Mayer, MCJ.; Whittington, R.

‘Strategy, structure and “systemness”: National institutions and corporate

change in France, Germany and the UK, 1950-1993.’ Organization Studies 20:6 (1999) 933-959

Reproduced with permission of the copyright owner Walter de Gruyter © 1999. To view models, figures
and tables, visit ProQuest.

Abstract:
This paper distinguishes between 'tight' and 'loose' perspectives on national business systems. These two
systems perspectives are compared in the light of new and existing European data on corporate strategies
and structures, on the one hand, and national institutions of business finance, management control and top
management development on the other. Despite broadly stable and distinctive institutional backgrounds,
European corporations are found to have been transforming their strategies and structures steadily and in
very similar ways during the whole post-war period. The paper concludes in favour of loose, rather than
tight systems perspectives in contemporary Europe and considers implications for comparative research
and economic restructuring.
Descriptors: European organizations, institutions, diversification strategy, divisional structure, 'business
systems', ownership and control, management development

Introduction

The notion of national 'systems' of business organization has taken hold in recent years. Even in the open,
inter-linked economies of Western Europe, authors talk variously of distinct 'business systems' (Whitley
1994), 'social systems of production' (Hollingsworth and Boyer 1997), 'systems of industrial organization
and practice' (Herrigel 1996), 'national systems of industrial production' (Djelic 1998) and 'national
systems of innovation' (Freeman 1995). Beneath differences in focus and terminology, there is a common
desire to stress how business remains influenced by the particular institutional frameworks of the national
systems in which it is embedded. Against advocates of global homogenization (Yip 1992) and universal
contingencies (Donaldson 1996), these systems theorists insist that national institutions still matter.

This paper will seek to apply these kinds of system notions to the evolving corporate strategies and
structures of large industrial firms in post-war Europe. A central question here will be the degree of
'systemness' (Gouldner 1973: 206) within contemporary European economies. We shall contrast 'tight'
systems theories, emphasizing the self-reinforcing integration of national business and institutions, with a
'looser' structurationist (Giddens 1984) systems perspective that allows for internal inconsistency and
incremental change. It will be the looser perspective that best accounts for the seeming contradiction of
our empirical material, that of continued marked institutional differences amongst the major West
European economies at the same time as a steady post-war transition amongst large European firms
towards patterns of corporate strategy and structure typical of the United States. In addition to matching
the complexity of European business, this loose-systems perspective develops a distinct agenda for further
research and points a way forward for the current restructuring of many capitalist economies.

The next section begins by outlining the strong assumptions of cohesion required in some theories of
national systems and then develops a looser notion capable of accommodating the partial autonomy of
powerful actors within such systems. We go on to examine specific claims for links between corporate
strategy and structure on the one hand, and particular institutional patterns of business ownership,
management control and management development on the other. After introducing our empirical material,
we shall show how large British, French and German firms still reflect distinct national patterns of
ownership, control and management development, while becoming increasingly similar in terms of
diversification and divisionalization. Our point is that these firms are able to reconcile national
institutions with international practices in a way that allows for both change and continuity. We conclude
by considering the implications of looselyintegrated systems for further comparative organizational
research and for prospects of change and renewal within particular countries.

Business Systems and Change

The study of comparative institutions has accelerated since the apparent success in certain countries
during the 1980s of business and institutional arrangements very different from those of the Anglo-Saxon
world (Hamilton and Biggart 1988; Piore and Sabel 1984). These arrangements are widely captured by
the notion of distinct national 'systems' (Djelic 1998; Freeman 1995; Hollingsworth and Boyer 1997;
Nelson and Rosenberg 1993; Whitley 1994). However, as well as providing an organizing concept for
varieties of capitalism, the systems notion often implies an explanation for continued international
divergence. Enduring national differences are possible because of tight homeostatic feed-back loops
between local business and national institutions. This section will argue that tightly-integrated systems are
both unnecessary for explaining continuities in national characteristics and implausible given the nature
of the contemporary large firm. We shall develop a looser form of systems argument in which the
continuing distinctiveness of national systems may even depend on the partial autonomy of large firms.

The tight systems notion is expressed well in the definitions of leading theorists Whitley (1994) and
Hollingsworth and Boyer (1997). Whitley (1994: 175-176), extending his notion of business systems to a
European context, stresses interdependence:

'Business systems are ... relatively cohesive and stable ways of ordering firm-market relationships that
develop interdependently with dominant social institutions. They become established in market
economies where these institutions are sufficiently integrated and mutually reinforcing to generate and
help to reproduce distinctive patterns of economic organization ... They become interdependent with these
institutions.'

Hollingsworth and Boyer (1997: 2) list many of the elements with which we shall be concerned in
defining their 'social systems of production':

'... the following institutions or structures of a country or region are integrated into a social configuration:
the industrial relations system; the system of training of workers and managers; the internal structure of
corporate firms; the structured relationships between firms ... ; the financial markets of a society; the
conceptions of fairness and justice ... ; the structure of the state and its policies; and a society's
idiosyncratic customs and traditions as well as norms, moral principles, rules, laws and recipes for action.
All these institutions, organizations and social values tend to cohere with each other ...'

Hollingsworth and Boyer (1997) differ from Whitley (1994) in various respects, but again cohesion and
integration are key ideas. Cohesion is important in these tight formulations because it both mitigates
forces for change and raises the costs of responding to them. First, the mutual reinforcement implied by
cohesion allows institutional peculiarities to remain internationally competitive, rather than historical
anachronisms doomed to fade away. Efficiency is institutionally constructed on the basis of local
arrangements, so that efficient responses to technical demands can be constituted in a variety of ways
(Whitley 1994: 155). Thus, the success of Asian business systems in the recent past was rooted in historic
institutions that pre-dated industrialization (Whitley 1991: 24). Second, cohesion imposes large costs on
change, on account of its system-wide ramifications. Effective change in any part will require
commensurate change in interrelated parts (Whitley 1994: 176). Interdependence keeps each system
element in step with all others: 'The institutional configuration usually exhibits some degree of
adaptability to new challenges, but continues to evolve within an existing style ... these institutional
configurations might be exposed to sharp historical limits as to what they may or may not do'
(Hollingsworth and Boyer 1997: 2). In short, the hand of institutions is a conservative-one.

