Business and Human Rights
The relationship between institutional factors in the home country of an MNE
and the likelihood that a labor rights abuse claimant receives a remedy
MSc. Business Administration – International Management Amsterdam Business School
University of Amsterdam 24-03-2017 (Final version)
Author: Karlijn van Wagenberg Student number: 10457062
Supervisor: Dr. Michelle Westermann-Behaylo Second reader: Dr. Lori DiVito
Statement of originality
This document is written by student Karlijn van Wagenberg 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 no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgements
By this time, after a very interesting and intensive thesis process, I am about to hand in my final version of my thesis with a lot of pride. I want to thank some people for showing unconditional support. Firstly I would like to sincerely thank my kind supervisor for her generous support, help and flexibility during the whole thesis process. Her expertise and guidance have been extremely helpful and inspiring. Last but not least I would like to thank my family and in particular my parents and boyfriend, who have shown constant interest and encouragement.
Abstract
Unfortunately, multinational enterprises (MNEs) that operate overseas are often involved in human rights violations (Aaronson & Higham, 2013). Dunning and Lundan (2008) defined an MNE as a firm that operates in at least two countries and is managed from a home country. Business codes regarding respect for human rights are not always adequately enforced in developing countries (Blowfield & Frynas, 2005).
In today’s globalized world, human rights protection is not only a responsibility of the state but also that of MNEs; as such, both the state and MNEs should take actions to avoid human rights violations. One of these actions is providing access to remedy. According to Ruggie (2008), MNEs could implement grievance mechanisms to make it easier for victims to seek remedies and their home states should access home state courts when victims face a denial of justice in a host state. This study focuses on one type of human rights violations, namely labor rights violations. An ongoing debate concerns the relationship between institutional theory and labor rights abuses by firms. This study contributes to the business and human rights literature by empirically analyzing the relationship between the political institutions and corporate governance regime prevalent in MNE’s home country and the likelihood that a labor rights abuse claimant has access to a judicial or non-judicial remedy after an MNE has violated a labor right in the apparel industry. Based on the literature, hypotheses were developed and tested via a regression analysis using the Corporations & Human Rights Database and the Orbis, Freedom House and Polcon databases. Contrary to expectations, the results demonstrate that a labor rights abuse claimant is more likely to receive access to a judicial remedy when an MNE’s home country is politically instable. The discussion addresses how these findings may relate to the context of existing literature.
Keywords: Human rights violations • labor rights violations • multinational enterprise • political institutions • corporate governance model
Table of Contents
1.Introduction ... 5
2. Literature Review ... 10
2.1 Human Rights ... 10
2.2 Labor Rights as Human Rights ... 11
2.3 Business and Human Rights ... 13
2.5 Institutional Theory ... 20
2.5.1 Institutions ... 20
2.5.2 Strength of home country formal institutions ... 21
2.6 Corporate Governance ... 25
3. Theoretical Development ... 28
3.1 Institutional Theory and Access to Remedy ... 28
3.2 Political Institutions ... 30
3.3 Access to Non-Judicial Remedy ... 32
3.4 Access to Judicial Remedy ... 36
3. 5 Corporate Governance Regime and Access to Remedy ... 39
4. Methodology ... 43
4.1 Research Approach and Data Collection ... 43
4.2 Sample Selection ... 45
4.3 Independent Variables and Data Sources ... 46
5. Results ... 50
5.1 Descriptive Statistics ... 50
5.2 Bivariate Statistics ... 52
5.3 Independent-samples T-tests ... 53
5.4 Binomial Logistical Regression Analyses ... 55
6. Discussion ... 60
6.1 Implications of the Research ... 60
6.2 Limitations and Future Research Directions ... 66
7. Conclusion ... 70
8. References ... 71
1.Introduction
Unfortunately, production in the apparel industry often takes place under unethical labor conditions. The Rana Plaza factory collapse in Bangladesh on April 24, 2013, which killed more than 1100 workers, is a recent example of a labor rights violation specifically in the apparel industry. The apparel industry has sparked controversy and debate worldwide due to its frequently unethical working conditions (Khan, Rodrigues & Balasubramanian, 2016).
Clothing production facilities are often located in low wage countries (Overeem & Theuws, 2013). Most consumers just want cheap goods, and to keep prices low companies often exploit the relatively cheap labor in the third world (Engle, 2004). There is also labor unrest due to a lack of safety at work, minimal facilities, sub-standard living conditions, low wages, excessive workloads and political instability (Ahmed, Raihan & Islam, 2013). Research suggests that the factory conditions in sweatshops (which are often in less developed countries) do not support large-scale garment production and therefore cause unethical and unsafe working conditions (Overeem & Theuws, 2013). Sweatshops are workplaces that subject their labor to unacceptable conditions, such as forced overtime, health and safety risks, disregard for labor welfare, wages that are below minimum wage, coercion and all kinds of deceptions that place employees at risk (Khan et al., 2016). Studies have shown that the employment policies in these factories do not adhere to the standards followed by MNEs (Dasgupta, 2002). Labor violations often occur, which raises serious questions concerning the corporate social responsibility (CSR) of companies in the apparel industry (Khan & Rodrigues, 2015).
The international trading that initially occurred in the apparel industries created such a fast industrial boom that a complicated network of subcontracting developed to handle the increased pressure on the sector’s firms (Saxena, 2014). Bangladesh is an example of an export-intensive country in which MNEs locate factories to produce cheap clothes. The failure to protect labor rights in Bangladesh has often been attributed to a low state capacity
(Berliner, Greenleaf, Lake & Noveck, 2015). The governments of developing countries compete to attract investments from developed garment firms because these investments can give rise to advantages for their economies, such as economic growth and job creation (Ruggie, 2008). However, these governments are often unstable (Engle, 2004), which results in a lack of state capacity to enforce labor laws (Berliner et al., 2015). Rahat Ferdous (2012) suggested that the reason behind the labor unrest is the absence of institutional and legal arrangements to ensure strong labor rights in the so-called ready-made garment industry. He showed that many garment factories in Bangladesh do not comply with International Labor Organization (ILO) conventions or labor law.
Ruggie (2008), the Special Representative of the UN Secretary-General (SRSG) for business and human rights, developed the “Protect, Respect and Remedy” framework, in which he stresses the responsibilities and duties of states and MNEs to protect and respect human rights. This framework was implemented as part of the UN Guiding Principles for Business and Human Rights (UNGP). The UNGPs highlight, among other things, that MNEs should both incorporate “due diligence” into their operations abroad and provide a remedy when they violate human rights. The concept of due diligence is “the steps a company must take to become aware of, prevent and address adverse human rights impacts” (Ruggie, 2008, par 56).
