Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements 9781781906286, 9781781906279

Citation preview

PRINCIPLES AND STRATEGIES TO BALANCE ETHICAL, SOCIAL AND ENVIRONMENTAL CONCERNS WITH CORPORATE REQUIREMENTS

ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE Previously ADVANCES IN ECOPOLITICS Series Editor: Liam Leonard PUBLISHED UNDER SERIES TITLE ‘ADVANCES IN ECOPOLITICS’ The Transition to Sustainable Living: Advances in Ecopolitics Volume 4 Edited by Liam Leonard and John Barry Global Ecological Politics: Advances in Ecopolitics Volume 5 Edited by Liam Leonard and John Barry Sustainable Justice and the Community Volume 6 Edited by Liam Leonard and Paula Kenny Community Campaigns for Sustainable Living: Health, Waste & Protest in Civil Society Volume 7 Edited by Liam Leonard Sustainable Politics and the Crisis of the Peripheries: Ireland and Greece Volume 8 Edited by Liam Leonard and Iosif Botetzagias Enterprising Communities: Grassroots Sustainability Innovations Volume 9 Edited by Anna Davies Transnational Migration, Gender and Rights Volume 10 Volume Editor: Ragnhild Sollund Series Editor: Liam Leonard PUBLISHED UNDER SERIES TITLE ‘ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE’ International Business, Sustainability and Corporate Social Responsibility Volume 11 Edited by Maria Alejandra Gonzalez-Perez and Liam Leonard

ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE VOLUME 12

PRINCIPLES AND STRATEGIES TO BALANCE ETHICAL, SOCIAL AND ENVIRONMENTAL CONCERNS WITH CORPORATE REQUIREMENTS EDITED BY

LIAM LEONARD School of Business and Humanities, Institute of Technology, Sligo, Republic of Ireland

MARIA ALEJANDRA GONZALEZ-PEREZ Department of International Business, Universidad EAFIT, Medellin, Columbia

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2013 Copyright r 2013 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78190-627-9 ISSN: 2051-5030 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

vii

LIST OF REVIEWERS

ix

ACKNOWLEDGEMENTS

xi

INTRODUCTION

xiii

THE CORPORATE PARADOX: MARKETING, INNOVATION, CORRUPTION AND POLLUTION – AN OVERVIEW OF CORPORATE SUCCESSES AND FAILURES Liam Leonard and Maria Alejandra Gonzalez-Perez

1

AN ECLECTIC REVIEW OF CRITICAL PERSPECTIVES ON GLOBALISATION AND INTERNATIONAL BUSINESS: SETTING THE CONTEXT FOR CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY Maria Alejandra Gonzalez-Perez

21

AN ANALYSIS ON THE LINK BETWEEN EMERGING MARKETS MNES’ REPUTATION AND CORPORATE SOCIAL RESPONSIBILITY Alina Mihaela Dima and Simona Nicoleta Vasilache

51

BUSINESS, SUSTAINABILITY, AND BASE OF THE PYRAMID Maria Alejandra Pineda-Escobar

67

v

vi

CONTENTS

EXTERNAL INTRUSION, INTERNAL TRAGEDY: ENVIRONMENTAL POLLUTION AND MULTINATIONAL CORPORATIONS IN SUB-SAHARAN AFRICA Evans S. Osabuohien, Uchenna R. Efobi and Ciliaka M. W. Gitau DRIVERS, TRENDS, AND OUTLOOK IN SUSTAINABLE DEVELOPMENT: COMPARING BEST PRACTICES IN NORTHERN EUROPE (DENMARK, FINLAND, NORWAY, SWEDEN) AND CALIFORNIA Karina A. Branum, Laura E. Cepeda, Cody Howsmon and Anatoly Zhuplev

93

119

THE ACCOUNTABILITY CHALLENGE TO GLOBAL E-COMMERCE: THE NEED TO OVERCOME THE DEVELOPED-DEVELOPING COUNTRY DIVIDE IN WTO E-COMMERCE POLICIES Farrokh Farrokhnia and Cameron Keith Richards

161

CORPORATE SOCIAL RESPONSIBILITY IN CYBERSPACE: SELLING OUT TO AUTOCRATIC REGIMES: IMPLICATIONS FROM THE CASE OF GOOGLE CORPORATION IN CHINA Susan C. Morris

183

ETHICS, CSR AND MNCS: ESTABLISHING THE LINK WITH HRM IN TIMES OF ECONOMIC CRISIS Vlasios Sarantinos

205

CORPORATE ETHICS AND VALUES: GUIDING BUSINESS OUT OF THE MAELSTROM Jane Ross, Jack Ross and Andrew Creed

223

ABOUT THE CONTRIBUTORS

245

LIST OF CONTRIBUTORS Karina A. Branum

Loyola Marymount University, USA

Andrew Creed

Deakin University, Australia

Laura E. Cepeda

Loyola Marymount University, USA

Alina Mihaela Dima

Bucharest University of Economic Studies, Romania

Uchenna R. Efobi

Covenant University, Nigeria

Farrokh Farrokhnia

UTM Perdana School of Science, Technology and Innovation Policy, Malaysia

Ciliaka M. W. Gitau

University of Nairobi, Kenya

Maria Alejandra Gonzalez-Perez

EAFIT University, Colombia

Cody Howsmon

Loyola Marymount University, USA

Liam Leonard

Institute of Technology, Sligo, Ireland

Susan C. Morris

Valparaiso University, USA

Evans S. Osabuohien

Covenant University, Nigeria

Maria Alejandra Pineda-Escobar

Institucio´n Universitaria Polite´cnico Grancolombiano, Colombia

Cameron Keith Richards

UTM Perdana School of Science, Technology and Innovation Policy, Malaysia

Jack Ross

University of Maryland University College, USA

Jane Ross

Association for Life-Wide Living of Alberta, Canada vii

viii

LIST OF CONTRIBUTORS

Vlasios Sarantinos

University of the West of England, UK

Simona Nicoleta Vasilache

Bucharest University of Economic Studies, Romania

Anatoly Zhuplev

Loyola Marymount University, USA

LIST OF REVIEWERS John Barry Queens University, Belfast, UK

Carmen Kuhling University of Limerick, Ireland

Anna Davies Trinity College Dublin, Ireland

Liam Leonard Institute of Technology, Sligo, Ireland

Marius De Geus Leiden University, Netherlands

Vesna Malesevic National University of Ireland, Galway, Ireland

Peter Doran Queens University, Belfast, UK

Terrence McDonough National University of Ireland, Galway, Ireland

Honor Fagan National University of Ireland, Maynooth, Ireland

Graham Parkes University College Cork, Ireland

Rosemary Gido Indiana University of Pennsylvania, United States

Maria Jose Zapata Gothenburg University, Sweden

Maria Alejandra Gonzalez-Perez EAFIT University, Medellin, Colombia

Patrick Zapata Gothenburg University, Sweden

Paula Kenny Institute of Technology, Sligo, Ireland

ix

ACKNOWLEDGEMENTS LIAM LEONARD’S ACKNOWLEDGEMENTS I wish to acknowledge my family, friends and colleagues for their continued support and encouragement. In addition, I wish to acknowledge the continued support and professionalism of Emerald Environment Editor Sarah Baxter and all at Emerald Group over the first dozen volumes of the Advances in Ecopolitics/Advances in Sustainability and Environmental Justice Series. I am pleased to acknowledge my co-editor for Volumes 11 and 12, Dr Maria Alejandra Gonzalez-Perez for her excellent contribution to both volumes on Corporate Social Responsibility and Sustainability. Finally, I would like to thank all contributors to both of the CSR volumes, from 5 continents and 13 countries, making these editions a significant contribution to global understanding of CSR and sustainability in a changing world.

MARIA ALEJANDRA GONZALEZ-PEREZ’S ACKNOWLEDGEMENTS I would like to acknowledge the support of my colleagues at the Department of International Business, School of Business and the Directorate of Research in the Universidad EAFIT, including Francisco Lopez, Felix Londono, Sascha Fuerst, Andres Velez and Cristina Robledo. Also, I would like to say thanks for the feedback of all contributors, their teams and reviewers. Personally, I would like to give thanks for early comments on some of the manuscripts to Dr Terrence McDonough at the National University of Ireland, Galway. Special gratitude to our wonderful families (especially to my kids Cian and Tiwaz) and close friends who have provided us with company and unconditional support during this extraordinary project. And my most grateful feelings are towards my wonderful and admired co-editor Dr Liam Leonard with whom I had almost a year of fluid and enthusiastic communication, and with whom it was wonderful to work with. xi

INTRODUCTION We are delighted to present this collective work committed to address the challenges of balancing social and environmental concerns with corporate requirements, as part of the Advances in Sustainability and Environmental Justice Series. This volume, co-edited by Dr. Liam Leonard and Dr. Maria Alejandra Gonzalez-Perez, is the second of this series dedicated to Sustainability and Corporate Social Responsibility (CSR) within the scope of International Business. This specific edited book comprises 10 chapters, and incorporates academic works from 21 researchers representing institutions from Australia, Canada, Colombia, England, Ireland, Kenya, Malaysia, Nigeria, Romania, and the United States. The first chapter in this volume is titled ‘‘The Corporate Paradox: Marketing, Innovation, Corruption and Pollution – An Overview of Corporate Successes and Failures.’’ This chapter proposes an analytical discussion and a conceptual framework for corporate behavior analysis within the context of balancing market, societal, legal, and environmental forces. The second chapter of this volume revisits again 1990s globalization. This section presents an eclectic, multidisciplinary, and comprehensive overview on the main critical debates regarding globalization and international business. This chapter highlights a special emphasis on the perceived decline in the state influence, and how this serves for the development of the CSR era. Dr. Alina Mihaela Dima and Ms. Simona Nicoleta Vasilache from Bucharest Academy of Economics Studies in Romania wrote the third chapter in this volume. It uses multivariate linear regression and t-test to examine if cultural dimensions could establish an explicit link between the reputation of multinational enterprises from emerging markets, and CSR. Within this chapter is presented how consumers from feminine regions place greater emphasis on CSR activities to determine whether to trust a company or not. The fourth chapter in this volume is based on research from Maria Alejandra Pineda-Escobar from Institucio´n Universitaria Polite´cnico Grancolombiano in Colombia. It presents a review and an analysis on the xiii

xiv

INTRODUCTION

business activities at the Bottom of the Pyramid (BoP) in the context of environmental, economic, and social sustainability. This section places an emphasis on the challenges faced by international businesses of balancing consumption growth with environmental capacity. Three scholars wrote the fifth chapter in this volume from two prestigious African academic institutions: Dr. Evans S. Osabuohien and Mr. Uchenna R. Efobi from the Department of Economics and Development studies at the Covenant University in Nigeria; and Ms. Ciliaka M. W. Gitau from the School of Economics and the University of Nairobi in Kenya. This chapter using an analytical model provides an understanding of the role of institutions from 43 sub-Saharan countries to ameliorate the impact of environmental degradation due to international business activities. The sixth chapter in this volume is titled ‘‘Drivers, Trends, and Outlook in Sustainable Development: Comparing Best Practices in Northern Europe (Denmark, Finland, Norway, Sweden) and California.’’ This chapter was based on a literature review and empirically collected data on field trips undertaken by MBA students from Loyola Marymount University in the United States under the supervision of Dr. Anatoly Zhuplev. Within this chapter are shown similarities and differences in sustainable development practices, policies, attitudes, and trends between Nordic countries and California. The next chapter by Dr. Farrokh Farrokhnia and Dr. Cameron Keith Richards from the Perdana School of Science, Technology and Innovation at Universiti Teknologi Malaysia (UTM) focuses on the accountability represented by WTO e-commerce policies to overcome the developed– developing country divide. The eighth chapter in this volume, by Dr. Susan C. Morris from Valparaiso University in the United States, provides a theoretical discussion on CSR in cyberspace. This chapter offers an insightful analysis of the case of Google Corporation in China, and the role of transnational information technology and the international civil society in fostering human rights. The issue of ethics and management is the subject of the next chapter, titled ‘‘Ethics, CSR and MNCs: Establishing the Link with HRM in Times of Economic Crisis,’’ and it is written by Mr. Vlasios Sarantinos from the University of West England in the United Kingdom. This chapter offers an understanding of the ethical challenges in human resources management faced by companies in Greece and other south European countries in the context of financial crises. The final chapter of this volume by Dr. Andrew Creed from Deakin University in Australia, and Jack Ross and Jane Ross from Camrose in

Introduction

xv

Canada integrates stakeholder and agency theories with moral foundations of commerce and politics. Within this chapter, it is analyzed why under certain market pressures, managers might engage in morally risky behavior. We are delighted with the broad range of issues explored in this volume of Advances in Sustainability and Environmental Justice. This edition, alongside its companion edition Volume 11, serves to provide a bridge for the Advances in Ecopolitics Series to develop into Advances in Sustainability and Environmental Justice. This new direction will provide new and exciting areas of research to be explored. Finally, we look forward to the debate and discussions which will emanate from the many interesting chapters in both Volumes 11 and 12 of the AiS&EJ series with Emerald Group Publishing. Liam Leonard Maria Alejandra Gonzalez-Perez Editors

THE CORPORATE PARADOX: MARKETING, INNOVATION, CORRUPTION AND POLLUTION – AN OVERVIEW OF CORPORATE SUCCESSES AND FAILURES Liam Leonard and Maria Alejandra Gonzalez-Perez ABSTRACT Purpose – This chapter provides an overview of four aspects of corporate life which frame the wider parameters of corporate social responsibility (CSR): cause marketing and innovation versus corporate crime and environmental crime. By examining the positive and negative approaches of the corporate sector, this chapter highlights the significance of CSR, the success that emerges from the socially responsible firm and the problems that can emerge if the corporate is deviant in its practices. Design/methodology/approach – This chapter is based on a literature review and analysis of three aspects in corporate life: cause marketing, white-collar crime and environmental crime.

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 1–19 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012006

1

2

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

Findings – This chapter provides a basis for perceiving corporate responsibility in three areas – marketing, fraud and pollution – all of which have become part of the contemporary corporate and social milieu. Practical implications – This chapter provides an outline of key elements in corporate engagement with cause marketing, white-collar crime and environmental crime, allowing for an extensive overview of the frameworks surrounding corporate behaviour. Originality/value of chapter – This chapter provides a multi-layered analysis of CSR issues from both positive and negative perspectives to provide a better understanding of the extent of the impact of corporate behaviour. Keywords: International business; corporate social responsibility; sustainability

INTRODUCTION: CASE STUDIES IN CORPORATE BEHAVIOUR This chapter provides a basis for perceiving corporate responsibility in four key areas of corporate behaviour – marketing, innovation, fraud and pollution – all of which have become part of the contemporary corporate and social milieu. The chapter is divided into four sections; each section deals with the constituent issue (marketing, innovation, fraud and pollution) within the context of the corporates’ traditional approach and contemporary method. Furthermore, we will analyse the response of corporates to these challenges, in order to shed light on the contemporary problems and the future of corporate behaviour when dealing with these salient issues (Table 1). The parameters, origins and extent of CSR could be interpreted back to Biblical times. ‘The firm’ has come to represent many entities over that time, ranging from religious institutions, imperialist and exploitative resourcedriven entities, corporatist semi-state bodies, and military and defence contractors. However, as Halpern and Snider (2011) point out, scholars of CSR rarely scrutinise these entities in order to map the broad parameters of corporate behaviour. By not holding all firms accountable, has academics contributed to the corrosive effects of corporate corruption? This chapter will explore the broad parameters of corporate behaviour, in order to

3

An Overview of Corporate Successes and Failures

Table 1. Case Study

The Impact, Strategy and Outcomes of Positive or Negative CSR. Location

Impact

Strategy

Outcome Good community relations Good consumer relations Bad consumer relations Bad community relations

Cause marketing

Global

Positive engagement

CSR strategies and promotions

Innovation: job’s wisdom Fraud: whitecollar crime Corporate pollution

US/global

Positive consumer engagement Negative culture

High-end product development Legal tribunals

Degradation and loss of support

Legal tribunals

US/global Ireland/global

address that gap, and in some way begin to get to grips with our own scholarly responsibilities to the corporate sector, showing the behaviour of the firm in both positive and negative lights.

BACKGROUND The capitalist tradition has its basis in ‘legends and miracles’, going back as we have indicated to Biblical times. Moving through to the Protestant Reformation, the concept of making profit as ordained by God became prevalent. In this edition, we wish to highlight the manner in which the impulse towards corporate ‘responsibility’ has been an essential feature of the globalising process, which developed from European Colonialism to the era of contemporary Globalisation. There have been a number of ‘Miracle Makers’ over the years, all of whom have contributed to the growth of global corporate engagement. Under the Eurocentric tradition these have included Marco Polo, Hannibal, Magellan, Joan of Arc, Elizabeth I, Leonardo da Vinci, Benjamin Franklin, Marie Curie, Thomas Edison, Eleanor Roosevelt, Bill Gates and Steve Jobs. CSR has become a catchphrase because perhaps it has diverse meanings to diverse people; it serves a variety of political and marketing purposes; and the notion itself of CSR is unclear, ambiguous, multidimensional and changing. Multinational enterprises (MNEs) are the necessary agents of globalisation, since they have the possibility of participating in global networks. MNEs are increasingly influential and not always accountable actors.

4

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

This power and lack of accountability is reflected both at international and local levels. In order to attract and maintain foreign direct investment (FDI) nations have to create favourable conditions for foreign corporations. This conflict between FDI and national sovereignty may weaken national governments and limit their regulatory actions at both the national and transnational level, explaining the shift from nation-state regulation to alternative forms of regulation. These alternative forms trust heavily on voluntary initiatives by the MNEs which are implemented and monitored by the civil society and MNEs themselves. Since the 1990s, globalisation has been a growing concern for environmental and socially responsible MNEs, and CSR and corporate governance have become top priorities for businesses. In today’s global economy, a decreasing tolerance of poor working conditions and environmental degradation can be observed. This book offers a broad set of multidisciplinary and intercultural contributions for providing an understanding and contextualising the implication of a firm’s behaviour to its social stakeholders, shareholders and the environment at the international level. CSR might be considered a mechanism through which investments made can achieve the full economic benefits as long as there is an agreement to promote social and political stability. The control over political and social variables determines or helps to build a competitive advantage and insures a corporation’s long-term running position in the market and the facilitation of capital accumulation. Generally, there is a direct relationship between the creation of new markets and the enlargement of some of the existing markets via the gaining of stability within the social conditions, by mitigating the unpredictable aspects and thereby reducing the investment risk while also improving the economic conditions. The search for new markets and locations for investment cannot be determined exclusively by the search for cheap labour. This search is also connected with the prevailing conditions such as the quality of jobs. As Blanton and Blanton (2006) suggest, ‘FDI flows follows human resources’; CSR appears to be a strong and effective mechanism for enhancing human resources (capital) abilities while also allowing investors to have a double benefit. For example, when a company (or group of companies or any other combination of actors) decides that it will intervene at some point with the reception of the good or service by the market. Also, the public relations, image and consumer identification with the firm will be boosted by promoting community and individual well-being. Hence, there is a double benefit and it flows in both directions.

An Overview of Corporate Successes and Failures

5

Another consideration to take into account is whether the firm’s actions on CSR are based on the MNE’s corporate values. If there is a competitive advantage involved, it may not be illogical to think of the MNE as a powerful actor in the social responsibility network (SRN), not only in terms of financial benefits (Gonzalez-Perez, Riegler, & Riegler, 2011). In addition it is possible to discover new paradigms of increased FDI flows when there is a promotion of social, economic and environmental sustainability. This might encourage a change or the reinforcing of the perspective and/or the values directly linked to the shareholder’s values. There are new advantages in the globalised world when large amounts of cash are made available. Therefore, new responsibilities have to be assumed as part of the role of a player in this globalised economy. CSR, as a private initiative, must have a wider range of practical applications in order to achieve sustainability, without the need to depend on political will that may never come; private enterprises must increase their participation in CSR activities. It is possible to think in terms of new models of socially responsible firms; however, strong forms of regulation must exist in all cases. This regulation must be inclusive and at the same time flexible to allow the correlation of the necessary forces to generate the merging of the different social actors and the understanding of many scenarios in which they will interact. As Halpern and Snider (2011) indicate, full corporate regulation can only be achieved when we hold all corporate entities to account, including those from the international financial sector, defence contractors and multinational oil companies, right down to the street-corner vendor. In so doing, we can address the social gap that can emerge from negative corporate behaviour. A holistic regulatory understanding of positive corporate behaviour must be therefore applied to all corporates, no matter how important or well connected these entities are to those in power around the world. If the corporate sector allows and achieves this level of scrutiny, then the positive impacts of globalisation can be felt by corporates, employees and consumers worldwide, and a new benchmark in the long history of the corporate sector will be created. The social gap in less developed countries is certainly expanding rapidly and, in an ever-changing world, private initiatives can be an important part of the solution to this issue. While CSR may not have a future in an exhausted political system mostly formed by exclusive groups and controlled by the private interests that have their origins within these groups, flexibility and access to first-hand information in the private sector can be very useful when constructing a regulatory framework for any CSR process. To achieve

6

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

the desired results one must overcome a number of challenges: CSR must reach a point where it is effectively able to respond to the actual and real needs of the average, non-wealthy citizen, while at the same time adjusting to the reality and prevailing conditions the established property sector by managing to create sustainable environments that can benefit the general inhabitants and local community as opposed to individual benefits. In order to highlight the pathways to success or failure for corporates that exists outside the profit margins, this chapter will examine four case studies which will provide further insights into the positive and negative parameters of corporate behaviour.

POSITIVE 1: CAUSE MARKETING AND THE CORPORATES The emergence of ‘cause marketing’ phenomenon in international business provides one of the most interesting innovations of a ‘for-profit’ corporate sector, now rocked by the global financial crisis and the ‘non-profit’ aid organisations. In many ways, cause marketing demonstrates a future direction for business in the new era which is typified by Barack Obama’s presidency in the United States. These sentiments are developed further by author Jocelyne Daw (2006) in her book Cause marketing for non-profits. Representing a market worth $1.4 billion, cause marketing has become a sophisticated contemporary phenomenon which creates deeper links between the corporate sector, communities and groups or foundations which enhance the lives of others. Non-profits are adored, yet somehow anonymous, with only the Red Cross and the Catholic Church gaining global recognition in the top 10 aid organisations in the world. In addition, an ever-increasing number of causes and issues are now competing for the public’s attention every year. Contemporary business provides a framework for the synergies and alliances that can enhance increased corporate responsibility opportunities. In Daw’s study, we can see a set of key themes underpinning the cause marketing ethic, mutual benefit (profit), making a difference (passion), values exchange (purpose) and strategic intersection (partner). These ideas are part of the wider ‘Cause Marketing Movement’. Locating this movement within the context of corporate engagement with community-based non-profits in a way which echoes the ‘third way’ conjunctions of politics, the corporate establishes an understanding of

An Overview of Corporate Successes and Failures

7

the common ground which has opened up between those charged with the promotion and implementation of aid sponsorship programmes. The corporation moves into consultancy, branding and marketing of cause organisations, based on research reports. Here the integration of ‘value and values’ is understood as the central theme of cause marketing; it is this interaction that has propelled cause marketing to the forefront of corporate and community cooperation. The emergence of the cause marketing movement over the last 25 years is a feature of contemporary corporate life. Daw (2006) outlines her understanding of what she sees as the core of cause marketing, called ‘The Seven Ps’; these include the product-type relationships, promotional issues and public programmes which are required to make social impacts and alter public attitudes and behaviours. This set of initiatives provides a framework for best practice in the cause marketing sector as the pooling of resources in the pursuit of shared goals becomes the template for profit and non-profit cooperation. Daw also introduces themes for ‘Getting it Right’ as part of the author’s ‘Framework for Success’. Here, an organisational rationale is presented in order to illustrate the best strategic approaches in maximising cause marketing opportunities. Daw suggests that in order to achieve success, cause marketing should differ its approach and strategy to traditional philanthropy. This essentially means to institute relationships combining philanthropic commitment with the exchange of value. Positive corporate behaviour stems from a partnership approach between corporate and community sectors. According to Daw (2006), there are seven steps in building a successful partnership programme between business and non-profit organisation: (i) cause readiness; (ii) collaborative fit; (iii) combining assets; (iv) creating value; (v) executing the programme; (vi) communicating values and (vii) achieving both community and corporate outcomes. It is critical to have into account that for business, causes are chosen because they are aligned with their brand and products, and because of that they could link cause marketing to their business goals. Therefore, businesses choose non-profit organisations able to legitimately represent the cause and to achieve cause goals and missions, and consequently the business could profit from this form of cause marketing. For a non-profit organisation this means to clearly self-define its goals and assets to position brand externally and identify its potential corporate target, together with having an internal structure that facilitates cause marketing cooperation. Both businesses and non-profits should be focused on what each can offer to the other, combining assets and creating value.

8

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

There are potential fails and limitations of the cause marketing approach. Critical questions arise in this chapter regarding the balance of gains for communities in relation to the gains for corporate marketing programmes. Daw suggests that to move forward, both corporate and non-profit partners must be fully aware of the core principles needed to drive cause marketing programmes. Daw further identifies seven principles of cause marketing that underpin positive corporatist behaviour. These principles, according to the author are: (i) put first thing first and be true to values and mission; (ii) be focused, marketing oriented and proactive; (iii) choose partners carefully to ensure positive brand; (iv) combine assets and strengths to create a mutually beneficial programme; (v) build a relationship of equals based on mutual trust and open communication; (vi) have a structure, framework and legal requirements in place; and (vii) be disciplined in planning, action, execution and evaluation. For both for-profits and nonprofits it is pivotal to put processes and procedures in place to guarantee full buy-in, manage risk and value worth to combine marketing with philanthropy. By highlighting the positive side of corporate behaviour through Daw’s (2006) work, we can begin to clearly define the parameters of positive corporate behaviour through ‘cause marketing’. Through the added value and community awareness achieved, the corporate entity that engages with cause marketing succeeds at a number of levels: establishing positive connectivity between its brand and its community, communicating in a more effective and positive manner, and by making new assets out of its own positive behaviour, creating further trust and real power for that firm in the wider community in a manner which transcends the legitimate quest for profits.

POSITIVE 2: ‘APPLE OF WISDOM – FIND WHAT YOU LOVE’ ‘Sometimes life hits you in the head with a brick. Don’t lose faith. I’m convinced that the only thing that kept me going was that I loved what I did. You’ve got to find what you love.’ Steve Jobs (2005), Stanford Commencement Speech

The news that Apple CEO Steve Jobs (1955–2011) passed away after stepping down from his post at the helm of one of the planet’s most significant corporations resonated with many of us who have no real

An Overview of Corporate Successes and Failures

9

connection with this most influential entrepreneur. Jobs was, for many, the epitome of the positive corporate leader. Of course, many of us have benefited from the inventions and products he was instrumental in producing such as Apple’s range of computers or phones, or even the animated films such as Toy Story from his company Pixar. However, others among us recall the impression made by his famous Commencement address to the graduating class of Stanford University in 2005. This speech, titled ‘You’ve got to find what you love’, outlined the worldview which Steve Jobs developed in the face of the challenges which emerged at different points in his life. The speech has been cited as one of the most inspirational of its type ever given to a college graduating class. It is certainly worth noting some of the key elements which Jobs presented in this speech. Beginning with his own adoption and early life experiences of having to drop out of college for economic reasons, Jobs explained the desire to learn and achieve which drove him to attend free classes on campus to continue his education, enjoying seemingly random classes such as calligraphy, which didn’t seem to be providing him with skills for a career. Nonetheless, he explained that this course provided him with a love of calligraphy which would subsequently influence the development and production of the first line of Apple Mac computers, and all other computers which followed. His salient point was to ‘Find what you love and do it’ as the benefits of this approach to life would bear fruit over time. Jobs then explained that having developed his Apple company into a major brand, he was faced with having his own dream stolen by those he had brought in and promoted to help build his company. Incredibly, this visionary was fired by his own executives whom he had hired, trained and promoted, due to their personal greed and desire to take over his corporation. An insight into Jobs’ remarkable character is provided by his explanation that his overriding emotion was not one of self-pity, but that he had let all the great entrepreneurs who preceded him down somehow. A further insight into his resiliency was seen in his continued battle with cancer, and the development of his Pixar animation company which has provided entertainment for both young and old alike. The year after his famous speech, his development company was bought out by Apple, and he went on to be their CEO. Ultimately, Jobs’ battle with cancer forced him to step down from this post and ultimately cost his life, but the vision he shared, the products he developed and the battles he survived will continue to serve as an inspiration for many for years to come. This is a great example of a positive legacy in the corporate tradition, as outlined in the Introduction to this chapter.

10

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

Without doubt, we can place Steve Jobs at the positive end of our framework for corporate behaviour. While he was far from perfect and admitted this himself, he seemed to be able to combine the best of the human soul and imagination with corporate endeavour, to create products that are enjoyed by millions. While we tend to think of CSR as being linked to the firm, Jobs provides an example of positive corporate behaviour on the part of the individual. Positive individual behaviour lies at the heart of any proactive corporate plan, and the civic responsibility taught to children should also apply in corporate training and professional development programmes. Ethical and correct behaviour should complement innovation, as in Jobs’ case. Furthermore, positive engagement with communities enhances corporate performance and, ultimately, corporate profits. Once this value system becomes part of the corporate mindset going forward, positive corporate behaviour will become the norm, and will lead to the corporate sector leading the global community in the most positive manner in the future.

NEGATIVE 1: WHITE-COLLAR CRIME AND CORRUPTION The phenomenon of investment crime fraud has become a feature of what Max Weber described as ‘rational modernity’. In the case of investment crime, the social function of financial investment at a micro level became fragmented from other social norms of morality, ethics or accepted business practice at a macro level. This culmination of the impulse to maximise profits at all costs comes at the end of a century dominated by the markets. An ambivalence to rule observation in the pursuit of wealth became culturally accepted; movies such as Wall Street presented a depiction of society in which ‘greed is good’. In the aftermath of deregulation, investment crimes grew exponentially until vast sums of wealth and whole corporations were lost. Investment crime and securities fraud are often associated with ‘WhiteCollar’ criminal activity, including areas such as tax evasion, embezzlement and corporate fraud. The global financial landscape is littered with the names of corporations whose officials have succumbed to the lure of investment crimes, including Enron, World Com, Adelphia Communications and K-Mart. In addition to corporate losses, such investment scandals create massive financial problems for workers who lose their employment, while stock values often plummet in the aftermath of larger investment

An Overview of Corporate Successes and Failures

11

scandals. Edwin H. Sutherland originally defined the concept of ‘WhiteCollar Crime’ during the Great Depression of the 1930s. One of the most reported cases of contemporary investment crime involved well-known white-collar criminals such as Bernard Madoff. Securities and investment fraud may be committed by a number of actors in the financial sector, including investors, brokers, financial advisers or financial accountants. White-collar crime was not given as much consideration by classical criminologists as the crimes of the working classes. It took many years for Sutherland’s concept of crimes such as investment fraud to be taken as seriously as other crime associated with coercion of violence. However, Sutherland’s studies demonstrated the high cost of corrupt business practices for wider society. He defined such crimes as ‘crimes committed by a person of respectability and high social status in the course of his occupation’. Therefore, the idea of investment crimes being ‘victimless crimes’ has come to be challenged over time, as the financial costs of whitecollar corruption has become recognised. Where once investment crimes were not viewed as having a serious impact on society, legal and theoretical links have subsequently been made between organised crime, racketeering and investment crimes. Edelhertz (1970, pp. 19–20) identified four types of white-collar offences: (1) ‘personal crimes’ committed for individual gain outside of a business context (i.e. credit card fraud, tax evasion); (2) ‘abuses of trust’ committed by someone against an employer (i.e. embezzlement, expense account fraud); (3) ‘business crimes’ committed during the course of otherwise legitimate commerce (i.e. antitrust, commercial bribery); and (4) ‘con games’ where the central activity is illegitimate (i.e. phony contests, land frauds). There are several common types of investment fraud with shared characteristics such as manipulation of ‘insider knowledge’ for financial gain, misrepresentation of finances such as inflating company’s profits, making financial deals with privileged clients at a time before certain issues are made public, or the invention of false corporate entities to disguise financial transactions. Equally, there are many variations of securities and investment fraud, as international financial deregulation leads to more opportunities for criminal activity on a global level. Securities and investment fraud are forms of deceptive practices in the stock and commodity markets. Fraud of this nature may occur when individuals or corporations falsely inflate stock values to illegally make profits from investors or post falsified returns. Fraud may also occur when people use professional knowledge unfairly to make gains for themselves or their company to gain advantages in stock market trading or other

12

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

investment-related financial dealings. The use of professional knowledge for personal advantage is known as ‘Insider Trading’. There are many forms of investment crime, with diverse elements to each aspect of corporate fraud. Corporate Fraud involves tax evasion and embezzlement or securities fraud. Securities Fraud would occur if, for example, a corporation adjusted its accounting practices, exaggerated profits or de-emphasised losses to artificially inflate stock price. Insider Trading involves the trading of public stocks or other securities based on non-public knowledge. Investment Scams and ‘Ponzi schemes’ have gained fame recently after it was revealed that Bernard Madoff had swindled billions of dollars in investment scams involving well-known celebrities and public figures. Ponzi schemes promise high returns through large investments which are in fact built from other unsuspecting investors. In many cases, the majority of these investments are embezzled, and written off as losses. Other celebrity investment crime cases have involved television presenter Martha Stewart and ‘Rogue Trader’ Nick Leeson. Misinformation of stock information is known as Communications Fraud. This occurs when a corporation provides misleading exaggerated information through investment communications to inflate perceptions and subsequently stock values of certain client corporations. In Mutual Fund Crimes, mutual fund brokers may manipulate funds or structure sales in a manner that puts their interests above a client’s. Short Selling of Investments involves an investment whereby the seller believes the price of a stock will soon lose value. Misleading information may make this form of transaction illegal. In addition, exaggerating or over-inflating the value of stock so it can be sold at a high price is another form of illegal investment crime. This type of crime is often based on intensive phone-based transactions with potential investors. Stocks can then be dumped, leading to a loss in value with investors incurring large losses as a result. Investment crimes have gained a significant place in contemporary society, as white corporate crime assumed greater importance for law enforcement agencies in the aftermath of several high-profile corruption scandals. The impact of investment markets was severe, with markets in decline globally. The legislative response has focused on regulating the finance industry. The rules and settings of the white-collar criminal may in some ways differ to that of organised criminals, as the creation of vast sums of wealth through investment came to be seen as a virtue in contemporary society. However, the financial costs to wider society are severe, and the response from authorities worldwide has led to many high-profile arrests and cases. Investment crime may have been a part of the culture of the 1980s

An Overview of Corporate Successes and Failures

13

and 1990s, but moves to regulate the financial sector have led to changes in the practices of many economic institutions.

NEGATIVE 2: ENVIRONMENTAL CRIME AND CORPORATE POLLUTION The decline of the global financial sector which has occurred since the fall of major corporations such as Enron has provided outsiders with an insight into the world of investment banking. The lack of regulation and ethical practices created an emphasis on a culture of greed and success at all costs which facilitated corruption and ultimately created a downturn which gripped global markets. There were many victims of what was once termed ‘victimless’ crimes, as billions of dollars in wealth were lost to corruption and criminal practices. As we have seen in the Stern Report and Al Gore’s film An Inconvenient Truth, climate change has become the most pressing concern of the new century. These concepts can be developed further by linking debates about climate change on a global level with local concerns about negative corporate behaviour and development. Seen in this context, we can say that we are witnessing a new green corporate revolution, following on from the Age of Enlightenment and the Industrial Revolution. Following the American, French and Russian revolutions in the 1770s to the 1990s, we have witnessed the emergence of the Age of Rights, be they Human or Ecological. In the aftermath of struggles for human emancipation, be they worker, gender or civil rights, a new struggle is upon us. This is the struggle for ecological rights, the right to clean air and water and the right to have the planet intact and free from further degradation to land sea or ozone. Both ecomodernists and ecopopulists must rise to the onerous challenge of climate change and reach a point beyond policy and protest in order to create the conditions where communities and policymakers can begin to work together to tackle the most serious issues faced by Ireland and the planet. Let us first examine the institutional responses to climate change to date. As the issue of climate change has come to the forefront of the political agenda, some consideration of the response to date is necessary. In order to facilitate a comparative study, the British response will be presented, with a focus on the Stern Report. This will be followed by an analysis of the Irish government’s National Climate Change Strategy for the years 2007–2012. However, in order to fully understand the politics of climate change facing

14

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

both ecopopulists and ecomodernists, we will begin with an examination of the series of reports by the Intergovernmental Panel on Climate Change (IPCC) which was issued throughout 2007. The IPCC was established by the United Nations Environment Programme (UNEP) with the assistance of the World Meteorological Organisation (WMO). Its remit includes undertaking an analysis of the impacts, vulnerabilities and potential adaptations surrounding anthropogenic climate change. The series of IPCC reports issued in 2007 were part of the Panel’s Fourth Assessment Report. The first of the IPCC’s reports focused on confirming findings which suggest that human behaviour is very likely (i.e. more than 90% probability) the primary cause of climate change. The key findings of this first report confirm that anthropogenic behaviour is causing global warming with potential temperature rise of between 1.1 and 6.41C or 2–111F with the probable figure being 1.8–41C or 3.2–7.21F by 2999. As sea levels rise by up to 28–43 cm, Artic sea ice is likely (i.e. more than 60%) to disappear in summertime by 2050. An increase in extreme weather makes it very likely (i.e. more than 90%) that some areas of the planet will experience increased incidents of heat waves or tropical storms during this century (IPCC, 2007). Clearly, the scientists have spoken. Now these issues need to be tackled in the political realm. Activists and institutions need to set aside their methodological differences in order to create a united front comprising all involved in environmental politics for the greater cause of the planet and humankind. The British government had commissioned a report on the challenge of global warming in anticipation of the IPCC’s findings. The Stern Report highlighted the need for major and immediate changes in all sectors of society ranging from families through to corporations and the state: The world has to face up to acting immediately to confront the anthropogenic causes of climate change or face cataclysmic planetary consequences, according to the 2006 report compiled by Sir Nicholas Stern. (the former chief economist of the World Bank)

As Sir Nicholas Stern’s report indicates, an appropriate response to climate change requires a coordinated effort from all elements in the environmental political sector, including grass-roots groups, institutions and the state. There is no room for division at this point, due to the severity of risk facing everyone in global society. We are all stakeholders in this debate. And, just as we have campaigned against policies that threaten our environment, we must also bring pressure to bear on our policymakers about our commitments to the Kyoto Protocol. While many states signed up to Kyoto, they have not all met their responsibilities. Once again our

An Overview of Corporate Successes and Failures

15

economic performance has been cited as a reason for this failure. However, the ultimate economic test will come in the aftermath of the ecological devastation that will affect all nations if climate change is not addressed. Therefore, we must reduce our dependence on fossil fuels, cars and motorways. This becomes the new economic imperative of the day, as economies will not withstand the global devastation that climate change will bring. The second IPCC Report, published in April 2007, provided an apocalyptic vision of a future where all parts of the Earth will be affected by climate change. Many hundreds of millions of the planet’s poorest regions would bear the brunt of First World greed and growth with increased scarcity in food, water combined with outbreaks of disease and displacement, visiting catastrophe upon those with the fewest resources or means of dealing with such threats. Sea levels would rise as icecaps melt, with coastal areas and islands facing the greatest threat. Extreme weather events such as droughts or intense storms would become more commonplace, with devastating effects. Up to 30% of species could face extinction as a result of rise in temperature and its side effects (Irish Times, 7 April 2007). Scientists and political representatives staged all-night debates as the second IPCC report was finalised in Brussels after six years of international research, with scientists threatening to walk out as their findings were watered down for presentation to the world’s media. Significant ecological sites such as the Barrier Reefs faces devastation due to climate change, according to the report. Oceans would suffer from increased acidity, wiping out plankton and other small species central to maintaining the oceans’ ecosystem. Food and water scarcity could lead to resource wars in affected areas. Environmental non-governmental organisations such as Greenpeace felt the time to prevent an ‘apocalyptic future’ had almost gone unless the world’s economies embraced a carbon-free economy (ibid.). World Wildlife Fund’s climate change spokespersons called for an urgent response from the world’s governments, adding that ‘industrialised countries need to accept their responsibilities and start implementing solutions’ (ibid.). Friends of the Earth stated that climate change is ‘a looming humanitarian catastrophe, threatening ultimately our global security and survival’ (ibid.).

POSITIVE CONCLUSION: TOWARDS A GREEN CORPORATE REVOLUTION So, how can corporates influence policymakers on this issue? In a political crisis, the leverage of social movements increases. Climate change is a form

16

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

of conflict and conflicts can be overcome by clearly defining the issue, putting forward a concise argument and taking this argument to all relevant institutions of the state. We now know that the scientific community accepts climate change as a very real threat to our planet. The Stern Report and An Inconvenient Truth provide us with the clear evidence necessary to communicate our grievance to policymakers. As the diverse groupings that make up the Irish conservation and environmental movement begin to take up this cause, armed with conclusive scientific arguments, ‘consensusbuilding among policy stakeholders is tractable and the prospects for successful policy formation is enhanced’ (Dayton, 2000, p. 71). Nonetheless, ‘climate change’ has also become new media orthodoxy, with certain assumptions which cannot be challenged for fear of accusations of scientific heresy. Environmentalists must endeavour to maintain some ownership over the debate in order to prevent it from becoming reduced to no more than electoral or media hype while actual opportunities to respond are missed. Opponents of the climate change issue will use the often frenzied and rhetorical debate on global warming and its consequences to downplay its factual basis. What is clear is that the philosophical and methodological approaches and understandings of both ecopopulists and ecomodernists must in some way converge to provide a new direction for the environmental sector. In this way, a perpetual green corporate strategy can be developed, which prioritises the elimination of fossil fuels, emissions, pollution and private transport solutions. Biofuels, alternatives and public transport networks must become integral to this planning framework, rather than appearing as vague targets on the horizon. From these initiatives, a new socio-cultural discourse can be constructed, that goes beyond ‘sustainability’ but embraces responsibility in all aspects of development in global society, from the preservation of the past to plan for the future. To facilitate the perpetual green economy, all aspects of society, including the institutions that plan and implement policy, must advance wider agendas and contexts. This holistic framework would consider that ‘historical factors, values, one’s socio-cultural and economic location y all influence the way in which policy problems are initially assessed and nested within particular frameworks of understanding’ (Dayton, 2000, p. 73). Once this perpetual green policy framework is initiated, we will have a model for socio-economic planning that will provide a basis to accept the diplomatic concepts on climate change set out by Kyoto. We must go beyond our Kyoto measures and prepare an ecologically based framework

An Overview of Corporate Successes and Failures

17

for reduced or zero emissions for the near future. In order for this to be achieved, all new industries must comply, while existing industries would have to reconsider current polluting practices. Road and car dependency would be reduced, as fossil fuels are eliminated. By embracing the concept of zero emissions and biofuels, Ireland would send a strong economic and ecological message which demonstrates that successful economic performance will ultimately be judged not just by ecological compliance but also by ecological innovation. In order for the perpetual green corporate agenda to be developed, our notion of partnership must be widened to embrace a wider set of criteria. In the first instance, conservationists and environmentalists must play a leading role in developing ecologically strong policies. True sustainability must be rooted in the past as well while looking to the future. Barriers to green lifestyles must be removed, and alternatives such as wind and solar energies, biofuels and public transport placed to the fore of future planning. Science and technology must be redirected from conflict with the Earth to preserving our natural environment, to create a new scientific enlightenment. Fair trade and global equity and justice must become our main foreign policy, in opposition to supporting global war and hegemony to preserve our economic position. A balanced approach to growth must be at the core of our corporate and political dealings, as the injustices perpetuated by the World Trade agreement and the GATT are reconsidered. Demographic shifts must also be reckoned with, as uneven development will lead to future migration and global poverty. To address this, local development must become central to the next phase of globalisation. And, in order to save the planet, corporate behaviour must embrace the concept of a perpetual green economy globally. Only then will we be able to consider a future planned with the wisdom of the antiquaries. The future of our planet will not be won on the mountains or in the seas of this Earth. It will be won in the hearts and minds of humankind, and environmentalists, be they modernists or populists and must begin to transform people’s thinking and consciousness accordingly. The ongoing fuel crisis, debates about energy alternatives ranging from wind power to nuclear energy and the moral issues of waste flows and emission trading all remain contentious issues for the Earth in the future. By reconsidering a corporate-based engagement with the planet which characterised the past, pro-environment corporate campaigns have become a movement that may hold the key to our planet’s future.

18

LIAM LEONARD AND MARIA ALEJANDRA GONZALEZ-PEREZ

CONCLUDING REMARKS: THE MATRIX OF CORPORATE BEHAVIOUR – POSITIVE AND NEGATIVE The ‘Matrix of Corporate Behaviour’ (Table 2) outlines the parameters of corporate behaviour from the scale of positive to negative by utilising our four case studies. The case studies were selected to clearly highlight the manner in which positive or negative outcomes can be achieved and the legacy they leave. In relation to Cause Marketing, the most positive aspects of corporate marketing are applied to the development of a wider understanding of a worthwhile cause, creating positive success and a legacy of corporate engagement with the whole community. This enhances the community, while also enhancing the positive image of the corporate brand. With Innovation, we can see the injection of positivity that emanated from the vision of someone like Steve Jobs, who combined imagination and determination to realise his dreams and develop his corporate brand. In fact, his main brands such as Apple became synonymous with success. However, we can contrast that to the harmful legacy caused by White-Collar Crime and Environmental Pollution. Both of these represent the low point for contemporary corporates, and both erode public confidence and consumer sentiment. In order to lift economic performance, we can argue that corporates must focus on developing their CSR through cause marketing and an authentic form of innovation that captures the public’s hearts and minds. Moreover, the impulse towards short-term gain and greed which underpins white-collar crime and the uninspiring and short-term thinking which leads to corporate pollution cause economic and ecological harm, and also undermine positive outcomes for all corporates in the eyes of the wider public. Therefore, we find that positive corporate strategies supported by

Table 2. Positive

The ‘Matrix of Corporate Behaviour’.

Negative

Approach

Marketing

Success

Cause marketing

Innovation

Success

Wisdom

Fraud Pollution

Failure Failure

White-collar crime Environmental crime

Legacy Corporate engagement with community New products and expanding markets Loss of confidence and revenue Ecological degradation

An Overview of Corporate Successes and Failures

19

innovation and traditional corporate wisdom are the best ways to create a sustainable corporate vision of the future.

REFERENCES Blanton, S. L., & Blanton, R. G. (2006). Human rights and foreign direct investment: A twostage analysis. Business Society, 45(4), 464–485. Daw, J. (2006). Cause marketing for nonprofits: Partner for purpose, passion and profits. AFP Fund Development Series. Dayton, B. P. (2000). Policy frames, policy making and the global climate discourse. In H. Addams & J. Proops (Eds.), Social discourse and environmental policy: An application of Q methodology (pp. 71–99). Cheltenham: Edward Elgar Publishing. Gonzalez-Perez, M.-A., Riegler, S., & Riegler, F. X. (2011). Foreign direct investment (FDI) and social responsibility networks (SRN) in Colombia. Journal of Globalization, Competitiveness & Governability, 5(1), 42–59. Halpern, B., & Snider, K. (2011). Products that kill and corporate social responsibility: The case of US defense firms. Armed Forces and Society, 38(4), 604–624. Jobs, S. (2005). Stanford commencement speech. Stanford University. Available at http:// news.stanford.edu/news/2005/june15/jobs-061505.html. Retrieved on 3rd August 2011.

AN ECLECTIC REVIEW OF CRITICAL PERSPECTIVES ON GLOBALISATION AND INTERNATIONAL BUSINESS: SETTING THE CONTEXT FOR CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY Maria Alejandra Gonzalez-Perez ABSTRACT Purpose – The chapter aims to provide a descriptive and analytical conceptual framework of critical approaches to globalisation and summarises the main debates in the area. Design/methodology/approach – This chapter is based on an extensive literature review.

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 21–50 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012007

21

22

MARIA ALEJANDRA GONZALEZ-PEREZ

Findings – This chapter summarises diverse critical approaches to globalisation from a multi-disciplinary perspective. It presents theories explaining the negative consequences of globalisation on working opportunities, conditions and relations, and the negative consequences of globalisation at the economic, cultural, social and political level (particularly the perceived decline in state influence). Practical implications – This chapter provides an overview on the debates on globalisation. This chapter could contribute discussions at the classroom level, and different managerial learning circles. Originality/value of chapter – This chapter contributes teaching material for international business, trade and development, and corporate social responsibility Keywords: International business; corporate social responsibility

APPROACHES TO GLOBALISATION Since the 1990s, globalisation has become one of the most contested, complex, cliche´ and contradictory topics in the social sciences. A number of authors coincide in defining globalisation as the process of the extension of the free market, embodying a political, social, cultural and economic revolution, which transcends previous nation-state boundaries and preceding sovereignties (Buckley & Ghauri, 2004; Held, Goldblatt, & Perraton, 1999; Hood & Young, 2000; Kali & Reyes, 2007; Mazlish, 2005; Rugman, 2009; Shenkar, 2004). Robert W. Cox (2005, p. 140) presents globalisation, or Global Perestroika as he calls it, as a ‘result of structural changes in capitalism, in the action of many people, corporate bodies, and states, that cumulatively produce new relationships and patterns of behaviour’. William I. Robinson (1998, pp. 563–565) defines globalisation as a form of capitalism which supersedes the nation-stage of capitalism, which is overcoming all precapitalist traces and ‘integrating the various polities, cultures and institutions of national societies into an emergent transnational or global society’ (Robinson, 1998, p. 565). Kelly and Prokhovnik (2002) identify three major social science approaches for analysing economic globalisation. The first approach is an evidence-based approach to a systematic shift, in which, since the 1970s, cross-national trading and investment have developed in a more integrated

Critical Perspectives on Globalisation and International Business

23

and intense manner than in the past. The second approach proposes that interconnectedness tends to revolve around particular developed regions. The third approach suggests that nothing fundamental has changed. The discourse of globalisation is presented by various social theorists as a consequence of modernity,1 and Westernisation, and a feature of it is compression of the dimensions of time and space in a radical transformation never achieved before (Castells, 1996; Giddens, 1990; Massey, 1999; Mittelman, 1996). Castells (1996, p. 92) defines the global economy as ‘an economy with the capacity to work in real time on a planetary scale’. Brenner (1999, p. 40) suggests that ‘space no longer appears as a static platform of social relations, but rather as one of their constitutive dimensions; it is historically produced, reconfigured and transformed’. The worldwide interconnection of capital markets is one of the most controversial aspects of globalisation (Liesch, Buckley, Simonin, & Knight, 2012). This interconnection means that the performance of national capital markets depends on global financial markets’ behaviour. The integration of capital markets has opened the possibility of investment in multiple foreign markets. This new opportunity is one of the key features of global financial integration and has led to the dramatic increase in net private capital flows from the North2 to developing countries (O’Brien, 1992). However, despite this, there is little evidence to prove a relationship between financial integration and growth (Prasad, Rogoff, Wei, & Kose, 2003). The informational aspect of the economy is also expressed in the increasing expansion of the volume of financial transactions. Increased financial volatility reflects the interdependence of events occurring worldwide (Giddens, 1999). Finance is embedded within all the elements of production chains and factors of production (Dicken, 1998). Castells (1996, 1999) notes that the economy operates as a worldwide unit in real time, and the unprecedented roles of communication and information technology have stimulated new sources of productivity and organisation of work. The information economy is defined as the supporting infrastructure (computers, routers, satellites, human programmers, etc.), which sustain electronic business processes (online selling, buying, production management, logistics, etc.) and the conduct of electronic trading through computer-mediated network channels (Mesenbourg, 1999). This technology and information-driven economy is an integral component of the social development of the world (Castells, 1999). Sceptical views on globalisation argue that globalisation as an economic phenomenon is not a recent event. The world has experienced continuous changes in the nature of markets, massive flows of international human

24

MARIA ALEJANDRA GONZALEZ-PEREZ

migration and involvement of foreign currencies in international transactions systematically since the nineteenth century. The outgrowth of social and institutional changes during the first technological/industrial revolution in Great Britain in the late eighteenth and early nineteenth century including innovations such as applying steam power to transportation, mining and powered machine production as well as the second technological/industrial revolution associated with the spread of electricity and advances in physical sciences such as chemistry, and the transition of technological leadership from Great Britain to Germany and the United States are cited as examples by sceptics to justify the lack of uniqueness of the current era of ‘globalisation’. Economic globalisation is presented under this point of view as a historical phenomenon rather than a consequence of recent technological transformations (Anto´n, 2000). Furthermore, globalisation sceptics (Gordon, 1988; Hirst & Thompson, 1996, 2000) hold that the idea of a worldwide economy is an unattainable utopia. The argument is that even though there is evidence showing a tendency towards regionalised (free trade) economies, such as the European Union, the South American Common Market (Mercosur), Asia-Pacific Economic Cooperation (APEC), the North American Free Trade Agreement (NAFTA), amongst others, the idea of a planetary economy is still far from reality. While technological changes and planetary economic integration are acknowledged, sceptics argue against the conclusion that a drastic transformation of the nature of markets is occurring (Hirst & Thompson, 1996, 2000; Levitt, 1983; Keohane & Nye, 2000; Radice, 2000). Beyond changes to economic factors, the idea of globalisation also reflects cultural transformations (Leung, Bhagat, Buchan, Erez, & Gibson, 2005). The process of cultural interdependence of geographically dispersed human beings, interconnected through the Internet and its World Wide Web, as well as other media, redefines values at a local scale and at the individual level. Personal aspects of our lives, our private sphere, are challenged every day, by the penetration of standardised ‘global’ values. The current concept of globalisation is bursting with contradictions. According to some authors, the participation in the world capitalist system leads to development in some areas but the development of underdevelopment3 elsewhere (Brewer, 1990; Castells, 1997; Frank, Cockroft, & Johnson, 1972). On the other hand, the possibility of acquiring goods has been given to poor people who otherwise would not have access to them (Drogendijk & Andersson, 2012; Marler, Kaufman, Festing, & Liang, 2012). For example, in a case presented by Stiglitz (2002), the opening up of the Jamaican milk market to US imports in 1992 meant poor children could get milk more

Critical Perspectives on Globalisation and International Business

25

cheaply, but this also hurt local dairy farmers. Globalisation has also brought factories to many places in the developing world giving people employment alternatives to farming as the only source of labour occupation (Stiglitz, 2002). However, both globalisers and anti-globalisers share the same paradigm: we are in a globalising world. The divergence is on how to act within it (Kumar & Liu, 2005). Just a few years ago, subjects such as structural adjustment loans and banana quotas4 had limited interest (Stiglitz, 2002). Now, social movements have networked their resistance against globalisation (Amin & Houtart, 2003). Since the protest in 1999 at the World Trade Organisation (WTO) meetings in Seattle, followed by meetings and protests in Quebec, Bangkok, Barcelona, Geneva, Johannesburg and recently Hong Kong, every major meeting of the International Monetary Fund (IMF), the World Bank and the WTO has become a scene of conflict and turmoil with protestors aiming to expose capitalism and its neoliberal version as a source, in their view, of social, cultural and ecological disasters (Amin & Houtart, 2003; Florini & Simmons, 2000; IFG, 2002; Stiglitz, 2002; Taylor, 2002; Welford, 2002). Stiglitz (2002)5 analyses the globalisation agenda of advanced industrial countries in relation to developing countries as one in which more advanced industrial countries insist that developing countries open up their markets to the goods of the wealthier countries while at the same time declining to open their own markets to the goods of developing countries. Continuing subsidies to agriculture in the more advanced industrial countries and those countries insistence on the elimination of subsidies on industrial goods makes it difficult for developing countries to compete. This has reduced countries opportunities for cultural adaptation to the rapid pace of change, and it has created a crisis of massive unemployment followed by longer-term problems of social dissolution such as urban violence and ethnic conflicts (Castells, 1983; Stiglitz, 2002).

GLOBALISATION AND FOREIGN ECONOMIC INTERVENTION FDI has been studied from different angles since the 1960s; these include corporate behaviour in the multinational context (Pauly & Reich, 1997), the transfer of organisational culture (Florida & Kenney, 1991), the political conflict over FDI (Yoon, 1990) and the location decisions of multinational corporations (Dickens, 1998). Research from economic and public policy

26

MARIA ALEJANDRA GONZALEZ-PEREZ

analysis backgrounds has shown that FDI provides many benefits such as higher wages, higher compensation packages, greater job security and bigger investment in training and development than indigenous employers (Borensztein, Gregorio, & Lee, 1998; Lipsey, 2002; Moran, 1998; Potterie & Lichtenberg, 2001). However, Brady and Wallace (2000) found that ethnographic studies in the area show less optimistic results concerning the working conditions in foreign-affiliated firms. Despite the fact that some theories such as ‘the New International Division of Labour’6 are pessimistic when explaining the repercussions of FDI on less developed countries (LDCs), other theories argue for the long-term benefits for LDCs measured in terms of their technology development through patented technology transfer. Capital flow volatility and subsequent economic crises have been associated with different forms of FDI (Buckley & Ghauri, 2004; Peng, Denis, Wang, & Jiang, 2008; Prasad et al., 2003; Tonguthai, 1995). Another form of foreign economic intervention is foreign aid through international development agencies. One of the main criticisms of the distribution of foreign aid is in regard to the conditions that international lenders impose in return for their assistance. It has also been argued that foreign aid programmes enlarge dependence by maintaining a metropolissatellite structure where surplus is concentrated in the metropolis (Brewer, 1990). Another criticism, associated with international donors and multilateral agencies such as the World Bank and the International Monetary Fund (IMF), is that the conditionality associated with their assistance and adjustment programmes undermine national sovereignty since it is based on economic dogmas and fails to take into account the particular characteristics of the borrowing country (Stiglitz, 2002). Another controversial aspect of globalisation has been the economic ideology behind it. This is often is described as neoliberalism, because it is presented as an effort to revert to the economic policies of classical liberalism in the eighteenth and nineteenth centuries. It is described as the replacement of an import-substitution industrialisation model, and it is linked to the Washington Consensus and the structural adjustment programs mandated by the IMF and World Bank (Korzeniewicz & Smith, 2000). Rodrik (1996) classifies the Washington Consensus policies as follows: fiscal rectitude via cuts in government expenditure and increased taxation; limited government intervention in education, exports and infrastructural development; undistorted market prices; privatisation; free trade and competitive exchange rates. Dependency Theory argues that there are intrinsic power relations between nations which explain the underdevelopment of many nations in

Critical Perspectives on Globalisation and International Business

27

the world (Casillas, Moreno, & Acedo, 2012; Drogendijk & Andersson, 2012). National development in nations regarded as dependent is reliant on external forces through which advanced industrialised countries represent their interests in foreign nations (multinational companies (MNCs), foreign aid, etc.). Dependency theory7 suggests that the ‘First World’ needs countries in the periphery in order to remain wealthy, establishing a bimodal system composed of cores and peripheries. This implies that there was no initial state of ‘underdevelopment’ for so-called ‘Third World’ countries and their ‘backward’ condition is a consequence of the incessant intensification of imperialist exploitation since the sixteenth century (Angotti, 1981; Drakakis-Smith, 1996). This theory emerged in the 1950s, and during the 1960s and 1970s was used as a counter to modernisation theory, which implies that the ‘developed’ nations have a decisive role in modernising and creating sustainable development in underdeveloped nations.

The Industry of Development There has never been consensus on the meaning of development. The westernised idea and model of development has been used as an agent of economic and cultural hegemony, and some authors (Hancock, 1989; Korzeniewicz & Smith, 2000; Stokke, 1995; Tavares, 2003; Wood, 1989) argue that development as a construct is used to justify colonisation. Development aid has been a highly controversial subject. Defenders of such aid argue, firstly that aid provides emergency assistance and debt relief and that if well administered its provision can produce longterm improvement in areas such as health, human rights, education, etc. and secondly, that it can be seen as an exercise of interdependence in which both donors and recipients can pursue their respective interests. On the other hand the rationale against aid is based on arguments such as (i) aid has been used by authoritarian governments to consolidate their power, meaning it has little effect on the poor; (ii) it is used to divert the attention from issues such as trade, debt and the role of transnational companies (TNCs); (iii) aid creates dependency, thus weakening the political and economic position of aid recipients; (iv) it distorts the free market; (v) aid is often subject to conditions that oblige recipients to buy goods and services from the donor; (vi) the donor–recipient dynamic reinforces stereotypical superiority and racism; (vii) aid maintains world inequality rather than challenging it; and (viii) aid is often displaced or misused.

28

MARIA ALEJANDRA GONZALEZ-PEREZ

Transnational Corporations Robinson (1998) points out that a major consequence of the globalisation of the international economy is the transformation of MNCs into TNCs. MNCs are often portrayed as the ‘most prominent, controversial symbols of western capitalism’ (Litvin, 2003, p. xi). Over the last century they have gained power at every level of human activity. In fact, there are several industries in which corporate power is immensely concentrated. The International Forum on Globalisation (IFG) (2002) identified for example, that in consumer durables, automobile manufacturing, aircraft manufacturing, aerospace, electronic components and steel industries, five firms control over 50 per cent of the global market (IFG, 2002, p. 123). Evidence of corporate power is even more compelling in industries such as agriculture in which production and distribution is dominated by few global corporations; consequently, to a high degree, the world’s food supply is subordinated to corporate control; and consequently self-reliant, community-based, diversified and small scale agriculture has been largely replaced by export-oriented monoculture (IFG, 2002, p. 172).

SUMMARY OF THE DEBATE ON GLOBALISATION Held (2002) and his colleagues (Cochrane & Pain, 2002; Kelly & Prokhovnik, 2002; Mackay, 2002; McGrew, 2002) categorise participants in the debate on globalisation into three positions: the globalists, the inter-nationalists and the transformationalists.

The Globalists The globalists, both optimistic and pessimistic globalists, see globalisation as a stage of development which cannot be controlled by traditional political institutions such as nation-states. For globalists there is a major shift in the geography of social processes and social relations manifested in an increase in global interconnections. Thus, national boundaries became less important. For them, national cultures, economies and politics are subsumed in global networks. Optimistic globalist positions are based on Marshall McLuhan’s (1962) ‘Global Village’ and the vision of global citizens using the resources of global communication technology towards human understanding among

Critical Perspectives on Globalisation and International Business

29

peoples around the world, thus improving the quality of life through social relations at a global scale, in an atmosphere of global flows of culture, the possibility of universalistic initiatives towards the solution of global environmental problems and the creation of hundreds of millions of jobs in progressive workplaces. In short, the benefits for consumers in choices and market efficiency and the increasing wealth in rich economies would have a positive effect in less developed countries in the form of FDI. In contrast, the pessimistic globalists find problematic the worldwide tendency towards homogeneity. They call attention to the dominance of the major political and economic interests of the countries of the North, highlight the excessive power of TNCs, note the uneven effects of globalisation and lament the diminution of national identities and sovereignties.

