The role of indigenous community stakeholder power in conflict situations with MNE’s and the moderating effect of national formal institutional strength

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Master of Science Thesis

The Role Of Indigenous Community Stakeholder Power

In Conflict Situations With MNE’s

&

The Moderating Effect Of National Formal Institutional Strength

University of Amsterdam Author: D.H.A. van der Wardt

Amsterdam Business School Student number: 10868496

Faculty of Economics and Business Thesis Supervisor: Dr. Ilir Haxhi MSc of Business Administration Second Reader: Dr. Johan Lindeque

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STATEMENT OF ORIGINALITY

This document is written by Dirk van der Wardt who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that not 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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LIST OF TABLES AND FIGURES

Figure 1. Conceptual model ... 37

Table 1. Summary of regression models ... 43

Table 2. Mulitcollinearity statistics for dependent variable Length of conflict ... 45

Table 3. Mulitcollinearity statistics for dependent variable Type of violence ... 45

Table 4. Descriptive statistics and correlation ... 46

Table 5. Regression analyses (logistic & linear) ... 46

Table 6. Overview regression analyses – Initial test ... 51

Table 7. Overview regression analyses – Weak versus Strong ... 55

Table 8. Descriptive statistics and correlation – Initial test without Canada ... 67

Table 9. Descriptive statistics and correlation – Initial test without The Philippines ... 67

Table 10. Descriptive statistics and correlation – Initial test without Canada & The Philippines ... 67

Table 11. Regression analyses (logistic & linear) – Initial test without Canada ... 67

Table 12. Regression analyses (logistic & linear) – Initial test without The Philippines ... 68

Table 13. Regression analyses (logistic & linear) – Initial test without Canada & The Philippines ... 68

Table 14. Descriptive statistics and correlation – Weak institutional strength ... 68

Table 15. Descriptive statistics and correlation – Weak institutional strength – without The Philippines ... 68

Table 16. Descriptive statistics and correlation – Strong institutional strength ... 69

Table 17. Descriptive statistics and correlation – Strong institutional strength – without Canada ... 69

Table 18. Regression analyses (logistic & linear) – Weak institutional strength ... 69

Table 19. Regression analyses (logistic & linear) – Weak institutional strength without The Philippines ... 69

Table 20. Regression analyses (logistic & linear) – Strong institutional strength ... 70

Table 21. Regression analyses (logistic & linear) – Strong institutional strength without Canada ... 70

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ABSTRACT

Minimizing financial costs and reputational risks related to conflicts with the indigenous communities is quintessential to the pursuing of the MNEs’ activities that are operating in the territories of these communities. The neglect of indigenous rights and cultural heritage often results in conflicts between the MNEs and these communities. Previous studies put forward the role of stakeholder power primarily as determinant for conflict but mainly focus on isolated conflict cases. In the current study, we look at a broader cross-country overview and argue that stakeholder power systematically acts as conflict resolution mechanism. We propose that the degree of power of indigenous communities in terms of recognition by MNEs and national governments leads to shorter and less severe conflicts. For a sample of three hundred and forty eight conflict cases spread over six continents and forty countries, we explore quantitatively the relationship between indigenous recognition from both a MNE (i.e. stated indigenous CSR policies) and national government perspective (i.e. the level of granted indigenous autonomy), and the conflict outcomes. In addition, we test the moderating role different degrees of institutional quality may have on this relationship. Our hypotheses are not supported empirically; however we provide significant findings. More granted autonomy tend to lead to longer and more severe types of conflict. Furthermore, we empirically show that higher degrees of institutional strength decrease the length and severity of conflict. This study, as a first attempt that systematically investigates cross-country conflict resolution mechanisms, offers new insights in how different types of governance lead to effective conflict resolution. Finally, it poses the opportunity for possible future research.

Keywords: MNE, Indigenous Community, National Governments, Conflict, Resolution

Mechanism, Stakeholder Power, Power Distribution, Governance, Recognition, Corporate Social Responsibility, Autonomy, Institutional Strength

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1. INTRODUCTION

Indigenous communities, which live across the globe and have developed over the centuries their idiosyncratic cultural identity and way of living (Stevens, 1997), are confronted with the activities of Multi National Enterprises (MNEs), especially in the resource-extraction sector (Banerjee, 2000). The diverging interests between these communities, the MNEs operating in their territories and the national governments - that grant permission to the MNEs to exploit natural resources - lead often in conflicts between these parties (Banerjee, 2000). Seeking often to attract FDI, the local national governments welcome the MNEs to operate in these territories overlooking the interest of indigenous communities (Foster, 2012).

As a result of these intrusions in indigenous territories and living areas, communities suffer harms such as inflectional diseases, destruction of forests upon which they depend for agriculture and hunting, chemical contamination of drinking water and fisheries and smaller living hoods (Foster, 2012). Also, next to the environmental consequences, indigenous cultures are threatened. As result of these consequences, increased rates of alcohol abuse, violence, increased morbidity and mortality, and prostitution become more visible within indigenous communities. Next to this, and central in this thesis, as a reaction towards the intrusions of MNE activities without any form of community consent, the neglect of indigenous rights, and due to gaps in perception of culture and values, communities and MNEs engage in conflicts (Calvano, 2008). This varies from peaceful protests, legal procedures in court, road and river blocks, occupations, attacks, hostilities, deaths, and other protest actions (Banerjee, 2000). Although conflicts can result in positive outcomes (Bond, 2014), overall it can be stated that the results have negative effects for the involved parties (Voss & Greenspan, 2012; Bond, 2014). Therefore, conflict resolution is an important skill for MNEs to manage and employ. When a conflict cannot be avoided, it is important to

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resolve the conflict as quickly as possible since conflicts are costly (Davis & Franks, 2011) and can become more violent over time (Bond, 2014), which results in greater risks towards firms’ performances and reputations (Voss and Greenspan, 2012).

