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Faculty of Economics and Business

Effects of National Culture and Cultural

Distance on Human Rights Violations

Master Thesis

MSc. Business Studies – International Management

Name: Mohammad Maseeh Naimi

Student #.: 10604510

Supervisor: Michelle Westermann-Behaylo 2nd Reader: Suzana Rodrigues

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Abstract: Since the maturity of globalization that changes the world rapidly, big multinational

corporations have brought new threats to human rights. Specially oil and gas, and mining companies have facing much criticism linked to their activities in developing countries from various human rights organizations as well as non-governmental organizations (NGOs) and the media. To prevent such perceptions companies have increasingly adapting different codes of conducts, corporate social responsibility (CSR), and other due diligence acts. The strategic and operational managers are always in the quest of the factors that have adverse impact on human rights violations. This study examines the effect of national culture and the cultural distance on human rights violations. I developed a model adopting Hofstede’s national culture constructs, and Kogut and Singh’s cultural distance index. Then I formulated the research hypotheses from the theory and tested the hypotheses based on the data that was collected on 108 companies from three different countries, namely Argentina, Nigeria, and Peru. Using a regression analysis on the research model, I found that there was insignificant result to support the impact of culture on human rights violations. At the end I have concluded that if the result is insignificant, does not mean that national culture and cultural distance have no impact on human rights violations. And I further discussed some of my finding’s contribution to the development of national culture theory and their managerial implications for reducing human rights violations, and some suggestions for the future researchers.

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Contents

1. Introduction ... 4

2. Literature Review ... 6

2.1. Human Rights and the Multinational Enterprises (MNEs) ... 6

2.2. National Culture ... 8 2.3. Cultural Distance ... 11 2.4. Empirical Findings ... 11 3. Theoretical/Conceptual Framework ... 18 4. Research Methodology ... 23 4.1. Research Sample ... 23 4.2. Measures ... 23 4.3. Independent Variables ... 25 4.4. Control Variable ... 25 4.5. Dependent Variables ... 25 4.6. Procedure ... 26

5. Analysis and Result ... 27

5.1. Description of the Data: ... 27

5.2. Regression Analysis ... 30

6. Discussion and Conclusion ... 32

6.1. Limitations and Recommendation for Future Research ... 34

References ... 37

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Introduction

The role of human rights in the global economy has received a great deal of recent attention. And it becomes an important moderating factor for every small medium company and multinational corporations.

Human rights are rooted in law. Respecting and protecting them was never meant to be an optional choice, but a requirement that should be part of the mainstream of each company’s strategy, not only part of their CSR strategy (Amnesty International).

Human rights violation is common in low quality institution contexts or unorganized sectors by lacking in view of inadequate manpower, under-developed infrastructure, administrative apathy and red-tape or corruption (Panda 2013).

There are many recent cases and debates that have highlighted that large multinational corporations (MNCs) are involved in extend series of human rights violations (Grear 2007). For the protection of human rights the United Nations provided a complete “Guiding Principles” on business and human rights (UNHCR, 2011) to be followed by corporations in terms of fulfilling their responsibilities and to respect human rights (Ruggie, 2013).

But still there are many factors that cause large MNCs to commit in human rights abuses. In this study I would add the cultural distance and the national culture one of the most important factors that matter.

Some studies have shown that how important culture is in the business activities, like the role of national culture on work safety, human failure and safety performances (Burke et al., 2008; Lu et al., 2012), the importance of national culture, and cultural distance should be considered while making a strategic decision on the choice of entry (Kogut & Singh, 1988; López-Duarte & Vidal-Suárez, 2013).

On the other hand a number of studies also suggested that different factors leading corporations committing human rights violations, like the social and political factors while

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doing business affects human rights violation, e.g. the NSN case in Iran (Schrempf, 2011), U.S arms export (Shannon Lindsey Blanton, 2005), and so on.

In this paper I am going to link culture as a factor that may affect MNEs involving in human rights violation. A multinational’s home and host country national culture differences can lead that corporation (intentionally or unintentionally) in human rights abuses. For example: (Lu, et al 2012) studies show that fewer human failure occur when the power distance in a corporation is low and the collectivism and uncertainty avoidance is high in that particular corporation.

Based on Hofstede’s (1980) national culture dimensions, which include Power Distance, Uncertainty Avoidance, Individualism/Collectivism, and Masculinity/Femininity, also based on Kogut and Singh’s (1988) cultural distance between home and host country, I construct a theoretical model and develop a set of hypotheses to analyze its effects on human rights violations, that I toke from CHRD database project which is coded all the information about the alleged corporate human rights abuses in three countries which are Argentina, Nigeria, and Peru.

This paper is organized as follows: I introduce the study and discuss the background in the first section. Then I develop the research model and formulate the hypotheses in the second section. In the thirds section I am going to discuss the research development, the measurement, and the research procedure. In section four I will present my statistical result from the explanatory factor analysis, regression analysis, and Spearman’s rho correlation analysis to address the research issues. And finally I will discuss the research implications, draw conclusion from the research finding, and discuss the limitations that I faced in this study and some recommendations to the future researchers.

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1. Literature Review

In this section I am going to talk about two things, corporate human rights violations and the culture. The aim of this study is to conclude whether the national culture and the cultural distance between home and host country do affect the corporate human rights violation.

1.1. Human Rights and the Multinational Enterprises (MNEs)

Human rights are rights inherent to all human beings, whatever our nationality, place of residence, sex, national or ethnic origin, color, religion, language, or any other status. We are all equally entitled to our human rights without discrimination. These rights are all interrelated, interdependent and indivisible (OHCHR 2014). The United Nations established in 24th of October 1945, in the aftermath of World War II with the purpose of saving future generations from the devastation of international conflict. Then with the contribution of representatives of all regions of the world the first draft of the universal declaration on human rights was made and in 10th December 1948 formally adopted by the United Nations and then called upon all member countries to publicize the declaration text (UHR 2014).