While tight integration provides an explanation for continued national differences, it does leave systems
theories open to the charge of exaggerating closure and cohesion (Clark and Mueller 1996; Wilkinson
1996; Hung and Whittington 1997) at the same time as marginalizing the possibility of internally driven
action and change (Smith and Meiksins 1996). In fact, Hollingsworth and Boyer (1997: 2) do differentiate
between loosely and tightly coupled systems, while Whitley (1991: 22) recognizes that Asian business
systems may be more cohesive than European ones. The trouble is not that these theorists do not
acknowledge loose systems, but that they neglect to theorize them. Cohesion may be an adequate
explanation for continuing national differences in tight systems, but not in systems where feedback loops
are disrupted by inconsistent logics and rates of change. Our purpose is to develop a looser systems
notion capable of accommodating this kind of complexity. As we go on, we shall argue that tight
integration is inapplicable in contemporary open economies, unnecessary to the theorizing of continued
national differences and potentially dangerous in its predictions and prescriptions.

As Gouldner (1973: 219) has remarked of earlier theories of social systems, interdependence within a
system is a variable, not a given. Parts of a system may differ in the character of their interdependence, in
terms of both extent and reciprocity. Some parts may have 'functional autonomy', in other words the
capacity to survive in some measure outside a particular system (Gouldner 1973). However, such
functionally autonomous parts have less interest in the continuity of that system and can draw resources
from outside the system in order to initiate change. Change, then, need not rely on external shocks, as is
largely the case with accounts emphasizing continued mutual reinforcement (Gouldner 1971: 353).
Moreover, where systems are not characterized by tight interdependence, change can be less catastrophic,
as shocks can be locally absorbed without ramifying throughout the entire system (Gouldner 1973: 205).
Thus, allowing for degrees of 'systemness' makes possible the co-existence of change and continuity,
while giving to actors within the system the incentives and capacity for internal innovation.

Clark and Mueller (1996) suggest that large firms are particularly likely to be partly autonomous, as they
are relatively more exposed to international business and have the resources necessary for the reflexive
recombination of local and international practices. Within the increasingly open economies of
contemporary capitalism, large firms rarely come exclusively under a single system, but participate in at
least two arenas, one where national institutional arrangements are important, and the other where
international norms of competition prevail (Mueller 1994). As participants in plural arenas, these firms no
longer depend on the circular reproductive processes of a single system, but have sufficient functional
autonomy to arbitrage between systems. It is the plural, overlapping and potentially contradictory systems
of structuration theory (Giddens 1984) that apply, rather than the closed, cohesive systems of tight
systems theory.

From this structurationist perspective, firms are potentially semiautonomous actors, participating in a
variety of systems and drawing selectively on the properties of each (Whittington 1992). Instead of being
trapped in the closed cycles of tight systems, such multi-system actors import and innovate, reproduce
and renew. Actors and systems consequently move from simple mutual reinforcement towards a dialectic
of stability and change in which system survival comes to depend not on rigid conservatism but on
continuous adaptation (Sorge 1995: 107). Rather than self-endorsing ends, systems are constantly
evolving starting-points for processes of non-identical reproduction (Sorge 1995). Here it is the loosely
coupled and adaptable nature of national arrangements, rather than tight interdependence, that allows for
continued institutional differences. Change does not rely on system-wide external shocks, but may be
partial, internal and incremental. As we focus on the changing strategies and structures of large European
firms, it is this looser conceptualization of systems that best describes the contradictory patterns of
continuity and change that we find.

Our analysis will concentrate on just two levels of national systems - that of broad institutional
frameworks, for instance, of ownership and management control, and that of corporate actors, i.e. large,
generally multibusiness, firms. Borrowing the language of Mouzelis (1995), we shall thus be operating at
macro-institutional and meso-corporate levels, rather than at the micro level of units within the corporate
whole. This is not to suggest that microlevel practices are unimportant. It is only to make the point that
practices at one level, here the meso, can develop semi-autonomously within a context of stability at
another level, here the macro-institutional. This is despite the weight that some system theorists put on the
interdependencies between national institutions and meso-level issues of strategy and structure.

Strategy, Structure and Institutions

Institutionalists have indeed taken particular interest in the macro-meso connection, often from an
explicitly 'systems' perspective. As we have seen, Hollingsworth and Boyer's (1997) general notion of
'social systems of production' bundles together corporate internal structures and inter-firm relationships
with national financial markets and training systems. In this section, we shall elaborate some precise
relationships drawn by institutionalists - particularly systems theorists - between macro-level patterns of
ownership, management control and management development, and meso-level issues of corporate
strategy and structure. We shall argue later that the growing discrepancies between these macro and meso
phenomena in post-war European firms not only contradict specific institutionalist claims, but undermine
wider notions of general system cohesion. Large firms, as dominant actors within European economies,
are showing themselves to be increasingly autonomous as far as central issues of corporate policy are
concerned.

We focus on diversification and organization as defining issues for the large corporation, shaping as they
do both the kinds of economic activities that are brought together and the manner in which they are co-
ordinated (Chandler 1962; Kay 1997). Ownership, control and management development have all been
linked to these questions in institutionalist theory and are more generally prominent in institutionalist
accounts of distinct national business practices (Djelic 1998; Scott 1995). Within a tight system, any
behaviours - stability or change - ought to be reflected in other parts of that system. If important parts of
any national system prove not to be closely linked, then much of the self-reinforcing, cohesive nature of
national systems may be jeopardized too.

