Multinational Enterprises and the Challenge of Sustainable Development

Multinational Enterprises and the Challenge of Sustainable Development Multinational Enterprises and the Challenge of...

Author: John McIntyre | Silvester Ivanaj | Vera Ivanaj

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Multinational Enterprises and the Challenge of Sustainable Development

Multinational Enterprises and the Challenge of Sustainable Development Edited by

John R. McIntyre Georgia Institute of Technology, USA

Silvester Ivanaj ICN Business School, France

Vera Ivanaj Institut National Polytechnique de Lorraine (INPL), France

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© John R. McIntyre, Silvester Ivanaj and Vera Ivanaj 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009936229

ISBN 978 1 84844 413 3 Printed and bound by MPG Books Group, UK

Contents List of figures List of tables List of contributors Introduction Acknowledgments PART I 1

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3

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5

6

7

vii viii ix xv xxvi

CORPORATE GOVERNANCE FRAMEWORKS

Multinational enterprises and sustainable development: a review of strategy process research Vera Ivanaj and John R. McIntyre The UN galaxy, transnational corporations and sustainable development Tagi Sagafi-nejad Are multinational corporations compatible with sustainable development? The experience of developing countries Abdulai Abdul-Gafaru Sustainable development and resource-based foreign direct investment in developing economies: models of corporate production behavior Kofi Afriyie Of butterflies and hummingbirds: industrial ecology ‘on the wing’ Van V. Miller and Charles T. Crespy Multinationals and the challenge of sustainable development: knowledge in cooperative networks Mohamed Bayad, Michaël Bénédic, Malek Bourguiba and Christophe Schmitt The future of sustainable development and MNEs: a diffusion framework Jonathan Lefevre and Gabriele Suder

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3

28

50

73

85

104

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Multinational enterprises and sustainable development

PART II 8

9

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Multinationals’ sustainable supply chains and influence on suppliers inside and outside the USA: a comparative approach Bernd Philipp Sustainability metrics for multinational corporations – greater profits and a more sustainable world Salwa M. Beheiry Assessing the sustainable development commitment of European MNEs Silvester Ivanaj, Jacky Koehl, Sandrine Peney and E. Günter Schumacher

PART III 11

12

13

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STRATEGIC IMPLICATIONS AND ASSESSMENT

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DISCOURSE AND BEST PRACTICES

Understanding the self-regulation potential of voluntary international initiatives for corporate conduct: the role of sponsor goals Glen Taylor and Petra Christmann Sustainable development and corporate social responsibility of multinational enterprises in China Maria Lai-Ling Lam The discourses and practices of corporate social responsibility as a new component of the strategies of multinational companies: an illustration with French multinational companies Pierre Bardelli and Manuela Pastore-Chaverot International supply chain management: lever for sustainable development? An analysis of discourses and applications Yvette Masson-Franzil The search for a sustainable approach to traditional French wine production in the face of competition from multinational companies Marie-Pierre Arzelier

Index

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207

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283

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Figures 1.1 2.1 4.1 4.2 4.3 5.1 6.1 6.2

7.1 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 13.1

The dimensions of empirical research in the context of SD/CSR strategic decision-making processes The UN galaxy: the institutional constellation of organs relevant to FDI/TNCs Evolution of international business, stage one – export trade Evolution of international business, stage two – multinational production Evolution of international business, stage three – global business networks A sustainability roadmap for production sites–exchanges in North America Sustainable development – interface management The different dimensions of a cooperative network: the case of a multinational in the domain of motorized recreational products Conceptualizing pressures and commands in SD diffusion The three pillars of sustainability Research premise of indirect influence of sustainable practices Hypothesized influence diagram for impact of unsustainable practices The relationship between CSCI and SCPPI The relationship between CSCI and cost deviation The relationship between SCPPI and cost deviation The relationship between CSCI and schedule deviation The relationship between SCPPI and schedule deviation Theoretical and empirical results

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6 29 76 77 79 99 107

113 128 166 171 172 179 180 180 181 181 256

Tables 5.1 5.2 8.1 8.2 8.3 8.4 8.5 8.6 8.7 9.1 9.2 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 11.1 14.1 14.2 14.3 14.4

Sustainability pillars Linking exchanges with flows Common points and differences between SD and CSR Müller and Seuring’s (2006, 2008) literature review findings relevant to our research issue Country-specific ecological involvement levels regarding three supply chain relationship items A comparison of ecological influence exertion mechanisms on suppliers Min and Galle’s (2001) findings relevant to our research issue Murphy and Poist’s (2003) findings relevant to our research issue Synopsis of our findings Descriptive statistics Data analysis summary Corporate sustainability assessment criteria Types and ranking of sustainability reports published Economic indicator rates Environmental indicator rates Social indicator rates The DJ EURO STOXX 50 businesses in the main SRI indexes at June 2006 French SRI funds with at least one title in the DJ EURO STOXX 50 index French SRI funds titles and number of titles in the fund Typology and design of voluntary international initiatives (VIIs) Main strategies of sustainable development (environment axis) Main strategies of sustainable development (CSR axis) Occurrence rates of company C Occurrence rates of company L

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96 98 145 149 151 154 155 157 158 178 179 188 189 190 190 191 195 197 198 224 268 271 273 273

Contributors Abdulai Abdul-Gafaru obtained his first-class Honors Bachelor’s degree in Political Science at the University of Ghana. He has been a doctoral teaching assistant in the Political Science Department at the University of Cambridge, UK. He taught courses in ‘Politics in Developing Countries’ and ‘Local Government Administration in Ghana’, carrying on independent research on the achievements and challenges of parliamentary democracy in Ghana. He received his MPhil at the University of Cambridge, UK and is pursuing his PhD there. Kofi Afriyie is Associate Professor of Management and International Business in the Global MBA program at Kean University. He received a PhD and MBA from the University of California, Los Angeles (UCLA) and a BSc from the University of Ghana. His research interests focus on patterns of foreign direct investment and sustainability in emerging markets and developing economies, international strategic alliances and political risk factors in global business. Dr Afriyie is a member of several scholarly organizations, including the Academy of International Business and the International Academy of African Business and Development. He served as Vice Chair of the Academy of International Business (Northeast chapter) between 2003 and 2006. From 1995 to 1999, Dr Afriyie was a business planning manager at Dow Jones and Company and a senior analyst at Deloitte and Touche. He has been a consultant to several organizations, including the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group, where he worked on a project on foreign direct investment in Africa. Marie-Pierre Arzelier holds a Doctorate in Economic Sciences. She is an associate professor in Management, and a member of two French research centers: CEREFIGE (Centre Européen de Recherche en Economie Financière et Gestion des Entreprises), Metz, and PRATIC (Pratiques agro-alimentaires et théorie de l’internationalisation du commerce), Avignon. Her research interests focus on international trade and economics. Pierre Bardelli is a university professor at the University of Metz, France. He received his PhD in Economics in 1978 and has taught monetary ix

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economics, industrial economics, theory of the firm, production management and strategy. He has served as an academic administrator in numerous positions: director of a management research center; president of the University of Nancy 2, among others. He has also been chief executive officer of a university-based technology incubator park. Founder of a Moscow-based management center, he is Doctor Honoris Causa of the National Academy for Economics of the Government of the Russian Federation. His expertise ranges from an assessment of firms’ value and performance as a court expert. His recent research interests focus on production agility and corporate social responsibility. Mohamed Bayad is Professor of Management and Director of the Institute of Enterprise Administration (IAE), University of Nancy 2. He has been in charge of the research team at CEREFIGE, specializing in human resources and organization. His research interests focus on the strategic aspect of human resources. He has published extensively on these topical areas. Salwa M. Beheiry is Assistant Professor of Civil Engineering at the American University of Sharjah, UAE. She obtained her PhD in Civil Engineering from the University of Texas at Austin in May 2005. She is a recipient of various honors and awards throughout her academic and industrial career. Before starting her doctoral program, she worked as project and program analyst/consultant with Independent Project Analysis Inc. in Ashburn, Virginia, focusing on industrial, building and infrastructure projects. Dr Beheiry earned a Master of Science in Project Management degree from the George Washington University in 1998 and a First Class Honors Bachelors of Science degree from the University of Reading in 1994. Michaël Bénédic is PhD candidate and teaching assistant at the Institute of Enterprises Administration (IAE), University of Nancy 2, France. His research interests focus on knowledge management in cooperative networks, and on the evaluation and design of indicators of these networks. He is a member of the research team in Human Resources and Organization at the CEREFIGE research center. Malek Bourguiba received her PhD from University of Nancy 2, France. Her research interests focus on national culture and entrepreneurship. Her research is related to cognitive aspects in international management. She is a member of research teams in entrepreneurial processes and in Human Resources and Organization at the CEREFIGE research center. Charles T. Crespy received his PhD in International Business from the University of New Mexico. He spent a number of years at Miami

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University of Ohio, where he taught, researched and published. For many years he held university leadership positions and is now a full-time faculty member again. His research interests focus on NGO legitimacy. Petra Christmann is Associate Professor of Management & Global Business at Rutgers University, Rutgers Business School, Newark & New Brunswick, USA. She received her PhD in Strategy and International Business from the Anderson Graduate School of Management at UCLA. Before joining Rutgers she taught at the Darden School at the University of Virginia, the University of Minnesota and the University of Southern California. Her research interests are in the areas of strategic management and international business, with a focus on environmental management, firm self-regulation in the global economy, emergence of global standards and their effects on firm strategies, and international diffusion of management practices. Her award-winning articles have been published in several academic journals, including the Academy of Management Journal, the Journal of International Business Studies, the Academy of Management Executive, and the Journal of International Management. Silvester Ivanaj is Associate Professor of Information Systems at ICN Business School, Nancy, France. He received his PhD in Applied Electrochemistry from the Institut National Polytechnique de Lorraine (INPL), France. Before joining the ICN Business School, he was an environmental consultant. His research interests focus on information systems and sustainability assessments methods. Vera Ivanaj is Associate Professor of Management Science in the Chemical Engineering School (ENSIC) of the Institut National Polytechnique de Lorraine (INPL), University of Nancy, France. She received her PhD in Management Science from the University of Nancy 2. Her current research interests include strategic decision-making processes, sustainable development, logistics outsourcing, entrepreneurship and management education, coaching, teambuilding and diversity. Dr Ivanaj is a member of AIMS (Association Internationale de Management Stratégique) and AGRH (Association Francophone de Gestion des Ressources Humaines), two of the most important francophone scientific conferences on strategic management and human resources management. Jacky Koehl is University Senior Lecturer at the University of Nancy 2 and at the ICN Business School, Nancy, France. He teaches Financial Management, Portfolio Assessment and Management and Corporate Strategy at Master’s level.

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Maria Lai-Ling Lam is Associate Professor of Business Administration at Malone College, Ohio. She holds a BBA, an MBA and an MA in Religious Studies from the Chinese University of Hong Kong, and a PhD in Business Administration from the George Washington University, Washington, DC. She has more than 20 years of professional experience in marketing and organization behavior in Chinese business. She is a Fellow of the International Academy of Intercultural Research and a member of various professional bodies. She has published one book and several articles. Her research interest is corporate social responsibility in China, cross-cultural negotiation and business education. Jonathan Lefevre is currently working as a consultant in Strategy and Operations at Deloitte Mexico and has had experience working as a corporate governance consultant and research assistant in applied psychology for a Mexican NGO. Jonathan’s main research interests are sustainable development and corporate strategy and governance. Yvette Masson-Franzil is contractual research Professor of Strategy and Supply Chain Management at University Paul Verlaine, Metz, France. She received her PhD in 2005 from University Paul Verlaine. Franzil’s main research interests include logistics, logistics outsourcing, networks and sustainable development. She is member of the Centre Européen de Recherche en Economie Financière et Gestion des Entreprises (CEREFIGE), Nancy–Metz, France (a multi-university European business research consortium). For over ten years she headed the legal department of an important French agricultural company. John R. McIntyre is Professor of International Management and International Affairs with joint appointments in the College of Management and the Sam Nunn School of International Affairs of the Georgia Institute of Technology, Atlanta, Georgia, USA. He is the founding director of the Georgia Tech Center for International Business Education and Research (CIBER), a US national center of excellence. He received his graduate education at McGill, Strasbourg and Northeastern universities, obtaining his PhD at the University of Georgia. McIntyre has had work experience with multinational firms in the UK and Italy. He is an elected member of the Board of Advisors, World Trade Center, Atlanta, Georgia. He is a consultant to international companies focusing on trade and investment strategies. Van V. Miller received his BA in Philosophy and Political Science from the University of Kansas in 1970 and earned an MBA from the University of Missouri in 1975. Additional studies at the University of New Mexico resulted in an MA in Latin American Studies in 1981 and a PhD in

Contributors

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International Business in 1984. During 1988, he was awarded a Fulbright Research Fellowship to Central America, where he studied the business strategies of both large and small firms during a period of volatility. In 2006, he was appointed to the board of the International Sustainable Development Research Society. Miller’s efforts in the private sector have been mostly in the construction industry, which has allowed him the opportunity to design and build in New Mexico a log cabin utilizing sustainable development principles. Manuela Pastore-Chaverot is a PhD candidate in Management Sciences at University Paul Verlaine, Metz, France. Her present work is mainly focused on the study of factors explaining the choices made, as far as corporate social responsibility is concerned, by big companies of the CAC 40 through the discourses they display. She is also teaching assistant in Operational Marketing and Strategy. Sandrine Peney is Associate Professor at the ICN Business School, where she is the Head of Department of Finance and Strategy. She received her first degree in Economic Sciences from the University of Nancy. Her research interests focus on the notion of event in econometric models applied to finance, and to individual behavior. In her position at the ICN Business School, she is special option leader for Audit and Finance. Bernd Philipp is senior lecturer and research fellow in Marketing and Logistics at Amiens Business School, Picardie, France. He received his PhD in Management from Aix–Marseille 2 University. He also holds an MS in Industrial Engineering and Management from Karlsruhe University (Germany). His research interests focus on the cross-section of sustainable development and channel-oriented issues: sustainable supply chains, environmental logistics management, reverse distribution and vertical eco-marketing. Philipp also taught at Le Havre Business School, Avignon University and Aix–Marseille 2 University. Tagi Sagafi-nejad is the Radcliffe Killam Distinguished Professor of International Business, and director of the PhD Program in International Business at Texas A&M International University. He is also Professor Emeritus of International Business and former Chair of the Department of Management and International Business at the Sellinger School of Business and Management at Loyola College in Maryland. Extensive publications on international business include a trilogy on technology transfer published by Pergamon Press, and publications on Iran, Egypt, Syria, Middle East political economy, Mexico, People’s Republic of China, Taiwan, the USA, Europe and Japan.

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Christophe Schmitt is Associate Professor of Management at the Institut National Polytechnique de Lorraine (INPL), University of Nancy, France. He is currently teaching at the National Graduate School of Agronomy and Food Industries (ENSAIA). He is in charge of the research team in entrepreneurship studies. He has been a visiting professor at the University of Québec Trois-Rivières and previously worked on the creation of value in networks between multinational companies and SMEs (small and medium-sized enterprises). His research interests focus on organizational design. He has published several papers on this topic. E. Günter Schumacher holds a PhD in Economic and Social Sciences from the University of Cologne, Germany, and a DEA from the same university. He is Head of the Department of Legal and Economic Environment at the ICN Business School, Nancy, France. He is a member of the European Association for Evolutionary Political Economy (EAEPE) and of the ICN Business School think-tank for sustainable development. Since 1999 he has been leading a Franco-German academic network looking at the future of Europe. As his recent article underlines, Dr Schumacher is committed to creating a European economic ethic. Gabriele Suder is Professor of International Business at the CERAM Business School, Nice–Sophia Antipolis, Paris and Sozhou. She is also Visiting Professor at the Helsinki School of Economics and other top business schools around the world, and a business consultant. Gabriele’s main expertise focuses on corporate strategy in the context of diversity and globalization. Glen Taylor is an associate professor at the College of Business and Economics, California State University East Bay. Before joining Cal State, Dr Taylor served as the director of the Center for Innovation and Knowledge Management at the College of Business, University of Tampa. His PhD is from York University in Canada, where he served as associate director of the Ontario Center for International Business. He served as director of APEC’s global supply chain program and as the strategic management academic track leader for the World Resources Institute’s MBA sustainability work in China.

Introduction John R. McIntyre, Silvester Ivanaj and Vera Ivanaj This book is a by-product of a three-day research colloquium (Multinational Enterprises and Sustainable Development – MESD 2006), held at the Georgia Institute of Technology campus, on selected sustainable development practices of multinational corporations (MNCs) as tools to achieve global competitive gains. It was co-organized by the Georgia Tech Center for International Business Education and Research (GT CIBER), the Institute of Sustainable Technology and Development, Georgia Institute of Technology, Atlanta, USA, in partnership with ICN Business School, Nancy, France and the Centre Européen de Recherche en Economie Financière et Gestion des Entreprises (CEREFIGE), Nancy–Metz, France (a multi-university European business research consortium), both long-term partners of Georgia Tech Lorraine (GTL). Georgia Tech Lorraine is the overseas extension graduate and research campus of Georgia Tech, created in 1989, and located in the linchpin region of Lorraine, at the heart of Europe, in the Metz 2000 Technology Park. This text reflects a long-term research priority of GT CIBER as well as European partners (ICN Business School and CEREFIGE) to contribute to an evolving analytical framework, supported by a body of literature, to describe and understand the dynamic process through which international firms evolve full-fledged global programs of socially and ecologically responsive and responsible policies and best practices. The book raises a central question concerning the role that multinational businesses play in the conception, diffusion and consolidation of the concept and best or better practices of sustainable development in the context of globalization. It explores the complex and dynamic social phenomena in which economic, political, cultural and legal aspects interact and influence each other as they shape the sustainable development debate in the corporate transborder context. Understanding this dynamic process implies studying the practices and organizational behavior of multinationals in sustainable development. These practices and behaviors are influenced, though not wholly determined, by many micro- and macroeconomic factors of an environmental, organizational and decisional nature. These factors shape the conditions for success and continuity. The consolidation xv

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and diffusion of sustainable development practices are directly determined by the anticipated impacts (economic, political and social) that the multinationals seek to achieve. Besides the strategic position and economic power that multinationals wield on the international scene, their strategic preferences and choices must be elucidated. Multinationals could be considered as ‘active actors’ or catalysts in the implementation of sustainable development, but they could also derail the process. The 1990s were marked by a heated debate in fields related to the study of business, society and environment as to ‘whether it pays to be green’, in the wake of the watershed Bruntland Commission Report of 1987. This corporate and societal debate rages on; witness former US Vice President Albert Gore’s 2007 Nobel Prize award. The policy area has taken on an intensely international and cross-national dimension for large-scale corporations, as sustainable development becomes one of the bases for the next generation of competitive gains for large-scale enterprises and nationstates. No issue (one is tempted to use the French word ‘problematique’) is more clearly global in scope and scale than the management of environmental risk, broadly defined, through sustainable development policies and practices by corporations operating in an interlinked world economic system. And in spite of the promise held out by green technologies and the emergence of ecologically driven start-up enterprises, no cross-sectoral, cross-national, cross-disciplinary issue area is more lacking global governance at this juncture. The theme of the book is the role that transnational corporations play in the design, diffusion and consolidation of sustainable development in the context of globalization. The book explores complex and dynamic phenomena in which economical, political, cultural and legal aspects interact and influence each other. In order to understand this dynamic, the book deals with some practices and organizational behaviors evinced by multinationals in regard to sustainable development. It also explores multinationals’ conception of sustainable development and their related strategies and organizational practices (human resource development, marketing, supply chain, information technology, law, communications, etc.). It seeks to describe, understand and assess the factors leading to multinational corporate decisions in this issue area. Topical coverage is organized in three main parts, each of which deals with a specific aspect of multinational enterprise sustainable development: I II III

Corporate Governance Frameworks Strategic Implications and Assessment Discourse and Best Practices

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The growing belief that private corporations should not only earn reasonable profits and provide fair returns to shareholders but also operate as good corporate citizens has spread to multinational corporations. The topical area has generated a growing body of research literature in article and report form, particularly in the EU but also recently in the USA. In addressing these topics, clustered around the globalization of principles and practices of multinational corporations, we have solicited expert and scholar authors from our sister institutions in the EU.

PART I: CORPORATE GOVERNANCE FRAMEWORKS Part I carries out a deep review of research on the strategy process of multinational enterprises (MNEs) regarding sustainable development (SD) in order to highlight some of the main theoretical and methodological choices made by researchers so far, and their impact on the process of knowledge development in this field. The contributions all seek to answer the following questions: how are sustainable development strategies formulated in MNEs? Which factors influence these strategies? What do they result in? The first chapter, by Ivanaj and McIntyre, reviews criteria applied to sort out relevant published works and enables us to appraise general research trends, egregious research gaps, and difficulties encountered in performing cross-national research. The meta-analysis of the works is carried out within an integrative framework linked to evolving literature reviews as well as theoretical and empirical research findings. The analysis focuses on two levels: (1) theoretical paradigms and perspectives selected to address relevant research questions; and (2) methods employed to address units and levels of analysis, samples and data-collecting methods. This critical meta-analysis leads to recommendations for future research paths and heuristic insights in gauging implications for theory development and research methodology. The second chapter, by Tagi Sagafi-nejad, is an overview of the supranational framework, the UN institutional constellation of entities seeking to provide a forum and framework for transnational corporations as they engage with issues of sustainable development. Sagafi-nejad offers an exhaustive review and analysis of the key UN organizations that interface with transnational corporations. Special emphasis is placed on the role of the International Labor Organization (ILO), the World Health Organization (WHO) and the World Intellectual Property Organization (WIPO). In addition, the UN Global Compact Initiative is presented as

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a boundary-shaping voluntary self-reporting system, one of several that have subsequently emerged through private sector initiatives. UN agencies have historically played a major role in establishing rules that define a normative framework for countries and transnational corporations. The relationships between UN organizations and nation-states as they interact in framing sustainable development, following Sagafi’s understanding, evolve along three main parameters: stakeholders, issues and historical cycle. Each UN agency deals with a set of these issues and requires the involvement of certain stakeholders such as NGOs, accredited bodies, and a variable geometry of stakeholders as an issue evolves along the UN agenda. Concerning the historical cycle, the author concludes that the UN is at a crossroads, and its liberal economic premises are being challenged. The author raises a crucial question: can the system serve as a catalyst in the process of norm-setting for the activities of TNCs? Chapter 3, by Abdulai Abdul-Gafaru, asks whether multinational corporations (MNCs) are a force for environmental sustainability in developing countries. The chapter argues that although MNCs have the potential to contribute to sustainable development, their actual environmental impact largely depends upon the degree to which host countries keep their environmental abuses in check. Given the profit-minded nature of MNCs and the huge environmental control costs, industry self-regulation is unlikely to be effective where it conflicts with the primary objectives of multinationals. The chapter takes a critical look at potential environmental polluters such as MNCs, which are often the generator of rules applying to themselves in this geographic setting and effectively act as judge when their operations in host countries, lacking local institutions, violate recognized standards, Thus, to the extent that the raison d’être of business is to maximize profit rather than promote development, the author remains cautiously optimistic that MNCs can (voluntarily) contribute to sustainable development in developing countries. To enhance and incentivize MNEs’ policies and sustainable development choices, there is a need to move beyond conventional notions of corporate social responsibility (CSR), characterized by the adoption of voluntary codes, to more regulatory, legally binding measures at both national and international level. In Chapter 4, Kofi Afriyie, using the concept of evolutionary expansion of foreign direct investment (FDI) and global production, seeks to explain why resource-rich host economies appear to capture scant or no significant value from the worldwide operations of multinational enterprises (MNEs). Afriyie argues that the choices made by an MNE as it evolved globalized activities largely determines whether a host developing country is likely to benefit from the firm’s production activities within it. The chapter considers the spillover effects at each stage of the worldwide

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production expansion process. This approach allows researchers and policy makers to examine the likely effects of foreign direct investment, and the potential horizontal and vertical sustainable development linkages in MNEs seeking to invest in host economies. Afriyie concludes with proposals and alternative lines of inquiry on the public policy implications of MNE’s production strategies. In line with Chapter 2, van Miller and Crespy in Chapter 5 discuss how transnational corporations pursue their own economic interests via trade agreements and migrate to niches where labor and environmental costs are lower. From a sustainable development viewpoint, each of the three pillars (economic, labor and environmental) should receive equal weight, in their argument. In constructing a roadmap for the selection of a regional production flow in North America, the first choice is: NAFTA or CAFTA? To facilitate this choice, both transformation (labor, resources/ materials and environment) and transaction (tariffs, taxes, transportation) costs must be analyzed. Economic, labor and environmental outcomes flowing from NAFTA and CAFTA undertakings should lead to improvement on the metrics utilized for evaluating each pillar and to a balance in the resource allocation among pillars. Multinational corporations can now readily operate ‘on the wing’ within Northern America in the wake of the NAFTA and CAFTA schemes. These two agreements provide ample encouragement and protection for commercial transactions seeking economic sustenance. Nevertheless, for the other two pillars of social and ecological responsibility, the normative dictate that economic, labor (working conditions) and environmental interests ought to be balanced and harmonized as envisioned by industrial ecology (IE) appears woefully lacking at this time. In Chapter 6, Bayad et al. discuss the multinational enterprise as a knowledge network and its capabilities in coping with the challenges of sustainable development. The traditional models of growth and development of multinational corporations have been called into question on two fronts in the past 20 years. This can first be explained by the emergence of the knowledge-based economy, which makes knowledge a fundamental resource for maintaining competitive advantage. From this perspective, multinational corporations have adopted forms of cooperative organization to foster the exchange and creation of these resources. Second, the imperative for sustainable development, via the adoption of long-term resource conservation as a priority, has provided another reason to question the strategic decisions of multinational corporations. This chapter examines the possible link between these two new organizational modes for multinationals: cooperative knowledge networks and sustainable development. The first section shows that considering the intangible dimension of

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resources sheds light on that connection. The second section is dedicated to the challenges related to knowledge management that must be taken up by the multinationals. By working within these key ideas, the authors look at management approaches that yield enhanced participation of multinationals’ cooperative knowledge networks in sustainable development. In Chapter 7, Lefevre and Suder focus on the future of sustainable development and MNEs. Sustainable development can be viewed through a lens, in the same way as other intellectual innovations. In this chapter, the diffusion mechanisms of sustainable development are examined in order to learn from them, understand how they evolve and propose alternative paths for the future of community and corporate value-creation in this context. After a brief review of sustainable development and its penetration of the corporate world and its practices, the authors propose a diffusion model to match the sustainable development paradigms applying to multinational corporations. They then explore previous diffusion studies and propose the concept of command as a motivational aspect of innovation. Finally, they proceed to position sustainable development within the proposed framework. In the last section, the implications of this framework are discussed, viewing sustainable development as an extension of (or departure from) shareholder value. Bearing this in mind, the authors analyze pressures and sustainable development commands (imperatives) on MNEs that impel the firm to decide on an advantageous strategic positioning. To conclude, they discuss how a shift in the carrying capacity of the proposed command and pressure structure would affect the diffusion of sustainable development paradigms.

PART II: STRATEGIC IMPLICATIONS AND ASSESSMENT Part II considers business and corporate strategy and assessment issues arising in part out of Part I, and focusing on: (1) a specific business process (supply chain management); (2) a specific region and regional grouping, the EU; and (3) the generic approaches governing sustainable development metrics and measurement of performance and implementation. These three approaches illustrate how sustainable development cuts across business processes, is differentially addressed in different countries and/or regional contexts, and how complex is measuring implementation success across global corporate networks. Part II moves the discussion to implementation issues, leaving behind the more theoretical considerations of Part I.

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In Chapter 8, Philipp considers how multinational enterprises’ (MNEs’) sustainable supply chains can act as a key contributing factor for sustainability/corporate social responsibility, both conceptually and from a praxis standpoint (e.g. relevant codes of conduct). Philipp examines how MNEs’ means of influence are exerted upon their suppliers to guarantee ‘upstream repercussions’ (a cascading chain of impacts) for sustainable requirements. In this context, research articles are analyzed in order to reveal similarities or differences between US and non-US MNEs’ practices. Beheiry’s research, presented in Chapter 9, has been geared towards studying the relationship between corporate commitment to the three pillars of sustainability and capital project performance. To achieve this objective, two comprehensive sustainability indices, CSCI (Corporate Sustainability Commitment Index) and SCPPI (Sustainability Component of Project Planning Index), were created to measure the level of corporate sustainability commitment and the sustainability component of capital project planning, respectively. The two indices were then used to statistically relate corporate commitment to sustainability with sustainable capital project planning. Capital project planning has been shown to impact capital project performance in terms of cost, schedule and operability, including design changes and safety compliance. Using this linked relationship between the two indices and capital project performance as a theoretical backdrop, data were collected from 17 Fortune 100-owned organizations. These data suggested that increasing commitment to sustainability tends to lead to enhancing sustainable project planning, and may lead to better cost and schedule performance in large capital projects. It was clear from the data that the relationship between the two indices existed and there are strong grounds supporting further development of such indices. In Chapter 10, Ivanaj et al. seek to assess the sustainable development commitment of European MNEs. They examine the sustainable development dimension of European MNEs, centering on the assessment of their SD policies. Such policies are presented as the result of moral commitments, beyond legal or economic imperatives. The chapter combines empirical research on the 50 biggest European multinational enterprises composing the DJ EURO STOXX 50 considered ethical companies. Three fields of commitment indicators are examined: the reporting system, the organizational structure of the companies; and the ethical investment market. The research yields expected results but also some surprises. The fact that the reporting refers predominantly to topics that are imposed by the legal framework and that environmental indicators are present in the different reports confirms the expectations of the researchers. The surprise

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comes from the observation of the market for ethical investment, where one can observe that SRI fund managers do not take SRI indexes into consideration in their daily decisions. The place of sustainable development within the organizational structure of the 50 European MNEs is obviously not seen in the same way everywhere. Many companies give sustainable development management a project character; some have created a specific structure; and other MNEs have integrated it more fully into functional managerial areas. Interpreting the results by maintaining a link to the moral sustainable development commitment of the MNEs is possible within a descriptive ethics approach, showing different paths to establish if the moral sustainable development commitment of the European MNEs is consequential or not.

