Multinationals’ CEOs and human rights: The influence of executives’
characteristics on human rights commitment
A study by Domiziana Scarfagna
Student number: 12266124
Theme: Multinational Enterprises and Human Rights Thesis supervisor: Professor G. Hendriks
Major: Business Administration
Statement of Originality
This document is written by Domiziana Scarfagna who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it. UvA Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
To my grandpa Giuseppe…
TABLE OF CONTENTS:
ABSTRACT ... 4
INTRODUCTION ... 4
LITERATURE REVIEW AND RESEARCH GAP ... 6
THEORETICAL FRAMEWORK ... 9
CEO’s educational background and H1 ... 10
CEOs gender and H2 ... 11
CEO’s internationality and H3 ... 12
CEO’s nationality and H4, H5, H6 ... 13
METHODS ... 14
Research design, sample and procedure ... 14
Variables and measures ... 15
RESEARCH RESULTS ... 19
Descriptive statistics ... 19
Statistical test results ... 20
DISCUSSION AND RESEARCH LIMITATIONS ... 21
CONCLUSION ... 23
References: ... 24
APPENDIX ... 27
While many studies have investigated CEOs’ characteristics in connection to firms' financial performance, few studies have explored the relationship between CEOs’ traits and Corporate Social Responsibility and almost none with human rights engagement. Therefore, to address this research gap, this paper aims to explore if there is a relationship between CEOs’ characteristics and firms’
human rights commitment. More specifically, this study hypothesizes whether CEOs’ educational background, gender, nationality and internationality influence firms’ score on the Corporate Human Rights Benchmark 2019 (CHRB 2019). The study, which was conducted on 195 firms among the largest and most profitable of the global market, found a correlation between CEOs nationality and CEOs’ internationality and the CHRB 2019. It found a negative correlation between Chinese CEOs and human rights compliance. Also, it found that Scandinavian CEOs and human rights compliance and foreign are both positively associated with and human rights compliance.
On the 25th of January 2019, while they were having lunch in the cafeteria, hundreds of employees of Vale S.A., a Brazilian mining corporation, were hit by a massive mudflow that killed about 300 people. The catastrophe was caused by the collapse of the Brumadinho dam owned by the company, that also owned the Mariana dam, which collapsed in 2015 killing 19 people and causing one of the worst environmental disasters in the history of Brazil (Human Rights Watch, 2019). However, Brazil is not the only country that suffered from infrastructures failures in workplaces. A few years ago, in 2013, a garment factory in Rana Plaza, Bangladesh, collapsed killing more than 1,100 people and injuring more than 2000. Still, in Bangladesh, a fire destroyed a factory killing 33 workers and injuring many more (Kashyap, 2016). More recently, in New Delhi, a factory caught on fire killing more than 40 workers, including children, who were asleep in it (BBC, 2019).
Apart from being tragic events that led to significant losses of human lives, what else do these events have in common? First, each of these tragedies could have been prevented and avoided by increasing safety inspections and workplace security. Instead, the poor working and security conditions of these workplaces have made rescue attempts impossible. Further, all these plants were subsidiaries of large multinational companies. The factory in Rana Plaza made garments and clothes for firms such as Benetton, Primark and Walmart, the factory in Bangladesh produced packaging for Nestle and the
factory in New Delhi produced bags for a multinational that, because of secrecy reasons, remained unknown. However, besides these major tragic events, which have drawn the attention of public opinion about ethical issues, human rights are also perpetrated regularly by many multinational firms (Monshipouri, Welch, Jr., & Kennedy, 2003). Nike, for example, was accused of human rights violations towards its workers in Indonesia, where the multinational carries out most of its production.
An investigation conducted on Nike’s factories in Indonesia has exposed the inhuman conditions of workers, who are largely underpaid (about 1.26 $ per day) and forced to work long hours in unsanitary conditions (only 5 bathrooms for more than 2,000 workers). Moreover, Nestlé was reported for human rights violations, especially towards children. The firm was accused of trafficking children to cocoa plantations, enslaving them and abducting them physically and mentally (Wijesinghe, 2018).
The case of Shell and its operations in Nigeria is another vivid example of human rights violation:
the oil giant caused massive environmental damages, such as oil spillovers, that polluted farmland, water supplies and fishing zones, endangering the living conditions of 6 million inhabitants (Hill, 2000).
In recent years, Multinational Enterprises (MNEs) have been a central subject of discussion in the fields of International Business (IB) and Business Human Rights (BHR). These companies are considered leaders of the global market because of their large profits and their active operations in multiple countries, especially in developing nations, in which they significantly influence economic growth (Scherer & Palazzo, 2008). Therefore, because of their impact on the global economy, scholars have highlighted the urgency of analyzing these enterprises more in-depth, especially regarding their role in Corporate Social Responsibility (CSR). CSR refers to the firms’ ethical duty to manage their business considering the well-being of the planet in terms of environment and society (Kolk, 2016). This concept has become popular after some of the most famous and profitable companies in the global market were involved in serious corporate scandals, which exposed their wrongful conduct at the expense of the environment, their employees and overall society (Nieri &
Giuliani, 2018). Often, these scandals are caused by poor managerial decisions, merely taken for the sake of profit and without considering external consequences. For this reason, IB scholars have investigated external and internal reasons that led managers to engage in wrongful conduct.
