is the book strictly about this, it covers these points (it’s been years since I read it). It really goes over all of this though; such as how the expansion of R&D activity to international settings often represents the final phase of a company truly becoming global, or trans-national. Great book.
May 1st, 2009 at 12:55 pm
I agree that the quality of management is much more relevant to performance than corporate nationality. But that begs the question: how is the quality of management itself gauged?
Sure, the market is an equal-opportunity offender, but it is only a reactive mechanism that punishes bad performance. As management decisions are being made, however, I have little doubt that the nationality and sensibility of a company’s decision-makers have a lot to do with the quality of those decisions.
Corporate nationality may not matter in the end, but it may have a lot of influence on what that end will look like.
May 1st, 2009 at 9:18 pm
U.S. Transportation Secretary Ray LaHood awarded $75 million in federal money Thursday to expand Portland’s streetcar system, a decision that elated local officials who have long supported the stalled project and signaled a new national embrace of urban transit.
The federal government’s money and blessing removes the last and most stubborn barrier to expanding the line east of the Willamette River and unleashes an already approved pot of $55 million from local governments and another $20 million from state lottery bonds.
The expansion means jobs — not only for construction to expand the streetcar system by three miles and 18 stations, but also for manufacturing the streetcars, which will be built by United Streetcar, a subsidiary of Oregon Iron Works, in Clackamas.
The new loop is expected to begin service in 2011.
In announcing the money Thursday, LaHood lauded the design and purpose of a project that had been repeatedly blocked by the Bush administration. In the new administration, LaHood said, Portland can be a model for other cities moving to create or expand mass transit.
May 2nd, 2009 at 11:18 am
corporate nationality is of minor significance to the larger question of governance. when we have weak governance structures albeited by deregulation the world devolves into a race for the bottom.