On the other hand the globalization is also a process that resulted a rapid and dramatic change in the world since twentieth century (Fukuda-Parr, 2003). Corporations expanded their operations beyond their national borders to increase their profitability and most importantly to survive today’s tough rival market by doing some strategic decisions like to take advantage of 4 different motives (i.e. resource seeking, efficiency seeking, market seeking, and strategic asset seeking) (Dunning, 1998). In skepticism view, MNEs consider that their legal responsibility is the obligation to maximize shareholders’ profit, and the international human rights law is a public relation move not a legal or ethical obligation and it’s the conduct of government, not businesses (Steinhardt, 2013).

Since the issue of corporate with the human rights increased there were many attempts to establish international standards for corporate actions. Those efforts have been less

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productive, because they have largely been without strong implementation methods or support from the United Nation (Weissbrodt, 2006, p. 55).

The issue of business and human rights became permanently implanted on the global policy agenda in the 1990s to develop social awareness of businesses’ impact on human rights which its early draft was created by Commission of Human Rights and was called Norms of Transnational Corporations and Other Business Enterprises (Ruggie, 2011).

In 2005 when the UN decided to assign John Ruggie as a Special Representative of the Secretary General, this finally resulted in the UN “Guiding Principles on Business and Human Rights” (UNHRC, 2011), setting guidelines for MNEs to engage in due diligence concerning human rights. This due diligence refers to the State’s duty to protect human rights, a corporate responsibility to respect human rights and the need to provide remedies to respond to violations of human rights by business (Ruggie, 2011).

After a three years of research and consultation in 2008 the Special Representative has finally developed the “Protect, Respect, and Remedy” Framework and recommended that should supported by the council.

The need for the UN Framework is apparent due to the growing influence that corporations have on many people’s lives. This is comprehended by the term ‘globalization’ which is forced by the increase of foreign investment by TNCs in the developing world. Moreover, the powerful Transnational Corporations are also able to discourage any sanctions by threatening to disengage from the state even from developed countries. In 1998, Rolls Royce threatened to leave the markets of UK if it should adopt Europe’s high labor standards, which was one of the reasons for UK’s initial failure to sign the social provisions of the Maastricht Treaty of the European Union (Nandy & Singh, 2009, p. 82).

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1.2. National Culture

Cultures have penetrated in every corner of our societies. Like software to computers, culture works as the mental software for humans, which play a significant role in forming our ways of feeling, thinking and acting (Hofstede & Hofstede, 2005).

Culture consists of the unwritten rules of the social game. It’s the collective programming of the mind that distinguishes the members of a group or category of people from others (Hofstede, 1980). In other words culture can be defined as an integrated pattern of human knowledge, belief, and behavior that is both a result of an integral to the human capacity for learning and transmitting knowledge to succeeding generations. Culture thus consists of language, ideas, beliefs, customs, taboos, codes, institutions, tools, techniques, works of art, rituals, ceremonies, and symbols.

There are many researches that have proposed taxonomies, findings, and definitions regarding the national culture (see e.g. Hofstede, 1980, 1991; Child, 1981; Brislin, 1983; Triandis, 1994; Schein, 1985; Chow et al., 1999). Among these, Hofstede’s national cultural dimensions (1980, 1991) are the one that is mostly used for a wide variety of empirical studies by the researchers.

Hofstede’s national culture dimensions was developed by using the data from over 116,000 surveys from over 88,000 employees in 72 different countries in 20 different languages at IBM Corporation. His research held in two time periods first between 1967 and 1969 and then between 1971 and 1973. Based on a country level factor analysis, he classified these countries along with four dimensions, namely Power Distance (PD), Individualism/Collectivism (IND), Uncertainty Avoidance (UAV), and Masculinity/Femininity (MAS). Later together with Bond they developed the fifth dimension of national culture which called Short term vs. Long term Orientation (LTO) (Hofstede & Bond, 1988). Here are some brief explanations of each of the national culture dimensions:

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Page 9 of 42 1.2.1. Power Distance:

Power distance can be defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that (Hofstede, G. & Hofstede, G.J. 2005). Hofstede argues that people with high power distance tend to prefer and are willing to accept, greater centralization of decision-making authority and the minority are willing to participate less in decision making process (Merchant et al. 1995). And the people with low power distance, subordinates expected to be always involved in decision-making processes, the consider themselves to have the same rights as their superiors have (Hofstede. 1980). (Lu et al. 2012) found that power distance is one of the most important national culture dimensions affecting work safety.

1.2.2. Individualism vs. Collectivism

Individualism pertains to societies in which the ties between individuals are loose; everyone is expected to look after himself or herself and his/her immediate family (Hofstede, 1980; Hofstede, G. & Hofstede, G.J., 1995). Collectivism as its opposite pertains to societies in which people from birth onward are integrated into strong and cohesive in-groups, which throughout people’s lifetime continue to protect them in exchange for unquestioning loyalty (Hofstede, G. & Hofstede, G.J., 1995,p.75).

Triandis and Suh (2002) described the individualism and collectivism further in two categories, which are vertical and horizontal. In vertical collectivism (e.g. India) is more traditionalist and emphasize more the in-group cohesion, and have more respect for in-group norms and directives of the authority. Horizontal collectivist culture (e.g. Israeli kibbutz) emphasizes empathy, sociability and cooperation (Triandis & Suh, 2002, p.139).

In vertical individualist culture (e.g. US corporate cultures) emphasize hierarchical differentiation by being “the best” in order to survive and top on top of the competition.

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And in horizontal individualist culture (e.g. Australia, Sweden) emphasize on self-reliance, independence from others, and uniqueness (Triandis & Suh, 2002, p.140).

They defined further the personal characteristics of idiocentric and allocentric individuals within a culture, so how personality traits are affected by these factors.