Concerning internal factors, several scholars have studied the relation between CEOs personal traits and firms’ CSR performance. However, researchers have analyzed CSR in a general manner and measured it as a combination of factors, such as environmental footprints, social initiatives and human rights commitment, without specifically analyzing these factors separately (Wettstein, 2012).
However, as it will be discussed extensively later on, CSR and human rights, despite being conceptually similar, present underlying differences and thus they must be examined separately (McCorquodale, 2009). So far, IB academia presents very scarce research about CEOs personal traits and human rights engagement. Therefore, this paper, building mainly on available research on CSR, addresses this research gap by specifically analyzing CEOs behavior concerning human rights engagement. Particularly, it investigates the influence of executives’ traits (educational background, gender, nationality and internationality) on MNEs’ human rights commitment through the following research question:
To what extent multinationals’ commitment to human rights is influenced by its CEO’s characteristics, such as educational background, gender, nationality and internationality?
In the following chapter, the paper will analyze the available research on Multinationals Enterprises and CSR. Then, it will extensively describe the main focus of the research: human rights. In the theoretical framework, the research gap will be addressed. Then, variables, CEO’s traits, human rights engagement will be described as well as respective theories and hypotheses. Further, in the research methods section, sample and variable measures will be analyzed. The results section and the discussion section respectively focus on the study’s outcome and limitations and recommendations for future research. Finally, in the conclusion, an overall reflection on the findings will be made and the research question will be answered.
LITERATURE REVIEW AND RESEARCH GAP
Globalization has led the world economies to be increasingly intertwined: markets that were first separated began doing business with each other, cross-border transfer of capitals, goods and information became common, labor markets became international and outsourcing became a frequent practice among companies (Monshipouri, Welch, Jr., & Kennedy, 2003). This particular expansion of global interactions is considered by many scholars as a positive event, which brings cultures, societies and markets closer, leading to an increase in trade and overall society wealth. On the other hand, critics have argued that globalization also brings several disadvantages, such as inequalities, labor exploitation, social injustices and supremacy of hegemonies (Scherer & Palazzo, 2008).
Regarding this topic, several scholars have given particular attention to the role of Multinationals
(MNEs) in the global markets. These firms, also known as Transnational Corporations (TNs), are the result of globalized markets and thus actively operate worldwide, making major impacts on the economies of the countries they operate in. Because of the liberalization of trade, MNEs often outsource their productions in countries where it is more convenient and efficient, increasing their profits. The ability to manage resources on a global level, the possibility of reaching economies of scale and the opportunity to reach larger targets markets have made MNEs powerful entities both economically and politically (Scherer & Palazzo, 2008). However, because of the power they hold, several controversies persist between academics about whether MNEs bring positive or negative consequences to their host countries. According to Scherer & Palazzo (2008), MNEs can increase host country’s economic growth by creating new jobs, lowering product prices and bringing new technologies and innovation. On the other hand, as Giuliani (2019) argued, MNEs are often responsible for increasing social inequality, violating human rights and polluting the environment.
To maximize their profits, MNEs voluntarily take advantage of the legal and social instabilities of the host nations (mostly developing countries) and abuse their resources, especially labor force, where child labor, low wages, excessively long working hours, unsafe workplace conditions and workers mistreatment are prevalent (Wettstein, Giuliani, Santangelo, & Stahl, 2018). Corporate wrongdoing also occurs when firms unfairly appropriate and exploit local land and natural resources, harming the environment of local communities (Nieri & Giuliani, 2018). Moreover, as Giuliani and Macchi (2014) discussed, often these events are ignored or overlooked by governments and legal entities as they are considered “necessary” to reach a certain economic target. However, besides personally harming workers and violating their human rights, this wrongful behavior also has negative consequences on a larger scale. The over-exploitation of developing countries by MNEs prevents them from developing economical autonomy, causing economic stagnation and hindering social progress (Wettstein, Giuliani, Santangelo, & Stahl, 2018).
As stated by many scholars, foreign entrepreneurship can bring several benefits to host countries. For example, it can be a driver for their economic integration, can decrease unemployment and increase GDP (Monshipouri, Welch, Jr., & Kennedy, 2003). Also, as Meyer (1998) suggested, besides bringing financial gains, MNEs’ activities also leads to social development, increasing expectancy of life, education, population literacy and life standards. Moreover, according to Ghauri & Rao (2009), multinationals are the primary investors in technological research and development (R&D), providing new knowledge and innovations on a global scale. The potential benefits that foreign direct investments could bring to host countries are numerous and significant. Social progress, long-term economic growth and high employment rate can help developing countries reaching their full
potential. However, if MNEs keep engaging in corporate wrongdoing, this scenario is far from happening. Therefore, MNEs’ wrongful conduct, besides going against any moral common sense and causing cruel human suffering, also prevents global economic growth. For this reason, it is important to study this topic more in-depth and understand the factors that lead multinationals to engage in wrongful conduct towards the countries which are hosting their operations. Understanding the causes can help academics develop efficient solutions that can be applied in real-life scenarios to protect workers’ human rights. Before diving into the factors that lead to human rights infringement, it is necessary to first define what is meant by human rights.
