Responses, CSR communication and the influence of
human rights violation on reputation.
A multidimensional model that explains how MNEs response strategies and CSR policy influenced organizational reputation, when MNEs are accused of violation labour
rights
.
Master Thesis Nelleke de Boer
5738857
MSc Business Administration – International Management University of Amsterdam
First supervision: Dr. M. K. Westermann-Behaylo Second supervision: Dhr. Drs. E. Dirksen
Date: 16-03-2015
Abstract
This explanatory research examines the relationship between being accused of a human rights violation and reputation. This study researched the moderating roles of response strategy and
corporate socially responsible behavior in this relationship. More explicitly, this research tried to gain more information about whether accusations of violating labor rights could damage a MNEs
reputation and whether responding adequately, combined with CSR communication, could diminish this negative effect. Data was obtained from the BHRR database, and additional secondary data was found on eight firms active in three industries (extractive, automotive, and textile and apparel). This data was coded and analyzed to determine which corporate responses had more positive or negative effects on reputation when a corporation was accused of violating labor rights and whether this relationship was moderated by CSR communication. The findings partly support the proposition that accommodative response strategies (compensation, sympathy, apology, and plan for change) have a more positive effect on reputation than less accommodative response strategies (no comment, acknowledgement, denial, excuse, and justification). The proposition that CSR communication moderates this relationship was supported. MNEs that communicated they were aware of, prevented, and addressed adverse human rights impacts had more positive reputations. This study’s findings have two implications: 1) for future research to elaborate more on the proposed theory and test theory using both qualitative and quantities studies and 2) for managers when they need to make decisions about how to respond to accusations of violating human right and about how to communicate about labor rights.
Keywords: Multinational Enterprises (MNEs), Human rights violations, Labor rights,
Reputation, CSR, Qualitative research
Contents
1. Introduction………..……….…..p.5 2. Literature review………..………p.10 2.1 MNEs and their complex (external and internal) institutional environment……..…….p.10 2.1.2. Institutional freedom………...p.12 2.2 MNEs and human rights responsibilities……….p.14 2.3 Business and human rights violations………..p18 2.4 Remedies to violating human rights………p.20 2.5 Organizational crises………...p.22
2.6 Reputation……….p.23
2.7 Situational Crisis Communication Theory……….p.26 2.8 Corporate social responsibly………...p.30 3. Method………...……..p.36 3.1 multiple case study of MNEs accused of violation human rights……….………..p.36 3.1.1 Database & Coding………..p.37 3.1.2 Coding procedure……….p.37 3.1.3 Cases & Sampling………....p.38 3.1.4 Variables……….………..p.40 3.1.5 Analysis………p.42 3.1.6 The data………p.43 4. Results………..……p.52 4.1 Within-case analysis………..……..p.52 4.1.1 Case 1: BHP Billion (Extractive industry)…………....………..p.52 4.1.2 Case 2: Halliburton (Extractive industry)………....p.57 4.1.3 Case 3: Total (Extractive industry)….………...……..p.62
4.1.4 Case 4: Nissan (Automotive industry)………...………..p.69 4.1.5 Case 5: Ford Motor (Automotive industry)………....………..p.72 4.1.6 Case 6: General Motors(Automotive industry)………p.78 4.1.7 Case 7: Nike, Inc. (apparel and textile .industry)……….………...…….p.83 4.1.8 Case 8: Gap, Inc. (apparel and textile industry)……….………..p.88 4.2 Between-case analysis………...…..p.92 4.2.1 The extractive industry ……….……..…… p.92 4.2.2 The automotive industry………...p.93 4.2.3 The apparel and textile industry………...…………p.93 4.2.4 Comparison of all cases………....p.94 5. Discussion……….p.96 Reference list………..……...….p.101 Appendix………p.147
1. Introduction
The number of multinational enterprises (MNEs) has increased considerably in recent years, and their operations have spread rapidly around the globe (Weissbrodt & Kruger 2003). Today, the roles and responsibilities of MNEs in society is defined more broadly than before. The current reframing of MNEs from profit-seeking entities to corporate citizens has broadened the public’s expectations of the scope of their responsibilities and is the reason many MNEs are reexamining their roles in society (Wright & Rwabizambuga 2005). Society increasingly expects MNEs to solve various humanitarian crises and other problems facing the world, such as human rights violations (Sagawa & Segal 2005). MNEs are obligated by stakeholders to play a positive role in society. This means that they are held responsible for the way they work (Warhurst 2005). Recently, there has been increasing attention to the role of MNEs with regard to human rights violations (Wettstein 2010). In the global environment, many MNEs have been accused of violating human rights. For example, Nike, Inc. was accused of exploiting its workers in sweatshops and providing unsafe work environments. These accusations tarnished Nike’s reputation dramatically (Kinley & Tadaki 2004).
Human rights are a prominent issue for MNEs. There is a rising expectation, due to increasing public and media scrutiny stressing, that MNEs need to embrace human rights standards (Hamann et al. 2009; Hancock 2006; Margolis & Walsh 2003). Corresponding with this increased attention, MNEs have a growing concern with the issue of human rights (Arkani & Theobald 2005). Human rights are an important issue for MNEs because societies are asking MNEs to contribute to poverty alleviation and other development goals. Ignoring this role might have a negative effect on MNEs, as demonstrated by recent reputational scandals (Warhurst 2001). Other authors argue that respect for human rights can have a positive effect on the reputation of an MNE (Arkani & Theobald 2005). Moreover, human
rights are a prominent issue for MNEs because their respect for human rights protection by MNEs can ensure their social legitimacy (Ihlen, Bartlett & May 2011), also referred as a “social license to operate” (Donaldson & Dunfee 1994). Suchman (1995) defines legitimacy as ‘a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within socially constructed system of norms, values, beliefs and definitions’ (p. 574). This is an informal agreement that a MNE has the right to exist in the society (Warhurst 2001). Achieving and maintaining legitimacy is difficult for MNEs due to the multiplicity and complexity of legitimating environments and the intra-organizational complexity and diversity in which MNEs operate (Kostova, Roth & Dacin 2008). Due to these circumstances, MNEs’ subsidiaries experience two kind of pressures. The first pressure is for internal legitimacy, acceptance, and approval of an MNE’s unit by the other units within the MNE and the parent company. The second pressure is one of external legitimacy: The acceptance by its host environment (Kostova & Zaheer 1999).
The current study argues that MNEs accused of violating human rights will suffer reputational damage because these accusations are perceived as organizational crises. Coombs (2007) describes a crisis as a sudden and unexpected event that threatens to disrupt an organization’s operations and poses a financial and reputational danger. The accusation of violating human rights can disturb an organization’s operations and harm an organization’s reputation and is, therefore, seen as an organizational crisis. A crisis can harm an organization’s reputation because people are more sensitive to negative than to positive information when they evaluate an organization (Skowronski & Carlston 1989; Wangenheim 2005). Reputation is rooted in an organization’s historical behavior and associations but can be abruptly changed if new information about that organization comes to light (Lange, Lee & Dai 2011).
