Internationalization and the political role of multinationals in the international human right context

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INTERNATIONALIZATION AND THE POLITICAL ROLE OF MULTINATIONALS IN THE INTERNATIONAL HUMAN RIGHT CONTEXT

Master Thesis Linde Crijns

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MSc. Business Administration - International Management University of Amsterdam

Supervisor: dr. M.K. (Michelle) Westermann-Behaylo Second reader: Mw. F. (Francesca) Ciulli MSc

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Statement of originality

This document is written by student Linde Crijns who declares to take full responsibility for the contents of this document writes this document. I declare that the text presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of

Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

The purpose of this study is to deepen the understanding of contextual factors that influence the social behavior of extractive multinational enterprises (MNEs) operating in Africa. This study examines how international expansion and the MNEs home country’s government influence the likelihood that MNEs are accused of violating human rights. More explicitly, this research investigates how a company’s level of internationalization and the social welfare system of the home country in which the multinational is headquartered are associated with allegations of the universal human right to labor and/or development. The hypotheses are tested using secondary data on the MNEs features, welfare regimes in the country of origin and human right violations, subsequently provided by the Orbis, Transnationality and CHRD

databases. A binary logistic regression analysis is used to test the hypotheses. The results of the analysis, in a nutshell, show that highly internationalized MNEs are more vulnerable to be accused of violating the right to labor and/or development. The strength of this relationship is moderated by the social welfare system in the MNEs country of origin. These findings have implications for managers of multinational companies, policymakers and academics worldwide. The overall objective of this study is to improve insight in corporate behavior with respect to human rights.

Keywords: • Globalization • Human Rights Violations• Internationalization • Multinational Enterprises • Social Welfare Regimes

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1. Introduction

The business environment has changed remarkably since the rapid increase of globalization started to develop a few decades ago. Globalization refers to the tendency of world economies becoming interlinked and borderless (Cullen & Parboteeah, 2009). Companies are less limited by the domestic boundaries of their home country; they are more able to conduct business activities anywhere in the world. As a result of globalization, the number of multinational enterprises (MNEs) increased significantly. With this increase in MNEs, defined as firms with integrated operations in at least two countries (OECD, 2000), comes an increase in corporate power to impact local communities around the world (Preuss & Brown, 2012).

To illustrate this enormous power of the business sector: estimations of the UN state that there are around 70,0000 MNEs with hundreds of thousands of subsidiaries (Waddock, 2008). The turnover of many of these MNEs is higher than the gross domestic product (GDP) of the (developing) nations in which they operate (Adler, 2008). This power is twofold; on the one hand MNEs may positively impact society. Since MNEs are considered ‘important sources of employment and valuable channels of technology transfer and economic growth’ (Giuliani & Macchi, 2014, p. 480). On the other hand, the media too often reports about MNEs negative impact, in mostly developing countries. They pollute the environment, destroy ecosystems or provide unsafe and unhealthy working conditions to local people (Aaronson & Higham, 2013; Huijstee et al., 2012).

The trend of growing international expansion and globalization led to a discussion about responsibility in the field of human right. Since firms, especially MNEs, are increasingly taking over state-like obligations such as providing public goods as health, education and protection of human rights, which originally used to be sole responsibility of the state (Marshall, 1965; Detomasi, 2015). Especially in developing countries, society expects MNEs to compensate for the weak or non-existent role of the government (Matten & Crane, 2005). For this reason, many

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scholars recently started emphasizing the importance of understanding firms’ social behavior from a political perspective (Boddewyn & Lundan, 2010;Detomasi, 2007; Matten & Crane, 2005;Scherer & Palazzo, 2008). The political corporate social responsibility (PCSR) literature has already investigated many corporate reactions to governance gaps, but practically no research is done on the political behavior of MNEs in relation to human rights specifically.

Even though there is plenty of cross-national research on the impact of internationalization in the business literature, much remains to be examined.

Specifically in relation to human right violations.To address this gap in the literature, this study focuses on the degree of internationalization and the influence of the welfare system of the home country. To see whether these variables are reflected in the firm’s behavior regarding labor conditions and regarding the economic and social development of its stakeholders. Considering that labor and development areas are the fields where companies can take over responsibility of the state (Matten & Moon, 2008), this thesis explicitly focuses on the right to development and the right to labor.

The objective of this study is to gain new insights into the antecedents of human rights violations, especially regarding the role of highly internationalized MNEs and the social welfare system regime in their country of origin. More explicitly, the aim of this thesis is to find out if the strength of the social welfare systems and the level of internationalization of the company, are related to the likelihood of corporate human right violations. By doing so, this study expands the scientific knowledge in the developing international business field of human rights.

The next section of this thesis provides a review of the existing literature on human rights and the political role of business and international expansion in the human right literature. This review is the starting point for the conceptual framework that is developed in chapter 3. Thereafter, the research design, dataset and method of analysis are introduced. Chapter 5 reports the empirical findings of the data. The

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last two chapters discuss consecutively the implications and limitations of this study, suggestions for future research and concluding remarks.

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2. Literature review

The next section starts with a general introduction of human rights, with a special focus on the right to development and labor rights. After which this literature review zooms into the role and responsibilities of multinationals in defending human rights. The existing literature on the impact of the degree of internationalization of the MNE is analyzed extensively and the social welfare system of the home country is

reviewed. Finally, the section concludes with the existing gap in the literature that forms the basis of the research question.

2.1. Human rights

More than 65 years ago, the Universal Declaration of Human Rights (UDHR) was adopted by the United Nations General Assembly (UDHR, 1948). The declaration declares the ‘’foundation of freedom, justice and peace in the world’’ by ‘’the

recognition of the inherent dignity and the equal and inalienable rights of all members of the human family’’ (UDHR, 1948). This declaration serves as the main reference point of protection of human freedom and dignity in the international system

(Glendon, 1997) and contains thirty articles covering diverse rights from the right to work, the right to live, to the right to development. Simply stated, human rights are referred to as the universal and basic fundamental rights provided to every human being regardless of gender, age, nationality, religion or ethnicity (Giuliani & Fiaschi, 2012).

Since the foundation of the declaration in 1948, human rights have been a prominent topic in the academic debate as well as in political policy making. Historically, international human rights law was introduced as ‘a tool to protect individuals from the arbitrary use of power by states’ (Kinley & Tadaki, 2004, p.937). Nowadays, the human right discourse is more complex. As a result of globalization, not only state actors but also powerful non-state actors started violating human rights ‘’in ways that were not contemplated during the development of the modern human

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rights movement’’ (Shelton, 2002, p.279). In response to this, voluntary laws, codes of conduct and ethical standards are used to analyze and discuss the behavior of states but also non-state actors such as NGOs, international organizations and transnational corporations (Reinisch, 2005).

