The influence of CSR orientation on corporate social
performance: Evidence from MNEs in the food industry
MSc. Thesis
Author: Joris Sebastiaan Buchholtz
Double Degree Student in Advanced International Business Management & Marketing
S3255352/B7080738
j.s.buchholtz@student.rug.nl/j.s.buchholtz2@newcastle.ac.uk Supervisors: Gary L. Ge & Prof. Iain Munro
University of Groningen
Faculty of Economics & Management Nettelbosje 2
Dept: GEM, DUI 538 9747 AE Groningen, The Netherlands
Newcastle University Business School
5 Barrack Rd, NE1 4SE NUBS 5.09
Newcastle Upon Tyne, United Kingdom
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Abstract
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Acknowledgements
I would like to thank Gary L. Ge and Prof. Iain Munro for their feedback during the supervision of this master thesis. Moreover, I would like to thank an
5 Table of Contents Abstract ... 3 Acknowledgements ... 4 Introduction ... 6 Literature review ... 10
Corporate social performance and MNEs ... 10
Global CSR integration vs. local CSR responsiveness ... 15
Hypotheses ... 17
Methodology ... 27
Sample selection ... 27
Data sources and Measures ... 28
Findings ... 31 Analysis ... 31 Results ... 33 Discussion ... 35 Conclusion ... 37 Theoretical implications ... 37 Managerial implications ... 38
Limitations and future research ... 40
References ... 41
Appendix ... 49
Appendix 1: Integration responsiveness framework ... 49
Appendix 2: List of MNEs included in the sample ... 50
Appendix 3: CSP metrics used by RobecoSAM ... 51
Appendix 4: Content analysis coding instructions ... 52
Appendix 5: Examples of the content analysis ... 53
Appendix 6: OLS regression assumption testing ... 70
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Introduction
How to manage CSR effectively continues to draw scholars’ interest, as global concern regarding issues such as human rights and climate change continues to increase. The presence of MNEs in multiple markets increases the complexity, because CSR expectations are different in each market. As a result, opinions differ on how MNEs should direct their CSR activities. Do MNEs perform best when their CSR activities are centrally coordinated and implemented identically in each market or is corporate social performance (CSP) maximized when MNEs operate under a decentralized CSR orientation where local adaptations can be made?
When MNEs direct their CSR activities, they have the option to adopt a multi-domestic, global, or transnational CSR orientation. A multi-domestic orientation allows each subsidiary to respond to local standards and community norms. An example is Austevoll Seafood ASA, an aquaculture company where each subsidiary operates according to market specific CSR practices. On the opposite, Barry Callebaut follows a centralized CSR orientation ‘driven from the
top of the company’. This cacao and chocolate manufacturer adopts universal
CSR policies against child labour, deforestation, and climate change among others. Since local and global CSR are not mutually exclusive, MNEs can also direct their CSR activities following a transnational orientation. Universal policies are implemented while local adaptations are made. An example is DANONE, where global CSR guidelines provide room to respond to local public health challenges, local nutrition practices, and local environmental needs.
7 balanced view between institutional and stakeholder theory and recognize their interdependence to explain the CSP of MNEs (Muller, 2006).
This research aims to clarify the relationship between an MNE’s CSR orientation and its CSP. The determinants of CSP are based on instrumental theory, institutional theory, and stakeholder theory and combined with Bartlett and Goshal’s integration responsiveness framework (1989), to answer the research question: Which CSR orientation results in the highest CSP for MNEs?
It is expected that a transnational CSR orientation results in a significantly higher CSP compared to a global or multi-domestic CSR orientation. Following the reasoning of Donaldson & Dunfee (1994), a transnational CSR orientation can safeguard minimum ethical standards through global ‘hyper norms’. Hyper norms ensure that MNEs do not take advantage of lower ethical standards. This virtue of a global CSR orientation was found to create consistency of organizational structures and processes (Muller, 2006; Jamali, 2010). Moreover, hyper norms were found to “facilitate
the transfer of CSR best practices” (Filatotchev & Stahl, 2015, p.122). At the
same time, transnational CSR allows ‘moral free space’ in the host markets. This virtue of a multi-domestic CSR orientation was found to help gain legitimacy in the local market (Yang & Rivers, 2009), but also to provide greater strategic flexibility (Filatotchev & Stahl, 2015). Overall, a transnational CSR orientation ensures that moral limits are acknowledged, but it also provides moral space in response to local CSR demands. It combines the strengths for a global and multi-domestic CSR orientation, while it safeguards against each other’s potential shortcoming. Hence, it is expected that a transnational CSR orientation result in a higher CSP for MNEs.
8 effect on CSP for MNEs. The second factor to incorporate is institutional ownership. The ownership structure of MNEs was found to significantly impact their CSP (Lahouel, Peretti and Autissier, 2014). Since the demand for CSP increases among institutional investors (PwC, 2017), it is expected that MNEs with a high degree of institutional ownership have a higher CSP. And third, the degree of internationalization will be incorporated in this study. An international presence was found to increase the need for MNEs to address diverging stakeholder demands (Attig et al., 2016). As a result, it is expected that the degree of internationalization will positively impact the CSP of MNEs.