The Internationalists For internationalists or ‘sceptics of globalisation’ (Gordon, 1988; Hirst & Thompson, 1996, 2000; Weiss, 1997, 1998), globalisation is a myth since the world economy as an international system is ruled by the interactions of nation-states rather than by any global entity. They emphasise the significant role for nation-states, especially powerful states, as autonomous agencies able to determine their own political and economic priorities. In addition, they are sceptical about globalisation, viewing the borderless world as depicted by globalists as an exaggerated allegory. Internationalists do not find substantial differences between current economic and social interactions and those in the past. They see continuity and progression in world trade links in which the majority of social and economic activity is still regional (e.g. the European Union). In terms of challenging global inequalities, internationalists argue that resistance can be effective in defending different interest groups’ priorities over global business development agenda.

The Transformationalists Transformationalists (Castells, 1996, 1997, 1999; Giddens, 1990) share with the internationalists the view that the nation-state remains militarily, economically and politically powerful. They acknowledge the presence of growing constraints on the autonomy of nation-states by forms of unaccountable transnational power (the need to compete in global markets

30

MARIA ALEJANDRA GONZALEZ-PEREZ

or TNCs). However unlike internationalists, they argue that these forms of transnational power are exercised through a complex combination of interconnections in the areas of communication, economic activity, technology and governance. Transformationalists recognise that this has brought new forms of exclusion and stratification which determine the integration into global networks. The solutions presented by transformationalists for the forms of exclusion linked to globalisation are based on a system of democratic accountability and a global system for governance.

NEGATIVE CONSEQUENCES OF GLOBALISATION The next sub-section will provide an overview of some of the negative consequences of globalisation. For structural purposes, they are classified into workplace-related and ‘beyond-workplace’ consequences of globalisation. However, it is important to clarify that this distinction does not imply that they are wholly separated from each other. Although the case for globalisation counts several points in its favour, the majority of the people of the planet are still poor and have not seen the benefits of economic integration. Growing economic disparities have been accentuated since the 1970s, and the world has experienced a concentration of political and economic power, a growing lack of public control over larger corporations, the diminution of national sovereignties and rural migration to urban areas undermining traditional rural societies.

WORKPLACE-RELATED EFFECTS This sub-section presents the effects of globalisation on working relations and working conditions. The pressures associated with global competition have led local management and governments to adopt measures to promote job flexibility through threats of relocation of production. The consequences of these measures are income and occupational insecurity, which have an impact on individuals and households as well as national and regional economies. Thus, the big issues in economic policy at present are related to the labour market (Freeman, 1998; Marler et al., 2012). Some authors (Jacobson, 1998) differentiate the typical responses to these pressures into low and high road strategies to highlight variations in capital/labour relations and the organisation of production.

Critical Perspectives on Globalisation and International Business

31

A low-road strategy (race to the bottom) is associated with cost leadership in companies, industries, regions and countries. Typically, it is found in sectors, industries and countries dominated by low-skill, low-pay employment, low trust levels and low participation. This approach suggests that production processes can be persistently improved using measurements8 which translate into reduced costs. This viewpoint implies that production costs can always be cut. Those which have adopted this approach generally use traditional methods of production leading to maximisation of production using time- and cost-related metrics. This approach has been generally adopted by companies dedicated to a single product, in which repetition becomes their production advantage. Since the metrics of this type of production are grounded purely in production cost reduction, David Jacobson (1998) notes this strategy attempts to increase productivity without increasing wages, something which has the potential to exacerbate social conflicts and to encourage confrontational managerial styles. Therefore, this approach tends to be associated with antagonistic labour relations. The low road strategy is often associated with a ‘race to the bottom’9 in the form of threats of relocation of production to lower-wage localities. In order to remain competitive, firms or countries are forced to lower labour conditions and mechanisms for workers protection in order to reach lower production prices than their competitors. Another approach to competing and surviving in the global markets is the high road. The high road approach suggests that companies, countries and regions can remain competitive through constant innovative practices that are reflected in both the production process and the product itself (Jacobson, 1998). This approach requires participation, commitment and cooperation of all the stakeholders to effect changes and a constant drive to respond to the requirements of the most competitive of world markets (Jacobson, 1998). The ultimate logic in this approach is that goods and services can compete with their rivals based on quality rather than price. This means that economies need to give incentives to the best rather than to the cheapest. At the organisational level, the high road strategy requires high levels of social cohesion, team-based production and a multi-skilled and multifunctional labour force (Jacobson, 1998). In order to achieve this, organisations have to ensure they use the best human and technological resources available. Yet rising levels of productivity can lead to downsizing and unemployment, the link between rising productivity and employment downsizing10

32

MARIA ALEJANDRA GONZALEZ-PEREZ

has been explained by pressures from shareholders to increase stock value and dividends by implementing cost-saving measures such as downsizing and threats to downsize (Budros, 1997). The logic behind this is that since low productivity is often explained by inefficiencies in human resources, if inefficient personnel are cut this would increase productivity, since those who are left need to continuously prove that they contribute towards the productivity of the companies.11 In addition if productivity rises while sales remain constant, fewer employers are needed. In reality, the organisation of people and work in most firms is somewhere between the high and the low road (Jalette & Warrian, 2002; Jacobson, 1998). Both roads can coexist as one is focused on cost reduction and the other on flexibility. Jacobson (1998) comments that globalisation has brought challenges to firms’ organisation that are reflected in choosing a place on that spectrum. Therefore, locations can suffer from both the consequences of the low road and the high road.

Changes to Labour Relations Besides changes in work organisation presented in the previous sub-sections, globalisation has led to the involvement of new social actors in addition to the traditional industrial actors. Also different forms of cooperation (internally and externally) have accelerated structural changes associated with technology and new forms of organisation for both labour and firms. Topics such as human resources management, social dialogue and social protection policies have been brought to the top of the current agenda in international industrial relations (Marler et al., 2012; Stahl, Chua, & Pablo, 2012).

WORKERS REPRESENTATION Traditionally industrial relations consisted of a network of institutionalised relationships between employees and their representatives (trade unions), employers and their representatives (employers’ associations) and the state (Hoffmann, Hoffmann, Kirton-Darling, & Rampeltshammer, 2002). These relations existed on different levels and between different actors. For instance, negotiations about wages, working hours and conditions of work were conducted at the level of the company (between work councils or shop stewards and management), the sector (between trade unions and

Critical Perspectives on Globalisation and International Business

33

employers’ associations), the national level (national pacts) and the European level (between European trade unions and European employers’ associations through social dialogue) (idem.). Gradually, the issue of cooperation and managerial practices has moved to the centre of the discussion on labour markets. National shared governance approaches – such as the Irish social partnership,12 the Scandinavian model of competitiveness and welfare, the Swedish model and its support for change, the Dutch polder model of the consensus economy – have been responses designed to enhance competitiveness (Jacobson, 1998; Vos, 2004). There are different types of industrial relations practices. Trade unions play different roles and have different natures in different countries, and industrial relations systems are embedded in specific national contexts (Hoffmann et al., 2002; Hyman, 2001). Richard Hyman distinguishes ideal types of (European) trade unionism based on the principles of market, class and civil society; these are business unionism, class unionism and social partnership unionism. He argues that these three types are inherently contradictory, and consequently, they will never be stable models and further argues that market-based unionism or business unionism, which has the capacity to avoid political issues, is not sustainable. He asserts that class unionism, while waiting for the revolution, has no focus on material results. On social partnership unionism he believes that it is unable to continue to seek for integration. Hence, Hyman (2001) explains that trade unions’ historical tendency has been to compromise between the optimistic tradition (revolutionary), and the pessimistic (non-revolutionary) tradition. For Hyman, union challenges exist on two fronts: an economic front in which trade unionism is a reaction against economic exploitation, and a political front, since power and control are inherent aspects of every collective bargaining.

Discrimination and Inequality of Opportunities Globalisation has accentuated the vulnerabilities of marginal groups. Castells’ (1999, 2000) ‘Fourth World’ is a concept that describes the increasing equalities, polarisations,13 poverty and social exclusion present in the global economy. He explains the concept of the Fourth World as the ‘the world composed of people, and territories, that have lost value for the dominant interests in informational capitalism’ (Castells, 1999, p. 10). For Castells (1999) the people of the Fourth World are those who neither produce nor consume for the system.

34

MARIA ALEJANDRA GONZALEZ-PEREZ

In the following sub-sections, the challenges that globalisation has accentuated for marginalised groups of working people – foreign and migrant labour, child labour and female labour – will be looked at.

THE CHALLENGE FOR FOREIGN AND MIGRANT LABOUR International population flows are as influential as capital and trade flows. The International Organisation of Migrations (IOM) estimates that more than 210 million people are living outside their birth country, which is about 3 per cent of the world’s population (IOM, 2011). The liberalisation of economies and the related higher demand for labour in the developed economies and availability of labour in underdeveloped economies has provoked an increase in labour migration across borders. This has been facilitated by the development of transportation and communication technologies which enable and motivate people to move. Globalisation gives employers the opportunity to hire migrant workers as part of their cost minimisation strategies and also allows them to recruit skilled labour in sectors which face labour shortages. Services industries such as the hotel and restaurant, software, insurance and financial industries are the main employers of migrant labour. The literature on international labour migration has three main strands. The first strand focuses on the socio-economic aspects in receiving countries (immigration). The second strand concentrates on the same aspects but from the point of view of sending countries (emigration). Finally, the third strand is associated with studies concerning return to the native country. There is plenty of evidence to show that immigrant workers across the world are crucial to economic success (Berry & Bell, 2012; BaldwinEdwards & Arango, 1999; Lamphere, 1994; Lopez-Garza & Diaz, 2001; Hollifield, 1992; Waldinger & Lichter, 2003). However, the social, political, cultural and economic standing of many immigrant employees is inferior to that of most indigenous people (Borjas, Freeman, & Lawrence, 1996; Butcher & Dinardo, 1998, Cobb-Clark, 1993; Stelcner, 2000; Zegers de Beijl, 1995). Many immigrant workers experience exploitation, injustice and almost second-class citizenship status (Reitz, 1998). Galbraith (1992, 2001) argues that there is a societal division between the millions of both legal and illegal immigrant workers in the United States and US nationals. It is taken for granted that immigrant workers will have access only to low paid,

Critical Perspectives on Globalisation and International Business

35

low-skilled and peripheral occupations (Hernandez-Leon & Zun˜iga, 2000; Zegers de Beijl, 1995). In practice, immigrant status often means a lack of knowledge about the labour market, the availability of jobs or skills requirements. In addition, cultural and language barriers often leave immigrant workers exposed to inequality, and a cycle of social and economic disadvantage can become self-perpetuating (Beiser & Hou, 2000; Chiswick, 1992; Dustmann, 1999; Milkman, 2000; Wells, 1996). Central to the promotion of workers’ rights is the organising capacity of trade unions and their ability to represent immigrant workers. Compa (2001) argues that in case of the United States the undocumented/illegal status of the workers is a limitation on the exercise of the right of association; therefore, fear and division are present when a group of undocumented/ illegal workers is deprived of protection, and this has an adverse effect on all workers’ rights to negotiate and to bargain collectively. The phenomenon of migration can be also observed from an emigrant country perspective. The literature suggests that emigration tends to be socially and economically detrimental for those who stay behind, especially in developing countries in which acquisition of skills increases the propensity to emigrate. This can be measured in terms of income per capita. Some authors (Bhagwati & Hamada, 1974, 1982) have observed that as most skilled workers tend to be the largest contributors as taxpayers, the absence of them has adverse consequences for redistribution to lower layers of society. Traditionally, it has been assumed that the native country does not receive compensation for the cost of having invested resources in the skills acquisition (in the form of human capital) in the emigrant.

CHILD LABOUR AND GLOBALISATION The relationship between globalisation and child labour is evident in developing countries (Chaudhuri, 2011; Estevan & Baland, 2007). With lax labour policies and abundant unskilled labour in these countries, employers often prefer child labourers because they are cheaper than adults and nonwage benefits such as pensions and health insurance are almost non-existent (Dwibedi & Chaudhuri, 2010; Neumayera & Soysaa, 2005; Palley, 2002). Child labour can, therefore, reduce costs, making a country less expensive and more attractive to potential foreign investors (Palley, 2002; Rodrik, 1996). The ILO estimates that 306 million or 19 per cent of all children between 5 and 17 years of age were economically active in the year 2008 (Diallo,

36

MARIA ALEJANDRA GONZALEZ-PEREZ

Hagemann, Etienne, Gurbuzer, & Mehran, 2010). The majority of these children are working in activities that are likely to harm their health, safety and moral development. Most of these children live in developing countries, and the vast majority of them in South Asia and sub-Saharan Africa. The ILO14 has identified the elimination of child labour as an essential element in the pursuit of universal social justice. It is almost universally agreed that child labour is an unacceptable practice, and currently most of the labour agreements, both voluntary and regulated, include provisions for the radical and systematic abolition of child labour.

CHALLENGES FOR WOMEN The literature shows that the major victims of globalisation have been women and unskilled manual workers (Moghadam, 1999; Neumayer & Soysa, 2011). Ronald Oaxaca (1973) argues that culture, tradition and overt discrimination are part of the social structures which perpetuate the unfavourable occupational distribution of female labour in relation to males and also create and sustain gender pay gaps. Disparity in the resources and opportunities available to men and women is a worldwide phenomenon, although it is most rampant in developing countries. This has an early explanation in childhood because boys consistently receive a larger share of education and health spending than girls. Consequently, girls in many developing countries obtain limited education and training and poor health and social services. As a result, women have fewer employment opportunities, especially in the formal sector. Additionally women who work outside the home often also bear a disproportionate share of the responsibility for household chores and childrearing (GenderStats, 2012). Some authors (Moghadam, 1999; Sassen, 1998; Standing, 1999) argue for the existence of a relationship between globalisation and the feminisation of wage labour. The increasing importance of foreign direct investment and openness to trade induces developing countries to keep labour cost low. A female labour force is often cheaper than a comparable male one. The concept of feminisation of labour has two meanings. The first meaning concerns the increased participation of women in the world labour market and access to occupations which were traditionally reserved for men. The second is the tendency towards precarious working conditions historically associated with women – low pay, low security, irregular hours – which affects both men and women. In the second sense the concept of feminisation

Critical Perspectives on Globalisation and International Business

37

of labour has a pejorative connotation (Moghadam, 1999; Standing, 1999) and is associated with the low road.

CONSEQUENCES OF GLOBALISATION BEYOND THE WORKPLACE Cultural Imperialism Critical theorists (Downing, Mohammadi, & Sreberny-Mohammadi, 1995; Mohammadi, 1995; White, 2001) have argued that colonisation is not just appropriation of places but also establishing control of people’s minds through the imposition of culture. The imposition of values, worldview, lifestyles, music, TV, films and the ideology of consumerism describe the dominance of US culture (Downing et al., 1995). Another sub-type of cultural imperialism is linguistic imperialism. The supremacy of the English language as a global language is characterised by a ‘continuous reconstitution of structural and cultural inequalities between English and other languages’, through social structures  institutions, financial allocations and ideologies (Phillipson, 1998, p. 104). The use of English as a global language can marginalise a population whose first language is not English and leads to the cultural hegemony of native English speaking populations (Phillipson, 1998). Another of the arguments against the uncontrolled spread of global languages (such as English and Spanish) is the regular occurrence of the ‘linguicide’15 of minority languages and the associated effects of lost cultural and religious heritage. Another sociological phenomenon associated with globalisation is the process of cultural assimilation, which envisages full incorporation of ethnic minorities into the society and state through a process of individual change in which individuals abandon their distinctive linguistic, cultural and social characteristics and take on those of the dominant group (Leung et al., 2005; Rumbaut, 1997). This assimilation is mainly associated with immigrants and their descendants (Alba & Nee, 1997). Environmental Damage The consequences of globalisation on the environment vary depending on the particular commodity and geographical area of production (Donaghy, 2012). However, significant trade-related environmental impacts

38

MARIA ALEJANDRA GONZALEZ-PEREZ

include: expansion of agricultural land, intensification of production, pressure on natural resources (e.g. soil and water), and changes in agricultural habitats (IEEP & GHK, 2005). The environmental concerns associated with globalisation are extensive. They include: reduction of biodiversity, artificial modification of species and habitats, human overpopulation, trade of ‘improved’ seeds, impacts from transportation and shipping activity, the AIDS pandemic, water and air pollution, waste management, biotechnology and genetic engineering and property rights. These issues are on the agendas of environmentalists and other activists, policy makers, the media and researchers. Before the industrial revolution, most greenhouse gases were of natural origin and the human population had no control over them (Guttman, 1994). However, the last half century has experienced unprecedented, large-scale anthropogenic alterations to natural biophysical systems,16 the consequences of accelerating changes in demographics, economic activities, and social and political relations (McMichael et al., 1999). These discussions reflect the increasing level of fear associated with the lack of certainty about the magnitude of these drastic changes and the risk associated with it. Furthermore, ever-increasing human consumption, exploitation of resources, waste disposal problems, and other features of export-oriented production, such as global transportation activity, are common bases for arguments asserting that economic globalisation is intrinsically harmful to the environment (IFG, 2002). The relationship between trade and the environment is very complex; it requires a broad understanding of the range of variables. Kahuthu (2006) uses data from 84 countries at different stages of development, covering the period 19602000. He finds a significant relation between income per capita and CO2 emissions, indicating that economic growth leads to environmental degradation. His study also indicates that, in the case of CO2 emissions and forest cover change, there is a direct association between the rate of country’s integration into international markets and deterioration of its environment. The environmental consequences of liberalised trade have been extensively discussed by environmentalists and trade policy makers (Copeland & Taylor, 2005; Panayotou, 1997; Ribot, 2006). It cannot be denied that economic growth has an interdependent relationship with the environment, since production and consumption processes are embedded in the environment. Since the 1950s, environmental theories have suggested that environmental problems with cross-border implications, such as acidification, destruction of stratospheric ozone and global warming require supranational cooperation

Critical Perspectives on Globalisation and International Business

39

and international agreements (Barrett, 1994; Bratberg, Tjøtta, & Øines, 2005; Copeland & Taylor, 2005; Frankel, 1993; Hoel & Schneider, 1997; Panayotou, 1997). The limitations of international environmental agreements (IEAs) have been generally attributed to the free rider problem. This makes it difficult to trade-off between economic growth and environmental quality (Frankel, 1993; Hoel & Schneider, 1997; Stern, Common, & Barbier, 1994).17

Unfair Trade This sub-section of the chapter focuses on the consequences of globalisation for trade. At one pole of the debate are academics (e.g. Dollar & Kraay, 2002) and organisations and policy makers such as the World Bank and the IMF who argue that open markets, fiscal discipline and other liberal economic policies raise income of all the members of the society. At the other pole of the debate are those (e.g. Drakakis-Smith, 1996; Watkins, 2002; Weller, Scott, & Hersh, 2001) who argue that potential benefits of economic growth especially for the poor are undermined or counterbalanced by increases in inequality that accompany economic growth. Stiglitz (2002, p. xv) has argued that the ‘hypocritical policies’ of advanced industrial countries in relation to trade openness undermine the potential benefits of trade. While promoting trade openness for the rest of the world, advanced industrial countries have maintained protectionist policies for their own producers, most notably to protect the interests of farmers. This explains the discussions over agricultural subsidies in the international arena. The issue of agricultural subsidies is very complex. In the WTO meeting in Cancun in September 2003 it was proposed that the European Union, the United States and other industrialised countries remove agricultural subsidiaries in order to alleviate world poverty and make competition fairer. This proposal has been seen by environmental groups and other opponents of free trade in the developed world as detrimental to the functions that agriculture has in ensuring food security, cultural, environmental and social values. Regions (and nations) dependant on few goods are vulnerable to shifts in prices and technological changes (Dornan, 2002). Also, trade can be impeded or facilitated by fluctuations in currency exchange rates. Participation in free trade agreements is not necessarily free of costs, since trade agreements have tacit or explicit coercive distributional threats, set by the most powerful participant(s). Consequently poor nations’ well-being (military protection,

40

MARIA ALEJANDRA GONZALEZ-PEREZ

food and energy supply, technological progress, economic infrastructure, etc.) depend substantially on other, economically powerful nations. Trade liberalisation leads to import competition, and to growing use of the threat to move production to lower-wage locations, thereby depressing wages and jeopardising living standards. Also, deregulated international financial markets have led to short term capital flows; and at the same time constrain and limit the capacity of governments to control and contain crises. Moreover, economic disruption disproportionately harms the poor and aggravates income inequality.

PERCEIVED DECLINE IN STATE INFLUENCE Linda Weiss (1997, 1998) claims that since the 1990s the world and the social sciences are experiencing a phenomenon of ‘state denial’. This is expressed in theses and arguments that perceive a diminution or displacement of states as powerful actors in both the domestic and international spheres. Globalist authors argue that since globalisation is not tied to a defined geographical space, it threatens nation-state sovereignty. Those who define the globalised economy as stateless corporations, borderless finance, footloose technology and cross-border flows of people and products without historical precedent have assumed that national governments are powerless in the face of transnational capital. On this position, the global economy is composed of just transnational capital and markets; therefore the capacity and relevance of national governments is undermined (Weiss, 1998), forcing states to adopt similar economic, social policy and low-taxing regimes (Weiss, 1997). However, for transformationalists, globalisation does not necessarily represent a decline in the influence of the nation-state but implies the networking of its social functions in its jurisdiction, a negotiation of its share in the ‘international sphere’ and the allocation of resources locally and globally for the purpose of legitimising the belief that it represents the interests of its citizens. In other words, globalisation challenges the nation-state in its role as citizens’ interests’ representative, with its governance entering in competition with the global system and its other forms of representation for civil society. Some authors (Matten & Crane, 2005) argue that there is an erosion of governmental roles in liberal citizenship. This is increasingly manifested in liberalised societies, dominated by corporations with government actors replaced by corporate actors. It is expressed in the form of corporate involvement in social rights via

Critical Perspectives on Globalisation and International Business

41

community projects, privatisation of public services, and definition of civil rights to the corporation’s benefit. Castells (1996) introduces the term ‘network state’ (Castells, 1996, p. 5) to explain a new political form of the ‘information age’, in which governance depends on the interaction between nation states, local and regional government, NGOs and supranational structures. In the 1990s nation-states were transformed from sovereign subjects into strategic actors (Castells, 1997). For example, the creation of the WTO in 1994 and previously the General Agreement on Tariff and Trade (GATT) were designed to ensure that trade flows in a predictable and smooth manner by negotiating global trade rules between nations. Reduction of state ownership has been accomplished through privatisation. The effect on the market capitalisation and trading volume of stock markets around the world has been enormous since 1981 when privatisation by public share offerings began to be pursued actively (Megginson, Price, & Netter, 1998). The decline of state influence is a contested argument in the debate on globalisation. On one side, there are those who argue an integrated global economy with unprecedented mobility of FDI, financial capital, people, goods and services, in which power is held by markets and transnational capital, and therefore states have restricted influence. On the other side are those who argue that nation-states play a critical role since national institutional frameworks dictate the factors that underpin economic growth. Weiss (1997, 1998) summarises the second perspective arguing that if cost-reduction was the driving force behind this so-called ‘unprecedented mobility’, then we could expect to see all FDI moving to low-cost developing countries but this is not the case. Hence, competitive advantage remains framed within national structures more than ever because of the cost of technological innovation and upgrade and attraction and development of knowledge-intensive labour; the increasing importance of physical proximity between producers and supplies; and the inter-dependency of domestic links and social networks (Porter & Kramer, 2002; Weiss, 1997, 1998).

ACKNOWLEDGEMENT Author would like to thank feedback received by reviewers and by Prof. Dr. Terrence McDonough at the National University of Ireland, Galway.

42

MARIA ALEJANDRA GONZALEZ-PEREZ

NOTES 1. ‘Modernity refers to modes of social life or organisation which emerged in Europe from about the seventeenth century onwards and which subsequently became more or less worldwide in their influence’ (Giddens, 1990, p. 1). 2. When reference is made to countries in the North, this usually refers to advanced industrial countries, or OECD members, as opposed to ‘developing countries’. 3. Opponents of the Dependency Theory have argued that underdevelopment in the Third World is mainly a consequence of internal factors. Dependency Theory will be briefly discussed in the section on globalisation and foreign economic intervention. 4. Banana quotas are limits that some European countries impose on the importing of banana from countries other than their former colonies. 5. For Stiglitz (2002) globalisation is a process partially driven by forces manipulated by the interests of supranational institutions such as the IMF, WTO and the World Bank. 6. The New International Division of Labour (NIDL) argues that in capitalist systems production is fragmented through specialisation of tasks and different phases of the industrial process are dispersed to peripheral regions in order to provide ‘the most profitable combination of capital and labour’ (Fro¨bel, Heinrichs, & Kreye, 1980, p. 14). 7. The main proponents of the Dependency Theory are Prebisch (1979), Frank (1977), and Cardoso and Faletto (1971), Immanuel Wallerstein, who defined the theory of ‘world systems’, and Amin (1976). 8. Increasingly managers and other ‘observers’ have access to technologies and statistics in order to measure and compare their practices against their own performance and to benchmark them with their competitors. 9. The ‘race to the bottom’ implies a downward pressure on labour standards, which is particularly evident in countries with the most stringent standards. This discussion has taken place in the literature on labour, social, environmental issues, policy advocacy and grassroots activism in reference to social and environmental dumping. 10. Budros (1997, p. 230) defines downsizing as the conscious use of permanent reduction of personnel with the objective to improve effectiveness and/or efficiency. 11. The ‘Big Three’ in the automobile industry (General Motors, Ford and Chrysler) led the use of downsizing to increase productivity, and then other nonindustrial firms followed the model. 12. The Irish Social Partnership is a unique scheme in the European Union of a set of three frameworks of agreement since 1987 on workplace partnership between the state, the trade union movement and employers to spread consensus-based involvement within firms and workplaces. The economic boom in Ireland known as ‘Celtic Tiger’ has been at least in part attributed to this Social Partnership. Roche (2007) summarised positions in relation to it, and he found that although some US scholars (McKersie, 1996; Sabel, 1996) have a positive prognosis of the Irish model, some Irish researchers (D’Art & Turner, 2002; Gunnigle, 1997; O’Dowd, 2006; Roche & Geary, 2000; Williams, Blackwell, Gorby, O’Connell, & Russell, 2004) have expressed scepticism.

Critical Perspectives on Globalisation and International Business

43

13. Polarisation is defined by Castells (2000) as a specific process of inequality which occurs when both the bottom and the top of the income scale grows faster than the middle. Thus, the middle shrinks, maximising social differences between the two segments. 14. The Minimum Age Convention (No. 138) was adopted in 1973 and complemented by the Worst Forms of Child Labour Convention (No. 182), which was unanimously adopted by ILO member states in June 1999. This Convention provides that the minimum working age should be not less than the age for completing compulsory schooling and in no event less than 15 (14 in limited circumstances in less-developed countries). The Worst Forms of Child Labour Convention calls for a proactive strategy to achieve the elimination of child slavery, forced or compulsory labour, child prostitution, pornography, drug trafficking or other work which is likely to harm the health, safety or morals of children. 15. The word linguicide was used by Cobarrubias (1983) in his taxonomy of attitudes towards minority languages to denote ‘attempting to kill a language’ and ‘letting a language die’. 16. McMichael et al. (1999) identifies biodiversity, the climate system, stratospheric ozone, food-producing ecosystems – both terrestrial and marine – and the cycles of sulphur, nitrogen and water as the Earth’s most prominent natural biophysical systems. 17. Copeland and Taylor (2005) assert that without universal participation, IEAs will be undermined by the free rider problem, since countries that do not sign the treaty increase emissions in response to the cutbacks of others.

REFERENCES Alba, R., & Nee, V. (1997). Rethinking assimilation theory for a new era of immigration. International Migration Review, 31(4), 826–874. Amin, S. (1976). Unequal development: An essay on the social formations of peripheral capitalism. New York, NY: Monthly Review Press. Amin, S., & Houtart, F. (Eds.). (2003). Globalizacio´n de las resistencias: El estado de las luchas. Barcelona: Ca´ritas Espan˜ola Editores. Angotti, T. (1981). The political implications of dependency theory. Latin American Perspectives, 8(3/4), 124–137. Anto´n, A. (2000). Crisis del trabajo y ciudadanı´ a social. In A. Anto´n, C. Vaquero, A. Rodrı´ guez, A. Abalde & M. J. An˜o´n (Eds.), (pp. 192–291). Madrid: Talasa Ediciones. Baldwin-Edwards, M., & Arango, J. (1999). Immigrants and the informal economy in Southern Europe. London: Frand Cass & Co. Barrett, S. (1994). Self-enforcing international environmental agreements. Oxford Economic Paper, 46, 878–894. Beiser, M., & Hou, F. (2000). Gender differences in language acquisition and employment consequences among Southeast Asian Refugees in Canada. Canadian Public Policy, 26(3), 311–330. Berry, D., & Bell, M. P. (2012). Inequality in organizations: Stereotyping, discrimination, and labor law exclusions. Equality, Diversity and Inclusion: An International Journal, 31(3), 236–248.

44

MARIA ALEJANDRA GONZALEZ-PEREZ

Bhagwati, J., & Hamada, K. (1974). The brain drain, international integration of markets for professionals and unemployment: A theoretical analysis. Journal of Development Economics, 1(1), 19–42. Bhagwati, J., & Hamada, K. (1982). Tax policy in the presence of emigration. Journal of Public Economics, 18(3), 291–317. Borensztein, E., Gregorio, J. D., & Lee, J.-W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45, 115–135. Borjas, G., Freeman, R., & Lawrence, K. (1996). Searching for the effects of immigration on the labour market. NBER Working Paper No. 5454. National Bureau of Economic Research. Available at http://www.nber.org/papers/w5454 Brady, D., & Wallace, M. (2000). Spatialization, foreign direct investment, and labour outcomes in the American States, 1978–1996. Social Forces, 79(1), 67–105. Bratberg, E., Tjøtta, S., & Øines, T. (2005). Do voluntary international environmental agreements work? Journal of Environmental Economics and Management, 50, 583–597. Brenner, N. (1999). Beyond state-centrism? Space, territoriality, and geographical scale in globalization studies. Theory and Society, 28(1), 39–78. Brewer, A. (1990). Marxist theories of imperialism. London: Routledge. Buckley, P., & Ghauri, P. (2004). Globalisation, economic geography and the strategy of multinational enterprises. Journal of International Business Studies (35), 81–98. Budros, A. (1997). The new capitalism and organizational rationality: The adoption of downsizing programs, 1979–1994. Social Forces, 76(1), 229–249. Butcher, K., & Dinardo, J. (1998). The immigrant and nativo-born wage distributions: Evidence from the United States censuses. NBER Working Paper No. 6630. National Bureau of Economic Research. Available at http://www.nber.org/papers/w6630 Cardoso, F. H., & Faletto, E. (1971). Desarrollo y Dependencia en Ame´rica Latina. Buenos Aires: Editorial Siglo Veintiuno S.A. Casillas, J., Moreno, A., & Acedo, F. J. (2012). Path dependence view of export behaviour: A relationship between static patterns and dynamic configurations. International Business Review, 21(3), 465–479. Castells, M. (1983). The city and the grassroots. Berkeley, CA: University of California Press. Castells, M. (1996). The rise of the network society: The information age: Rise of the network society. Cambridge, MA: Blackwell Publishing. Castells, M. (1997). The power of identity: The information age – Economy, society and culture (Vol. 2). Cambridge, MA: Blackwell. Castells, M. (1999). Information technology, globalization and social development. UNRISD Discussion Papers, United Nations Research Institute for Social Development (UNRISD). Retrieved from http://menntun.khi.is/sigurjon/IT%20Global%20CASTELLS.pdf Castells, M. (2000). The contours of the network society. Foresight – The Journal of Future Studies, Strategic Thinking and Policy, 2(2), 151–157. Chaudhuri, S. (2011). Labor market reform and incidence of child labor in a developing economy. Economic Modelling, 28(4), 1923–1930. Chiswick, B. (1992). Immigration, language and ethnicity. Washington, DC: AEI Press. Cobarrubias, J. (1983). Ethical issues in languge planning. In J. Cobarrubias & J. A. Fishman (Eds.), Progress in language planning: International perspectives (pp. 41–85). Berlin: Mouton de Gruyter.

Critical Perspectives on Globalisation and International Business

45

Cobb-Clark, D. (1993). Immigrant selectivity and wages: The evidence for women. American Economy Review, 83(4), 986–993. Cochrane, A., & Pain, K. (2002). A globalizing society? In D. Held (Ed.), A globalizing world? Culture, economics, politics (pp. 5–46). London: Routledge. Compa, L. (2001). Workers’ right in the global economy. Perspectives on Work, 5(1), 10–12. Copeland, B. R., & Taylor, M. S. (2005). Free trade and global warming: A trade theory view of the Kyoto protocol. Journal of Environmental Economics and Management, 49, 205–234. Cox, R. W. (2005). Global Perestroika. In R. Wilkinson (Ed.), The global governance reader (pp. 140–155). London: Routledge. D’Art, D., & Turner, T. (2002). Corporatism in Ireland: A view from below. In D. D’Art & T. Turner (Eds.), Irish employment relations in the new economy (pp. 259–274). Dublin: Blackhall Publishing. Diallo, Y., Hagemann, F., Etienne, A., Gurbuzer, Y., & Mehran, F. (2010). Global child labour developments: Measuring trends from 2004 to 2008. Geneva: International Labour Organisation. Dicken, P. (1998). Global shift: Transforming the world economy. London: Paul Chapman. Dollar, D., & Kraay, A. (2002). Growth is good for the poor. Journal of Economic Growth, 7, 195–225. Dornan, J. (2002). Trade, TNCs and development: Running faster to stand still. In C. Regan (Ed.), 80:20 Development in an unequal world (pp. 221–236). Bray, Co Wicklow, Ireland: 80:20 Educating and Acting for a Better World and Teachers in Development Education. Downing, J., Mohammadi, A., & Sreberny-Mohammadi, A. (Eds.). (1995). Questioning the media: A critical introduction. London: Sage. Drakakis-Smith, D. (1996). Less developed economies and dependence. In P. W. Daniels & W. Lever (Eds.), The global economy in transition (pp. 215–238). Essex: Addison Wesley Longman Limited. Drogendijk, R., & Andersson, U. (in press). Relationship development in Greenfield expansions. International Business Review. Dustmann, C. (1999). Temporary migration, human capital, and language fluency of migrants. Scandinavian Journal of Economics, 101(2), 297–314. Estevan, F., & Baland, J.-M. (2007). Mortality risks, education and child labor. Journal of Development Economics, 84(1), 118–137. Florida, R., & Kenney, M. (1991). The globalization of Japanese R&D: The economic geography of Japanese R&D investment in the United States. Economic Geography, 70(4), 344–369. Florini, A. M., & Simmons, P. J. (2000). What the world needs now? In A. M. Florini (Ed.), The third force: The rise of transnational civil society. Washington, DC: Carnegie Endowment for International Peace. Frank, A. G. (1977). Dependence is dead, long live dependence and the class struggle: An answer to critics. World Development, 5(4), 355–370. Frank, A. G., Cockroft, J., & Johnson, D. (1972). Dependence and underdevelopment: Latin America’s political economy. Garden City, NY: Anchor Books. Freeman, R. B. (1998). War of the models: Which labour market institutions for the 21st Century? Labor Economics, 5, 1–24. Fro¨bel, F., Heinrichs, J., & Kreye, O. (Eds.). (1980). The new international division of labour. Cambridge: Cambridge University Press.

46

MARIA ALEJANDRA GONZALEZ-PEREZ

Galbraith, J. K. (1992). The culture of contentment. London: Sinclair-Stevenson. Galbraith, J. K. (2001). Inequality and industrial change: A global view. Cambridge: Cambridge University Press. GenderStats. (2012). Gender equality statistics. Retrieved from http://datatopics.worldbank. org/gender/ Giddens, A. (1990). The consequences of modernity. Cambridge: Polity Press. Giddens, A. (1999). Runaway world: How globalization is haping our lives. London: Profile Books. Gordon, D. M. (1988). The global economy: New edifice or crumbling foundations? New Left Review, 168, 24–64. Gunnigle, P. (1997). More rhetoric than reality: Enterprise-level industrial relations partnership in Ireland. Economic and Social Review, 28(4), 179–200. Guttman, A. (1994). Games and empires: Modern sports and cultural imperialism. New York: Columbia University Press. Hancock, G. (1989). Lords of poverty: The power, prestige, and corruption of the international aid business. New York, NY: Atlantic Monthly Press. Held, D. (Ed.). (2002). A globalizing world? Culture, economics, politics. London: Routledge. Held, D., Goldblatt, D., & Perraton, J. (1999). Global transformations: Politics, economics, culture. Cambridge: Polity Press. Hernandez-Leon, R., & Zun˜iga, V. (2000). Market carpet by the mile: The emergence of a Mexican immigrant community in an industrial region of the U.S. historic south. Social Science Quarterly, 81(1), 49–66. Hirst, P., & Thompson, G. (1996). Globalization in question: The international economy and the possibilities of governance (2nd edn.). London: Polity Press. Hirst, P., & Thompson, G. (2000). Globalization – A necessary myth? In D. Held & A. McGrew (Eds.), The global transformations reader: An introduction to the globalization debate (pp. 68–75). Malden, MA: Polity Press. Hoel, M., & Schneider, K. (1997). Incentives to participate in an international environmental agreement. Environmental and Resource Economics, 9, 153–170. Hoffmann, J., Hoffmann, R., Kirton-Darling, J., & Rampeltshammer, L. (2002). Literature review on the Europeanisation of industrial relations in a global perspective. Dublin: European Foundation for the Improvement of Living and Working Conditions; Office for Official Publications of the European Communities. Hollifield, J. F. (1992). Immigrant markers, and states: The political economy of post-war Europe. Boston, MA: Harvard University Press. Hood, N., & Young, S. (2000). Globalisation, economic geography and the strategy of multinational enterprises. New York, NY: McMillan Press. Hyman, R. (2001). The Europeanisation – or the erosion – of industrial relations? Industrial Relations Journal, 32(4), 280–294. IEEP & GHK. (2005). The environmental impacts of trade liberalisation and potential flanking measures. Institute for European Environmental Policy (IEEP). Retrieved from http:// www.ieep.eu/publications/2005/04/the-environmental-impacts-of-trade-liberalisationand-potential-flanking-measures-part-one IFG (International Forum on Globalization). (International Forum on Globalization). Alternatives to economic globalization: A better world is possible, a report of the international forum on globalization. In J. Cavanagh, J. Mander, S. Anderson, D. Baker, M. Barlow, W. Bello, R. Broad, T. Clarke, E. Goldsmith, R. Hayes, C. Hines, A. Kimbrell,

Critical Perspectives on Globalisation and International Business

47

D. Korten, H. Norberg-Hodge, S. Larrain, S. Retallack, V. Shiva, V. Tauli-Corpuz & L. Wallach (Eds.), Publishers, Inc (p. 268). San Francisco, CA: Berrett-Koehler. IOM (International Organisation for Migrations). (2011). World migration report. Retrieved from http://www.iom.int Jacobson, D. (1998). Shared governance and globalization. Paper presented at the Negotiated Economic and Social Governance and European Integration, COST A7. Jalette, P., & Warrian, P. (2002). Contracting-out provisions in Canadian collective agreements: A moving target. Workplace Gazette, 5(1), 64–76. Kahuthu, A. (2006). Economic growth and environmental degradation in a global context. Environment, Development and Sustainability, 8(1), 55–68. Kali, R., & Reyes, J. (2007). The architecture of globalization: A network approach to international economic integration. Journal of International Business Studies, 38, 595–620. Kelly, B., & Prokhovnik, R. (2002). Economic globalization? In D. Held (Ed.), A globalizing world? Culture, economics, politics (pp. 85–126). London: Routledge. Keohane, R., & Nye, J. S. (2000). Globalization: What’s new? What’s not? (and so what?). Foreign Policy, 118, 104–119. Korzeniewicz, R. P., & Smith, W. C. (2000). Poverty, inequality, and growth in Latin America: Searching for the high road to globalization. Latin American Research Review, 35(3), 7–54. Kumar, S., & Liu, D. (2005). Impact of globalisation on entrepreneurial enterprises in the world markets. International Journal of Management and Enterprise Development, 2(1), 46–64. Lamphere, L. (1994). Newcomers in the workplace: Immigrants and restructuring of the U.S. economy. New York, NY: Temple University. Leung, K., Bhagat, R. S., Buchan, N. R., Erez, M., & Gibson, C. B. (2005). Culture and international business: Recent advances and their implications for future research. Journal of International Business Studies, 36(4), 357–378. Levitt, T. (1983). The globalization of markets. Harvard Business Review, 2–11. Liesch, P., Buckley, P., Simonin, B. L., & Knight, G. (2012). Organizing the modern firm in the worldwide market for market transactions. Management International Review, 52(1), 3–21. Lipsey, R. E. (2002). Home and host country effects of FDI. Cambridge, MA: National Bureau of Economic Research (NBER). Litvin, D. (2003). Empires of profit: Commerce, conquest and corporate responsibility. New York, NY: Texere. Lopez-Garza, M., & Diaz, D. (2001). Asian and Latino immigrants in a restructuring economy: The metamorphosis of Southern California. San Francisco, CA: Standford University Press. Mackay, H. (2002). The globalization of culture? In D. Held (Ed.), A globalizing world? Culture, economics, politics (pp. 47–86). London: Routledge. Marler, J., Kaufman, B., Festing, M., & Liang, X. (2012). Comparative strategic human resource management: Advances in understanding the effects of globalization and localization. Perspectives, 26(4). Massey, D. (1999). Imagining globalization: Power-geometries of time-space. In A. Brah, M. J. Hickman & M. M. a. Ghaill (Eds.), Global futures: Migration, environment and globalization (pp. 27–44). New York: Macmillan Press. Matten, D., & Crane, A. (2005). Corporate citizenship: Towards an extented theoretical conceptualization. Academy of Management Review, 30(1), 166–179.

48

MARIA ALEJANDRA GONZALEZ-PEREZ

Mazlish, B. (2005). The Hi-jacking of global society? An essay. Journal of Civil Society, 1(1), 5–18. McGrew, A. (2002). Power shift: from national governmeny to global governance? In D. Held (Ed.), A globalizing world? Culture, economics, politics (pp. 47–86). London: Routledge. McKersie, R. (1996). Labour-management partnerships: US evidence and implications for Ireland. Journal of Irish Business and Administrative Research, 17, 1–13. McLuhan, M. (1962). The Gutenberg galaxy: The making of typographic man. Toronto: University of Toronto Press. McMichael, A. J., Bolin, B., Constanza, R., Daily, G. C., Folke, C., Lindahl-Kiessling, K., & Niklasson, B. (1999). Globalization and the sustainability of human health. BioScience, 49(3), 205–210. Megginson, W. L., Price, M. F., & Netter, J. M. (1998). A survey on empirical studies on privatization. Paper presented at the Global Equity Markets, Le Grand Hotel InterContinental, Paris, France. Retrieved from http://www.feem.it/NR/rdonlyres/ 49EFBA01-0C9E-4E41-96F7-B81215C95DB8/579/0199.pdf Mesenbourg, T. L. (1999). Measuring electronic business. Retrieved from http://www.census. gov/eos/www/papers/msrebus.pdf Milkman, R. (2000). Organizing immigrants: The Challenge for unions in contemporary California. Ithaca, NY: Cornell University Press. Mittelman, J. H. (1996). The dynamics of globalization. In J. H. Mittelman (Ed.), Globalization: Critical reflections (pp. 1–19). Boulder, CO: Lynne Rienner Publisher. Moghadam, V. M. (1999). Gender and globalization: Female labor and women mobilization. Journal of World-Systems Research, 2(3), 67–388. Mohammadi, A. (1995). Cultural imperialism and cultural identity. In J. Downing, A. Mohammadi & A. Sreberny-Mohammadi (Eds.), Questioning the media: A critical introduction (pp. 362–378). London: Sage. Moran, T. H. (1998). Foreign direct investment and development: The new policy agenda for developing countries and economies in transition. Washington: Peter G. Peterson Institute for International Economics. Neumayera, E., & Soysaa, I. d. (2005). Trade openness, foreign direct investment and child labor. World Development, 33(1), 43–63. Neumayer, E., & Soysa, I. (2011). Globalization and the empowerment of women: An analysis of spatial dependence via trade and foreign direct investment. World Development, 39(7), 1065–1075. Oaxaca, R. (1973). Male–female wage differentials in urban labor markets. International Economic Review, 14(3), 693–709. O’Brien, R. (1992). Global financial integration: The end of geography. Dunfermline, FIF, UK: Council on Foreign Relations Press. O’Dowd, J. (2006). Voluntary management-union partnerships in Ireland: A theoretical and empirical study. PhD, University College Dublin, Dublin. Palley, T. I. (2002). The child labor problem and the need for international labor standards. Journal of Economic Issues, 35, 601–615. Panayotou, T. (1997). Demystifying the environmental Kuznets curve: Turning a black box into a policy tool. Environment and Development Economics, 2, 465–484. Pauly, L. S., & Reich, S. (1997). National structures and multinational corporate behavior: Enduring differences in the age of globalization. International Organization, 51(91), 1–30.

Critical Perspectives on Globalisation and International Business

49

Peng, M. V., Denis, Y. L., Wang, D. Y. L., & Jiang, Y. (2008). Journal of an institution-based view of international business strategy: A focus on emerging economies. International Business Studies, 39, 920–936. Phillipson, R. (1998). Globalizing english: Are linguistic human rights and alternative to linguistic imperialism? Language Sciences, 20(1), 101–112. Porter, M. E., & Kramer, M. R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review, 80(12), 56–68. Potterie, B. v. P. d. l., & Lichtenberg, F. (2001). Does foreign direct investment transfer technology across borders? The Review of Economics and Statistics, 83(3), 490–497. Prasad, E. S., Rogoff, K., Wei, S.-J., & Kose, M. A. (2003). Effects of financial globalization on developing countries: Some empirical evidence. Occasional Paper (Vol. 220). Washington DC: International Monetary Fund. Prebisch, R. (1979). Change and development – Latin America’s great task. Washington: Interamerican Development Bank. Radice, H. (2000). Responses to globalisation: A critique of progressive nationalism. New Political Economy, 5(1), 2000. Reitz, J. G. (1998). Warmth of the welcome: The social causes of economic success in different nations and cities. Boulder, CO: Westview Press. Ribot, J. C. (2006). Choose democracy: Environmentalists’ socio-political responsibility. Global Environmental Change, 16, 115–119. Robinson, W. I. (1998). Beyond nation-state paradigms: Globalization, sociology, and the challenge of transnational studies. Sociological Forum, 13(4), 561–594. Roche, W. K. (2007). Social partnership and workplace regimes in Ireland. Industrial Relations Journal, 38(3), 188–209. Roche, W. K., & Geary, J. F. (2000). Collaborative production and the Irish boom: Work organization, partnership and direct involvement in Irish workplaces. Economic and Social Review, 31(1), 1–36. Rodrik, D. (1996). Understanding economic policy reform. Journal of Economic Literature, 34(1), 9–41. Rugman, A. M. (2009). The oxford handbook of international business. New York, NY: Oxford University Press. Rumbaut, R. G. (1997). Assimilation and its discontents: Between rhetoric and reality. International Migration Review, 31(4), 923–960. Sabel, C. (1996). Ireland: Local partnerships and social innovation. Paris: OECD. Stelcner, M. (2000). Earning differentials among ethnic groups in Canada: A review of the research. Review of Social Economy, 3(58), 295–317. Stern, D., Common, M. S., & Barbier, E. B. (1994). Economic growth and environmental degration: The environmental Kutznets curve and sustainable development. World Development, 24(7), 1151–1160. Sassen, S. (1998). Toward a feminist analytics of the global economy. Indiana Journal of Global Legal Studies, 4(1), 7–41. Shenkar, O. (2004). One more time: International business in a global economy. Journal of International Business Studies, 35, 161–171. Stahl, G., Chua, C. H., & Pablo, A. L. (2012). Does national context affect target firm employees’ trust in acquisitions? Management International Review, 52(3), 395–423. Standing, G. (1999). Global feminization through flexible labor: A theme revisited. World Development, 27(3), 583–602.

50

MARIA ALEJANDRA GONZALEZ-PEREZ

Stiglitz, J. E. (2002). Globalization and its discontents. London: Penguin Books Ltd. Stokke, O. (1995). Aid and political conditionality. London: Frank Cass. Tavares, J. (2003). Does foreign aid corrupt? Economics Letters, 79, 99–106. Taylor, R. (2002). Interpreting global civil society. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 13(4), 339–347. Tonguthai, P. (1995). Asian women in manufacturing: New challenges, old problems. In M. Simai (Ed.), Global employment: An international investigation into the future of work (Vol. 1, pp. 167–181). Tokyo: United Nations University Press. Vos, K. J. (2004). Les relations industrielles en Europe centrale et orientale=Industrial relations in Central and Eastern Europe. Travail et emploi, 99, 52–62. Waldinger, R., & Lichter, M. (2003). How the other half works: Immigrationa and the social organization of labor. Los Angeles, CA: University of California Press. Watkins, K. (2002). Making globalization work for the poor. Finance & Development, 39(1). Weiss, L. (1997). Globalization and the myth of powerless state. New Left Review, 225, 3–27. Weiss, L. (1998). The myth of the powerless state: Governing the economy in a global era. Cambridge: Polity Press. Welford, R. (2002). Globalization, corporate social responsibility and human rights. Corporate Social Responsibility and Environmental Management, 9(1), 1–7. Weller, C. E., Scott, R. E., & Hersh, A. S. (2001). The unremarkable record of liberalized trade: After 20 years of global economic deregulation, poverty and inequality are as pervasive as ever. Briefing Papers. Economic Policy Institute. Washington, DC. Wells, M. J. (1996). Strawberry fields: Politics, class and work in California agriculture. Ithaca, NY: Cornell University Press. White, L. A. (2001). Reconsidering cultural imperialism theory. Transnational Broadcasting Studies (TBS) Journal, 6. Retrieved from www.tbsjournal.com/Archives/Spring01/ whiteef.html. Williams, J., Blackwell, S., Gorby, S., O’Connell, P., & Russell, H. (2004). The changing workplace: A survey of employers’ views and experiences. Dublin: National Centre for Partnership and Performance. Wood, R. E. (1989). From Marshall plan to debt crisis: Foreign aid and development choices in the world economy. Los Angeles CA: University of California Press. Yoon, Y.-K. (1990). The political economy of transition: Japanese foreign direct investments in the 1980s. World Politics, 43(1), 1–27. Zegers de Beijl, R. (1995). Labour market integration and legislative measures to combat discrimination against migrant workers. Geneva: International Labour Office.

AN ANALYSIS ON THE LINK BETWEEN EMERGING MARKETS MNES’ REPUTATION AND CORPORATE SOCIAL RESPONSIBILITY Alina Mihaela Dima and Simona Nicoleta Vasilache ABSTRACT Purpose of this chapter – The chapter analyzes the link between cultural factors, corporate reputation, and social responsibility, considering the case of emerging markets MNEs. Design/methodology/approach – On data provided by the Reputation Institute, applied to the cultural clusters of Europe, we analyze, using multivariate linear regression, whether the inclusion of cultural dimensions as femininity and hedonism has a significant influence on corporate reputation, as one tends to strengthen corporate social responsibility, while the other is more connected with customer focus. Findings – Our conclusions point to the fact that, despite its many cultural clusters, Europe should be regarded, from the point of view of

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 51–66 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012008

51

52

ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

multinationals, as a homogenous region, where one corporate social responsibility strategy may well suit all markets. Research limitations/implications – Including inside data from multinationals may be a sound continuation of the study. Practical implications – The chapter guides multinationals into using cultural indexes when assessing the impact of their actions on their reputation, as perceived by consumers. Social implications – The findings influence CSR, as a component of reputation, making corporations rethink their CSR policies in the light of culture-mediated perceptions. Originality/value of chapter – The chapter looks at reputation and CSR from a novel perspective, that of cultural factors, and their impact on consumer perception. Keywords: MNEs; emerging markets; corporate social responsibility; cultural differences

LITERATURE REVIEW We aim to determine, using multivariate linear regression, whether the inclusion of hedonism and femininity, as cultural dimensions, provides additional insights, as compared with performance orientation, in explaining the evaluation of MNEs’ reputation, in emerging markets. In the 21st century, emerging markets have become the main focus of MNEs around the globe, as they are a great source of opportunities for growth and expansion from a regional to a global level. The rapid pace of change suffered by these countries has not only shaped the economical climate, but their political and social environment as well by continuously bringing forth new challenges for the multinational players on the market. Major areas include high market volatility which triggers the need for higher financial flexibility, managing the increasing complexity of the organization’s operations and structure, succeeding in a highly competitive environment. These challenges have to be balanced with respect for cultural values, as well as with creating and maintaining a positive image through CSR actions. A thorough transaction cost analysis should be performed by MNEs for selecting the most appropriate method to enter such markets so as to be able

MNEs’ Reputation and Corporate Social Responsibility

53

to maximize their competitive advantages by integrating successfully their geographical advantages with their capabilities. While some prefer corporate governance based on ownership and autonomy for their subsidiaries, claiming that obtaining inside information and designing strategies highly adapted to the environment is the key to sustainable growth, others consider greater control as the key to minimizing risk and getting greater efficiency of operations. In either case, the issue of socially inserting in a new, emerging market, as a ‘‘corporate citizen,’’ not only as a business entity is, in our opinion, a challenge to be addressed. The two stakes – profitability and social responsiveness, are often at odds. While the entrance of MNEs on some developing markets may be regarded as economically advantageous – creating jobs and economic growth, it may also bring along associated community problems: for instance, regulations concerning industrial pollution are milder in these markets, and the MNE may apply different standards, as compared with its home country. On one hand, the MNE should manage the differences in terms of what ‘‘doing things right’’ may mean to different contexts (developed vs. developing markets), on the other hand, the community should perform a cost–benefit analysis of the MNE presence on the market. Obviously, there are differences depending on field of activity and social perception of the companies operating in each respective field. However, MNEs entering emerging markets have to deal with the prejudiced opinion that they are after ‘‘cheap money,’’ and less after sustainable development. The efficient strategies for balancing business competitiveness with community service and with a ‘‘clean’’ image in emerging markets are the focus of our contribution. They will be addressed both from the point of view of the companies which design them, taking a case-study approach, and as reflected in the community perception of their value and life span. As a consequence of globalization, and of the increased preoccupation of the multinational companies of assuring the sustainability of their global value chain (Cruz & Boehe, 2008), two tendencies appear: on one hand, due to the saturation of mature markets, multinationals relocate to emerging markets (Khanna, Palepu, & Sinha, 2005), or emergent markets multinationals expand to other regions of the world (Luo & Tung, 2007). Both trends pose significant challenges to discussions about performance, social responsibility, and coping with different cultural values. This tripartite frame, integrating organizational goals, societal needs and cultural pressures of the home and host countries constitute the context of our analysis. Rake and Grayson (2009) discuss the cultural challenges of the global environment, arguing for the need of a balanced approach, in management,

54

ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

between performance targets and socially accepted practices. As globalization advances, in their opinion there appears an erosion of trust between society and corporations. Thus, trust should be reenacted by timely and culturally fit corporate social responsibility practices. Other approaches (Buciuniene & Kazlauskaite, 2012) focus on the link between CSR and performance, mediated by the intervention of human resources, in an emergent economy, Lithuania. Their conclusions point to the fact that enhanced social responsibility leads to better performance outcomes. Organizations with better developed HRM, where HR plays a more strategic role and its performance is more carefully assessed, also have more developed formal CSR policies, which in turn have a positive impact on organizational and financial performance outcomes. While some practitioners, as Holme (2010), discuss the concept of CSR, subject to recalibration and reinvention, in a changing organizational and economic context, analyzing the switch from seeing CSR as a cost, to seeing it as a strategic investment, some other scholars (Gallego-A´lvarez, Garcı´ a-Sa´nchez, & Rodrı´ guez-Dominguez, 2010) outline the reciprocal influence between CSR and organizational progress, that is, innovation. Demands for innovation, in the R&D sector, put a pressure on CSR initiatives, often forcing companies to make a choice. The need for dynamic integration (Bratianu, Jianu, & Vasilache, 2011), reconciling strategic priorities, emerges. However, regarding the CSR matter in the light of convergence between the company’s objectives and the general good may be a trap (Quairel-Lanoizele´e, 2011). More likely, in competitive environments, as emergent markets tend to become, companies copy each other’s social responsibility actions, while the leaders set the new standards of socially desirable behavior. Peters, Miller, and Kusyk (2011) compare the practices of CSR in mature markets with those in emerging markets, considering the growing importance of these new markets in the global economy. The researchers draw attention to the fact that models in the mature, Western markets should not be imported tale quale, as emerging markets have different realities and needs to be addressed to. Barkemeyer (2011) draws attention to the divide between developed and developing markets, which perceive differently the link between CSR and sustainability. The so-called mainstream CSR agenda may overlook issues which are important for developing markets, as the ‘‘resource curse,’’ due to the foreign aid, or the deindustrialization risk, appearing as an effect of selling natural resources to more industrialized nations. According to Nkamnebe (2011), in emerging markets sustainability behavior should be seen as a strategic option, rather than as an option. Lack

MNEs’ Reputation and Corporate Social Responsibility

55

of stability in emerging markets (Kouznetsov, 2009) influences modes of entry of multinational companies, which tend to secure their future competitiveness. This may be obtained by aligning business purposes with societal demands (Lacy & Hayward, 2011), as well as with the nationalist feelings of the respective society, which may influence the acceptance of FDI, as a driver of internationalization (Jakobsen & Jakobsen, 2011). Cultural factors play a key role, as well, in establishing the link between social demands and multinational policies. Tobey and Pereira (2012) argue that cultural alignment is needed in order to ensure the acceptance of CSR practices, inside and outside the organization. Considering this challenge, that multinationals should take into account, our chapter tests the influence of cultural factors on MNE reputation, starting from the premise that although European subcultures are different, these differences do not significantly affect the way multinationals are perceived, across the European region. Thus, regional cohesion prevails over country differences. We use data from the Reputation Institute as to compare perceptions of reputation in Spain and Portugal (Latin cluster), on one hand, and in German and Netherlands (Germanic cluster) on the other. Using GLM multivariate modeling, we assess the significance of the cultural effects on reputation, then we employ a t-test statistic in order to see whether differences between the cultural groups considered are substantial or random. The conclusions point out that country-level cultural indexes, for the case of Europe, can be replaced by regional indexes, with no significant loss of accuracy. Ararat (2008) discusses CSR as a means to establish and preserve corporate reputation, under the pressure of societal requirements. The link between performance and reputation of MNEs is widely discussed in literature (Hennart, 2007; Koh, Lee, & Boo, 2009; Richard, Devinney, Yip, & Johnson, 2009). As performance is not easily assessed by customers, who do not usually have access to, or interest in, financial indicators (Streukens & de Ruyter, 2004), we use reputation as a proxy for performance. Reputation of MNEs is analyzed in literature in the light of transfer barriers from home market to host markets, or to the global market (Luo, 2001), claiming that there is a difference in reputation due to the liability of foreignness (Rugman & Verbeke, 2005; Schmidt & Sofka, 2009). The challenge for every organization is to transform passive knowledge into active knowledge and to transform individual, tacit knowledge into group, organizational knowledge (Mandruleanu & Ivanovici, 2008). Sometimes, company reputation is influenced by home country reputation, as well (Spencer & Gomez, 2011). This assumption points to the fact that there is more to reputation than economic activity. Cultural values influence MNEs’ reputation

56

ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

assessment by global consumers (Tarnovskaya & de Chernatony, 2011), as there is always a difference between prioritizing reputation components in different cultures. The main issue is where these cultural values belong. Are they global, regional, or local? As cultural indexes are created in an integration process, from particular to general, it is natural that lower complexity levels, like countries, are preferred (Hofstede & Hofstede, 2005; Magnani, 2009). However, regional cultural indexes (Brons, 2006) are taken into account as possibilities of achieving a cultural integration making it easier for multinationals to particularize their strategies not to every country, but to every region. Although Li and Li (2007), among others, advocate that reputation is highly countryspecific, we advance the possibility, grounded in quantitative analysis, to replace the country-level cultural indexes (Kashima & Kashima, 2003) by region-level cultural indexes, when discussing MNEs reputation perception. The components of MNE reputation, in the eyes of the consumers, include quality of products/services and innovativeness, or ability to attract/keep/ develop talented people (Stuebs & Sun, 2011). The reputation measures of the Reputation Institute further split the categories – concern for customer/ broad social concern, introducing a third category referring to leadership and organizational performance. Thus, performance is evaluated both directly and indirectly – as reflected in the quality of products and services and respectively, in the quality of the workplace. We take this three-component model of reputation, and investigate the possibility of linking reputation to regional values, rather than to country-level cultural values, taking Europe and one of its two cultural poles, Latin and Germanic, as a support for the analysis. While hierarchical linear modeling is quite commonly used in similar analyses of cultural values’ influence on corporate reputation (Yu & Cable, 2011), we use GLM multivariate linear modeling, claiming that both cultural values and reputation measures belong to the same level, originating in the opinions of individuals, which may be nested into countries, or regions, but may, as well, be not ranked, the individuals acting as global consumers.

METHODOLOGY We used secondary data from the Reputation Institute RepTrack Pulse Reports. The Reputation Institute survey includes 100,000 consumers in 41 countries, asked about the perceived reputation of 2,500 companies. Then, the 100 most reputable companies across 15 cultures representative

MNEs’ Reputation and Corporate Social Responsibility

57

for the regions of the triad (Europe: France, Germany, Italy, Russia, Spain, and United Kingdom; Asia Pacific: Australia, China, India, Japan, and South Korea; North America: United States and Canada; Latin America: Brazil and Mexico) were ranked by asking another 47,000 global consumers. The survey was, thus, conducted in two waves, the first during January– February 2011, the second in April 2011. The purpose of the survey is to reveal what matters most to consumers, in the global marketplace. We have selected a random subsample of 500 European consumers for the analysis. According to the Reputation Institute methodology for the 2011 RepTrack Pulse Reports, reputation depends on seven parameters, grouped in three factors: F1: Consumer experience (product/service and innovation) F2: Corporate enterprise (leadership and performance) F3: Corporate social responsibility (workplace, governance, and citizenship) These three items are the dependent variables of our analysis. The independent variables are: hedonism, feminism, and performance orientation. Hedonism is extracted from Schwartz’s value inventory (2006), while femininity is retrieved from the GLOBE study. If the additional two variables, besides the last one, taken into account in the GLOBE study (House, Hanges, Javidan, Dorfman, & Gupta, 2004), prove effective in explaining corporate reputation evaluation, across cultures, then MNEs will be more aware of what elements (F1 to F3) to improve to reduce the gap between home reputation and regional reputation, depending on the region. We define hedonism as enjoyment (Veenhoven, 2003), and consider it impactful on consumer behavior (de Mooij, 2010; Shaw, Burgess, de Mattos, & Stec, 2005). Femininity is defined as the extent to which social values are feminine (Kirkman, Lowe, & Gibson, 2006), that is, there exists a concern for the social enterprise (Scholtens & Dam, 2007). Thus, the three independent variables we have selected correspond, roughly, to the directions on which reputation is evaluated, in the Reputation Institute study. The Reputation Institute takes into account four broad regions, varying slightly from the classical triad: North America, Latin America, Asia-Pacific, and Europe. We limit our analysis to Europe, as its cultures are considered the most heterogeneous (Medrano, 2010), as compared to the other regions, and cultural indexes are presumably difficult to be replaced by regional indexes. We chose, on the one hand, the Spanish and Portuguese markets and, on the other, the German and Dutch markets, the choice being supported by the cultural dissimilarity, as well as by the economic development dissimilarity (Van Oudenhoven & Van der Zee, 2002). However,

58

ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

we hypothesize that the impact of these cultural disparities on reputation perception is not significant, MNE reputation being perceived rather similarly across Europe. Thus, strategies for improving reputation should focus on the region, not on the country culture. We summarize the considered hypotheses, as follows: H1. Cultural dimensions, as hedonism and femininity, introduce a significant effect on reputation perception, the model being better than the one considering performance orientation alone. H2. Cultural dimensions do not operate at the country level, but at the regional level. We use GLM multivariate linear regression on data for the entire Europe, in order to test whether there is a significant effect of including hedonism and femininity in the analysis on the perception of reputation, and t-test to examine differences among the two groups of cultures. The results of the analysis are presented in the next section.

