Roland F. Speklé

Explaining management control structure variety: A transaction cost economics perspective

This paper argues that the discipline of management control is likely to benefit from theories that provide a more cogent and comprehensive perspective to address the issue of control structure variety, and examines the potential of Transaction Cost Economics (TCE) to inform such theories. Based on TCE, this paper proposes a framework that explicates the link between various archetypical configurations of control devices and the activities they are expected to control. In this framework, the nature of the organizational activities and the required contributions from organizational participants are defined along three dimensions: (1) the extent of programmability; (2) the degree of asset specificity; and (3) the intensity of ex post information impactedness. These attributes are associated with distinctive control problems that need to be dealt with. The control archetypes differ in their problem-solving ability, which makes them appropriate for the governance of some contributions, but not for others. Moreover, they differ in cost, and the framework explains the alignment of a contribution with a control archetype by delineating the efficiency properties of the match.

The Adoption and Design of Enterprise Risk Management Practices: An Empirical Study

We examine (1) the extent of enterprise risk management (ERM) implementation and the factors that are associated with cross-sectional differences in the level of ERM adoption, and (2) specific risk management design choices and their effect on perceived risk management effectiveness. Broadly consistent with previous work in this area, we find that the extent of ERM implementation is influenced by the regulatory environment, internal factors, ownership structure, and firm and industry-related characteristics. In addition, we find that perceived risk management effectiveness is associated with the frequency of risk assessment and reporting, and with the use of quantitative risk assessment techniques. However, our results raise some concerns as to the COSO (Committee of Sponsoring Organizations) framework. Particularly, we find no evidence that application of the COSO framework improves risk management effectiveness. Neither do we find support for the mechanistic view on risk management that is implied by COSOs recommendations on risk appetite and tolerance.

Reinventing the hierarchy: strategy and control in the Shell Chemicals carve-out

Abstract This paper reports on a major portfolio restructuring at Shell. The restructuring involved the strategically motivated divestment of a significant part of Shell’s highly integrated chemical business. We study this event and—particularly—the related control issues, using transaction cost economics (TCE) as our basic frame of reference. Our analysis shows that many of the problems encountered by Shell in this process are strongly related to asset specificity and the need for adaptive mutual coordination and integration. In such a situation, TCE reasoning suggests internal (hierarchical) governance to prevail because of its superior ability to foster coordinated adaptation. Shell, however, opted for hybrid control. But our analysis demonstrates that the new, intendedly hybrid structure mimics the hierarchy in almost all fundamental respects, and that it functions in an intrinsically hierarchical way. These findings suggest that the need ‘to get the structure right’—right being intrinsically hierarchical in conditions of high asset specificity and uncertainty—is quite pervasive. This underlying force appears to be so compelling that it operates irrespective of strategy, creating a difficult dilemma in which strategic intentions and control considerations interact in a complicated way.

Management Control, Results-Oriented Culture and Public Sector Performance: Empirical Evidence on New Public Management

New Public Management (NPM) has been guiding public sector reform for over 25 years. Its position on the design of effective management control rests on three key ideas: (1) performance improvement requires a results-oriented culture that emphasizes outcomes rather than inputs or processes; (2) public sector organizations need to introduce performance management based on targets, monitoring and incentives; and (3) public sector organizations should decentralize decision rights and reduce their reliance on rules and procedures. Focusing on the particularly influential version of NPM as advocated by the OECD, we examine the validity of these ideas theoretically and empirically. We conclude that NPM’s reform programme should be reconsidered. Although the evidence indicates that a results-oriented culture is positively associated with performance, we find little support for the assumed benefits of NPM-type performance contracting. In addition, the results suggest that both the effects of decentralization and the reliance on rules and procedures are opposite to NPM’s expectations.

Management Control Research: A Review of Current Developments

In this chapter, we provide an overview of current developments in management control research, looking both at method choices and thematic patterns. Traditionally, overview papers are based on what has been published over a specific period of time in a selection of leading journals. Our approach is slightly different. Rather than looking at what has been published, we want to see what people are currently working on, and to pick up on themes and trends that appear to define the contemporary research agenda of the field. As a point of departure, we choose the papers from the 2013 conference of the Management Control Association (MCA), held at Nyenrode Business University. The MCA conference has established itself as one of the main venues for management control researchers, and is known for its open-minded- ness regarding methodological positions and method choices. To get a richer perspective on the contemporary research agenda, we add a selection of papers that have been published in the period 2008–2012 and that appear to have a strong impact on ongoing research work. To identify these papers, we rely on Google Scholar for citation scores.1 The interesting thing about these scores is that they are not restricted to references in selected scholarly journals (as for instance Tompson’s ISI Web of Knowledge scores), but encompass all sources available on the internet — including unpublished working papers, conference proceedings and seminar presentations.

Governance in Not-for-Profit Hospitals: Effects on CEO Compensation and Performance

We examine the effect of corporate governance on both CEO compensation and several financial performance indicators in a sample of Dutch hospitals. In a series of pooled regressions, we find evidence that supports earlier findings in the literature. For instance, our results indicate that the size of the supervisory board is associated with lower CEO compensation and higher profitability, suggesting that in the hospital sector, larger boards are more effective from a governance point of view (Aggerwal et al., 2012). We also find a positive association between supervisory board compensation and CEO recompense, which may imply that better paid supervisors are less effective in disciplining CEO rent extraction (Cardinaels, 2009). However, these governance factors add little to the explanation of the variance in CEO compensation and financial performance. Moreover, if we simultaneously correct for both serial and cross-sectional dependence, we no longer find any significant effects for the governance variables included in our study. These results demonstrate the importance of controlling for firm- and year-fixed effects, and suggest that not doing so may lead one to overstate or misinterpret the effects of governance choice.

Management control of support services : Organizational embeddedness and non-strategic IT

This chapter provides evidence on the factors that influence the design of the control arrangements that govern support services. Specifically, we study sourcing decisions of non-strategic information technology (IT) support services. While the popular management literature suggests to outsource non-strategic activities, in practice organizations perform these services (partly) in-house. Based on transaction cost economics (TCE), we hypothesize that control structure choices depend on asset specificity, uncertainty and frequency. Using survey data on IT sourcing decisions from 89 firms in the construction industry, we find support for most of our hypotheses. Our results indicate that asset specificity deriving from the degree of organizational embeddedness of the IT function negatively affects firms’ propensity to outsource their non-core IT support, and that (behavioural) uncertainty intensifies this negative effect. As expected, we also find that frequency has a negative direct effect on the willingness to outsource IT services provision. However, we find no support for the hypothesized interaction between asset specificity and frequency. Overall, our study indicates that the organizations choice to outsource non-strategic support services depends on the organizational role of these services, rather than on their technological characteristics.

Governing the League: Credible Threats, Intervention Rights, and Social Ties in Football Competition Licensing

We examine the comparative effectiveness of three alternative licensing systems in professional football. The three systems’ main concern is with the promulgation of responsible financial behaviour among football clubs. To that effect, all three systems rely on entry control and ex ante budget approval rights. However, the three structures also differ, especially with regard to the way in which they seek to impose ex post budgetary discipline. We analyse these differences, using Transaction Cost Economics as our basic frame of reference. Both theoretically and empirically, we demonstrate that the effectiveness of the licensing arrangements depends on the credibility of the punitive measures available to the governing body. We also find evidence to suggest that social ties may partly substitute for formal intervention rights.