Besides the direct effects on CSP, it is expected that under the condition of international certifiable standards, high institutional ownership, and a high degree of internationalization, a transnational CSR orientation will result in an even higher CSP for MNEs. This is being argued for the following reasons. To start, international certifiable CSR standards require MNEs to incorporate both aspects of global CSR as well as local CSR (GRI, 2016). The duality of such standards makes the transnational CSR orientation most suitable as it fits best with the environmental conditions. Similarly, a high degree of institutional ownership brings in different institutional backgrounds and expectations (Dyck
et al., 2018). Therefore, responding effectively to a diverse set of expectations
requires a flexible approach to CSR. Due to the dual orientation, a transnational CSR orientation is best able to provide that flexibility. And last, with a high international presence, MNEs face increased pressure to respond to a variety of stakeholder demands (Gjoberg, 2009). The transnational CSR orientation is able to combine home and host market pressures and was found to provide more strategic flexibility in an international environment (Arthaud-Day, 2005). Therefore, it is expected that a transnational CSR orientation will benefit MNEs with a high degree of internationalization even more. Overall, it is hypothesized that the following explains the CSP of MNEs: (1) CSR orientation, (2) presence of international certifiable CSR standards, (3) degree of institutional ownership, and (4) degree of internationalization.
9 the orientations for each MNE. Prior research (Miska, Witt and Stahl, 2016) on CSR orientation can help to safeguard the objectivity in this process. Secondly, a multiple linear regression makes it possible to test the hypotheses and compare findings against the major empirical studies on CSP.
The findings of this study indicate that MNEs, which (1) have a transnational CSR orientation, (2) implement international certifiable CSR standards, and (3) have a high degree of institutional ownership, have a higher CSP. Moreover, under the condition of high institutional ownership, MNEs that follow a transnational CSR orientation have a significantly higher CSP. Several reasons can explain why the contribution of this paper is important to expand our knowledge on CSP. First, studying the impact of CSR orientation on CSP can help to clarify the theoretical lens through which CSP is researched. Currently stakeholder theory and institutional theory contradict each other in their argumentation on CSP. Moreover, this study contributes to the academic debate on global vs. local CSR (Husted and Allen, 2006; Muller, 2006; D. Jamali, 2010) by providing empirical evidence on the CSR orientation that leads to the highest CSP. In addition, from a managerial perspective, this research can contribute to the establishment of industry-level best practices for international CSR.
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Literature review
Corporate social performance and MNEs
The concept of CSP is widely used in the business ethics literature, in order to track the CSR that firms undertake. CSP can be defined as “a business
organization’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s social relationships” (Wood, 1991, p.693). However,
with whom these ‘social relationships’ are and how they are defined is central in order to know what is being measured.
Therefore, the central question is: “To whom has an organization a
responsibility?” (van Marrewijk, 2003, p.96). The answer to this question is
rather complicated, as opinions differ depending on the role of formal institutions and the role that stakeholders fulfil in a national business system (Matten and Moon, 2008). In addition, it depends on the society that demands it (Husted and Allen, 2006). Since MNEs can be defined as “organizations that
maintain multiple units operating in multiple environments” (Westney & Zaheer,
2009, p.349) it is likely that the social relationships differ in each environment. As a result, there is no clear consensus to whom MNEs have a social responsibility (Garriga and Melé, 2004) and how it is socially constructed (Dahlsrud, 2008). This has implications for the measurement of CSP.
Instrumental theory considers CSR as an instrument to create wealth in which the corporate responsibility is maximizing shareholder value (Friedman, 1970). Here CSP is aligned with the financial performance of the firm and social relationships relate to shareholders. Instrumental theory has been opposed by integrative theory which argues that business has the responsibility to respond to social demands (Garriga and Melé, 2004). Here CSP measures the firm’s relationship with a broader set of stakeholders who are affected by firm actions and who seek social legitimacy for firm actions (Freeman, 1984).
11 or not. Meaning, it provides room for interpretation, as CSR depends on the society that demands it (Husted and Allen, 2006). Second, this definition corresponds to the economic, social, and environmental metrics that independent rating agencies use to measure an MNE’s CSP. This definition ensures that we align how we define CSP with how we measure CSP. In order to find out what factors influence the CSP of MNEs, the following section will explore in more detail the theoretical perspectives that explain a firm’s CSP. Previous research has shown that an instrumental, institutional, as well as a stakeholder perspective provide relevant insights.
Theoretical perspectives on CSP Instrumental perspective
From an instrumental perspective, MNEs engage in CSR in order to enhance financial performance or reduce reputational risk. A large number of studies looked into the relationship between corporate financial performance and CSP (Vogel, 2006). In line with slack resources theory, Mcguire, Sundgren, & Schneeweis (1988) found that financial performance has a positive effect on CSP. Meaning, firms who are relatively more profitable may perform better on CSP, due to the availability of excess capital.
On the other hand, a large group of studies researched the opposite causal relationship. Two meta-analyses indicate that the majority of studies found a positive relationship between CSP and financial performance (Griffin and Mahon, 1997; Orlitzky, Schmidt and Rynes, 2003). However, a neutral effect (Mcwilliams and Siegel, 2001) as well as a negative effect (Shane and Spicer, 1983) has been found too.