RESULTS The between the subjects factors for the European region of the triad are presented in Table 1. The multivariate tests measure the contribution of the considered independent variables (effects), as well as of their interaction, to the model. Pillai’s trace indicates those variables contributing more to the model, as the greater the trace, the greater the contribution. Wilks’ lambda is a decreasing statistic, smaller values indicating variables contributing more to the model. Increasing values of Hotelling’s trace (the sum of the eigenvalues of the test matrix) indicate variables contributing more to the model. When the eigenvalues are small, and Hotelling’s trace is close in value to Pillai’s trace,

Table 1. Between-Subjects Factors (Europe).

Cultural values Performance orientation

1 2 1 0

Value Label

N

Hedonism Femininity Yes No

446 472 407 474

.977 .023 42.451 42.451

Pillai’s trace Wilks’ lambda Hotelling’s trace Roy’s largest root

Pillai’s trace Wilks’ lambda Hotelling’s trace Roy’s largest root

Pillai’s trace Wilks’ lambda Hotelling’s trace Roy’s largest root

Pillai’s trace Wilks’ lambda Hotelling’s trace Roy’s largest root

Intercept

cultval

perfor

cultval  perfor

1.324 1.324a 1.324 2.191b

8.076 8.076 8.076 8.076

71.086 76.042a 81.035 1.570

2.084 2.084 2.084 2.084

F

6.000 6.000 6.000 3.000

3.000 3.000 3.000 3.000

6.000 6.000 6.000 3.000

3.000 3.000 3.000 3.000

Hypothesis df

Design: Intercept+cultval+perfor+cultval  perfor. a Exact statistic. b The statistic is an upper bound on F that yields a lower bound on the significance level.

.005 .995 .005 .004

.622 .378 1.645 1.645

.253 .750 .330 .320

Value

Effect

Table 2. Multivariate Tests.

2.948 2.946 2.944 1.474

1.473 1.473 1.473 1.473

2.946 2.946 2.944 1.474

1.473 1.473 1.473 1.473

Error df

.243 .243 .243 .087

.000 .000 .000 .000

.000 .000 .000 .000

.000 .000 .000 .000

Sig.

.003 .003 .003 .004

.622 .622 .622 .622

.126 .134 .142 .242

.977 .977 .977 .977

Partial Eta Squared

MNEs’ Reputation and Corporate Social Responsibility 59

B

6.476 .774 .140 1.793 .516 .011 44.743 .021 .118 14.936 1.403 .022 2.218 1.720 1.229 .069 .089 .162

Parameter

Intercept [cultval=1] [cultval=2] [perfor =1] [cultval=1]  [perfor=1] [cultval=2]  [perfor=1]

Intercept [cultval=1] [cultval=2] [perfor=1] [cultval=1]  [perfor=1] [cultval=2]  [perfor=1]

Intercept [cultval=1] [cultval=2] [perfor=1] [cultval=1]  [perfor=1] [cultval=2]  [perfor=1]

Dependent Variable

Consumer experience

Corporate enterprise

CSR

Table 3.

.074 .190 .106 .096 .248 .135

.261 .672 .375 .338 .877 .478

.067 .172 .096 .086 .224 .122

SE

30.089 9.051 11.613 .727 .357 1.200

171.530 .031 .315 44.164 1.599 .045

97.205 4.506 1.460 20.754 2.304 .093

t

.000 .000 .000 .467 .721 .230

.000 .975 .753 .000 .110 .964

.000 .000 .145 .000 .021 .926

Sig.

Parameter Estimates.

2.073 1.347 1.022 .257 .575 .103

44.232 1.340 .853 15.599 3.124 .959

6.345 .437 .048 1.962 .956 .251

Lower Bound

2.362 2.093 1.437 .118 .398 .427

45.255 1.298 .617 14.273 .318 .916

6.607 1.111 .327 1.623 .077 .228

Upper Bound

95% Confidence Interval

.380 .053 .084 .000 .000 .001

.952 .000 .000 .569 .002 .000

.865 .014 .001 .226 .004 .000

Partial Eta Squared

60 ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

61

MNEs’ Reputation and Corporate Social Responsibility

this indicates that the respective variable, although significant for the model, has little contribution to it. Roy’s largest root represents the largest eigenvalue from the test matrix, indicating variables contributing more to the model (the ones for which Roy’s largest root has larger values). When Roy’s largest root is close to Hotelling’s trace, it means that either the effect impacts on only one of the dependent variables, or dependent variables are highly correlated, or the effects considered do not contribute to the model (Table 2). As the significance values of cultural values (cultval) and performance orientation (perfor) are smaller than 0.05, these effects are both significant for the model. Still, their interaction does not contribute to the model. By comparing partial eta squares for the two effects considered (indicating the amount of variance accounted for by the effect), we conclude that cultural values contribute less to the model, as compared to performance orientation. This confirms our first hypothesis, that cultural values have a significant effect for reputation assessment, although the effect is not very large. The contrast estimates allow us to compare one level against the other, that is, hedonism versus femininity (Table 3). It may be seen that consumers coming from hedonistic cultures place about 80% more emphasis on consumer experience, with a slight decrease in corporate enterprise appreciation, and a high focus on CSR. These effects are not due to chance, as their significance is less than 0.05. Femininity is only significant as far as CSR perception is concerned, consumers coming from feminine cultures placing more emphasis on the social activities of an enterprise whose reputation they trust. The contrast effects analysis shows that hedonism seems to increase emphasis placed on consumer experience and CSR, while femininity has an effect on CSR. Corporate enterprise, which is naturally associated with performance orientation, is not influenced by these additional variables. In order to check our second hypothesis, we further perform an independent samples t-test, for the two cultural groups considered (Latin

Table 4.

Consumer experience CSR

Group Statistics.

Cluster

N

Mean

SD

SE Mean

Latin Germanic Latin Germanic

250 100 252 100

1.06 1.17 .27 .23

.879 .965 .445 .423

.055 .096 .028 .042

Equal variances assumed Equal variances not assumed

Equal variances assumed Equal variances not assumed

Consumer experience

CSR

2.537

4.181

F

.112

.142

Sig.

Levene’s Test for Equality of Variances

Table 5.

350 190.479

.785

.433

.443

.322

167.874

.993 .768

.302

Sig. (2-tailed)

350

df

1.034

t

.040

.040

.110

.110

Mean Difference

.051

.052

.111

.107

SE Difference

t-Test for Equality of Means

Independent Samples Test.

.060

.062

.330

.321

Lower

.140

.142

.109

.100

Upper

95% Confidence Interval of the Difference

62 ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

MNEs’ Reputation and Corporate Social Responsibility

63

Europe and Germanic Europe), and for the two components of reputation which were proved as sensitive to cultural dimensions. The t-test is aimed at checking whether the differences between two sample means are random, or statistically significant (Table 4). It may be seen that the differences in means are rather small. We will further test the significance of the difference between the two groups (Table 5). The Levene test assumes that the variances of the two samples are equal, which is true, as significance is greater than 0.10. The second test (equal variances not assumed) will be ignored. Since the 2-tailed significance of the test is greater than 0.05, we conclude that the differences between the samples are random, and not due to cultural clusters split. Thus, our second hypothesis is confirmed, telling that, although cultural values have a certain impact on perceived reputation of MNEs among their consumers, they are not confined to a cultural cluster, but to the European region. Thus, country-level cultural indexes can be reliably estimated by regional indexes.

CONCLUSIONS Our analysis investigated the utility of cultural indexes in assessing consumer perception of corporate reputation. We aimed to test the influence of hedonism and femininity on the reputation of multinationals, in both developed and emerging markets, in order to assess whether multinationals should adapt their strategies depending on host market cultural values and how should this adaptation be accomplished. Market sensitivity to corporate social responsibility, depending on its cultural values, was taken into account, among the factors influencing reputation that we have used, building on previous literature findings. First, we assessed the effect of cultural variables on the model in which the components of reputation are treated as dependent variables, at the European level, and then contrasted Latin Europe with Germanic Europe, attempting to see whether country-level cultural indexes have significant effects on the perception of reputation. Our both hypotheses were confirmed, in the sense that cultural effects do have an impact on the model, while cultural differences between cultures of the same region do not have statistically significant effects on the perception of reputation. The results identified Europe as a rather homogenous cultural block, in terms of perceiving the activity of multinationals, which means that MNEs should

64

ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

shape their strategies based on the regions of the triad, and not on the particular subregional clusters.

ACKNOWLEDGEMENT This work is the result of the project PNII-RU-TE-351.

REFERENCES Ararat, M. (2008). A development perspective for ‘‘corporate social responsibility’’: Case of Turkey. Corporate Governance, 8(3), 271–285. Barkemeyer, R. (2011). Corporate perceptions of sustainability challenges in developed and developing countries: constituting a CSR divide? Social Responsibility Journal, 7(2), 257–281. Bratianu, C., Jianu, I., & Vasilache, S. (2011). Integrators for organizational intellectual capital. International Journal of Learning and Intellectual Capital, 8(11), 5–17. Brons, L. L. (2006). Indirect measurement of regional culture in the Netherlands. Tijdschrift voor Economische en Sociale Geografie, 97(5), 547–566. Buciuniene, I., & Kazlauskaite, R. (2012). The linkage between HRM, CSR and performance outcomes. Baltic Journal of Management, 7(1), 5–24. Retrieved from http://dx.doi.org/ 10.1108/17465261211195856 Cruz, L. B., & Boehe, D. M. (2008). CSR in the global marketplace: Towards sustainable global value chains. Management Decision, 46(8), 1187–1209. Retrieved from http://dx.doi.org/ 10.1108/00251740810901381 de Mooij, M. K. (2010). Global marketing and advertising: Understanding cultural paradoxes (3rd edn.). Thousand Oaks, CA: Sage. Gallego-A´lvarez, I., Garcı´ a-Sa´nchez, I. M., & Rodrı´ guez-Dominguez, L. (2010). The influence of gender diversity on corporate performance. Revista de Contabilidad-Spanish Accounting Review, 13(1), 53–88. Hennart, J.-F. (2007). The theoretical rationale for a multinationality-performance relationship. Management International Review, 47(3), 423–452. Hofstede, G., & Hofstede, G. J. (2005). Cultures and organizations: Software of the mind (Rev. 2nd edn.). New York, NY: McGraw-Hill. Holme, C. (2010). Corporate social responsibility: A strategic issue or a wasteful distraction? Industrial and Commercial Training, 42(4), 179–185. Retrieved from http://dx.doi.org/ 10.1108/00197851011048528 House, R. J., Hanges, P. M., Javidan, M., Dorfman, P., & Gupta, V. (Eds.). (2004). Culture, leadership, and organizations: The GLOBE study of 62 societies. Thousand Oaks, CA: Sage. Jakobsen, J., & Jakobsen, T. G. (2011). Economic nationalism and FDI: The impact of public opinion on foreign direct investment in emerging markets, 1990–2005. Society and Business Review, 6(1), 61–76. Retrieved from http://dx.doi.org/10.1108/174656811 11105841

MNEs’ Reputation and Corporate Social Responsibility

65

Kashima, Y., & Kashima, E. S. (2003). Individualism, GNP, and pronoun drop: Is individualism determined by climate and economic affluence, or does language use play a role? Journal of Cross-Cultural Psychology, 34, 125–134. Khanna, T., Palepu, K. G., & Sinha, J. (2005). Strategies that fit emerging markets. Harvard Business Review, June, 63–76. Kirkman, B. L., Lowe, K. B., & Gibson, C. B. (2006). A quarter century of Culture’s Consequences: A review of empirical research incorporating Hofstede’s cultural value framework. Journal of International Business Studies, 37(1), 285–320. Koh, Y., Lee, S., & Boo, S. (2009). Impact of brand recognition and brand reputation on firm performance: U.S.-based multinational restaurant companies’ perspective. International Journal of Hospitality Management, 28(4), 620–630. Kouznetsov, A. (2009). Country conditions in emerging markets and their effects on entry mode decisions of multinational manufacturing enterprises: Evidence from Russia. International Journal of Emerging Markets, 4(4), 375–388. Retrieved from http:// dx.doi.org/10.1108/17468800910991269 Lacy, P., & Hayward, R. (2011). A new era of sustainability in emerging markets? Insights from a global CEO study by the United Nations Global Compact and Accenture. Corporate Governance, 11(4), 348–357. Retrieved from http://dx.doi.org/10.1108/ 14720701111159208 Li, X., & Li, E. (2007). Competitive advantage and rural industrial clustering: The case of steel measuring tape production in a Chinese Village. The China Review, 7(1), 27–52. Luo, Y. (2001). Determinants of local responsiveness: Perspectives from foreign subsidiaries in an emerging market. Journal of Management, 27(4), 451–477. Luo, Y., & Tung, R. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38, 481–498. Magnani, L. (2009). Abductive cognition. The epistemological and eco-cognitive di-mensions of hypothetical reasoning. Heidelberg: Springer. Mandruleanu, A., & Ivanovici, M. (2008). Knowledge management implications. Management & Marketing Review, 3(2), 109–115. Medrano, J. D. (2010). Europe’s political identity: Public sphere and public opinion. In J. Lacroix, & K. Nicolaı¨ dis (Eds.), European stories. Intellectual debates on Europe in national contexts (pp. 315–333). Oxford: Oxford University Press. Nkamnebe, A. D. (2011). Sustainability marketing in the emerging markets: Imperatives, challenges, and agenda setting. International Journal of Emerging Markets, 6(3), 217–232. Retrieved from http://dx.doi.org/10.1108/17468801111144058 Peters, S., Miller, M., & Kusyk, S. (2011). How relevant is corporate governance and corporate social responsibility in emerging markets?. Corporate Governance, 11(4), 429–445. Quairel-Lanoizele´e, F. (2011). Are competition and corporate social responsibility compatible?: The myth of sustainable competitive advantage. Society and Business Review, 6(1), 77–98. Retrieved from http://dx.doi.org/10.1108/17465681111105850 Rake, M., & Grayson, D. (2009). Embedding corporate responsibility and sustainability – Everybody’s business. Corporate Governance, 9(4), 395–399. Retrieved from http:// dx.doi.org/10.1108/14720700910984945 Richard, P. J., Devinney, T. M., Yip, G. S., & Johnson, G. (2009). Measuring organizational performance: Towards methodological best practice. Journal of Management, 3(3), 718–804.

66

ALINA MIHAELA DIMA AND SIMONA NICOLETA VASILACHE

Rugman, A. M., & Verbeke, A. (2005). Towards a theory of regional multinationals: A transaction cost economics approach. MIR: Management International Review, 45(1), 5–17. Shaw, N. E., Burgess, T. F., de Mattos, C., & STEC, L. Z. (2005). Supply chain agility: The influence of industry culture on asset capabilities within capital intensive industries. International Journal of Production Research, 43(16), 3497–3516. Schmidt, T., & Sofka, W. (2009). Liability of foreignness as a barrier to knowledge spillovers: Lost in translation? Journal of International Management, 15(4), 460–474. Scholtens, B., & Dam, L. (2007). Banking on the equator. Are banks that adopted the equator principles different from non-adopters? World Development, 35(8), 1307–1328. Schwartz, S. H. (2006). A theory of cultural value orientations: Explication and applications. Comparative Sociology, 5, 137–182. Spencer, J., & Gomez, C. (2011). MNEs and corruption: The impact of national institutions and subsidiary strategy. Strategic Management Journal, 32(3), 280–300. Streukens, S., & de Ruyter, K. (2004). Reconsidering nonlinearity and asymmetry in customer satisfaction and loyalty models: An empirical study in three retail service settings. Marketing Letters, 15(2/3), 99–111. Stuebs, M. T., & Sun, L. (2011). Corporate social responsibility and firm reputation. Retrieved from http://ssrn.com/abstract=1863343 Tarnovskaya, V. V., & de Chernatony, L. (2011). Internalising a brand across cultures: The case of IKEA. International Journal of Retail & Distribution Management, 39(8), 598–618. Tobey, D. H., & Pereira, B. Y. (2012). Corporate social responsibility initiatives: A stakeholder model for aligning competing values in West Africa. African Journal of Economic and Management Studies, 3(1), 95–115. Van Oudenhoven, J. P., & Van der Zee, K. I. (2002). Predicting multicultural effectiveness of international students: The multicultural personality questionnaire. International Journal of Intercultural Relations, 26(6), 679–694. Veenhoven, R. (2003). Freedom and happiness: A comparative study in forty-four nations in the early 1990s. In E. Diener & E. M. Suh (Eds.), Culture and subjective well-being. Cambridge, MA: The MIT Press. Yu, K. Y. T., & Cable, D. M. (2011). Exploring the identity and reputation of departmental groups: Whose opinions matter most to their members? Human Resource Management Journal, 21, 105–121.

BUSINESS, SUSTAINABILITY, AND BASE OF THE PYRAMID Maria Alejandra Pineda-Escobar ABSTRACT Purpose – The aim of this chapter is to explore the existing relation between business activity and sustainability in Base of the Pyramid (BoP) contexts in order to shed light on the role that the business sector may have in poverty alleviation. Design/methodology/approach – Starting with a thorough review of the evolution of the BoP theory, the chapter moves on to critically examine corporate social responsibility (CSR) in poverty contexts, and suggests the adoption of a more comprehensive interpretation of CSR that fully incorporates sustainability – environmentally, economically, and socially – into business operation. Consecutively, the notion of ‘‘sustainable enterprise’’ (Hart, 2010) as an upgraded type of corporation that embraces sustainable development is explored, and is related to the BoP business models known as inclusive businesses (IB). Case study experiences from Latin America (i.e., Colombia) are used to exemplify IB implementation. Findings – The chapter highlights the relevance of IB as sustainable enterprises with the potential of significantly improving the living

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 67–91 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012009

67

68

MARIA ALEJANDRA PINEDA-ESCOBAR

conditions for most impoverished communities, while being economically profitable and environmentally viable. From a sustainability viewpoint, the greatest challenge is found to be the achievement of a balance between a greater consumption and production at the BoP and the limited environmental capacity of the earth. Originality/value of chapter – Both, BoP and IB are two notions of very recent appearance within business–society literature, making this chapter a valuable contribution for the advancement of scholarly work in the field. Keywords: Base of the Pyramid; inclusive business; sustainable enterprise; Latin America; corporate social responsibility; CSR

INTRODUCTION Much has been written, analyzed, and debated around the idea of having the business sector participating in poverty alleviation. Arguments for and against have arisen from academia, civil society, and businesses alike. And while awareness about the urgency of providing a sound response to the needs of the billions of poor inhabitants of the world is evident, the role of companies with respect to poverty is not yet agreed upon. The purpose of this chapter is not to go deeper into this debate, but what is certain is that it is in the interest of both, companies and communities, to get enterprises engaged with the societies they are a part of. Because, as accurately expressed by Bjo¨rn Stigson, former president of the World Business Council for Sustainable Development (WBCSD), ‘‘Business cannot succeed in societies that fail’’ (Stigson & Rendlen, 2006). Beginning with a thorough review of the available literature on the Base of the Pyramid (BoP), the chapter starts with a careful review of the 10 years of scholarly work in the field that presents its conceptual evolution from a linear to a multifaceted concept. It then continues with a critical examination of the evolution of corporate social responsibility (CSR) in regards to the BoP, by exploring how poor population has most generally been looked upon by companies solely for altruistic purposes, and very rarely have corporations considered the BoP as a possibility for business expansion or a source of innovation and growth. The second half of the chapter emphasizes on the need for moving beyond philanthropy, highlighting the importance of giving a more holistic understanding to the notion of CSR, which moves beyond a wrongly inferred

Business, Sustainability, and Base of the Pyramid

69

social welfare character, and fully incorporates sustainability – environmentally, economically, and socially – into business operation. Subsequently, the chapter is devoted to the analysis of the recently proposed concept of inclusive business (IB), exploring its implications as an example of sustainable business models with the potential of significantly improving the living conditions for most impoverished communities, while being economically profitable and environmentally viable. Finally, the last section of the chapter provides a practical illustration of the existing modalities for IB implementation, summarizing various case study experiences from Colombia that incorporate the poor at various stages of the value chain. The conclusion calls attention to significant pending questions and proposes avenues for further research for strengthening IB with the BoP.

THE EVOLUTION OF THE BOP: FROM A LINEAR TO A MULTIFACETED CONCEPT C. K. Prahalad and Stuart Hart are the major proponents of the theoretical work on the BoP, starting from their seminal work published in 2002, which coined the expression base (bottom) of the pyramid and paved the way for the last 10 years of scholarly work in the field. The concept originated from the idea of an underserved and seldom-explored market in the base of the economic pyramid, emphasizing a strong commercial interest linked to the interpretation of low-income population only in terms of their potential as latent consumers. From there on, the concept evolved toward a broader interpretation that is not only focused on the consumer potential of the poor, but also considers their meaningful participation in the business initiatives through their effective integration along the value chain acting as suppliers, distributors, or business partners. Who and where is the BoP? In demographic terms, the BoP represents a group of low-income population, currently living in relative poverty and unable to meet some or even most of their basic needs. According to Hammond et al. (2007), the methodology developed jointly by the World Bank, the Inter-American Development Bank (IDB), and the World Resources Institute (WRI) defines the BoP as the demographic group perceiving earnings of less than $8 a day,

70

MARIA ALEJANDRA PINEDA-ESCOBAR

which is equivalent to $3,000 per person per year in local purchasing power. By this definition, the BoP represents a population group consisting of 4 billion people – nearly 60% of today’s total world population, which reached as of 2012 the total of 7 billion people – with a joint purchasing power of $5 trillion. As shown in Fig. 1, the BoP market is mostly located in Asia – including Middle East – both in terms of population and purchasing power. Latin America corresponds to the second market in terms of income, with a figure close to 510 billion dollars, and is, after Africa, the third largest in size with 360 million people. In this regard it is interesting to note that Latin America is the region with the largest population–income gap, given that, even though the 360 million people represent 70% of its total population, they jointly earn only 28% of the total income, which corroborates the enormous disparities in income distribution that exist within the countries of the region. Now, having clarified how big is the population group making up the BoP, it is important to emphasize the multidimensional character of poverty, since it is not only a lack of income what these 4 billion people have in common. The BoP population is living in relative poverty and without the possibility to respond to their most basic needs, which means they are

Fig. 1. World Distribution of the BoP. Source: Own construction based on data from Hammond et al. (2007).

Business, Sustainability, and Base of the Pyramid

71

lacking access to fundamental ‘‘goods, services, and economic opportunities’’ (Jenkins, Ishikawa, Geaneotes, & Paul, 2010, p. 2). The BoP Portrait developed by Hammond et al. identifies – besides their low income – several shared characteristics among the BoP population, including significant unmet needs in the sense that ‘‘many live in informal settlements y lack access to water and sanitation services, electricity, and basic health care’’ (2007, pp. 18–19). To this is added their impossibility to guarantee access to education, their frequent lack of proper nourishment, and their dependence on subsistence and small-scale livelihoods. When contrasting this situation against the principles contained in the Universal Declaration of Human Rights, Art. 3: Everyone has the right to life, liberty and security of person. [y] Art. 22: Everyone, as a member of society, has the right to social security [y]. Art. 25: 1. Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services [y]. Art. 26: 1. Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages.

Hahn (2009, p. 316) accurately points out how people at the BoP are clearly lacking most of the basic needs that should be fulfilled in accordance with the social rights of the UDHR. However, linking this issue of human rights to business is a complex task, and some important cautions need to be raised. As exemplary illustrated by Whelan, Moon, and Orlitzky (2009), the most palpable is the fact that the universal and absolute character of human rights is not without questioning. In fact, as pointed out by the authors, ‘‘we should y be cautious in presuming that there is some sort of world-wide consensus regarding each and every human right listed in the [Universal Declaration of Human Rights – UDHR]’’ (p. 372). In addition, human rights are criticized for their relative imprecise character, while some claim the UDHR to be a Western-focused ideal. This being said, it is fair to claim that a growing public awareness toward corporate behavior is evident, manifested for instance in mounting concerns regarding human rights violations by corporations. Being formerly a task to be addressed by governments and their grouping international organizations, calls have recently arisen upon the private sector to be actively engaged with and accountable for human rights issues. In this sense, a strengthened role for business is seen for achieving the Millennium Development Goals (MDGs),1 and tangible initiatives have matured within the United Nations (UN), namely the Global Compact and the appointment

72

MARIA ALEJANDRA PINEDA-ESCOBAR

of the ‘‘Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises.’’ This view ought to be read as a complementary role of the state and the private sector in response to perceived societal deficits, and should not be misinterpreted as a total replacement of the former by the latter. Which leads us to what Maak (2009) refers to as ‘‘an active political co-responsibility’’ (p. 370) of corporate citizens, in particular for those situations related to social justice and environmental sustainability that so far have not adequately been responded to by governments alone. However, this active co-responsibility needs to be contrasted against the idea that companies tend to be profit focused. So, when calling upon corporations to deal with societal deficits, it is necessary to recognize the fact that its activities as business institutions are framed by their objective of economic value creation. Therefore, the active engagement of a corporation with the BoP should result out of a business self-interest that is embedded in its commitment to and co-responsibility for the society it is a part of. Thus, recognizing poverty as a multidimensional phenomenon determined not only by economic factors but also by political and social forces that inhibit human development and business potential (Tashman & Marano, 2010), BoP scholars propose a different approach to the problem of poverty in these societies, approaching it from a new market perspective. They argue that such environments characterized by human rights failure amid politically and economically weak societies, may provide the business sector with veiled market opportunities that can improve these societal malfunctions while being economically profitable for the company. A core argument is that the poor shall not continue to be seen as passive selves characterized by their lacking, but should be understood as active members of society whom are also capable of getting engaged in their own processes of stepping out of poverty. Table 1 summarizes the main contributions that have characterized the evolution of the theoretical work in the BoP field. To sum up, we can broadly identify two main stages in the evolution of the BoP concept: (i) the first stage arises from the initial approaches by professors Hart and Prahalad, when the BoP was conceived as a onedimensional concept. Its central character showed a strong commercial interest, understanding low-income population only in market terms, as an untapped segment that represents a potential ‘‘fortune.’’ Therefore, the BoP was mostly presented as a new business opportunity for the private sector. (ii) The second stage evolved to a multidimensional interpretation of the BoP, broadening the spectrum of analysis, and providing more and varied possibilities for action to the low-income population. Thus, the BoP moves

Author(s)

Prahalad and Hart

Prahalad and Hammond

Hart and Christensen

Prahalad

Hart and London

Anderson and Billou; Anderson and Markides

Hammond et al.

Year

2002

2002

2002

2005

2005

2007

2007

Main Contribution

Evolution of the Theoretical Work on the BoP.

Article ‘‘The Fortune at the Bottom of the Pyramid.’’ Considered the seminal work on BoP, corresponds to the first publication on the subject that provides the foundational basis for the conceptual development of the BoP. Article ‘‘Serving the World’s Poor, Profitably.’’ In line with the previous publication, the authors emphasize the business case for private sector participation in impoverished communities of the BoP. Focusing the analysis on the topic of innovation, Hart and Christensen present the article ‘‘The Great Leap, Driving Innovation from the Base of the Pyramid,’’ which builds on the concept of disruptive innovation coined by Christensen (1997), and propose it as an essential feature of business efforts aimed at the BoP. Prahalad publishes the book entitled ‘‘The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits.’’ In this work he elaborates on the virtues of business models addressed to the most vulnerable population, presenting a series of successful case studies from several developing countries. In their article ‘‘Developing Native Capability, What Multinational Corporations Can Learn from the Base of the Pyramid,’’ Hart and London develop the concept of ‘‘native capabilities’’ and invite companies to avoid the imposition of foreign strategies, understanding the local context, and building trust and social capital with the population of the BoP. Articles ‘‘Serving the World’s Poor: Innovation at the Base of the Economic Pyramid’’ and ‘‘Strategic Innovation at the Base of the Pyramid.’’ The authors present the conceptual framework of the 4As (availability, affordability, awareness, and acceptability), as a framework for strategic innovation detailing the key areas in which companies acting on the BoP must focus in order to be successful. Joint publication of the World Resources Institute and the International Finance Corporation entitled ‘‘The Next 4 Billion, Market Size and Business Strategy at the Base of the Pyramid.’’ Presents empirical estimates on the purchasing power of the BoP population as a whole and on their behavior as consumers. Provides an overview of the status of the BoP markets in the world and identifies four main strategies that characterize companies that are succeeding in those markets.

Table 1.

Business, Sustainability, and Base of the Pyramid 73

Karnani

Mendoza and Thelen

Simanis and Hart

Kandachar and Halme (Eds.)

Hahn

Simanis and Hart

2008

2008

2008

2009

2009

Author(s)

2007

Year In his article ‘‘Misfortune at the Bottom of the Pyramid,’’ the author provides one of the most cited critiques to the evolving theory on the commercial potential of the BoP. He calls attention to the need of actually raising the income of the poor, instead of simply focusing on their potential as consumers. The article ‘‘Innovations to Make Markets More Inclusive for the Poor’’ proposes a typology of the strategies and innovations that have contributed to making markets more inclusive for the poor, not only regarding their access to markets, but also in respect to their meaningful participation in ways that enhance their economic empowerment and human development. Through the publication ‘‘The Base of the Pyramid Protocol: Toward Next Generation BoP Strategy,’’ the authors present a critique to what they call ‘‘first generation’’ strategies for the BoP (BoP 1.0), which have been focused on commercially exploiting the markets of the BoP. And in response, they propose the ‘‘second generation’’ strategies (BoP 2.0), based on a dialogue with local people to allow the co-invention and co-creation of business opportunities. ‘‘Sustainability Challenges and Solutions at the Base of the Pyramid: Business, Technology and the Poor’’ offers a compilation of essays by highly renown authors from developed and developing countries, providing a rich analysis of the potential challenges and opportunities set forth by the BoP, and exploring avenues for future action that may lead to sustainable development for the poor. The article ‘‘The Ethical Rational of Business for the Poor – Integrating the Concepts Bottom of the Pyramid, Sustainable Development, and Corporate Citizenship,’’ connects the idea of business on the BoP with the concept of sustainable development, particularly with the notion of inter and intra-generational justice. Article ‘‘Innovation from the Inside Out.’’ Building upon the experience gained on the ‘‘BoP Protocol’’ research, the authors propose the ‘‘embedded innovation paradigm’’ as the best way in which companies can build trust and gain business intimacy, generating a sustainable competitive advantage suited for the BoP markets.

Main Contribution

Table 1. (Continued )

74 MARIA ALEJANDRA PINEDA-ESCOBAR

Berger, Choi, and Kim

Halme, Lindeman, and Linna

Schuster and Holtbru¨gge

Hahn

2011

2012

2012

2012

Source: Author.

Hart

2010

In the third edition of ‘‘Capitalism at the crossroads: next generation business strategies for a postcrisis world,’’ Hart focuses on the world after the financial crisis and proposes a model of sustainable capitalism, based on a new business paradigm that is socially responsible and environmentally viable, focusing on the BoP population. In the article ‘‘Responsible Leadership for Multinational Enterprises in Bottom of Pyramid Countries: The Knowledge of Local Managers,’’ the authors analyze and emphasize the institutional importance of valuing the knowledge, identity and thrust of local managers, as oppose to an overdependence on expatriate leadership when having business operations in BoP markets. In their article ‘‘Innovation for Inclusive Business: Intrapreneurial Bricolage in Multinational Corporations,’’ the authors introduce the concept of ‘‘intrapreneurial bricolage’’ to analyze the internal aspects of organizational management that may enhance or hinder innovation in business models at the BoP. Resorting on a multiple case study approach, the authors of the article titled ‘‘Market Entry of Multinational Companies in Markets at the Bottom of the Pyramid: A Learning Perspective’’ analyze the activities of MNCs in BoP markets, from an internationalization viewpoint. The article ‘‘Inclusive Business, Human Rights and the Dignity of the Poor: A Glance Beyond Economic Impacts of Adapted Business Models,’’ explore the connections between human dignity and IB models, above and beyond pure economic outcomes.

Business, Sustainability, and Base of the Pyramid 75

76

MARIA ALEJANDRA PINEDA-ESCOBAR

from being understood only from the standpoint of demand, toward a holistic interpretation that includes options that profile the poor as potential employees, distributors, suppliers, or business partners. This broader understanding of the BoP corresponds to the IB models, which will be discussed later in the chapter.

PHILANTHROPHY AT THE BOP: A DELUSION OF CSR Before entering into the arena of IB models, it is worth making a critical examination of the evolution of corporate social responsibility (CSR) in regards to the BoP. To do so, let us start by making a brief exploration of the conceptual meaning of CSR. On Corporate Social Responsibility Despite a growing acceptance, in both developed and developing countries, of the fact that companies have responsibilities that go beyond its shareholders to a broader spectrum of stakeholders, the idea of CSR remains a controversial and polysemous concept, having its most recognized critics in the works of Friedman (1970), Henderson (2001), and Reich (1998). From the perspective of CSR proponents, the recent decades offer a rich and remarkable body of academic and managerial literature with multiple approaches and conceptual reinterpretations, whose detailed exploration lies beyond the purpose of the present chapter (see, e.g., Dahlsrud, 2006; Freeman & Hasnaoui, 2011; Garriga & Mele´, 2004; Gond & Moon, 2011; Visser, Matten, Pohl, & Tolhurst, 2010). Notwithstanding, it is possible to perceive common ground between all the various definitions that goes in line with what was proposed by Carroll – one of the most renowned scholars in this field – back in 1991, understanding the responsibilities of business as those emanating from four different but interrelated domains, namely economic, legal, ethical, and discretionary (philanthropic), and recognizing the existence of multiple stakeholders. The International Organization for Standardization, in its recent Guidance on social responsibility (ISO, 2010), defines it as: the responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that:  contributes to sustainable development, including the health and the welfare of society;

Business, Sustainability, and Base of the Pyramid

77

 takes into account the expectations of stakeholders;  is in compliance with applicable law and consistent with international norms of behavior; and  is integrated throughout the organization and practiced in its relationships.

Moreover, considering the contributions from developing country scholars and managers, it is important to highlight that given the dissimilar and diverse character of nations from the global North and South, any CSR endeavor shall be context sensitive, taking into consideration possible economic, societal, political, environmental, cultural, and organizational differences (Barkemeyer, 2011). In a similar vein, exploring the widely accepted argument that CSR translates into good business practice that enables companies to ‘‘do well by doing good’’ (Prahalad, 2005), moral philosophy scholars alert on the necessity to recognize the lack of a globally accepted agreement on what constitutes ‘‘good practice’’ in the first place, making it relevant for CSR to be sensitive to the existence of various views on morality (Eabrasu, 2012). Given all of the above, as accurately exposed by Gond and Moon, CSR is inherently ‘‘dynamic, overlapping and contextual’’ (2011, p. 3), so it is best interpreted as an umbrella construct – a comprehensive concept that accounts for a diverse set of phenomena (see Hirsch & Levin, 1999) – covering a wide range of phenomena in business–society relations.

Philanthropy and CSR: Related but Not the Same Having exhibited the complexities of CSR, we may now explore the issue in relation to philanthropy and the BoP. The role played by the private sector in poverty alleviation, particularly that of multinational corporations, has been subject of great debate at the international level on both, academic and nonacademic settings (Frynas, 2005, 2008; Jamali, 2010; Lodge & Wilson, 2006; Muthuri, Moon, & Idemudia, 2012; VanSandt & Sud, 2012). Within this scenario, as argued by Barkemeyer (2011), scholarly literature on the relationship between development and CSR has questioned the suitability of ‘‘current CSR regimes to effectively address some of [the] most pressing global sustainability challenges’’ (p. 257). Customarily, what appears to occur in response to societal needs characteristic of developing and less developed countries, is that corporations and not-for-profit partners tend to misinterpret CSR as of being equivalent to pure philanthropic giving by corporations to promote social good. In this respect, it is of utmost importance to emphasize that companies shall not

78

MARIA ALEJANDRA PINEDA-ESCOBAR

understand CSR as their way of giving back to society, as if they had taken something away from it in the first place. On the contrary, CSR shall be adopted as the way of acting as a part of society, under a win–win perspective that exhibits a logic of mutual benefit. Thinking: we (i.e., company and society) both benefit, is radically different from a line of thought that suggests that a company is benefiting at the expense of society, hence it is its duty to give something in return, as if being paying for having committed a sin. When corporations fall into this wrong paternalistic interpretation they, more often than not, end up carrying out philanthropic – yet unconnected – activities that have the downside of being perceived as a way of corporate remorse, or as an intent to ease corporate conscience (Cooke, 2010). Similarly, altruistic initiatives are sometimes considered to be a pure public relations strategy that aims to enhance corporate reputation and gain a license to operate (Gates & Steane, 2009). In fact, some critical views on CSR interventions from MNC in developing and less-developed countries, doubt of their legitimacy and consider they ‘‘tend to still be designed to ensure upwards accountability towards developed country consumers, advocacy organizations, and media outlets in order to maintain the legitimacy of MNCs in their eyes’’ (Jeppesen & Lund-Thomsen, 2010, p. 141). In addition, the extent to which philanthropic donations are currently being effective and are actually contributing to the reduction of poverty has been highly questioned (Canel, Idemudia, & North, 2010; Ite, 2005; Singer, 2006). As pointed out by Kolk and van Tulder (2006), the sustainability of private sector responses addressed to the poor can solely be achieved by ‘‘offering poor people ‘tools’ (know-how, technology, resources) to escape the poverty trap by themselves’’ (p. 797). Tools that, however, are not yet been fully offered to the poor by corporations, hence giving grounds to perceptions of a lack of interest in long-term community development, and abusive use of their corporate power.

TOWARD A MORE COMPREHENSIVE UNDERSTANDING OF CSR, MOVING BEYOND PHILANTHROPY AT THE BOP In response to this misconception of CSR, various authors have argued in favor of a conceptual evolution that leads us toward a more comprehensive interpretation of the notion of CSR. This goes in line with what has been renamed by some advocates as corporate sustainability and responsibility

Business, Sustainability, and Base of the Pyramid

79

(keeping the acronym CSR), or CSR 2.02 (Visser et al., 2010), emphasizing its inherent triple bottom line and moving beyond a wrongly inferred social welfare character. CSR 2.0 implies, therefore, giving full consideration to sustainability when doing business, responding to all social, economic, and environmental issues. In this way, CSR comes to be embedded all across the company, permeating every organizational practice. And corporate–society relations move beyond linear philanthropic giving, toward more proactive and interactive relationships that stop seeing companies as paternalistic donors and communities as passive recipients. In Visser words, ‘‘CSR 2.0 is about designing and adopting an inherently sustainable and responsible business model’’ (Visser et al., 2010, p. 127). This holistic understanding of CSR corresponds with what Stuart Hart presents as a ‘‘sustainable enterprise,’’ that one with the ability to generate profitable business ideas, that can at the same time ‘‘improve the quality of life for the world’s poor, respect cultural diversity, inspire employees, build communities and conserve the ecological integrity of the planet for future generations’’ (Hart, 2010, p. 17). Thus, a sustainable enterprise is a new and upgraded type of corporation that embraces sustainable development. Rather than seeing its social responsibilities as a means to an end – public license to operate – it understands sustainability, and thus CSR, as the raison d’eˆtre of business operation. It adopts sustainability as the only effective strategy for corporate perdurability. Hence it has profit making as an outcome of its responsible engagement with society and not the other way around. Taking the concept of sustainable enterprises to the arena of BoP implies a clear move of business–society relations beyond philanthropy. A clear move that, in turn, elucidates how the opportunity for active involvement of business at the BoP does not refer only to an economic vision of growing markets and rising profits (i.e., the initial perception of business participation at the BoP as exposed earlier on the chapter). Rather, it implies the use of new business models as a means to significantly improving human and environmental conditions for the poorest regions in the world, while simultaneously obtaining business benefits. Achieving this would require a lesser focus on consumption growth, shifting the emphasis toward raising the living standards of the poor, through a business strategy that enables the coverage of basic unmet needs in a way that is economically effective and ecologically viable, that is to say, a sustainability strategy. An example of such sustainable enterprises for the BoP is the schemes known as IB: sustainable business models with the potential of significantly

80

MARIA ALEJANDRA PINEDA-ESCOBAR

improving the living conditions for most impoverished communities, while being economically profitable and environmentally viable.

INCLUSIVE BUSINESSES AS SUSTAINABLE ENTERPRISES According to the definition given by the Alliance for IB’s, an IB is a business initiative that seeks to build bridges between business and low-income populations for the benefit of both (SNV-WBCSD, 2008). In other words, IB are sustainable business models aimed at BoP markets. Via the effective inclusion of the poorest communities within its value chains, the private sector provides jobs and wealth to low-income communities, while generating profit for the company. In this way, IB are projected as a business strategy that more than just embodying paternalism or philanthropy, does empower vulnerable populations, linking social needs to the creation of jobs and stable sources of income, offering a more effective mechanism for reducing poverty, and promoting development in the long term. Table 2 presents a non-exhaustive compendium of various definitions given to the concept of IB. As is clear from its reading, the different meanings do not change the interpretation of the concept significantly and, with similar hues, all focus primarily on highlighting a proactive market approach to overcoming poverty, based on a sustainable management of the value chain. Moreover, being sustainable enterprises, as shown in Fig. 2, inclusive businesses take into consideration the three pillars of sustainability, guaranteeing their economic, environmental, and social feasibility.

Modes of Implementation of an Inclusive Business As proposed by Lariu´ and Strandberg (2009), it is possible to identify three ways or modes of implementing an IB, depending on the role played by the low-income population, namely:  1st mode: linking the segment of the BoP as a consumer.  2nd mode: linking the segment of the BoP as producers, suppliers, or distributors.

Business, Sustainability, and Base of the Pyramid

Table 2.

Selected Definitions of Inclusive Business.

Proponent SNV – WBCSD Alliance

WBCSD

UNDP

IFC

Fundacio´n AVINA

ENDEVA

Business Call to Action

81

Definition Business that seeks to contribute toward poverty alleviation by including lower-income communities within its value chain while not losing sight of the ultimate goal of business, which is to generate profits (SNV-WBCSD, 2008). Sustainable business solutions that go beyond philanthropy and expand access to goods, services, and livelihood opportunities for low-income communities in commercially viable ways; trying to find synergies between development goals and the company’s core business operations (http://www.inclusive-business.org/inclusivebusiness.html). Business models that include the poor at various points in the value chain: on the demand side as clients and customers, and on the supply side as employees, producers, and business owners. They build bridges between businesses and poor people for mutual benefit in the supply chain, in the workplace and in the marketplace (PNUD, 2010). Business models that expand access to goods, services, and livelihood opportunities for those at the base of the global economic pyramid (BoP) in commercially viable, scalable ways (IFC, 2010). Profitable, environmentally and socially responsible initiatives that seek to improve, through market forces, the quality of life of low-income communities, encouraging their participation in all phases of the value chain (http://www.avina.net/eng/oportunidades/mercadosinclusivos/). Business that includes people living in poverty as producers and consumers, making a positive contribution to the development of business, local population, and the environment (ENDEVA, 2009). Sustainable business solutions that expand access to goods, services, and livelihood opportunities for low-income communities. They harness the core competencies of business to respond directly to the needs of poor consumers or to build productive beneficial linkages with poor producers (http://www.businesscalltoaction.org/about/ faqs-about-bcta/#What_are_Inclusive_Business_models).

Source: Own construction based on cited sources.

 3rd mode: linking the segment of the BoP as a partner or ally. ‘‘It is a process of co-creation of new businesses with low-income populations.’’ Giving a summary overview, Table 3 presents a distinction between the main aspects that do and do not correspond with an IB.

82

Fig. 2.

MARIA ALEJANDRA PINEDA-ESCOBAR

Sustainability of Inclusive Business. Source: Adapted from CECODES (2011).

From Theory to Practice: IB Examples in Latin America Latin America is, as some scholars have pointed out, ‘‘a paradoxical continent’’ (Sen & Kliksberg, 2007, p. 9), which corresponds to the most urbanized and unequal region in the world, and with a huge social gap (as was illustrated in Fig. 1). Thus, the implications that IB models are having and may potentially continue to have in the reduction of said gap, make IB experiences in the region an interesting case in point. This last section of the chapter focuses on understanding the applicability of IB models as explained above, by exploring the main characteristics of some IB experiences that have been analyzed and documented in Colombia, Latin America. To do so, we have chosen four experiences, coming from the financial, industrial, and agricultural sectors that accurately illustrate the various roles that the poor may assume when engaging in an IB: consumer, supplier, distributor, or business partner.

83

Business, Sustainability, and Base of the Pyramid

Table 3.

Key Aspects of Inclusive Business.

Does | Propose sustainable solutions for the needs of the poor | Use market mechanisms for mutual benefit | Ensure the supply of goods and services in underserved markets | Engage the BoP community as active participants of the value chain | Focus on processes of co-invention and co-creation with the population of the BoP (Simanis & Hart, 2008)

Does Not ‘ Make business out of poverty ‘ Depend on philanthropy and altruistic donations ‘ Correspond to business-as-usual ‘ Limit to the interpretation of the BoP as potential consumers ‘ Engage in environmentally harmful activities

Source: Own construction.

As it can be concluded from the analysis of the cases presented, one crucial aspect for the success of IB models is the creation of spaces of mutual cooperation and development of joint efforts, profiting from the synergies that arise during the process. Sustainability of this kind of endeavors depends, to a great extent, on the possibility of actually allowing for the co-creation of business ideas between the leading company, the community, and other key potential allies that may provide the technical, financial, and/or human development assistance needed for crystallizing the business model.  BoP as consumers: the case of Davivienda – Colombia3 Davivienda is a Colombian bank, with presence in other American countries like the United States and Panama. It is part of the Holding Group Sociedades Bolivar, which has subordinate companies operating in the financial, insurance, construction, and tourism sectors in Colombia. As a national strategy the current Colombian government is encouraging the banking sector to develop baking schemes that can favor the social and financial inclusion for more than 40% of Colombians currently living in poverty and without access to the traditional banking system. Responding to this initiative and in agreement with the CSR principles of the bank and its holding corporation, Davivienda designed the product ‘‘DaviPlata,’’ particularly suited to the needs of BoP population. DaviPlata allows customers from the BoP to handle their money through their mobile phones, without the need of opening a bank account or having a debit card. Using mobiles phones as a banking channel, clients are able to make money transfers (with other mobile phone users or with traditional

84

MARIA ALEJANDRA PINEDA-ESCOBAR

bank accounts), receive international remittances, receive cash deposits, pay for utilities, buy credit for their mobile phones, and withdraw money from an ATM. All these services are easily used and have no charges. DaviPlata aims at not only increasing the financial inclusion of the poor, but also encouraging a culture of cash-management via electronic systems, which increases security of transactions. Currently, Davivienda is designing complementary actions that address the needs of financial and technological education. With less than one year of operation, DaviPlata has already made significant achievements which foretell the success potential of an IB model that improves the quality of life of poor Colombians while generating a profitable business line for the bank. To date, already more than 500 thousand Colombians are using DaviPlata for their cash-management, including more than 7,000 head of household mothers, whom are receiving their monthly subsidies from the government through their mobile phones. .

 BoP as suppliers: the case of Alpina – Colombia4 Alpina productos alimenticios S.A. (Alpina) is a Colombian multinational company with more than 65 years of operation in the food and dairy industry. It has currently six product categories which include milk drinks, milks, desserts, soft drinks and juices, baby food, cheese, and greases. It has a total of 126 product families with 335 references. The company has an important presence in the Latin American region, being also present in the markets of Ecuador, Venezuela, Central America, and the United States. Under its CSR program called ‘‘Buen vecino’’ – Spanish for ‘‘good neighbor’’ – the company has been promoting the development of its neighboring communities through sustainable entrepreneurship. Particularly at one of its plants that is located in Chinchina, a town in the Colombian department Caldas, Alpina has been buying the fruit necessary for the production of their marmalades and other desserts from small local producers. This is the case, for example, for the provision of one blackberry type – mora castilla – which the company currently buys from five associations of small local producers in the municipalities of Aguadas, Aranzazu, Riosucio, and Villamaria. Alpina has signed supplying contracts with the associations, guaranteeing the purchase of the fruits under the quality and health standards stipulated by the company. It is worth noting that Caldas is one of Colombian departments with strong indigenous tradition, being home to several indigenous communities.

Business, Sustainability, and Base of the Pyramid

85

Since the early 1980s, the region and specifically the municipality of Riosucio have being suffering with the iterative presence of illegal armed groups that result in the internal displacement of local communities abandoning their lands and looking for implausible job opportunities elsewhere. Working together with the indigenous association Asofrumo´n, from Riosucio, Alpina has implemented capacity building programs in order to strengthen the competitiveness of local producers by supporting the implementation of good agricultural practices (GAP) and by providing training on entrepreneurship skills in alliance with private foundations, governmental, and nongovernmental institutions. Similarly, the company has provided training and technical support to the association by, for instance, modernizing and improving processes at their stocking center, which employs 60 women head of household. By means of this IB model the company is securing a reliable sourcing of its blackberry fruit, under the quality and quantities that its operation requires, strengthening its value chain. At the same time, Alpina is generating safe and profitable work opportunities for the local population, avoiding their internal displacement and improving their quality of life.  BoP as distributors: the case of Natura – Colombia5 Established in 1969, Natura is a Brazilian company, world leader in the cosmetics and personal care industry, and with presence in various Latin American countries including Argentina, Bolivia, Peru, Chile, Mexico, and Venezuela. The company is operating in Colombia since mid-2007. Since its inception Natura has based its distribution strategy on direct sales, under the concept of ‘‘Natura advisors,’’ independent distributors that sale the products through catalogs. By 2007, Natura had more than 700 thousand advisors distributing their products worldwide. As of 2010, more than 16,000 advisors were distributing its products over 95% of Colombian territory. The company accepts as distributors persons from all income levels, who only need to be of legal age, have an ID, and a fix phone line, and can easily start their own business with a minimal investment of about $20. To facilitate cash flows, Natura offers its advisors a rotating credit scheme for backing up orders in every selling cycle of 21 days. As of 2010, nearly 65% of Natura’s distributers were from the lowest income categories in Colombia, who in average are increasing their incomes in $150–175 per selling cycle. In addition, Natura provides complementary benefits to all its advisors, including free access to trainings in different areas, and the possibility to use a daycare for their children.

86

MARIA ALEJANDRA PINEDA-ESCOBAR

It is also worth noting that Natura’s operations minimize their environmental impact, having several recycling initiatives that aim to postconsumption recovery of materials.  BoP as business partners: the case of Indupalma – Colombia6 Industrial Agraria la Palma (Indupalma), is an agroindustrial Colombian company leader in the palm sector and founded nearly 50 years ago. It has a plantation of 8,600 hectares which is operated together with other 9,600 hectares that are owned by small local farmers allied with the company for a total of 18,200 hectares. Facing a crisis in 1995 Indupalma set out to create better development opportunities for local farmers, successfully promoting the creation and consolidation of worker cooperatives that provided agronomy services to the company. After five years, Indupalma saw the opportunity to invite farmers to create what they called Autonomous Business Units – UAE for their acronym in Spanish, such as cooperatives, small businesses, and limitedliability companies, which would enable them to become land owners and growers of palm, and additionally sell their crops to the company. To develop this IB model Indupalma supported the local farmers through partnerships with banks and the national government, in order for them to initially acquire the necessary machinery and later on be able to pay for their lands. In this way, the company was able to negotiate long-term financing for the farmers, with pay-back periods of 12 years and a grace period of four, which enabled them to acquire the lands and start their crops. Under these partnerships, the government provided an investment incentive of 40%, while the banking sector lent the capital on the basis of future cash flows guaranteed by the sales to Indupalma, as the farmers signed contracts with the company that secured the purchase of their crops for the next 28 years.

THE ROAD AHEAD The potential of IB’s to overcome the so-called poverty traps lies on its commercial viability and scalability. IB models, as opposed to bricks-andmortar corporate paternalism, empower poor communities by opening market opportunities that respond to basic unmet needs, create selfsufficiency, and generate stable sources of income. But, in order to be truly sustainable, IB models need not only to be socially beneficial in terms of

Business, Sustainability, and Base of the Pyramid

87

improvement of quality of life for impoverished communities, but also to ground such improvement on the basis of ecologically feasible solutions. Thus, the road ahead poses significant questions, for both academia and management, that need to be the subject of further research so as to strengthen the advancement of this evolving realm in business strategy. Perhaps one of the main questions is, given the scale and magnitude of the market responses needed to include two-thirds of humanity, how to achieve sustainable business solutions for all world citizens currently living at the BoP? In other words, the greatest challenge lying ahead of us is how to balance the production and consumption growth implied in the development of new business models at the BoP, with the carrying capacity of the world’s ecosystems. Because, as accurately pointed out by the renowned economist Nicholas Stern, ‘‘Development and climate change are the central problems of the 21st century. If the world fails on either, it will fail on both’’ (cited in WBCSD, 2010, p. 6). So, how to balance the desire of development for all with the environmental capacity of the earth? This is exactly the greatest challenge posed today to the development of IB models. The improved quality of life for all citizens living in poverty cannot come at the expense of an indiscriminate deterioration of the natural resources, as this would take the same line of unsustainable development that we shall not emulate. Nor can environmental protection and the fight against climate change come in isolation from the societal problems that billions of people at the BoP have to face. How to deal with such challenge is of paramount complexity, but what is certain about the response is that it must come out from cooperative efforts that involve a great deal of innovation and that conceive solutions under a mutually beneficial logic.

ACKNOWLEDGMENTS This chapter is part of the works made under the research project 2012FCAEC-EDG-TC-171, which is funded by Fundacio´n Polite´cnico Grancolombiano Institucio´n Universitaria, institution of higher education in Bogota´, Colombia.

NOTES 1. For the purposes of this chapter, it is particularly relevant to highlight the First MDG, corresponding to the eradication of extreme poverty and hunger by 2015. It

88

MARIA ALEJANDRA PINEDA-ESCOBAR

has as one of its specific targets the achievement of full and productive employment and decent work for all, including women and young people, which brings the role of business to the fore. 2. By comparison with the transition experienced from Web 1.0 to Web 2.0. Wayne Visser is the major proponent of CSR 2.0. 3. Information on this case was excerpted from CECODES (2011, pp. 112–119). 4. Information on this case was excerpted from CECODES (2010, pp. 12–19). 5. Information on this case was excerpted from PNUD (2010, pp. 117–120). 6. Information on this case was excerpted from CECODES-SNV (2008, pp. 22–29).

REFERENCES Anderson, J., & Billou, N. (2007). Serving the world’s poor: Innovation at the base of the economic pyramid. Journal of Business Strategy, 28(2), 14–21. Anderson, J., & Markides, C. (2007). Strategic innovation at the base of the pyramid. MIT Sloan Management Review, Fall, 82–88. Barkemeyer, R. (2011). Corporate perceptions of sustainability challenges in developed and developing countries: Constituting a CSR divide? Social Responsibility Journal, 7(2), 257–281. Berger, R., Choi, C., & Kim, J. (2011). Responsible leadership for multinational enterprises in bottom of pyramid countries: The knowledge of local managers. Journal of Business Ethics, 101, 553–561. Canel, E., Idemudia, U., & North, L. L. (2010). Rethinking extractive industry: Regulation, dispossession, and emerging claims. Canadian Journal of Development Studies, 30(1–2), 5–25. CECODES. (2010). Cambiando el rumbo. Casos de sostenibilidad en Colombia. Bogota´: CECODES. CECODES. (2011). Sostenibilidad en Colombia. Casos empresariales. Bogota´: CECODES. CECODES-SNV. (2008). Los negocios inclusivos en Colombia. Bogota´: CECODES. Cooke, D. (2010). Building social capital through corporate social investment. Asia-Pacific Journal of Business Administration, 2(1), 71–87. Dahlsrud, A. (2006). How corporate social responsibility is defined: An analysis of 37 definitions. Corporate Social Responsibility and Environmental Management, 15, 1–13. Eabrasu, M. (2012). A moral pluralist perspective on corporate social responsibility: From good to controversial practices. Journal of Business Ethics. Published online. doi: 10.1007/ s10551-012-1491-3 ENDEVA. (2009). Inclusive business guide, How to develop business and fight poverty. Berlin: ENDEVA. Freeman, I., & Hasnaoui, A. (2011). The meaning of corporate social responsibility: The vision of four nations. Journal of Business Ethics, 100, 419–443. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, 13 de septiembre, pp. 122–126. Frynas, J. G. (2005). The false developmental promise of corporate social responsibility: Evidence from multinational oil companies. International Affairs, 81(3), 581–598.

Business, Sustainability, and Base of the Pyramid

89

Frynas, J. G. (2008). Corporate social responsibility and international development: Critical assessment. Corporate Governance, 16(4), 274–281. Garriga, E., & Mele´, D. (2004). Corporate social responsibility theories: Mapping the territory. Journal of Business Ethics, 53, 51–71. Gates, D., & Steane, P. (2009). Altruism – An alternative value in policy formation and decision making. International Journal of Social Economics, 36(10), 962–978. Gond, J.-P., & Moon, J. (2011). Corporate social responsibility in retrospect and prospect: Exploring the life-cycle of an essentially contested concept. In J.-P. Gond & J. Moon (Eds.), Corporate social responsibility: A reader. Routledge. Available as ICCSR Research Paper No. 59, pp. 1–40. ISSN 1479-5124. Hahn, R. (2009). The ethical rationale of business for the poor – Integrating the concepts bottom of the pyramid, sustainable development, and corporate citizenship. Journal of Business Ethics, 84, 313–324. Hahn, R. (2012). Inclusive business, human rights and the dignity of the poor: A glance beyond economic impacts of adapted business models. Business Ethics: A European Review, 21(1), 47–63. Halme, M., Linderman, S., & Linna, P. (2012). Innovation for inclusive business: Intrapreneurial bricolage in multinational corporations. Journal of Management Studies, 49(4), 743–784. Hammond, A., et al. (2007). The next 4 billion: Market size and business strategy at the base of the pyramid. Washington, DC: World Resources Institute and International Finance Corporation. Hart, S. (2010). Capitalism at the crossroads: Next generation business strategies for a post-crisis world (3rd edn.). Upper Saddle River, NJ: Wharton School Publishing. Hart, S., & Christensen, C. (2002). The great leap, driving innovation from the base of the pyramid. MIT Sloan Management Review, 44(1), 51–56. Hart, S., & London, T. (2005). Developing native capability: What multinational corporations can learn from the base of the pyramid. Standford Social Innovation Review, 3(2), 28–33. Henderson, D. (2001). The case against ‘corporate social responsibility’. Policy, 17(2), 28–32. Hirsch, P. M., & Levin, D. Z. (1999). Umbrella constructs versus validity police: A life cycle model. Organization Science, 10(2), 199–212. ISO. (2010). ISO 26000: 2010 guidance on social responsibility (p. 106). Geneva, Switzerland: ISO. Ite, U. E. (2005). Poverty reduction in resource-rich developing countries: What have multinational corporations got to do with it? Journal of International Development, 17(7), 913–929. Jamali, D. (2010). The CSR of MNC subsidiaries in developing countries: Global, local, substantive or diluted? Journal of Business Ethics, 93, 181–200. Jenkins, B., Ishikawa, E., Geaneotes, A., & Paul, J. (2010). Inclusive business: Expanding opportunity and access at the base of the pyramid. Report of a conference, October 7–8, IFC, Washington, DC. Jeppesen, S., & Lund-Thomsen, P. (2010). Special issue on ‘‘new perspectives on business, development, and society research’’. Journal of Business Ethics, 93, 139–142. Kandachar, P., & Halme, M. (2008). Sustainability challenges and solutions at the base of the pyramid. Sheffield: Greenleaf Publishing. Karnani, A. (2007). Misfortune at the bottom of the pyramid. Greener Management International, 51, 99–110.

90

MARIA ALEJANDRA PINEDA-ESCOBAR

Kolk, A., & van Tulder, R. (2006). Poverty alleviation as business strategy? Evaluating commitments of frontrunner multinational corporations. World Development, 34(5), 789–801. Lariu´, A., & Strandberg, L. (2009). Negocios inclusivos: Creando valor para las empresas y para la poblacio´n de bajos ingresos. Ca´tedra ‘‘la Caixa’’ de Responsabilidad Social de la Empresa y Gobierno Corporativo. Lodge, G. C., & Wilson, C. (2006). A corporate solution to global poverty: How multinationals can help the poor and invigorate their own legitimacy. Princeton, NJ: Princeton University Press. Maak, T. (2009). The cosmopolitan corporation. Journal of Business Ethics, 84, 361–372. Mendoza, R., & Thelen, N. (2008). Innovations to make markets more inclusive for the poor. Development Policy Review, 26(4), 427–458. Muthuri, J. N., Moon, J., & Idemudia, U. (2012). Corporate innovation and sustainable community development in developing countries. Business Society, 51(3), 355–381. Prahalad, C. K. (2005). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Upper Saddle River, NJ: Wharton School Publishing. Prahalad, C. K., & Hammond, A. (2002). Serving the world’s poor profitably. Harvard Business Review, 4–11. Prahalad, C. K., & Hart, S. (2002). The fortune at the bottom of the pyramid. Strategy+Business, 26, 54–67. Programa de las Naciones Unidas para el Desarrollo, PNUD. (2010). Crecimiento de mercados inclusivos. Bogota: PNUD. Reich, R. B. (1998). The new meaning of corporate social responsibility. California Management Review, 40(2), 1–11. Schuster, T., & Holtbru¨gge, D. (2012). Market entry of multinational companies in markets at the bottom of the pyramid: A learning perspective. International Business Review, 21, 817–830. Sen, A., & Kliksberg, B. (2007). Primero la Gente. Barcelona: Ediciones Deusto. Simanis, E., & Hart, S. (2008). The base of the pyramid protocol: Toward next generation BoP strategy (2nd edn.). New York, NY: Cornell University. Simanis, E., & Hart, S. (2009). Innovation from the inside out. Sustainability & Innovation. MIT Sloan Management Review, 50(4), 77–86. Singer, A. (2006). Business strategy and poverty alleviation. Journal of Business Ethics, 66, 225–231. SNV-WBCSD. (2008). Negocios Inclusivos Iniciativas empresariales rentables con impacto en el desarrollo. Quito: WBCSD. Stigson, B., & Rendlen, B. (2006). Drivers of business behaviour in the realm of sustainable development: The role and influence of the WBCSD, a global business network. In F. Wijen, K. Zoeteman & J. Pieters (Eds.), A handbook of globalisation and environmental policy: National government interventions in a global arena (pp. 313–332). Cheltenham: Edward Elgar Publishing. Tashman, P., & Marano, V. (2010). Dynamic capabilities and base of the pyramid business strategies. Journal of Business Ethics, 89, 495–514. VanSandt, C. V., & Sud, M. (2012). Poverty alleviation through partnerships: A road less travelled for business, governments, and entrepreneurs. Journal of Business Ethics, 110, 321–332.