It is important to manage the risks of reputational damages because a significant proportion of an MNE’s value is tied up in the reputation of that MNE (Coombs 2007). Previous research showed that when crises occurs, MNEs can undertake various actions to prevent reputational damage (Coombs 2006, 2007; Coombs & Holladay 2008; Wright 2008). Coombs (2007) argues that there are two organizational actions that can diminish the negative effect of a human rights violation accusation on reputation. The first action involves how an organization reacts to the accusation. Crisis communication can be used during and after a crisis to protect organizational reputation. Additionally, an organization can try to manage its reputation by behaving in a socially responsible way (Arkani & Theobald 2005; Barnett 2007; Fombrun & van Riel 2004; Vogel 2005). Behaving socially responsibly can defend against reputational risks. CSR activities can be a organization’s risk-management strategy (Minor & Morgan 2011). CSR can act as insurance by protecting reputation in the case of a negative event (Peloza 2006), for example, an organizational crisis in the form of violating human rights.
The current study argues the way MNEs respond to accusations of human rights violations, in combination with their corporate social responsibility (CSR) policies, can potentially diminish the negative effects on their organizational reputations when they are accused of violating human rights. Kolk and Tulder (2002) argue that areas of human rights violations of particular reputational concern to MNEs are accusations associated with child and bonded labor, excessive working hours, and overcrowded and unhygienic working conditions. These are accusations in term of labor rights. Therefore, the focus of this study lies within accusations of human rights violation in terms of labor rights.
The objective of the current study is threefold. The first objective is to gain more insight into how MNEs react when they are accused of violating human rights. Little is known about the crisis response strategies used to manage these kind of crises (Ahluwalia, Burnkrant & Unnava 2000; Dean 2004; Hamann, et al. 2009). Therefore, the following research question is proposed: How do MNEs react when they are accused of human rights violations? The second objective is to understand how accusations and corporate responses influence organizational reputations. There is limited research about how corporate responses to accusations of human rights violations influence organizational reputation. In other words, little is known about the effectiveness of these responses to accusations of violating human rights (Bradford & Garrett 1995). This leads to the second research question: To what extent is the relationship between an accusation of a human rights violation and organizational reputation moderated by corporate responses? The third objective is to establish how CSR policy influences organizational reputation when MNEs are accused of violating human rights. No academic attention has been paid to the question of how CSR policies moderate the relationship between these accusations and organizational reputations. The potential for CSR to act as an insurance policy that can mitigate the effects of negative events has not been extensively explored (Peloza 2006), unlike the incremental benefits, such as heightened purchase intentions (Green & Peloza 2011), enhanced image (Fombrun & Shanley 1990), and employee morale (Kim et al. 2010). Based on this research gap, the third research question is proposed: To what extent is the relationship between an accusation of a human rights violation and organizational reputation moderated by the CSR policy of an organization?
The current study has several theoretical and practical contributions. Firstly, this research contributes to the business and human rights literature because it adds to a new research area.
This study establishes how MNEs respond to these accusations and how this response influences their reputations. Secondly, this paper makes a contribution to the literature about crisis communication. It has not yet been studied how MNEs react to human rights violation accusation crises. Thirdly, this study adds to the literature of CSR by investigating to what extent a CSR policy can be used to minimize any negative effects of accusations on reputation. The practical contribution of the current paper is that crisis management would benefit from scientific evidence-based crisis communication guidance (Rousseau 2006). Crisis managers will benefit from increased understanding of how crisis communication can be used to protect organizational reputation when MNEs are accused of violating human rights (Coombs 2007).
The current paper is organized as follows. Section two will provide a literature review that will explain the existing literature of institutional complexity of MNEs, human rights violations, crisis communication, reputation, and CSR. Propositions are formulated along with the literature review illustrated in a conceptual model. Section three will explain the method and will provide an description of the data (the cases). Section four discuss the results, and section five elaborates on the discussion.
2. Literature review
The following section will begin by discussing the complex institutional environments in which MNEs operate. In the sections that follow, human rights, the responsibilities of MNEs, why MNEs violate human rights, and remedies to violating human rights will be explained. After these sections, it will be clarified why violating human rights is perceived as an organizational crisis, how this negatively influences the reputation of an MNE, and how CSR policy can influence this relationship.
2.1 MNEs and their complex (external and internal) institutional environments MNEs are significantly different from domestic firms (Kostova et al. 2008). The main difference is based on multidimensionality (Doz & Prahalad 1991). Multidimensionality results from the nature of the MNE: Operation in a complex, diverse, and potentially conflicting sets of external institutional environments (Doz & Prahalad 1991; Kostova et al. 2008). Institutions are humanly designed constraints that give structure to political, economic, and social interactions. Institutions consist of informal constraints, such as sanctions, customs, and codes of conduct, and formal rules, such as laws (North 1991, 1994). Institutions influence organizational routines (Feldman & Rafaeli 2002) and determine the strategic choices of an organization (Peng, Lee & Wang 2005), which in turn determines the effectiveness of an organization (He, Tian & Chen 2007).
MNEs operate in an unique institutional complex environment (Kostova & Roth 2002). This complexity is first reflected in the fact that environments consist of different institutional domains (Scott 1995). According to Scott (1995) ‘institutions are composed of cultural-cognitive, normative, and regulative elements that, together with associated activities and resources, provide stability and meaning to social life’ (p. 48). The regulatory domain
consists of regulatory institutions, such as societies’ rules and laws (Kostova & Zaheer 1999; North 1999, 1994; Scott 1995; Tempel & Walgenbach 2007). The cognitive domain concerns institutions that determine the way reality is given meaning in a society. Organizations follow these cognitive patterns because they are taken for granted (Aldrich & Fiol 1994; Suchman 1995). The normative domain relates to norms. Organizations behave according to norms because compliance is required and there is a moral obligation to meet expectations. Organizations have to confirm to be consistent with established regulatory, cognitive, and normative structures in order to be seen as legitimate institutions (Suchman 1995). Organizational legitimacy arises from congruence between organizational values and societal values (Parsons 1960) and is believed to be vital for organizational survival and success (Cornelissen 2011; Dowling & Pfeffer 1975; Meyer & Rowan 1997).
Second, MNEs operate in multiple countries that may vary with respect to their institutional environments (Sundaram & Black 1992). The composition and structure of national regulatory, cognitive, and normative institutions, and their legitimacy requirements, vary across national environments (Kogut 1991; Kostova & Zaheer 1999). In other words, the subsidiaries of an MNE face demands of conformity to different local environments, which all have different institutional environments (Rosenzweig & Singh 1991; Scott 1995). This is why MNEs operate in an unique institutional complexity compared to domestic firms (Kostova & Roth 2002). In addition, MNEs also need to deal with the different internal institutional environments. Subsidiaries face an imperative for consistence within an MNE. MNEs have to deal with complex internal environments, and with spatial, cultural, and organizational distances, language barriers, internal power struggles, and potential inconsistencies among the interests, values, practices, and routines used in the different parts of the MNEs (Kostova et al. 2008).