The lack of theoretical grounding as well as different interpretations of CSP is considered to be the main reason for the contradicting findings (Marom, 2006). Moreover, Jackson & Apostolakou (2010) argue that the inconclusive findings might also be due to the mutual causal relation between both financial performance and CSP. Meaning, high CSP may result in higher financial performance, and visa versa, which can result in a reinforcing relationship.
12 global environmental and social issues demand the inclusion of other motives that consider a broader social context. Stakeholder theory and institutional theory respond to such motives and identify additional factors that influence the CSP of MNEs. Nevertheless, the instrumental perspective on CSP has illustrated the importance to control for financial performance, when assessing the influence of other variables on CSP in MNEs.
Institutional perspective
According to institutional theory, a firm seeks to achieve legitimacy within a socially constructed system in which it is embedded (Suchman, 1995). Legitimacy that is based on the acceptance of common beliefs, norms, and values allows the firm to operate. While doing so, institutional isomorphism suggests that coercive, mimetic, and normative pressures make organizations increasingly similar and act alike within a shared social system (DiMaggio and Powell, 1983). In the context of MNEs, isomorphic pressures found in host-county societies motivate organizations to act according to the common beliefs, norms, and values present in those markets. This helps the MNE to gain and maintain legitimacy (DiMaggio and Powell, 1983; Kostova and Zaheer, 1999; Tan and Wang, 2011). Following this logic, Matten and Moon (2008) argue that legitimacy seeking result in predictable CSR practises across nations and leads to harmonization of these practises.
Several papers support this view and identify institutional factors that influence the CSP of firms. Jackson and Apostolakou (2010) examined 274 companies from Western Europe and analysed whether country and sector-level characteristics influence a firm’s overall CSP. They found that the national (liberal market economy vs. central market economy) as well as sectorial (high impact vs. low impact) institutional context has a significant impact on the company’s CSP (Jackson & Apostolakou, 2010). Other authors find similar results and emphasize the significant role that national-level variation (Ioannou and Serafeim, 2012) as well as industry-level variation (Beliveau, Cottrill and O’Neill, 1994) play in the CSP of firms.
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businesses worldwide to adopt, implement, and report on sustainable and socially responsible policies” (United Nations, 2005). In the context of MNEs,
Christmann and Taylor (2006) found that such ‘international certifiable
standards’ function as an effective governance system for self-regulation on
CSR. In addition, Crilly (2011) researched 52 MNE subsidiaries across multiple industries, including the food sector, and found that global stakeholders can also have a harmonized institutional effect on the CSR activities of MNEs. Overall, the evidence suggests that industrial, national and global institutional contexts lead to patterns of CSR harmonization, which increases the overall CSP.
However, not everyone agrees that institutional factors lead to straightforward patterns of isomorphism (Kostova, Roth and Dacin, 2008; Westney and Zaheer, 2009; D. Jamali, 2010; Crilly, 2011; Miska, Witt and Stahl, 2016). In the context of MNEs, Westney and Zaheer (2009) argue that the presence in multiple environments can result in conflicting situations between the institutional structures present in home and host markets. Kostova
et al. (2008) argue that MNEs are not present in the same organizational fields
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Stakeholder perspective
Stakeholder theory argues that a socially responsible firm responds to and takes into account the demands of its stakeholders (Freeman, 1984). Meaning, MNEs with multiple subsidiaries in host countries should take into account the interest of host market stakeholders who are affected by the firm’s outcomes (Freeman, 1984). This argument is expanded by Donaldson and Preston (1995) as they state that stakeholders have an influence on the actual corporate activity.
Following stakeholder logic, MNEs who take into account the interests of their host market stakeholders will have a higher CSP than MNEs who take into account only the interest of their home market stakeholders. Based on an analysis of the S&P 500 between 2000 and 2007, Brower and Mahajan (2013) found that firms who respond more sensitive to stakeholder needs and demands, and who encounter a certain level of risk from stakeholder action, have proven to score more positively on CSP. In line with these findings, Muller (2006) found that high levels of local subsidiary autonomy in Mexican subsidiaries of large European car manufacturers result in a higher CSP. Meaning, local subsidiary autonomy can contribute to the CSP of MNEs. Both studies prove that responding to local stakeholder demands and needs positively affect the CSP of MNEs.
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Global CSR integration vs. local CSR responsiveness
Both institutional theory and stakeholder theory are able to explain how various determinants influence the CSP of MNEs. At the same time, both theories identified several challenges associated with the CSR activities of MNEs. These challenges are often the result of diverging expectations between home and host market stakeholders as well as isomorphic pressures of the host market (Hah and Freeman, 2014). Since MNE’s do not operate as singular organizations, they are likely to face pressures for subsidiary level adaptation as well as pressures for consistency across all operations (Prahalad and Doz, 1987; Rosenzweig and Singh, 1991). How MNEs deal with these pressures has been researched by Bartlett and Ghoshal (1989) and resulted in the integration responsiveness framework (appendix 1).
