Multinationals and human rights : the effect of corporate governance and entry mode on the way MNEs provide remedy

UNIVERSITY OF AMSTERDAM

Multinationals and

Human Rights

The effect of corporate governance and entry

mode on the way MNEs provide remedy

Renée Bijvoets 10074201 29-06-2015

MSc Business Administration – International Management University of Amsterdam

Supervisor: Dr. M. K. Westermann-Behaylo Second reader: Francesca Ciulli

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Statement of originality

This document is written by student Renée Bijvoets 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.

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Acknowledgements

With this thesis I am concluding the business ‘chapter’ of my student life. I will still continue studying at the University of Amsterdam next year, but will do a master in International Development Studies at the Graduate School of Social Sciences. The subject of human rights and multinationals has the overlap between international business and international development, which is exactly what excites me about these topics. Writing this thesis was the best possible preparation for next year and I hope to continue with this topic in my future career as well.

I want to thank Dr. Michelle Westermann, my thesis supervisor, for her guidance into this new and interesting topic. My sincere appreciation goes out to her for her continuous enthusiasm and feedback throughout the whole process. Furthermore, I would like to thank my mother, Fransis Bijvoets, my brother Stefan Bijvoets, and my boyfriend, Maarten Alblas for their support while writing this thesis. By now, I believe they know as much about human rights violations as I do, as I perhaps talked a bit too much about all the different multinationals that violated human rights. Lastly, I particularly want to thank Stefan Bijvoets and my cousin Sabine Balk for taking the time to read through my thesis a final time, their recommendations definitely helped me complete my thesis.

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Table of content

Abstract

p. 7

Introduction

p. 9

Literature review

p. 12

- UN guiding principles on remedy p. 12

- Entry mode p. 15

- Traditional and social risk p. 16

- Institution-based Theory p. 21

- Corporate governance p. 26

- Existing research gap p. 28

Conceptual Framework

p. 30

- Entry mode and remedy p. 30

- Corporate governance and remedy p. 32

Methods

p. 37

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Results

p. 48

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Discussion

p. 57

- Summary and findings p. 57

- Theoretical contribution p. 59

- Managerial implications p. 60

- Limitations and suggestions for future research p. 61

Conclusion

p. 64

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Index of Tables and Figures

Figure 1: Continuum model p. 23

Figure 2: Visualisation of the conceptual framework p. 36

Table I: Frequencies of the human rights violations p. 41

Table II: Corporate governance of the countries in the sample p. 43

Table III: Overview of variables and sources p. 46

Table IV: Descriptive statistics and correlations p. 48

Table V: Regression results for models 1, 2 and 3 p. 50

Table VI: Regression results for models 4 and 5 p. 50

Table VII: Descriptive statistics and correlations - natural resources p. 54

Table VIII: Descriptive statistics and correlations - apparel and textile p. 54

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Abstract

The purpose of this study is to investigate the relationship between the variables corporate governance and entry mode and the way in which Multinational Enterprises (MNEs) provide remedy after being accused of violating human rights. Regarding corporate governance, this study focusses on whether a shareholder orientation or a stakeholder orientation is more or less likely to influence the way in which a company provides remedy. It is expected that MNEs with a stakeholder orientation are more likely to provide positive remedy than MNEs with a shareholder orientation. Furthermore, this study also investigates the effect of the entry mode on the type of remedy provided by the MNE. More specifically, this study focusses on different types of entry mode (e.g. contractual agreements, joint ventures, or wholly owned subsidiaries) and their effect on the remedy provided by the MNE. It is expected that MNEs entering foreign markets through contractual agreements are less likely to provide positive remedy, while MNEs operating through joint ventures or wholly owned subsidiaries are more likely to provide positive remedy. To investigate these relationships, a quantitative study is chosen for which linear regression analyses are conducted. The results, however, do not support any of the hypotheses. Regarding corporate governance and remedy, the proposed effect is not significant, while regarding entry mode and remedy, the proposed effect is significant but opposite of what was expected. These findings indicate that MNEs operating through contractual agreements are actually more likely to provide positive remedy, while MNEs operating through joint ventures of wholly owned subsidiaries are less likely to provide positive remedy.

Keywords: Corporate governance – stakeholder orientation – shareholder orientation – entry mode – contracts – joint ventures – wholly owned subsidiaries – remedy

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1.

Introduction

In 1948, the General Assembly of the United Nations adopted the International Declaration on Human Rights. It included specific rights related to labour issues, such as the right not to be subjected to slavery, servitude or forced labour (Ruggie, 2013). When in 2014 the second report of the Global Slavery Index was released, it estimated that 35.8 million people were still enslaved and forced to labour. Much of this forced labour occurs in sweatshops and other factories in developing countries that produce the products for multinational corporations, which in turn are sold to consumers in the developed world (Global Slavery Index, 2014). Even though the International Declaration on Human Rights has been adopted for over 65 years, protecting human rights is still a pressing issue, especially in relation to the activities of Multinational Enterprises (MNEs).

Multinational business activities have increased since the 1990s, due to increased globalisation, privatisation of governmental organisations and liberalisation of trade (Ruggie, 2013). Furthermore, governments have been stimulating the activities of MNEs through economic liberalisation, while technological advancements made it easier to conduct business in multiple countries simultaneously (Ruggie, 2013). However, there has also been a downside to this increased global business activity. That is, corporations operating on a global scale cannot be held accountable by a global institution or regulation system (Ruggie, 2008). Regarding human rights and MNEs, this constitutes a problem when the MNE operates in an emerging market where the regulatory system is underdeveloped. In that case, the regulatory system is unable to offer protection and this could increase the risk of human rights violations by MNEs (Waddock, 2008).

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To bridge the gap in the global governance system, the United Nations appointed John Ruggie to supervise the process of developing guidelines between business and human rights (Ruggie, 2013). Ruggie collaborated with governments, corporations, and civil society organisations, to develop the Guiding Principles on Business and Human Rights (Ruggie, 2013). In 2008 he presented the “Protect, Respect and Remedy” framework, consisting of three pillars that explain the responsibility for states (to protect), for corporations (to respect) and for both (to provide remedy) (Ruggie, 2013).

This study will focus on the third pillar, specifically, on the different ways companies provide remedy after the accusation of a human right violation. Remedy includes different forms of financial and non-financial measures to compensate those whose human rights were harmed (UNHRC, 2011). The focus in this study is on two factors that influence the likelihood that a corporation will provide a remedy to human rights claimants. The first factor that is expected to determine if and how remedy is provided is the way corporations are governed (Aguilera & Cuervo-Cazurra, 2009), or the corporate governance regime held by the firm. The second factor on which this study focus is the different ways through which firms have entered a foreign market, or the entry mode decision (Pan & Tse, 2000).