Institutionalists point particularly to how continuing national differences in finance may impact on
business behaviour. In Whitley's (1994) account of 'business systems', the extent to which capital remains
private or owned by the state, and to which additional capital is supplied by volatile financial markets or
through relatively committed banks, are central in determining prevailing strategies and structures within
an economy (cf. Mowery 1992). Thus Whitley (1994: 166, 168) suggests that in economies where firms
depend greatly on the state for investment co-ordination and credit, internal structures are likely to be
highly centralized, because success is tied so closely to this single contingency (cf. Zysman 1995). By
contrast, where firms rely upon capital markets, the need to spread risk and the facility of acquisition and
divestment together promote strategies of diversification into unrelated businesses on the one hand and
organizational decentralization into relatively discrete business units on the other (Whitley 1994: 171). In
credit-based systems, the growth of longer-term relationships between firms and banks reduces the need
for diversification and allows greater concentration on particular specializations and competences
(Whitley 1994: 172-174).

Prevailing structures of management control can also make a difference. Following Chandler (1990),
Palmer et al. (1993) and Mahoney (1992) propose that continued participation of family or
entrepreneurial owners in the management of their firms will inhibit the adoption of the multidivisional
form, because both decentralization of power and transparency of performance is required and this is
likely to inhibit personal discretion. Whitley (1994: 168) reprises this kind of argument by suggesting that
in business systems characterized by strong owner control there will be a general inclination to centralize
decision making within the firm, whereas in systems characterized by career managers, firms will be
more ready and able to decentralize.

The framework of management development may also influence dominant strategies and structures.
Whitley's (1994: 170) argument is less specific here, linking market-based systems of skill development
in general, such as those in Britain, to strategies of unrelated diversification, while organization-based
skills systems, as found in Germany, are associated with organizational integration and the pursuit of
synergy. However, Lane (1995: 35-38, 67), while preferring the looser notion of 'industrial order',
specifically underlines the importance of management training, pointing to the implications of British top
managers' traditional lack of technical and engineering skills for strategy and structure. British managers,
amateurish or financially-oriented, are therefore supposed to favour loosely-integrated strategies of
unrelated diversification, while German managers draw on their technological expertise to drive
integrated strategies of related diversification.

Thus institutionalists have argued that macro-differences in finance, management control and
management development all significantly influence meso-level strategies and structures. Diversification,
especially unrelated diversification, is associated with strong capital markets and the absence of
technically-skilled top managers. By contrast, the prevalence of technical skills and the involvement of
banks is likely to promote less diversified, or at the most, related-diversified strategies. Decentralization,
particularly divisionalization, relies upon the spread of career rather than owner management and the
absence of strong centralized suppliers of capital, such as powerful nation states. Although looser
institutionalists such as Lane (1995) might confine themselves to one-to-one correspondences between
particular elements of the national institutional environment and corporate behaviour, from a tight
systems perspective, all these macro and meso elements should form a stable, mutually-reinforcing whole.
Change takes severe shocks and strong external pressure. Thus in Djelic's (1998) 'systems' account of
early divisionalization in post-war Europe, the key drivers are the trauma of world war and the political-
economic dominance of the United States.

In later sections, we shall show how large European firms have continued to change their strategies and
structures long after the immediate shock of war, retaining, nevertheless, distinct and enduring elements
of their national systems. First, though, we shall introduce our data.

Research Methods

At the meso-level, we shall be focusing on diversification strategy - the bringing together of different
businesses within single units of ownership - and corporate structure, especially decentralization and
control. In particular, we shall be extending to the early 1990s the original Harvard studies of corporate
strategy and structure in Britain, France and Germany between 1950 and 1970 (Channon 1973; Dyas and
Thanheiser 1976). Carried out under the supervision of Bruce Scott and Alfred Chandler, these studies
revealed an aggregate trend amongst large industrial firms towards increased diversification and
divisionalization. However, some countries had gone further than others and Europe in general was less
advanced than the United States (Scott 1973).

Consistency with these Harvard studies is a central principle. By extending the Harvard studies to 1993,
we stretch the static or short-term perspectives of many comparative studies (Hollingsworth and Boyer
1997: 35) to a period of more than four decades. By using the same measures as those used in the Harvard
studies, we achieve comparability, not only between the three European countries but also between
Europe and the United States, on which Rumelt (1974) and Markides (1996) have carried out equivalent
studies. The Harvard concepts have been widely used internationally (Suzuki 1980; Cable and Dirrheimer
1983; Capon et al. 1987; Armstrong et al. 1998) and their data have been frequently cited in
institutionalist commentary on European business (Gospel 1992; Guill6n 1994; Lane 1995; Jong 1997;
Djelic 1998). The Harvard measures have also been used as arguments against economistic accounts by
both American institutionalists (e.g. Fligstein 1990) and contingency theorists such as Donaldson (1996)
who favour universalism. Moreover, the strategic and structural variables central to Harvard's approach
have been seen as critical to both the success of individual firms (Rumelt 1982; Armour and Teece 1978)
and the economic performance of entire nations (Servan-Schreiber 1969; Chandler 1990; Lazonick 1991;
Guill6n 1994). Thus Harvard gives us a robust, significant and comparable measure of corporate change
over four countries and more or less the whole post-war period.

We shall introduce our research in this order: first the firm populations; then the strategic and structural
categories; and finally the measures of ownership, control and management development that we shall
take as reflecting wider macro features of national institutional frameworks.

Populations

Large firms are dominant actors in contemporary capitalism. The top hundred industrial firms directly
account for between 35 and 40 percent of the net industrial output in France, Germany and the United
Kingdom (Hannah 1995). More broadly, large firms are seen as the drivers of technological advance
(Chandler and Hikino 1997) and the 'key carriers of modernity' (Clark and Mueller 1996: 25). As we are
concerned with national institutional effects, we shall only focus on the domestically-owned top hundred
industrial firms (by sales) in each country, as did the original Harvard European studies (Channon 1973;
Dyas and Thanheiser 1976). Our sources are the annual lists published in the Times 1000, L'Expansion
and the Schmacke Directory. As did the Harvard studies, we have compared countries at ten-year time
intervals and included non-public companies. In Britain, there were 75 domestically-owned firms in the
1983 top hundred and 67 in 1993, reflecting the internationalization of British industry over this period
(Channon 1973, identified 84 British firms in 1970). The number of French domestically-owned top
hundred firms in 1983 was 74, and 66 in 1993. In Germany, there were 60 domestically-owned firms in
1983, and 63 in 1993. The overlaps between the lists of the top hundred domestically-owned industrials
for 1970 and 1993 were 43 percent in France, 45 percent in Britain and 51 percent in Germany.