Bartlett and Ghoshal (1989) found that MNEs cluster around four different orientations when it comes to managing structure and strategy of international business activities. These four orientations are multi-domestic, global, international, and transnational. The usefulness of Bartlett and Ghoshal’s framework has been confirmed by several large-scale empirical studies (Leong and Tan, 1993; Harzing, 2000).
The orientations; global, multi-domestic, and transnational, have been widely applied to CSR in an MNE context (Arthaud-Day, 2005; Husted and Allen, 2006; Muller, 2006; D. Jamali, 2010; Tan and Wang, 2011; Bondy and Starkey, 2014; Hah and Freeman, 2014; Filatotchev and Stahl, 2015; Miska, Witt and Stahl, 2016). A global CSR orientation can be defined as “universal
guidelines or codes of conduct applied to every cultural context in which the MNE operates” (Filatotchev & Stahl, 2015, p.122). These ‘hyper norms’ are
considered as acceptable ethical standards “to which all societies can be held” (Husted & Allen, 2006, p.840). The United Nations Sustainable Development Goals (SDG) is an example of such hyper norms aimed to accomplish gender equality and poverty reduction, among others (United Nations, 2005). However, MNEs can also implement their own universal standards across the organization. Global CSR is not limited to pre-defined standards. International CSR literature identified several advantages related to a global CSR orientation. According to Filatotchev and Stahl, a global CSR orientation
16 CSR orientation brings consistency of structures and processes (Jamali, 2010; Muller, 2006). As a result, this consistency helps to build trust among global stakeholders (Filatotchev and Stahl, 2015) and reduces the costs (Barin Cruz and Boehe, 2010). However, a global CSR orientation is also considered to bring several disadvantages. As a global orientation is “insensitive to local
needs” (Jamali, 2010, p. 184) it could result in ethical imperialism from the head
quarters (Filatotchev and Stahl, 2015).
On the opposite, a multi-domestic CSR orientation can be defined as
“local standards and community norms based on the needs and demands of stakeholders in the countries where the company operates” (Filatotchev &
Stahl, 2015, p.123). Here, the MNE’s obligations are based on the standards of the local community (Husted & Allen, 2006). A multi-domestic CSR orientation is considered to benefit from greater strategic flexibility (Filatotchev & Stahl, 2015). Since a multi-domestic CSR orientation takes into account the cultural differences in the local environment (Jamali, 2010), it could help to gain host market legitimacy (Yang & Rivers, 2009). However, a local CSR orientation has also disadvantages. It allows MNEs to live up to minimum host-country standards (Christmann, 2004; Muller, 2006; D. Jamali, 2010) and may promote ethical relativism (Filatotchev & Stahl, 2015). In addition, a fragmented orientation asks for high coordination and control (Jamali, 2010). Those factors could potentially counter the CSP of MNEs.
Since both global and multi-domestic CSR orientations are not mutually exclusive, a transnational CSR approach can be defined as “a global template
for CSR activities to guide managerial decision-making, while allowing local subsidiaries to adapt that template according to their specific needs and circumstances” (Filatotchev & Stahl, 2015, p.123). Meaning, this hybrid CSR
orientation allows adaptation of global policies based on local norms and stakeholder demands. The advantage of a transnational CSR orientation includes the presence of a global template for which subsidiaries can make local adaptations (Filatotchev and Stahl, 2015). However, a lack of guidelines makes it “difficult to strike an appropriate balance between global consistency
and local adaptation” (Filatotchev & Stahl, 2015, p.122). In addition, Filatotchev
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Hypotheses
CSR orientation
The literature review identified how CSP of MNEs is influenced by different factors. According to institutional theory, country and industry context has a significant effect on CSP (Beliveau, Cottrill and O’Neill, 1994; Jackson and Apostolakou, 2010; Ioannou and Serafeim, 2012). These factors lead to patterns of isomorphism and contribute via a global CSR orientation to the CSP of MNEs. However, MNEs who adopt a global CSR orientation do not aim to maximize the CSP of MNEs. First of all, Jamali (2010) found that MNEs adopt a global CSR orientation primarily to gain legitimacy in the form of reputational gains and not to increase CSP. These reputational gains can help to improve the company’s image, but do not necessarily improve the CSP. Secondly, a global CSR orientation does not recognize the importance of local legitimacy. Brower and Mahajan (2013) found that local legitimacy positively affects the CSP of MNEs. As a result, the opportunity to improve the CSP via host-market CSR is not taken. Overall, a global CSR orientation falls short on several aspects that could help the CSP of MNEs.
On the other hand, stakeholder theory argues that a socially responsible firm responds to the interests and takes into account the demands of its host-market stakeholders (Freeman, 1984). Evidence was found that stakeholder responsiveness (Brower & Mahajan, 2013) as well as increased local subsidiary autonomy (Muller, 2006) has a positive effect on CSP of MNEs. However, research also found that conflicting interests between home and host-market stakeholders (Christmann, 2004; Muller, 2006; D Jamali, 2010) as well as advantage seeking of lower host-market ethical standards (Surroca, Tribo and Zahra, 2013) have a negative effect on CSP of MNEs. Therefore, stakeholder theory indicates that a multi-domestic CSR orientation can also have negative effects on the CSP of MNEs.
