‘Top Management Team Characteristics and Corporate Human
Rights Violations by Transnational Corporations’
Master’s Thesis
By
Jasper Wouter van Leijden – 10871799
MSc. Business Administration – International Management track University of Amsterdam – Faculty of Economics and Business
First supervisor: Dr. M.K. Westermann-Behaylo Second supervisor: Mr. R.H. Kleinknecht MSc
This document is written by Jasper Wouter van Leijden, 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, University of Amsterdam is responsible solely for the supervision of completion of the work, not for the contents.
“In memory of my father, Willem Adriaan van Leijden (18 August 1954, Den Helder – 14 January 2014, Deventer)”
I want to express my gratitude for his support, inspiration and endless contribution throughout my educational career. Without his continued moral support and counsel I could not have completed this entire process and finish my Master’s degree at the Amsterdam Business School, University of Amsterdam.
Furthermore, I am thankful to my supervisor Michelle Westermann-Behaylo, who not only offered me the opportunity to write this master’s thesis, but also supported me at different stages of my research. I am grateful for the insightful discussions we had and her valuable comments, which helped me to finish this thesis.
To conclude, I would like to thank Robert Kleinknecht for reading this master’s thesis and providing feedback.
Breda, 30 June 15
How do demographic characteristics of top management teams of transnational corporations influence corporate human rights violations, and how do top management teams respond and attempt remedy when faced with such violations? The characteristics educational background, tenure, age, and gender were linked to corporate environmental and health violations and corporate response and non-judicial remedy efforts. In order to examine these relationships in depth, a deductive multiple-case study was designed based on six leading transnational extractive corporations.
Results demonstrated that top management teams with executives holding a degree in business and economics are associated with a lower chance of corporate environmental and health violations and have a more positive record in terms of corporate response and remedy efforts. Furthermore, team tenure is positively related to corporate environmental and health violations and corporate response and remedy efforts. In contrast to what was expected, age showed opposing outcomes. A positive, rather than a negative, relationship was found between increasing top management team age and corporate response and remedy efforts. Unfortunately, it was not possible to conclude anything on the influence of gender due to the underrepresentation of women in top management teams.
Overall, the findings lend support for the ‘upper echelons perspective’, which indicates a relationship between top management team demography and corporate environmental and health violations. Transnational extractive corporations most likely to have a lower chance of corporate environmental and health violations and a more positive record in terms of response and remedy efforts have top management teams characterized by executives with academic backgrounds in business and economics and high team tenure.
Key Words
Corporate human rights violations, transnational corporations, top management teams, demographic characteristics, corporate response, non-judicial remedy efforts
1. Introduction ... 1
2. Literature Review ... 3
2.1 Human Rights ... 3
2.1.1 The Relationship between Human Rights and the Human Environment ... 4
2.1.2 Human Rights and Transnational Corporations ... 5
2.1.3 Attempts to Regulate the Behavior of Transnational Corporations ... 7
2.1.4 John Gerard Ruggie ... 7
2.2 The Relationship between Corporate Illegal Behavior, Fraud, Corruption and Corporate Human Rights Violations ... 9
2.3 The Role of Decision Makers ... 11
2.3.1 Board of Directors ... 11
2.3.2 Top Management Teams ... 12
2.4 Top Management Team Characteristics ... 12
2.4.1 Upper Echelons Research ... 13
3. The Link between TMT Characteristics and Corporate Human Rights Violations ... 18
3.1 Proposed relationships ... 19 3.1.1 Educational background ... 19 3.1.2 Tenure ... 21 3.1.3 Age ... 22 3.1.4 Gender ... 24 4. Research Design ... 26 4.1 Research Philosophy ... 26 4.2 Research Method... 26
4.3 Quality of the Multiple-Case Study Design ... 27
4.4 Case Selection ... 28
4.5 Data Collection ... 30
4.6 Data Analysis ... 31
5. Results ... 33
5.1 Within-case Analysis ... 33
5.1.1 Case Study I: British Petroleum ... 33
5.1.2 Case Study II: Gazprom ... 38
5.1.5 Case Study V: ENI ... 51
5.1.6 Case Study VI: Canadian Natural Resources ... 55
5.2 Cross-case Analysis ... 58 5.2.1 Educational Background ... 58 5.2.2 Tenure ... 60 5.2.3 Age ... 60 5.2.4 Gender ... 62 6. Discussion ... 64 6.1 Educational Background ... 64 6.2 Tenure ... 65 6.3 Age ... 66 6.4 Gender ... 67 6.5 Overall Implications ... 67 7. Conclusion... 68 References ... 70
BHHRC Business & Human Rights Resource Center
BP British Petroleum
BS Bachelor of Science
CAA Company Abuse Allegation
CEO Chief Executive Officer
CFO Chief Financial Officer
CHRD Corporations and Human Rights Database (Project)
COO Chief Operating Officer
CSR Corporate Social Responsibility
E.g. exempli gratia (for instance)
FDI Foreign Direct Investment
I.e. id est (that is)
IM International management
(I)NGO (International) non-governmental organization
MBA Master in Business Administration
MS Master of Science
NEP New Environmental Paradigm
NRDA Natural Resource Damage Assessment
NYSE New York Stock Exchange
OAO Open Joint-Stock Company (Открытое акционерное общество, OAO)
OECD Organization for Economic Cooperation and Development
PhD Doctor of Philosophy
Plc Public Limited Company
SRSG Special Representative of the U.N. Secretary-General
TMT Top Management Team
TNC Transnational Corporation
UDHR Universal Declaration of Human Rights
UN United Nations
UNEP United Nations Environment Programme
UNHRC United Nations Human Rights Council
U.S. United States
Table 1: Selected Cases... 30
Table 2: Key Facts British Petroleum ... 34
Table 3: Top Management Team British Petroleum as at 18 February 2010 ... 37
Table 4: Key Facts Gazprom ... 38
Table 5: Top Management Team Gazprom as at 31 December 2009 ... 41
Table 6: Key Facts ConocoPhillips ... 42
Table 7: Top Management Team ConocoPhillips as at 31 December 2010 ... 45
Table 8: Key Facts Royal Dutch Shell ... 46
Table 9: Top Management Team Royal Dutch Shell as at 31 December 2008 ... 50
Table 10: Key Facts ENI ... 51
Table 11: Top Management Team ENI as at 31 December 2012 ... 54
Table 12: Key Facts Canadian Natural Resources ... 55
Table 13: Top Management Team Canadian Natural Resources as at 31 December 2009 ... 57
Table 14: TMT Demographic Characteristic Educational Background: Six Cases ... 59
Table 15: TMT Demographic Characteristic Tenure: Six Cases ... 60
Table 16: TMT Demographic Characteristic Age: Six Cases... 61
Table 17: TMT Demographic Characteristic Gender: Six Cases ... 62
Table 18: TMT Response & Non-Judicial Remedy Efforts: Four Cases ... 63
Table 19: Propositions and their Level of Support ... 64
List of Figures Figure 1: Conceptual Model: TMT Characteristics and Corporate Human Rights Violations ... 19
1. Introduction
It is 20 April 2010, when a tragic disaster hits the Gulf of Mexico. An explosion aboard the Deepwater Horizon drilling rig, owned by oil giant British Petroleum (BP), kills 11 workers and starts leaking oil into the ocean at a rapid rate. While BP tries to shut off the oil flow, it takes the corporation until 15 July 2010 before it is able to stop the oil leakage (BBC, 2010). Now, almost five years later, it is clear that the BP oil spill has had widespread environmental and health related consequences. A recent study (Renfro, & McCormick, 2015) has found that environmental ecosystems are greatly damaged. To give an indication, the BP oil spill killed and injured a vast amount of marine mammals, birds, and other wildlife. Overall, the Gulf’s entire ecosystem has been degraded (Fikes, Renfro, & McCormick, 2015). Other studies indicated that people – including cleanup workers, fisherman, and residents – living near the Gulf were exposed to massive amounts of crude oil. As a consequence, oil-spill related health problems arose, including headache, shortness of breath, liver damage, respiratory system damage, and heart palpitations (D'Andrea & Reddy, 2013; Jamail, 2013).