Human rights are defined as universal, unconditional and equal (Nieri & Giuliani, 2018). As stated by the UN Universal Declaration of Human Rights (1948), individuals are entitled to these rights by simply being born, regardless of ethnicity, sex, nationality, language, religion and any other kind of distinction. Some examples of human rights are the following: the right to life, the right to security, the right to liberty, freedom of expression, freedom of ideas, freedom from torture, slavery and inhuman treatment. Also, human rights include the right to education, the right to adequate standards of living, the right to work in favorable conditions and the right to fair remuneration (United Nations, 1948). Therefore, any form of behavior violating these rights is considered illegal and punishable by law. According to the traditional norm of international law, governments are the main authorities responsible for the rights of their citizens. However, especially in recent years, MNEs have been strongly interfering with the political and economic sphere, becoming powerful entities and thus they should be also held accountable, especially because multinationals are often accused of human rights infringement and corporate scandals (Nieri & Giuliani, 2018). Human rights are often studied within the broader field of Corporate Social Responsibility (Wettstein, 2012). However, the definition of CSR, or CSP (Corporate Social Performance), is complex and difficult (Sheehy, 2015). First, the nature of the problems addressed by CSR is multifaced and relates to multiple spheres (business ethics, sustainability, environment, human rights etc.) (Carroll & Brown, 2018). Then, since they belong to different realms, each of these topics needs to be measured with different tools and parameters. For this reason, academia is still lacking a legitimate definition for Corporate Social Responsibility. Several scholars attempted to interpret CSR: Carroll (1991) described it as ethical, legal and economic expectations that society has towards firms. Davis (1973) defined CSR as firms’
commitment and responses to issues that are beyond the organization’s scope. More recently, Berger- Walliser and Scott (2018) concluded that CSR is a set of activities, driven by moral and ethical imperatives, undertook by corporations to internalize the costs for externalities caused by their corporate actions. All these definitions highlight the common assumption that CSR belongs to the
realm of “philanthropy” and voluntary practices (Wettstein, 2012). However, as McCorquodale (2009) and Wettstein (2012) pointed out, it is important to make a distinction between the factors that constitute CSR, especially regarding human rights. Corporate Social Responsibility is often perceived as subjective, as firms’ participation in CSR initiatives occurs at their discretion. The respect of human rights, however, is not a voluntary decision that companies can take or not take. Human rights are universally acknowledged as fundamental rights and their violation is punishable by law. Firms are not “morally” but rather “legally” obliged to respect them (Wettstein, 2012).
Until now, there are still no international laws that regulate corporate activity at a global level. As Wettstein (2012) discussed, the attempts made by international organizations, such as the United Nations (UN), to set universal codes resulted in the creation of conduct guidelines that are not legally binding, but only applicable voluntarily (for example the UN Daft Norms). Another attempt made by the UN to create guidelines for international corporations led to the drafting of the Global Compact.
The Compact, despite being built following the principles of the Universal Declaration of Human Rights and the International Labour Organization, has been criticized by the Human Rights Watch (Monshipouri, Welch, Jr., & Kennedy, 2003). First, as the UN Draft, the Compact lacks legal authority, therefore the companies that do not comply with its principles are not held legally accountable. Then, it lacks effective monitoring: there is no institutional power that ensures the implementation of these rules. Finally, the Global Compact standards lack clarity and consistency (Human Rights Watch, 2000).
For all the above-mentioned reasons, human rights infringement is academically considered a sensitive topic and thus very difficult to evaluate and judge (Monshipouri, Welch, Jr., & Kennedy, 2003). Because of several measures of judgment, different parameters and definitions of human rights, literature about the organizational factors that lead companies to engage in human rights infringement is still scarce, vague and incoherent. However, understanding the causes that lead firms to human rights violations is important not only for ethical reasons but also for economical and social development. Therefore, this topic requires further study and clarification (Nieri & Giuliani, 2018).
According to previous literature, a firm’s behavior is influenced by several elements, both internal (employees, shared values, industry, executive managers etc.) and external (customers, market changes etc.) (Nieri & Giuliani, 2018). Several studies in the International Business (IB) field about
multinationals’ behavior focus on the internal sphere, particularly analyzing executives’
characteristics. However, CEOs traits and behavior are often studied in relation to a firm’s profits, efficiency and performance (Wettstein, Giuliani, Santangelo, & Stahl, 2018). It is only in recent years that the focus has shifted to a new topic, the link between CEOs traits and Corporate Social Responsibility (CSR) (Kolk, 2016). The next chapter will discuss academic studies that found interesting correlations between CEOs personal features, such as education, gender, nationality and internationality, and firms’ CSR.