According to Ruggie (2008), MNEs are indeed a major source of investment and job creation; they can generate economic growth, reduce poverty and contribute to the demand for the rule of law and subsequently to the realization of universal human rights. However, he emphasized the importance of acknowledging that markets are embedded within rules, customs and institutions (McMillan, 2002) and have the potential to cause the greatest risks to society and business itself if their power and scope exceed the reach of the institutional underpinnings that provide political sustainability in a specific country (Ruggie, 2008).
According to Ruggie (2008), the main cause of business and human rights dilemmas derive from globalization and the resulting governance gap. This governance gap exists due to the gap between the scope and impact of economic actors and their business-related activities and the capacity of societies to manage the adverse consequences (such as labor rights violations). Different types of human rights violations exist, including in relation to abuse, labor, environment, health and development, and poverty (Olsen, 2014). According to the UNGPs, an “effective remedy” to a human rights violation can be financial compensation, an apology, restitution, rehabilitation or measures such as injunctions or guarantees of non-repetition that prevent future human right violations. Businesses and states should take appropriate steps to prevent, investigate, punish and redress abuses. However, human rights abuse claimants often face all kinds of barriers in accessing remedies. Victims are sometimes unable to access effective remedies themselves, states often lack the requisite legal development and capacity, and many companies fail to access remedies (Zerk, 2014).
Ruggie (2008) emphasized the central role of home states (i.e. the states where MNEs have their headquarters) acting in a socially responsible manner. However, he did not assert that a home state’s duty to protect and a corporation’s duty to respect apply extraterritorially to avoid doing harm overseas. Is it the subsidiary in the host state or the MNE’s headquarter in the home state that takes responsibility? In addition, Ruggie left a home state’s responsibility to its discretion (Kinley, 2009; Mares, 2011). According to De Schutter (2006), home states can influence whether a subsidiary abroad provides a remedy by having a parent-based extraterritorial regulation that imposes a due diligence obligation on parent companies. De Schutter (2006) suggested that if an MNE’s host state is unable or unwilling to provide a remedy, its home state may have an important role to play in ensuring access to a remedy. Both arguments indicate that MNEs’ home countries do play a role.
Ruggie emphasized that both firms and states should access judicial and non-judicial remedies; moreover, the UNGPs (2011) recommended that home courts should be open to plaintiffs from abroad and strengthen their judicial capacity to hear complaints and enforce remedies (Ruggie, 2007; 2008). Ruggie noted the importance of both the provision of a remedy after a human right is violated and the institutional underpinnings in society (Ruggie, 2008). He also argued that formal institutions (such as political and legal institutions) are particularly important in order for businesses to respect human rights. According to Eleswarapu and Venkataraman (2006), a country’s political institutions can be described in terms of different factors, such as the exposure to democracy, the stability of the government and its policies, the level of corruption, and the strengths and expertise of its bureaucracy.
Institutional theory plays a significant role within the international business (IB) literature (Xu & Shenkar, 2002). It is applied within the IB literature to understand how MNEs manage their operations abroad (Geppert, Matten & Walgenbach, 2006; Jackson & Deeg, 2008; Westney & Zaheer, 2001) and how different institutions can exert influence on a corporation’s decisions (Campbell, 2007). Institutional theory concerns the rules and norms that direct the interaction between individuals, organizations and markets and the administrative guidelines for social behavior (Scott, 2004; Aguilera & Jackson, 2010).
The literature reveals that corporate governance systems can influence how firms treat their stakeholders (Walsh & Seward, 1990). Aquilera and Jackson (2010) broadly defined corporate governance as “the study of power and influence over decision making within the corporation” (Aquilera & Jackson, 2010, p. 487). A country’s macro-level factors influence the firms within that country and hence national corporate governance regimes on a macro level influence corporate governance systems on a firm level as well (Aguilera & Haxhi, 2012). However, little research exists with respect to corporate governance regimes prevalent
in an MNE’s home country and their effect on whether a labor rights abuse claimant has access to a remedy after an MNE has violated a labor right in the apparel industry.
The adaptation of institutional theory at a macro level to an MNE’s home country has increased in order to understand how MNEs manage their operations globally (Geppert et al., 2006; Jackson & Deeg, 2008; Westney & Zaheer, 2001). Although a common argument in the literature is that weak state capacity is a barrier to labor rights and standards, no cross-national empirical evidence of this relationship exists (Berliner et al., 2015). This research contributes to both the IB and business and human rights literature by providing an empirical analysis of the relationship between political institutions and the corporate governance system prevalent in an MNE’s home country and the access to judicial and non-judicial remedies.
This study is organized as follows. The next section contains a literature review concerning human rights in general, labor rights as human rights, and business and human rights. Thereafter, institutional theory and corporate governance regimes are discussed in preparation for relating them to access to remedies within the study’s theoretical framework (which is presented in section three). Section four presents the research design as well as data collection and analysis methods. Section five outlines the study’s empirical findings. Section six discusses the findings, identifies limitations and presents potential topics for future research. The last section contains concluding remarks.
2. Literature Review 2.1 Human Rights
According to U.S. philosopher James Griffin (2001), human rights are rights that are innate to all human beings. Human rights limit what society can do to an individual; according to Louis Henkin (1990, 2-5), they are “claims to what society is deemed required to do for the individual” (Anton & Shelton, 2010). Although the historical origins of human rights definitions are often linked to the theory of natural rights (Porter, 1999), the adoption of the Universal Declaration of Human Rights (UDHR) on December 10, 1948, has been identified as the beginning of the movement to ensure the legal protection of human rights (Baderin & Ssenyonjo, 2010). This declaration, which was a response to the human rights abuses that occurred during World War II, has become widely accepted as the international human rights standard (Cragg, 2012). The UDHR is a non-binding but enormously influential document of the UN, drafted by representatives with different cultural and legal backgrounds from all regions of the world (UN General Assembly, 1948). According to the UDHR (1948), human rights are rights inherent to all human beings, irrespective of nationality, place of residence, color, religion, sex, national or ethnic origin, language or any other status. Human rights are inalienable and equally applicable to everyone; moreover, everyone is born free and equal in dignity and rights. Everyone also has the right to an effective remedy in case these fundamental rights are violated. Human rights are associated with the freedom and autonomy of the human being (Wettstein, 2012).
In 1966, two UN covenants were adopted in which the UDHR were codified into international law through several formal treaties (Business & Human Rights Initiative, 2010). The two covenants turned most of the declaration’s commitments into legal obligations to respect human rights. One covenant addresses issues such as civil and political rights, fair trial and equal protection of the law; the other reports on issues such as economic, social and
cultural rights, which includes, among other things, the right to work and favorable working conditions. The declaration and both the covenants are together known as the “International Bill of Human Rights” (Ruggie, 2013).