Remarkable in this Deepwater Horizon accident was the role of the top management team (TMT) of BP. The then Chief Executive Officer (CEO) Tony Hayward clearly indicated that BP’s leaders were not taking the environmental and health consequences seriously, and top management had a lack of interest in the oil leak. For instance, on 18 May 2010, after several weeks of continuing oil flow, Hayward stated: “the environmental impact of the spill will be very, very modest.” (Walsh, 2010, para. 7). Even more shocking was Hayward’s response on 30 May 2010 when he told reporters “I would like my life back” (Walsh, 2010, Para. 8), emphasizing the personal inconvenience caused to him (Walsh, 2010; Hayward, 2010). Partially due to the disengaged role of BP’s TMT, it can be concluded that the BP oil spill, which leaked an estimated 4.9 million barrels of oil into the Gulf of Mexico, was one of the worst and largest environmental disasters in US history (BBC, 2010; CBS News, 2014). From this data, it is evident that BP was involved in a corporate human rights violation and that the human right to a safe and healthy environment was harmed.
In recent decades, the world has witnessed rapid developments in terms of international integration and transnational corporations (TNCs) have expended rapidly in terms of size and number (Blitt, 2012; Whelan, Moon, & Orlitzky, 2009). Given such growth, TNCs nowadays operate in multiple countries and dynamic industries and face different conditions - in terms of regulatory environment and socioeconomic conditions – which poses human rights challenges. It is not surprising thatcross-border activities of TNCs have led to human rights violations in the past (Černič, 2010; Rasche, 2013; Ruggie, 2007). In the past, but even today, corporations are able to violate human rights since stringent regulation and protection is missing (Černič, 2010). The
Deepwater Horizon disaster is only one example of a TNC violating the human right to a clean and healthy environment. Corporate violations of all types of human rights are commonplace and are present in all sectors (e.g. extractive industry, footwear and apparel, manufacturing) and regions worldwide (e.g. Africa, North America, Latin America, Asia) (Ruggie, 2006, 2007; Wright, 2008).
Traditionally, the literature on human rights issues has mainly focused on the role of governments (Černič, 2010; de la Cuesta, Valor, & Holgado, 2012; Jerbi, 2009; Weissbrodt & Kruger, 2003). Surprisingly, human rights violations committed by TNCs received little attention until the 1990s. By then, organizations such as the United Nations (U.N.) started to realize that TNCs should receive more scrutiny when addressing human rights issues (Jerby, 2009).
Attempts to regulate the behavior of TNCs have been coordinated by the U.N. Commission on Human Rights. Since the swearing-in of a working group on business and human rights in 1998, significant developments have been made (Blitt, 2012). In particular by John Ruggie, Special Representative of the Secretary General on Human Rights and Business. After mapping the current issues on business and human rights (Ruggie, 2006, 2007; Sanders, 2014), Ruggie operationalized his ‘protect, respect, and remedy framework’ by developing clear recommendations in 2011 (Ruggie, 2008). These recommendations were ultimately set forth in the report ‘Guiding Principles on Business and Human Rights’ (Blitt, 2012; Ruggie, 2011). In his final report, Ruggie composed a detailed framework for responsible business practices, and hence his work is considered a major step forward in the field of human rights and business (Blitt, 2012; Cragg, Arnold, & Muchlinski, 2012).
Yet, the question that remains is to what extent corporate decision makers are involved in corporate human rights violations. In spite of Ruggie’s Guiding Principles and his notice for decision-makers ‘leadership from the top is essential to embed respect for human rights throughout a company’ (Ruggie, 2008, p. 18), one could still question the influence of corporate decision-makers on human rights violations. Second, it remains obscure how corporate decision-decision-makers deal with human rights issues in terms of response and remedy efforts (Hamann, Sinha, Kapfudzaruwa, & Schild, 2009).
Consensus may be emerging upon the belief that corporate human rights violations are often the result of the actions of the TMT of corporations. However, until now, there have been few attempts to study the characteristics of the individuals with whom the responsibility rests (Daboub, Rasheed, Priem, & Gray, 1995; Williams, Fadil, & Armstrong, 2005; Zahra, Priem, & Rasheed, 2005). The focus on the role of top management is in line with prior research, in which scholars focused on the relationship between TMTs and a variety of corporate outcomes, such as strategic change, international diversification and performance (e.g. Hambrick & Mason, 1984; Goll, Sambharya, & Tucci, 2001; Tihany, Ellstrand, Daily, and Dalton, 2000; Wiersema & Bantel, 1992).
TMTs can be considered decision-making groups. A study of how individual perspectives influence executives, and how these cognitive attitudes shape TMT interactions is an important area that needs further clarification. The aim of this study proposes a link between TMT characteristics and corporate human rights violations and corporate response and remedy attempts. The following research question was formulated:
How do demographic characteristics of top management teams of transnational corporations influence corporate human rights violations, and how do top management teams respond and attempt remedy when faced with such violations?
The limited research base on TMTs and corporate human rights violations led to the design of a qualitative study. A multiple-case study design - based on six leading transnational extractive corporations - was used to research the demographic characteristics of TMTs and the likelihood of corporate human rights violations, environmental and health violations in particular, to occur. In addition, corporate response and non-judicial remedy efforts were evaluated.
This study starts with a literature review and concomitant conceptual framework. Second, analogical reasoning is used to strengthen the underlying constructs of corporate human rights violations. Hereafter, a methodology section follows, a results section outlining the analyses, and a discussion follow. This thesis concludes with some final remarks.
2. Literature Review
This literature review is presented in a conceptual order. First, it outlines the developments with regard to the business and human rights debate, focusing in particular on the link between human rights and the (human) environment and TNCs. Second, by using analogical reasoning, a link between corporate illegal behavior, fraud, and corruption and corporate human rights violations is established. Analogical reasoning improves the underlying constructs of corporate human rights violations. Hereafter, subsequent sections address the issue whether corporate human rights violations are committed at the top or at lower levels of management and focus on TMT research and corporate outcomes. Finally, a series of propositions is developed, linking TMT characteristics to corporate human rights violations and corporate response and remedy efforts.