2.1.1. Labor rights

Broadly speaking, labor rights have to do with the fair payment of workers, safe working conditions and the employee’s right to unionize (Kolben, 2009). More specifically, the Special Representative of the United Nations on business and human rights, Ruggie (2008) states that the core labor rights include the following: the freedom of association, the right to work, to organize and participate in collective bargaining, to receive equal pay for equal work, to obtain just and favorable

remuneration, to equality at work, to a safe work environment, to rest and leisure, and the right to family life. The labor right is made up of multiple interdependent set of human rights: “the elimination of all forms of forced or compulsory labor, the right of freedom of association, the effective recognition of the right to collective

bargaining, the elimination of discrimination in employment and occupation and the effective abolition of child labor” (UN General Assembly, Universal Declaration of Human Rights, 1948).

One of the first to address the right for labor is the International labor

Organization (ILO). Due to their active promotion and monitoring, the labor standards worldwide have improved significantly since their foundation in 1919 (Buergenthal et al 2009). In 1948, labor rights got accepted as Human Rights by the Universal Declaration of Human Rights (UN General Assembly, Universal Declaration of Human Rights, 1948).

The public concern over labor standards in the global economy increased in the 1990s, an indicator of this expanded interest is the number of articles published about labor standards in the major newspapers as well as in the academic literature

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in this period (Harrison et al., 2003). Scholars claim that since the introduction of labor rights the international economy has changed, specifically with respect to international trade and international investment decisions (Compa, 1993).

As a result of disparities in labor standards among countries, countries with lower standards become tempting targets for companies trying to compete in the global economy. Consequently, workers get paid below the poverty level, need to work under unsafe working conditions and children get employed to produce cheap (Akorsu & Cooke, 2011; Appelbaum & Schmitt, 2009). Compa (1993) argues that ‘’a set of strong, enforceable labor right and international fair labor standards’’ is needed in the interdependent global economy to solve these issues (Compa, 1993, p. 167).

2.1.2. The right to development

The Universal Declaration on the Right to Development defines the right to

economic, social and cultural development as a "comprehensive process, which aims at the constant improvement of the well-being of the entire population and of all individuals, on the basis of their active, free and meaningful participation in development and in the fair distribution of benefits resulting there from” (UN

Declaration on the Right to Development, 1986). The right to development includes the following set of human rights: self-determination, full sovereignty over natural resources, popular participation in development, equality of opportunity, the creation of favorable conditions for the enjoyment of other civil, and political, economic, social and cultural rights (UNHR, 2014).

Even though the right to development as human right is extensively described in the declaration of 1986, due to the way that the constitutional document is written, the description is open to multiple interpretations. Several scholars shed their own critical view to the interpretation of the right to development (see Barsh, 1991). This led to an ongoing debate about who is responsible for defending the right to

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primarily the duty of the states (UN General Assembly, 1986), since the central task of government is to provide welfare to its citizens (Thyne, 2006). An effective way of doing so is by domestic welfare spending, especially among the poorer segments of society (Gomanee et al., 2005). The ambiguous role and duty of state and non-state actors in the stimulation of development and the complexity of measuring

improvement, makes the right to development a relatively complex subject in the business and human rights discussion.

2.2. MNEs and human rights

The appearance of human rights on the global business agenda in 1990 was due to several convergent factors. First, the growing power of MNEs, as a result of

globalization, has led to a shift in the responsibility to defend human rights from the state to the business environment (Ruggie, 2011). Human rights law was initially initiated as an international public framework to protect citizens against the power of the state (Reinisch, 2005). However, due to the growing power of corporations, scholars argue that nowadays MNEs are morally, instead of legally, accountable for respecting human right standards (Weissbrodt & Kruger, 2003).

Secondly, the expansion of the private sector has led to a transference of services (education, health, public transport among others) from the state to the business sector, leading to increased societal expectations of corporations in these areas (Matten & Moon, 2008). Next to that, the widespread information via Internet about human right violations, as well as the growing amount of

non-governmental organizations resulted in a growing awareness among society (Shah, 2002).

These interdependent causes led to growing importance of business in the human right area as well as to rising expectation of MNEs to embrace human rights standards (Hamann et al., 2009; Hancock, 2006; Margolis & Walsh, 2003).Parallel to the growing concern of society, MNEs show increased interest in the issue of human

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rights as well. Businesses become aware of the impact of their behavior regarding human rights: it could help them gain legitimacy or conversely lead to reputational damage (Jerbi, 2009). The growing awareness resulted in the adaptation of human rights in corporate policy statements and business practices by codes of conducts among many firms (Jerbi, 2009). The importance of social issues in the business environment is also reflected in the growing amount of academic journals dealing with social behavior and human right issues (Waddock, 2008). The next section zooms deeper into this subject by providing an overview of the different theories towards the responsibilities of MNEs in defending human rights.

2.2.1. MNEs impact on human rights

MNEs duty to respect human rights is broadly analyzed and discussed in the literature (see Giuliani & Macchi, 2014). These studies mainly use two contradicting arguments to think about the relationship between MNEs foreign investments and human rights. On the one hand, the proponents (also called the ‘’engines of development thesis’’) state that the sole responsibility of the MNE is to foster development by creating jobs, capital and technology. They believe that economic development automatically fosters human right practices (Meyer, 2004), since geographical diversification leads to a transfer of best practices across nations, improving social justice and the overall standard of living (Bansal & Roth, 2000; Christmann, 2004).

The opposing view, the so-called ‘’Hymer thesis’’, focuses on the negative features of MNEs global operations. This rationale suggests that by outsourcing polluting operations, fostering bad working conditions and sourcing labor below minimum pay levels, MNEs take advantage of the lacking social and environmental standards in foreign countries (Lucas et al., 1993;Strike et al., 2006). Thus MNEs contribute to violations of human rights (Hymer, 1979), which leads to unequal development and growing inequality (Kaplinski, 2005; Levy & Kaplan, 2008).