The purpose of this study is to elaborate on the human rights concept defined according to the 1948 UDHR and the subsequent treaties and covenants. Since the labor-intensive apparel industry is often involved in unethical labor practices (Weissbrodt & Kruger, 2003), the focus of this study is on labor rights as human rights.
2.2 Labor Rights as Human Rights
Labor rights are the rights that humans have as workers and relate explicitly to the phenomenon of being a worker or employee (Mundlak, 2007). This is different than universal human rights, which all human beings possess by virtue of their humanity. Whereas human rights are related to limiting state power, labor rights are more directed at limiting the power of private actors such as MNEs. However, two controversial questions have not been resolved in the literature regarding the scope of labor rights and which labor rights should be valued as universal human rights (Kolben, 2010). Mantouvalou (2012) explored whether a labor right is a human right. He noted that the literature contains three approaches to determining whether labor rights are human rights: the normative approach, the instrumental approach and the positivistic approach. The normative approach defines a human right and in turn assesses whether a certain labor right is a human right according to that definition. The instrumental approach applies certain strategies (such as litigation and civil society actions) that aim to promote labor rights as human rights; in each case, the problem in question is analyzed in terms of the strategies. The positivistic approach states that several labor rights are human rights due to the simple phenomenon that certain treaties recognize them as such in the sense that labor rights are incorporated into human rights documents. As this is the most straightforward answer as to whether a labor right is a human right and international law
literature often elaborates on this approach, for the purposes of this study labor rights are considered a human right.
The UDHR contains several articles that relate to labor rights as human rights. For example, Article 4 forbids slavery and servitude; moreover, Article 23 states that everyone has the right to work in a job that is liberally chosen, has the right to equal pay for equal work and should have access to decent compensation. Article 24 identifies rights related to rest and leisure (Mantouvalou, 2012). Another international organization that seems to follow the positivistic approach is the ILO, which was founded in 1919. In 1998 the ILO developed the Fundamental Declaration on Principles and Rights at Work (Kellerson, 1998) to reach a moral, legal and political agreement on universally acknowledged labor standards (Kolben, 2010). This declaration recognizes four core labor rights: the freedom of association and the effective recognition of the right to collective bargaining, the elimination of all practices of forced or compulsory labor, the actual elimination of child labor and the elimination of discrimination in respect of employment and occupation (Kellerson, 1998). Regardless of whether an ILO member state has ratified the related conventions (Kolben, 2010), it should endorse and recognize these core rights by implementing the appropriate standards (Kellerson, 1998).
Globalization and the changing distribution of MNEs’ economic activities worldwide can create both economic opportunity and social disruption for labor rights and working conditions in developing countries. On the one hand, foreign direct investment by an MNE and the diffusion of supply chains benefit developing countries. For example, the advantages that the apparel industry has provided for developing host countries include increasing and improving technology, capital, employment and access to international markets. On the other hand, global players may exploit the low wages and weak social and environmental standards and regulations in developing host countries in order to produce cheap products (Locke, Qin
& Brause, 2007). This phenomenon had prompted many critics of globalization to argue that the increase in MNE activities abroad worsens compliance with labor standards and is likely to generate a so-called “race to the bottom” in global labor regulations and standards (Harrison, Scorse, Collins & Elliot, 2003).
In general, MNEs are responsible for respecting and protecting labor rights (Ruggie, 2008; Ruggie, 2011). They do not just simply have the same duties as states; their responsibility goes beyond (Ruggie, 2008). The next section identifies the responsibilities of business regarding labor rights.
2.3 Business and Human Rights
The draft UN Code of Conduct on Transnational Corporations (UN, 1984) represents the first discussion of business and human rights responsibilities (Cragg, 2012). Before it emerged, human rights-related subjects and the responsibility for protecting and respecting human rights were considered government responsibilities (Ruggie, 2007); the private sector had only indirect human rights responsibilities (Cragg, 2012). In the 1990s, a debate developed among scholars and experts concerning the efficiency of the allocation of responsibilities regarding the protection of human rights. Many scholars have agreed that this debate was driven by globalization (Chandler, 2003; Cragg, 2012; Kobrin, 2009; Ruggie, 2006). Globalization led to an increased influence and reach of MNEs, which was also encouraged and facilitated by national and international laws and treaties (Cragg, 2012).
The UN Sub-Commission on the Promotion and Protection of Human Rights started a working group to study and report on human rights and business in 1998; this event is acknowledged as marking a significant shift in views about how to allocate human rights responsibilities between the public and private sectors. Related developments led the UN Secretary-General to assign John Ruggie as an SRSG in 2005, with a mandate to work on the human rights responsibilities of different business enterprises (Cragg, 2012). In 2008, Ruggie
published two reports (United Nations, 2008) on human rights issues; in 2011, the UN subsequently endorsed the “Protect, Respect and Remedy” framework, which was operationalized as the UNGPs. The UNGPs are intended to connect businesses, non-governmental organizations (NGOs) and other related stakeholders to achieve consensus on the human rights issue worldwide (UNHRC, 2011). The purpose of this framework was to clarify who is responsible for corporate human rights abuses (Vega, Mehra & Wong, 2011).
The “Protect, Respect, and Remedy” framework and the UNGPs are both voluntary, which remains a primary concern. These soft law principles could change over time and be the foundation for drafting treaties. However, without a mandatory or legal mechanism in place, effective remedies for victims remain inaccessible. Another problem of the UNGPs is that they fail to account for situations in which corporations abuse human rights and refuse to provide a remedy or are misleading in their implementation of a remedy (Vega et al., 2011).
The development of the “Protect, Respect, and Remedy” framework and the UNGPs triggered the attention of scholars concerned with CSR-related issues (Wettstein, 2012) and caused the so-called “business and human rights debate” to be put on the CSR agenda (Chandler, 2003; Ruggie, 2007). Scholars generally date this debate back to the mid-1990s, since it was in this period that companies (primarily in the extractive sector) started to receive attention related to their controversial roles in human rights violations. Non-governmental organizations such as the Business Group of Amnesty International UK and Human Rights Watch increasingly began to inspect MNEs’ human rights practices more intensely, which resulted in a discussion about how far responsibilities go and the exact relationship between business and human rights. The issue of defining and determining business responsibilities became the principal aim of the “business and human rights debate” (Wettstein, 2012).
The UNGPs consist of three pillars. First, states have a duty to protect against human rights abuses by third parties. Second, corporations have a responsibility to respect human
rights and related standards and principles (Ruggie; 2008). Firms can conduct due diligence to address unfavorable impacts of their direct or indirect involvement. Due diligence includes avoiding complicity, which means indirect involvement in human rights violations (Ruggie, 2007). This principle is recognized in soft law instruments that are not legally binding forces (Ruggie, 2008; 2013). The scope of a due diligence policy depends on the context in which an MNE operates (Ruggie, 2008). Finally, the third pillar is ensuring access to effective judicial and non-judicial remedies for human rights abuses (Ruggie, 2008; 2013), which is a shared responsibility of both states and firms (Ochoa & Keenen, 2009; Lambooy, Varner & Argyrou, 2011).
