Control mechanisms to achieve influence during Phase 4 of “T”’s process of internationalization internationalization

Ownership: compulsory WOS (100% ownership), with some exceptions, where it was not possible to achieve 100% ownership but, at the same, presence in the market was strategically important.

Several respondents mentioned that investing in countries with a high level of potential corruption and political risks made it important to follow the strict financial routines from HQ in respect of the subsidiaries. It was stated that “T” had even further strengthened the system of common reporting when the responsible staff from HQ’s financial department followed the approved procedures regarding each WOS and each JV. At the same time, each cluster had its own financial controller, to follow the WOSs and JVs in the cluster. This financial controller worked closely with the financial departments in the WOSs and JVs that prepared the first draft for the financial report per quarter, before this document was approved in the cluster and then forwarded to Group Finance. These reports had to be produced in a strict policy from HQ and presented during the Business Reviews for the CEO and top management. This means that the established financial reporting had several “rounds of control”

that should secure the matter of influence from HQ and provide opportunities to discover unproper issues and unproper reporting. At the same time, the business controllers from HQ admitted that this

68 (Redegjørelse for eierstyring og selskapsledelse, 2014).

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system worked only because “T” both owned 100% in the subsidiaries and established corporate governance with the strict routines of financial control. In addition, it was mentioned that the whole process depended on real and proper information “from the ground”, meaning that information from the subsidiaries should be reliable and based on real information from the operations, without anything being hidden (Conversation with one of the experienced financial managers, 2015).

A story of corruption in Uzbekistan can illustrate that the established financial routines from HQ picked up a large example of corruption in one of “T”’s JV systems. Although “T” was not the direct owner in Uzbekistan, but via a JV that had dedicated financial structures in the Netherlands that should have discovered the case of corruption, the corruption was not discovered. However, a controller from HQ in “T”, checking the routine financial information about the subsidiary of “T”’s subsidiary in Uzbekistan, discovered payments that had not been properly reported. This example shows that the established financial control functions in HQ, as corporate governance for all subsidiaries, are extremely important in order to have influence, especially in relation to JVs. The whole “Uzbekistan”

case illustrated that there should be established routines for when the controllers from HQ will get the information from WOSs, JVs and JVs to JVs, and other entities in the chain that follows. One of the respondents admitted that there are limitations on which level in the chain it is possible to utilize the control function. In the respondent’s experience, this control stops at the maximum second or third level (Conversation with an experienced manager, 2015). Another respondent again confirmed the importance of having a proper Management Agreement in JVs, so long as it secures a practical approach in the framework for the protection of the rights of the co-owners and the principles of common governance in JVs, on which all the co-owners are agreed.

Thus, the ownership issue, regarding how to control subsidiaries abroad during Phase 4, shows that there are few JVs in “T”’s portfolio: all of them in strategically important markets, where legislation did not allow “T” to be an owner in WOS. While there are substantial challenges in controlling JVs,

“T” should consider how important it is to be a co-owner in a JV, and whether HQ has enough mechanisms to establish influence. The mechanism of financial control via ownership should be supported by other mechanisms of control, using the whole scope of existing mechanisms in “T”.

“T” concluded that WOS is the form of ownership in “T”’s portfolio that allows it to utilize the functions of control that could provide a total-control situation, where the matter of influence will be established. As mentioned in Chapter 6, the WOS should be supported by a strong governance system

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from HQ that will trigger the establishment of the scope or package of different controls, described by one respondent as: “a chain of controls”, so long as the FC leads to SC and OC and, further, to BC.

BoDs in subsidiaries: did they start to be a pro forma because of the strong centralization of the routines and mechanisms of control in HQ for achieving total influence?

One respondent (Interview, 2017) indicated that HQ had achieved strong influence and control in the subsidiaries via the BoD, by establishing the system described in Chapter 6.

We had a good system when the Chairman of the BoD had a link to the top of “T”, also being at the top of “T” himself, and at the same time worked closely with the CEO in the subsidiary and top management. (Interview with a former manager in HQ involved in international operations, 2017)

But, at the end of this period, the direct link between the CEOs in the subsidiaries and the CEO of “T”, and the top managers in HQ, strengthened the role of the CEO in the subsidiary but weakened the role of the BoD.

I understand that top management and the CEO from HQ wanted to have more influence and to be more involved in operations. But it is wrong when the CEO in the subsidiaries can be very close to the CEO of “T”, and the Chairman of the BoD can be simply bypassed. (Interview with an experienced manager, 2017)

This interview illustrates that the process of the strong centralization of power from HQ, in relation to the operational link to the subsidiaries, affected the established balance between the BoD in the subsidiaries – operations in subsidiaries and the involvement of the CEO and top management in operations abroad. During this period, such tendencies of such centralization were noticed, but the respondents emphasized that the role of the BoD in subsidiaries became weaker, and the level of influence and control from HQ became stronger. The respondents confirmed again that the strong centralization of power in HQ minimized the role of the BoD as an independent mechanism of influence and control. The respondent noted: “Everything started having to be decided at HQ” (ibid.).