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Empirical literature on this topic shows mixed results, both on the international level as on the level of case studies (see for example Spar, 1998; Meyer, 1996). Some studies state that global competition results in a decrease of social welfare and respect for human and labor rights (e.g. Rodrik, 1996). At the same time, several scholars report a positive relationship between MNEs foreign investments and labor rights (Aggarwal, 1995; Busse, 2003), by showing that MNEs foster development and create jobs in developing areas (Spar, 1999). The two contrary arguments raise questions about the role of MNEs in the human right area: what is the impact of a MNEs foreign operation on human rights? More importantly, to what extend is the business environment responsible to respect and protect human rights?

2.2.2. MNEs and human right responsibilities

The ‘UN Guiding Principles on Business and Human Rights’ is the first framework that addresses the importance of respecting human rights in corporate behavior (Ruggie, 2011). The guiding principles are based upon the Protect, Respect and Remedy (PRR) framework that was created earlier (Ruggie, 2008) in the interest of addressing the responsibilities of business and the lack of guidance on human right issues. The PRR framework is built upon three pillars. The first pillar ‘protect’ defines the duty of national states to protect human rights by involving corporations and other kinds of businesses. The second pillar ‘respect’ highlights the responsibility of

corporations to respect all human rights. The last pillar ‘remedy’ describes the access to judicial and nonjudicial remedies for victims of human rights violations (UNHRC, 2011).

The process of due diligence plays an important role in the PRR framework. The process of due diligence is defined as “the steps a company must take to become aware of, prevent and address adverse human rights impacts” (Ruggie 2008, p. 199). In other words, the process refers to the MNEs responsibility to identify and assess factors within the firm and its environment that could cause human right

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violations (Fasterling & Demuijnck, 2013).The process of due diligence not only includes assessing actual and potential human right impacts, it also consist of integration and action upon these findings, tracking responses and communication about how impacts are addressed (UNHRC, 2011). A company’s due diligence process should apply to the company's partner and suppliers as well (Ruggie, 2008).

Due to the absence of legal restrictions, the implementation of the due diligence guidelines by MNEs and the active promotion of human rights is often very limited (Fasterling & Demuijnck, 2013). Especially in developing countries where firms may ‘profit’ from weak state capacity and less constraining legal standards (Giuliani, 2016). It is argued that the efficacy of due diligence by MNEs depends more on a MNEs moral commitment instead of an external obligation (Fasterling & Demuijnck, 2013).

The UN Guiding Principles are concrete and practical recommendations on how to carry out the PRR framework (UNHRC, 2011). These principles apply to all firms ‘’regardless of their size, sector, location, ownership and structure’’ (UNHRC, 2011, p.1). However, this thesis focuses on multinational organizations solely since these are generally the most powerful. Aside from that, MNEs are subject to

increased scrutiny, since in many countries, ‘MNEs are expected to do more than local companies in building their reputation and supporting local communities’ (Kostova & Zaheer, 1999, p. 74). Subsequently, this study expects them to be

sensitive to be accused of violating human rights. The next two sections look into the MNEs responsibility to defend the human right to labor and the human right to

development.

2.2.4. MNEs and labor rights

The universal right to labor got a lot of attention in the business environment. When analyzing the individual corporate codes of MNEs, Gordon & Miyaka (1999) find that labor issues, together with environmental issues, are most often addressed. Next to

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that, companies are increasingly linking themselves to human right initiatives (such as the UN Global Compact), because MNEs realize that promoting these rights might be an efficient way for them to gain legitimacy (Kolben, 2009).

There are some skeptical views towards the introduction of labor standards as well. Governments of some developing countries perceive the labor standards as a threat to the competitive advantage they have from offering cheap labor (Kinley & Tadaki, 2004). However, an empirical study by Hepple (1999) shows that the

competitive advantage of cheap labor is not significantly reduced by the introduction of core labor rights. They even state that respecting the right of workers in relation to health and welfare might lead to an increase of productivity (Kinley & Tadaki, 2004) and this might in the long run, attract more foreign investment.

With respect to the responsibility to protect the right of workers, Egels-Zandén & Hyllman (2006) argue that the business environment is merely taking over the role of the government. ‘’Governments are playing smaller roles in regulating worker’s rights internationally, and transnational corporation have started to ﬁll this

governance gap’’ (Egels-Zandén & Hyllman, 2006, p. 303).

2.2.5. MNEs and the right to development

Three years after the UN declaration of the Right to Development in 1986, DeGeorge (1989) comes up with seven moral guidelines for firms operating globally. One of these guidelines is that MNEs should ‘contribute to the host country’s development’. Ten years later, the UN successfully introduced the UN Global Compact; a voluntary initiative intended to increase economic development. The UN Global Compact consists of 10 principles in the areas of human rights, labor, environment and anti-corruption. More than 4700 corporate participants already signed up for the initiative (UN Global Compact, 2014).

The broad participation in the UN Global Compact indicates that firms

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& Crane, 2005; Rasche & Kell, 2010). Especially in countries where the governance systems are inefficiently addressing social issues, many MNEs decide to engage in regulations to fill these governance voids by providing social services. The PCSR literature describes this phenomenon, where MNEs take political responsibility to address governmental deficits (Mena & Palazzo, 2012; van Huijstee & Glasbergen, 2010), for example in contributing to social security, public health, education and the protection of human rights (Scherer & Palazzo, 2011), which ultimately leads to regional development.In the matter of the extractive industry, Wyse & Shtylla (2007) state that ‘’when allocated effectively, revenue flows resulting from the operations in the extractive industry could finance public goods and services, such as education, healthcare and infrastructure’’ (Wyse & Shtylla, 2007, p. 7) which would ultimately contribute to the economic, social and cultural development of the host country.

The positive externalities of a foreign investment are in line with the earlier mentioned ‘’engines of development thesis’’. On the contrary, MNEs that get accused of violating the right to development did not actively take into account or promote the social development, education, health and environmental protection of its

stakeholders. The so-called ‘’Hymer thesis’’, highlights these negative features of MNEs global operations.

2.3. MNEs international expansion

The manner in which society deals with human rights and business can be seen as a response to globalization. Globalization has led to the increased power of

multinationals, as well as an increase geographical spread of business operations around the globe (Sharfman et al., 2004). Much research is done on the effect of geographical spread of activities (e.g. Johanson & Vahlne, 1977; Dunning, 1991; Shearmur et al., 2015). On the micro level, research shows that the dispersion of activities into many countries leads to plenty possible advantages, such as the spread of risk among countries (e.g. Geringer et al., 1989), opportunities for scale

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and scope (Vernon, 1971), growth opportunities (Porter, 1990)as well as access to new knowledge and resources (Hitt et al., 1997).On the other side, firms’

international expansion may also lead to high managerial and coordination costs as a result of the liability of foreignness (Zaheer, 1995)and high complexity that comes along with operating in an international environment (Zahra & Garvis, 2000).