One of the critical issues faced by MNEs involve the establishment of legitimacy in their multiple external and internal environments. External legitimacy is acceptance by an MNEs different host environments. Subsidiaries operate in their own external host institutional environments that all have various requirements regarding legitimacy, which subsidiaries need to respond to. In addition, MNEs form their own internal institutional environments with their own internal legitimacy requirements (Koskova & Zaheer 1999). Achieving and maintaining legitimacy is difficult for MNEs due to their multiplicity and complexity of legitimating environments, intra-organizational complexity, and diversity (Kostova & Zaheer 1999; Kostova et al. 2008). Since it is greatly important for a MNE to establish and maintain both external and internal legitimacy (Rosenzweig & Singh 1991), subsidiaries will experience two pressures. One pressure is to adopt local practices and become isomorphic to the local institutional context. However, a source of competitive advantage for MNEs is the utilization of organizational capabilities worldwide; therefore, the pressure to adapt to local practices has weakened (Ghoshal & Bartlett 1998; Kogut 1991). This reflects the tension between local responsiveness and global integration (Rosenzweig & Singh 1991). As a results, subsidiaries are confronted with two distinct sets of isomorphic pressures. These two sets of isomorphic pressures result in institutional duality (Kostova & Roth 2002). The way to become legitimate in the eyes of important legitimating actors is to negotiate this status. This will create a perception of an MNE. Legitimacy is, therefore, a social construct, and symbolic image building becomes critical (Kostova & Zaheer 1999; Kostova et al. 2008).
2.1.2 Institutional freedom
As previously explained, MNEs operate in complex external and internal environments. However, being foreign in multiple host environments, subsidiaries are somewhat buffered
from local institutional pressures and are not necessarily expected to be completely isomorphic to local organizations. The multiplicity and ambiguity of organizational environments may result in weaker institutional pressure for MNEs overall (Kostova et al. 2008).
This weaker institutional pressure has two causes. First, subsidiaries of an MNE belong to the same intra-organizational institutional environment (Ghoshal & Bartlett 1990). This internal MNE environment may influence its members more than the external environment (Kostova & Zaheer 1999) because subsidiaries are often more dependent on their parent company for resources than on their external, local, environment (Kostova et al. 2008). This occurs especially when the MNE is relatively powerful and the subsidiary is less dependent on the host country (Zucker 1987). Therefore, the direct effect of the local institutional environment may be constrained (Kostova & Roth 2002). Second, MNEs enjoy rich institutional landscapes. The diversity among the institutional systems and the unique sets of arrangements that each MNE faces gives that MNE broader latitude in choosing to which institutional influences they should respond. This allows them to choose environments that they believe will fit them best. They are less dependent on institutional pressures because of their complex positioning in the web of organizational sectors. When there is an expectation for compliance, it will be restricted to regulatory and legal domains. There will be little enforcement of cognitive and normative institutional components for MNEs. This is called “institutional freedom” (Kostova et al. 2008).
Many MNEs operate in emerging economies. Emerging economies are ‘low-income, rapid-growth countries using economic liberalization as their primary engine of rapid-growth’ (Hoskisson et al. 2000, p. 249). The legal institutional environments in these countries are often less well
developed (North 1990; Wright et al. 2005), which creates weak institutional environments (Dharwadkar, George & Brandes 2000). Previously, it was argued that MNEs only need to operate in accordance with regulatory institutional rules and that they experience less pressure from the cognitive and normative institutional domain. However, in emerging economies the legal institutional environment, the formal domain (North 1990, 1994), is often weak (Wright et al. 2005). MNEs in emerging economies are often guided by informal institutions, the normative and cognitive domain (North 1990 1994; Peng & Heath 1996). However, it was argued that there will be little enforcement of cognitive and normative institutional components for MNEs in emerging countries. This leads to an even greater institutional freedom (Kostova et al. 2008).
2.2 MNEs and human rights responsibilities
MNEs have obtained a significant amount of power since the trend of globalization started to develop (Kobrin 2009; Weissbrodt & Kruger 2003). Organizations are among the world’s most dominant and powerful institutions; in many cases, they exceed the revenue-producing ability of small governments (Anderson & Cavanagh 2000). Some authors argue that with power should come responsibility (Weissbrodt & Kruger 2003). However, there is considerable debate about what exactly are the responsibilities of MNEs. There are both arguments in favor of and against extending the responsibilities of MNEs, for example, in respect to human rights observance (Muchlinski 2001). On one side are authors who believe that MNEs do not have any wider social responsibilities. It is not for organizations to solve the wider issues arising in the communities in which they operate (Muchlinski 2001). One of their arguments is that MNEs are in business and that their responsibility is to make profit (Friedman 1970). Another argument is that private non-state actors, such as MNEs, do not have any positive duty to observe human rights. Their only duty is to obey the law (Muchlinski 2001).
On the other side, there are arguments in favor of extending social responsibility standards for organizations (Muchlinski 2001; Warhurst 2005). Furthermore, MNEs themselves seem to reject a purely non-social role as they adapt to corporate and industry-based codes (Muchlinski 2001). However, MNEs are not responsible for solving all societal problems, and no organization can bear the costs of doing so (Porter & Kramer 2006). Some authors argue that MNEs are responsible for solving problems that they have caused (Wood 1991). Other authors argue that they should be held responsible for solving societal issues related to their business operations (Weissbrodt & Kruger 2003; Wood 1991). Weissbrodt and Kruger (2003) argue that MNEs should take responsibility for issues for which they assume direct responsibility, such as labor standards, and in areas in which they can assume further responsibility, such as outsourcing. This idea coincides with the fact that nowadays stakeholders demand MNEs to go beyond the obligation to “do no harm” and instead be positive forces (Warhurst 2005). Some authors even argue that it is the responsibilities of MNEs to improve worldwide social and environmental conditions (Scherer & Smid 2000).
Some authors argue that the responsibility to promote and respect human rights applies in various degrees to MNEs (Weissbrodt & Kruger 2003). MNEs are powerful international actors that generate economic growth, improve poverty, and increase demand for the rule of law, thereby contributing to the realization of a broad spectrum of human rights policies (Ruggie 2008). Human rights are encountered today as ‘values, principles or standards that find expression in laws or statutes enacted by legislative authorities, in the constitutions of national states’ (Brenkert & Beauchamp 2009, p. 2). The Universal Declaration of Human Right uses a broader description. Human rights are ‘the rights of all human beings’ (Hekin 1998, p. 20). Ruggie (2008) states that MNEs can affect all international recognized human
rights. Therefore, MNEs should pay attention to all such rights. Wright (2008) explains that MNEs have an impact on all aspects of human rights, including civil, political, economic, social, and cultural rights, as well as labor rights. Therefore, MNEs have an extensive influence on human rights and should have great responsibility to promote and protect these rights (Ruggie 2008). In addition to compliance with national laws, the baseline responsibility of MNEs is to respect all human rights (Ruggie 2008). Governments determine the scope of legal compliance. The broader scope of responsibility of MNEs is defined by social expectations, the license to operate (Ruggie 2008). MNEs agree to act in a socially desired way by respecting human rights in return for their acceptance as legitimate institutions within society (O’Dwyer 2003).