This population is clearly a particular slice of European economic activity. We do not include either the
higher-level networks of families and banks that give European economies a great deal of their
distinctiveness (Morin and Dupuy 1993; Schmidt 1996) or the small to medium-sized firms that are a
particular feature of the German system (Herrigel 1996). Our concern, however, is not to be
comprehensive, but rather to show that important elements in these European systems can become
partially detached from their national contexts.

Diversification Strategy
Diversification can be measured in many ways, with numerical methods based on product counts 'and
SICcodes jostling with the categorical methods of Harvard (Hall and St. John 1994). Reliable SIC and
product count data are not consistently available in Europe, so we have stuck to the Harvard categories
originally used in the European studies of Channon (1973) and Dyas and Thanheiser (1976). We thus
have continuity over more than forty years and can accommodate both extent and type of diversification.

We followed the same classification rules as Harvard. As in the original Harvard studies, our sources
were annual reports and other public documentary sources, supplemented by interviews in a subset of
firms. These interviews were generally tape-recorded, covered both strategy and structure (see below) and
involved senior managers (including chief executives, but typically directors of finance, planning or
personnel, or those who reported directly to them). In France, managers in 28 firms were interviewed; in
Germany and the United Kingdom, 25 in each country, these being proportions equivalent to the original
Harvard studies. We believe that interviewing in just a subset of firms did not introduce significant biases
in classification (Channon 1973, changed one of his diversification classifications and none of his
organizational classifications after interviewing), and certainly increased our understanding of strategic
and structural categories in practice.

The Harvard diversification categories focus on the potential for scope economies, rather than the process
of development (organically or by acquisition). The two 'undiversified' strategies are 'single business' and
'dominant business'. The single business has at least 95 percent of its turnover concentrated in a single
type of activity. To illustrate, those we classified as single businesses include dairy-based food companies
such as Fromageries Bet and auto companies such as Volkswagen (each classified in the same way in the
original Harvard studies: Dyas and Thanheiser 1976). The 'dominant' business is slightly less
concentrated, but still has a core business accounting for somewhere between 70 and 95 percent of total
turnover. Typical dominant companies amongst those we analyzed are the hair and skin-care company
Wella, with a side business in hairdressing equipment, or the glass company Pilkington, which is also
involved in spectacles. Then there are the two 'diversified' categories. Here, the approach goes beyond the
simple quantitative measures of diversification, such as SIC or product count, to consider the nature of the
businesses included in the portfolio. 'Related diversifiers' operate predominantly in businesses with
technological or market relationships, but have no single core accounting for as much as 70 percent of
turnover. Examples of related companies in our sample include diversified chemical companies such as
ICI, Hoechst and Rhone Poulenc or electrical companies such as Alcatel Alsthom (CGE), GEC and
Siemens (also all classified in the same way in the original Harvard studies). Similarly, 'unrelated
diversifiers' have no single core as large as 70 percent of turnover, but their distinguishing characteristic
lies in the conglomerate character of their activities, without significant product or technological
relationships. The sorts of companies we include under the unrelated category are BAT - in tobacco and
insurance - or Taittinger - champagne to hotels, via manufacturing.

The classification of companies into diversification categories is inherently subjective (although

Hoskisson et al.'s 1993 comparison of diversification measures revealed a high degree of reliability for
the categorical approach, compared to others). Accordingly, we departed from Harvard's original
individual judgement method by having two researchers classify each firm independently on the basis of
standardized templates: disagreements were resolved in discussion with a third researcher. The level of
initial agreement on strategy classifications was 93.4 percent, which is comparable to other studies using
this method (e.g. Hoskisson et al. 1993). Mayer (1998) provides a fuller account of classification
procedures, as well as the strategic and structural classifications of all companies.

Corporate Structure
All firms were classified according to the four structural categories - functional, functional holding,
holding and divisional - used in the Harvard studies and frequently in subsequent research (e.g. Fligstein
1990; Armstrong et al. 1998). The categories focus on formal corporate structure, especially on the
control of operating and strategic activities. Data sources included annual reports, published case studies,
press articles, business histories and interviews. Indicators include organizational charts, director
responsibilities, accounting procedures, the legal status of units and levels of shareholding. While formal
structure and informal structure may become detached (Meyer and Rowan 1977), these structural
indicators set significant limits on what can or cannot be done within firms (Williamson 1975).

The 'functional' firm is centralized around key operating functions, such as manufacturing and marketing,
and therefore has limited capacity to decentralize profit responsibility. By 1993, there were very few
functional companies, but an example is the undiversified Dairy Crest, where distribution and dairy
management functions were represented on the main board. The 'functional/holding' is a company with a
functionally centralized core and a substantial periphery of free-standing businesses: Suedzucker's sugar
business was centralized for instance, while its ice-cream, frozen foods, milling, baking and agriculture
activities operated through subsidiaries. This hybrid form, with profit accountability mainly at the fringes,
is unable to allocate capital and consistently monitor its usage across its portfolio. The 'holding' is highly
decentralized, lacking administrative control over activities. Legal and managerial restrictions prevent the
centre from maximizing the profitability of the corporate whole and Financiere Agache was legally
constrained by its many minority stakes and quoted subsidiaries, but at the same time was managerially
confused by its overlapping businesses. The 'multidivisional' combines decentralization of operations into
clear divisions with centralized headquarters' control over strategy and investment enforced through
majority ownership and systematic accounting. Here the centre can monitor operating profits and
reallocate resources across the portfolio according to consistent criteria. Like the Harvard researchers, we
interpreted the multidivisional type more broadly than Williamson's (1975) ideal type (Channon 1973).

As for strategy, we classified structures by using two researchers as independent judges, with a third
helping to resolve disagreements. The level of initial agreement was 97.3 percent. This high level of
agreement is attributable to the prevalence of multidivisional firms and, amongst holding companies, the
very clear evidence for incomplete administrative control in the substantial asset values of their minority
shareholdings. The shift from a holding to a divisional structure would typically require large
expenditures on equity, boardroom change, alterations in legal status and consolidation of subsidiary
companies.