Several studies focused on the corporate social behavior of MNEs in relation to the degree of internationalization (e.g. Brammer et al., 2006; Strike et al., 2006). The main argument in the literature states that the complexity of managing business operations increases when firms internationalize (Sanders & Carpenter, 1998). The literature generally provides three arguments as to why complexity derives from internationalization. First, firms expanding into multiple domestic markets need to deal with a wide diversity of stakeholders and their cultural, institutional and social expectations regarding the behavior of the firm(Gomez-Mejia & Palich, 1997; Sharfman et al., 2004).

This argumentation is in line with the institution-based view, which states that MNEs need to cope with different environmental pressures to gain organizational legitimacy. Legitimacy can be defined as the acceptance of a company by its environment (Dowling & Pfeffer, 1975)and is necessary for a company's success and survival (Dowling & Pfeffer, 1975;Hannan & Freeman, 1977; Meyer & Rowan, 1977). Similarly, Freeman’s stakeholder theory (Freeman, 1984) states that firms have interdependent relationships with groups that are affected by or can affect the organization. According to Hillman & Keim (2001), these various groups and

individuals each have their own expectations about how they expect the company to behave. Since MNEs are operating globally, the range of stakeholders increases and gets more diverse. This pushes the MNE to higher social performance by both global and domestic institutions (Sharfman et al., 2004). One way to deal with this increased diversification of expectations and intensified pressures is to endorse high CSR global standards and policies for managing their social responsibilities (Sharfman &

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al., 2004; Kostova & Zaheer, 1999). Brammer et al. (2009) found that in order to demonstrate responsiveness to a variety of stakeholders, globalizing MNEs are likely to increase CSR activities.

Attig et al. (2016) assessed the impact of internationalization on individual dimensions of corporate social responsibility (CSR) in a sample of 3040 U.S. firms. Interestingly enough, they found that internationalization relates significantly positive to corporate social performance on community and environment dimensions.

However, it relates significantly negative to the dimension of human right; suggesting that firms are not very willing to invest in social issues when entering a foreign

market. As a possible explanation for this negative relation between

internationalization and human right performance, Attig et al. (2016) recognize the importance of dealing with primary stakeholders. ‘’The social activities that are most important for MNEs are the activities directly related to primary stakeholders

(customers) and therefore they do not recognize the potential benefit of investing in social issues such as human rights’’ (Attig et al., 2016, p.173).

The second factor that is typically associated with the complexity arising from internationalization has to do with different regulations and various national legal systems (Brahm, 1994). On the one hand, this might be beneficial for MNEs,

because it gives business the opportunity to pick the optimal context of social, labor and environmental regulations for their operations abroad (Roach, 2005; Scherer & Palazzo, 2008). On the other hand, it leads to complexity, especially for MNEs

operating in host countries that have different development levels (van Tulder & Kolk, 2001). Being that a lack of expertise in managing institutions in less developed countries, makes MNEs from developed countries usually face difficulties internationalizing into developing countries (Cuervo-Cazurra & Un, 2004b).

A third explanation for the increased complexity is the fact that

internationalization is associated with immense complexity to extract synergies across products and other markets (Roth & O'Donnell, 1996; Rumelt, 1974), as well

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as tremendous competitive pressures (Bartlett & Ghoshal, 1999). Oppenheim et al. (2007) confirm that integrating global business activities is complex. A survey

amongst 391 MNEs that participate in the UN Global Compact, showed that four out of ten companies said that the “complexity of implementing strategy across various business functions” hindered them from implementing an integrated, company-wide approach to corporate social responsibility issues.

Lastly, Dunning (1991) states that interaction between governments and firms is one of the key elements of a successful internationalization process. The next section elaborates on the impact of the home country government in the international expansion and social behavior of the MNE.

2.4. MNEs and the role of the home country government

Since there is no legal requirement to apply the UN framework, there are differences in the commitment to respect human rights by MNEs. Various cross-national studies try to explain these differences in corporate social behavior by looking at the home country of the MNE. Scholars generally agree about three country-level

characteristics that influence MNEs’ behavior regarding human rights: social capability, civil society and the state capacity (Giuliani & Macchi, 2014). This thesis focuses on the latter since human right scholars believe that a strong legal and political system is vital to coordinate MNEs foreign operations and to prevent human right abuses (see, e.g. Eroglu, 2008).

Matten and Moon (2008) use the ‘institutional theory’ to explore and compare corporate social behavior between different national, political and institutional

contexts. They provide a framework that distinguishes between ‘implicit’ and ‘explicit’ CSR. Implicit CSR refers to CSR policies that follow regulations of the government. Whereas explicit CSR applies to policies that address responsibility for societal interests. Most of the time this type of CSR is more self-initiated or voluntary. In general, corporate social behavior in the US is more explicit in comparison to

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European CSR (Matten & Moon, 2008). A possible explanation for this finding is that the power of the state tended to be bigger in Europe (Lijphart, 1984), and therefore ‘’European governments generally have been more engaged in economic and social activity’’ (Heidenheimer et al., 1990, p. 74), for example with respect to nationalized health insurance, pensions and other social services. In the United States, where the state is lacking to provide these services, there is more capacity for companies to take responsibility in these areas (Matten & Moon, 2008).

Matten and Crane (2005) suggests that several corporations start to take a state-like function. They argue that many companies ‘’fulfill the functions of

protecting, enabling, and implementing citizenship rights, which have originally been considered the sole responsibility of the state and its agencies’’ (Matten & Crane, 2005, p. 900).Especially in developing countries, where the state is not providing social services, MNEs start providing social welfare to local society (Detomasi, 2015). So, existing research suggests that the capacity of the state plays an important role in understanding social behavior of the MNE (Matten & Crane, 2005). However, it remains unclear whether the state capacity influences MNEs foreign behavior with respect to the right to labor and/or the right to development.

2.5. Existing research gap

Although the political role of the corporation has been a widespread research phenomenon, surprisingly little reflection has gone to the exploration of the

relationship between internationalization, firms’ political behavior and the likelihood of the firm to engage in human right abuses. To fill this gap in the literature, this study investigates two variables that are expected to influence the likelihood that MNEs are accused of violating the right to development and/or the right to labor: the degree of internationalization and the social welfare system of the MNEs’ country of origin.