Many MNEs have acknowledged their human rights obligations. Furthermore, it is believed that greater respect of human rights by MNEs may lead to greater sustainability in emerging markets and better business performance. For example, compliance with human rights enables MNEs to protect and maintain their corporate reputations (Muchlinski 2001), which for example, enables MNEs to attract the best employees (Avery 2000). Moreover, Liubicic (1998) and Weissbrodt and Kruger (2003) argue that consumers are more attentive to standards and practices used by MNEs. Similarly, a growing proportion of investors seek to purchase financial shares of MNEs that are socially responsible (Doane 2001). Thus, some authors suggest that MNEs that comply with human rights standards might enhance their bottom lines (Weissbrodt & Kruger 2003), while MNEs that fail to meet such responsibilities may be subjected to the courts of public opinion (Ruggie 2008).
The debate about the impact of MNEs on society, more specifically about human rights, involves both optimistic and critical voices (Guiliani & Macchi 2014). The first view, the “engines of development school” is generally pro-MNEs (Meyer 1996). Some authors argue 16
that most of the benefits of globalization are due to MNEs (Stiglitz 2008). MNEs are seen as agents of development and progress that create jobs (Clark et al. 2011), technological know-how (Narula & Driffield 2012), and management experience (Stiglitz 2008). In general, MNEs may provide a means of improving the level of economic development of host countries (Guiliani & Macchi 2014). Among the optimistic voices are the ones that believe that MNEs can improve the living conditions of poor countries through the adoption of voluntary codes of conduct and CSR policies (Falck & Heblich 2007; Weissbrodt & Kruger 2003). Some believe that MNEs are even substitutes for weak governments (Buckley & Ghauri 2004; Dunning 1997). The general idea is that there is a positive relationship between economic development and human rights. MNEs promote development, so they must also improve human rights (Meyer 1996).
However, in parallel with these optimistic views, there is a group of critical scholars who question the capacity of MNEs to improve the cause of human rights. This view, the Hymer thesis, emphasizes MNEs negative impact on emerging countries (Meyer 1996). Some theories define MNEs as both actors and beneficiaries of an unbalanced growth process, causing inequality and global injustice (Shiva 2004). They argue that MNEs have skewed development in many parts of the world and are responsible for persistent inequality across and within countries (Brown, Roemer-Mahler & Vetterlein 2010). The World Bank and UN statistics established that today’s economic growth is accompanied by an uneven distribution of benefits (The Worldwatch Institute 2002). Under the conditions of globalization, MNEs have gained “government-like powers” (Brenkert & Beauchamp 2009) that give them the power to dictate the conditions under which they operate (Brown et al. 2010). Due to this increase in power, MNEs have more influence on whether they will respect human rights
(Weissbrodt & Kruger 2003). In other words, due to their government-like powers, MNEs are more able to abuse human rights (Brown et al. 2010; Weissbrodt & Kruger 2003).
2.3 Business and human rights violations
The previous section discussed that because MNEs have gained government-like powers, they have more opportunities to behave in ways that are not acceptable for legitimate institutions. In other words, some MNEs do not respect international human rights standards (Brown et al. 2010) and thus can be implicated in abuses, such as discriminating against certain groups of employees, employing child labor, and failing to provide safe and healthy work environments (Weissbordt & Kruger 2003). The complexity of human rights abuses occurs within the contexts of globalization, deregulation, and the emergence of powerful (Brenkert & Beauchamp 2009; Weissbrodt & Kruger 2003) and transnational MNEs (Dhir 2006; Hancock 2006). Ruggie (2008) also refers to the broader context in which MNEs conduct their business:
The root cause of the business and human rights predicament today lies in the governance gaps created by globalization–between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences. These governance gaps provide the permissive environment for wrongful acts by companies of all kinds without adequate sanctioning or reparation (p. 3).
Three changes related to globalization are important in understanding the growing dissatisfaction with the traditional allocation of human rights responsibilities exclusively to governments. First, as mentioned in the previous section, under the conditions of globalization, MNEs have gained government-like powers (Brown et al. 2010; Ruggie 2008; Weissbrodt & Kruger 2003) and experience institutional freedom (Kostova et al. 2008). Throughout the world, the investment decisions of MNEs have replaced governments as the 18
key players of economic development. The power to choose the regulatory environments in which MNEs want to operate has also increased their powers to bargain, negotiate, and lobby (Brenkert & Beauchamp 2009; Child & Tsai 2005). The implication of decisions made by MNEs for the welfare of people and communities of countries in which they operate are substantial (Brenkert & Beauchamp 2009; Henkin 1998).
Second, by contrast, globalization has diminished the power of governments to set regulatory standards (Brenkert & Beauchamp 2009; Scherer & Smid 2000). Globalization goes hand-in-hand with a diminished capacity of governments to meet human rights obligations. Governments under conditions of globalization, face competition for private-sector investment. One way of winning competition is to reduce the regulatory constraints. This has inevitable implications for the protection of human rights. In many emerging countries, MNEs are essentially unregulated, except when they impose environmental, social, and economic standards of performance on themselves, because the institutional capacity of these government to enforce national laws and regulations, with respect to human rights, on MNEs is limited (Ruggie 2008). Governments increasingly rely on MNEs to evaluate the risks they may pose to the society. Countries may thus be subject to the unethical or ethical standards of these MNEs. This raises questions about the capacity and willingness of governments to set appropriate social, economic, and environmental parameters for economic activities in global markets (Brenkert & Beauchamp 2009).
Third, the shifting powers of governments and MNEs have opened the door to harmful human rights abuses because MNEs acquire the capacity to influence the legal environment in which they operate (Brenkert & Beauchamp 2009). The legal rights of MNEs have been expanded significantly, and this has not only encouraged investment and trade flows, but has
also created imbalances between MNEs and States that may be detrimental to human rights (Ruggie 2008). The legal framework regulating MNEs works much as it did before the recent wave of globalization. A parent company and its subsidiaries are construed as distinct legal entities. This means that the parent company is generally not liable for violations committed by a subsidiary (Kobrin 2009; Ruggie 2007, 2008). Each legally distinct corporate entity is subject to the laws of the country where it operates. However, some States, especially emerging countries, may lack the institutional capacity to enforce national laws against MNEs, or they may feel constrained from doing so because they have to compete internationally for investment. The result is that corporate-related human rights violations occur where government challenges are the greatest (Ruggie 2008).
2.4 Remedies to violating human rights
As explained, the cause of the business and human rights predicament today lies in governance gaps (Ruggie 2008) and institutional freedom (Kostova et al. 2008) created by globalization (Ruggie 2008, 2013) and MNEs’ operation in emerging markets (Ramamurti 2004). Since governance gaps are the root of MNEs and human rights violations, the effective response is to narrow the gap. How to narrow the gap in relation to human rights is a fundamental challenge (Ruggie 2008). This will be discussed in the next section.