PART III: DISCOURSE AND BEST PRACTICES Part III illustrates the structure of argumentation for sustainable development within the firm and how firm behavior seeks to bridge gaps between rhetoric and practice. This section is especially important as the corporate world seeks to convince its stakeholders of the competitive gains flowing from a sustainable development paradigm in the search for global profits, innovation and survival. The question for standards of behavior is salient in Part III and the persistent gaps between rhetoric and praxis come out sharply, particularly in an older traditional sector such as wine-making. The term ‘discourse’ is, as used in this part, favored among European scholars, who view it as containing both the argument and the evolving practice, and study this discursive dimension of the issue area to gain a deeper understanding of what is often only apprehended as an evolving surface phenomenon. This part makes full use of this analytical concept. Chapter 11, by Taylor and Christmann, focuses on understanding the self-regulation potential of voluntary international initiatives for corporate conduct and the role of sponsor goals. Globalization has led to concerns that firms will take advantage of cross-country differences in environmental regulations by locating polluting activities to countries with low levels of environmental regulation. Certifiable environmental standards such as the ISO 14001 environmental management system standards have been proposed as a tool for firm self-regulation in the global economy. These standards set requirements that exceed regulatory requirements in low-regulation countries, which results in a more level international playing field. Firms voluntarily implement these standards and they can obtain certification of their adherence to a standard by passing an audit by independent third-party auditors. While initial research on certifiable

Introduction

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standards has aimed at identifying reasons for firm certification and standard diffusion, more recent research has examined the implementation of such standards within firms. To serve as an effective tool for firm selfregulation, standards not only need to be widely adopted and diffused; they also need to be properly implemented by certified firms. In many industries the importance of ISO 14001 as a criterion for supplier selection provides incentives for firms in low-regulation countries to obtain the certification to meet minimum requirements of potential customers from developed countries, but at the same time weaknesses and conflicts of interest in the for-profit monitoring industry do not assure that these certified firms actually meet the standard requirements. Finally, the authors discuss the prospects and limits of certifiable environmental standards as tools for firm self-regulation in the global economy. In Chapter 12, Lai-Ling Lam explores corporate social responsibility and sustainable development of multinational enterprises in China. Multinational enterprises (MNEs) can be effective vehicles in boosting awareness of corporate social responsibility (CSR) and improving related practices of their affiliated companies and suppliers in China. Recently, the question has shifted from whether or not to make a commitment to CSR to how to make a substantial commitment. This chapter examines the perceptions of Chinese executives about CSR and explores possible strategies for MNEs to successfully handle the topic and practice sustainable development in China. Chinese executives and expatriates have to be integrated and display internal consistency with MNE parents and accommodate distinctive Chinese business environments in their day-to-day operations. The research questions are: what are the opinions of Chinese executives about their multinational enterprises’ social responsibility and what are Chinese executives’ perceptions of the problems and the opportunities for implementing CSR in China? Chapter 13, co-authored by Bardelli and Pastore-Chaverot, deals with the discourse and practices of corporate social responsibility (DP-CSR), new components of multinational companies’ strategies and elements of micro-regularities in the post-Fordist model. They use French multinational companies to illustrate their insights and findings. Sustainable development, an established concept, is nowadays in the heart of several academic debates in management science. It is also in the center of the companies’ concerns, especially multinationals. These companies, with their power, their size and their planetary presence, are deeply concerned with their economic, social, cultural and ecological environment. Their activities have significant effects on the ecological environment, society and economy. The chapter investigates the topic through the annual reports of large French companies quoted on the CAC 40 at the Paris

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Stock Exchange. The content analysis of these reports, made with a sample of ten companies, enables us to check the existence of a common basis concerning the DP-CSR of the various companies and their regulative capacity on their economic environment. This research stream has also sharpened interest in exploring new leads, such as the sectoral-specific issues and broader or interactive cultural influences on the content of DP-CSR. In line with Chapter 13’s discursive approach, Franzil in Chapter 14 also focuses on the analysis of the sustainable development discourse and its applications to international supply chain management as a lever for goal implementation. After defining concepts and reviewing the literature, the author highlights opportunities of sustainable action in supply chain management. These actions are indexed on two dimensions: the environmental axis and the CSR axis. Then, in a second phase, having circumscribed the SD-oriented procedures, the author studies the 2005 SD reports of two multinational companies (distribution and sports products manufacturing). The methodology is inspired by the lexical and content analysis. The results suggest that sustainable supply chain management (SSCM) is only in its initial stage in international companies and that there is an undeniable gap between commitment and practice. The opportunities offered by the SD procedures in these two case studies, namely the marketing strategy of differentiation and public image concern with stakeholders, were brought out. These findings reveal that a company is not philanthropic but on the contrary pursues its capitalistic aims. This chapter presents teleological lessons through an inventory of the possible SSCM actions. Arzelier, in Chapter 15, uses a different sustainable development angle to focus on related issues: what the author terms a ‘productive logic’ and land or territorial use as applied to multinational companies’ operation in the wine production network in France. This chapter aims at finding a theoretical basis for strategy development by wine producers, by comparing MNEs from North America to small-sized French companies. Current market structures (small French companies often face larger multinationals) allow limited room for strategic maneuvering. However, although wine is classified as a food, related values in France indicate a cultural dimension associated with a more subjective image of good corporate behavior, authentic production and product, tending to the world of conviviality and ‘partying’. This pattern is laden with cultural symbolisms, part of a complex discourse: love of the soil, of work well done, secrets linked to the wine-making process, respect for the cycles of nature: all are elements to consider in order to grasp the choices made by producers and to explain how they address the paradigm of sustainable development. It is as if a unique product had to be saved from ‘taste conformism’ and to

Introduction

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be shielded from the threat of the disappearance of a way of life tied to the product and process. French vintners think in terms of global public goods, which reveals their implicit commitment to long-lasting (and hence sustainable) development. This comparative approach also highlights the importance of cooperative relationships. This sector-specific insight is equivalent to (re-)introducing the notion of collective interest behavior to the ‘free enterprise’ or liberal (as it is often termed in Europe) market. However, current political preferences in the industry do not so far seem to have evolved, the author maintains, a sustainable development-friendly internal logic: the interest of the consumer, as understood by different scale firms, leads to paradoxes not yet resolved by the stakeholders in this market space.

CONCLUSIONS This volume has the merit of illustrating how researchers approach and treat the complex and multidimensional issue area of sustainable development, writing from a European, American or emerging-market perspective. In essence, the authors make use of different conceptual frameworks, or paradigms, and value a different way of probing the various dimensions of these multidisciplinary issues as they take shape in the world of multinational enterprise behavior. The use of the qualitative approach is more prevalent among European researchers, as is reflected in this volume. The lack of common analytical frameworks also emerges from the diversity of contributions, regardless of country or regional perspective. But, at the time, a consensus on which are the key variables seems to emerge, without a good grasp of how to piece together the component parts of this evolving paradigmatic shift in global management thinking. Sustainable development is now on the lips of all corporations and it has become a key success factor for a rapidly growing number of multinational enterprises.

Acknowledgments The organizers of the research conference, editors and authors of this follow-up research volume have incurred some not insignificant debts of gratitude to a number of individuals, colleagues and organizations whom they wish to acknowledge. This volume is a direct offshoot of the 18–19 October 2006 colloquium titled ‘Multinational Enterprises and Sustainable Development: Strategic Tool for Competitiveness’ (MESD 2006), held at the Georgia Institute of Technology in the Georgia Centers for Advanced Telecommunication Technologies conference center. We wish to acknowledge the support of the Coca-Cola Company, Inc., the CIBER Centers program through its Georgia Tech Center for International Business Education and Research; the Georgia Tech College of Management and Dean Steven Salbu; the Georgia Tech Institute of Sustainable Technology and Development; the ICN Business School and its administration; the Centre Européen de Recherche en Economie Financière et Gestion des Entreprises (CEREFIGE), Nancy–Metz, France, which mobilized its extensive regional research network on the European side. We are grateful to the UN CIFAL Center (UNITAR network), Atlanta, the Coca-Cola Company Inc., Air Liquide, the Conseillers du Commerce Exterieur de la France (Section Sud-Est des Etats-Unis) for their guidance and support in mounting the original event. All the authors included in this volume have worked long and hard in preparing their chapters, and 23 reviewers were involved in two rounds of paper selection and revision. We wish to single out the late Dr Dennis A. Rondinelli, the Terry Sanford Institute of Public Policy, Duke University, our keynote speaker; Professor John Dunning, Reading University, UK; Professor Pierre Bardelli, past president, University of Nancy, France; Mr Jeff Seabright of the Coca-Cola Company; Mr David H. Gustashaw of Interface Inc.; and Ms Brenda D. Pulley, Novelis Inc. – all of whom were most helpful in their personal support and guidance. A special word of thanks to the Georgia Tech CIBER Center staff, who provided logistical support for the original October 2006 event and the subsequent research work. We look forward to the second conference (MESD 2009) to be held in Nancy, France in November 2009. It is co-organized by ICN Business School and CEREFIGE in partnership with Georgia Tech Center for xxvi

Acknowledgements

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International Business Education and Research (GT CIBER), Georgia Institute of Technology, Atlanta, USA. John R. McIntyre Silvester Ivanaj Vera Ivanaj

PART I

Corporate Governance Frameworks

1.

Multinational enterprises and sustainable development: a review of strategy process research Vera Ivanaj and John R. McIntyre

1. INTRODUCTION Sustainable development (SD) and, more broadly, corporate social responsibility (CSR) cannot be ignored in current research on management science and management theory (Gladwin et al., 1995). In the field of strategic management, concerns regarding SD are even more acute due to its integration into the general design of overall company policy. Indeed, the development of such a strategy is incomplete if social and environmental responsibility is not taken into account as a crucial element of a company’s decision-making process (Carroll and Hoy, 1984; Hart, 1997; Martinet and Reynaud, 2004, McGee, 1998; Reynaud and Joffre, 2004). Therefore, owing to the impact of strategy on the economic performance of the firm, the process of designing and enforcing SD/CSR strategies has become a major focus of empirical investigation and theoretical reflection. Over the last few years, the number of articles and research projects exploring the global implications of SD/CSR has dramatically increased (Banerjee, 2002). Prestigious journals, including the Academy of Management Review, the Academy of Management Journal, Academy of Management Executive, the Strategic Management Journal, the Journal of Business Ethics and Long Range Planning, have published numerous such articles. At the same time, several journals dedicated to SD/CSR have been created, such as the Journal of Environmental Assessment Policy and Management, Environmental Science and Technology, Corporate Environmental Strategy, Environmental Quality Management, the Journal of Environmental Planning and Management and the International Journal of Sustainable Development, Business and Society. The so-called ‘triple bottom line’ approach to SD/CSR strategies is often adopted, in so far as companies focus on the economic, social and environmental dimensions of SD. 3

4


As the number of scientific studies increases, discussions abound among the main players in the economy, that is, multinational enterprises (MNEs). Because these entities operate globally and are strongly committed to direct investment abroad (Dunning, 1996), MNEs play a major role in the design and spread of SD/CSR strategies. As Carroll (2004: 114) highlights, ‘the explosive growth of MNCs has set the stage for global business ethics to be one of the highest priorities over the coming decades’. MNEs enforce dynamic and complex strategic processes that integrate social phenomena in such a way that economic, social, cultural and legal aspects of such phenomena overlap and influence each other. To understand this dynamic requires that we study the strategic practices of MNEs with regard to SD/CSR. These practices are influenced by various factors, including macro- and microeconomic, environmental, organizational and decision-making factors. These determine the success and quality of their associated practices. Moreover, the consolidation and spread of SD/CSR practices are directly determined by the indirect and direct economic, political and social spillovers that MNEs may expect from their commitment to such practices. The economic positioning as well as the power of MNEs endows them with a certain strategic position at the international level with regard to the emergence, spread and consolidation of SD/CSR practices. MNEs can thus be seen as an active player; however, they can also serve as obstacles to SD/CSR developments. Due to the fast and slightly chaotic increase of knowledge regarding SD/CSR strategies and the growing importance of MNEs, a review of research progress over the last few years is necessary. While the SD/CSR phenomenon has been studied at the level of local companies or intracountry entities, few studies have been conducted at the cross-national level (Arthaud-Day, 2005). Yet, in an increasingly global context, MNEs must confront very complex and sometimes contradictory social expectations. Our goal is to understand these issues. For the sake of consistency as well as for practical reasons, we have limited our field of investigation to empirical works that deal with SD/ CSR strategic decision-making processes in the context of MNEs. In this way, our approach integrates the separation between content and process that is commonly accepted in the field of strategy (Huff and Reger, 1987; Chakravarthy and Doz, 1992; Rajagopalan et al., 1993). Research on content tends to focus on strategic decision making, while research on process is mainly focused on the actions that lead to and support certain strategies. The field of process research is also much wider. It requires a range of methods, including questionnaire surveys, field studies and research-action (Chakravarthy and Doz, 1992: 5–7). This analysis focuses on first-hand data.

A review of strategy process research

5

The selected works answer various questions: how are SD strategies expressed in MNEs? Which factors are influential? What are the likely results? We also review research into the enforcement process. We conducted our analysis by systematically searching online bibliographic databases (e.g. Proquest, Business Source Premier, Econlit) using the following keywords: sustainable development, corporate social responsibility, sustainability, strategic process, business strategy, green strategy, strategic decision making, social responsibility of business, business ethics, multinational corporations, international business enterprises, multinational firms, multinational enterprises, multinational companies, transnational corporations and international business. In order to categorize the various publications, we used inductive logic. In doing so, we discovered a classification frame. We used the same approach as Huff and Reger (1987) and Schwenk (1995) in their state-ofthe-art research on strategic decision making.

2.

PRIMARY CATEGORIZATIONS

We divided bibliographic references according to the issues covered in each article. The first category relates to dominating theoretical paradigms regarding strategic processes, namely ‘rationality and limited rationality’ and ‘politics and power’. These two paradigms are now recognized by strategy researchers. They have been used as classification criteria in several scientific journals (Hart, 1992; Huff and Reger, 1987). The second category was inspired by reviews of literature presented by both Rajagopalan et al. (1993) and Schwenk (1995) that underline two general theoretical perspectives in the analysis of strategic decisionmaking processes. The first includes an organizational perspective that assumes that reference theories are organizational models of decision making. This category would include the rational theories like agency theory and conventions theory; sociopolitical theories like corporate governance, institutional and neo-institutional theories; and contingent theories including the theory of dependence on resources and stakeholder theory. Second, there is the individual perspective, which is founded on the cognitive and psychological theories of individual decision making (Axelrod, 1976; Kahneman et al., 1982; Bateman and Zeithaml, 1989) and group decision making (Gladstein and Reilly, 1985). The third category relates to the definition of decision making offered by Van de Ven (1992): the decision-making process is a ‘sequence of developed events’, with process acting as a conceptual category. The first definition implies that the decision-making process is made up of several distinct

6

Multinational enterprises and sustainable development Purpose

Definition of the decisionmaking process

Sequence of events Concept category

Describe

Explain

Process models

Contextual influences

Process Organizational characteristics advantages Type of process

Role of MNEs

Rationality and limited rationality Politics and power

Dominating theoretical paradigms

Organizational perspective Individual perspective Theoretical perspectives

Figure 1.1

The dimensions of empirical research in the context of SD/ CSR strategic decision-making processes

stages that follow each other over time. In the field of strategic decision making, the three-stage empirical model in Mintzberg et al. (1976) is often cited – it includes ‘identification’, ‘development’ and ‘selection’. The second definition implies that the decision-making process comprises several main characteristics that are operationalized as research constructs and are measured using set entities (or variables), often on numeric scales. Concepts include rationality, politics, incrementalism, participation, influence, conflict and consensus. The application of these classification criteria to the empirical studies covered in this review made it possible to deduct the crucial dimensions of empirical research into SD/CSR strategic processes, as shown in Figure 1.1. Within the three divisions, six main research themes can be identified: (1) process model, (2) process characteristics, (3) types of processes, (4) contextual influences, (5) impacts on the organizational results and (6) role of the MNEs. These themes make it possible to draw a first general picture of the emerging main ideas in this body of empirical research. However, they do not allow us to classify every work definitively, since one study may fit in several cells. Once research studies were categorized, we summarized the main questions, methodologies and results. Several significant research papers are cited with regard to each theme. Moreover, this analysis enabled us to propose several potential paths for future research.


3.

THE SIX MAIN THEMES OF SD/CSR RESEARCH

3.1

The Process Model

7

The publications related to this theme deal with ‘how’ the designing process and strategy enforcement work. They aim mainly to describe the organizational processes that lead to the expression, enforcement and assessment of SD/CSR strategies. Most of these empirical studies stem from theoretical models of CSR as developed in the literature. For example, Carroll’s (1979) model includes four categories of social responsibility (economic, legal, ethical and discretionary) as well as a decisionmaking process that follows from reaction to proaction through phases of defense and adaptation. Wood’s (1991) model involves three processes (environmental assessment, stakeholder management and social stakes management) and three logic contexts (institutional, organizational and individual). Other models have been offered, such as the stakeholder model (Clarkson, 1995; Sharma, 2001), agency theory (Jensen and Meckling, 1976, 1994), conventions theory, legitimating theory (Dowling and Pfeffer, 1975; Lindblom, 1994), the theory of dependence on resources (Pfeffer and Salancik, 1978) and various neo-institutional theories (DiMaggio and Powell, 1983). The empirical works related to this theme aim mainly to confirm empirically one or more of the theoretical models mentioned above (Attarça and Jacquot, 2005; Bécheur and Bensebaa, 2004; Bowen and Heath, 2005; David and Koleva, 2005; Houze, 2004; Krupicka and Dreveton, 2005; Mathieu, 2005; Monnet, 2005; Stephany, 2005; Valiorgue, 2005). The main question relates to whether the strategic practices of MNEs correspond to these theoretical models. For instance, Valiorgue (2005) empirically tests four theoretical models regarding the formation of CSR as it relates to corporate strategy: (1) the bottom-up or rhetorical process (Martinet, 1983); (2) the deliberate process (Carroll, 1979; Clarkson, 1995; Sharma, 2001); (3) the emerging process (Nonaka, 1988; Mintzberg and Waters, 1985); and (4) the discretionary process (Alter, 1990; Burgelman, 1985). Valiorgue also explores the phases through which the decisionmaking process moves and the role played by three categories of actors, namely leaders, middle managers and operational managers. The results of his research show that the formation process of CSR does not follow a sequential logic but rather an evolutionary one. The process is divided into three stages: (1) ‘variation’, which corresponds to the birth of the strategic process; (2) ‘selection’, which leads to project formalization through the discussion and assessment of ideas; and (3) ‘retention’, which corresponds to the strategic project following an organizational agenda in a way that

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defines the people and resources necessary for its enforcement. The results show that leaders have no major role; rather, they only collaborate with mid-level and operational managers. As for the decision-making process mentioned above, the author confirms that they coexist within one and the same organization. Thus the author confirms the multidimensional aspect of the CSR formation process. Similarly, Mathieu (2005) tries to understand how firms can integrate the different theoretical and philosophical conceptions of SD while operating their day-to-day activities. Two corporate-ethical positions are empirically analyzed: (1) the utilitarian perspective, which stems from the strictly economic vision of the firm and aims to identify a substantial rationality that maximizes financial results; (2) the ‘deontological’ process, in which the company looks for some arbitration regarding economic, social and environmental responsibility through a negotiation process with different stakeholders. Using a survey that explored French MNEs such as Air Liquide, Sodexho, ADP and Rodhia, Mathieu (2005) shows that the formation of an SD policy is a long and complex process of arbitration between two main logical contexts: (1) the enforcement of a coercive system that aims to abide by the law and encourages conformity through the internalization of SD constraints; and (2) the enforcement of a management system that aims at the adherence of the stakeholders, both external and internal, to the objectives and values of the organization. Most of the companies studied seem to adopt a rather hybrid strategic position; that is, they focus on long-term global and environmental concerns in order to improve their financial earnings. Bowen and Heath (2005) have highlighted the need for a compromise between legal and ethical decisionmaking principles. Using Enron as a point of departure, the two authors recommend a deontological approach based on Kantian moral standards and behavioral principles. The articles mentioned above study the general process of SD/CSR strategy formation by looking at MNEs. However, other researchers have dealt with the strategy formulation process by looking at different domains of activity. Here we can mention Guillon’s (2005) study of communication, Vernier’s (2005) study on marketing, Morana’s (2005) study on logistics, Hall and Vredenburg’s (2003) study on innovation and Schmidt’s (2001) study on products and services. The questions and theories considered by these studies are similar to those in studies regarding the general process of strategy formulation. The main difference lies in how SD/CSR principles are translated and adapted in each function. We note various specificities of communication and marketing strategies in which the manipulative dimension of strategic actions is much more striking than in other functions, such as production or finance.


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As we can see, the theoretical models relating to the formation process of SD/CSR strategy are numerous and examples of empirical confirmation abound. Some models are considered repeatedly, such as those related to stakeholder theory. However, we regret the lack of empirical works comparing these different theoretical models with regard to the decisionmaking process. Moreover, the array of theoretical models is very wide: stakeholder theory, conventions theory, agency theory, institutional and neo-institutional theories, organizational learning theory, change theory and the theory of dependence on resources. We may then wonder which models best explain the decision-making process. Comparative empirical research involving larger samples as well as analyses of SD/CSR strategy formulations in different contexts are necessary; this may include a comparison of the models in the context of different economic, cultural and political environments. 3.2

Process Characteristics

Empirical research related to this theme aims to study one or more characteristics of the SD/CSR process in MNEs. Certain characteristics are often studied: SD/CSR behavior, the development of behavior codes, the development of several decision support tools, such as the societal report (Gray et al., 1995) and social rating, among others. The study of these characteristics makes it possible to understand how SD/CSR principles materialize in MNEs. Concerning ‘socially responsible behavior’, researchers are mostly interested in exploring how MNEs understand this concept. A typical example is Snider et al.’s (2003) study, which answers this question through a qualitative study of legal, ethical and moral statements on the websites of Forbes magazine’s top 50 US and top 50 multinational firms. Other studies have focused on the formation and distribution process of business conduct codes (Levis, 2006; Kolk, 2005; Logsdon and Wood, 2005; Mamic, 2005; Sethi, 2005). Through the codes of conduct, MNEs assert the strength of their commitment to SD/CSR processes. For example, Logsdon and Wood (2005) analyze the code of business conduct in six global petroleum companies. The development of such codes requires the integration of several essential firm and stakeholder value expectations. That is, a firm must constantly examine to what extent its codes match the stakeholders’ expectations. Logsdon and Wood (2005) underline three crucial characteristics of codes of conduct: orientation, implementation and accountability. Kolk (2005) also deals with codes of conduct in the coffee trade. This sector is dominated by the activity of large MNEs, such as Sara Lee, Douwe Egberts, Nestlé and Kraft. The author

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analyzes the SD/CSR change dynamics that have taken place over the last few years in these companies under pressure from various stakeholders. This dynamic resulted in the development of several codes of conduct that materialized as the ‘Common Code for the Coffee Community’. Finally, Mamic (2005) carried out a study on the enforcement process of the codes of conduct in the fields of sports footwear, apparel and retail. The results show that this process is complex and requires the design of a management system that includes the following elements: the creation of a vision, the development of understanding and ability, integration into operations and feedback and improvement and remediation. The development of tools to assess or measure the socially responsible behavior of MNEs is also an issue in the SD/CSR research agenda (Hopkins, 2005). We have found several empirical studies in this field (Black and Härtel, 2004; Snider et al., 2003; Xhauflair and Zune, 2004). For instance, Black and Härtel (2004) raise questions about the capacities that the firm must possess in order to be socially responsible. They introduce a model called ‘corporate social responsibility management capacity’ that takes into account the dynamic relationship between a firm and its stakeholder. This model measures two concepts: the firm’s CSR orientation and the firm’s PR orientation. Each orientation is made up of three elements: goals, transactions and behavior. For a company to be considered socially responsible, it must have five capacities: stakeholder engagement, value-attuned public relations, dialogue, ethical business behavior and accountability. The model is inspired by four theoretical focus areas in the analysis of CSR: strategic management, social responsiveness, public relations and marketing. The model was empirically tested using a case study of three Australian MNEs. The issue of social reporting has also become an important topic for empirical research (Grafé-Buckens and Jankowska, 2001). There are various forms of reporting: societal reports, environmental reports, sustainable development reports, annual reports and so on. The societal report was defined by Capron and Quairel-Lanoizelée (2004: 188) as ‘the publication by the firm of information about the way it deals with the environmental and social impacts of its activity’. These reports present useful communication intended to build trust and facilitate relationships between the firm and its stakeholders, including personnel, customers, investors and bankers. However, what about an MNE’s practices? What is the role of SD/CSR reports in the strategic management of a given firm? Persais’s (2003) study sheds new light on this topic. The author first argues that the SD report represents a crucial element in a firm’s decision-making processes, since this document makes it possible to record and integrate stakeholder interests. The report enables the stakeholders to assess the


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importance given to their interests in decision-making processes. It thus represents a critical tool for strategic management. Firms can redefine their strategies regarding stakeholders via the report document. As for the practice of societal reporting, Persais’s analysis is supported by analyses of reports published since 1999 by seven MNEs, namely Vancity, Ford, Danone, Lafarge, Cooperative Bank, Camelot and Nike. The author defines seven themes useful to understanding the content and the process of report design: report orientation, leadership commitment, chosen approach, means used, use of Global Reporting Initiative (GRI) standards, performance improvements and confirmation approach. Except for societal reporting and the rating process, other tools useful in SD/CSR strategy decision making have been studied with respect to MNEs, including the ‘Strategic Environmental Assessment’ (Nilsson and Dalkmann, 2001), ‘Environmental Management Practices’ (Sroufe et al., 2002) and the ‘Sustainability Balanced Scorecard’ (Möller and Schaltegger, 2005). These global environmental management system tools stress the necessity of taking into account decision-making characteristics according to the context, and aim to facilitate the integration of SD/CSR matters into firm decision-making processes. 3.3

Types of Process

Corporate strategic behavior with regard to SD/CSR can be seen as a multidimensional phenomenon that might involve several successive and/ or simultaneous logic contexts (Carroll, 1979). The behavior may vary from responding to societal requests with mistrust to the anticipation of these requests with proactive, adaptive behavior (Olivier, 1991). In the wide field of corporate strategy, several researchers have drawn up typologies of the SD/CSR strategic process (Olivier, 1991; Capron and QuairelLanoizelée, 2004; Carroll, 1979; Hart, 1995; Martinet and Reynaud, 2004; Metrot, 2005). For instance, Olivier (1991) identifies five potential strategies to respond to CSR-related questions: mistrust, avoidance, compromise, acceptance and/or manipulation. Capron and Quairel-Lanoizelée (2004) distinguish two types of strategies: substantial and symbolic. The former leads companies to modify their objectives and business methods and therefore actually respond to social demand. That is, the firm seeks to reconcile its interests with those of the stakeholders, whether proactively or reactively. Symbolic strategy reflects an opportunistic type of behavior in so far as the firm appropriates the CSR concept for the sake of image or reputation without necessarily expressing its objectives regarding development, products or profitability. In the field of environmental strategies, the three-type typology proposed by Hart (1995) includes: (1) strategies of

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pollution prevention in order to reduce emissions; (2) eco-responsible management strategies that integrate stakeholder vision into product life cycles; and (3) SD strategies that involve adopting a long-term, all-encompassing approach for the reduction of harmful environmental impact. This typology looks similar to that of Martinet and Reynaud (2004), who distinguish three types of behavior: opportunist, adaptive and proactive. How do these types of strategic decision-making processes emerge in the context of MNEs? Theoretically speaking, Arthaud-Day (2005) proposes a three-dimensional, transnational model of corporate social responsibility that is especially useful for cross-cultural research. The first dimension of the model is based on the typology of international strategies in Bartlett and Ghoshal (1998, 2000) and includes four levels: multinational, global, international and transnational. The second dimension uses the three conceptual domains of CSR: human rights, labor and environment. The third dimension is based on Zenisek’s (1979) model, which cites three perspectives useful in understanding CSR behaviors: ideological, operational and societal standpoints. With regard to empirical research on this topic, some studies have designed typologies with regard to MNEs. Bellini’s (2003) is an interesting study; based on a sample of multinational French chemicals firms, the author confirms Carroll’s (1979) typology regarding industrial ecological behaviors: (1) ‘eco-defensive’ behaviors favor short-term gains and regard environmental investments as costs; (2) ‘eco-conformist’ behaviors are strictly law-abiding; and (3) ‘eco-sensitive’ behaviors involve acting beyond legal requirements and regarding ecology as a key factor for the firm’s survival. According to Bellini, these behaviors are organized around two decision-making processes: (1) an additive logic context, in so far as the firm does not question its decision-making process (such as in eco-defensive and eco-conformist behaviors); and (2) a systemic logic context, in so far as the integration of environmental concerns modifies the core structure of the decision-making process (such as in eco-sensitive behavior). Also in the field of environmental management, Sears et al. (2001) identify four types of strategic behaviors regarding UN-mandated international regulations on flora conservation: (i) avoidance; (ii) enforcementdriven; (iii) compliance and; (iv) performance-driven compliance. The authors note that MNEs commit themselves to SD/CSR activity mainly as a result of financial motivation. 3.4

Contextual Influence

The studies related to this theme raise questions mainly regarding the macro- and microeconomic contextual factors that influence the design and


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enforcement of SD/CSR strategies in MNEs. Empirical research on this topic has dealt mainly with two categories of factors: environmental and organizational. The environmental factors most commonly considered are largely macroeconomic. They refer to the external stakeholders of MNEs, such as the government (Ulhöi, 2004; Banerjee, 1998, 1999, 2002; Bellini, 2003; Borchani, 2004) and various pressure groups, such as NGOs (Peters and Enderle, 1998; Murphy and Bendell, 2002). The environmental factors are rather societal in character, such as a given country’s values or culture (Rondinelli and Berry, 2000; Langlois and Schlegelmilch, 1990; Quazi and O’Brien, 2000). As for the organizational factors, empirical research takes into account the characteristics of a firm’s organizational structure, including organizational shape, capital structure, finance visibility and parent company–subsidiary relationships (Hansen, 2003; Lobel, 2006), as well as the characteristics of the management team, including the values of the leaders and the role of mid-level and operational managers (Andersson et al., 2005). Usually, an empirical explanation of SD/CSR strategic processes in MNEs takes into account the impact of only one category of factors: that is, either environmental factors or organizational factors. For example, such studies include Andersson et al.’s (2005) research on the role of supervisors in the SD behavior of their subordinates and the study by Wheeler et al. (2005) on the role of local networks with regard to the success of SD strategies in developing countries. Yet both organizational and environmental factors can intervene simultaneously in one SD/CSR process. This requires a more integrative explanation that takes as its point of departure a wide range of environmental and organizational factors. Some empirical studies, albeit few, integrate these factors, such as research conducted by Banerjee and colleagues (Banerjee, 1998, 1999, 2001, 2002; Banerjee et al., 2003). The authors of these studies postulate that the integration of environmental SD strategies into corporate strategy is influenced by several factors, including regulatory reach, the need for competitive advantage, public concern, commitment from upper-level management and long-term focus. In a quantitative study of environmental strategies in 311 American companies, they find positive relationships between regulatory levels and public concern as well as between commitment from upper-level management and corporate environmentalism (Banerjee et al., 2003). Another integrative study is that of Bellini (2003). The author classifies factors that explain environmental behavior into three categories: (1) external pressures on a firm at the global, local and sector-based levels; (2) factors of corporate structural inertia that characterize the site and activity; and (3) factors influencing managerial choices that are specific to site management and to the individual characteristics of the leader. Contrary

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to Banerjee, Bellini shows that the criteria linked to external pressures and structural inertia are not crucial to the adoption of proactive ecologically oriented behaviors. However, these actions strongly depend on the commitment of the person in charge of environmental affairs. Similarly, Borchani (2004) offers an integrative model to understand the different components of societal strategies, based on an exploratory study of five foreign MNEs in France. The model is made up of three categories of variables: institutional variables, including pressure groups, the media, crises and the law; organizational variables, including size, host countries, sector, market share, financial performance and capital structure; and managerial variables, including leader commitment and origin and autonomy in the decision-making process. As MNEs operate in several countries, culture is considered a major explanatory factor in CSR/SD strategic processes in MNEs (Bartlett and Ghoshal, 1998, 2000; Arthaud-Day, 2005). However, the analysis of empirical research shows that the number of cross-cultural studies remains quite low (Jackson and Artola, 1997; Arthaud-Day, 2005). SD/CSR strategies have mostly been studied in MNEs that are based in one country and have multiple foreign subsidiaries (Abdeen, 1991; Cumming, 2001; Lerner and Fryxell, 1994; McGuire et al., 1988). However, some cross-cultural studies have been conducted. Quazi and O’Brien (2000) test the empirical validity of CSR in two different cultural contexts, namely Australia and Bangladesh. The results suggest that CSR is a universal two-dimensional phenomenon and that the cultural contexts in which managers operate have little impact on how they perceive ethical matters. The study by Langlois and Schlegelmilch (1990) regarding the use and content of ethics codes is a good example of a comparative study of SD/CSR strategies in European and US MNEs. The authors show that in Europe, not only have most codes been introduced recently, but the highest percentage of codes are those associated with the subsidiaries of US companies. Moreover, there are significant differences regarding the content of codes between Europe and the USA. O’Neil (2001) carried out another study of the same kind in which he compares CSR behaviors in six European countries, namely, the UK (England), West Germany, Holland, Luxembourg, Liechtenstein, France and Switzerland, with those of US leaders. The author concludes that the viewpoint of European leaders is similar to that of US leaders. However, they have different priorities. Europeans rank employees as priority number one; they feel compelled to enact policies that promote employment-based stability and they endeavor to enforce long-term policies that have positive results for both firms and the community. They believe that the government’s


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intervention in the economy is necessary to eliminate occasional corporate abuses. Most of the comparative studies mentioned here are carried out in the West in either Europe or the USA; relatively few studies have considered Asian MNEs. As Arthaud-Day (2005) confirms, these firms are increasing their international activity and should therefore be carefully considered in order to improve our understanding of the role of MNEs in developing countries. Chapple and Moon (2005) set an example for future research in their comparison of CSR behaviors in seven Asian countries, namely India, Indonesia, Malaysia, the Philippines, South Korea, Singapore and Thailand. The authors conclude that CSR varies greatly from one country to another, but the differences in development do not account for the variation. It is rather a question of national specificities in business systems. MNEs are more readily able to integrate CSR into corporate strategy than companies operating in a single country; CSR can also be more easily integrated into corporate strategy if CSR characteristics align with the culture of the country in which the firm operates. Another area of research in need of closer exploration involves lowincome markets, such as those of African countries. Many MNEs have started to explore these markets in search of legitimacy and growth opportunities. However, empirical research studies remain rare, with the exception of Egels’s study (2005), which highlights the impact of local market characteristics on the definition and enforcement of CSR, as demonstrated by a Swedish–Swiss MNE in Tanzania. 3.5