Ownership, Control and Managerial Development

As well as measures of strategy and structure, we shall be presenting data on the ownership, management
control and managerial development of our large industrial firms. These data supplement existing
published sources as indices of the macro-level institutional frameworks of finance and management that
are supposed to define dominant types of meso-level strategy and structure. As these large domestic
industrial firms constitute a substantial part of their institutional contexts, their broad stability on these
variables can be taken as an indicator of broader macro-level continuity.

As we have seen, institutional theorists have often stressed that different patterns of ownership are
influential on strategy and structure. For all our firms, we have identified shareholders with more than 5
percent of the voting shares (the usual threshold: cf. Palmer et al. 1993), distinguishing between various
categories of owner: i.e. personal (family or entrepreneur), various kinds of financial institution, other
firms and the state. Companies are treated as being under 'dispersed' ownership if they have no
shareholders holding stakes larger than 5 percent. Ownership data came from annual reports, Who Owns
Whom, Liens Financiers, and, for Germany, the Schmake and the Wegweiser durch deutsche
Unternehmen business directories. Our French and British sources, however, do not distinguish
systematically between nominee and beneficiary holdings over this period. In Germany, for private
companies, it is not practical to trace votes held by banks and stakes of less than 25 percent are usually
under-reported (Becht and Boehmer 1998; Franks and Mayer 1998).

In terms of management control, we have followed the institutionalist studies of Palmer et al. (1987,
1993) and Fligstein and Brantley (1992) by distinguishing personally controlled firms from those under
the control of career managers. A firm is coded as being under personal control if the top manager was
either the original entrepreneurial founder of the firm or a member of the founding family, with the
entrepreneur or the family controlling at least 5 percent of the shares. Significant developers of small
family firms were classified as entrepreneurs.

As an indicator of systems of management development, we have followed Palmer et al. (1993) in

classifying top management career backgrounds according to the dominant track through which they rise
to the top. A top manager was considered as having a 'general' management background if he (they were
all male) either entered general management directly or passed through a variety of functional positions
before taking up a general management position, with no single track dominating. The term 'technical'
covers engineering, manufacturing and scientific specialists. Those whose rise is due to family connection
or entrepreneurship are described simply as 'personal'. Data were obtained from business publications
such as Who's Who in its various national editions, from reports in the business press and directly from
the firms themselves.

As we compare managerial backgrounds internationally, we need to bear several differences in mind. For
a start, top management positions are not quite equivalent across countries. In the United Kingdom, the
top manager was defined as the executive chairman or, where the chairman was non-executive, the chief
executive officer; in France, the top manager was the President Directeur-G6n6ral (or Pr6sident du
Directoire); in Germany, the top manager was typically the Vorstandsvorsitzende. The French PDG is
probably the most powerful of these offices, and the Vorstandsvorsitzende the least powerful (Cassis
1997). Another factor is that data coverage is uneven, with German managers being notably private (we
shall not report German backgrounds for 1983, for this reason). A further issue is the comparability of
career tracks across countries. In Germany, for instance, accountancy is less clearly defined as a
specialized discipline than in Britain, and consequently financial backgrounds may be underestimated.

Stability in National Institutions

What is at stake in this paper is the extent to which European economies still have distinctive institutional
frameworks of finance, management control and management development that are capable of defining
local patterns of corporate strategy and structure. This section examines national differences on the three
institutional dimensions, in each case first drawing on existing general accounts, then considering how far
our large companies conform. The next section considers national patterns of strategy and structure in the
light of enduring institutional differences.

Finance

Even within three highly developed, capitalist and adjacent economies such as France, Germany and the
United Kingdom, there continue to be quite substantial differences in finance. Some time ago, Zysman
(1983) distinguished between Britain's reliance on competitive capital markets, Germany's bank-oriented
system and France's combination of powerful banks and state support (cf. Shleifer and Vishny 1997).
Little has changed over the more recent period with which we are concerned.

The main change in Britain's capital-market-based system was that it became more aggressive during the
1980s and the early 1990s, with a spectacular rise in the value and numbers of acquisitions (Franks and
Mayer 1990; Prowse 1995). Increasingly, active takeover markets were also seen in the other two
countries, but the proportions were quite different. In the last half of the 1980s, the value of mergers and
acquisitions as a proportion of total stock market capitalization was more than eight times as great in the
United Kingdom as in Germany: the German stock market itself was worth only 14 percent of German
GNP in the mid-1980s, against 81 percent in the United Kingdom (Prowse 1995). In Germany,
shareholdings are typically more stable and concentrated than in Anglo-Saxon markets, with families,
firms and banks holding large stakes (Edwards and Fisher 1994). This concentration has largely excluded
the UK phenomenon of the hostile takeover (Prowse 1995). France, subject first to the Mitterand
government's nationalizations in the early 1980s and then to a period of modest denationalization after
1986, appears on the surface to have endured more radical change in its financial system. However, the
same well-established financial institutions - Suez and Paribas (nationalized by Mitterand), Credit
Lyonnais and BNP (which has long been state-owned) - retained their central roles throughout this period
as both providers of credit and significant shareholders. Morin and Dupuy (1993: 47) and Schmidt (1996)
conclude that a large part of the bank-industry networks that existed before the 1980s continued through
both nationalization and subsequent privatization.

The ownership patterns of our own group of large industrial firms reflect these more generally-observed
differences in financial systems, as well as providing a more systematic insight into continuity and
change. Table I examines the distribution of large shareholders - at least 5 percent amongst firms,
comparing 1983 and 1993 (because firms may have large shareholders from more than one category,
columns may sum to more than one hundred). Britain's more competitive capital-market-based system is
reflected in the very high proportion of British firms in 'dispersed' ownership, in other words with no
single shareholder owning more than 5 percent. The major change by 1993 is the rise of financial
institutions, typically insurance companies, but their stakes were usually limited to between 5 and 7
percent (the rise of bank ownership is mostly due to foreign banks). In France, ownership is more
concentrated, with the state still holding large direct stakes (usually at or near 100 percent) in nearly a
quarter of the large firms in 1993, which is not much less than in 1983. French banks and other financial
institutions, many of which remained state-owned, were significant shareholders in between a fifth and a
quarter of French finns during this period, their stakes often being quite large. The proportion of firms
with significant personal ownership stayed steady in France, at more than 40 percent at each point. Other
firms were also important shareholders in both periods, reflecting the French networking tradition. In
Germany, the state was relatively unimportant throughout this whole period, with personal owners
remaining the leading shareholder grouping throughout the period. Banks were the second most important
group in both 1983 and 1993, and had significant stakes in around a fifth of the leading industrial firms.
Nibler (1998) indicates a narrower set of large German public companies and broad stability in banks'
combined direct and proxy holdings over 1975-1991.