In addition to various forms of UN-developed mechanisms, many alternative, voluntary codes and systems have been introduced. The guidelines for MNEs developed by the Organization for Economic Co-operation and Development (OECD) (OECD, 2011) and the ILO’s Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy are among the most widely recognized and accepted (Vega, et al., 2011). In 2011, 42 governments adopted the OCED’s Declaration on International Investment and Multinational Enterprises, thereby acknowledging the principle that these corporations should respect all internationally recognized human rights (Amnesty International, 2014). The ILO Tripartite Declaration was issued for the first time in 1977. Companies should adhere to the international bill of human rights and the core conventions of the ILO because they constitute the benchmarks against which other social actors judge whether companies abuse human rights (Ruggie, 2008).
Ruggie’s (2006) report on the worst cases of corporate-related human rights abuses revealed some obvious findings. These abuses mostly occurred where government challenges were the greatest, namely in countries where the rule of law was weak, conflict and corruption levels were high and the income level was low. These countries lack institutional capacity to
require MNEs to act according to their national laws (Ruggie, 2008) and their low labor standards are often caused by a lack of state capacity to enforce labor codes (Berliner et al., 2015).
2.4 Effective Remedy
Rights do not exist without a remedy, because for rights to have meaning “effective remedies must be available to redress violations” (Committee on the Rights of a Child, 2003, para. 24). Access to remedy means that victims (either individuals or groups) have the opportunity and ability to make use of effective judicial or non-judicial remedies to counteract the harm that a firm has caused them. Whether a victim of a human rights violation receives a remedy, depends on the access of a remedy provided by an MNE or state (Ruggie, 2008).
One of the fundamental principles of the universal human rights system is that victims must have access to an effective remedy if a right is violated (Ruggie, 2011). The right to remedy was first acknowledged in Article 8 of the UDHR (UDHR, 1948). The UN International Covenant on Civil and Political Rights (ICCPR) (1966) identifies additional rights of individuals to effective remedy. Article 2.3a states that each state party should ensure that any person whose rights or freedoms are violated should have an effective remedy.
Guiding Principles 25 to 31 refer to access to remedy (United Nations, 2011) in order to rectify any grievance caused to victims. Companies and public authorities should provide remedies and effective actions for victims, including both legal and non-legal actions (such as in-company grievance mechanisms). The UNGPs define grievance as a case of injustice to an individual or a group. This injustice could be based on the rule of law, a contract, implicit or explicit promises, customary practice or general norms of fairness. A grievance mechanism is any routinized, non-judicial or judicial, non-state or state-based process through which any injustice concerning business-related human rights violations can be brought to light and a
remedy can be provided (United Nations, 2011). Both state and companies are responsible for effective grievance mechanisms (Ruggie, 2008).
Judicial remedies such as courts and arbitration can provide legal justice or conflict resolution. Victims can bring their cases to the courts of the host country in which the violation occurred or find justice within the court of the MNE’s home state (Ruggie, 2008). In this study, judicial actions are court-involved actions.
Non-judicial remedies also provide protective and preventive measures through both corporate and state-based grievance mechanisms (such as national human rights centers or ombudsmen) (Marmorat, 2009). A firm’s non-judicial grievance mechanism should meet the following standards to be credible and effective: legitimate, accessible, predictable, equitable, rights-compatible and transparent. A firm can decide to process a grievance directly if it is integrated within its internal administration (Ruggie, 2008).
Non-judicial remedies may take a variety of forms, such as refusing to contract with a supplier that is accused of a labor rights violation, investing in the community to mitigate the effects of a violation, and collaborating with different community groups to address a violation (Olsen, 2014). Non-judicial remedies can increase the information flow, offer advice and provide resources for victims to enable the remedy process (Ruggie, 2008). Different entities can initiate non-judicial remedy attempts, including international organizations, state organizations, victims, companies, industry associations and multi-stakeholder groups. Different non-judicial outcomes include apologies, financial compensation, non-financial compensation, rehabilitation, restitution and a guarantee of non-repetition (Olsen, 2014).
States also play a significant role in effective non-judicial remedies. An example of state involvement relates to corporate grievance mechanisms that provide means for victims to seek redress if no judicial legal channels are available. States can describe certain corporate conduct guidelines and ensure that corporations have appropriate business guidelines and
remedy processes in place. They can also help to prevent human rights violations by promoting certain standards and guidelines and by increasing awareness and accountability (Marmorat, 2009).
An example of a state-based non-judicial mechanism is an agency that controls standards such as those related to health and safety or a national human rights institution. A non-state non-judicial mechanism is an industry or industry organization, multi-stakeholder initiative or mechanism that a company has in place to monitor human rights abuses. These non-state-based mechanisms contribute to the remedy process and provide opportunities that supplement the judicial instruments of state institutions, which are often underequipped to provide effective remedies for victims of corporate violation. An example is judicial remedies being inaccessible as a result of domestic laws failing to provide a solid foundation (Ruggie 2008).
Although the need for victims to have access to an effective remedy system as stated in the UNGPs is recognized and the right to remedy is a core principle of the international human rights system, victims still struggle to access remedies (OHCHR, 2014); as a result, many labor rights abuse claimants remain without a remedy (Ruggie, 2008). Even when both states and companies fully acknowledge their obligations, in many cases corporations do not ultimately provide a remedy (Business & Human Rights Initiative, 2010).
Audrey Gaughran, the head of Business and Human Rights at Amnesty International, presented research on effective remedies in cases of corporate human rights abuses on October 6, 2009. The cases demonstrate that victims of corporate-related human rights abuses encounter several obstacles and problems (Amnesty International report, 2009), including legal and political obstacles, transparency problems and increased corporate power. Even if states are willing to impose sanctions or enforce judgments against corporations, they may be unable to implement them due to the increasing power of MNEs (Amnesty International
report, 2014). It becomes even harder for victims who seek redress in a parent company’s home state, as these non-citizens may lack legal standing in that country or the government in question may determine a more appropriate forum for the case (forum non-conveniens) (Ruggie, 2008). Ruggie argued that strengthening non-judicial processes is more important in countries in which courts are not able to provide adequate and effective access to remedies. However, these non-judicial processes are also important in countries that have profound rule-of-law institutions, seeing as these remedies can contribute to a fair process and provide a more accessible, affordable, direct and flexible point of initial action (Ruggie, 2008).