18 standards (Surroca et al., 2013) will no longer negatively impact the CSP of MNEs. Secondly, Donaldson & Dunfee (1994) argue that ‘moral free space’ enables the MNE to respond to local CSR demand as long as they do not clash with ‘hyper norms’. This enables the MNE to gain legitimacy in the local market, which was found to positively affect CSP (Brower and Mahajan, 2013).
In addition to that, Filatotchev & Stahl (2015) found that the combination of strategic control for subsidiary managers as well as strategic flexibility provided by MNE’s senior managers positively complement broader performance aspects. Both strategic flexibility and strategic control are being recognized through transnational CSR. It is therefore likely to assume that this dual governance structure will also benefit the CSP of MNEs.
A transnational CSR orientation combines the strengths of a global CSR orientation and a multi-domestic CSR orientation while it safeguards against each other’s potential shortcoming. Therefore, in line with Donaldson & Dunfee (1994) and filatotchev & Stahl (2015), it is expected that MNEs who pursue a transnational CSR orientation will have a higher CSP than MNEs who pursue a purely global or multi-domestic CSR orientation.
H1a: MNEs that have a transnational CSR orientation have a higher CSP, compared to MNEs that have a multi-domestic CSR orientation.
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Presence of international certifiable CSR standards
Besides CSR orientation, it is hypothesized that the presence of international certifiable CSR standards results in a significantly higher CSP. One option to gain legitimacy regarding CSR is to implement a company specific CSR program. Here, the MNE follows its own moral compass and decides for itself what CSR standards to set. However, another option to gain legitimacy regarding CSR is through international certifiable CSR standards (Devinney, 2011). Here, the MNE follows a pre-defined set of CSR policies, established by independent organizations. Examples of such standards are the UN Global Compact, Global Reporting Initiative, ISO 26000 & 14000, and B Corp. Overall, these standards aim to assess a company’s economic, social, and environmental performance in a transparent manner.
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Institutional ownership
Moreover, it is being argued that MNEs with a high degree of institutional ownership have a higher CSP. Several authors support this claim. Lahouel et
al. (2014) analysed 258 firm-year observations of 129 French companies
between 2006 and 2007 and found that a high portion of institutional shareholders result in a higher CSP. This is in line with the findings of Cox et al. (2007), Graves & Waddock (1994), and Johnson & Greening (1999). Dyck et al. (2018) even found evidence of a positive causal relationship between institutional ownership and CSP across 41 countries.
Although most studies find positive significant results, there are a few exceptions. With respect to charitable giving, Coffey & Fryxell (1991) did not find a significant relationship between institutional ownership and the corporate charitable donations of firms. The non-significant results might be explained by the narrow scope of CSP used in this study. Charitable giving is only one aspect of CSR that MNEs can pursue. Another study by Zahra et al. (1993) found a significant negative relationship between institutional ownership and CSP, after analysing 156 of the 500 largest publicly-held US firms in 1993. Part of their argumentation is that institutional investors are being evaluated based on short-term performance. The long-term perspective that CSR investments require has therefore a negative effect when companies have a high percentage of institutional shareholders.
All together, contradicting results have been found, but the majority of recent studies find positive significant results. In addition to that, positive developments can be observed in the industry. There has been an increase in demand for environmental, social and corporate governance investing by institutional investors (PwC, 2017). Moreover, the CEO of Blackrock, the largest institutional investor, has summoned the CEO’s of listed companies to make a positive contribution to society (Fink, 2018). This sign illustrates the importance that institutional investors place on CSR. Hence, it is expected that MNEs who have a higher degree of institutional ownership have a higher CSP.
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Degree of internationalization
Furthermore, it is being argued that MNEs with a high degree of internationalization have a higher CSP. Although the CSR orientation evaluates the extent to which a MNE is globally integrated or locally responsive, it does not take into account the degree of internationalization. Meaning, MNEs that operate in multiple markets have a different degree of exposure to global markets. To illustrate, MNEs active in North America have a lower exposure to global markets compared to MNEs that are active in Europe and Asia. The difference in exposure can be referred to as ‘degree of internationalization’. With a high degree of internationalization, it is expected that MNEs feel increased pressure to address stakeholder demands that arise from a more diverse environment. As a result, the degree of internationalization will positively impact the CSP of MNEs.
Following this logic, Attig et al. (2016) used a large sample of 3,040 U.S. firms and found strong support for the positive relationship between degree of internationalization and CSP. Gjølberg (2009) found a similar positive significant result based on a country analysis of listed companies from 19 Western countries. The degree of internationalization can therefore be considered as a significant factor to determine CSP. Hence, it is expected that MNEs with a higher degree of internationalization have a higher CSP.
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Interaction effects
Next to the direct effect of CSR orientation on MNE CSP, it is being argued that under certain conditions the transnational CSR orientation will result in an even higher CSP. The interaction effects can help to further explain the influence of CSR orientation on CSP in relation to other determinants of CSP that have been identified in previous research.
The interaction effect between international certifiable CSR standards and CSR orientation
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H5a: For MNEs that follow international certifiable CSR standards, those that follow a transnational CSR orientation have a higher CSP, compared to those that follow a multi-domestic CSR orientation.