Organizational Benefits

The studies related to this theme raise questions about the benefits for MNEs from enforcing SD/CSR strategies. Theoretical positioning seems to dominate the debate. SD is considered a source of value creation for firms in particular and for society in general (Bansal, 2002; Caggiano, 2003; Condor, 2005; Day and Arnold, 1998; Elkington, 1994; Grand and Grill, 2003; Hart and Milstein, 2003; Placet et al., 2005; Rodriguez et al., 2002; Stigson, 1999). This positive attitude has strongly influenced empirical research, which has closely studied the benefits of developing SD/CSR strategies (Berry and Rondinelli, 1999; Cowe, 2002; Fukukawa and Moon, 2004; Goodman, 2000; Gulbrandsen and Moe, 2005; Larson et al., 2000; Paradas, 2003; Preston, 2001; Singh and Point, 2004; Wenblad, 2001). In such works, recurring items include: (1) the legitimation of corporate actions toward internal and external stakeholders; (2) the development of a sustainable competitive advantage against competitors; (3) the efficient management of corporate resources, such as

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human, financial or other resources; (4) regulation compliance; (5) the improvement of corporate image and reputation; (6) the improvement of internal procedures; and (7) the realization of the values of upper-level management. Most empirical studies have focused on all the factors that support the development of SD strategies, rather than on specific or local cultural contexts. This is the case with Fukukawa and Moon’s (2004) study of Japanese MNEs, Gulbrandsen and Moe’s (2005) study of petroleum MNEs in Azerbaijan and Kazakhstan, Paradas’s (2003) study of the biggest French groups or Goodman’s (2000) on large Northern hospitality companies. Cross-country comparative studies remain rare. Some exceptions should be noted, though, including Singh and Point’s (2004) and Bondy et al.’s (2004) studies. Singh and Point (2004) study the differences among MNEs in eight European countries in terms of the factors that motivate diversity management strategies. The results show significant differences among the countries, particularly for UK companies that employ these strategies more directly. The motivating factors seem to include enhanced performance, the improvement of the firm’s reputation and meeting stakeholder needs. As for Bondy et al. (2004), they explore the differences in motivation that may lead to the adoption of conduct codes in Canada, Germany and the UK. The results show that Canadian MNEs use a distinctive and specific model rather than a mix of the UK and German models. Some studies have also focused on the impacts of SD/CSR strategies on the development of corporate resources and competencies. These resources and competencies may involve organizational learning (Mathieu and Soparnot, 2006); employee motivation and organizational commitment (Gara, 2005; Koubaa, 2005); conflict resolution by taking into account stakeholder interests (Dontenwill and Reynaud, 2005); the legitimacy of SD/CSR actions (Lobel, 2006); acquiring a license to operate (Zinkin, 2004); organizational transformation (Bradbury and Clair, 1999); the evolution of corporate values (Coonjoo and Beeharry, 2003); and decision making (Knox, 2004). There exist several empirical studies on this theme and most of the time researchers have dealt with a single resource or organizational competence. Few integrative studies exist, but they are very useful in understanding overall SD/CSR benefits. Mathieu and Soparnot’s (2006) study illustrates how such studies could be conducted in the future. The two authors categorize the effects of CSR strategy implementations according to three types of know-how: (1) technological know-how, including products and procedures innovation and brand image enhancements; (2) organizational know-how, including enhanced motivation and involvement of the staff and improved corporate internal branding; (3) communicational know-


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how, including the improvement of internal and external relational skills, the creation of a corporate culture through the dissemination of common values and the reduction of disputes with the external environment. 3.6

The Role of MNEs

Several empirical studies have analyzed the role of MNEs in sustainable development in developing and underdeveloped countries (Frynas, 2005; Garcia-Johnson, 2000; Hartshorn and Wheeler, 2002; Moser, 2001; Moser and Miller, 1997; McClintock, 1999; Utting, 2002; White, 2004). They have been mainly triggered by recent political and ideological debates on the issue (Chudnovsky and Lopez, 2003). These studies illustrate that MNEs are a key player in SD/CSR in such countries where economic, environmental and social logics overlap, though sometimes in a contradictory fashion. These studies stress that various economic, political, legal and social conditions in the host country may speed up or slow down the development of SD/CSR processes. For instance, McClintock (1999) highlights the crucial role of MNEs in the development of conduct codes regarding child labor and environmental conservation in carpet and sporting goods manufacturing. The author shows that supranational governance mechanisms should be developed to safeguard social justice when MNE codes of conduct prove insufficient. Similarly, Moser and Miller (1997) stress the conditions that can be created to enable MNEs to improve their development of SD/CSR strategies. These conditions are related to the external and internal environments of MNEs and may affect how MNEs move through several stages in SD/CSR development, such as the modification of structures and strategies, the development of local and global regulation, and partnering with NGOs and local governments. Empirical studies imply that MNEs do not necessarily resort to the same strategies, standards or approaches regarding SD/CSR management in developing and developed countries (Chudnovsky and Lopez, 2003). Differences can also be seen between home countries and host countries. However, minimal genuinely empirical work has been carried out in this direction. More empirical studies would indeed be useful in order to better understand the factors that bring about such differences in behaviors. This in turn would make it possible to better understand the role that governments in developing countries should play with regard to MNEs so that the latter could better assume societal responsibility.

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4.


IMPLICATIONS FOR FUTURE RESEARCH

This review of the literature has enabled us to identify several research gaps and unanswered questions regarding SD/CSR strategic process. Some theoretical and methodological implications for future research will now be discussed. 4.1

The Theoretical Level

Adopting a more integrative perspective The analysis of the theoretical models used in empirical studies of SD/ CSR processes suggests that various relevant models have emerged from political, organizational and cognitive theories. These models have been used either in combination with others or in isolation to describe the decision-making process. Yet, as Gladwin et al. (1995) highlight, the concept of sustainable development should lead management research toward more integrative, interdisciplinary and transdisciplinary research models. The SD/CSR process is multidimensional and can encompass several approaches simultaneously. This leads us to advocate that researchers should design their research projects using an integrative theoretical perspective: (1) regarding basic theoretical postulates, the SD/CSR process should be considered an integrative phenomenon that involves various decision-making modes; (2) regarding the global-theoretical approach, institutional and organizational theories should be combined with more cognitive theories; (3) regarding the scope of research, description and explanation should be combined within the same research project; and (4) regarding the general design of the research model, the decision-making process should be understood in terms of its context and results. Integration of several characteristics of the decision-making process as well as its various influences Our review has made it possible to highlight certain limits in the description and explanation of the SD/CSR process, including: (1) one-dimensional descriptions of the process when it is multidimensional by nature; (2) separate studies of the impacts of microeconomic versus macroeconomic contexts; and (3) assessments of direct effects of previous factors that are assumed to be independent, even though these factors may also intervene indirectly through interaction or intervention. These trends hamper the construction of an integrative theory, leaving several questions unanswered. For instance, which model best describes the SD/CSR process: the economic, political or management theories of strategic choice? Which combinations of decision-based logical contexts yield the best results?


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Which factors or combinations of factors best explain the results of the decision-making process? What exactly are their direct or indirect effects on the decision-making process and its results? In the SD/CSR formation process, do public organizations differ from private organizations? Which kinds of governance structures lead to the highest-performing strategies? These questions and many others deserve attention in the quest to fully understand SD/CSR processes. New implications for managerial practices Although several studies deal with the influence of SD/CSR strategies on organizational results, few empirical studies propose implications for managerial practice in MNEs. Yet knowledge about the impact of SD/CSR strategies on performance is of particular interest to the actors who are deeply involved in decision-making processes. These actors are constantly looking for useful levers of action to further provide meaning and justify their activities. Strategic decision making might be one such lever. This is one argument that future empirical research should persevere in such directions and provide empirically verified prescriptions. Such prescriptions are necessary with regard to economic indicators such as profit, market share, sales growth and returns on investment, as well as non-economic indicators, such as corporate image/branding that impacts performance. 4.2

The Methodological Level

Better operationalization and measurement of the constructs The present literature review has highlighted a mosaic of variable definitions and operations that pervade empirical research on SD/CSR. For every construct, indeed, various definitions and measures exist. Moreover, the validity and reliability of these constructs have not yet been systematically tested. Future research should go beyond such problems and pay increased attention to the internal validity of the results. Many investigations will be necessary to evaluate in minute detail how to construct reliable measures. Researchers may be well advised to use some measures that have been contextually tested and validated rather than to continue adopting new measures. Increased sample size We note that most empirical research studies the SD/CSR process using small samples and case studies that are limited to a few MNEs. Given the complexity of the SD/CSR phenomenon, a thorough study of several cases is an approach that should be encouraged in exploratory research on

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SD/CSR. However, in the future, the use of much larger samples is very desirable, as large sample sizes make it possible to examine the external validity of results, which is necessary to construct theory and subsequently integrate it into the field of SD/CSR research. Triangulation of methods and data sources Most empirical research on SD/CSR uses only one method to collect data or only one data source. Triangulation at several levels would help increase the reliability and validity of results, including: (1) the triangulation of the methods, combining quantitative and qualitative data collection; (2) the triangulation of data, with data collection occurring at different times or with the use of different data sources in the same study; (3) the triangulation of researchers, which involves independent data collection by several researchers who subsequently compare their results; and (4) theory triangulation, which allows the use of a theory in one discipline to explain a phenomenon in another discipline. In the future, an intensive, integrative application of such triangulation strategies would encourage the emergence of unexpected, theoretically useful results. This would also increase the accuracy of the collected data. Use of studies over time Timecourse studies have generally not been used to understand SD/CSR formation processes. Yet, as Van de Ven (1992) highlights, this research method proves very useful to understanding in real time many complex, evolving processes that are influenced by numerous factors, such as SD/ CSR processes. Timecourse research can allow for the understanding of various causal links and interactions among contextual factors, decisionmaking processes and organizational results in which the meaning and intensity of such links are of primary importance.

5.

CONCLUSION

Our review of the literature on SD/CSR processes has attempted to highlight the major trends in empirical studies carried out to date. The results of our analysis show that the description and explanation of the SC/CSR decisionmaking process has dramatically evolved over the last few years. However, in spite of a strong theoretical basis, the accumulation of knowledge in the field faces challenges, especially because designing and enforcing the integrative research models and methodologies is difficult. We have thus outlined several directions for future research so that these difficulties might be overcome. In so doing, we hope that research will become more theoretically


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cogent, more methodologically consistent and more practically useful. The appraisal of SD/CSR literature that this chapter has initiated should not stop here. Rather, our analytical framework should permit us to go beyond this trend-based survey to develop a more detailed empirical research typology that is based on a more sophisticated statistical analysis.

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profits: the role of multinational corporations in the international forest regime’, Journal of Environment and Development, 10 (4): 345–65. Sethi, S.P. (2005), ‘Voluntary codes of conduct for multinational corporations’, Journal of Business Ethics, 59 (1–2), 1–2. Sharma, S. (2001), ‘L’organisation durable et ses stakeholders’, Revue Française de Gestion, 136: 154–67. Singh, V. and S. Point (2004), ‘Strategic responses by European companies to the diversity challenge: an online comparison’, Long Range Planning, 37 (4): 295–318. Snider, J., R.H. Paul and D. Partin (2003), ‘Corporate social responsibility in the 21st century: A view from the world’s most successful firms’, Journal of Business Ethics, 48 (2): 175–87. Sroufe, R., R. Narasimhan, F. Montabon and X. Wang (2002), ‘Environmental management practices’, Greener Management International, Winter (40): 23–44. Stephany, D. (2005), ‘Les entreprises et le développement durable: des discours aux pratiques’, Journée de Développement Durable, AIMS, IAE Aix-en-Provence. Stigson, B. (1999), ‘Sustainable development for industry and society’, Building Research and Information, 27 (6): 424–30. Ulhöi, J. (2004), ‘Policies for sustainable development: the case of governmental agency’, Problems and Perspectives in Management, 2: 109–20. Utting, P. (ed.) (2002), The Greening of Business in Developing Countries: Rhetoric, Reality and Prospects, New York: Zed Books. Valiorgue, B. (2005), ‘Participation d’acteurs non décideurs au processus de formation de la responsabilité sociale de l’entreprise – le cas Adecco’, Journée de Développement Durable, AIMS, IAE Aix-en-Provence. Van de Ven, A.H. (1992), ‘Suggestion for studying strategy process: a research note’, Strategic Management Journal, 13: 169–88. Vernier, M.F. (2005), ‘Développement durable, RSE, éthique: le marketing sous pression. Le cas de la grande distribution’, Journée de Développement Durable, AIMS, IAE Aix-en-Provence. Wenblad, A. (2001), ‘The sustainability in the construction business: a case study’, Corporate Environmental Strategy, 8 (2): 157–64. Wheeler, D., K. McKague, J. Thomson, R. Davies, J. Medalye and M. Prada (2005), ‘Creating sustainable local enterprise networks’, MIT Sloan Management Review, 47 (1): 33–40. White, J.A. (2004), ‘Globalisation, divestment and human rights in Burma’, Journal of Corporate Citizenship, 14 (Summer): 45–65. Wood, D. (1991), ‘Corporate social performance revisited’, Academy of Management Review, 16: 694–718. Xhauflair, V. and M. Zune (2004), ‘Méthodologie pour évaluer la responsabilité sociale’, L’Expansion Management Review, 111: 48–56. Zenisek, T.J. (1979), ‘Corporate social responsibility: a conceptualization based on organizational literature’, Academy of Management Review, 4 (3): 359–68. Zinkin, J. (2004), ‘Maximizing the “licence to operate”: CSR from an Asian perspective’, Journal of Corporate Citizenship, 14 (Summer): 67–80.

2.

The UN galaxy, transnational corporations and sustainable development Tagi Sagafi-nejad

1.

INTRODUCTION

The changing character and increasing complexity of the relationship between TNCs (transnational corporations) and nation-states has been reflected in the way the various entities of the UN (United Nations) galaxy have perceived and performed their mandate and faced emerging challenges during the past half-century. With respect to TNC–host-country relations and particularly FDI (foreign direct investment) and the related subject of corporate conduct, two competing institutional paradigms have persisted – one legalistic, the other moralistic. Followers of the legalistic approach have argued that, in order to be efficacious, rules of conduct and behavior must have legal teeth, i.e. courts, cops and penalties. Moralists, on the other hand, have relied on less formal incentive structures, e.g. mutual benefit, good citizenship, corporate social responsibility, engagement, dialogue and the learning process. New York and Geneva have formed the axis for UN activities on TNCs, and UNCTC (UN Center on Transnational Corporations) and UNCTAD (UN Conference on Trade and Development) in these cities have played pivotal roles. However, other UN agencies, scattered worldwide, have played their specific, and sometimes significant, roles. Each is part of the UN constellation that has contributed to knowledge and understanding about TNCs and FDI and has contemplated the relative merits of these alternative approaches as they have discharged their respective duties. Of necessity, the UN has increasingly turned its attention to matters of ecology, social responsibility and sustainability, building on extant structures and processes and injecting them with new mandates. There are some 30 UN agencies that interface with TNCs. Nearly a dozen of them have a more intense interest in TNCs, FDI and sustainability matters, thus forming what we shall refer to as the UN galaxy. 28

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UNCTC ILO

UNCTAD UNIDO

WIPO Common Cause

FAO

WHO

Think tanks (UNITAR/UNRISD etc.)

UNESCO Bretton Woods (WB/IMF/WTO)

Notes: 1. Solid lines indicate a direct relationship. 2. Dotted lines indicate the existence of a less formal relationship. 3. The intensity of the relationship corresponds to the thickness of the line). Source:

Author.

Figure 2.1

The UN galaxy: the institutional constellation of organs relevant to FDI/TNCs

Each member of this system has, in some way or other, contributed to our understanding of the interaction between TNCs and the countries that are host to their activity. The constellation of UN agencies with a stake in the subject of TNCs, FDI and sustainability is illustrated in Figure 2.1. This chapter identifies the key members of this galaxy and reviews their respective roles. After considering the majority of organizations in this constellation, we end with an analysis of the UN Global Compact, an initiative launched by former UN Secretary-General Kofi Annan in 1999, designed to bring together TNCs and other organizations to follow some minimum set of voluntary behavioral standards rooted in the very existence of the UN spirit and anchored in its many declarations, resolutions and mandates, most notably the Millennium Development Goals. This compact and the goals have come to serve as an anchor for all parts of the UN galaxy. Noteworthy were internal organizations established by the UN to further these goals such as UN ECOSOC Division for Sustainable Development and a commission working closely with it (see the UN Commission on Sustainable Development; Division for Sustainable Development, www.un.org).

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2.

THE INTERNATIONAL LABOR ORGANIZATION

The International Labor Organization (ILO) was established in 1919. When the UN was created in 1946, the ILO became its first specialized agency. Through its unique tripartite structure of governments, workers and employers, the organization seeks to promote social justice and internationally recognized human and labor rights in so far as they relate to commercial transactions between employers and employees. The ILO Charter states that universal peace can be achieved only if based on social justice; labor conditions characterized by ‘injustice, hardship and privation to large numbers of people’ could produce ‘unrest so great that the peace and harmony of the world are imperiled’. By 1939, the ILO had already covered issues regarding hours of work, employees’ minimum age, workers’ compensation, workplace safety, insurance and abolition of forced labor in some 67 separate Conventions. The original declaration had already established that: ● ● ● ●

labor is not a commodity; freedom of expression and association is essential to sustained progress; poverty anywhere constitutes a danger to prosperity everywhere; the war against want requires national effort, supported by concerted international effort in which the representatives of workers and employers enjoy equal status with those of governments.

These principles were reaffirmed in the 1944 Declaration of Philadelphia on 10 May (see www.ilo.org for details). The Declaration laid the groundwork for the incorporation of the ILO into the newly born UN system. The Declaration was a potent expression of the conviction that labor rights were high on the agenda of this international organization and that ‘the failure of any nation to adopt humane conditions of labor was an obstacle in the way of other nations which desire to improve the conditions in their own countries’. The ILO formulates international labor standards in the form of Conventions and Recommendations, setting minimum standards for basic labor rights, including the right to organize, collective bargaining, equality of opportunity and treatment, and other standards regulating conditions across the entire spectrum of work-related issues. The ILO also provides technical assistance in vocational training and vocational rehabilitation, employment policy, labor administration, labor law and industrial relations, management development, cooperatives, social security and labor statistics, and occupational health and safety.

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The organization had witnessed much tumult during its early years – in the interwar period that E.H. Carr called the ‘twenty year crisis’ (Carr, 1939). As the ILO was being born, the world was recovering from war, soon to slide into protectionism and depression, only to be thrust again into a second world war. After the Second World War ended, the ILO became caught in the middle of the East–West rivalry. Its tripartite structure, consisting of governments, employers and labor, became both its strength and its weakness. Because Soviet bloc countries made little distinction between government and labor representatives, since all means of production was government-controlled, it was difficult to distinguish between the two stakeholders. On its fiftieth anniversary in 1969, ILO received the Nobel Peace prize. In 1977, the USA created a minor crisis by withdrawing its membership and financial support. The USA was not pleased with what it considered left-leaning propensities and the fear, real or imagined, of Soviet infiltration into the organization’s ranks. It returned to the fold in 1980, during Ronald Reagan’s first year as president. As the activities of TNCs and FDI grew, so the ILO also began to take interest in their implications for labor and human resource development. However, it was not until the 1970s that the organization went into high gear. At its 1971 General Conference, the ILO adopted a resolution on the ‘Social Problems Raised by Multinational Undertakings’, which, inter alia, set out a program of work, including studies, conferences and consultations involving its three constituent groups. At the same time, organized labor in the USA and Western Europe also began to expand beyond national confines. Trade unions such as the US-based United Auto Workers (UAW) and its Canadian and European affiliates set out to improve workers’ conditions by collectively striving to harmonize labor practices. Under the auspices of trade unions, numerous meetings were held with TNCs such as Philips, General Electric, Shell, Nestlé and Grace (see ILO, 1973, Gunter, 1972). At its 185th Session in Geneva, February–March 1972, the ILO Governing Body decided to convene a meeting on the subject of TNCs and social policy. A group of 24 experts drawn from governments, employers and workers’ groups attended this meeting in Geneva in October and November of that year. In a brief series of seven conclusions, the group recommended that more data be collected and more studies be conducted on the subject. In the penultimate paragraph, the experts requested the Governing Body to instruct the ILO Director-General to undertake ‘a study of the usefulness of international principles and guidelines in the field of social policy relating to the activities of multinational enterprises and the[ir] elements and implications’ (ILO, 1973: 176). It added that if

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this study were to prove that they were feasible and useful, the Governing Body should initiate action to establish them. While ECOSOC and UNCTAD were perhaps most heavily involved members of the UN galaxy, the ILO was making its own contribution to capacity-building, knowledge creation and policy with respect to TNCs or, in ILO parlance, multinational enterprises – MNEs – and FDI. Its work included a number of studies that started in the late 1960s and continued into the twenty-first century. Between 1969 and 1974, the ILO conducted a number of studies, established working groups and held meetings of experts on the subject of multinational enterprises. These studies convinced the staff that something had to be done to contain the ‘negative’ influence that MNCs were having on governments and the economies of developing countries. As a result of these studies and formal and informal discussions among interested parties, a consensus emerged to have a ‘voluntary code’ that could be enforced and monitored and to propose a ‘declaration’ addressed to employers, including TNCs, governments and workers’ organizations. Thus was born the Tripartite Declaration. Early contributors to the development of ideas included François Blanchard, a French scholar– diplomat who had worked at various international organizations before taking the leadership position in ILO in the later 1960s. He had strong ideas about labor relations and the role of employment in economic development. Early ILO studies, all within the context of ‘multinational enterprises’, focused on ‘wages and working conditions’ and their impact on ‘employment and training’ (1976); ‘social and labor practices in the petroleum industry’ (1977); ‘employment effects in developing countries’ (1981); ‘technology choice and employment generation in developing countries’ and ‘safety and health practices’ (1984); ‘women workers in developing countries’ (1985); and ‘multinationals and employment: the global economy of the 1990s’ (1993). Examples of later work related to multinational enterprises include those under the ‘Multinational Enterprise Programme Working Paper Series’ on subjects such as ‘technological and regulatory changes affecting multinational enterprises in telecommunications’; ‘export processing zones in the Philippines’; ‘export processing zones in Bangladesh’; and ‘multinational enterprises in the courier service industry’. Consistent with the ILO’s overall mission, each study adds knowledge about TNC practices and their effects on employment. Whereas a superficial similarity can be noticed between these studies and similar ones undertaken by UNCTC/ UNCTAD, OECD or the World Bank, the ILO focus has, naturally, always been on labor.

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The ILO’s first major policy publication, which led to the formulation of the Tripartite Declaration, came in the form of a 1973 study, Multinational Enterprise and Social Policy. This was to the ILO what the 1973 background report for the Group of Eminent Persons, Multinational Corporations in World Development, was to ECOSOC in New York. The latter laid the foundations for the UN organizational architecture related to TNCs. Similarly, most, if not all, subsequent work on TNCs within the ILO can be traced to this 1973 report on the impact of TNCs on workers. In a style resembling its ECOSOC counterpart, this ILO report drew upon submissions by governments and labor, its own in-house expertise and upon scholarly work. For example, pioneering studies of labor and employment-related aspects of MNEs had been done in the USA by Raymond Vernon and his colleagues and students at Harvard and by other US scholars including Jack Behrman, Robert G. Hawkins, Duane Kujawa and Stephen Magee; and in Europe by John Dunning, W.B. Reddaway, Danny van den Bulcke and Sidney Rolfe, among others. These studies had generally concluded that the international expansion of TNCs, partly driven by differential labor costs around the world, had had a positive impact on employment in both home and host countries although different sectors were affected differently (ILO, 1973: 72–4). The ILO report examined the nature and growth of TNCs, their geographic and industrial concentration, their impact on labor and employment, types of headquarters–subsidiary arrangements, technology transfer and the structure of trade. It emphasized both mutuality and conflict of interests between firms and nation-states. The report devoted a chapter to the effect of TNCs on manpower in both home and host countries. It concluded that, in the absence of detailed and rigorous case studies, the only warranted generalization was that TNCs could be exemplars of enlightened and effective management in their labor relations and employment development programs in developing countries. The employer–employee relationship, if based on fairness and reciprocal respect, could benefit both the firm and the host country (ILO, 1973: 62). The report dealt with work conditions and their international harmonization, and the impact of cultural differences on them and on wage parity, welfare facilities and living conditions. The articulation of fair international labor standards was a persistent theme of the report and became enshrined a quarter of a century later in the 1998 Declaration on Fundamental Principles and Rights at Work, which updated the original declaration and placed particular emphasis on the abolition of child labor, to be discussed later.

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2.1


The Tripartite Declaration

After a multitude of background studies and months of discussion, in November 1977 the Governing Body of the ILO adopted a statement of principles on TNCs and labor-related issues. The declaration was unique in having been blessed by three groups of stakeholders – governments, employers and employees. From this tripartite vantage point, the ILO had been concerned with certain social issues related to TNCs for many years. Noting efforts under way within the UNCTC and OECD, it established a series of guidelines for its three stakeholders. This ‘Tripartite Declaration’ noted the ‘substantial benefits’ to home and host countries that result from the activities of TNCs, through FDI and other means. Its aim was to encourage the positive contributions TNCs can make to economic and social progress and to minimize and resolve the difficulties to which their various operations may give rise, taking into account the UN resolutions advocating the ‘Establishment of a New International Economic Order’ (NIEO). This last phrase, while giving expression to the sentiments of developing countries, incurred the wrath of Western governments by linking the document to the divisive and confrontational concept of the NIEO. The Declaration also addressed other specific and relatively non-controversial matters pertaining to labor relations, including employment promotion, equality of opportunity and treatment, employment security, training, safety and health, industrial relations, freedom of association and the right to organize, collective bargaining, consultation, examination of grievances and settlement of disputes. The administration and implementation of the Declaration proved to be a more difficult task as the organization became caught in political tensions that arose from East–West rivalry. The ILO began developing a series of training programs around its basic principles. More significantly, some provisions of the Declaration did indeed find their way into the national legislation of various countries, albeit in varying degrees. Meanwhile, the organization continued the task of fine-tuning labor standards, through capacity building, dialogue and research. 2.2

The 1998 ILO Declaration on Fundamental Principles and Rights at Work

Some two decades after the initial Declaration, the ILO Governing Body as well as its leadership under Juan Somavia concluded that changed global labor relations required revisiting. Worsening conditions of work caused by outsourcing, lay-offs and footloose industries demanded a commensurate response on behalf of labor. Thus, in 1998, the Declaration on Fundamental Principles and Rights at Work (Rights at Work) was adopted

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as an update to the original 1976 Declaration. It reaffirmed the rights of workers to collective bargaining and free association, but put the spotlight on the abolition of child labor and of employment discrimination. Seeing the cloud of protectionism hanging over the global economy and the stalled multilateral trade negotiations, it also cautioned states against the use of labor standards as a pretense to engage in protectionist policies. The Rights to Work Declaration, foundational to social responsibility and sustainability, was a commitment by governments, employers and workers’ organizations to uphold basic human rights of freedom of association and the right to collective bargaining; the elimination of forced and compulsory labor; the abolition of child labor; and the elimination of discrimination in the workplace. Since 1998, the ILO has sought to put these ideas into action by maintaining an active interest in areas of extensive TNC involvement, particularly where this involvement might give rise to conflicts between management and labor. It conducts training for all three stakeholders, but more often to developing countries seeking advice on labor-related matters. It also dispatches missions to mediate labor-related disputes or complaints. Between its establishment in 1919 and 2006, the ILO had adopted nearly 200 separate Conventions, covering the entire spectrum of labor relations, which are collectively called ‘core labor standards’. In summary, while the Tripartite Declaration has proved its staying power, it has also been tempered in accordance with changing times and the requirements of sustainability. The governing body issued a revised version of the Declaration in 2000, widening the social content of the original document to take account of the changes in the global economy and the added emphasis on social responsibility issues. In 2004 a committee was established to oversee the implementation of the Declaration. The Organization has also spearheaded other proactive initiatives, including the establishment in 2002 of a World Commission on the Social Dimensions of Globalization, a landmark report of its Director-General on ‘Decent Work for Sustainable Development’ (see Director-General’s introduction to the International Labour Conference, 2007) and has provided some guidance for trade unions’ proactive involvement in matters of green jobs, ecology and sustainable development (see http://www.ilo.org/ public/english/dialogue/actrav/enviro/index.htm).

3.

THE WORLD HEALTH ORGANIZATION (WHO)

As the global guardian of public health, the World Health Organization has wrestled with TNC issues on a number of occasions. This specialized

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UN agency, established in 1948 to promote heath, especially in developing countries, has challenged the marketing practices of manufacturers of breast-milk substitutes, thereby bringing about changes in how TNCs market their products to poor rural inhabitants of Third World countries. On medical matters, it has called to task the world’s pharmaceutical giants by drafting codes of conduct. On another global health matter – smoking – it has focused attention on tobacco companies. Although there are other examples of the interface between WHO and TNCs, these three deserve particular attention. In 1948, the World Health Assembly sought to bind the concept of health and define it in an operational way that speaks to sustainable development: ‘a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity’. This definition remains a reference concept, but is often supplemented by other WHO reports such as the Ottawa Charter for Health Promotion, which went on record in 1986 noting that health is ‘a resource for everyday life, not the objective of living. Health is a positive concept emphasizing social and personal resources, as well as physical capacities.’ 3.1

The Framework Convention on Tobacco Control

It has been long recognized that tobacco smoking is a serious health hazard. The thousands of deaths associated with tobacco-related illnesses and staggering health-care costs demonstrate tobacco’s deleterious health effects in unequivocal terms. Extensive research by the US National Institutes of Health and the World Health Organization, and court rulings in several countries, provide further confirmation. The hundreds of millions of individual smokers constitute the main stakeholders. Next are the producers, manufacturers and traders of tobacco. As guardians of public health, national governments and international agencies must also be included as stakeholders, as their mandates are to protect the health and welfare of their constituents. The latter organizations include the UN, through its specialized agency, the WHO. In 2000, following the recommendations of a UN inter-agency task force, the WHO took up the challenge of investigating and publicizing the harmful effects of tobacco at the global level. The Organization’s objective was to seek a global solution to a worldwide health hazard. Armed with its own studies and those of numerous medical researchers around the world, the WHO warned smokers, governments and tobacco companies that smoking had become ‘the single biggest preventable cause of death’. It estimated that in 2003 there were 1.3 billion smokers worldwide, half

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of whom were expected to die prematurely of a tobacco-related disease (Sagafi-nejad, 2008: 185–7). Efforts by the WHO to develop global rules to curb the advertising, promotion and sales and smuggling of tobacco products soon bore fruit. In May 2003 the Framework Convention on Tobacco Control (FCTC) was unanimously adopted during the 56th World Health Assembly in Geneva by the WHO member nations. It was the first international legal instrument negotiated under the auspices of the WHO aimed at curbing the global spread of tobacco products. By the 29 June 2004 ratification deadline, 88 percent of the member nations had become signatories to the Convention. Of these, 30 became ‘parties’ to the treaty by virtue of the subsequent steps of ratification, acceptance, approval, formal confirmation or accession. The tobacco industry was united in its opposition to the WHO initiative. When the 191 nations of the WHO began negotiations in 2000 on FCTC, the world’s seven largest global tobacco companies, including Philip Morris and Japan Tobacco, were attempting to pre-emptively develop a voluntary pact. However, this pact was superseded by what transpired under the WHO. The tobacco companies’ response to the FCTC was a positive one, comprising a complex mixture of strategies, akin to their post-Master Settlement Agreement behavior. These companies showed considerable resilience in the face of these hostile political and social environments by employing various strategies that have resulted in an industry performance on a par with, or better than, the manufacturing industry as a whole. One such strategy was product diversification. Several tobacco manufactures diversified into food and other products. Another strategy was expansion through global acquisitions – particularly in Central and Eastern Europe and China. Philip Morris, the largest, pursued a twin strategy of product and geographic diversification, aggressively diversifying its product portfolio by acquiring food, beverage and other companies while also restructuring into Philip Morris International and Philip Morris USA to more effectively expand in the global market. However, even as it diversified its product profile away from tobacco, the company expressed its agreement with some FCTC objectives. In its own words: Among the areas where we share common ground with the WHO are the prevention of youth smoking; reasonable restrictions on marketing; efforts to continue to inform the public about the health consequences of smoking and the benefits of quitting; regulation of the content of tobacco products; package labeling requirements; reduction and elimination of cigarette smuggling; and reasonable restrictions on smoking in public places. (PMFCTC. COM: Submissions and Testimony, 2003)

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While the tobacco companies appeared to have accepted the underlying premise of the FCTC, namely the harmful health effects of tobacco, and have shown some willingness to move toward the fulfillment of the Convention’s goals, it is clear that there is some disagreement in the industry as to how far the FCTC should go in curbing companies’ production, marketing and distribution, traditionally the domain of private enterprise. Most, if not all, tobacco companies oppose a binding international instrument proposed by the FCTC. Second, others prefer to invoke the widest possible spectrum of stakeholders or stress basic rules of competition in a free market system and individual choice. Thus there is no ‘intra-stakeholder unanimity’ on how to countenance this external challenge. This was evidenced by some companies breaking ranks during the litigation process. 3.2

WHO versus Nestlé

The World Health Organization was embroiled in a well-publicized controversy involving the marketing and distribution of infant food products. In the 1970s, Nestlé, the giant Swiss TNC, was accused by activists in Western Europe and North America of engaging in unfair and unethical marketing practices in developing countries, primarily Africa, where it sold its powdered milk and other infant food products. Critics claimed that the company engaged in deceptive marketing practices by dressing its sales force in white doctor-like garb, giving free samples to induce mothers to change from nursing their babies to feeding them infant formula and bribing doctors to advocate breast-milk substitutes. Activists, primarily in Western Europe and North America, mobilized and initiated a worldwide boycott of Nestlé products. A concerted campaign was spearheaded by Douglas A. Johnson at the Newman Center in Minneapolis, Minnesota, who organized Infant Formula Action Coalition (INFACT) and sought a widespread consumer boycott of all Nestlé products. The grass-roots campaign in the USA, Germany and various other countries to boycott Nestlé turned out to be very effective. Organizers argued that children fed infant formula had an infant mortality rate three times as high as those who were breast-fed; besides; breast milk also served as a natural contraceptive; and poor and illiterate mothers diluted the milk to stretch their meager income, causing diarrhea and other childhood diseases. Other claims included the charge that Nestlé dressed its sales personnel in nurse-like attire, giving the impression that formula food was medically acceptable, especially since some doctors, at the instigation of the company, also tried to convince mothers and hospitals to switch to powdered milk. Nestlé vehemently rejected these accusations at first and asserted

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instead that it was producing a product that was inherently safe and healthy, while also helping developing countries’ economic development by promoting hygiene, scientific dairy farming, education and the creation of jobs.1 Under pressure, the company reversed its position and, with the assistance of the WHO and the NGOs that had championed the boycott, worked toward change. In 1981, WHO, in cooperation with UNICEF, Nestlé and other breast-milk-substitute manufacturers, crafted a voluntary code of conduct that established a number of parameters for marketing these products, especially in developing countries. As a gesture of goodwill, it agreed to establish an independent auditing committee, headed by the senior US Senator Edmund S. Muskie of Maine, who had just stepped down from the Senate and subsequently from a short stint as US Secretary of State. The company agreed to allow these outside auditors to monitor its compliance with the agreement. Critics seemed pacified by these steps, at least temporarily, although they did insist on continued adherence to these marketing restrictions by milk-substitute manufacturers. Soft power seems to have hit Nestlé hard, proving that results can be achieved this way, a route perhaps less difficult than through national legislation. In recent years a new wave of protest, albeit not as vociferous as the earlier ones, has been gathering momentum, but does not seem to have the voracity of earlier protests.