However, these studies are addressing CEOs features and Corporate Social Responsibility (CSR) and not specifically human rights, which is instead the main focus of this study. Therefore, because of previously explained dissimilarities among CSR components, especially concerning the legally binding nature of human rights, several scholars suggested addressing this difference for future research. This study answers this research call for distinction and focuses on analyzing managerial factors that influence a firm’s human rights engagement. However, despite the differences between CSR and human rights, these two disciplines also present similarities (Hye, 2016). They both belong to the realm of corporate citizenship and business ethics and they both greatly influence each other:
a firm that implements CSR practices is more likely to also be mindful of human rights (Hye, 2016).
Scholars have defined them as “close cousins” (Ramasastry, 2015) which have distinct characteristics but still intertwine. Therefore, throughout the paper, CSR and human rights will be considered different and yet complementary. For the sake of research consistency, previous literature and findings addressing the relation between managerial traits and CSR will also be used as suitable background literature to study the relation between managerial traits and human rights.
CEO’s educational background and H1
CEO’s educational background is considered a factor that significantly shapes firms’ corporate social performance (Garcia-Blandon, Argilés-Bosch, & Ravenda, 2019). First, education shapes CEOs’
cognitive ability and behavior, which in turn influences their approach to managerial tasks. Also, education contributes to the formation of CEOs social capital, which is a network of shared norms and values that facilitates communication among society (Garcia-Blandon, Argilés-Bosch, &
Ravenda, 2019). Because of its significant importance in shaping CEOs actions, educational background is often considered an important factor shaping firms’ performance. Particularly, academia found that executives with degrees related to business and engineering scored higher on
CSR. A study by Huang (2013), performed on 392 firms from Europe and America, showed that executives who hold Master of Business Administration (MBA) and Master of Science (MS) degrees are more likely to perform better CSR performances. According to the author, throughout these programs, students are often introduced to business practices that are committed to sustainability and economic development (Huang, 2013). Further, Lewis et al. (2014) also concluded that CEOs with MBA degrees are inclined to disclose CSR information to enhance firms’ reputation and CSR performance. After analyzing 589 firms from the US, the authors argued that MBA graduates are more prone to engage in CSR practices because, throughout their studies, they acquire strategic decision skills that help them recognize opportunities that add value to the firm (Lewis et al., 2014).
Finally, a recent study concerning CEOs characteristics by Garcia-Blandon et al. (2019) found a positive relationship between chief executives with engineering degrees and high environmental, social and governance performance (ESG). According to the authors, engineers have strong knowledge of technology and innovation and thus tend to spend more time and effort on research and development (R&D) practices. However, although these studies are valid and highly contribute to research about this topic, none of them investigates the relationship between CEO’s education and firms’ commitment to human rights. Therefore, this study aims to contribute to this research by providing support to the following hypothesis:
H1: Firms’ whose executives hold MBA, MS and Engineering degrees are positively associated with human rights commitment.
CEOs gender and H2
According to a large body of research, gender plays an important role in the way CEOs manage their companies (Cook & Glass, 2018). According to Adam and Funk (2009), men and women are characterized by natural behavioral differences, which shape their priorities, decisions and leadership style. Several studies proved that women are more committed to equality, environmental and social initiatives than men. Cook & Glass (2018), after analyzing 500 firms from the Fortune 500 lists, found that female CEOs perform better than male CEOs in corporate social responsibility. The study highlights three dynamics that lead women to be more engaged on this topic: gender-role expectations, gender-based functionalities and gender discrimination (Cook & Glass, 2018). The first dynamic assumes that females have friendly, kind and more community-oriented attitudes compared to men (Konrad et al., 2006). For this reason, female CEOs tend to consider the wishes of different
shareholders, especially communities and workers. The second dynamic, gender-based functionalities, concerns the most common educational paths that women chose. According to Singh (2008), female executives often hold bachelors or masters in Business Administration and thus they are more acquainted with sustainable and CSR-oriented business practices. Moreover, women tend to have more experience in humanitarian and non-profit organizations than men, resulting in a broader awareness of societal issues (Walls et al., 2012). Also, according to Shropshire (2010), instead of only focusing on a single company’s board, women often become members of multiple boards, gaining a wider perspective about different business practices. Finally, female executives experience greater discrimination in the workplace compared to men, and this causes them to be more committed to respecting equality and integrity when implementing their leadership strategy (Cook & Glass, 2018). Further, a research by Hyun et al. (2016) analyzed the boards of more than 1000 firms and found that women in top management positions contribute to a better CSR score. The authors argue that female possess ethical standards and knowledge regarding human resources issues, which often overlap with CSR concerns. All these factors highly contribute to women’s strong engagement in corporate social responsibility practices (Hyun et al., 2016). Considering that these studies do not specifically address the relation between humans rights, this paper aims to explore this topic by posing the following hypothesis:
H2: Firms whose CEOs are females are positively associated with human rights commitment.