Since there is rarely any research done on the effect of the degree of internationalization in relation to human rights, all studies on this topic, in particular

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empirical ones, are adding value to the underdeveloped scientific knowledge about human rights in relation to MNEs (Hamann et al., 2009).In line with the stakeholder theory and the institution based view it is expected that that highly internationalized MNEs need to deal with a wide range of potentially conflicting stakeholders, which makes it difficult to fully execute due diligence and respect human rights (Giuliani, 2016).

The social welfare system of the home country is relevant to take into account based on the amount of scholars that stress the importance of a contextual

understanding of corporate social responsibility policies towards human rights (e.g. Matten & Moon, 2008).Several scholars claim that the business environment is taking over responsibilities of the state in protecting human rights (e.g. Matten & Crane, 2005). For example, Matten and Moon (2008) provide evidence that the role of the state influences the degree of responsible behavior of the firm domestically. However, it remains unclear whether the social welfare system in the home country influences MNEs social behavior abroad.

All in all, it is expected that both the degree of internationalization and the social welfare system of the home country affect the likelihood that a MNE is accused of violating human rights. However, the interaction between these two concepts in relation to the right to development and the right to labor has not yet been examined. Hence the research question of this study is: Is there any interaction between the degree of internationalization of the MNE, the social welfare system in the home country and the likelihood that a MNE is accused of violating the human right to development and/or labor human rights? This research question leads to the formation of three hypotheses. The next section introduces the hypotheses, based upon the existing literature.

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3. Theoretical framework

This section elaborates upon the discussed theories in the literature review to develop the hypotheses. The direct relation between the independent variables and the likelihood that a MNE is accused of violating the right to development and/or labor forms the basis for the first two hypotheses. The third hypothesis suggests the interaction of the social welfare system and the degree of internationalization.

3.1. Degree of internationalization and the right to development & labor In order to understand the role of human rights in the business context, it is vital to understand interdependencies between, and interactions among

stakeholders. Therefore, this study draws upon the institution based view and the stakeholder perspective (Hillman & Keim, 2001). These theories both emphasize the highly interdependent linkage between business and its stakeholder base (see for example, Mitchell et al., 1997). As firms internationalize, its stakeholder base gets more diverse, international and more populated (foreign employees, foreign customers, foreign governments and so on).

Literature states that a highly internationalized and diverse stakeholder base leads to complexity in managing operations and living up to stakeholder pressures related to human right issues (Matten & Crane, 2005; Khanna et al, 2007). For MNEs to gain legitimacy, ‘’they need to go beyond national compliance and examine the global context, global standards, and multistakeholder initiatives to inform their corporate mindset’’ (Westermann-Behaylo et al., 2015, p.394).This is in line with Zahra and Garvis (2000) findings, which show that highly internationalized MNEs have a harder time performing due diligence.

Furthermore, MNEs operating in multiple environments face additional costs compared to domestic companies (Zaheer, 2002). MNEs are expected to engage more in social behavior in comparison to local companies (Kostova & Zaheer, 1999). Take the example of Shell, who is highly criticized for their operations in Nigeria,

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while they claim they have contributed more to the people of Nigeria than any other company in the region (Newburry & Gladwin, 1997). Spar (1998) explains this phenomenon as the ‘’spotlight phenomenon’’ that occurs when a well-known MNE gets large media attention as a result of human right abuses. This might lead to bad public relations, embarrassment of the MNE and even consumer boycotts. Due to the increased analyst coverage and media attention to well-known global MNEs (e.g., Hong & Kacperczyk, 2009;El Ghoul et al., 2011), highly internationalized companies are more likely to receive accusations of violating human rights, regardless whether that claim is valid or not.

Reflecting on the above stated arguments, this study expects that in relation to other firms, highly internationalized MNEs face higher institutional pressures. Therefore, they are more likely to be claimed for violating human rights (regardless of whether these claims are justified or not). On top of that, research shows that labor rights and development rights are the subsets of human rights that are most likely to be influenced by globalization (Mosley & Uno, 2007). Accordingly, this results in the following hypothesis:

Hypothesis 1 (H1): Highly internationalized MNEs are more likely to be accused of violating the right to labor and/or development.

3.2. Social welfare system and the right to development & labor

Social welfare systems are known to improve economic equality and reduce poverty domestically (Kenworthy, 1999; Collier and Hoeffler, 2002; Gomanee et. al., 2005B; Burgoon, 2006), the intention of the social welfare state is very similar to the ethics of human rights: providing social rights, with a focus on universality and solidarity (Cox, 1998). However, many developing countries lack resources and policies to provide social welfare to citizens. That is whyMNEs increasingly help to fill ‘governance

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gaps’ by improving standards and providing social services that historically would be the sole responsibility of the state (Young, 1999).

The influence of the state capacity on corporate social behavior is found to be positive by multiple researches (see Midttun et al., 2004; Giuliani & Machhi, 2013). For example, Giuliani and Machhi (2013), stress that the more developed the home country of the MNE, the more likely the MNE is to respect human rights abroad. A possible explanation for this finding has to do with the transferability of management practices, knowledge and values from the MNE to foreign affiliates (Giuliani & Machhi, 2013).

Next to that, Matten & Moon (2008) argue that a MNEs national background partly explains differences in corporate approaches to provide labor welfare. In the U.S. you can find many examples of MNEs that pay the health care insurance of their employees (for example Starbucks). In Europe, similar initiatives are less likely to happen. Since many European states already provide some form of National Health Service.

Building upon these arguments, it is expected that MNEs from a home country with a low social welfare system are more experienced in taking the role of the state in providing social welfare and will therefore be more likely to respect the right to labor and development when operating in a developing country. The influence of the welfare system of the home country on the behavior of the MNE is most likely to be reflected in their behavior regarding labor conditions and regarding the

economic and social development of its stakeholders since these are the areas where the company can take over responsibility of the state (Matten & Moon, 2008). This above mentioned arguments lead to the following hypothesis:

Hypothesis 2 (H2): MNEs headquartered in a country with a low social welfare regime, are less likely to be accused of violating the right to labor and/or

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The relationship between business and human rights is too complex to simply identify a linear relationship (Letnes, 2002). For this reason, this study takes into account the interaction of the degree of internationalization and the social welfare system in identifying MNEs human right behavior.

As mentioned before, Matten & Moon (2008) use the ‘explicit’ and ‘implicit’ CSR-model to analyze whether a MNE is likely to contribute to society (for example in providing education, healthcare or employee welfare). They state that ‘explicit’ style of CSR (characterized by North American firms) is more excessively providing social services to society. While the ‘implicit’ style (characteristics of Continental Europe) is less attracted to provide social provisions. Main explanation for this finding is the fact that in Continental Europe these provisions are already provided by the national governments (Matten & Moon, 2008).