1.2.3. Masculinity vs. Femininity

A society is called masculine when emotional gender roles are clearly distinct. Men are supposed to be assertive, tough, and focused on material success, where are women are supposed to be more modest, tender, and concerned with the quality of life (Hoftede, G. & Hofstede, G.J., 1995, p.120). A Feminine society emphasizes preference for relationship, modesty, caring for the weak groups, and quality of life (Hofstede, 1985).

High masculine societies give a low value for caring and cooperating to others (Lu et al., 2012).

So the MNEs with a high masculine environment can affect negatively on human rights violation, especially when they do business in a more developing and weak institutional environment.

Ringov & Zollo (2007) have found that companies that based in countries with high masculinity have a significant negative effect on corporate social and environmental performance.

1.2.4. Uncertainty Avoidance

Uncertainty avoidance is the extent to which the members of a culture feel threatened by ambiguous unknown situations (Hoftede, G. & Hofstede, G.J., 1995, p.167). There is some evidence that societies with high level of uncertainty avoidance less innovative, because the factors and roles that bring innovations to an organization are less likely to be accepted in those societies (Ringov & Zollo, 2007).

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1.3. Cultural Distance

The cultural distance between home and host country first came into the consideration in the literature by Kogut and Singh (1988). The concept of this index is to measure the extent to which different cultures are similar or different (López-Duarte & Vidal-Suárez, 2013).

They developed cultural distance index based on the deviation along Hofstede’s (1980) four national culture dimensions (i.e., Power Distance, Uncertainty Avoidance, Individualism, and Masculinity/Femininity). The deviations were corrected for differences in the variances of each dimension and then arithmetically averaged (Kogut & Singh, 1988, p. 422). And then the result of the index shows the score of cultural distance between two countries. In research methodology section I will discuss more briefly about the cultural distance index.

There are many studies that assuming cultural distance as a variable to find out the entry mode choices and control over the subsidiaries (Kogut & Singh 1988, Gatignon & Anderson 1988, Lopez-Duarte & Vidal-Suarez 2013). The cultural difference between home and host countries affects the degree of control from home country onto foreign subsidiary (Gatignon & Anderson, 1988).

1.4. Empirical Findings

There are many research articles that show the effects of culture on different aspects of business. But I could not find any specific paper that talk about culture and its effects on human rights violation. The following are some literatures that I have selected and reviewed for this study. Each of the paper individually cited, talked about it and then concluded by my own words mentioning its limitations and gaps that I have noticed.

Paper Citation: Lu et al. (2012) “Effects of national culture on human failures in container

shipping: The moderating role of Confucian dynamism” Accident Analysis and Prevention 49: 457-469.

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This paper empirically examines the effects of seafarers’ perceptions of national culture on the occurrence of human failures affecting work safety in shipping operations. The authors used Hofstede’s five national culture dimensions to construct their model and by doing a survey on seafarers working on 81 vessels from 13 top global container carriers through questionnaires that sent to them. Based on the 608 questionnaires which returned out of 1458 questionnaires, used it for their data analyses. And more specifically the authors concentrated on three countries (China, Taiwan and Filipino) which they received sufficient data from these three countries.

The authors collected data at individual level but their data analyses were at the national level, which means they aggregate the independent variables with the national level.

They finally concluded that national culture is one of the important factors influencing human failures in ship operations affecting work safety that must be taken into consideration by shipping managers. Each dimension of the national culture seems to be related to a different degree of human failure in ship operations.

This research indicates that power distance and collectivism are negatively associated with human failures. This result suggests that low power distance might be good for work safety. They also concluded via their study that Confucian dynamism interacts with power distance, collectivism, uncertainty avoidance, and masculinity in their effects on human failures.

Most importantly they argue that human failures less occur when power distance and Confucian dynamism are congruent with each other.

Limitations on this study:

There are many limitations on this study, like this study is limited on just one industry level which is the shipping operations. Secondly the scope of their analyses are limited with only three Asian countries. One else that what I am considering it a limitation to this study is that the author were focusing more on Confucian dynamism and its importance.

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Beside this article I reviewed some other literatures that focusing on multinational corporations and human rights violations. And mostly it shows that how multinational corporations with a different culture and institutions can affect human rights mostly in developing countries (Grear, 2007). The effect of company law has an important role in developing a corporate culture in which business decisions are informed by a concern for human rights (Panda 2013, p. 429).

Paper citation: Ringov, D. & Zollo, M. (2007) “Corporate Responsibility from a

Socio-Institutional Perspective: The Impact of National Culture on Corporate Social Performance”

Corporate Governance 7: 476-485.

Ringov and Zollo (2007) are investigating on the national culture differences and its effects on social and environmental performance. They developed their hypotheses by exploring the effects of national culture dimensions.

They used a multi-industry dataset comprising the ratings of the social and environmental performance of 1,100 public companies from 34 countries around the world which was developed by Innovest Group.

By using the ‘Regression Model’ he finally concluded that home country national culture do affect the perceived level of corporate accountability (Ringov & Zollo, 2007, P.481).

The data analysis only supported their two hypotheses. They concluded that corporate accountability is negatively associated with home country power distance and masculinity. But they couldn’t find any significant data for the other two dimensions of national culture, namely uncertainty avoidance and collectivism.

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Page 14 of 42 Limitations in this study:

First of all they collected data only from a public companies. So their conclusion is very limited to the public based corporations, and it could be more satisfactory that they add data from private companies as well. Because there is a significant differences between public and private based companies in terms of governance, profit orientation and other factors.

They could find data that support only two dimensions out of five, so I could try to investigate more deeply and try to find more supporting data for other dimensions as well.

So based on the reviewed papers and some other studies that is cited in this proposal, it is confirmed that national culture has significant effect on the performance and activities of business. How a company’s management deal with the environment and employees when dissimilarities exit in the culture between their home and host countries. What factors do exist that a company commit such crime, and what factors should be considered by local institutions and international law to prevent such violations

Paper citation: Panda, B. (2013) “Multinational Corporations and Human Rights Violations:

Call for Rebuilding the Laws of Twenty-first Century” Journal of Financial Crime 20(4): 422-432.