Currently, access to judicial mechanisms for business-related human rights claims is often most difficult where the need is greatest due to economic, political, legal (Ruggie, 2008) and practical obstacles (OHCHR, 2014). In his report on human rights, Ruggie (2008) argued that markets would work optimally if they were embedded within customs, rules and institutions. However, he also stated that history teaches us that this is not the case and that the power and scope of the markets often cause significant risks for business and society. These markets consequently go beyond the reach of the institutional underpinnings in a country that allows them to function well and to ensure political stability. In addition, many victims lack awareness as to where grievance mechanisms are located, how they function and how they may help them to access remedies. Governments can address this gap for example by improving information flows and ensuring that sufficient remedy mechanisms are in place. They can also evoke market pressures on firms to respect these rights. However, the home states of MNEs are sometimes reluctant to regulate and arrange human right standards and practices overseas because the scope of their national regulations is not clear or out of concern. Although experts sometimes disagree as to whether international law requires the intervention of home states to help prevent human rights violations abroad, encouragement to
stimulate home states to act when violations abroad have occurred has increased (Ruggie, 2008).
Many of the world’s largest MNEs are headquartered in developed and emerging countries while investing in developing countries (Amnesty International, 2014). However, research indicates that developing countries are often less strict in enforcing standards to attract foreign direct investments (FDIs) (Zaharia et al., 2011). Since 1980, FDIs by MNEs in developing countries have increased steadily due to market liberalization. Governments are competing for FDIs, as a result of their expectation that FDIs bring enormous advantages (such as job creation) to their economies (Giuliani & Macchi, 2013).
Scholars have argued that socially responsible behavior varies across countries and that more research must be done to understand why (Maignam & Ralston, 2002). In the IB literature, institutions have been identified as the key factors that influence MNE activities (Peng, 2003; Peng, Wang & Jiang, 2008). Institutional theory literature is useful in the current study, as it explains that institutions beyond the market are often necessary to ensure that MNEs take the interests of other actors into account, especially in today’s increasingly global economy (Scott, 2003).
2.5 Institutional Theory 2.5.1 Institutions
Multinational organizations operating in two or more states must deal with different institutions across countries (Berry, Guillen & Zhou, 2010). North (1990) defined institutions as the formal and informal rules and norms that structure social, economic and political relations. These institutions also influence a firm’s actions and outcomes. Several scholars have argued that institutions have a direct influence on how well firms formulate and implement their strategies (Peng, Sun, Pinkham & Chen, 2009). Furthermore, Jackson and
Apostolakou (2010) argued that firms could develop strategic responses to institutions, including the implementation of certain CSR activities.
According to Scott (2005), informal institutions represent enduring systems of shared meanings and collective understanding and shape coordination and cohesion within society. Informal institutions are usually not codified into documented standards and rules. A nation’s culture, traditions and norms can reflect its informal institutions (North, 1990; Peng et al., 2009), which it is a very lengthy and difficult process to change. In contrast, formal institutions comprise codified and explicit rules, standards, rights and policies that shape interaction within a society and are enforced by official authorities (North, 1990). According to Scott (1995), formal institutions encourage order and stability. Since formal institutions are more malleable than informal institutions (Holmes, Miller, Hitt & Salmador, 2013), they can be more influential in improving the protection of labor rights across the world. Moreover, Campbell (2007) stated that firms are more likely to engage in CSR practices in states with stronger regulations, collective industrial state regulation and certain NGOs that monitor companies.
2.5.2 Strength of home country formal institutions
Scholars have largely concentrated on how host country institutions affect MNEs entering developing and emerging countries (Deng, 2009; Meyer, Estrin, Bhaumik & Peng, 2009). However, home country institutions can influence strategies and practices related to MNE actions in host countries with respect to ethical business practices and labor standards (Meyer & Thein, 2014; Spar & Yoffie, 1999; Tan & Wang, 2010). This is because institutions in a home country can affect business even when a firm operates in another country. These home country institutions can shape a firm’s ability to both access resources in its home environment and obtain required regulatory approval (Meyer & Thein, 2014). Moreover, home governments can create incentives and barriers for domestic MNEs (Bazuchi,
Zacharias, Broering, Arreola & Bandeira-de-Mello, 2013). Home country institutions differ from host country institutions given that firms are “born” in the organizational context of their home country and generally do not have the option to neglect its institutions (Meyer & Thein, 2014).
Home governments can provide financial resources, develop and enforce jurisdiction and influence MNEs by having effective controlling mechanisms for corporate entities. They can facilitate MNEs’ access to markets, ensure good relations with foreign governments and international organizations and implement barriers to avoid the transfer of production factors and ownership control (Bazzuchi et al., 2013; Luo, 2004). Strong regulations and enforcement in the home country can positively influence corporate governance (Marquis & Qian, 2014). Home governments can pressure firms to not deal with disapproved parties overseas and prevent MNEs from obtaining export licenses (Carter, 1997). Even before firms evolve into MNEs, governments can affect the development of their competencies and take steps to prevent abuses abroad (Bazuchi et al., 2013).
Governments and other political entities constitute the political institutions that govern a country’s economy and social system (North, 1990; Holburn & Zelner, 2010). Governance refers to the institutions through which the authority in a country is established; it affects rules and regulations and in turn influences how economic activities are undertaken (Kaufmann, Kraay & Mastruzzi, 2003). Political institutions in a firm’s country of origin influence the level of quality of the home country institutions, seeing as governments and the regulatory environment can define the level of development and create positive conditions for economic growth and investment (Meyer et al., 2009; Cazurra & Genc, 2008). However, the literature shows that regulatory institutions in developing countries do not offer the same guarantees as in developed countries (Luo & Tung, 2007; Peng et al., 2008). Developing countries are known for more uncertainties and risks (Xu & Meyer, 2013), given that their formal
institutions are often relatively underdeveloped with weak legal systems and constantly changing policies – which means they cannot provide legal security (Chen et al., 2015; Dikova & van Witteloostuijn, 2007; Xu & Meyer, 2013). This institutional environment causes an increase in information asymmetries and transaction costs (Meyer et al., 2009). In general, developed economies have stronger formal institutional underpinnings and are more likely to have business-friendly regulations than developing countries (Beyer & Fening, 2012).
The level of governance imperfections in a country of origin is the level of regulatory development of that country. Examples of governance imperfections include less developed regulatory institutions in the home country, political instability, weak control of the government and corruption (Hernandez, Nieto & Rodriguez, 2016). A low quality regulatory environment is indicative of a weaker government with less developed policies and regulations (Hernandez et al., 2016). A stronger regulatory environment increases the levels of crucial resources (such as financial resources and competences to develop and enforce labor regulations) and can make business transactions easier. For example, a strong state capacity leads to a stronger audit performance (Berliner et al., 2015). Policy makers can improve capacity to create political and economic incentives that result in MNE compliance. Strong state capacity is critical for the effective protection, enforcement and promotion of labor rights. In contrast, a weak regulatory environment with weak state capacity is one of the most fundamental barriers to labor rights and standards (Berliner et al., 2015).