CEO’s internationality and H3
In recent years, thanks to globalization, working contexts became increasingly international and companies are wont to hire talents from outside the headquarter country. For this reason, it occurs often that chief executives are foreign and have different cultural backgrounds, which can have significant impacts on firms’ performance (Scherer & Palazzo, 2008). However, CEOs international experience has been widely studied in relation to financial and market measures, while only recently the relationship with CSR has been addressed (Slater & Dixon-Fowler , 2009). A recent study by Bertrand, Betschinger, & Moschieri (2021) demonstrated that firms’ corporate social performance differs if executives are foreign compared to when they are local (born in the same country as the company’s headquarter). Particularly, statistical evidence proved that firms score higher in Corporate Social Performance (CSP) when they are managed by foreign CEOs than when they are managed by
local executives (Bertrand, Betschinger, & Moschieri, 2021). International executives are in fact considered as a “non-prototypical” or “outgroup” and thus they are perceived as individuals that do not share the same values, norms and costumes of the company’ stakeholders (Bertrand, Betschinger,
& Moschieri, 2021). Because of this perception, foreign CEOs are considered less trustworthy and are subjected to high scrutiny from shareholders, who tend to often question their actions and decisions. For this reason, to gain their trust, outgroup leaders tend to comply more with stakeholders’
requests and to adjust their leadership style towards community and social initiatives, bringing positive impacts on CSP (Chernev & Blair, 2015). Moreover, according to a study by Slater and Dixon-Fowler (2009), when CEOs are assigned to international jobs they tend to perform a better corporate social performance because of a change in the perspective of their values. When confronted with foreign environments, leaders tend to revaluate their behavior and cultural norms. The international experience increases their interests in social and political issues and increases their empathy and sense of responsibility (Slater & Dixon-Fowler, 2009). Further, no research has yet been studying the relationship between foreign CEOs and human rights compliance. Therefore this study aims to fill this research gap by suggesting the following hypothesis:
H3: Firms whose executives are foreign are positely associated with human rights commitment.
CEO’s nationality and H4, H5, H6
CEOs’ country of origin also significantly affects managerial strategy and executives’ approach to social-related issues (Garcia-Blandon, Argilés-Bosch, & Ravenda, 2019). National institutions, political system, labor systems and cultural norms greatly shape managerial discretion (Crossland &
Hambrick, 2011). For this reason, nationality is an essential factor when analyzing companies’
performance since cultural norms and values shape managers’ approach to corporate social responsibility. According to McWilliams and Siegel (2001), CEOs from wealthier countries are more inclined to implement organizational strategies to support social and environmental causes than CEOs from developing countries. More recently, Harjoto, Laksmana and Yang (2018), analysing the relationship between corporate social performance (CSP) and directors’ nationality on a sample of 879 firms among eight world regions, found that CEOs with nationalities from Europe and Australia scored higher on CSP than directors from North America. According to the authors, European culture is more in line with the concept of community, values and social wealth. Instead, American CEOs are characterised by a more individualistic and result-driven mentality, therefore they are less concerned about social and environmental issues (Harjoto, Laksmana, & Yang, 2019). Further, a
study by Strand (2013), conducted on 969 Scandinavian and U.S corporations, found that CEOs from Scandinavia, namely Sweden, Finland, Norway, Denmark and Iceland, score higher on CSR than CEOs from the United States. Scandinavian countries are in fact characterised by a strong community culture in which institutions, businesses and society collaborate (Gjølberg, 2009). Because of this long-standing tradition of interaction, these countries are more aware of practices that address social and environmental causes and thus it reflects on firms’ conduct, leading them to score higher when measured on CSR’s scales (Grennes, 2003). However, since these studies are only addressing CSR broadly, this paper, following the outcome of previous CSR research, suggests the following hypotheses which are more specifically related to human rights:
H4: Firms whose CEOs are born in Europe are positively associated with human rights commitment.
H5: Firms whose CEOs are born in Scandinavia are positively associated with human rights commitment.
H6: Firms whose CEOs are born in North America are negatively associated with human rights commitment.
Research design, sample and procedure
For this exploratory study, a quantitative approach was adopted. In the author’s judgement, a quantitative approach to this study seemed the most appropriate. Most of the research data are in fact numerical measures and thus convenient for inferential statistics. The data set consists of 203 companies listed in the Corporate Human Rights Benchmark 2019 (CHRB 2019), a measure that evaluates firms’ commitment to human rights. The companies are among the largest publicly traded companies in the world and are sampled from four industries. 57 companies were drawn from the Agricultural sector, 53 from Apparel, 56 from Extractives and 40 from Information &
Communication Technology (ICT) (although some companies belong to multiple sectors and overlap). Among these values 8 were invalid, therefore the final N of sampled companies is 195. Each company has a specific rating on the CHRB 2019, which functions as the dependent variable for the linear regression analysis. To test the hypothesis, a multiple linear regression analysis with one dependent variable and multiple predictor variables was performed. The independent variables, or predictors, are associated with CEO’s characteristics and consists of four variables:
CEOEDUCATION, CEOGENDER, CEONATIONALITY and CEOINTERNATIONALITY. The multiple regression analysis presents two models. The first model tests the relationship between the target variable (CHRB 2019 score) and the control variables (Extractives, Apparel, Agricultural, ICT).
In the second model the predictor variables were added, testing the relationship between the target variable and the control variables plus the predictor variables. The variables and their measures will be explained extensively in the following paragraph.