This paper is regarding the up surging human rights violations by large and powerful multinational corporations. And how these companies commit human rights violations when they do business in less developed countries, and found out that lack of good governance mechanisms and vigilance are the reasons that can’t prevent them from such violations. In today’s globalized world, the increased power has passed into the hands of MNCs.

The author was mentioned the Bhopal’s gas leakage case, that how the government couldn’t manage to resolve it. Lack of laws and lax enforcement, corruption, difficulties in criminal

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prosecution of companies and some obstacles in developing countries are the main problems that they couldn’t stop MNCs from such wrongdoing.

At the end the author had concluded that companies have both positively and negatively impact on the realization of human rights (Panda, 2013, p. 428).

Since there have been many developments in laws and company rules to respect human rights e.g. corporate social Responsibility (CSR) Voluntary Guidelines, 2009, issued by the Indian Ministry of Corporate Affairs (2009) provides for covering the issues such as care for all stakeholders, ethical functioning, respect for workers’ rights, human rights and the environment, and activities to promote social and inclusive development (Ministry of Corporate Affairs, Government of India, 2009, p. 11).

So finally in this paper addresses two main problems that should be considered. First, that head executives don’t develop a law that would be enacted by legislators. Second, even if a law is developed, its enforcement would lacking in view of undeveloped infrastructure, administrative apathy or corruption (Panda, 2013, p. 428).

Paper citation: Nandy, D. & Singh, N. (2009) “Making Transnational Corporations

Accountable for Human Rights Violations” NUJS Law Review 2: 75-92

This paper argues that in today’s globalized econmy transnational corporations (TNCs)0 become more powerful than before, and these TNCs have a strong and influential presence in developing countries like India (Nandy & Singh, 2009, p. 75).

While these corporations seek for their own profit, economic growth and development, there is more potential and reason that they commit human rights violation in such countries.

This paper also examines that why developing countries are less able to prosecute and litigate TNCs while they are accountable for a human rights violations and environmental

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degradation activities, in this paper they mentioned the case of Bhopal litigation and how Indian government failed to prosecute the Union Carbide Corporation (UCC).

Lastly the authors came up with some suggested alternative remedies for the victims of the human rights violations, such as: they suggested that the UN norms and other laws that is regarding human rights accountability should be developed into a binding legal instrument, through a transition from being a soft law to being a hard law instrument, which liabilities can be accorded to TNCs (p. 91). This set of norms should be accessible to all developed and developing countries, at individual level, and industry level (e.g. NGOs). The act should be transparent and should be accessible to all members of the society. And like this there are lots of other suggestions that they provided through this paper.

Conclusion:

Based on the papers that I reviewed, there are enough evidence that national culture do have significant impact on business activities. The multinational corporation’s home cultural values have enough effects on their corporate culture and how their employees react when they operate across the border.

The companies that operate in dissimilar countries will face liability of foreignness, experience, and some other issue. And based on their cultural background they find a way how to deal with such issues.

On the other hand there are many studies that argue that multinational corporations commit human rights violation when they operate in other countries, especially in developing countries, by using their economical and in some extent their political power they overcome with their wrongdoing without being litigated by any country law or any victim.

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So here in research proposal I am going to link the national culture with the human rights violations. How multinational corporations based on a developed country, with a very high and different culture would react while operating in a developing country with a very different culture. Do they really commit corporate human rights violations?

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2. Theoretical/Conceptual Framework

There are many studies conducted by different authors regarding the effects of national culture or the cultural distance between home and host countries on business organizations and their employees in different regions (Lu et al. 2012; Taras et al. 2011; Zeng et al. 2013; Kogut & Singh, 1988; Ringov & Zollo, 2007; Schneider & Meyer, 1991; López-Duarte & Vidal-Suárez, 2013; and others).

The cultural distance between the different countries for an international business can create knowledge gap that prevent MNEs to acquire a fully knowledge of their host country (Zeng et al 2013). These differences generate miscommunications, mistrust, and conflicts between MNE and its local learning sources such as local business suppliers and staff (Zeng et al. 2013, p. 43). So such gaps between home and host countries can also bring possibilities those MNEs to commit human rights violations in other countries when they operate.

For this study I will use the Hofstede’s construct which are: Power Distance, Individualism vs. Collectivism, Uncertainty Avoidance, and Masculinity vs. Femininity, to develop a research model to examine the effects of national culture on corporate human rights violations.

Kogut and Singh (1988) have developed a formula using Hofstede’s national culture dimension values that can evaluate the cultural distance between home and host countries. Also I would use the Kogut & Singh’s cultural distance index in two different methods, I would use it as control variable to see if Hofstede’s national culture dimensions controlled by the cultural distance may affect human rights violations, and also I would use it independently to see whether the cultural distance between two countries can affect human rights.

On the other hand MNEs care about human rights and they are willing to bring due diligence, CSR, and other voluntary codes of conducts in their strategic and operational decision-making

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process (Schrempf, 2011; Sethi, Lowry, Veral, Shapiro, & Emelianova, 2011; ). There are various studies on human rights and its effects on the businesses (Blanton & Blanton, 2006; Weissbrodt, 2006; Steinhardt, 2013; Blanton, 2005; Nandy & Singh, 2009; Panda, 2013). As I mentioned in the literature review part, there is no study that linked national culture and cultural differences with the corporate human rights violations. So here based on these constructs I want to see that the difference between the countries’ culture may bring effect on violation. And I developed my conceptual framework as following:

Figure 1: Conceptual model.

Source: Author.

• Power Distance

• Individualism vs.

Collectivism

• Masculinity vs.