Drawing together the more general accounts of European financial systems with our own data, we can see
enduring differences between the three economies. These broadly follow Zysman's (1983) original
classification, with the United Kingdom still showing the most orientation towards competitive capital
markets, while France and Germany remain more in the thrall of banks, and the French most dominated
by the state. One further element is the persistent importance of personal ownership in the Continental
countries, especially by comparison with Britain.
Management Control

Since Berle and Means (1967, Ist ed. 1932), the presumption is that, amongst large firms, ownership and
control is largely separated. In other words, irrespective of ownership, career managers are expected to
take over the active management of large firms (Chandler 1977). However, here again, practice seems to
diverge, even in Western Europe.

[Table 1]

In Britain, Scott's (1997) survey of recent studies shows a gradual decline in personal ownership and
management amongst large companies since the 1950s. By 1992, only 16 percent of chairmen or chief
executives of Britain's largest 200 firms were either entrepreneurs or members of families with significant
shareholdings (Bauer and Bertin-Mourot 1996). The advance of career managers has not gone so far in
Germany. Ziegler (1984) estimated that 37 percent of the largest 259 German firms were still personally
owned and controlled in the late 1970s. The measure is slightly different, but Bauer and Bertin-Mourot's
(1996) comparative study indicates that 26 percent of top German managers were either entrepreneurs or
owning family members in 1989, and 23 percent in 1994. However, it is France that emerges as the
country most wedded to personal control, with 28 percent of the top managers in the largest 200 French
firms coming from entrepreneurial or owning-family backgrounds in 1985, and 32 percent in 1993 (Bauer
and Bertin-Mourot 1996). This confirms Cassis's (1997: 126) longer term survey of European business
leaders' backgrounds showing that, during the whole post-war period, French business leaders were much
more likely to be inheritors than in either the United Kingdom or Germany.

Thus the more general evidence, covering industrial and non-industrial firms, seems to show fairly
marked and sustained differences in patterns of management control in these three countries. The British
are the most careerist, the French the most personal and the Germans somewhere in between. During the
last decade or so, these patterns appear broadly stable, with Germany perhaps showing a slight retreat of
personal management control, and France a small resurgence. The same patterns are reflected in our
group of large industrial firms.

Table 2 indicates the proportion of firms in each country and time period in which a significant personal
shareholder (at least 5 percent) exercised top management responsibility. Consistent with the general
pattern for the post-war period, British firms have less personal control than Continental ones: by 1993,
only two British CEOs were also significant shareholders. Both France and Germany show much more
robustness in the survival of personal ownership and control, although the two countries demonstrate
slight trends in opposite directions: in France, there is the same small renaissance of personalism as that
noted by Bauer and Bertin-Mourot (1996). Overall, though, the hierarchy is stable, with French firms
consistently the most personal in terms of ownership and control, German firms moderately so and British
the least.

Management Development

Differences in top management backgrounds extend beyond degrees of personalism in terms of ownership
and control. As Bauer and Bertin-Mourot (1996) and Lane (1995) have indicated before, the typical
education and career tracks of those who reach the corporate top table in Europe vary widely between
countries. Following Fligstein (1990) and Lane (1995), the predominant top managerial skills and
orientations defined by patterns of management development may have considerable impact on prevailing
strategies and structures.
[Table 2]

It has long been complained that the top managers of British industry have neglected engineering and the
sciences (Swords-Isherwood 1980). Finance is the dominant function on British boards (Doyle 1990). In
Germany, by contrast, the vocational system has steadily promoted technical expertise (Lane 1991), while
in France the engineering orientations of the grandes ecoles, especially the Ecole Polytechnique, have
always ensured the technical competence of France's business elite (Shaw 1995). Even the political
oscillations of the 1980s have made little difference to the French system. Kadushin's (1995) study of the
French financial elite concludes that the nationalizations and privatizations of the 1980s and early 1990s
often changed people, but did not alter the basic system of elite production. Schmidt's (1996) broader
account comes to the same conclusion: the nationalizations of the early 1980s brought into top
management positions a younger generation of managers, but drawn from the same basic educational
pools. Between 1985 and 1993, graduates of the engineering-oriented Ecole Polytechnique, a large
proportion of whom begin their careers in technical functions, accounted for a steady quarter of top
executives amongst the 200 largest firms in France (Bauer and Bertin-Mourot 1996). The French
orientation towards an early technical and engineering education and career remained unaltered.

Table 3 indicates the backgrounds of the top managers in our top industrial firms from each country at
each time period. The table should be read with the caveats entered earlier, and we have excluded the
German data from the early 1980s as too patchy to be representative. The main point, however, is to
confirm with our own group of firms the distinctiveness and broad stability of the management
development systems in the three countries. Except in France, the largest group of managers had general
management backgrounds, in other words experience of more than one discipline before reaching senior
management. The pattern amongst specialists, though, is revealing. Particularly marked in our group, and
conforming to the general pattern, are the varying proportions of career top managers (i.e. non-personal)
coming up from a technical background. Technical specialists account for about a quarter of top managers
in the Continental countries, compared with a rapidly dwindling proportion in the United Kingdom.
Again, true to type, about a fifth of British career managers in our firms have come up exclusively
through a finance track, many more so than in France, but also substantially more than in Germany. The
importance of state backgrounds is quite marked in France, even showing a slight increase over this
period.

