Empires, Federated Arrangements, and Kingdoms: Using Political Models of Governance to Understand Firms' Creative Performance

Firms can be conceived as political entities in which various stakeholders struggle against each other to reach goals. From this standpoint, the organizational structure of a firm, together with the power relations and strategies deployed by stakeholders, constitute a governance regime. It is understood that the economic performance of a firm is impacted by the type of governance regime which is at play among its different stakeholders, but little is known on the effects of governance regimes on organizational creative performance. Adopting a center/periphery perspective, we look at business groups, a well-known type of business firm in creative settings. A salient question is thus to know how firms affiliated to various types of business groups perform vis-a-vis unaffiliated firms, and what are the underlying political processes. We define three different regimes of governance-empires, federated arrangements, and kingdoms-each characterized by specific regulation and integration features. Regulation refers to the type of rule (from the center to the periphery), to the autonomy of peripheral entities, and to the regime's level of flexibility; integration captures the extent to which projects of the center and the periphery are consonant as well as the local elites' type of mobility. We devise empirical tests for a realm of the creative economy by employing organizational and network analysis of 293 fashion houses over seven seasons. Overall we find that, although both empires and federated arrangements perform better than kingdoms, federated arrangements perform best in creative contexts because they are hybrids of empires and kingdoms.