Research on Parent and Subsidiary Management and Control

Author: Chen Zhijun
Publisher:
Publish Date: 2006-12-01
Features: In the study of corporate groups, parent-subsidiary management is a key area of interest for both academia and practice. The development history of overseas parent-subsidiary corporate groups is much longer than that of China, but overseas scholars have not conducted in-depth research on them. Domestic scholars began researching this topic in the late 1990s. Overall, the theoretical research on parent-subsidiary control is not yet thorough, and practical summaries are still incomplete, indicating that the field is still in its early stages. The rapid growth of Chinese corporate groups urgently requires in-depth research on parent-subsidiary management control theory. This book explores the models and methods of parent-subsidiary management control in China, identifies optimization strategies, and theoretically discusses the research framework for establishing parent-subsidiary management control. Practically, it provides guidance and insights for parent-subsidiary management control in areas such as management control models, the use of control methods under different models, enhancing the management control capabilities of parent companies, optimizing quasi-parent-subsidiary structures, and subsidiary governance. This book holds significant theoretical and practical importance.
Parent-subsidiary management control refers to the measures taken by parent companies to achieve their objectives, based on information communication, by conditionally selecting control models, adopting appropriate control methods, and implementing performance evaluations to incentivize subsidiaries to align with the parent company's intentions. It includes key factors such as the control (parent company), control (subsidiary), control objectives, management systems and control models, and control methods. Parent-subsidiary management systems can be divided into three types: centralized management, decentralized management, and a combination of centralized and decentralized management. Based on relevant literature and the realities of China, this book classifies parent-subsidiary management control models from the perspective of corporate governance into three types: administrative control models based on non-action in subsidiary governance, governance control models based on subsidiary governance, and management control models based on subsidiary governance. The selection of parent-subsidiary management control models is influenced by external control environments and internal control environments (or conditions). The external environment includes: political and economic environments, social environments, technological environments, industry environments, suppliers, and customers. The internal environment consists of the parent company level and the subsidiary level. The parent company level includes group types, group strategies, organizational structures, holding levels, responsibility center types, and leadership styles, while the subsidiary level includes geographical distribution, importance levels, and growth cycles.
During the management process of parent-subsidiary relationships, parent companies implement control over subsidiaries through strategies, culture, human resources, finance, information, and performance to achieve their objectives. Different management control models may use control methods differently. Cultural control refers to managing subsidiaries by leveraging corporate visions and shared beliefs. It is achieved through methods such as seconding managers, establishing standardized management departments and systems, strengthening corporate culture cultivation and cross-cultural training, promoting communication and collaboration, valuing informal organizations, and setting up role models. Strategic control involves selecting organizational strategies and structures, creating control systems for monitoring and evaluation. Parent companies typically achieve strategic control through strategic formulation, environmental monitoring, and strategic implementation, covering overall corporate strategies, business unit strategies, and functional strategies.
Parent-subsidiary human resource control involves managing human resource planning, training, staff mobility, performance evaluations, and compensation within human resource management processes. Parent-subsidiary financial control is divided into three levels: the parent company level, the subsidiary board of directors level, and the subsidiary management level. Control methods include budgets, financial personnel, monetary funds, financial systems, and audits. Parent-subsidiary information control refers to the parent company setting the frequency and types of inter-company information transmission or specifying the operating rules of subsidiary information systems, ensuring the group can timely obtain accurate information from subsidiaries, preventing deviations in subsidiary behavior, and achieving control objectives to ensure the smooth realization of organizational goals. Parent-subsidiary information control methods can be categorized as centralized, decentralized, and non-centralized information control. Performance control includes the establishment of subsidiary performance evaluation systems by parent companies, the implementation of performance evaluations, and the application of performance evaluation results. It can be divided into three models: input process performance evaluation, input-output performance evaluation, and output performance evaluation.
To optimize parent-subsidiary management control, it is first necessary to enhance the control power of parent companies. Clarifying the functional positioning of parent companies, optimizing the corporate governance structure, improving the organizational structure of parent companies, and standardizing various management systems are important ways to enhance the management level and control power of parent companies. Secondly, it is essential to improve subsidiary governance. Parent companies generally need to achieve control over subsidiaries through subsidiary governance. Optimizing the equity structure of subsidiaries under the quasi-parent-subsidiary system is a key measure for improving subsidiary governance. The quasi-parent-subsidiary system is a special type of parent-subsidiary system named by the author. Its essence is the parent-subsidiary relationship, but in the quasi-parent-subsidiary system, the subsidiaries' investors are diverse yet essentially the same, as they are jointly established by parent companies and their subsidiaries or grand-subsidiaries. Finally, it is necessary to optimize the use of various control methods and address the problems arising from their practical application.