A Double-edged Sword: Procedural Justice Constrains Harmful and Beneficial Headquarters Intervention

Multi-business firms should design the task portfolio of their headquarters (HQ) and the way HQ tasks are carried out so that net value creation results. While the strategic management literature has emphasized such parenting benefits, less attention has been paid to the costs that may inadvertently be caused by HQ actions. Using a simple game theory model, we analyze the motivational costs that may result from HQ intervention in subunits. Along the lines of the procedural justice literature, we identify the conditions under which these costs may be influenced by the existence of fairness expectations among subunit managers. Our analysis of the dynamic game between HQ and subunits has novel and non-intuitive results. For example, we find that good parenting may involve forgoing opportunities for value-creation, and that procedural justice systems may sometimes be counterproductive. Our findings contribute to both the HQ and the procedural justice literatures.