As discussed above, the first variable related to the way a firm provides remedy is corporate governance. Corporate governance defines the way in which decision-making power is distributed within the firm (Aguilera & Jackson, 2010). Companies can differ in terms of their corporate governance, meaning that they are either more stakeholder or more shareholder orientated (Aguilera & Cuervo-Cazurra, 2009). The main purpose of companies with a shareholder orientation is to maximize profit for those who have a financial stake in the firm (i.e. the shareholders) (Friedman, 1970). In these firms, decision-making is balanced between shareholders and management (Rossouw, 2008). On the other hand, companies with

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a stakeholder orientation aim to balance the interests of a variety of groups, including employees, suppliers and NGOs (Freeman, 1984). Decision-making power is distributed among these different stakeholders (Rossouw, 2008). The corporate governance orientation of an MNE is likely to influence whether and how companies provide remedy after being accused of violating human rights.

Secondly, the role of entry mode is investigated as a factor influencing whether and how an MNE provides remedy. Entry mode is the way a firm expands its operations into a foreign market (e.g. by means of export, partnering in a joint venture, or setting up a wholly owned subsidiary) (Pan & Tse, 2000). This is an important variable to include since different types of entry modes determine the involvement of the corporation, in terms of responsibility, risk, control, and resource commitment (Pan & Tse, 2000). Once a company has opted for a specific entry mode, levels of commitment, control, and responsibility entailed in that choice are likely to influence the way in which a company responds to an accusation of violating human rights.

In short, this study will examine the way entry mode and corporate governance affect the type of remedy provided by a MNE. Therefore, the following research question is proposed: “To what extent do entry mode and corporate governance influence the type of

remedy a company provides after the accusation of human rights violation?”

There are different ways in which this study contributes. To start with, the research on MNEs and human rights is a relatively new domain and there is a general high demand for more studies on this topic (Hamann, Sinha, Kapfudzaruw & Schild, 2009). Especially studies that increase the knowledge about the influence of the institutional framework are requested by multiple authors (Campbell, 2007; Jones, 1999; Lim & Tsutsui, 2012; Waddock, 2008).

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This study contributes by providing more insight into the role of the corporate governance orientation, which is influenced by the home country institutional framework (Peng, Wang & Jiang, 2008). In addition, this study focusses on how different types of entry mode are associated with different types of risk (Pan & Tse, 2000; Brouthers & Hennart, 2007), specifically social and political risks (Kytle & Ruggie, 2005). Entry mode is key in understanding the way in which MNEs provide remedy, based on their direct or indirect exposure to these risks, which depends on their entry mode decision into foreign markets (Pan & Tse, 2000). Furthermore, this study works with a new database that provides information on a wide range of accusations of human rights violations by companies. Given the general lack of empirical evidence (Hamann et al., 2009), the use of this database and the opportunity of this study to gain more empirical insights into this topic is very important.

The remainder of this study is used to investigate the research question. The next section describes the theoretical framework in which the relevant concepts will be discussed. This is followed by the third section, in which the conceptual framework will be presented and the hypotheses will be developed. In the fourth section the research design and method will be explained, followed by an overview of the results. These results will be discussed after which a conclusion is made.

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2. Literature Review

In this section, the literature related to multinationals and human rights will be discussed. The first focus will be on the remedy pillar of the framework proposed by Ruggie (2013). Next, a discussion of the two factors that are expected to influence the type of remedy a company provides will follow. The literature on international business is explored to elaborate on the concepts of corporate governance and entry mode. This leads to the specific framework this paper aims to address, which will be elaborated on the third section.

a. UN guiding principles on remedy

Although human rights are considered a moral concept, institutions such as the United Nations formalise these rights as a more practical concept to be able to better protect them (Wettstein, 2012). Hence, human rights are the ‘basic’ claims that every person is entitled to, and that ensure the possibility for every human being to live in dignity. The violation of these human rights is seen as a form of humiliation, as it disregards the quality of a human being’s life (Wettstein, 2013). Since 1948 the International Declaration of Human Rights aims to protect this fundamental right of every human being on this planet (Ruggie, 2013).

However, the problem remains that human rights are still violated and one of the leading actors involved in these violations are corporations (UNHRC, 2011). Especially MNEs that operate in emerging countries face an increased risk of violating human rights, due to the lack of developed regulatory systems in the host countries (Waddock, 2008). Holding these MNEs accountable for their overseas activities on a global scale remains a pressing issue (Ruggie, 2013). This is the reason that in in 2005 the United Nations started to develop the Guiding Principles on Business and Human Rights. This was completed with the proposal of the “Protect, Respect and Remedy” Framework by Ruggie (2008). The

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framework proposes that the responsibility of states is to protect human rights, the responsibility of corporations is to respect human rights and there must be remedy for those whose human rights were harmed (Ruggie, 2013).

The remainder of this study will focus on the third pillar, namely the process of providing remedy after a human right has been violated. The first and fundamental principle regarding remedy argues that states have the responsibility to provide access to remedy for those affected. This could be through judicial, administrative, legislative or other appropriate means (UNHRC, 2011). According to the UN guiding principles, “remedy may include apologies, restitution, rehabilitation, financial or non-financial compensation and punitive sanctions (whether criminal or administrative, such as fines) as well as the prevention of harm through, for example, injunctions or guarantees of non-repetition” (UNHRC, 2011, p. 27). The UN argues that remedy can be sought through the ‘grievance mechanism’ that states should provide. A grievance is understood “to be a perceived injustice evoking an individual’s or a group’s sense of entitlement, which may be based on law, contract, explicit or implicit promises, customary practice, or general notions of fairness of aggrieved communities” (UNHRC, 2011, p. 27).

The UN Guiding Principles on Business and Human Rights focus on the role of corporations. Therefore, the framework also includes non-state-based actors, such as business enterprises or industry organisations (UNHRC, 2011). These non-state actors can also provide remedy through their own grievance mechanism, often administered by the business enterprise alone or in collaboration with stakeholders. The grievance mechanisms that this group uses are mostly non-judicial, but may use adjudicative, dialogue-based or other means that are culturally appropriate with existing rights (UNHRC, 2011). Lastly, for these business enterprises (often MNEs) the framework also includes several criteria to ensure the

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effectiveness of the remedy provided. These criteria for effective remedy are the following: “legitimate, accessible, predictable, equitable, transparent, rights compatible, a source of continuous learning, and finally based on engagement and dialogue” (UNHRC, 2011, pp. 33-34).

As the concept of remedy is of a more normative nature, it is also important to look at the types of response and remedy companies actually provide after being accused of human rights violations. Since starting in 2002, the Business and Human Rights Resource Centre (BHRRC) has been collecting newspaper articles, press releases and other types of information about human rights violations related to companies. The BHRRC also collects responses of companies regarding these violations and even offers them the opportunity to respond to the articles posted on their website (CHRD, 2015). Therefore, this resource centre offers a record of a wide variety of remedies and responses that companies provide after the accusation of a violation (CHRD, 2015).