Business, Sustainability, and Base of the Pyramid

91

Visser, W., Matten, D., Pohl, M., & Tolhurst, N. (2010). The A–Z of corporate social responsibility (Rev. and updated edn.). Wiltshire, Great Britain: Wiley. Whelan, G., Moon, J., & Orlitzky, M. (2009). Human rights, transnational corporations and embedded liberalism: What chance consensus? Journal of Business Ethics, 87, 367–383. World Business Council for Sustainable Development (WBCSD). (2010). Business and development. Challenges and opportunities in a rapidly changing world. Geneva: WBCSD.

EXTERNAL INTRUSION, INTERNAL TRAGEDY: ENVIRONMENTAL POLLUTION AND MULTINATIONAL CORPORATIONS IN SUB-SAHARAN AFRICA Evans S. Osabuohien, Uchenna R. Efobi and Ciliaka M. W. Gitau ABSTRACT Purpose – This study provides insight on how Sub-Sahara African (SSA) countries can ameliorate the impact of environmental pollution in the face of increasing inflow of multinational corporations (MNCs). Design/methodology/approach – An analytical model describing the role of institutions in reducing the environmental impact of MNCs was formulated and analysed for a sample of 43 SSA countries (1996–2010) using descriptive and the System Generalised Method of Moments techniques.

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 93–118 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012010

93

94

EVANS S. OSABUOHIEN ET AL.

Findings – It was found that the ‘tragedy’ of environmental pollution can be ‘managed’ if there are strong institutional framework especially regulatory quality and government effectiveness that will drive environmental policies and make MNCs to comply to the tenets of corporate social responsibility (CSR) in host countries. The study also established that the environmental hazards in the previous year will occur in the current year, but with strong institutions in place, it will be at a decreasing rate. How increase in trade, inflow of MNCs and population growth affect the current extent of environmental pollution was underscored. Research limitation – Aggregated data on the variables were utilised, and thus the results were dependent on the reliability of the data. Examining how MNCs respond to CSR with respect to environmental issues in SSA can be taken up in future studies using micro-data. This will complement this study and further establish the impact of MNCs activities on the environment in SSA. Originality/value of chapter – The relevance of institutions in regulating the behaviours of MNCs with regards to environmental pollution in SSA was emphasised. Keywords: CO2 emission; corporate social responsibility; environmental pollution; institutional framework; multinational corporations; system GMM

INTRODUCTION Environmental issues emanating from different forms of pollution have become one of the major challenges across the world. Though it is not only limited to developing countries, the ‘avalanche’ of developmental challenges such as reduction in poverty level, unemployment, morbid and tumultuous political terrain, has made environmental pollution more profound and devastating in developing countries. This is coupled with the argument that companies have shown low corporate social responsibility (CSR), especially multinational corporations (MNCs) that operate in developing countries. In view of the aforementioned, this study contributes to the body of knowledge by investigating environmental pollution in relation to the activities of MNCs in the host countries. This is essential as environmental pollution can alter climatic conditions such as disruption of the pattern of rainfall, temperature and biodiversity (Kulovesi, 2009). As the majority of the populace in developing countries, especially those in Africa, depend on the

External Intrusion, Internal Tragedy

95

agricultural sector, which is mostly reliant on rainfall, this scenario can negatively influence the livelihood of households that do not have the wherewithal to adapt to the imminent changes. In essence, it has been noted that the impact of environmental pollution on poor groups’ livelihoods is one of the major challenges facing Sub-Sahara Africa (SSA) (Drine, 2011). Some of the noted determinants of environmental pollution include energy consumption, income and foreign trade, among others (Halicioglu, 2009). The Environmental Kuznets Curve (EKC) theory has also been developed to explain the factors influencing environmental pollution around the world (Grossman & Krueger, 1993). However, not much evidence exists with regards to the influence of MNCs on environmental pollution in SSA. This is imperative as external intrusion (influx of MNCs) can contribute to environmental pollution, which can affect the host communities in terms of water pollution, depletion of arable land, among others. The case of oil spillage and the attendant inferno outbreak in the Niger Delta region of Nigeria is a handy example in this line of thought. Thus, the objective of this study is to empirically establish the relationship between inflow of MNCs and environmental pollution and to find out the role of institutional framework in this nexus. Both descriptive and econometric analyses were employed based on sample of 43 SSA countries for the period 1996–2010. The descriptive analysis documents summary statistics on the indicators of environmental pollution and possible factors that can influence it. The econometric technique formulates empirical model that examines the determinants of environmental pollution in selected SSA countries with focus on MNCs. Using data from World Development Indicators (World Bank, 2012) and World Governance Indicators (Kaufmann, Kraay, & Mastruzzi, 2010) estimated by System Generalised Method of Moments (SGMM), some findings and their implications are documented in the study. The remaining part of the study is structured as follows: literature review is covered in the second section with the conceptual framework in the third. The econometric model and estimation technique is described in the fourth section while the empirical results and discussions are reported in the fifth section. The last section concludes with some recommendations for policy.

MULTINATIONAL CORPORATIONS AND CORPORATE SOCIAL RESPONSIBILITY Some studies (e.g. Grossman & Krueger, 1993; World Bank, 1992) have argued that environmental pollution increases at a linear rate with economic

96

EVANS S. OSABUOHIEN ET AL.

growth, as increased economic activities in the form of improved production can hurt the environment. Shafik and Bandyopadhyay (1992) using 10 different indicators of environmental pollution supported the thought that river quality, air pollutant concentrations, municipal waste and carbon emission per capita tend to increase with rising income. Some other recent studies such as Jalil and Mahmud (2009) and Iwata, Okada, and Samreth (2010) found evidence to support the above allusion. From a different perspective, Halicioglu (2009) and Behnaz, Jamalludin, and Saidatulakmal (2012) observed that international trade is a major determinant of environmental pollution. This was based on the fact that countries engaging more in international trade will experience increased carbon emission from the transportation of traded goods. Earlier, Wyckoff and Roop (1994) estimated that 13% of the total carbon emissions of six OECD (Organisation for Economic Cooperation and Development) countries can be traced to their importation. Mongelli, Tassielli, and Notarnicola (2006) found a similar result. Energy usage has also been found to explain the increase in environmental pollution. Although in extant literature, this line of argument has remained inconclusive. Lise (2006), using a decomposed data for carbon dioxide (CO2) emissions for the period 1980–2003, concludes that CO2 emissions and energy usage had a negative relationship, while Say and Yucel (2006) refuted this argument when using simple regression for the period 1970–2002. World Bank (2007) and Behnaz et al. (2012) further observed that a rapid increase in environmental pollution especially CO2 emission is caused by human activities. This implies that increased population growth rate can have an adverse effect on the environment. Most empirical studies have not paid much attention to the contribution of MNCs to environmental pollution, especially in Africa. This is crucial with the rising inflow of MNCs in the continent, which have been a major source of foreign capital for many African countries. Furthermore, some African countries have gone a step further by bringing in liberalisation policies to attract MNCs (Borensztein, De Gregorio, & Lee, 1998; Mwilima, 2003). MNCs are large companies that operate in more than one country, usually entailing foreign direct investment (FDI). World Bank (2012) defined FDI as investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor. This implies that the investor will have rights especially in corporate decision making (operational and strategic inclusive). United Nations Conference on Trade and Development (UNCTAD, 1998) noted

External Intrusion, Internal Tragedy

97

that these investments can further be classified into three categories: First, investments aimed at maximising market size, market growth, access to regional and global markets, country-specific consumer preferences and structure of market (market-seeking); second, investments focussed on raw materials, low-cost, unskilled labour, technology and physical infrastructure (resource/asset-seeking); and the final category includes investments targeted at the reduction in the cost of inputs and other resources, enhancing regional integration among others (efficiency-seeking). Pigato (2001) observed that most FDI inflows into Africa have focussed more on resource-seeking. The impact of FDI on the host community has remained controversial especially in reference to the development process of African countries. Stopford (1998) view them as benign engines of prosperity as they lead to promotion of sustainable development, which United Nations (1987) earlier conceptualised as the development process that meets the needs of the present without compromising the ability of the future generations to meet their own needs. FDI has also been found as a complementary source of capital for domestic investment in host countries (Kim & Seo, 2003; Tang, Selvanathan, & Selvanathan, 2008). Others like Sun and Parikh (2001), Mwilima (2003) and Schneider (2005) have noted that FDI inflow increases export competitiveness, generates employment in the host country, improves technology and skill transfer which can increase total factor productivity and enhance integration into the global economic networks. Furthermore, Hale and Long (2006) observed that FDI inflow enhances productivity, poverty reduction, trade and economic growth. World Bank (1998) and Ahmed, Cheng, and Messinis (2008) were of the opinion that FDI inflow in host countries promotes both forward and backward linkages within the domestic economy through increase in the country’s capital stock. Despite the numerous benefits from FDI inflow, there seems to be a myriad of issues that accompany FDI inflow. This is following the caution by Pigato (2001), who noted that the activities of MNCs in developing countries can have adverse effect on the host countries. Furthermore, the report from a survey by UNCTAD (2009) on MNCs operating in Nigeria for over 40 years reveals that only one out of six MNCs surveyed has been able to establish a network of internationally competitive local suppliers. This shows a kind of disconnect between the inflow of FDI and the development of local industry, which may not be unconnected with Gardiner (2000)’s and Eregha (2011)’s submissions that increased FDI inflow into African countries will bring about a demeanour of negative externalities such as crowding out local investors. This is not far-fetched, as institutions and regulatory qualities to check the activities of FDI in most

98

EVANS S. OSABUOHIEN ET AL.

African countries are weakly defined and in some cases inexistent. An informative example is the case of environmental degradation (e.g. gas flaring, oil spillages) in some parts of Africa, which has emanated from, among others, excessive extractive activities of some MNCs (UNCTAD, 2009). The issue of environmental pollution is a major developmental hurlyburly in Africa, as most countries in the continent are susceptible to its consequences. For instance, statistics from Maplecroft (2011) elucidates that 60% of the countries in the world with extreme vulnerability to environmental pollution are in SSA. Emission of toxic gaseous molecules, such as carbon dioxide (CO2), and other greenhouse gases (GHG), such as hydrofluorocarbons, per-fluorocarbons and sulphur hexafluoride, which increase the risk of environmental degradation, are caused by human activities. Their impacts are enormous, as increase in these toxic gaseous components in the atmosphere can lead to health challenges, reduced income and livelihood from agricultural production, food security issues, among others (Metz, Davidson, Bosch, Dave, & Meyer, 2007). Among the main contributors to GHG emissions are industries and factories most of which are MNCs owned and operated. To minimise these externalities, United Nations (1987) noted that it is imperative to make MNCs socially responsible. Thus, it is important to enhance the CSR involvement of MNCs in Africa. The concept of CSR involves ethical business operations that take account of the organisation’s impact socially, environmentally, economically and in terms of human rights. By this, MNCs become accountable for their environmentally adverse effects, thus ensuring sustainability and protection of the environment. It also involves socially responsible investment, governance, and the social dimension of business operations. Gugler and Shi (2009) from their study that addressed the CSR divide in developing countries further instructed that to bridge the CSR gap there is a need to improve CSR standard-setting participation. This defines corporate obligations in relation to CSR in a more explicit way. Egbe and Paki (2011) noted that the environmental pollution experienced in the Nigerian oil sector can be traced to poor developmental policies, while Pimpa (2011) focusing on two MNCs in Thailand concludes that social and institutional pressures and stakeholders’ involvement influence decisionmaking with respect to CSR on poverty alleviation. This explains that the corporations’ responsibility to the society can be conditioned by the expectations from the national context where they operate (Dahan, Doh, & Guay, 2006).

External Intrusion, Internal Tragedy

99

It can be summed from the above that recent empirical studies on how the activities of MNCs can be tailored or managed with respect to their impact on the environment especially in developing countries has been scanty. This makes this study relevant, as it contributes to filling the observed gap particularly with the discussions on the role of institutional framework in the interplay. This is taken up in the next section.

CONCEPTUAL FRAMEWORK This section presents the conceptual framework to illustrate the role of institutional framework in the nexus between environmental pollution and MNCs’ inflow (external intrusion). This is illustrated in Fig. 1. In Fig. 1, the most tragic experience (maximum tragedy) will occur in Case 4, where there is a high level of external intrusion coupled with weak institutional framework. The reason for this is that environmental pollution will increase as a country’s industrial activities increase based on MNCs’ activities. When institutions are weak, the mechanism to regulate MNCs’ excessiveness or at least curtail the level and effect of environmental pollution produced by them is not available, or where it is available, it is poorly defined and implemented. However, if there are strong institutions in the host country to guide the process, the effects of the external intrusion can be ‘managed’, which will give rise to Case 3. This can be described as ‘managed tragedy’, as the impact of environmental pollution can be ameliorated through strong institutional framework such as effective and efficient environmental policies.

Fig. 1.

Typology of Environmental Tragedies. Source: Authors.

100

EVANS S. OSABUOHIEN ET AL.

Developed countries with strong institutions will be more apt in enforcing environmental laws through fines, taxes etc. compared to developing countries. The recent finding of Deininger et al. (2011) that foreign land investment in developing countries is driven by weak institutions where foreign investors cash in on the weak institutions to maximise their returns lends credit to this postulation. Some studies (e.g. Mwilima, 2003; Schneider, 2005; Sun & Parikh, 2001) have argued in favour of MNCs, in that they contribute to the process of industrialisation and economic growth; a number of works have also observed otherwise (e.g. IPCC, 2007; UNCTAD, 2009). This study is not attempting to join the debate but differ by investigating how the negative consequences of MNCs’ activities in terms of environmental pollution can be stemmed by institutional framework. In view of the above, Case 3 appears to be the second best option, where the inflow of MNCs is high, but with strong institutional framework, the adverse impact on the environment can be ‘managed’. It is not only MNCs that contribute to environmental pollution, but also domestic firms. However, since the ownerships of domestic firms are indigenous, the issue of capital repatriation is almost non-existent. Also the return from such investment can be ploughed back to the economy. In addition, the MNCs are usually larger and stronger, which implies that they have larger scope of operations and hence significant ‘contribution’ to environmental pollution (Eregha, 2011). Case 2 which is characterised by low MNCs’ inflow and strong institutional framework appears ‘least tragic’ but not desirable. This is because developing countries like those in SSA have always beckoned on foreign investors to complement their resource gap, since domestic investment may not be sufficient to equilibrate with planned expenditure. Therefore, despite the ‘least tragic’ as Case 2 appears, developing countries will still require some level of MNCs’ inflow to enhance the level of investment. Case 1 is epitomised by low inflow of MNCs and weak institutional framework. At this point, developing countries will experience huge resource gap. Even the low inflow of MNCs will lack the adequate mechanism to checkmate the effects of their operations on the environment. Taking this argument further, a firm (e.g. MNC) can be considered as an interdependent entity that involves interconnected interest including that of the society. Hypothetically, this position can be modelled as illustrated in Fig. 2, showing how institutional framework interplays with MNCs’ CSR considering the resultant cost and benefit. Fig. 2 shows that the behaviour of a corporation towards the environment can be influenced by the quality of the institution at a given point in time,

101

External Intrusion, Internal Tragedy

CSRII

Inst0

InstI

CSRI

InstII Mb

CSR0 e e e C0

BII BI B0

CI

CII

Fig. 2. Corporations Participation in Corporate Social Responsibility. Note: There could be direct relationship between the level of CSR engagement by MNCs and environmental pollution as improved level of CSR will help in reducing environmental pollution. Source: Authors.

namely Inst0, InstI and InstII. Equilibrium can occur when the anticipated benefit (line Mb) corresponds with the lines CSRs (0, I, II). In this case, the perceived marginal benefit from engaging in CSR equals the cost of engaging in such activities. At first equilibrium where CI=BI, the CSR of the corporation would be informed by the institutional quality at the point InstI. This is in tandem to the doctrine of pollution-haven hypothesis, which opines that poor institutions (e.g. weak environmental policies) in developing countries act as one of the main attractions for MNCs (Field & Field, 2009). The corporation will shift its CSR activities to CSRII, when the available institutional framework shifts to InstII. This is because the consequences for not abiding with stated regulations and policies set by the host country can be gargantuan. Hence, the corporation will rather comply with the higher policy and seek for avenues to maximise their CSR activities (BII) at the cost (CII). Thus, the equilibrium will shift from CIBI to CIIBII. This will be possible mainly where there is strong political will among the political leaders of the host countries to enforce compliance with policy as corporations will see the cost for noncompliance to be greater than the benefit. When the institutional quality decreases to Inst0, the corporation’s engagement in CSR reduces to CSR0. This is because the corporation would

102

EVANS S. OSABUOHIEN ET AL.

rather channel its resources to other economic activities than engage in increased social activities (CSR) since there are weak institutions to drive them to engage in higher CSR activities. At this point, the corporation still maximises the benefit (B0) from such activities considering the cost incurred (C0), which means low level of CSR engagement. This implies that the extent of engagement in CSR by the corporation depends on the quality of institutions and regulations in the country, ceteris paribus. Thus, corporations (MNCs) will only be socially responsible to their environment based on the quality of institutions available to regulate their activities. To enhance MNCs’ participation in CSR activities, rules and policies (institutions), emphasised in Fig. 2, has to be followed. However, there is the need for proper regulations and enforcement, which is inadequate in SSA countries. This can be achieved by engaging MNCs in the policy process especially in the form of consultations in order to motivate their CSR involvement. If the above is not in place, ‘bogus’ policies may be made, which may not be achieved due to the fact that the MNCs can seek avenues (e.g. through corrupt practices) to circumvent the regulations and their engagement in CSR. Thus, the quality of rules and regulations (especially environmental policies) in a country can explain their CSR behaviour and reduce environmental pollution.

ECONOMETRIC MODEL AND ESTIMATION TECHNIQUE The econometric model for this study extends Grossman and Krueger (1993) and Halicioglu (2009) by including variables for population growth, MNCs’ inflow, institutional framework and the interactive variable between MNCs’ inflow and institutional framework. The inclusion of the growth rate of population in the model was based on the assertions by World Bank (2007) and Behnaz et al. (2012) that rapid increase in environmental pollution especially CO2 emission is caused by human activities. This implies that increased population can have an impact on environmental pollution. The interactive variable was included to establish the role of institution in the relationship between MNCs’ inflow and environmental pollution. The baseline model for this study incorporates measures of environmental pollution (Evpol), economic income (Gdpc), international trade (Trade), population growth (Popg), MNCs’ inflow (MNCs) and institutional framework (Inst) and is presented in Eq. (1) as

External Intrusion, Internal Tragedy

103

Evpol it ¼ ai þ bi Gdpcit þ b2 Tradeit þ b3 Popgit þ b4 MNCsit þ b5 Instk þ it (1) The inclusion of the interactive variable between institutional framework and MNCs’ inflow variable (Inst_MNCskit ) will transform the baseline model as Evpol it ¼ ai þ bi Gdpcit þ b2 Tradeit þ b3 Popgit þ b4 MNCsit þ b5 Instk þ b6 Instn _MNCsit þ it

(2)

Eq. (2) was transformed into a logarithmic form to make the variables more comparable. Hence, the rate of change of the explanatory variable will be examined on the dependent variable. Thus, Eq. (2) can be rewritten as LEvpol it ¼ a0 þ b1 Gdpcit þ b2 Tradeit þ b3 Popgit þ b4 MNCsit þ b5 Instkit þ b6 Inst_MNCsnit þ it

ð3Þ

where Evpol: Environmental pollution proxied by CO2 emission kilo ton (kt). CO2 emission (kt) was used as proxy for environmental pollution because it contributes the largest share of total greenhouse gas emissions in the world (World Bank, 2007). Gdpc: Per capita GDP is measured as the gross domestic products divided by total population. Trade: International trade capacity of the country, measured as total trade as a percentage of GDP. Total trade is the sum of exports and imports of goods and services in a country for a particular period. Popg: Annual population growth rate of a country in a particular period. Population includes the count of all residents regardless of legal status or citizenship except for refugees not permanently settled in the country of asylum (World Bank, 2012). MNCs: MNCs inflow (external intrusion). FDI inflow as percentage of GDP was used as a proxy. It includes multinational inflow, equity capital and other long-term investments. Instk: Institutional framework, measured using two indicators (k=12): regulatory quality (RQ) which reports the ability of the government to formulate and implement sound policies and regulations that permit and promote development; government effectiveness (GE) measures the quality of public services, the quality of the civil service and the quality of policy formulation and the commitment of the government to such policy. In

104

EVANS S. OSABUOHIEN ET AL.

addition, the average value of these two indicators (RQ and GE) was computed and engaged (denoted as Inst) in the estimation process for robustness check, since RQ and GE are of the same order [i.e.2.5 (worst) to +2.5 (best)]. Inst_MNCsn: the interaction between institutional framework and intrusion. These indicators (n ¼ 12) were included to explain the complementary or substitutive role of institutional framework on MNCs’ inflow to improve or exacerbate environmental pollution. These include GE_MNCsit and RQ_MNCsit. it: country ‘i’ and time ‘t’ identifiers. The a priori is such that: b14W0, which implies that the respective increase in Gdpc, Trade, Popg and MNCs can intensify environmental pollution, ceteris paribus. b5o0, implying that rising institutional framework will reduce environmental pollution, ceteris paribus. The sign of b6 cannot be inferred a priori as it will depend on the nature of the respective interaction. If b6W0, it implies that MNCs’ inflow will increase environmental pollution when there are better institutional framework. However, the opposite holds if b6o0, that is institutional framework can reduce MNCs contribution to environmental pollution. The problem of endogeneity can occur in an econometric model because most economic variables may not be entirely predetermined (e.g. Bettin & Zazzaro, 2011; Osabuohien, 2011; Papaisonou, 2009). To handle this, appropriate instruments have to be identified and used in the model estimation process. However, the process of identifying such instruments do not come easy as instrumental variables are expected to be directly correlated with the said endogenous variable but uncorrelated with the dependent variable (commonly known as orthogonality condition) in the model. Bond, Hoeffler, and Temple (2001) and Arellano and Bover (1995) suggest the dynamic panel data estimation framework using the System Generalized Method of Moment (SGMM) to address the problem. This method estimates the first difference and uses the lagged values and first differences between two periods as instruments for current values of the endogenous explanatory variables (Busse & Koniger, 2012). The two-step method estimates two equations: differenced and levels equation. In the second equation, the first difference of the variables in the level equation is included as instruments, thus increasing the level of efficiency of the estimation by eliminating country-specific fixed effects and other time invariant factors that can pose a challenge in the model. Two-step GMM estimation was employed instead of the default one-step to enhance the

External Intrusion, Internal Tragedy

105

robustness of the standard covariance matrix to panel-specific autocorrelation and heteroscedasticity. Thus, the dynamic model for this study is denoted as Evpol it ¼ a0 þ b1 Evpol i;t1 þ b2 Gdpcit þ b3 Tradeit þ b4 Popgit þ b5 MNCsit XN þ b6 Instkit þ b7 Inst_MNCsnit þ d c þ pi þ mit ð4Þ ðj¼1Þ 1 t where the lagged dependent (Evpoli,t1), summation of the exogenous period-specific (gt Þ and country-specific effects ðpi Þ variables are included in Eq. (3). The caution for over-identification was taken note of and the study followed the approach of Busse and Koniger (2012) by including lagged variables of some of the explanatory variables in the dynamic model. Inclusion of several lags can result in increased number of instruments, which can over-fit the model and weaken the power of the instruments. Thus, the size of the instrument was considered by restricting the lags to one and the lagged variable was only for institutional framework. The reason for this is that policies can take some time before they filter into the activities of economic agents in a country. In other words, economic agents (e.g. firms) take time to respond to new policies by the government. Thus, this can be efficiently captured in the lag of institutional framework. The Sargan test of over-identification and the second-order serial correlations (AR(2)) will be used to ensure instruments used in the dynamic model were not overidentified and there are no second-order serial correlations in the equation. The probability of the Sargan and the AR(2) are expected to be greater than 0.05 to confirm the validity of the instruments and the rejection of the first-order serial correlation (AR(1)) in levels. The model was estimated using STATA 11.1 and GRETL econometric softwares. The data for estimation was sourced from World Development Indicators (World Bank, 2012) and World Governance Indicators (Kaufmann et al., 2010) for 43 countries in SSA (1996–2010). The sampled countries include Angola; Benin; Botswana; Burkina Faso; Burundi; Cameroon; Cape Verde; Central Africa Republic; Chad; Comoros; Congo, Democratic Republic; Congo, Republic; Cote d’Ivoire; Djibouti; Equatorial Guinea; Eritrea; Ethiopia; Gabon; Gambia; Ghana; Guinea; Guinea Bissau; and Kenya. Others include: Madagascar; Malawi; Mali; Mauritania; Mauritius; Mozambique; Namibia; Niger; Nigeria; Rwanda; Senegal; Seychelles; Sierra Leone; South Africa; Swaziland; Tanzania; Togo; Uganda; Zambia; and Zimbabwe. The choice for the scope and period was informed by availability of relevant data.

106

EVANS S. OSABUOHIEN ET AL.

RESULTS AND DISCUSSIONS Descriptive Statistics The mean values of the sampled countries as individuals and the entire sample are presented in Table 1. The table shows that the countries as a group had an average of 13,322.95 kt of CO2 emission. This varies across the sampled countries as some countries such as Angola had emissions of 14,236.99 kt above the sampled average. The values for Nigeria and South Africa were as much as 6 and 29 times more than the average value for the entire sample. This may not be unconnected with mining and industrial activities in these countries compared to others. On the other hand, countries like Burundi, Cape Verde, Central African Republic, Chad, Comoros and Guinea-Bissau had low mean values of emission that ranged between 94.50 kt and 268.82 kt, which are many folds less than the average for the entire sample. Interestingly, some of the countries with high volume of CO2 emission had high mean values for trade as percentage of GDP. Similarly, some of the countries with high level of CO2 emission had a per capita GDP that was above 1,000 USD. Countries like Equatorial Guinea, Gabon, Mauritius and South Africa are examples. On the average, trade contributed about 77% to the GDP for the entire sample, while the average per capita GDP was USD 1,457.92. Examining MNCs variable measured as the percentage of net FDI inflow to GDP reveals that on average the net MNCs’ inflow was about 4.36% of the GDP of the entire sampled countries. The value was highest for Equatorial Guinea (25.57%) and lowest for Comoros (0.56%). In relation to environmental pollution variable, countries like Equatorial Guinea, Benin and Congo Republic are insightful, noting that they had contributions of emission above 1,000 kt and FDI inflow contributing over 10% to their economy. This may connote that a possible link can be inferred for environmental pollution and the measure of MNCs’ inflow. On the average, the annual population growth rate for the entire sample was 2.38%; the minimum growth rate was in Zimbabwe (0.49%), while the highest was in Rwanda (4.30%). Only few of the sampled countries such as Zimbabwe (0.49%), Benin (0.61%), Mauritius (0.88%) and Seychelles (0.93%) had growth rates below 1%. For the indicators of institutional framework, the sampled countries had average values for regulatory quality and government effectiveness as 0.68 and 0.72. These values were lower than the expected average of 0,

Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Comoros Congo, Dem. Rep. Congo, Rep. Cote d’Ivoire Djibouti Equatorial Guinea Eritrea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Madagascar Malawi Mali

All sampled countries

13322.95 (59138.21) 14236.99 2279.18 4148.51 1117.02 233.00 3966.28 229.89 247.66 268.82 94.50 2299.21 1374.00 7155.73 442.86 3027.25 596.03 5232.53 1968.90 300.13 7324.97 1319.84 251.89 9099.80 1726.03 921.26 548.08

Evpol 77.03 (39.35) 131.59 42.42 84.82 35.11 34.07 45.57 98.04 36.50 84.39 52.77 56.57 135.08 80.83 92.63 168.18 73.26 39.57 94.84 94.33 85.42 59.39 68.17 58.24 64.76 67.72 65.68

Trade 1457.92 (2646.00) 1832.52 520.72 4681.67 340.80 128.13 863.84 1972.57 338.46 407.87 539.29 132.41 1529.01 881.05 865.66 9467.38 243.11 191.08 5762.07 350.24 624.72 404.19 340.39 541.68 315.48 227.64 372.02

Gdpc 4.36 (8.57) 9.41 15.56 4.47 0.99 0.16 1.34 6.91 1.82 9.26 0.56 6.02 12.26 2.15 6.07 25.57 3.78 2.44 0.10 8.40 2.95 2.70 1.44 0.55 4.07 2.07 2.76

MNCs 2.38 (0.98) 3.03 0.61 1.57 2.99 2.13 2.27 2.88 1.86 3.15 2.64 2.69 2.61 1.52 2.33 3.06 3.28 2.50 2.17 1.97 2.86 2.41 1.85 2.60 3.04 2.74 1.98

Popg

RQ 0.68 (0.62) 1.30 0.40 0.61 0.25 1.30 0.80 0.20 1.12 1.04 1.41 1.63 1.21 0.74 0.75 1.44 1.65 1.05 0.32 0.45 0.15 0.98 1.09 0.27 1.58 0.41 0.39

Table 1. Individual Country Mean Statistics for Variables.

0.72 (0.60) 1.20 0.43 0.55 0.67 1.32 0.82 0.12 1.46 1.16 1.57 1.72 1.26 0.99 0.90 1.49 1.13 0.73 0.68 0.60 0.10 1.04 1.21 0.58 0.59 0.54 0.82

GE 0.70 (0.58) 2.50 0.83 1.16 0.92 2.62 1.62 0.08 2.58 2.20 2.98 3.35 2.47 1.73 1.65 2.94 2.78 1.78 1.00 1.06 0.26 2.02 2.30 0.84 2.16 0.95 1.22

Inst

External Intrusion, Internal Tragedy 107

1734.21 2976.76 1656.64 2382.42 896.72 76696.72 679.24 4479.95 568.67 965.83 386952.55 1055.25 3995.06 1281.19 1949.15 2033.77 12172.18

97.09 122.97 64.18 95.30 41.01 74.06 35.03 34.15 157.57 49.52 55.98 183.04 48.21 84.08 40.99 70.33 82.76

Trade 709.99 4978.67 293.30 3018.85 246.94 682.48 308.06 735.64 8958.48 238.79 4351.02 2158.94 356.42 386.33 325.34 617.08 515.01

Gdpc 6.41 1.91 5.29 2.53 3.28 3.44 0.66 1.76 10.13 2.90 1.60 2.98 3.14 2.42 3.83 5.93 1.30

MNCs 2.98 0.88 2.56 1.27 2.75 3.50 4.30 2.43 0.93 2.64 2.16 1.59 2.69 2.73 3.15 2.47 0.49

Popg 0.40 0.54 0.43 0.20 0.61 0.94 0.74 0.23 0.56 1.13 0.53 0.50 0.42 0.75 0.05 0.49 1.81

RQ

Note: The values are the means except for All sample that has the standard deviation included in parenthesis. Source: Authors’ computation.

Mauritania Mauritius Mozambique Namibia Niger Nigeria Rwanda Senegal Seychelles Sierra Leone South Africa Swaziland Tanzania Togo Uganda Zambia Zimbabwe

Evpol

Table 1. (Continued )

0.48 0.59 0.45 0.14 0.88 0.98 0.56 0.23 0.12 1.29 0.62 0.77 0.46 1.36 0.54 0.83 1.02

GE 0.88 1.14 0.88 0.34 1.49 1.93 1.30 0.46 0.44 2.42 1.15 1.28 0.88 2.11 0.59 1.32 2.83

Inst

108 EVANS S. OSABUOHIEN ET AL.

109

External Intrusion, Internal Tragedy

given that the variables are scored within the range 2.5 (worst) and +2.5 (best). This shows the weak level of institutional framework for the sampled countries. Some countries like Botswana, Mauritius, South Africa and Namibia are exceptions to this as they had higher values. In effect, with regards to government effectiveness (GE), South Africa had the highest score with a value of 0.62, which was closely followed by Mauritius (0.59) and Botswana (0.55). Using regulatory quality as an institutional framework indicator, Botswana experienced the highest score with the mean value of 0.61 followed by Mauritius and South Africa with their respective values of 0.54 and 0.53. Zimbabwe had the lowest score with the mean value of 1.81, while Congo Democratic Republic experienced the lowest score for government effectiveness with the mean value of 1.72, which was close to those of Comoros (1.57) and Equatorial Guinea (1.49). To further examine the relationship between the variables from a bivariate analysis, the correlation test was performed and reported in Table 2. Most of the explanatory variables exhibit direct relationship with the dependent variable (Evpol), indicating that possible increase in them will exacerbate the issue of environmental pollution. However, inference cannot be based on the correlation analysis, since the relationships between the variables were considered only from the bivariate standpoint. This study is based on multivariate analysis, as well as dynamic interactions between the variables. The correlation analysis also informs that there is no possible issue of multi-collinearity between the explanatory variables except indicators of institutional framework variables that are related. Thus, the study includes the indicators of institutional framework individually in different estimation. Table 2.

Evpol Trade Gdpc MNCs Popg RQ GE Inst

Correlation Matrix among Variables.

Evpol

Trade

Gdpc

MNCs

Popg

RQ

GE

Inst

1.0000 0.0307 0.2882 0.1365 0.0342 0.2541 0.3402 0.3131

1.0000 0.5760 0.4639 0.0811 0.0524 0.0972 0.0781

1.0000 0.2990 0.2468 0.4030 0.4475 0.4465

1.0000 0.0026 0.1531 0.1270 0.1473

1.0000 0.1912 0.2438 0.2278

1.0000 0.8110 0.9534

1.0000 0.9497

1.0000

Source: Authors’ computation.

110

EVANS S. OSABUOHIEN ET AL.

Econometric Analysis The results from the econometric analysis are reported in Table 3 using SGMM. The Sargan test of over-identifying restrictions confirms the joint validity of the instruments included in the dynamic equation. Furthermore, the p-value of the Arellano-Bond test for second-order serial correlation in differences [AR (2)] test rejects first-order serial correlation [AR (1)] in levels. The implication of this is that the results can be relied upon for useful inferences. Table 3 shows that the lagged value of environmental pollution (CO2 emission) was positively signed and significant at 1% in most of the regressions. This reveals that the previous levels of environmental pollution affect the current period and the levels of environmental pollution in the current year will likely occur the following year except when adequate measures are put in place to ‘stem the tide’. This is important because the occurrence of environmental hazard in a given place and time will weaken the resistance mechanism of similar occurrence in the near future. This is not far-fetched as some areas noted to be prone to a particular environmental hazard will likely experience same compared to other areas. The regular occurrence of flood in the coastal area of some SSA countries and drought in some other places in the Sahel Savannah are examples to elucidate this stance. Furthermore, the values in Table 3 reveal that the lagged value of environmental pollution continuously decreased when lagged values for institutional framework were included in the model. This shows the effect of policy transmission on environmental pollution. Moving down the rows, it can be observed that trade variable have direct relationship with environmental pollution, with significance ranging between 1% and 5% in all regressions. The implication of this is that increase in trade will result in the increase in environmental pollution ceteris paribus. Halicioglu (2009) has established a similar finding for Turkish economy. The reason for this is that increased trade activities such as transportations of goods will affect the Ozone layer as a result of carbon emission with its consequence on the environment. This revelation is of importance to developing economies especially those in SSA where most of their trading sector is dominated by foreign ownership. In furtherance, the level of economic activities as captured by per capita GDP shows that increase in economic activities will invariably increase the level of environmental pollution as depicted by the positive sign and significant level of the variable. This was not unexpected. Grossman and Krueger (1993) have observed that one of the factors that increase environmental

Inst(1)

GE(1)

RQ(1)

Inst

GE

RQ

Popg

MNCs

Gdpc

Trade

Evpol

0.7304a (0.0000) 0.0420a (0.0022) 0.1107a (0.0000) 0.0114 a (0.0000) 0.0126a (0.0000)

0.9347a (0.0000) 0.0386b (0.0190) 0.0491a (0.0000) 0.0063b (0.0299) 0.0300a (0.0062) 0.0119 (0.2648)

0.0318b (0.0327)

2

0.0073 (0.5221)

0.9367a (0.0000) 0.0349b (0.0232) 0.0487a (0.0000) 0.0074a (0.0015) 0.0314a (0.0079)

3

0.0311a (0.0000)

0.0224 (0.1837) 0.2535a (0.0000) 0.2978a (0.0000) 0.0058 b (0.0188) 0.0538a (0.0000) 0.0187 (0.2512)

4

0.0384a (0.0066)

0.0332c (0.0584)

0.0078 (0.6112) 0.2247a (0.0000) 0.2781a (0.0000) 0.0063b (0.0186) 0.0520a (0.0000)

5

0.0432a (0.0004)

0.0280 (0.1778)

0.0053 (0.7268) 0.2323a (0.0000) 0.2858a (0.0000) 0.0062b (0.0128) 0.0558a (0.0000)

6

0.0382a (0.0016)

0.0090 (0.6790) 0.2661a (0.0000) 0.3231a (0.0000) 0.0096b (0.0104) 0.0601a (0.0040) 0.0393c (0.0836)

7

External Intrusion and Environmental Pollution (CO2kt).

1

Table 3.

0.0320b (0.0365)

0.0488a (0.0061)

0.0384a (0.0000) 0.2441a (0.0000) 0.2882a (0.0000) 0.0082c (0.0543) 0.0473a (0.0009)

8

0.0608a (0.0000)

0.0587 (0.0255)

0.0082 (0.7188) 0.2571a (0.0000) 0.3066a (0.0000) 0.0117b (0.0130) 0.0612a (0.0008)

9

External Intrusion, Internal Tragedy 111

(0.0065)a (0.2672) (0.3326) (0.0000)a

(0.0051)a (0.3044) (0.3158) (0.0000)a

2

(0.0064)a (0.2674) (0.3324) (0.0000)a

3

(0.0087)a (0.2990) (0.2917) (0.0000)a

4

(0.0089)a (0.2975) (0.2822) (0.0000)a

5

(0.0094)a (0.2946) (0.2911) (0.0000)a

6 a

(0.0054)a (0.6580) (0.2866) (0.0000)a

0.0035 (0.0000)

7

(0.0079)a (0.4784) (0.2909) (0.0000)a

0.0039a (0.0000)

8

0.0039a (0.0000) (0.0069)a (0.5980) (0.2906) (0.0000)a

9

Note: The probability values are in parenthesis. Superscripts a, b and c denote significant at 1%, 5% and 10% respectively. Constants were included in all the regressions but not reported. The variables except indicators of institutional framework (because they are indicative variables that contain both negative and positive values between 2.5 and +2.5) are in their logarithmic form. Source: Authors’ computation.

AR(1) AR(2) Sargan Wald

Inst_MNCs(1)

GE_MNCs(1)

RQ_MNCs(1)

1

Table 3. (Continued )

112 EVANS S. OSABUOHIEN ET AL.

External Intrusion, Internal Tragedy

113

pollution is increases in economic activities. Analogous to the above is the fact that increase in population growth will also contribute to the problem of environmental pollution as the variable has positive sign that was significant in all the regressions. This implies that the control of population growth rate in SSA countries will also be a viable way of ‘managing’ the level of environmental pollution in the region. This is because ‘untamed’ population growth exerts pressure on the socio-economic facilities as well as increases the amount of waste released into the environment especially in the urbanising areas. The inappropriate disposal of waste is also a cause of environmental pollution. On the other hand, the respective indicators of institutional framework show that institutions have the ability of reducing the extent of environmental pollution as indicated by the negative sign. One notable finding that can be underscored from the results in Table 3 is that at current level, institutions do not impact much on the environmental pollution in terms of its ameliorating role. But its lagged value has great significance and impact on the current level of environmental pollution. For example, the coefficient of RQ in columns 1 and 4 was not significant; however, its lagged value was significant at 1% in columns 4 and 7. For GE, the current value was significant at 5% in column 2, whereas its lagged value was significant at 1% in column 5. In terms of the level of impact, it increased from 3.1% (0.0318 units) to 3.8% (0.0384 units). Using the average values of both indicators of institutional framework, the coefficient of Inst was not significant in columns 3 and 6 with the current values; but the lagged value was significant in columns 6 and 9. The level of its ameliorating impact was 4.32% and 6.08% in the respective columns. The inference that can be drawn from this finding is that institutional framework such as environmental policy exhibits policy response delay. Thus, taking preventive environmental pollution measure by planning ahead of time is fundamental if reducing the extent of environmental pollution (hazard) is desired by SSA countries. This is because environmental regulation and policy enacted in the current period will likely have effect in future period, as it will take time to percolate in the decisionmaking process of economic agents, with regards to adjusting to such policy. Examining the variable of interest (MNCs), the result shows that the inflow of foreign entities had a positive and significant impact on environmental pollution in all the regressions. This implies that increased inflow of MNCs in SSA economies signifies the risk of increased environmental pollution. However, some other interesting findings can be made from the coefficient and sign of the interaction variables between the indicators

114

EVANS S. OSABUOHIEN ET AL.

of institutional framework and MNCs. The sign shows that institutional framework can be substitutive with MNCs as reflected by the negative sign of the interaction variables (RQ_MNC, GE_MNC and INST_MNC). The implication of this finding is that strong institutional framework will help to repress the level of influence of MNCs’ activities on the environment and consequently reduce environmental pollution. This is significant for policy making as it will require strong institutions to curtail the ‘excessiveness and recklessness’ of foreign outfits in the host countries especially those in SSA. This is important as human beings, and by extension economic agents, are not always ‘saints nor angels’ that can act on the interest of the other; it requires institutional framework to get them comply (Adewole & Osabuohien, 2007). The incidence of the Ogonis in Niger Delta area of Nigeria where the host community’s (Ogoni land) economic activities like fishing and crop farming have almost been paralysed as a result of oil spillage from one of the multinational oil companies substantiates the above submission. The most worrisome aspect of it is that even when there was public outcry on the need to compensate the community, the weak institutional framework did not help matters as the company did not act responsively to such demand. This may be partly due to the existence of political ill-will characterised by self and rent-seeking political lemons in the political policy space that create lacuna where MNCs can take cover.

CONCLUSION Challenges from various forms of environmental pollution are one of the developmental challenges facing developing countries, which are exacerbated by other pressing developmental issues including poverty, illiteracy, unemployment and weak institutional framework. On the other hand, the debate whether MNCs are ‘alive’ to their corporate social responsibilities in developing countries is another contributing factor to environmental challenge. Thus, this study makes contribution by investigating the issue of environmental pollution in developing countries with regards to the argument whether the activities of MNCs in their host countries exacerbate or ameliorate environmental pollution. This is where the present study differs, as some studies have noted the determinants of environmental pollution to include energy usage, per capita income and trade. However, evidence abounds that relating environmental concern to MNCs in SSA has not received substantial attention, which this study made efforts in

External Intrusion, Internal Tragedy

115

bridging. This objective was achieved using panel data on 43 SSA countries (19962010). Analysing the data sourced from World Development Indicators and World Governance Indicators, some major findings and the implications are surmised herein. The lagged value of environmental pollution exhibits positive and significant influence on the current value, revealing that the previous occurrence of environmental pollution affects the current period (forward effect). The implication of this finding is that the effect of environmental pollution in a given time weakens the level of resistance in the future. It was also found that the level of trade directly affects environmental pollution, implying that an increase in the level of trade has the tendency to increase the extent of environmental pollution, ceteris paribus. On a related note, increases in the level of economic activities in the domestic economy and population growth rate exert significant and direct pressure on environmental pollution. The recommendation that can stem from these findings is that the policies geared towards controlling the level of population growth in SSA countries will be useful in controlling the level of environmental pollution as population explosion will have adverse implication on the socio-economic facilities and indiscriminate waste disposal, which are good stimulants of environmental pollution and hazards. The study established that the indicators of institutional framework inversely and significantly influence environmental pollution especially using the lagged values. The crucial finding is that strong institutional framework especially quality of regulation, effective governance and public service in the current year will considerably reduce the level of environmental pollution of the following year, ceteris paribus. Thus, institutional framework inclusive of environmental policy and regulation need to be put in place ahead of time as environmental policies exhibit response lag. In this regard, taking preventive environmental policy measures requires planning ahead of time in order to mitigate environmental hazards. With respect to the inflow of MNCs, a direct and significant influence was found to exist between MNCs and environmental pollution, suggesting that increased inflow of MNCs into SSA countries will increase the issue of environmental pollution. In this regard, the study recommends that strong institutional quality will help to suppress the level of influence of the activities of MNCs on the environment. This has some essential policy message, as it will require a strong institutional framework to stem the tide of MNCs’ excessiveness by ensuring more compliance to environmental laws of the host countries. This is particularly important because economic agents will not naturally act in the best interest of the other unless the

116

EVANS S. OSABUOHIEN ET AL.

needed institutional framework is put in place that will make them fit their actions to the laid-down rules and become more environmentally sensitive.

REFERENCES Adewole, M. A., & Osabuohien, E. S. (2007). Analysis of the cost of governance and options for its reduction in Nigeria. Nigerian Journal of Economic and Social Studies, 49, 137–159. Ahmed, A. D., Cheng, E., & Messinis, G. (2008). The role of exports, FDI and imports in development: New evidence from sub-Saharan African Countries. Working Paper No. 39. Centre for Strategic Economic Studies. Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error components models. Journal of Econometrics, 68(1), 29–51. Behnaz, S., Jamalludin, B. S., & Saidatulakmal, M. (2012). An empirical analysis of the environmental Kuznets curve for CO2 emissions in Indonesia: The role of energy consumption and foreign trade. International Journal of Economics and Finance, 4(2), 243–251. Bettin, G., & Zazzaro, A. (2011). Remittance and financial development: Substitutes or complimentary in economic growth? Bulletin of Economic Research, 64(4), 509–536. Bond, S., Hoeffler, A., & Temple, J. (2001). GMM estimation of empirical growth models. Discussion papers, 3048. CEPR. Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45, 115–135. Busse, M., & Koniger, J. (2012). Trade and economic growth: A re-examination of the empirical evidence. Research Paper, 123. Hamburg Institute of International Economics. Dahan, N., Doh, J., & Guay, T. (2006). A policy network perspective. Human Relations, 59(11), 1571–1600. Deininger, K., Byerlee, D., Lindsay, J., Norton, A., Selod, H., & Stickler, M. (2011). Rising global interest in Farmland. Washington, DC: World Bank. Drine, I. (2011). Climate change compounding risks in North Africa. Working Paper No. 2011/32. UNU-WIDER. Egbe, O. D. J., & Paki, F. A. E. (2011). The rhetoric of corporate social responsibility (CSR) in the Niger Delta. The American International Journal of Contemporary Research, 1(3), 123–133. Eregha, P. B. (2011). The dynamic linkages between foreign direct investment and domestic investment in ECOWAS countries: A panel cointegration analysis. Paper Presented at the CSAE Conference, Oxford, United Kingdom. Field, B. C., & Field, M. K. (2009). Environmental economics: An introduction. Singapore: McGraw Hill. Gardiner, R. (2000). Foreign direct investment: A lead driver for sustainable development? Towards Earth Summit 2002. Economic Briefing Series, 1, 1–9. Grossman, G. M., & Krueger, A. B. (1993). Environmental impacts of a North America free trade area agreements. In P. Garber (Ed.), The U.S-Mexico Free Trade Agreement. Cambridge: MIT Press.

External Intrusion, Internal Tragedy

117

Gugler, P., & Shi, Y. J. (2009). Corporate social responsibility for developing country multinational corporations: Lost war in pertaining global competitiveness. Journal of Business Ethics, 87, 3–24. Hale, G. & Long, C. (2006). What determines technological spill overs of foreign direct investment: Evidence from China. Discussion paper, 9346. Yale University Economic Growth Center. Halicioglu, F. (2009). An econometric study of CO2 emissions, energy consumption, income and foreign trade in Turkey. Energy Policy, 37, 1156–1164. Intergovernmental Panel on Climate Change. (2007). Contribution of working group III to the fourth assessment report of the intergovernmental panel on climate change. In B. Metz, R. Davidson, R. Bosch, R. Dave, & L. Meyer (Eds.), New York, NY: Cambridge University Press. Iwata, H., Okada, K., & Samreth, S. (2010). Empirical study on environmental Kuznets curve for CO2 in France: The role of nuclear energy. Energy Policy, 38, 4057–4063. Retrieved from http://dx.doi.org/10.1016/j.enpol.2010.03.031 Jalil, A., & Mahmud, S. F. (2009). Environment Kuznets curve for CO2 emissions: A cointegration analysis. Energy Policy, 37, 5167–5172. Retrieved from http://dx.doi.org/ 10.1016/j.enpol.2009.07.044 Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: A summary of methodology, data and analytical issues. World Bank Policy Research Working Paper No. 543. World Bank. Kim, D. D., & Seo, J. (2003). Does FDI inflow crowd out domestic investment in Korea? Journal of Economic Studies, 30(6), 605–622. Kulovesi, K. (2009). Sustainable development in Africa: Agriculture, trade and climate change. Issues in Brief, No. 005, pp. 1–8. The Frederick S. Pardee Center for the Study of the Longer-Range Future. Lise, W. (2006). Decomposition of CO2 emissions over 1980–2003. Energy Policy, 34, 1841– 1852. Maplecroft. (2011). Climate Change Vulnerability Index 2012. Retrieved from http://maplecroft. com/about/news/ccvi_2012.html Metz, B., Davidson, R., Bosch, R., Dave, R., & Meyer, L. (Eds.). (2007). Contribution of working group III to the fourth assessment report of the Intergovernmental Panel on Climate Change. Cambridge, UK: Cambridge University Press. Mongelli, I., Tassielli, G., & Notarnicola, B. (2006). Global warming agreements, international trade and energy/carbon embodiments: An input–output approach to the Italian case. Energy Policy, 34, 88–100. Mwilima, N. (2003). Foreign direct investment in Africa. Policy Report. Africa Labour Research Network. Osabuohien, E. S. (2011). Analysis of international trade performance in selected SSA countries: The impact of institutional framework. Unpublished Ph.D. thesis. Department of Economics and Development Studies, Covenant University, Ota. Papaisonou, E. (2009). What drives international financial flows? Politics, institutions and other determinants. Journal of Development Economics, 88, 269–281. Pigato, M. A. (2001). The foreign direct investment environment in Africa. Working Paper No. 15. World Bank, Africa Region. Pimpa, N. (2011). Multinational corporations: Corporate social responsibility and poverty alleviation in Thailand. Paper presented at the First International Conference on

118

EVANS S. OSABUOHIEN ET AL.

Interdisciplinary Research and Development. Retrieved from http://www.inrit2012.com/ inrit2011/Proceedings2011/02_83_24C_Nattavud%20Pimpa_[8].pdf Say, N. P., & Yucel, M. (2006). Energy consumption and CO2 emissions in turkey: Empirical analysis and future projection based on economic growth. Energy Policy, 34, 3870–3876. Schneider, P. H. (2005). International trade, economic growth and intellectual property rights: A panel data study of developed and developing countries. Journal of Development Economics, 78, 529–547. Shafik, N., & Bandyopadhyay, S. (1992). Economic growth and environmental quality: Time series and cross-country evidence. Background Paper for the World Development Report 1992. World Bank, Washington, DC. Stopford, J. (1998). Multinational corporations. Foreign Policy, 12(1). Sun, H., & Parikh, A. (2001). Exports, inward foreign direct investment (FDI) and regional economic growth in China. Regional Studies, 35(3), 187–196. Tang, S., Selvanathan, E. A., & Selvanathan, S. (2008). FDI, domestic investment and economic growth in China: A time series analysis. UNU-WIDER Research Paper No. 2008/19. UNCTAD. (1998). World investment report: Trends and determinants. Geneva: United Nations. UNCTAD. (2009). Investment policy review: Nigeria. Geneva: United Nations Publication. United Nations. (1987). Report of the world commission on environment and development: Our common future. Washington, DC: United Nations. World Bank. (1992). World development report 1992: Development and the environment. New York, NY: Oxford University Press. World Bank. (1998). Knowledge for development. World development report. New York, NY: Oxford University Press. World Bank. (2007). Growth and CO2 emissions: How do different countries fare. Washington, DC: World Bank. Retrieved from http://wwwwds.worldbank.org/external/default/ WDSContentServer/WDSP/IB/2007/12/05/000020953_20071205142250/Rendered/PDF/ 417600EDP01130Growth0and0CO201PUBLIC1.pdf World Bank. (2012). World development indicators. Washington, DC: World Bank. Wyckoff, A. M., & Roop, J. M. (1994). The embodiment of carbon in imports of manufactured products: Implications for international agreements on greenhouse house gas emissions. Energy Policy, 22, 187–194.

DRIVERS, TRENDS, AND OUTLOOK IN SUSTAINABLE DEVELOPMENT: COMPARING BEST PRACTICES IN NORTHERN EUROPE (DENMARK, FINLAND, NORWAY, SWEDEN) AND CALIFORNIA Karina A. Branum, Laura E. Cepeda, Cody Howsmon and Anatoly Zhuplev ABSTRACT Purpose – The purpose of this research is to compare trends, drivers, and best sustainable development (SD) practices in the Nordic region and California, USA. Design/methodology/approach – Four research propositions are explored: (1) SD is driven by governmental, economic, and social/cultural influences. (2) Social democracy and mixed economies in the Nordic region influence SD differently than the free market system of the United States. (3) The profit-centered, short-term view in the United States

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 119–160 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012011

119

120

KARINA A. BRANUM ET AL.

impacts SD differently than the longer-term approach in the Nordic region. (4) The egalitarian culture in the Nordic region influences SD differently than the entrepreneurial culture in the United States. The study incorporates a comprehensive literature review, 34 field interviews and research observations in the United States and the Nordic region. Findings – California and the Nordics have similar market economies where SD is largely driven by private sector; however, the role of government more directly influences SD in the Nordic region. Also, the profit-centered, entrepreneurial view of the United States drives innovation in SD based on short-term profitability gains, which ultimately hinders long-term solutions. Alternatively, the egalitarian culture in the Nordic region manifests in more focused and quicker adoption of SD policies. Lastly, the Nordics have a broad range of SD goals and a competitive advantage in key SD technologies. Conversely, California pursues a large variety of technologies without clearly defined goals that tend to be less effective than the Nordic countries. Originality/value of chapter – The chapter identified similarities and differences in SD trends, best practices, policies, and attitudes: California compared to Nordic countries. Keywords: sustainable; development; energy; building; water; Northern Europe

INTRODUCTION In October 2012, the world population is expected to pass 7.052 billion, reach 9.306 billion in 2050, and peakat 10.1 billion by 2100 (Longman, 2011; Reports: Population, 2012). Continuing population growth and demographic pressures on the environment and socioinfrastructure, largescaleeconomic development that stresses mineral resources and the environment, the rise of China, India and other emerging giants, realization of finite natural resources, environmental concerns, globalization, increasing georegional interdependency, improvements in life styles and material consumption expanding on a massive scale (Stiglitz, Sen, & Fitoussi, 2009), and other driving forces propel sustainable thinking and development to the forefront of national and regional policies and business strategies.

Sustainable Development: Comparing Northern Europe and California

121

Sustainability is commonly understood as a conceptintegrating and optimizing economic, social, and environmental priorities in human development and growth. Broad variations in climate, regional and national natural conditions, mineral resource endowment and environment, demographic dynamics, political-economic systems, historical patterns, culture, and other characteristics actualize scholarly interest toward sustainability, policy implications on international, regional, national, and local levels with many stakeholders and interests involved. There are also high-stake practical implications for business, job creation, and global competitiveness. This year-long study was undertaken in 2011–2012 by a 10-strong research team as a part of the ‘‘Comparative Management Systems’’ MBA program at Loyola Marymount University, Los Angeles, California, USA. The study incorporates extensive library research, including industry reports, publications by government agencies, NGOs, industry associations, consultancies, periodical, and other printed and electronic sources. A comprehensive literature review has paved the foundation for field research from 34 personal, telephone, and Skype interviews conducted in March 2012–July 2012. During the first stage of field research interviews were conducted in the United States, mostly in California, the demographically and economically largest and, arguably, most advanced state in the United States in terms of sustainability. In May 2012 the research team conducted field interviews in the Northern European region during a 2.5 week long trip to Finland, Sweden, Norway, and Denmark. The chapter focuses on comparative analysis of two regions of the world as the case studies of sustainability: California and the Nordic region, which includes Finland, Sweden, Norway, and Denmark. There are several reasons for this regional focus. First, the two regions have a similar demographic scope: California has 37.7 million people (US Census Bureau) compared to 25.5 million people in the four Nordic countries combined, although the Nordic region combined has a 7.22 larger land area (Reports: Population, 2012). Second, both the Nordic region and California are widely recognized as leaders in their parts of the world in matters related to sustainable development. According to the Sustainability Adjusted Global Competitiveness Index (GCI) by the World Economic Forum (2012–2013) that ranks 79 countries, the United States as a whole holds a #33 global rank in social sustainability and #59 in environmental sustainability; the Nordic countries have the following GCI rankings: Social Sustainability: Denmark #5, Finland #7, Norway #1, Sweden #14; Environmental Sustainability: Denmark #30, Finland #4, Norway #3, Sweden #6. With the large size and complexity of the American economy as well as its significant

122

KARINA A. BRANUM ET AL.

socioeconomic diversity and variations across the United States, California has been the national leader in sustainability in the United States for a number of years (Bruns, 2012). Additionally, the state of California measured as a separate entity is the eighth largest economy in the world: in 2011 it registered $1,959 billion dollars in GDP (Bruns, 2012), providing a robust, diverse and complex case for sustainability, compared to $1,609 billion dollars for Denmark, Finland, Norway, and Sweden combined (Reports: Population, 2012). A subject exploration in this chapter of the book opens with the section ‘‘Sustainability: Government/Regulatory Framework.’’ The discussion here focuses on drivers, dynamics, trends, and implications of sustainability on a global and regional level. The section examines sustainability in California and the Nordic region in a comparative context, focusing specifically on energy, building, and water management which are identified as critical impact factors in sustainability. Following this format, further section focuses on ‘‘Sustainability and Economics.’’ After a background overview pertaining to sustainability, the section contrasts and compares California with the Nordic region by discussing critical impact factors: energy, building, and water management. Social aspects of sustainability are discussed in the concluding part. This part of the study provides a short review of demographic and social factors in a historical context. Further on, it concentrates on sociocultural impacts on energy, building and water management, the three critical factors of sustainable development (Fig. 1). The following research propositions will be guiding our exploration: P1. Sustainable development is impacted by and relies upon governmental influences, economic influences, and social/cultural influences. P2. The structure of the social democratic political system and mixed economic system in the Nordic region will influence sustainable development differently than the representative democracy and free market system of the United States. P3. The more profit-centered, short-term view in the United States will impact sustainable development differently than the longer-term approach in the Nordic region. P4. The egalitarian culture in the Nordic region will influence sustainable development differently than the entrepreneurial culture in the United States.

Sustainable Development: Comparing Northern Europe and California

123

Building Sector

Economic Factors

Government Factors Energy Sector

Social/Cultural Factors Water Sector

Fig. 1.

Drivers of Sustainable Development.

SUSTAINABLE DEVELOPMENT The commonly agreed upon definition of sustainability refers to the earth’s regenerative capacity by stating that ‘‘sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs’’ (Strong, 1997). What qualifies as needs for current and future generations depends greatly on where one lives. In developing countries, primary needs may befood, water, basic health care, and education. For developed nations, primary needs may include higher quality and variety of food, efficient transportation, affordable housing, and access to leisure activities, information, and technology. While many needs are universal and others debatable, it must be acknowledged that the developed world will not step backward, and the developing world will keep progressing forward. To achieve sustainability within that construct, we must find ways to do more with less and replace harmful activities with benign ones that do not compromise quality of life. In this study we look to understand the role of government and business in building a sustainable future because, as the key providers of goods and services that meet the needs of consumers around the world, their operations have the biggest impact on the people and planet.

124

KARINA A. BRANUM ET AL.

CORPORATE SOCIAL RESPONSIBILITY Sustainability is a major part of Corporate Social Responsibility (CSR) and will be the focus of our study in this chapter. The study will lay out the drivers for sustainable development within corporations as well as what is driving sustainable solutions in business. These drivers in turn allow us to study CSR applications in the two regions. Our research show that while sustainability-related CSR is being implemented in the United States, it is still slow to catch on and while companies have policies in place, they aren’t being utilized to their full potential. This study attempts to find answers and explore ways to incentivize companies so that CSR becomes a necessity rather that a luxury. Our research also finds that advances in CSR policy in the Nordic region are not necessary given the cultural norms there. CSR initiatives are important imperatives for multinational enterprises in the Nordic region so that they develop them in such a way as to meetcultural norms and expectations of employees and a broader community who have social responsibility ingrained in their culture and way of life. Our research shows why there is little need in promoting this type of policy in Northern Europe and can help companies planning to expand into the area form sustainability CSR that connects with the local people employed at the firm.

