Corporate human rights abuses and the role of experience in remedy

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“CORPORATE HUMAN RIGHTS ABUSES AND

THE ROLE OF EXPERIENCE IN REMEDY”

MONIKA GADOMSKA | 11373962 | JUNE 23, 2017

MSC. BUSINESS ADMINISTRATION - INTERNATIONAL MANAGEMENT UNIVERSITY OF AMSTERDAM

SUPERVISOR: DR. MICHELLE WESTERMANN-BEHAYLO SECOND READER: DR. MASHIHO MIHALACHE

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STATEMENT OF ORIGINALITY

This document is written by Monika Gadomska who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

Monika Gadomska 23-06-2017

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Abstract

A review of the International Business (IB) literature reveals an important research gap when it comes to multinational enterprises and human rights. Though there is a growing body of

literature on corporate social responsibility, human rights are rarely included in the conversation. We attempt to fill this gap by studying the remedy pillar of the United Nation’s Guiding

Principles, and looking for predictive firm characteristics that could explain corporate behaviour following a violation. More explicitly, this research draws insights from the organizational learning and internationalization process theories to uncover patterns surrounding remedy provision. These and other IB concepts lead us to believe that company age and level of internationalization are indicative of firm knowledge and experience, which are necessary conditions for handling corporate abuse allegations. To test for this relationship, we first collect secondary data from the Corporations and Human Rights Database and corporate financial reports. We then run a binomial linear regression with company age and internationalization as the independent variables, and remedy as the outcome. Lastly, we test for a potential moderating effect of the violation type, with the variable divided into two of the most common violations – environmental and labour. The results show a positive relationship between company

internationalization and effective remedy. However, more research is necessary to gain a deeper understanding of the link between company age and the remedy and any moderating effects of the category of abuse, as these hypotheses were not supported in our research. These findings have important implications for managers of multinational enterprises, policymakers, and

academia. The objective of this study is to improve our knowledge of the corrective actions taken by corporations after a human rights violation, and we encourage future researchers to contribute to this field.

_____________________________________________________________________________ Keywords: Corporate Social Responsibility; Corporate Human Rights Violations; Remedy; Internationalization; Organizational Learning.

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Chapter 1: Introduction

The news today is full of tragic stories of human rights abuses and environmental damage at the hands of corporations (Clark & Sikkink, 2013). Scandal after scandal, companies are realizing that there are human costs to doing business and that public backlash is a real threat (Kim, 2014). Moreover, several catastrophic incidents in recent years have brought worker conditions and labor abuses to the forefront of public attention. Notorious examples include the 2013 Rana Plaza disaster, when a factory in Bangladesh producing clothing for major labels like Primark and H&M collapsed, killing over 1,100 workers (Stewart, 2014). And, it is not just the garment industry that is exploiting workers’ rights. Apple, for example, has been blamed for “hindering the improvement of labor conditions within the whole smartphone industry,” due to its status, disproportionate chunk of profits, and continued abuse like forced overtime and low wages (China Labor Watch, 2016). Meanwhile, in Honduras, international human rights delegates were not able to protect the life of known environmentalist, Berta Cáceres, whose campaign against the Agua Zarca hydroelectric dam eventually led to her murder (Lakhani, 2016). This vicious cycle of abuse and impunity needs to change. Preventing such tragedies should be at the forefront of the international business agenda, while at the same time, companies must be held accountable for their actions, and those affected provided with justice.

There is no doubt that globalization has changed the way we do business (Nunnenkamp, 2002). It is increasingly common to source goods and services from a variety of countries, each with a different regulatory environment and business practices (Attig et al., 2016). This trend, however, presents new risks and challenges for corporations and human rights. Not only must

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multi-national enterprises (MNEs) learn to navigate foreign legal and economic systems, but also meet the demands of more varied stakeholders compared to domestic firms (Brammer, 2006). Due to these factors, the learning curve associated with managing complex global supply chains can be quite steep. This in turn affects the knowledge an MNE possesses, which determines its behaviour abroad (Kogut & Zander, 1993). Based on this reasoning, this paper will simultaneously analyze theories of internationalization and organizational learning to understand corporate conduct abroad around human rights.

Firstly, internationalization is an ongoing learning process, where by operating in diverse conditions, firms increase the variety of experiences they are exposed to (Johanson & Vahlne, 1990). Experience, in turn, is said to be a key source of learning for organizations (Antal & Sobczak, 2005). Exposure to diverse markets could, therefore, enrich an MNE’s experience and accumulated knowledge (Barkema & Vermeulen, 1998). To support this, existing IB research has demonstrated the importance of knowledge to successful internationalization (Almeida, 2000). Moreover, academia has also made the link between learning and CSR, by demonstrating that learning is a necessary condition for effective integration of sustainable processes in supply chains (Cramer, 2005). On the other hand, failing to include human rights policies during the internationalization process usually leads to devastating effects for communities and the environment (Amnesty International, 2012). These propositions lead us to ask, therefore, when do global production networks assimilate human rights in the first place?

Some papers suggest that corporate sustainability is reached through a staged process. Much like in the Uppsala model of internationalization, MNEs are thought to incrementally build upon their previous understating of human rights issues (Linnenluecke, 2009). Other researchers, however, argue that firms are expanding internationally at an accelerated rate (Oviatt &

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McDougall, 1997), departing from the staged model and any benefits that come from systematically accumulating experience from each expansion. This quickened pace of internationalization exposes young MNEs, or International New Ventures (INVs), to numerous growing pains (Rabbiosi & Santangelo, 2013). Collectively, these risks and disadvantages are labeled as the “liability of newness” (LON). One key limitation that INVs face is that this accelerated pace of internationalization imposes constraints on their accumulated knowledge and capabilities (Wang & Fang, 2012). Thus, given that young, inexperienced firms are disadvantaged due to limited knowledge (Barkema & Vermeulen, 1998), could this mean they will behave differently with respect to human rights than older, more established competitors?

While complex global supply chains can provide opportunities for economic and social development, they also involve serious human rights risks that many companies routinely fail to remedy (Ruggie, 2017). To this end, one may ask; when do companies attempt to right the wrongs they have done, and are there some firm-level characteristics that can predict this outcome? This study aims to answer these questions by analyzing MNE age and internationalization experience as predictors of human rights remedy. Specifically, we will test what influence a firm’s level of internationalization and years in business have on the remedy provided for violations. By putting internationalization and age in an organizational learning context, this study links learning and human rights, and contributes to our understanding of remedy for corporate abuses.