Although the BHRRC is a very helpful centre for collecting information on human right violations, it lacks overview and organisation. Therefore, the Corporate and Human Rights Database (CHRD), a project of Oxford University and the University of Denver, works on creating a more user-friendly database, based on the information collected by the BHRRC. One of the variables included in the CHRD is the type of response a company offers. The responses vary from denial in various forms, to acknowledgement and apologies, to even plans for change (CHRD, 2015). In some cases the CHRD also provides more detailed information about the actual remedy the firm has offered. Types of remedy can vary between financial and financial compensation (CHRD, 2015). An example of non-financial compensation is the way Nike Inc. provided remedy after the accusation of violating human rights. In 2008 an Australian journalist revealed evidence that in Nike’s overseas

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supplier in Malaysia labourers lived and worked under poor conditions and management was withholding the passports of emigrant workers. Nike immediately responded by offering alternative housing for the workers, made sure they were given access to their passports and installed a 24-hour hotline for workers to report other violations (Sage, 2008). This case shows that Nike, a company that has been dealing with accusations of human rights violations since the early 1990s, has changed their way of responding. Over time, they have shifted from denying the accusations towards quickly responding and providing remedy (Sage, 2008). This study makes use of the information included in the Corporate and Human Rights Database about the type of corporate response and remedy, in order to establish the type of remedy a company provides after being accused of violating human rights.

b. Institution-Based Theory

An increasingly important theory in the international business literature is the institution-based view of the firm (Peng, Wang & Jiang, 2008). The two authors that laid the fundaments for the institutional theory are Oliver North and Dick Scott. To start with, North defines institutions as “the humanly devised constraints that structure human interaction” (North, 1990). The idea is that institutions set “the rules of the game” in which organisations interact with each other. North distinguishes between formal and informal constraints that combined make up the institutional framework in which companies operate. Formal institutions relate to laws and regulations, whereas informal institutions relate to norms and cognitions (Peng et al., 2008). Scott (1995), who defines institutions as “regulative, normative, and cognitive structures and activities that provide stability and meaning to social behaviour” (p. 33) proposed a related theory. The institutional-theory argues that organisations are embedded in the institutional framework of the country in which they operate, and this institutional

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framework is expected to influence decision-making within the organisation (Peng et al., 2008).

In the case of MNEs, where there is both a home and a host country, the institutional framework plays an important role. Regarding human rights, the regulatory elements of the institutional framework influence the protection of these rights. Generally, providing protection is the responsibility of the state in which the activity occurs (Ruggie, 2008). However, when states proved unable to protect human rights, pressure groups such as the media, NGOs and activists turned to MNEs and their home countries to hold them responsible for their violations (Kytle & Ruggie, 2005). This has turned the protection of human rights into an issue for MNEs and for their home countries as well (Waddock, 2008). The home countries of MNEs that have a better developed institutional framework can help by transferring best practices from their country to the less developed host countries through these MNEs (Cragg, Arnold & Muchlinski, 2012). Transfer of best practices is influenced by the home country institutions and the corporate governance of the MNE, which will be discussed in the next section.

c. Corporate governance

The debate about corporate governance started in the United States and the United Kingdom (Aguilera and Jackson, 2010) and was sparked by the corporate scandals of the 1980s (Haxhi & Aguilera, 2012). Aguilera and Jackson (2010, p. 487) broadly define corporate governance as “the study of power and influence over decision making within the company”. Hence, the focus of the debate is on the distribution of responsibility and decision-making, especially within companies where management and ownership are separated. There are two regulatory systems through which corporate governance can work: through hard laws, like statutory rules, which is common in the United States, illustrated by the Saxon-Oxley Act of 2002, on

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the one hand, and through soft laws, such as codes of good conduct (Haxhi & Aguilera, 2012) on the other.

These codes of good conduct can be defined as a set of “best practices” and they are the main regulatory instrument in shaping corporate governance related issues (Aguilera & Cuervo-Cazurra, 2009). Codes of good governance for instance explain the appropriate functioning of the board of directors. Codes can be designed at different levels such as the international, national or individual level (Haxhi & Aguilera, 2012). They can also be issued by different institutions, such as the government, stock exchange markets, or employer associations (Aguilera & Cuervo-Cazurra, 2009). In general codes are characterised as non-binding, voluntary, self-regulatory and flexible mechanisms for improving the quality and accountability of the company adopting the codes (Haxhi & Aguilera, 2012). So far, the focus has been on codes of corporate governance. However, codes can also explain “best practices” regarding suppliers, which is relevant for MNEs operating through suppliers in developing countries. This will be further discussed when the conceptual framework is established.

A more specific definition of corporate governance is the following: “the structure of rights and responsibilities among the parties with a stake in the firm” (Aoki, 2000, p. 11). The debate about which parties have a stake in the firm is one that has been going on for a long time. The traditional perspective of Friedman (1970) holds that the only responsibility of the firm is towards its shareholder and their goal is profit maximisation. According to this view, the only group that has a legitimate stake in the firm are the shareholders. The responsibility of management is solely towards this group and the decisions are made in order to maximise profit (Friedman, 1970). Freeman’s view (1984), on the other hand, is aimed at broadening the concept of strategic management beyond the traditional shareholder perspective. It is termed the stakeholder perspective of corporate governance. Stakeholders are defined as “any

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group or individual who is affected by or can affect the achievement of an organisation’s objectives” (Freeman, 1984, p. 46). Stakeholders can be a wide range of groups that are influenced by or can influence the firm, for example employees, suppliers, consumers and civil society groups (Jones, 1999). In this view, the integration of interests of all stakeholders is central to the success of the firm (Freeman, 1984).

Whether firms are shareholder-oriented or stakeholder-oriented is influenced by the institutional framework of the country that the firm is embedded in (Williamson, 2000). From a country perspective on corporate governance, there are two dominant models that take either the shareholder or the stakeholder perspective. These models are the Anglo-Saxon (or Anglo-American) and the Rhineland (or Continental Europe) model (Aguilera & Jackson, 2003). The shareholder corporate governance regime relates to the Anglo-Saxon model, whereas the stakeholder perspective and the Rhineland model are also related (Aguilera & Cuervo-Cazurra, 2009).

The Anglo-Saxon model is characterised by the following: “financing through equity; dispersed ownership; active markets for corporate control; and flexible labour markets” (Aguilera & Jackson, 2003, p. 447). Thus, firms from Anglo-Saxon countries are mostly financed through a large and diverse group of shareholders. These shareholders tend to have a relatively short-term commitment towards the firm and are more risk-taking than for instance debt-holders. Regarding employees and corporate governance, their role is often defined in terms of their ability to influence decision making within the corporation (Aguilera & Jackson, 2003). Employees in Anglo-Saxon or shareholder countries tend to switch jobs more often and develop skills that are easily transferred to other firms. These employees tend to have a short-term commitment towards the firm and often have little control over decision-making within the firm (Aguilera & Jackson, 2003).