4.

UN GLOBAL COMPACT

Unlike the WHO initiative on tobacco, where the approach is regulatory and the focus on control through legal teeth, the Global Compact initiative is normative, relying on the voluntary cooperation of TNCs. It is also intended as a general instrument and not specifically directed to any particular group of TNCs. Although the two UN efforts had similar aims – aiding developing countries and encouraging good global corporate citizenship – they differed on issues of rights and responsibilities and on tone and tenor. The WHO involvement in tobacco control was an essentially unilateral and confrontational approach, carried out in national legal courts through litigation (in the USA) and legislative fiat. The Global Compact is first and foremost an ethics-based concept and instrument. As the new millennium approached, former UN Secretary-General Kofi A. Annan had seen the transformations in the economic and social structure wrought by globalization and its discontents as both a warning and an opportunity. The warning was the violent reaction of a coalition of erstwhile disparate groups against globalization and the international trading

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system typified by the demonstrations in Seattle in September 1999. The opportunity was to aim for a general consensus on the fundamental conditions under which global commerce, in all its forms, might be peacefully and productively conducted. On 31 January 1999, at the World Economic Forum in Davos, Switzerland, the Secretary-General challenged the world business leaders there present, the elite of global capitalism, to rise to their social and ethical responsibilities by joining the UN in a global compact. The UN was ready to take the lead in this endeavor and the TNCs and other large firms were invited to join this partnership mission, a compact to promote ‘responsible’ global capitalism2 and answer basic human needs in the areas of human rights, labor and the environment. Annan advocated the principle that corporations can do well by doing good.3 The original nine principles of the Global Compact in these three areas were grounded in one or more of the fundamental principles that constituted the raison d’être of the 1948 UN Universal Declaration of Human Rights. A tenth principle, which addressed the problem of corruption, was added in June 2004 after the UN adopted the Convention against Corruption (UN, 2003). In furtherance of the Compact, a special section of the SecretaryGeneral’s office is responsible for providing general background information, nurturing new partnerships, developing case studies and arranging dialogues throughout the world, all with a small staff and modest budget. Georg Kell, the Director, reports to the Secretary-General. The operational phase of the Compact was launched at UN Headquarters in New York on 26 July 2000. Chaired by the Secretary-General, the meeting brought together senior executives from some 50 major TNCs and other leaders of labor, human rights, environment and development organizations (See ‘About GC: Overview’ at www.UNGlobalCompact.org). The Compact, undertaken in partnership with each of the UN agencies, NGOs and other stakeholders, is based on dialogue and discourse. It is also linked to the UN’s broader Millennium Development Goals, a ‘global partnership for development’, which were enunciated in September 2000 and aimed at the eradication of poverty and hunger, universal primary education, gender equality, reduction of child mortality, mental health improvement, combating HIV/AIDS, malaria and other diseases, and environmental sustainability.4 Once the Global Compact was launched, UN staff began to propagate the concept and encourage companies to participate. In its 2001 pilot phase, companies were asked to enunciate their strategy for conforming to the tenets of the Compact by submitting specific examples in their business operations that touched on one or more of the principles. Fortytwo companies submitted statements which indicated that they were

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addressing one or more of the nine principles. British Telecom (BT), for example, stated that it was addressing all nine principles, while Indian Oil Corporation indicated that it had implemented several principles through its community development activities that emphasized health care. Global companies such as BASF, DaimlerChrysler, Deloitte Touche Tohmatsu, DuPont, Royal Dutch Shell, SAP, UBS and Unilever each described their corporate involvement in one or more of the Compact’s principles. Since the Compact’s first progress report in 2001, it has continued to gain support. Hundreds more companies and organizations have engaged in the Compact and it has embraced more partners from business associations, labor, civil society, academia, cities and even stock exchanges. A list of companies that have joined the Compact shows its multifarious nature: these corporations come from both developed as well as emerging market economies and developing countries. They consist of large and wellknown TNCs such as Bayer, BMW, BASF, DaimlerChrysler, Deloitte Touche Tohmatsu, DuPont, Nike, Royal Dutch Shell, SAP and Unilever, as well as those lesser known. As the Global Compact gained momentum, it developed monitoring and reporting mechanisms for companies and other organizations that had endorsed its tenets. One such instrument was a self-reporting system. Critics of the approach had argued that companies may be quick to endorse the ten principles, but slow to implement them, driven by a desire to gain endorsement and publicity or what The Economist called ‘blue-washing’. The response came in the form of a reporting system we call ‘gray-listing’: by listing companies that had signed on but failed to report on exactly what they were doing in compliance with the terms of the Compact, the UN was, well, gray-listing them. Public display of such indiscretion (or non-compliance) could itself serve as an instrument of moral suasion. While this is an interesting approach to exercising soft power, the jury is still out on its efficacy. The incorporation of Compact tenets into company practices is a welcome and positive development, but it is too early to tell whether it will influence corporate conduct in the long term. More systematic research is needed to gauge the effects of these tactics.

5.

UNESCO AND TNCS: DEMAND FOR A NEW INTERNATIONAL INFORMATION ORDER

In the 1970s, developing countries had called for a New International Economic Order (NIEO). About the same time, some countries in this group pursued a parallel demand for a New International Information

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Order (NIIO). The UN Educational, Scientific and Cultural Organization (UNESCO) became the forum for discussions relevant to this new demand. Many developing countries believed that many, if not most, information systems were biased toward developed countries and therefore these global information and media corporations were NIIO’s primary targets. Attacks on cultural imperialism and cultural pollution were commonplace in developing countries and some of the more radical governments believed that state control of national media was necessary to guide the development process without external pressures. Non-democratic leaders are known for disdain for a free press. But, emboldened by the success of their OPEC (Organization of Petroleum-Exporting Countries) brethren and the passage of the NIEO declaration, potentates tried to seize the moment to curb the free press and exercise control over the media, in the name of sovereignty and protection of their people from foreign influence. This was one of the early reflex reactions against globalization; mass media were blamed for encouraging ‘consumptive emulation’5 and the revolution of rising expectations. Western countries were understandably unenthused, as were members of the global media. But neither governments nor the media took the matter seriously, attributing such demands, instead, to a few Third World dictators (like Idi Amin) who were threatened by a free press; and steam soon went out of the debate. Ultimately the movement fizzled out and the term NIIO was not heard again – except as a brief footnote in the history of rebellion against the encroachment of foreign influences and globalization.

6.

BRETTON WOODS INSTITUTIONS: THE WORLD BANK AND INTERNATIONAL MONETARY FUND

The World Bank (WB) and the International Monetary Fund (IMF) are specialized agencies of the UN. These two Bretton Woods institutions have also impacted FDI and TNCs. We explore the role of the International Finance Corporation (IFC), the World Bank subsidiary most directly involved with private investment. Unlike the WB, the IFC is permitted to lend money for private projects and, in fact, take equity positions in them. This brings the WB – through the IFC – in direct contact with TNCs. The third of the of Bretton Woods institutions, the World Trade Organization (WTO), succeeded the General Agreement on Tariffs and Trade (GATT) in 1995. The domain of the newly configured organization expanded relative to its predecessor. The Marrakech Agreement

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that ratified the Uruguay Round of trade negotiations already included investment issues under its Trade-Related Investment Measures (TRIMs) and Trade-Related Aspects of Intellectual Property Rights (TRIPs), and the General Agreement on Trade in Services (GATS). Under the Doha Round, which launched the latest round of multilateral trade negotiations, investment was given even greater emphasis. This development signifies an expanded role for the WTO.

7.

UNIDO AND THE LIMA DECLARATION

The UN Industrial Development Organization (UNIDO) was created to promote industrialization ‘on the ground’ in developing countries. Its focus has also brought it in direct contact with TNCs, although there is scant direct reference to these entities in documents of the organization. The need for action toward industrialization in developing countries was galvanized by the Lima Declaration of 1976. Since then, and with several restructuring efforts, especially after the fall of communism, the organization has continued to provide training and technical assistance to developing countries. UNIDO affirms that competitive and environmentally sustainable industry has a key part to play in achieving the Millennium Development Goals. It has focused its action in moving the UN towards improving the quality of life of the world’s poor by drawing on its combined global resources and expertise. More specifically it has given prominence three interrelated thematic areas: (1) poverty reduction through productive activities; (2) trade capacity-building and (3) energy and environment.

8.

FOOD AND AGRICULTURAL ORGANIZATION (FAO)

Based in Rome and another agency in the UN galaxy, the FAO has been at the forefront of global food security since inception. It works with private sector partners across the agricultural and food chain as well as with fertilizer manufacturers and big grain commodity trading companies. The FAO has a potentially significant role in achieving the Millennium Development Goals, which aim to eliminate hunger by 2015. The sustainable and responsible husbanding of natural resources is fundamental to the goal of attaining sustainable agricultural and rural development. FAO is in the forefront of promoting natural resources management and environmental protection. As of 2007, this commitment

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has been strengthened by the creation of the new Natural Resources Management and Environment Department, which replaced the former Sustainable Development Department. Its work in the areas of gender, equity and rural employment will continue to be carried out by FAO’s Economic and Social Development Department. This unit will take the lead in the areas of bioenergy, climate change issues, land and water management, land tenure issues, biodiversity for food and agriculture and research and agricultural extension. The FAO has dealt with TNCs in matters involving production and used of fertilizers, pesticides and herbicides, and broadly having to do with production and distribution of food and agricultural products. Among FAO initiatives, one can point to Codes Alimentarius, whose dominant theme is the role of TNCs in food safety standards and the International Treaty on Plant Genetic Resources for Food and Agriculture, approved in 2001 and entered into force on 29 June 2004 (see www.fao.org).

9.

THINK-TANKS: UNITAR, UNRISD, ITC

The UN Institute for Training and Research (UNITAR), based in New York, has been active in the areas of training programs and research. UNITAR produced a series of case studies on technology transfer in the 1970s. Later it gave refuge to scholars such as Sidney Dell, who had earlier been the UNCTC director of the UN Centre for Transnational Corporations. In more recent years, UNITAR has again emerged as a center for intellectual contributions on a variety of fronts, including work on codes of conduct and other facets of activities of TNCs. Research activities at UNITAR have ebbed and flowed depending on personalities, issues and funding (see www.UNITAR.org). The same can be said about the UN Research Institute for Social Development (UNRISD) in Geneva, another autonomous UN agency engaged in multidisciplinary research on the social dimensions of contemporary problems affecting development. Working with a network of national research centers, UNRISD has conducted research on such topics as civil society and social movements; democracy, governance and human rights; identities, conflict and cohesion; social policy and development; and technology, business and society. One of its recent publications is a resource guide on regulating TNCs, an annotated list of recent initiatives at corporate, national and international levels to regulate TNCs (Abrahams, 2004). The International Trade Centre (ITC), a partnership between WTO and UNCTAD and tasked with conducting training programs for developing

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countries on trade issues, is yet another example of inter-agency collaboration and one with a reasonable degree of success. Drawing on expertise from both parent institutions, but working with a good deal of autonomy, the ITC has conducted many workshops, particularly for countries seeking entry into WTO or in the early stages of their participating and in need of trading and expertise (see www.ITC.org). Research activities have ebbed and flowed in most of these specialty think-tanks, depending on personalities and funding.

10.

WORLD INTELLECTUAL PROPERTY ORGANIZATION

Intellectual property rights have been an international concern since the Industrial Revolution. In the knowledge-intensive global economy of the twenty-first century, the World Intellectual Property Organization (WIPO) has become important to technology and intellectual property activities of TNCs. This is so because the protection of these non-tangible but strategically important assets must be assured and their flow across national boundaries facilitated to encourage technological development and innovation by TNCs. Host countries and local firms seek the same protection of these assets in their own quest for development and growth. Its raison d’être – to shepherd an international regime for intellectual property protection which strikes a balance between the producers and users of technology and between encouragement of innovation and discouragement of abuse of the monopoly power of the holder of that right – has remained essentially unchanged over the last century. In the absence of a universal system for the protection of intellectual property, one of its most significant contributions has been the drafting of ‘model laws’. Many of its nearly 100 member nations have incorporated some of these model laws into their own national legislation. A country’s adoption of WIPO’s model laws can have consequences at the multilateral level. As more countries adopt these model laws in their countries’ legislation, the ultimate result may well be the emergence of a global convergence on specific intellectual property issues. For example, when other international rule-making bodies like the WTO and WHO contemplate the drafting of multilateral rules in their fields of expertise and action, they are cognizant of WIPO’s precedent. This may create a gradual convergence; for example, the work of WIPO on intellectual property protection and that of the World Trade Organization on TradeRelated Aspects of Intellectual Property Rights (TRIPs).

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The protection of intellectual property has always been a major issue in the area of technology transfer. During the debates and negotiations on a code of conduct for transfer of technology (Perlmutter and Sagafi-nejad, 1981) in the mid-1970s to early 1980s, TNCs insisted on receiving guarantees for their patents, trademarks, trade names and copyrighted technology before agreeing to transfer it. No code emerged because the gap between contending parties, namely, the USA and its Western allies and the Group of 77 developing countries regarding key policy issues could not be bridged. During this period, WIPO was largely sidelined while UNCTAD took a dominant role. The private sector continues to play a decisive role in the shaping of policy making concerning knowledge-based goods. The result is often an unequal battle between access to knowledge and insuring private property rights. Such an unbalanced scenario chiefly affects the South, but has implications for the public everywhere. The development agenda of WIPO, designed by developing countries’ governments in collaboration with a coalition of governments, academics, civil society and public interest NGOs from both North and South, is the latest attempt to bring a balance to this scenario. However, the agenda is meeting with opposition despite the unique nature of the coalition backing it, and its outcome is uncertain.

11.

UNITED NATIONS CHILDREN’S FUND (UNICEF)

UNICEF is another UN agency that has developed in partnership with TNCs to promote its cause of helping the world’s needy children. Perhaps one of the best-known programs is UNICEF’s ‘Change for Good’, a partnership that UNICEF has developed with several international air carriers to collect coins from passengers as they exit a country. Between 1991 and 2006, this partnership, including British Airways, IKEA, ING, Quantas, IVECO and Emirate Airlines (see UNICEF’s corporate partnerships, 2008), had collected over $53 million. Are the scattered agencies complementary or redundant? Do they duplicate one another’s work or do they augment and reinforce each other? An example of complementarities is the work on the tobacco industry by the World Health Organization and the World Bank. While WHO was championing the ‘tobacco control initiative’, research at the World Bank documented the economic impact of tobacco control, thus reinforcing WHO’s findings (see World Bank, ‘Economics of Tobacco Control’, www. worldbank.org, 2002).

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CONCLUSIONS This chapter has described efforts by key members of the UN galaxy to engage TNCs in the sustainable development process and in the articulation of a set of multilateral rules of engagement. Approaches have differed at times, between moral suasion on one hand and ‘courts and cops’ on the other. The tobacco control initiative, spearheaded by WHO, is intended to be binding, and contains details from advertising and labeling to illicit trade and sponsorship of events. The UN Global Compact has more charm and appeals to the good in corporate action and citizenship while at the same time making the point often made in the literature that good behavior means a good bottom line. Which will save us in the end? To answer this question, one must view the multitude of approaches in terms of several parameters of legitimacy, namely the desirability and feasibility of the instrument or approach, the extent to which there is consensus among members of a stakeholder group on desirability and feasibility, how clearly stakeholder groups perceive one another, the extent of trust between different groups and whether each group concedes a legitimate role for the others in the process and, perhaps most importantly, the legal status of such a regime (Sagafi-nejad, 2005). A comparison of the Framework Convention on Tobacco Control and Global Compact reveals certain distinguishing features; the first is intended to be binding, the second voluntary; one has caused clear differences between adversaries who think the other side fails to see it from their perspective; the other aims to build on commonalities between groups. Other agencies have focused more on capacity building and knowledge creation. There is general agreement that nothing short of the survival of mankind is at stake on matters of rule making. Without rules of engagement multilaterally arrived at and dutifully adhered to, all players risk losing. To be effective, ethical rules, whether emanating from individual corporations, nation-states or international bodies, must ultimately gain legitimacy by all stakeholders. Unilateral and binding rules can also rise to the global level. It was, after all, the massive anti-smoking campaign and the extensive litigation in the USA that provided the initial momentum for global rule making with respect to tobacco. Is it conceivable that multilateral rules that emanate from national roots have a greater prospect of being ultimately adopted at the global level – in a bottom-up process – than rules contemplated in the insularity of international organizations? The UN is at a crossroads and the very premises of liberal economic thinking are being challenged. Can the system serve as a catalyst in the process of norm setting for the sustainable development activities of TNCs?

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NOTES 1. The company’s aggressive campaigns included the 1975 publication of Nestlé in the Developing Countries, a 228-page book that it circulated widely to deflect criticism and to put forward its case. 2. A term coined by John Dunning (2003). 3. This notion is reminiscent of the maxim appropriate to many early American Quakers who came to Philadelphia to do good but, ultimately and inadvertently, also did well. 4. The goals were enunciated in September 2000, when the 191 members of the UN pledged to achieve them. Besides the office of Secretary-General, other UN bodies with a defined role in the Millennium Development Goals include the UN Development Programme (UNDP), the International Labor Organization (ILO) and UNCTAD. See www. UNGlobalcompact.org. and www.un.org/millenniumgoals/. 5. The term was first used by Peter Evans.

REFERENCES Abrahams, D. (2004), Regulating Corporations: A Resource Guide, Geneva: UNRISD. Carr, E.H. (1939), The Twenty Years’ Crisis, 1919–1939: an Introduction to the Study of International Relations, London: Macmillan. Director-General’s introduction to the International Labour Conference (2007), Decent work for sustainable development, ILC 96-2007/Report I (A), Retrieved 8 December 2008 from http://www.ilo.org/. Dunning, J. (2003), Making Globalization Good, London and New York: Oxford University Press. Gunter, H. (1972), Transnational Industrial Relations: The Impact of Multinational Corporations and Economic Regionalism on Industrial Relations, London: Macmillan. ILO (1973), Multinational Enterprises and Social Policy, Geneva: International Labor Office. Perlmutter, H.V. and T. Sagafi-nejad (1981), International Technology Transfer: Codes, Guidelines and a Muffled Quadrilogue, New York: Pergamon Press. Sagafi-nejad, T. (2005), ‘Should global rules have legal teeth? Policing (WHO Framework Convention on Tobacco Control) vs. good citizenship (UN Global Compact)’, International Journal of Business, 10 (4), 363–82. Sagafi-nejad, T. (2008), The UN and Transnational Corporations: From Code of Conduct to Compact, Bloomington and Indianapolis, IN: Indiana University Press, for the UN Intellectual History Project.

Websites International Labor Organization, retrieved 8 December 2008, from www.ilo. org. International Treaty on Plant Genetic Resources for Food and Agriculture (2004), retrieved 8 December 2008, from www.fao.org/ag/cgrfa/itpgr.htm#text. PMFCTC.COM: Submissions and Testimony (2003), retrieved 8 December 2008 from http://www.pmfctc.com/content/submissions/submissions.htm.

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UN (2003), retrieved 8 December 2008, from http://www.un.org/News/Press/docs/ 2003/soccp270.doc.htm. UN Commission on Sustainable Development; Division for Sustainable Development, retrieved 8 December 2008, from http://www.un.org/esa/sustdev/csd/ review.htm. UNICEF’s corporate partnerships (2008), retrieved 8 December 2008 from http:// www.unicef.org/corporate_partners/.

3.

Are multinational corporations compatible with sustainable development? The experience of developing countries Abdulai Abdul-Gafaru

1.

INTRODUCTION

Over the past few decades, the role of multinational corporations (MNCs) in sustainable development has probably been one of the most controversial debates among scholars. The environment has been at the centre of the controversy. Are MNCs a force for good in the promotion of environmental sustainability in developing countries? Briefly, the right answer is that MNCs are perceived both as the source of and the solution to the problems of environmental degradation. On the one hand, environmentalists are generally pessimistic about the contributions of MNCs to the protection of the natural environment, particularly in host developing countries. Due to their urgent need for employment opportunities, many low-income countries are often compelled to set lax environmental standards in order to attract foreign investors. This problem, coupled with the high costs of conforming to the more stringent environmental standards in the developed world, means that developing countries are likely to remain the ‘havens’ of the pollution-intensive industries of MNCs. Indeed, a number of studies have supported the relocation of ‘dirty industries’ to developing countries. For example, UN Environment Program (UNEP) (1981) provides evidence of relocation of some hazardous industries from the USA to Mexico owing to different environmental standards in these countries. Similarly, Rasiah (1999) points to the transfer of inferior machinery from MNCs to Malaysia because of the country’s lower environmental standards. For Korten (1995: 31), therefore, ‘[e]conomic globalisation has greatly expanded opportunities for the rich to pass their environmental burdens to the poor by exporting both wastes and pollution factories’.

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The experience of developing countries

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In sharp contrast to the above assessment, neoliberal economists contend that MNCs are perhaps the most significant catalysts for sustainable development because they typically possess newer and cleaner technology, and have better management practices that can be transferred to their subsidiaries in the developing world. Thus, rather than ‘pollution havens’, MNCs create ‘pollution halos’ in developing countries through the export of modern technologies. In support of this hypothesis, Eskeland and Harrison (1997) found that foreign ownership was associated with cleaner and lower levels of energy use in Mexico, Venezuela and Côte d’Ivoire. Similarly, Blackman and Wu (1998) found significant support for the conclusion that foreign investment in electricity generation in China increased energy efficiency and reduced hazardous emissions. The above fundamentally divergent positions clearly demonstrate the need for further investigation on the real impact of MNCs on the environment. This is particularly so because these seemingly logical, yet contradictory positions create dilemmas for policy makers in the developing world. How can policy makers reconcile these positions to make appropriate policies towards MNCs? Should MNCs be viewed as inherently detrimental to the advancement of sustainable development? How can the contributions of MNCs to sustainable development be enhanced? Some have argued1 that the most feasible and efficient way of enhancing MNCs’ contribution to sustainable development is through voluntary approaches rather than regulation. Today, many corporations, it is argued, are increasingly willing to protect the environment voluntarily not only as part of their corporate social responsibilities, but also because failure to do so would lead to consumer outrage and loss of ‘brand value’. This line of argument posits that since it is in the interest of corporations themselves to protect the environment, there is no need for a global regulatory regime that will ensure the commitment of business actors towards environmental sustainability in developing countries. This chapter takes a contrary view, however, by arguing that the fact that ‘the self- interest of a corporation and the need to enhance shareholder value take precedence over concern for the community as a whole’ (Shaughnessy, 2000, quoted in Shinsato, 2005: 5) means that business self-regulation is likely to be effective only when it coincides with the profit motives of multinationals. It is apparent that potential polluters of the environment such as MNCs can hardly make their own laws and effectively sanction themselves when they go against those laws. Thus, to the extent that the raison d’être of every business entity is to maximize profit rather than enhance development, this chapter sees the need to be cautiously optimistic as to how far MNCs can (voluntarily) contribute to sustainable development in developing countries. To maximize their

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contributions, the chapter advocates the necessity of moving beyond conventional notions of corporate social responsibility (CSR) characterized by the adoption of voluntary codes, to more regulatory, legally binding measures at both the national and international level. As to what constitutes the appropriate forum of regulating MNCs, the chapter suggests that host developing countries can and must remain primarily responsible for regulating foreign corporate activity. While this line of argument is not necessarily new,2 a major departure of this chapter from extant literature is its emphasis on the juxtaposition of voluntary approaches and regulatory mechanisms in an either–or mode, as if there were substitutes, as misleading. Put differently, while recognizing that effective state regulation is necessary for enhancing MNC contribution to sustainable development, the chapter also debunks Monbiot’s (2002) assertion that ‘[v]oluntary agreements . . . simply do not work’. Indeed, neither voluntary initiatives nor regulatory measures alone are sufficient if our goal is to improve the environmental performance of business entities. Voluntary ethical codes and international cooperation should therefore only supplement, not substitute, the regulatory role of the state. The rest of the chapter is structured as follows: Sections 2 and 3 briefly explain the two major terminologies that underpin the discussion, namely multinational corporations and sustainable development. Section 4 discusses the perceived impact of MNCs on sustainable development with particular reference to host developing countries. Section 5 focuses on the environmental records of Royal Dutch Shell in Nigeria’s Niger Delta because of the international notoriety it has attracted over the past two decades. Section 6 outlines the weaknesses of business-led voluntary codes in promoting sustainable development and therefore emphasizes the need for effective regulatory mechanisms both domestically and internationally. Section 7 concludes the chapter.

2.

MULTINATIONAL CORPORATIONS

Although the modern MNC has its roots in the East and West Indies traders of the mercantilist era (UNCTAD, 2002: 2),3 the term ‘multinational corporation’ first appeared in 1960 when Lilienthal (1960, quoted in Kobrin, 2001: 1) used it to refer to ‘such corporations . . . which have their home in one country but which operate and live under the laws of other countries as well’. Two major features are associated with MNCs: first, their activities involve more than one nation; and second, they are responsible for most foreign direct investment (FDI). For Dunning (1996), therefore, any corporation that engages in FDI and owns or


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controls value-adding activities in more than one country is a multinational corporation. The period 1970–2000 saw an enormous growth of activity by multinational enterprises. While only 7000 MNCs existed in 1970 (Kolodner, 1994: 2), there were as many as 63 000 parent firms with around 690 000 foreign affiliates by the year 2000 (UNCTAD, 2000: 37). MNCs have been expanding not only numerically but also financially. Between 1990 and 2000, sales of the largest 100 MNCs increased from $3.2 trillion to nearly $8.4 trillion (World Resources Institute, 2003). The sheer size and enormous economic power of MNCs mean that they have the capacity to influence development policy. Due to the perceived benefits associated with them, political and economic decisions by elected governments are increasingly being made to favour the investment and marketing needs of MNCs. Consequently, MNCs are sometimes able to influence the domestic policy outcomes of host developing countries by threatening to move jobs overseas. This often raises questions about whether corporate power enables MNCs to undermine sustainable development by circumventing domestic environmental standards. Moreover, the fear that firms will move jobs overseas and the calculation of the effect this could have on national economies can influence the degree to which developing countries will be willing to impose strict environmental regulations on MNCs (Porter, 1999). The increasing dominance of MNCs in global trade and investment also enables them to influence policy outcomes at the international level. At many international fora, corporate lobbies have pushed for policies that will benefit business enterprises and allow them to escape sanctions for their environmentally harmful effects. In the run-up to the 1992 Rio Conference, for example, corporate groups were active in defining the concept of ‘sustainability’ and pressing for their interpretation of corporations as promoters of sustainable development to be represented in the official conference documentation (Chatterjee and Finger, 1994). At Rio, corporations ensured that the only references to them in Agenda 21 were in the context of corporations as partners in sustainable development or in the promotion of voluntary codes (Finger and Kilcoyne, 1997). By influencing the terminology in a way that enables them to promote faith in industry self-regulation, MNCs have thus far succeeded in escaping calls for state regulation of their activities.

3.

SUSTAINABLE DEVELOPMENT

Until the 1980s, opinions about MNCs as development agents were largely influenced by the orthodox view among free market economists that MNCs

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are legally accountable only to their shareholders for the financial performance of the corporation. This view considered multinationals as purely profit-minded entities that did not have any legal obligation in incorporating society’s interest into their business activities. As Friedman (1970: 126) aptly puts it: ‘[t]here is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits . . .’ From the 1980s, however, a series of environmental catastrophes associated with the activities of MNCs resulted in a considerable shift in thinking regarding the role of MNCs in society.4 Given that MNCs are the most important players involved in environmentally damaging activities (Third World Network, 1997), many scholars now question the traditional model of ‘business as usual’ and call upon business enterprises to place the long-term sustainability of the environment alongside their narrow commercial interests. This idea of balancing corporate interest with environmental protection has given rise to what has become known as ‘sustainable development’.5 From an international perspective, although it was the 1972 Stockholm Declaration that first raised issues concerning environmental sustainability,6 the term was first used by the World Commission for Environment and Development (1987: 43) to refer to any form of development that ‘meets the needs of the present without compromising the ability of future generations to meet their own needs’. From the business perspective and for the purpose of this chapter, sustainable development means the adoption of ‘business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future’ (Brkic and Douglas, 1997: 33).

4.

MULTINATIONAL CORPORATIONS AND SUSTAINABLE DEVELOPMENT

Does increased multinational investment necessarily lead to environmental sustainability? Neoliberal theorists contend that MNCs are the key to achieving sustainable development through the transfer of modern technologies. It has been argued that technological advancement is an important factor in protecting the natural environment because, among other things, high-level technology can help in the manufacture of products that are less environmentally damaging to use or dispose of (e.g. fuel-efficient vehicles) (UNCTAD, 1999: 15). Significant as technological advancement may be in environmental sustainability, there is no doubt that MNCs are the main transmission mechanisms of technology to developing countries.