The structure of this paper is as follows. First, we open with a literature review, followed by the theoretical framework and description of the research method. Next, we present a thorough description of the data and research findings. In the last chapter, we discuss the findings and limitations. Finally, the managerial implications and suggestions for future research conclude this paper.

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Chapter 2: Literature Review

This chapter starts with an introduction to human rights, followed by a more in-depth discussion on environmental and labor rights. Next, we review relevant International Business (IB) literature and explore theories of organizational learning and internationalization. To conclude, the last section identifies the literature gap and motivation behind this research.

2.1 Defining Human Rights

The debate on human rights is above all a moral discussion, and often questions the efficacy of voluntary codes of conduct (Campbell, 2006). Some studies imply that these codes are mere “window dressing” (Lin, 2009), and are often used ceremoniously or manipulated to boost corporate image (Lim & Tsutsui, 2012, Davitti, 2016). Moreover, there is a lack of consensus on how to define human rights - something that has contributed to the complexities of this debate. Some consider the definition too narrow in scope, arguing that the West reduces human rights to primarily concerning the state violation of civil and political liberties (Bunch, 1990). Although it has historically been the state’s obligation under international law to respect, protect, and fulfil human rights (OHCHR), firms have also been implementing voluntary environmental, social, and corporate governance initiatives, collectively referred to as “corporate social responsibility” (CSR) (Hawn & Ioannou, 2016). According to CSR principles, a business practice is considered socially responsible if it promotes social good above and beyond the firm’s economic goals (McWilliams & Siegel, 2001). Nevertheless, the terminology of human rights has largely been excluded from the CSR lexicon (Wettstein, 2012), leaving an important research gap.

For our purposes, the term “human rights” refers to the most basic and inherent rights of every person. These refer to the rights to live with dignity, civil, political, and economic rights,

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equality and freedom of expression, social and cultural rights, social security and education, and collective rights, such as the rights to development and self-determination (OHCHR). All human beings are entitled to these rights, and businesses should not ignore or selectively observe issues at their convenience. Such practices would go against the Universal Declaration of Human Rights, which has declared all human rights "universal, indivisible, interdependent and interrelated" (Avery, 2006, p. 4). The implication for management is that companies are obligated to observe human rights regardless of the potential benefit they present to the company (Porter & Kramer, 2006).

The biggest challenge in the fight against human rights abuses is that the existing codes of conduct and international norms, including the United Nation’s Guiding Principles (UNGP) on Business and Human Rights, are not legally binding. The reality of this is that companies can, and frequently do, ignore such voluntary measures. There are still countless corporations that have inadequate or no human rights policies in place, and their actions often result in human rights abuses (HRW, 2016). Many of these violations, such as child labor, poor working conditions, and destruction of natural resources regularly make headlines, with frequent repeat offenders. Unfortunately, workers and communities faced with such exploitation often lack access to complaints mechanisms, whistleblower protection, or effective remedy (HRW, 2016), and many corporations go unscathed.

2.1.1 Labor & Environmental Rights

Looking at the initial motivation behind human rights agreements, we can see that the primary concern was to tackle violations against moral values and standards related to violence and loss of freedoms. More recently, however, the international community has expanded basic human

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rights and agreements to include a broader set of concerns related to human well-being,

including the environment (Gleick, 1998). Compared to environmental issues, the area of labor relations seems to have a more consistent moral and ethical standard, especially against child labor, slavery, and basic rights in the workplace. Over time, the norms regarding worker exploitation have evolved and spread from nation to nation, and are slowly becoming institutionalised on a global level (Brammer & Millington, 2006).

Throughout history, workers, activists, and government bodies have been pushing for international cooperation in developing a global worker-rights regime. The idea of international collaboration was recommended as far back as the Congress of Vienna in 1815, and the first international labor standards were drafted in 1890 in Berlin. Following these events, the International Labor Organization (ILO) was founded in 1919, to develop universal labor

standards and promote international cooperation. The League of Nations gathered at the World Economic Conference of 1927 also made the connection between worker’s rights and trade, and the 1948 Charter of the International Trade Organization included standards regarding fair labor practices (Cleveland, 1997). Thus, we can see that the fight for labor rights has a long and complex history.

Within the realm of workers’ rights, child labor is a particularly sensitive area. The international community has been actively trying to curb the use of child workers since the first session of the ILO in 1919, when a fourteen-year minimum was established as the employment age for children (Cleveland, 1997). Companies turn to child labor because it is often cheaper than hiring adults, and children tend to be more docile and easier to manipulate. At the same time, governments eager for investments allow the practice in the name of profit. This atrocious practice has many critics, especially in industrial societies, who tend to rally their efforts around banning

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child labor through trade sanctions, import restrictions, and consumer boycotts (Cleveland, 1997). Apart from norms surrounding the treatment of workers and use of child labor, the right to a safe environment is also a basic human need (Adeola, 2001). Yet, despite the relationship between environmental degradation and human suffering, human rights violations and environmental deprivation have traditionally been viewed by organizations and governments as unrelated issues (Picolotti & Taillant, 2010). As a result, victims of environmental destruction are left with no protection by the laws and mechanisms established to address human rights abuses. The harsh truth is that environmental degradation often leads to other violations, and countless human rights abuses involve ecological disruptions (Worldwatch Institute, 2016). However, despite the increasing global awareness of environmental problems (Dias, 1999), advocacy and adherence to environmental rights still vary extensively from nation to nation (Adeola, 2001). One possible explanation is that much like with labor standards, local governments often relax the rules on environmental protection or fail to enforce stricter measures, just to attract foreign investments (Worldwatch Institute, 2016). Moreover, it wasn’t until 1972 that the UN declared that "man's environment, the natural and the man-made, are essential to his well-being and to the enjoyment of basic human rights" (Amnesty International, 2016). This relatively recent inclusion of environmental rights could be another explanation for the inconsistencies witnessed around the world when it comes to environmentally sound business practices.