The key determinant for conflict causation with indigenous community involvement is argued to be stakeholder power (Calvano, 2008; Alcantara & Nelles, 2013). Historically, national governments and MNEs have regarded themselves, their cultures and values as superior towards those of indigenous communities and rejected seeing them as equal and important stakeholders by neglecting their distinctive identity, cultures and rights (Calvano, 2008). However, since indigenous communities act as stewards of the environment, governments from mostly Western countries starting to recognize them as important stakeholders by providing them rights and land properties which increases their legal position and thus bargaining power with national governments and MNEs (Foster, 2012). Additionally, MNEs increasingly focus on their position in society. Corporate Social Responsibility (CSR) entails that companies are expected, next to their financial motives, to be a good company towards their stakeholders and the environment (Porter & Kramer, 2006). Since external parties such as NGO’s, media and scholars are placing attention on the influences of MNEs in indigenous territories, MNEs have to take position towards these communities since reputation damage can be dramatic (Voss & Greenspan, 2012). Good relations with communities can thus be considered as important, whether motivated by increased formal recognition by national governments, or by social demands and expectations from MNEs’ stakeholders.

Previous literature, which is overall very descriptive, takes a qualitative approach on how indigenous stakeholder power is related to conflict resolution. On the one hand this literature suggests that none to little recognition of indigenous identities, entailing low stakeholder power, may lead to longer duration of conflicts and more severe types of violation

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(Alcantara & Nelles, 2013; Bond, 2014; Ballard & Banks, 2003). On the other hand, Bruijn and Whiteman (2010) state that more indigenous stakeholder power is likely to strengthen the opportunities to engage in peaceful forms of protest in order to meet justice. However, this can dramatically change once communities perceive that their rights have been trampled. Nevertheless, these studies lack to provide generalizable empirical evidence on a cross-country comparative scale. Next to this, in the previous literature, there is little attention in what are the practices of indigenous community, MNE and national government that can be considered as stakeholder power determinants, and thus, can work as conflict resolution mechanisms. To test this, we define and measure the conflict variables, length of conflict and type of violence as indictors for effective conflict resolution outcomes. Therefore, our first research question is: To what extent works indigenous recognition by national governments and MNEs as effective conflict resolution mechanism in order to minimize the length and severity of MNE – Community conflicts?

We determine the level of indigenous stakeholder power by measuring (official) indigenous recognition statements. First, recognition by national governments is measured by the level of granted indigenous autonomy and second, we determine the recognition by MNEs by measuring stated (CSR) policies towards indigenous communities. With this study we aim to quantitatively measure and predict the effectiveness of indigenous governance practices as conflict resolution mechanism and try to provide insights on what governance practices work best in order to minimize conflicts. Overall, we assume that greater levels of indigenous stakeholder power, embedded in more autonomy and recognition, should lead to shorter and less severe types of conflict.

Furthermore, authors as Kolk & Lenfant (2013) and Ikelegbe (2005) argue that national formal institutional weakness decreases the position of indigenous communities through a lack of legal systems, governmental instability and corruption. As we described

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before, national governments and MNEs often tend to prioritize economic development above the social consequences of their operations by neglecting granted rights and cultures, which is thus more likely in contexts that are instable and lack control. However, how institutional strength affects the relationship between national and corporate indigenous governance practices, and conflict outcomes has not been (quantitatively) researched before. By measuring indigenous recognition and stakeholder power as mechanism for conflict resolution in several institutional contexts, we aim to provide interesting insights for all involved parties on the true effectiveness of their governance practices once moderated by the contextual institutional quality. Therefore, the second research question is: To what extent does national (formal) institutional strength moderate the effect of governmental and MNE indigenous recognition as effective conflict resolution mechanism?

This research is set up to investigate the position of indigenous communities involved in conflicts and the role of governance policies towards these communities. More particularly, our aim is to test how indigenous stakeholder power affects the length and the severity of MNE – Indigenous community conflicts. In addition, with this thesis we aim to bring attention to the moderating role of institutional strength on conflict outcomes. By investigating indigenous governance policies of both national governments and MNEs, we try to provide better understanding to both parties how conflicts could be resolved more effectively.

We obtained MNE – Indigenous community conflict data from 348 unique conflict

cases, spread out over six continents and forty countries. To determine the length of conflict we characterized the variable as either long or short since more than fifty percent of the cases was still ongoing at the time of collecting data. Considering the nature of our data, we run logistic and linear regressions as the appropriate methods of analysis. Despite our expectations, none of the proposed relationships resulted in significant outcomes, neither in

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the initial test as well in the subsequent tests wherein we excluded the dominant represented countries Canada and The Philippines. This implies that increased stakeholder power does not lead to more effective conflict resolutions. However, since institutional strength is an important and significant indicator of conflict outcomes, we rerun the analysis within two subsamples, i.e., weak versus strong institutional contexts. Within the dataset consisting of countries characterized by strong formal institutions, we found significant results on the moderating effect of institutional strength on the relationship between both MNE stated policies and granted autonomy by the government and the dependent variable type of violence.

Our academic contribution is threefold: First, this is one of the first researches that argues that the recognition of indigenous communities by both national governments and MNE’s policies has a positive impact on the length of conflicts and the applied type of violence. Second, we are the first that test the moderating effect of national institutional strength on the relationship between indigenous recognition by both national governments and MNE’s, and conflict outcome. Third, this study puts forward stakeholders as first to recognize resolution mechanism patterns by empirically testing the role of indigenous recognition through the use of cross-country quantitative research. By identifying national and corporate governance practices not working effectively as significant conflict resolution mechanism, this study contributes by shedding practical insights within the indigenous conflict field. Furthermore, we empirically show that institutional strength does advance the likelihood for more effective conflict resolutions.

The thesis starts with a literature review, wherein we first discuss indigenous identity and the position of communities in society. Subsequently we discuss stakeholder power, which is proposed as key determinant for conflict development. Then, we review MNE conflict resolution mechanisms and lastly, we introduce and discuss institutional strength as

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important factor in MNE – Indigenous community conflicts. Within the theoretical chapter, all our applied theories result in variables, an overarching theoretical framework, and several proposed hypotheses. Then, we present the obtained empirical results and finally, we conclude with a discussion of the main limitations and interesting suggestions for future research.