In terms of frequently highlighted institutional variables, our French, German and British 'systems' appear
quite distinct. The British system, in particular, seems to be characterized by capital markets and low-
commitment financial institutions, by career managers rather than family inheritors and by financial skills
at the top. Germany and France are nearly mirror-images of the British system, with prominent banks,
strong personal involvement in management, and finance playing a small part in terms of management
development. France differs from Germany in the importance of the state, in terms of both ownership and
managerial development. Though there have been shifts over time, the broad contrasts between countries
have been stable, at least over the period 1983-1993, and, according to other sources, most of the post-war
period. As these differences alter the local construction of efficiency, a tight systems perspective would
lead us to expect system-wide and enduring differences in lower-level business behaviour.

[Table 3]

Change in Strategy and Structure

The original Harvard studies of strategy and structure were imbued with a confident, dynamic
universalism. Chandler (1984: 156) predicted '... convergence in the type of enterprise and system of
capitalism used by all advanced industrial economies for the production and distribution of goods'.
Rumelt (1974) had found advanced levels of diversification and divisionalization in the United States and
Scott (1973), principal supervisor of the European studies, predicted that Western Europe would steadily
catch up. Remaining institutional barriers to the American model would fade away in the face of
increasing competition and technological change (Dyas and Thanheiser 1976: 299).

Theorists of national systems are more conservative. Corporate strategy and structure are closely
integrated with specific national characteristics. Thus institutionalists have argued that Britain's capital
market-driven, financially-oriented, depersonalized model of management inclines British business
towards conglomerate diversification and the multidivisional form; that the more bank-centred systems of
France and Germany will be less likely to spread risk through unrelated diversification, while the
prevalence of engineering-trained managers will reinforce French and German concentration on technical
cores; that the enduring personal capitalism of France and Germany will be reflected in a general
reluctance to decentralize power through the multidivisional structure; and that the high involvement of
the state will encourage French business to stick with centralized functional structures to cope with this
single powerful contingency. On top of these specific institutionalist links is the more general claim of
tight systems theory: that interdependencies between institutional frameworks and the corporate level will
make change unlikely in one without commensurate change in the other. The lack of change in relevant
macro-institutional variables will inhibit change at the meso-level.

[Table 4] [Table 5]

Does 'systemness' in Europe still extend deep enough to trap the strategies and structures of its large
corporations in the enduring idiosyncracies of national institutions? Tables 4-6 start by presenting trends
in diversification strategy between 1950 and 1993 for France, Germany and the United Kingdom. At the
beginning of the period, there is quite a range of diversification, with Germany showing the most, and
Britain the least. However, in all three countries, substantially less than half of the companies had adopted
strategies of either related or unrelated diversification. What is important is the movement since then
towards increased diversification, which has been common across all three countries and steady over
more than forty years. Just taking the period between 1960 and 1993, aggregate diversification (taking
related and unrelated together) in all three European countries grew from less than half of the leading
firms to about two thirds or more, comfortably exceeding the 60 percent level reached in the United States
at the end of the 1960s (Rumelt 1974). Although France has been the slowest to diversify, the trend is
firmly in the same direction. Since 1970, British firms have been most committed to related strategies of
diversification, while German companies have consistently led in unrelated diversification. Technically-
oriented, bank-backed German business appears to be more conglomerate than the professionally
managed, capital-marketdriven, finance-dominated business of the United Kingdom.

[Table 6]

Looking at corporate structure, the trend again is a steady convergence on the model pioneered in the
United States (see Tables 7, 8, 9). There are differences to be sure, with British firms the most
divisionalized, at 89 percent by the 1990s. By 1993, however, even France and Germany were at, or
approaching, the three-quarters level of divisionalization that American business reached in 1969 (Rumelt
1974). The progress of the Continental countries towards the Anglo-Saxon organizational model may
have been slow, but it has been sure: in each decade, divisionalization has markedly increased. Striking
too is the universal collapse of the centralized functional organization, even in statist France. French big
business transformed itself from being more than half functionally organized in 1950, to less than 2
percent in 1993.

Overall, Tables 4-9 demonstrate a steady transformation of European business over the last thirty years or
so. At the beginning of the 1960s, more than half of the large industrial firms were still undiversified in
all three countries; by the early 1990s, two thirds of the top industrials in each country had adopted
diversification strategies, more than 85 percent in the United Kingdom. Structural change has been even
greater. In the early 1960s, only a small minority of large industrial firms in these countries had
divisionalized; now, the overwhelming majority of firms are multidivisional. This common
transformation of corporate strategy and structure has continued steadily against a backdrop of enduring
institutional differences and long after the immediate post-war crisis. Regardless of country, by the early
1990s, the typical large industrial firm in Western Europe was diversified and divisionalized. France,
Germany and the United Kingdom now all follow the Harvard model discovered two or three decades ago
by Chandler (1962) and Rumelt (1974) in the United States.

Discussion and Conclusions

By extending existing studies of the immediate post-war period to the 1990s, this paper has been able to
track the evolving corporate strategies and structures of large European firms over more than four decades
and across three major economies. These data provide an unusual opportunity for comparison both
longitudinally and internationally. We have been concerned to set these data on corporate evolution
against the institutional backgrounds from which the firms originate. Here we have again added to
existing studies, by providing consistent data on ownership, management control and management
development in France, Germany and the United Kingdom through the 1980s and early 1990s.

[Table 7] [Table 8] [Table 9]

The picture that emerges is a complex one, combining both stability and change. Through the whole post-
war period, French, German and British corporations have converged steadily on the diversified,
divisionalized model originally developed in the United States. Firms have similarly brought under the
same ownership structures widely different types of activities; these structures have increasingly
combined operational decentralization with strategic centralization in a way very rare just forty years ago.
All this has been achieved against a background of relatively stable and quite divergent national
institutional frameworks of finance, managerial control and managerial development.

