Power and Paradigms: The Dutch Response to Pressures for Shareholder Value

• Author: Frans A J van den Bosch,Edward J. Zajac,Ivana Naumovska,Pieter‐Jan Bezemer,Henk W. Volberda
• Published date: 01 January 2015
• DOI: http://doi.org/10.1111/corg.12093
• Date: 01 January 2015

Power and Paradigms: The Dutch Response to

Pressures for Shareholder Value

Pieter-Jan Bezemer*, Edward J. Zajac, Ivana Naumovska,

Frans A J van den Bosch, and Henk W. Volberda

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: In recent years, research aimed at identifying and relating the antecedents and consequences of

diffusing organizational practices/ideas has turned its attention to debating the international adoption and implementation

of the Anglo-American model of corporate governance, i.e., a shareholder value orientation (SVO). While financial econo-

mists characterize the adoption of an SVO as necessary and performance-enhancing, behavioral scientists have disputed

such claims, invoking institutional contingencies in the appropriateness of an SVO. Our study seeks to provide some

resolution to the debate by developing an overarching sociopolitical perspective that links the antecedents and conse-

quences of the adoption of the contested practice of SVO.

Research Findings/Insights: We test our framework using extensive longitudinal data from 1992–2006 from the largest

listed corporations in the Netherlands. We find a negative relationship between SVO adoption and subsequent firm

performance, although this effect is attenuated when accompanied by greater SVO alignment among major owners and a

firm’s visible commitment to an SVO.

Theoretical/Academic Implications: This study extends prior research on the diffusion of contested organizational prac-

tices that has taken a sociopolitical perspective by offering an originalcontingency perspective that addresses how and why

the misaligned preferences of corporate owners will affect (i) a company’s inclination to espouse an SVO, and (ii) the

performance consequences of such misalignment.

Practitioner/Policy Implications: This study suggests that, when board members are considering the adoption of new

ideas/practices (e.g., SVO), they should consider the contextual fitness of the idea/practice with the firm’s owners and their

interests.

Keywords: Corporate Governance, Practice/Idea Diffusion, Shareholder Value Orientation, Ownership Structure,

The Netherlands

“There are of course competing claims about the meaning of a

paradigm, indeed, about the meaning and significance of any

body of beliefs. But none is correct, and which among them

secures local ‘hegemony’ is a matter of social, political, eco-

nomic and other sorts of power” (Rosenberg, 2005: 177)

INTRODUCTION

Despite the long history of the public corporation, its fun-

damental purpose remains a topic of debate among scholars

and practitioners around the world (Freeman, Wicks, &

Parmar, 2004; Sundaram& Inkpen, 2004). While coordinated

market economies (e.g., Germany and Japan) conceptual-

ized corporations as communities of interests whose stake-

holders should be served, liberal market economies (e.g., the

United States) typically viewed corporations as instruments

for creating value for shareholders (Meyer & Höllerer, 2010;

Stadler, Matzler, Hinterhuber, & Renzl, 2006). Recent schol-

arship suggests growing evidence that the latter model is

becoming more popular around the globe and executives in

contexts with a historical emphasis on stakeholder value,

ranging from Germany (Fiss & Zajac, 2004; Tüschke &

Sanders, 2003) and Austria (Meyer & Höllerer, 2010) to

Japan (Yoshikawa & McGuire, 2008; Yoshikawa, Tsui-Auch,

& McGuire, 2007) and Sweden (Lazonick & O’Sullivan,

2000), are struggling with pressures for the adoption of a

shareholder value orientation (SVO).

*Address for correspondence: Pieter-Jan Bezemer, School of Accountancy,

Queensland University of Technology,2 George Street Brisbane, QLD4001, Australia.

Tel: 0061731384043; E-mail: pieterjan.bezemer@qut.edu.au

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Corporate Governance: An International Review, 2015, 23(1): 60–75

© 2014 John Wiley & Sons Ltd

doi:10.1111/corg.12093

The specific antecedents and consequences of a firm’s

adoption of an SVO in a national context with a pre-existing

competing logic has become a focused subject of recent aca-

demic inquiry (Fiss & Zajac, 2004, 2006; Sanders & Tüschke,

2007; Yoshikawa et al., 2007). Some scholars have suggested

that the rise of the shareholder value model is driven

by capital- and product-market pressures (Lazonick &

O’Sullivan, 2000; Yoshikawa & Rasheed, 2009). Others have

pointed to the impact of sociopolitical and institutional pro-

cesses. For instance, Fiss and Zajac(2004, 2006) illustrate how

the varyingpreferences of major domestic owners influenced

the adoption of an SVO among German companies, and

Sanders and Tüschke (2007) describe how a firm’s exposure

to institutional contexts where shareholder value practices

are more legitimate increases SVO diffusion across national

boundaries. Even greater variation exists in examinations of

performance consequences of SVO adoption: while financial

economists have emphasized the performance-enhancing

character of an SVO, behavioralscientists have suggested that

the contested natureof an SVO could invoke political conflict

and misalignment among its main stakeholders, negating

any presumed performance benefit.