2.1 Human Rights
The term ‘human rights’ refers to the fundamental rights of all human beings and is traditionally linked to national and international law (Donnelly, 2013). A prominent discussion has emerged concerning business and human rights. This debate revolves around the questions to whom
and for what corporations are responsible and to what extent national and international human rights law is applicable to TNCs1 (Hamann et al., 2009; Whelan et al., 2009). In addition, the linkage between human rights and the environment has received increased recognition since the 1970s (Drexhage, & Murphy, 2010; OHCHR & UNEP, 2012).
According to Donnelly, human rights are “the rights that one has because one is human” (Donnelly, 2013, p. 7). From an academic perspective, human rights are equal, indefeasible and universal. First, one either is or is not a human being (equality), second, one cannot stop being a human (indefeasibility), and third, all members of the ‘homo sapiens’ are considered human beings and thus holders of human rights (universality). In other words, human rights can be defined as (1) the minimum set of goods, services, opportunities, and protections that serve as prerequisite for a life of dignity and (2) a set of practices to realize these goods, services, opportunities, and protections (Donnelly, 2013). Thus, human rights refer, for instance, to the right to life, the right to freedom of discrimination, the right to health and health care, and the right to a safe and healthy environment (United Nations, n.d.).
Without any doubt, the United Nation’s Universal Declaration of Human Rights (UDHR) of 1948 is one of the most important documents in the history on human rights (Blitt, 2012; Glendon, 1998). The Declaration created and spread the idea of human rights and entitled rights to all human beings. Specifically, the Declaration of Human Rights contains thirty short articles and describes basic principles related to dignity, liberty, equality, and fraternity (Glendon, 1998). The UDHR served as a foundation for the development of a binding system of international human rights and expended to international, regional, and domestic contexts (Blitt, 2012).
2.1.1 The Relationship between Human Rights and the Human Environment
The UDHR focuses in particular on civil, political, social, and economic human rights. However, it was not until the 1960s, that the relationship between human rights and the human environment (or ecological environment) received increased attention. This relationship was first highlighted in the 1972 U.N. Conference on the Human Environment, held in Stockholm. This first conference was successful and led the foundations for a second global conference on the environment and sustainable development in 1992 in Rio de Janeiro, Brazil. The Rio Declaration that followed recognized the importance of human rights regarding sustainable development, access to information and judicial remedies, and procedural rights in environmental concerns. In other
1
In the literature, corporations with cross-border activities are often defined as multinational enterprises (MNEs). The United Nations Economic and Social Council (ECOSOC), however, adopted the term transnational corporations to define corporations with business operations in more than one country (Rasche, 2013; Weissbrodt & Kruger, 2003). Hereinafter, to maintain consistency, the term transnational corporation (TNC) is used.
words, the 1992 Rio Summit set forth the fundament for global institutionalization of sustainable development (Drexhage, & Murphy, 2010; OHCHR & UNEP, 2012).
In the aftermath of the Rio conference, human rights began evolving in new directions to take into account environmental issues. The international community started to recognize that in the field of human rights, specific rights could not be separated from environmental quality. Since 1992, the U.N. Human Rights Council (UNHRC) has adopted various resolutions, affirming importance to the human rights to water, life and health, and environmental protection. Moreover, the number of international and domestic laws and judicial decisions in this area has increased substantially (Drexhage, & Murphy, 2010; OHCHR & UNEP, 2012).
Ultimately in 2012, the UNHRC decided to appoint an independent expert on human rights obligations related to the enjoyment of a safe, clean, healthy, and sustainable environment. Special rapporteur Mr. John Knox identifies, promotes, and makes recommendations on good practices of governments, international non-governmental organizations (INGOs), civil society organizations, and TNCs in the use of human rights obligations related to the environment (Boyle, 2012; OHCHR & UNEP, 2012; United Nations, n.d.).
The Universal Declaration of Human Rights and further elaborating resolutions on the environment, focus in particular on the responsibility of states, and serve as a way to protect individuals against governmental violations. Notwithstanding, the creators of these human rights obligations failed to pay sufficient interest to the role of a particular group of non-state actors, that is, TNCs (Jerbi, 2009; Weissbrodt & Kruger, 2003). Therefore, major concern is the compliance of TNCs with environmental and human rights standards (OHCHR & UNEP, 2012).
2.1.2 Human Rights and Transnational Corporations
Since the end of the World War II, the world has witnessed rapid developments in terms of international integration, also known as globalization (Whelan et al., 2009). Made possible by improvements in communication, transportation and costs savings, TNCs expended in terms of size, number and subsidiaries (Blitt, 2012). In addition, outward foreign direct investment (FDI) worldwide has increased exceptionally. To provide an illustration, outward FDI has increased from $112 billion in 1967 to $10,672 billion in 2005 (Cragg et al., 2012; Whelan et al., 2009).
Given such growth, TNCs nowadays operate in multiple countries and dynamic industries, and hence face different regulatory environment and socioeconomic conditions, which poses human rights challenges. Cross-border activities of these TNCs in the globalized environment have indeed led to human rights violations in the past (Černič, 2010; Rasche, 2013; Ruggie, 2007). But even today, corporations are able to violate human rights since stringent regulation and protection is missing. Moreover, TNCs can perpetrate human rights violations because the creators of human
rights obligations (organizations such as the U.N.) failed to pay sufficient attention to these corporations (Černič, 2010). TNCs should receive scrutiny because they operate in dynamic industries, such as the extractive industries and footwear and apparel sector (Weissbrodt & Kruger, 2003). In particular the former industry is troublesome with regard to human rights, and in particular to the overall human right to a clean and healthy environment.
Transnational extractive corporations operate in extremely resource-abundant countries such as Nigeria, Cote D’Ivoire, Venezuela, and Malaysia. Many of these countries are among the poorest and most troubled states in the developing world. Unfortunately, these countries have controversial environmental legislation (Blanton & Blanton, 2006; Ross, 2001). Although the number of environmental laws and regulations is increasing in African and Asian countries, the harsh reality is that violations of these laws take place. The main reasons for these violations to occur vary from the laws themselves not providing adequate safeguards to discourage violations to inadequate law enforcement, ineffective regulatory mechanisms, insufficient equipment and financial resources, and corruption and abuse of office. It is critical to strengthen these areas in order to protect the human rights of civilians (Burger, 2014; Corporate Accountability Working Group, 2005; UNEP & CAEC, 2014).
Because of flaws in the law and in safeguarding of the laws, compliance with human rights by transnational extractive corporations is problematic. A 2006 U.N. report concluded that out of the 65 instances reported by (international) non-governmental organizations, the extractive sector dominates the reported abuses with two thirds of the total. The majority of these allegations were related to corporations violating the environment, health and livelihood of local populations (Burger, 2014; Ruggie, 2006; Wright, 2008). More specifically, transnational extractive corporations are often accused of polluting rivers and lakes, dumping toxic wastes, and devastating local ecosystems. As a consequence, the right to a clean and healthy environment, right to clean water and right to health are violated (Wright, 2008).