Another point to consider when it comes to environmental issues is that there are considerable uncertainties involved in measuring their impacts. Moreover, the long timeframe over which the consequences play out only compounds these challenges. For example, the Commission on Human Rights (CHR) is just now investigating violations of the world’s “carbon majors,” citing data that dates to the Industrial Revolution (Star, 2016). Additionally, the innate

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complexity of environmental problems such as global climate change adds to the difficulties victims of environmental abuses encounter when seeking restitution (Jaffe et al., 2005).

With intensified exploitation of natural resources witnessed worldwide, the environment has suffered greatly at the hands of economic expansion (Adeola, 2001). Not surprisingly, abuses are particularly rampant in the extractive sector, where companies race to secure scarce and valuable natural resources (Amnesty International, 2016). The result is that in the process, land is contaminated and water supplies are polluted, destroying the traditional livelihoods of local communities. Often, these natural resources get incorporated into the international web of commercial activities (Adeola, 2001), with negative ecological implications.

From a managerial point of view, adoption of environmental management systems is likely to impose additional costs on corporations, as it involves higher levels of coordination within the global chain. Adoption is also costly since firms must learn about new technological requirements, purchase equipment, and adapt it to their circumstances (Jaffe et al., 2005). Similarly, costs may entail employee training, audits, and product and process improvements. MNEs also require advanced systems to track input flows and emission generation, conduct environmental cost accounting and perform environmental audits (Anton & Khanna, 2004). Lastly, the information required by managers to make decisions and balance production costs with environmental control also increases, as do indeterminate costs of negotiating with regulators, local communities, and other environmental stakeholders (Dasgupta et al., 2000). With all the complexities and costs of handling environmental issues, examining these violations may reveal important insights for managers and policymakers alike.

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2.1.2 The Remedy Pillar

The current business and human rights discussion revolves mainly around the UNGP, which was the catalyst for a growing body of studies on CSR and human rights (Wettstein, 2012). The UNGP’s “Protect, Respect and Remedy” Framework is an extension of the fundamentals of the UN Global Compact, meant to facilitate the adoption of universally accepted moral principles by businesses (Arnold & Valentin, 2013). The UNGP includes three pillars: 1) the state duty to protect against human rights abuses by third parties, 2) the corporate responsibility to respect human rights, and 3) access to effective remedy (Ruggie, 2013). Since one of the greatest challenges within the human rights agenda is said to be ensuring effective remedies for victims of corporate abuse (Ruggie, 2013), we will concentrate on this area.

Effective remedy involves a variety of financial and non-financial measures to compensate for the human rights harmed. This may be done through judicial, administrative, legislative, or other appropriate means (UNHRC, 2011). Providing remedy for harmful impacts may take the form of an apology, restitution, rehabilitation, compensation, punitive sanctions (criminal or administrative), as well as guarantees of non-repetition (OHCHR). Of course, companies are advised to identify and address grievances before they escalate, keeping in mind that an effective grievance mechanism is part of the corporate responsibility to respect human rights (Ruggie, 2008).

2.1.3 Human Rights Summary

In this section, we have shown the importance of human rights to international business, and elaborated upon environmental and labor rights. We have exposed the vulnerabilities of many workers around the world and the risks they face when companies exploit cheap production

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areas, where human rights are inadequately protected. Moreover, we have established that there is a link between social and ecological impacts, and environmental externalities are especially harmful in developing areas rich in natural resources. Next, we look to the literature to put this discussion in the international business context, and explore several key theories from

international management to gain a deeper understanding of corporate behaviour abroad.

2.2 International Business Literature

The IB literature speaks a great deal about the complexities MNEs face because of the perceived social and cultural country differences, commonly referred to as psychic distance (Hutzschenreuter et al., 2015). What is relevant to our discussion is that these differences in cultural, political, institutional, and economic factors between the home and host country frequently cause organizations to make counterintuitive choices. This may explain why corporate human rights abuses happen in the first place, or why firms fail to provide a remedy. To add to the complexities of operating in a foreign environment, MNEs must simultaneously deal with corporations, states, and civil society organizations across multiple host environments (Chen, 2009). This only magnifies the difficulties involved in the decision-making and learning processes (Isenberg, 2009), and when the foreign context is difficult to comprehend, uncertainty and associated costs increase (Johanson & Vahlne, 2009). This means that MNEs habitually face challenges in aligning their CSR activities with local practices, and must address expectations that differ from those of their home country (Yang & Rivers, 2009).

Apart from encountering unfamiliarity and risks in host countries due to cultural, administrative, institutional, and other national differences, MNEs also face the liability of foreignness (LOF). LOF is defined as “all additional costs a firm operating in a market overseas

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incurs that a local firm would not incur” (Zaheer, 1995, p. 342). Some studies make the connection between LOF and CSR, proposing that MNEs may engage in CSR activities to earn legitimacy and overcome LOF (Zaheer and Mosakowski, 1997, Campbell et al., 2012). By demonstrating social commitment to the host country through CSR activities, foreign firms may be able to counteract some of the negative effects of LOF (Campbell et al., 2012). Thus, from this perspective, MNEs have a strong incentive to engage in socially responsible behaviour, and potentially transform conflictual relations into cooperative ones by contributing positively to the host country’s welfare (Dunning, 1994).

However, there are also critics who maintain that despite the strategic motivation for corporate citizenship, the adverse effects of distance on the motivation and ability to engage in CSR result in decreased CSR investment in the host country (Chung & Safdat, 2014). This means that firms must resort to other means to minimize LOF, such as letting the effects diminish gradually over time (Gaur et al., 2011). This phenomenon of LOF then begs the question if MNEs really do engage in CSR to overcome LOF during internationalization, or if they choose to accept those risks and forgo social contributions as a means of overcoming these liabilities.

Besides examining distance and the institutional context, the IB literature also takes the Corporate Governance (CG) point of view to explain corporate behaviour (Donaldson & Preston, 1995; McWilliams & Siegel, 2001; Jamali, 2008). Stakeholder theory attempts to connect ethics with strategy, by recommending that corporations consider stakeholders’ needs and interests in their business strategy (Atkinson et al., 1997). Though there are several stakeholder groups, such as customers, suppliers, employees, or the community, within the CSR context, the term “stakeholder” refers to any individual or group which can be harmed by or benefit from the firm’s actions, and whose rights must be respected by the firm (Yang & Rivers, 2009). Companies that

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manage to satisfy their stakeholders’ interests will able to retain their support and participation, and succeed in the long run (Harrison & Wicks, 2013). Thus, firms have a vested interest in meeting stakeholder demands. MNEs, however, must balance multiple stakeholder relationships and contend with the changing nature of stakeholders’ ideas and expectations (Antal & Sobczak, 2014), which makes addressing stakeholder issues a complex matter. Add to this the transnational nature of many social and environmental problems, and CSR becomes a constantly evolving phenomenon. Managers of global enterprises must learn to handle new responsibilities in novel ways as the context changes, and manage the social and environmental impacts of their business activity with their shareholders’ welfare in mind (Antal & Sobczak, 2014).