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In 1995 alone, over 80 per cent of global royalty payments and licence fees were paid by MNC subsidiaries to their parent companies (UNCTAD, 1997, cited in Kleinert, 2001: 4). Indeed, MNCs are not only the major technology innovators, but they also possess skills in the development and management of pollution abatement technologies (Morimoto, 2005). In support of this argument, Garcia-Johnson (2000) presents evidence of linkages between chemical MNCs operating in Mexico and Brazil that led to adoption of new environmental practices. The large technological capacity of MNCs means that ‘any progress toward sustainable development requires its active leadership’ (Schmidheiny, 1992: 9). While there is little doubt that MNCs possess clean technologies that can enhance environmental sustainability, questions have been raised as to whether MNC technology is an unmitigated blessing to the developing world. It has been observed that MNCs, in order to reduce cost, apply inferior environmental technology and management practices in their developing countries’ subsidiaries. A large proportion of equipment transferred to the developing world, it is argued, is either too sophisticated for developing countries to adapt to or too obsolete to reduce cost and increase efficiency. However, the most significant aspect of the ‘inappropriateness’ of MNC technology relates to their environmental and safety dimensions. Some observers argue that multinationals largely facilitate the transfer of ‘inappropriate’, capital-intensive technology and systematically shift their environmentally noxious operations to developing countries leading to deaths, injuries and extreme hardships on host nations.7 Even when MNCs attempt to supply new technologies to their subsidiaries in the developing world, it is often done at very high prices. Spero and Hart (2003: 275) note that MNC ‘subsidiaries in developing countries pay an unjustifiably high price for technology and bear an unjustifiably high share of the research and development costs’. Unfortunately, it would seem that current international trade and investment rules do not seek to ensure that MNCs generate new and ecologically friendly technologies in host economies. For instance, the proposed Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement at the WTO is likely to make the transfer of ‘clean’ technologies much more expensive through excessive royalty fees. This will further increase the inability of developing countries to purchase ‘clean’ technology and, by extension, further compel them to loosen their regulatory regimes in order to attract the ‘dirty’ technologies from MNCs. Indeed, evidence in many developing countries including China already suggests that indigenous enterprises accepted pollution-intensive equipments from developed countries because they were cheap (OECD, 1997). Neoliberal proponents however argue that the above claims often over

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stress the environmental impact of MNCs. MNCs, they argue, are not worse than indigenous companies in terms of their environmental practices. In other words, while it may be true that MNCs follow lower environmental standards in developing countries than in developed nations, there is respectable evidence that their environmental, labour and safety standards in developing countries are far better than those of local firms operating in such countries (UNRISD, 2005; Bhagwati, 2004). It is important to emphasize that the fact that local firms also sometimes engage in environmentally deteriorating activities does not provide any justification for MNCs to shift their obsolete technologies to developing countries without adequate safety measures. This is particularly so because multinational firms possess greater technical, financial and organizational resources needed to solve environmental problems and must therefore bear an enhanced responsibility to promote environmentally sustainable practices than their local counterparts (UN Commission on Transnational Corporations, 1992: 226). The R&D capacity of MNCs also places them in a better position to enhance an effective environmental management than indigenous enterprises. Chang (1998) estimates that MNCs manage about 75 percent of the world trade in manufactured goods and are involved in 75 percent of all industrial R&D in the OECD countries. In this context, using the activities of local firms in assessing MNC environmental practices can be misleading. From the above discussion, it appears that if environmental concerns are central in MNC decision making, then corporations may the best sustainers of the natural environment. However, the empirical evidence reviewed in the next section suggests that, despite the capabilities of MNCs in implementing higher environmental standards, their actual contribution towards environmental sustainability in developing countries remains minimal.

5.

SHELL AND SUSTAINABLE DEVELOPMENT IN NIGERIA: BETWEEN RHETORIC AND REALITY

While examples of environmental destructions by MNCs in developing countries abound,8 this section focuses on the activities of Royal Dutch Shell in Nigeria’s Niger Delta because of the international notoriety it has attracted over the years. Shell started its oil production in the Delta region in 1958. Although Shell has always claimed that sustainability is at the heart of its business principles, the empirical evidence suggests that Shell has significantly contributed to environmental deterioration in Nigeria. The UN Committee on Economic, Social and Cultural Rights (1998)


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‘note[d] with alarm the extent of the devastation that oil exploration has done to the environment and quality of life in areas such as Ogoniland where oil has been discovered and extracted without due regard to the health and well-being of the people and their environment . . .’ Shell’s hazardous environmental practices in the Niger Delta range from gas flaring to oil spills and deforestation. Gas flaring is a frequent occurrence in the Niger Delta, with significant negative consequences for the ecology, climate and local inhabitants. In 2000, 95 per cent of extracted natural gas was flared in Ogoniland, a section of the Niger Delta, compared to a mere 0.4 per cent flared in the entire USA (Shinsato, 2005: 7). Gas flaring in the Niger Delta not only contributes to acid rain, which in turn poisons potable water, stunts crop growth and damages Nigeria’s ecosystem (Essential Action and Global Exchange, 2000), but also the extremely high levels of carbon dioxide and methane gases that are released into the atmosphere are a significant source of global warming. This perhaps explains why Nigeria’s oil fields are responsible for more global warming effects than the combined oil fields of the rest of the world (Ake, 1996: 34). Closely related to natural gas flaring is the problem of oil spills, which also contribute to environmental hazards of different kinds. The incidence of oil spills in the Niger Delta is exceptionally high; 40 per cent of all Shell’s oil spills between 1982 and 1992 occurred in the Niger Delta despite the fact that Shell drilled for oil in 28 different countries during the same period (Cayford 1996, cited in Shinsato and Lindsay, 2005: 8). In fact Shell’s own estimates indicate that in 2003 alone, a total of 9900 barrels of oil were spilled in the Niger Delta at 221 different incidents (Shell, 2003: 9). One significant consequence of the numerous oil spills has been the loss of mangrove trees. Once a major source of soil stability, Nigeria’s mangrove forests now find it difficult to survive the oil toxicity mainly due to Shell’s operations. The increasing oil leaks have significantly destroyed the breathing roots of the mangroves, killing off parts of the forest (Essential Action and Global Exchange, 2000: 9). Given that the mangroves essentially provide the foundation upon which the Delta exists, its destruction further results in erosion as the roots no longer hold the delta silt in place. From the economic perspective, this also represents a significant loss, because approximately two billion barrels of fossil fuel are extracted from the mangroves per day and these account for 40 per cent of Nigeria’s GDP (Shah, 2002: 21). Oil spills in the Niger Delta further contribute to the contamination of water bodies. Not surprisingly, World Bank research found that hydrocarbon pollution in Ogoniland water was over 60 times US limits (cited in Shinsato, 2005). Significantly, what accounts for the differences in levels of pollution between the USA and Nigeria cannot be dismissed as merely coincidental. Instead, it is, inter alia, the result of stringent environmental

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policies in regulating the activities of MNCs in the developed world. As Nwankwo and Irrechukwu (1981, quoted in Moesinger and Maglio, 1997) have written: ‘U.S. environmental regulations completely prohibit the discharge of produced water or drilling muds from onshore facilities into surface-water bodies; produced water has to be reinjected for recovery or injected into disposal wells, while drilling muds are to be landfilled.’ Contrary to the USA’s experience, the high incidence of environmental degradation in Nigeria is the direct result of the country’s lack of coherent pollution control policy and enforcement mechanisms. Although the Nigerian government launched a National Policy on the Environment as far back as November 1989 (Federal Environmental Protection Agency (FEPA), 1989, cited in Helmer and Hespanhol (1997), enforcement of environmental guidelines and standards for business actors remains weak either due to capacity constraints on the part of relevant state institutions or lack of political will to do so. Indeed, to the extent that losses in oil production reduce the government’s oil revenues, many victims of environmental pollution by MNCs believe that successive Nigerian governments have been more concerned with production losses than environmental compliance by giant multinational corporations (Centre for Energy Economics (CEE), 2004). In the context of such lax enforcement of environmental policies, good environmental practices by multinationals – which are a common practice in developed nations – are not often followed in Nigeria and other developing countries. Has there been any recent improvement in Shell’s environmental practices in Nigeria? In its 2005 sustainability report, Shell claimed to have contributed greatly to protecting Nigeria’s environment by ending continuous gas flaring at 28 out of its 76 flow stations and by halving the occurrence of oil spills within five years (Shell, 2005: 29). Nevertheless, given Shell’s level of profitability, it would sound modest to suggest that the company’s contribution to sustainable development in Nigeria should be judged against its ability to end, not limit, its hazardous waste management. By 1998, when Shell started producing its sustainability reports, the company had extracted oil worth US$30 billion in Nigeria’s Ogoniland. Today, Shell Nigeria not only produces about 800 000 barrels of oil per day and contributes 13 percent to Shell’s total turnover, but has also been projected to be the company’s main source of expansion in this decade (Christian Aid, 2004). However, despite being lucrative, Shell is now backsliding in its earlier promise to end continuous gas flaring by 2008, projecting that it would be able to do so by 2009 at an additional cost of $1.5 – $2 billion (Shell, 2005). From the above discussion, it appears that the perceived benefits of MNCs notwithstanding, Shell’s environmental record in Nigeria suggests that MNC contribution to sustainable development in developing


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countries is, at best, trivial. It therefore appears necessary to adopt appropriate measures aimed at enhancing the benefits and reducing the costs associated with the operations of big business actors in poor countries.

6.

MULTINATIONAL CORPORATIONS AND ENVIRONMENTAL DESTRUCTION: ARE VOLUNTARY CODES THE ANSWER?

Why do the contributions of MNCs to environmental sustainability remain low and how might developing countries ensure more environmentally responsible behaviour on the part of multinationals? To a large extent, the negative environmental impacts of MNCs stem from the lack of a coherent regulatory regime that will guide the activities of big business actors at both the national and international level. While in theory the private sector is obliged under international law to uphold high labour, human rights and environmental standards, in practice, no effective enforcement mechanisms exist to ensure compliance. In the absence of such a comprehensive international regulatory body, many corporations adopt voluntary ethical codes, often under the label of ‘corporate social responsibility’ or ‘corporate citizenship’. In a survey of 169 MNCs in North America, Europe and Japan, UNCTAD (1993: 22) found that more than 43 per cent had published policy statements on the environment that committed their companies to a significant degree of social responsibility in managing their environmental impacts. Given such an increasing pledge of MNCs to voluntarily adhere to good environmental management practices, the need for state regulation of big business is increasingly being viewed (at least by corporate leaders) as a costly irrelevance to poor countries. Private profit-seeking enterprises, they argue, will voluntarily contribute to sustainable development without the need for state and intergovernmental regulations because environmental sustainability is a win–win scenario. Thus Elkington (1994: 97) cautions that corporations that seek to make huge profits must operate at the highest level of environmental responsibility because [f]ailure to do so will increasingly pose the risk of their companies’ real present (and potential future) value being challenged; their position as a responsible corporate citizen being undermined; and competitive advantage draining away as customers and consumers turn to others who are – or are seen to be – more environmentally responsible.

Contrary to the above faith in business-led voluntary initiatives, many scholars have argued that corporate efforts are motivated primarily by

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regulatory measures rather than by opportunities for profit.9 To be sure, the large investments needed in R&D in fields such as renewable energy are often viewed as too risky and actually threaten the market position of companies with substantial investments and assets in existing products and technologies. Buchholz (1993: 55) acknowledges the limitations of win–win thus: [p]ollution control equipment is expensive to buy and operate . . . Proper disposal of toxic wastes in landfills can be very costly and time consuming. These efforts cut into profits and in a competitive system, companies that go very far in this direction will simply price themselves out of the market.

Conscious of the large environmental control cost, it is not surprising that Shell Nigeria, which promised to end its continuous gas flaring in Nigeria by 2008, is now backsliding on grounds that it is expensive (Friends of the Earth, 2003). Given the large costs involved in good environmental management practices, it would be naively optimistic to expect that corporations will always voluntarily transfer environmentally sound technologies to developing countries as part of their corporate social responsibilities. Not surprisingly, codes of conduct such as the OECD’s Guidelines for Multinational Corporations, the Global Reporting Initiative and the UN Global Compact, among others, remain weak and ineffective because they are voluntary, non-binding agreements. McKinsey and Company (2004) carried out an evaluation of the Global Compact and found that membership of the compact stimulated only 9 per cent of the participating companies to take actions they would not otherwise have taken had they remained outside the initiative. In the vast majority of cases (91 per cent), companies were doing things they would have done anyway with or without their participation in the Compact. Similarly, whereas 571 companies claimed to have been using the Global Reporting Initiative’s guidelines by the end of 2004, in practice, only 44 (representing less than 8 per cent) were using them more systematically (Utting, 2005: 14). Beyond their non-binding nature, the weakness of corporate social responsibility (CSR) is further embedded in the fact that voluntary ethical codes are often adopted by a limited number of companies. A report by UNEP (2002: 1) found ‘a growing gap between the efforts to reduce the impact of business and industry on nature and the worsening state of the planet’ because ‘only a small number of companies in each industry are actively integrating social and environmental factors into business decisions’. In particular, codes of conduct seems largely limited to those sectors where brand names play a decisive role, such as in garments,


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footwear, toys, sport goods, consumer goods and retailing businesses.10 Extractive industries such as oil and mining – which perhaps threaten the environment the most – are unlikely to remain committed to voluntary ethical codes because brand names often do not play any significant role in those sectors. The above discussion is not to suggest that CSR initiatives are completely irrelevant. Indeed, business-led voluntary codes can be relevant in promoting environmental sustainability from at least three perspectives. First, they can improve corporations’ behaviour where previously there may have been few or no standards at all. Second, they can be used to hold corporations to account publicly (though not legally) if their practices are in contravention to their principles. Third, if used inclusively and transparently, codes can be used to develop ‘best practice’ and serve as a platform upon which binding regulations can be developed later (Curtis, 2001). Nevertheless, whereas voluntary initiatives may be necessary to improve the environmental performance of MNCs, they are clearly insufficient, not least because they can easily be used by corporations primarily for public relations. As Zyglidopoulous (2002: 146) puts it in the context of Shell’s operations in Nigeria, corporate self-regulation may be nothing more than an ‘international reputation side-effect’. The above inherent weaknesses of CSR suggest that ‘[w]e need to look beyond ethics if companies are to make a lasting contribution to development’ (Ellis, 2008: 1). In particular, the need for more effective regulation of business activities is being increasingly recognized as the most effective way of promoting sustainable development in poor countries. As one UNDP (1999: 100) report rightly notes, ‘multinational corporations are too important and too dominant a part of the global economy for voluntary codes to be enough. Globally agreed principles and policies are needed for . . . environmental sustainability – to avoid degradation and pollution’. But how best can the activities of MNCs be regulated in developing countries? National governments can and should remain primarily responsible for regulating corporations. Calls for the role of the state in regulating foreign corporate activity are not new. The Rio Declaration requests every state to ‘enact effective environmental legislation’ and to ‘develop national law regarding liability and compensation for the victims of pollution and other environmental damage’.11 Indeed, many studies have found that countries that reap the maximum benefits from multinational investments are those that regulate them and keep their abuses in ‘check’.12 It therefore appears that the question is no longer whether state regulation is necessary in determining the extent of business’s contribution to sustainable development, but whether poor countries can regulate the

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activities of giant corporations in the current global environment. Three major factors account for such a pessimistic viewpoint. First and paradoxically, much as globalization has increased the dominance of MNCs in global markets, it has also altered the means by which the activities of big business enterprises can be regulated by national governments to minimize their negative environmental effects. For example, under the Trade-Related Investment Measures (TRIMs) agreement at the WTO, it has been made illegal to control MNCs through local content requirements. The second obstacle is the prevalence of corruption in developing countries, which significantly prevents the effective enforcement of strict environmental policies on MNCs. Third, many developing countries often decline to press for greater levels of corporate regulation because of the fear of losing FDI inflows. In my view, however, it is both feasible and necessary for the nationstate to regulate the activities of multinationals. Although MNCs have undoubtedly weakened state control over national affairs, the tremendous powers of global corporations do not completely eliminate the autonomy of the state. The fact has always been that, unlike nation-states, MNCs do not have sovereign power and the latter often strive for the support of the former because their decisions can be blocked by the states in which they operate. As Wood (1997) aptly puts it, ‘[b]ehind every transnational corporation is a national base, which depends on its local state to sustain its viability and on other states to give it access to other markets and other labor forces . . .’. This is to say that much as developing countries may find it difficult to remain competitive without multinational investments, MNCs can also hardly survive without the basic structure of the modern state system. Thus, to the extent that the relationship between host countries and MNCs is one of partnership and cooperation, states can exert greater influence over the activities of MNCs despite the latter’s economic might. The failure of developing countries to effectively monitor the environmental practices of MNCs stems largely from their fear that strict environmental regulations would discourage multinationals from locating in their countries. Given the widely held claim that openness to multinational investment represents a ‘magic bullet’ to their developmental challenges, many developing countries still regard environmental sustainability as a ‘luxury’ that they are willing to forgo in favour of further economic development. But does increased multinational activity necessarily result in high growth rates? Rodrik (1997, cited in Boafo-Arthur, 2000: 131) has argued that there is no hard evidence to support the idea that international capital mobility is the panacea to the problems of the developing world, and some reasons to think that it may even make things worse. Indeed,


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international flows of goods and investment across countries with different environmental standards are likely to concentrate pollution in developing countries that are noted for their lax environmental regulations. Thus, rather than necessarily contributing positively to sustainable development, multinational investment may also increase ‘the speed with which competition lowers the standards for efficiency, distributive equity and ecological sustainability’ (Daly and Bhagwati, 1993, quoted in Hansen, 1998: 20). Moreover, it is important to recognize that MNCs have their own interests, which may or may not necessarily coincide with the national interest of the countries in which they operate. The fact that profit maximization is the primary objective of corporations suggests that sustainable development concerns are often of secondary importance to business actors. From this perspective, states can obtain the maximum benefit from multinational investment and minimize the cost of their environmental impacts only if they guide the process in a manner that is compatible with their own developmental needs. This perhaps explains why countries such as China, a well-known effective and strong state achieved high economic growth rates from multinational investments.13 In 1995, China promulgated the ‘Interim Provisions for Guiding Foreign Investment’ and ‘The Guiding List of Industries for Foreign Investors’. These laws, among other things, encouraged investment in new and cleaner technologies for environmental protection, while at the same time prohibited projects that adversely polluted the environment (Guoming et al., 1999: 10). Thus, to the extent that China reaped substantial benefits from FDI, it may have been because the state never succumbed to the ‘multinationals-will-do’ rhetoric embedded in neoliberal orthodoxy. Instead, environmental responsibility on the part of giant corporations had been achieved largely due to the state’s capacity to enforce environmental regulations. Similarly, Dasgupta et al. (2000) found that environmental performance of MNCs in Mexico was largely dependent on the strength of local regulation, both government and ‘informal’. Contrary to the above experiences, many Latin American countries adopted a laissez-faire attitude towards MNCs and were more harmed than helped by foreign corporate activity. For example, UNCTAD (2003: 76–8) finds that a large number of countries in Latin America resorted to rapid liberalization of trade and foreign investment after the mid-1980s and enjoyed large increases in FDI. But in most of these countries, gross capital formation as a proportion of GDP either stagnated or fell. Indeed, even where FDI is recognized to have stimulated economic growth, such as in the ‘Tiger’ economies of Asia,14 inadequate state regulation of foreign corporations resulted in high incidence of environmental degradation.

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According to the Asian Development Bank (2001: 12), resource degradation and environmental pollution in both East and South Asia is so ‘pervasive, accelerating and unabated’ that it threatens human health and livelihood. From the above discussion, it appears that increased multinational investment does not automatically result in economic growth and environmental protection. On the contrary, taking advantage of the opportunities offered by MNCs in sustaining the environment ‘is contingent on bringing to bear a relatively powerful set of domestic institutions. Most obviously, it seems to require a state capable of engaging capital in a project of local economic transformation’ (Evans, 1998: 219). Host developing countries therefore have the crucial responsibility of designing and implementing the appropriate domestic regulatory mechanisms in order to attract ‘quality’ FDI. After all, without ‘[a]n effective state . . . sustainable development both economical and social is impossible’ (World Bank, 1997: 1). Weiss (1998: 13) puts it indirectly: ‘strong states tend to be midwives (even perpetrators) rather than victims of globalization’. The need for a strong state in promoting sustainable development is not difficult to justify; in the absence of a state that can monitor the activities of private sector actors and sanction them when necessary, a healthy foundation is laid for companies to promote their profit-making interests without adequate regard for the interest of society as a whole. Not coincidentally, in the context of Nigeria’s lax environmental policies, the Shell Petroleum Development Cooperation never hesitated to state: ‘[i]t is not our role to develop the communities. But we feel our responsibilities that we have to work with these communities . . . to help them in some ways’ (Tell magazine, 2002: 49, quoted in Okotoni, 2004: 4). Significantly, if corporations do not see it as dutifully binding upon them to bring development, then national governments – whose primary mandate is to protect and improve the social and economic conditions of all citizens – have the critical role of ensuring that business entities do not pursue their narrow economic interests to the detriment of society. It is important to recognize, however, that the effectiveness of state regulation of big business depends largely on the character of the dominant political elite. Where the commitment of the top political leadership to the goal of environmental sustainability in a country is weak, corrupt governments may find it more profitable to connive with corporations in setting lax environmental standards. To arrest this situation and make the state a more effective regulator of corporate activity, international efforts are required. First, international efforts should enhance, not restrict, the policy space and powers of states to regulate foreign investment in order to meet national developmental objectives. The local content provision under


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the proposed TRIMs agreement has the potential of weakening the ability of developing host countries to bargain strategically with multinational enterprises and maximize their contribution to sustainable development. Thus, if the proposed multilateral agreements on trade and investment are so concerned about the rights of MNCs, some attention must also be paid to their obligations and responsibilities towards the developmental needs of host countries. A reform of this sort would need to incorporate legal rights for citizens and communities affected by corporate activities; impose some duties on corporations with respect to environmental matters; and enact effective legislations to ensure high standards of behaviour wherever corporations operate. Such reforms will not only permit developing countries to guide MNCs in a manner that will be compatible with their national interests, but will also save the WTO from being legitimately accused of largely representing the interest of global corporations. Second, there is need to monitor and sanction not only global corporations, but also national governments that abandon their regulatory responsibilities of corporate behaviour. The international community could impose obligations on national governments (such as through conventions) requiring them to regulate the operations of MNCs in their jurisdictions. If a state fails to fulfil its regulatory obligations, it could be penalized through an analogous body to regional human rights courts, such as the European Court of Human Rights or the Inter-American Court of Human Rights. This would aim at providing incentives for the development of national legislation and institutions that would act to regulate companies. National legislation would recognize countries as both home and host states and provide the facility to hold the activities of MNCs and their subsidiaries in host countries to account in home countries, where appropriate (Christian Aid Policy, 2002). Third, and in relation to the argument that developing country governments are so corrupt that they can hardly implement effective regulatory mechanisms against powerful MNCs, it is important to recognize that bribery often involves two partners: the giver and the taker. And because both parties benefit from corruption, either of them may initiate a corrupt deal. Thus, for a more holistic approach to achieving sustainable development, the international community needs to monitor effectively the conduct of foreign MNCs that sometimes engage in offering bribes to public officials to receive preferential treatment. The OECD’s (1997) anti-bribery convention, aimed at reducing corruption by sanctioning ribery carried out by companies based in OECD member states, is a significant step forward in this direction. However, the effectiveness of this convention largely depends upon the extent to which it is effectively implemented. Unless developed-country governments begin to punish their own

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business people for engaging in corrupt conducts abroad, the convention will have no impact on improving corporate responsibilities towards the environment. Nevertheless, while the above rule-based system holds the promise of turning multinationals into a more positive force for sustainable development, there is also the need for MNCs to constantly uphold ethical behaviour in order to counter the temptations for corporate greed and exploitation. This further requires corporations to reverse their ‘businessas-usual’ practices, recognizing that even if the cost of sustaining the environment cuts into their profits, the reputation associated with being labelled a ‘green’ business entity alone makes good environmental management practices a worthwhile venture.

7.

CONCLUSION

This chapter has argued that a sound regulatory mechanism is a precondition for ensuring that the increasing dominance of MNCs in global trade and investment does not undermine patterns of development that are socially inclusive and environmentally sustainable. Admittedly, MNCs can and sometimes do voluntarily play a significant role in protecting the natural environment in poor countries through the diffusion of cleaner technologies and best management practices. However, from one critical dimension, it would be imprudent to promote faith in voluntary ethical codes to the detriment of regulatory alternatives. The adoption and effectiveness of business-led voluntary initiatives is fortuitous, because it depends largely upon the commitment of a given corporation to the concept of corporate social and environmental responsibility. But if the environment is so significant for the survival of mankind, its protection should be objective and guaranteed rather than merely being fortuitous. Yet only in the context of legally binding regulatory measures will multinationals consistently feel compelled to conduct business in an environmentally friendly manner. Moreover, not only are voluntary codes limited to a few sectors; it is also always uncertain whether today’s supposed ‘corporate citizens’ will remain so tomorrow when being ‘green’ deeply threatens their profit motives. The stark reality then is that ‘the ground rules of profit make it hard [for MNCs] to be a friend to the environment’ (Suzuki, 1993, quoted in Mikler, 2003: 13) all the time. Indeed, so long as industry self-regulation remains the only paradigm for influencing corporate environmental performance, the contribution of MNCs to sustainable development will, at best, remain marginal. The UN Research Institute for Social Development


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(2005: 154) corroborates this view: ‘[t]he actual contribution [of MNCs] to enhancing . . . sustainable development has been modest – and sometime clearly negative . . . International business cannot be expected to author their own regulation: this is the job for governments.’ Moreover, it would be a big mistake for developing countries to adopt a complete laissez-faire attitude towards MNCs because of FDI inflows. After all, openness to MNC investment is not necessarily associated with higher growth rates. Worse still, as the experience of Nigeria illustrated in this chapter has shown, where the state adopts a complete hands-off strategy, waiting for multinational firms to bring development, it is likely to face severe environmental risks. Emphatically, this is not to suggest that voluntary initiatives are completely irrelevant, but to make a case that much as morality without laws can hardly ensure a just society, responsibility without accountability on the part of giant global corporations can hardly ensure an environmentally sustainable society. From this perspective, effective government regulation and voluntary approaches must be seen as complements rather than substitutes. Unfortunately, national governments are often too weak and too desperate to attract FDI to hold multinationals accountable for their environmental crimes. It therefore seems necessary that an international, legally binding mechanism is developed to build a counterweight to corporate power. As Christian Aid Policy (2002) has rightly emphasized, the growing power and influence of MNCs, coupled with the inadequate national and international environmental legislation, means that now, more than ever, we need international, legally binding regulation to stop the worst MNC environmental abuses. In addition to an effective regulatory framework, fair trade rules are critical in ensuring that poor countries maximize their benefits from multinational investment and minimize their negative environmental impact. Implicit in this idea is the suggestion that the multilateral rules governing international trade and investment be revised in a manner that will not only enhance the powers of MNCs, but also impose greater responsibilities on them in host developing countries. In particular, the proposed TRIMs and TRIPs (Trade-Related Aspects of Intellectual Property Rights) agreements at the WTO should be reformed to enable poor countries to regulate the activities of foreign investors in line with their developmental needs and to generate greater and affordable transfer of modern technologies to developing countries. The ability of poor countries to purchase ‘cleaner technology’ means that they will no longer conceive of the ‘dirty technologies’ of the developed world as a ‘necessary evil’. While these changes to the global governance system may not easily take place, such reforms are absolutely crucial if we are to enhance the

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contribution of big business enterprises in preserving the natural environment for future generations.

NOTES 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

This argument was particularly emphasised by Michael Spicer, other executive vice president of corporate affairs at Anglo American, at a workshop organised by Deloitte Touche Tohmatsu, Nova Nordisk, and the University of Cambridge Programme for Industry, on the theme, ‘When trust is challenged: dilemmas and opportunities in corporate transparency’, Johannesburg, 2 September 2002. For example, in a review of the literature on the MNC–sustainable development debate, Zarsky (1999) concludes that the evidence is mixed and that the most significant determinant of firm environmental performance is community pressure. This period extends from the sixteenth to the eighteenth century. The 1984 Bhopal disaster and the 1989 Exxon Valdez oil spill in the USA are the most frequently cited examples. Broadly, however, the term ‘sustainable development’ goes beyond environmental protection to include social and economic development concerns as well. For details check http://www.unep.org/Documents/Default.asp?DocumentID=97& Article For critics, industrial disasters such as the 1984 Bhopal catastrophe and the recent environmental practices of Shell in Nigeria’s Ogoniland epitomize the environmental hazards underlying the operations of MNCs in poor countries. For more examples of environmental damage caused by multinational corporations in developing countries, see Morimoto (2005). For example, see Dillon and Fischer (1992) and Rappaport and Flaherty (1992). See Singh’s comments at the Workshop on International Regulations held in May 2005 at http://www.jca.apc.org/~kitazawa/english/alliance_21/kavaljit_singh_comments_to_ sara_anderson_on_tnc.htm. See principles 11 and 13 of the Rio Declaration respectively. Available online at http:// www.unep.org/Documents.multilingual/Default.asp?DocumentID = 78&ArticleID = 11 63. See Stiglitz (2002) and Chang (1998). For details of FDI and China’s economic growth, see Wu (1999). For example, accounting for half of a total FDI flow of $101 billion to developing nations in 1995, multinational investment is noted to have played a crucial role in the economic development of East and Southeast Asia (Asian Development Bank, 1999: 1).

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4.

Sustainable development and resource-based foreign direct investment in developing economies: models of corporate production behavior Kofi Afriyie

1.

INTRODUCTION

This chapter employs the evolutionary-stage approach to explain the dearth of or outright lack of positive spillovers on resource-rich host economies, as multinational enterprises (MNEs) expand in the latter stages of their globalization expansion. The major thesis of the chapter is that the stage at which an MNE exists in its evolutionary development as it globalizes its activities around the world determines whether a host country will benefit from the firm’s production activities. Thus we demonstrate that a host country stands to gain more economic benefits at stages of production when the MNEs is less integrated vertically. Thus, in the later stages of production when the firm’s production is increasingly dispersed across many national economies and markets, a host country would find it more difficult to capture value-added in production within the host economy than in stages of horizontal or, at least, less vertical investment. We argue that a major consequence of vertical integration production is that there tends to be less opportunity to create positive spillovers in a national economy, a situation that can lead to, depending on the internal political dynamics of a host country, adverse relationships between host stakeholders and the MNE. Such adverse relationships, in turn, have the effect of encouraging the MNE to further undertake even more vertical investing to reduce production risk in a host country. Ultimately, by not creating value-added production to be captured by the host economy, the firm helps in creating an environment of political risk for entrenched and future foreign firms in the host market. 73

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The goal of this chapter is twofold: first, it examines the stages of global expansion and critically evaluates the prospects of economic benefits in the form of value-added production at each stage of the evolutionary trajectory of global market entry; second, it proposes alternative approaches to generating mutually reinforcing production strategies within a host country–firm alliance aimed at reducing conflicts among external and host-country stakeholders. This chapter addresses the following research questions: 1.

2.

3.

At what stage of the evolutionary expansion trajectory is a multinational most likely to create the greatest potential for economic benefit in a host country? Similarly, at what stage of the evolutionary expansion trajectory is a multinational least likely to create opportunity for economic growth in a host country? Are there alternatives production models that should guide firms to enhance value transfer to host economies in an environmentally sustainable way?

The structure of the rest of this chapter is as follows: first, a literature review is presented to identify a gap between existing research and the goal of this chapter. Second, a conceptual framework is presented to show the production linkages of an MNE in a resource-rich environment. Third, the chapter discusses methodological issues that are likely to be encountered in future empirical work based on this chapter. Fourth, research and policy implications of this chapter are discussed.

2.

LITERATURE REVIEW

Studies on international production have long shown that MNEs over time have created production systems that are vertically integrated across national economies (e.g. Caves, 1974; Dunning, 1988). Several prominent studies have analyzed the effect of foreign direct investment (FDI), mostly from the industrialized world, on host developing economies for years. We summarize and explore the underlying themes and conclusions of some of these studies below. There is a fairly long history of numerous attempts to examine the impact of FDI on developing economies. For instance, Caves (1974) has written about the overall impact of FDI on developing economies. The record is mixed in terms of net positive impact and is contingent on several internal and external factors of the host country.

Sustainable development and FDI in developing economies

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Studies on multinational production that were undertaken prior to the 1980s and 1990s showed that the basic model of FDI was more of discrete production in different countries, relative to the current era of increasing globalization of production (Dunning, 1998b; Caves, 1971). Other studies have explored the impact of FDI on the prospects and actual transfer or technologies from MNEs to host countries (e.g. Lecraw and Morrison, 1991). In general, these studies concluded that such transfers faced enormous barriers, imposed by both the MNEs, which did everything in their power to restrict such transfers, and the host countries, whose internal constraints such as lack of critical scientific manpower diminished the prospect of such transfers anyway (Van Pottelsberghe De La Potterie and Lichtenberg, 2001). Specific attempts to measure spillover effects in various industries and countries provide a rich collection of corporate and country experiences (Blomström, 1989; Blomström and Koko, 1998). Common to most of these studies is the emphasis on the final outcome of FDI on the host economy. This study, on the other hand, emphasizes the rationale behind the dearth of spillovers by examining the production models employed by MNEs. We argue that because the globalization process occurring in many industries today is characterized by the simultaneous dispersed production and global integration (Dunning, 1995, 1988) and a conscious effort to create value chains that benefit the firm (Kogut, 1985), there is a compelling reason for researchers, business organizations and policy makers to re-examine the impact such production behavior has on host economies.