In light of the extraordinary pattern of growth and globalization, TNCs started outperforming national economies of state. As of today, it is estimated that TNCs make up one-third of the world’s largest economic entities. This demonstrates the critical importance of TNCs in the global economy. States no longer hold sole responsibility on controlling the international system as many TNCs now “have the resources and power both to perpetrate and to escape responsibility for human rights abuses” (Blitt, 2012, p. 37). Because of these developments, emphasis on the accountability of these corporate actors started to emerge (Blitt, 2012).
2.1.3 Attempts to Regulate the Behavior of Transnational Corporations
One of the first organizations that endeavored to regulate the behavior of TNCs was the Organization for Economic Cooperation and Development (OECD). The OECD developed non-binding Guidelines for Multinational Enterprises in 1976. Although this was a good start, the guidelines had no enforcement mechanisms and thus failed to effectively compel business to comply with international human right standards (Jerbi, 2009; Weissbrodt & Kruger, 2003).
The first initiative by the U.N. was the ‘Code of Conduct of Transnational Corporations’, established in 1990. This attempt failed due to a conflict in political interests and disagreement on whether authority to enforce the code should be controlled by the U.N. (Hamann et al., 2009; Jerbi, 2009; Rasche, 2013; Weissbrodt & Kruger, 2003).
A second attempt by the U.N. also failed. The ‘Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regards to Human Rights’ (U.N. Norms), published in 2003, attracted severe criticism for the perceived lack of corporate human rights obligations (Černič, 2010; Hamann et al., 2009; Weissbrodt & Kruger, 2003). Even tough these U.N. Norms were not adopted, numerous states realized that the issue of business and human rights should require serious attention (Ruggie, 2007).
2.1.4 John Gerard Ruggie
It was in 2005, that the Commission requested U.N. Secretary-General Kofi Annan to appoint a Special Representative on business and human rights. In July 2005, Harvard professor John Gerard Ruggie (hereinafter Ruggie), was appointed Special Representative of the U.N. Secretary-General (SRSG) on the issue of Human Rights and Transnational Corporations and Other Business Enterprises (Černič, 2010; Whelan et al., 2009). John Ruggie was SRSG from 2005 to 2011 and his work can roughly be divided into three phases. In the first phase from 2005 to 2007, he examined the current situation; in the second phase, in 2008, he developed recommendations; and in the third phase, from 2008 to 2011, the human rights recommendations developed in 2008 were operationalized (Sanders, 2014).
Ruggie moved to operationalize his 2008 ‘protect, respect, and remedy framework’ by developing concrete recommendations. Ultimately this led to the 2011 report, ‘Guiding principles on Business and Human Rights’, the culmination of John Ruggie’s work (Blitt, 2012; Ruggie, 2011; Sanders, 2014). These Guiding Principles, also referred to as the U.N. framework, urge TNCs to respect human rights by recommending to (1) avoid causing impact on human rights through their own activities, and to address impacts when they occur and (2) to prevent or mitigate human rights impacts directly linked to their operations. In order to accomplish these objectives, TNCs must have a threefold mechanism in place. First, a formal policy to respect human rights at the most senior
level within the corporation. Second, a human rights due-diligence process to identify and prevent impacts on human rights. Third, remediation processes to address possible human rights impacts (Blitt, 2012; Ruggie, 2011).
In short, the Guiding Principles propose TNCs should assess actual and future human rights impacts in order to identify and prevent human rights issues that may arise. Hence, the Guiding Principles set forth a more central role for TNCs (Blitt, 2012; Ruggie, 2011; United Nations Human Rights Office of the High Commissioner, 2011).
John Ruggie’s contribution to the ongoing discussion with regard to TNCs and human rights is extraordinary (Blitt, 2012; Hamann et al., 2009; Whelan et al., 2009). Ruggie has mapped out a comprehensive understanding of the challenges within the field of business and human rights, and fostered the debate on human rights responsibilities of TNCs with regard to their worldwide operations in developing parts of the world, in conflict zones, and in countries with dysfunctional governments (Cragg et al., 2012; Ruggie, 2008, 2011). However, his final report can only be considered a starting point as it still underestimates the rapid developments within the business and human rights debate. Opponents argue that the U.N. framework is flawed. They argue that minimizing and/or eliminating exposure to human rights issues requires corporations to apply a more rigorous approach (Blitt, 2012).
This brief survey on human rights and TNCs is illustrative of past developments within the business and human rights debate. Nonetheless, there is a scarcity of studies on this topic within the international management (IM) literature (Blanton & Blanton, 2006; Hamann et al., 2009; De La Cuesta et al., 2012). This present study tries to fill this gap. First, by drawing from literature from several other disciplines, such as criminology, economics, and law, and by establishing a link between corporate illegal behavior, management fraud, and corruption. Such an approach will improve the understanding of corporate human rights violations.
Second, the question that remains is to what extent corporate decision makers are involved in corporate human rights violations. In spite of Ruggie’s U.N. framework and his notice for decision-makers ‘leadership from the top is essential to embed respect for human rights throughout a company’ (Ruggie, 2008, p. 18), two questions arise. First, to what extent do corporate decision-makers influence corporate human rights violations? Second, how do corporate decision-decision-makers respond and attempt remedy to human rights issues? (Hamann et al., 2009)
Consensus may be emerging upon the belief that corporate human rights violations are often the result of the actions of the TMT of corporations. Until now, however, there is a limited body of studies examining the characteristics of the individuals with whom the responsibility rests (Daboub et al., 1995; Williams et al., 2005; Zahra et al., 2005). The focus on the role of top management is consistent with the literature, in which scholars focused on the relationship between TMTs and a
variety of corporate outcomes, such as strategic change, diversification and performance (e.g. Hambrick & Mason, 1984; Goll et al., 2001; Tihany et al., 2000; Wiersema & Bantel, 1992). TMTs can be considered decision-making groups. A study to what extent perspectives influence executives, and how these cognitive attitudes shape TMT interaction deserves further merit (Wiersema & Bantel, 1992).
The following section improves the underlying logic behind corporate human rights violations by using analogical reasoning. Subsequently, the issue to what extent corporate human rights violations are committed at the top or lower levels of management is addressed. Finally, the TMT literature and the upper echelons perspective are reviewed.
2.2 The Relationship between Corporate Illegal Behavior, Fraud, Corruption and Corporate Human Rights Violations
As discussed before, IM research on corporate human rights violations is still somewhat in its infancy (Blanton & Blanton, 2006; Hamann et al., 2009; De La Cuesta et al., 2012). Several other related topics, such as corporate illegal behavior, fraud, and corruption have received greater attention. In order to come up with justifiable propositions, this study uses analogical reasoning. In other words, an analogy between the underlying constructs of the aforementioned concepts and corporate human rights violations is drawn. Although the phenomena are not mutually exclusive and tend to have some overlap, they are used as separate subjects.