As corporations have both financial and moral obligations, academia has paid a lot of interest to the relationship between CSR and profitability (Costa et al., 2015; Padgett & Galan, 2010; Huang, 2010). Profit-maximization is not the only goal behind business activity, but it is a fundamental endeavor (Stephens, 2002). This could be why weak corporate performance is said to reduce the likelihood of corporations acting responsibly (Campbell, 2007), as there are not enough resources to commit to human rights issues. Some managers take it further by arguing that devoting more resources to CSR is contradictory to their profit-maximizing goals, insinuating that there is a trade-off between investments in CSR and financial gains (McWilliams, 2000).

On the other hand, the positive argument for CSR is that good corporate citizenship can lead to substantial benefits, such as improved reputation, increased company legitimacy, and successful overseas expansion (Bouquet & Deutsch, 2008). Legitimacy in this context refers to a general perception by customers, competitors, suppliers, etc., that the organization is behaving appropriately per a shared belief system of collective norms and values (Wiklund et al., 2010).By

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the same token, CSR can act as a source of competitive advantage by boosting corporate reputation (Melo et al., 2012).

2.2.1 International Business Literature Summary

In summary, MNEs encounter many complexities in foreign host environments, such as the obstacles stemming from country differences and LOF, or the challenge of balancing numerous stakeholders’ needs. Moreover, as there are differing views on the link between CSR and profitability, managers must decide how to allocate resources to these activities, and which stakeholders to give priority to (Harrison & Wicks, 2013). Thus, with so many costs and risks to factor in, how do firms make decisions, and when do they consider the negative externalities of these choices? We now look to the theory of organizational learning to shed some light on the issue, and gain a deeper understanding of corporate behaviour abroad.

2.3 Organizational Learning

Organizational learning can be defined as the process of assimilating new knowledge into the organization's knowledge base (Barkema & Vermeulen, 1998). Most scholars agree that organizational learning is a process that develops over time as firms learn to make sense of their markets and creates rules for processing such information (Sinkula et al., 1997). This theory also extends into the human rights discussion. According to the European Multi-Stakeholder Forum on CSR, “corporate social responsibility is an ongoing learning process for companies” (European Commission, 2004, p.5). When a firm enters foreign markets, it must take on completely new knowledge (Ghoshal, 1987), and as rules and expectations change with the context (Cramer, 2005), the process requires ongoing updates to company processes and understanding of human rights

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issues.

Although a growing number of MNEs recognize the need for socially and environmentally responsible business, many face the problem of how to put CSR into practice (Cramer, 2005). Moreover, the foreign MNE cannot act alone. It needs to engage with various stakeholders in the host country, to learn about what is considered appropriate in the new context and develop ideas for addressing issues in the communities where they operate. As MNEs expand abroad and are exposed to more foreign contexts, they integrate new expectations from their stakeholders and their repertoire of potential responses to CSR challenges changes over time (Antal & Sobczak, 2014). This makes CSR an evolving process, where experiential knowledge of foreign business practices and institutional norms, as well as general experimental knowledge advance over time (Eriksson et al., 1997).

The organizational learning theory will be used in this study to explain how MNE experience and learning can impact human rights. As firms must apprehend, share, and assimilate new knowledge of human rights issues in markets where they potentially have little or no previous experience (Autio et al., 2000), this process can have serious social and environmental impacts. For our purposes, experience and knowledge are thought to come from the firm’s internationalization process, and from the learning that comes naturally with time. Although the organizational learning framework has been used to explain international expansion choices (Barkema & Vermeulen, 1998), there has been no research connecting it to human rights remedies, thus leaving an important gap in the literature.

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2.4 Company Characteristics

Several studies agree that company size is a characteristic which can influence CSR involvement (Laudal, 2011; Park et al., 2015; Green & Peloza, 2014). The reasoning is that larger companies are more visible (Udayasankar, 2008), and their size exposes them to more public scrutiny (Roberts, 1992). This is particularly relevant in emerging economies, where MNEs are often distrusted as having exploitative intentions and may have to protect their reputations to gain local legitimacy (Reimann et al., 2015). Company size also affects the slack resources a firm can dedicate to CSR (Amato & Amato, 2008), explaining why firms may participate differently in these practices (Arora & Dharwadkar, 2011). Slack resources are defined as the reserve of resources at the disposal of the firm, used to changes in strategy to conform to internal and external pressures (Sharfman et al., 1988).

Company age, on the other hand, seems to be an understudied factor (Wang & Fang, 2012). This could be an insightful area of study, as it is during the maturation process that company practices and history of social contribution become embedded (Kor & Misangyi, 2008). To support this claim, new ventures have been reported to disproportionately harm the environment, and operate illegally more frequently than established corporations (Worthington & Patton, 2005; Webb et al., 2009). Thus, company age may reveal some patterns behind MNE behaviour following an accusation of corporate human rights abuse.

Company age can be calculated as the number of years in operation since the founding date (Lee & Kim, 2013). Much like small and medium enterprises (SMEs), young firms may lack the necessary resources and strategic relationships to influence competitive conditions and thus suffer from a liability of newness (LON) (Kor & Misangyi, 2008). LON relates to the barriers and disadvantages faced by young firms, which make them vulnerable and more prone to managerial

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mistakes (Freeman et al., 1983). On the other hand, older firms may suffer from their own unique liabilities, which stem from increasingly inefficient responses to external changes and organization inertia (Rabbiosi & Santangelo, 2013).

To conclude, several questions arise from this literature review. First, as firms learn about the host environment, are they more likely to remedy human rights issues? Could the experience that comes with age or internationalization be linked to providing a remedy following violations? Are younger firms more motivated to provide a remedy, or do more established corporations address human rights more proactively? To shed some light on the issue, we will test for a relationship between company age and the remedy provided for a human rights violation. The hypothesis is that companies need time and internationalization experience to develop the capabilities and resources necessary for handling human rights violations, and to incorporate these matters into their strategic plan (Wang & Fang, 2012), and that age as well as international experience play a part.