3.

A CONCEPTUAL FRAMEWORK

3.1

Stages of Global Evolutionary Expansion and Multinational Production

Prior studies on international expansion strategies of firms have recognized three distinct historical trajectories that various multinational firms have used to expand their production activities abroad. Stage one (see Figure 4.1) Purely domestic firms traditionally begin their forays into foreign markets through exports, often exclusively so. These markets are discrete, in that there are few or no production or marketing linkages among them. Consistent with the traditional ethnocentric model, managerial decision

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Multinational enterprises and sustainable development Characteristics Foreign country1

Foreign country2

Exports

H Co

Foreign country3

Foreign countryn

H = Home country Co = Original company

Figure 4.1

• Exports are the exclusive vehicle of international entry • Export markets are discrete, with little or no marketing or production coordination among them • Managerial decision making and corporate culture are firmly rooted in home country • Production spillover effects of firm’s activities are minimal to negligible • Consumption of firm’s products /services is the dominant effect on host economy

Evolution of international business, stage one – export trade

making and corporate culture are firmly rooted in home country (e.g. Cateora and Graham, 2006; Phatak et al., 2005). Under such conditions, it is hard to imagine any significant or even moderate production spillover effects of a firm’s activities in the host export market. With little production imprint in the host country, the only residual effect on a host economy is one of consumption of a firm’s products and/or services. Stage two (see Figure 4.2) At this stage of international production, trade is gradually replaced by FDI in the host country. Like the export market before it, FDI tends to be a national standalone investment with critical managerial and technological inputs from a firm’s home country, with the latter often transmitted through trade (Root, 1994). This model is consistent with production strategies of firms in the manufacturing industries that expand beyond the shores of the home country.


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Characteristics FDI1

• Trade is gradually replaced by FDI

FDI2

H Co

FDI + Trade FDI3

• Like trade before it, FDI is undertaken in discrete markets • As a standalone activity, FDI tends to involve the entire production process, in the case of manufacturing, with critical inputs from a firm’s home country. Inputs are transmitted through trade

FDIn

• In the case of extractive industries, the discrete home countries become the platform for increasing vertical production in the expanding company FDI = Foreign Direct Investment H = Home country of FDI company (Co)

Figure 4.2

Evolution of international business, stage two – multinational production

Nowhere has this phenomenon been more observed in the process of regional concentration of trade and FDI than in the triad of trade and investment centered in North America, Western Europe and East Asia (e.g. Dunning, 1981, 1988; Rugman, 2005). From a historical perspective, the discrete, multi-domestic nature of FDI tends to be mere extensions of home-country production lines. In the case of extractive industries, individual home countries become the platform for increasing vertical integration production in the expanding MNE (Dunning, 1988). To evaluate the effects of stage two in the foreign expansion path on the host economies, one has to examine the nature of the industry in which

78


the FDI is created in foreign economies. As noted, manufacturing firms in stage two are much more likely to be self-contained, standalone entities than in the extractive industries upon which many developing economies are based. The production of oil and many minerals such as gold, manganese and bauxite follow the latter, vertical paths rather than the horizontal, standalone FDI. Hence a host country has, potentially, a better chance of capturing a significant value from FDI in a horizontal production system. However, evidence of stage two occurs almost invariably in the manufacturing sector. Gundlach and Nunnenkamp (1998; 153–74) have shown that East Asian countries have been able to capture benefits from FDI in the manufacturing sector through the process of convergence via host-country learning in this sector. No such convergence through learning has been reported in the resource-rich economies in which cross-nation vertical integrated is the norm. Another factor that would inhibit the capturing of spillovers by the host is the lack of necessary technological skills that should enable a host country to provide the missing production links that are dispersed by the MNE to other national production platforms in the extractive industries. Stage three (see Figure 4.3) Stage three of international production is characterized by worldwide dispersed production in a firm’s own production facilities, joint ventures and other forms of alliances to leverage low-cost advantages in specific locations. Dunning has identified three such advantages: ownership advantages embedded in the investing firm, location-specific advantages residing in a host country; and the advantages inherent in the internationalization process itself (Dunning, 1981, 1988). The dispersed production system replaces the discrete form identified in stage two. The third stage is based on the logic of a rationalized, integrated system that is also globally interdependent. As noted several times above, stage three is less likely to provide opportunities for a host country to capture some of the value-added output, in terms of spillovers, from an FDI in the extractive industry. Stage four? The deepening of globalization, accompanied by the Internet and rapid technological revolutions in IT and communications, has prompted debate as to the next wave or stage of global business. Indeed, some studies have identified firms that are increasingly bucking the traditional trajectory of expansion. These firms, dubbed ‘born globals’,


Co FDI

Trade

Alliance FDI

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Characteristics • Production and marketing are dispersed globally • Discrete FDI gives way to a global integrated production system

R&D + Market

Home country

Lic FDI

JV = Joint venture Lic = Licensing

Figure 4.3

JV FDI

• Each FDI is directly or indirectly linked to the others in production and marketing of product or service • Strong pressure to avoid duplication in production • Ownership is also dispersed, with increasing reliance on a variety of partnerships

Evolution of international business, stage three – global business networks

provide a window of the future configuration and path to expansion (Cateora and Graham, 2006). 3.2

Major Implications of the Conceptual Framework in this Study

First, from the foregoing analysis, it is logical that, under specific production conditions and firms’ choice of production models, a host country that is richly endowed with highly sought-after strategic resources could still remain poor because of its inability to capture value from those assets. Second, an overriding corporate imperative to integrate production across national economies suggests strongly that operations of an MNE would not encourage sustainable development, defined here as the ability to produce a product or service that is consistent with: (a) meeting human or community needs, in terms of employment and other economic benefits,

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(b) environmentally appropriate methods to protect or enhance the wellbeing of communities and the ecological system in which a firm operates (see UN, 1983). Third, this study seems to contradict the theory that, over time, bargaining power shifts from the multinational to the host country – obsolescing bargains (see Lecraw and Morrison, 1991; Wells and Fagre, 1982). In may be that in the broad scheme of political power to nationalize or expropriate an FDI, host-country bargaining power may increase after the initial honeymoon of attracting a foreign investor. However, the power to control production through a carefully crafted strategy of global integration appears to remain permanently with the investor in extractive industries within developing economies.

4.

METHODOLOGICAL ISSUES IN FUTURE EMPIRICAL WORK

This study uses the concept of evolutionary expansion of firms in the global marketplace to evaluate the extent to which a host country may capture value from FDI activities in resource-rich economies. Analyzing the types of activities firms undertake and where they undertake them provides researchers with tools to analyze FDI effects on an economy. By deconstructing a firm’s portfolio of activities around which a discussion of spillovers can be estimated, it is possible to also examine the likely sustainability of an FDI project, economically and ecologically. From a methodological standpoint, the following present opportunities and challenges to researchers in measuring the impact of FDI on host economies: 1.

2.

Researchers can explore the proposition that benefits that accrue to the host nation through the first stage, export model, are virtually non-existent, because of the nature of the export entry mode, which is extremely ethnocentric, with home-country roots that are not capable of sharing the value-added of export operations. Another proposition could be framed to examine potential associations between ‘vertical’ FDI undertaken by multinationals and the likely spillovers. Such a study will examine host-country capacity to learn or imitate the investing firm as well as to learn to produce critical missing links in the production value chain. Hence the existence of a host country’s technological learning capacity would serve as a moderating factor in explaining the creation of spillover effects in resource-rich developing economies.


3.

4.

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Researchers must identify key value chain activities, including the ‘forward’ and ‘backward’ linkages that constitute an integrated value chain in an industry. These activities must then be identified with the stage of an FDI presence to enable researchers to explore potential correlations, if not causality, between the stage of production and type of value creation that accrue to a host economy. The role a government plays is also crucial in an attempt to estimate spillover effects of FDI. Data on government tax receipts, and profit sharing from joint ventures as well as royalties must be accounted for to allow an accurate evaluation of spillover effects. As before, associations between government’s role and the capacity to generate spillovers will provide further insights into firm production behavior and benefits to host economies.

An illustration of lack of sustainable development stemming from FDI in gold mining in Ghana, a resource-rich developing country, can be best explained by examining the effects of vertical production that adds little value to the needs and quality of life in gold-mining communities. When FDI production was analyzed in the gold-mining sector of Ghana between 2004 and 2006, five communities were observed to have been affected as identified below: 1. 2. 3. 4.

5.

5.

Income effects: negative. Employment effects: minimal due to high capital-intensive nature of gold mining. Social disruption effects: loss of future livelihood when crop farms were reserved for gold production with little compensation. Social reaction effects: a backlash from unemployed youth who decided to dig for gold on company property, leading to deadly clashes between the youth and corporate security forces. Ecological effects: cyanide spills into local rivers from mining process that uses the deadly chemical (Bomfeh, 2006).

PROPOSITIONS AND HYPOTHESIS BUILDING

Based on the analysis presented above, the basic elements of research proposals and hypothesis building are presented as follows: 1.

The stage at which a firm expands into a foreign market in a host economy can determine the likelihood of creating spillover effects.

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2. 3.

4.


The stage at which a host nation is likely to create the least or the greatest potential for economic benefit in a host country can be explored. The appropriate social responsibility alternatives that should guide firms to enhance value transfer to host economies in an environmentally sustainable way can be identified. Policy choices that may enhance host public and private decision makers to create enabling production environments to capture value from FDI production can be suggested.

Proposition 1 A host nation is more likely to capture value-added production as spillover effects if the investing multinational is at stage two, provided the host possesses the necessary technical skills to learn and provide inputs into the value chain of the investor. Proposition 2 A host nation is least likely to capture value-added production as spillover effects if the investing multinational is at stage one or three. At stage one, the firm has total control over the product or service at arm’s length. Hence it is unlikely that the host country or its entities would be able to capture any value from the exporter. On the other hand, at stage three, value creation is scattered worldwide, so a host nation has a very small window of opportunity to learn to imitate or otherwise appropriate value from the FDI partner. Unless the host can also provide key links in the value chain, value added will elude it as it does in most resource-rich developing economies. Proposition 3 The availability of technology agents, public or private, sets the bar for the nature and level of capabilities that would enhance capturing some of the value-added in the production and marketing of output from FDI. From these propositions empirical work can be constructed to test several hypotheses that flow from this theoretical analysis.

6.

RESEARCH AND POLICY IMPLICATIONS

By linking the stage of evolutionary expansion and value chains of firms to the creation of spillover effects of FDI, this chapter has created a new approach to evaluating FDI in host economies. Because of the dynamic nature of FDI expansion, researchers have several options to examine the stages of the FDI expansion and then examining correlations, if any, with spillover effects at any stage in the production value chain. From a corporate strategic perspective, managers and their firms have


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to answer a critical question: to what extent should a firm consciously help create spillover effects in a host economy, before it begins to face stakeholders who are unhappy about job creation and lack of value-added in the host economy? From the host decision-making authorities, government officials or private entrepreneurs and companies, a critical question would be: how can the domestic environment learn to create opportunities to leverage the benefits of FDI and its potential spillover effects?

REFERENCES Blomström, M. (1989), Foreign Investment and Spillovers: A Study of Technology Transfer to Mexico, London: Routledge. Bomfeh, J.K. (2006), ‘A critical look at mining in Ghana’, The Chronicle, 15 (3) August. Cateora, P.R. and J.L. Graham (2006). International Marketing, New York: McGraw-Hill/Irwin. Caves, R.E. (1971), ‘Industrial corporations: the industrial economics of foreign investment’, Economica, 38: 1–27. Caves, R. (1974), ‘Multinational firms, competition and productivity in hostcountry markets’, Economica, 41 (162): 176–93. Dunning, J.H. (1981), International Production and the Multinational Enterprise, London: Allen and Unwin. Dunning, J.H. (ed.). (1988), Explaining International Production, London: Unwin Hyman. Dunning, J.H. (1998a), ‘An overview of relations with national governments’, New Political Economy, 3 (2): 280–84. Dunning, J.H. (1998b), Globalization, Trade and Foreign Direct Investment, Amsterdam: Elsevier Science. Dunning, J.H. (1995), ‘Reappraising the eclectic paradigm in an age of alliance capitalism’, Journal of International Business Studies, 26(3), 461–91. Gundlach, E. and P. Nunnenkamp (1998), ‘Some consequences of globalization for developing countries’, in J.H.Dunning (ed.) (1998), Globalization, Trade and Foreign Direct Investment, Amsterdam: Elsevier Science, pp. 153–74. Kogut, B. (1985), ‘Designing global strategies: comparative and competitive value added chains’, Sloan Management Review, 26 (4): 15–27. Lecraw, D.J. and A.J. Morrison (1991), Transnational Corporation–Host Country Relations: A Framework for Analysis (Essays in international business No. 9), CIBER, University of South Carolina. Phatak, A., R.S. Bhagat and R.J. Kaslak (2005), International Management: Managing in a Diverse and Dynamic Global Environment, New York: McGrawHill/Irwin, pp. 15–19. Root, F.R. (1994), International Trade and Investment, Cincinnati, OH: SouthWestern Publishing. Rugman, A.M. (2005), The Regional Multinationals, Cambridge: Cambridge University Press.

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UN (1983), General assembly resolution 38/161: Process of preparation of the Environmental Perspective to the Year 2000 and Beyond, Bruntland Commission, in A/RES/38/161, the General Assembly. Van Pottelsberghe De La Potterie, B. and F. Lichtenberg (2001), ‘Does foreign direct investment transfer technology across borders?’, The Review of Economics and Statistics, 83 (3): 490–97. Wells, L.T. and N. Fagre (1982), ‘Bargaining power of multinationals and host governments’, Journal of International Business Studies, 13: 9–24.

5.

Of butterflies and hummingbirds: industrial ecology ‘on the wing’ Van V. Miller and Charles T. Crespy

1.

INTRODUCTION1

As a boy, I once went goose hunting with my older cousin. He explained to me that day as we climbed up the hill looking down on the goose pond an important rule – the geese must be shot ‘on the wing’. To shoot them while they floated on the water would be not only unsportsmanlike but also wrong. I have forgotten whether we bagged any geese that day (probably not), yet I have never forgotten those words – ‘on the wing’ – and the admonishment to shoot according to the rules. But let’s dispense with the hunting metaphor and shooting and instead, let’s discuss butterflies, hummingbirds and rules about ‘on the wing’. You ask – what does that have to do with sustainable development (SD) and industrial ecology (IE) – the theoretical underpinning of this chapter? Our reply is – much – for an emerging discipline that draws its inspiration from natural systems. In an article discussing the boundaries of IE, Randles (2007: 164) discussed the issue of scale or geographical levels for industrial ecology. Her point was: We can no longer envisage a simple hierarchy of separate levels – the individual, the household, the neighborhood, the urban, the national, the global or alternatively, the plant, the firm, the sector, the economy, because such a hierarchical interpretation requires the conceptual privileging of one scale over another when, in fact, the interaction between these levels demands that they be seen as overlapping and ‘superimposed.’

From her discussion about geography and transnational corporations (TNCs), the necessity of viewing the relevant ecosystem as an intertwined and constructed mixture of spatial levels and organized actors must be given more attention if IE is to provide a useful perspective for understanding and ultimately improving ecosystems worldwide.

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2.


MIGRATORY FLOWS FOR BUTTERFLIES AND HUMMINGBIRDS

When we couple Randles’s concern for geographical levels with our interest in institutional exchanges that interrupt IE flows, as exemplified naturally by butterflies and hummingbirds, the landmass that comes into immediate view is the Americas, North and Central, as a single continuous unit. It can be visualized as a solid and undivided piece of the earth that extends from the northern Arctic at the top of Canada to the far tip of the Central American isthmus connected to Colombia and South America. Each year, within that space the eastern monarch butterfly (danaus plexippus) spends its summer in the USA/Canada and then flies south to overwinter in Mexico. This annual intergenerational migration represents a migratory flow, for a single butterfly, of several thousand miles and, for the species, a flow of billions of miles. The monarch’s north–south journey received much attention from environmental scientists several years ago when a brief research note in Nature (Losey et al., 1999) set off a controversy about the effects of Bt (Bacillus thuringiensis) upon monarch butterfly larvae. Bt, found in genetically modified corn throughout the midwestern USA, may kill the larvae as they engage in a natural exchange with the milkweed plant, an exchange that sustains the monarch in the second stage (caterpillar) of its life cycle as well as during the northern part of its annual migratory flow (see www.monarchwatch.org). Hummingbirds present a similar, though divergent, picture. Like the monarch butterflies, the rufous hummingbirds (selasphorus rufus) summer up north and winter down south in Mexico with its relatively mild winters and continuously blooming flowers. For the purposes of this chapter, we shall assume that the monarchs and hummingbirds have ‘selected’ this international habitat and its international flows with local sustenance exchanges based on a set of natural rules that have evolved over time and allowed them to perpetuate their species. Nevertheless, there are geographical exceptions among the hummingbirds. Some of them, e.g. the ruby-throated hummingbirds (archilochus colubris), fly even farther south and winter in much warmer Central America with its greater abundance of flora. However, not all rubythroated hummingbirds overwinter in Mexico or a Central American nation. Recently, a few have chosen to stay in the southernmost parts of the USA and sustain themselves there instead of flying south across the Gulf of Mexico in search of a winter refuge. By doing so, they also avoid the very long and arduous return trip north in the spring (see www.rubythroat.org). In possible reaction to global warming, the rules for natural migratory flows are being altered to fit the changing environment. This

Industrial ecology ‘on the wing’

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ecological shaping or evolving of natural rules should be kept in mind when we discuss the humanly constructed rules of trade agreements in the next section. For human observers, the amazing feat performed by most members of these species is how incredibly long they are ‘on the wing’ during their annual migrations (for a hummingbird, it is a non-stop trip across the Gulf of Mexico in the fall and again in the spring). These long-range aeronautical journeys with their international flows are indeed impressive, but more important are the natural exchanges promised at each end of the long trips. Each species knows that both in the south and the north, it will be rewarded, at a minimum, with the sustenance of life for having endured the trip. For butterflies and hummingbirds, being ‘on the wing’ within an international ecosystem enables them to perpetuate their species as they undertake local exchanges for food and shelter according to natural rules in each locale.

3.

REVIEW OF NAFTA AND CAFTA FROM AN IE PERSPECTIVE

For the human species that occupies the same geographical space as the butterflies and hummingbirds, there is an analogue to be found in the regional trade agreements, NAFTA (North American Free Trade Agreement) and CAFTA (Central American Free Trade Agreement). NAFTA, ratified in 1993 and CAFTA, ratified in 2005, have created two international ecological niches2 for business organizations to operate ‘on the wing’ in North America. These new niches, as Randles (2007) contends, cannot be viewed as local ecosystems. True, they draw from and alter such a system, but they are obviously internationalized regional systems that the human species has ordained, developed and now maintains. The maintenance of these contrived ecosystems will result from rules found within the regional trade agreements and those organizations that use and shape those rules in the years ahead. Miller and Ford (2007) discussed in considerable detail and explained with multiple examples how the flows of IE are always subject to economic exchanges – the intellectual grist of institutional theory. Trade agreements are essentially nothing more than the institutionalized formal rules for how the flows of international commerce will be exchanged at national borders. Local exchanges give life to the users of an international trade agreement, sustain them and simultaneously impact the domestic ecosystem. Therefore, the way in which a trade agreement is developed and implemented becomes vital for understanding for those of us seeking to apply the descriptive– normative logic of IE to the sustainable development paradigm.

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To further this understanding, we next discuss both NAFTA and CAFTA from the perspective of business firms pursuing sustainable development. Both trade agreements, although focused primarily on economic or commercial matters, contain specific sets of rules for how labor and environmental issues, our operational constructs for sustainable development, should be handled vis-à-vis trade in goods/services and investments from abroad. However, before beginning that discussion, we present some of the basic tenets of industrial ecology. 3.1

Industrial Ecology

As a prescriptive way of thinking about sustainable development, industrial ecology had its formal beginning with an article in Scientific American (Frosch and Gallopoulos, 1989). The authors advocated that industrial actors at the firm level should reconfigure their operational flows and connect them to establish an integrated system of outputs and inputs. Such a system would mimic what is found at the local level in a natural ecosystem such as the interplay between butterflies and milkweed in a cornfield. Similar to a biological ecosystem, an industrial ecosystem would presumably optimize the use of all its constituent elements and achieve an ecological balance that could naturally endure and perpetuate itself. Thus, naturally occurring biological systems became the dominant metaphor for IE and its exclusive focus on industrial systems. Although the IE approach seems highly normative (Korhonen, 2004), it also attempts to be descriptive of existing industrial systems, which would include, for example, recycling efforts. The industrial system that receives the major plaudit is the complex at Kalundborg. On this Danish island, a number of industrial operators – a refinery, a power station, a fish farm etc. – have interconnected operations that allow the flows among the plants to be linked and supposedly harmonized. The actual existence of these many flows in a single locale gives empirical credibility to IE and helps to provide it with a rationale for its normative stance toward industrial systems. As traced out above, IE assumes (1) that ecosystems, whether natural or industrial, should be in balance and self-perpetuating, and (2) that these systems are primarily characterized by the flows among their constituent parts. Obviously, one can argue with these basic assumptions, but at a given point in time – say the past century – they do represent a view of the world, particularly the natural world, that seems quite plausible. Flows can readily be observed and there is usually (or could be for industrial systems) a balance among them. Otherwise, systems would be generally failing and chaos would ensue. Global warming does not contradict this observation because it is a likely case of unbalanced flows leading toward


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a breakdown. Instead of arguing against balanced flows, we accept the IE premises in the remainder of this chapter. Sustainability as advocated from an IE perspective draws heavily from the Brundtland Report (WCED, 1987). That report emphasized three main sustainability dimensions or pillars – economic, social and environmental. The remainder of this chapter emphasizes these three pillars of sustainability and expands them geographically to NAFTA and CAFTA. 3.2

NAFTA

To understand NAFTA in sustainable development terms one must remember that it was initially proposed as an economic agreement, the first pillar of sustainability, between Mexico and the USA. Temporally it followed on the heels of the economic trade agreement between Canada and the USA that was negotiated during the 1980s and was to come into effect in 1989. In light of it, the just-elected3 president of an economically depressed Mexico had a huge challenge in front of him. He needed to stimulate the Mexican economy and to do it quickly. Early in 1989, he traveled to several European countries in search of economic assistance but found none. In light of that disappointment, he then proposed to the George H.W. Bush Administration a free trade agreement between Mexico and the USA that would deal with the economic issues of trade and investment. Shortly after negotiations began between Mexico and the USA, Canada, fearful of being left out of this regional economic dance, asked to be included, and it was. By the summer of 1992, negotiators from the three countries had completed their work, which allowed the respective political leaders to meet and sign the lengthy trade document with its exclusive focus on economic matters. However, in the USA, George H.W. Bush was facing a tough re-election challenge from Bill Clinton. In November, Bush lost to Clinton. NAFTA, still not ratified by each nation’s legislature, was now in serious trouble. Clinton refused to proceed toward ratification without a renegotiation that included social and environmental matters – the other two pillars of sustainable development when labor is viewed as being on the social pillar. It should be noted that he did not defend his stand on the renegotiation imperative by relying on the sustainable development argument. Labor and environment issues seemed to have been important on their own in his administration’s mind. Given the central and dominant position of the USA in the North American economy, Canada and Mexico had little choice but to go along with the renegotiation that started quickly after his inauguration. As a result of the renegotiation, two side agreements, North American Agreement on Labor Cooperation and North American Agreement on

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Environmental Cooperation, were included with the commercial trade agreement that each country ratified in late 1993 – barely 30 days before it came into effect on 1 January 1994. From the perspective of sustainable development and industrial ecology, NAFTA created a unified regional regime for economic–environmental–labor flows and exchanges. All three sustainable development pillars were supposedly established in law (institutionalized as formal rules) at the outset so that from an overall performance viewpoint one pillar, e.g. the environment, could not be neglected in favor of another pillar. Structurally, the NAFTA regime initiated a labor commission to oversee matters pertaining to this social pillar. It consists of a ministerial council composed of the labor ministers from the three countries and it has had an international coordinating secretariat housed in Washington, DC with a professional staff of six persons and an administrative group of four individuals. In addition, there are national administrative offices (NAOs) in each nation’s capital, which are attached administratively to the respective national labor ministry. When it comes to the enforcement of labor laws, the NAOs must operate according to the text of the Agreement, which clearly stipulates that actions and reports must be based on national labor laws. There is no regional labor code for the NAFTA parties. The text often uses the word ‘may’ before the action verbs permitting enforcement and possible monetary assessments. Enforcement, however, must be based on mutually recognized labor laws. These international constraints, or respect for sovereignty from a nationalistic perspective, were adamantly reinforced by the Mexican NAO when it critically stated in its first four-year review: None of the Parties of the NAALC is empowered to bring about any kind of pressure aimed at the homologation of labor standards, the imposition of joint action plans or the modification of the juridical and institutional labor framework of any of the Parties. We are concerned by the fact that declarations made by Party officials have led to a certain degree of public misunderstanding and have subsequently given rise to the assumption that the mechanisms set down in the NAALC effectively circumvent internal policy or serve for the exertion of pressure between the Parties. (www.naalc.org)

In summary, the often-heard expression ‘toothless tiger’ for NAFTA’s Labor Commission may well be appropriate. Clearly, there is an entity that can make noise with its final reports but beyond that there is little, if anything, that it can actually accomplish. In sustainable development terms, the social pillar of NAFTA did not create a unified labor niche commensurate with the regime of the economic pillar. However, the environmental pillar in NAFTA has taken on a different appearance with the semblance of a single entity overseeing North


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American environmental matters. Structurally, it resembles the labor set-up just described – the Commission for Environmental Cooperation (CEC) governed by the Council, which is composed of cabinet-level officers. In addition, there is a centralized secretariat to support the Council. The Secretariat is headquartered in Montreal with a liaison office in Mexico City. There is also a joint public advisory committee, with five members from each of the three countries, that can provide input to the Council and the Secretariat. The information found on the CEC’s website indicates that this committee is quite active. This website is much more comprehensive than the Labor Commission’s site and readily reveals the undertakings of the CEC, including citizen submissions about alleged environmental pollution and the formal outcomes of the investigations into these submissions. Although these outcomes are nothing more than reports, they do give the appearance of a single environmental niche or façade within the NAFTA regime. Nevertheless, when it comes to the enforcement of environmental laws within North America, the CEC is very much like the Labor Commission. Although there is a NAFTA commitment not to relax environmental laws and regulations, actual enforcement is in the hands of each nation, based on its own laws. The enforcement clauses contained in the environmental agreement are again laced with the word ‘may’, and the provisions for monetary enforcement assessments, though clearly written, seem to be under-utilized. When we reviewed the CEC website (www.cec.org) using its search function, we could find no recorded instance of a monetary enforcement penalty against any alleged polluter. To summarize, the CEC does a better job at embarrassing NAFTA environmental offenders than the Labor Commission does with employment offenders. But neither has created within the region a unified niche of labor and environmental rules that are equivalent (due to the power and vigorous efforts of trade dispute panels) to the common rules of the commercial regime for trade and investment within NAFTA. Within the region, a firm can be ‘on the wing’ without worrying about being ‘shot down’ by a NAFTA environmental or labor regulation. 3.3

CAFTA

This trade agreement, following upon NAFTA yet much more recent, emulates the earlier regime in several ways. To optimize the economic effects of a trade agreement, it contains commercial chapters on trade in goods and services, electronic exchanges, government procurement, telecommunications, foreign investment, intellectual property rights and a dispute resolution process that allows for monetary enforcement assessments when a

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trading rule is violated and not corrected. The main difference between NAFTA and CAFTA relates to how labor and environmental issues are handled. As noted above, in NAFTA they were appended through the two side agreements negotiated subsequent to the main economic agreement. CAFTA negotiators, on the other hand, handled all three pillars in the same talks; therefore CAFTA covers labor and the environment in chapters 16 and 17, respectively. Thus it is inclusive of the sustainable development paradigm. In those two chapters, one finds structural requirements for a labor affairs council and an environmental affairs council. Both are composed of cabinet-level representatives from each of the member nations. In addition, both are tasked with enhancing cooperation among the member states and enforcing the relevant rules when violated. In reference to the administration and enforcement of labor and environmental matters under the two councils, chapter 16 stipulates a contact point within each nation for labor issues, but chapter 17 creates an overall secretariat to receive and act upon pollution allegations. In addition, each chapter specifies that a roster of panelists should be established to hear potential disputes that could lead to enforcement actions. Given the newness of CAFTA, it is still too soon to know how the enforcement capabilities of chapters 16 (labor) and 17 (environment) will be implemented. Each chapter uses the same enforcement language – ‘a Party shall not fail to effectively enforce its labor/environmental laws’ (16.2[a]; 17.2[a]). Such wording seems to indicate that a complainant in a labor or environmental dispute would have to demonstrate that a national labor/environmental agency did indeed fail to carry out its mandate in an effective manner. This is a heavier burden of proof than simply showing that a violative act did occur and ought to be penalized. Until more time has passed and some real disputes are actually adjudicated, there remains substantial uncertainty surrounding the enforcement of chapters 16 and 17. When contrasted with labor and environmental matters under NAFTA, CAFTA contains two rules appearing to be quite different. In the labor chapter, CAFTA makes direct references to the International Labor Organization (ILO) and its rules. Although they are hardly enforceable, they do provide a glimpse of how the CAFTA trade negotiators envisioned the Agreement for labor. The parties to the Agreement ‘reaffirm their obligations as members of the ILO and their commitments under the ILO’. In section 16.8 (a–e), they note the following: internationally recognized labor rights: a) the right of association; b) the right to organize and bargain collectively; c) a prohibition on the use of any form of forced or compulsory labor; d) a minimum age for the employment of children


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and the prohibition and elimination of the worst forms of child labor; and e) acceptable conditions of work with respect to minimum wages, hours of work and occupational safety and health.

In acknowledging internationally recognized labor rights, the Agreement also permits monetary enforcement assessments for violations of labor rights if recognized in national laws. However, in the environmental chapter, there is no mention of any international standards. Chapter 17 relies solely on the laws and regulations of each country for the case of environmental protection. But in a sharp break from NAFTA, CAFTA in chapter 20 on dispute settlement clearly foresees the likelihood of monetary enforcement assessments for failures to effectively enforce national labor and environmental laws. The Agreement reads ‘the amount of the assessment shall not exceed 15 million U.S. dollars, adjusted for inflation’ (Article 20.17). It goes on to state that the assessments shall be paid into a special commission fund ‘for appropriate labor or environmental initiatives’ (Article 20.17). Furthermore, if a Party fails to pay the assessment, then the other Party may take steps to secure compliance, including the suspension of tariff benefits. In a nutshell, CAFTA goes beyond NAFTA with its reference to an international standard for labor and to its allowance for labor and environmental monetary enforcement assessments that, though capped, can ultimately be exercised through trade sanctions. In light of the different labor and environmental rules for NAFTA and CAFTA, the distinct regions created by the agreements become more apparent and permit us to speculate from an IE perspective how different firms and industries may react to these enacted environments. In the next section, we speculate on two questions: (1) like the hummingbirds, will business organizations migrate to Mexico or Central America in their pursuit of a ‘warmer’ niche for certain business activities? (2) As they operate ‘on the wing’, and engage in international exchanges, will their actions comply with the rules and do more good than harm for sustainable development in the region?

4.