Several scholars (e.g. Baucus & Near, 1991; Clinard & Yeager, 1980; Daboub et al., 1995) have studied the notion corporate illegal behavior. Corporate illegal behavior can be defined as criminal conduct committed by large corporations to obtain a goal illegally. This definition covers a wide range of corporate misbehavior such as fraud, unfair labor practices, the sale of hazardous products, and bribery for corporate benefits (Clinard & Yeager, 1980). Among others, Baucus and Near (1991) and Daboub et al. (1995) enhanced the understanding of corporate illegal behavior by identifying possible causes and by focusing on factors that encourage inappropriate behavior.
Corporate illegal behavior emphasizes social harm as its key element (Clinard & Yeager, 1980). Social harm encompasses a broader spectrum than criminal law and aims to take into account acts that lead to injury, e.g. financial, emotional, and psychological safety (Burton, 2013).
The notion social harm makes it possible to link corporate illegal behavior to corporate human rights violations. When TNCs violate, for instance, the rights to a safe, clean, healthy, and sustainable environment, people suffer from social harm such as illnesses, health related problems, and/or death. Based on this example, acts (corporate environmental and health violations) lead to injury (physical safety)(Burton, 2013). Therefore, social harm can also be considered a key element in corporate human rights violations.
Corporate fraud - e.g. insider trading and lying about facts - refers to the actions taken by management to deceive, cheat, or falsely inform stakeholders of the corporation (Troy, Smith, & Domino, 2011; Zahra et al., 2005). A study by Troy et al. (2011) pointed to the relevance of the fraud triangle (Cressey, as cited in Troy et al., 2011). This fraud triangle suggests that fraud occurs when the following three conditions are present: opportunity, incentive/pressure and rationalization. In particular the conditions ‘opportunity’ and ‘incentive/pressure’ make it possible to link corporate fraud to corporate human rights violations. Opportunity refers to the possibility for fraud to be perpetrated while incentive/pressure relates to the perceived pressure on managers to commit fraud (Troy et al., 2011; Zahra et al., 2005).
It is reasonable to assume that these two conditions are also present when corporate human rights violations occur. First, opportunities for TNCs to violate human rights exist because of inadequate law enforcement and ineffective regulatory mechanisms. This, in turn leads to decreased detection of human rights violations and subsequent retribution (Burger, 2014; Corporate Accountability Working Group, 2005; UNEP & CAEC, 2014). Second, due to globalization and strong competition, TNCs tend to focus primarily on generating shareholder returns (Whelan et al., 2009). Such a narrow goal could urge corporations to prevail financial goals above adherence of human rights (Campbell, 2007). As a result, the likelihood of human rights violations to occur might be higher. Based on this analogical reasoning, it is argued that for corporate human rights violations to occur, the conditions opportunity and incentive/pressure must be present.
Another helpful analogy is corruption, defined here as the abuse of public office for private benefit (Treisman, 2000; Tanzi, 1998). Corruption is well documented in the literature and numerous studies have examined the causes of this phenomenon (Treisman, 2000; Tanzi, 1998). Corruption is generally linked to activities of the state. Especially in developing countries, the state plays a central role in enforcing rules and regulations, which creates opportunity for corruption. Several governmental offices must be contacted in order to authorize a decision. This enforces power and opportunity to those officials who must authorize decisions. Hence, officials can use their power to extract bribes from those who need authorization (Tanzi, 1998). From prior studies on developing countries, it is evident that TNCs spend a huge amount of time dealing with local bureaucracies. This time could be reduced through paying bribes (Treisman, 2000; Tanzi, 1998).
Corruption can also be related to corporate human rights violations. First, both corruption and human rights violations occur to a large extent in developing countries and in resource-abundant areas. Findings indicated that Africa, Asia, and Latin America are all considered to be more corrupt than Western Europe and North America (Treisman, 2000; Tanzi, 1998). Evidence on corporate human rights violations suggested that 68% of reported corporate human rights violations occurred in the regions Asia & the Pacific (28%), Africa (22%), and Latin America (18%) (Ruggie, 2006,
2007; Wright, 2008). Second, both phenomena occur in the absence of government intervention and enforcement, because of nontransparent and obscure regulations, and monopoly power of officials (Treisman, 2000; Tanzi, 1998).
Given the underlying logic of the concepts of corporate illegal behavior (Baucus & Near, 1991; Clinard & Yeager, 1980; Daboub et al., 1995), fraud (Troy et al., 2011; Zahra et al., 2005), and corruption (Treisman, 2000; Tanzi, 1998) an analogy can be drawn between these concepts and corporate human rights violations. First, in line with corporate illegal behavior, it is argued that the notion corporate human rights violations is build on the key element social harm. Second, in order for corporate human rights violations to occur the conditions opportunity and incentive/pressure must be present, consistent with the fraud triangle (Cressey, as cited in Troy et al., 2011). Third, the likelihood that human rights violations occur is higher in developing countries in which government intervention and enforcement is weak and where obscurity and powerful officials predominate (Treisman, 2000; Tanzi, 1998). In the remainder of this study, it is argued that what holds true for corporate illegal behavior, fraud, and/or corruption can be extended to corporate human rights violations.
2.3 The Role of Decision Makers
Within the existing body of IM literature, consensus might have been reached upon the understanding that corporate illegal behavior, fraud, and/or corruption are often the result of the actions of managers within the corporation (Clinard & Yeager, 1980; Daboub et al., 1995; Williams et al., 2005; Zahra et al., 2005).
While previous research has demonstrated a link between TMT characteristics and various outcomes (described in section 2.4), it is not evident why TMTs, rather than boards of directors or lower level managers, are at the center of attention. To justify the focus of TMTs in this study, the role of the board of directors and the level of management at which decisions are made are briefly evaluated (Daboub et al., 1995).
2.3.1 Board of Directors
To begin with, members of the board of directors serve as representatives of the corporation’s shareholders and try to establish corporate management related policies. They have the authority to review the corporation’s overall business strategy, to approve management decisions and to evaluate the performance of management (Aguilera & Cuervo-Cazurra, 2004; Schwartz, Dunfee, & Kline, 2005). Thus, the board of directors oversees management of the firm in its representation of shareholders, interacts with actors inside and outside the firm, and is composed of independent members. There are concerns, however, that managers can dominate the board of directors. When
such a situation occurs, the board would represent only managers and rule out any other groups. Hence, there seems to be agreement upon the fact that the board of directors and the TMT bear the primary responsibility for corporate illegal behavior, fraud, and/or corruption (Aguilera & Cuervo-Cazurra, 2004; Clinard & Yeager, 1980; Daboub et al., 1995; Schwartz et al., 2005).
2.3.2 Top Management Teams
Besides the role of the board of directors, the question whether corporate illegal behavior, fraud, and/or corruption is committed at the top or at lower levels of management remains unanswered (Clinard & Yeager, 1980; Daboub et al., 1995; Zahra et al., 2005). Yet it is asserted that size and complexity of TNCs heavily influence these areas. Even when TMTs are not involved in illegal behavior, fraud, and/or corruption they often establish the norms for lower level management and (overseas) subsidiaries. However, failures of top management are not solely the result of TMTs. Boards of directors responsible for monitoring TMTs often fail in their responsibilities as well (Clinard & Yeager, 1980; Daboub et al., 1995).