H5b: For MNEs that follow international certifiable CSR standards, those that follow a transnational CSR orientation have a higher CSP, compared to those that follow a global CSR orientation.
The interaction effect between institutional ownership and CSR orientation
Secondly, it is being hypothesized that with a high degree of institutional ownership, a transnational CSR orientation is beneficial for a higher CSP compared to a multi-domestic or global CSR orientation. To start, institutional investors’ push for MNE CSP originates from different societal backgrounds and expectations. Dyck et al. (2018) found evidence across 41 countries that institutional investors from countries with a strong community interest in environmental and social issues increase firm environmental and social performance. This finding indicates that institutional investors place importance on the local social norms where they come from. At the same time, global social minimum standards have become mainstream for institutional investors through social responsible investing (Sparkes and Cowton, 2004). Such global standards are encouraged by the UN principles for responsible investing and receive wide institutional support (UN PRI, 2018). This finding indicates that institutional investors take into account the global trends with regards to responsible investing.
24 orientation can benefit MNEs to find wide support for their CSR activities (Arthaud-Day, 2005). This enables MNEs to gain further legitimacy in the local and global environment.
Hence, with a high institutional ownership, the dual orientation of transnational CSR is able to align diverging expectations of institutional investors. Therefore, a transnational CSR orientation is more beneficial for the CSP of MNEs with high institutional ownership compared to those that follow a multi-domestic or global CSR orientation.
H6a: For MNEs that have a high degree of institutional ownership, those that follow a transnational CSR orientation have a higher CSP, compared to those that follow a multi-domestic CSR orientation.
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The interaction effect between degree of internationalization and CSR orientation
Moreover, it is being hypothesized that with a high degree of internationalization, a transnational CSR orientation is beneficial for a higher CSP compared to a multi-domestic or global CSR orientation. This is being argued for the following reasons. To start, when the degree of internationalization increases, Gjoberg (2009) found that MNEs face increased pressure to respond to a variety of stakeholder demands coming from home and host markets. A diverse environment requires a CSR orientation that is able to respond to different stakeholder demands. Since transnational CSR takes into account both global standards and local stakeholder expectations it is able to cope with diverse CSR pressures. Secondly, Arthaud-Day (2005) found that transnational CSR is able to provide more strategic flexibility. When the degree of internationalization increases, flexibility can help MNEs to respond in line with CSR expectations in home and host markets. Thus, for MNEs with a high degree of internationalization, it is hypothesized that a transnational CSR orientation is beneficial for a higher CSP.
H7a: For MNEs that have a high degree of internationalization, those that follow a transnational CSR orientation have a higher CSP, compared to those that follow a multi-domestic CSR orientation.
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Methodology
The research philosophy taken in this research is pragmatism (Bryman & Bell, 2015; Saunders et al., 2012). The nature of the research question requires a view that enables the assessment of multiple approaches to CSR, as there is not a single solution to maximize CSP. To address the main research question, a deductive research approach is used (Bryman and Bell, 2015; Saunders, Lewis and Thornhill, 2016). Based on a theoretical analysis of institutional and stakeholder theory, this research applies the Bartlett and Goshal framework to make inferences on the CSP of MNEs. The design used in this research is a mixed-method research approach (Saunders, Lewis and Thornhill, 2012). The reasons for this design are the following. First of all, the lack of available data on CSR orientation requires a content analysis to identify the orientations for each MNE. Secondly, a quantitative analysis is needed in order to empirically test whether the CSR orientations have a significant impact on the overall CSP. The application of quantitative research methods is in line with most research on CSP. Not including the quantitative aspect in this study would make it difficult to compare findings against the major empirical studies on CSP. Hence, a mixed method research design is adopted.
Sample selection
To address the research question, the database of RobecoSAM sustainability investing is used. RobecoSAM is an independent provider of Environmental, Social and Governance (ESG) scores for 4,500 listed companies (RobecoSAM, 2018). Over 600 data points establish the overall CSP score for each firm. An overview of the main dimensions covered can be found in appendix 3. The sample of this research consists of the RobecoSAM food products industry analysis. Out of the total sample of 214 firms, 79 firms met the criteria to have foreign operations.
28 as global distribution and consumer markets are represented. This ensures the presence of both local and global stakeholders when considering the CSR orientation of the MNE. And last, a single industry perspective automatically controls for industry level differences. This allows the study to contribute to industry best practices.
Data sources and Measures
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Dependent variable
Corporate social performance
For this research, the dependent variable is CSP of MNEs. CSP is a quantifiable measure that captures a firm’s principles, processes, and outcomes towards economic, environmental, and social aspects of CSR (Wartic & Cochran, 1985). The scores are measured by RobecoSAM and range from 0 – 100 where 100 is the highest score. Several other independent rating providers, such as Kinder, Lydenburg, and Domini (KLD), sustainalytics, and ASSET4 also track CSP. However, RobecoSAM makes use of the Dow Jones industry classification consisting of 18 sectors and 60 industrial groups. This industry-level analysis makes RobecoSAM’s database most suitable in the context of this study.
