The Impact of Cross-Cultural Factors on Corporate Governance Transparency: The Implication for Strategic Alliances in the Airline Industry

The economic and strategic motivations for strategic alliances in the airline industry have been comprehensively investigated in the literature. However, a recent report by the Boston Consulting Group has argued that while major airline alliances have been an important step in the evolution of the industry, they may well play a diminishing role in the future. The consolidation and connectivity provided by strategic alliances may well be limited by factors which inhibit the commitment of individual airlines to the alliances in which they participate. Such factors include asymmetric benefits to alliance partners, cost inflexibilities due to irreversible commitments, the erosion of option value for participating alliance members, and the inefficiencies of cumbersome decision making. This paper argues that a critical dimension in understanding the factors that inhibit the effectiveness and benefits of airline alliances is corporate transparency. Specifically, the issue of transparency in corporate governance is considered. Corporate governance is the set of institutional arrangements affecting corporate decision making and deals with the relationship among various participants in determining the direction and performance of corporations. Corporate governance transparency directly impacts relationship transparency – a concept of considerable interest in the supply chain management literature. Relationship transparency can be defined as an individual party’s subjective perception of being informed about relevant actions and properties of the other party in the interaction. Greater relationship transparency in a strategic interaction leads to more favorable behavioral intentions on the part of participants in such an interaction. However, airline strategic alliances span an array of national cultures which influence the development of such relationships. The impact of national culture as a determinant of governance transparency is also investigated in this paper. This study draws on the literature which examines the impact of national culture on international joint ventures and governance systems. National cultures are described by Hofstede’s five dimensions of power distance, uncertainty avoidance, individualism, masculinity and temporal orientation. Differences in the cultural backgrounds of strategic partners have been shown to cause disruption in the relationship between relationship participants. Governance transparency is investigated by the examination of corporate annual reports. The latest available reports of all the members of the three major airline alliances – Star, oneworld, Sky Team – are utilized. There is analytical precedent for this approach. An extension of the conceptual and measurement scheme utilized by Bushman, et al. is employed in this study. Furthermore, the seminal work by Gray and subsequent research has demonstrated a relationship between a country’s cultural profile as measured by Hofstede’s dimensions and the level of disclosure/transparency in the annual corporate reports of firms in that country. Thus, this study investigates not only the level of corporate governance transparency demonstrated by participants in each of the three major airline alliances but the relationship between said governance transparency and the cultural identity of each of the participants.