AN ‘ON THE WING’ ROADMAP WITH A CONCLUDING COMMENT

4.1

Choosing a Road for Sustainable Development

The California Management Review in a special issue on corporate social responsibility (Winter 2006) placed on its cover a picture of a

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business executive pulling a wagon that carries a structure labeled ‘Your Corporation’. The executive, standing still at a ‘Y’ in the road and scratching his head in apparent indecision, must go either to the right or to the left if he desires to continue onward. The road to the right is marked the ‘high road’ and the one to the left the ‘low road’. The choices are obvious for managers dealing with corporate social responsibility and sustainability issues: remain frozen in place, go down the noble path or opt for the ignoble one. The bleak reality of events in the first decade in the twenty-first century compels us to predict that many US business executives will choose the low road. That perception of reality is shaped by the following phenomena: (1) Enron and AIG as symbols for hundreds of public corporations led by eminent CEOs that ‘cooked the books’, which at a minimum resulted in financial restatements or at the maximum criminal convictions; (2) the more recent options scandal wherein executives had their options backdated to enhance their gains when exercising them (see Grant, 2006, who notes more than 100 US corporations are under investigation for this offence); and (3) the scandals surrounding Hewlett Packard and Dell (two of the top three companies in the global PC industry), with the former spying illegally on its own directors along with financial reporters and the latter unable to issue its financial statements in a timely manner due to accounting irregularities. In light of these repeated patterns of reproachable behavior by so many prominent US corporations and their top-level managers, the realist must grudgingly admit that in the short term the low road seems a likely and rewarding choice, at least for some. Nevertheless, the choice, though perhaps obscured in actual practice, between the upper or lower sustainability road is essential in the development of a roadmap for planning where to locate a manufacturing plant in the two regions – NAFTA or CAFTA. From a sustainable development viewpoint, each of the three sustainability pillars, economic–social– environmental, should receive equal weight in answering the two questions: will business organizations migrate? And if so, will they do more good than harm to the sustainable development pillars? In defining sustainable development, we have maintained conceptual consistency with the original Brundtland Report (WCED, 1987) with one variation – consistent with the admonition of Welford (2007) – we narrowly interpret the social pillar as the treatment of labor. Support for this interpretation emerges from the belief that, at the micro level, a firm’s major social contribution toward SD will be the treatment of its workers, particularly in developing countries involved in offshoring endeavors. All other social factors become secondary, though still important. Thus, for each pillar there is equal weight or emphasis in terms of the Brundtland


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Report objective that the current generation and its business firms not deprive future generations of a livelihood because of current excessive resource consumption. This requires that the firm be evaluated on a set of dimensions that reflect the essence of each pillar. Those dimensions are discussed below. Many researchers have endeavored to further elucidate each of the three sustainability pillars. Table 5.1 summarizes three such efforts. The table demonstrates that current research has focused greater attention to the second (social) and third (environmental) pillars of SD than the first (economics). Not only has most research on sustainability focused on these two pillars, but more dimensions and indicators have been developed to measure the two. Given this state of affairs, the need to study the future direction of the economics pillar of sustainable development becomes apparent. The remainder of this chapter posits a roadmapping framework for firms ‘on the wing’. 4.2

Shaping Trading Agreements

Before constructing the roadmap, let us note that business firms do make commercial decisions based on the flows and exchanges stipulated by trading regimes. Furthermore, some companies and industries are instrumental in the negotiations that shape the trading regimes giving rise to their decisions and economic exchanges, as discussed next. To the first question from the economic perspective, NAFTA, like all free trade agreements, has rules of origin that specify what is and is not a good from within the region. Any rule of origin – these rules are a crucial part of free trade agreements – that does not fit into the rule standard, i.e. a change in industrial code classification, arose historically from the negotiation process wherein one of the governmental parties demanded and received special treatment for its industry actors. This exceptional treatment came about because the firms from the relevant industry petitioned their government to bargain for the preferential rule of origin, with which the respective government agreed. Two of the most glaring NAFTA examples are in the automotive and textile–apparel industries. For the automotive industry, the pertinent rule is that 62.5 per cent of the vehicle’s value-added must be from North America for the automobile to be treated as a North American good in order to avoid the tariff on imported vehicles. This exceptional rule has forced foreign auto companies to invest billions of dollars in additional plants in North America. In textile–apparel, the onerous rule is fiber-forward. For an apparel item or a cloth good to be sold in North America as North American, all components, e.g. yarn and denim for jeans, must be made in the region and all operating

96 Environmental health Basic human sustenance Reducing environmentrelated natural disaster vulnerability Environmental governance Eco-efficiency Private sector responsiveness Science and technology

Yale University, WEF (World Economic Forum), JRCFEC (Joint Research Centre of the European Commission)

Working conditions Employee opportunities Internal communications Product use/life cycle Healthy life Sufficient food Sufficient to drink Safe sanitation Education opportunities Gender equality

Competitiveness Pay and benefits Revenues and payments Production (physical)

O’Connor and Spangenberg EAA/ C3ED (2008)

Social

Van de Kerk and Manuel (2008)

Economic

Sustainability pillars

Author

Table 5.1

Air quality Biodiversity Land Water quality Participation in international collaborative efforts Greenhouse gas emissions Reducing transboundary environmental pressures

Air quality Surface water quality Land quality Waste recycling Use of renewable water Consumption of renewable energy

Resource use (national) Resource use (international) Emissions and impacts

Environmental

Reducing air pollution Reducing ecosystem stress Reducing population growth Reducing waste and consumption Reducing water stress Natural resource management

Forest area Preservation of biodiversity Emission of greenhouse gases Ecological footprint International cooperation Good governance Unemployment Population growth Income distribution Public debt

Environmental management system Company CSR strategy/ policy Supply chain relations

Other


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activities, e.g. sewing on of buttons, must be done in the region. The rule has been particularly advantageous for regional petrochemical companies that produce synthetic fibers because it precludes the use of cheaper Asian fibers. For sewing operations, this NAFTA rule of origin has been especially beneficial to Mexican assemblers of apparel (see Gruben, 2006 for data showing the tremendous increase in Mexican maquiladora employment for this industry during the NAFTA era). The shaping of strategic business advantage through the human construction of trade agreements is an ongoing process and it is not endemic to North and Central America. Kazmin et al. (2006) report on a current and specific instance of pharmaceutical industry shaping the bilateral trade agreement between Thailand and the USA. According to their report, US pharmaceutical companies lobbied to have a WHO official and physician transferred out of Thailand because he was working against their interests. The US companies wanted strong protection for intellectual property rights in the Agreement, whereas the WHO doctor was seeking and demanding weaker protection that would still allow Thailand’s domestic manufacturers to make generic, lower-cost drugs for the treatment of AIDS. The long-term advantage being sought by the US pharmaceutical firms in the bilateral trade agreement would weaken the compulsory licensing rule of the WTO, which while intended for application in public health emergencies, like AIDS, would reduce the sales revenues of the foreign companies. 4.3

Will Businesses Migrate?

Given that international corporations pursue their own economic interests via trade agreements, there is no reason to doubt that they will also use such agreements for economic benefits arising from labor and environmental matters – the other two pillars of sustainable development. Thus the answer to the first question, will business organizations migrate?, is in the affirmative. They will surely migrate to niches if labor and environmental costs are lower. In terms of labor costs, both NAFTA and CAFTA provide access to nations where worker remuneration is significantly lower (see www.maquilaportal.com, showing the average hourly production wage in the Mexican maquiladora sector, as of August 2006, to be US$1.98). If we assume production wages in most Central American countries to be even less, then there is sufficient reason to believe that in a world of rational decision makers the CAFTA niche will be more attractive than the NAFTA one on this parameter. Nevertheless, this will be true only if the cost-inducing ILO standards included in CAFTA are not enforced. Such enforcement, however, remains unknown at this time.

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Thus for-profit enterprises in search of an international niche face a choice full of uncertainty. One strategic tool for looking at how a business firm (an NGO could also apply this tool to its analyses) can deal with uncertainty and still select a trade regime for its operations is roadmapping. Kotnour (2007: 1) points out that roadmapping explores ‘different models and approaches for addressing the adoption of new systems’. This technique has a documented history in technology planning (e.g. Whalen, 2007 and Gerdesi, 2007) and more recently in strategic planning and business operations (Lichtenthaler, 2008 and Phaal et al., 2007). Roadmapping has seen other applications as well. Panapanaan et al. (2003) studied CSR roadmapping for a sample of Finnish firms. They conclude that Finnish firms are progressively managing corporate social responsibility, but they do not discuss it from the SD perspective. In constructing a roadmap for the selection of a regional production flow in North America that keeps the firm from being ‘shot down’, the first critical choice is: NAFTA or CAFTA? To facilitate that choice from an IE perspective (linking the obvious flows with their accompanying exchanges), both transformation and transaction costs must be analyzed – where transformation exchanges represent the value creation for the good or service and transaction flows represent the costs of carrying that value to the final customer. These two categories are each defined by three dimensions. Transformation costs/benefits emerge from materials, labor and the environment, and transaction costs emanate from taxes, tariffs and transportation, as shown in Table 5.2. These categories and dimensions (with the exception of the environment) were determined after a number of interviews with Mexican maquiladora managers who were asked to discuss which cost factors influenced decisions to relocate their offshored activities (Miller et al., 2003). See Figure 5.1 for the sustainability roadmap. As our discussion and the roadmap illustrate, NAFTA was the initial site selected. For a rational decision maker, taking the low road of NAFTA depends on it having the likely total lower costs (benefits are Table 5.2

Linking exchanges with flows

Transformation costs (value creation)

Transaction costs (carrying value to consumer)

Materials Labor Environment

Taxes Tariffs Transportation


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CHOICE 1

CHOICE 2

Intial site location

Stay or redirect investment NAFTA High CAFTA

NAFTA NAFTA Low CAFTA

Assuming NAFTA as the initial site choice The sustainability road choice NAFTA likelihood = totalcosts/benefits from transformations and transactions CAFTA likelihood = total costs/benefits from transformations and transactions

Figure 5.1

Site choice criteria

A sustainability roadmap for production sites–exchanges in North America

moot for a low-road chooser). To ascertain likely transformation costs at either site, an analyst must first examine the usual prices paid for labor and materials in each region. Then he/she must determine the environmental benefits and costs, but such a calculation is not straightforward. In fact, it is the most difficult of the three transformation parameters to analyze, which we discuss below when addressing the second question. The costs associated with each transformation parameter are next weighted according to the likelihood of an enforcement action in a region. The weighting of a parameter for CAFTA is more difficult due to its newness, but for NAFTA the task is easier. Given the Agreement and its historical context, there is no empirical reason to expect enforcement to become a factor that will drive up Mexican labor costs. With CAFTA, however, an enforcement action using the suggested ILO standards could increase the lower labor costs there and negate the region’s labor-cost advantage over

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Mexico. Therefore, it is still too soon to ascertain how total likely costs will be affected by labor costs in the CAFTA nations, but we assume for the sake of simplicity that CAFTA will have the more onerous and beneficial impact upon labor and the environment. With respect to transaction costs, both agreements, over the long run, push tariff duties to zero. Hence tariffs are not a major consideration unless the enforcement of a safeguard provision negates the tariff reduction. On the other hand, taxes represent a major cost and the relevant regulations of individual nations associated with each agreement will have to be scrutinized for possible tax incentives, e.g. the Mexican maquiladora program. In addition, their enforcement or lack of enforcement may raise or lower the likelihood of any projected tax costs. Transportation costs also differ between nations, but they can generally be calculated with reasonable certainty and will have few unknown effects on this parameter. Thus, for transaction costs the only parameter with an uncertain likelihood is taxes. 4.4

Will Business do more Harm than Good?

To address the second question – will business organizations ‘on the wing’ in the region do more good than harm?, i.e. provide some labor– environmental benefits – we must draw from the substantive position of sustainable development and IE. Succinctly stated, the position is that business activity outcomes represented by the three pillars should be equally emphasized and harmonized. At the micro level, economic, labor and environmental results due to NAFTA and CAFTA undertakings should lead to improvement on the metrics utilized for evaluating each pillar and to a better balance in the resources used from each pillar. For example, capital invested in a CAFTA venture should earn a positive return, labor expended on it should have greater remuneration and safety and the natural resources consumed in the venture should be replenished ideally at a rate equivalent to their consumption or at a reduced rate. Both CAFTA and NAFTA do a good job of protecting returns to capital and nothing more needs to be said regarding it. However, labor and environmental matters require further discussion if the good is to outweigh the harm found in the two regional niches. As already discussed, TNCs will unhesitatingly go ‘on the wing’ in pursuit of cheaper labor in Mexico and Central America. Its lower cost is the main driving force, yet as demonstrated over the last four decades by the Mexican maquiladora program the cheaper labor available there is also highly trainable and capable of performing skilled tasks, e.g. the design and engineering of automotive components by Delphi in its Ciudad Juarez


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facility. This upgrading of labor via the outsourcing of more complex business activities is one way to do more good, through the building of human capital, than harm to local workers. But more importantly, the crucial issue is not whether firms will outsource to CAFTA and NAFTA, but whether they will permit workers there to associate freely and to improve their wages and working conditions in light of existing labor law in Mexico and the ILO standards for CAFTA nations (Quintero-Ramirez, 2006). In other words, will production workers engaged in the outsourced activities of corporations ‘on the wing’ be able to share in the value they add to those international flows through labor’s local exchanges with TNCs and their regional subsidiaries? The likelihood of this seems more probable in the CAFTA nations; thus it better represents the high road for a business decision maker seeking beneficial outcomes from his/her operations. In reality, answering this question remains difficult because existing data are scarce and confusing. Nevertheless, it must be dealt with, for both labor and the environment, if the critical issue of more good than harm is to be sincerely addressed. In reference to environmental matters, the issue is even more problematic. First, it is not certain that TNCs seek out low-cost niches for environmental purposes, i.e. where it is easier and cheaper to pollute. There is substantive debate over this issue, but definitive answers are still not available. In addition, any expected increase in production activities would normally lead to greater contamination if precautionary IE measures were not taken (see www.ustr.gov for its environmental review of the expected impact of CAFTA upon Central American countries). Second, the reason for no definitive answers is, as with labor, a dearth of data. For example, NAFTA’s CEC has just announced that Mexico will finally be reporting on contaminant releases into its natural environment (www.cec.org ). Though commendable, it is years late and still incomplete when contrasted with the reporting of Canada and the USA, and the neglect of it has contravened Mexico’s NAFTA commitment for more than a decade. For a critical realist, this lack of reporting only creates doubts and suspicions about how the environment has been used by TNCs ‘on the wing’ in the NAFTA region. Any attempt to assess whether CAFTA, or even NAFTA, will create more good than harm for the natural environment remains a challenge. In summary, TNCs can now readily operate ‘on the wing’ within the northern Americas due to NAFTA and CAFTA. These two agreements provide ample encouragement and protection for commercial transactions seeking out economic sustenance. Nevertheless, for the other two pillars of sustainable development, the recommendation that economic, labor and environmental interests ought to be balanced and harmonized, as envisioned by IE, appears unlikely at this time, especially in the NAFTA

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zone. Both agreements’ rules for commercial exchanges are detailed and enforceable. Thus any economic ‘shooting’ at a firm ‘on the wing’ in the NAFTA or CAFTA niches will ‘hit’ the mark because it will be done according to the regional rules applicable and enforceable for all relevant parties. However, for labor and environmental exchanges the rules are primarily national and weakly enforceable, although CAFTA could be different than NAFTA in light of the ILO standards enunciated and the explicit mention of possible monetary penalties for violating the two sustainability dimensions. However, any labor or environmental ‘shooting’ that does occur has only a small chance of ‘hitting’ the target given that there are so few clear rules, to date, for the TNC to violate.

NOTES 1. This section is a first-person account of the first author. 2. Our thinking here is in line with the population ecology school of organization theory. 3. Carlos Salinas de Gortari won a controversial election in July 1988 and was inaugurated in December 1988.

REFERENCES Frosch, D. and N. Gallopoulos (1989), ‘Strategies for manufacturing’, Scientific American, 261 (3): 94–102. Gerdesi, N. (2007), ‘An analytical approach to building a technology development envelope (TDE) for roadmapping of emerging technologies’, International Journal of Innovation and Technology Management, 4 (2): 121–35. Grant, J. (2006), ‘More companies drawn into options probe’, Financial Times, 6 September. Gruben, W.C. (2006), ‘A diplomatic anomaly: the transitory effect of NAFTA on Mexico’s textile and apparel maquiladoras’, in V.V. Miller (ed.), NAFTA and the Maquiladora Program: Rules, Routines and Institutional Legitimacy, El Paso, TX: Texas Western Press, pp. 135–48. Kazmin, A., A. Jack and A. Beattie (2006), ‘How Washington uses trade deals to protect drugs’, Financial Times, 21 August. Korhonen, J. (2004), ‘Theory of industrial ecology’, Progress in Industrial Ecology, 1 (1–3): 61–88. Kotnour, T. (2007), From the editor, Engineering Management Journal, 19 (1). Lichtenthaler, U. (2008), ‘Integrated roadmaps for open innovation’, Research Technology Management, 51 (3): 45–9. Losey, J., L. Raynor and M.E. Carter (1999), ‘Transgenic pollen harms Monarch larvae’, Nature, 399: 214. Miller, V.V. and M.W. Ford (2007), ‘Exchanges: physical, economic, but also institutional’, Progress in Industrial Ecology, 4 (3–4): 288–305. Miller, V.V., K. Loess, C.T. Crespy and R. Andresen (2003), ‘Framing the direct


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foreign investment decision in emerging economies’, The Power of Ideas and International Business Meeting: Proceedings of AIB, p. 118. O’Connor, M. and J. Spangenberg (2008), ‘A methodology for CSR reporting: assuring a representative diversity of indicators across stakeholders, scales, sites and performance issues’, Journal of Cleaner Production, 16 (13): 1399–415. Panapanaan, V., L. Linnanen, M.M. Karvonen and V.T. Phan (2003), ‘Roadmapping corporate social responsibility in Finnish companies’, Journal of Business Ethics, 44 (2–3): 133–48. Phaal, R., C.J.P. Farrukh and D.R. Probert (2007), ‘Strategic roadmapping: a workshop based approach for identifying and exploring strategic issues and opportunities’, Engineering Management Journal, 19 (1): 3–12. Quintero-Ramirez, C. (2006), ‘Effects of unions in the Mexican maquiladora: a comparative analysis between Matamoros and Ciudad Juárez’, in V.V. Miller (ed.), NAFTA and the Maquiladora Program: Rules, Routines and Institutional Legitimacy, El Paso, TX: Texas Western Press, pp. 81–101. Randles, S. (2007), ‘Multi-scalar landscapes, trans-national corporations, business ethics and industrial ecology’, Progress in Industrial Ecology, 4 (3–4): 164–83. Van de Kerk, G. and A.R. Manuel (2008), ‘A comprehensive index for a sustainable society: The SSI – The Sustainable Society Index’, Ecological Economics, 66 (2–3): 228–42. WCED (1987), Our Common Future (The Bruntland Report), Oxford: Oxford University Press. Welford, R. (2007), Speech before the International Sustainable Development Research Society Conference, Vasteras, Sweden. Whalen, P. (2007), ‘Strategic and technology planning on a roadmapping foundation’, Research Technology Management, 50 (3): 40–51.

Websites www.cec.org/who_we_are/council, retrieved 8 September 2006. www.maquilaportal.com, retrieved 8 September 2006. www.monarchwatch.org/milkweed, retrieved 4 September 2006. www.naalc.org/english/review, retrieved 8 September 2006. www.rubythroat.org/RTHURangeMap, retrieved 4 September 2006. www.symbiosis.dk/symbmenu, retrieved 6 September 2006. www.ustr.gov, ‘Final environmental review of the Dominican Republic–Central America–United States Free Trade Agreement, February 2005’, retrieved 6 September 2006. http://www.ustr.gov/Trade_Agreements/Regional/CAFTA/Section_Index.html, Dominican Republic–Central America–United States Free Trade Agreement (CAFTA–DR), retrieved 22 September 2006.

6.

Multinationals and the challenge of sustainable development: knowledge in cooperative networks Mohamed Bayad, Michaël Bénédic, Malek Bourguiba and Christophe Schmitt

INTRODUCTION Sustainable development raises far-reaching questions about the traditional models of the growth and development of multinational corporations (MNCs). It also raises the issue of these corporations’ modes of operation and organization. As a result of their economic and geographical positioning, multinationals have major influence on the required changes and on the introduction of frameworks for international collective action (Godard and Hommel, 2005). This work proposes to reposition the multinationals within the more general economic framework of the knowledge-based economy. Subscribing to this conception of the organization means above all that MNCs must once again give priority to the way in which production is organized, rather than to the imperfections of the market (Cohendet and Llerena, 1999). In other words, this means that MNCs are tied to their organizational capacities over time. From this perspective, knowledge is an important and rare resource within multinationals. Therefore these corporations need to consider knowledge from the point of view of sustainable development, which means meeting the needs of the present without compromising their capacity to meet future needs. In effect, MNCs must not limit themselves to constructing or putting together knowledge, but must also select it and above all maintain it (Cohendet and Llerena, 1999). In relation to this questioning of traditional models, we focus more specifically on MNCs organized as cooperative networks. We think that this type of organization provides a favorable framework in which knowledge management, from the perspective of sustainable development, becomes manifest. This contribution argues that cooperative networks, via knowledge management, constitute strategic tools for sustainable development. 104

Knowledge in cooperative networks

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In particular, they give a clearer understanding and perception of the new organizational models that are now emerging in the more traditional activity sectors. The aim of this contribution is to raise questions about the possible link between cooperative networks and sustainable development in MNCs. Therefore our conceptual lens falls within the more general framework of the knowledge-based economy and the increasing dematerialization of productive resources. This chapter is divided into two sections. Section 1 shows that the link between a cooperative network and sustainable development is by no means automatic. The introduction of the intangible dimension of productive resources, through the notion of knowledge, enables us to elucidate the relationship between the cooperative network and sustainable development. Section 2 identifies the challenges related to knowledge management that must be taken up by the cooperative networks in order to foster sustainable development. Through these issues, we examine the management tools used and practices implemented that allow cooperative networks to make a better contribution to sustainable development.

1.

ON THE LINK BETWEEN COOPERATIVE NETWORKS AND SUSTAINABLE DEVELOPMENT

In order to specify the possible links between sustainable development and cooperative networks, we begin by defining these concepts. 1.1

Sustainable Development: from a Restrictive to a Broader Conception

The concept of sustainable development emerged roughly 20 years ago. Prior to the advent of this collective awareness, sustainable development was a concept foreign to businesses. The last two decades of the twentieth century seemed to glorify the financial market through institutional investments, liberated by waves of globalized ‘deregulation’ and the supremacy of short-term financial profitability. During this period, it seems that financial considerations replaced economic, social and ecological implications in the strategic decision making of multinationals (Martinet and Reynaud, 2004). The beginning of the twenty-first century saw the emergence of a major change in the way that management of MNCs is understood. The concept of sustainable development and the implicit need to integrate concern for long-term resource conservation is again in the forefront in the view of many economic and political leaders, as well as in the collective

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conscience. It is generally agreed that the notion of sustainable development was popularized at the time of the Earth Summit in Rio de Janeiro in 1992. The World Commission on the Environment and Development (or Brundtland Commission) formulated the classic definition of sustainable development in 1987: ‘Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’ Many understand sustainable development to mean questioning the way in which enterprises develop. The primary objectives of creating value for the shareholder and short-term returns on capital invested have been supplemented by concerns for reconciling the long-term interests of present and future generations and by dialogue with the interested parties (Abrassart et al., 2005). The difficulty for enterprises is to manage both aspects of this temporal logic simultaneously, to properly balance present and future concerns (Martinet, 1990). Furthermore, the emergence of this long-term view has led to a dual principle of solidarity, in both space and time. If this is transposed to multinationals, it means both preserving existing resources for their own future development and contributing to the development of the most disadvantaged geographic areas. Thus sustainable development is traditionally associated with reconciling three basic factors: 1.

2.

3.

Economic: the economic factor refers to classic financial performance and also the enterprise’s ability to contribute to the economic development of the geographic area in which it is based. Social: the social effects of the enterprise’s business on the interested parties (employees, suppliers, customers, the local population, public institutions, etc.). Environmental: the compatibility of the enterprise’s production activities with maintenance and conservation of the ecosystem.

However, we feel that this classic definition of sustainable development is too restrictive. The definition focuses on conserving the environment and tangible resources without sufficiently taking intangible resources into account. As Amin and Cohendet (2004) remind us, modern economic development interacts with the dynamic of knowledge creation and innovation. Thus knowledge must be considered as a primary resource for value creation and economic development (Schmitt, 2004). For this reason, we think it is important to integrate the intangible aspect of productive resources into the concept of sustainable development and its requirements. Therefore we consider sustainable development in a wider sense, to


Quality of life Equitable Social cohesion Management of interested parties Sustainable Employee satisfaction LifeViable sustaining Social

Resources Ecosystems Risk management

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Strategies Jobs optimization Knowledge management

Economic

Environment

Figure 6.1

Sustainable development – interface management

include all resource conservation and creation, both tangible and intangible. To this end, we view sustainable development as interface management, since this concept more readily allows the intangible aspects of resources to be introduced (see Figure 6.1). Sustainable development may therefore seem like a new method of regulation involving the management of several interfaces (AFNOR, 2003): ●

●

●

The socioeconomic interface covers employee rights, rules of good governance, respect for the physical and mental integrity of staff, evaluation of the social climate, anticipation of the financial and social effects of strategic choices, training and education of employees, etc. The economic and social implications arising from MNCs’ strategic decision making must be taken into consideration. Development can be deemed equitable once the objective of equitable sharing of the advantages and disadvantages engendered by an economic activity in a given geographic area are achieved. The environmental–economic interface concerns issues related to saving resources and creating value while limiting environmental risks, improving goods and services, etc. When MNCs’ strategic decisions pursue these objectives, they may be considered to be taking part in a form of life-sustaining development. The goal of conserving natural resources and the ecosystem must be integrated into economic and financial decision making. The socio-environmental interface involves questions of hygiene, health and safety at work, the management of business risks, etc. The term life-sustaining development may be employed when the

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MNCs’ operations are consistent with the principles of protection and conservation of human and environmental resources. Thus the development objectives of multinationals can only be qualified as sustainable if they employ forms of development that are equitable, viable and life-sustaining. The advantage of this interpretation lies in considering that sustainable development corresponds to integral management of economic, environmental and social factors. Sustainable development is no longer seen as a restrictive concept, limited to the objective of environmental conservation, but in a wider sense that includes several intangible dimensions. Moreover, defining the concept in this way allows us to analyze the potential impact of the multinationals’ cooperative strategies on the various interfaces of sustainable development. This also enables us to identify some of the conditions by which these strategies could effectively contribute to sustainable development. 1.2

The Cooperative Network: What Does it Mean?

Organizations today are defined by their movement more than by their rules (Alter, 2000). They have to remain competitive in an environment typified by rapid change, trade globalization and open markets. In a period of a few years, enterprises have moved from a supply economy – with the mass production of relatively similar goods – to a demand economy, clamoring for diverse products and consumers with very different needs (Julien et al., 2003). The dynamics of the change induced by this transformation have forced organizations into rethinking the value creation process (Schmitt, 2004). Multinationals have gradually had to move from rigid production systems (seeking quantity above all and being little concerned with services) to new forms of flexible production, with a stronger emphasis on quality and service. This shift means that corporations have had to work differently, adopting new forms of decentralized organization and building different relationships. The goal is to sustain and constantly improve expertise by fostering inter-company interaction and learning, in order to maintain or develop competitive advantage. Knowledge and skills have become the principal levers in the knowledgebased economy. The development of organizational reactivity can undeniably be translated into the development of knowledge creation abilities. The knowledge-based economy has led to a new production paradigm: the learning organization. Thus the current dynamic in multinational enterprises appears to have two major facets (Julien et al., 2003):

Knowledge in cooperative networks ● ●

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the development of a knowledge-based economy; the development of forms of cooperative organization.

Cooperative networks appear to provide a coherent response to the demands of this twofold organizational and intangible development. While the concept has several meanings, however, we can identify the common denominator of all the approaches in cooperative network terms: ‘a structure of interconnections founded on relationships of cooperation, with a long-term perspective and involving a wide range of players, who combine or share intangible and/or tangible assets, in order to achieve joint and individual objectives’ (Ingham, 1994, p. 108).

Analyzing this definition helps to explain the concept of the cooperative network: ●

●

●

The end result of the cooperative network is to achieve both joint and individual objectives. In fact, cooperation lasts for as long as those involved find something in it for themselves (Julien and Raymond, 1996). Entering a cooperative network is similar to a sustainable commitment. Temporality is a fundamental aspect of cooperation (Richardson, 1972). Cooperation within the network involves reciprocal interaction between the partners in order to exchange tangible or intangible assets.

The introduction of forms of cooperative organizations by MNCs appears to respond to a dual strategic orientation. First, it is a matter of refocusing on the core business and the activities that create the most value, while outsourcing residual activities. In this way, the cooperative networks contribute to reducing uncertainty and the risks inherent to any economic activity. Second, these organizational modes allow the connections to be increased both horizontally (supplier, customer) and vertically (alliances with competitors). These cooperative relations are accompanied by collective learning and are likely to foster ‘vortex’ or ‘spiral’ innovation (Julien et al., 2003). Such innovation may start with the product and end up concerning equipment, the organization, distribution modes, etc. This continuous improvement process is the result of a wish for continued learning (Senge, 1990). This continued learning is made possible by lasting and frequent interactions between the different network partners. Therefore some authors see learning as the main objective of cooperation

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between businesses (Doz, 1996; Mothe, 2001; Inkpen, 2000). The benefits from cooperative relations, therefore, go beyond the traditional indicators of economic performance. They also increase in value by integration of the enterprise into networks of partners, offering opportunities for growth due to the acquisition of new knowledge and skills. However, these new learning opportunities (Miles and Snow, 1995) are highly dependent on the duration and repetition of exchanges and interactions between participants (Podolny and Page, 1998). Cooperative networks can only provide special opportunities for knowledge creation and exchange on the condition that the interactions between the partners satisfy long-term strategies. Now that we have presented the concepts forming the basis for this study, we attempt to specify the possible links between the cooperative network and sustainable development. 1.3

Development of the Link between the Cooperative Network and Sustainable Development

The evolution of MNCs within cooperative networks is increasingly taking place in a context of sustainable development. Indeed, MNCs pass on their strategic positioning within their network. This is reinforced by the fact that these enterprises carry significant weight within the network. In light of the defining elements presented above, we now examine the concept of the cooperative network in comparison with the notion of sustainable development. Various forms of cooperative organization are likely to play a role in the economic–environmental interface for several reasons. Cooperative networks are related to a willingness to save tangible and intangible resources by pooling them. By pooling the productive resources or equipment required for the production of goods or services, costs and the consumption of resources are minimized. By promoting experience sharing and knowledge creation, the cooperative network allows the pursuit of value creation objectives without damaging the environment. This organizational mode reinforces the economic trend towards the dematerialization of productive activities (dematerialization of industrial activities and the development of service activities) that we have seen over the past 20 years (Bounfour, 1998). Cooperation between heterogeneous players within the network increases the ‘functional’ value of the products and services offered, by incorporating greater knowledge and skills into them. In this way, by providing opportunities for the creation and use of intangible resources in the production process, cooperative networks contribute simultaneously


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to economic development and to the conservation of natural and environmental resources. The structures of cooperative organizations also place them on the economic–social interface of sustainable development. MNCs have an extensive portfolio of knowledge and skills. Therefore, via knowledge transfer, their cooperation with enterprises can contribute to the development of the geographical areas in which network enterprises are established. In other words, MNCs can give the geographical areas concerned the benefit of their knowledge and skills by making use of the cooperative network. Use of the cooperative network as an opportunity for collective learning can contribute to the education and training of participants. In the age of the ‘knowledge society’, training and education represent important levers for finding effective solutions to problems encountered individually by the enterprises in the network. Thus the cooperative network can also play a role in the socioenvironmental interface of sustainable development. First, by favoring the creation and use of intangible resources in the production process, the networks contribute to saving natural resources. Second, by providing special opportunities for the transfer of knowledge and skills, these organizational modes can act as a catalyst for training and education of populations in developing countries. In other words, management modes in terms of tangible and intangible resources are important elements in ensuring the lasting nature of cooperative networks, from the standpoint of sustainable development. Management of tangible/intangible resources may be used as an indicator in the operation of the cooperative network in terms of hygiene, health and safety at work, management of business risks, etc. We have shown how forms of cooperative organization can be integrated into the different interfaces of sustainable development. We can conclude that the cooperative networks appear to respond to the principle of economic and social efficiency formulated by the World Commission on the Environment and Development. This concept is the foundation of an innovative enterprise strategy, aimed at increasing the functional value of its products and services while reducing their effect on their environment and their negative social impact. Cooperative networks, therefore, represent potential sustainable development tools for MNCs. On the basis of this conclusion, we discuss several questions in Section 2. How can relations between cooperative networks and sustainable development become firmly established? What management modes are appropriate? What are the challenges to be met by MNCs for their cooperative networks if they are to become genuine strategic tools of sustainable development?

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2.