Several scholars argue that organizational behavior and policies in foreign countries tend to reflect the environment in which they were developed (Kogut, 1993; Campbell et al., 2012). So, MNEs that already provided political and social services in the home country have an advanced understanding of the mechanisms that shape social behavior (Campbell et al., 2012). This is in line with the organizational learning theory. That describes organizational learning as the ‘’process of improving actions through wider knowledge and understanding’’ (Fiol & Lyles, 1985, p. 803). Since MNEs learn from previous experiences, this study expects that the complexity that results from a high degree of internationalization will be lower for those who already took responsibilities from the state in their home country. In other words, MNEs from high social welfare regimes might face difficulties internationalizing and providing social services abroad. Especially compared to experienced MNEs who already took over responsibilities of the state in their home country. This leads to the third

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Hypothesis 3 (H3): Ceteris paribus, the social welfare system of the home country positively moderates the relationship between the MNEs’ degree of

internationalization and the likelihood that the MNE is accused of violating the right to development and/or labor.

Figure 1 Conceptual model

Degree of Internationalization

Social Welfare System in the MNEs Home

Country Allegations of Labor and Development Rights Violations H1 H2 H3

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4. Research method

The next sections discuss the methodology of this study. The type of research design will first be discussed, followed by the sample and the data collection procedures. The section concludes with a description of the data measures and analysis.

4.1. Research design

The overall design of this study is based on quantitative data. This study uses secondary databases and multiple sourcing of longitudinal sources to test the hypothesis. Data from the CHRD, Transnationality and Orbis databases are used to examine the potential relationship between the independent and dependent

variables. These sources examines the subsequent components: the companies that are engaged in violations of the right to labor and/or development in the extractive sector in Africa, the MNEs’ degree of internationalization and lastly the strength of the welfare state in the home country of the MNE. The financial performance and the size of the firm are included as control variables.

To operationalize the violations of the right to development and the right to labor, the corporate human right database (CHRD) is used. The CHRD is created frominformation collected by the Business & Human Rights Resource Centre and features the most detailed scientific cases of claims on corporate violations of human rights (Olsen & Payne, 2013). The database consists of an overview of alleged Corporate Abuse Allegations (CAA) worldwide in the period 2000 to present.

The data on the social welfare system of the home country is obtained by the OECD social expenditure database that contains information from 34 OECD

countries for the period 1980-2014 (OECD, 2015). Lastly, the OSIRIS transnationality index database is used to measure the degree of internationalization, the firm size and the firm performance of the MNEs. This database contains key information on over 120 million firms ranked by country and industry. The availability of subsidiary information is particularly useful for this thesis.

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There are some pitfalls regarding the use of secondary databases. Often reported drawbacks are the lack of control over the quality of the data (Lewis, Thornhill & Saunders, 2007) and the fact that the data is collected for a different research purpose. However, concerning the latter, the purpose of developing the CHRD database is similar to the purpose of this study, namely to understand patterns of human right abuses and to understand the state and corporate involvement in abuses (CHRD, 2015).

4.2. Dataset

This thesis focuses on the extractive sector. That means on all operations in the gas, oil, mining and coal industry. There are several motives for focusing on this specific sector. First, the natural resources industry is known for its large impact on the local environment and people (Hilman, 2012). The exploitation of fossil fuels in the extractive sector often has consequences for the local society and environment (Sethi et al., 2011).This impact, especially in developing countries, is known for being negative and declining the living conditions of the local citizens (Calain, 2012). On top of this, research has shown that the exploitation of natural resources does not provide development to the areas where the resources were exploited (Hilson, 2012). That is why the mining, oil and gas industry is claimed to be one of the largest human rights offenders in the world (Davis & Franks, 2011).

The data collection is carried out in the following manner: MNEs active in the extractive sector with a subsidiary in one of the 16 countries in Africa1 that are included in the CHRD database are identified using the Orbis database. This database contains information of some 120 million private and public listed firms globally (Bureau van Dijk Electronic Publishing, 2013).

Next, these MNEs are sampled with respect to their country of origin. Limited information is available on the social welfare system of several countries. Therefore,

1_{Angola, Botswana, Cameroon, Chad, Cote d’Ivoire, Democratic Republic of Congo, Gabon,}

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the sample only includes companies headquartered in one of the 37 countries listed in the Organisation for Economic Co-operation and Development (OECD) database on governmental public spending (OECD, 2015). This forms a sample of 396 companies from 34 countries. The corporate human right database (CHRD) is used to analyze whether these companies have been accused of violating the right to development, the right to labor or both.

4.3. Variables

4.3.1. Dependent variable

The CHRD database is used to analyze whether the sampled MNEs received a CAA in the period 2000-2014. A CAA occurs when a group and/or individual is accusing a firm of violating human rights (Olsen & Payne, 2013). The CHRD project

distinguishes five types of corporate abuse allegations. These five types are: environmental violations, health violations, physical abuse, labor violations and development violations. This thesis focuses on the latter two.

In short, labor violations are related to child, prison and forced labor practices. Substandard wages, denial of the right to unionize and the failure to meet basic labor standards are also considered labor violations (CHRD, 2015). Violations concerning the right to development include the lack of investment in and the exploitation of local economy, denial of access to basic needs and destruction of local economies

(CHRD, 2015).

4.3.2. Moderating variable

There are various methods of measuring national welfare systems. For example by using standard national account measures (Hicks, 1940;Pigou, 1962) or using composite indicators (Osborn & Morris, 1979). This thesis focuses on the welfare effort instead of the success (outcomes) of the welfare system. Therefore, the social welfare system is measured in the form of the average public social spending of the

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government in gross domestic product (GDP) in the 2000-2014 period. This study relies on Taydas & Peksen (2012), who measure welfare expenditure on social security, education and health care as a percentage of GDP. This expenditure includes governmental investment in hospitals and health care, public education and pensions, as well as unemployment benefits (Taydas & Peksen, 2012). This

conceptualization of social welfare systems indicates the home countries governments’ political commitment. The data is obtained by the OECD social expenditure database that contains information from 34 OECD countries for the period 1980-2014 (OECD, 2015). Only 27 OECD countries are included in the

sample, since no MNEs with a subsidiary operating in the extractive industry in Africa are headquartered in one of the other 7 OECD countries2.