Femininity

• Uncertainty Avoidance

National Culture

CAA

• Human Rights

Violation

H1 H2 H3 H4

Cultural Distance

H5

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People who possess high power distance they are more willing to accept the great degree of centralization of decision-making authority and the subordinates have less authority to participate in such decisions (Merchant, Diego, & Wu, 1995). On the other hand people possess low power distance consider themselves to have the same rights as their superiors, and they are expected to be consulted and to be participated in all kinds of decisions (Lu, et. al, 2012, p. 459)

There are several studies that mentioning the organizational hierarchy between superiors and subordinates like: (Lu et al., 2012) suggested that low power distance between seafarers may reduce human failures, or (Helmreich & Merritt, 1998) study found that power distance is one of the most important national culture dimension that affect work safety.

So here I assume that a culture with high power distance can negatively affect the corporation’s involvement in human rights violation in the host country, and I propose that:

H1: The more the power distance within the corporation the more likely that the corporation involved in human rights violation when controlling for cultural distance.

The next national culture dimension which is collectivism/individualism, refers to the degree to which people are oriented towards acting as individual on one hand and part of a group on the other hand (Hofstede, 1980). Havold (2007) found that the individualism/collectivism dimension is a factor influencing employees’ attitudes towards work safety (Håvold, 2007). Lu et al. (2012) also suggested that collectivism that experienced by seafarers may reduce human failures in container shipping operations. So as the organizations which experience more collectivism which their subordinates tend to follow the directions and wishes of others, rather than asserting their own impulses and predilections, then it would be more possibilities

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that an individualist culture may have more involvement in corporate human rights violation, so I propose:

H2: An individualist culture is more likely to have more involvement in human rights violation when controlling for cultural distance.

My next hypothesis is about the masculinity/femininity dimension of national culture. A high masculine culture places a low value on caring for others, cooperation, solidarity. Which in opposite side, a feminine culture stands for a preference for relationships, modesty, caring for weak groups, and quality of life. There are many studies that came up with findings regarding this dimension. Ringov and Zollo (2007) suggested that people from more masculine societies have a lower appreciation of cooperative strategies. Theotokas and Progoulake (2007) have found that people related aspects such as good communication, team spirit, trust, and low conflict between seafarers, are associated with superior safety performance (Theotokas & Progoulaki, 2007). Lu et al. (2012) also suggested that masculinity as experienced by seafarers may increase human failure. So keeping other studies in mind, it would be reasonable for me to say that higher level of masculinity will increase the chance that companies may commit human rights violations. So I hypothesize as follow:

H3: A masculine culture is more likely to have more involvement in human rights violation when controlling for cultural distance.

Uncertainty avoidance focuses on how a society deals with unknown aspects of the future (Lu et al., 2012). In societies with high level of uncertainty avoidance culture, try to minimize the level of uncertainties and ambiguity by strict rules and regulations, safety measures, and by

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belief in absolute truth. Shackleton and Ali (1990) have found that people in the uncertainty avoidance culture are strongly and positively associated with formalization and motivation to acquire information such that the uncertainty during interpersonal communication can be reduced (Shackleton & Ali, 1990). Lu et al. (2012) also suggested that seafarers experienced high level of uncertainty avoidance may help reduce human failures. There is also many reports that uncertainty avoidance is an important factor that influencing safety (Burke et al., 2008). So I would propose:

H4: A society with high uncertainty avoidance culture is less involved in human rights violation when controlling for cultural distance.

Cultural distance is the difference in beliefs, social norms, and language which create distance between two countries. And they can have huge impact on trade (Ghemawat, 2001).

Kogut and Singh (1988) developed the cultural distance index to measure the distance between home and host country by using Hofstede’s four national culture dimensions.

If there is differences in each dimensions of national culture between home and host country that make these two countries dissimilar to each other. Does this dissimilarity lead companies to commit human rights violations? In this regard I propse:

H5: The more cultural distance between home and host countries the more likely that the corporation involved in human rights violation.

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3. Research Methodology

3.1. Research Sample

I obtained the data for this study from two different sources, first I have selected all companies which are doing business in oil & gas and coal mining industries in three different countries which are Nigeria, Argentina, and Peru and based on the limited requirements I have gathered information regarding these companies from ORBIS. I have selected these three countries randomly to make my dataset more diversified on the bases of cultural differences; means that companies would be analyzed with three different cultures. The data was more decreased by selecting only Oil & Gas and Coal industry level classification. And more limitation came onto its degree of ownership (i.e. the companies should have control and owned at least by 50.01% by a Global Ultimate Owner (GUO) and their parent controller should be a foreigner, not a local or national corporation). So after applying these limitations into the ORBIS I was able to retrieve a total of 108 companies in three countries which are Argentina (58), Nigeria (28), and Peru (22).

3.2. Measures

Once our research sample was completed (which was 108 companies in 3 different countries), then I adapt measurements items from Hofstede’s research that he done in 1980 on 71 different countries to develop national culture dimensions. The cultural distance variable would form by Kogut & Singh (1988)’s index based on the deviation along Hofstede’s (1980) four national culture dimensions (i.e., Power Distance, Uncertainty Avoidance, Individualism, and Masculinity/Femininity). The deviations were corrected for differences in the variances of each dimension and then arithmetically averaged (Kogut & Singh, 1988, p. 422).

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Page 24 of 42 Where:

• CDj = cultural distance between host country j and the home country.

• i stands for cultural dimension. There are 4 dimensions; Power Distance, Individualism vs. Collectivism, Uncertainty Avoidance, and Masculinity vs. Femininity.

• Iij = the score of country j (host country) on the i dimension. • Iib = the score of b (home country) on the i dimension. • Vi = the variance of the i dimension.

So based on mentioned formula step by step I calculated the cultural distance between each country.

On the other hand I needed information about the companies that are committing human rights violation, and CHRD is the source that provides me reports of violations that are committed by companies.

CHRD (Corporations and Human Rights Database Project) is a joint project between University of Denver (US), and Oxford University (UK), and University of Amsterdam (The Netherlands) which is designed to systematically code the information on the “Business & Human Rights Resource Center” (BHRRC)’s website which contains information about more than 5000 companies from 2000 till now about alleged corporate human rights.