These findings are not easily accommodated within tight versions of 'business systems' (Whitley 1994) or
'social systems of production' (Hollingsworth and Boyer 1997). The de-coupling of meso-level strategy
and structure from macro-level institutions undermines general notions of system-wide cohesion, while
specific links between national institutions and patterns of diversification or divisionalization are largely
absent. National differences in corporate strategy and structure remain, but these are small, and even
contradictory to the expectations of tight systems theorists. Thus, it is the technically oriented, bank-
supported Germans, not the financedominated British, who have been consistently more prone to
unrelated strategies since 1970. There is little evidence for predicted kinds of interdependency between
institutional characteristics and corporate behaviour. For post-war European corporations, the tight-
system notion does not hold. At the level of corporate strategy and structure, Harvard's predictions from
universal norms of competitiveness seem to hold up better than those predicated on the institutional
construction of efficiency.

The tight systems model is both too hermetic and too homeostatic to cope with the inconsistencies
introduced by the opening economies of contemporary capitalism. We do not, however, have to
extrapolate from the success of the diversified multidivisional to the triumph of a universal, global model
of business (Donaldson 1996; Yipp 1992). Rejecting the notion of all-embracing cohesion still leaves
space for institutional effects at particular levels and on different practices. After all, large European firms
are combining national characteristics of finance and management with international convergence on
strategy and structure. The challenge is to theorize, as tight systems theorists do not, the combinations of
continuity and change that are characteristic of contemporary capitalism. This kind of complexity, we
suggest, is better approached by the looser, more plural notions of structuration theory (Giddens 1984;
Sorge 1995) than by either rigid universals or tight systems. In this perspective, large firms are neither
wholesale universalists nor diehard locals, but rather synthesizers of both international and national
systems. National characteristics do not rely on tight, homeostatic reinforcement. The national and the
international can coexist precisely because the linkages are relaxed. Traditional national arrangements
survive not through circular reproduction, but on account of their capacity to furnish the materials for
continuous processes of renewal and re-invention. Loose systems can absorb inconsistencies that would
shatter the high tensile interdependencies of tight systems.

Thus, while sceptical of tight-system formulations in Western Europe, our structurationist perspective
finally extends the agenda for comparative institutionalist research. The issue becomes one of
'systemness' (Gouldner 1973). Rather than just whether 'national systems' still exist or not, the
structurationist perspective points to finer questions such as the extent to which different systems are
internally cohesive, which elements are more autonomous than others and what effects change in one part
may have on change in other parts. While we have found considerable dynamism in the corporate
strategies and structures of large firms, other levels - perhaps small firms (Herrigel 1996) - and other
practices, such as human resources management (Ferner 1997), innovation (Sorge 1998) or external
relations (Lane 1995) - may be more deeply embedded. It becomes worthwhile to document and theorize
the relative dynamism and interdependence of different system elements and practices. Likely to emerge
as critical will be understanding the varying degrees of articulation between the various elements of
national and international systems and the relative influence between them.

To return to our data, we have found corporate ownership and management to be substantially inert and
cohesive, while corporate strategy and structure are dynamic and detached. We can offer some first steps
towards theorizing some of these differences in relative dynamism and interdependence. The
characteristics of corporate elites are long-lagged with change because reaching the top often relies on
inherited advantages or educational successes that may precede final accession by thirty years or more,
coming even with birth. On the other hand, the policies of corporate elites may be quite flexible because
not only do they operate at the ratified level of corporate strategy and structure, they also draw on high
levels of managerial education and cosmopolitanism. By contrast - to the extent that they also rely on
locally embedded and extensive configurations of skills and resources - operating-level behaviours such
as subcontracting and innovation are likely to be both more stable over time and less tightly coupled with
corporate-level change. Thus, the various elements of a national system will all have their own dynamics
according to how they are anchored longitudinally into the past, vertically between levels and horizontally
out into other institutional arrangements. In the light of these various anchorings, we should recognize
that the Harvard scholars chose relatively detached and dynamic measures on which to argue for
convergence. We should recognize equally that, while national systems theorists may be able to find some
entrenched and distinctive variables, they will be unlikely to discover widespread and cohesive
idiosyncrasies, at least in the kinds of open economies with which we are dealing. The debate on
international convergence is acutely sensitive to the measures selected and will advance as we distinguish
better between different kinds of variables and as we include more variables in trends over time.

Finally, the more flexible system perspective we have proposed here has general implications for the
current restructuring of national economies. There is a danger for proponents of tight systems. As they
regret the passing of the state as the agent of change (Boyer and Hollingsworth 1996), they seem to load
all other internal instruments of reform with an impossibly heavy baggage of integration and path-
dependency. As they insist on cohesion, they raise the stakes so high that change comes to involve
system-wide crises and the domination of external agents (Djelic 1998). Tight systems exist in a state of
brittle inertia. The structurationist account, however, characterizes systems as evolving constantly under
the more or less urgent, more or less uneven pressures of different internal and external actors. Change on
one or two dimensions need not entail the unravelling of some tightlyknit whole. Here, large firms emerge
as potentially powerful yet sensitive instruments of economic reform. Although we have not traced their
effects down to the business strategies of their divisions or suppliers, we have seen in post-war Europe
that large firms are able to achieve corporate restructuring while leaving financial and managerial
institutions largely intact. As Eastern Europe and East Asia now struggle to restructure, theorists of tight
integration may underestimate the potential of the large domestic firm to act as an agent of change and
exaggerate the system-wide disruption that needs to attend such change. Economic reform may require
neither crisis nor the state, but, instead, the steady efforts of large firms working up and down their supply
chains, transferring best practice across their activities, inserting national industries into international
structures, simultaneously synthesizing the new with the old, and the local with the global.

Notes
* We would like to thank the Nuffield Foundation, the Economic and Social Research Council
(r000221420), Warwick Business School and Groupe REC for their support for this research. Francesco
Curto provided valuable research assistance. We also acknowledge the very many helpful comments on
earlier drafts of this paper by Professor Colin Mayer, participants in the European Science Foundation's
EMOT research programme and the editor and four referees of this journal. Professors Derek Channon,
Gareth Dyas, Richard Rumelt and Heinz Thanheiser all gave invaluable guidance at the beginning of this
project. All of the above are, of course, not responsible for our conclusions.

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Reproduced with permission of the copyright owner Walter de Gruyter © 1999