SUSTAINABILITY: GOVERNMENT AND REGULATORY FRAMEWORK Introduction and Background Sustainability involves a controversy: lifestyles may have to change, while many people may be resistant to this. The question is how to get an unwilling population to adopt the idea that implementing more sustainable practices now will pay off in the future. One solution is to change behaviors through government intervention (Strong, 1997). Regulation, when effective, can motivate businesses to not only change less sustainable behaviors; it can also help firms build innovative products and services that will facilitate sustainable development. In this pursuit, different countries have embarked on different paths, some with more success than others. For sustainable policy to be effective it must be adopted by local populations; therefore, regulators must consider local culture and norms when making sustainable policies. Here, we explore California in relation to Northern

Sustainable Development: Comparing Northern Europe and California

125

Europe and the different ways in which they regulate sustainability initiatives. For the purposes of this chapter we relate federal US regulations to EU directives and US state regulations to national Nordic regulations. In the 1970s the world was rocked by an energy crisis in which oil prices increased by 70% in 1973 and then again in 1979 (Yergin, 2008). In conjunction with this economic crisis, views among Americans toward sustainability were becoming more important as evidenced by the Earth Day demonstrations in the 1970s. These events helped create our modern-day environmental movement (Turner, 2009). The passage of the Clean Air, Clean Water, and Endangered Species Acts, as well as the creation of the Environmental Protection Agency marked the beginning of large scale governmental involvement in sustainability. California first became interested in the environmental movement in early 1940s as a result of pollution in Los Angeles. LA experienced a heavy pollution haze between 1941 and 1943. The haze limited visibility to only three city blocks prompting ordinances that were aimed at reducing industrial smoke emissions (Hanemann, 2007). During the 1970s energy crisis, California created the California Energy Commission which focused on energy conservation among other things. Emissions remained on the California politicalagenda through the next 30 years and resulted in AB4420 in 1988, SB1941 in 1998 (Hanemann, 2007). Finally California took the lead in sustainable initiatives with the passage of the Global Warming Solutions Act of 2006 or Assembly Bill (AB) 32. The goal of the act is to reduce greenhouse gas emissions to 1990 levels by the year 2020, a 25% reduction statewide with caps for significant emissions sources starting in 2012 (Assembly Bill 32: Global Warming Solutions Act). Since the passage of this mandate, California has put into place regulations and other financial incentives in an effort to meet the 2020 goal. These incentives have benefited firms in different ways anda large amount of innovation has spurred since their implementation, providing an array of solutions for sustainable development. Like the United States, the Nordic countries of Finland, Sweden, Norway, and Denmark responded similarly to the 1970s oil embargo. During this time, most of these countries established their ministries of the environment and started focusing on emissions and pollutants from industry. Emission permits and taxes were the first forms of policy put in place to control environmental problems (Skjelvik, Bruvoll, & Ibenholt, 2011). Today, popular legislation in this area of the world relates to carbon neutrality. Copenhagen, Denmark has recently implemented a plan to reach carbon neutrality by the year 2025. Stockholm, Sweden has a plan to make

126

KARINA A. BRANUM ET AL.

its Arlanda airport carbon neutral, and the city of Malmo plans to be completely carbon neutral by the year 2020. The entire country of Norway is striving to be carbon neutral by 2050, and Helsinki, Finland is creating an entirely carbon neutral city block. Nordic governments recognize the need for sustainable solutions and are capitalizing on the fact that they are already frontrunners in the area of green growth. In sum, both California and the Nordic countries initially responded to the energy crisis by implementing regulations, but now have evolved into using a strategy of regulation coupled with business incentives to advance the development of sustainable solutions.

California In the United States, sustainable regulations generally come from the Federal and State governments, although state regulations, depending on the state, tend to be stricter than national directives. Regulations are also put into place at the municipal level. State legislation can be cumbersome to pass, so most cities take the initiative and put sustainable programs in place. In California, most of the large cities are members of Green Cities California (GCC), a nonprofit activist group that shares sustainable best practices and works to ‘‘accelerate the adoption of sustainability policies and practices through collaborative effort’’ (Green Cities California, n.d.). Regardless, state and municipal regulations can drive firms to implement sustainable practices, and in some cases, regulations to enhance sustainable development that can actually encourage innovation and the development of new industries. Therefore, business plays a leading role in the advancement of sustainable development guided by incentives and directives from various levels of government.

Nordic Region In some ways, the political-economic systems of the Nordic countries are different from that of the United States. Finland, Sweden, Norway, and Denmark have social democratic governments that tax the population highly; however, much of the tax revenue is used to provide citizens with significant entitlement benefits under the welfare state. Health care, education, maternity and paternity leave, and many other benefits are offered by the government at no charge or low cost. Also, these societies maintain

Sustainable Development: Comparing Northern Europe and California

127

smaller variations in wealth distribution and as such, they use taxation as a means to keep household wealth relatively consistent among citizens. Many large companies in the Nordic region are at least partially owned by the government, which means that when regulations are put into place, there is little to no pushback from the business sector. Sweden, for instance, controls 57 wholly and party owned companies (Swedish Ministry of Enterprise, Energy and Communication, 2009). The government recognizes the need to develop sustainably and regulates it in such a way that sustainable projects are national priority. However, because most sustainability initiatives in the Nordic area are coming from the municipal level, each city has implemented its own grassroots initiatives on sustainability development and people tend to feel more connected to the movement. All told, sustainable development in the Nordic countries tends to be influenced by direct government involvement; this finding is consistent with other related research performed in the Nordic region in the wind power industry (Pattersson & Soderholm, 2011). In California, government influence on business is more indirect (Fig. 2). Energy Sector – California Energy is among the most regulated economic sectors in California. Currently, California generates approximately 17% of its in-state energy

NORDIC COUNTRIES Government Influence through incentives and partial ownership.

Governmental Policies

Business Opportunities

CALIFORNIA Government Influence through tax breaks and other incentive programs

Sustainable Urban Development

Fig. 2.

Governmental Influences on Sustainability.

128

KARINA A. BRANUM ET AL.

through renewable resources (see Table 1). Renewable energy incentives in place in California are mostly from the state level, however, the federal Renewable Energy Tax Credit provides a 30% credit for all renewable energy technologies installed in commercial buildings (Martell, 2012). At the state level, the California Solar Initiative (CSI) which is managed by the California Public Utilities Commission (CPUC) provides incentives for solar system installations on new and existing commercial properties (CPUC, 2011). Also, the California Energy Commission’s Emerging Renewables Program and the CPUC’s Self-Generation Programs offer rebates and incentives for the installation of renewable energy systems such as fuel cells and wind turbines(California’s Public Utility Commission, n.d.) Research suggests that rebates appear to be working (Szymanski & Williams, 2012). Our primary research finds similar findings. JMB Realty Corporation, a Chicago based real estate Investment Company that owns several properties in LA, has leveraged incentives to cut costs and attract high-end tenants to its Constellation Place building in Century City. The building was LA’s first Leadership in Energy and Environmental Design

Table 1. Fuel Type

Coal Large Hydro Natural Gas Nuclear Oil Other Renewables Biomass Geothermal Small Hydro Solar Wind Unspecified Sources of Power Total

2011 Total System Power in Gigawatt Hours.

California In-State Generation (GWh)

Percent of California In-State Generation

Northwest Imports (GWh)

Southwest Imports (GWh)

California Power Mix (GWh)

Percent California Power Mix

3,120 36,596 90,751 36,666 36 0 33,244 5,777 12,685 6,130 1,058 7,594 N/A

1.6% 18.3% 45.3% 18.3% 0.0% 0.0% 16.6% 2.9% 6.3% 3.1% 0.5% 3.8% N/A

692 74 215 – – – 5,398 419 – 6 29 4,945 21,339

20,158 1,430 13,072 8,031 – – 2,751 – 574 – 130 2,047 11,381

23,969 38,101 104,037 44,697 36 0 41,393 6,195 13,259 6,136 1,217 14,585 32,719

8.4% 13.4% 36.5% 15.7% 0.0% 0.0% 14.5% 2.2% 4.7% 2.2% 0.4% 5.1% 11.5%

200,414

100.0%

27,718

56,821

284,953

100.0%

Source: Total Electricity System Power (2012).

Sustainable Development: Comparing Northern Europe and California

129

(LEED) gold certified high rise and touts a two acre solar system on the roof of their parking garage as well as two hydrogen fuel cells, the only ones in the city attached to an office building. Sarah Shaw, the Vice President of Operations and Development at JMB, in our field interview says that since the renewable power generation systems were installed, their energy costs have decreased by 30% and the rebates and tax credits have led to a payback period of only three to five years (Shaw, 2012). This translates into cost savings for their tenants.Constellation Place has earned a reputation for being a high end building with a green conscience, thus enabling higher rent charges and attracting quality tenants. However, companies that provide green solutions to corporations convey a much different message. In another field interview, Christy Martell, an Account Manager at Bloom Energy, a fuel cell manufacturer, pointed out that incentives for renewable energy generation come and go and there are a lot more subsides for oil and gas which makes it difficult for companies selling these types of technology to compete with more traditional forms of energy generation. This leads to an uneven playing field for all types of energy technology companies (Martell, 2012). Furthermore, Ed Orrett, Senior Project Development Manager at SPG Solarreiterated the sentiment that solar systems are only feasible with incentives and for highly profitable companies, making it a tough sell to smaller companies or non-profits that support green initiatives but may be unable to afford a solar system (Orrett, 2012). While incentives for adoption of renewable energy are in place at all levels of government, the adoption of these technologies has not been wide spread and companies selling them remain small and have difficulty growing.

Energy Sector – Nordic Region The Nordic countries all have very ambitious renewable energy policies and goals. Green certificates, feed-in tariff, tax credits, and subsidies are all in place to ensure that Nordic power suppliers meet renewable energy use targets. However, there are few government incentives in place for companies to install renewable energy generation onsite. To illustrate, Malmo Cleantech is a government run program that brings startup cleantech companies to Malmo, Sweden for development. According to Magdalenda Kuchcinska of Malmo Cleantech, the government needs to offer more incentives for solar power. They are currently making tax cuts for solar which remain in place for a period of time but after that the incentives

130

KARINA A. BRANUM ET AL.

stop (Kuchcinska, 2012). As with California, people are more likely to implement sustainable measures when accompanied by tax incentives (Organization for Economic Cooperation and Development, 2008). In addition to incentives, government can facilitate the adoption of new technologies through mandates in businesses they wholly or partially own. For example, public buildings in such areas as the Hammarby Sjostad neighborhood in Stockholm include solar panels on their structures as a result of government mandates (Franne, 2007). People who rent or buy these buildings likely would not have added solar panels to the building as a result of the lack of incentives coming from the government.

Building Sector – California Buildings generate 46% of all sulfur dioxide, 19% of nitrogen oxide, 10% of fine particulate, and 36% of carbon dioxide emissions which leads to a necessity to regulate building practices (Green Cities California, n.d.). The federal government offers some tax incentives but building codes are generally handled on a state and municipal level. For example, California’s building codes are contained in the Title 24 legislation developed and distributed by the California Building Standards Commission. Part 11 of the legislation deals with green building standards and it referred to as CALGreen. These codes apply to almost all new building design and construction in California and include regulations on numerous areas of sustainability. It also includes regulations on additions to existing buildings and some voluntary measures. Government entities from the federal level to the municipal level have also adopted LEED as a rating standard with respect to regulations, incentives, and codes (U.S. Green Building Council, n.d.). LEED is a rating system for the design, construction and operation of green homes, commercial buildings and neighborhoods (U.S. Green Building Council, n.d.). Unlike CALGreen, with a few exceptions, LEED certification is voluntary. Although some firms can build an economic case to fund a LEED project, the additional cost deters others. In a field interview, Steve Gabbert, a Project Manager at Snyder Langston, a commercial construction company, highlights that it’s difficult to market sustainable projects to developers because they see no incentive for them to build sustainably (Gabbert, 2012). That is, in many cases, developers have a short-term, economic-driven focus and because LEED projects are more expensive, they tend to only meet the required regulations.

Sustainable Development: Comparing Northern Europe and California

131

Many local municipalities regulate building codes. Pasadena and San Francisco have both passed regulations requiring all new buildings to have LEED certifications. Santa Monica’s Green Building Ordinance requires all new constructions and substantial remodels to comply with additional sustainable building codes (Green Cities California, n.d.). Despite the fact that green building in California cities is highly regulated, not all developers are complying with regulations and those that are, are often doing the minimum amount possible in order to meet the criteria.

Building Sector – Nordic Region Governmental drivers for sustainable building in the Nordic countries are similar to those in the United States. The European Union regulates building and requires that ‘‘member States must establish and apply minimum energy performance requirements for new and existing buildings, ensure the certification of building energy performance y Moreover, the directive requires member states to ensure that by 2021 all new buildings are so-called ‘nearly zero-energy buildings’ ’’ (EU Commission DirectorateGeneral for Energy and Transport, n.d.). Of the Nordic countries evaluated, Denmark, Finland, and Sweden are members of the EU, while Norway is not. However, all Nordic countries must comply with EU standards if they want to remain competitive with their counterparts in other EU countries. Building subsidies, grants, loans, and taxes related to sustainability have been put into place in Sweden, Norway, and Denmark. Interestingly, Finland stands out because the assessments and audits in place are all voluntary and yet are considered quite successful (McCormick & Neij, 2009). Like California, developers in the Nordic countries have little government incentive to build sustainably (Kuronen, Luoma-Halkola, Junnila, Heywood, & Majamaa, 2011). In fact, when asked about government support for sustainable projects, a member of A-Lab, a collaborative architecture firm in Norway, stated ‘‘Our clients are not motivated to build projects sustainably because there is no governmental support for private companies to fund and develop these projects’’ (Kloster, 2012). Erik Freudenthal, Head of Communications at Glashusett, Hammarby Sjostad’s environmental outreach facility, repeated the same sentiment. The City of Stockholm is having difficulty motivating developers to build according to its sustainable requirements because there is no financial motivation to do so (Freidenthal, 2012). Despite the lack of tax incentives, sustainable building projects are being successfully completed all over the Nordic region. Copenhagen’s

132

KARINA A. BRANUM ET AL.

Orestad and Royal Sea Port, Stockholm’s Hammarby Sjostad, Malmo’s Western Harbor, Oslo’s Furuset and Fornebu, and Helsinki’s Vikki are all examples of areas that are being built in a sustainable manner. Because governments are pushing, these projects have been successful even despite resistance from developers.

Water Sector – California California’s geographical location complicates water supply and logistics, and as such, cities in California continuously deal with water shortages. Although water regulations are plentiful, LA County continues to experience shortages, which has required it to put significant conservation measures in place. Perhaps the most notable conservation measure is LA’s water rebate program. LA County gives consumers rebates for installing ultra-low flush and high efficiency toilets, weather based irrigation controllers, and rotating sprinkler nozzles (Platt & Marie, 2001). According to Mike Alvord, Director of Operations at Newhall County Water District, irrigation is one of the highest water costs businesses have (Alvord, 2012). The installation of such devices as rotating sprinklers can lead to significant water cost savings. JMB Realty has installed high efficiency toilets and low flush urinals on every floor of Constellation Place leading to a 30% decrease in water costs (Shaw, 2012). Melinda Grey of Grey Matter Architecture, an environmentally conscious architecture firm, also emphasized the cost savings of using dual flush toilets in her projects (Grey, 2012).There are many incentives in place for businesses to conserve water and save money, but adoption has been slow. However, we must note that the initial investment on water efficient fixtures may deter businesses from installing them.

Water Sector – Nordic Region Water availability and regulations in the Nordic countries are very different from those in California. Because water is a plentiful resource in Northern Europe, regulations there center on water quality rather than conservation. In most cases, the directives come from the EU, which has water high on its agenda. Regulations focus on the financial, technological, organizational, and sociological barriers to innovation in water resource management, and the internalization of costs from water use, pollution, and efficiency (Copenhagen Capacity, 2012). Again, although Norway is not a member of

Sustainable Development: Comparing Northern Europe and California

133

the EU, legislation across the whole region is modeled after EU directives in order to remain competitive. Water suppliers in Norway are set up as nonprofit organizations. The usage fee levied by the municipality may not exceed what is needed to cover the costs of the service. There is no other charge on water use (United Nations, 2004). According to Aina Helgesen, Chief Advisor at Oslo Water and Sewerage Works, water prices inmost Nordic countries are the cheapest in Europe (2012) but need to be increased. The effect of this on firms is minimal. Conservation is not an issue and water prices are extremely low so there is no motivation for firms to adopt measures or develop solutions for water conservation. The government does not regulate conservation so firms enjoy the freedom to use water freely.

Conclusion Governmental regulations in California and the Nordic region reveal similarities with each other more often than not. However, the progress of sustainability initiatives is much different in each region. The Nordic region is tends to be more advanced in their green programs even though policy tools are sometimes more advanced in California. Our research findings were inconclusive as to why motivation in the Nordic countries is stronger, but a potential driver may be the amount of large corporations owned in some part by the government. In contrast, the distrust of the government in the United States coupled with the desire to profit from sustainable projects may be the reason that sustainable initiatives have not been as successful in the United States.

SUSTAINABILITY: ECONOMIC FRAMEWORK Introduction and Background The fundamental principle of classical theory is that the economy is selfregulating. That is, the market allocates resources with efficiency that no central planning body can match, and it easily balances supply and demand. The market does, however, have some fundamental, potentially fatal, weaknesses. It favors the near term over the long term, showing little concern for future generations. Also, it does not incorporate into the prices of goods the indirect costs of producing them. As economic decision

134

KARINA A. BRANUM ET AL.

makers – whether consumers, corporate planners, or government policymakers – we all depend on the market for information to guide us (Buchholz, 2004). The concept of market externalities is fundamental to any study of economics. However, the idea of considering the environment as a stakeholder and therefore internalizing environmental impact as a cost is relatively new. We will explore how companies and sectors delineate eco and people-friendly practices that benefit businesses and the markets they serve (Cramer & Karabell, 2010). We will continue our study of the three sectors: energy, building, and water management between the two regions of California and the Nordic countries with an emphasis on how businesses are reacting to drivers as they compete to provide sustainable solutions. To maintain profitability and survive in a competitive market, businesses are constantly driven to reduce costs, increase sales, improve margins, etc. These economic measures are complicated when intertwined with the other drivers. Of course, this is controversial in that there are large gaps between what people say they want and what they really want, as measured by actual purchases. A recent global survey reports that 87% of consumers worry about the environmental impact of the products they buy, but no more than 33% reported being ready to spend more on eco-friendly products (Bonini & Oppenheim, 2008). Conventional beliefs concerning environmental protection underline the additional costs imposed on firms, which may erode competitiveness. However, in the last decade or two, this paradigm has been challenged by a new way of doing business. Pressure has mounted for companies to be more socially and environmentally responsible in the United States (Ambec & Lanoie, 2008). In the Nordic region the integration of environmental concerns with economic growth started earlier in the 1970s, which was spurred by the oil crisis. While the United States was also adversely affected by the oil crisis, progression began at a later time. Many companies have found that better economic performance has been achieved without increases in costs (Ambec & Lanoie, 2008). The first wave of action came under the heading of CSR. The Crowne Plaza Hotel in Copenhagen Denmark showcases a classic example of the marriage of CSR and financial profitability. Marketing itself as the ‘‘Greenest Hotel in the World,’’ this hotel is comparable to its competition in price, while offering a sustainable stay to tourists and business professionals. CSR Manager MireilleJakobsen reported in our interview that CSR has given the hotel a competitive advantage as well as a boost in profitability (Jakobsen, 2012). The hotel was strategically built near the Copenhagen airport in a sustainable

Sustainable Development: Comparing Northern Europe and California

135

area near the Orestad and 8-Tallet living communities. Companies are now expected to report on societal and environmental measures alongside traditional economic profit and loss statements. Corporate responsibility is a large factor and reason why businesses are adopting green practices. Public relations and promotion are meeting the public demand on how business is benefitting society. California In the United States, businesses generally focus on short term profitability. As noted by a member of Net Balance, a sustainability consulting firm, ‘‘Most companies take a pragmatic approach recognizing that there is only a single bottom line and that there are many elements of business that contribute to significance of the business to their net profit’’ (Srindhar, 2011). There is evidence that companies who embrace the ‘‘triple bottom line’’ have a higher financial performance (Srindhar, 2011). Corporations that mold their image through sustainability reporting are being recognized through indexes such as the Dow Jones Sustainability Index (DJSI). Michael Porter is a leading authority on company strategy and national competitiveness. ‘‘Porter has shown in his research that this type of a longterm non-financial reporting activity can give corporations a sustainable competitive advantage’’ (Porter & van der Linde, 1995). Nordic Region In the Nordic region, development of sustainable solutions seeks more than just profitability (Jakobsen, 2012). There is a quest for ways to make profitable businesses that fit inside the triple bottom line (Noponen, 2012). The Nordic region welcomes technological and scientific challenges and, as such, has a competitive advantage in various forms of energy as well as the resources to aid in its position as an innovative leader. Its unique development has served strong for PR and global demand for its forward thinking technologies. Energy Sector – California Currently California’s sustainable energy sources are not yet as economically feasible as traditional sources. Social aspects such as CSR are taken into account when undertaking renewable energy projects, but according to

136

KARINA A. BRANUM ET AL.

Bloom Energy and Amonix, renewable energy technology companies, profit and ROI must come first before projects are undertaken (Martell, 2012). Focus on the commercial sector is prevalent because it is more cost effective and profitable compared to residential (Orrett, 2012). Bloom Energy’s customers are achieving a rate of return of 15–20%, making the transition to using fuel cells an easy and economically sound choice. In addition to economic benefits, CO2 emissions are reportedly reduced by 40–100% compared to the US grid (depending on their fuel choice) and are eliminating harmful smog forming particulate emissions (Martell, 2012). Bloom expects to be cost competitive in the near future in the event of energy subsidy cessation. SPG Solar also focuses on large scale commercial, which has shown to be more cost effective and profitable. Solar energy is an abundant asset in California, making it a popular choice, in addition to its cost efficiency relative to other energy sources. Solar energy only creates jobs in early stages, but not in the long run, as maintenance is low. Solar energy sales are at a 20% growth rate in the United States; demand has gone down from 50%, but 20% which still signifies a strong position when compared to other forms of energy (Orrett, 2012). California, like the Nordic region, is experiencing rapid job growth in the clean energy sector (Patadia, Kammen, & Wei, 2010). In the period of 1995– 2010 job growth in California’s clean energy sector reached 109%, which outpaced the traditional growth rate of only 12%. In the Nordic region, a 1999 study estimated that 900,000 new jobs will be created from renewable energy (ECOTEC Research and Consulting Limited, n.d.). California has attracted $11.6 billion in cleantech venture capital (VC) since 2006, accounting for 24% of total global investment (Next Ten, 2010). This explosion in cleantech is good for the economics of sustainability because the US imports fossil fuels, such as oil and gas.1 Money spent on imported energy is money lost for renewable energy resources, which are developed locally.

Energy Sector – Nordic Region Various forms of energy are used in the Nordic region. Just as in California with solar and wind energy, the region exploits its natural forms of energy such as wind and hydropower. Helsinki Energy in Finland primarily produces energy from natural gas by combined heat and power (CHP) generation. CHP emissions have

Sustainable Development: Comparing Northern Europe and California

137

decreased over the last 20 years, despite population growth (as seen in Table 2). Additionally, wind and hydropower are methods that have shown to be both environmentally friendly and cost efficient. Perhaps the most innovative green energy technology in Finland is the underground data center – the greenest in the world, and the first of its kind that takes advantage of performance and energy efficiency increasing capabilities for long term use. This unique underground ‘‘city’’ makes use of the surrounding bedrock’s natural insulating properties, while cooling with seawater, the heat from the computer banks can be channeled right into the city’s heating system, and can be used to warm Helsinki’s buildings. Instead of using power for cooling, the computers save power for heating. In terms of profitability, it is very high on Helsinki Energy’s agenda. While currently profitable, Helsinki Energy is not running anywhere near its capacity, as it has planned for long-term city growth and urban sprawl. Higher revenues and profits are expected for the city of Helsinki in the future, as the plants increasingly run at higher capacities (Rosenlew & Sipila, 2012). Biofuels are also studied at Helsinki Energy (Helsingin Energia, n.d.). Sweden’s SymbioCity, a joint project between the US Embassy and the Swedish Trade Council, exercises its niche to integrate different systems together (e.g., energy, water supply and sanitation, sustainable architecture, etc.). This becomes Sweden’s unique selling point toward prospective buyers – especially considering that Sweden and other Nordic countries have small domestic markets. ‘‘There are great economic benefits to gain once we see the invisible links and exploit the synergies between systems in each city’’ (Dahlfors & Hansson, 2012). Due to Sweden’s competitive advantage on sustainable development, it is able to export many of its technologies. According to Matthew Fulco from China Daily, Sweden is the ‘‘second-largest export market for environmental technology, namely renewable energy sources and sustainable urban planning services’’ (Fulco, 2011).

Table 2.

Helsinki Energy Use.

Types of Emissions

2011

2010

2000

1990

Carbon Dioxide g/kWh Sulfur dioxide mg/kWh Nitrogen oxides mg/kWh Particulates mg/kWh

250 160 350 11

260 180 390 10

260 230 310 22

400 1520 1470 200

138

KARINA A. BRANUM ET AL.

Denmark is also a solid leader with an impressive economic growth of 70% in the last 25 years, while energy consumption has remained largely unchanged and CO2 emissions have continued to decline. With 1,100 Danish cleantech companies, 60,000 employees and a 12 billion Euro export value, Denmark is one of the world’s indisputable cleantech centers. The development of Danish society exemplifies how sustainable development can go hand in hand with increasing consumption and economic growth (Ministry of Foreign Affairs of Denmark, 2010). California has ratified regulations so that utility company profits are not correlated with amount of electricity sold, an effect also known as decoupling. As a result, this has welcomed utility companies, such as Southern California Edison to take part of any energy savings it helps consumers and businesses achieve (Romm, 2008). Renewable energy companies are profit driven first and foremost, and are primarily making their mark on the commercial front, while the residential sector is trailing behind as are most other states in the country. The Nordic region hasaddressed the trials of energy much sooner, and while profit is also very important, the region’s scientific and technological advances, as well as smoother adoption has been shown to be their competitive advantage, leading as the inaugural voice of sustainable energy.

Building Sector – California In California, the building and development industry is driven by the desire to complete projects and divest them quickly. As such, they are very profit driven. Minimal costs are sought, leaving social and environmental impacts less likely to be included in the decision-making process. Long term cost reductions enhance future value, but this realization is only starting to be recognized in the real estate investment sector. Cost is a major consideration faced by owners when contemplating ‘‘green’’ building strategies into construction projects. Generally, a ‘‘green’’ building’s return on investment is six years (Sparkling, 2012). However, the payback is highly dependent on the particular business. Profits of Constellation Place in Century City reported a payback period of 3–5 years for most improvements, which JMB Realty modeled and found feasible and financially attractive (McKinley & Howell, 2012). JMB firmly believes that they have a competitive advantage over other real estate investment firms due to their cutting edge sustainability practices. The industry pays attention to their actions and they receive attention for their projects. It has also

Sustainable Development: Comparing Northern Europe and California

139

found that they are able to demand higher rents because LEED buildings are considered high end market (Shaw, 2012). In terms of LEED certification, it can be quite expensive to certify an existing building. According to C.W. Driver and Snyder Langston, companies operating in the green construction area, new projects that are LEED certified are more expensive than non-LEED. Neither company assertively markets LEED, but they are experts in providing the option, as ‘‘that’s where everything is going’’ (Gabbert, 2012; Roberts, 2012). Although adoption is still under way, according to the USGBC, buildings receiving LEED certification are designed to have lower operating costs and increased asset value and qualify for tax incentives (Sparkling, 2012). LEED projects command high rents because they are state of the art, using conservation efforts, newer, and people like to live in cleaner, more modern buildings (Shaw, 2012). Consumer demand is increasing for green buildings, but the reigning preference is to spend money on more tangible things, such as energy efficient appliances (Grey, 2012). Although companies can build a long-term business case for sustainable urban development, many developers have a short-sighted profit-driven view, which hampers the sustainability movement.

Building Sector – Nordic Region Nordic countries are often viewed as pioneers of energy efficiency in buildings – both in implementation of policy instruments and the evaluation of its effects. Since the 1970s, the Nordic countries have introduced several policy instruments for energy conservation in buildings (McCormick & Neij, 2009). However, industries and households may not invest in energy efficiency measures even though analysis states that savings outweigh monetary costs (Skjelvik et al., 2011). Builders and landlords have no incentives to invest in measures to reduce energy consumption as the tenant will carry the costs. Even when the owner and user is the same person, as most people are in the Nordic countries, investments may not be made. Much as in the American building sector, ‘‘money today’’ is preferred over long term savings (Skjelvik et al., 2011). Another barrier in the adoption of sustainable building practices is the actuality that everyone is content with current profit, leaving no reason to exercise more sustainable solutions. Life cycle costs reductions are difficult to attain in the initial price of a building, leaving no incentives for builders

140

KARINA A. BRANUM ET AL.

to build green. It is 5–10% more expensive to build sustainably (Mikkonen, 2012). A-Lab architects do not follow up on projects after they are done in Norway to make sure they are keeping up with federally imposed sustainability standards, while Ecobox, the green unit of the National Association of Norwegian Architects, continues to market and use their projects as examples, forcing them to keep up with the standards (Kloster, 2012; Lommertz, 2012). A ‘‘just enough’’ attitude is prevalent in the industry, therefore impacting the demand for sustainable development. Norwegians, who typically take on short-term market-focused benefits, are now starting to focus on more long-terms economic benefits derived from sustainable projects (Lommertz, 2012). For instance, BREEAM, Norway’s preferred certification process, which is driven by the private sector, has increased in demand (Lommertz, 2012). Now, foreign investors are only investing in rated buildings, which have recently served as a catalyst for sustainable development (Lommertz, 2012). Based on RREEF research, owners of green buildings are benefitting from increased occupancy rates (+8%), higher rents (+6%) and higher building values (+35%). Additionally, sustainable buildings command higher rents, lower vacancies, lease quicker, and have lower energy and other operating expenses than conventional buildings, together yielding greater net incomes (Cajias, Geiger, & Bienert, 2012). For example, Skanska, one of the world’s ten largest construction companies, is assertively promoting its green services, and as a result, green projects account for 60% of their assignments (Forsberg, 2012). It operates through green supply chains, closely tracks progress with sustainability initiatives, and managers must meet construction sustainability goals to receive bonuses. Sustainability is in its DNA – all projects are selected (green and not green) very carefully, taking safety and economic factors into consideration. In terms of sustainable building and design, both California and the Nordic region are motivated by profit in the short run. That is, green buildings may are sometimes viewed as being more prestigious and therefore, a potential increase in demand may be derived from building or renovating structures to be sustainable. However, one difference between the regions lies in the long-term planning of green building projects. While California tends to build one green building at a time, developers in the Nordic countries tend to build large communities that are sustainable, such as the Furuset in Norway. Regardless, firms in both regions can find cost reductions, improvements in performance and the more effective management of risks, which are found to be motivating factors of sustainability (Lewis & Cassells, 2010).

Sustainable Development: Comparing Northern Europe and California

141

Water Sector – California In contrast with the Nordic region, water scarcity is a problem in California. Water has an economic value; it is not only a huge environmental issue, but also a savings opportunity. The report ‘‘Unlocking the Profit in Water Savings’’ found that 52% of sustainability managers ranked ‘‘water stewardship’’ within the top five most important issues dealt with. Interestingly, hard data supporting this trend has found that saving water equates with saving money even when including initial infrastructure investments (Lombardi, 2010). The report found that several global giants, such as Unilever, Kraft, Coca-Cola, and Shell, found savings after they initiated company water conservation projects (Lombardi, 2010). Starbucks Coffee, on the other hand, implemented water saving, and other green initiatives as a result of public controversy. The popular coffeehouse was scorned publicly by water companies and green activists in 2008, which lead todrastic improvements and reports showcasing the companie’s numerous green efforts in all areas of its stores and operations (Balakrishnan, 2008) Although firms may take a proactive approach to water conservation in order to save money, or for PR in some cases, individuals tend to be economically driven to some extent by incentives/rebates, but more so by increases in water prices. Newhall County Water District is changing the way water is billed and will now be billed incrementally. Water budgets will look at individual usage, landscape, size of home, etc. Newhall targets its residential customers and reported an increase in purchase and installation of sprinkler and shower nozzles, high efficiency washing machines, and toilets. Some of these products offer a limited number of rebates. Newhall reported that in order to get the public’s attention on the issue of water scarcity, there is no other solution than that of a price increase (Alvord, 2012). In sum, demand for water will always exist; we cannot live without it. The American public feels that water is a human right, and that it should be cheap (Alvord, 2012). Consumers will not demand sustainability if they can’t afford it or can’t see the intangible benefit or return of the added cost.

Water Sector – Nordic Region Nordic countries do not face problems of water scarcity as in other European regions, or in California. Since the 1970s there have been charges on water usage and sewage to abate actions in these sectors (Skjelvik et al.,

142

KARINA A. BRANUM ET AL.

2011). Stockholm’s canal waters were heavily polluted in the 1970s and extensive measures vastly improved the quality of the water to the extent that the proud mayor drank a glass of canal water (Dahlfors & Hansson, 2012). Famous now for World Water Week, and the prestigious annual prize, Stockholm has applied technologies for wastewater reuse and treatment and strategies for sustainable city planning (Stockholm International Water Institute, n.d.). Danish companies supply customers and countries around the globe with very refined methods for handling water and with front-end technology in general. A wide range of Danish actors in the water sector have been able to take the technologies to developing and other countries and successfully implement the solutions under different climate and regulatory conditions (Copenhagen Capacity, 2012). Denmark can now be regarded as a European water hub: a centre for knowledge, technology, services, and solutions in the field of water. However, Danish freshwater prices are the highest in the world according to a survey by the Organization for Economic Cooperation and Development (OECD). The OECD and Head of the Danish Water and Wastewater Supply Association, Carl-Emil Larsen, also stands by the notion that high water costs can be beneficial to the environment. Additionally, research shows that consumers appreciate the scarcity of the resource and its true value when paying high prices, as water consumption has dropped considerably in the last 20 years. Some businesses aren’t quite as enthusiastic and have complained that the high prices of water diminish competitiveness in the food industry (Water Rhapsody, 2010). In Norway, the City of Oslo Water and Sewage Works (WSW) reported a need to increase water prices; Norwegians understand the need to ensure water supply for future generations. Demand is quite high for pristine water, and Norwegians are willing to pay for it. As a result, prices were raised 10% this year; Norwegians were very accepting of the price increase (Helgesen, 2012). Operations at the City of Oslo Water and Sewerage Works are sophisticated and forward thinking. The organization holds long term views, takes a life-cycle approach to water production and use, and is a strong supporter of the triple bottom line. Oslo WSW uses a very systematic approach through model building, and uses technology as innovation all while keeping prices low. Water scarcity in California stands in stark contrast with its abundance in the Nordic region. Despite the differences in supply of this common and basic good, research in both regions rely on the microeconomic principle that assumes, if all other factors are equal, as the price of a product or

Sustainable Development: Comparing Northern Europe and California

143

service goes up, demand for that product or service declines. The bottom line in the quest for water conservation relies on higher prices, both for consumers and firms alike; however, research suggests that both financial and nonfinancial incentives for conservation can be effective (Krause, Chermak, & Brookshire, 2003)

Conclusion Companies are constantly navigating the whims of the market and trying to maximize their profitability, but they must also work within the law and a regulatory framework set forth by the government. Society also demands that it happens, but it is primarily the companies in their struggle to gain society and government as customers who bring forth the solutions that pave the way and ultimately lead to sustainable development.

SUSTAINABILITY: SOCIAL FRAMEWORK Introduction and Background The origins of sustainable development in the United States are debated, but many social scientists trace its roots back to a book published in 1962 titled ‘‘Silent Spring.’’ This was one of the first published documents that showed the interconnections between the environment, the economy, and social well-being (Carson, 1962). Preservation and conservation of natural resources became more important during the 1970s when the United States and Nordic countries were hit hard by the energy crisis (Svane, 2002). The energy crisis began to alter the prevailing social attitude regarding sustainable development worldwide. Several countries began shifting energy policies toward greener solutions. Measures taken in the United States, such as building the Alaska pipeline, had marginal impact as America’s dependence on foreign oil continued to increase to a peak of 60% in 2005 (Bodman, 2005). Only recently has there been a social movement in the United States to find viable alternate energy sources. In contrast, many of the Nordic countries responded to the energy crisis by developing long-term alternate energy solutions. Denmark became a pioneer in developing commercial wind power capabilities. Today, Danish manufacturers produce approximately half of the world’s wind turbines (Molis, n.d.). In fact, in 1973, Denmark had a 99% dependence on foreign oil. Today, it produces

144

KARINA A. BRANUM ET AL.

enough energy to cover its needs and sells excess energy to other countries (Neatorama, 2008). Social influences play an important role in the adoption of sustainable development initiatives. At a macro level, the sustainable development movement is guided by the demographic and cultural makeup of a society. Similarly, wealth and education also play an important role in the adoption of green practices. Interestingly, countries of the Nordic region and California all share many characteristics that havebeen shown to drive sustainable development. As such, it may not be surprising that these areas all have significant levels of sustainable activity. However, there are some important differences as well. Below we explore the key social and cultural similarities and differences that may impact sustainable urban development across these regions (Fig. 3). Demographics Demographic characteristics and trends often affect sustainable development. Although all of these nations can be regarded as relatively educated and wealthy, there are some subtle and not so subtle differencesthat may be of interest. In this context, we examine three issues that tend to influence sustainability: ethnic diversity, educational influence, and levels of wealth.

Population size Ethnc Diversity Demographic Characteristics Wealth Sustainable Urban Development

Education Egalitarian Individualists Culture

Cultural Masculinity Attitudes toward the role of govenment

Fig. 3.

Facets of Cultural and Social Sustainability Drivers.

Sustainable Development: Comparing Northern Europe and California

145

First, with respect to the level of ethnic diversity, the Nordic countries are highly ethnically homogeneous. According to a comparative study of economic and social performance in the Nordics, ‘‘Ethnic homogeneity is conducive to the emergence of trust, the key ingredient in ‘social capital’, which is widely believed to improve the efficiency of society by facilitating a coordinated action’’ (Andersen et al., 2007). This efficiency is not only aided by homogeneity, but also by a small population size. In contrast, California is a melting pot of many different cultures, with several minority groups that are larger than the total population of each Nordic country (Fig. 4). Education is considered a critical tool for achieving sustainable development. Nordic countries have some of the best educational systems in the world; in fact, Finland repeatedly ranks at the top of global rankings (Knight & Routti, 2011). Furthermore, in Finnish society, sustainable development is so highly regarded that it can be found in the core curriculum. For pupils aged 7–16, the theme is ‘‘responsibility for the environment, well-being and sustainable future.’’ For students aged 16–18, they are taught the principles of sustainable development (Jeronen & Jeronen, 2012). Sustainable development in the Finnish curriculum can be

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 American Indian Black

Fig. 4.

2009 Pacific Islander Asian

Hispanic

2050 Multi-Race White

Current and Estimated Population Distribution in California by Ethnicity (Steele, Oishi, O’Connor & Silva, 2009).

146

KARINA A. BRANUM ET AL.

traced back to 1999, and students in Norway, Denmark, and Sweden learn similar principles throughout their education (Pesonen, 2003). Conversely, the California Board of Education has only recently begun to implement their version of a sustainable development curriculum, called the Education and the Environment initiative (EEI). Currently, the EEI has only been implemented in 16 (approximately 2%) school districts across the state and is expected to be put into practice at 100% of the schools by 2014 (Petru, 2011). Although all these regions have a high quality of education, learning objectives regarding sustainability are more prevalent in the Nordic countries. Finally, wealth and economic capital have a direct impact on sustainable development. Consistent financial resources allow societies to approach sustainable development with a long-term perspective. Conversely, countries with less wealth tend to approach sustainable development with a shortterm focus. We find that the Nordic countries, particularly Norway, have sufficient wealth to ensure sustainable development objectives are met. This wealth, however, is concentrated at the Government level and as such, sufficient resources can be allocated to meet policy objectives. California, which is the 8th largest economy in the world, also has sufficient resources to promote sustainability, but direct investment decisions are made at a company level rather than by the government (Econ Post, 2011). At times, this circumstance hinders sustainable development because business decisions regarding sustainable development do not always align with government initiatives. Because wealth is more concentrated at the government level, the Nordic countries can implement sustainability policies more readily.

Culture Many theoretical models have been developed to analyze how certain cultural elements impact behavior. One of the most widely accepted models is Hofstede’s framework. Hofstede proposed four dimensions to analyze cultural values: (1) individualism–collectivism, (2) uncertainty avoidance, (3) power distance, and (4) masculinity–femininity. Individualism– collectivism refers to the degree to which individuals are integrated into groups. Uncertainty avoidance refers to a society’s tolerance for risk. Power distance refers to the extent to which society is hierarchical. Masculinity– femininity refers to the distribution of roles between genders. For each dimension, Hofstede has ranked each country on a scale from 1 (lowest) to

147

Sustainable Development: Comparing Northern Europe and California

120 (highest). The ranking of the Nordic Countries and the United States are detailed in Table 3. For this comparative evaluation, it is assumed that the culture of the United States is representative of the culture in California (Hofstede, n.d.). Based on this model, the Nordic countries tend to be more individualistic, have moderate tolerance for uncertainty, and tend to have lower levels of power distance. Additionally, these countries appear to be more feminine societies where caring for others, quality of life, and inclusion are important. In comparison, the United States tends to have more individualistic attributes, and have similar tolerances for uncertainty and similar levels of power distance as its Nordic counterparts. It should be noted that individualism, in particular, is increasing globally and is associated with an individual’s own interests and material goals (Kasser, 2011). One notable difference is in the masculinity–femininity dimension where the United States ranks much higher in the masculinity trait. This indicates that Americans tend to award material achievements and strive for material success and are generally more entrepreneurial and assertive. In the context of sustainable development, Hofstede’s model serves as an indicator of the propensity of a particular culture to adopt sustainable development practices. In 2005, Husted examined the relationship among Hofstede’s dimensions and environmental sustainability and found evidence of the following relationships (Cox, Friedman, & Tribunella, 2011):  Power distance lowers social and institutional capacity for environmental sustainability  Individualism raises social and institutional capacity for environmental sustainability  Masculinity lowers social and institutional capacity for environmental sustainability. These relationships suggest that sustainable development is influenced, at least in part, by culture. The Nordic countries have a higher inclination to Table 3.

IndividualismCollectivism Uncertainty Avoidance Power Distance MasculinityFemininity

Hofstede’s Dimensions.

Norway

Denmark

Sweden

Finland

United States

69 50 31 8

74 23 18 16

74 29 31 5

63 59 33 26

91 46 40 62

148

KARINA A. BRANUM ET AL.

embrace sustainable initiatives due to their lower to moderate levels of power distance, higher levels of individualism and lower levels of masculinity. These relationships also indicate that Americans may be less apt to adopt sustainable development than their Nordic counterparts due to higher levels of masculinity. One of the most striking cultural differences between the Nordic countries and California pertains to their attitudes toward the role of government and the role of business. For example, Americans generally have little trust in government and a laissez-faire attitude toward the role of government which results in greater regard for the role of business and greater entrepreneurial spirit. These attributes tend to foster the development of sustainable practices through privately-owned business rather than through government mandates. Even when state and local governments implement policies toward sustainable development, they are usually in the form of subsidies and incentives to businesses. In California, these incentives are popular. In one study, over 2/3 of respondents thought that the state and federal government should provide incentives to businesses for renewable energy products (Meehan, 2012). When scores of businesses individually attempt to promote the green movement, their disconnected approaches are less effective than an aggregated approach. On the other hand, people in the Nordic countries tend to have high levels of trust in their government andare less entrepreneurial and business focused. Many companies in the Nordic region are owned wholly or in part by the government. Thus, the government can execute sustainable programs in a coordinated fashion and with greater consensus. Conversely, private firms may be excluded from these coordinated efforts. In fact, according to a representative at Stena Metall AB, a large recycling company headquartered in Sweden, people believe private companies have ulterior motives. Thus, they will only trust companies that are backed by the government (Rimdal, 2012).

Social and Cultural Influence on Three Business Sectors So far, we have discussed how demographics and culture has either promoted or restricted the sustainable development movement in California and the Nordic region. Now that we have analyzed sustainable development at a macro level, we will investigate the drivers of sustainable practices in the three sectors we have been examining: energy, building/construction and water management.

Sustainable Development: Comparing Northern Europe and California

149

Energy Sector – California and the Nordic Region Both California and the Nordic countries have developed a robust sustainable energy policy; however, the types of alternate energy chosen, as well as the motivations and attitudes regarding renewable energy differ. What drives a society to choose a particular sustainable energy source? Simply put, renewable energy sources are chosen primarily on the basis of what is abundant in that particular region. For example, in California, the primary renewable energy resources include geothermal, wind, and biomass (Vine, 2012). In the Nordic region, Denmark has abundance in wind power, and as such, they derive 20% of their electricity from wind (Harris, 2009). In Sweden, Biomass power is the predominant source of alternate energy (Svebio, 2011). In Norway hydropower is the primary renewable energy source due to their favorable watercourse. Finland uses hydropower extensively and they also use CHP generation. An investigation into the differences between regions will facilitate a better understanding of the key drivers motivating societies to choose alternate energy sources. With respect to attitudes that shape demand, studies suggest that the support for sustainable energy is very high in California relative to other states of the nation. For instance, the policy requiring that one-third of the state’s energy comes from renewable sources has support from 77% of Californians. However, support diminishes when sustainable energy comes at a higher cost. In the same study, only 46% of Californians would support the renewable energy policy if it resulted in higher electricity bills (Baldassare, Bonner, Petek, & Shrestha, 2011). This variation may be indicative of the individualistic nature of Americans. People in the Nordic region have widespread concern regarding climate change, which is also reflected in the above-average willingness to pay for renewable energy. However, their track record for societal acceptance of sustainable energy varies. Awareness of energy conservation is below average in Finland and Sweden due primarily to their relatively low electricity prices (NCRCFinland, 2007). In Denmark, 68% of Danes support continued construction of wind turbines. One reason Danes may have a high acceptance of this renewable energy is due to the fact that 150,000 families have an ownership stake in wind energy projects (NCRC-Finland, 2007). In Norway societal acceptance remains very high. Increasing renewable energy allows Norwegians to export vast amounts of gas and oil (Veggeland, 2012). Unlike other sectors, people in all societies are required to pay for energy. Social acceptance of renewable energy is reliant upon the economic benefit derived from adopting the sustainable energy.

150

KARINA A. BRANUM ET AL.

Building Sector – California and the Nordic Region In California, the popularity of sustainable building solutions both in the commercial and residential sector has grown considerably over the last 10 years. Although adoption often requires cost effectiveness, public sentiment is still a significant force driving the market. In a public opinion survey conducted by the National Association of Home Builders (NAHB), an overarching desire for energy efficiency is spurring customers to buy newer, greener homes (Builders Digital Experience, LLC). This study found that 64% of consumers said that reduced energy costs would be the most important factor in their purchase decisions. Reduced maintenance costs and protection against rising energy prices was emphasized as a differentiating factor in these homes. Another study conducted by Building Design and Construction Magazine found that only 9% of construction firms embraced sustainability wholeheartedly. Virtually all respondents (97%) saw the green building phenomenon growing, although to varying degrees. Thirty-two percent said that sustainable design experience had helped attract new clients and 52% said that sustainable design experience led to new business. However, 42% had a more negative view and indicated that the market was not interested in sustainability or was not willing to pay a premium to achieve it. In sum, ‘‘Green building is the right direction for construction but also should be used with common sense. Spending millions with insufficient payback will only hurt the green building movement’’ (Building Design and Construction Magazine, 2003). This sentiment is also supported by a study of builders who indicated that sustainability measures would not be prioritized in any of their government-funded building projects (Curry, Ansolabehere, & Herzog, 2007). In the Nordic region, as is the case in California, there exists a barrier between social acceptance of sustainable urban living and development and market demand for sustainable building products. Glashusett’s Erik Freudenthal believes the main opportunity is to educate people and create demand, which will spur more sustainable construction (Freidenthal, 2012). This process appears to be further along in cities like Stockholm and Copenhagen than in California, but widespread market demand is still not prevalentin the Nordic building market. Interestingly, city governments can help cultivate public attitudes. For example, the city of Copenhagen created a joint venture in 1998 between the city Architecture Department and the Department of the Environment. They embarked on an aggressive public education and publicity campaign to raise awareness

Sustainable Development: Comparing Northern Europe and California

151

in the city. As a result, sustainable living is now much more widely accepted in the city as a necessary direction for the future (Thomsen & Mogensen, 2012).

Water Sector – California and the Nordic Region Water is regarded as one of the world’s most precious commodities and as such it carries high emotional value. California has a high dependence on water due to its immense irrigated agricultural areas and large population. Currently, the two of the most important water projects are the State Water Project (SWP) and the federal Central Valley Project (CVP). The SWP project is the world’s largest built power development and conveyance system. Although the intended purpose of SWP was to provide water to Southern California, it now provides drinking water to over 23 million people and generates an average of 6.5 million megawatts of hydroelectricity annually (Morris, 2009). The CVP project was built in 1960s and early 1970s by the Department of Water Resources to funnel water from Northern California to more than 25 million people and 2.5 million acres of farmland. With the exception of the SWP’s costal aqueduct that was built in the 1990s, no significant improvements have been made to this project since it was first built (California Water Crisis, n.d.). These two projects addressed California’s need to move water resources to arid regions; however, it did not address the overall shortage of water in the state. Therefore, water conservation in California has been and continues to be a leading issue. It adopted plumbing standards in 1978 for showerheads and in 1983 a comprehensive water conservation plan was adopted (Dickinson, n.d.). With its aging infrastructure, continuing population growth and climate change, California faces a complex set of water challenges in the future (California Water Crisis, n.d.). It is interesting to note that other efforts, such as seawater desalination, are also being considered as options to meet future water needs. Currently, California has several small desalination plants, but most produce less than 1,000 acre-feet of water per year (California Water Crisis, 2007). In California, societal attitudes and behaviors toward water conservation are generally positive. In San Diego, customers have been asked to save 20 gallons of water per day and this initiative is having some success. In 2010, water use decreased by 22.7% compared to the same period in 2007 and 2008 (San Diego County Water Authority, n.d.). To further incentivize customers, local water agencies offer programs to help customers make

152

KARINA A. BRANUM ET AL.

better decisions regarding water usage. These improvements in conservation have allowed Southern California to use roughly the same water today as it used 20 years ago, despite the tremendous population growth (California Water Crisis, 2007). With respect to so-called ‘‘greywater,’’ public and regulatory support is growing. The term greywater commonly refers to the act of recycling water generated from such activities as laundry, dishwashing or bathing for such uses as landscaping and irrigation. To fully utilize greywater, studies indicate that California should have an effective greywater recycling program and implement a broad public education and participation program (Cohen, 2009). One would expect that the Nordic countries having sufficient water resources do not need to conserve water. This expectation is not supported by our findings. Although Norway has more water than most countries, much of their water is frozen half the year due to frigid temperatures. Also, rapid population growth in urban areas places significant stress on fresh water resources (City of Oslo Water & Sewerage Works, 2011). According to a representative from Oslo Water and Sewerage, because there is no inflow of water during the winter, Norwegians must manage their water use and hydropower carefully (Helgesen, 2012). Likewise, Denmark has a long history of creating smart groundwater solutions. The driving force behind its conservation efforts is the lack of lakes and rivers big enough to supply fresh water to growing cities (Copenhagen Capacity, 2012). Today, 62% of Danes surveyed say they are informed about water-related issues (Copenhagen Capacity, 2012). One member of Copenhagen Capacity, a Danish investment agency, said it best. ‘‘Denmark is a country where water matters. Water is regarded as a valuable asset and is prized accordingly’’ (Copenhagen Capacity, 2012). Sweden and Finland have similar attitudes toward water conservation.

CONCLUSION Starting with the energy crises of the 1970s, both California and the Nordic countries have embraced sustainable development but how they do so and the level of success to date varies significantly. Findings from this study suggest that when examining sustainable development, it is critical to understand how culture, government, and economic factors impact policies. Of course, these three factors are not independent, but heavy influence one another. Exploring these three factors helps us to understand what drives sustainability within a region.

Sustainable Development: Comparing Northern Europe and California

153

In this study comparing California and the Nordic countries, we find that culture greatly influences both government and business. This is not surprising given that all of the countries under investigation are social democracies with strong welfare state, where the role and type of government reflects the culture and values of its citizens. Likewise, although the Nordic countries have greater levels of government ownership in business, California and the Nordics all have market-driven economies fueled by private businesses. Thus, it is not surprising that attitudes toward the role of business in society as well as many business objectives also stem from the norms and values of these societies. Even though culture influences business and government, our research points to all three variables as impacting sustainable development. Therefore, research propositions 1 and 2 are supported by our study. We find that key difference across these cultures can do much to explain differences in business practices and governmental policies aimed at sustainable development. Specifically, the more profit centered culture and entrepreneurial spirit of the United States has guided government and business to promote innovation across various sustainable initiatives. However, initiatives must quickly lead to business profitability. This desire for profit can hinder the development of longer-term solutions. Conversely, in the Nordics with their more egalitarian cultures, there is greater trust and involvement in government. This manifests in more focused sustainability policies and quicker adoption of these policies. Therefore, research propositions 3 and 4 and supported by our study. CSR is a multifaceted phenomenon and in this study we only address the issue of sustainability. However, creating and managing a corporation pursuing sustainability and environmental concern as top business priorities is an important concept. In this study it is shown that while CSR is a motivating factor in the United States, it is not a main driving factor. The idea of ‘‘doing the right thing’’ is apparent in the American culture and as such, many companies have adopted CSR policies in an effort to embrace the concept. Much of this is done for PR purposes to make companies look as though they are sensitive to environmental concerns. A socially responsible image is attractive to potential clients and increase new business. However, the difficulty in quantifying the effect of CSR on a company’s bottom line has hindered adoption of sustainably responsible policies within corporations. While CSR is an important concept and should continue to be encouraged within corporations, it is necessary for the government to continue to regulate the area and provide incentives for businesses in order for there to be a monetary reason for

154

KARINA A. BRANUM ET AL.

adoption of sustainable technologies and policies. The short term, profit driven view in the United States requires that there be an immediate payback in order to adopt this type of policy. Although it has been proven that CSR policies aimed at sustainable development within firms benefit the triple bottom line and can increase profitability, CSR policies by themselves will likely not be enough to motivate firms to act in an environmentally responsible manner. In the Nordic region the concept of CSR is so engrained in their culture that there is not a widely used term for it. In field interviews we continuously found that native Nordic-based firmsdid not have any specifically spelled CSR program. The firms that did have them were multinational corporations that had operations in other areas of the world. Even in these MNEs, the policies were more of a formality and not widely publicized through PR or referred to throughout the Nordic operations. Being environmentally responsible is so much a part of the Nordic culture that it is not necessary for corporations to put CSR policies in place, their employees already adhere to socially responsible principles. The Nordic people naturally are socially responsible in the way they do business. However, their tendency to be environmentally responsible does not always lead to the adoption of sustainable technologies and ideas within corporations in the private sector so there is a need for Nordic governments to regulate in such a way that businesses adopt these technologies. This does not necessarily mean that governments must provide incentives to businesses. On the contrary, because of the natural trust of government in this area of the world, regulations in sustainability are put in place and businesses follow them without much pushback. This is partially because of the large amount of government ownership in corporations as well as private firms needing to remain competitive with government owned businesses. What this means for MNEs that are attempting to expand into Finland, Sweden, Norway, or Denmark is that CSR initiatives must be developed in such a way that the locals do not find them offensive, contradicting their cultural norms and expectations,but they still drive sustainability initiatives with firms. Although both California and the Nordic region have started from the same platform, today they have significantly different strengths, goals, and progress. Nordic countries have advantages in a few key technologies, have policies with large goals, and have made significant progress toward achieving them. In contrast, California continues to develop a large variety of technologies while making progress toward goals that are less robust than those in the Nordic countries.

Sustainable Development: Comparing Northern Europe and California

155

NOTE 1. Due to the recent technological advances in shale gas development in the U.S. and other dynamics in the global energy sector the U.S. may soon shift from importing natural gas to becoming an exporter (An Unconventional Bonanza, 2012).

ACKNOWLEDGMENT The original study for this chapter was conducted in 2011–2012 by a group of MBA students from Loyola Marymount University, Los Angeles, California, USA. The research culminated with a trip to in May 2012 to Finland, Sweden, Norway, and Denmark, incorporating in-depth interviews with academics, national and regional government agencies, industry associations, consultancies, community groups, public, private organizations, and experts. The group included: Whitney Ahlo, Laura E. Cepeda, Shelley Chen, Cody Howsmon, Jessica Hu, Karina A. Branum, James Prananto, Arturo Rosales, Anthony Walker, and Anatoly Zhuplev (Group Faculty Advisor).

REFERENCES Alvord, M. (2012, March 31). Director of Operatoins, Newhall Water District. (L. Cepeda, S. Chen, & J. Hu, Interviewers.) Ambec, S., & Lanoie, P. (2008). Does it pay to be green? A systematic overview. Academy of Management, 22(4), 45–62. Andersen, T. M., Holmstrom, B., Honkapohja, S., Korkman, S., Soderstrom, H. T., & Vartiainen, J. (2007). The Nordic model embracing globalization and sharing risks. Helsinki: Taloustieto Oy. Assembly Bill 32: Global Warming Solutions Act. (n.d.). Retrieved from http://www.ca. gov, http://www.arb.ca.gov/cc/ab32/ab32.htm. Accessed on July 25, 2012. Balakrishnan, A. (2008, October 6). Starbucks wastes millions of litres of water a day. The Guardian. Retrieved from http://www.guardian.co.uk/uk/2008/oct/06/water.drought Baldassare, M., Bonner, D., Petek, S., & Shrestha, J. (2011, July). Californians & the environment. Retrieved from http://www.ppic.org/content/pubs/survey/s_711mbs.pdf. Accessed on July 3, 2012. Bodman, S. (2005). Establishing a comprehensive energy plan. Vital Speeches of the Day. 71(21), 642–645. Bonini, S., & Oppenheim, J. (2008, October). Helping ‘green’ products grow. Retrieved from https://www.mckinseyquarterly.com/Help_green_products_grow_2231. Accessed on July 3, 2012. Bruns, A. (2012, July). California as catalyst. Retrieved from www.siteselection.com: http:// www.siteselection.com/issues/2012/jul/green-guide-2012.cfm. Accessed on July 2012.

156

KARINA A. BRANUM ET AL.

Buchholz, R. A. (2004). The natural environment: Does it count? Academy of Management Executive, 18(2), 130–133. Builders Digital Experience, LLC. (n.d.). Buying green means buying smart. Retrieved from http://www.newhomesource.com/HomeGuideArticle/Article-Buying%20green%20means% 20buying%20smart. Accessed on July 6, 2012. Building Design and Construction Magazine. (2003, November). Building design & construction white paper on sustainability. Retrieved from http://www.usgbc.org/Docs/Resources/ BDCWhitePaperR2.pdf. Accessed on July 7, 2012. Cajias, M., Geiger, P., & Bienert, S. (2012). Green agenda and green performance: Empirical evidence for real estate companies. Journal of European Real Estate Research, 5(2), 135–155. California Public Utilities Commission (CPUC). (2011, December 22). About the California Solar Initiative. Retrieved from http://www.cpuc.ca.gov/puc/energy/solar/aboutsolar. htm. Accessed on July 27, 2012. California Water Crisis. (2007). Conservation. Retrieved from http://www.calwatercrisis.org/ pdf/ACWA.WS.Conservation%202007.pdf. Accessed on June 1, 2012. California Water Crisis. (n.d.). Aging infrastructure. Retrieved from http://www.calwatercrisis. org/pdf/ACWA.WS.AgingInfrastructure%202007.pdf. Accessed on July 1, 2012. California’s Public Utility Commission. (n.d.). Self-generation incentive program. Retrieved from http://www.cpuc.ca.gov/PUC/energy/DistGen/sgip/. Accessed on July 27, 2012. Carson, R. (1962). Silent spring. Boston, MA: Houghton Mifflin. City of Oslo Water and Sewerage Works. (2011, February 11). Water and sewerage. Retrieved from http://www.oslo.kommune.no/english/water_and_sewerage/. Accessed on July 15, 2012. Cohen, Y. (2009). Graywater – A potential source of water. UCLA Institute of the Environment and Sustainability. Retrieved from http://www.environment.ucla.edu/reportcard/ article.asp?parentid=4870. Accessed on July 26, 2012. Copenhagen Capacity. (2012). Asset mapping of the danish water sector. Copenhagen, Denmark: Copenhagen Cleantech Cluster. Cox, P. L., Friedman, B. A., & Tribunella, T. (2011). Relationships among cultural dimensions, national gross domestic product, and environmental sustainability. Journal of Applied Business and Economics, 12(6), 46–56. Cramer, A., & Karabell, Z. (2010). Sustainable excellence: The future of business in a fast changing world. New York, NY: Rodale. Curry, T. E., Ansolabehere, S., & Herzog, H. (2007, April). A survey of public attitudes towards climate change and climate change mitigation technologies in the United States: Analysis of 2006 results. Cambridge, MA: Laboratory for Energy and the Environment. Dahlfors, H., & Hansson, M. (2012, May 21). SymbioCity. (J. Prananto, L. Cepeda, K. Branum, & A. Zhuplev, Interviewers.) Stockholm. Dickinson, M. A. (n.d.). Water conservation in the United States: A decade of progress. Sacramento: California Urban Water Conservation Council. Retrieved from http://www. colorado.edu/front_range/docs/wtr_cons_dickinson.pdf Econ Post. (2011). California economy ranking in the world. Econ Post, February 3. Retrieved from http://econpost.com/californiaeconomy/california-economy-ranking-among-worldeconomies. Accessed on July 12, 2012. ECOTEC Research and Consulting Limited. (n.d.). Renewable Energy Sector in the EU its Employment and Export Potential. Birmingham: ECOTEC Research and Consulting Limited. Retrieved from http://Europa.eu

Sustainable Development: Comparing Northern Europe and California

157

EU Commission Directorate-General for Energy and Transport. (n.d.). European Commission Energy Efficiency. (EU commission) Retrieved from http://ec.europa.eu/energy/ efficiency/buildings/buildings_en.htm. Accessed on July 11, 2012. Forsberg, A. (2012, May 21). Green Business Officer, Skanska. (C. Howsmon, S. Chen, W. Ahlo, & A. Rosales, Interviewers.) Stockholm, Sweden. Franne, L. (2007). Hammarby Sjostad – A unique environmental project in Stockholm. Stockholm: Glashusett. Freidenthal, E. (2012, May 21). Head of Communications, Glashusett. (K. Branum, L. Cepeda, J. Hu, A. Zhuplev, & A. Walker, Interviewers.) Stockholm, Sweden. Fulco, M. (2011). Sustainable business bolsters Sino-Swedish ties. China Daily, December 16. Retrieved from http://www.chinadaily.com.cn/regional/2011-12/16/content_14277811. htm. Accessed on July 3, 2012. Gabbert, S. (2012, March 30). Project Manager, Snyder Langston. (C. Howsmon, A. Zhuplev, & A. Walker, Interviewers.) Irvine, California, USA. Green Cities California. (n.d.). Retrieved from http://www.greencitiescalifornia.org/index.html. Accessed on July 26, 2012. Grey, M. (2012, April 26). Principal, Grey Matter Architecture. (L. Cepeda, & A. Rosales, Interviewers.). Santa Monica, California, USA. Hanemann, W. (2007, March). How California came to pass AB32 the Global Warming Solutions Act of 2006. Retrieved from http://escholarship.org/uc/item/1vb0j4d6#page-2 Harris, J. (2009). Denmark a global leader in wind power. Financial Post, November 19. Retrieved from http://www.financialpost.com/opinion/columnists/Denmark+global+ leader+wind+power/2188119/story.html. Accessed on July 11, 2012. Helgesen, A. (2012, May 25). Chief Advisor, Oslo Water and Sewerage Works. (S. Chen, J. Hu, A. Rosales, & W. Ahlo, Interviewers.) Oslo, Norway. Helsingin Energia. (n.d.). Energy from diverse sources. Retrieved from http://www.helen.fi/ ymparisto_eng/energianlahteet.html. Accessed on July 28, 2012. Hofstede, G. (n.d.). National culture dimensions. Retrieved from http://geert-hofstede.com/ national-culture.html. Accessed on July 14, 2012. Jakobsen, M. (2012, May 29). Copenhagen Crowne Plaza Hotel Towers. Copenhagen. Jeronen, E., & Jeronen, J. (2012, March). Outdoor education in Finnish schools and Universities. Retrieved from https://www.google.com/#hl=en&gs_nf=1&gs_mss=finland%20core curriculum%20sustainability&tok=ked80NFckBoQY5XsjywBdg&pq=finland%20core curriculum%20sustainability&cp=13&gs_id=l&xhr=t&q=finland+core+curriculum+ sustainability&pf=p&sclient=psy-ab&oq=finland+core. Accessed on July 14, 2012. Kasser, T. (2011). Cultural values and the well-being of future generations: A cross-national study. Journal of Cross-Cultural Psychology, 42(2), 206–215. Kloster, H. (2012, May 18). Architect, A-Lab. (J. Prananto, K. Branum, S. Chen, & J. Hu, Interviewers.) Oslo, Norway. Knight, P., & Routti, J. (2011). e-Development and consensus formation in Finland. Journal of Knowledge Economy, 2(1), 117–144. Krause, K., Chermak, J. M., & Brookshire, D. S. (2003). The demand for water: Consumer response to scarcity. Journal of Regulatory Economics, 23(2), 167–191. Kuchcinska, M. (2012, May 28). Project Manager, Malmo Cleantech City. (J. Prananto, L. Cepeda, A. Walker, & A. Rosales, Interviewers.) Malmo, Sweden. Kuronen, M., Luoma-Halkola, J., Junnila, S., Heywood, C., & Majamaa, W. (2011). Viable urban redevelopments – Exchanging equity for energy efficiency. International Journal of Strategic Property Management, 14(3), 205–221.