Common worldwide indicators to measure the quality of governance include voice and accountability, political stability, government effectiveness, regulatory quality, the rule of law and the control of corruption (Kaufmann et al., 2003). Voice and accountability refers to the ability of citizens to participate in selecting the government as well as their freedom of expression and association; democracy score, human rights, political rights and civil liberties
are among the indicators that account for a country’s voice and accountability level (Kaufman, 2007). According to the study of Locke et al. (2007), the country-level rule of law measures the strength of a country’s institutions and regulations; other scholars have linked state capacity to political stability (Knutsen, 2013) and democracy (Hanson, 2015). High levels of democracy can, for example, compensate for lower levels of state capacity (Hanson, 2015). Democracy is hard to define, seeing as it consists of multidimensional factors. Before a state is democratic, it must fulfill some distinct properties (Mesquita, Cherif, Downs & Smith, 2005). Democratic states are characterized by equal participation in elections that evaluate the government’s ability to foster social justice, the provision of transparent rules and an open debate over policy choices, which together lead to more peaceful and predictable regulations. The exercise of power in more autocratic political systems is potentially more arbitrary and lacks public scrutiny and monitoring of policy makers (Tavares & Wacziarg, 2001).
For the purposes of this study, the definition of democracy is based solely on the research of Tavers and Wacziarg (2001): “a democratic government functions as a body of rules and procedures that regulates the transfer of political power and the free expression of disagreement at all levels of public life. In particular, democracy must be distinguished from its outcomes” (Tavares & Wacziarg, 2001, p. 1342). The Freedom House definition index of democratic character, which provides a democracy score, is based on this definition.
A country’s political stability is often linked to the absence of violence and the notion that the quality of governance can be jeopardized by sudden changes in government, which can in turn disrupt existing regulations and policies and limit the ability of citizens to select and replace the government in a peaceful way (Kaufmann et al., 2003). The development level of political institutions is often measured with political stability (Carmignani, 2003). A low level of political stability stems from changes in government, fluctuating electoral
preferences or unexpected policy outcomes, all of which lead to uncertainties in government policies (Aldashev, 2009).
Scholars have shown that state capacity influences the protection of human rights (Englehart, 2009). However, the ethical expectations in an MNE’s home country could differ from those in its host country. Home country institutions are of increasing importance when host country institutions pursue unethical policies, seeing as the home country can influence or shape an MNE’s ethical approach in a host country (Tan & Wang, 2011). Domestic political institutions can condition whether a firm engages in CSR efforts, seeing as political institutions can influence incentives and disincentives for firm managers in subsidiaries to pursue CSR; in particular, they can encourage managers to implement CSR activities or lead to managerial discretion (Detomasi, 2008).
2.6 Corporate Governance
The concept of a corporate governance regime originated from the separation of company ownership from company control. The owners (or principals) no longer controlled a company’s management, which meant it was possible that the managers (or agents) could abuse their functions for their own interests. To avoid this problem, corporate governance was developed to ensure that the agents would serve the company in a way that would serve the shareholders’ interests (Rossouw, Watt & Rossouw, 2002).
Corporate governance systems influence how firms treat their stakeholders (Walsch & Seward, 1990). Aquilera and Jackson (2010) broadly defined corporate governance as “the study of power and influence over decision making within the corporation” (Aquilera & Jackson, 2010, p. 487). A corporation is a political creation, and institutional theory posits that corporate agency is shaped by the institutions of the business system or organizational field within which an MNE operates (Brammer, Jackson & Matten, 2012). A country’s macro-level economic and political factors affect the firms within that country, and national
corporate governance regimes influence a firm’s corporate governance system (Aguilera & Haxhi, 2012). For this reason, corporate governance systems can differ across countries due to pressures from nationally distinct institutional environments (Apostolakou & Jackson, 2010). The corporate governance model that is prevalent in a firm’s home country can influence whether that firm follows a shareholder- or stakeholder-based model.
Scholars have argued that the stakeholder theory of Freeman (1984) and the shareholder theory of Friedman (1970) have divided the world into two dichotomous models: the stakeholder and shareholder models. The stakeholder theory of Freeman (1984) states that a firm should maintain good relationships with all stakeholders (including its employees) and treat each one as a participating and determining factor within that company. Friedman (1970) stated that a firm has no responsibility outside the firm and has only one goal (namely making profits). Another distinction in the corporate governance regime literature is based on the distinction between two ideal types of national models (Aguilera, 2005): the Anglo-American model and the continental-Europe model, which is also known as the Rhineland or German model.
The Anglo-Saxon model, which is exemplified by the US, has the following characteristics: maximization of shareholder value, weak labor unions, dispersed ownership, short-term returns and relationships, strong markets for corporate control and strong shareholder rights. The continental-Europe model, which is exemplified by Germany and Japan, is defined by long-term debt finance, large block holder ownerships, strong labor unions, long-term relationships and weak markets for corporate control (Aguilera, Rupp, Williams & Canapathi, 2007). In the literature, it is argued that countries with an Anglo-Saxon legal tradition most often have a shareholder-centered model in place, whereas nations with a continental-Europe law tradition most often favor a stakeholder-centered model of corporate governance (Aguilera & Jackson, 2003; Hall & Soskice, 2001). Countries that are
known for having an Anglo-Saxon shareholder model are the US, Ireland, Canada, the UK and Australia (Thelen, 2004). Rossouw (2008) showed that the shareholder model is also dominant in Switzerland, Brazil, Colombia, Peru, Mexico, Argentina, Portugal, Nigeria, Finland, Sweden, Venezuela, Chile and Singapore. The continental-Europe model originated in Germany and is based on the stakeholder model that was prevalent in that country. In addition to Germany, it is also prevalent in France, Italy, Austria, Belgium (Aiginger & Guger, 2006), Denmark, the Netherlands, Spain, India, China, Russia, South Africa, Uganda, Zimbabwe, Zambia, Mauritius, Kenya, Turkey (Rossouw, 2008) and Japan (Thelen, 2004).