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2. LITERATURE REVIEW

2.1 Indigenous communities and conflict

Identity is often determinative in the recognition of indigenous communities and the establishment and protection of their indigenous rights. According to Sawyer and Gomez (2008, p.8) indigenous identity is a historically contingent, complex and relational experience. In addition, Linda Tuhiwai Smith (1999, p.7), states that indigenous peoples ‘share experiences as peoples who have been subjected to the colonialization of their lands and cultures and the denial of their sovereignty, by a colonizing society that has come to dominate and determine the shape and quality of their lives’. Indigenous communities are generally portrayed by their distinctive culture, legal system, economy and their traditional attachment to the land they have historically used and occupied (Sawyer and Gomez, 2008). Their stewardship over the environment not only created the foundation for their economic survival; it also established their social institutions (Lertzman, 2009). Simultaneously with increasing globalization and the search for new economic opportunities by governments and MNEs, these significant differences in culture, values and traditions in comparison with those of non-indigenous people, are generally mentioned in the literature as one of the core sources for the increasing amount of conflicts between the parties (Calvano, 2008; Crawley and Sinclair, 2003; Lertzman & Vredenburg, 2005; Bebbington, 2008).

The consequences of globalization for indigenous communities are twofold. Firstly, the growing global economic growth results in further encroachment into indigenous territories, which affects both their environments as well as their cultures (Murphy & Arenas, 2010). Furthermore, the misappropriation of indigenous traditional knowledge, such as in biotechnology, is in no extent rewarded to the original founders of this knowledge with shares

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of these profits made by Western companies (Murphy & Arenas, 2010). However, the increasing opportunities provided through communication and collaboration empower indigenous communities in their position towards MNEs and national governments since they are more able to network and share knowledge together with other communities, NGOs, scholars and businesses that share their interest as well (Sawyer & Gomez, 2008, Whiteman, 2009). This resulted in a movement towards more national and transnational indigenous rights and codes of conducts (Sawyer & Gomez, 2008).

In general it is difficult to define what indigenous rights consist of and how these rights are exercised. Examples of indigenous rights are provided by Hanson (2015), who defines these as ‘rights to land, rights to subsistence resources and activities, the right to self-determination and self-government, and the right to practice one’s own culture and customs including language and religion’. The author states that the developments of these rights are too often, not without a fight. For example, it was only in 1993 that The Native Title Act officially recognized the Aboriginal peoples in Australia as traditional landowners (Banerjee, 2000). Even after earlier granted land rights, it remained unclear during conflict situations what these rights exactly consisted of. Clarification finally had to be determined by the Australian court system resulting in the Native Title Act. In recent years, the constitutions of many other countries have added indigenous rights protection laws. The Native Title Act in Australia is a good example, but also the establishment of indigenous laws and protection of indigenous rights can be seen in Canada, The Philippines, Peru and many other countries (Foster, 2012). Despite this, the adopted protections vary per country. Many require that communities are consulted prior to extractive operations on their lands, that they receive compensation for the lands taken from them, that they share in revenues and that extractive projects are managed while protecting their environment and human health to a certain extent (Foster, 2012). O’Faircheallaigh (2013) describes that the fact that states, institutions and

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MNEs increasingly recognize indigenous rights, reflects that indigenous political capacity and ability to defend these rights is progressively better recognized.

On international level important indigenous laws developments are visible as well. One of the most significant is the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). UNDRIP is established in 2007 as internationally recognized legal framework in order to recognize indigenous identity and to determine indigenous rights and states’ obligations towards these rights. Countries that endorses UNDRIP confirm for example to the duty to establish legal mechanisms in order to enforce communities’ rights (Foster, 2012). Another part is FPIC: Free, Prior, and Informed Consent (Voss and Greenspan, 2012). Explicit commitment to FPIC entails that indigenous consultation and consent prior to starting, or during extraction operations is aimed at agreeing upon. Since the frameworks are not legally binding, countries that endorse these frameworks still interpret them in a way that is consistent with their national constitutions. Nevertheless, these frameworks obviously increase the degree of indigenous recognition and strengthen their positions in society.

The above-mentioned rights and protection looks impressive, however too often governments choose to side, or even cooperate with MNEs to suppress indigenous opposition once rights and laws are violated (Foster, 2012). The needs and interest of political states are often dissimilar to those of indigenous communities; governments see economic growth and wealth as the highest priority for serving the overall community, whereas indigenous communities regard limited growth and balance as essential to their livelihood (Murphy and Arenas, 2010). Therefore, it seems that states are good at enacting indigenous laws, however once MNEs offer certain financial profits, especially less developed countries are rather poor at enforcing these rights (Foster, 2012).

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2.2. Stakeholder power as source for conflict

Stakeholder theory is a broadly discussed area in the literature and proposed as an important mechanism to examine conflicts. According to Mitchell et al. (1997) it is not about whether stakeholders are solely identified by managers; moreover, it is about whether there is actually prioritized attention paid to specific stakeholders. In building his stakeholder identification model Mitchell uses Freeman’s broad definition: ‘A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization’s objectives’ (Freeman, 1984: p. 46). To assess a stakeholder’s position towards a firm, Mitchell et al. (1997) introduce stakeholder power, legitimacy and urgency to determine the likelihood and need of managerial attention to specific stakeholders claims. The more of these three possessed, the more likely managers are likely to act in accordance with the aims and values of the stakeholder. Though, Calvano (2008) claims that indigenous communities are given much less attention compared with other stakeholders, despite the high financial and time consuming costs which their opposition causes. The author states that indigenous stakeholder power inequality is mainly exercised based on financial priorities of MNEs’, entailing that MNEs neglect or are unresponsive towards indigenous communities when the financial interests outweigh the social needs or impact of negative media attention. Moreover, an accumulation of the aforementioned characteristics presented by Mitchell et al. (1997) power, legitimacy and urgency, determine the influence that indigenous communities can exercise on corporate decision-making. In other words, only when a community and their needs, due to the MNE presence, directly threaten or enhance a firm’s profitability and credibility, a community conflict get addressed (Calvano, 2008).