Variables and measures
Dependent variable: Corporate Social Responsibility Performance (measured by the CHRB)
To analyze human rights conduct, the 2019 Corporate Human Rights Benchmark (CHRB) will be adopted. This score, perhaps because of its novelty, has rarely been used for research purposes.
Therefore, this paper can serve as a basis for further studies which may use CHRB to evaluate companies’ obligations towards human rights. The Corporate Human Rights Benchmark (CHRB) aims to evaluate firms based on their commitment and efforts to respect the human rights of their employees. The companies are measured on six themes (A to F):
A. Governance & policy commitments (10% of overall score): focuses on the policies that companies are implementing to respect their employee’s human rights. Also, this theme evaluates how the Board of Executives manages these policies in its daily activities.
B. Embedding respect & human rights due diligence (25% of overall score): this theme measures the extent to which human rights’ policies are integrated into the company culture and its daily activities, especially within the management departments. Namely, it focuses on the specific systems that firms employ to monitor and prevent human rights infringements.
C. Remedies and grievance mechanisms (15% of overall score): this indicator focuses on evaluating the actions taken by firms when human rights are violated. It aims to measure if these interventions are efficient, fast and appropriate.
D. Company human rights practices (20% of overall score): this measurement considers human rights-related practices according to each industry (agricultural products, apparel and extractives).
E. Response to serious allegations (20% of overall score): evaluates firms’ public responses when accused of violating human rights. It is important to specify that this measure does not
these charges. However, to be considered, the responses must meet a specific threshold of severity. Also, the amount of charges received by the firms does not influence their overall score.
F. Transparency (10% of overall score): to evaluate firms’ transparency, the CHRB rates them according to their willingness to disclose information, the accuracy and truthfulness of their reporting frameworks and finally according to the quality of their disclosures.
Figure 1: Weighting of CHRB Measurement Themes, Source: Corporate Human Rights Benchmark Methodology 2019
For the sake of statistical simplicity, each variable operates as a dummy variable.
CEOs Educational background
To measure executives background, data concerning the degrees of 195 CEOs (of the sample firms) was collected. The variable CEOEDUCATION, which acts as independent in the regression analysis, is a dummy variable with value “1” if the CEO holds an MBA, MS or Engineering degree and value
“0” if the CEO holds a degree in a different field or does not have background education.
CEOs gender is measured by the variable CEOGENDER, which act as a dummy variable with value
“1” if the CEO is male and “0” if the CEO is female.
To measure CEOs internationality, the variable “CEOFOREIGN” takes the feature of a dummy variable, with value “1” if the CEO is foreign compared to the headquarter country of the firm, and value “0” if he/she is born or raised in the headquarter country of the firm.
To measure CEOs Nationality, the following nine dummy variables were created to represent each CEOs nationality present in the company sample: CEOAMERICA, CEORUSSIA, CEOEUROPE, CEOSCANDINAVIA, CEOCHINA, CEOSOUTHAMERICA, CEOASIA, CEOAFRICA, CEOAUSTRALIA. For the sake of clarity, it is important to underline that CEOs from China were not included in CEOASIA and have a distinct variable because of their frequency in the data compared to other Asian countries. Therefore, to avoid data disproportion, a separate variable was created.
Each nationality variable acts as a dummy variable, meaning that it takes value “1” if the executive is born in that region and value “0” if the executive has a different birthplace.
The research also includes a set of control variables. that are held constant throughout the statistical analysis, since they could influence the outcome. The control variables are divided by the company’s sector since the Corporate Human Rights Benchmark divided the sample firms according to the industry they belong to. The control variables, which are APPAREL, EXTRACTIVES, ICT, AGRICULTURAL also act as dummy variables, meaning that they take value “1” if the firm belongs to that specific sector and value “0” if the firm belongs to another sector.
Analyzing the descriptive statistics and correlation of the data, which can be found in Table 1, it is possible to notice interesting insights. First, the mean of the 2019 Corporate Human Rights Benchmark is low (24.178), given that it is measured from 0 to 100. Therefore, it is possible to notice already from data descriptives that firms generally score low on human rights commitment. Also, by looking at the frequency table of the variable CEOGENDER (Appendix), it can be observed that the frequency of male executives (187) is higher than the frequency of female CEOs (8), signaling a data disproportion that could potentially influence the statistics results of the study. The frequency table of the variable COMPANYREGION also includes a data imbalance, with the majority of firms located in North America (81), Europe (50) and Asia (46) and very few locating in Africa (3), Australia (6), South America (4) and Russia (8). Also, the variable CEONATIONALITY presents a higher frequency of American executives (28.7%) compared to other nationalities (each nationality does not score more than 8.7%). Therefore, it is important to account for these imbalances when drawing conclusions.
Table 1 shows the descriptive statistics and correlation between the variables. By looking at the table it is possible to notice that the variables CEOFOREIGN, CEOEUROPE, CEOSCANDINAVIA and CEOCHINA have significant correlations at the 0.01 level (p < .01) with the variable CHRB 2019.