While this growing literature has expanded our broad

understanding of the diffusion of an SVO, a number of fun-

damental questions regarding this diffusion process and its

consequences remain unanswered. For example, while

large-scale diffusion studies have recently added a focus

on contestation in diffusing organizational practices/ideas

(Fiss, Kennedy, & Davis, 2012; Fiss & Zajac, 2004; Sanders &

Tüschke, 2007), they do not analyze directly the balance of

power between forces that are for or against such a change.

Indeed, “diffusion can be a highly political process . . .

driven by the political dynamics of opposition, argumenta-

tion, contestation and compromise” (Schneiberg & Soule,

2005: 156). Moreover, there is little research that addresses

the performance consequences of diffusing practices under

conditions of contestation; when changes are needed but

also particularly contested, does this also portend a subse-

quent firm performance improvement or decline? In this

study we use a sociopolitical perspective to examine these

processes in the Dutch context. In doing so,we hope to make

the following two contributions to the existing literature.

First, we extend prior research on the diffusion of organi-

zational practices that has taken a sociopolitical perspective

(Fiss & Zajac, 2004; Westphal & Zajac, 1998, 2001; Zajac &

Westphal, 1995) by directly examining how the balance of

power between major owners affects a firm’s inclination to

espouse an SVO in a national context dominated by an alter-

nate logic. In contrast to prior diffusion research that has

generally examined the influence of specific actors (Fiss &

Zajac, 2004, 2006; Lazonick & O’Sullivan, 2000), we investi-

gate how contestation regarding adoption emerges from the

combined impact of owners for and owners against SVO

change. We contextualize this analysis by exploring two

potential sources of SVO contestation in the traditionally

stakeholder-oriented Dutch context: technical misalignment

between the preferences of major owners on the basis of

their relationship with the firm (i.e., independent institu-

tional investors versus dependent investors), and cultural

misalignment between the preferences of major owners (i.e.,

Anglo-American versus non-Anglo-American investors).

In addition, while prior research has focused primarily on

the antecedents of SVO adoption, we also analyze the perfor-

mance consequences of a company’s adoption of an SVO.

While there is no dearth of opinion on the consequences

of SVO adoption – e.g., strong and universalistic negative

statements such as, “End shareholder value tyranny: Put the

corporation first” (Raynor, 2008), and “So if others are

stupid enough to do it [adopting an SVO], that will onlyhelp

North American businesses” (Mintzberg, 2000: 38) – there is

relatively little evidence either supporting or refuting such

strongly held views. Moreover, the situation suggests the

need for a more nuanced framework that seeks to specify

the mechanisms that would generate (or attenuate) such an

expected negative outcome. In this study, we address explic-

itly these shortcomings by providing a theoretical and

empirical analysis of the conditions that can exert a down-

ward performance pressure following the adoption of an

SVO.

The remainder of this paperis structured as follows. In the

next section, we advance our sociopolitical perspective and

develop our hypotheses regarding SVO adoption and its

performance implications. The third section describes our

dataand methods, i.e., the Dutch research context, our use of

extensive panel data on top-100 listed firms in the Nether-

lands from 1992 to 2006, and our empirical analyses. In the

fourth section we discuss the results emerging from our

study and in the final section we elaborate on our findings,

their implications, and avenues for future research.

POWER STRUGGLES AND

CONTESTED CHANGE

A growing body of research on organizational change has

emphasized the importance of sociopolitical processes

driving the diffusion of organizational practices/ideas

(Ansari, Fiss, & Zajac, 2010; DiMaggio & Powell, 1983;

Kennedy & Fiss, 2009; Westphal & Zajac, 1998, 2001, 2013;

Zajac & Westphal, 1995, 2004), i.e., companies do not only

need to deal with demands from their technical environ-

ments, but also with demands from their cultural environ-

ments. Accordingly, the interpretations of organizational and

societal actors about “the way things are” and “the way

things are to be done” (Scott, 1987: 496) have a significant

imprint on a company’s response to novel organizational

practices and ideas. In fact, firms may adopt these practices

and ideas for motives of societal legitimacy rather than effi-

ciency (Davis, 1991; DiMaggio & Powell, 1983; Westphal &

Zajac, 1994) or even with the knowledge that they are inef-

ficient (Yoshikawa & Rasheed, 2009). Moreover, scholars

have shown that symbolism, i.e., espousing the adoption of

new normative beliefs without implementing them, may

already generate market reactions, because prevailing finan-

cial market logics also tend to be socially constructed

(Westphal & Zajac, 1998; Zajac & Westphal, 2004).

Given that the contexts in which practices diffuse are far

from neutral (Ansari et al., 2010; Schneper & Guillen, 2004)

and often highly political (Davis & Thompson, 1994; Fiol &

O’Connor, 2002), prior studies have indicated that these

sociopolitical processes tend to become particularly pro-

nounced when new organizational practices/ideas are

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Volume 23 Number 1 January 2015© 2014 John Wiley & Sons Ltd