Another perspective, which can be a source for conflict, is the stakeholder perception gap, which highlights the perception each side has about the other. Communities are seen by

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MNEs as ungrateful for the benefits of economic development and communities see MNEs as too dominant by imposing their will in pursuing modern, economic rational and profit strategies (Calvano, 2008). The differences in development ideologies determine the values both put upon the other party, and the way they underpin their concerns in the communication and protest strategies (Calvano, 2008). As mentioned before, marginalized communities usually possess limited resources to fight and communicate their concerns to a broad public. To draw attention on their concerns, they usually utilize strategies such as blockades, protests and sabotage (Calvano, 2008). MNEs on the other hand, are able to utilize expensive and sophisticated strategies to influence public opinions and offside their opponents. Though, communities are increasingly forming networks with other communities, NGOs and activist groups to point out their concerns (Jenkins & Yakovleva, 2006). Banarjee (2001) argues that through the mediating role of external stakeholders power dynamics partly shifts towards a less inequality. According to Calvano (2008), NGOs are seen as more legitimate stakeholders than indigenous communities due to their higher institutional power and thus seen as a source for better and more sustainable relations. Seeking the help of NGOs in the representation of their issues with MNEs makes their complaints more likely to be addressed. However a critique comes from Blowfield and Frynas (2005), who states that NGOs represent their own interests and priorities or those of their funders, entailing that communities may question whether NGOs are increasing their own stakeholder power.

Misunderstanding of the other’s cultural point of view also drives conflicts and complicates stakeholder relations. On the one hand, modern, technological and economic rational values are considered as essential by MNEs and governments of developing countries (Calvano, 2008), while on the other, environmental and indigenous culture protection are valued by indigenous communities. The values, tradition and norms embedded in the culture of specific societies, are deeply embedded and are difficult to adjust to when they are not

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conforming or relatively similar to the own culture (Williamson, 2000). Hence, MNEs tend to adjust to the homogenous considered national cultures of countries (Hofstede, 1980); the significantly different subcultures of indigenous communities are mostly ignored. Banerjee (2001) argues that indigenous peoples often have different values, perspectives and concerns compared with those embedded in the national culture of the country in which they live. The compensation governments and MNEs offer to communities once engaged in conflict is often according to their own standards. Since these compensations are not considered as appropriate in the perception of communities, conflicts are likely to continue. Hence, the dominant position governments and MNEs occupy in negotiations are somewhat comparable with historical colonial practices (Banerjee, 2000), while a more balanced power distribution would be of benefit in achieving peace.

2.3 Stakeholder conflict resolution

The position of MNEs towards society and the environment is discussed widely in the literature (Porter & Kramer, 2006). Corporate Social Responsibility (CSR) is a concept that involves ‘structural and behavioral factors as well as responsibilities and actions towards shareholders and stakeholder’ (Young and Thyll, 2014, p. 1). These social policies are accelerated through external pressures, exercised by both its own stakeholders, and external parties such as NGOs, media and international institutions (Porter & Kramer, 2006). Next to the moral obligations as being a good citizen, the potential reputational damage as being polluting, unethical and non-sustainable can truly harm the firm. As mentioned before, the unequal distribution of power is an important indicator for conflicts. As conflicts escalate, activists, NGOs, communities and scholars increasingly calling for increasing responsibility towards MNEs to become more accountable for their businesses and the effects their operations have on local communities (Calvano, 2008).

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Due to the misappropriation of indigenous assets and resources, businesses make attempts to adapt, engage and cooperate with indigenous communities in diverse ways. For example, corporations fund economic development projects. Others invest in the local communities, such as social work, education, healthcare and infrastructure. Some provide employment and thus seek to integrate members of the community into the company. According to Sawyer and Gomez (2008) these attempts can primarily be seen as neutralizing and depoliticizing indigenous resistance to maintain their operations in indigenous territories rather than concern about the social and environmental effects of their presence. Calvano (2008) calls MNE indigenous CSR programs ‘corporate philanthropy to buy-off or silence communities who are oppose their activities’. Their arguments are primarily based on the fact that Western companies in general consider their development level and culture as superior to that of indigenous communities and believe themselves to know what these peoples need. In reality, the practices applied need to fit the needs and expectations of communities in order to create a feeling of justice (Whiteman, 2009). However, differences with respect to indigenous culture and traditions, and the lack of effort invested in understanding these differences often complicates these purposes (Murphy and Arena’s, 2010). Bebbington (2008) argues that the size of the company determines the level of adaption to local communities. Taking mining companies, smaller and younger companies, operating with short-time horizons, are less likely to adapt their practices to local demands. In contrast, larger MNEs have recognized the importance of avoiding poor reputation due to social and environmental intrusions and are more likely to enhance their contributions to local social and environmental development. As described earlier, national governments can apply to the international legal framework FPIC, which is also a possibility for MNEs. Voss and Greenspan (2012) describe the identity of FPIC as following: ‘FPIC must be free from force, manipulation, coercion, or pressure, with respect for the traditional representative structures and customary laws and practices of

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communities’. Once a MNE operates according these guidelines it can be seen as a ‘social license to operate’ (Voss & Greenspan, 2012). The benefits of commitment to FPIC could be considered as conflict minimization, a stronger corporate social image and the possibility to obtain indigenous knowledge. However, Farrell et al. (2012) argues that agreeing upon FPIC lead often to standstills due to contextual difficulties that impede agreements according to FPIC guidelines, and is therefore not officially integrated in most policies yet.

Building sustainable relationships is broadly seen as the key resolution mechanism for conflicts. Conflict resolutions, such as compensation offers, are often considered by MNEs as permanent, which is, in practice, often not true since parties are not really engaging with one and other. Though, by introducing conflict transformation, Bond (2014) states that conflicts offer a constructive opportunity to positively change mutual relations towards sustainable and peaceful situations. The construct entails that involved parties truly adapt to their opponents and are dedicated to build meaningful and sustainable peace relations. To accomplish more sustainable and ethical relationships, Lertzman and Vredenburg (2005) outline that an important condition is putting more effort in understanding the needs and cultures of the other. As a result, firms that effectively manage the relations with their stakeholders can prevent conflicts deteriorating into lengthier and more violent conflicts (Bond, 2014). This is an important corporate governance skill since violent conflicts are seen as a serious political risk (Oetzel et al., 2007). Crawley and Sinclair (2003, p. 364) state that companies that exceed the “basic requirements” are more successful in interacting with indigenous communities and thus more likely to effectively exercise conflict mechanisms. In other words, it is important to determine whether CSR is applied particularly as PR instrument or as real important part of the corporate governance strategy (Crawley & Sinclair, 2003). Corporate governance is about the structure and distribution of control, power and influence with regard to decision-making within a firm (Aguilera & Jackson, 2010). Here, the concept of true corporate ability and

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willingness to engage with indigenous communities is decisive in determining the likelihood of creating sustainable relations (Alcantara & Nelles, 2013). Moreover, the development of meaningful relations leading to more access to land and more success in conducting businesses is only suitable once it is managed with a strategic purpose (Crawley & Sinclair, 2003).