The correlation coefficients are respectively 0.28, 0.23, 0.25 and – 0.30, indicating that foreign CEOs, CEOs born in Europe and Scandinavia have a weak positive relation with the CHRB 2019, while CEOs born in China have a weak negative relation with the CHRB 2019. Further, CEOAMERICAN and CEOAUSTRALIA have significant correlations with the variable CHRB 2019 at the 0.05 level (p
< .05), with respective scores equal to – 0.15 and 0.16, meaning that executives from American have a very weak negative relationship with the CHRB 2019 while executives from Australia have a very weak positive relationship with the CHRB 2019. According to these results, it is possible to draw some assumptions. Firms whose CEOs are born China and in America are more likely to score lower on human rights commitment. CHRB. Instead, CEOs from Europe, Scandinavia and Australia and CEOs who are foreign are associated with a higher CHRB score. These assumptions are in line with H4, H5 and H6. However, the correlation matrix shows potential correlations between the variables but does not explain causation. Therefore, to explain causation for the correlations, a statistical test must be performed.
Before performing the analysis, tests for multiple linear regression assumptions were performed.
First, since all the predictors are dummy variables, the relationship between the IVs and the DV is linear by definition (dummy variables are binary and only assume two distinct values). Further, multicollinearity is not present among the predictors (VIF < 10) and thus they are not highly correlated to each other (values can be found in the Appendix). Also, some outliers have been found in the data set. However, the data set is not large and thus outliers should be treated with caution but not be removed. Finally, assumptions for normal distribution, independence and homoscedasticity of residuals are also respected (tests can be found in the Appendix). Because the necessary assumptions have been respected, it is possible to proceed with the regression analysis.
Statistical test results
The regression results, which can be found in the Appendix, show that the 𝑅2 of Model 1 is equal to 0.046, meaning that the control variables explain 4.6% of the variance in the model. In Model 2, in which the predictor variables were included, 𝑅2 increases (𝑅2 = 0.334), indicating that the independent variables contribute to a better explanation (33.4%) of variance in the model.
Consequently, 𝑅2 change also increases (from 0.046 to 0.288), meaning that the added variables (CEO EDUCATION, CEO GENDER, CEO NATIONALITY AND CEO INTERNATIONALITY) explain 28.8 % of outcome variance. Further, the analysis of variance (ANOVA), shows that Model 2 is statistically significant (p = .000, p < 0.001). Model 1, instead, presented p = 0.059, meaning that Model 2, which includes both control and predictor variables has more statistical significance than Model 1. Therefore, CEOs traits jointly influence human rights commitment. Moreover, by looking at the coefficients table, it is possible to evaluate the extent to which each trait influences the outcome variable. According to the results, the predictor variables with the highest variation are: CEOCHINA (β = - 20.753), CEOAUSTRALIA (β = 13.150), CEORUSSIA (β = -15.325), CEOSCANDINAVIA (β
= 17.938), CEOFOREIGN (β = 8.321) and CEOGENDER (β = - 5.918). However, only the variables CEOFOREIGN, CEOSCANDINAVIA and CEOCHINA are statistically significant, since their p values, respectively 0.007, 0.003 and 0.019, are lower than the benchmark 0.05. Therefore, according to these values, it is possible to establish that, when all the other independent variables are held constant, CEOFOREIGN, CEOSCANDINAVIA and CEOCHINA significantly influence the CHRB 2019 score. When CEOFOREIGN is equal to 1 and thus the CEO is foreign, the CHRB 2019 score increases by 8.321 points (positive correlation). Similarly, when CEOSCANDINAVIA equals 1, meaning that the CEO is born in Scandinavia, the CHRB 2019 increases by 17.938 points (positive
correlation). Finally, when CEOCHINA is equal to 1, meaning that the CEO is born in China, the CHRB decreases by 20.753 points (negative correlation).
DISCUSSION AND RESEARCH LIMITATIONS
According to the regression analysis, there is enough statistical evidence to support Hypothesis 3 and thus it is possible to state that firms whose executives are foreign are positively associated with human rights commitment. These findings are in line with previous literature regarding corporate social responsibility. As previously argued by Slater and Dixon-Fowler (2009) and more recently by Bertrand, Betschinger and Moschieri (2021) this research also demonstrates a positive association between CEO international assignment and higher CSR performance. This study contributes to previous literature with additional and new insights, finding that foreign CEOs are positively associated with human rights engagement. Foreign CEOs are associated with a positive score on the CHRB, meaning that are prone to implement human-rights oriented policies and successfully integrate them into the company’s culture. Also, they take actions when human rights are violated and they engage in social initiatives that benefit their employees and stakeholders. Finally, they respond actively to serious allegations about human rights infringement and they support the firm’s transparency, disclosing accurate and trustworthy information. There is no available research yet evaluating foreign CEOs and commitment to human rights using the 2019 Corporate Human Rights Benchmark. Therefore, by using this new measure, this research provides new insights and a basis for future research on this topic. However, since the CHRB 2019 is a new performance measure, it has not been used extensively and consequently, it can lack reliability and consistency. For example, Bertrand, Betschinger and Moschieri (2021) used the Social Pillar Score, a weighted average of human rights, workforce, community and product responsibility scores, previously used by other scholars to evaluate firms’ CSR performance (Shaukat, Qiu, & Trojanowski , 2015). Therefore, to ensure scale reliability, it is suggested for future research to explore the CHRB more in-depth.
