FOUNDATION OF THEORETICAL FRAMEWORK
2.6 Embedded View of CG
2.6.2 Means-Ends Decoupling of CG
Traditionally, ‘Decoupling’ research has focused on the gap between formal policies and organizational practices; and examined when and why organizations violate or avoid the implementation of goal-aligned policies (Fiss & Zajac, 2004; Westphal,
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Gulati, & Shortell, 1997). Recent developments in the Neo-Institution literature focus on the gap between organizational practices and intended outcomes; and examine how and why misaligned policies are being rationalized within formal structures (Abrahamson, 1991; Bowen, 2014; Dick, 2015). As discussed by Bromley & Powell (2012), Means- Ends Decoupling occurs when the causal links between formal policies and intended outcomes are opaque and weak; yet organizations adopt these misaligned policies due to rationalization of the recommended structure by powerful actors and institutions. Means- Ends Decoupling is common in more fragmented environments and “may increase over time with the worldwide adoption of New Public Management and neo-liberal
ideologies.” (Bromley & Powell, 2012: 27).
Neo-Institution scholars have argued that Policy-Practice Decoupling is a transitory phenomenon (Guillén & Capron, 2015; Wijen, 2015). Overtime with
institutional development, expected outcomes can be often achieved as the goal-aligned policies are enforced by powerful external institutions (Espeland & Sauder, 2007; Rajan & Zingales, 1998; Westphal et al., 1997). However, Means-Ends Decoupling is a
relatively persistent phenomenon (Dick, 2015). In order to ensure clarity, manageability, and large scale policy implementation, institutional actors prefer developing a
compliance based system with uniform set of rules (Wijen, 2014). Such institutional arrangements lead to rigidity and constrain flexibility in effectively responding to unique issues/problems (Wijen, 2015), which can vary due to environmental complexities, actor diversity, and may other aspects of circumstantial uncertainties (Espinosa & Walker, 2011; Levy & Lichtenstein, 2012). As a result, compliance based universal institutions often generate a gap between means (policies and practices) and ends (envisioned
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outcomes). Developed external institutions cannot help moderate any positive outcomes as the core problem here is not firms’ avoidance of policy implementation (which can be prevented by strong external institutions); rather a misalignment between policies and outcomes (strong external institutions may ensure implementation of the rationalized policies which, however, are not effective in achieving desired goals).
In the governance literature, many scholars imply the idea of Means-Ends Decoupling in criticizing the Anglo-Saxon based CG reforms (Bebchuk & Hamdani, 2009; Bruce et al., 2005; Davis et al., 1997; Morck, Yeung, & Yu, 2000; Young et al., 2008). They express serious concerns as extensive governance reforms over the years have not been able to achieve the envisioned goals (Chen et al., 2011; Young et al., 2008). Scholars argue that the nature of ownership structures, agency problems, actors’ interests, and organizational dynamics vary across different types of firms from different contexts (Fiss, 2008; La Porta et al., 1999). Generally these differences are difficult to factor in while developing a standardized set of formal rules. Availability of supporting external institutions cannot guarantee firm level positive outcomes as these CG
institutions are promoting a set of ineffective/misaligned internal policies to begin with (Bebchuk & Hamdani, 2009).
Table 2.2 summarizes the key points of Universal View of CG vs. Embedded View of CG. This summary is provided based on the two core issues; policy-goal alignment of internal CG mechanisms in attaining good governance and significance of external CG institutions in implementing the firm level policies.
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Table 2.2: Summary of Universal View of CG vs. Embedded View of CG
Universal View Generalizability of Internal CG Complementarity of External CG
(i) Policy-Goal Alignment of Internal CG
Firm level CG policies in general are aligned with the intended goal of attaining good governance.
Firm level CG policies in general are aligned with the intended goal of attaining good governance.
ii) Role of External CG in Policy Implementation
Country level CG policies are the 'complementary' factor in enhancing positive impact of the firm level CG mechanisms. - In absence of developed external institutions in weak context, organizations rely on the internal mechanisms to attain good governance; in availability of developed external institutions in strong context, positive impact of the internal mechanisms gets further enhanced.
Embedded View Policy-Practice Decoupling of CG Means-Ends Decoupling of CG
(i) Policy-Goal Alignment of Internal CG
Firm level CG policies in general are aligned with the intended goal of attaining good governance.
Firm level universal CG policies are not aligned with the intended goal of solving various agency problems.
ii) Role of External CG in Policy Implementation
Country level CG policies are the 'necessary' factor in ensuring/ generating positive impact of the firm level CG mechanisms.
- In absence of developed external institutions in weak context, organizations conduct symbolic adoption of the internal CG mechanisms that can seldom attain good governance; in strong context, intended outcomes by the internal CG mechanisms are often achieved as necessary external institutions are available in implementing the formal policies.
- Scholars question the universality of “good” governance principles from the perspective of country institutional heterogeneity/embeddedness.
Because of ineffective internal mechanisms, country level CG institutions cannot support moderation of the firm level positive impact.
- In various organizational contexts, the core problem is not lack in ‘CG policy implementation’ (which can be addressed by developed external institutions) but rather lack in ‘CG policy alignment’ (where developed external institutions may end up implementing the misaligned/ineffective internal policies).
- Scholars question the universality of “good” governance principles from the perspective of firm structural
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