An interesting study of Schwartz et al. (2005) examined the underlying reasons for various corporate failures and pointed to the “tone at the top”. Boards of directors and TMTs set the ethical tone for corporations through their words and actions. Lower level management and employees look to the top for guidance concerning appropriate behavior. When lower level actors view their directors and top managers as acting unethically, then it becomes more likely for them to act illegally or unethically as well (Schwartz et al., 2005).
To provide another example, top management could pressure middle management to show higher profits. When such a goal is not feasible, middle managers could get involved in wrongdoing in order to comply with TMT pressure. This demonstrates that top management could, both in a direct or indirect way, facilitate corporate illegal behavior, fraud, and/or corruption. In fact, in most cases, senior management of corporations is aware of the misconduct but neglects to take action, and is thus indirectly involved (Clinard & Yeager, 1980; Daboub et al., 1995; Zahra et al., 2005).
Based on the above discussion, despite the involvement of other business representatives, it seems reasonable to consider TMTs as key-players in corporate illegal behavior, fraud, and/or corruption (Clinard & Yeager, 1980; Daboub et al., 1995; Zahra et al., 2005). Based on analogical reasoning, characteristics of TMTs are essential to clarify corporate human rights violations.
2.4 Top Management Team Characteristics
IM literature demonstrates evidence for the assertion that demographic characteristics of TMTs - such as age, gender, educational background, team tenure, organizational tenure, Master in Business Administration (MBA) education, and military service - play an essential role in guiding
the strategic decision-making process (e.g. Carpenter, Geletkanycz, & Sanders, 2004; Daboub et al., 1995; Papadakis & Barwise, 2002; Wiersema & Bantel, 1992).
Literature indicates that complex organizational decisions are an outcome of behavioral factors. Since strategic decisions have a behavioral component, particularities of decision-makers are of great influence. After all, each decision-maker has his/her own set of assumptions and values, which together reflect a decision-maker’s cognitive base (Hambrick & Mason, 1984). In this study, emphasis is placed on observable managerial demographic characteristics as indicators of assumptions and values of decision makers. Using background characteristics to predict behaviors is rooted in literature and has been used in several scholarly disciplines. Scholars frequently used demographic factors as an indicator of motivation, cognitive style, and other traits (Hambrick & Mason, 1984; Carpenter et al., 2004; Wiersema & Bantel, 1992).
Hitherto, the impact of TMTs on the strategic decision-making process of TNCs is well documented in the strategy and organization literature (Carpenter et al., 2004). Defining TMTs is relatively straightforward since most of the literature on TMTs asserts similar definitions. In short, a TMT refers to the small group of most influential executives at the top of an organization, the so-called top two tiers of the corporation. A TMT regularly consists of the Chairman, Chief Executive Officer, Chief Operating Officer (COO), Chief Financial Officer (CFO), and the next highest management position (Carpenter, 2002; Hambrick, 1995; Wiersema & Bantel, 1992). Thus, the TMT typically exists of five to six executives.
2.4.1 Upper Echelons Research
The literature on TMTs is heavily influenced by the work of Hambrick and Mason (1984). Hambrick and Mason developed a model, the so-called ‘upper echelons’ perspective, in which they acknowledge that TMTs affect the strategic decision-making process (Hambrick & Mason, 1984). The upper echelons perspective focuses on executive cognitions, values, and perceptions and their influence on performance and strategic choice. Since these factors are difficult to conceptualize, Hambrick and Mason relied on prior research with regard to demography factors. In their model emphasis is placed on characteristics such as age, tenure in the corporation, and educational background. These characteristics serve as observable variables that shape a TMT’s interpretation of situations, which in turn influence strategic choice and performance (Hambrick & Mason, 1984; Carpenter et al., 2004).
The upper echelons perspective, however, is not without its limitations. Some scholars argue that Hambrick and Mason (1984) ignored uncertainty as a moderating variable of TMT demographic effects (Carpenter & Fredrickson, 2001). Others emphasized that Hambrick and Mason (1984) overlooked the role of single persons, e.g. the role of the CEO (Carpenter, 2002).
In spite of the latter, since the 1990s, scholars extensively elaborated on the upper echelons perspective and studied the link between TMT characteristics and various topics ranging from corporate performance (e.g. Carpenter, 2002; Goll et al., 2001; Wiersema & Bantel, 1992) to top management fraud (Zahra et al., 2005) and corporate illegal behavior (Daboub et al., 1995; Williams et al., 2005). A brief synthesis of influential work follows.
Wiersema and Bantel (1992) were among the first to conduct a study focusing on the link between TMT characteristics and the effects on strategic change. By using a sample of 87 manufacturing firms, Wiersema and Bantel found that demographic characteristics of TMTs do exert influence on strategy-related outcomes. In more detail, the TMTs that were most likely to undergo strategic change had the following characteristics: relatively young age, short organizational tenure, high team tenure, high educational level, predominant science backgrounds, and heterogeneity in educational specialization. All in all, Wiersema and Bantel’s study provided support for the upper echelons perspective (Wiersema & Bantel, 1992).
Building on the work of Wiersema and Bantel (1992), Goll et al. (2001) examined the linkages between corporate ideology, TMT characteristics and firm performance. Relying on the upper echelons perspective, age, tenure, and educational background were used to define TMT demographic characteristics. Outcomes of their cross-sectional study provided support for the belief that TMTs exert a direct influence on organizational outcomes. Taken together, Goll et al. showed a positive relationship between firm performance and TMTs composed of older managers with higher organizational tenure, contrasting the results of Wiersema and Bantel (1992). Furthermore, higher education also contributed to higher firm performance. On the contrary, the relationship between tenure and performance was negative. Goll et al. explained this by the fact that managers with higher tenure are more committed to the status quo, and hence are less likely to change the strategic direction of the firm. This could have negative effects on firm performance (Goll et al., 2001).
In a similar vein, other studies by Carpenter (2002) and Tihanyi et al. (2000) studied the link between TMT characteristics and firm performance and firm international diversification, respectively. Carpenter (2002) suggested that the relationship between TMT demographic characteristics and performance shown in prior work (Wiersema & Bantel, 1992) did not take into account moderating and intervening variables. Carpenter argued that prior work overlooked the firm’s strategy and social structure of the TMT. Results showed that demographic characteristics were strongest among short-tenured teams, confirming the notion that TMTs are affected by their differences, but that the impact of those variations may be subject to change (Carpenter, 2002).
Tihanyi et al. (2000) studied the relationship between age, education, functional background, international experience, and TMT tenure and international diversification. Their sample consisted of U.S. electronics companies. TMTs with younger executives and higher TMT tenure were
associated with higher firm international diversification. The findings of Tihanyi et al. indicated that TMT demographic conditions had an influence on a firm’s diversification (Tihanyi et al., 2000).
The dominant trend in recent upper echelons research suggests relatively similar findings. Regarding age, Goll et al. (2001), Tihanyi et al. (2000) and Wiersema and Bantel (1992), all found a positive relationship between TMTs with younger executives and higher education level and firm performance, international diversification and strategic change, in that order (Goll et al., 2001; Tihanyi et al., 2000; Wiersema & Bantel, 1992). In addition, Tihanyi et al. (2000) and Wiersema and Bantel (1992) found support for the assertion that higher TMT tenure leads to more international diversification and strategic change (Tihanyi et al., 2000; Wiersema & Bantel, 1992). In contrast, Carpenter (2002) suggested that outcomes were strongest among short-tenured TMTs.