The stakeholder model values all stakeholders in a firm’s decisions, not only the shareholders; as such, firms are more ethical and socially responsible (Carrol, 1999). The stakeholder perspective views CSR practices from a broader lens than the shareholder view; moreover, it takes not only the shareholders into consideration but also all of the other stakeholders by implementing and evaluating CSR practices. For example, employees should have fair wages, equitable treatment, development opportunities, safe working conditions, job security and involvement in decision-making (Mason & Simmons, 2014). According to the stakeholder theory, CSR practices add value for the firm, seeing as they may improve its corporate reputation (Freeman, 1984). According to Friedman (1970), a firm’s CSR practices indicate an agency problem within that firm. According to the agency theory, investing in CSR practices is a misuse of corporate resources that could be better spent on other projects that add value to the firm. According to the shareholder model, the role of governance mechanisms is to reduce conflicts of interests between shareholders and managers.
The literature shows that corporate governance influences whether a company implements CSR practices. Corporate governance regimes can help to decrease the shortcomings of state regulation (Vogel, 2010) and corporate governance codes can improve labor conditions for employees (Locke, Kochan, Romis & Qin, 2007; Ruggie, 2007; Zadek,
2004). A firm with a stakeholder-based model is more willing to invest in CSR practices than a firm with a shareholder-based model. Firms in the US follow a shareholder-based model, which has weak employee participation in corporate governance; in contrast, companies in Germany and Japan employ a stakeholder-based model and labor participation is a more competitive advantage (Aquilera & Jackson, 2003). However, the relationship of corporate governance in an MNE’s home country to the likelihood that a labor rights abuse claimant has access to a remedy is a gap in the literature.
3. Theoretical Development
3.1 Institutional Theory and Access to Remedy
Providing a remedy to a victim of labor rights violation can be viewed as providing a remedy to a particular stakeholder, namely the worker/employee. Since the institutional context in a firm’s home country may influence how it acts overseas (Meyer & Thein, 2014), the institutional environment may also influence whether a worker has access to a remedy after the firm violates a labor right in a host country. The home countries of MNEs are also relevant, seeing as human rights issues are often handled by an MNE’s headquarters in its home country, where legal structures are embedded (Cragg, 2012); moreover, MNEs are inclined to relocate their headquarters to home countries that are reluctant or lack the political capacity to regulate firms’ activities abroad (Ruggie, 2008). The relationship between the institutional context in an MNE’s home country and the likelihood of access to a remedy should therefore be determined.
The literature indicates that non-judicial remedies are especially important in countries in which courts are unable to provide adequate access to remedies and the political and legal institutions are not strong. However, non-judicial remedies are important even when political and legal institutions are strong (Ruggie, 2008; Ochoa & Keenan, 2009), seeing as they are
easier to access and less costly than judicial remedies (Ruggie, 2008). The distinction between non-judicial and judicial remedies may thus be significant. The state not providing access to judicial remedies reflects a weak state capacity and poor enforcement. Not providing access to non-judicial remedies could be influenced by both a state’s deficiencies in these two areas and a firm’s socially irresponsible practices, as providing a remedy can be seen as part of a corporation’s social responsibility (Jamali, 2014).
It is often argued that domestic regulations in an MNE’s home country influence the effectiveness of transnational business regulations and thus can prevent violations of global standards (Vogel, 2008). It is therefore expected that domestic regulations in the home country can also influence how the process of remediation is handled. The domestic courts of developing host countries often do not provide legal processes or effective remedies for labor rights violations, which means victims are often left without remedy (Skinner, 2014). Moreover, an increasing number of MNEs now operate in host countries with judicial systems that are ineffective or not fair (Skinner, 2014). Most lawsuits are based on abuses in these weak government areas; however, many of these countries do not offer remedies against MNEs or have a well-functioning judiciary system (BHRRC, 2015). Seeing as victims often face obstacles in host countries when bringing their claims, they more often take their claims to an MNE’s home state (Skinner, 2014).
In addition to the procedural obstacles that exist, practical difficulties also cause obstacles for victims who are trying to access a remedy. An example is the complex structure of an MNE, which affects the gathering of evidence. In addition, the parent firms over which a home court has jurisdiction may deny any responsibility of subsidiaries’ actions (Skinner, 2014). The UNGPs note that countries should address the barriers that victims experience that result in a denial of justice in a host country. Home states need to ensure that no barriers for victims seeking remedies exist (GP, supra note 26).
3.2 Political Institutions
In the globalized economy, a state’s capacity to regulate firm behavior is declining while the governance gap is increasing (Ruggie, 2008). Laws and regulations are vital for reducing the governance gap and facilitating a corporation’s engagement with the state and key stakeholders (Campbell, 2007; Aguilera & Jackson, 2003; Roe, 2003). The political environment and its laws and regulations are therefore important factors in explaining a state’s responsibility to protect and a corporation’s responsibility to respect labor rights (Scherer & Palazzo, 2011).
The home country government of a firm’s headquarters can pass, defend and enforce laws regarding access to effective remedies for victims of human rights abuses. Moreover, governments can take steps to address barriers (legal and non-legal) faced by the victims who seek remedies. The state can represent the major source and level of uncertainty for MNEs’ strategies and performance, because in most cases it controls the critical resources and opportunities for firms (Baron, 1995). For example, governments can stimulate the court system by providing more money for complex litigation, increase information flows and help victims (BHRRC, 2015). The state can influence the CSR practices of firms and in turn shape whether firms have more corporate grievance mechanisms in place or stricter monitoring systems to trace labor violations. States can also incentivize firms to implement certain CSR programs or have better labor codes and standards in place (Detomasi, 2008; Jenkins, 2006).
Weak and contracted governments, weak regulations and policies, gaps in public governance and transparency, and low levels of labor standards affect how CSR practices are perceived and applied in developing states (Jamali, 2014). Developing countries are characterized by limited government capacity and regulatory enforcement (Khavul & Bruton, 2013; Newenham-Kahindi, 2011); as such, their governments do not exert sufficient pressure on MNEs. Government pressure and scrutiny, which are more prevalent in developed
countries, are important factors for firms behaving in a socially responsible manner (Visser, 2008). Firms thus experience more pressure from their parent home countries when these home countries have a strong state capacity and enforcement. The strength and quality of the home country institutional environment is important for business, as this environment can put pressure on firms even when they operate in host countries (Wan & Hosskisson, 2003; He & Lin, 2012). However, the connection between the strength and quality of specific formal institutions in an MNE’s home country and the likelihood that a labor rights abuse claimant has access to a remedy is still unknown. An MNE’s likelihood of providing a remedy depends on the access to judicial and non-judicial remedies in its home and host countries.