Ruggie (2008) argued that every stakeholder group, including MNEs, has expressed the need for a common conceptual and policy framework. The framework of ‘protect, respect and remedy’ (Ruggie 2008, p. 192) can assist social actors, like MNEs, to reduce human rights violations. It has three core principles. The first principle is the State’s duty to protect against human rights abuses by third parties, including MNEs (Ruggie 2008, 2013). The corporate responsibility to respect human rights is the second principle. It is recognized in soft law instruments, such as the Organization of Economic Co-operation and Development’s
(OECD) guidelines for Multinational Enterprises (Ruggie 2008, 2013). These soft law instruments state that MNEs are ‘expected to obey the law, even if it is not enforced, and to respect the principles of relevant international instruments where national law is absent’ (Ruggie 2008, p. 194). Ruggie (2008, 2013) states that what is required is due diligence. This concept describes the steps an MNE must undertake to become aware of, prevent and address human rights impacts (Ruggie 2008). Due diligence is a process where MNEs not only ensure compliance with national laws, but also manage the risks of human rights violations with a view of avoiding them. The scope of human rights related to due diligence is influenced by the context in which an MNE operates and its activities. The corporate responsibility to respect human rights includes avoiding complicity. Complicity is indirect involvement by MNEs in human rights abuses, whereby the actual harm is done by another party (Ruggie 2008).
The third principle, in addition to the principles of the State’s duty to protect and of organizations to respect, is the need for effective access to remedies (Ruggie 2008, 2013). Access to formal judicial systems is often most difficult where the need is the highest and where non-judicial mechanisms are underdeveloped. Effective support and guidance at the international level would help States to accomplish greater policy coherence. Human rights treaty bodies can play a significant role in making recommendations to States on implementing their obligations to protect rights in relation to corporate activities (Ruggie 2008).
Furthermore, Ruggie (2013) argues that MNEs themselves should provide operational-level mechanisms in order to identify and resolve issues effectively. Many MNEs struggle with the issue of how to best monitor their responses to actual or potential human rights impacts that
they identified through the due diligence processes. To meet the challenges concerning human rights and business, an active role of MNEs is required. Ruggie (2013) explains that ‘in order to account for how they address their human rights impacts, business enterprises should be prepared to communicate this externally’ (p. 21). He argues that any MNE operations that pose significant risks to human rights should report formally about how they address them. Many corporate rights issues emerge because MNEs fail to consider the potential impacts of their activities. MNEs must proactively understand how their activities may affect human rights (Ruggie 2008). Ruggie (2013) states that where MNEs have identified that they have caused adverse impacts, they should provide for their remediation through legitimate processes.
Transparency is thought to be crucial in tracking the effectiveness of remediation. Ruggie (2013) explains that there is a need to deepen the thoughts on how MNEs communicate externally about their remediation processes. There is a need for sustained engagement with affected communities. MNEs should aim for proactive approaches and engage in healthy dialogue. The thought is that MNEs are likely to face less opposition if they engage in ongoing due diligence processes and thereby assess human rights impacts, integrate and act upon their findings, track responses, and communicate about how these impacts are addressed (Ruggie 2008). The following section will explain how organizational responses to human rights abuses and transparent CSR communication can enable this.
2.5 Organizational crises
Accusations of certain types of human rights violations can be seen as an organizational crisis. Pearson and Mitroff (1993) define an organizational crisis as ‘an incident or event that poses a threat to the organization’s reputation and viability’ (p. 392). Adams and Roebuck
(1997) point out some similar characteristics most crises seem to share. Firstly, surprise about the event itself or the timing. Secondly, a trigger, an unexpected event or incident that alters the public view of the organization. Thirdly, the threat, to the environment or human lives.
The final element is a quick response. If the first three elements are present, a MNE must respond immediately to protect itself and others. Nearly all crises develop through similar stages. The first stage of a crisis is the early warning signals of impending disaster, which can be faced or ignored. The next stage is preparation and prevention, followed by recovery, then learning (Pearson & Mitroff 1993; Stephens, Malone & Bailey 2005).
When a crisis occurs, a MNE must take actions to rebuild its legitimacy through corporate disclosure (Coombs 2006). A slow oil leak might not rise to the level a crisis if it is stopped before it causes a negative impact and no negative publicity arises from the event. However, if a leak continues and the media reports the incident and its subsequent violations in term of environmental and labor conditions, it can lead to a severe outbreak of an organizational crisis. These incidents can be seen as a sudden and unexpected event that interferes in an MNE’s operation, resulting in financial and reputational risk. A wide range of stakeholders, which include employees, customers, community members, suppliers, and stockholders, are adversely affected when a crisis occurs (Coombs 2007; Ulmer 2000) as they become involved in the crisis (Stephens et al. 2005) because a crisis can harm stakeholders emotionally, physically, and financially (Coombs 2007).
2.6 Reputation
Organizational crises pose a threat to MNEs’ reputations (Coombs 2007). Wartick (1992) defines a reputation as an evaluation stakeholders develop about how well an organization is meeting its expectations based on past organizational behavior. Fombrun (1996) defines 23
reputation as ‘a perceptual representation of a company’s past actions and future prospects that describes the firm’s overall appeal to all of its key constituents when compared with other leading rivals’ (p. 72). Three attributes are emphasized in that definition: 1) reputation is based on perceptions, 2) it is a collective judgment of stakeholders, and 3) it is a comparison. Walker (2010) argues that there are two additional dimensions to these attributes: Reputations can be positive or negative and they are stable and enduring. This definition suggests that corporate reputation is a general organizational attribute that reflects whether stakeholders see the MNE as “good” or “bad” (Roberts & Dowling 2002).
Research suggests that reputations develop through three resources: The personal experiences stakeholders have with an MNE, the corporate communications that managers make to influence stakeholder perceptions, and the coverage the MNE receives from intermediaries, such as journalists. A reputation is built through interactions and communication between organizations and stakeholders (Coombs & Holladay 2006; Deephouse 2000; Dowling 2002; Fombrun & van Riel 2004). Positive interactions generate stakeholder satisfaction, identification with the MNE, and engagement, all of which contribute to generally favorable impressions of the MNE and build a positive reputation (Fombrun 2010). An MNE builds its reputation not only by word-of-mouth but, more importantly, by deed (Fombrun & Shanley 1990).
There is support among the academic community for the belief that organizations with better reputations outperform their rivals (Grosskopf & Sarin 2010; Roberts & Dowling 2002). Scholars suggest that a good reputation is critically valuable to an MNE. Reputation is an intangible resource that is rare and difficult to replicate by competitors because it is built through socially complex processes (Barney 1991; Boyed, Bergh & Ketchen 2009; Roberts &
Dowling 2002). That is why reputation is important to the sustainability of firms competitive advantages. According to the resource based view (RBV), MNEs with assets that are valuable, rare, and difficult to replicate possess a competitive advantage and may earn superior financial performance (Barney 1991; Roberts & Dowling 2002). Arkani and Theobald (2005) emphasize the importance of managing organizational reputation by arguing that an important proportion of the value of MNEs is tied up in their reputations. Reputational assets can generate investment interest, attract customers, improve non-financial performance, attract talents, increase return on assets (ROA) and create competitive advantages (Fombrun & van Riel 2004). Building a good reputation with stakeholders can lead to market growth and the uncovering of new market opportunities (Veleva 2010).