The CHRD project uses CAA as unit of analysis to code the information on the BHRRC about the violation.

Company Abuse Allegation (CAA) an instance in which some group and/or individual accuses a company of a human rights abuse. The aim of CAA is to organize the information which is in BHRRC in a systematic way using an online coding tool which is called Qualtircs

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and then these CAAs organized into Excel document which is called CAA Master Lists which is attributed by country and sector.

I am proud to mention that I am also a member of CHRD project and participated to code some cases through Qualtrics in the CAA database. I have coded some violation reports on which almost all of them were the allegations on big multinational corporations operating in African countries.

3.3. Independent Variables

The independent variables for this research are the four dimensions of Hofstede (1980) which are Power Distance, Uncertainty Avoidance, Individualism/Collectivism, and Masculinity/Femininity. All the values in these four dimensions are taken from Hofstede’s study that he conducted a research on IBM in 71 different countries. I assess that higher power distance within an organization means that power within the organization is not distributed equally and results to commit human rights violations. I also measure that higher degree of individualism and uncertainty avoidance and masculinity in a company’s home culture would drive them to commit human rights violation.

3.4. Control Variable

I control for possible confounding effects by including cultural distance as control variable. Cultural distance which shows the extent that how culturally distant or similar two countries are reflects the degree to which every dimension of the national culture would be controlled by the degree of its cultural distance.

3.5. Dependent Variables

I will use the number of violation to operationalize the dependent variable. I would pick the violation variable from the CAA Master List. So I would simply count the number of violations that are reported on each individual company in each country in the CAA Master

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List and then add it in the violation variable. So this will show me that which company violated and how many times, but I won’t consider other elements like to what extent and what kind of violation they committed. For example the number of violation by Shell in Nigeria is 6. It means that there is at least 6 violation reports recorded in the CAA Master List about the Shell in Nigeria. But I would not go deeper and see what kind of violation what was the company’s response and other things. So in this violation variable it only matters did a company committed the crime or no.

3.6. Procedure

I am going to investigate the effect of national culture on human rights violation by the cultural dimensions that are developed by Hofstede. For Independent variables (IV) I am going to pick each value of these dimensions from Hofstede’s database which can be found in his website. For my dependent variable (DV), I will count the number of violations for each corporation that is recorded in the CHRD database. The control variable which is the cultural distance between home and host country, I would calculate it by using Kogut and Singh’s formula to bring its final value for each corporation which is the difference in culture between the home country and the host country.

The dataset is very limited into my database and based on the limitations which are classified by industry (i.e. Oil & Gas, and Coal Mining), the degree of ownership (i.e. the subsidiary should owned and controlled at least 50.01% by a Global Ultimate Owner (GUO)), and the controlling parent should be a foreigner. So in this case I was able to gather data from ORBIS based on three different countries.

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4. Analysis and Result

4.1. Description of the Data:

In this research thesis, the total number of companies was 108. Of six different variables whose scores were analyzed in this study. Out of four dimensions of National Culture, Individualism has the highest score (M = 73.71) and Power Distance dimension scored the lowest (M = 45.51). Cultural Distance which used as a control variable and recorded the minimum value of 0.234 and maximum value of 8.824, in other words this range shows the degree of cultural distance between home and host country has recorded an average of 2.59. Violation variable which recorded the number of violations by each company individually ranged from 0 to 12 with an average of 1.06. Table 1 illustrates the descriptive statistics for all six variables.

Table1. Descriptive statistics

M SD PD 45.51 14.02 UAV 58.61 17.39 IND 73.71 19.57 MAS 49.98 19.54 CD 2.59 2.15 Violation 0.89 1.45

As the normality of the six variables analyzed in this study, the standardized skewness coefficients (i.e. skewness divided by the standard error of skewness) were not within the range of +/- 3 (Onwuegbuzie & Daniel, 2002). All standardized coefficients not being within +/- 3 (except Uncertainty Avoidance (UAV)) range, which means that measures of culture and violation were not determined to be normally distributed. See (Table 2) concerning the skewness coefficiency.

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Table2. Standardized Skewness Coefficient

Standardized skewness coefficient PD 6.57 UAV 2.04 IND -5.52 MAS -5.28 CD 6.52 Violation 7.36

To bring the mentioned variables measurements within the range of Standardized Skewness Coefficient, I needed to transform my data. For the variables that skewed to the positive direction, I have tested the data with three different transformation methods (i.e. SQRT, LN, and LG10). And I have found that base-10 logarithm method (lg10) is the best one to transform the positive number skewness. And for the variables that skewed to the negative direction, I have tested two different transformation methods which are Power (POWER) and Exponential (EXP). And the Power transformation was more effective and has been selected. There are two variables that I have not transformed them. First one is the UAV variable because it’s already with the standard range. The second variable is the independent variable which is the violation. Because as I performed the transformation methods onto it, 64 samples out of 108 were then showed as missing values. So I left it just as it is. (Table 3) shows the data after the transformation.

Table3. Standardized Skewness Coefficient after data

transformation (except UAV and Violation.

Standardized skewness coefficient PD 4.56 UAV 2.04 IND -3.50 MAS -2.27 CD -1.47 Violation 7.36

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After performing data transformation brought only two variables into the standardized skewness coefficient range.

Before going further with the data analysis it should be checked for the outliers that should be in the range of +/- 3.29. Therefore an analysis of standard residuals was carried out, which showed that the data contains no outliers (Std. Residual Min = -1.02, Std. Residual Max = 2.95).

So based on skewness of the variables that were outside of limits of normality. Accordingly, a nonparametric procedure, the Spearman’s correlation coefficient (Spearman’s rho) was performed to address the relationship between variables that leads us to know the involvement of culture on human rights abuse.