As a consequence of not interacting successfully with stakeholders, difficulties related to reputation, trust, capital access, investors, and employee satisfaction might occur (Jenskins & Jakovleva, 2006). On the other hand, managers who are able to accept perspectives that disconfirm firms’ common and existing beliefs and mores, can benefit from opening up to radical innovations, operationalizing improvements and new business models by learning from indigenous knowledge (Hart & Sharma, 2004). Partnering up can thus create value for both stakeholders. An increasing focus in the literature is given to co-management, as a way of dealing with conflicts (Castro & Nielsen, 2001). Co-management refers to the joint decision-making by national governments and/or MNEs, and indigenous communities, about aspects of resource use, management and access (Castro & Nielsen, 2001). Innovative policy and institutional arrangements, such as legislation and assistance from the government, leading to participatory and peaceful resolutions offer a way of dealing with conflicts (Castro & Nielsen, 2001; Pomery & Berkes, 1997). In order to agree upon co-management, mutual trust and the recognition of the other as a sustainable stakeholder are considered key determinants. In his study Berkes (2009) highlights the importance of engaging in social learning and knowledge generation in relation to managing resources. Effective resource management lies within joint problem solving by sharing experiences and ideas. In other words, the development of conflict is also likely to be affected by the extent to which a MNE is capable and willing to engage in joint problem solving (Berkes, 2009). Overall, the major conviction of co-management is that increased stakeholder involvement enhances efficiency

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of resource management and social systems and finally can work as conflict avoidance or resolution mechanism (Castro & Nielsen, 2001). Though it should be noted that MNEs are primarily dedicated to maximizing their profits, rather than supporting local development (Sawyer & Gomez, 2008). There is little evidence to suggest that foreign and extractive businesses contribute significantly to reductions of poverty in indigenous territories. According to Sawyer and Gomez (2008) the environmental and social costs often outweigh the potential benefits. The balance of social impact and profit maximization in corporate governance remains an interesting field for future research.

2.4 National institutional context

Next to the lack of indigenous corporate governance, the quality of the national government is often seen as main source and motivation for escalation, conflict, violence, crime and other struggles (Ikelegbe, 2005). Especially countries characterized by a low quality of national institutions are recognized as a source for increased conflict dynamics, as corruption and ineffective government are often in place (Ikelegbe, 2005). Kaufmann et al. (1999) define national governance as: ‘the traditions and institutions by which authority in a country is exercised’. These institutions are defined as the ‘rules of the game’ that are at play in a certain context (North, 1990). According to Williamson (2000) these rules can be divided in informal and formal institutions. Informal institutions consist of norms, traditions, customs and religion, whereas formal institutions include the executive, legislative, judicial and bureaucratic functions of government in order to mandate social order (Williamson, 2000). By defining national governance and institutions Kaufmann et al. (1999) also mention ‘(1) the processes by which governments are selected, (2) the capacity of the government to effectively formulate and implement sound policies, and (3) the respect of citizens and the state for the institutions that govern economic and social interactions among them’. Based on

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the strength of the national governmental institutions, like formal laws and regulations, and governmental recognition and protection of indigenous communities, Ikelegbe (2005) claims that the development of conflicts can differ significantly per country.

As mentioned before, especially in contexts that are portrayed by low institutional quality, the economic benefits MNEs bring often outweigh the social concerns (Ikelegbe, 2005; Ite, 2004). Scholars that examine MNE - Indigenous community conflict recognize these interdependent relations between national governments and MNEs especially in less developed countries, which are often full of natural resources (Foster, 2012). Frynas (2010) propose the ‘resource-curse’, which in short entails that high amounts of natural resources can have negative effects on the quality of governance, but also conflict development. The author states that corruption is more likely in countries that are dependent on the incomes generated by extractive industries. Political instability and corruption are seen as important drivers for engaging in illegal operations, either by governmental officials as well as MNEs employees. Furthermore, companies with genuine CSR programs, often face misallocations of the assigned financial resources towards indigenous communities through interception of national governments. Finally, there is less urgency for ensuring economic stability since the extractive companies often take responsibility for building infrastructure and provide actual financial benefit in terms of trade. As a result, the governmental dependency on resource extractive activities in less developed countries is likely to fuel opposition (Frynas, 2010).

In sum there are several institutional factors that lead to inappropriate enforcements of indigenous laws against MNEs. Firstly, there may be a lack of institutional capacity to enforce indigenous rights effectively. Secondly, the government may have a financial stake in the extractive project, which is likely to diminish the likelihood for taking action once profitability is threatened. Thirdly, governmental officers may have prejudices against indigenous people or consider these communities as too politically incapable to require their

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attention. Fourthly, the development of the overall society is prevailed above the social wellbeing of indigenous communities. Finally, the people who are responsible for holding MNEs accountable for their behavior may be corrupt and sensitive for bribery (Foster, 2012). The author even states that judges cannot always be seen as trustful institution since they are not always resistant to corruption or political pressures as well. Accordingly, indigenous peoples often cannot rely on the national institutional mechanism to enforce enacted indigenous rights. The fact that there is still a lack of measurement of actual governmental compliance by international indigenous commissions drives the slow implementation of international frameworks such as UNDRIP as well.

A final note in this literature review is based on the study of Acuña (2015) who claims that it is not the lack of strong governmental policies per se, which primarily causes conflicts. According to this author, it is important for MNEs to recognize, value and understand indigenous political ontologies as discussed earlier in this review, rather than solely applying to national policies. His explanations confirm once more that MNE – Indigenous community conflicts are too complex to be explained in one single theory. This study elaborates further on these theories in the following chapter.