A crisis is a threat to an MNE’s reputation because it gives stakeholders a reason to form negative perceptions of that MNE. In other words, it gives people a reason to think badly of the organization (Coombs 2007). This can change the way stakeholders interact with an MNE (Dowling & Moran 2012). A crisis is an event within a larger relationship between a MNE and its stakeholders. Organizations share an interdependent relationship with their internal and external stakeholders. If stakeholder relations are not strong, stakeholders may withdraw their support during a crisis, prolong the effects of a crisis, or intensify the threat associated with the event (Ulmer 2000). The crisis becomes part of that ongoing relationship. One characteristic of a crisis is that it can damage or threaten the quality of the relationship. Moreover, current interactions are shaped by past interactions and the current status of the relationship (Coombs & Holladay 2008). For example, in some cases, stakeholders can choose to abandon the organization in order to distance themselves from the crisis (Stephens et al. 2005). If a reputation shifts from favorable to unfavorable the benefits of an earlier favorable reputation may be gone (Coombs 2007).
P1: A crisis in the form of an accusation of violating labor rights can have a negative effect on the reputation of an organization.
2.7 Situational Crisis Communication Theory
When MNEs are accused of unethical behavior, which are business actions that seek profit without regard to moral standards established by society, they are compelled to offer communicative responses to defend their reputation (Bradford & Garrett 1995). Impression management theory argues that individuals will determine the cause of an action only on the information made available to them (Hastie 1984). The fundamental attribution error is the tendency for observers to attribute the responsibility for negative actions to dispositions of the involved actor, for example dishonesty, greed, and irresponsibility. Dispositions are attitudes, intentions, and motivations of the actors that describe their present behaviors and can be indicators for future behaviors. Unless the evaluated actor provides observers with a response that gives situational information, such as extenuating circumstances surrounding the action, observers may misattribute the responsibility for the action to a negative disposition within the actor (Bradford & Garrett 1995).
While the fundamental attribution error posits that observers will form judgments about actors based on their viewing of their actions, the discounting principle asserts that these judgments can be influenced by the provision of additional information. The negative dispositions may be discounted if other plausible explanations for the effect are present. When an accused MNE gives an appropriate explanation for offensive behavior, observers may use this information to refute the negative nature of the allegation (Bradford & Garrett 1995).
When MNEs are accused of violating human rights, they need to make a choice how to react (Coombs & Holladay 2008). The first choice is whether to react at all (Bradford & Garrett 1995) to accusations of human rights violations. Bradford and Garrett (1995) showed that when MNEs do not respond to an accusation of unethical behavior, this had a negative impact on their reputations. As previously discussed, negative information is likely to be accepted by observers unless countervailing information is also provided. This negative information will directly and adversely impact the reputation of an accused organization held by third parties if managers of an accused MNE do not offer a communicative response to allegations of unethical behavior (Bradford & Garrett 1995), for example of human rights violations.
P2: When MNEs do not respond to the accusation of violating labor rights, this will have an negative effect on the reputation of those MNEs.
When an MNE experiences a crisis and chooses to respond, it has the option how to react, ranging from denying any responsibility to accepting full responsibility for the crisis (Coombs 2006). Wright (2008) investigated whether MNEs responded to allegations of human rights violations. He concluded that the failure to respond adequately may result in reputational damages. This indicates that it is in the interest of MNEs to respond to these allegations without delay. MNEs choice of message strategy can affect how stakeholders perceive the crisis and the reputation of that MNE (Stephens et al. 2005).
Actors can present information to influence external observers’ perceptions when they evaluate events involving these actors (Bradford & Garrett 1995). Research showed that crisis communication can be used during a crisis to protect or repair organizational reputation (Coombs 2007; Coombs & Holladay 2008). Crisis communication is defined as ‘the collection, processing, and dissemination of information required to address a crisis situation’ 27
(Coombs et al. 2010, p. 20). Crisis communication strategies can influence a variety of communication outcomes, including organizational reputation (Coombs 2007).
The Situational Crisis Communication Theory (SCCT) provides a framework for understanding the dynamics of a crisis. SCCT is a theory-based, empirically tested method for selecting crisis response strategies and provides a framework to understand how to maximize reputational protection. SCCT identifies key aspects of the crisis situation, as well as how those aspects will influence the organizational reputation held by stakeholders. SCCT argues that communication affects one’s perceptions in a crisis. The words used and actions taken by management affect how people perceive the organization and the crisis (Coombs 2006, 2007; Coombs & Holladay 2009).
There are several general strategies for responding to a crisis. These strategies can be categorized in two ways. The first category is the less accommodative strategies (Bradford & Garrett 1995; Coombs 2006, 2007). For example, the denial response strategy denies the occurrence or existence of the questionable event or denies that the accused MNE is the cause of the event (Bradford & Garrett 1995). Alternatively, the diminish response strategy explains that the crisis is not as bad as people think. If crisis management is able to decrease an organization’s connection to the crisis, the effects of the crisis might be reduced (Coombs 2006, 2007). An additional less accommodative strategy is the excuse response strategy. This strategy consists of statements that argue that there were factors that limited the MNE’s control over the occurrence and/or impact of this event, and therefore, it should not be held responsible for that occurrence and/or impact. Finally, justification response strategy argues that standards that are used by the accusers are inappropriate even though the accused organization is responsible for the event (Bradford & Garrett 1995).
The second category, the accommodative strategies, include apology, sympathy, compensation, and a plan for change. The apology response strategy is characterized by MNEs accepting responsibility for the crisis and asking for forgiveness (Benoit & Drew 1997). The sympathy response strategy expresses concern for the victims, and the compensation response strategy offers victims compensation to offset their suffering. The plan for change strategy explains the policies of an MNE to prevent the crisis from occurring again (Coombs 2006).
In previous research, the effects of accommodative strategies on reputation were compared to less accommodative strategies. These studies showed that apology is the preferred strategy because it had the strongest positive effect on organizational reputation (Bradford & Garrett 1995; Dean 2004). However, there is not much information about the apology strategy in comparison to the other accommodative strategies (Coombs & Holladay 2008) For MNEs, the distinction between apology and the other accommodative strategies is important. Accepting responsibility is core in an apology and makes it the most expensive strategy financially for an MNE (Patel & Reinsch 2003). However, there is reason to believe that compensation, sympathy, and a plan for change are as effective as an apology strategy in shaping one’s perceptions of MNEs taking responsibility for crises (Coombs & Holladay 2008) because these strategies focus on victims’ needs. The accommodative strategies have been previously employed in crises, and previous studies argued that they can have positive effects on reputation (Coombs 2007; Coombs & Holladay 2008).
When MNEs are accused of violating human rights, this may have a negative effect on their organizational reputations (Wright 2008). However, when MNEs use accommodative
crisis strategies, this damage can be limited or controlled (Coombs 2007). In other words, the corporate responses to these accusations can moderate the negative effect of the accusations on reputation.