Independent variables
CSR orientation
30
Presence of international certifiable CSR standards
Due to the lack of formal regulations on environmental and social responsibility, there are a number of international certifiable CSR standards that certain MNEs follow. To find out whether such standards have a positive effect on the CSP of MNEs, this binary variable measures whether the MNE is a registered member of one of the international certifiable CSR standards. The standards included in this study are UN Global Compact, Global Reporting Initiative, B Corp, and ISO 14000 & 26000. The presence of such standards is confirmed via annual reports and the UN global compact database.
Degree of internationalization
Past research on CSR has illustrated that CSP is positively related to the degree of internationalization (Gjølberg, 2009; Attig et al., 2016). In line with previous research, degree of internationalization is measured as the percentage of foreign sales and collected via the Orbis database.
Institutional ownership
Multiple studies found that institutional ownership has a significant effect on the CSP of MNEs (Graves and Waddock, 1994; Johnson and Greening, 1999; Neubaum and Zahra, 2006; Cox, Brammer and Millington, 2007; Dyck et al., 2018). Institutional ownership was measured as the percentage of stock held by institutional investors. Data has been collected through the Orbis database.
Control Variables.
31
Findings Analysis
Prior to conducting the analysis, the key assumptions of the linear regression have been tested. To start, the assumption of a multivariate normality distribution has been met, as illustrated in appendix 6. Secondly, a Durbin-Watson test of 1.953 indicates no evidence of positive or negative autocorrelation (keller, 2012). Moreover, table 1 indicates little evidence of multicollinearity. Only one correlation between the dependent variables slightly exceeds 0.41. Furthermore, the assumption of homoscedasticity has been met. A scatterplot of residuals in appendix 6 indicates little dispersion of the error terms. And last, the Mahalanobis and Cooks distance test has been performed in order to identify outliers (Atkinson & Riani, 2000). There was no evidence found that outliers had a significant effect on the overall model. More details on assumption testing can be found in appendix 6.
Table 1: Correlation matrix
1 One correlation between MD_CSR_OR and GLOBSTAN (0.414) slightly exceeds the threshold of 0.4.
32 The equitation used in order to estimate the model is as follows:
Where for company i:
CSP = the corporate social performance score as provided by
RobecoSAM;
MD_CSR_OR = a multi-domestic CSR orientation, where transnational CSR is the baseline;
GL_CSR_OR = a global CSR orientation, where transnational CSR is the baseline;
GLOBSTAN = registered member in international certifiable CSR standards;
INST = percentage of capital held by institutional investors;
INTER = degree of internationalization measured through
percentage of international revenues;
33
Results
Table 2: Regression model results of MNE CSP
Overall, the results provide statistical support for hypothesis 1a, 1b, 2, 3, 6a, and 6b. An overview of the models can be found in table 2. Model A includes the direct effect of the independent variables on CSP. The following three models (B, C, D) complement the basic model by including one interaction effect each. Finally, model E illustrates the overall model, which includes the basic model and all three interaction effects together.
The results in table 2 illustrate that model C and model E have the best fit. However, model C describes slightly less variance compared to model E (model C: R2=0.518, model E: R2=0.528). To start, the results of all five models
34 proportion of institutional investors have a higher CSP. No support is found for hypothesis 4, which states that MNEs with a higher degree of internationalization have a higher CSP.
Regarding the interaction effects, the results illustrate no support for hypothesis 5a (model B p=0.877; model E p=0.942) and 5b (model B p=0.213; model E p=0.334). For MNEs that are registered members of international certifiable CSR standards, a transnational CSR orientation does not result in a significantly higher CSP compared to MNEs with a multi-domestic or global CSR orientation. With respect to the second interaction effect, model C finds significant statistical support for hypothesis 6a and 6b (p< 0.05). For MNEs that have a high degree of institutional ownership, those that follow a transnational CSR orientation have a higher CSP, compared to those that follow a multi-domestic or global CSR orientation. Unfortunately, only weak statistical support is found for hypothesis 6a and 6b (p= <0.1) in model E. With regards to hypothesis 7a (model D p=0.907; model E p=0.862) and 7b (model D p=0.537; model E p=0.661), no statistical support is found. For MNEs with a high degree of internationalization, a transnational CSR orientation does not result in a significantly higher CSP compared to MNEs with a multi-domestic or global CSR orientation. Finally, the control variables do not indicate to have a significant effect on CSP (Size_lagged, model E p=0.273; ROA_lagged, model E p=0.986).
35
Discussion
The central research question is this study was: Which CSR orientation results in the highest CSP for MNEs in the food industry? In addition to this central question, several factors have been incorporated that emerged from past research on CSP. As proposed in the conceptual model, it is hypothesized that (1) a transnational CSR orientation (2) implementation of international certifiable CSR standards; (3) a high degree of institutional ownership; and (4) a high degree of internationalization are positively related to the CSP of MNEs.