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The presented interviews were helpful in reaching an understanding of how the mechanism of the BoD’s function during Phase 4 of internationalization changed, when the routines of strong centralization were established at HQ. The BoD lost its independency and became weaker, in terms of its influence in the subsidiaries. Some of its functions were transferred to the staff at HQ. The changes in the role of the BoD and the consequences for the operations were discussed with the respondents. One respondent explained the following:

Despite that “T” had WOSs and expected to have influence that has been utilized through the control mechanisms designed at HQ, it is important to be sure that the corporate governance in the subsidiaries are implemented and practicing. Thus, it was important both for the HQ and subsidiaries which have the BoD as the supreme governing body, meaning to utilize the best solutions and decisions in the concrete company in the framework of the decided rules and routines, keep this practice. The subsidiaries should have opportunities to use the local approach and the local understanding of how to do business. The respondent used the example that, when TW was designed, in the period of active consolidation of JVs, “T” could use the model – which is used in many MNCs – to have a thick book with detailed guidelines.

“T”’s HR staff decided that it is most important to not have so many rules but that these rules should be based on common values, and the practice should be local. The respondent underlined the importance of the local context (Conversation with one of the HR managers, 2016).

Expatriates: Expatriates started to be a pool of high professionals in the top positions in the subsidiaries.

The expatriates started to play an important role in establishing the processes of understanding and implementation of corporate governance and corporate culture in the subsidiaries abroad, in accordance with TW, to develop common corporate governance and culture, for both HQ and the subsidiaries. In this connection, each expatriate – now the CEO and executives of a “T” subsidiary – started to be significant key persons, playing an important role in the global business community that demanded special skills: professional, managerial and individual. Most respondents associated the institution of expatriates with the important role of being a “mainstay” in a subsidiary, in order to provide the key values from HQ and watch the processes in operation. This informant emphasized the importance of expatriates as carriers of HQ’s DNA to the subsidiaries.

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Expatriates had a key role; they had to be in the executive positions. They were active in projects and connected the subsidiaries and HQ. They provided governance.

Expatriates played a serious role in influencing the employees in subsidiaries, by representing the culture and norms from HQ and, at the same time, following the business. They were mediators who understood the local employees and provided information back to HQ. (Former SVP, interview 2016)

… expatriates are supposed to be people of high competence who have a high level of professional skills and understand well the values of “T”. In other words, expatriates should have “T”’s DNA”, in order to implement the strategy, practice and values of HQ in the subsidiaries… It is important to have executives in subsidiaries that we know well, that have “T”’s DNA… We needed to provide the same standards and the same business culture as at HQ. They could choose the staff around them. Now they can communicate in English, it makes the communication better. (A former EVP, interview, 2017)

Local employees should get HQ’s “DNA” via practice – working together with Norwegians at HQ and in the subsidiaries, being involved in different network arenas in a Group – HQ and subsidiaries together. The expatriates were forced to pay more attention to values and governance. The “institution of expatriates” is closely connected to the professional teams from HQ responsible for the different skills; these teams can always be used as high-level consultants or experts from HQ. Those employees are not long-term executive expatriates but temporary/short-term expatriates, used by the executive expatriates in concrete purposes, in order to train the local staff or to solve certain concrete problems.

At the same time, the executive expatriates are closely connected to the top management on the issues of the development of strategy and the strategic development of “T”. In addition, the expatriates are the executives in the subsidiaries themselves, providing operational excellence in the framework of the corporate strategy.

When the expatriates were established as a team, we did not talk about DNA – this came later, when the institution was established – high professionals that understood and provided “T”’s values and “T”’s governance. You could call them a professional pool. (ibid.)

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HQ either trained or hired expatriates as carriers of its DNA. “T” established a “DNA pool” of expatriates, in order to provide the right recruitment in the key positions. Special criteria to be a part of the “DNA pool” were decided among the HQ’s executives, who were responsible for the personal selecting of expatriates for the CEO positions in WOSs, one of which is experience working internationally. On the question of how the recruitment took place, a former HR Executive VP explained:

“T”’s top executives were responsible for the recruitment of the CEOs in WOSs (other expatriates in WOS were recruited by the CEO of WOS in coordination with HR and executives responsible for the region). The photographs of the actual candidates prepared by HR and the executives responsible for the region needing the CEO/CEOs were placed on the wall as in a fair. The members of the Executive Board of “T” walked from picture to picture and put their remarks on a paper near the picture – both positive and negative comments. After several rounds, the discussion and opinion exchanges followed. The important criteria were that a person should have leadership experience and experience of working internationally. There were, of course, other important criteria as well, related to professional skills. This tool worked well, [but] sometimes the wrong person was appointed to the position – the personal skills were not paid much attention on, unfortunately. But we always managed to correct it. The CEO had the last word. (Former EVP, interview 2017)

Another interviewee confirmed that the principle of best practice also had an impact on the process of appointing expatriates.