4.3.3. Independent variable

When it comes down to conceptualizing the degree of internationalization, several scholars have claimed different conceptual and empirical definitions (see Sullivan, 1996). One way to define the degree of internationalization of a firm is to refer to the home-versus-foreign dichotomy in the location of activities (Ietto-Gillies, 1998). The degree of internationalization can also be measured as ‘the extent to which activities are geographically spread among many countries’ (Ietto-Gillies, 1998, p. 16). Taking into account the fact that the geographical spread of activities is shown to be a relevant factor in examining a MNEs strategy and performance (see for example, Sharfman et al., 2004; Kostova & Zaheer, 1999; Vernon, 1999), this thesis focuses on the latter one: the extent to which activities are geographically spread among countries.

In order to quantitatively measure this variable, the average total number of subsidiaries listed among the countries of operations during the period 2000-2014. For this measurement, this study relies on published research (see for example

2

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Brammer et al., 2006) that did the same type of empirical testing. Using these validating scales assures a level of comparability across results.

4.3.4. Control variables

The degree of internationalization is in many cases strongly related to the size of the firm. Consequently, this variable is included to control for the option that the size of the MNE influences the likelihood that MNEs are more or less involved in human right violations.

An increase in the size of the firm usually accompanies changes in the business strategy, the organizational structure and the top management (Zhou, 2006). Aside from that, some countries have different regulatory requirements for small, medium and large firms. For example in the U.S., large firms are obliged to provide health insurance to employees (Rajan et al., 2001).For this paper, the size of the firm is operationalized as operating revenue. Rajan et al. (2001) state that operating revenue is the most consistent and complete proxy for firm size.

Financial performance is included to control for the possibility that the relationship between the independent and dependent variables is influenced by the financial position of the firm. Burke et al. (1986) argue that financially healthy firms attract more stakeholder attention and are therefore more vulnerable to being accused of violating human rights. Aside from that, the slack resource hypothesis states that firms with a better financial performance have more opportunity to invest in socially responsible activities, such as employee well-being and society (Waddock & Graves, 1997). Financial performance is measured as the return on assets (ROA) of the company, meaning the profit divided by the total assets. ROA is claimed to be a reliable measure of firm performance (see for exampleBerman et al., 1999;

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5. Results

This section starts with the descriptive analysis of the data. After which the results of the correlation and regression analysis to test the hypothesis are provided.

5.1. Descriptive analysis

The total sample consists of 396 MNEs having a subsidiary operating in one of the 16 African countries included in the CHRD database. Table 1 provides an overview of the countries included in the sample and the amount of corporate abuse

allegations for each country. The countries in table 1 are ranked in hierarchical order with respect to the strength of their social welfare regime. Meaning that France had the highest average social welfare policy in the period 2000-2014 (average of 31% of the GDP spend on social services). Whereas Canada had the weakest social

services (average of 19.3% of the GDP spend on social services).

Table 1

Distribution of the MNEs’ nationality and amount of CAA per country

Home country Frequency %

#

CAA %

France Finland Belgium Denmark Italy 39 3 9 12 26 9.8 0.8 2.3 3.0 6.6 9 0 2 1 2 12.7 0 2.8 1.4 2.8 Austria Sweden Spain Denmark Portugal Netherlands Greece Luxembourg Norway Ireland United Kingdom Czech Republic United States Australia Canada Total 2 4 4 4 18 11 1 3 10 3 56 1 35 64 55 396 0.5 1.0 1.0 1.0 4.5 2.8 0.3 0.8 2.5 0.8 14.1 0.3 8.8 16.2 13.9 100% 7 0 5 1 2 3 0 1 2 0 19 0 9 7 7 71 9.9 0 7 1.4 2.8 4.2 0 1.4 2.8 0 26.8 0 12.7 9.9 9.9 100% N = 396

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Most MNEs originate from Australia (16.2%), followed by the United Kingdom (14.1%) and Canada (13.9%). This is in line with the literature, which states that these countries are dominant in the extractive industry operations (Drimmer, 2010). Frequency checks showed that 71 MNEs (17.9%) were involved in violating the right to labor, the right to development or both. 325 MNEs (82.1) did not receive any corporate abuse allegation.

Due to the lack of available financial data of MNEs operating in developing countries, the control variables (firm size and firm performance) displayed missing values. The missing values of 126 MNEs were excluded list wise to ensure that only valid data are included in the regression analysis. Before running the analysis, the independent variables were checked for outliers (Pregibon, 1981). This was done using the Mahalanobis distance score. No outliers were detected so no cases needed to be excluded from the sample.

To examine the relationship between the variables, a Pearson correlation analysis is used. Table 2 shows that firm performance and firm size, which are considered control variables in this study, correlate quite strongly with the

independent variable, the degree of internationalization. High levels of correlation could indicate the existence of multicollinearity (Field, 2009). To check whether the data meets the assumption of collinearity, the tolerance levels and the variance inflation factors (VIF) are calculated. Tolerance levels below 0.2 and VIF values of 10 are treated as critical (Field, 2009). The VIF test and tolerance levels indicate that multicollinearity is not a concern in this data (Firm size, Tolerance = .515, VIF = 1.924; Firm performance, Tolerance = 1.0, VIF 1.0). As table 2 shows, no other predictor variables correlate very strongly (above 0.7).

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Table 2

Mean, Standard Deviation and Correlations

M SD 1 2 3 4 5

1. Degree of Internationalization 69.80 166.70 1

2. Social welfare system 23.11 5.13 .07 1

3. Corporate abuse allegations .18 .39 .18** .004 11

4. Firm size 9.546 25.176 .58** .026 .12* 1

5. Firm performance 6.188 22.803 .67** .68** .15** .70** 1

*. Correlation is significant at the 0.05 level (2-tailed). **. Correlation is significant at the 0.01 level (2-tailed).

5.2. Hypotheses testing

A binary logistic regression is used to test the hypotheses. This analytical strategy is chosen because the independent variables in this study predict the probability that a MNE will be accused of violating the right to labor and/or development (1) or not insisting in any violation of human rights (0). For this analysis, the categorical dependent variable of corporate abuse allegation was transformed into a dummy variable.

The analysis is conducted by means of a stepwise hierarchical model, using a four-step regression (including step 0). Step 0 serves as the baseline model,

containing none of the predicting variables. In the first step, only the control variables are entered. In the second step, the independent variables were entered to test the first two hypotheses of this thesis. The last step of the model, tested hypotheses three by entering the interaction term to the model. This moderator term is likely to covary with the two independent variables, leading to a form of multicollinearity, which makes it hard to interpret the separate effects of the variables (Cronbach, 1987). To solve this problem, both independent variables are mean-centered before the interaction variable was computed.