2.5 The Role of Experience

Being an MNE in today’s globalized business environment means exploiting opportunities across borders and simultaneously managing global strategies. Firms may internationalize to take advantage of foreign market opportunities, tap into the economies of scale and scope, or benefit from national differences through arbitrage (Ghoshal, 1987). Critics of foreign direct investment (FDI) imply that the pursuit of profits has resulted in exploitative practices by MNEs, which may enter a country to take advantage of weak or corrupt institutions (Osland, 2003). For instance, loosely enforced labor regulations give corporations the flexibility to choose cheap labor in low-cost production locations, where workers’ rights end up suffering.

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When a firm first enters a new market, it lacks sufficient knowledge about the host environment, as is seen in the case of LOF (Zaheer, 1995). Being an international enterprise also means having to tackle the intricacies of working with national and organizational cultures that vastly differ from theirs. This phenomenon adds new levels of complexity to the tasks of creating, applying, and exploiting knowledge abroad (Macharzina et al. 2001). The differences in national and organizational cultures have two effects on knowledge sharing; first, they magnify the barriers to effective knowledge sharing that come from a lack of trust or communication. Second, they add new obstacles, such as workforce diversity, cultural differences, and language problems (Kasper & Haltmeyer, 2002). As such, national and cultural differences increase the challenge of doing business abroad and can hinder organizational learning. Only through acculturation and experience can MNEs increase their familiarity with the host environment, and eventually acquire the knowledge and capabilities necessary to survive (Reimann et al., 2015). Unfortunately, an MNE still in the initial phases of internationalization may devote more effort and resources to learning about the core business, at the expense of human rights issues. Thus, we expect that MNEs will increasingly commit to CSR as their experience in the host-country grows (Reimann et al., 2015) and change their approach when it comes to rectifying violations.

2.6 Research Gap

Though corporations are often found guilty of human rights violations, we still do not know why some claims are remedied while others go ignored (CHRD). Several studies have examined the social role of business (Godfrey & Hatch, 2007), yet, gaps remain for theoretical development when it comes to remedy. By drawing on insights from the field of organizational learning, a more substantial groundwork can be laid for understanding the role of age and internationalization

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experience in resolving violations, thus filling an important research gap.

The key research question motivating this study can be summarised as: “are older or more internationalized companies more likely to provide a remedy for a human rights violation?” The underlying assumption is that certain firm-level characteristics are associated with a higher likelihood of a remedy being provided. According to previous studies, companies struggle to successfully implement environmental and social supply chain policies due to a lack of training, proﬁciency and knowledge (Oelze et al., 2014). Keeping this in mind, we will examine the role that organizational learning plays when it comes to remedy. More specifically, we will investigate if the knowledge and experience accumulated over time and through the internationalization process make firms more likely to provide remedy. The answers to these questions will contribute to the discussion on global business and human rights remedies, and open future research areas in this field.

To gain further insights into patterns behind remedy provision, we will also look for the influence that violation type has on the remedy. We achieve this by examining any potential moderating effects of labour and environmental violations, and explore if these are treated differently by MNEs. Understanding these types of influences is essential in the fight against human rights abuses, and could prove insightful to various stakeholders and policymakers.

Chapter 3: Theoretical Framework

This chapter presents the theoretical framework supporting this study. This includes the research objective, conceptual model, and the hypotheses. The main premise for the hypotheses is that there is a relationship between firm experience and remedy, as represented by company age and internationalization. Lastly, we propose a moderating effect of the type of violation committed.

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3.1 Company Experience and Remedy

The main objective of this research is to determine whether a relationship exists between company experience and a remedy being provided after a human rights violation. We speculate that age and internationalization will turn out to be relevant and influential firm characteristics as both provide different opportunities for organizational learning, and serve as a proxy for company experience. Since corporate human rights abuses are a complex issue, experience and knowledge are needed to handle these violations properly. Thus, this study proposes that company age and the number of countries that it operates in can be indicative of its accumulated knowledge, which is a valuable factor for remedy.

The moderating variable in this study is the type of human rights violation committed. This variable distinguishes between environmental and labor violations to investigate whether they influence the outcome differently. As previously stated, the environmental policies and labor standards can vary from country to country, and it is interesting to examine if one area requires more corporate experience than the other (Anderson, 2001). These relationships are represented with the conceptual model in Figure 1, followed by the hypotheses.

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3.2 Hypotheses

• H1: Company age is positively related to remedy being provided after a violation.

• H2: Company internationalization is positively related to remedy being provided after a violation.

• H3a: The type of violation committed moderates the relationship between company age and remedy.

• H3b: The type of violation committed moderates the relationship between company internationalization and remedy.

Chapter 4: Data

and

Methods

This chapter describes the methodology used in this study. First, we discuss the sample and data collection methods. Next, we elaborate on the variables and research design. This chapter

concludes with an analysis of the results. The SPSS output tables are included in the appendix.

4.1 Sample and Data Collection

The sample population comes from the Corporations and Human Rights Database (CHRD). The CHRD database is an ongoing project and collaboration between many Masters’ student coders, who use data from the Business and Human Rights Resource Centre to document human rights claims. Each claim is assigned a unique identification number and counts as one corporate abuse allegation (CAA), which is the unit of analysis for the project. The database is the first of its kind, and includes details about each incident, including the nature of the violation, parties involved, company response, remedy, and other relevant details. Furthermore, CAAs are categorized according to the primary type of violation: abuse, development and poverty, environment, health, and labor (CHRD).

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The database is still growing, yet has already documented over a thousand CAAs across developing regions such as Africa, Asia, and Latin America. Although human rights abuses can occur anywhere, these regions are especially at risk as corporations exploit the natural resources and corrupt governments often found in these locations (Stephens, 2002). Furthermore, corporations tend to seek out cheap manufacturing sites, often opting for regions with low wages and more lenient protection of labor rights and worker safety compared to developed countries (Stephens, 2002). Other companies operate in developing nations because of their lower environmental standards, often leading to negative ecological impacts (Schwartz & Carroll, 2003).