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The Rhineland model, on the other hand, is characterised by opposing elements: “long-term debt finance; ownership by large blocks; weak markets for corporate control; and rigid labour markets” (Aguilera & Jackson, 2003, p. 447). Firms from Rhine-land countries are mostly financed by debt or large groups of equity holders. The commitments of these financial investors are relatively long-term and they tend to prefer stable growth over risk-taking. Employees in Rhineland or stakeholder countries often develop skills specific to the firm, these employees are less likely to switch from employer than employees from an Anglo-Saxon country. These employees show higher long-term commitment and are more dependent on the performance of the firm. Furthermore, these employees often do have more influence in decision-making (Aguilera & Jackson, 2003).

In summarise, firms with a shareholder or from an Anglo-Saxon country tend to focus only on the interests of the shareholders, and tend to be more short-term oriented and risk-taking. Whereas firms with a stakeholder orientation or from a Rhineland country aim to balance the interests of a variety of stakeholders, including employees and suppliers. They are more long-term oriented and keener on avoiding risk than shareholder oriented firms. These differences in corporate governance are very likely to affect the way in which a firm provides remedy after being accused of violating human rights.

The work of Rossouw (2008) is helpful to understand which countries are considered shareholder oriented and which are considered stakeholder oriented. This study is based on a survey that was conducted on business ethics and corporate governance in different countries from all regions: Africa, Asia-pacific region, Europe, Japan, Latin America and North America. This survey investigated the focus of firms and their alignment of interests towards individuals (employees, suppliers, and customers), corporations, and society. Whether a firm aims to balance the interests of these three groups depends on the corporate governance

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practices by that firm. As stated before, stakeholder oriented firms aim to balance the interests of a wide variety of stakeholders, such as individuals and society, together with the interests of the firm. On the other hand, if the firms in a country are not focussed on aligning these perspectives, they are characterised as shareholder oriented. This conceptualisation of shareholder and stakeholder orientation relates to the previous discussion and again, whether firms aim to balance the interests of the corporation with the interests of society and individuals is likely to influence the remedy provided by the firm.

Rossouw (2008) developed an overview of countries and their dominant orientation. The following countries belong to the Anglo-Saxon model and have a shareholder corporate governance orientation: Argentina, Australia, Brazil, Chile, Colombia, Czech Republic, Finland, Ireland, Mexico, Nigeria, Peru, Portugal, Singapore, Sweden, Switzerland, United Kingdom, USA, and Venezuela. Countries from a Rhineland model or with a stakeholder orientation of corporate governance are: Belgium, China, Denmark, France, Germany, Ghana, Hungary, India, Italy, Japan, Kenya, Lithuania, Malawi, Mauritius, The Netherlands, Poland, Romania, Russia, Slovakia, South Africa, Spain, Tanzania, Turkey, Uganda, Zambia, and Zimbabwe (Rossouw, 2008). Lastly, Canada was considered a hybrid case. Ownership is often concentrated and family controlled (Rossouw, 2008) which indicates more long-term commitment similar to the Rhineland countries. The survey also showed that the Canadian population expects firms to move beyond their traditional economic role, towards a broader focus on society (Rossouw, 2008). Therefore, Canada is considered as a country with a stakeholder or Rhineland corporate governance focus.

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d. Entry mode

The type of corporations this study focusses on are Multinational Enterprises (MNEs). Understanding the role of MNEs with regards to human rights violations requires further consideration of the literature on international business, as the MNE is the primary entity of discussion in this research area. Buckley and Casson (2009) define an MNE as “a firm that owns and controls activities in two or more different countries” (p. 1564). To be considered an MNE, firms have to enter markets other than their domestic or home country market. The way in which a company expands its activities into other foreign markets is called the ‘entry mode decision’ (Pan & Tse, 2000). There are different ways for entering these foreign markets, for example through contractual agreements with local suppliers, setting up a foreign division in collaboration with a (local) partner, or by establishing a subsidiary in the host country that is fully owned by the MNE (Brouthers & Hennart, 2007).

The three types of entry mode that are commonly acknowledged in the literature are contracts, Wholly Owned Subsidiary (WOS) and Joint Venture (JV) (Brouthers & Hennart, 2007). Various perspectives explain the differences between these types of entry mode (Brouthers & Hennart, 2007). One of these perspectives argues that the different types of entry mode can be placed on a continuum. The continuum distinguishes the entry mode types based on control, risk exposure, profit and resources invested by the MNE (Brouthers & Hennart, 2007).

Control is based on the ability of the MNE to exert direct influence over decision-making procedures within the overseas affiliate. An MNE that operates through a JV or a WOS, has direct control over the foreign subsidiary. That is why these entry modes yield higher levels of control. By contrast, MNEs operating through a contractual agreement cannot directly influence decision-making within the overseas supplier. These MNEs can put

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pressure on the supplier, because the supplier runs the risk that the MNE will switch partners. However, this is only an indirect form of control, which is why entry through contractual agreements is associated with low forms of control for the MNE (Pan & Tse, 2000).

In addition, the amount of risk an MNE is exposed to by operating on a foreign market is also influenced by the entry mode choice. Although this will be discussed in more detail later, please note that MNEs that operate through contractual agreements will share little of the risk of operating in foreign markets as most of the risk is carried by the local partner. MNEs that have partnered with another organisation to enter the foreign market carry only part of the risk. These MNEs are therefore faced with moderate risk, whereas operating through a WOS is associated with the highest levels of risk, since the MNE is solely responsible for the overseas subsidiary (Brouthers & Hennart, 2007).

Lastly, the amount of resources invested by the MNE is also important, because it determines the commitment of the MNE towards its foreign operations. For an MNE operating through contractual agreement the commitment will be relatively low, since it has the option to switch suppliers, the investment in resources (i.e. labour, capital and knowledge) will be low (Pan & Tse, 2000). MNEs operating through a JV will have invested some amount of capital in the affiliate and are therefore more committed to the long-term. Finally, an MNE that enters a foreign market through a WOS, will have to invest the highest amount of resources in the subsidiary, thereby carrying the highest risk and responsibility for the affiliate (Brouthers & Hennart, 2007).

Hence, one on side of the continuum are the entry mode types placed with low levels of control, commitment, and risk. MNEs that enter a foreign market through a contractual agreement are expected to have these low levels of control, commitment, and risk regarding

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the overseas supplier. Nike is one of those companies that typically operate through contractual agreements with overseas suppliers (Sage, 2008). When Nike was accused of violating human rights in the beginning of the 1990s, Nike stated that it did not carry the direct control over and responsibility of its suppliers and was therefore not involved in violating human rights (Sage, 2008). Although the way Nike responds has changed over time, MNEs operating through contractual agreements are often indirectly involved in the human rights violations committed by their suppliers, which influences the way they provide remedy after accusations.