P3: The nature of the response strategy will moderate the relationship between an accusation of violating human rights and reputation in such a way that (a) accommodative strategies (compensation, sympathy, apology and plan for change) will produce more positive post-crisis evaluation (reputation) than (b) less accommodative strategies (no comment, acknowledgement, denial, diminish, excuse, and justification).
2.8 Corporate social responsibly
The concept of corporate social responsibility (CSR) is gaining widespread attention from business people, consumers, and academics (Erwin 2010). In addition to reacting adequately to accusations of violating human rights, MNEs can try to manage their reputations by behaving socially responsibly. Barnett (2007) described CSR as any corporate activity intended to enhance social welfare. CSR is ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’ (Commission of the European Communities 2001, p. 4). Another definition was provided by Brown and Dacin (1997), who defined CSR as ‘the status and activities with respect to its perceived societal or, at least, stakeholder obligations’ (p. 68). Regardless of the label, CSR is a concept that not only defines the responsibilities towards societal stakeholders and the natural environment, but also describes how mangers should deal with these issues (Windsor 2006). CSR can be seen as policies and activities that go beyond mandatory obligations, such as the economic responsibility to make profit and legal responsibility to obey the law (Kourula & Halme 2008).
Some authors argue that commitment to CSR will benefit an organization. This is described as the business case for CSR (Barnett 2007). The belief that CSR is good for organizations drives corporate interest in CSR (Kotler & Lee 2005). Bhattacharya and Sen (2004) stated that ‘not only is doing good the right thing to do, but it also leads to doing better’ (p. 9). Vogel (2005) emphasized that there are several reasons why organizations can benefit from behaving more responsibly in the absence of legal requirements. Some authors believe that CSR is linked to corporate financial performance (CFP) (Margolis, Elfenbein & Walsh 2009; Porter & van der Linde 1995). However, there is still considerable academic debate about the link between CSR and CFP (Barnett & Salomon 2012). Friedman (1970) argued that this relationship must be negative, as organizations voluntarily engage in more socially responsible activities, they increase costs and thus have lower net CFPs. However, other authors argue that there is a small, positive link under certain circumstances (Barnett & Salomon 2012; Margolis et al. 2009). These authors argue that there is a “win-win situation” when organizations behave more socially responsibly. For example, when organizations pollute less, this will benefit the society. However, this will also benefit the organizations (Ambec & Lanoie 2008) since pollution is seen as economic waste because resources have been used incompletely and inefficiently (Porter & van der Linde 1995). Nowadays, it seems that some authors are backing away from the long-pursued perspective quest to demonstrate that social responsibility is either good or bad. Some seek to develop a perspective that specifies the conditions under which it “pays to be good” (Barnett & Salomon 2012; Rowley & Berman 2000).
Despite the ongoing debate whether it pays to be good, many authors argue that there are both corporate and social benefits to organizations and society, when organizations integrate
CSR into their business practices (Ambec & Lanoie 2008; Barnett & Salomon 2012; Bhattacharya & Sen 2004; Kotler & Lee 2005; Lindgreen & Swaen 2010; Marcus & Fremeth 2009; Porter & van der Linde 1995). The reasoning is that organizations develop a competitive advantage by integrating non-economic factors (Arkani & Theobald 2005; Porter & Kramer 2006); differentiate themselves from competitors by building a better reputation (Arkani & Theobald 2005); create consumer goodwill and positive employee attitudes and behaviors (Rupp et al. 2006); improved market share and sale (Epstein & Roy 2001); reduce costs (Lindgreen & Swaen 2010; Weber 2008); and reduce the risk of consumer protest, boycotts, and adverse publicity (Arkani & Theobald 2005; Minor & Morgan 2011).
As previously mentioned, there are several advantages of behaving in a socially responsible way. The existing literature stresses that one of the reasons why MNEs are committed to CSR is that this may exert a positive effect on their reputations (Fombrun & Shanley 1990; Lindgreen & Swaen 2010; Minor & Morgan 2011; Weber 2008). MNEs increasingly use their CSR activities to position themselves in the eyes of stakeholders (Fombrun & Shanley 1990; Minor & Morgan 2011; Sweeney & Coughlan 2008; Weber 2008). CSR efforts are generally intended to portray an image of an organization as responsive to the needs of the society it depends on for survival (Ellen, Webb & Mohr 2006).
In addition to enhancing an organization’s reputation, behaving socially responsibly can also defend against reputational risks. MNEs face a variety of risks in today’s dynamic environment (Minor & Morgan 2011). CSR activities can play an important role in an organization’s risk-management strategy. CSR can act as insurance by protecting reputation in the case of negative publicity (Peloza 2006) and can add value to the organization even if it does not immediately increase profitability because it help mitigate the effect of a damaging
event (Klein & Dawar 2004), such as an organizational crisis in the form of violating labor rights. One can think of a scale describing the possible causes of an adverse event (Minor & Morgan 2011). One side of the scale can be labeled “bad luck” where the incident is perceived as caused by factors largely out of the organizations control. The other side of the scale can be labeled as “bad management” where the incident is perceived as caused by factors under the control of the organization. Where stakeholders place events on this scale depends on the organization’s reputation based on its past actions as a “responsible corporate citizen”. In this light, expenditures on CSR both “doing good and avoiding harm” can be seen as an insurance premium. Blacconiere and Patten (1993) found a similar result; a higher level of CSR disclosure was a significant predictor of less-severe declines in corporate performance as negative events happened. This study demonstrated that socially responsible activities not only incrementally benefit an organization, but also defend a organization’s reputation in times of crisis (Peloza 2006; Schnietz & Epstein 2005).
CSR is often thought of as engaging in “doing good” activities, such as making charitable contributions. This is called positive CSR. Organizations are involved in activities that add to the sense that an organization “does the right thing”. However, a less visible dimension of CSR “not doing harm” is actually more important in determining where the balance of responsibility lies following an adverse event. This dimension is called avoiding negative CSR. An example of negative CSR is employing slave labor. Organizations that are perceived as attempting to avoid harm gain the benefit of the doubt when an adverse event, a crisis, occurs while those that do not actively avoid harm receive no such benefit (Minor & Morgan 2011). When an adverse event arises, CSR acts as reputational insurance by affecting the beliefs of stakeholders that adverse events are more likely due to back luck than bad management (Minor & Morgan 2011). An important, yet underemphasized, benefit from
CSR is insurance against negative events that otherwise would harm an organization (Peloza 2006), such as reputation. Another under-researched part of CSR is avoiding harm. While much of the literature focuses on doing good, this may be shortsighted if it leads to ignoring or underplaying the importance of avoiding harm (Minor & Morgan 2011).