To select the sample, the population was first filtered for companies which operate in multiple countries, as MNEs are the focus of this study. The targeted industries involve extractive processes such as in the oil, gas and mining sectors, as well as apparel and textile manufacturing. These industries are relevant due to the high incidence rate of human rights abuses, where reports of violations are frequent and continue to escalate (Ruggie, 2007; Slack, 2012; Rodrigo et al., 2016). As for the extractive processes, Professor Ruggie noted that the extractive industry is unique because no other sector leaves such an enormous and intrusive social and environmental footprint” (Seck, 2012). As for the textile and apparel industries, the Fair Wear Foundation has concluded that the complex structure of the apparel industry makes it exceptionally challenging to implement sustainable improvements, which could explain why violations occur so frequently (Egels-Zandén & Lindholm, 2015).

With MNEs identified, the second filter applied to the database is the primary type of violation. Labor and environmental abuses are the focus in this study, due to their relevance to global business activities and policy makers, as well as importance to interest groups such as the UN, consumers, and non-government organizations (NGOs) (Arthaud-Day, 2005). According to

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the Utrecht Centre for Accountability and Liability Law, “the adverse effects of multinational corporations' business activities, especially on human rights, labor rights, and the environment in the host country of investment, have been well documented” (Ucall Conference, 2017). It is no wonder then that labor abuses and environmental damage arealso the two most frequent types of violations found in the CHRD database (CHRD).

The last filter applied to the database concerns the remedy pillar of human rights. In this step, we are only interested in cases where a remedy was either provided or not, and discard all cases where the coder was unable to determine this information. We focus on non-judicial remedy, as this shows that the company itself is engaging with stakeholders to address the matter and taking responsibility for righting the wrong, and is not forced to do so by the courts. A judicial remedy would mean that the company was obligated by law to compensate for the resulting damages. Yet, the courts often fail to enforce punishment due to legal loopholes and jurisdictional limitations. Since we are interested in the link between the organization’s experience and their actions, we discard cases where the remedy was imposed on the firm with legal action.

4.2 Variables

4.2.1 Remedy

The remedy variable tells us whether the MNE involved sought to redress the violation or not. The CHRD includes this information, and describes the resolution, how it began, the interim processes, the conclusion, and any other pertinent evidence (CHRD). The alternative to providing a remedy could be denial or simply ignoring the issue (CHRD). The remedy is the dependent variable in this study, or specifically, whether a remedy was provided by the company implicated in the CAA. Moreover, this outcome is represented by a dummy variable, which

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equals one if a remedy was provided, and zero if it was not. The dummy variable is convenient for sorting the dependent variable data into two mutually exclusive categories (Skrivanek, 2009), and determines the type of statistical analysis that can be done.

4.2.2 Company Age

Company age at the time of the violation was calculated as the time, in years, between a firm’s foundation and the date that the CAA was documented. This data is readily available in secondary sources, such as the company website or annual reports. Measuring the years since a firm’s inception is the standard method for determining company age (e.g., Lee et al., 2013, Autio et al., 2000). Using the date that the CAA was first reported is an appropriate criterion, as we analyze the link between age, as an indication of experience, and the likelihood that the MNE will remedy a violation.

4.2.3 Company Internationalization

The level of internationalization was measured by counting the number of countries that the MNE had operations in at the time that the incident was reported. This could include both wholly-owned subsidiaries and joint ventures. Previous studies have used different data for this construct (Gomes & Ramaswamy,1999), but the most common are the ratio of foreign sales to total sales (Stopford & Dunning, 1983), the ratio of foreign assets to total assets (Gomes & Ramaswamy, 1999), and the number of foreign countries in which a firm has subsidiaries (Tallman & Li, 1996). For this study, we chose to use the number of countries in which a firm has subsidiaries, as it captures the organizational learning element by encompassing the number of different environments a company has been exposed to, and by extension, the experience gained through the internationalization

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process. This information can be found in the Securities and Exchange Commission filings, and other publicly published company reports.

4.2.4 Type of Violation

The moderating variable in this study is the type of human rights violation committed by the MNE. This variable distinguishes between environmental and labor violations to investigate whether they have any moderating effect in our conceptual model. It is common knowledge that countries differ vastly in their environmental policies and labor standards (Anderson, 2001), and it is interesting to examine if one issue requires more company experience and practice than the other, or are treated differently by MNEs. Countries also differ in the importance they place on reducing environmental problems, as natural resources are an important source of income around the world. Adding to this is the fact that some environmental externalities spill over national borders, and problems such as global warming or ozone depletion cannot be attributed to one source alone (Anderson, 2001). Due to the ambiguity and complexity of measuring such externalities, we hypothesise that environmental violation will have a different impact on the age/internationalization-remedy relationship than labor violations.

4.3 Research Method

The research method in this study is explanatory in nature, as existing theories are used to validate the proposed hypotheses (Johnson & Onwuegbuzie, 2004). This method is appropriate since the objective is to evaluate the impact of predictor variables (age and internationalization), on a specific outcome (remedy), with the inclusion of a moderating variable (type of violation) (Zou et al., 2003). The company age and internationalization are the independent variables that explain

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the likelihood of a remedy being provided after a human rights violation. Results are obtained by measuring the effects of the independent variables on the dependent variable with a logistical linear regression analysis. Should the results reveal that the relationship between the independent variables and the dependent variable is significant and that violation type has a moderating effect, the hypotheses will be accepted.

4.4 Data Preparation

Firstly, the data were checked for missing values, inconsistencies and outliers. In total, this left us with a sample of 120 cases of corporate human rights violations. This is sufficient at this level of study, since sample size is not thought to be the main concern for logistic regression (Bergtold et al., 2011). Though sample size can indicate the robustness of the logistic regression interpretations, a popular guideline states that the recommended number of cases for each predictor is 10 (Agresti, 2007). With this parameter, a sample of 120 cases is deemed sufficient for two independent variables.

Secondly, some data had to be recoded. This was done for two variables, the dependent and the moderating variable. Remedy is the dependent variable, or more specifically, whether a remedy was provided or not. This outcome is represented by a dummy variable that equals one if a remedy was provided, and zero if it was not. The dummy variable is convenient for sorting the dependent variable data into two mutually exclusive categories (Skrivanek, 2009).

Next, the moderating variable is the primary type of violation committed. This information is provided in the CHRDC database, where human rights violations are categorized according to the main principle that was breached. In our case, we focus on the two most common violations,

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which are environmental and labor. As this variable is dichotomous, it was coded as 1= environmental and 0= labor.