Proclaiming the idea of “Different companies – one group”, we meant having the common guidelines of doing business and our corporate governance and culture, but, at the same time, we wanted to transfer the best practice from all subsidiaries into common use. We could select what is the best not just for one country, or one region, but for the whole group. The same applies with expatriates – we take the best practice performed by expatriates to different subsidiaries. (Former executive manager, worked a lot abroad, 2016)

There were several interviews, which described that the expatriates should still be Scandinavians. One of the respondents explained:

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Foreigners who cannot represent “‘T’’s DNA”– being a good professional – could not be expatriates; they didn’t understand the issue of culture, values and governance, being influenced by their own culture. (Interview with an employee in HQ, who worked abroad a lot, in both Europe and Asia)

At the same time, “T” started to include more and more non-Scandinavian-by-nationality employees in the “DNA pool” of expatriates.

The company developed as a global entity; we had many executives working in different positions around the world. The top management decided that all employees who had the ambition to be appointed to an executive position, in either HQ or the subsidiaries, should have the experience of working internationally. This means that more and more expatriates of different nationalities came into the Group. But they had to have the same DNA approach, in order to transfer it to the employees in the subsidiaries: “T”’s DNA based on “T”’s governance. (Former EVP, responsible for HR, interview 2016)

During the last years of this period, more and more foreigners were included in the “expatriates’ DNA pool”; they were invited from the different subsidiaries. “T” started to practice the principle of rotation:

the expatriates could transfer the best knowledge and best practice from one subsidiary to another. The appointment of the executives to HQ started to be connected to the issue of being from the “expatriates’

DNA pool”. No executive was appointed to the position of executive, unless that person had worked abroad in the subsidiaries.

CCR: New “TW” is a governing platform for “T” that presents the new managerial relationship and behavioral framework from “T” as an MNC.

Here is how TW was presented on “T”’s website up to the beginning of November 2014:

The TW links the different elements of our culture and defines and structures how we do business through Vision, Mission and Values, Code of Conduct, Governing Documents and Leadership Expectations.

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In “T” Group you are encouraged to make your own choices and to find the best approach to your work. You have freedom, but you also have a responsibility to act according to the standards we have in “T”. In other words, you must know what is valued and what is unacceptable. (“T”’s intranet, 2013)

According to “T” the following elements define the behavior that is expected of employees in “T”

Group: Our Vision (Empower societies) – “we provide the power of digital communication, enabling everyone to improve their lives, build societies and secure a better future for all” (ibid.). Our mission – “we’re here to help our customers – we exist to help our customers get the full benefit of being connected” (ibid.); Our values (Make it easy; Keep promises; Be inspiring; Be respectful) “serve as a guide for our everyday work and describe how we should serve our customers and work together as colleagues” (ibid.); Code of Conduct defines the core principles and ethical standards by which we create value in our company; Leadership Expectations (Passion for business; Change and continuous improvement; Excellent execution; Empower people; Integrity and accountability).

TW was in the process of change from 2004. Thus, in June 2014, the EVP Head of People Development (PD)⁶⁹ presented for Group Executive Management (GEM) the revised concept of TW and a plan for its implementation that was approved by the leadership of “T”.

The concept was adopted and published on “T”’s website in November 2014. “TW is the foundation for our business, standards for how we do business” (“T”’s intranet, November 2014). The new version of TW now includes Vision, Mission, updated Code of Conduct, Values and new Leadership Attitudes.

Leadership Attitudes now consist of four specific values that leaders in “T” must incorporate in their managerial style (4Es): Explore, which means Innovation and encourages leaders to be innovative;

Engage, which means Collaboration and encourages leaders to be cooperative across “T”; Empower, which encourages leaders to enable team members to find the best solution; and Execute, which encourages leaders to retain “T”’s strong results orientation. At the same time, the Policies and Manuals are no longer part of TW, which was explained by the need for simplification of TW (“this change was made to simplify the TW” (ibid.).

Another adjustment in TW’s concept that has been introduced in TW is TW Commitment. As defined by “T”, TW Commitment “spells out what you sign up for when you join ‘T’ and allows all of us to reflect on this” (ibid.).

69 “T’’s Human Resources – HR