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3. THEORETICAL FRAMEWORK

3.1 Theory and mechanisms to resolve MNE – Indigenous community conflicts

The previous literature has increasingly focused on the characteristics of the MNEs in relation to their stakeholders. For example, several models and frameworks are proposed on how to interact successfully with indigenous communities. Cultural learning, co-management and CSR are popular topics among scholars who are interested in the relationships and interaction between MNEs and indigenous communities. Conflicts between the parties have also gained attention, however these are mainly described from a singular perspective and especially focused on conflict causation. In other words, these studies lack to provide insight into the different characteristics of the involved parties that are likely to lead to better and more effective conflict resolutions. More specifically, research into indigenous governance characteristics from an institutional and corporate perspective together has not yet been conducted. Therefore, the literature on MNE – Indigenous community conflicts lacks in providing clear insights into how different types of governance lead to effective conflict resolution. Moreover, most scholars often examine specific and limited conflict cases using qualitative research methods, which make it hard to generalize findings and suggestions on how to prevent or resolve conflicts. A quantitative research spread over a wide range of contexts, taking the position of all key players into account will provide more and better insights into which indigenous governance characteristics are most effective and successful in resolving conflicts. This study argues that empirical insights are important since longer conflicts often lead to more financial and reputational costs, and in addition, can lead to higher degrees of violence due to increasing frustration (Bond, 2014). Based on this

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statement, the study proposes duration and type of violence as two important indicators of effective conflict resolution.

According to Mitchell et al. (1997), recognition of external stakeholders is important in determining the likelihood of putting importance on preventing and resolving conflicts with these stakeholders. Once external stakeholders are recognized more as legitimate, MNEs are likely to minimize costs and risks by more dedication and prioritization of good relations with these stakeholders. This study proposes stakeholder power and power distribution as a key mechanism for effective conflict resolution. Two indigenous governance factors are considered in this thesis as indicators for the degree of indigenous stakeholder power. Both are expected to affect conflict duration and severity and thus as possible effective resolution mechanism. First, this study argues that the level of stated recognition of indigenous communities by MNEs is an important indicator for more effective conflict resolution. MNEs that recognize indigenous communities as an important stakeholder in their stated (CSR) policies are expected to be involved in shorter and less violent conflicts. Secondly, the relationship of the community with the national government is considered as a significant mechanism. Once a community is granted more institutional recognition by the national government, embedded in increased rights and forms of self-governance, the bargaining power of communities is likely to force MNEs to consider indigenous communities as more important and more legitimate, resulting in quicker and more sustainable conflict resolution.

Furthermore, authors as Kolk and Lenfant (2013), and Ikelegbe (2005) state that formal institutional weakness decreases the position of indigenous communities through a lack of legal systems, governmental instability and corruption. Based on these statements, this study argues that institutional strength reinforces the effect of stakeholder power on the conflict outcomes. In other words, more granted rights and recognition are expected to resolve conflicts more quickly in contexts where communities can rely with greater confidence on

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their national institutions. The theories behind these proposed relations are elaborated in more detail below.

3.2 Recognition and autonomy by the government

The ability of a community to negotiate and build relations with other parties is crucial in examining conflicts. The stakeholder theory presented by Mitchell et al. (1997) is applied in this study for explaining the role of power and power inequality, and the effect this might have within conflict situations. Control over resources in indigenous territories is often a driver for conflict. Once two or more parties compete for the same resources, and the marginalized party is feeling it is losing control due to a lack of recognition as an important stakeholder, it is likely that protest and conflict will occur (Ballard & Banks, 2003). The role of national governments’ is important in determining the extent to which this is likely. Recognition of indigenous identity granted by the national government is expected to empower their status and position in conflicts and negotiations (Alcantara & Nelles, 2013). In addition, Bruijn and Whiteman (2010) state that the identity of a community acts as buffer against economic interests pursued by MNEs. For example, recognition of indigenous communities by national governments can result in granted autonomy or co-operation agreements with the government. Granted autonomy involves enabling communities to govern themselves and the territories they live upon. This ability to self-govern within indigenous territories is likely to lead to greater sense of power in relation with MNEs, who are likely to enter their lands, for mostly resource extraction purposes (Alcantara & Nelles, 2013). In other words, the ability of communities to negotiate and propose relationships strengthens and advances the need of MNEs to consider these communities as an important and legitimate stakeholder, and to prioritize good relations in order to minimize costs and risks (Mitchell et al., 1997).

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Linking indigenous positions towards MNEs by applying the model by Mitchel et al. (1997) it can be stated that communities that enjoy autonomy and certain rights possess more power than communities that are not recognized by the government. Higher degrees of community autonomy would lead to consideration of the community as more legitimate, since its claims are based on their defined rights and institutional position. Communities that are recognized and granted forms of autonomy are better able to attract attention and to negotiate relationships (Alcantara & Nelles, 2013). Due to these abilities MNEs consider them as being more relevant to direct managerial prioritization, which is in this thesis assumed to resolve conflicts in a timelier manner.

An example of indigenous state recognition is provided in the study of Ballard and Banks (2003). The authors describe the development of indigenous recognition in Papua New Guinea, where indigenous communities were historically the most marginalized peoples in society. Mining activities even led to long-lasting civil wars, since the government chose automatically side of foreign corporate actors. With the establishment of formal mining acts wherein communities were recognized as important stakeholder in mining development projects, communities became able to negotiate directly with MNEs. As a result, mining royalties rose significantly, and next to this, communities developed the overall wellbeing due to participation projects.

In summation, granted indigenous autonomy by national governments makes communities a more powerful stakeholder and reduces the asymmetrical power relations which is assumed to influence MNE – Indigenous conflict characteristics (Mitchell et al., 1997). Accordingly, this study proposes:

H1: The higher the level of indigenous recognition by the national government, the shorter

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In addition to the relationship that recognition and granted autonomy has on the length of conflict, the relation on type of conflict is addressed as well. Laplante and Spears (2008) researched the relationship between indigenous power and the applied types of violence in MNE - Indigenous conflicts. The authors present several types of violence that communities can apply, ranging from peaceful dialogues, the use of third parties such as NGO’s, using the legal system, or using violent ways of showing their discontent. More violent forms of protest are seen as the ‘weapons of the weak’. Especially when they are not able to express their concerns in a conversation, since they might not be considered as important stakeholder by an MNE due to a lack of national recognition and protection. The indigenous stakeholder power of a community granted with autonomy is different to the power of a marginalized community as discussed before (Mitchell et al, 1997).