While the aforementioned studies explicitly targeted TMTs, several other studies focused on the role of CEO characteristics and successively their influence on the strategic decision making process (Papadakis & Barwise, 2002), their impact on corporate sustainability (Huang, 2013; Manner, 2010; Thomas & Simerly, 1994), and the likelihood to disclose environmental information (Lewis, Walls, & Dowell, 2014).
In a study of Greek firms, Papadakis and Barwise (2002) explored the influence of CEO characteristics on strategic decision-making. They found that CEOs affect these processes, but along different dimensions. For instance, CEO tenure was related to decentralized decision-making. However, results also showed that the characteristics of the TMT were more important than those of the CEO, lending support for the upper echelons perspective (Papadakis & Barwise, 2002).
Three other studies addressed the issue of corporate social responsibility (CSR). Thomas and Simerly (1994) were among the first to study the relationship between CEO characteristics and CSR performance. Hypotheses linking functional background and tenure to CSR performance were developed. Thomas and Simerly found support for their hypotheses. First, functional background of the CEO influenced CSR performance. CEOs with a background in marketing/sales reported higher CSR performance than CEOs with a background in manufacturing and engineering. Second, CEO’s of high performing CSR firms had a higher organizational tenure (Thomas & Simerly, 1994).
Consistent with prior work, Manner (2010) addressed the relationship between CEO characteristics and CSR performance. Hypotheses regarding educational field, functional work experience, gender, and CEO compensation were established. His results indicated that a CEO’s educational field, tenure, and gender were associated with strong CSR (Manner, 2010).
In a similar vein, Huang (2013) examined the relationship between CEO demographic characteristics such as age, gender, tenure, educational specialization, and nationality and CSR performance. He collected data on the major CSR rating agencies and used a sample of 392 observations. Consistent with prior work (Manner, 2010; Thomas & Simerly, 1994), Huang found
significant relationships between CEO’s educational specialization (MBA and Master of Science (MS) degrees), gender, and tenure and CSR performance. On the other hand, CEO’s nationality and age did not appear to be associated with CSR performance (Huang, 2013).
Lewis et al. (2014) studied CEO characteristics and the preference to disclose environmental information. CEOs educational background and tenure were considered. Lewis et al. found that a CEO’s educational background and tenure affected the likelihood of disclosing environmental information. More specifically, CEOs holding a MBA degree (business) were more likely to disclose information than CEOs with a law degree. Furthermore, CEOs with lower tenure were also more likely to disclose (Lewis et al., 2014).
Based on prior work, CEO characteristics such as age, tenure, educational background, and gender were related to CSR performance and a CEO’s preference to disclose environmental information. More specifically, Huang (2013) and Thomas and Simerly (1994) found support for a positive relationship between a CEO’s tenure and CSR performance. In more detail, the higher a CEO’s tenure, the better a firm was performing in terms of CSR (Huang, 2013; Thomas & Simerly, 1994). Manner (2010) and Lewis et al. (2014) found interesting outcomes related to a CEO’s educational background and gender. First, Manner (2010) found that CEOs with an economics background were negatively related to strong CSR performance. As opposed, a background in humanities was positively related to strong CSR performance. Second, having a female CEO was positively related to CSR performance (Manner, 2010). Lewis et al. found that CEOs with an MBA degree (business) were significantly more likely to disclose environmental information than CEOs with a law degree (Lewis et al., 2014).
Finally, another stream of research linked TMTs to fraud (Zahra et al., 2005) and corporate illegal behavior (Daboub et al., 1995; Williams et al., 2005). Daboub et al. (1995) suggested that corporate illegal behavior could be linked to the characteristics of the TMT, since such misconduct is the result of the decisions of TMTs. Daboub et al. proposed several relationships between the TMT characteristics age, length of service, functional background, MBA education, military service, and homogeneity/heterogeneity (Daboub et al., 1995). Zahra et al. (2005) focused on fraud committed by top management. Antecedents of fraud, at societal, industry, and company level were highlighted. In addition, individual level characteristics, such as age, experience, education, and gender were identified as moderating variables (Zahra et al., 2005). Both studies, however, do not extend beyond the development of theoretical propositions, and thus, have a more theoretical contribution to this study.
An additional study of Williams et al. (2005) moved beyond theoretically linking TMTs to corporate wrongdoing and empirically studied the relationship between TMTs and corporate illegal behavior. Williams et al. found a link between TMT tenure and a rise of certain types of illegal
activity within the firm. Accordingly, longer tenure was related to encourage weak behavior and poor horizontal information flows within the TMT (Williams et al., 2005).
When viewed collectively, studies have greatly enhanced the understanding that CEO-TMT demographic characteristics impact various outcomes. Based on the academic literature, the applicability of TMTs and the upper echelons perspective for the study of corporate human rights violations seems justifiable.
Nonetheless, it is surprising that there is relatively little research linking TMT characteristics and corporate human rights violations. Introducing the relationship between TMT demographic characteristics and corporate human rights violations could lead to new insights. This study, therefore, tries to fill this theoretical void by researching TMT characteristics under which corporate human rights violations are likely to occur. Based on analogical reasoning, it is argued that what holds true for corporate illegal behavior, fraud, and/or corruption can be considered similar to corporate human rights violations.
In addition, due to growth and globalization, TNCs are confronted with a variety of social and political issues and crises, among others human rights violations (Cragg et al., 2012; Whelan et al., 2009). Many corporations have developed internal procedures to respond to the issues they face, labeled as ‘issues management’. The latter refers to (anticipatory) responses when corporations have been unable to anticipate and prevent the issues. Prior research suggested that differences in responses are due to the interpretation of decision makers (Greening & Gray, 1994). Since decision makers are at the center of this study and to improve the magnitude of this study, TMT characteristics and their impact on response and non-judicial remedy efforts (hereafter referred to as remedy attempts/efforts) are studied. Overall, the following research question is addressed:
How do demographic characteristics of top management teams of transnational corporations influence corporate human rights violations, and how do top management teams respond and attempt remedy when faced with such violations?
3. The Link between TMT Characteristics and Corporate Human Rights Violations
Four demographic factors are addressed in this study, i.e. educational background, tenure, age and gender. Previous research has shown that these variables are indicators of attitudes about change and risk taking (Wiersema & Bantel, 1992). Prior research has been conducted on TMTs and corporate outcomes (Carpenter, 2002; Goll et al., 2001; Papadakis & Barwise, 2002; Wiersema & Bantel, 1992), corporate illegal behavior (Clinard & Yeager, 1980; Daboub et al., 1995) and/or management fraud (Zahra et al., 2005).
The theory-building process of this paper is strengthened by this prior research, and based on analogical reasoning, it is argued that the findings on corporate illegal behavior, fraud, and/or corruption and other corporate outcomes can be extended to TMTs and corporate human rights violations, in particular environmental and health violations. Hereinafter the term corporate environmental and health violations is used rather than the all-embracing abstract definition corporate human rights violations.