4.5 Descriptive Statistics and Correlations

The next steps after data cleaning included preparing the descriptive statistics with a computation of the means, max and minimum values, and standard deviation. These results are shown in Table 1, with descriptive statistics included for all variables in this study; dependent, independent, and moderating. The mean value measures the central tendency of the data, while the standard deviation measures dispersion (Fraenkel, et al., 1993).

Table 1. Descriptive Statistics

Variables N Min Max Mean SD

1. Age 120 2 162 49.18 40.882

2. Internationalization 120 2 180 32.18 36.178

3. Primary Violation 120 0 1 .63 .484

4. Remedy Provided 120 0 1 .43 .498

Following the descriptive statistics, we calculated the Pearson correlation coefficients for all pairs of variables, as shown in Table 2. From this analysis, we can see that the correlation coefficient for company age and remedy is .229. This value tells us the strength of the linear relationship between the variables, which in our case is small to moderate. Furthermore, this positive strength correlation has a significance level of p < .05. This indicates that the relationship is statistically important.

There is also evidence that a positive correlation exists between internationalization and remedy in the population. We see that the value of the correlation coefficient for these two variables is .286. This relationship is significant at the p < .01 level.

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One important observation at this stage concerns the correlation coefficient for age and internationalization. The correlation coefficient between these variables is .431, with a significance level of p < .01. This is relevant as it may indicate collinearity between the two predictors. This result is not surprising, as the Uppsala model of internationalization states that firms will expand abroad with time and experience (Johanson & Vahlne 2009). This may explain why older firms are also present in more countries.

This correlation between the two independent variables, age and internationalization, merits further investigation. A non-collinearity check was performed to assure that there is no linear relationship between the independent variables. Checking the Variance Inflation Factor (VIF) revealed that collinearity is not problematic in this model. The VIF value is 1.229, which is beneath the strictest threshold of VIF < 4. The tolerance level is .814, which is above the recommended threshold of > .25 (O´Brien, 2007). These results mean that the predictor variables are not affected by collinearity, and we may proceed with the analysis.

Table 2. Correlations Variables 1 A 2 I 3 V 4 R 1. Age (A) 1 2. Internationalization (I) .431** 1 3. Primary Violation (V) -.084 -.113 1 4. Remedy Provided (R) .229* .286** -.067 1

** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed)

4.6 Model Specification

Data were analyzed using a binary logistic regression. This model is appropriate as we are dealing with a binary dependent variable, which is a variable that takes either the value “0” or “1”. In the

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logistic regression model, the predicted dependent variable is a function of the probability that a subject will be in one of the two categories (Wuensch, 2014). In our case this is the probability that a company provides a remedy for a human rights violation, given its values of the predictor variables. As previously mentioned, the value “0” represents the outcome of “no remedy provided,” and “1” represents the outcome of “remedy provided.”

A major strength of regression techniques is that they allow us to estimate relationships between variables (Chatterjee & Simonoff, 2013). Our independent variables, company age and internationalization, become predictors of the outcome, remedy, for human rights violations. Additionally, this technique gives an indication of model adequacy by assessing model fit. Another benefit of the logistic regression model is that is allows us to say if the presence of a certain predictor increases the likelihood of a given outcome by a specific percentage (Schneider et al., 2010).

4.7 Analysis of the Main Effects

To begin, the classification tables and classification accuracy were interpreted (see Appendix). With a null model, before adding any predictors, we get a classification accuracy of 56.7%. Meanwhile, the actual model used to create predictive values gives us an accuracy value of 68.3%. Thus, the predictive capacity increased by 11.6% when the independent variables were added to the model.

Having added the company age and internationalization variables as predictors, we look at the Omnibus test of model coefficients. These results tell us if adding these variables to the model has increased our ability to predict the outcome (Wuensch, 2014). The Chi-Square value obtained from this test is 11.927 on 1 df, significant at p < 0.05. This means that the model is statistically

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valid.

Next, the Nagelkerke R2 value is assessed to obtain information about the model’s predictive capacity. This is like the R2 value in a multiple regression, which represents the percentage of variance in the dependent variable that can be accounted for by the independent variables that are used in the regression equation (Nagelkerke, 1991). Our Nagelkerke R2 value of .0127 shows a relationship of 12.7% between the predictors and the prediction. This means that 12.7% of the variance in remedy can be attributed to the independent variables in our model.

Table 3 summarizes the results of the regression, including the statistical significance of the predictive variables. We can see that firm internationalization (Intern) added significantly to the model (Exp(B) = 1.015; p < .05), whereas firm age (Age) did not (Exp(B) = 1.007; p = .202). These results suggest that with each additional country that the MNE operates in, the likelihood that it provides remedy for a human rights violation increases by 1.015.

Table 3. Regression Results

Variable B S.E. Wald df Sig. Exp(B)

95% C.I.for EXP(B)

Lower Upper

Age .007 .005 1.628 1 .202 1.007 .996 1.018

Intern .015 .007 4.702 1 .030* 1.015 1.001 1.028

Constant -1.067 .327 10.681 1 .001 .344

**Significant at the 0.01 level (2-tailed) * Significant at the 0.05 level (2-tailed)

4.8 Moderating Effect of Violation Type

At this stage of the analysis we investigated a possible moderating effect of the primary type of violation committed. More specifically, a moderation analysis was done to see if the relationship

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between company age and remedy, and internationalization and remedy changes with the violation type. The two types of violations under investigation are environmental and labor abuses, and are hypothesised to have a moderating effect in this model.

The results however failed to show any evidence of the proposed moderation. The p value of the interaction was not significant, at p=.8173. Since the interaction effect is not strong enough, hypothesis 3 is rejected. The data are summarized in Table 4.

Table 4. Results for: Moderating Effect of Primary Violation

Variable Coeff se z p LLCI ULCI

Constant -.5039 .4169 -1.2088 .2267 -1.3209 .3131

Age .0069 .0054 1.2833 .1994 -.0037 .0175

Intern .0133 .0098 1.3515 .1765 -.0060 .0325

Int_1 .0021 .0127 .1620 .8173 -.0228 .0269

Chapter 5: Discussion

This chapter starts with an interpretation of the results. Afterwards, the subsections discuss the academic contributions and managerial implications. Finally, we conclude with the limitations of this study and suggestions for future research.

