Abstract
While corporate governance and strategic management have for a long time suffered from artificial separation and, therefore, generally been tackled in a secluded manner, their combined organizational impact makes them stringently related to one another in the firms’ evolution. In this paper, we argue that, transcending the “silo view” of corporate governance and strategic management, time has come to acknowledge that, depending on circumstances and time periods, within a firm is possible to detect the relative dominance of corporate governance over strategic management, rather than the leadership of strategic management over corporate governance. Drawing on a contingency approach, we dissect the relationships (and the mechanisms that control it) between the strategic function (i.e., which defines the firms’ strategy and supervisions its implementation) and the governance function (i.e., the congruence assessment between the firm strategy selected and the interests of the ownership and of other relevant stakeholders represented in the board of directors and the effectiveness appraisal of the entrepreneurial action). Then, by performing a thorough retrospective qualitative analysis of three relevant case-histories of Italian firms (Fiat, Telecom Italia and Unicredit) operating in three different industries (automobile, banking and telecommunications), we surmise that, either in corporate governance (board) oriented or in strategic management (CEO) oriented companies, the ‘real’ problems arise when the quality of corporate governance or strategic management is poor. Interestingly, we eventually suggest to adopt a value-based approach to the relationship between corporate governance and strategy that may fruitfully complement the contingency perspective taken at the onset of the work.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Operations were managed by Giovanni Battista Ceirano a skilled mechanic, but not a shareholder.
The stock rise was fueled by the modest liquidity of the Italian stock market at that time. The financial results were striking (at least according to the company’s accounts) and, in 1906, the value of a share was It Liras 2,500 (100 times the nominal value).
The chairman of the company, Dante Ferraris, was a fervent supporter of Italian intervention in world war one.
Competition was kept under control either using country-level competitive devaluation moves or by means of international agreements. Until the 1980s a bilateral agreement kept to a pre-determined very low level the import–export car trade between Europe and Japan. Interestingly, the quota agreement had been requested by the Japanese government in the 1950s.
In 1976 the Libyan government, through La.fi.co., acquired a 9.6 % stake in Fiat providing a capital injection of Italian Lira 250 million. Despite the dilutive effect of the Libyan investment, the company’s largest shareholder, IFI, retained a 30 % stake.
During 1995–2001, while Renault and Mercedes invested each more than US$9 billion in R&D and Volkswagen $20 billion, Fiat Auto R&D spending was only US$4.5 billion.
In 2000 Paolo Fresco signed a deal with General Motors (GM), by which GM would buy 20 % of the shares of Fiat Auto. In addition, the Fiat Group had an option to sell the other 80 % of Fiat Auto to GM between 2004 and 2009. Fiat had the opportunity to off-load its automotive business at a fair market value. If GM balked, it would be forced to pay a penalty of US$2 billion. When Fiat tried to sell GM its Auto Company, times had changed and GM eventually leaned to pay the penalty. On 13 May 2005 GM and Fiat officially resolved the Fresco agreement. The two parties agreed that GM would pay Fiat US$1.55 billion to terminate the takeover bid and the other aspects of the relationship. Fiat used the much‐needed cash pouring from GM for restructuring and, as part of the deal, retained the benefits of being part of GM’s worldwide purchasing operations.
Between November 1, 2008 and November 1, 2010, Unicredit strategy has been aimed to consolidate three acquired regional banks. In center and southern Italy, they present its UniCredit Banca di Roma brand (under which they gathered all branches of Unicredit Banca, Bipop Carire and Banco di Sicilia of center and southern Italy). In northern Italy, Unicredit display the brand Unicredit Banca (under which they gathered all the branches of Banca di Roma, Banco di Sicilia and Bipop Carire of northern Italy). In Sicily they show the brand Banco di Sicilia, an umbrella brand under which they gathered all the branches of Unicredit Banca, Banca di Roma and Bipop Carire in the island. This wave of consolidation brought to Unicredit an additional stake of 9 % of Mediobanca, turning its total stake to 18 %. To avoid affecting the power balance of Mediobanca shareholders syndicated agreement, Unicredit committed to sell out to the other Mediobanca shareholders its additional 9 %.
References
Barca, M. (2003). Economic foundations of strategic management. Aldershot: Ashgate.
Barney, J. B. (2006). Gaining and sustaining competitive advantage (3rd ed.). Reading, MA: Addison-Wesley.
Berglof, E., & Bolton, P. (2002). The great divide and beyond: Financial architecture in transition. Journal of Economic Perspectives, 16, 77–100.