Further, the regression analysis did not provide enough statistical significance for Hypothesis 1 and Hypothesis 2 and thus they were rejected. The research could not prove that CEOs with MBA, MS and Engineering degrees and female executives are positively associated with human rights commitment. The statistical results surprisingly contradict the extensive literature about this topic.
Contrary to the predictions based on the findings by Cook and Glass (2018), who stated that female CEOs are associated with a higher commitment to CSR initiatives, this study found that there is no
relationship between gender and the CHRB score. Moreover, the results are not in line with Manner’s findings (2010), which demonstrated that women leaders bring positive impacts to corporate social performance. Further, unlike recent finding by Harjoto, Laksmana, & Yang (2019) this study did not find a correlation between CEOs education and human rights performance. However, these contradictory results could have been influenced by multiple factors. First, the reliability of the data could be biased by the abundance of male executives in the sample. The majority of CEOs are in fact males, approximately 96%, while women represent a minority, only 4%. Because of such great differences, it is difficult to assess reliable outcomes and thus the results could be invalid. Also, previous scholars who studied this topic have used larger datasets compared to the one used for this research (N = 195). For example, for their research, Cook and Glass (2018) used a sample of 500 firms from the Fortune lists and Manner (2010) has collected data from 3000 firms ranked by KLD Analytics Inc, significantly larger samples than the one used for this study. Therefore, it is suggested for future research to address these limitations by collecting a larger and more proportioned data set.
Moreover, Hypothesis 4 was also rejected. According to the results, there is not enough statistical significance proving that firms whose CEOs were born in Europe are positively associated with human rights commitment. As predicted by previous literature, Hypothesis 5 was supported and thus CEOs born in Scandinavia are positively associated with human rights commitment. Finally, contrary to previous literature, the last hypothesis of the study was also rejected and thus it is not possible to assert that firms whose CEOs are from North America are negatively associated with human rights commitment. In addition, the statistical test showed an unpredicted insight concerning CEOs nationality: CEOs born in China are negatively associated with human rights engagement. Such a relationship was not formulated as a hypothesis because of a lack of supporting literature. However, because of its strong statistical significance, it will con considered as a valid result.
These results could have been biased by the following limitations. As previously mentioned in the descriptive statistics, the data presents some disproportion (gender, firm’s location, CEOs nationality). Also, the data only evaluates large multinationals in four specific sectors: Apparel (AP), Agricultural sector (AG), Extractives (EX) and ITC. Also, the human rights measure only considers the year 2019. Therefore, the sample could be too narrow and can misrepresent real-world scenarios, hindering the generalizability of the research. Also, the causation effects could have been influenced by other variables (such as firms’ size, volume of operations etc. firm’s profit). The novelty of the measure and the lack of supporting research on the relationship between CEO’s traits and human rights also contributed to some expected research inaccuracies.
This paper aimed to found valid correlations between executives’ traits and firms’ human rights compliance and, despite its limitation and scarce literature support, the study found interesting starting points for future research. First, the findings highlight that firms’ commitment to human rights is still generally scarce. The average CHRB score among 195 firms was 24.14 out of 100 points, so it is intuitively noticeable that multinationals are not yet strongly committed to human rights, signaling a general lack of diligence. For this reason, it is suggested to multinationals to increase their awareness and commitment to this topic, as respecting human rights is not only necessary for ethical reasons, but it is also essential to improve global development and economic growth. Further, it was found that foreign CEOs and CEOs born in Scandinavia are more likely to make decisions that respect human rights. Practical implications can be drawn from these findings. First, hiring foreign executives could improve firms’ CHRB score and thus it is suggested for firms to encourage international inclusion in the workplace. Also, to increase their human rights commitment, firms could take as conduct examples human rights-oriented initiatives and policies undertook by foreign and Scandinavian managers.
Instead, the research findings suggest closer monitoring of Chinese executives and the respective firms they are leading, since they are more inclined to make decisions that hinder human rights. It is thus strongly recommended for Chinese executives to pay more attention to human rights issues when making strategic decisions for their firms. Attending workshops about corporate responsibility and human rights could also increase their knowledge on these particular topics. It is of major importance that human rights compliance becomes one of the main priorities for firms and should be considered as important as financial profits. To conclude, the research question is answered as follows. CEOs education, gender, nationality and internationality, when analyzed jointly, influence multinationals’
commitment to human rights to a certain extent. When scanned separately, CEOs internationality and nationality are the traits that have a greater influence on their decision making. While education and gender, analyzed alone, seem to not contribute to particular behavioral change. Although this study provided some useful insights concerning CEOs behavior towards human rights, its contribution is still small compared to the large body of research involved in this topic. Further research is essential to better explore the causes that lead firms to engage in human rights violations. Once the causes are understood, they can be predicted and addressed, leading the way for more rigorous human rights regulations, which in turn will enhance social equality and global development.
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Homoscedasticity of residuals