It is important to note the direct involvement of governmental actors (police, military protections of MNE operations) in conflict situations with indigenous communities. Especially in continents such as Africa, Asia and South America, conflicts between national governments actors and indigenous communities can be characterized as very violent, from both sides. A lack of recognition, predomination and institutional weakness is often the main driver for anger and targeted violent protests (Watts, 2004). On the other hand, the more autonomy granted to the community, resulting in higher degrees of stakeholder power, are likely to strengthen the opportunities to engage in peaceful forms of protest in order to meet justice (Bruijn & Whiteman, 2010).

Foster (2012) describes an example of increasing violent conflicts. The Peruvian government and local communities, who were not fully recognized and identified, ended up in a direct and highly violent conflict since the government granted mine and oil permissions to MNE operations, affecting the livelihoods of the communities. As described before, incoming FDI prevailed above the prevention of any local rights. This is more likely to happen in cases

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where communities are lacking any form of granted autonomy (Foster, 2012). In summation, this study argues that the degree of indigenous recognition and autonomy directly affect the intensity of conflict, resulting in the following hypothesis:

H2: The higher the level of indigenous recognition by the national government, the less

violent the type of conflict

3.3 MNE recognition and stated policies towards indigenous communities

Besides national government characteristics such as the above-described level of granted indigenous autonomy, this study proposes indigenous recognition embedded in corporate governance structures to influence conflict dynamics as well. To support this, Ballard & Banks (2003) claim that neglect of indigenous rights by companies is the main reason for conflicts. Two dominant theories of corporate governance related to wider society are shareholder theory and stakeholder theory. The first, shareholder theory, is aimed to explain managerial perspectives regarding building good relations, wealth and profit maximization for the groups who possess a stake in the company, the shareholders (Freeman et al., 2004). The second, stakeholder theory, is aimed at explaining the relationships with all the firm’s stakeholders. The theory holds that a corporation is a complex set of stakeholders, of which good relations with all stakeholders ensures a company’s existence and will lead to better financial and reputational performances (Freeman et al., 2010). In addition, Calvano (2008) argues that MNEs that recognize indigenous communities as legitimate and important stakeholders are presupposed to engage more successfully in partnerships.

MNEs that have extensive experience with indigenous communities are well aware of how conflicts can affect the operational costs of their operations within indigenous territories. Firms who face additional and increasingly growing costs for the development of their projects due to delay or cancellation as a result of indigenous protest, often results in

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treatment of indigenous communities as legitimate stakeholder (Voss & Greenspan, 2012). Alongside costs related to conflicts, trends are pushing MNEs towards more social and responsive behavior. The first trend is the increasing international focus on environmental sustainability and reducing poverty. Second, MNEs consider the poor of the world as future customers, which represent tremendous potential profits. Lastly, being responsive to local needs is nowadays seen as a must for being a good company, especially with the transparency media provides nowadays (Calvano, 2008). Therefore, marginalized stakeholders such as indigenous communities can harm the reputation of the firm once in conflict, but also offer chances for commercial leverage. As a result, MNE policies towards indigenous communities, stating that these communities are seen as important stakeholder for the firm, are increasingly prioritized on the corporate agenda. Companies that exceed the ‘basic requirements’ of recognizing indigenous communities as important stakeholder are found to be more successful in building relationships (Crawley & Sinclair, 2003, p. 364). Subsequently, this thesis assumes that indigenous policies in order to establish sustainable relationships empower indigenous communities, and therefore shall lead to shorter duration of conflicts.

An example of indigenous recognition is provided by Doyle & Whitmore (2014). The Mirrar people in Australia have lived upon their territories for decades, wherein they suffered from mining activities due to their marginalized position. However, the explicit commitment to FPIC in their policies, new activities by MNE Rio Tinto where postponed and adjusted to the demand of the Mirrar people. This entailed that development activities were not started before indigenous consent was obtained. Rio Tinto is a firm that gained much experience in interacting with indigenous communities. These experiences mean that it is well aware of the related costs of projects in the territories of indigenous communities once engaging in conflict, both financially and reputational. However, Farrell et al. (2012) confirms that FPIC

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is likely to lead to longer standstills of operations. This thesis builds on the assumption that future and long lasting conflicts are likely to be reduced once MNE targets indigenous consent (Laplante & Spears, 2008). Overall, MNEs that recognize indigenous communities as legitimate stakeholder in their corporate governance structures are hypothesized to engage more successfully with communities, which is likely to result in shorter conflicts:

H3: The higher the level of indigenous recognition by MNEs, the shorter the length of conflict

Hypothesis four links MNE indigenous recognition embedded in indigenous governance policies to the type of violence applied in the conflict. The type of violence is expected to be dependent on how MNEs behave towards indigenous communities. Previous literature by Bond (2014) puts forward that the more severe the type of violence, the higher the financial and reputational costs will be to resolve the conflict. In addition, Laplante & Spears (2008) argue that conflicts that are more violent are more difficult to resolve. These authors describe that higher levels of violence are detrimental for building situations where parties can co-exist and operate together in the same area. Their argumentation behind this is that a certain extent of indigenous goodwill is necessary in order to establish peaceful situations. Moreover, indigenous communities that feel treated unfairly and whose complaints are not heard are likely to increase the level of violence in order to express their discontent. In other words, once a MNE is aware of acting and engaging upon indigenous needs the level of violence which is resorted to is likely to decrease (Laplante & Spears, 2008). The willingness of building good relations and creating mutual understanding are important conditions, which can decide whether conflicts will result in protests characterized by low level of violence such as peaceful negotiations or highly severe types of violence, including death.