158

KARINA A. BRANUM ET AL.

Lewis, K., & Cassells, S. (2010). Barriers and drivers for environmental practice uptake in SMEs: A New Zealand perspective. Jounral of Business Studies, 18(1), 7–21. Lombardi, C. (2010, June 16). CNET. Retrieved from http://news.cnet.com/8301-11128_ 3-20007897-54.html. Accessed on June 5, 2012. Lommertz, M. (2012, May 24). Project Manager, Ecobox. (C. Howsmon, A. Walker, & K. Branum, Interviewers.) Oslo, Norway. Longman, P. (2011). The world will be crowded with old people. Foreign Policy, (Sep/Oct), 87–88. Available at http://www.foreignpolicy.com/articles/2011/08/15/the_world_will_ be_more_crowded_with_old_people Martell, C. (2012, March 26). Account Manager, Bloom Energy. (J. Prananto, L. Cepeda, & A. Rosales, Interviewers.) Sunnyvale, California, USA. McCormick, K., & Neij, L. (2009, October). Experience of policy instruments for energy efficiency in buildings in the Nordic countries. Retrieved from http://www.lowcarbonoptions.net/Downloads/files/Norway_EE_policyIns.pdf. Accessed on July 7, 2012. McKinley, B., & Howell, M. (2012, April 12). ARUP. (L. Cepeda, & A. Zhuplev, Interviewers.). Los Angeles, California, USA. Meehan, C. (2012, February 20). New survey finds most California desert support solar. Retrieved from http://www.cleanenergyauthority.com/solar-energy-news/new-surveyfinds-california-desert-supports-solar-022012. Accessed on July 3, 2012. Mikkonen, V. (2012, May 16). Program Manager, Tekes. (A. Walker, & W. Ahlo, Interviewers.). Helsinki, Finland. Ministry of Foreign Affairs of Denmark. (2010). Denmark – A global cleantech hot spot. Ministry of Foreign Affairs of Denmark. Retrieved from http://www.investindk.com/ Clusters/Cleantech. Accessed on July 3, 2012. Molis, A. (n.d.). Nordic–Baltic–U.S. energy cooperation: Any progress expected? Kaunas: Energy Security Center, Vytautas Magnus University. Morris, B. (2009, July 1). Who’s who in the Feather River Watershed. Retrieved from http:// www.featherriverwater.com/images/Whos_Who_20090701.pdf. Accessed on July 22, 2012. NCRC-Finland. (2007, August 31). Factors influencing the societal acceptance of new energy technologies: Meta-analysis of recent European projects. Retrieved from http:// www.esteem-tool.eu/fileadmin/esteem-tool/docs/Resourcesreport.pdf. Accessed on July 11, 2012. Neatorama. (2008, January 1). Energy independence: How Denmark kicked its foreign oil habit. Retrieved from http://www.neatorama.com/2008/01/01/energy-independence-howdenmark-kicked-the-foreign-oil-habit/. Accessed on July 14, 2012. Next Ten. (2010). 2010 California green innovation index. Retrieved from http://www. next10.org/sites/next10.huang.radicaldesigns.org/files/2010_GII_Index_10.2011-1.pdf. Accessed on June 29, 2012. Noponen, J. (2012, May 16). Sitra Innovation Fund. (J. Hu, J. Prananto, A. Rosales, & A. Zhuplev, Interviewers.) Helsinki. Organization for Economic Cooperation and Development. (2008). Achieving long-term sustainability of the energy sector. OECD Economic Surveys, 99–133. Orrett, E. (2012, April 18). Sr. Project Development Manager, SPG Solar. (J. Prananto, L. Cepeda, & A. Zhuplev, Interviewers.) Petaluma, California, USA. Patadia, S., Kammen, D. M., & Wei, M. (2010). Putting renewables and energy efficiency to work. How many jobs can the clean energy industry generate in the US? Energy Policy, 919–931.

Sustainable Development: Comparing Northern Europe and California

159

Pattersson, M., & Soderholm, P. (2011). Reforming wind power planning and policy: Experiences for the Nordic Countries. DICE Report, 9(4), 54–60. Pesonen, H.-L. (2003). Challenges of integrating environmental sustainability issues into business school curriculum: A case study from the University of Jyvaskyla, Finland. Journal of Management Education, 27(2), 158–171. Petru, A. (2011, February 24). California Schools Launch ‘One-of-a-Kind’ Environmental Curriculum. Retrieved from http://earth911.com/news/2011/02/24/california-schoolslaunch-one-of-a-kind-environmental-curriculum/. Accessed on July 15, 2012. Platt, J. L., & Marie, C. D. (2001). The cost-effectiveness of water conservation. American Water Works Association Journal, 92, 73–83. Porter, M., & van der Linde, C. (1995). Toward a new conception of the environmentcompetitiveness relationship. Journal of Economic Perspectives, 9(4), 97–118. Reports: Population. (2012, September 22). Retrieved from http://unctadstat.unctad.org/ ReportFolders/reportFolders.aspx?sCS_referer=&sCS_ChosenLang=en. Accessed on September 22, 2012. Rimdal, R. (2012, May 29). Stena Metall AB. (K. Branum, S. Chen, J. Hu, & J. Prananto, Interviewers.). Copenhagen, Denmark. Roberts, T. (2012, April 2). Construction Manager, C.W. Driver. (A. Walker, & C. Howsmon, Interviewers.). Irvine, California, USA. Romm, J. (2008, July 30). Think Progress. (Center for American Progress Action Fund) Retrieved from http://thinkprogress.org/climate/2008/07/30/202925/energy-efficiencypart-4-how-does-california-do-it-so-consistently-and-cost-effectively/. Accessed on July 30, 2012. Rosenlew, S., & Sipila, J. (2012, May 16). Marketing Manager, Helsinki Energy. (J. Prananto, L. Cepeda, K. Branum, & J. Hu, Interviewers.). Helsinki, Finland. San Diego County Water Authority. (n.d.). The 20-Gallon Challenge. (San Diego County Water Authority) Retrieved from http://www.20gallonchallenge.com/. Accessed on July 26, 2012. Shaw, S. (2012, March 15). VP Operations & Development, JBM Realty. (A. Walker, L. Cepeda, & K. Branum, Interviewers.) Century City, California, USA. Skjelvik, J. M., Bruvoll, A., & Ibenholt, K. (2011). Greening the economy: Nordic experiences and challenges. Oslo: Vista Analyse. Sparkling, A. E. (2012). Cost justification for investing in LEED projects. McNair Scholars Research Journal, 4(1), 15. Srindhar, K. (2011). A multi-dimensional criticism of the Triple Bottom Line reporting approach. International Journal of Business Ethics and Governance, 6(1), 49–67. Steele, T., Oishi, L., O’Connor, K., & Silva, D. (2009). Learning World Languages and Cultures in California. Stanford, CA: California Foreign Lanugage Project. Stiglitz, J. E., Sen, A., & Fitoussi, J.-P. (2009). A measurement of economic performance and social progress revisited. Reflections and Overview. Paris: Commission on the Measurement of Economic Performance and Social Progress. Stockholm International Water Institute. (n.d.). World water week. Retrieved from http:// www.worldwaterweek.org/. Accessed on July 29, 2012. Strong, C. (1997). The problems of translating fair trade prinicples into consumer purchase behaviour. Marketing Intelligence & Planning, 32–37. Svane, O. (2002). Nordic consumers and the challenge for sustainable housing. Sustainable Development, 10, 51–62. Svebio. (2011). Bioenergy – now larger than oil. Retrieved from http://www.svebio.se/english/ bioenergy-facts. Accessed on July 3, 2012.

160

KARINA A. BRANUM ET AL.

Swedish Ministry of Enterprise, Energy and Communication. (2009). Annual Report State Owned Companies. Stockholm: Swedish Ministry of Enterprise, Energy and Communication. Szymanski, B., & Williams, C. (2012). Credits & incentives update. Journal of State Taxation, 30, 9–10. Thomsen, T. N., & Mogensen, D. B. (2012, May 30). City of Copenhagen The Technical and Environmental Administration Environmental Department. (L. Cepeda, A. Walker, K. Branum, & S. Chen, Interviewers.). Copenhagen, Denmark. Total Electricity System Power. (2012, August 1). Retrieved from Clifornia Energy Almanac: http://energyalmanac.ca.gov/electricity/total_system_power.html Turner, J. (2009). Earth Day and the Environmental Movement. Journal of American History. 123–49. Retrieved from http://www.earthday.org:%20http:/www.earthday.org/earthday-history-movement/. Accessed on July 24, 2012. U.S. Green Building Council. (n.d.). Who uses LEED. Retrieved from http://www.usgbc.org/ DisplayPage.aspx?CMSPageID=2492. Accessed on July 27, 2012. United Nations. (2004). Freshwater country profile: Norway. Retrieved from http://www.un.org/ esa/agenda21/natlinfo/countr/norway/waterNorway04f.pdf. Accessed on July 15, 2012. Veggeland, N. (2012). Regulating Petroleum industry and revenues: What does Norway get out of the petroleum industry. International Journal of Business and Management, 7, 64–67. Vine, E. (2012). Adaption of California’s electricity sector to climate change. Climate Change, 211, 75–99. Water Rhapsody. (2010, April 13). Denmark has world’s higest water prices. Retrieved from http://www.waterrhapsody.co.za/2010/04/13/denmark-has-world%E2%80%99s-highestwater-prices/. Accessed on July 31, 2012. Yergin, D. (2008). The prize: The epic quest for oil, money, and power. New York, NY: Simon and Shuster.

THE ACCOUNTABILITY CHALLENGE TO GLOBAL E-COMMERCE: THE NEED TO OVERCOME THE DEVELOPED-DEVELOPING COUNTRY DIVIDE IN WTO E-COMMERCE POLICIES Farrokh Farrokhnia and Cameron Keith Richards ABSTRACT Purpose – Because businesses conducting e-commerce are often able to set up off-shore to avoid regulation, taxation, and other aspects of corporate responsibility, the developed-developing divide which tends to inform World Trade Organization (WTO) policies is especially an impediment to future global e-commerce. This chapter explores the particular accountability challenges represented by WTO e-commerce policies. Design/methodology/approach – The framework of inquiry focuses on a policy research study of relevant WTO e-commerce policy documents, Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 161–181 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012012

161

162

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

especially the ones related to the negotiations under the WTO Work Program on Electronic Commerce and the GATS Agreement. Findings – The virtual nature of e-commerce interactions means that businesses are often able to circumvent the national boundaries and controls of conventional commerce. Because of this, the WTO and its e-commerce policy are crucial to the responsible and accountable development of future global e-commerce. Such policies need to be significantly improved as a matter of urgency to overcome current omissions and inadequacies. Research implications – Accountability gaps within WTO’s e-commerce policies provide a basis for companies from developed countries to set up off-shore to avoid their corporate social responsibilities. A constructive critique of international agency policy documents is able to provide a basis for recommending change and improvement to the overall WTO framework. Practical and social implications – Companies should profess genuine rather than merely surface commitment to global as well as local corporate social responsibilities. Likewise the WTO should also aim to practice deep rather than ‘‘shallow’’ accountability by aiming to rectify omissions and inequities in its e-commerce policies. Keywords: e-commerce; accountability; corporate social responsibility; regulatory frameworks; WTO; developed-developing countries divide; policy research

INTRODUCTION Lax regulatory frameworks in developing countries have been an impediment to the global development of e-commerce (Kshetri, 2007; Mann, 2000; Pare, 2003; Primo Braga, 2005; Sharma & Gupta, 2009). Part of the problem is that the internet involves virtual transactions which by their nature are much more difficult to control than trades in goods and services linked to face-to-face interactions (Ivy, 2007; Kim, Jeong, Kim, & So, 2011). This is especially so in developing countries with perhaps other more pressing priorities. It is perhaps for this and related reasons that in a globalized world businesses wanting to conduct e-commerce often prefer to set up in developing countries perceived as ‘‘safe havens’’ – even

The Accountability Challenge to Global E-Commerce

163

if the targeted consumers are primarily based in developed countries (Broadhurst, 2006). Legal concepts of accountability are typically shaped according to cultural, social, political, and economic backgrounds of a country. This is especially so when it comes to the developed-developing countries divide (Weitzner et al., 2008). The enforcement of consumer accountability – a prerequisite for trade development (Adam, Aderet, & Sadeh, 2007) – is generally more difficult in virtual domains which lack the face-to-face contact of traditional modes of trading (Beres, Baldwin, Shiu, & Mont, 2002). In a global context where traders can set up in one country to virtually trade with customers in another country clearly a global framework is needed to sustainably restore confidence in commerce and trade in a world increasingly dominated by digital networks. Thus, improvements are possibly needed in the main existing framework for globally addressing trade-related issues of e-commerce – the World Trade Organization (WTO). The WTO arguably tends to take a selective OECD perspective and often assumes that e-commerce is merely an extension of conventional commerce (Asinari, 2003; Ivy, 2007). It also tends to take a legal approach to addressing trade-related issues of e-commerce (Bacchetta et al., 2009; Mann, Eckert, & Knight, 2000; Zhao, 2005). Existing WTO rules allow members to regulate accountability issues but when it comes to e-commerce there are particular challenges in practice which are further reinforced by the perceived failure to address a developed-developing country divide. This chapter will explore in three related sections how such a failure can result in obstacles to future global e-commerce which will need to be more effectively addressed. First, it will look at how a heterogeneous legal environment for accountability issues and probable disguised restrictions are other consequences of a global e-commerce disorder. Second, it will consider and discuss the potential role of the GATS Article VI: 4 in harmonizing e-commerce accountability issues. This will also be approached in relation to a convergent approach to the challenge of accountability in global e-commerce from the perspectives of both developed and developing countries. The third section will look at the proposal that the WTO should not be merely concerned about the probable restrictive effects of members’ domestic regulation on global trade. This organization needs to consider the existing divide between developed and developing countries in terms of the diversity of social and cultural backgrounds which can potentially impede global trade. In addition to requirements of openness and trust, aspects of fairness, and safety are crucial for the future of WTO as well as global trade (Sampson, 2005).

164

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

THE LINK BETWEEN CORPORATE SOCIAL RESPONSIBILITY AND THE CHALLENGE OF GLOBAL ACCOUNTABILITY The general focus of the chapter then is to explore the connection between the accountability challenge represented by WTO e-commerce policies – policy omissions based on the developed-developing countries divide – and the increasing practice of companies setting up their e-commerce operations in developing countries to avoid their corporate social responsibility (CSR) commitments elsewhere. In recent years CSR principles and practices have become a regular expectation internationally (Bhattacharya, Sen, & Korschun, 2011). Yet at the very same time the growing domain of e-commerce provides an opportunity for those not seriously committed to CSR – that is business and corporations who practice reactive as distinct from proactive CSR (Richards & Zen, 2012) – to avoid this. With its effective duty of care to nations all around the world as the global arbiter of international trade, the WTO has a requirement to engage with the challenges as well as opportunities represented by global e-commerce. The accountability challenge represented by growing global e-commerce needs to be studied further (Freeman & Hasnaoui, 2011). The internet represents a communication as well as information revolution which has dramatically changed the nature of human transactions as well as interactions. In short, it is a revolution open to abuse and with a potential dark side like any other (Kim et al., 2011). In traditional face-to-face trading, buyers and sellers generally know each other’s identities or at least have reasonable confidence in identifying other parties if there is a need for dispute resolution (Beres et al., 2002). However, this often not the case in commerce or trade transactions facilitated via the internet (Kim et al., 2011).

CSR and Accountability in a Global Context The CSR movement has an important role to play in improving the social commitment as well as general accountability of companies. The principles of CSR can assist companies to better reconcile their economic priorities and ethical standards as well as social commitment (Kanji & Chopra, 2010). In management and international business literature, the concept of CSR is often discussed in terms of ‘‘sustainable development.’’ As Freeman & Hasnaoui (2011) put it, CSR is a ‘‘micro-economic translation of sustainable development’’ (Freeman & Hasnaoui, 2011). CSR is also epitomized

The Accountability Challenge to Global E-Commerce

165

by the related triple P concept (i.e., People, Planet, and Profit). It is also a key challenge of policy making to reconcile imperatives for economic growth with social or ‘‘people’’ issues. The forces of globalization have also made it necessary for businesses around the world to consider economic, legal, ethical, and social factors at the same time in their decisions. Therefore, the accountability challenge for firms and especially multinational enterprises is a key also the sustainable development of international commerce and trade across virtual as well as national borders (Kolk & Tulder, 2010). Accountability is a key aspect of CSR and as international or global e-commerce continues to grow new policy frameworks are needed (Weber, 2011). The lack of an adequate international mechanism to encourage or force businesses in countries to comply with social as well as legal standards of regulation has mean that global trade is in many ways a ‘‘moral free space’’ (Kolk & Tulder, 2010). This has made it difficult to achieve any reasonable and binding consensus which could be made binding. Therefore a more constructive framework is needed. Accountability Enforcement in Global E-Commerce In relation to e-commerce systems, a narrow definition of accountability refers to the ability of proving that a particular party who engages in a transaction is responsible for his or her business conduct (Kungpisdan & Permpoontanalarp, 2002). This concept of accountability for an e-vendor refers to ‘‘the degree to which he or she commits and clearly declares responsibility for products sold on its Website’’ (Adam et al., 2007). Accountability maybe more generally defined as ‘‘a relationship between an actor and a forum, in which the actor has an obligation to explain and to justify his or her conduct, the forum can pose questions and pass judgement, and the actor may face consequences’’ (Bovens, 2007). It is also considered as one of the principles of good corporate governance and is related to CSR in companies (Aras & Crowther, 2010). Accountability is a very vast concept with different dimensions including transparency, liability, controllability, responsibility, and responsiveness (Bovens, 2007). Accountable e-commerce systems should be able to provide the necessary evidence about a transaction. Traditionally, accountability in e-commerce systems is used for resolving payment disputes among parties. In dispute resolution each engaging party needs to show to a dispute resolver that he is honest in performing such transaction (Kungpisdan & Permpoontanalarp, 2002). Deterring individuals from online misconduct depends strongly on

166

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

an efficient accountability framework. Therefore, e-commerce systems must be designed to provide the same assurance of accountability for electronic transactions as for traditional paper based commerce (Kailar, 1996) and businesses should know that they are accountable to their recorded actions (Weitzner et al., 2008). In a globalized age national regulatory systems cannot cover all dimensions of international trade. This is especially the case with commerce conducted via the communication networks of the internet – that is, ‘‘e-commerce’’ (Broadhurst, 2006). On the other hand, law and enforcement mechanisms have always been an important prerequisite for trade and commerce development. Likewise, the future of e-commerce is very much dependent on the challenge of promoting reciprocal trust between sellers and buyers who may be anonymous strangers (Adam et al., 2007; Beres et al., 2002). Relevant policy as well as legislative frameworks have not been able to evolve as fast as the changes by the internet revolution (Kim et al., 2011). There is currently no globally applicable or accepted legal framework covering accountability related issues in online trade and the role of international organizations has mainly been confined to nonbinding resolutions or recommendations. Consequently, the full potential of global e-commerce cannot be harnessed without adequate international cooperation which in turn is the key to achieving a trustworthy online environment (Ivy, 2007). Thus, many believe that there is a need for a comprehensive global regulatory framework in order to reach a consistent global legal environment for e-commerce (Asinari, 2003).

The Regulatory Divide Between Developed and Developing Countries Legal uncertainties relating to issues such as trust, privacy, consumer protection, enforcement, and liability have dramatically impeded the development of e-commerce in developing countries (Kshetri, 2007; Mann, 2000; Pare, 2003; Primo Braga, 2005; Sharma & Gupta, 2009). Yet, conversely the developing world is often seen as a ‘‘safe haven’’ for businesses and people who are limited by the strict cyber law in developed countries (Broadhurst, 2006). In the same vein, the notion of CSR is not widely supported in developing countries by consumers. They tend to be more concerned about basic issues than social or legal principles. On the contrary, businesses in advanced countries tend to care more about supporting companies with higher levels of CSR (Arli & Lasmono, 2010). In this way we might

The Accountability Challenge to Global E-Commerce

167

appreciate the regulatory divide between developed and developing countries when it comes to e-commerce. Although fraud and accountability are ultimately distinct issues, they are linked when it comes to questions of the effectiveness and commitment of regulatory frameworks. Reports confirm that developing countries are where most online fraud originates. These countries1 also form an online ‘‘fraud zone’’ or ‘‘dirty zone’’ in comparison to the zone of developed countries where there is less online fraud – especially OECD counties with some established ‘‘rule of law’’ tradition.2 The rate of online card fraud in Canada and the United States is one third of other countries (Card Fraud, n.d.). An online transaction between Malaysia or Israel and other countries is 6% likely to be fraudulent (City of Ocala, n.d.; Online Fraud Guide by Attitude, n.d.). Although other factors such as the rate of internet take-up in a society need to be considered, a basis regulatory divide for e-commerce can be recognized. The regulatory divide between developed and developing countries when it comes to e-commerce is evident in many criminal cases related to the use and abuse of online interactions and communication. One of the most famous spam rings ever in Australia and New Zealand established its website in China and used credit cards in Georgia and Cyprus. In another case, scammers created fake Bank of America and Wells Fargo Websites and sent e-mails from Egypt to reach the bank accounts information in the United States. Likewise online gambling sites usually select countries such as Costa Rica, Antigua, or Gibraltar as their ‘‘safe havens.’’ The lax legal situation in these countries allows them not to be concerned about issues such as tax or prosecution (Kim et al., 2011). Developing countries do not generally have a better situation when it comes to international cooperation about cyber law. There are various international agreements and frameworks to cope with online fraud and criminal. Except in the case of ASEAN, developed nations usually play the key role in controlling the online environment. Organizations and unions such as OECD, APEC, and EU have different agendas to deal with cyber crime  especially through harmonizing cross-border law enforcement (Broadhurst, 2006).

THE WTO OBJECTIVES AND DIFFERENT LEVELS OF DEVELOPMENT The intergovernmental organization the WTO was established through the Marrakesh Agreement in 1994. In the preamble to this agreement,

168

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

certain objectives for a multilateral trading system were identified: ‘‘raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, ... in accordance with the objective of sustainable development, ... in a manner consistent with their respective needs and concerns at different levels of economic development’’ (WTO, 1994b). As it is evident, market liberalization has become one of the main functions of the WTO but was not mentioned in the original list of objectives. Indeed, market liberalization was only considered as a means of reaching to these objectives. Now, it might be reasonable to claim that focusing merely on trade liberalization is a kind of deviation from the objectives for which this organization was established. There is evidence supporting the view that current functions of the WTO tend not to entail the original projection of ‘‘needs and concerns at different levels of economic development.’’ In other words as many critics have already pointed out, the WTO often tends to impose a developed world perspective on developing countries. While it does assist developing countries with the new rounds of trade negotiations, it does so in terms of building in certain assumptions of trade liberalization which are often to the advantage rather of developed countries. In this way many critics for a developing country perspective complain that such agreements (and processes) often ignore the particular needs of countries which have not achieved developed status. Finding ways in which developing countries can deal with their domestic challenges in the current policy space created by WTO is now a controversial question for many experts. In other word, the underling liberalization agenda of the WTO has not been an efficient solution to overcome the gap between developed and developing countries (Gallagher, 2005). E-commerce is categorized as part of the WTO’s GATS policy which was also established with strong influence from the commercial interests of developed countries and especially the United States. Moreover, policies focusing on liberalization and deregulation  known as Washington Consensus policies  have been the driving force behind the formation of this agreement. In the same vein, the TRIPS was formed with little regard to the socioeconomic characteristics of developing countries but influenced rather by the United States as the main producer of intellectual properties in the world. Consequently, after two decades the validity of developed countries’ claims regarding the appropriateness of Washington Consensus policies for developing countries is under question (Stiglitz, 2005).

The Accountability Challenge to Global E-Commerce

169

There has been an associated insistence in the assumptions of WTO policies about the benefits of deregulation for economic growth. Two decades ago some people believed that the deregulation of trade would definitely result in economic growth. But as Stiglitz has influentially pointed out, there has not been reliable and sustained evidence for this view. On the contrary, it is becoming clearer over time that some kinds of regulations at the correct time appropriate to different situations are necessary for sustained economic growth. The lack of regulation has been seen by many as a cause of financial crises (Stiglitz, 2005). Therefore, policies and regulation consistent with local socioeconomic conditions are vital for sustainable growth  especially in a way that addresses social justice challenges. In sum, then, the rules of the existing game have not been designed for developing countries although this group represent a significant part of global trade (Wade, 2005). As Lafont (2010) has pointed out, looking for the ‘‘best policies for the global public interest’’ is not typically seen as a function of the WTO framework. Rather many see its main role to consist in facilitating ‘‘bargaining among mutually self-interested parties’’ (Lafont, 2010).

The Developed-Developing Country Divide in Forming the WTO’s E-Commerce Framework In its second Ministerial Conference in 1998, the WTO adopted a Declaration on Global Electronic Commerce. The Declaration proposed ‘‘to establish a comprehensive work programme to examine all trade-related issues relating to global e-commerce, taking into account the economic, financial, and development needs of developing countries.’’ The WTO considers e-commerce as mainly a trade in services and therefore tries to regulate online trade under the GATS. This decision is mainly based on the fact that the GATS does not rule out any technological means by which services may be supplied (WTO, n.d.a). WTO intends through this to extend the benefits of existing multilateral agreements to global e-commerce. However, the fact is that the GATS, as the relevant agreement for governing global e-commerce, was concluded at a time when the internet was just beginning and not used on a large scale by the business community. It was also drafted according to the GATT (General Agreement on Tariffs and Trade) principles and with the same approach to the liberalization of trade in goods (WTO, 2012b) As suggested above, the history of WTO negotiations on e-commerce show little regard for the challenges and differences of developing country contexts

170

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

but more an OECD perspective. In many cases, the need of technical assistance to ‘‘economies in transition’’ is discussed as the main and sometimes only obstacle to integration of this group in global e-commerce (WTO, 2003c). GATS Article IV titled ‘‘Increasing participation of developing countries’’  designed to help developing countries achieve integration into global e-commerce  also only focuses on ‘‘access to technology’’ and ‘‘transfer of technology’’ as the main accelerators for integration (WTO, n.d.c). However, as indicated earlier, a central barrier to e-commerce development in developing countries is the lack of enough capacity for relevant legislation to achieve an appropriate regulatory framework. Yet this issue is barely touched upon in public WTO documents. Different approaches to the role of domestic regulation can also reflect the regulatory divide between developed and developing countries. Statements by different delegations at WTO negotiations show that the perhaps the main issue which concerns the WTO and its more developed members is the probable discriminatory or restrictive effects of domestic regulations and objectives (WTO, 2003c). According to one delegation, domestic regulation and standards is similar to ‘‘legitimizing restrictions’’ on trade which is in contrary to the main WTO duties (WTO, 1999b). This diminution of the role of domestic regulation thus may be interpreted from a developing country perspective as a challenge to national interest protection (Cheen, n.d.) Another point of contention concerns the moratorium on e-commerce customs duties. A response to the challenge of applying custom duties has been to remove this altogether. This proposal has been continuously emphasized during the different WTO meetings especially by developed countries (WTO, 1999b, 2002a, 2002b, 2003c, 2005). Conversely, some of the delegates from developing nations state that this issue can cause them to lose potential revenue at least in the future (WTO, 1999b, 2003a, 2003b, 2009).

The WTO Tendency to View E-Commerce as an Extension of Traditional Commerce An analysis of ongoing WTO e-commerce negotiations on e-commerce policy suggests that developed countries tend to insist on the application of existing agreements to govern global e-commerce. This indicates that these countries tend to see e-commerce as an extension of traditional commerce and fails to adequately understand how the internet substantially changes the nature of global communications. For instance, the United States takes

The Accountability Challenge to Global E-Commerce

171

the view that ‘‘application of existing WTO agreements to e-commerce’’ can lead to ‘‘expand growth and opportunities for all WTO Members.’’ Likewise Canada supports the proposal that ‘‘the current liberal trading environment’’ is a necessary element of e-commerce development. Many other OECD countries in particular support the view that there is no need for establishing new trade rules for e-commerce. Such a view is based on the idea that under the GATS or the GATT ‘‘e-commerce has thus far been conducted successfully.’’ In other words ‘‘no specific problems or trade disputes have arisen within the WTO in this regard’’ (WTO, 2003c). The WTO failure to classify e-commerce under the GATS or the GATT suggests that existing agreements cannot cover or apply to all new aspects of e-commerce. Negotiations show that only some e-commerce related products can ‘‘enjoy national treatment and duty-free access under the ITA and GATT.’’ Besides, classification of these products under the GATT is ‘‘inconsistent with the principles on which commitments are scheduled under the GATS.’’ At the same time, it would be pointless to reclassify certain products as services if GATT disciplines are to continue to apply to them (WTO, 2001a). It can be concluded then, that neither the GATT not the GATS adequately apply to e-commerce issues. As one relevant WTO policy document puts it, ‘‘rather than displace traditional means of trading, [e-commerce hasy] a large potential in creating trade and production’’ (WTO, 1999a). Another proposes the view that the ‘‘relationship and possible substitution effects between e-commerce and traditional forms of commerce can bring disadvantages for developing countries’’ (WTO, 2001a). Emerging Accountability Issues Linked to the WTO Framework’s Regulatory Divide In general the WTO considers the internet as a new means of delivery for services. Therefore, it categorizes e-commerce under the GATS. The main part of the GATS agreement used to govern e-commerce accountability issues is Article XIV or General Exceptions. According to the GATS’ General Exceptions (Article XIV: c): nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to: (i) the prevention of deceptive and fraudulent practices especially those deal with the effects of a default on services contracts; (ii) the protection of the privacy of individuals

172

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

in relation to the processing and dissemination of personal data on one hand, and on the other the of confidentiality of individual records and accounts; and (iii) safety.

This Article stipulates that measures justified by these exceptions should ‘‘not be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services.’’ Accordingly, when a WTO member decides to resort to this Article, they should determine whether the measures under discussion are inconsistent with such GATS provisions as ‘‘most-favoured-nation treatment,’’ ‘‘domestic regulation,’’ and ‘‘recognition.’’ In short they should also make sure that there is no available alternative measure less restrictive to trade that could reasonably be expected to be used to achieve the same policy objective. Different nations have different standards and requirements related to the requirements of accountability. These requirements are often formed according to the cultural, social, political, and economic differences of a particular country. Thus, a WTO member might decide to treat other members in ways that conflict with its specific GATS commitments. Although this decision is possible through the flexibility of the GATS, it can result in a very heterogeneous and non-uniform global legal environment for accountability issues. This flexibility can also create the basis for disguised restrictions. For instance, privacy is considered a very sensitive issue in EU since it is categorized as a dimension of human rights. As a result, the EU forbids transfer of personal data to the countries with lax approaches to privacy issues (Asinari, 2003). The conditions under which a country can resort to this Article show that the WTO is only concerned about the restrictive trade effects of members’ domestic regulation. Categorizing these issues as exceptions in the Article XIV of the GATS in fact allows the members not to regulate them. The under estimated point here is that: not regulating the issues named in Article XIV can itself lead to another type of restriction on trade. In the case of e-commerce transactions involving the virtual dimensions of the internet this restriction can have serious consequences. In this way e-commerce is vulnerable to issues to do with deceptive and fraudulent practices on one hand, and on the other to the dissemination of personal, sensitive and/or restricted data. Many believe that WTO activities should not be merely confined to policies about the trade of goods and services (e.g., Sampson, 2005). Such critics hold that the WTO should accept its greater social responsibility to assist with providing a fairer, more open and safer market for future global trade.

The Accountability Challenge to Global E-Commerce

173

ACCOUNTABILITY PROTECTION AND A REVAMPED WTO FRAMEWORK FOR PROMOTING TRUST IN GLOBAL E-COMMERCE In order to achieve an accountable society, the cooperation of governments, businesses, and societies is essential (Kanji & Chopra, 2010). Accountability protection and enforcement at the global level thus is dependent on the supervision of an international legislator. As an external entity, an international legislator is more likely to criticize local mechanisms of accountability monitoring. This tendency is more significant in nondemocratic states where accountability cannot be efficiently secured because of lax institutional structures and mechanisms. This point is where the WTO can enter into the game (Weber, 2011). The impact of WTO frameworks can be significant and indeed the WTO has crucial role regulating the global economy (Lafont, 2010). The WTO has also the right position for regulating global accountability given its impact and role in globalization (Park, 2010). The organization therefore can play the role of an accountee with enough enforcement power which is able to determine the accountability disciplines and impose penalty in the case of noncompliance with the relevant criteria (Weber, 2011). On the other hand, the WTO is so important to the future of global e-commerce since it represents the kind of intergovernmental organization and agency needed to balance different interests and provide neutral authority – especially when it comes to regulating e-commerce issues related to accountability (Kim et al., 2011). The WTO is an organization of countries and their governments which can only indirectly influence and regulate the actions of particular companies. Despite its particular rationale to apply to national policies and actions, there are nonetheless provisions in the WTO framework which can potentially and indirectly influence accountability in e-commerce firms. Reinvigorating these provisions can allow WTO to encourage or obligate its members to secure accountability in e-commerce. In other words, the WTO can still have an influential role in making companies accountable through domestic regulation of their respective governments. Many of social concerns related to accountability in e-commerce can be indirectly addressed through the GATS Article XIV (general exceptions). This Article ‘‘contains general exceptions which are obviously relevant to e-commerce. The Article permits Members to take any measure necessary to achieve certain public policy objectives, including the protection of public

174

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

morals and the maintenance of public order’’ (WTO, 1998). Consequently, accountability issues can be potentially governed and regulated through this Article. Nevertheless, since governing these issues under the GATS is considered as inconsistent with the GATS obligation and generally WTO view of trade, this aim can only be achieved under the notion of Exceptions (WTO, n.d.a). The GATS also provides Members with additional commitments and obligations related to issues such as standards, qualifications, or licences which are a potential means of accountability regulation. However, providing the possibility and not prescribing any specific commitments by this agreements – the so-called ‘‘bottom-up’’ or ‘‘positive-list’’ approach – is the point through which the GATS permits Members not to regulate issues such as accountability (WTO, 2012a). Leaving the decision on regulating new and complicated issues to the Member’s discretion with very different levels of legislation development can lead to a heterogeneous situation at the global level. In the same vein, the GATS Articles IX, VII, and VI: 2 can potentially affect accountability. Article IX (Business Practices) provides the ground for addressing accountability issues by recognizing the potentially restrictive effects of ‘‘certain business practices of service suppliers, other than those falling under Article VIII’’ on trade in services. Lack of standards regarding the accountability issues can indirectly affect or restrict trade. Article VII (Recognition), in the next step, allows Members to recognize the standards and other qualifications obtained by service suppliers in another country as prerequisites of entry into a market. This Article thus can be used as a means of enforcement of accountability-related standards and qualifications. Article VI: 2, as another accountability-related Article, requires Members to ‘‘maintain judicial, arbitral or administrative tribunals or procedures which provide y for the prompt review of y or remedies for, administrative decisions affecting trade in services y in an objective and impartial manner.’’ In terms of enforcement of accountability, this section can provide the consumers with the possibility of questioning the suppliers about their actions. Transparency related provisions in the GATS can also relate to the accountability issues but at the governments level. Accountability, which is by its nature a transparency issue, can be invigorated through Article III by preparation of information related to the rules and regulations that might affect online trade. This aspect of the GATS, however, cannot directly affect accountability in e-commerce companies. Article III, therefore, plays a complementary role in order to improving accountability in the context of the WTO.

The Accountability Challenge to Global E-Commerce

175

Future E-Commerce Accountability Global trade regulation tends to espouse the view that ‘‘all economics is global and all politics are local.’’ The related culture of ‘‘boundarylessness’’ has positive and negative effects. It requires that regulators respect each others’ specific local limitations. Antisocial behaviour in traditional economics reflects partly its ‘‘animal spirits.’’ This results from the fact that the governors of global trade have failed to perceive a very underlying notion in human life – the international necessity of conscientious refereeing and enforcement of social values.Therefore, in thinking about the next generation of trading system ‘‘it would be more accurate to talk about the benefits of a well-regulated system of trade rather than free trade’’ (Gadbaw, 2010). In other words, the WTO has many crucial roles in relation to the functioning of the global economy. The WTO is certainly not immune to the growing international awareness that attention to social issues is crucial in order to achieve a sustainable economic integration at a global level. Indeed, without attention to accountability related issues – which mirror a considerable part of the social dimension of trade – the future of the WTO cannot be guaranteed (Sampson, 2005). Therefore, as was implicitly and explicitly reaffirmed in the Doha Declaration (WTO, 2001b), the WTO may need to broaden its framework. This particularly applies to the domain of global e-commerce. As Reidenberg states, the WTO should also extend its attention to noneconomic barriers and in this way unify members’ approaches to the social issues and underly cultural differences which impinge on the global trade of goods and services (Asinari, 2003). The major challenge of future e-commerce is to achieve global and not just local or national accountability. According to the definition of accountability by Bovens (2007), an accountability complying framework should provide three conditions: (a) Individuals or businesses must account to the government for their conduct, (b) governments should be able to question the individuals and businesses engaging the e-commerce about adequacy of their information or the legitimacy of their conduct, and (c) the governments should be able to pass judgment on the conduct of the individuals and businesses (Bovens, 2007). Such a framework should also reflect universal legal principles which are widely recognized in international law. These rules also need to be able to interoperate between various jurisdiction domains (Beres et al., 2002). A key related question then is how such a genuinely global framework for e-commerce across the developing-developed world divide can be justified and achieved through a WTO policy framework. The possibility of

176

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

achieving such a framework has been anticipated and discussed in several relevant GATs documents – in particular GATS Article VI: 4 and Article XIV: c. As Article VI: 4 discusses this point: With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia: (a) based on objective and transparent criteria, such as competence and the ability to supply the service; (b) not more burdensome than necessary to ensure the quality of the service; and (c) in the case of licensing procedures, not in themselves a restriction on the supply of the service.

In theory at least governments should be able to implement a complying accountability framework for e-commerce consistent with this WTO Article. This might be applied for instance to e-commerce regulatory issues such as development of relevant information technology standards for enough procedural protections through recording the details of online transactions (i.e., e-goods trade and e-payment specifications or development of data protection law (Liu, 2009). In practice however, there are some uncertainties and doubts about the function and effectiveness of this mechanism. As some delegates to WTO negotiations on e-commerce suggest, ‘‘it is necessary to consider the adequacy of current WTO rules y to deal with the protection of privacy, consumers and intellectual property rights.’’ There is also a ‘‘doubt about the enforceability of measures to restrict the electronic provision of certain services in Members’ territory.’’ For example, an obligation for Internet Service Providers to comply with measures of general application regulating content services might be very difficult to enforce (WTO, 1999b). Moreover, Article XIV(c) can be subject to provisions such as Article X (Emergency Safeguard Measures) or Security Exceptions. As some delegations (1998) put it, ‘‘it is worth noting that Article XIV(c) permits Members to take any necessary measures to protect the privacy of the personal data of individuals and the confidentiality of individual records and accounts and to prevent deceptive and fraudulent practices.’’ In this way, measures related to Article XIV(c) can be challenged by other Members on ‘‘the ground that they are not necessary, or are more restrictive than necessary, to achieve the stated objective’’ (WTO, 1998). Accordingly, there might be a further need for ‘‘a facilitatory framework of general principles’’ including consumer protection, security of transactions, and fraud (WTO, 1999a).

The Accountability Challenge to Global E-Commerce

177

Fourteen years of negotiations and attempts to regulate e-commerce in the WTO Work Program on E-commerce and using the existing agreements has not reached any satisfactory global consensus. As we have outlined in this chapter in relation to the central challenge of an accountability challenge to global e-commerce, there is a demonstrable need for a new and comprehensive regulatory framework for global governance of e-commerce. It is clear that there is an associated need for the WTO to accept more responsibility for non-classical-trade and social issues, especially in developing countries which have different social and cultural backgrounds. These considerations are crucial for not just for the future of the WTO but also the future of global commerce and trade. The importance of role of the WTO in bridging the regulatory divide will become more apparent when we realize that the GATS, unlike the GATT, explicitly provided guidelines regarding the future negotiations on trade in services and certain rule-making area of the GATS. These guidelines, however, have potential implications regarding the role of the WTO in addressing the special policy needs of developing countries. Article XIX:1, for instance, states that market access negotiations ‘‘shall take place with due respect for national policy objectives and the level of development of individual Members’’ (WTO, 1994a). The Working Party on Domestic Regulation, is mandated under Article VI:4 to develop disciplines in the area of domestic regulations. As was indicated earlier, the WTO approach to domestic regulation is the point from which a significant share of the regulatory divide between developed and developing countries originate. Therefore, these guidelines can be seen as an opportunity for the future of global trade to be re-framed in a way that better address the developeddeveloping countries divide. It should be borne in mind that TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights) is a precedent for regulating similar issues under the WTO framework where substantive standards were passed and incorporated by members in their domestic laws. The Agreement on Technical Barriers to Trade is another example of regulating non-trade barriers to the trade for goods. This agreement tries to regulate standards and technical issues as well as ‘‘providing members with the right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety’’ (WTO, n.d.b). As Trachtman (2002) points out, in this way the harmonization of goods and services regulation should be accomplished in a different way and according to the specifications of every sector (Trachtman, 2002).

178

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

CONCLUSION This chapter has explored the accountability challenge to global e-commerce. It has done so in relation to how the WTO e-commerce framework arguably is selective and flawed but as the primary international organizational and policy framework for global trade needs to be improved. In relation to how international e-commerce traders are often setting up in developing countries to avoid developing world regulatory frameworks it has discussed the central challenge of a developingdeveloped world divide which tends to be underestimated or even ignored by the WTO framework. This is especially in so far as the WTO e-commerce framework arguably tends to reflect an OECD perspective and, at the same time, reflect an inaccurate assumption that e-commerce is basically an extension of traditional commerce. In relation to future commerce also, the internet has provided a foundation for globalization which requires new kinds of regulatory frameworks and procedures which find the right balance of accountability to promote sufficient ‘‘trust’’ in e-commerce trade. Above all else a more effective reframing of the WTO’s e-commerce framework will need to address the central challenge of overcoming the underlying developing-developed world divide which currently informs it. The chapter has further made a direct link between the accountability challenge to global e-commerce – and by extension the WTO itself – and also the related issue of how many companies are starting to evade their corporate social responsibilities by setting up in developing countries to avoid many of the regulatory mechanisms also referred to by the WTO. As indicated earlier a distinction can be made between ‘‘reactive’’ and ‘‘proactive’’ CSR (corresponding to ‘‘shallow’’ and ‘‘deep’’ accountability). So too the WTO e-commerce framework needs to move from a reactive to more proactive framework for addressing (a) the accountability challenge represented by global e-commerce in a way which (b) also encourages companies conducting e-commerce from trying to evade the corporate social responsibilities.

NOTES 1. Ukraine, Indonesia, Yugoslavia, Lithuania, Egypt, Romania, Bulgaria, Turkey, Russia, Pakistan, Malaysia, Israel. 2. Austria, New Zealand, Taiwan, Norway, Spain, Japan, Switzerland, South Africa, Hong Kong, United Kingdom, France, Australia, United States.

The Accountability Challenge to Global E-Commerce

179

REFERENCES Adam, A. M., Aderet, A., & Sadeh, A. (2007). Do ethics matter to e-consumers? Journal of Internet Commerce, 6(2), 19–34. doi: 10.1300/J179v06n02_03 Aras, G., & Crowther, D. (2010). Corporate social responsibility: A broader view of corporate governance. In A. Aras & D. Crowther (Eds.), A handbook of corporate governance and social responsibility (pp. 265–285). Gower Publishing Company. Arli, D. I., & Lasmono, H. K. (2010). Consumers’ perception of corporate social responsibility in a developing country. International Journal of Consumer Studies, 34(1), 46–51. doi: 10.1111/j.1470-6431.2009.00824.x Asinari, M. V. P. (2003). The WTO and the Protection of Personal Data: Do EU measures fall within GATS exception? Which future for data protection within the WTO e-commerce context? Paper presented at the 18th BILETA Conference on Controlling Information in the Online Environment, London. Bacchetta, M., Low, P., Mattoo, A., Schuknecht, L., Wager, H., & Wehrens, M. (2009). Electronic commerce and the role of the WTO. Geneva: WTO Publications. Beres, Y., Baldwin, A., Shiu, S., & Mont, M. C. (2002). Identity and accountability in businessto-business e-commerce: HP Labs: Tech Report: HPL. Bhattacharya, C., Sen, S., & Korschun, D. (2011). Leveraging corporate responsibility: The stakeholder route to maximizing business and social value. New York: Cambridge University Press. Bovens, M. (2007). Analysing and assessing accountability: A conceptual framework. European Law Journal, 13(4), 447–468. Broadhurst, R. (2006). Developments in the global law enforcement of cyber-crime. Policing-an International Journal of Police Strategies & Management, 29(3), 408–433. doi: 10.1108/ 13639510610684674 Card Fraud. (n.d.). Online merchant fraud statistics. Retrieved from http://www.card-fraud. com/OnlineFraudStatistics.html. Accessed on July 27, 2012. Cheen, L. C. (n.d.). Malaysia: Strategies for the Liberalization of the Services Sector. Managing The Challenges of WTO Participation: Case Study 25. Retrieved from http://www.wto.org/ english/res_e/booksp_e/casestudies_e/case25_e.htm City of Ocala. (n.d.). Online fraud stats. Retrieved from http://www.ocalasmostwanted.com/ online_fraud_stats.htm. Accessed on July 27, 2012. Freeman, I., & Hasnaoui, A. (2011). The meaning of corporate social responsibility: The vision of four nations. Journal of Business Ethics, 100(3), 419–443. doi: 10.1007/s10551-010-0688-6 Gadbaw, R. M. (2010). Systemic regulation of global trade and finance: A tale of two systems. Journal of International Economic Law, 13(3), 551–574. doi: 10.1093/jiel/jgq031 Gallagher, K. P. (2005). Globalization and the nation-state: Reasserting policy autonomy for development. In K. P. Gallagher (Ed.), Putting development first: the importance of policy space in the WTO and IFIs. London: Zed Books. Ivy, K. L. D. (2007). Internet Legal Rulings: Movement Toward A Consistent Global Legal E-Commerce Environment. Issues in Information Systems, VIII, 70–75. Retrieved from http://iacis.org/iis/2007/Ivy.pdf Kailar, R. (1996). Accountability in electronic commerce protocols. Software Engineering, IEEE Transactions on, 22(5), 313–328. Kanji, G. K., & Chopra, P. K. (2010). Corporate social responsibility in a global economy. Total Quality Management & Business Excellence, 21(2), 119–143. doi: 10.1080/ 14783360903549808

180

FARROKH FARROKHNIA AND CAMERON KEITH RICHARDS

Kim, W., Jeong, O. R., Kim, C., & So, J. (2011). The dark side of the Internet: Attacks, costs and responses. [Article]. Information Systems, 36(3), 675–705. doi: 10.1016/j.is.2010.11.003 Kolk, A., & Tulder, R. (2010). International business, corporate social responsibility and sustainable development. International Business Review, 19(2), 119–125. doi: 10.1016/ j.ibusrev.2009.12.003 Kshetri, N. (2007). Barriers to e-commerce and competitive business models in developing countries: A case study. Electronic Commerce Research and Applications, 6(4), 443–452. doi: 10.1016/j.elerap.2007.02.004 Kungpisdan, S., & Permpoontanalarp, Y. (2002). Practical reasoning about accountability in electronic commerce protocols. Information Security and Cryptology  ICISC 2001, 2288, 135–174. Lafont, C. (2010). Accountability and global governance: challenging the state-centric conception of human rights. Ethics & Global Politics, 3(3), 193–215. doi: 10.3402/egp.v3i3.5507 Liu, C.-Y. (2009). Accountability in e-commerce. Paper presented at the OECD Panel. Retrieved from http://www.oecd.org/dataoecd/42/3/44262395.pdf Mann, C. L. (2000). Electronic commerce in developing countries: issues for domestic and WTO negotiations. Washington, DC: Institute for International Economics. Retrieved from http://xxx.iie.com/ Mann, C. L., Eckert, S. E., & Knight, S. C. (2000). Global electronic commerce: A policy primer. Peterson Institute. Online Fraud Guide by Attitude. (n.d.). High-risk countries and regions for online fraud. Retrieved from http://www.onlinefraudguide.com/risk-countries-fraud/. Accessed on July 27, 2012. Pare, D. J. (2003). Does this site deliver? B2B e-commerce services for developing countries. Information Society, 19(2), 123–134. doi: 10.1080/01972240309457 Park, S. (2010). Designing accountability, international economic organisations and the World Bank’s Inspection Panel. Australian Journal of International Affairs, 64(1), 13–36. doi: Pii 918657651, 10.1080/10357710903459990 Primo Braga, C. A. (2005). E-commerce regulation: New game, new rules? Quarterly Review of Economics and Finance, 45(2-3 SPEC. ISS.), 541–558. doi: 10.1016/j.qref.2004.12.019. Richards, C., & Zen, I. (2012). No plastic bags? The policy challenge of changing consumer (and corporate) behaviour for future sustainability (in press). Paper presented at the Proceedings of the International Conference on Public Policy and Social Sciences, December 1516, Melaka. Sampson, G. P. (2005). The future of the WTO in world economic affairs. World Trade Review, 4(03), 419–428. doi: 10.1017/S1474745605002570 Sharma, S. K., & Gupta, J. N. D. (2009). Identifying factors for lack of e-commerce in developing countries. In Rouibah et al. (Eds.), Emerging markets and e-commerce in developing economies. Hershey, Information science reference. Stiglitz, J. E. (2005). Development policies in a world of globalization. In K. P. Gallagher (Ed.), Putting development first: the importance of policy space in the WTO and IFIs. London: Zed Books. Trachtman, J. P. (2002). Lessons for GATS Article VI from the SPS, TBT and GATT Treatment of domestic regulation social science reseach network. Retrieved from http://ssrn.com/ abstract=298760 Wade, R. H. (2005). What strategies are viable for developing countries today? The WTO and shrinking the development space. In K. P. Gallagher (Ed.), Putting development first: the importance of policy space in the WTO and IFIs. London: Zed Books. Weber, R. H. (2011). Accountability in the internet of things. Computer Law & Security Review, 27(2), 133–138. doi: 10.1016/j.clsr.2011.01.005

The Accountability Challenge to Global E-Commerce

181

Weitzner, D. J., Abelson, H., Berners-Lee, T., Feigenbaum, J., Hendler, J., & Sussman, G. J. (2008). Information accountability. Communications of the Acm, 51(6), 82–87. WTO. (1994a). General Agreement on Trade In Services (pp. 1). WTO. (1994b). Marrakesh Agreement Establishing the World Trade Organization (pp. 1). WTO. (1998). Council for Trade in Services  The Work Programme on Electronic Commerce – Note by the Secretariat S/C/W/68. WTO. (1999a). Council for Trade in Goods  Work Programme on Electronic Commerce – Information Provided to the General Council G/C/W/158. WTO. (1999b). Council for Trade in Services – Work Programme on Electronic Commerce – Interim Report to the General Council S/C/8. WTO. (2001a). Dedicated Discussion on Electronic Commerce Under The Auspices Of The General Council on June 15, 2001 WT/GC/W/436. WTO. (2001b). Doha WTO Ministerial 2001: Ministerial Declaration, Adopted on November 14, 2001 WT/MIN(01)/Dec/1. WTO. (2002a). Second Dedicated Discussion on Electronic Commerce under the Auspices of the General Council on 6 May 2002 – Summary by the Secretariat of the Issues Raised WT/GC/W/475. WTO. (2002b). Third Dedicated Discussion on Electronic Commerce under the Auspices of the General Council on October 25, 2002 – Summary by the Secretariat of the Issues Raised WT/GC/W/486. WTO. (2003a). General Council – Fifth Dedicated Discussion on Electronic Commerce under the Auspices of the General Council on 16 May and July 11, 2003 – Summary by the Secretariat of the Issues Raised WT/GC/W/509. WTO. (2003b). General Council – Fourth Dedicated Discussion on Electronic Commerce under the Auspices of the General Council on February 27, 2003 – Summary by the Secretariat of the Issues Raised WT/GC/W/492. WTO. (2003c). Work Programme on Electronic Commerce – Submission from the United States WT/GC/W/493. WTO. (2005). Sixth Dedicated Discussion on Electronic Commerce under the Auspices of the General Council on November 7 and 21, 2005 – Summary by the Secretariat of the Issues Raised WT/GC/W/556. WTO. (2009). Seventh Dedicated Discussion on Electronic Commerce Under the Auspices of The General Council on October 8, 13, 22 and 27 and November 2, 4 and 6, 2009 WT/GC/W/614. WTO. (2012a). The General Agreement on Trade in Services WTO E-Learning – Trade in Services in the WTO (pp. 104): WTO. WTO. (2012b). Trade In Services and Economic Development WTO E-Learning – Trade in Services in the WTO (pp. 85): WTO. WTO. (n.d.a). GATS Training Module: Chapter 6, the Challenges Ahead, Work Programme on E-Commerce Retrieved fromhttp://www.wto.org/english/tratop_e/serv_e/cbt_course_e/ c6s5p1_e.htm. Accessed on July 28, 2012. WTO. (n.d.b). Trade topics Technical barriers to trade Retrieved from http://www.wto.org/ english/tratop_e/tbt_e/tbt_e.htm. Accessed on July 28, 2012. WTO. (n.d.c). Understanding the WTO: Developing Countries Retrieved from http:// www.wto.org/english/thewto_e/whatis_e/tif_e/dev1_e.htm. Accessed on July 31, 2012. Zhao, Y. (2005). Liberalization of electronic commerce in mainland China and Hong Kong under the WTO-CEPA regime. International Review of Law, Computers & Technology, 19(2), 183–197. doi: 10.1080/13600860500131531

CORPORATE SOCIAL RESPONSIBILITY IN CYBERSPACE: SELLING OUT TO AUTOCRATIC REGIMES: IMPLICATIONS FROM THE CASE OF GOOGLE CORPORATION IN CHINA Susan C. Morris ABSTRACT Purpose – To examine corporate social responsibility in cyberspace within the context of the experience of Google Corporation in China in order to provide greater understanding of the complexities that corporations encounter when operating across cyber borders. Design/methodology/approach – The research is grounded in the theoretical debate: The Internet as democratic and universal space versus the Internet as autocratic and sovereign space. Historical analysis is drawn from the case of Google Corporation in China.

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 183–204 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012013

183

184

SUSAN C. MORRIS

Findings – Freedom in cyberspace is more likely to be advanced universally with a collective commitment to corporate social responsibility in the information technology sector. Research limitations/implications – The study provides insights into the appropriate balance between the ethical responsibilities of the firm and its need to compete and survive in the highly competitive information age. Originality/value of chapter – The case of Google Corporation in China offers a venue for further discussion on the ethical role of transnational information technology corporations and their improvements in fostering human rights and free enterprise in cyberspace. Keywords: Corporate social responsibility; Google; China; human rights; cyberspace

INTRODUCTION In light of the negligence of responsible government and in the recognition of the increasing power and influence of transnational corporations, the issue of social justice is shifting its attention directly onto corporations (O’Neil, 1999). Transnational corporations (TNCs), as drivers of globalization and carriers of the neoliberal paradigm, facilitate trade and financial liberalization between countries and regions. Because of their breadth and scope of global expansion, TNCs increasingly participate in the formulation and implementation of rules in policy areas that were once the sole proprietor of the state (Braithwaite & Drahos, 2000; Kaul, Canceicao, Le Goulven, & Mendoza, 2003; Kingsbury, 2003; Scherer, Palazzo, & Baumann, 2006; Zurn, 2002). Beyond their mission of profit-seeking, transnational corporations perform a variety of functions that link civil societies across the globe. TNCs advocate, protest, mobilize public support; conduct scientific, technical and policy analysis; provide services, shape, implement, monitor, and enforce national and international commitments [transfer technology and resources to countries pursuing growth and development], and change institutions and norms (Mathews, 1997). TNCs have enormous impact on societies and maintain connections to governments throughout the world. Consequently, TNCs have become vital political actors in the global political economy. As global human activity migrates to the Internet, Internet technology corporations have become critical actors in the conduct of commerce and

Corporate Social Responsibility in Cyberspace

185

world affairs. Internet corporations are providers of digital super-highways in which the world conducts trade, services and governance. The Internet and the search engine providers who carry it have been compared to ‘‘a digital Silk Road, ferrying electrons around the world and enabling trade and service sectors to connect worldwide, and in the most remote areas of the global market, eliminating distance and delivery costs’’ (Black, 2011). As information search providers expand across material and virtual borders, many find themselves operating in nondemocratic countries, where the Internet culture is not open to the free flow of ideas and free market competition. Western multinational Internet corporations, as a condition for market access in countries with dictatorial governments, have been forced to censor discourse in cyberspace that deviates from government policies or incites political action. United States Internet technology corporations, Google, Yahoo, and Microsoft have admitted that their companies had enabled dictatorships to employ technological devises to censor democracy and human rights on the Internet (Smith, 2007). These censor devices most often are developed in the form of a code which filters software and allows a sovereign nation to restrict its citizens from accessing or circulating selected information on the Internet (Spinello, 2012). Although most countries employ some form of Internet censoring for state security and social morality reasons, few if any censorship systems in the world are as restrictive and severe as in China, commonly known as China’s Great Firewall. The Internet in China has been a mixed blessing. While China’s citizens have greater access to government authorities, services and public spaces, at the same time, the Internet provides an extended venue for the communist party-led state to control and subvert freedom of expression and expand its scope of authoritarian rule. Thus, ‘‘China is pioneering a new kind of Internet-age authoritarianism; it is demonstrating how nondemocratic governments can stay in power while simultaneously increasing domestic Internet use’’ (Jiang, 2010; Mackinnon, 2008). According to authorities, public discourse on the Internet in China is monitored to ensure a ‘‘harmonious socialist society’’ (Liu, Jia, & Li, 2011) – one that does not deviate in opinion from the party line. Thousands of Internet commentators in ministries and universities have been employed by the Chinese government to direct cyber discussion and to create favorable online opinions about the party-state (Hung, 2010). Consequently, the borderless world that Kenichi Ohmae (1990) once heralded stops at the cyber-boundaries of sovereign states that suppress freedom of expression among their citizenries.

186

SUSAN C. MORRIS

With the rise of a 21st century transnational ‘‘cyber society,’’ the role of corporate social responsibility (CSR) cannot especial significance for Internet corporations. Information technology corporations, such as Internet search engine providers, develop cutting edge technology that plays a major role in the formation of the societies that use it (Smith, 2007). Internet corporations are the gatekeepers of information that open societies to the windows of the world, in seconds, instead of kilometers. It therefore follows that Internet technology corporations should be accountable to the human rights of the societies they serve. As one writer elaborates: Media businesses have a profound impact on markets and societies through their ability to inform, educate, influence and entertain; and through their own content and advertising they carry, they have a pervasive influence on global patterns of consumption. As such, they are critical to whether the planet achieves sustainable development. (Grayson, 2010)

The relationship between business and human rights (including environmental rights) is as old as the corporation itself and has historical roots in the early activities of major western transnational enterprises. For example, the British East India Company and its ventures into the slave trade, or the technology of IBM Corporation to assist the Nazi government in locating European Jews during the Holocaust, or the role of Enron Corporation in India’s Dabhol power project (Deva, 2007).1 Drawing form the expanding scholarship on democracy and human rights in cyberspace, the purpose of this chapter is to examine the role of corporate social responsibility in cyberspace within the context of the experience of Google Corporation in China, and to expose some of its implications to both human rights and the market. The subject and issue are of particular significance because of Google’s prominence in the world as the most utilized technology search engine  one that commands 65 percent share of the global search engine market and 86 percent share of all Internet searches in the United States (Spinello, 2012). Rather than focusing solely on the intricacies of the GoogleChina affair in singularity, this essay attempts to disclose some of the broader consequences affecting the accountability of information technology corporations to human rights and free market liberalism on the Internet. The overarching question is then, what is the appropriate balance between the ethical responsibilities of the firm and its need to compete and survive in the highly competitive information age? Such human Rights NGO’s as Amnesty International and Human Rights Watch accept that balancing profits and principles is not a zero-sum dilemma. Instead, corporations can

Corporate Social Responsibility in Cyberspace

187

make principled decisions about what products and services they would like to provide without playing a proactive role in censorship and entrenching repression (Human Rights Watch, 2009). The above discussion elicits a number of alternative questions. For example, what are the changing dynamics involved when cyber corporations cross into censored territories? What specifically is the societal role of transnational corporations? Is it the responsibility of multinational enterprises to ensure human rights freedoms around in real and virtual spaces across the globe? What are the moral implications involved when corporations assist autocratic governments in the suppression of their citizens? Furthermore, do placing political conditions on US and western technology Corporations, as China has done; invoke ulterior motives of trade protectionism? And can profits and principles coincide? Utilizing the case study of Google Corporation in China as a framework for analysis, it is argued that Internet technology corporations should be responsible for the protection of freedom of expression in cyberspace, and that this responsibility should be exercised through the practice of corporate codes of conduct across all political and spatial frontiers. It is also supposed that human rights freedoms and market freedoms are mutually reinforcing. This chapter is presented in seven sections. The next section provides a definition of the meaning of corporate social responsibility, followed by a selective review of the literature focusing on competing opinions on the Internet as democratic and universal space versus the Internet as autocratic and sovereign space. The chapter proceeds with a discussion of a number of human rights instruments that can assist Internet corporations in upholding human rights commitments in cyberspace. The Case of Google in China is presented, followed by a discussion of the implication resulting from the case to both human rights and market freedoms. The work concludes with some comments on the value of collective corporate social responsibility in fostering freedom in cyberspace.