This study focuses on corporate environmental and health violations because of several reasons (McKendall, Sánchez, & Sicilian, 1999). First, compliance with environmental and health regulations is - as opposed to physical abuse, labor, and development and poverty violations - more often the result of a complex decision-making process with far-reaching consequences. Second, in order to obey environmental laws, corporations need a vast amount of money. Compliance requires the purchase of expensive equipment and the implementation of procedures and safeguards. These expenditures could affect short-term profitability, and thus are scrutinized by TMTs (McKendall et al., 1999). Finally, short-term and long-term effects of pollution on the environment and health can lead to illnesses, injuries, and deaths. Consequences often uncovered and publicly discussed by (I)NGOs. Such debates are often directed at top management since, as the saying goes, a great tree attracts the wind.
Based on the aforementioned reasons, the literature considers the corporation’s attitude towards environmental and health violations as the main responsibility for boards of directors and TMTs (McKendall et al., 1999). Moreover, from a survey of 65 instances on alleged corporate-related human rights abuses, Wright (2008) concluded that the majority of the cases involved environmental harms. As turned out, environmental misconduct provided a foundation for health violations to occur (Wright, 2008). Overall, it seems justifiable to link environmental and health violations to TMTs.
Specific propositions regarding the link between TMT characteristics and corporate environmental and health violations are developed. But first, a conceptual model, in which the propositions are represented in a schematic way, is presented. It is predicted that the TMT
characteristics in figure 1, exert influence on corporate environmental and health violations. Each demographic variable and its specific link with such violations is discussed individually.
In addition, based on the work of Lewis et al. (2014) and Greening and Gray (1994), it is argued that TMT characteristics, indirectly, exert influence on corporate response and remedy efforts in dealing with environmental and health violations (Greening & Gray, 1994; Lewis et al., 2014). Thus, additional working propositions link TMT characteristics to response and remedy attempts when TNCs face corporate environmental and health violations.
3.1 Proposed relationships 3.1.1 Educational background
Educational background is hard to categorize, since academic disciplines are intertwined and can be classified into several categories (Lewis et al., 2014). This review follows Wiersema and Bantel’s (1992) coding schema, frequently used in other studies (Carpenter & Fredrickson, 2001; Carpenter, 2002), to distinguish between five educational classifications: (1) arts, (2) science, (3) engineering, (4) business and economics and (5) law (Wiersema & Bantel, 1992). Educational background is captured based on the highest obtained degree.
Educational background gives an indication of an individual’s perception of situations and is built upon the fundamental argument that education shapes values and beliefs (Daboub et al., 1995;
Top Management Teams Characteristics
Tenure Age Gender
Corporate Human Rights Violations
Response & Non-Judicial Remedy Efforts Environment Violations Health Violations Educational background
Figure 1: Conceptual Model: TMT Characteristics and Corporate
Manner, 2010). Based on this reasoning, one may believe that an executive’s educational background influences his or her perception on corporate environmental and health violations.
There is a widespread view that the more technical fields, such as engineering, entail more ethical behavior than fields such as business and economics, and law. Such a perception can be explained by the work of Clinard and Yeager (1980). They argued that business and economics executives are more financially oriented, and in turn are more likely to engage in unethical practices than executives with a more technical and social educational background (Clinard & Yeager, 1980). Furthermore, Huang (2013) established that CEO educational background was strongly associated with firm corporate social performance (Huang, 2013). In addition, Manner (2010) demonstrated the existence of a negative relationship between a CEO having a bachelor’s degree in economics and corporate social performance. On the other hand, he found strong support for the relationship between CEO’s having a degree in humanities and strong corporate social performance (Manner, 2010).
Accordingly, it seems plausible to expect that TMTs with a predominant number of executives holding a major in either arts, science, or engineering will be less inclined to focus solely on profits and self interest, and in turn may focus more on obtaining cooperative solutions that satisfy all stakeholders. Therefore, they will be associated with a lower chance of environmental and health violations. On the other hand, TMTs predominantly governed by executives with a degree in business and economics, or law may be more financially oriented and thus will be associated with a higher chance of environmental and health violations.
Proposition 1a: TMTs with a predominant number of executives with a degree in arts, science, or engineering will be associated with a lower chance of corporate environmental and health violations.
Proposition 1b: TMTs with a predominant number of executives with a degree in business and economics, or law will be associated with a higher chance of corporate environmental and health violations.
It is expected that educational background influence corporations’ response and remedy efforts when faced with environmental and health violations. This argument is built upon the work of Lewis et al. (2014), in which is argued that CEOs educational background affect the firm’s likelihood of disclosing information (Lewis et al., 2014). Applying the same rationale to TMTs, again, it is reasonable to believe that TMTs with a large number of executives with a degree in arts, science, or engineering will be less focused on profits and self-interest. Instead, they tend to focus
on satisfying all stakeholders and thus may be less inclined to have a more positive record in terms of response and remedy efforts to environmental and health violations. In contrast, TMTs with a predominant number of executives holding a degree in business and economics, or law may be more profit-oriented and focused on self-interest. These TMTs thus may possess a more negative record in terms of response and remedy efforts to environmental and health violations.
Proposition 1c: TMTs with a predominant number of executives with a degree in arts, science, or engineering will be more positive in terms of response and remedy efforts regarding corporate environmental and health violations.
Proposition 1d: TMTs with a predominant number of executives with a degree in business and economics, or law will be more negative in terms of response and remedy efforts regarding corporate environmental and health violations.
3.1.2 Tenure
Tenure, also referred to as length of service (Daboub et al., 1995), refers to the number of years executives are employed within the office. More specifically, only tenure in the TMT is considered. Although alternative measures for tenure exist (e.g. organizational tenure), tenure in the TMT is used since it serves as a central indicator of the notion tenure (Finkelstein & Hambrick, 1990). According to Goll et al. (2001), a longer tenure was associated with greater commitment to existing conditions and group think, which in turn led to worse decision-making and/or decreased performance (Carpenter, 2002; Goll et al., 2001).
On the other hand, studies have found a positive effect of longer tenure. According to Miller (1991), executives can easily be replaced if they perform badly. In turn, it is evident that longer-tenured executives that have shown to perform well in the past are no longer interested in their own aggressive corporate achievements (Clinard & Yeager, 1980; Miller, 1991). It may be that these executives are less involved in corporate environmental and health violations, since they are unlikely to behave unethically. Such an assertion is confirmed by Kelley, Ferrell, and Skinner (1990). Their results indicated that the perceptions of marketing researchers with ten years or more of experience were more ethical than the perceptions of their equals with three to five years of experience (Kelley et al., 1990). To conclude, Huang (2013), Tihanyi et al. (2000), and Wiersema and Bantel (1992) found a positive relationship between CEO tenure and CSR performance, TMT tenure and international diversification, and TMT tenure and strategic change, in that order (Huang, 2013; Tihanyi et al., 2000; Wiersema & Bantel, 1992).