On the other side of the continuum are the high levels of control, commitment, and risk. Entry in a foreign market through WOS is associated with these high levels. British Petroleum (BP) is one of those MNEs that operate on the foreignmarket through fully owned subsidiaries.. When BP was accused of harming the local community due to its oil exploration activities in Colombia, the MNE could not use the argument that a local partner or supplier was responsible for the violation (Bader, 2013). Lastly, Joint Ventures are placed in the middle of the continuum, with medium levels of control, commitment, and risk (Brouthers & Hennart, 2007). The continuum model is visualised in Figure 1 below.

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Related to the continuum perspective, is the hierarchical model of entry modes developed by Pan and Tse (2000). This model distinguishes between equity entry modes and non-equity entry modes. Within equity entry modes there is the choice between a Joint Venture (JV) and a Wholly Owned Subsidiary (WOS). Non-equity entry distinguishes between export and contractual agreements (Pan & Tse, 2000). The hierarchical model relates closely to the continuum model, but makes a clearer distinction between contracts on the one hand and WOSs and JVs on the other. Equity entry mode is characterised by the commitment of resources, ongoing direct management of the subsidiary, and continuous interaction with local players (Pan & Tse, 2000). Similar to the characteristics of WOSs and JVs based on the continuum model, which characterises these entry modes as having high levels of risk exposure, control and resource commitment (Brouthers & Hennart, 2007). Moreover, the hierarchical model characterises non-equity entry modes as one that is more flexible, has lower levels of investment and lower interaction with the local market (Pan & Tse, 2000). This is similar to the way in which contracts are characterised by the continuum model, namely showing low levels of control, risk exposure, and resources commitment (Brouthers & Hennart, 2007).

In addition, the hierarchical model argues that there are multiple factors influencing the choice between equity and non-equity: host country factors, risk orientation, power distance, interaction between home and host country and industry factors (Pan & Tse, 2000). These factors will not further influence decision-making once the choice between equity and non-equity is made. Therefore, the authors propose a hierarchical model of entry mode (Pan & Tse, 2000). However, location and host country risk are particularly important for this study, as they help to explain why MNEs might provide remedy in a different way based on their entry mode. First of all, location matters for MNEs operating through an equity entry

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mode, because these MNEs are directly influenced by local competition, regulation, and culture. By contrast, MNEs operating through a non-equity entry mode such as contracts are not directly affected by for instance local competition or local regulation (Pan & Tse, 2000). Host country risk and particularly contextual factors such as political risk and instability in the host country are even more important. Again, this holds especially true for MNEs operating through an equity entry mode, whereas MNEs operating through a non-equity entry mode are only indirectly affected by these risks (Pan & Tse, 2000).

Bearing in mind human rights, these factors show that for MNEs entering a country through a WOS or JV (equity entry), it is also much more important to consider the risk of violating human rights before entering that country. MNEs operating through contractual agreements (non-equity entry) only face indirect risks of violating human rights and are therefore less likely to consider these risks thoroughly before entering. The same argument can be used when these MNEs are accused of human rights violations. An MNE using contracts can switch more easily and is only indirectly related to the violation, leading to the expectation that this MNE is less likely to provide remedy. An MNE that operates through a JV or WOS, however, engages in a long-term commitment and is therefore expected to manage the risk of \human rights violations in the future, and will therefore provide some sort of a remedy.

Different types of risk and their influence on human rights violations will be discussed in more detail below. This study will use both the hierarchical model of Pan and Tse (2000) and the continuum model (Brouthers & Hennart, 2007) as a basis for the development of the hypotheses on entry mode and remedy provided by MNEs.

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e. Traditional and Social Risk

As mentioned above, different types of entry mode are associated with different levels of risk (Brouthers and Hennart, 2007). Traditionally, the risks assessed by companies before entering a country are of an economic, political or technological nature (Kytle & Ruggie, 2005). Economic risks relates to topics such as profits, sustained growth and shareholder value. Whereas technological risks are associated with new technologies that can possibly upset the existing technological order. Lastly, political risks are associated with government relations and the legal environment in which the firm operates. This is especially relevant for multinational companies operating in unstable political environments. For example, firms operating in countries where an unpopular regime is in power have to consider the possible effects of these operations on the company’s public image. As was already mentioned above, political risk also increases the likelihood that an MNE may cause human rights violations. These traditional risks are well-known to companies and are assessed by firms before entering a foreign country through different types of risk assessment tools (Kytle & Ruggie, 2005).

Kytle and Ruggie (2005) propose a fourth type of risk, referred to as social risk, that firms should also assess in addition to these traditional risks. As mentioned before, business activity has globalized rapidly since the 1990s (Ruggie, 2013), due to better global communication systems, changes in technology and liberalization of markets (Kytle & Ruggie, 2005). Worldwide business activity also brings different sorts of vulnerabilities and uncertainties, especially for MNEs operating in developing countries. Operating in these developing markets increases the risk of violating human rights, either directly through subsidiaries or indirectly through suppliers (Waddock, 2008). However, global connectivity also creates power for external pressure groups, such as activist groups and NGOs (Kytle &

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Ruggie, 2005). These stakeholders put pressure on companies in order to change their behaviour. From the perspective of the firm, social risk is then the perceived pressure put on the corporation, aimed at stimulating the company to change its policy and operations (Kytle & Ruggie, 2005).

Companies have become more vulnerable to this type of external pressure, because their most valuable assets are often based on goodwill, reputation or human capital (Waddock, 2008). Hence, maintaining good relations with external groups, such as these NGOs and activists, has become increasingly important. Especially MNEs that operate on a large and global scale are considered powerful entities that should be able to either adjust their own behaviour or put pressure on their suppliers. Different organisations attempt to facilitate this change by means of, for example rankings, activism, and peer pressure (Waddock, 2008).

To deal with these external pressure groups, Kytle and Ruggie (2005) suggest that social risk management should be embedded in the strategy of the company. Hence, social risk should also be considered in relation to the entry mode decision an MNEs makes, as this is a strategic decision (Pan & Tse, 2000). As discussed before, risk is perceived to be higher for MNEs entering a foreign market through an equity mode (for example JVs or WOSs), while risk is often considered to be lower for MNEs operating through a contractual entry mode (or a non-equity entry mode). With equity entry modes there is a direct involvement of the MNE in the local subsidiary (Pan & Tse, 2000), which is why pressure groups have a more legitimate claim against these MNEs. As the MNE directly controls the subsidiary (Pan & Tse, 2000), it is also responsible for the subsidiary to prevent human rights violations. On the other hand, pressure groups have a less legitimate claim on MNEs operating through contractual agreements, as in this case, the MNE has only indirect control over the actions of

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their local partner (Pan & Tse, 2000). Although pressure groups often hold MNEs responsible for their overseas suppliers as well (Waddock, 2008), it is more difficult to determine to what extent the MNE can influence this overseas supplier, than in the case of a JV or WOS.