Table 4. Correlation Matrix Spearman’s rho

Mean Std. Deviation 1 2 3 4 5 6 Spearman's rho PDa 1.64 0.12 - UAV 58.61 17.39 .681** - INDb 5813.25 2435.07 -.334** -.435** - MASb 2876.31 1603.84 -.186 -.144 .280** - CDa 0.27 0.37 -.555** -.580** .486** .025 - Violation 0.89 1.45 -.090 -.096 .100 -.054 .142 -

**. Correlation is significant at the 0.01 level (2-tailed). N= 108

a. Logarithm (Lg10) data transformation b. Power (POWER) data transformation

The spearman’s rho reveals that there is no significant relationship between the Hofstede’s national culture dimensions and Kogut and Singh’s cultural distance with the human rights violation. The relationship between violation and other variables are as follows: There is no significant relationship between violation and Power Distance (rs[108] = -0.09, p<.001), there is no significant relationship between violation and Uncertainty Avoidance (rs[108] = -.10, p<.001), there is no significant relationship between violation and Individualism (rs[108] = .10, p<.001), there is no significant relationship between violation and Masculinity (rs[108] =

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-0.05, p<.001) and also the Spearman’s rho revealed no significant relationship between violation and Cultural Distance (rs[108] = 0.14, p<.001).

The strongest significant relationship that was found was between Power Distance and Uncertainty Avoidance (rs[108] = 0.681, p<.001) which means that about 46.4% of variance these two variables share with each other.

4.2. Regression Analysis

A multiple regression analysis was used to test if the national cultural differences controlled by cultural distance significantly predict companies’ involvement in human rights violation. The analysis was conducted in several steps. First I entered cultural distance which was measured by Kogut & Singh’s (1988) index as control variable. Second I entered the national culture variables into the regression, whether these variables combined or independently can predict the human rights violation.

At the first step of the data interpretation of the analysis, I have controlled the results to see if the data meets the assumption of collinearity and results indicated that multicollinearity was not a concern (Minimum Tolerance = .37, Maximum VIF = 2.73). Multicollinearity is a statistical phenomenon in which two or more variables in a multiple regression model are highly correlated (If VIF>10 and Tolerance<0.1, then there is a problem with multicollinearity).

The next step is to see how much of the variance in the results the analysis explains. And using the enter method it was found that cultural distance and national culture variables explain an insignificant amount of variance in the value of human rights violations. In the first model the cultural distance accounts for 1.9% of the variation in the human rights violation (F(1, 106) = 2.03, p<.05, R2 = .019, R2Adjusted = .01). However, for the second model the value is increased to 0.03 or 3% of the variance in the human rights violation. Which means by entering variables in block 2 (i.e. national culture variables) account for an extra (3 - 1.9)

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1.1% of the variance in the human rights violation (F(5, 102) = .64, p<.05, R2 = .03, R2Adjusted = -.02). In other words we can conclude that both the cultural distance values and national culture variables are not significant enough to predict the human rights violation; there are some other variables that should be entered in order to have a significant variation in the dependent variable.

Well, the test above has concluded that in overall our results were insignificant but I cannot wrap it up and conclude it as an insignificant result, because we don’t know whether one or all predictor variables is contributing to the result.

Here I am going to mention some couple of t tests that is carried out in SPSS for each variable separately. The smaller the value of Sig. (and the greater the value of t) the greater contributions of that predictor. So each individual variable was analysed and show that none of them individually contributed to be significant predictor. Which mean that cultural distance (Beta = .11, t(106) = .96, ns), Power Distance (Beta = .05, t(106) = .28, ns), Uncertainty Avoidance (Beta = -.03, t(106) = -.22, ns), Individualism (Beta = .08, t(106) = .51, ns), and Masculinity (Beta = -.11, t(106) = -1.07, ns) are insignificant predictors of human rights violations.

For a better understanding of the multiple regression report I have constructed (Table 5) which also would be useful for some readers who want to construct the full regression model.

Table 5. Tabulated result from multiple regression analysis.

b SE b β 1 (Constant) 0.65 0.22 CD 0.09 0.07 0.14 2 (Constant) -0.07 3.46 CD 0.07 0.08 0.11 PD 0.57 2.01 0.05 UAV 0.00 0.01 -0.03 IND 0.00 0.00 0.08 MAS 0.00 0.00 -0.11

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5. Discussion and Conclusion

Oil and gas, and coal mining are one of the most risky industries. Although these companies attempt to assure these issues by adapting different sustainable procedures, due diligence, and codes of conducts, but they are not completely successful in eliminating the human rights abuses. I developed a theoretical model to explain the occurrence of human rights violations by oil and gas and mining industries and empirically validate the model. Theoretically, this study highlights the importance of national culture and the cultural distance in explaining the occurrence of human rights violations.

Since I was looking forward to find the importance of national culture and the cultural differences in the human rights violations, but the result of analysis illustrates the influence of these dimensions was not in a significant level to support my theory. To the best known for our knowledge, this is the very first study that provides theoretical and empirical evidence on the importance of national culture and the cultural distance on human rights violations. So keeping in mind that there is no previous study regarding this subject also due to my data limitation, but still it’s a good start up.

Since there is no empirically significant evidence to support any of my hypotheses, but still some implications can be made from the key findings of this study.

Theoretically, both national culture and the cultural distance are one of the important factors influencing companies in committing human rights violations and that must be taken into consideration by strategic and operational managers (Maybe future studies bring more clarity in this regard for them). And by understanding the differences in the culture, managers can develop effective action plans to reduce human rights violations in their operations. Despite insignificant evidence, if I go deeper through the cases, I can say that there are some facts that should be considered. I have listed manually the top 5 MNEs that committed the most human rights violation in the mentioned three countries (i.e. Argentina, Nigeria, and Peru) which are:

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1. Shell Petroleum Development Company in Nigeria which is a subsidiary of Royal Dutch Shell (The Netherlands), 2. Pluspetrol Norte S.A operating in Peru which is subsidiary of Pluspetrol Resources Corporation B.V. (The Netherlands), 3. Tecpetrol S.A. in Argentina a subsidiary of Rocca & Partners (The Netherlands), 4. YPF Sociedad in Argentina, a subsidiary of Repsol S.A (Spain), and 5. Yacinmiento Huantraico in Argentina which is a subsidiary of Chevron (United States). For a tabulated list with cultural distance scores see (Appendix 2).