In the first step of the model, the control variables, firm size and firm performance, as predictors are compared to the constant model. This model is not

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find to be significant (chi square = 5.560, p .062 with df = 2). 80.9 per cent of

corporate abuse allegations are explained by firm performance and firm size, which means that it has not improved compared to the first block of our analysis. The Nagelkerke R₂ of 0.033 indicates a weak relationship between the predictors and the prediction of being accused of violating human rights. This model leads to the

conclusion that firm performance and firm size alone do not significantly contribute to the likelihood of being accused of violating human rights. Table four provides an overview of the results of the first step of the model.

In step 2 of the model, the predictors social welfare system and degree of internationalization are introduced to test hypothesis one and two. Model 2 was found significant compared to the baseline model (chi square = 11.414, p .022 with df = 4) and the overall prediction success of 81.3% increased from model 1 to model 2. However, Cox and Snell R₂ = .042 and Nagelkerke R₂ = .067, indicates that only between 4.2% and 6.7% in the variance of CAA can be explained by this model. Concerning the predictive capacity of the independent variables; the degree of internationalization is positive (β = .002, p = .047) and based on the p-value (.047) it can be concluded that its predictive capacity is statistically significant. The predictive capacity of the social welfare system of the home country is found to be insignificant (p = 0.210).

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Table 3

Results of the regression analysis by corporate abuse allegations

Dependent variable: Corporate abuse allegations

Predictor B SE B Wald’s X^2 df p odds ratio

Constant -1.577 .171 84.521 1 .000* .207 Control variables Firm Performance .009 .007 1.780 1 .182 1.003 Firm size .003 .007 .168 1 .682 1.009 1 1.0 . 1 4 2 1 . 7 0 6 1 . 0 0 0 X^2 df p Overall model evaluation 5.560 2 .062

Likelihood ratio test 254.864 Cox & Snell R Square .021 Nagelkerke R Square .033

Goodness-of-fit test

Ratio Chi-Square

Hosmer & Lemeshow 9.325 8 .316

Classification prediction % Correct

Model 1 80.9

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Table 4

Predictor B SE B Wald’s X^2 df p odds ratio

Constant -0.635 .849 .558 1 .455 .530

Independent variables

Degree of internationalization .002 .001 3.944 1 .047*

1.002

Social welfare system -.044 .035 1.573 1 .210 .957

Control variables Firm Performance .003 .008 .139 1 .709 1.003 Firm size .000 .008 .001 1 .979 1.000 1.0 1 1 . 0 0 0 X^2 df p Overall model evaluation 11.414 4 .022*

Likelihood ratio test 249.010 Cox & Snell R Square .042 Nagelkerke R Square .067

Classification prediction

Model 2

Ratio Chi-Square

Model 2 81.3

The last step of the model, step 3, tested the full model against the constant model to see whether the association between the degree of internationalization and corporate abuse allegations depends on the social welfare system of the home country. In this model, the two independent variables, the interaction and the control variables were simultaneously entered.

Testing the full model against the constant model was found statistically significant, meaning that the logistic model explained more of the variance in the outcome, compared to the baseline model (chi square = 17.355, p .004 with df = 5).

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Furthermore, the Hosmer and Lemeshow Goodness-of-Fit Test statistic has a significance level of (p = .769), meaning that our model is correctly specified. Next, the Cox and Snell R₂ of .063 and the Nagelkerke R₂ of 0.101 indicate that the model roughly explains between 6.3% and 10% of the variation in the outcome. The overall prediction success was 83.1%, thus has not improved compared to model 2.

The Wald Test showed that the explanatory variable, the degree of

internationalization, still made a significant contribution to the prediction of human right violations (β = .014, p = .017), whilst controlling for the other explanatory

variables. The explanatory variable, social welfare system of the home country could not be identified as a significant predictor.

Furthermore, the interaction term shows a significant negative contribution to the prediction of being accused of violating human right (β = -.001, p = .034),

suggesting that the effect of the degree of internationalization depends on the social welfare system in the home country of the MNE. The results of the analysis are shown in table 5 below.

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Table 5

Predictor B SE B Wald’s X^2 df p odds ratio Constant -1.836 1.013 3.287 1 .070 .159 Independent variables Degree of internationalization .014 .006 5.656 1 .017* 1.014

Social welfare system .031 .035 .748 1 .387

1.031 DOI*SWS -.001 .000 4.485 1 .034* .999 . Control variables Firm Performance .000 .000 .735 1 .986 1.000 Firm size .000 .000 .000 1 .391 1.000 1.0 . 1 4 2 1 . 7 0 6 1 1 1 . 0 0 0 X^2 df p Overall model evaluation 17.355 5 .004*

Likelihood ratio test 243.070 Cox & Snell R Square .063

Nagelkerke R Square .101

Model 2

Ratio Chi-Square

Model 3 83.1

**. Correlation is significant at the 0.01 level (2-tailed).

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6. Discussion

This section starts with an interpretation of the results. Afterwards, the subsections discuss consecutively the academic and managerial implications, the limitations of this study and suggestions for future research.

6.1. Conclusion of the results

Statistical analysis of the data suggests that the degree of internationalization is found to be a significant predictor of labor and/or development violations. Meaning that as the degree of internationalization increases, the likelihood of being accused of human right violations increases as well. Therefore, hypothesis 1 is supported. However, the effect was not very strong: the odds that a MNE is accused of violating labor or development rights are 1.014 times higher if the degree of

internationalization is high. Since the degree of internationalization is measured in the amount of subsidiaries this means that an increase in internationalization with one subsidiary increases the odds of being accused of violating the right to labor or the right to development about 1.014 times.

On the other hand, the results of the regression analysis show an

unexpectedly insignificant impact of social welfare system on the likelihood of being accused of violating human rights. Consequently, this study could not offerany support for hypothesis 2. The logistic regression results show that the interaction effect is significant. Suggesting that there is evidence that the effect of the degree of internationalization depends upon the social welfare system of the home country of the MNE. However, opposite of what was expected, the effect is negative (β = -.001, p = .034). This means that the social welfare system of the home country shows a decrease in the positive relationship between the degree of internationalization and the likelihood of being accused of violating human right. In other words, highly internationalized MNEs from a home country with a high social welfare system are less likely to receive claims for violating human rights in comparison to highly