To conclude, social risk also relates to the other variable studied, namely corporate governance. As discussed, corporate governance deals with the distribution of decision-making power within the firm, and determines whether stakeholder groups have influence or not (Aguilera & Jackson, 2010). Social risk deals with the different ways in which these stakeholders groups exert their power on companies, mostly by pressuring the organization into changing its behaviour (Kytle & Ruggie, 2005). Whether the MNE is more shareholder or stakeholder oriented will influence the extent to which the MNE will consider human rights violations as their responsibility. An MNE which has a stakeholder corporate governance regime, is more likely to respond to social pressure, as stakeholder oriented firms aim to balance the interests of individuals, society and the corporation (Rossouw, 2008). By contrast, MNEs that have a shareholder corporate governance focus their attention on profit maximization of the shareholder (Friedman, 1970), and are therefore less likely to respond to these social risks.

f. The existing research gap

Human rights in relation to multinational organisations is a relatively new research domain. Therefore, all studies on this topic, particularly empirical studies may contribute to the existing research gap (Hamann et al., 2009). For this particular study a new database was used that is unique in its kind. Any findings based on such a unique and comprehensive dataset will definitely contribute to the existing research gap.

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Moreover, this study investigates two important variables that are expected to influence the way a company provides remedy after being accused of violating human rights. Corporate governance is an important variable to study, because it is part of the institutional framework, regarding which there is a high demand for more studies (Campbell, 2007; Jones, 1999; Lim & Tsutsui, 2012; Waddock, 2008). Entry mode is another important variable to study, as it deals with the effects of risk related to human rights violations (Pan & Tse, 2000; Kytle & Ruggie, 2005). Hence, the research question of this study is: To what extent do entry

mode and corporate governance influence the type of remedy a company provides after the accusation of human rights violation?

The hypotheses based on the theory discussed above will be developed in the next section. The relation between corporate governance and remedy will be explained first. Followed by a discussion of the ways in which different sorts of entry mode can influence remedy provided by an MNE.

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3. Conceptual framework

This section will elaborate on the discussed theories of the literature review and will lead to the development of the hypotheses. The concepts explained before - entry mode and corporate governance - are related to the different ways a company will provide remedy.

a. Corporate governance and remedy

This study also focusses on the difference between a stakeholder and a shareholder orientation of the MNE. Corporations are embedded in the institutional framework of the home country, which influences the decision-making within the company (Peng et al., 2008). The overall dominant model within a company is either a shareholder (Anglo-Saxon country) or a stakeholder (Rhineland country) orientation. In the Anglo-Saxon model the responsibility of management is to maximize profit for the shareholders (Friedman, 1970), whereas according to the Rhineland model, management has to balance the interests of a multitude of stakeholders, such as employees, suppliers and activist groups (Freeman, 1984).

MNEs that are from a home country with a shareholder orientation are expected to take human rights violations in foreign countries into account less, as providing effective remedy is not necessarily in line with maximizing the profit of the shareholders. Although Friedman argues that social initiatives of firms are allowed if this increases the profit of the shareholders (Friedman, 1970), the expectation remains that firms with a shareholder orientation are less likely to provide effective remedy. MNEs that are stakeholder oriented on the other hand, are expected to provide positive remedy. These firms take a multitude of stakeholders into consideration, including their suppliers. Stakeholder theory is further associated with the concept of a global value chain. With this global value chain firms take responsibility for the entire production process, rather than just the activities that occur under

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the direct supervision of the firm (Andersen, & Skjoett-Larsen, 2009). Thus, firms with a stakeholder orientation are more likely to perceive their entire value chain as their responsibility, and are therefore likely to provide more effective remedy in case of a human rights violation.

As suggested by Kytle and Ruggie (2005), there is a different type of risk that MNEs should not neglect: social risk. Social risk is especially associated with the likelihood of violating human rights and is high in developing countries (Kytle & Ruggie, 2005). This results in increased pressure from a multitude of stakeholders, including NGOs, activist groups and the media, which stimulate MNEs to take more responsibility for their overseas suppliers. Consequently, there has been an increase in supplier codes of conduct, in which MNEs often state to monitor their overseas factories and, if necessary, take measures where in order to protect human rights across their operations (Waddock, 2008). Wal-Mart, for instance, has adopted a supplier code of conduct in 1992, stating that Wal-Mart monitors its overseas suppliers. In 2005 the International Labour Rights Forum reports cases of human rights violations by these overseas suppliers and pressures Wal-Mart to take action (Arlook, 2005). Whether, Wal-Mart or other MNEs will provide remedy, as stated in these codes, is expected to be influenced by their corporate governance regime.

Hence, as MNEs with a shareholder perspective feel mostly obliged to maximize the objectives of the shareholders, these MNEs are less expected to provide effective remedy, while MNEs with a stakeholder governance aim at balancing the interests of a wider range of stakeholders, and are therefore more likely to provide effective remedy. This leads to the following hypothesis, which will be investigated in this study:

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Hypothesis 1: MNEs with a shareholder corporate governance model are expected to

provide less effective remedy than those with a stakeholder corporate governance model after the accusation of a human rights violation. In other words, MNEs from a Rhineland country are more likely than those from an Anglo-Saxon country to provide effective remedy after the accusation of a human rights violations.

b. Entry mode and remedy

The other variable this study will focus on is the entry mode a firm has chosen. The first argument stems from the continuum model. This perspective argues that different entry modes vary in terms of resource commitment, control and risk. This entails that these factors will increase as one moves from contracts, to Joint Ventures (JV), to Wholly Owned Subsidiaries (WOS) (Brouthers and Hennart, 2007). With regard to risk, for example, contracts are often associated with the lowest level of risk. JVs are associated with a medium level of risk due to lower investments and shared risk with the partner. WOSs are often associated with a high level of risk due to higher investment and sole responsibility of the MNE for the subsidiary (Brouthers & Hennart, 2007). Risk and other factors, such as control, commitment and resources invested, combined can influence the way in which a company provides remedy after the accusation of a human right violations. In case of a WOS, these factors are high, which is why it is expected that MNEs with a subsidiary in a foreign market will provide positive feedback in case of a human rights violation. As these factors are expected to be the lowest in case of a contract (Brouthers & Hennart, 2007), MNEs operating through this type of entry mode are less likely to provide positive remedy in case of being involved in a human rights violation. In case of a JV, control, risk and resources invested are higher than contractual agreements, but often lower than WOS (Brouthers & Hennart, 2007).