The literature identifies different indicators for the strength of governance/state capacity in an MNE’s home country. A single measure does not account for state capacity/quality (Englehart, 2009). Different scholars have indicated that political transformations towards more democracy and improved corporate governance are positive drivers for CSR practices and better labor codes (Rossouw et al., 2002). Decision makers in more labor-friendly political environments have more resources and capabilities for protecting and monitoring labor rights (Englehart, 2009). Seeing as labor rights are better protected in democracies with more unionization and a fair electoral system (Roe, 2003; Pagano & Volpin, 2005), it is expected that the level of democratic character measured with the democracy score in an MNE’s home country influences the access to remedies for labor rights abuse claimants. This expectation leads to the following hypothesis:
Hypothesis 1. The higher the democracy score in an MNE’s home country, the more likely it is that a labor rights abuse claimant has access to a remedy.
Political stability also influences the advancement of certain CSR practices and labor regulations, given that instability reduces a government’s capacity to regulate and therefore
implement labor standards and laws or encourage the implementation of CSR practices (Jamali, 2014). Although a home country’s government can have the capacity and willingness to ensure that access to remedy will be provided, it is assumed that a government needs to be stable to ensure security. It is therefore expected that political stability is a reliable indicator of governmental capacity and quality and that political stability influences access to remedy. This expectation leads to the following hypothesis:
Hypothesis 2. The higher the political stability in an MNE’s home country, the more likely it is that a labor rights abuse claimant has access to a remedy.
3.3 Access to Non-Judicial Remedy
Democracy and access to non-judicial remedy
Human rights researchers stress the importance of democracy in reducing the severity and occurrence of human rights violations (Mesquita et al., 2005). Although the study of Mesquita et al. (2005) showed that the path to greater respect for human rights involves all dimensions of democracy, the researchers were reluctant to simply conclude that a higher democracy score results directly in fewer human rights violations. Like Keith (2002), they found that political party competition is the most important dimension of democracy that leads to a reduction of human rights violations.
Some scholars have indicated that political reform towards more democracy is a positive driver for an increase in CSR practices (Malan, 2005; Rossouw et al., 2002). Labor protection is often stronger in countries with a higher democratic participation, unionization and a fair electoral system (Roe, 2003; Pagano & Volpin, 2005). This implies that a higher democracy score accounts for a higher reflection of stakeholders’ voices and preferences. A weak institutional framework with very limited freedoms (as found in developing countries) is often related to corruption, as is often an autocratic government system tradition (Makdisi,
2009; Wu, 2009); such conditions therefore foster problems for CSR-related initiatives (Ite, 2004; Khavul & Bruton, 2013; Newenham-Kahindi, 2011).
Ombudsmen can provoke non-judicial remedies. Although these individuals are indeed guided by the law of the courts, their decisions are non-binding (Diamandouros, 2006). The greater a country’s democratic character, the greater the acceptance of an ombudsman as a standard non-judicial remedy institution (Diamandouros, 2005).
It is expected that MNEs might not worry about implementing certain company grievance mechanisms, as they may assume that labor rights are already handled in their democratic political systems. This implicitly refers to the substitute argument for CSR. Scholars have argued that when social responsibilities are more strongly defined by law, the scope for explicit and voluntary CSR measures may be limited – which suggests that CSR and institutions are imperfect substitutes for each other (Jackson & Apostolakou, 2010). This implies that when a home country’s democratic character is strong, less pressure is put on a firm to improve access to non-judicial remedies (such as increasing corporate grievance mechanisms).
However, other scholars have stated that the opposite may be true. Aguilera et al. (2007) and Campbell (2007) argued that institutions empower stakeholders to such an extent that corporations may experience more pressures to implement different CSR practices. This is known as the mirror argument, seeing as the institutional pressures are mirrored in the firms’ CSR. The democratic character of the home country also influences independent organizations to monitor MNEs. Victims often lack knowledge about the existence and location of these independent institutions (Ruggie, 2008). A democratic system helps to increase information flow and stimulates transparency and labor standards, which in turn influences and inspires independent human rights organizations.
Based on these arguments, it is expected that the level of democracy in an MNE’s home country is associated with the level of access to non-judicial remedy. It is expected that the higher the democracy score in a home country, the higher the representation of labor rights – which will provoke independent human rights institutions and firms to implement certain corporate grievance mechanisms. These expectations lead to the following hypothesis:
Hypothesis 3. The higher the democracy score in an MNE’s home country, the more likely it is that a labor rights abuse claimant has access to a non-judicial remedy.
Political stability and access to non-judicial remedy
Home governments and their legal and regulatory frameworks can ensure the legitimacy of MNEs’ foreign actions. However, due to the increased complexity of cross-border business networks and value chains, it is sometimes difficult for home states to control businesses overseas (Rwabizambuga, 2007). Political instability in a country can cause more uncertainties and a lack of government control (Tavares & Wacziarg, 2001). The absence of governmental involvement and support for CSR slow CSR progress (Hopkins, 2007).
For the purposes of this study, political instability and policy-making uncertainty are used as synonyms (Berry et al., 2010). Policy-making uncertainty occurs in conjunction with political instability (Berry et al., 2010), given that political instability leads to uncertainties and in turn to more risks and more sudden and violent changes (Tavares & Wacziarg, 2001). Political instability implies unexpected changes in governmental regulations related to trade, taxes and ownership and therefore adds to the efforts and costs of engaging in CSR-related practices (Hartman, Moberg, Kelley & Werhane, 2010). Campbell (2007) showed that corporations are less likely to engage in socially responsible behavior when no strong and well-enforced state regulations or powerful private organizations that ensure good behavior exist. National political instability that stems from weak governmental capacity can also
constitute a major obstacle for advancing CSR practices. The calls of certain independent human rights organizations are less strong in countries facing these conditions. During periods of high policy-making uncertainty due to a government’s weak capacity, a state is less able to influence a corporation’s responsible behavior (Jamali, 2014). The study of Jamali and Neville (2011) demonstrates that political instability in combination with economic stagnation presents a significant challenge for CSR-related practices.
Hartman et al. (2010) stated that political instability occurs in conjunction with sudden changes in governmental regulations that affect taxes, trade and ownership and add to the costs of compliance and engagement with CSR practices. Scholars have shown that the level of political instability can influence the advancement of CSR in developing countries, as it reduces governmental capacity and its influence on public regulations and CSR (Jamali, 2014). Governments in these countries are usually busy with self-serving goals and trying to remain in power, which leads to greater policy-making uncertainty (Peinado-vara, 2006). When a home country has high political instability, it is assumed that the parent company experiences less state influence and puts less pressure on its subsidiaries to incorporate certain corporate grievance mechanisms or other non-judicial remedy mechanisms. Moreover, it is expected that the state will be less willing to invest time and money in keeping good relations with both the state in the host country and the MNE. In home states with stronger political stability, it is expected that governments have more time and money to exert greater pressure on MNEs and (inter-)national human rights institutions to access non-judicial remedy mechanisms. Political stability leads to a more stable political environment and therefore encourages other institutions (such as human rights organizations) to ensure certain standards and regulations.