So if we consider that the top five mentioned enterprises that committed the most violations in the host countries, and on the other hand if we take a look on their cultural distance between their home and host country, the result is more contradictory. According to the theory and the hypothesis that I built, more violation occur when there is more cultural distance, which is the case with the Pluspetrol Norte S.A. that the cultural distance between Peru and The Netherlands is 6.405 which they are very dissimilar countries, but YPF Sociedad is operating in Argentina and its cultural distance with its parent country which is Spain is 0.235 is also one of the top five MNEs that committed the most violations but with very close culture similarities. And despite this, then remaining three of top 5 MNEs are also score with a low cultural distance. And the biggest difference in terms of Hofstede’s national culture dimension between them were in the individualism, all the parent countries are experiencing high level of individualist culture while operating in the host countries that are more collectivist culture. And the finding of the study also indicated that only individualism is positively associated with human rights violation, while all other dimensions were indicated negatively associated with the violation in correlation analysis. The Netherlands, United States and Spain are three countries that there are the most reports that accused by their host country for the violations, and according to Hofstede’s score they are also among the countries with a very high individualistic culture. This implies that countries with a high value in individualism score are

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more willing to commit violations in host countries. But just based on top five countries I cannot conclude the result of this study.

In conclusion I can argue that if the result of the study was insignificant, it doesn’t mean that there is no effect of national culture and the cultural distance on human rights violations. Instead it means that the analysis couldn’t find enough evidence to prove this theory. And the reason that there was not enough evidence was the limitations of the data that I have collected. First, the predicting variables which are the national culture and cultural distance, account for only 4.9% in total of the variation in the human rights violation, which quite small amount answer or predict for the violation. Second, out of 108 companies that I have collected data from three different countries, only 23 companies were matched in the CAA Master List and were able to have data on them, and the rest was with no data in terms of violations.

But finally it’s a good start point for future researchers to dig deeper on this topic. In the next section I have discussed some recommendations for them to consider.

5.1. Limitations and Recommendation for Future Research

Since this thesis is the very first study that tried to investigate the effects of national culture and the cultural distance on human rights violation, this paper has various limitations which I am going to discuss about it in order to prove a meaningful direction for future research on this topic. First, the collection of data on the companies. In this study there was a very limited number of data sample. I have selected only one source to collect my data which was the Orbis database website, and when I applied some extra limitations on my data like 50% plus ownership by a foreign MNE, the total number ended up with only 108 subsidiaries. So firstly I recommend future researchers to broaden their data collection sources.

Second, in this paper there is also limitation on violation data collection. Just like the companies data collection, the data on human rights violation is also based on just one source

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which is the CHRD database. CHRD database is a project that is designed to systematically code the information on the Business & Human Rights Resource Center (BHRRC) website about alleged corporate human rights abuses. But since this project is at the developing stage, the number of cases in this database is still limited. There were only 248 cases violations on the three respective countries that I have selected for this study and the number of cases for each country was: Argentina (132 cases), Nigeria (33 cases), and Peru (83 cases). And out of these 248 cases I was able to find less than 100 cases that were related to only 23 companies out of 108 of total companies in my dataset. This is also one of the reasons that result of this study was insignificant because there was no violation report on the remaining 85 companies. There is one thing more that should be considered that CHRD database has discussed each case very deeply and lots of specifications like, human rights violations is categorized further in 5 types of violations (i.e. Abuse, Development & Poverty, Environment, Health, and Labor), what was company’s response in case of remedy, judicial and non-judicial actions and so on. For this study I have collected the data in general, only mentioned whether a company violated human rights or no. And I didn’t categorize it by type of violation or some remedy actions or any other specifications; otherwise there would be more limitations in the dataset. Future researchers are recommended to go deeply and classify each type of the violation on the basis of the case. This will bring more clarity to give more concrete reasoning while associating it with the dimensions of the culture. Also choose some alternative sources for a greater number of reports on violations, like different journals that reported human rights allegations, news, and other relative databases.

Third, this study is limited to four national culture dimensions based on the studies of Hofstede (1980, 1994) and the cultural distance based on the studies of Kogut & Singh (1988). While there are other studies and factors that should be considered and should be used in order to have a greater diversified definitions for the culture, like the cultural differences

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based on (Ghemawat, 2001), influence of culture on personality that how people in a company behave when they originate from different cultures (Triandis & Suh, 2002) and how these attitudes may lead to human rights violations, and most importantly some control variables like effects of experience of a subsidiary in a dissimilar host country (Zeng, Shenkar, Lee, & Song, 2012), and also the safety of the workplace and the overall performance of the team (Theotokas & Progoulaki, 2007).

Researchers may argue that national culture, in all its complexity, cannot be captured quantitatively and reduced to four dimensions. Other may criticize Hofstede’s use of a single multinational corporation (i.e. IBM) as a basis for his conclusions about national culture. One last suggestion to the future researchers is

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Appendix

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Page 42 of 42 Appendix 2.

No. Compnay Name Host Country Parent Home Country Cultural Distance

1 THE SHELL PETROLEU NG ROYAL DUTCH SHELL PLC NL 2.996176464

2 PLUSPETROL NORTE SPE PLUSPETROL RESOURCES CORPONL 6.404600617

3 TECPETROL S.A. - PETAR ROCCA & PARTNERS STICHTING A NL 2.786817033

4 YPF SOCIEDAD ANONAR Repsol S.A ES 0.234762332

5 YACIMIENTO HUANT AR CHEVRON US 1.554562086

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