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Therefore, these MNEs operating through a JV are expected to provide moderately positive remedy as well.

A similar argument is based on the hierarchical model of Pan and Tse (2000), and the distinction between equity and non-equity entry is made. Important is the investment made by the MNE and the consequences this has for the type of remedy provided after the accusation of a human rights violation. In case of a non-equity mode, such as contractual agreements with a local supplier, the MNE will not directly invest in any operations in the foreign country. However, in case of an equity entry mode, such as establishing a subsidiary in the foreign market either with or without a (local) partner, there will be some amount of direct investment in the host country (Pan & Tse, 2000). These different modes are associated with differing levels of long-term commitment and sense of responsibility. This study argues that the different levels of long-term commitment and responsibility related to the entry mode are both expected to influence whether the firm will respond positively or negatively to accusations of human rights violations, and whether the firm will provide a remedy. In case of a non-equity entry mode, these factors are low and therefore MNEs are expected to provide a less effective type of remedy, while firms operating through an equity entry mode are associated with higher commitment and responsibility. Therefore, MNEs that have invested equity are expected to provide more effective remedy.

Considering the WOS, the MNE is the only responsible party for the foreign subsidiary. It has full resource commitment, but also carriers all the risks associated with the affiliate (Brouthers & Hennart, 2007). The fact that there is a high level of commitment, control and risk involved, suggests that these MNEs are more likely to take the possibility of violating a human right into account. In addition, it is expected that these MNEs feel more pressure to provide appropriate remedy in case of a human rights violation. A WOS is under

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the full responsibility of the company, which is why stakeholders can expect the MNE to be aware of the human rights situation. When a violation has occurred, it is expected to be more of a pressing issue to provide the right remedy when the subsidiary is fully owned.

In case of a JV, the MNE is partly responsible for the foreign subsidiary. There is a shared commitment of not only resources and investments, also the risks involved (Brouthers & Hennart, 2007). The JV is associated with mediate commitment, control and risk. Therefore, it is expected that an MNE operating through a JV is less likely to take human rights issues into consideration when deciding on the location of its operations. Especially when there is a local partner in the JV, issues regarding the local human rights situation might be seen as a responsibility of the local partner. What’s more, when a human right violation has occurred, JVs might be less likely to take responsibility for remedy provision, as they expect their partner to do so. In addition, the MNE may not be fully aware of the situation and will therefore not take full responsibility for the violation. Hence, MNEs operating through a JV are expected to provide less effective remedy than WOSs. However, these MNEs are also expected to provide more effective remedy than MNEs operating through contractual agreements, which will be discussed next.

Finally, in case of a contract entry mode, there is no direct responsibility for the foreign supplier. Resources and investments are low, as are the levels of commitment and direct risk (Brouthers & Hennart, 2007). Besides, the duration of a contract is much shorter than of a JV or a WOS, so it is expected that firms operating through a contractual entry mode, are the least likely to take responsibility for the human rights violations, because of the low investment, commitment and only indirect responsibility. To summarise, MNEs with a contractual entry mode are least expected to provide effective remedy after the occurrence of a human rights violation.

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Remedy is considered to be either positive or negative. As discussed above, positive remedy ranges from acknowledgement, via apologies and justifications, and plans for change. Whereas, negative remedy includes various types of denial. In quite a lot of instances the MNE does not respond at all (CHRD, 2015). Although this could be considered to be a negative response as well, this study focusses solely on the actual responses provided by an MNE. Looking at non-responses is beyond the scope of this study, but will be discussed in the final part of this study where suggestions for further research are made.

The above has led to a second set of hypotheses, which explore the effect of entry mode on the type of remedy a company provides. Hypothesis 2a reflects the continuum model, whereas hypothesis 2b reflects the hierarchical perspective. Figure 2 on the next page visualizes all three proposed relationships between the effects of corporate governance or entry mode on the type of remedy provided by the company after being accused of violating human rights.

Hypothesis 2a: From a continuum model perspective, when moving on the

continuum from contracts, towards, JVs, towards WOSs, MNEs are more likely to provide positive remedy if they are positioned on the right hand of the continuum. When an MNE is positioned on the left hand of the continuum, however, the MNE is less likely to provide positive remedy after the accusation of a human right violation.

Hypothesis 2b: From a hierarchical model perspective, an MNE that uses an equity

entry mode is more likely to provide positive remedy after the accusation of a human right violation than an MNE using non-equity mode of entry. An MNE that uses a non-equity entry mode, on the other hand, is less likely to provide positive remedy after the accusation of a human right violation than an MNE using an equity entry mode.

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4. Methods

This section provides an overview of the chosen type of research design, the sample, the data collection procedure, the measures and analysis.

a. Research Design

The aim of this study is to gain insights on how different variables affect the type of remedy a company provides. More precisely, the focus is on the influence of entry mode and corporate governance on the response of the company after being accused of violating a human right. Therefore, an explanatory study is chosen as this method is most suited for testing relationships between variables (Lewis, Thornhill & Saunders, 2007). A drawback of an explanatory study is it is limited by the variables chosen and any potential impact of other variables are not taken into account. Other methods, such as an exploratory study, are more suited for open investigation of a subject without making pre-assumptions about expected relationships (Lewis, Thornhill & Saunders, 2007). However, given the demand for more empirical studies (Hamann, Sinha, Kapfudzaruwa & Schild, 2009) in the research domain of human rights, and particularly ones that include variables from the institutional level (Aguinis and Glavas, 2012), the method chosen is expected to provide valuable insights.

This study uses secondary data obtained from the CHRD project. There are well acknowledged benefits of using secondary data, such as the availability of the data, the contextual backgrounds the data can provide and the fact that obtaining secondary data needs fewer resources (Lewis, Thornhill & Saunders, 2007). However, the drawbacks of this type of data is also documented widely, such as the fact that the data was collected often for a different purpose and as a researcher you lack control over the quality of the data (Lewis, Thornhill, & Saunders, 2007). However, regarding the Corporate and Human Rights

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Database, the aim of collecting this data is to provide a better overview of the existing claims on human rights abuses by companies that can facilitate research in this area. Thus, the aim of the CHRD project is similar to the purpose of this study (CHRD, 2015).

Although the CHRD dataset is an unique and comprehensive dataset, there are some limitations that need consideration. The biggest limitation is that the database only includes the available information about human rights violations from the Business and Human Rights Resource Centre (CHRD, 2015). This resource centre only provides information about violations of which a claim is made by someone or some organisation and for which information is published. Thus, the drawback is that the sample can only consist of companies for which a claim is made, whereas it is likely that for many violations of human rights no claim is made (CHRD, 2015).

b. Data collection

As described above, the data is obtained from the CHRD. This database provides information on allegations of human rights violations by corporations. These “Company Abuse Allegations” (CAAs) are collected from the Business and Human Rights Resource Centre and are standardised through a Qualtrics survey by the team of the CHRD project (CHRD, 2015). Access to the CHRD project is gained through participating in the coding procedure. The current author helped the development of the dataset by coding a portion of the CAAs of the ‘apparel and textile’ industry in Asia. Each CAA set provides information on company sector, type of abuse, date and location of the claim, and other relevant information. Important for this study is that the database also provides information on the type of response a corporation provides after being accused of violating a human right (CHRD, 2015).