Boyd, B., Haynes, K. T., & Zona, F. (2011). Dimensions of CEO-board relations. Journal of Management Studies, 48(8), 1892–1923.
Bromiley, P. (2004). The behavioral foundations of strategic management. Oxford: Blackwell.
Brown, S., & Eisenhardt, K. M. (1997). The art of continuous change: Linking complexity theory and time-paced evolution in relentlessly shifting organizations. Administrative Science Quarterly, 42(1), 1–34.
Capasso, A., & Dagnino, G. B. (2007). Strategic management e corporate governance: Good theories e bad practices in una relazione cruciale per le imprese. Sinergie N.73-74: 211–221.
Capasso, A., Dagnino, G. B., & Lanza, A. (Eds.). (2005). Strategic capabilities and knowledge transfer between organizations: New perspectives from acquisitions, networks, learning, and evolution. Cheltenham: Edward Elgar.
Castronovo, V. (2005). Fiat. Rizzoli, Milano: Una storia del capitalismo Italiano.
Charreaux, G., & Desbrières, P. (2001). Corporate governance: Stakeholder value versus shareholder value. Journal of Management and Governance, 5(2), 107–128.
Coffee, J. C. (2000). Convergence and its critics: What are the preconditions to the separation of ownership and control?. New York: Columbia Law School. The Center for Law and Economic Studies.
Connelly, B. L., Hoskisson, R. E., Tihanyi, L., & Trevis, C. S. (2010a). Ownership as a form of corporate governance. Journal of Management Studies, 47(8), 1561–1589.
Connelly, B. L., Tihanyi, L., Trevis, C. S., & Hitt, M. A. (2010b). Marching to the beat of different drummers: The influence of institutional owners on competitive actions. Academy of Management Journal, 53, 723–742.
Dagnino, G. B. (2004). Governance d’impresa: L’avventura di Telecom Italia (1997–2001). Economia e Management, 1, 60–80.
Daily, C. M., Mcdougall, P. P., Covin, J. G., & Dalton, D. R. (2002). Governance and strategic leadership in entrepreneurial firms. Journal of Management, 28(3), 387–412.
Dallocchio, M., & Lucchini, G. (2006). L’Opa ostile. Il caso Olivetti-Telecom. Milan: EGEA.
Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: Causes and consequences. Journal of Political Economy, 93, 1155–1177.
Denis, D. (2001). Twenty-five years of corporate governance research and counting. Review of Financial Economics, 10, 191–212.
Denis, D., & Sarin, A. (1999). Agency theory and the influence of equity ownership structure on corporate diversification strategies. Strategic Management Journal, 20, 1071–1076.
Desender, K. A., Aguilera, R. V., Crespi-Cladera, R., & García-Cestona, M. A. (2012). When does ownership matter? Board characteristics and behavior. Strategic Management Journal (forthcoming).
Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550.
European Corporate Governance Network. (1997). The separation of ownership and control: A survey of seven European countries. Brussels: Preliminary Report to the European Commission, European Corporate Governance Network.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
Freeman, R. E., & McVea, J. (2001). A Stakeholder approach to strategic management. In M. A. Hitt, R. E. Freeman, & J. S. Harrison (Eds.), The Blackwell handbook of strategic management (pp. 189–207). Oxford: Blackwell.
Ghoshal, S. (2005). Bad management theories are destroying good management practices. Academy of Management Learning & Education, 4, 75–91.
Ghoshal, S., & Moran, P. (1996). Bad for practice: A critique of the transaction cost theory. Academy of Management Review, 21, 13–47.
Giovannini, R. (2010). Corporate governance, family ownership and performance. Journal of Management and Governance, 14(2), 145–166.
Glaser, B. G., & Strauss, A. L. (1967). The discovery of grounded theory: Strategies for qualitative research. Chicago: Aldine Publishing Company.
Harrigan, K. R. (2003). Declining demand, divestiture, and corporate strategy. Beard Books, New York.
Hart, O., & Moore, J. (1990). Property rights and the nature of the firm. Journal of Political Economy, 98, 1119–1158.
Hoskisson, R. E., Cannella, A. A., Jr, Tihanyi, L., & Faraci, R. (2004). Asset restructuring and business group affiliation in French civil law countries. Strategic Management Journal, 25(6), 525–539.
International Directory of Company Histories. (1990). Vol. 2. St. James Press, Pennsylvania State University.