Higher degrees of indigenous recognition positively influence relationship building between the parties since communities are feeling treated more fairly. In turn, this is expected to result in less complicated conflicts. Laplante & Spears (2008) support this, arguing that

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indigenous community participation in decision-making processes is the most effective solution for reducing degrees of protest and violence. Here, it is important to distinguish recognition statements that are more applied as Public Relations expressions, and indigenous recognition that is truly included in corporate governance strategies (Crawley & Sinclair, 2003). Adaption to indigenous needs and clear communication is continuously required in relation to all indigenous operations. However, there are political and cultural barriers that need to be considered in order to build sustainable and peaceful relations within indigenous territories (Bruijn & Whiteman, 2010). Since building such participations and trustful relations between the parties is a time consuming process, Lertzman and Vredenburg (2005) point out that this can only be realized when parties are truly willing to engage. Hence, the legitimacy and urgency to engage with indigenous communities need to be voluntarily included in a MNEs corporate governance structures (Oetzel et al., 2007).

The case of the Peruvian Cajamarca communities and Canadian mining company Manhattan Material provides insights into conflict development related to hypothesis four. Supported by the Peruvian government Manhattan Material totally neglected the voice of the surrounding communities once it started its operations. The relocation of approximately 9,000 people was forced without any form of consultation or consent. In the beginning communities protested by using forms of humor, however later on started to apply high degree forms of violence as protest form against the domination of the MNE. After six years of highly violent indigenous protests, supported by NGOs, the firm finally decided to abandon its operations since none of the external partners was willing to cooperate with the firm. A loss of about 60 million US dollars due to the difficulties of opposition expresses the financial costs of not building sustainable relationships, not to mention the reputational costs out of scope (Laplante & Spears, 2003). Therefore, the recognition of indigenous communities as being an important stakeholder is hypothesized to have a positive effect on the level of violence seen in conflicts:

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H4: The higher the level of indigenous recognition by MNE’s, the less violent the type of

conflict

3.4 Quality of national governance & institutional strength

By determining the level of institutional protection of indigenous rights, governments act, according this thesis, also as a moderating external stakeholder in conflict situations. According to Calvano (2008) indigenous protection highly depends on whether governments support the poor or the elite, the quality of the formal institutional context, and whether officials are likely to profit from financial benefits. In this research, the quality of governance is proposed to be a key characteristic in determining the fulfillment of governmentally granted rights and corporate governance policies. The quality of national governance is, according to the World Bank, dependent on ‘the traditions and institutions by which authority in a country is exercised’. This includes ‘the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them’ (Worldbank.org, 2015). In general, overall profit and economic development is often favored above social aspects, especially by governments of developing countries. Ikelegbe (2005) states that high levels of corruption and weak rule of law are general indicators that can characterize these governments. He also states that conflicts are likely to last longer, and become more violent over time, when governments are unstable and lack quality of governance. Contrarily, governments that offer stable and trustworthy legal systems are more likely to commit to their issued granted rights and accordingly, offer more opportunities to protest through their trustworthy legal system.

Based on the literature this thesis expects Foreign Direct Investment to devalue granted autonomy, especially in the context of unstable and ineffective institutions. As a

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result of the neglect of indigenous rights and protection, conflicts are expected to develop into longer and more intense confrontations. Next to this, the use of more violent types of protest indicates a lack of trust in the quality of national institutions as well. Communities that are recognized and granted forms of autonomy, and that can rely on the quality of institutional support are less likely to resort to severe types of protest. Opposite to this, when there is a lack of confidence in justice and institutional protection, communities are likely to ‘resort to forms of protest that are detrimental to all stakeholders’ (Laplante & Spears, 2008, p. 78). In summation, the perception of justice and the institutional space to voice these perceptions affects the form of communication in which the communities make itself heard (Bruijn & Whiteman, 2010).

The Canadian community Tsilqhot’in Nation of British Columbia provides a suitable example wherein indigenous communities and its rights are protected by its national institutional context. The community, granted autonomy and forms of self-governance, was enabled to veto any activity within their territories. Due to their confirmed and protected rights by the Canadian Supreme Court, MNE Taseko was prohibited by the community to start developing a new mine (Baker, 2014). This study relates their success in advocating their rights to the high quality of the national Canadian institutional context and expects therefore a positive impact of institutional strength on the relationship between granted autonomy by the government and the length and type of conflict. In other words, the expected positive effect of better-enshrined granted autonomy on the dynamic degree of conflict, as hypothesized before, depends on the strength of national institutions. Therefore, the study hypothesizes:

H5: The stronger the national institutional quality, the stronger the effect of granted

autonomy on length and type of conflict

Newell (2005) describes that weak institutions, due to lack of regulation, are often preferred by MNEs to invest in when it they are expecting conflicts due to their operations.

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The economic development they offer national governments characterized by weak institutions can further shift the power balance between MNEs and indigenous communities in favor of the MNE. Again, the opportunities institutional contexts provide to express opinions and concerns in a meaningful and peaceful way plays an important role in how conflicts are likely to evolve over time (Bruijn & Whiteman, 2010). For example Kolk and Lenfant (2010) state that especially Western companies perform their stated policies with more dedication in their home countries than in institutionally weaker foreign countries, where more generic CSR policies are seen. Hamann (2004) argues that there are two trends visible that relate MNE policies to increased recognition of indigenous communities. One, transnational resource extraction companies have become listed companies entailing that investors expect more social behavior. Second, national governments increasingly started to recognize indigenous communities as their responsibility due to international institutional expectations. For example, the South African government started to demand social development programs from MNEs, especially in relation to their sovereignty over natural resources. However, the lack of stable local governmental coordination and the historical tensions among all involved parties means that both communities, and MNEs do not commit to full dedication (Hamann, 2004). Communities do not trust the true intentions of local government actors since they historically excluded community representatives from any form of consult and profit sharing. On the other hand, MNEs do not want to take full responsibility for social and informal settlements, such as schooling, health services and employment.

An example of the proposed moderating role of institutional strength is seen in the long lasting conflict within The Luka community in the South African province Bafokeng. Local communities, such as the Luka, historically engaged in conflict with the local government and mining MNEs, often characterized by severe types of violence. Local governmental representatives favored the existence of MNE activities above the well being of

The role of indigenous community stakeholder power in conflict situations with MNE’s and the moderating effect of national formal institutional strength

Master of Science Thesis