Research Question/Issues
Most extant literature implicitly equates obtaining information through board interlocks to acting on the information. We investigate triggers that help to translate the information into action. In addition to exposure to the information by board interlocks, we suggest that the self‐interest of the individuals who create these ties and hierarchical power of interlinked firms determines the likelihood of taking actions of adopting new practices.
Research Findings/Insights
Using the action of adopting two distinctive governance practices, stock option pays or board reform, we find that sent ties and received ties affect the adoption decisions differently. Whereas sent ties reflect managerial interests, received ties derive power from a hierarchical relationship between the focal firm and the interlinked firm. Such differential nature of sent and received ties drives a differential result in terms of adopting two distinctive governance practices. We also find support for different moderating effects of firm performance on the impact of sent and received ties.
Theoretical/Academic Implications
In this study, we incorporated the self‐interest of executives with sent ties to prior adopters and the power of directors who establish ties with prior adopters that are hierarchically positioned. By doing so, this study paints a more fine‐grained picture regarding underlying mechanisms by which information gained through ties is translated into action. This provides important insights for both agency theory and resource‐dependency theory.
Practitioner/Policy Implications
Hierarchical board ties are not a unique phenomenon in Japan. We often find such ties in business groups in China, India, Korea, and some European countries. Establishing board interlocks among subsidiaries in a business group is an important governance resolution for controlling the whole business group. Hence, our findings that the ties carry not only information but also agent's interest and hierarchical power should be taken into account when a business group designs board interlocks.
Keyword
blockholder ownership
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board policy issues
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Corporate governance
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Japan
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resource dependence theory
This case compares two global giants, Samsung and Huawei, which operate business in the information and communications technology (ICT) field. Both of them have faced similar situations as targets of trade wars between their home country and another developed country. However, they both remained robust despite external hardships. In addition, they grew quickly from latecomers from less developed countries to key players in the global market.
The case began by looking back on the story of Samsung overtaking Sony. The external economic shock to the Japanese economy brought by the Plaza Accord radically shifted Sony’s focus from hardware to software and entertainment content, which in turn brought great opportunities to Samsung. Samsung fortunately survived the Asian Financial Crisis and expanded its international business. To catch the new technological wave, Samsung chose to be a fast-follower, while Sony attempted to be a rule-maker in the digital age.
Huawei, rising to become a global giant from China, took a path that was similar to the one taken by Samsung. Huawei benefited profoundly from China’s economic boom. It survived by serving the spiking demand in rural areas. Then, Huawei began to learn from Western incumbents and imitate their practices. Meanwhile, Huawei invested heavily in R&D activities and took the lead in 5G through open innovation. The fourth-generation industrial revolution—encompassing the Internet of Things (IoT), AI, and Big Data—created a great window of opportunity for upheaval. Accordingly, some questions naturally follow from the comparison: Is Huawei going to overtake Samsung? Or is Huawei still going to lag behind Samsung for the foreseeable future? What will determine their relative positions in the global market?