Jensen, M. C. (2002). Value maximization and the corporate objective function. In J. Andriof, S. Waddock, S. Rahman, & B. Husted (Eds.), Unfolding stakeholder thinking. Sheffield: Greenleaf Publishing.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.
Jensen, M. C., & Warner, J. B. (1988). The distribution of power among corporate managers, shareholders, and directors. Journal of Financial Economics, 20, 3–24.
Kaczmarek, S., Kimino, S., & Pye, A. (2012). Interlocking directorships and firm performance in highly regulated sectors: the moderating impact of board diversity. Journal of Management and Governance. doi:10.1007/s10997-012-9228-3.
Kwee, Z., Van Den Bosch, F. A. J., & Volberda, H. W. (2010), The influence of top management team’s corporate governance orientation on strategic renewal trajectories. ERIM Report Series Reference No. ERS-2010-032-STR.
Langley, A. (1999). Strategies for theorizing from process data. Academy of Management Review, 24(4), 691–710.
Langley, A. (2008). Studying Processes in and around Organizations. In D. Buchanan & A. Bryman (Eds.), Sage handbook of organizational research methods. London: Sage.
Mason, J. (1996). Qualitative reasoning. London: Sage.
Monks, R. A. G., & Minow, N. (2001). Corporate governance (2nd ed.). Oxford: Blackwell.
Nestor, S. (2005). Falling between the cracks: Privatisation and corporate governance in the european telecom industry. Corporate Governance: An International Review, 13, 137–155.
Newhouse, J. (1985). The sporty game. New York: Alfred A. Knopf.
Oddo, G., & Pons, G. (2006). L’affare Telecom. Milano: Sperling & Kupfer.
Pettigrew, A. M. (1990). Longitudinal field research on change. Theory and practice. Organization Science, 1(3), 267–292.
Pettigrew, A. M. (1992). The character and significance of strategy process research. Strategic Management Journal, 13(1), 5–16.
Porter, M. E. (1985). Competitive advantage. New York: The Free Press.
Rindova, V., & Kotha, S. (2001). Continuous morphing: Competing through dynamic capabilities, form, and function. Academy of Management Journal, 44(6), 1263–1280.
Roe, M. J. (1994). Strong managers, weak owners: The political roots of American Corporate Finance. Princeton, NJ: Princeton University Press.
Rondelli, L. (1999). Credito Italiano: Storia di una privatizzazione. Seminar held at the School of Economics and Business, University of Naples “Federico II”, 28 May.
Rumelt, R. P., Schendel, D. E., & Teece, D. J. (Eds.). (1994). Fundamental issues in strategy. Cambridge, MA: Harvard University Press.
Teece, D. J. (1990). Contributions and Impediments of Economic Analysis to the Study of Strategic Management. In J. W. Fredrickson (Ed.), Perspectives on strategic management (pp. 39–80). New York: Harper Business.
Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.
Tirole, J. (2001). Corporate governance. Econometrica, 69, 1–35.
Volpato, G. (2004). Il caso Fiat. Crisi e riorganizzazione strategica di un’impresa simbolo, ISEDI.
Whincop, M. J. (2000). Entrepreneurial governance SSRN: http://ssrn.com/abstract=254169 or doi: 10.2139/ssrn.254169.
Williamson, O. (1984). Corporate governance. Yale Law Journal, 93, 1197–1230.
Yin, R. K. (1994). Case study research: Design and methods (2nd ed.). Thousand Oaks, CA: Sage.
Zingales, L. (1998). Corporate governance. In P. Newman (Ed.), The new Palgrave: Dictionary of economics and the law. New York: MacMillan.
Acknowledgments
We thank the anonymous reviewers and Olimpia Meglio for mindful suggestions that have contributed to improve the quality of the study, as well as JMG editor-in-chief Roberto Di Pietra for his relevant support.
Author information
Authors and Affiliations
Corresponding author
Additional information
This paper is one of the principal outcomes outspreading from a multi-annual research project we are conducting on the relationships between corporate governance and strategic management.
An earlier version of this paper was presented at the symposium “Corporate Governance and Strategic Management in Different Contexts: Fostering Interchange of a Crucial Relationship”, held at the Academy of Management Meeting in Anaheim, CA, in August 2008.
Rights and permissions
About this article
Cite this article
Capasso, A., Dagnino, G.B. Beyond the “silo view” of strategic management and corporate governance: evidence from Fiat, Telecom Italia and Unicredit. J Manag Gov 18, 929–957 (2014). https://doi.org/10.1007/s10997-012-9247-0
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10997-012-9247-0