CORPORATE SOCIAL RESPONSIBILITY DEFINED The notion of a Corporation having functions beyond those of profit maximization and shareholder satisfaction can be traced back to the turn of the twentieth century. Economist John Maurice Clark (1916) addressed the social obligations of corporations, observing that the responsibility of business was to uphold the social obligations which are defined by the entire community. Corporate social responsibility (CSR) therefore, is synonymous

188

SUSAN C. MORRIS

with good corporate citizenship. Over one-third of large firms worldwide have employed voluntary external regulations for social and environmental standards, and 11 percent of professionally managed US investment has been designated as socially responsible (Kitzmueller & Shimshack, 2012). The definition of CSR varies across corporations and countries; however the lack of a singular definition has not diminished its importance in commerce (Freeman & Hasnaoui, 2010). One description of corporate social responsibility (CSR) is ‘‘protecting human rights, fighting corruption, promoting the rule of law and good governance, and encouraging corporate philanthropy’’ (Craner, 2002). Alternatively, Grayson (2010) suggests that a responsible corporation is one that ‘‘delivers sustainable value to society at large, as well as to stakeholders, and conducts business with transparency, ethical values, and respect for employees, communities and the environment.’’ Corporate social responsibility gives preference to economic concerns but also adds legal, moral, and philanthropic responsibilities (Chen, 2009). For example, the Corporate Social Responsibility NGO, the Ethos Institute, cofounded by Brazilian businessman-activist Oded Grajew, has impacted the Brazilian business community by prompting major enterprises such as McDonald’s and the Sao Paulo Stock Exchange [the Bovespa] to support and improve social welfare programming (Armijo & Burges, 2010). Global corporations, as carriers of trade, technology and culture, not only function as trade liberalizers, but also promote and spread the democratic values of individual freedom and human rights (Bernstein & Dicker, 1994). As such firms serve as facilitators for improved human rights practices in countries in which they are located (Garten, 1997; Kaysen, 1967). ‘‘Transnational corporations look for good markets, good workers, and they bring in exchange not private deals with governments but the promise of a better life for the people’’ (Ohmae, 1990). While global firms bring benefits to societies, these benefits can be disrupted by national policies of governments (Graham, 1996), such as the censorship of citizens online. Corporate Social Responsibility has been most often applied through the practice of corporate codes of conduct, which vary among companies and industries (Nolan, 2009). Codes of conduct are commonly regarded as part of the soft law paradigm for protecting human rights (ibid.). These codes comprise an array of strategies of best practices toward employees, customers and suppliers, the community and society-at-large, and the planet (Brennan & Johnson, 2004). There are approximately 1,000 corporate codes in existence today; outlining the labor, human rights and environmental obligations for corporations and their suppliers (Yu, 2007). Many Corporate codes of conduct are rooted in the Sullivan Principles of 1971.

Corporate Social Responsibility in Cyberspace

189

Reverend Sullivan, the first African American to be appointed to the Board of General Motors in 1971, launched a campaign to assist in abating apartheid in South Africa by linking human rights principles to workplace practices (www.thesullivanfoundation.org, 2012). Such principles included equal opportunity, human health, workplace safety, nonexploitation of labor and environmental sustainability (ibid.). In recent decades, there has been a proliferation of corporate self-regulatory measures in response to public criticism of corporate human rights transgressions. TNCs such as IKEA, Kmart, Philips and Shell have created codes of conduct detailing workers’ rights, environmental policies and ethical standards to be followed by the company wherever it operates (Macleod & Lewis, 2004). In further illustration, Levi Strauss, in adhering to corporate codes of conduct, ceased all direct foreign investment in China on the condition of human rights improvements, and also withdrew from Myanmar when the military regime silenced a human rights movement (Morris, 2002). Whether a Corporation should be directly responsible for the economic, social and environmental welfare of civil societies is an issue of contention among both scholars and practitioners. In discord with the corporation as a social agent, neoclassical economic theory builds on the proposition that if all individuals and businesses pursue their own individual desires, social welfare will be maximized – ‘‘social progress, then, results not from seeking to do ‘good,’ but from profit-seeking’’ (Zammit, 2003). Neoclassical economist David Ricardo affirms this ideology in his ideology that ‘‘the pursuit of individual advantage is admirably connected with the universal good of the whole’’ (Ricardo, 1953). In this same school of economic thought, notable economist Milton Friedman (2002) promotes that ‘‘the single social responsibility of a corporation is to use its resources and engage in activities designed to increase profits so long as that it plays by the rules of the game and engages in open and free competition.’’ Subsequently, there are those thinkers who champion the viewpoint that businesses should be autonomous, and advocate little or no corporate regulation, and those who would impose mandatory regulations on corporations (Macleod & Lewis, 2004). Because of the speed of information technology in the 21st century, scholars reason that the rigidity of mandatory rules of law would stifle corporate activity and prosperity, and therefore the age of corporate self-regulation is eminent (Van Rooij, 2000, cited in Macleod & Lewis, 2004). As new enterprises emerge onto the global scene from nondemocracies, the concept of corporate social responsibility takes on new meaning. For example, in a survey of rationales for corporate social responsibility that

190

SUSAN C. MORRIS

was administered among employees of Chinese corporations, the responses were: (1) to enhance brand competitiveness; (2) to allow participation in the global market; (3) to access the global supply and value chain; (4) an opportunity to catch up with the west; (5) CSR is the right thing to do; (6) for obligation and reciprocity; (7) for emerging social expectations; (8) social consensus to maintain a harmonious socialist country for public scrutiny (Liu et al., 2011). In contrast to the United States and western interpretation of CSR, the Chinese interpretation is void of allusion to human rights, free expression and free information exchange. Moreover, many Chinese scholars embrace that CSR is a tool of western hegemony and a conspiracy of developed countries to impede the growth of the Chinese economy, which is dependent upon labor intensive industries (Tang & Li, 2009). The case of Google Corporation in China leads to the larger question of how cyberspace is governed, and the theoretical disputes regarding the potential of the Internet to be a liberalizing and democratizing force in the world.

DEMOCRACY OR AUTOCRACY IN CYBERSPACE? Corporate Social Responsibility in cyberspace rests heavily on the belief that users and citizens at large are entitled to the democratic principles of free expression, privacy, and free exchange of ideas. There is no agreement, however, on the democratic potential of the Internet in the scant literature. The scholarship is divided in opinion from the belief in the Internet’s ability to convince political and human rights reform, to a complete negation of any potential of the Internet to stimulate democracy and the freedoms that flow from it. Cyber-realists advance that cyberspace is controlled by the rules of sovereign states, and therefore the liberalizing potential of the Internet is limited. Whereas cyber-idealists promote that cyberspace is universal – a global commons with limitless potential to revolutionize societies. Lewis (2010) defines the global commons as ‘‘natural assets outside national jurisdiction, which include the oceans, outer space and the Antarctic.’’ The concept of a global commons is embedded in liberal thought which assumes a universal perspective of human rights and a single pattern of moral reasoning irrespective of different cultures (Renteln, 1990). The notion of a commons has historical origins in ancient Greece and consists of five major principles: (1) participation must be free and uncoerced; (2) participants must share a common purpose; (3) participants must have

Corporate Social Responsibility in Cyberspace

191

something in common they share; (4) participation involves a sense of mutuality; (5) social relations must be characterized by fairness and justice (Holman & McGregor, 2005). United States Secretary of State Clinton, in her speech on Internet freedom, endorsed the liberal view of the societal role of the Internet. Based on the United States first Amendment freedoms of speech, privacy and the press, Chinese netizens should have the right to freedom of expression and freedom to connect without interference from the government (Jiang, 2010). Ya-Wen (2011) determined that despite continuous regulation and censorship of the Internet by a powerful authoritarian state, increased Internet usage will create steps toward democracy. Zheng (2008) distinguishes between democracy and liberalization; democratization, he claims, requires a complete structural change in the regime, but that liberalization does not, and that clearly democratization in China has not taken place. When authoritarian states, such as China, embrace Internet technology, they may find it challenging to return to a culture of secrecy, abuse of power and lack of accountability (Kalathil, 2003). Web blogs in China, although they do not incite political activism, expand the space for collaboration and public discourse, which may in the long term generate regime change, but a regime change that is evolutionary in nature, rather than revolutionary (Mackinnon, 2008). Ogden, in his work, Politics in a parallel universe, deliberates the future for cyber democracy and proclaims that the power politics brought on by technology cannot be ignored, in which struggles in the virtual polis occur (Ogden, 1994). Similarly, Holman and McGregor (2005) promote that the Internet is a globally shared commons and therefore new digital information and communications technologies must advance the democratic values of free speech and free exchange of information across cultures and societies. In this same school of thought, some cyber-idealists have called for a civic commons in cyberspace: Ultimately, the electronic commons could become part of the democratic furniture, an integral part of the representative system [the commons] and an open space for the represented to gather and talk [the civic commons]. (Blumler & Coleman, 2001)

In contradiction to the preceding perspectives, Morozov (2011), a cyberrealist, cautions that the democratizing effect of the Internet is a naive belief in the emancipatory nature of online communication, and points to the example that blogospheres in authoritarian regimes serve as channels in which to express nationalistic and xenophobic sentiment. The growth of the anti-CNN movement on the Chinese Internet demonstrates the State’s sophisticated guidance of popular patriotism (Jiang, 2010). Whereas western

192

SUSAN C. MORRIS

firms and their countries accept that the Internet is universal, autocratic governments endorse that the Internet is differentiated by States that have the sovereign right to rule over their ‘owned’ cyber territories: Cyber-Utopians ambitiously set out to build a new and improved United Nations only to end up with a digital Cirque du Soleil. Failing to anticipate how authoritarian governments would respond to the Internet, cyber-utopians did not predict how useful the Internet would prove for propaganda purposes, how masterfully dictators would use it for surveillance, and how sophisticated modern forms of Internet censorship would become. (Morozov, 2011)

Concurring with the aforementioned viewpoints, Lewis (2010) proposes that the notion of a global commons is an illusion – ‘‘that there is not a moment when bits moving from one computer to another are not on a network that is owned and physically located in a Sovereign state.’’ In parallel, a study of the democratic effects of the Internet on 152 countries concluded that increased Internet diffusion cannot be considered a symbol of democracy since the democratic effects of the Internet are unlikely to be achieved in an environment that has not already reached a certain level of democratization (Groshek, 2009). In researching the Internet’s effects on democracy in postcommunist Russia, it was established that the Internet was merely used to prolong the old Soviet apparatus (Rohozinski, 2000). In actuality, the emergence of the Internet in Russia served not to transform society, but rather that cyberspace has enhanced present and historical patterns of Russian social interactions (ibid.). Equally significant, there is a danger in crediting that new technologies can enhance the democratic governance of society as it becomes more transparent for control (Netchaeva, 2002). In a study by the Open Net Initiative on censorship in China, it was found that ‘‘China operates the most extensive technologically sophisticated and broad-reaching system of Internet filtering in the world’’ (Mackinnon, 2008). According to one study conducted at the Berkman Center for Internet and Society at Harvard Law School, China has managed to block ‘‘90 percent of websites about the Tiananmen massacre, 31 percent of sites about independence movements in Tibet, and 83 percent of sites with a derogatory version of the name of the former president Jiang Zemin’’ (Grayson, 2010). In short, cyber-realists, in believing in the rights of sovereign territories, advance that social responsibility in cyberspace is limited. Cyber-idealists, contrastingly, trust that Corporate Social Responsibility can supersede sovereign rights and emancipate societies from government-imposed censorship on the Internet.

Corporate Social Responsibility in Cyberspace

193

MECHANISMS OF RESISTANCE There are a number of international, regional and national human rights instruments that have been established to assist corporations in resisting the demands of Internet censorship. These instruments are voluntary and nonbinding. Some enactments, such as the Universal Declaration of Human Rights have become part of common law. Such rights mechanisms include the United Nations Global Compact, which mobilizes businesses to advance responsible corporate citizenship, and universal human and environmental principles (United Nations, 2000). More recently, the United Nations Guiding Principles for Business & Human Rights (United Nations, 2011) provides ‘‘for the first time an authoritative global standard for preventing and addressing the risk of adverse human rights impacts linked to business activity.’’ Contributing to the previous initiatives, the Global Network Initiative, a coalition comprised of Internet technology corporations [including Microsoft, Google and Yahoo], investors, civil society organizations and academics, aspires to protect and advance free expression and privacy in information and communications technologies across the globe (Global Network Initiative, 2009). Complementing the previous is the OpenNet Initiative (2012); a collaborative research organization, composed of practitioners and scholars that investigate Internet surveillance and filtering practices and their consequences. Reaching back in time to the foundations of a codified international human rights law, Article 19 of the Universal Declaration of Human Rights (UDHR) guarantees the ‘‘freedom to hold opinions without interference, and to seek, receive and impart information and ideas through any media and regardless of frontiers’’ (United Nations, 1948). At the national level, the United States Global Online Freedom Act (United States Congress, 2006) forbids United States corporations from collaborating with countries that restrict online access and engage in online censorship.2 As of this writing, however, the Act has not passed legislation. Despite these national, regional and multilateral mechanisms, there has not been strong resistance demonstrated on the part of US and western corporations to uphold the fundamental universal human rights of their customers and users (Human Rights Watch, 2009). Foreign corporations in China are hesitant to voice complaints concerning the government’s oppressive policies for fear of repercussions they may face from the Chinese government, such as, for instance, decreased market access (Brown, 2011) which would undoubtedly deter the ability to earn profits.

194

SUSAN C. MORRIS

THE CASE OF GOOGLE IN CHINA In 2006, Google introduced a version of its search engine to the China market (google.cn), the largest market of online users in the world. One of Google’s primary reasons for starting a China-based search engine was to circumvent Chinese filters that were causing Google.com, in the United States to be too slow to access from networks outside of the country. Google had hopes of offering a faster, more reliable service inside China (Dann & Haddow, 2008). At the same time, Google had been losing market share to China-based Baidu, Inc., which increased from 2.5 percent of China’s domestic search engine market in 2003, to 56 percent of the domestic market in 2005. Google’s share in China, on the other hand, had dropped considerably during this same time to below 30 percent and was continuing to fall (ibid.). According to Chinese law, all Internet content providers, private or public, are required to register for and display a license in order to operate legally, and are liable for all content appearing on their websites, whether created by the company or by any of the site’s users of its content creation and sharing services (Human Rights Watch, 2009). The license to operate in China was granted to Google by Chinese officials on the condition that it complied with China’s censorship laws, and that all politically sensitive websites be purged (Spinello, 2012). However, it was not made available to Google officials what content was not permitted, nor were Chinese laws transparent (Kaplan, 2011). The list of websites, words and phrases to block was not provided to Google by the Chinese government. In complying with the China policy that Internet Corporations share the burden to censor, Google created a website block-list based on terms that Google found were being filtered by Chinese Internet providers (Human Rights Watch, 2009). When confronting human rights activists and United States government officials about the decision to collaborate with the Chinese regime, Google had argued that the alternative of withdrawing from the China market would be worse than providing no information to the citizens of China. Alan Davidson, Director of US Public Policy, Americas, Google, Inc. explained; Google’s reasoning for compliance with Chinese censorship regulations was that ‘‘not to serve at all was a worse evil3 than serving with censorship compliance,’’ and that Google contributes to the modernization of China by providing access to information that societies need (Spinello, 2012; Sullivan, 2006). Since entering the China market in 2006, Google had been plagued with censorship requirements and cyber-attacks on its infrastructure, originating

Corporate Social Responsibility in Cyberspace

195

from China with the major, but unsuccessful objective of accessing Gmail accounts and securing intellectual property and information about Chinese human rights activists in organizations, governments and academia (Davidson, 2010). In response to intrusions in its infrastructure, Google made the decision to cease censoring, sever its ties with the Chinese mainland, and reroute its mainland users to a new website in Hong Kong (google.hk), all-the-while knowing that the Great Firewall could prevent users on the mainland from accessing Google’s services in Hong Kong (ibid.). After locating its website to Hong Kong, Google had witnessed recurrent censorship of search queries from the mainland on its Hong Kong site (Davidson, 2010). Google’s decision to transfer its web base from the Chinese mainland to Hong Kong had come at a cost, however. The firm’s share of the Chinese search engine market revenue had fallen to 19.6 percent in the last quarter of 2010, from 35.9 percent the previous year, while its domestic competitor, Baidu, had increased its share of the search market revenue to 75.5 percent, up from 58.8 percent during the same period (Black, 2011). To the disappointment among human rights advocates, in June 2010, Google was awarded (and accepted) a license renewal for its website operator in China, Beijing Guxiang Information Technology Company (Chao & Efrati, 2010). The license was granted by China’s Ministry of Industry and Information Technology (MIIT),4 on the condition that Google submit a letter agreeing to honor Chinese Internet laws, and accept all content it provides under the supervision of ministry regulators. Chinese officials also requested that Google terminate the automatic rerouting of its Chinese operator on the mainland to Hong Kong.

IMPLICATIONS FOR HUMAN RIGHTS AND THE MARKET Human Rights Google’s contentious relationship with the Chinese government resulted in inconsistent corporate policies and actions, resulting in both positive and negative implications for individual freedoms on the Internet. Google’s original decision to comply with Chinese authorities sent a positive message to monocracies worldwide that US enterprises would not only submit to their rules, but would also assist in the oppression of their citizenries by omitting references and information in web searches. In cooperating with

196

SUSAN C. MORRIS

the Chinese regime, Google’s actions contradicted the original intention of the Internet and of Silicon Valley culture (Wu, 2010) which thrives on the democratic values of freedom of expression, freedom of information, and resultantly an open cyberspace for all citizenries. In 2010 Google’s resistance to China’s intrusive Internet regulations, by relocating its website location to Hong Kong, symbolized the company’s commitment to provide free access to information for the entire world, and in every language (Google Corporation, 2012). However, after moving its operations to Hong Kong, Google engineers continued to develop innovative methods of self-censoring through a trial and error process. Google officials reviewed 350,000 of the most popular search queries in China, and had identified specific terms that could trigger errors (Kan, 2012). Presently, when users type in queries in the company’s search engine, the service will highlight specific characters or phrases with the potential to ‘‘break’’ a user’s connection to Google. By warning users to revise their queries, Google officials in Hong Kong had hoped to reduce disruptions from the mainland, and gain back lost users (ibid.). The company’s final shift in policy to continue to self-censor from Hong Kong in order to attract users from the mainland (however limited they may be) marked the triumph of profits over principles. Leaders in China continue to detain and harass Chinese citizens who share what the government deems as politically sensitive content online. One of the many victims, Liu Xianbin, founder of the Sichuan branch of the Chinese Democratic Party, posted articles on line asking for the Communist Party to implement political change. In doing so, Liu was sentenced to a 10-year prison sentence for rousing subversion of state power (United States Congressional-Executive Commission on China, 2011, Appendix B). As China continues to tighten its State censorship system, simply expressing support for an Internet activist is enough for the government to impose a jail sentence (Drezner, 2010). By choosing to self-censor, Google had empowered the Chinese regime to maintain and continue its disregard for human freedoms in Chinese society, and had specifically violated its Corporate principle number 4; ‘‘democracy on the web works’’ (www.Google.org, 2012). The indecisiveness of Google’s actions in China underscores the moral quandary presented when corporations with foundations in liberal democracies collude with autocratic regimes. The opinion offered by Brenkert (2009), for example, endorsed the actions of Google in China as long as they were accompanied by other actions to mitigate and reverse what was previously done, inferring that some moral compromise is necessary in order to protect other principles (ibid.). The interpretation by

Corporate Social Responsibility in Cyberspace

197

Brenkert, however, leaves a moral vacuum in which the corporate commitment to human rights freedoms on the Internet is reduced to feeble attempts. The paradoxical situation with Google is that in opening the flow of information to states whose governments thrive on the suppression of knowledge, it has transformed the Internet into one of the most potent democratizing forces in the world, but as one of the most visible crusaders of the freedom of information, Google Corporation is also the most readily censored by the authoritarian governments they challenge. (Liu & Noronha, 2008)

China’s efforts to modernize its information technology sector has been progressed by the influence of Google and other western technology companies who have assisted the Chinese government with Internet operations and filtering devises. It is therefore reasonable that Google, along with other western Internet corporations, collectively leverage the promise of sharing technology with China on the condition that censorship regulations are lifted, with minimal risk to profits (Hamilton, Knouse, & Hill, 2008). Without resorting to complete withdrawal from the China market, it is possible for Google to commit to its core values and protect the rights of Chinese netizens by not revealing the identity of users to the government, or by ceasing to host services in e-mail, blog space, chat rooms, or websites (ibid.). Google, as a pioneer and pacesetter in the information technology industry, can set an example by leading a collective industry initiative not to comply directly or indirectly, fully or partially, with China’s or other States’ policies of oppression in cyberspace.

The Market The continued willingness of Google to self-censor from its Hong Kong location not only represents a compromise of human rights freedoms, but also denotes a sacrifice of the company’s competitive advantage in the China market even though profits may be earned. China’s hired Internet censors single out foreign-based web services and content when Chinese-owned services carry the same banned content (Black, 2011), indicating that the motivation for censorship is not solely political, but protectionist. Offering an abbreviated version of Google’s services reduces their technological supremacy over local providers (ibid.). Consequently, local users become frustrated with the slowness and unreliability of a foreign search engine provider and will therefore switch to the domestic user-friendlier provider that is censorship-ready.

198

SUSAN C. MORRIS

American companies, whose main purpose is to facilitate communications and information exchange, are some of the largest and fastest-growing companies in the world. With an estimated global market value of $174 billion, Google is highly valued in the American economy (Black, 2011). Although China enjoys full access to the US market in sectors where it has a comparative advantage, it is disquieting that the United States Internet industry does not enjoy the same advantage in China (ibid.). In further consequence, incomplete information prevents business people inside and outside China from making knowledgeable business decisions (Eisinger, 2006 cited by Hamilton et al., 2008). Filtering information and expression degrades the quality of service offered by foreign search providers who must compete with China’s unfiltered Internet providers (ibid.) By refusing to offer transparency and fairness to global trading partners, China has reneged on its WTO commitments, specifically Articles 3 and 4 of the General Agreement on Trade in Services (GATS), which outlines provisions of transparency for member countries regarding the rules and regulations in the conduct of commerce (World Trade Organization, 1995). Government surveillance of Google’s Internet services, on the mainland and in Hong Kong has triggered an unfair playing field that places United States Internet technology firms at a disadvantage in comparison to China’s firms (Smith, 2007). Ultimately, the Chinese search engine, Baidu, has been able to retain its monopoly in the China market while Google continues to struggle with the Chinese government to obey its rules. China’s protectionist and repressive policies could come at a cost, however. Without a free and fair market, the Great Firewall may backfire by obstructing the very elements that China needs most; free competition and market-led development that drive innovation in the information communications technology sector. Accordingly, without free markets and free peoples, both the corporation and society are compromised, making it all the more imperative that Internet corporations do not yield from their obligations to conduct competitive commerce while at the same time ensuring open access to information and free expression.

CORPORATE SOCIAL RESPONSIBILITY: A CONDUIT FOR FREEDOM IN CYBERSPACE This chapter has advanced that Internet Corporations must take the responsibility to protect the human rights freedoms of online users across

Corporate Social Responsibility in Cyberspace

199

networks and spatial frontiers. From the ancient Greek ecclesia to the cyberblogs of the 21st century, freedom of expression and information-sharing has been the life force of civilized societies. Where the Internet is supposed to open societies and serve as a conduit to bring civilizations of the world together for peace and prosperity, in China it has served as a medium for societal closure. In a World Internet Project (WIP) which surveyed countries around the world, it was determined that the Internet has a more significant political impact in China than in other countries, both in terms of the relationship between the people and the government, and among citizens who share similar political interests (Mackinnon, 2008). Given the political impact of the Internet in China, Google, in cooperation with other corporations at the information technology frontier can, in concert, hasten steps toward cyberdemocracy in China by refusing to assist in censorship, and can tear down that Great Firewall. However, information technology corporations must have the political will to do so. Abetting government censorship negates the underlying intention of cyberspace  to open up and inform the world for the betterment of all peoples regardless of cyber and geographical borders. For those who adhere to the notion that a democratic cyberspace can only emerge from a democratic material space (Netchaeva, 2002; Rohozinski, 2000), it can also be argued that a democratic material space can only emerge from a democratic cyberspace. The recent democracy uprisings in Iran, Russia and the Middle East, which spread across Internet lines faster than any other medium, gives faith to the Internet as a liberalizing force. In an age where the speed of information is of the essence, the rigidity of China’s Internet censorship laws stifles activity, silences communications and cultivates an illinformed society. There is unlikely to be substantial change in Internet freedoms in China and other despotic countries as long as both material and virtual societies are unfree, no matter which would be first to kindle reform. Movers and shakers in the Internet search industry, such as Google, Yahoo, and Microsoft, by virtue of their position in the vast sea of information technology hold significant influence in the societies they serve. They are the gatekeepers of world interactions. Communications technology frontrunners possess the command and the stature to serve as a conduit for freedom in cyberspace. In taking the view of Macleod & Lewis (2004) so as not to stifle corporate activity and prosperity by stringent public regulation, corporations should self-regulate. While maintaining corporate autonomy, many of the principles suggested in the human rights mechanisms previously mentioned,

200

SUSAN C. MORRIS

should be written into the codes of conduct for information technology corporations, and more importantly practiced, with oversight committees within corporations that monitor ethical behavior across borders. Without a collective commitment to Corporate Social Responsibility in the information technology sector and its application through corporate codes of conduct, the Internet, as an agent for uniting societies, will most likely become a tragedy of the digital commons.

NOTES 1. The Dabhol Power Corporation and its parent company Enron were assisted in human rights violations. Enron’s local entity, the Dabhol Power Corporation, benefited directly from an official policy of suppressing dissent through misuse of the law, harassment of anti-Enron protest leaders and prominent environmental activists, and police practices ranging from indiscriminate to brutal. The company did not speak out about human rights violations, and when questioned about them, chose to ignore them altogether (Human Rights Watch, 1999). Retrieved from http:// www.hrw.org/reports/1999/enron 2. ‘‘The Freedom Act provides both civil and criminal penalties if any U.S. business or person violates its provisions. Barring the disclosure of personal identification information of its users – is considered most serious in imposing a fine of up to $2,000,000, an imprisonment of up to five years if the provision is willfully violated or attempted to be violated’’ (Deva, 2007). 3. Google Corporation, Principle 6, states that ‘‘You can make money without doing evil and that Google will not compromise the integrity of its search results.’’ Ten Things We Know to Be True, Google’s Corporate Codes of Conduct. Retrieved from www.Google.com/about 4. China’s Ministry of Industry and Information Technology (MIIT) controls all international internet gateways coming into and out of China.

REFERENCES Armijo, L., & Burges, S. (2010). Brazil, the entrepreneurial and democratic BRIC. Polity, 42(1), 14–37. Bernstein, L., & Dicker, P. (1994, September). Human rights first. Foreign Policy, 43–47. Black, E. (2011, November 17). Statement before the United States Congressional Executive Commission on China. In China’s Censorship Hearing, 112th Cong., 1st sess., Washington, DC: United States Government Printing Office. Retrieved from http:// www.cecc.gov/pages/hearings/general/hearing1/index.php Blumler, J., & Coleman, S. (2001). Raising democracy online: A civic commons in cyberspace. In Institute for Public Policy Research, publication 2, London: UK. Retrieved from http://www.ippr.org.uk Braithwaite, J., & Drahos, P. (2000). Global business regulation. Cambridge: Cambridge University Press.

Corporate Social Responsibility in Cyberspace

201

Brenkert, G. (2009). Google, human rights, and moral compromise. Journal of Business Ethics, 85(4), 453–478. Brennan, L., & Johnson, V. (2004, Spring). Technology management for corporate social responsibility. IEEE Technology and Society Magazine, 23(1), 4048. Brown, S., Hon. US Senator. (2011, November 17). Statement before the United States Congressional Executive Commission on China. In China’s Censorship of the Internet and Social Media: The Human Toll and Trade Impact. Hearing, 112th Cong., 1st sess. Washington, DC United States Government Printing Office. Retrieved from http:// www.cecc.gov/pages/hearings/general/hearing1/index.php Chao, L., & Efrati, A. (2010, July 2). China Renews Google’s License. The Wall Street Journal. Retrieved from http://online.wsj.com Chen, S. (2010). Corporate responsibilities in internet-enabled social networks. Business Ethics, 90, 523–536. Clark, J. (1916, March). The changing basis of economic responsibility. Journal of Political Economy, 24(3), 209229. Craner, L. (2002). Promoting corporate social responsibility abroad: The human rights and democracy perspective. Looking Ahead, 24(3-4), 8–9. Dann, G. E., & Haddow, N. (2008). Just doing business: Google, Microsoft, Yahoo! and the business of censoring China’s Internet. Journal of Business Ethics, 79(3), 219–234. Davidson, A. (2010, March 24). Statement before the United States Congressional-Executive Commission on China. In Google and Internet control in China: a nexus between human rights and trade? Hearing, 111th Cong., 2nd sess. Washington, DC: United States Government Printing Office. Retrieved from http://www.cecc.gov/pages/hearings/2010/ 20100324/index.php Deva, S. (2007). Corporate complicity in Internet censorship in China: Who cares for the global compact or the global online freedom act? The George Washington International Law Review, 39(2), 255–319. Drezner, D. (2010). Weighing the scales: The internet’s effect on state-society relations. Brown Journal of World Affairs, 16(2), 31–44. Freeman, I., & Hasnaoui, A. (2010). The meaning of corporate social responsibility: the vision of four nations. Journal of Business Ethics, 100, 419–443. Friedman, M. (2002). Capitalism and freedom. Chicago, IL: University of Chicago Press. Garten, J. (1997). Business and foreign policy. Foreign Affairs, 76(3), 67–79. Global Network Initiative. (2009, June 2). Global network initiative launches. Retrieved from http://cyber.law.harvard.edu/node/4792 Google Corporation. (2012, June 17). Ten things we know to be true. Retrieved from http:// www.google.com/about/company/philosophy Graham, E. (1996). Global corporations and national governments. Washington, DC: Institute for International Economics. Grayson, D. (2010). Corporate responsibility and the media. Economics, Management, and Financial Markets, 5(3), 160–194. Groshek, J. (2009). The democratic effects of the Internet, 1994–2003: A cross-national inquiry of 152 countries. The International Communication Gazette, 7(3), 115–136. Hamilton, J., Knouse, S., & Hill, V. (2008). Google in China: A manager-friendly heuristic model for resolving cross-cultural ethical conflicts. Journal of Business Ethics, 86, 143–157. Holman, J., & McGregor, M. (2005). The internet as commons: The issue of access. Communication Law and Policy, 10(3), 267–289.

202

SUSAN C. MORRIS

Human Rights Watch. (1999, May 20). The Enron Corporation: corporate complicity in human rights violations. Retrieved from http://www.hrw.org/reports/1999/enron Human Rights Watch. (2009). Race to the bottom. Retrieved from http://www.hrw.org/print/ reports/2006/08/09/race-bottom Hung, C. (2010). China’s propaganda in the information age: Internet commentators and the Weng’ an Incident. Issues and Studies, 46(4), 149–180. Jiang, M. (2010). Authoritarian informationalism: China’s approach to internet sovereignty. SAIS Review, 30(2), 71–89. Kalathil, S. (2003, March/April). Dot.com for dictators. Foreign Policy, 43–49. Retrieved from www.foreignpolicy.com/articles/2003/03/01/dot_com_for_dictators Kan, M. (2012, June 1). Google now highlights censored search terms for users in China. IDG News Service. Retrieved from http://www.networkworld.com/news/2012/060112-googlenow-highlights-censored-search-259769.html Kaplan, G. (2011, November 17). Statement before the United States Congressional Executive Commission on China. In China’s Censorship Hearing, 112th Cong., 1st sess., Washington, DC: United States Government Printing Office. Retrieved from http:// www.cecc.gov/pages/hearings/general/hearing1/index.php Kaul, I., Canceicao, P., Le Goulven, K., & Mendoza, R. U. (Eds.). (2003). Providing global public goods. Oxford: Oxford University Press. Kaysen, C. (1967). The business corporation as a creator of values. In S. Hook (Ed.), Human values and economic policy (pp. 209–224). New York, NY: New York University Press. Kingsbury, B. (2003). The international legal order. In P. Cane & M. Tushnet (Eds.), The Oxford handbook of legal studies (pp. 271–297). Oxford: Oxford University Press. Kitzmueller, M., & Shimshack, S. (2012). Economic perspectives on corporate social responsibility. Journal of Economic Literature, 50(1), 51–84. Lewis, J. (2010). Sovereignty and the role of government in cyberspace. Brown Journal of World Affairs, 16(2), 55–65. Liu, E., & Noronha, J. (2008, Spring). Internet Innovators: Can Google spread democracy? Harvard Political Review, 35(1), 7. Liu, X., Jia, S., & Li, F. (2011). Corporate social responsibility as a legitimate concern for Chinese enterprises. Public Relations Review, 37, 207–216. Mackinnon, R. (2008). Flatter world and thicker walls? Blogs, censorship and civic discourse in China. Public Choice, 134, 31–46. Macleod, S., & Lewis, D. (2004). Transnational Corporations: Power, influence and responsibility. Global Social Policy, 4(1), 77–98. Mathews, J. (1997). Power shift. Foreign Affairs, January/February, pp. 50–66. Morozov, E. (2011). Technology’s role in revolution: Internet freedom and political oppression. The Futurist, , July/August, pp. 12–18. Morris, S. (2002). Trade and human rights: The ethical dimension in USChina relations. Burlington, VT: Ashgate Publishing Limited. Netchaeva, I. (2002). E-government and e-democracy: A comparison of opportunities in the north and south. The International Journal for Communication Studies, 64(5), 467–477. Nolan, J. (2008). The China dilemma: Internet censorship and corporate responsibility. In Fifth Asian Law Institute Conference, Singapore: National University of Singapore. O’Neil, K. (1999). The Internet working for social change: Keeping the spotlight on corporate responsibility. Geneva, Switzerland: United Nations Research Institute for Social Development.

Corporate Social Responsibility in Cyberspace

203

Ogden, M. (1994). Politics in a parallel universe: Is there a future for cyber democracy? Future, 26(7), 713–729. Ohmae, K. (1990). The borderless world: Power and strategy in the interlinked economy. New York, NY: HarperBusiness. OpenNet Initiative. (2012, June). About ONI. Retrieved from http://www.opennet.net/about Renteln, A. (1990). International human rights: Universalism versus relativism. Newbury Park, NJ: Sage. Ricardo, D. (1953). On the principles of political economy and taxation. Cambridge, UK: University Press for the Royal Economic Society. [original work published 1817]. Rohozinski, R. (2000, October). How the internet did not transform Russia. Current History, 58(1), 334–338. Scherer, A., Palazzo, G., & Baumann, D. (2006). Global rules and private actors: Toward a new role of the transnational corporation in global governance. Business Ethics Quarterly, 16(4), 505–532. Smith, C. (2007, February). U.S. firms in China face ethical issues. Retrieved from http:// wsj.com Spinello, R. (2012). Google in China: Corporate responsibility on a censored Internet. In A. Dudley, J. Braman & G. Vincenti (Eds.), Investigating cyber law and cyber ethics: issues, impacts and practices (pp. 239–253). Hershey, PA: Information Science Reference. Sullivan, D. (2006, January 5). Google Now Censoring in China. Search Engine Watch. Retrieved from http://searchenginewatch.com/article/2059788/Google-Now-CensoringIn-China Sullivan Foundation. (2012). The Sullivan Principles. Retrieved from http://thesullivan foundation.org/about/global-sullivan-principles Tang, L., & Li, H. (2009). Corporate social responsibility communication of Chinese and global corporations in China. Public Relations Review, 35, 199–212. United Nations. (1948). Universal declaration of human rights. New York, NY: United Nations Department of Public Information. United Nations. (2000). Global Compact. Retrieved from http://www.un.org/pdt/global.htm United Nations. (2011, March 24). Guiding principles for business and human rights. Retrieved from http://www.ohchr.org/EN/Issues United States Congress. (2006). United States Global On-line Freedom Act. Retrieved from http://www.govtrack.us/congress/bills/111/hr2271 United States Congressional-Executive Commission on China. (2011, October 11). Annual Report, 112th Cong., 2nd sess. Retrieved from http://www.cecc.gov World Trade Organization. (1995). General Agreement on Trade in Services (GATS), Articles 3 & 4. Retrieved from http://docsonline.wto.org/GEN_highLightBottom.asp Wu, D., Hon. (2010, March 24). Statement before the United States Congressional-Executive Commission on China. In Google and Internet control in China: A nexus between human rights and trade? Hearing, 111th Cong., 2nd sess. Washington, DC: United States Government Printing Office. Retrieved from http://www.cecc.gov/pages/hearings/ 2010/20100324/index.php Ya-Wen, L. (2011). The political consequences of the rise of the internet: political beliefs and practices of Chinese netizens. Political Communication, 28(3), 291–322. Yu, X. (2007). Impacts of corporate code of conduct on labor standards: A case study of Reebok’s athletic footwear supplier factory in China. Journal of Business Ethics, 31, 513–529.

204

SUSAN C. MORRIS

Zammit, A. (2003). Development at risk: Rethinking UN-business partnerships. Geneva: The South Centre and the United Nations Research Institute for Social Development. Zheng, Y. (2008). Technological empowerment: The internet, state and society in China. Stanford, CA: Stanford University Press. Zurn, M. (2002). From interdependence to globalization. In W. Von Carlsnaes, T. Risse & B. Simmons (Eds.), Handbook of International relations (pp. 234–254). London: Sage.

ETHICS, CSR AND MNCS: ESTABLISHING THE LINK WITH HRM IN TIMES OF ECONOMIC CRISIS Vlasios Sarantinos ABSTRACT Purpose – To explore the ethical challenges, the financial crisis afflicting Greece and most of the European South creates for MNCs. Emphasis is placed on using human resource management (HRM) as the principle prism to identify the role of employees as organizational members and individuals within the transforming environment. Design/methodology – The chapter follows an exploratory inquisitive path, attempting to elicit information and evidence from theoretical and practical sources, bringing together three primary areas: CSR and business ethics, HRM, and contextual factors, moderated by the financial crisis. The key driver is to shed light in a related narrowly searched field, paving the way for future investigations. Findings – The results from the critical analysis indicate substantial overlap between the examined themes, indicating considerably scope for academics and practitioners to pursue more specific work on field. Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 205–222 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012014

205

206

VLASIOS SARANTINOS

Research implications/limitations – The chapter is predominantly exploratory in nature, endeavouring to seam together into a meaningful platform several subtle issues and introduce a novel context as the focal point. The innate limitation is the lack of empirical substantiation which could be picked up in ensuing researches, based on the premises stemming from this discourse. Originality/value of chapter – The chapter offers a novel contextualization for academics and practitioners within the field of CSR, business ethics and HRM, which is particularly relevant given the permeating fluidity in the extant economic and business environment. Decision and policy-making on organizational and institutional level can also gain from the insights proposed, and through continued research to effectively form policies in the near future. Keywords: MNCs; business ethics; HRM; economic crisis

INTRODUCTION Globalization, corporate social responsibility (CSR), business ethics and crisis are all notable words in today’s business world, media, academia and overall community. This chapter attempts to offer a critical review of these topics in light of the contemporary developments in the economic front and particularly in respect to the extant economic crisis that is afflicting Greece and the European South. The main objective is while maintaining a lean approach, to interconnect the conceptual and practical aspects of these topics and consider how they are shaping, with regard to the designated context. An important feature in the analysis of scrutinizing ethical practices of MNCs, is also the human element and particularly the practices for managing people in an organization. Correspondingly, HRM discipline will be examined in alignment with other thematic areas to investigate its role and influence on this convolution of forces. The overall approach taken, given the intricacy and topicality of the matter, is primarily exploratory, attempting to offer a platform for reconciling the topics, offering a comprehensive overview while building an agenda for more elaborate works in the future. The first part focuses on providing a background on the rise of globalization and the influence and role of MNCs in the material shifts

Ethics, CSR and MNCs

207

following its wake. A pivotal point within the internationalizing context will also be the confluence of business ethics and inherent CSR programmes within the overall shifting landscape. Breaking away from traditional vistas, the emphasis is placed on the most recent, acute but also unprecedented financial crisis, which torments member states of the European common currency (Euro) through extremely critical incisive lens. Within this framework, human resources are used as a filter to contemplate on the role of employees both as individuals and organizational members and their contribution towards pursuing a more ethical and responsible running of the corporation.

ASPIRATIONS FOR THE FUTURE AND CONTRIBUTIONS The function of managing people in organizational entities is thus expounded in conjunction with corporate strategy in order to form a clear picture on how MNCs can configure their operations in a crisis-ridden landscape to ensure adherence to their ethical commitments as stipulated in the various CSR initiatives floating in the public domain. Naturally, prior to determining how it is possible to build a coherent ethical agenda, it is necessary to transparently look at all the challenges and issues presented on management, as an aftermath of the transforming setting and inherent choices those can possibly lead to. It is precisely the diversity and volume of issues that spring into existence due to the financial crisis, which makes this line of enquiry even more important, not solely from a theoretical but also from practical aspects as well. Decision-making, for example, needs to take into account changes in regulations such as employment laws, ease of access, other financial incentives and similar measures governments in the afflicted countries push forward to attract foreign capitals to revitalize their local economies. In addition, the idiosyncratic elements should also be factored in, especially cultural elements, and the relative novelty of advanced countries entering into a an era of unprecedented pressure and innate repercussions. In addition, the exploratory and inquisitive nature of the chapter attempts to draw the attention of both scholars and practitioners in using established theoretical framework and pragmatic knowledge to evaluate the situation, all the while creating space to identify new paradigms and elements that are likely to emerge. Even more, it is possible that exposing the multidimensionality of CSR issues in a transformative environment

208

VLASIOS SARANTINOS

with their particular characteristics, might contribute to raise awareness of the involved stakeholders to the necessity of revisiting the CSR agenda not only in rhetoric but also in practice. Furthermore, by accentuating the role of HRM as a tool to assert some level of influence and interpretation on organizational ethics, the scope for intervention is even further. Conclusively, by highlighting the groundwork for further scrutiny and suggesting potential avenues for more in-depth views, it is plausible to anticipate at later stages not only material contributions towards obtaining more concrete outcomes in terms of organizational practices germane to CSR, but also possible advancement of policies on national and international level.

MNCS, BUSINESS ETHICS AND CSR Undoubtedly, over the past few decades globalization has become the prominent force in driving economic and business development, impacting on national and international levels. Multinational corporations or MNCs, as they will be referred in this chapter, have exploited this phenomenon and created a unique and intricate environment. Before going further, it would be important to delineate some key terms, forming a backdrop which will lead on the discourse. Although there have been many definitions of globalization, it can be defined according to OECD (2002) as ‘an increasing internationalisation of markets for goods and services, the means of production, financial systems, competition, corporations, technology and industries. Amongst other things this gives rise to increased mobility of capital, faster propagation of technological innovations and an increasing interdependency and uniformity of national markets’ (OECD, 2002). Within the advent and rapid expansion of globalization, companies began to take advantage of the opening of markets and the opportunities arising, hence making world their field. What is quite interesting to note in the literature is the rather intricate atmosphere surrounding the presence and actions of MNCs. There are two main camps within this domain, with the first one considering them as extremely conducive to host countries, bringing investment and spearheading competition and thus globalisation, while the other looks more closely at the dark side of their activity, seeing them as exploiting natural resources, the local workforce and bearing a negative impact on society (Eden & Lenway, 2001). Despite the contrasting views, what is definitely a fact is the great role and strength these organizations have in modern society and the undoubtedly positive impact

Ethics, CSR and MNCs

209

they can have. Correspondingly, given the realization that large organizations can in effect shape the global landscape, over the past decades there has been a rise in the discussion about the need for an ethical side, not merely through law and legislation enforcing countermeasures to abuse of power, by internally rooted mechanisms within the organizations themselves (Weaver, 2001). From the position of Friedman in 1970 that organizations need only to be concerned with profit maximization and shareholder commitment and the contrasting postulation by Drucker (1981) that companies need to ‘wake up’ and realize that without restraint and a clear-cut ethical programme their growth would be short-lived, much has changed. Naturally, dealing with ethics, we have a vast and subtle theme is quite difficult to frame its context in a one-size-fits-all approach; nevertheless, it can be possibly asserted that ethics offer a recognition, evaluation and choosing of those values that can be adopted and implemented as the main thrusts for decision-making and action (Kline, 2010). What is interesting, in spite of the somewhat philosophical tinge that can be attached to business ethics, is the priority and adoption business ethics and corporate social responsibility have among academics and practitioners (Kline, 2010). It is not the purpose of the chapter to replicate and delve into all the foundations of how ethics emerged and pervade into the body of businesses and the society, but it would be useful to offer a concise vista of the rationale that directs management, particularly of MNCs. Simply put, as organizations function within the boundaries of society, their functions have an impact on many stakeholders rather than merely the shareholders who usually have direct interest in the organization. Consequentially, in modern societies a complex net commingled with organizations and their influence, more well-informed and aware stakeholders and a web of law, legislations and norms made it imperative to impress the needs for management itself to regulate and keep in check its activity lest it creates a negative opinion in the public, having thus adverse effects in the main priority of organizations – profitability (Carroll & Buchholtz, 2011). Nevertheless, given the complexity and principle contrast between the limits maintaining an ethical side and pursuing the maxim in profits, the actual scope and implementation of such programmes indeed is considerably hard to gauge. As mentioned, the roots of philosophy have a long-standing impact on the creation and morphing of ethical principles even in contemporary organizations. The founding doctrines of business ethics, absolutism, universalism and relativism can be recognized in the actual manifestation of business ethics (Dowling, Festing, & Engle, 2008). The ethical relativism

210

VLASIOS SARANTINOS

stance, which advocates the complete adaptation to the local culture and norms based on which the right or wrong is interpreted. On the other end ethical absolutism is where what best works at home needs to be exported everywhere to the more pragmatic ethical universalism, where organizations acknowledge that there are some universally accepted rules for what constitute just and wrong and hence policies need to be informed (Wilton, 2010). Although these premises are highly rhetorical, they go a long way in contextualizing the choices and challenges for organizations and stakeholders in embracing a strategy of ethical choice, particularly for companies with a global orientation and scale. The dilemmas are simple but also pragmatic. Given the vast discrepancies between global borders, laws and cultures, how is it realistic to determine an appropriate ethical approach? Should a universalistic, absolutistic or relativism case be pursued? Or is it even plausible to narrow the requirements within these broad dimensions? Would business practices and issues considered ethical in Muslim countries be interpreted equally in the West? Can an organization have different policies based on the degree of leeway afforded by national authorities? What about the global impact on the environment when discussing about environmental impact and, in the end, what about accountability? Despite the simplistic reasoning behind these questions, the aftermath is overwhelming; they spring up in the thoughts of managers and stakeholders alike, clearly showing how massive and complex the whole ethic is. Nevertheless, the complexity also serves to highlight how important as well as challenging this theme is, particularly in the modern global setting, thus making any effort to measure, gauge and assess development in the field very important. Within the area of business ethics, a quintessential branch that has grown over the years is without a doubt corporate social responsibility, quite often used interchangeably with business ethics and often interwoven in the same theoretical debates (Kline, 2010). In spite of the increase in the noise about CSR, it is by no means a new phenomenon. Thomas and Novak (2006) attempted to sketch a historical backtrack of definitions and presence of CSR dating from the 1920s. Bowen in 1953, who coined CSR as a concept, postulated the obligation that organizations have in adhering to the policies and decision-making, which contributes to the targets and welfare of the society. In the decades that followed, CSR was morphed and informed by global developments and the parallel adaptation of literature (Thomas & Novak, 2006). In the post-2000 era, CSR can be seen as a combination of a range of interconnected factors such as stakeholding, sustainable development,

Ethics, CSR and MNCs

211

business ethics and societal impacts (CIPD, 2003). Stakeholding refers to the plurality of stakeholders and the need to be aware of the repercussions both negative and positive operations have on all the involved parties. Sustainable development has largely arisen due to numerous environmental concerns and the need to moderate the adverse effects through more sustainable policies in business. As pointed shortly before, it is hard to clearly discern business ethics from CSR; nonetheless, despite the semantics, the ethical side as indicated previously is indispensable to CSR and vice versa. Finally, societal impact, although generalistic as a term, serves to show the wider importance, particularly for national bodies the whole theme regarding social responsible corporations is receiving (CIPD, 2003). The etymological dissection of CSR offers an important base for inherent assumptions. Firstly, it is considerably broad and influenced by an a multitude set of factors. In an effort to contextualize what social responsibility by companies really means, it would be worthwhile to consider a definition offered by World Business Council for Sustainable Development: ‘Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’ (1998:3). While most of elements are similar to the earlier content mentioned, there is an important distinction: explicit recognition of the human factor which was only implicitly attached to the earlier definitions but also the issue of economic development. The latter highlights an important aspect, also substantiated by academic literature in the 1990s and 2000s (Thomas & Novak, 2006). The rationale is simple – as large corporations go into impoverished countries to make use of the natural resources, cheaper labour force and other factors of production, it is only vital that MNCs offer remittances to the host environment (Windsor, 2001). The issue of MNCs’ obligation to the hosts and the overall global economic environment will be revisited in more detail later. Nevertheless, as with business ethics, CSR is not only about rhetoric but it is also necessary to be operationalized in practice, meaning in practical and realizable programmes. Indeed, particularly through the course of 2000, more and more larger-sized organizations are publicizing their programmes and endeavours in the field but with serious doubts as to the actual adherence to them (Marrewijk, 2003). Porter and Kramer (2006) argued, with the advent and uptake of CSR by organizations, some progress has been marked towards improving the environment and society but nowhere near what could or should have been achieved. The authors take an

212

VLASIOS SARANTINOS

organizational perspective, in effect attributing CSR initiatives’ failures on the inability of both management and society to look into corporations as being external to society and not interdependent. The other source of unsuccessful CSR efforts can be traced to the rigidity that permeates contemporary programmes, which, instead of showing a degree of adaptability to the specific parameters of corporations’ strategy, tends to follow a more generic mould, hence limiting the ability to tailor programmes for better efficiency and performance. Another side to the mitigating factors on the positive impact CSR, which is considerably widespread, argues that although organizations want to exploit the positive publicity the fac- ade of a social responsible enterprise carries to external stakeholders, consumers etc., little materializes in actuality (Werther & Chandler, 2011). Unfortunately, given the combination of power MNCs carry and the divergence among national context and innate rules and laws regarding CSR, the margin for possible abuse is more than often present, in cahoots with corrupt public officials and other unscrupulous individuals (Voliotis, 2011). The reciprocation and efficacy of the CSR efforts can also become obtuse due to the incapacity for practical and efficient reporting, measuring and monitoring (Werther & Chandler, 2011). Essentially, although organizations go to great lengths to make their efforts known, including details, metrics and future targets, there is often a substantial gap between the professed outcomes and the actual results. Adding into the picture the lack of international monitoring and accountability mechanisms and the intricacy in ascertaining some more far-reaching repercussions (e.g. environment), it is quite easy to comprehend how perplexing the overall situation really is. In sum, it is possible to note two core emerging themes from this brief review of the current general literature on business ethics and CSR. First of all is the holistic recognition as one of the paramount topics in business presented by all stakeholders with tremendous impact on every prong of society. Secondly, although there is inarguably very heavy emphasis, the overall scenery is extremely complex due to discrepancies in institutional and organizational entities around the world, thus muddling to a substantial degree the endeavours to gauge with accuracy every dimension of the phenomenon and crystallize a concrete picture. Within this situation and the underpinning globalization drive, a very important aspect is the consequences per se of organizations in relation to people – both employees and other stakeholders with particular attention to the labour relations – which is the focal point of our discussion. In line with the general pervading CSR and ethical principles, corporations need to abide by certain rules that stem

Ethics, CSR and MNCs

213

from conventional legislation and laws and also from societal norms, regarding their employees (Dowling et al., 2008; Forsgren, 2008). As it was pointed out earlier, it goes beyond the scope of this chapter to provide a complete review of the entire ambit of the literature in the field; nevertheless, it would be important to recognize a key theme which was discussed in hindsight earlier and consists of one of the key premises of any ethics or CSR endeavour, the role of the human factor and particularly that of internal occupational groups within the organization. In truth, unless people working in or for a corporation come to comprehend the objectives, need and application of such efforts, the entire effort stands to be undermined. Even more, per the theoretical foundations analysed earlier, employees and management need to indulge, embrace and, at more advanced stages, advocate the need for sustainable and ethical policies.

HRM AND ETHICS: WHAT’S THE LINK? An integral part of establishing, maintaining and furthering ethics and a socially responsible demeanour in the organization is without a doubt the very people who comprise the key internal stakeholders, from top executives to simple employees (CIPD, 2011). The discipline which attempts to tackle with all the issues pertinent to the workforce in corporations has long been human resource management. It is important to explain some of the key concepts and functions of HRM in order to sketch an appropriate picture of the close-knit relationship that exists between managing people issues in companies and pursuing an ethical agenda. In simple terms, HRM encompasses all the issues pertaining to people and the effective management of this intangible resource in order to support the organization in pursuing its strategy and competitive advantage (Gomez, Balkin, & Cardy, 2012). Another explicit foundation of HRM, is its clear strategic alignment with the overall corporate strategic decisionmaking of the firm and its vital contribution (Armstrong, 2008). Quite immediately therefore, a link springs up between as HRM and business ethics are intertwined under the overall umbrella of corporate strategy (Crane & Matten, 2010; Leopold & Harris, 2009). From a more hands-on perspective, considering that core HRM functions include the design and operational side of compensation, recruitment, performance management, training and development and all issues regarding the wider employment relationship, there is substantial overlap between how the CSR agenda is implemented in the company.

214

VLASIOS SARANTINOS

The overlap is evidently extensive; depending on the scale and nature of the ethical programme, HR employees can be used to educate other employees, linking it with performance appraisals or even monitor that employees abide by the requisite standards. Nevertheless, the opposite allegedly might occur with HRM, in effect hampering socially responsible attitudes or distorting the image about the actual extent of the ethical behaviour and codes of the organization, following the cue from senior management (Gomez et al., 2012). The same argument about the role of HRM is also present in literature, with some authors positing that HR practices have an ethical foundation, as they deal with the practical consequences of human behaviour (Johnson, 2003), while others postulating that the entire concept of HRM is devoid of morality (Hart, 1993). Marchington and Wilkinson (2008) suggest that ethical and socially responsible HR practices may become even more undefined as organizations pass to HR activities with devolve responsibilities, who are required to meet corporate targets that prioritize production and service targets. Equally important are the issues and arguments when viewing multinational enterprises, only with a more complex and diverse context as analysed earlier. Edwards, Marginson, Edwards, Ferner, and Tregaskis (2007) investigated 3099 MNCs operating in the United Kingdom in an effort to investigate the instance and character of CSR practices. They concluded that, to a material degree, these are shaped on numerous structural elements such as industry, nationality, size but also significantly by HR functions. Furthermore, the authors argue that where organizations showed greater emphasis on their HRM practices, it was more likely to also have more empowered CSR policies in place. An interesting notion put forth is also the fact that a centralized approach to management, and thus to HRM, is also conducive to a greater incidence of CSR practices as opposed to variability, an argument also seconded by Parry, Dickmann, and Morley (2008). Other authors (e.g. Plessis & Huntley, 2009) express concerns about the practicalities, including the enforcement of ethical principles universally, particularly due to the vast and different interpretations embedded between countries and contexts. While the argument of standardization versus variation in HRM policies is discussed further, it serves as an excellent example of how subtle but also important the links between HRM and business ethics indeed are, particularly as the ambit of globalization magnifies the relevant challenges. Overall a number of important issues arise from the literature; people are communions of corporate policies but also receptors of the influence from the external environment, hence standing at crossroads regarding the

Ethics, CSR and MNCs

215

substance and form of ethics in the company they are employed in. It is upon them – depending on their position, tasks and responsibilities – at first to be aware of what the company regards as ethical, what policies are in place and what they entail. Consecutively, they are agents of actually carrying out the laid-out planning, overseeing its implementation and also monitoring its progress and coping with problems and issues. In contrast, if organizational members fail to adequately embrace and participate in these quintessentially collective efforts, there are bound to be complexities, problems and even adverse effects (Robinson & Dawson, 2012). Quite simply therefore, the human factor, particularly internal stakeholders in corporations, can and should be the foremost enablers of a solid, coherent and viable ethical and socially responsible actions. Equally, human resource managers and practitioners are charged, on par with aligning HR policies with corporate strategy, to supervise with similar vigilance and effort the merging of the two. Henceforth, HR managers can bolster the awareness of everybody in the company how vital a sound ethical and responsible presence both are, directly but also influencing internal company members indirectly (CIPD, 2011). Earlier, the dimensions of globalization and the rise and dominance of worldwide enterprises were discussed, with some of the key differences stressed in terms of size, reach and complexity. As is reasonable to expect, with the enhanced scale of operations and complexity, management structure is also designed to adapt and cope with the requirements of the many environments MNCs have to operate in. The various options regarding strategic choice can be keenly depicted by Perlmutter’s typology (1969) of ethnocentric (home strategy tops all), polycentric (customization as per national context) and geocentric (hybrid of the two other approaches) which although relatively dated still carries substantial impact on literature. As with generic strategic decision-making and choices, functions regarding the workforce also need to be configured appropriately, hence the same dilemmas are born (Briscoe, Schuler, & Claus, 2009). Correspondingly, senior executives need to deliberate on whether to adopt a centralized approach based on HR practices used at headquarters and assumed as supreme (ethnocentric HRM); whether it is important to offer a greater level of autonomy in subsidiaries and make use of localized resources in terms of labour (polycentric HR); or to attempt and export best practices but simultaneously cater for context-specific factors (regiocentric HR) (Edwards & Kuruvillas, 2005). While the question of which approach best fits MNCs as they vie in the global scence remains relatively inconclusive (Wilton, 2010), what surfaces is

216

VLASIOS SARANTINOS

the tremendous complexity which surrounds decisions across the ambit of HRM which essentially forms the basis of difference between conventional, domestic personnel management and a truly internationalized organization which requires materially suitable human resource strategy (Dowling et al., 2008). Considering the important role of HRM in grounding and supporting an ethical and socially responsible corporate paradigm, the vaunted degree of intricacy which permeates MNCs in effect carries an equal measure for both. In summary, therefore, from an objective observation stance, not only the innate complexities of CSR and business ethics which were analysed previously become pronounced, but also within the micrography of HRM additional operational challenges and perplexities are also compounded. Nevertheless, not everything is necessary bleak or overly complex. Reversing the picture, the recognition not only of business ethics but also of the importance of HRM, seeds a positive climate to propel the guidelines of corporate social responsibility, making them even feasible to practically integrate in subsidiaries across the world. As a consequence there tenets maybe will spearhead a further empowerment of the movement to bring some sense of control in abusive instances of MNCs’ power (Edwards & Rees, 2006).

ECONOMIC CRISIS: A NEW CONTEXT FOR ETHICS? Within the climate, the economic crisis creates a new spate of turmoil, restructuring and shifts in the global business landscape but perhaps also opportunities. China, the world’s biggest and most attractive market, came to be through a period of political reshaping and unprecedented reforms to open up the previously airtight economy. Although the causes of the crisis as it will be discussed are different, the repercussions and by-products of these transformations might well be similar in nature (though obviously different in scale) and opportunities. First of all, it is important to provide some background information to the extant crisis, its origins, form and developments. For the purposes of this chapter, the focus will be on the eye of the cyclone, Greece, though the implications are more far-reaching, encompassing more countries. The traces of the contemporary crisis can be traced to the collapse of the Lehman Brothers in the United States back in 2008, which gave birth to a string of events leading to the present predicaments in the Eurozone (Sarantinos, 2012). While the Economic and Monetary Union appeared as the culmination of the hopes and aspirations of several EU members and the

Ethics, CSR and MNCs

217

single currency as the vehicle of growth and development, reality was vastly different. A lot of countries with incompatible fiscal and monetary capabilities were subjected to the same stringent rules regarding their economies, forming what proved to be a sandcastle (BBC, 2012). In Greece, in particular, the financial conundrums have been extremely acute as the country has proven by far the weakest link in the European Monetary Fund (EC, 2012). It is worthwhile to mention that not only the declining state of global finances brought the forth the plight, but also strong internal weaknesses in the country’s economy and intense rigidities exacerbated an already fragile situation (Featherstone, 2011). In an attempt to bail out the country, a coalition comprising the EU, ECB and IMF forces, offering ‘rescue’ packages to refinance the cashdeprived Greek economy, with 52.9 billion Euros in 2010 and a further 130 billion Euros in 2012 (EC, 2012). In exchange, the government signed two consecutive memorandums of understanding, where it laid out an extremely thorough and rigorous spate of reforms encompassing unprecedented austerity measures, restructuring of the economy and reshaping of the labour market (EC, 2012; GMF, 2012). Despite the efforts and the continuous slashes in government spending pursuant of the enforced austerity measures, by the summer of 2012, little to no improvements had been accomplished with the country dipping further and further into depression and unemployment reaching record-breaking levels, thus casting doubts on the overall austerity approach (Boyer, 2012; GMF, 2012; Mann, 2012). While the degree to which this dogma of austerity has been successful has been highly contested, however successful the current dogma is, what is universally accepted is that the time is ripe for reforms and reshaping of the markets, particularly with emphasis on making the country more appealing to foreign investments (EC, 2012; GMF, 2012). The key changes that are in the pipeline include opening up of every market sector, by privatizing previously state-owned enterprises in the energy and telecommunications sector with a simultaneous need to facilitate the previously overly complex and bureaucratic legislative web that demotivated investments in the country (EC, 2012). There are two important factors that need to be considered in this equation: firstly, the position of Greece as a member of the EU and EMU in turn and its geographical position, bordering with Asia and its close proximity to Africa; and secondly, the contagion phenomenon with the debt crisis that started in Greece, currently afflicting Italy and Spain and an equal amount and nature of reforms being followed there as well. The former gives an indication of the potential for MNC activity to increase in

218

VLASIOS SARANTINOS

the future, depending on the course of transformation and progress of the developments; the latter indicates the geographical span this issue contains. Correspondingly, extending the analysis to consider the likelihood of multinationals seeking to penetrate or enhance their presence in the Greek market and later in the beleaguered economies, it is relatively straightforward to contemplate the ethical dilemmas that are not too far-fetched to follow. From one end, the incentives given from the local governments in terms of easing access, the affluent resources and also an extremely highly educated and skilled workforce which MNCs will be able to tap, in conjunction with comparatively low labour cost. At this stage, it is quite important to note a distinct element that sets the situation in the European South slightly apart from cases like China and India – in terms of culture and positioning, these countries belong to the sphere of developed countries in stark contrast with the populace having to accept a ‘downgrade’ in many respects in their living standards under the drive to get economic life back on track. The latter also should be closely taken into consideration under the umbrella of developing a business ethics/CSR agenda for renewed activity in these areas if corporations decide to push forward. Within these extremely fluid environment, this is the case for a potent HRM as a vehicle to ensure that the necessary balance between pursuing a profitable venture and also adhering to the required ethical and socially responsible practices. For example, in Greece, the market is dominated by many SMEs and micro-firms and an innate informal management and HRM style (Mihail, 2004; Tsagaraki & Bougiouklis, 2011) In addition, the activity of MNCs in the country has also taken a polycentric approach, with local subsidiaries emulating local practices (Myloni & Harzing, 2004). In addition, although HRM discipline is relatively untested in Greece, particularly empirically, the work of Katou (2012) suggests an emerging link between people management processes (among other variables) and positive performance. Certainly, the overall situation is tremendously topical and immensely changing, construing therefore all this, at present, as a little more than theoretical hypotheses. Nevertheless, it is precisely the contemporary nature of the subject matter, the inherent scarcity in pertinent scrutiny and more importantly the sheer importance of the business ethics in today’s landscape which makes this important. The next section attempts to draw conclusions from the analysis, consolidating the findings and hypotheses raised, with the key objective to lay down an appropriate agenda for future directions to inform both literature and policymaking.