The initial dataset consisted of 977 cases. The first step was to exclude the cases for which the company did not respond to the accusation of the human rights violation, 408 cases

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remained. Although MNEs that do not respond at all are also an interesting subject to study, it is beyond the scope of this particular study to focus on that as well. For the second step, all the firms operating solely at home are excluded from the sample, as the focus of this study is on MNEs only, 376 cases remained. The next step was to exclude the cases for which the home country could not be identified through the database Orbis. This database includes information about approximately 150 million companies worldwide, including year reports, stock prices and details about mergers & acquisitions (Orbis, 2009). In the end, 257 cases remained that met all the requirements of the sample.

For the first hypothesis, namely the effect of corporate governance, it was necessary to include solely MNEs for which the home country could be identified as either following the Anglo-Saxon model or the Rhineland model. These countries are identified according to the literature (Rossouw, 2008), explained in section 2.5. In summary, the countries identified for having an Anglo-Saxon or shareholder focus are: Argentina, Australia, Brazil, Chile, Colombia, Czech Republic, Finland, Ireland, Mexico, Nigeria, Peru, Portugal, Singapore, Sweden, Switzerland, United Kingdom, USA, and Venezuela (Rossouw, 2008). Similarly, the countries with a Rhineland or stakeholder orientation are: Belgium, China, Denmark, France, Germany, Ghana, Hungary, India, Italy, Kenya, Lithuania, Malawi, Mauritius, Netherlands, Poland, Romania, Russia, Slovakia, South Africa, Spain, Tanzania, Turkey, Uganda, Zambia, and Zimbabwe (Rossouw, 2008). Finally, Canada is considered a hybrid case, having features of both the shareholder and the stakeholder orientation (Rossouw, 2008). However, the features of Canada that are most important in determining whether a MNE is likely to provide effective remedy are more stakeholder oriented. Therefore, Canada is considered as a country with a stakeholder or Rhineland model. All the home countries of the MNEs are identified through Orbis (Orbis, 2009).

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Regarding the second set of hypotheses, regarding the effect of entry mode, for all MNEs included in the database the type of entry mode is identified. Entry mode is either through a contract, a Joint Venture, or a Wholly Owned Subsidiary. Often the CAA description included in the CHRD dataset proved to be sufficient to identify the entry mode. However, in some cases further information was obtained through the database Orbis (Orbis, 2009). If necessary, publicly available documentation was obtained from the company’s website, to complement the information found through Orbis. Especially regarding Joint Ventures, information about the partners and the amount of equity invested needed to be derived from the company’s website. For example, in the natural resource industry are multiple cases of a Joint Venture between an MNE and the local government. The Shell Petroleum Development Company (SPDC) for instance, operates as a Joint Venture in Nigeria with the Nigerian National Petroleum Corporation as the largest partner. Shell is the only MNE involved and has 30% equity invested in the organization (Shell, 2015). In this case, Shell will be the unit of analysis for this particular CAA, with a Joint Venture entry mode of 30% equity.

c. Sample

As described above, the sample is obtained from the CHRD dataset and is based on several criteria. Overall the sample consists of 257 cases that describe the violation of a human right by a MNE for which the entry mode and corporate governance are identified. There are five types of human rights violations included in this study. These are: abuses, development & poverty, health, environment, and labour. There are several sorts of violations considered as abuses such as intimidation, rape and violence (CHRD, 2015). Development & poverty violations include among others the denial of access to basic needs, denial of freedom of expression, and exploitation of indigenous land (CHRD, 2015). Violations of human rights

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that are considered as health violations are for instance pollution related health concerns and denial of access to medicines (CHRD, 2015). Environmental violations relate to air and land contamination, deforestation and the destruction of natural resources. Lastly, labour violations relate to instances of child, forced or prison labour. In addition, discrimination, denial of freedom of association and failure to meet basic labour standards are also considered as labour violations (CHRD, 2015).

The most common type of human right violation are environmental violations, with 76 cases (29,5 percent). Health violations are the least common type of human rights violations, with only 18 cases (7,0 percent). The sample consists of two industries, namely the natural resource industry (in total 193 cases, 75,1 percent) and the apparel and textile industry (in total 64 cases, 24,9 percent). Table I provides information on the different human rights violations and their frequency in each industry.

Table I. Frequencies of the human rights violations

Human rights violations

Abuses Development & Poverty

Health Environment Labour

Natural resources Industry 65 34 16 67 11 Apparel & Textile industry 1 1 2 9 51 Total 66 35 18 76 62 N = 257

MNEs tend to respond positively towards the accusation of a human rights violation in 96 (37,2 percent) out of these 258 cases. Mostly by providing a plan for change, which happened in 42 cases (16,3 percent) or through the acknowledgement of the violation, counting for 44 cases (17,1 percent). Unfortunately, out of the 257 cases, MNEs responded

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162 times by denying the occurrence of the human rights violation. This happened mostly through companies stating that the “claim is blatantly false”, namely in 96 cases (37,4 percent).

The statement “the claim is blatantly false” could be interpreted in two ways. It could be that the violation actually did not happen and that the company is right in denying the accusation. However, often the company states that the violation is false, but third party verification shows that the event actually happened and that the company is indeed involved in violating human rights. In 71 out of the 96 cases (74,0 percent) the MNE stated “the claim is blatantly false” even though there was a third party verification that verified the violation. For instance in the case of Occidental Petroleum, a MNE from the United States operating in the natural resource industry. Occidental Petroleum was accused of providing financial assistance to the Colombian government, who in turn was alleged of giving the incentive to Colombian state soldiers to kill three union leaders. These three union leaders where opponents of the oil and gas industry and protested against Occidental Petroleum. Although Occidental Petroleum argues that the accusation is false, third-party organisations including Amnesty International have verified the human rights violation and the involvement of the US multinational in this particular case (Reynolds, 2011).

To continue with the first independent variable of the sample, corporate governance, the following can be said: the three countries that most MNEs have as their home country are the United States with 93 cases (36,2 percent), followed by the United Kingdom with 55 cases (21,4 percent), and Canada with 39 cases (15,2 percent). In total, 165 MNEs have an Anglo-Saxon or shareholder orientation (64,2 percent), whereas 92 MNEs have a Rhineland or stakeholder orientation (35,8 percent). Table II below, provides information on the corporate governance of the countries included in this sample. Regarding the second