5.1 Interpretation of Results

The hypotheses in this study are based on the notion that firms require time as well as experience to successfully expand abroad. In this study, the idea that organizations need exposure to learning opportunities and a variety of environments to accumulate knowledge is applied to the area of human rights. It is an essential, yet often overlooked discussion when analyzing corporate

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behaviour abroad and the potentially adverse effects of globalization. From this, we propose that company age and level of internationalization are predictive factors, linked to the remedy for corporate abuse. Furthermore, we speculate that the type of violation committed, whether environmental or labor, impacts the proposed relationship. With this hypothesis, we are interested in determining if one issue poses more challenges for firms than the other, whether due to a higher learning curve or greater demands on resources.

However, testing the hypotheses has revealed mixed results. Though there were positive signs of correlation between age and remedy, this hypothesis could not be proven with the logistic regression. The results show the interaction to be insignificant (p = .202), thus, hypothesis 1 is rejected. We cannot therefore conclude that as firms age they stand a greater chance of providing remedy for a human rights violation.

There are several factors that could explain these results. Though the number of years in business might give some indication of the knowledge a firm has accumulated, it does not tell us about its size, profitability, or visibility. These factors can vary extensively among companies, and could influence whether a firm provides remedy regardless of their time in business.

The size of a company can be measured by net sales or total assets (Visser, 2011). Together with profitability, this characteristic gives some clues into the strategic motives for CSR. As size and profitability are related to the resources a firm has available, these factors may affect motivation and commitment to CSR activities. For example, if an action can be linked to protecting shareholder value or boosting profitability, firms may be more likely to invest resources in it. On the other hand, firms focused on profit-maximization might forgo additional expenses, including restitution for human rights violations.

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exposed to. More visible firms may be more inclined to resolve human rights issues quickly, to avoid shareholder or public backlash. For example, Nike was targeted by labor activists in the early 1990s not because their business practices were worse than their competitors’, but because it was a high-profile brand (Porter et al, 2007). Thus, highly visible firms may face additional external pressures to provide remedy for corporate abuses, independent of age.

Although companies require time to turn around their business practices, some will take longer than others. Zadek (2004) suggests that companies must go through a five-stage learning process to become a model corporate citizen, with no telling how long each stage will last. The five periods are: defensive, compliant, managerial, strategic, and civil. Companies are said to evolve from a defensive position where they deny responsibility, to treating CSR policies as a business cost, integrating responsible practices into daily operations and core business, and finally, promoting collective action among the industry (Zadek, 2004).

The time required to move through these stages is not clear and will vary from company to company. Inevitably, progression through the stages also depends on external factors, such as criticism from civil activists and the media, or action taken by direct stakeholders such as customers, employees, and investors (Zadek, 2004). If companies spend many years in the defensive stage for example, then age alone will not tell us of their maturation process or disposition towards remedy. This can be witnessed in the case of Royal Dutch Shell. Though in business for 110 years, it has been denying responsibility for emissions its production created for many years. And while some of Shell’s competitors have a different approach, this oil giant continues to resist environmentalists’ demands (Zadek, 2004).

Next, our hypothesis regarding company internationalization and remedy proved to be statistically relevant. Analyzing the data revealed that company internationalization is a valid

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predictor of remedy provision. The results suggest that when internationalization increases, as measured by the number of countries in which the firm operates, the likelihood of providing a remedy increases as well. Therefore, hypothesis 2 is supported. Overall, this model explains about 13% of the observed variance. According to the results, the probability that an MNE will provide a remedy is 1.015 times higher for every additional country the MNE operates in. We can say then that to some extent, the more foreign markets a firm operates in, the more likely it is to respect the remedy pillar in human right’s issues.

As explained in the literature review, the very process of internationalization calls for increased CSR activity. With each international expansion, MNEs are exposed to more stakeholders who will place greater demands on the firm. Moreover, when entering a new market, the MNE must establish its legitimacy and gain the favour of the host country. Therefore, the more a company goes through this process of overcoming uncertainty and adaptation, the more experience and knowledge it acquires of human rights processes. It would seem then that globalization is a driver of socially-responsible practices, and as firms internationalize, they are likely to learn that every human rights violation deserves a remedy.

Lastly, regarding the moderating effect of violation type, we cannot prove that it alters the relationship between company age/internationalization and remedy. Although we posit that environmental and labor violations put distinct amounts of pressure on this relationship, the results were not significant. This could be because as established earlier, companies are likely to have both environmental and social impacts. If an incident encroaches upon several rights, the firm will have to deal with these accusations simultaneously. This implies that firms often handle different claims that stem from one event or a series of closely related events at the same time. Hence, they may treat both types of violations identically.

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5.2 Contributions

This study contributes to our theoretical understanding of human rights issues by addressing an important research gap. While most studies discuss CSR as a broad concept, we have focused on one concrete area of human rights - the remedy. This understudied factor is one of the pillars of the UN’s "Protect, Respect, and Remedy" Framework, and puts the onus on corporations to provide appropriate grievance and remedial mechanisms for victims of human rights abuses (Umeda, 2015). Human rights in general present many gaps in the IB literature, as “it remains the case that virtually all of the corporate social responsibility debates around the world make no reference to international human rights standards” (Robinson, 2003, p. 9). In fact, many practices fall under the umbrella term of CSR (Godfrey & Hatch, 2007), and even CSR codes and policies have generally omitted the terminology of human rights (Campbell, 2006). As Roth pointed out in 2004, “to maximize the power of international human rights organizations, clarity is needed around three issues: violation, violator, and remedy” (Roth, 2004: 68). Thus, our examination of the remedy pillar helps to disentangle the complexity surrounding CSR and human rights, and adds to the awareness of these issues in the IB literature.

The second contribution of this study comes from the research methods employed. Since gathering data to measure human rights poses some inherent problems, such as reliability issues, victim intimidation, or political bias among data collectors, the study of human rights’ violations has been mainly qualitative so far (Giuliani & Macchi, 2014). Though narrative accounts do shed some light on corporate abuses and impacts, our study answers the call for measurable research. More quantitative studies are necessary to be able to monitor human rights, as they allow for comparisons across nations and time periods (Giuliani & Macchi, 2014).

Corporate human rights abuses and the role of experience in remedy