Ruggie (2008, 2013) also explained the importance of avoiding harm. He explained this in relation to the previously explained concept of due diligence, the steps an organization must undertake to become aware of, prevent, and address adverse human rights impacts. Due diligence is seen as Ruggie’s (2007, 2008, 2013) approach to corporate responsibility (Mares 2012). Organizations must proactively take steps to understand how existing and proposed activities may affect human rights (Ruggie 2008). Human rights due diligence requires a high level of policy commitment to respect rights supported by operational level policies. It requires an organization’s assessment of its impact on human rights, coordinated actions in response to the findings to ensure that an organization is addressing them coherently, and addressing adverse human rights impacts that the organization has caused. Furthermore, organizations should communicate these efforts to affected stakeholders and report on them publicity. Through this due diligence process, organizations should know and present that they meet their responsibility to respect human rights in practice (Ruggie 2013). Conducting due diligence enables organizations to identify and prevent adverse human rights impacts. This should provide corporate reputations with strong protection against mismanagement claims by stakeholders. It can serve as proof that an organization took every reasonable step to avoid involvement in the alleged violation. This can only serve to benefit the organization (Mares 2012, Ruggie 2009). Because this study focuses on labor rights, it will examine the due diligence process in CSR reports with respect to labor rights.
P4: An organization’s CSR policy, with respect to labor rights, will moderate the relationship between an accusation of violating human rights and reputation, in such a way that (a) more focus on the due diligence process (the organization is aware, prevents, and addresses adverse labor rights impacts) in a CSR policy will procure more positive post-crisis evaluations (reputation) than (b) less focus on the due diligence process (the organization is less aware of and does not prevent nor address adverse human right impacts) in a CSR policy.
For an overview of all propositions, see the conceptual framework presented in Figure 1.
Figure 1: Conceptual model predicting the effect of accusations of human rights violations combined with a CSR policy on an MNE’s reputation.
3. Method
This study examines the implications of the accusations of human rights violations, corporate response, and CSR policy on reputation. The study consist of a qualitative multiple case study. This section will discuss the research method of a multiple case study. Furthermore, it will address the variables, different kinds of measures, databases, analyses, and the data used in the this study.
3.1 Multiple case study of MNEs accused of human rights violations
This study consists of a multiple case study based on qualitative content analysis. A qualitative approach was chosen due to the exploratory purpose of the current study. Exploratory research’s objective is to discover information about a topic that is not clearly understood (Searcy & Elkhawas 2012; Strauss & Corbin 1990). Qualitative content analysis is one of the research methods used to analyze text data (Hsieh & Shannon 2005). Research based on qualitative content analysis focuses on the characteristics of language as communication with attention to the contextual meaning of the text (Kondracki & Wellman 2002; McTavis & Pirro 1990). Hsieh and Shannon (2005) defined qualitative content analysis as ‘a research method for the subjective interpretation of the content of text data through the systematic classification process of coding and identifying themes or patterns’ (p. 1278).
This research uses qualitative content analysis in the form of multiple case studies. Case study research is often defined as ‘an empirical inquiry that investigates a contemporary phenomenon in depth and within its real life context, especially when the boundaries between phenomenon and context are not clearly evident’ (Yin 1994, p. 13). A multiple case study enables the researcher to carry out within- and between-case analyses of the phenomenon (Farquhar 2012). The aim of case study research is to look for explanations and gain
understanding of the phenomenon through multiple data sources within each case (Saunders & Lewis 2012; Yin 1994). By using several different sources of data the research findings are strengthened as the evidence is triangulated. With these explanations and newly gained understanding of the phenomenon, theory is extended or tested (Farquhar 2012). This research uses multiple cases because multiple case studies provide a stronger basis for theory building (Yin 1994). Multiple cases enable the researcher to clarify whether an emergent finding is simply idiosyncratic to a single case or is replicated by several cases (Eisenhardt 1991). Furthermore, because the propositions are more deeply grounded in empirical evidence, multiple cases create more robust theory (Eisenhardt & Graebner 2007).
3.1.1 Database and coding
The data in the study, the eight cases researched, were retrieved from the Corporations and Human Rights Database (CHRD). The CHRD works with the data available from the Business and Human Rights Resource Centre (BHRRC). The BHRRC is an organization that conducts research into accusations of human rights violations. These violations are reported by third parties, for example non-governmental organizations (NGOs), and this information is collected by the BHRRC. The CHRD database is the most comprehensive archive of corporate human rights abuse accusations (Olsen & Payne 2013).
3.1.2 Coding procedure
The information in the CHRD was systematically coded and stored in the database. Teams of students coded corporate abuse allegations (CAAs). The researcher participated in the coding team that was responsible for coding CAAs related to oil and mining corporations in Asia. In exchange for helping to code, the coding team received access to the data already coded. Before coding, the team received a four hour coder training. Disagreements were discussed
until agreement was reached. After the training, the coders judged the CAAs independently at home. The coders received online links to the original articles that stated allegations were made. The coders were asked to use these original articles and, if necessary, search the Internet for additional articles that could verify the information or could provide updates. The CAAs were coded using a Qualtrics Survey coding tool.
3.1.3 Cases and sampling
In order to examine the relationship between the allegation of human rights violations and organizational reputation, and the moderating role of corporate response and CSR policy, eight cases were researched in depth. In case study research, it is not the objective to draw a sample upon which one can generalize the findings to a population. The aim is to use cases as the basis from which to inductively build theory. The process of theory building occurs via recursive cycling among the case data, emerging theory, and later, extant literature (Eisenhardt & Graebner 2007). Cases are selected because they are suitable for ‘illuminating and extending the relationships of the constructs’ (Eisenhardt & Graebner 2007, p. 2), which form a conceptual framework. The selection of the cases was directed by this study’s conceptual framework and the sampling procedure was, therefore, purposive (Farquhar 2012).
The unit of analysis in this study is a CAA, for an overview of all the CAAs see Table 1. To draw a sample of CAAs, the universe must be defined (Weber 1990). The universe in this study consisted of all the labor rights CAAs in the CHRD database. This research considered CAAs from all regions and sectors but only examined labor violations. Kolk and Tulder (2002) argued that types of human rights violations of particular reputational concern to MNEs are accusations involving labor rights. Therefore, the current study focuses on CAAs
with respect to labor rights. For an overview of all the labor rights, see Table 2.This research used a “polar types” sampling approach. Extreme cases were sampled by the researcher in order to observe contrasting patterns in the data (Eisenhardt & Graebner 2007). The criteria for selecting the cases were 1) that the CAAs appeared in the CHRD database, 2) it was known how the MNEs responded to the CAAs, 3) there was data available on the reputation of the MNEs, and 4) there was data available about the MNEs’ CSR policies.
Table 1
Categories of corporate abuse allegations (CAAs) Corporate Abuse Allegations Description
Health Health concerns related to corporate activity and/or
pollution (Olsen & Payne 2013) Environment
Deforestation, destruction of natural resources and water, air, land contamination (Olsen & Payne 2013)
Labor Child labor, slavery, forced labor, right to unionize,
substandard working conditions (Olsen & Payne 2013), rights for equity at work and for a family life (Wright 2008), and freedom of association/expression (Olsen & Payne 2013)
Development & Poverty Access to basic needs, development of the local community, exploitation of land, license to operate (Olsen & Payne 2013)
Table 2
Business impacts on labor rights (Ruggie 2008)
Freedom of association Right to equal pay for equal work
Rights to organize and participate in collective bargaining
Right equality at work
Rights to non-discrimination Right to just and favorable remuneration. 39