Ethics, CSR and MNCs

219

CONCLUDING REMARKS Hitherto a number of important premises have arisen with long-standing effects on both academic and professional spectrums. Certainly, globalization, now a reality, has paved the way for MNCs to grow exponentially and take into advantage the immense transformations of previously closed economies and the enticing prospects they hold. Nevertheless, power and actions bear repercussions, and similarly abuses carry adverse impacts, which in reality affect stakeholders. As an aftermath of this struggle, business ethics and CSR arose countering such negative phenomena, stimulated and supported by the growing consciousness among the public of the need to monitor abusive activity of corporations. Despite the innate complexities and quandaries inspecting and measuring the pragmatic effects of CSR programmes, it is an undenying fact that there is a perpetuating propensity among multinationals to engage in ethical standards and socially responsible practices. Nevertheless, the challenges in several fronts also remain important, particularly given the span of countries, the inherent diversity across contexts and the operational difficulties in the field. Considering the role of the human factor, especially in terms of internal stakeholders in not establishing, sustaining and furthering ethics in business, HRM stands to play, given the appropriate condition, an instrumental role. The situation in Greece and the rest of the European South represents not only a financial and economic crisis but also an opportunity for the countries to overcome through their struggle the plagues which led them into this dire situation. In the wake of reforms and restructuring, significant chances for investment are in the making, thus augmenting the likelihood of drawing the attention of MNCs in exploiting the possibly new, lucrative terms. Henceforth, a new plateau of challenges is born, expanding the geographical boundaries but also the socio-political elements that set this context apart from others in the past. Within this framework, HRM can be one of the drivers in reconciling all the actors and striking a necessary balance. Nevertheless, it is quintessential to move from rhetoric into something more tangible and as such a clear research agenda must be outlined and directions suggested to chart the currently unexplored territory. Without a doubt, a combination of theoretical frameworks and empirical work is required. A useful commencing platform can be the vast previous experience in terms of MNCs, business ethics and HRM, and the emerging themes and patterns, offering thus a comparative basis to use against the newly formed

220

VLASIOS SARANTINOS

conditions. Particular emphasis could be given to the mechanics of HRM as the vehicle to pragmatically dissect and understand how management can propel in substance rather than merely form CSR, particularly in regions where the level of obtuseness is high either due to organizational, institutional or contextual factors. Equally, an analysis of the specific elements as they are shaped in developed countries under the extant strenuous economic reality in terms of institutions, culture and of course business environment would shed light on macro-elements that exert material influence. Even further down the line, cross-cultural comparisons between countries or intra-comparative studies between industries can further scale down the scope of the analysis. What is certain is that there is little limit to the directions research can take; however, the challenges and practical issues remain increasingly high and will require considerable effort and resources to surpass. In spite of the rational and significant obstacles, the sheer importance of these issues and the impact they pose in effect override logistics and resourcing, emphatically due to the benefits for all stakeholders and also the jeopardy attributed to deficient and lacking policies.

REFERENCES Armstrong, M. (2008). Armstrong’s handbook of strategic human resource management (4th ed.). London: Kogan Page. BBC. (2012). Eurozone crisis explained. BBC. Retrieved from http://www.bbc.co.uk/news/ business-16290598 Bowen, H. R. (1953). Social responsibilities of the businessman. New York, NY: Harper Row. Boyer, R. (2012). The four fallacies of contemporary austerity policies: The lost Keynesian legacy. Cambridge Journal of Economics, 36(1), 283–312. Briscoe, D. R., Schuler, R. S., & Claus, L. (2009). International human resource management (3rd edn.). New York, NY: Routledge. Carroll, A., & Buchholtz, A. (2011). Business and society: Ethics, sustainability and stakeholder management (8th edn.). Mason, OH: Cengage Learning. CIPD. (2003). Corporate social responsibility and HR’s role. Chartered Institute of Personnel and Development 2012. Retrieved from http://www.cipd.co.uk/binaries/csr_hr_role.pdf CIPD. (2011). Corporate social responsibility factsheet. Charthered Institute of Personnel and Development 2012. Retrieved from http://www.cipd.co.uk/hr-resources/factsheets/ corporate-responsibility.aspx Crane, A., & Matten, D. (2010). Business ethics: Managing corporate citizenship and sustainability in the age of globalization (3rd edn.). Oxford: Oxford University Press. Dowling, P. J., Festing, M., & Engle, A. D. (2008). International human resource management (5th edn.). Mason, OH: Cengage Learning.

Ethics, CSR and MNCs

221

Drucker, P. (1981). What is business ethics? The Public Interest, 63(2), 18–36. Eden, L., & Lenway, S. (2001). Multinationals: The Janus face of globalization. Journal of International Business Studies, 32(3), 383–400. Edwards, T., & Kuruvillas, S. (2005). International HRM: National business systems, organizational politics and the international division of labour in MNCs. Journal of Human Resource Management, 16(1), 1–21. Edwards, T., Marginson, P., Edwards, P., Ferner, A., & Tregaskis, O. (2007). Corporate social responsibility in multinational companies: Management initiatives or negotiated agreements? Geneva: International Labour. Edwards, T., & Rees, C. (2006). International human resource management: Globalisation, national systems and multinational companies. Essex: Prentice Hall. European Commission. (2012). The second economic adjustment programme for Greece. European Commission Occasional Paper No. 94. Retrieved from http://ec.europa.eu/ economy_finance/publications/occasional_paper/2012/pdf/ocp94_en.pdf. Accessed on 25 July, 2012. Featherstone, K. (2011). The Greek sovereign debt crisis and EMU: A failing state in a skewed regime. Journal of Common Market Studies, 49(2), 193–217. Forsgren, M. (2008). Theories of the multinational firm: A multidimensional creature in the new economy. Chelthenham: Edward Elgar. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times, 13 September. Gomez, L., Balkin, D., & Cardy, R. (2012). Managing human resources (7th ed.). US: Pearson. Greek Ministry of Finance. (2012). Hellenic National Reform Programme 2012–2015. Greek Ministry of Finance 2012. Retrieved from http://ec.europa.eu/europe2020/pdf/nd/ nrp2012_greece_en.pdf Hart, T. J. (1993). Human resource management: Time to exercise the militant tendency. Employee Relations, 15(3), 29–36. Johnson, R. (2003). HR must embrace ethics. People Management, 9(9), 10. Katou, A. (2012). Modelling causal relationships between employee perceptions of manager’s leadership behaviour, satisfaction with HR practices, and organisational performance: The case of Greece. International Journal of Modelling in Operations Management, 2(2), 173–203. Kline, J. (2010). Ethics for international business: Decision making in a global political economy (2nd edn.). New York, NY: Routledge. Leopold, J., & Harris, L. (2009). The strategic managing of human resources (2nd edn.). Harlow: FT Prentice Hall. Mann, K. (2012). Resistance to neo-liberalism: France, Greece, Spain and the US. Perspectives on Global Development and Technology, 11(1), 182–191. Marchington, M., & Wilkinson, A. (2008). Human resource management at work: People management and development (4th edn.). CIPD: London. Marrewijk, M. (2003). Concepts and definitions of CSR and corporate sustainability: Between agency and communion. Journal of Business Ethics, 44(2-3), 95–105. Mihail, D. (2004). Labour flexibility in the Greek SMEs. Personnel Review, 33(5), 549–560. Myloni, B., & Harzing, A. (2004). Host country specific factors and the transfer of human resource management practices in multinational companies. International Journal of Manpower, 25(6), 518–534. OECD. (2002). Globalisation. Retrieved from http://stats.oecd.org/glossary/detail.asp?ID=1121

222

VLASIOS SARANTINOS

Parry, E., Dickmann, H., & Morley, M. (2008). North American MNCs and the HR policies in liberal and co-ordinated market economies. The International Journal of Human Resource Management, 19(11), 2024–2040. Perlmutter, H. (1969). The tortuous evolution of the multinational corporation. Columbia Journal of World Business, 9–18. Plessis, A., & Huntley, K. (2009). Challenges in a globalised context for international human resource managers in South African organisations. International Review of Business Research Papers, 5(1), 413–427. Porter, M., & Kramer, M. (2006). The link between competitive advantage and corporate social responsibility. Harvard Business Review, 12(December), 78–93. Robinson, S., & Dawson, P. (2012). Business ethics in practice. London: CIPD. Sarantinos, V. (2012). Greece: The economic crisis and the brain drain. Centre for Employment Studies Review, University of the West of England. Retrieved from www2.uwe.ac.uk/ faculties/BBS/BUS/Research/CESR/July_2012_Sarantinos.pdf. Accessed in July 2012. Thomas, G., & Novak, M. (2006). Corporate social responsibility: A definition. Working Paper No. 62, Graduate School of Business, Curtin University of Technology. ISBN: 1 74067 514 2 Tsagaraki, E., & Bougiouklis, K. (2011). SMEs and stakeholders’ needs, requirements and feedback to overcome barriers for research and innovation activities in Greece. MaPEer Report 2012. Retrieved from http://mapeer-sme.eu/en/B/media/MaPEerSME/Document Library/SME%20programmes/Greece_SME_report Voliotis, S. (2011). Abuse of ministerial authority, systemic perjury and obstruction of justice: Corruption in the shadows of organizational justice. Journal of Business Ethics, 102(4), 537–562. Weaver, G. (2001). Ethics programmes in global businesses: Culture’s role in managing ethics. Journal of Business Ethics, 30(1), 3–15. Werther, W., & Chandler, D. (2011). Strategic corporate social responsibility: Stakeholders in a global environment. London: Sage. Wilton, N. (2010). An introduction to human resource management. London: Sage. Windsor, D. (2001). The future of corporate responsibility. International Journal of Organizational Analysis, 9(3), 225–256.

CORPORATE ETHICS AND VALUES: GUIDING BUSINESS OUT OF THE MAELSTROM Jane Ross, Jack Ross and Andrew Creed ABSTRACT Purpose – To integrate agency and stakeholder theories with the Jacobs Value Distinction (JVD) thus presenting a micro and macro reconsideration of the JVD for a finer grained perception of the values underpinning corporate and global governance initiatives. Design/methodology/approach – By extrapolating the JVD – commercial and guardian – this chapter examines the roots of moral malaise in the modern global firm. Examples and a theoretical rationale are given for identifying why and how ethical – moral problems continue to occur. Findings – A metaphorical maelstrom is discernible in the global business environment and more turmoil, especially in balancing business values, is emerging for the managers of today’s corporations. Application of the JVD predicts that under certain conditions the hybrid nature of the firm causes managers and shareholders to engage in morally risky behaviour. In further exploring the value basis of the 10 principles of the United Nations (UN) Global Compact, it is found that similar values conflict,

Principles and Strategies to Balance Ethical, Social and Environmental Concerns with Corporate Requirements Advances in Sustainability and Environmental Justice, Volume 12, 223–243 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000012015

223

224

JANE ROSS ET AL.

which intensifies the need for international business managers to beware the moral risks. Research implications – This viewpoint draws upon sound theoretical analysis and future studies should collate case analysis and practitioner interview data to further consolidate the findings. The viewpoint gives managers a useful tool for identifying conflicts of values underlying decisions and forms the basis for continuous improvement in the context of operational and strategic actions in international business. Originality/value of chapter – The integration of the JVD with agency and stakeholder theories is new and critique of the 10 principles of the UN Global Compact via the JVD has not happened previously. Keywords: Values; commercial; ethics; guardian; morals; stakeholder

INTRODUCTION: FINDING FORM IN A STORM Our first slide into the abyss itself, from the belt of foam above, had carried us to a great distance down the slope; but our further descent was by no means proportionate. Round and round we swept – not with any uniform movement – but in dizzying swings and jerks, that sent us sometimes only a few hundred yards – sometimes nearly the complete circuit of the whirl. Our progress downward, at each revolution, was slow, but very perceptible. (Poe, 1841, A Descent into the Maelstrom)

The tale by Edgar Allen Poe of a tiny fishing boat caught in a descent into an ocean-borne maelstrom is an archetypal description of change and the options we face when trying to manage in the midst of structured turmoil. We use the term structured turmoil with intent because there exists today in commerce a sense of pattern and order, despite the enormous changes engulfing the world. When we awake each day, there are still organisations to go to work in, resources to be managed, and objectives to be achieved. However, the maelstrom is also there. The global financial crisis (GFC) is only one element of a slide down the slope from the belt of foam above (Wade, 2011). The question remains about how much deeper the changes may run, and what managers must do in response (Peters, Pierre, & Randma-Liiv, 2011). Poe (1841) offers two alternatives: One is to cling to established structures and procedures in the hope we can survive the storm; in Poe’s tale, the person who clings to the boat stays alive on the craft right up until the final suck into the whirlpool. The other option is to jump into another

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

225

structure or process and try to creatively change one’s approach in the midst of the challenge (Creed, 2009); in Poe’s tale, the person who leaps from the boat and attaches to other debris in the middle of the maelstrom is ultimately spat out of the cyclonic mess to become the survivor who can tell the story. Referring to this analogy, we contend with others today (Benedict XVI, 2009; Gonin, Palazzo, & Hoffrage, 2012; Rasche & Gilbert, 2012) that there is a pressing need for new and pragmatic approaches for assessing and responding to organisational situations in global trade in ways that better reflect ethical realities and help to distinguish between real and ideal values that underpin decisions and actions. While the ramifications of the GFC are working themselves out and may yet generate more tumultuous issues to confront, our related concern is now with the value perceptions of global business leaders and their practices and decisions. This is the field in which the maelstrom is yet to be fully confronted. Benedict XVI (2009) calls for a new understanding of the connections between economics and human values (Grassl & Habisch, 2011). As Porter and Kramer (2011, p. 64) exhort, commercial organisations especially, ‘continue to view value creation narrowly, optimising short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine the longer-term success’. Financial crises, leadership quandaries, strategic milieux and industrial disputes are prevalent indicators of the kinds of problem to which Porter and Kramer (2011) allude. But, there is a potential moral trap attached to their solution (Scherer & Palazzo, 2011). Ethical dilemmas occurring in firms often stem from a lack of clarity about the organisation, purposes and functions of the firm (Connell, 2008). Given the exposure that managers and shareholders alike have to various organisational forms, the dilemmas are not surprising. Business is fast paced; much is at stake (Kumar & Dash, 2011; Liu & Pearson, 2010). Governments come and go; and yet, the need has been and is still apparent for a solid touchstone by which to temper global transactions; a set of principles or values, some kind of general human reflection against which stakeholders can be measured and held to account. There are calls from the past and the present for renewed focus on universal moral principles in global transactions, from the civil rights enshrined in the US Constitution, to the Universal Declaration of Rights (of People) (Wells, 1940), the Global Sullivan Principles (Leon H. Sullivan Foundation, 2012), and the 10 principles of the UN Global Compact (United Nations, 2012). In the maelstrom of global business, some areas available to managers for rethinking their approach to values are in the fields of agency and

226

JANE ROSS ET AL.

stakeholder theories, which can contribute to our understanding of why ethical dilemmas and problems occur in firms. This paper explores the key elements of stakeholder and agency theories and then integrates a critical view of the UN Global Compact as a significant global governance initiative through the Jacobs Value Distinction (JVD) (Jacobs, 1992). It is the reorientation of one’s values that represents the leap from the boat as it circles inexorably down the slope of the whirlpool. It is our aim to highlight the basis of key values that can have pragmatic effect for global business managers, as well as regulators and trade negotiators, in consideration of the best way to survive the storm that is already drawing us all towards its core.

INTERNATIONAL CORPORATE SOCIAL RESPONSIBILITY There are persistent and increasing calls for international business to embrace corporate social (CSR) initiatives (Brammer, Jackson, & Matten, 2012; Voegtlin, Patzer, & Scherer, 2012). There is little doubt that appropriate concern must be given for the interests of all stakeholders in the corporate decision-making process. Elevating the interests of others is the essence of CSR; however, this sits in juxtaposition with self-interest in decision-making, which is not uncommon in the corporate, commercial world (Zutshi, Creed, Sohal, & Wood, 2012), often generating dilemmas for managers. By exploring the underlying values of the broad ideological positions, as Jacobs (1992) has initiated, we can anticipate the tensions, the points of convergence, and the best practice suggestions for improved outcomes in the international business environment. The first consideration is clarification of relational factors and the concept of agency.

AGENCY THEORY AND THE RELATIONAL TRAITS OF CHARACTER Agency theory involves the recognition of different roles and relational exchanges in the firm, namely principal and agent. By separating individuals (and organisational entities) into the roles of either principal or agent, a more objective view of rights and obligations emerges that can act as a foundation for improved understanding of ethical issues in organisational situations. Recognising the relevance that thinkers such as Hume and Kant

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

227

have for the agency concept in human affairs, Purviance (1997, p. 209) concludes that ‘We really have a character that is the cause of actions and the subject of moral evaluation’. This feature of agency theory – to step apart from the disparate facts and take a relational view of consistent moral assessments despite the diversity of perceptions and opinions – promises some helpful insights. In the modern context, agency theory is applied to study conflicts of interest among people having different interests in assets they hold in common (Bakar & Ameer, 2011; Mainardes, Alves, & Raposo, 2011). Conflicts can involve shareholders and managers of companies, shareholders and investors. Agency theory attempts to explain why companies often make acquisitions that are bad for the shareholders and involve capital structure matters. Although agency theory is rarely directly related to investment decisions on the part of shareholders, it is used to model important aspects of capital market function. Importantly, a grasp of agency theory makes a better understanding of investment markets possible (Dow, 2011; Garcıa-Meca & Sanchez-Ballesta, 2011). Although agency theory is not without its shortcomings (Pirson & Turnbull, 2011), it has long been argued that the interests of management and shareholders must be aligned to reduce the moral hazards faced by shareholders. Identified by Adam Smith, the agency problem is longstanding. He warned that the directors of joint-stock companies, being the managers of other people’s money rather than their own, cannot be expected to watch over it with the same vigilance with which partners in a private company watch over their own interests (Jensen, 1994): Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. (Smith, 1994, pp. 699–700)

The possibility of diverging interests between owners and professional managers is a primary problem of modern corporations (Gregg, 2001; Keown, 2002). While the stock-option evolved as a mechanism to align the interests of both entities it can lead senior management to risk aversion and unpreparedness for innovation. In this respect, the law of unintended consequences is always at work (O’Regan, 2011). Rather than focusing on CEOs growing long-term value for their companies, stock-options tend to seduce many managers into ‘short-term, one-shot, price-pumping schemes such as share buy-backs, spin-offs, and mega mergers’ (Hamel, 2000, p. 45). In too many cases, executives do not manage in the long-term best interests

228

JANE ROSS ET AL.

of their shareholders, but rather in their own best interests (Zutshi et al., 2012). Agency theory sees the problem of the firm primarily in terms of having the proper incentives in place to overcome the agency problem. It concludes that this problem can be controlled by incentives that counter balance the self-interests of management and shareholders. Shareholder demand for immediate maximisation creates an environment which makes stakeholder theory attractive (Zolezzi & Bonvie, 2004). Stakeholder theory helps reveal what is wrong with the firm in terms of its monomania about maximising shareholder value, suggesting instead that the task of the firm is primarily to maximise stakeholder value (Freeman, 1984; Stieb, 2009; Turnbull, 1997). The firm gets back on track once it focuses on long-term value maximisation. Stakeholder values could have a devastating effect on the viability of the firm and the expectation that markets, which are driven by the value of profit maximisation, will limit the damage that can be done by managers who adopt stakeholder theory (Jensen, 2001). Nonetheless there is something deeper than self-interest, and rooted in the evolution of the human psyche, that attracts many managers to stakeholder theory (Debeljak, Krkac, & Banks, 2011; Dow, 2011; Jensen, 2001), leaving them with an unattractive dilemma. It was the incentive approach (stock options) used by agency theory that contributed to the downfall of Enron and led to its management to being accused of gross ethical blindness. In Jensen’s view (2001), the greater moral awareness implicit in stakeholder theory may be destructive of commerce and the economy (Jensen, 2001). In hindsight, Enron’s management, for example, was trapped by forces beyond its control (Backhaus, 2003; Venkatasubramanian, 2011). It appears that the primary control mechanisms advocated by agency theory (stockoptions and debt-discipline) broke down. Cash was freely spent by certain members of Enron management on things that were discordant with stakeholder theory; such as, investment in human capital and conspicuous large contributions to charity and the community. Enron’s dramatic rise to its position as a major charitable contributor in the Houston area appears to have been possible because agency-theory controls were no longer effective, having been neutralised by the then allowable and generally accepted extensions to accounting practices (Arnold & de Lange, 2004).

THE TOUCHSTONE OF THE JACOBS VALUE DISTINCTION Jane Jacobs, economist and urban theorist, observes the decline of honesty in society (Jacobs, 1992) and recommends a framework by which to arrest

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

229

the decline and improve design, planning and decision outcomes. She examines macro scale issues which she describes as the moral foundations of commerce and politics from an interdisciplinary perspective that has been helpful in a range of fields (Davidoff, 2011; Earl & Potts, 2011; Goldbard, 2011), including politics, business and economics (Eusepi & Wagner, 2011; Runst & Wagner, 2011). On a global scale, she draws a distinction between two forms of market- and non-market-oriented economic activity. She identifies the market and its price mechanism as a commercial syndrome, and the government regulatory authority as a guardian syndrome, the features of which are provided in Table 1. The values distinction by Jacobs (1992) can serve as a touchstone for understanding the mechanism of the maelstrom of global business. The values derive from a dual spiral of fundamental tensions between (a) ethical blindness which, apparently, is needed for economic activity and (b) ethical awareness which can be detrimental to economic activities. The root of ethical blindness is in profit making as a self-interested activity that draws money into itself. Pure commerce is ‘blindness’ to the needs of anyone or anything other than the self or the business. It is the core of economic activity and exemplified in the capitalistic ideal. Ethical awareness is the opposite of blindness and involves caring or altruism as other-centred emanation with a net result of giving money away. It costs to be aware of others, to care and to be socially responsible. This obviously inhibits to some extent the commercial intentions required to maximise profits. The pervasive tension between these two opposing forces is illustrated in Fig. 1 as a primer for cyclonic motion in the global business environment. Commercialism focuses on money coming into an organisation. The priming mechanism emerges from the extent to which care emanating from an organisation determines its perceived value and establishes a price that customers are prepared to pay. But, the cost to the organisation must be controlled in ways that mitigate its economic destruction. The dilemma of the commercial situation is that service ordinarily involves care and is fundamental to what people are prepared to pay. An ethic of care (customer service) is ideally one of the motivations for producing products in the first place. If a product truly helps someone else, this is a driver of the commercial mechanism and people will come to buy the product that is on offer. To produce a good – or a service – is a costly activity. Time, resources and energy go into production and that is why the accounting and finance disciplines are so important in commercial ventures. Costs have to be tracked and controlled so that profit can be maximised. At some point in the transaction the desire to serve has to transform into a desire to take payment from people: To keep giving without receiving

230

JANE ROSS ET AL.

Table 1.

Extrapolation of the Jacobs Value Distinction.

Commercial Syndrome (CS; Jacobs)

Further CS Situational Factors

Shun force Come to voluntary agreements Be honest

Trade for gain Negotiable deals

Shun trading Exert prowess

Protect resources Assent to power

Open and changing

Established roles

Collaborate easily with strangers and aliens Compete

Fair and equitable

Be obedient and disciplined Adhere to tradition

Accept status quo

Respect contracts Use initiative and enterprise Be open to inventiveness and novelty Be efficient

Know the rules Break down barriers

Respect hierarchy Be loyal Take vengeance

A global mindset

Deceive for the sake of the task

Power trumps freedom

Maximise profit

Satisfy needs

Promote comfort and convenience Dissent for the sake of the task Invest for productive purposes Be industrious Be thrifty Be optimistic

Fitness for purpose

Make rich use of leisure Be ostentatious

Task trumps people

Dispense largesse

Resources can be transformed

Be exclusive

Reward for care and power Conserve resources

Aspire to grow Rob Peter, pay Paul Let energy and youth build the future

Show fortitude Be fatalistic Treasure honour

Ongoing learning

Guardian Syndrome (GS; Jacobs)

Further GS Situational Factors

Established norms

Follow orders Exercise control

Highest quality

Aspire to survive 1 for all, all for 1 Respect elders and ensure the past shows the way forward

payment is not sustainable, but rather a kind of martyrdom. The tipping point between giving and receiving is in relatively constant flux. If the balance gets tipped more one way than the other and gets stuck there, situations will soon emerge that indicate the organisation is acting in one mode when it should be responding in the other. Now, recalling the agency problem identified earlier, that directors of joint-stock companies, being the managers of other people’s money rather than their own, cannot be expected to watch over it with the same vigilance

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

The global environtment

Money in

Fig. 1.

231

Care out

Self or Commercial Enterprise

The Duality of Flows Primes the Maelstrom.

with which partners in a private company watch over their own interests (Jensen, 1994). This is essentially linked with the delicate balance between self-interest (Brandt, 1972; Friedman, 1962) and selflessness (Hegel, 1977; Peperzak & Le´vinas, 1993), which is most complex in commercial publicly funded organisations. Situations needing an ethic of care (guardian) do not respond appropriately when an ethic of profit seeking (commercial) is applied by managers, and vice versa. Table 1 is an extrapolation of Jacobs’ value distinctions (Jacobs, 1992) which includes our extension to Jacobs’ work by updating it to encompass further CS situational factors pertinent to global business. Combined, this framework serves as a guide for managers grappling with the ethical realities of decision-making in a globalised environment. There are times when one value set must dominate over the other, and there are times when the balance shifts and it requires very adept managers, indeed, to negotiate the resultant cascading effects. Jacobs’ reference to the polarised sets as moral syndromes (of which managers must be careful) can serve as a useful framework for informing the process of managerial decision-making. In identifying each value set as a syndrome, there is a connotation of becoming entrenched in one end of the continuum and becoming unhealthy or even toxic in one’s habits which lends support to the views of Schein (2011) and Leavitt (2007) who respectively identify the poor leadership and general lack of vitality and morality that can infest organisations. Recall that the descent into the maelstrom offers two options: clinging to the boat or leaping off into the whirlpool (Poe, 1841). Clinging to the boat as it is dragged down can represent the manager stuck in a syndrome when the

232

JANE ROSS ET AL.

situation calls for change. Leaping into the whirlpool represents the action of a manager who knows the precise moment when the situation calls for change. The ability to live and practice one of the value sets (identified by colour differential) in Table 1 unambiguously and appropriately, and to embrace the other value set in a timely manner, produces the kind of clarity that is good for moral approbation and for managers. Jacobs points to the mutual reinforcement extant within each set or cluster of values; a syndrome being in this context a distinctive, or characteristic, pattern of behaviour. This makes Jacobs a moral realist in a similar vein as Hume and Kant (Purviance, 1997). She is effectively identifying traits of character (as preemptors of moral action) that can be universally considered in a variety of times and spaces. Jacobs (1992) emphasises that each of the two syndromes, commercial and guardian, can be judged only internally by the values clustered within the respective pattern of behaviour. Despite the ongoing exchange of rhetorical barbs between factions, neither syndrome can successfully be used to judge the other. Referring to Enron, it can be argued that the real ethical dilemma emerging during the fall of the company was between forms of ethical awareness. On the one hand, there is a form of ethical awareness, some of which is incorporated in agency theory that is necessary for marketoriented economic activity. On the other hand, and incorporated in stakeholder theory, there is a form of ethical awareness which is necessary for economic activity but not market oriented. This form of ethical awareness must be blind to enhancing values which are irrelevant or destructive, but are fundamental to market-oriented economic activity. This dilemma can be expressed in positive terms as a choice between two forms of ethical awareness; or negatively, as a choice between two forms of ethical blindness. Jacobs (1992) concludes that the pervasive decline in honesty is primarily due to society having macro institutions or activities that function as hybrids of the two distinct but contradictory sets of values or moral syndromes. She warns that any hybridisation of values between the two contradictory moral syndromes operating in the same activities creates moral ‘monsters’. Although Jacobs generally restricts her discussion to macro-scale activities (e.g. organised crime, Nazi death camps, Soviet command economy, and the like), she does carry her warning down to the level of microeconomics in a few instances (Jacobs, 1992) that illustrate the evils that can occur when moral syndromes are mixed unwittingly. She refers to a number of cases such as the New York Transit Police corruption scandal that manifested in a plague of false arrests, corrupt practices within the defence industry, the junk-bond scandal, and the savings and loan crisis

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

233

and eventual collapse (Jacobs, 1992). She concludes that even at the micro level a moral hybrid is a moral monster, whether it is in a government-run commercial firm, a firm contracting with government or in any other application where the price mechanism functions within an area of governance. The two sets of moral syndromes (clusters of values or clusters of motivational features) constitute the JVD. The extrapolations make it relevant for the advocates of business ethics to distinguish between two types of ethics: (a) generic morality which accounts for the basic rules of society and business and is followed on a daily basis by business people without publicity; and (b) supererogatory ethics of self-sacrifice which are imperfectly followed, and if followed, then only by private business owners (Barry, 2000a). In referring to the JVD, we argue that the supererogatory ethics of self-sacrifice frequently combine with the generic morality that is commonly part of managerial authority. This is the source of Jacobs (1992) warning about moral hazards. When guardian values overlap with commercial values then supererogatory mixes with generic and one’s moral grounding is at risk of falling away. The JVD is not intended to provide an ultimate or exhaustive inventory of values or motivational features. It is therefore a pure distinction which rarely manifests itself in a pure form, except perhaps as a theoretical abstraction. While there are still some pre-market cultures, the firm is now transcendent and has become global (Chase-Dunn & Lawrence, 2011). Likewise, the complexity of the supply chain and values within it has increased. It could nonetheless be argued that many of today’s corporate entities attempt to operate with only one moral code having both commercial and guardian virtues within it. To do this without consciousness of the fact is dangerously close to the edge of the moral maelstrom. It is therefore possible (and advisable) to assess the core values promoted by influential stakeholder organisations and individuals using the JVD as a touchstone. By way of demonstration, in Table 2, we analyse the UN Global Compact as an example of a strategic policy initiative that encourages global businesses to align their operations and strategies with 10 universal principles in the areas of human rights, labour, environment and anticorruption. There are many possible subjects of such analysis but the UN Global Compact represents a business-focused initiative with some of the broadest global support (United Nations, 2012). We draw attention to the overlapping areas of guardian and commercial values that indicate practical management issues in implementing principles on a global scale. Each principle is classified as guardian or commercial and a rationale is provided to link back to the features extrapolated in Table 1.

234

JANE ROSS ET AL.

Table 2.

The UN Global Compact Principles and the JVD.

UN Global Compact Principles

Businesses should support and respect the protection of internationally proclaimed human rights Make sure that they are not complicit in human rights abuses Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining The elimination of all forms of forced and compulsory labour The effective abolition of child labour The elimination of discrimination in respect of employment and occupation Businesses should support a precautionary approach to environmental challenges Undertake initiatives to promote greater environmental responsibility Encourage the development and diffusion of environmentally friendly technologies Businesses should work against corruption in all its forms, including extortion and bribery

Commercial (C) or Guardian (G)

Rationale

G

Taking the focus off the business towards others is guardian

C C

Individualism ahead of complicity is commercial Freedom of decision-making in collaboration and bargaining is a commercial mindset

C

Freedom is commercial

C

Freedom is commercial

C

Equity is driven by commercial values

C

Prioritising business survival is a commercial approach

G

If this is about protection, or status quo of resources, then it is guardian More about innovation and capitalisation of commercial opportunity Fairness and playing by the rules is a commercial mindset

C

C

Guardian values make up 20% and commercial values make up 80% of the UN Global Compact which prompts the following question: Can lists of principles underpinned by mixed sets of values succeed in the global context? Immature and unaware blending of the value sets can make satisfactory moral outcomes difficult to discern. It is by understanding the delicate balance between commercial and guardian and knowing when a situation calls for one or other of the mindsets to be deployed that moral problems can best be handled. There is no particular need to favour promotion of sets of principles that are predominantly either C or G. There still needs to be an appropriate guardian or commercial approach reserved for situations in

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

235

which either one is called for. There is nothing inherently right or wrong about the UN Global Compact principles on the basis on this analysis. Managers simply need to be cognisant of the JVD along with the nature of the decisions required in the current situation to ensure a less morally risky implementation. While the intentions of universal principles are noble and worthwhile, the energy of thought and reflection required by all involved in implementing them is significant. The challenge for policy makers and global business managers to discern and apply the differences is evident. To extend the analysis, many cases can be examined for a deeper understanding of the moral scaffolding supplied by the JVD. For example, widespread outrage (Comer & Vega, 2011) expressed about Enron’s failure to disclose the reality of their finances was expressed differently from the reactions to the government-based monstrosities of the Bush/Blair assertions about Iraq and its alleged weapons of mass destruction (Theakston & Gill, 2011). In the recent case of Julian Assange and Wikileaks, the value distinctions are further overlapped. There is obviously a perceived difference between government-based fabrications such as the Bush/Blair stories and the private commercial accounting fabrications of Enron or the activities responsible for its economic demise in 2008, and the Wikileaks of 2010–2011 (Klimburg, 2011). In these instances, as in most business situations, there are power games being played which means the moral implications must be considered. The puzzle involving different reactions in these examples stems from the fact that the same moral agents may be called on differently, depending on their role in a specific situation. To illustrate, people who enter into insurance contracts can be called on to defend their country during a war. In the JVD it is the context of the action which determines which moral parameters apply: ‘I cannot lie to an insurer about what happened at my property; but if I am a soldier, I can be ordered to wear camouflage on the battlefield to deceive the enemy’. Neither obligation is supererogatory within its proper context. This potential slippery slope is the basis for the hard distinction drawn by Jacobs (1992). From the perspective of the JVD, both value sets are relevant to ways of making a living. Accordingly, the right-wing cry for government fiscal responsibility is as senseless as the left-wing cry for corporate social responsibility. The person who acts most charitably is the monopolist. It is thus ironic that corporate virtue is possible only in situations that would fail by conventional market ethics (Barry, 1991, 2000b). These ideological positions amount to judging the respective activity by values which contradict the activity. Following Jacobs’ reasoning, the value distinction of both ideological critiques misconstrues the limits of their respective bases

236

JANE ROSS ET AL.

or syndromes with possibilities that can potentially lead more to harm than good. Nonetheless, we find many hybrid moral forms, such as contemporary governments that do in fact try to be fiscally responsible. Similarly there are also many corporations attempting to be socially responsible. Once an organisation breaches its syndrome, and the breach becomes institutionalised, the resulting conversion of normal virtues into vices wins cooperation among management and workers. ‘‘Now their work experience is blurring their moral understanding rather than clarifying it’’ (Jacobs, 1992, p. 199). The existence of such common and apparently valued contemporary hybrids is problematic. The JVD begs the question: how can activities having contradictory elements within them be judged and assessed? And it raises a red flag cautioning the presence of a potential moral problem with its own moral hazards. So, when is an obligation supererogatory? When would it be inappropriate to impose obligation as a duty? Barry (2000a, p. 15) claims that for the firm the ethics of self-sacrifice are always supererogatory: ‘It is perfectly acceptable for privately owned companies to engage in virtuous activity. It is the owner’s money which is at stake and he or she is entitled to do whatever they like with it. But in a public company, shareholders’ money is not available as a ‘‘costless’’ resource for the moralist’. What Barry apparently forgets or ignores is that for the employees and management of the firm, the ethics of self-sacrifice are generic. As Fig. 1 indicates, care (altruism) flows out of individuals as naturally as it can from an entire enterprise composed of collections of individuals. Jacobs stresses that dispensing largess is a guardian and not a commercial value. If a firm were dispensing largess beyond obvious economic benefits such as reduced taxes, it would indicate a potential increase in moral hazard. As Barry (2000a, p. 14) points out, the ‘pressure of competition in the capital market should in the long run eliminate costly ethics’.

MORAL HYBRIDISATION What happens if the organisation context is one of a hybridisation requiring both guardian and commercial syndromes where both syndromes are treated as generic and neither can be supererogatory? As our theory asserts, hybridisation is a potential moral problem because each element of a value cluster is by itself a moral justification for appropriate action within the sphere covered by the respective syndrome and value set.

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

237

Theory can provide indicators to answer why something was done or why something was not done. It can also provide a base for assessing situations and can function as a moral criticism if the value is flaunted. It is morally justifiable to downsize a management firm by pointing to size of debt load and lack of sales. The value determines the notion: Be thrifty, be efficient. At the same time, a moral critique can be levelled against a firm that does not invest for productive purposes or fails to be honest with shareholders. Considering that a key value of commerce and the commercial syndrome is to shun force, we recall Voltaire’s (1734) observation that ‘Before the temple of Mammon, every enthusiasm that might inflame the passions dissolves like perfuming clouds of incense into benign indifference’. It would therefore be a corruption of commercial values to negotiate a business contract with a pistol or other threat of force. In this sense, the moral implications of external interventions in the internal disputes of oil-rich countries such as Libya are highly problematic. The perception of such difficulties may, in part, be at the root of Russia – China abstinence from the UN vote concerning the imposition of a no-fly zone over Libya in March 2011. Similarly, a business opportunity in a distant country which requires bribing government officials must be rejected by conscientious business people for many reasons, including that doing so would be to deal with a corrupt guardian culture and violate the chief guardian value to shun trade. Dealings with corrupt officials in the guardian category, who can be bought to exert influence or force, might induce a tolerance for corruption into what would otherwise be a commendable commercial enterprise. It would be like doing business with the mafia, and then discovering that the business was being used as a cover for prostitution, drug trafficking, human trafficking or money laundering. Application of the JVD is a useful analytic framework because it enables us to see what might otherwise be missed. The two syndromes summarise centuries of observations on the perceived differences between market virtues and heroic virtues. Using the value distinction provides a rationale for how the approach advocated here goes beyond the narrow focus of agency theory and can be applied to commercial firms.

THE ETHICAL – MORAL DILEMMA OF THE INTERNATIONAL FIRM Returning to the agency problem identified by Smith (1994), the JVD emphasises reasons for why firms misbehave. It can be due to managers or

238

JANE ROSS ET AL.

directors dismissing themselves from the need for attentive vigilance or to a laudable but misguided sense of ethical activism. This places a critical light on the recent suggestions by Porter and Kramer (2011, p. 64) that, in order to prosper in the longer term, global commercial organisations should be ‘creating economic value in a way that also creates value for society’. The potential moral descent is now much clearer with the JVD in mind. In Jacobs’ terms, the potential for wrong doing of the firm stems from Coase (1937) and his view of the firm as a managerial authority which is able to compete in the market place. It is the commercial and guardian authority structure in combination with the agency problem that forces hybridisation of the commercial and guardian moral syndromes in the firm. There is a commercial relation expressed in terms of fiduciary duty between the management and the shareholders such that management is under an obligation to return profit to shareholders. Yet at the same time, management has authority over the firms’ employees who are expected to be loyal to the firm. Be loyal is a guardian value, while respect contracts and fiduciary relations is a commercial value. There is no corresponding duty of loyalty or fiduciary relationship to the firm placed on the shareholder. As a result of its detachment from the assets, management is in the anomalous and morally hazardous position of being in two relationships at the same time: (a) a commercial relationship with shareholders and (b) a guardian relationship with employees. The obligation of managerial authority within the firm means that neither the commercial nor guardian syndrome can be made supererogatory without increasing the potential for wrong doing. In Coasean theory, the firm is seen as becoming dysfunctional when its managerial authority no longer has an internal cost advantage against the price mechanism of the external market. The economic rationale for the firm ceases to exist when the transaction costs of exercising authority increase beyond the transaction costs of spot contracts (Drtina & Correa, 2011; Marciano, 2011). In the face of economic dysfunction the firm could (a) reduce itself through outsourcing in the hopes of restoring the cost effectiveness of authority over mere spot contracts. The firm could also (b) reduce inventory, renegotiate its debt, and reduce staff, and so on, in an effort to restore the advantages of managerial authority. By failing to take these or other options the firm becomes essentially a cluster of spot contracts portrayed in a balance sheet. From the perspective of value distinction, the balance sheet at best portrays just the commercial exterior of the firm, and only achieves external credibility when there is accurate accounting and reliable auditing. Without

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

239

accuracy and reliability, assumptions about the ‘bottom line’ of a firm are meaningless. But even with that assumption, the ‘bottom line’ may be an inadequate indicator of dysfunction because it tells nothing about the internal relationships or about the balance between the moral and commercial syndromes within the firm.

CONCLUSION The complex moral structure, which the JVD identifies with respect to the firm, explains why constant monitoring of agency theory effectiveness and the constraints of stock options and debt discipline are essential. There are further insights to be gained by analysing the predominant schema for universal principles to guide global business managers (Ross, Ross, & Creed, 2012). At the business level, when the guardian core of the firm gets the upper hand, the guardian value of deceive for the sake of the task is likely to exert itself, and management will act in its own interests rather than the interests of its shareholders and/or creditors. Application of the JVD predicts that under certain market pressures, the hybrid nature of the firm may cause both managers and shareholders to engage in morally risky behaviour. The JVD also informs managers and policy makers about the intention and moral impacts of adherence to sets of principles about universal approaches to global business. We note that the balance between the syndromes identified by Jacobs is not equal in all circumstances; for instance, firms that are closer to being guardian in their functions (such as newly privatised utilities, or gas pipeline companies in newly deregulated markets) may end up taking risks which increase their potential for wrongdoing. By way of example, the use of rank-and-yank performance reviews may result. Jacobs and others warn that the social structure in such firms can become more guardian than usual, with management resorting to typical guardian behaviours on a regular basis. Predictably, such a firm may seek to garner political friends by making political contributions and excessive charitable contributions. We have already seen excessive largess denounced as immoral behaviour (Barry, 2000a; Jayawardana, 2011). As market competition and other circumstances deprive such a firm of the surplus resources it uses for largess, it may attempt to become a monopoly. In that process, the management may gain a reputation for the use of bullying tactics and other questionable practices. If management surrounds itself with ‘yes people’ it is likely to experience little or no opposition. However, an organisation comprised entirely of

240

JANE ROSS ET AL.

sycophants would be a formidable but short-lived competitor. Such an organisation could not last because sycophantic people tend not to be critical, creative or objective, and are inclined to rubber stamp the plans of their superiors. When a firm becomes increasingly incompetent, it is likely to engage in deceptive practices to hide its affairs from shareholders and others. It is precisely this phenomenon that composes the ‘belt of foam’ on the edge of the maelstrom. Astute managers have only limited options as their organisations teeter into the abyss of continued moral decline. Our assessment of agency and stakeholder theories, along with the UN Global Compact as a strategic policy initiative for business, in light of the JVD demonstrates a heuristic device that can be applied by managers and stakeholders alike. The approach promoted in this paper focuses on the things managers can do to understand why moral dilemmas occur and suggests analytical tools which lead to practical decisions to help prevent moral breakdown (Connell, 2008). As such, the JVD can be viewed as a tool for improving corporate and governance functions at a crucial time in global organisational evolution.

REFERENCES Arnold, B., & de Lange, P. (2004). Enron: An examination of agency problems. Critical Perspectives on Accounting, 15(1), 751–765. Backhaus, W. (2003). After the fall of Enron: Beyond the agency model of the firm. Unpublished Paper, Calgary, with permission of the author’s estate. Bakar, A., & Ameer, R. (2011). Readability of corporate social responsibility communication in Malaysia. Corporate Social Responsibility and Environmental Management, 18(1), 50–60. Barry, N. (1991). The morality of business enterprise. Aberdeen: Aberdeen University Press. Barry, N. (2000a). Respectable trade: The dangerous consequences of corporate social responsibility and business ethics. London: Adam Smith Institute. Barry, N. (2000b). Controversy: Do corporations have any responsibility beyond making a profit? Journal of Markets & Morality, 3(1), 100–107. Benedict XVI. (2009). Encyclical-letter caritas in veritate. Rome: Libreria Editrice Vaticana. Brammer, S., Jackson, G., & Matten, D. (2012). Corporate social responsibility and institutional theory: New perspectives on private governance. Socio-Economic Review, 10(1), 3–28. Brandt, R. (1972). Rationality, egoism, and morality. Journal of Philosophy, 69(1), 681–697. Chase-Dunn, C., & Lawrence, K. (2011). The next three futures, part one: Looming crises of global inequality, ecological degradation, and a failed system of global governance. Global Society, 25(2), 137–153. Coase, R. (1937). The nature of the firm. Economica, 4(1), 386–405.

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

241

Comer, D., & Vega, G. (2011). Moral courage in organizations: Doing the right thing at work. Armonk, NY: M. E. Sharpe. Connell, C. (2008). Firm and government as actors in Penrose’s process theory of international growth: Implications for the resource-based view and ownership-locationinternationalization paradigm. Australian Economic History Review, 48(2), 170–194. Creed, A. (2009). Action research of cyclonic transactions in online management education. PhD thesis, University of Exeter, Exeter, UK. Davidoff, F. (2011). Systems of service: Reflections on the moral foundations of improvement. BMJ Quality and Safety, 20(1), i5–i10. Debeljak, J., Krkac, K., & Banks, I. (2011). Acquiring CSR practices: From deception to authenticity. Social Responsibility Journal, 7(1), 5–22. Dow, S. (2011). Cognition, market sentiment and financial instability. Cambridge Journal of Economics, 35(2), 233–249. Drtina, R., & Correa, H. (2011). How transfer prices can affect a supply chain strategic decision. International Journal of Logistics Systems and Management, 8(4), 363–376. Earl, P., & Potts, J. (2011). A Nobel Prize for governance and institutions: Oliver Williamson and Elinor Ostrom. Review of Political Economy, 23(1), 1–24. Eusepi, G., & Wagner, R. (2011). States as ecologies of political enterprises. Review of Political Economy, 23(4), 573–585. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Marshfield, MA: Pittman. Friedman, M. (1962). Capitalism and freedom. Chicago, IL: University of Chicago Press. Garcıa-Meca, E., & Sanchez-Ballesta, J. (2011). Firm value and ownership structure in the Spanish capital market. Corporate Governance, 11(1), 41–53. Goldbard, A. (2011). Nine ways of looking at ourselves (looking at cities). Culture and Local Governance, 3(1–2), 165–171. Gonin, M., Palazzo, G., & Hoffrage, U. (2012). Neither bad apple nor bad barrel: How the societal context impacts unethical behavior in organizations. Business Ethics: A European Review, 21(1), 31–46. Grassl, W., & Habisch, A. (2011). Ethics and economics: Towards a new humanistic synthesis for business. Journal of Business Ethics, 99(1), 37–49. Gregg, S. (2001). Stakeholder theory: What it means for corporate governance. Policy, 17(2), 33–38. Hamel, G. (2000). Leading the revolution. Boston, MA: Harvard Business School Press. Hegel, G. (1977). Phenomenology of spirit. (A. V. Miller, Trans.). London: Oxford University Press. Jacobs, J. (1992). Systems of survival: A dialogue on the moral foundations of commerce and politics. New York, NY: Random House. Jayawardana, P. (2011). Sponsorship, public private partnership and medical professionals. Journal of the College of Community Physicians of Sri Lanka, 13(2), 39–43. Jensen, M. (1994). Self-interest, altruism, incentives & agency. Journal of Applied Corporate Finance, 7(2), 40–45. Jensen, M. (2001). Value maximization, stakeholder theory, and the corporate function. Journal of Applied Corporate Finance, 14(3), 8–21. Keown, A. (2002). Foundations of finance: The logic and practice of financial management. Upper Saddle River, NJ: Pearson Prentice Hall. Klimburg, A. (2011). Mobilising cyber power. Survival, 53(1), 41–60.

242

JANE ROSS ET AL.

Kumar, S., & Dash, M. (2011). Management education in India: Trends, issues and implications. Research Journal of International Studies, 18(1), 16–26. Leavitt, H. (2007). Big organizations are unhealthy environments for human beings. Academy of Management Learning & Education, 62(2), 253–263. Leon H. Sullivan Foundation. (2012). The global Sullivan principles of social responsibility. Retrieved from http://www.thesullivanfoundation.org/about/global_sullivan_principles. Accessed on 30 September 2012. Liu, Y., & Pearson, C. (2010). The determining factors of Western Australia’s (WA) foreign investment in China. Global Business Review, 12(1), 1–20. Mainardes, E., Alves, H., & Raposo, M. (2011). Stakeholder theory: Issues to resolve. Management Decision, 49(2), 226–252. Marciano, A. (2011). Ronald Coase, ‘‘The problem of social cost’’ and the Coase theorem: An anniversary celebration. European Journal of Law and Economics, 31(1), 1–9. O’Regan, M. (2011). On the edge of chaos: European aviation and disrupted mobilities. Mobilities, 6(1), 21–30. Peperzak, A., & Lee´vinas, E. (1993). To the other: An introduction to the philosophy of Emmanuel Levinas. West Lafayette, IN: Purdue University Press. Peters, G., Pierre, J., & Randma-Liiv, T. (2011). Global financial crisis, public administration and governance: Do new problems require new solutions? Public Organization Review, 11(1), 13–27. Pirson, M., & Turnbull, S. (2011). Toward a more humanistic governance model: Network governance structures. Journal of Business Ethics, 99(1), 101–114. Poe, E. (1841). A descent into the maelstrom. Graham’s Lady’s and Gentleman’s Magazine, May. Porter, M., & Kramer, M. (2011). The big idea: Creating shared value. Harvard Business Review, 89(1), 63–77. Purviance, S. (1997). The moral self and the indirect passions. Hume Studies, 23(2), 195–212. Rasche, A., & Gilbert, D. (2012). Institutionalizing global governance: The role of the United Nations global compact. Business Ethics: A European Review, 21(1), 100–114. Ross, J., Ross, J., & Creed, A. (2012). The human nexus: A practical framework for inspiring trust and making ethical decisions. Small and Medium-Sized Enterprise & Entrepreneurship Review, 4(2), 22–27. Runst, P., & Wagner, R. (2011). Choice, emergence, and constitutional process: A framework for positive analysis. Journal of Institutional Economics, 7(1), 131–145. Schein, E. (2011). Douglas McGregor: Theoretician, moral philosopher or behaviourist? An analysis of the interconnections between assumptions, values and behaviour. Journal of Management History, 17(2), 1–16. Scherer, A., & Palazzo, G. (2011). The new political role of business in a globalized world: A review of a new perspective on CSR and its implications for the firm, governance and democracy. Journal of Management Studies, 48(1), 1–54. Smith, A. (1994). The wealth of nations. New York, NY: Modern Library. Stieb, J. (2009). Assessing Freeman’s stakeholder theory. Journal of Business Ethics, 87(1), 401–414. Theakston, K., & Gill, M. (2011). The postwar premiership league. The Political Quarterly, 82(1), 67–80. Turnbull, S. (1997). Stakeholder corporation. Journal of Co-Operative Studies, 29(3), 18–52.

Corporate Ethics and Values: Guiding Business Out of the Maelstrom

243

United Nations. (2012). About us: The ten principles, foundation for the global compact. United Nations. Retrieved from http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/ index.html. Accessed on 30 September 2012. Venkatasubramanian, V. (2011). Systemic failures: Challenges and opportunities in risk management in complex systems. American Institute of Chemical Engineers Journal, 57(1), 2–9. Voegtlin, C., Patzer, M., & Scherer, A. (2012). Responsible leadership in global business: A new approach to leadership and its multi-level outcomes. Journal of Business Ethics, 105(1), 1–16. Voltaire, F. (1734). Letters on the English. Letter No. 6. Retrieved from http://www.fordham. edu/halsall/mod/1778voltaire-lettres.html. Accessed on 30 September 2012. Wade, R. (2011). The economy has not solved its problems. Challenge, 54(2), 5–41. Wells, H. G. (1940). The new world order: Whether it is attainable, how it can be attained, and what sort of world a world at peace will have to be. New York, NY: A. A. Knopf. Zolezzi, A., & Bonvie, B. (2004). The detachment paradox. La Habra, CA: ASM Books. Zutshi, A., Creed, A., Sohal, A., & Wood, G. (2012). Consideration of selflessness and selfinterest in outsourcing decisions. European Business Review, 24(3), 287–303.

ABOUT THE CONTRIBUTORS Karina A. Branum is an MBA Student of Entrepreneurship and Management/Organizational Behavior at Loyola Marymount University (Los Angeles, California). She received her Bachelor of Arts in Economics from the University of Hawai’i at Manoa in Honolulu, Hawai’i in 2006. Following her undergraduate work, she worked as an Accounting Analyst in the entertainment industry before deciding to obtain her MBA. Upon receiving her MBA, she plans on pursuing a career with a sustainable business/organization and potentially starting a business in the field of water conservation and management. Research interests include further examination of the relationship between sustainable technology and business practices and profitability. Andrew Creed, (PhD, University of Exeter, School of Education and Lifelong Learning) is a lecturer and author who teaches and consults in organizational behavior, change management, and international business in Australasia. He has extensive experience in businesses and educational settings in Australia, the United Kingdom, and the United States. Laura E. Cepeda is an MBA Student at Loyola Marymount University with a focus on Information Decision Sciences and Marketing Management. She received her Bachelors of Science in Business Administration from Pepperdine University in Malibu, California in 2004. Following her undergraduate studies she has worked for eight years in various administrative roles in the financial services industry. Upon completion of her MBA she plans to pursue a career in social media marketing and analytics at an organization working for further sustainability in the marketplace. Her research interests include the use of social media to market clean technology and sustainable business practices as well as the use of big data to influence decision makers to adopt sustainable technologies in the workplace. Alina Mihaela Dima is Associate Professor, PhD, head of the UNESCO Department for Business Administration, Academy of Economic Studies, Bucharest. She teaches International Business and Negotiations, in English. Her research interests include: Competition Policy, International Business, Organizational Culture. 245

246

ABOUT THE CONTRIBUTORS

Uchenna R. Efobi is a Doctoral candidate and a lecturer in School of Business, Covenant University, Nigeria. He is a qualified Chartered Accountant of the Institute of Chartered Accountants of Nigeria. His research focuses on Institutions and Development Economics. He has won some research awards/grants including: Travel Grant from Centre for the Study of Africa Economies, Oxford University, UK. Farrokh Farrokhnia is a PhD Candidate at UTM Perdana School of Science, Technology and Innovation Policy. His field of study is electronic commerce policy and regulation in the context of World Trade Organization. Ciliaka M. W. Gitau is a PhD candidate in School of Economics, University of Nairobi, Kenya. She is a qualified Certified Public Accountant and Investment and Securities Analyst. She has research interest in International and Development Economics; participated in international conferences/ workshops across the world; and published some articles. She has won some awards including African Economic Research Consortium PhD-CPP Scholarship (2010/2011). Maria Alejandra Gonzalez-Perez (Psy, MBS, PhD) is Full Professor of International Business, Director of the International Studies Research Group, and in the period 20092012 was the Head of the Department of International Business at Universidad EAFIT (Colombia). Professor Gonzalez-Perez is also the coordinator of the Colombian Universities in the virtual institute of the United Nations Conference for Trade and Development (UNCTAD), Editor-in-Chief of the business journal AD-minister, and in the period 20082012 was the Editor-in-Chief of Revista de Negocios Internacionales. She holds a PhD in globalization and corporate social responsibility (international business), and a Master’s degree in Business Studies in Industrial Relations and Human Resources Management from the National University of Ireland, Galway. She did postdoctoral research at the Community Knowledge Initiative (CKI) in NUI Galway. Prior to her position in Colombia, she worked as a researcher in various organizations such as the Centre for Innovation and Structural Change (CISC), Irish Chambers of Commerce, and the Economics of Social Policy Research Unit (ESPRU) in Ireland. Dr. Gonzalez-Perez has published several academic papers and book chapters in the areas of internationalization, corporate social responsibility, and international migration. She is a regular contributor to business media, and has written over 50 business articles in the past year. Her research results have been presented in over 40 international academic conferences in all the continents.

About the Contributors

247

Cody Howsmon is an MBA student at Loyola Marymount University (Los Angeles, California), with an emphasis in Entrepreneurship and Finance. He received a bachelor’s degree in Supply Chain Management from Arizona State University. Following his undergraduate studies, he has worked for a major United States Defense Contractor for nine years developing supply chain strategies, as well as administering and managing large subcontracts under government prime contracts. His research interests include investigating barriers to the adoption of sustainable business practices and researching sustainable best practices as it relates to the building and construction industry. Liam Leonard (PhD, MPhil, BA) is the former President of the Sociology Association of Ireland, Lecturer with the School of Humanities in Sligo IT in Sociology, Environmentalism, Criminology and Human Rights, and Senior Editor: Ecopolitics Book Series with Emerald Group Publishing. Conferred with a PhD degree at NUI Galway in 2005, Dr. Leonard is the author or editor of over 10 books and numerous academic articles; he is also Editor of the CRIMSOC Journal of Social Criminology. Dr. Leonard has edited special issues of Environmental Politics, the Irish Journal of Sociology, and the Prison Journal. He received the Sage Publishing Research Excellence Award and the NAIRTL Award for Teaching & Research in 2012, and has 10 years experience as an academic and lecturer in the National University of Ireland and the Institute of Technology, Sligo, Ireland. Susan C. Morris holds a PhD from Old Dominion University in International Studies, with a concentration in International Political Economy and Development and a regional focus on East Asia. She is Assistant Professor in the Graduate School of International Commerce and Policy at Valparaiso University where she teaches courses in International Political Economy, WTO, and International Regime, World Bank Global Issues, International Competitiveness, and Emerging Markets. She is the author of Trade and human rights: The ethical dimension in U.S.-China relations. Her current research centers on democracy and corporate social responsibility in cyberspace utilizing the case studies of China, Iran and Russia. Evans S. Osabuohien holds PhD (Economics) and lectures at Covenant University, Nigeria. He has research interest in Institutional Economics, International Economics and Development. He has executed funded research projects (individual/team); published about 30 scholarly articles; and participated in international conferences/workshops across the world.

248

ABOUT THE CONTRIBUTORS

He recently won the prestigious Georg Forster Research Fellowship for Postdoctoral Researchers Award from The Alexander von Humboldt Foundation to embark on 18 months postdoctoral research in Germany. Some others awards include: Doctoral Fellowship from Swedish Institute (2009/2010), Grant from Centre for Economic and Policy Research-CEPR, UK (2012). Maria Alejandra Pineda-Escobar holds an MSc in Public Policy and Human Development (The Netherlands) and an MA in Sustainability and CSR (Spain). She is a researcher and lecturer at the School of Administration, Economics, and Accounting, Polite´cnico Grancolombiano, Bogota´. Her research interests include the development of inclusive business in Latin America and the influence of CSR on the internationalization of companies in emerging markets. Cameron Keith Richards has extensive experience of working at universities in the Asia-Pacific region. He has a multidisciplinary background but is currently specializing in ‘‘science, technology and innovation’’ policy studies and research inquiry. Jack Ross, (EdD, University of Exeter; Continuing Education) is a language and education specialist who teaches business communications by distance at University of Maryland University College, USA. He has extensive background in business and social science sectors of universities and corporations in Canada, the United States, Africa, and Asia. Jane Ross, (PhD, University of Cambridge, UK) is a social anthropologist with broad business experience worldwide, especially Africa, Asia, North America and Europe. As a dynamic strategic thinker, she provides seniorlevel thought leadership for local, regional and global organizations. Her current research is focused on community-driven initiatives linking landscape, communities and the arts. Vlasios Sarantinos is a Senior Lecturer in HRM, at Bristol Business School, University of the West of England. His research focuses on International Human Resource Management Practices, Globalization and activity of Multinational Corporations; Organizational Behavior, and other aspects of International and Domestic People Management Strategy. Simona Nicoleta Vasilache is Lecturer at the UNESCO Chair for Business Administration, Academy of Economic Studies, Bucharest. She teaches Cross-cultural Management, Business and Strategic Management, Communication in Business and Media, in English. Her research interests

About the Contributors

249

include: Cross-cultural management, Organizational culture, and organizational intelligence. Anatoly Zhuplev is a Professor of International Business and Entrepreneurship at Loyola Marymount University (Los Angeles, California) and Editorin-Chief at the Journal of East West Business. He taught for 10 years at the Moscow Management Institute, and subsequently at the Advanced Training Institute of the State Committee for Printing and Publishing in Moscow; in Bonn, Germany in 1994, 1998, 2009; in Warsaw, Poland (as a Fulbright scholar) in 2005; in Paris, France in 2004–2007, and at Northeastern University in Boston, Massachusetts in 1989–1990. His books and articles on International Management, International Entrepreneurship, International Business, European Energy Security, and Corporate Governance (around 100 overall) have been published in the United States, Canada, Western Europe, Russia, and the former USSR. He received his PhD from the Moscow Management Institute, Russia, in 1981, and his BS from the Moscow Engineer-Economics Institute in 1974.