Fundamentally, when MNEs give direction towards their CSR activities, they have the option to implement their CSR activities multi-domestically, globally, or transnationally. In essence, the findings illustrate that a transnational CSR orientation results in a significantly higher CSP compared to a multi-domestic or global CSR orientation. More specific, MNEs perform best on CSR when decision-making regarding the implementation of headquarter policies takes place on subsidiary level. Such dual governance over CSR activities is consistent with the results of Filatotchev & Stahl’s (2015). In practise, this governance approach can be explained by combining strategic control for senior managers and strategic flexibility for subsidiary managers. The strategic control can be linked to Donaldson & Dunfee’s (1984) argument on minimum ethical standards. Senior managers have to safeguard against those standards. At the same time, the strategic flexibility can be linked to Donaldson and Dunfee’s (1984) argument on moral free space. The empirical analysis has shown that both aspects of this transnational CSR orientation contribute to a higher CSP.
36 certifiable standards on CSP gains wider recognition throughout the industry, it is likely that such standards become an institutionalized standard.
Moreover, this research shows that institutional ownership plays an important role in CSP. In line with previous research (Graves and Waddock, 1994; Johnson and Greening, 1999; Cox, Brammer and Millington, 2007; Lahouel, Peretti and Autissier, 2014), it is demonstrated that a high percentage of institutional shareholdings contributes to a higher CSP. What the findings of hypothesis 3 tell us is that the institutional investment community supports a wider definition of CSR. The instrumental role that CSR used to fulfil, in order to maximize shareholder value, has shifted towards an integrative role to serve a wider stakeholder base. The results of this hypothesis support this claim and indicate that institutional investors found effective ways to engage with the CSR activities of MNEs.
37
Conclusion
Theoretical implications
To date, most empirical research on CSP has adopted either an institutional view or a stakeholder view in order to explain the CSP of MNEs. This study provides empirical evidence that MNEs who incorporate aspects of both institutional theory and stakeholder theory have a higher CSP. In practise, this transnational CSR orientation allows adaptation of global CSR policies based on local norms and stakeholder demands. The positive effect of a transnational CSR orientation on the CSP for MNEs can be considered as a key contribution of this study.
As a result, international CSR research needs to adopt a balanced view when it defines the theoretical lens through which CSP is researched. The current debate on local vs. global CSR falls short to justify a MNE’s CSP through either its local focus or its global implementation. Combining institutional theory and stakeholder theory provides a better representation of diverging CSR practices in home and host countries as well as converging CSR practices that contribute to CSP. Future research in the field of international CSR should recognize the interdependence of both theories when assessing a firm’s CSP. This study can be considered as one of the first empirical studies to recognize this interdependence with regards to CSP.
38 Overall, this study recognizes the importance of both stakeholder theory and institutional theory to explain MNE CSP. At the same time, the food industry’s global reach illustrates that MNEs’ adaptation to institutionalized forms of CSR plays a central role in their CSR activities.
Managerial implications
This study is able to provide significant value for MNEs in the food industry. In general, it gives MNES a better understanding of the factors that influence their CSP. In more detail, it helps MNEs to understand what options are available to increase CSP, but also under what conditions CSP can be improved even further.
To start, when MNEs give direction towards their CSR activities, they have the option to implement their CSR activities multi-domestically, globally, or transnationally. Although different reasons might push MNEs in a certain direction, the empirical analysis has shown that a transnational CSR orientation results in the highest CSP. This means that headquarter management should provide universal CSR guidelines to each subsidiary. At the same time, subsidiary managers need to receive flexibility to implement such guidelines according to local standards.
Since this dual governance structure might be complex and costly to implement, there is another option that MNEs can use to increase CSP. Independent from the CSR orientation, this study finds empirical evidence that the implementation of international certifiable CSR standards lead to higher CSP. Therefore, MNEs also have the option to implement pre-defined standards to increase their CSP. Such standards can help to guide MNEs in the right direction.
39 institutional ownership, a transnational CSR orientation has a significant positive effect on CSP.
In essence, MNEs have several options available to increase their CSP. They can adopt a transnational CSR orientation, implement international certifiable CSR standards, and increase their degree of institutional ownership. Under the condition of a high degree of institutional ownership, a transnational CSR orientation is suitable to increase their CSP even more.
40
Limitations and future research
To start, one of the limitations of this study is the sole focus on the food industry. As a result, a single industry focus limits the generalizability of findings to other industries. In addition, the specific industry focus does not allow cross-industry comparisons to be made. A first step in future research would be to find support across multiple industries for the significant contribution that CSR orientation has on CSP. The inclusion of multiple industries or the comparison between multiple industries could take away the limitation of generalizability.
Secondly, the main variable, CSR orientation, has been established through a headquarter perspective. This means that only publicly available data on headquarter level has been incorporated to establish the CSR orientations. The inclusion of subsidiary perspectives might have provided additional insights for this study. However, due to the lack of publicly available data and the increase in scope when including the subsidiaries of each MNE, the analysis was conducted based on company headquarter documentation and databases. Future research could incorporate a subsidiary level perspective. Including both perspectives provides a better balance and might give more depth to the findings. In addition, both perspectives could demonstrate whether headquarter and subsidiary perspectives differ.
41
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49
Appendix
Appendix 1: Integration responsiveness framework Figure 2: Integration responsiveness framework (Bartlett & Ghoshal, 1989)