SUSTAINABLE DEVELOPMENT AS A STRATEGIC TOOL OF MNCS: THE CHALLENGES

Behind the emergence of cooperative networks, there is also an emerging will to develop relations that are relatively stable over time and to create opportunities for collective action. From this perspective, we have seen that these new organizational modes appear to provide a response to the demands of sustainable development in the broad sense of the term. This section attempts to formulate conditions that represent challenges to MNCs in order to ensure that this relationship becomes firmly established. 2.1

Between Intangible Investment and Temporality: the Importance of Knowledge

The convergence of the cooperative network and sustainable development at the level of MNCs appears to have become a reality since the end of the 1990s. While in the 1980s, MNCs sought mainly to outsource their costs, the 1990s brought a willingness to work in networks, since several entities were capable of successfully doing what one could not do alone. Very soon, however, the MNCs saw the difficulty of working in networks. It is not simply a juxtaposition of participants, but rather a synergy, in which their relations can lead to more (or less) than the sum of the parts. To sum up, working in networks amounts to combining two essential parameters: the notion of investment and the notion of time. In terms of the first notion, we need to consider two examples, corresponding to a tangible investment and an intangible investment. The tangible part is the most commonly considered and the most visible. In contrast, the intangible part is often invisible and it raises a certain number of problems and challenges.1 If we look at the temporality of the network, here also it is possible to make a distinction between a short time frame and a long time frame. The former corresponds to the time for exchange, while the latter corresponds to the time for creation. In light of this typology, oriented towards the result of the network, it is possible to put forward the theory that networks supporting a sustainable development perspective correspond above all to a long time frame and an intangible investment. This research hypothesis was constructed on the basis of fieldwork carried out in a large North American group in the business of motorized recreational products (sea-doo/ski-doo). This enterprise provided an appropriate model for examining the success of its network (see Figure 6.2). It is no longer a question about a network of capacity, but a network of intelligence (Julien et al., 2003). This can particularly be seen in the


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Tangible investment

Joint purchasing of equipment in order to reduce costs

Joint purchasing of depreciable equipment

Short time frame

Long time frame Exchange of information

Innovation

Intangible investment

Figure 6.2

The different dimensions of a cooperative network: the case of a multinational in the domain of motorized recreational products

network concerned, in the will to commit to and develop action plans over time: to respond to current requirements, but also to anticipate the future. In this way, a certain number of innovative projects have emerged. It is true that the enterprise in the domain of motorized recreational products can only innovate if the enterprises working with it innovate. Therefore it is necessary to define each enterprise’s requirements together with the desired results. This cooperation is above all a stake in the future, which must be shared by the different members of the network. This requires the construction of a common language, a common culture and shared expertise. The development of all these elements necessarily requires time. Unlike the exchange of information, which can take place in a short time, innovation, for example, can only be achieved by appropriation of this information by people in order to be transformed into knowledge. In this perspective, the different enterprises in the network supported a sustainable development approach concerning the development of innovations. In effect, they entered into a five-year contractual commitment to work together on the development of new products. Using this example of sustainable development oriented towards innovation within a cooperative network, it is important to emphasize the role played by knowledge. The cooperative network becomes the place where knowledge is expressed. The commitment to a long-term temporal

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perspective entails optimization of knowledge management. The products developed within this network are simply the results of this knowledge. It is then possible to consider the cooperative network as a ‘knowledge processor’. 2.2

Promoting the Emergence of a Collective Learning Context: the Role of Knowledge Management within Cooperative Networks

The emergence of the knowledge-based economy has overturned the determining factors for the growth and economic development of territories. The knowledge created and exchanged within cooperative networks is recognized to play a fundamental role in the innovation and development capacities of territories (Bounfour and Edvinsson, 2005). On the other hand, it is surprising to note how little interest is generally shown in management of these resources, which are extremely valuable but volatile by nature. Bringing cooperative networks into line with genuine sustainable development principles means giving them the resources to become true places of collective learning. This leads to the preservation and conservation of the results of cooperative work, in order to enable them to be reused in the best possible way. This is why we consider that knowledge management constitutes one of the missing links between cooperative networks and sustainable development. Indeed, the point of using knowledge management mechanisms is to be able to reference, store, distribute and create new knowledge within the cooperative network. Here, we define knowledge management as a set of formal or informal mechanisms based on a strategic willingness to reference, capitalize, share and develop all knowledge and experience drawn from sources inside or outside an economic entity, with a view to its development. The primary objective of knowledge management, therefore, is the productive use of knowledge for the benefit of the economic entity concerned (i.e. to create added value). Two types of knowledge are classically identified in the management sciences literature: tacit knowledge and explicit knowledge. Explicit knowledge is acquired by means of formal education and is easily recorded and passed on. Its transfer can take place across time and space independently of agents (Barlatier, 2002) and does not require any particular social interaction. In contrast, tacit knowledge corresponds to knowledge that is eminently personal, intuitive and embedded in experience. Its characteristics make it particularly difficult to articulate in a formal language and therefore to communicate. Depending on the type of knowledge they focus on, knowledge management approaches may be positioned on a continuum ranging from an approach centered mainly on information technology to an approach based more on human resources (Bayad and Simen, 2003).


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The literature identifies three strategic levels of knowledge management spanning this continuum (Berdugo and Sene, 2000). Capitalization of knowledge constitutes the first strategy for knowledge management. This knowledge management mode focuses on referencing, capturing, coding and storing knowledge in databases. Archives, document digitization and electronic documentation management systems are the main mechanisms used within the framework of this strategy, which mainly corresponds to management of explicit knowledge. Personalization of knowledge corresponds to a phase of distribution and appropriation of knowledge and takes its tacit dimension. This approach requires the use of communication tools that favor interpersonal exchanges (considered as the main mode of knowledge sharing) and facilitate knowledge appropriation. New information and communication technologies (intranet, groupware, etc.) and modern management methods (skills management, simultaneous engineering etc.) are among the mechanisms used to implement these types of strategies. Lastly, knowledge production corresponds to the highest level of knowledge management. It puts the emphasis on the possibilities of generating new knowledge. From this perspective, the knowledge production method must not be individual but collective, which justifies the use of forms in cooperative organizations. According to the theory of knowledge creation put forward by Nonaka and Takeuchi (1995), knowledge production is achieved via different modes of interaction between explicit knowledge and tacit knowledge. The production of new knowledge, within the cooperative network, requires the simultaneous use of mechanisms focused on management of explicit knowledge and management of tacit knowledge. The continuous production of knowledge requires learning between network partners of the ‘double loop’ type, as described by Argyris and Schön (1978). This entails calling into question partners’ defensive mental routines that create an obstacle to the creation of new knowledge and skills. The learning sought within the network can then be defined as ‘a dynamic process of interaction with the aim of producing new knowledge and skills enabling the development of a competitive advantage for the network’ (Julien and Raymond, 1996, p. 3). In this way, knowledge management mechanisms can not only enable the conservation of existing resources (prior knowledge), but can also create productive new resources, using collective learning as a support. In this sense, their use in cooperative networks can provide a response to sustainable development concerns. However, continuous knowledge production can be envisaged only in terms of long-term perspectives. In other words, to achieve knowledge production, the cooperative network must

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not only be in a position to implement the mechanisms that favor collective learning, but must also make its action part of a long-term approach by the sustained integration of participants. 2.3

Encouraging the Sustained Integration of Participants: the Adoption of Measures to Assist the Network Dynamic

Cooperative networks must be capable of taking up the challenges inherent to collective learning and the sustained integration of participants to use the strategic tools for sustainable development. The use of knowledge management within cooperative networks is therefore necessary, but not sufficient. Here, we propose a set of measures likely to reinforce the sustained integration of participants. These measures are aimed at encouraging the integration of MNCs’ cooperative networks in sustainable development strategies. First, communication must be encouraged within the network via shared equipment. Use of NTIC can make exchanges easier and faster between partners in the cooperative network. In addition, the use of compatible tools and software by the partners should make their sustained integration easier. The same applies to data classification methodologies and database constitution. The participants’ wish for sustained integration can also be shown by investment in equipment or infrastructures that are depreciable in the long term. The implementation of joint management of human resources must also allow the reinforcement of sustained integration of participants. Mobility programs between different partners’ personnel may be envisaged, in order to harmonize working methods and create the cohesion necessary for cooperation. Along the same lines, joint training courses may facilitate shared understanding and cooperation. Pooled management of human resources reinforces the role of the cooperative network in the socioenvironmental interface of sustainable development. This provides an opportunity to introduce work standards related to questions of hygiene, health and safety at work, management of business risks, etc. In addition, pooled management of human resources also forms part of the economic– social interface of sustainable development. Through personnel mobility programs or joint training courses, the cooperative network can contribute to the training and education of different partners’ personnel. The previous paragraph discussed the importance of knowledge management in promoting collective learning. However, the mechanisms entailed also create opportunities for the sustained integration of participants. These mechanisms involve sharing prior knowledge, referencing and capitalizing on crucial knowledge and distributing it within the


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network. When the cooperative network reaches the stage of producing new knowledge (joint patent development), it is preferable to ensure fair distribution of intellectual ownership rights. First, the use of these mechanisms is in line with the economic–environmental interface of sustainable development. Indeed, by acting as a support for the creation and incorporation of new knowledge in the production process, knowledge management creates added value without damaging the environment. Second, this management mechanism plays a role in the economic–social interface of sustainable development, by transferring knowledge and skills to those partners who have the greatest need for them. The last set of measures that we propose to reinforce sustained integration of participants concerns network management. Management must be conducted in accordance with general principles shared by all. It is important to associate each member with the decision-making processes concerning the network. Sustained integration can only be achieved on the basis of effective and active participation of all the participants in the decision-making process. Possibilities of weighting according to the importance of participants, on the basis of objective and clearly defined criteria, may nevertheless be envisaged. The establishment of a coordination committee is another measure designed to bring the cooperative network into line with sustainable development principles. Therefore the challenges for MNCs, in terms of ensuring that their cooperative networks constitute sustainable development tools, are collective learning and sustained integration of participants. Success in meeting these two challenges should enable the cooperative network to focus on the continuous production of knowledge.

CONCLUSION This chapter has examined the strategies of MNCs in the face of the challenges raised by sustainable development. We have considered the fact that by their economic and geographical positioning, these enterprises have an important role to play in terms of the dual principle of temporal and spatial solidarity underlying sustainable development. In addition, we have placed our reflections within the more general framework of the knowledge-based economy. This analysis framework repositions knowledge at the heart of the production process of MNCs. We have looked specifically at the case of cooperative networks of MNCs, since they represent privileged opportunities for the exchange and creation of knowledge. The aim of this chapter has therefore been to demonstrate that knowledge, considered a fundamental resource for value creation within cooperative

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networks, could play a role in sustainable development as well. To achieve this, we organized our thoughts in two sections. In section 1, we focused on specifying the concepts of sustainable development and cooperative networks, before detailing the links that could bring these two concepts together. To make sense of this relationship, we adopted a definition of sustainable development that also includes intangible resources. Therefore it appears that sustainable development and cooperative networks constitute new opportunities for collective action as part of a long-term perspective. Analysis of the different interfaces of sustainable development enabled us to understand how the forms of cooperative organizations could contribute to sustainable development. Section 2 was dedicated to the challenges to be met by MNCs to ensure that their cooperative networks are consistent with genuine sustainable development principles. We underlined the importance of the role played by knowledge in the process of value creation within cooperative networks. We saw that integrating cooperative networks in perspectives of economy and creation of resources in the long term, in accordance with the requirements of sustainable development, entails paying particular attention to the management of this knowledge. To achieve this, the two main challenges to be taken up by the MNCs, in our opinion, are the introduction of a collective learning framework and the lasting integration of the network participants. Therefore knowledge becomes the foundation of the relationship between cooperative networks and sustainable development and methods related to knowledge management become an essential element for the development of this relationship.

NOTE 1. On this point, see the two following subsections.

REFERENCES Abrassart, C., A. Acquier, F. Aggeri and E. Pezet (2005), Organiser le développement durable: Expériences des entreprises pionnières et formation des règles d’action collective, Paris: Editions Vuibert. AFNOR (2003), Développement durable et responsabilité sociale des entreprises: Guide pour la prise en compte des enjeux du développement durable dans la stratégie et le management de l’entreprise, Editions AFNOR. Alter, N. (2000), L’innovation ordinaire, Paris: PUF. Amin, A. and P. Cohendet (2004), Architectures of Knowledge: Firms, Capabilities and Communities, Oxford: Oxford University Press.


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Argyris, C. and Schön, D. (1978). Organizational Learning: A Theory of Action Perspective, Reading, MA: Addison-Wesley. Barlatier, P.J. (2002), ‘Exploration, exploitation et cohérence de la firme: les apports du réseau’, in Actes de la XIe conférence de l’AIMS, Paris. Bayad, M. and S. Simen (2003), ‘Le management des connaissances: état des lieux et perspectives’, in Actes de la XIIe conférence de l’AIMS, Carthage, 3–6 June. Berdugo, A. and I. Sene (2000), ‘Ethique et knowledge management’, Cahier de recherche du Groupe HEC, No. 707. Bounfour, A. (1998), Le management des ressources immatériels: Maîtriser les nouveaux leviers de l’avantage compétitif, Paris: Dunod. Bounfour, A. and L. Edvinsson (2005), Intellectual Capital for Communities: Nations, Regions, and Cities, Oxford: Elsevier Butterworth-Heinemann. Cohendet, P. and P. Llerena (1999), ‘La conception de la firme comme processeur de connaissances’, Revue d’Economie Industrielle, 88: 211–35. Doz, Y. (1996), ‘The evolution of cooperation in strategic alliances: initial conditions or learning processes?’, Strategic Management Journal, 17: 55–84. Godard, O. and T. Hommel (2005), ‘Les multinationales et le développement durable: un jeu ambigü’, in Cahier de l’Ecole Polytechnique No. 2005-21. Ingham, M. (1994), ‘L’apprentissage organisationnel dans les coopérations’, Revue française de Gestion, janvier–février: 105–20. Inkpen, A.C. (2000), ‘Learning through joint ventures: a framework of knowledge acquisition’, Journal of Management Studies, 37: 1019–43. Julien, P.A. and L. Raymond (1996), ‘L’organisation apprenante ou apprendre à apprendre en réseau’, Working Paper, GREPME 1996/15, Université du Québec. Julien, P.A., L. Raymond, R. Jacob and G. Abdul-Nour (2003), L’entreprise réseau: Dix ans d’expérience de la Chaire Bombardier Produits Récréatifs, Québec: Presses Universitaires du Québec. Martinet, A.C. (1990), ‘Epistémologie de la stratégie’, in Martinet A.-C. (coordination), Epistémologies et Sciences de Gestion, Paris: Economica, pp. 211–36. Martinet, A.C. and E. Reynaud (2004), Stratégie d’Entreprises et Ecologie, Paris: Economica. Miles, R.E. and C.C. Snow (1995), ‘The new network firm: a spherical structure built on a human investment philosophy’, Organizational Dynamics, 23 (4): 5–18. Mothe, C. (2001), ‘Les implications des coopérations en recherche-développement’, Finance Contrôle Stratégie, 4 (2): 91–118. Nonaka, I. and H. Takeuchi (1995). The Knowledge-Creating Company, New York: Oxford University Press. Podolny, J.M. and K.L. Page (1998), ‘Network forms of organization’, Annual Review of Sociology, 24: 57–76. Richardson, G.B. (1972), ‘The organization of industry’, Economic Journal, September: 883–96. Schmitt, C. (2004), ‘La construction de la valeur: proposition d’une approche dialectique’, Revue Sciences de Gestion, 38, 105–32. Senge, P.M. (1990), The Fifth Discipline: The Art and Practice of the Learning Organization, London: Century Business. World Commission on Environment and Development (1987), From One Earth to One World: An Overview, Oxford: Oxford University Press.

7.

The future of sustainable development and MNEs: a diffusion framework Jonathan Lefevre1 and Gabriele Suder

Yet in the end, sustainable development is not a fixed state of harmony, but rather a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development and institutional change are made consistent with future as well as present needs. (WCED, 1987, p. 8)

INTRODUCTION New ideas need to be built on previously incorporated ideas if they are to spread from one individual to another, one organization to another and one society to another. If we interpret ideas as innovations, they require receptive ‘mental sockets’ that are compatible with one another in order to be well understood and integrated by the receiver and adopter. Individual ideas can be assembled into coherent blocks to be better exported, understood or simply made more complex. With this in mind, we view sustainable development (SD) paradigms as a recent evolution of a complex set of ideas about the role that corporations and business in general play in society. In 1987, the Brundtland Commission was at the origin of the mental socket for sustainable development (SD). The subsequent evolution of SD implies that these paradigms are prone to change and varying interpretations, which evolve depending on the building blocks and mental sockets of each of its constituent parts. Hence concepts such as corporate social responsibility, corporate citizenship, ‘eco-theology’ and ‘eco-feminism’ (Mebratu, 1998) have developed and are being pushed by phenomena such as global warming, rising awareness of poor working conditions in corporate foreign operations, increasing inequalities between and within countries and the idea that corporations should play a more active role in the communities in which they are active (Suder, 2008). 120

The future: a diffusion framework

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If corporations should indeed be playing such a role, then we can propose a framework for analyzing the diffusion of SD paradigms within multinational enterprises (MNEs). Such a framework will enable us to conceptualize the mechanisms observed and allow us to propose a model that helps to understand how MNEs integrate SD in their strategy and how they position themselves strategically when subject to phenomena based on commands and pressures. The aim is to observe and show how companies, according to corporate identity, risk aversion, corporate strategy, governance models and stakeholder expectations, respond to pressures and commands to advantageously integrate phenomena such as (in this example) SD. First, we briefly review how the concept of SD has evolved since 1987, revising some of the pressures for SD within MNEs and how MNEs both influence and are influenced by the SD agenda. Prior to introducing the framework, we review relevant studies on the diffusion of innovation. These serve as the basis for our differentiation between pressures and commands. Indeed, most of the diffusion studies reviewed focus almost exclusively on the pressures to innovate, while barely looking at the motivational aspects of innovation. We propose four classes of motivations, known as commands: political, legal, moral and informational. Each refers to the innovation adoption preferences of corporations seeking to adopt SD innovations. Finally, we discuss the implications of this framework and possible ways to develop SD in the long term.

1.

SUSTAINABLE DEVELOPMENT

The concept of SD first emerged in the second half of the twentieth century as a result of significant changes in human behavior regarding nature and transformations in the social structures that support human civilizations. The agricultural and industrial transformation of the world has led to significant increases in standards of living in what is today considered the developed world. These transformations have been fueled by ideological beliefs considering nature and its resources to be at humanity’s disposal; the legal transformations that ensued from these beliefs have allowed humans to take full advantage of the planet’s resources. The JudeoChristian religions have placed man over nature. Liberal and neoliberal economics have pushed the idea of the self-interested homo economicus. In addition, the advent of the corporation as a ‘moral person’ of ‘limited liability’ has allowed for the massive concentration of resources aiming for profit generation. The combination of these precepts has contributed to the advent of a global economic system, which has started to place

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enormous strains on nature. These pressures exerted on the environment by industries were first emphasized by the Club of Rome’s report, The Limits to Growth, and later by the International Union for Conservation of Nature’s ‘World Conservation Strategy’ (Mebratu, 1998). Today, the many facets of SD are acknowledged as a counterbalance to the effects of globalization on our environment. In a 1987 report titled Our Common Future, the UN Development Program agreed on what is now generally accepted as the standard definition of SD: ‘Humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Art. 27, World Commission on Environment; WCED, 1987). The idea of meeting the needs of the present without compromising the ability of future generations to meet their own needs has been the basis of SD paradigms since. Subsequently, the UN Conference on Environment and Development (UNCED), also known as the ‘Rio Conference’, played a significant role in giving global exposure to the concept of SD. The significant number of heads of state or government and NGO representatives attending either the Conference or the parallel NGO Forum gave the conference, and, consequently, the concept of SD, a particular weight. One of the resulting documents, Agenda 21, contributed to bringing the operational and strategic aspects of SD to the fore. The term corporate social responsibility (CSR) had been coined prior to the first definition of SD, but its recent developments illustrate how the concept of SD is being integrated into MNEs’ strategy and operations. For example, the EU defines CSR as ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. It is about enterprises deciding to go beyond minimum legal requirements and obligations stemming from collective agreements in order to address societal needs’ (EU, 2006: 2). Hence CSR is a voluntary SD orientation that MNEs can choose to adopt. However, with no or at best a minimal legal framework available to enforce international SD concepts, CSR adoption by value-maximizing MNEs risks being no more than a positioning strategy for increasing profits that could easily be dropped if profits were threatened or double standards (i.e. greenwashing) could further increase profits (see Utting, 2000). Hence our core question focuses on a potential ‘fix’ of CSR in the long term. Even if it is only a voluntary approach to business, CSR has been strongly ‘pushed’ by NGOs, associations and governments wishing to influence MNE behavior. Hence NGOs have increasingly ‘bec[o]me part of a growing CSR industry of service providers’ and ‘assumed regulatory


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functions by designing and administering new institutions associated, for example, with codes of conduct, certification and labelling schemes and monitoring and reporting activities’ (Utting, 2005: 375). Additionally, CSR- and SD-related activism has taken many forms involving the entire spectrum of actors, from shareholders to regulators to consumers. Specifically, Utting (2005) identifies specific forms of pressure that have been applied to MNEs: watchdog activism; consumer activism and the fair trade movement; shareholder activism and ethical investment; litigation, critical research, public education and advocacy; collaboration and service provision; and eclectic activism. The voluntary aspect of CSR on the one hand and the pressures mounting for a sustainable future on the other, are leading some MNEs to take a more proactive role in shaping their own future by actively engaging in regulatory reform and influencing public perception of their actions: MNEs can choose to either innovate and minimize future risks or not to innovate and maximize present gains. Hence the diffusion of SD paradigms in business is a push–pull process in which businesses are subject to pressures but adopt varying positions and strategies with respect to these. This chapter will shed light on this phenomenon.

2.

DIFFUSION

Since the working hypothesis of our chapter is that SD principles can be treated as business innovations, we need to briefly review relevant diffusion studies and extract the criteria on which we base our analysis. For this purpose, SD is used as an example of phenomena that expose MNEs to pressures and commands, forcing them to decide upon a strategically advantageous position, a positioning that responds to similar environmental phenomena perceived by prior business evolutions (such as, in earlier contemporary business history, the focus on TQM (total quality management), information technology or, more recently, knowledge management). The study of diffusion and SD (or any of the above phenomena) as an idea, invention and innovation helps clarify and conceptualize these mechanisms and explores why they are unavoidable for a business striving to create long-term shareholder and stakeholder value. Rogers (1995) differentiates between inventions and innovation as follows: inventions result from the creation of ideas and innovations come about when such ideas are adopted. One of the defining characteristics of innovations is that the adopter perceives them as new. Rogers also identifies other attributes of innovations, which include: their relative advantage over past innovations, the degree of complexity inherent to their adoption,

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their degree of compatibility with other innovations and their ‘observability’ (i.e. the degree to which the adoption of an innovation is socially visible). Observability and relative advantage, as motivational aspects of innovation adoption, are particularly relevant to our discussion. The Chicago School of Economics argues that the only relevant aspect in the adoption decision is the economic advantage conferred by the innovation. Thus economic innovation is mainly motivated by a desire for efficiency. On the other hand, socially motivated innovation (as illustrated by, for example, luxury) shows that a status aspect to innovation adoption does exist. Therefore symbolic (Fukuyama, 1992; Rogers, 1995; Wejnert, 2002) as well as economic motivations for innovating are to be considered. The adoption decision process occurs in five steps, which describe how the behavior of the potential adopter evolves regarding the proposed innovation (Rogers, 1995). Chronologically, these steps are knowledge, persuasion, decision, implementation and confirmation of the adoption decision. These steps effectively correspond to a potential adopter learning about an innovation; evaluating its compatibility with previous beliefs, innovations and/or social norms; taking a position with respect to the innovation; acting according to the position taken; and finally, maintaining (or not, in the case of discontinuance of an adoption) the position chosen. Hence the adopter is not a passive consumer of innovations. Furthermore, Strang and Soule (1998: 276) posit that there is an ‘interpretive process’ involved in the diffusion of ideas: the recipient will understand the innovation in terms of the norms and beliefs that he or she holds. Lillrank (1995) suggested that ideas have to be put into abstract form to be easily exported; these abstract forms can then be ‘unpacked’ and reinterpreted upon arrival. Ideas that are easy to understand in an abstract form will diffuse more rapidly and more widely, while those that cannot be understood, or that are in conflict with norms and beliefs held, will be discarded. If innovations are not compatible with cultural norms or are not intelligible to the potential adopter, they will tend to be discarded. Social networks also have a very strong effect on adoption decisions (Wejnert, 2002). In this context, social and geographical proximity strongly influence potential adopters through peer group pressure. When proximal peers increasingly adopt innovations, pressure mounts for nonadopters to conform. Conversely, as adoptions are rejected within a social or geographical group, the probability of adoption by similar individuals also drops. Granovetter (1973) adds that the strength of network ties is a determinant factor in innovation diffusion. Weak ties between heterogeneous groups allow for rich-content information flows and thus help diffusion through external links, while strong links internal to groups reinforce


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adoption decisions and are a source of homogeneity. Additionally, the preferences of opinion leaders or high-ranking individuals heavily influence adoption decisions in social networks (Wejnert, 2002). Diffusion is therefore an internal as well as an external process: adopters actively form behaviors with respect to innovations but are also subject to group pressures. 2.1

Internal Pressures

Internal pressures consist of all internal group dynamics that lead to uniform responses vis-à-vis a decision for adoption. Information and environmental uncertainties can be seen as major driving forces behind the similarity in adoption decisions within groups. Such uncertainties will usually lead to imitation either as a means of gaining legitimacy (Abrahamson, 1991) or as a result of information asymmetry (DiMaggio and Powell, 1983). DiMaggio and Powell (1983) have hypothesized that the more uncertain an organization is about the means of achieving its goals, the more that organization will model itself upon players it perceives to be successful. A smaller number of visible organizational model alternatives will lead to greater similarity. Strang and Soule (1998) refer to ‘mimicry’ as the result of increased competition within groups. A significant problem with these innovation adoptions, however, is the spread of inefficient innovations (or the abandonment of more efficient ones) and the speed with which both these phenomena occur. Unforeseen consequences of innovations are quick to appear and can have a serious impact on social cohesion. Normative pressures are associated with the ways in which groups seek to define themselves. The social and academic background of professionals tends to be normative. Indeed, ‘the greater the reliance on academic credentials in choosing managerial staff personnel, the greater the extent to which an organization will become like other organizations in its field’ (DiMaggio and Powell, 1983: 150). High-status professional organizations will tend to attract high-grade employees from similar backgrounds. This status can only be acquired through conformity with the professional body. Evidently, culture acts as a normative pressure and can be seen as the root of rejection or adoption decisions. This links back to the compatibility with held norms and beliefs mentioned above. 2.2

External Pressures

These kinds of pressures relate to all external forces that move adoption decisions within a group in a similar direction. By acquiring a level of

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highly centralized power, small groups of actors are able to impose adoption decisions on the wider population (Abrahamson, 1991; DiMaggio and Powell, 1983). This power to impose decisions on the wider group essentially stems from strong political influence or legitimacy. However, although these powers are strong within a given group, they are usually restricted to this same group. For example, a government can impose certain laws on the population it governs through channels of power and commands, but typically does not exercise these on the population of another country (without risking conflict or warfare). Nevertheless, strong actors that do not necessarily benefit from the same legitimacy as governments can influence the adoption decisions of a given population. An organization can, for example, impose its views and methods upon the rest of the population through ‘special’ interactions with states (important contracts, privileged contacts, etc.) and/or by achieving a critical size. By taking a resource-dependent approach to innovation adoption, Elg and Johansson (1997) examined how the centrality or concentration of resources in a network of firms can tilt decision-making power to those controlling the resources. They found that firms controlling resources in networks can strongly influence the speed and direction of decision making. Furthermore, even in cases where decisions could make the network as a whole more efficient, environmental uncertainties led less influential players to keep their opinions to themselves. Elg and Johansson found that this is due to the fact that all players know their current position in the network, but cannot predict the effect on their network position if the ‘resourceful’ player is alienated. That is, the uncertainty cost of displacing the most important player outweighs possible gains. As a consequence, it can be said that innovation adoption decisions concerning whole networks will tend to be sticky processes in which the consent of a few strong players tends to have a disproportionate weight on the final decision. Wejnert (2002) adds that the consequences of innovation can be public or private. Private consequences affect only the adopter, while public ones affect a wider group. On another note, the neoliberal and liberal schools of thought in economics portray market forces as being the penultimate means of achieving efficient resource allocation. From this view, Kahler and Lake state that ‘competitive economic pressure will produce institutional and policy homogeneity over time in a direction most favored by the mobile factors of production – footloose capital’ (Kahler and Lake, in Simmons and Elkins 2003: 280). According to this view, economic pressure acts as a form of isomorphism. In response to Kahler and Lake’s economic arguments, Simmons and Elkins (2003) argue that policy convergence can come through human contacts and that similarly oriented governments


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will share similar views. Abbot and De Viney (1992) further argued that structural equivalence is a good predictor of innovation diffusion between states. Mass media also act as external influences. The scope and reach of mass media ensures that a single message source can reach a multitude of different categories of adopters. In addition, mass media edits and amplifies the message. Dyck and Zingales (2002) identify three types of pressure that the media use to further the diffusion of innovations: political pressure, economic pressure and social pressure. Political pressure acts by driving politicians to introduce or enforce new laws in order to save their political reputation or managers to introduce new management techniques to save their jobs. Economic pressure acts by influencing managers’ reputations and, through this, their pay and value on the job market. Finally, social pressure acts by exposing the doings of managers and directors to the whole of society, exposing them to wider social judgment.

3.

A FRAMEWORK TAXONOMY

On the basis of the above literature review, we now proceed to an analysis of diffusion as a push–pull process in which external pressures are combined with actor-specific intentions to innovate. The diffusion of corporate strategy and governance takes place on two dimensions: pressures as a set of external forces and commands as an intentional process and a set of motivational aspects. These dimensions and sub-dimensions have not been empirically validated and are proposed as an exploratory model to explore the diffusion of corporate strategy and governance principles, along the lines of the concepts shown in Figure 7.1. 3.1

Pressures

We define as ‘pressures’ all external forces that push innovation adoption decisions in a given direction. We isolate three major pressures that influence the diffusion of innovation: two types of political pressure (where the word politics is understood to mean ‘the process of gaining and maintaining support for common action’ (All Experts, 2008)) and one of economic pressure. Formal political pressures Formal political pressures are those that are structural or emanate from a highly centralized minority that forces innovation on the rest of the group. The type of authority exerting this pressure tends to be formal and coercive


A

SHV CSR

B Z X

Innovation adoption pressure

TQM

Formal political pressure

Informal political pressure

Economic pressure

• Government regulations • Strict buyer specifications

• Consumer pressures • Stakeholder interests

• Cost reduction • Margin improvements

Innovation adoption command

Potential innovation space

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Public relations

Win–win situations

Internal consistency

Political command

Legal command

Moral command

Undefined direction

Knowledge command

Adoption Note: CSR: Corporate Social Responsibility; SHV: Shareholder Value; TQM: Total Quality Management

Figure 7.1

Conceptualizing pressures and commands in SD diffusion

with a vertical (Wejnert, 2002) path of influence. An organization’s centrality in the network has a clear influence on other actors’ innovation decisions. These pressures have a seriously limiting effect on other actors’ liberty of choice in the innovation process. Although these pressures are most often contractual in nature, excessive dependence of one agent on another (as in the case of resource dependence) can lead to similar effects: non-compliance will almost inevitably result in serious financial or other losses for the non-complier. Informal political pressures These pressures are informal and arise from the wider social group. They tend to be decentralized and weaker than the above. They are typical for status-seeking organizations and do not involve any contractual relationships between actors. These pressures tend to act through voluntary action that is used by adopters to seek out innovations rather than have them imposed. The fad and fashion perspectives described by Abrahamson (1991: 597), as well as mimetic and normative isomorphism (DiMaggio and Powell, 1983: 151) are part of those informal political pressures. Informal


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political pressure therefore causes weaker organizations to conform to the ways of stronger ones through the set of uncertainties and information asymmetries faced by the former. Although the leading institutions might not actively be seeking such power, circumstances confer it on them. Even if legitimacy may also be acquired through formal power (government institutions or government-recognized institutions), the pressure exerted on the rest of the group is not formalized. For example, normative isomorphism as felt by the professions does not result in the professions having structural power over the rest of society. Indeed, a company of professionals cannot impose its view on other companies, even though other companies might highly respect it. However, such companies can acquire a role of privileged ‘change agents’ for government/centrally imposed actions through their formal training. Economic pressure This type of pressure comprises all the influences that are purely economic in nature and has the effect of exacerbating the performance gaps between stated and achievable goals by putting a strain on the innovator’s economic performance. Under Abrahamson’s efficient-choice perspective (1991), the company possesses all the information necessary to minimize this pressure because of limited environmental uncertainties. Innovation will therefore be driven solely by the will to minimize the above-stated performance gaps. 3.2

Commands

It has been noted that ‘networks composed of organizations similar in terms of structure, content and goals’ (Wejnert, 2002: 307) will tend to behave similarly to interpersonal networks. Therefore, we argue that organizations, as information-processing ‘super-organisms’, have identical behavioral traits and adoption motivations to the elements that compose them (Tarter and Hoy, 1998). According to Ajzen (1991), behaviors are derived from behavioral intentions that are the results of a combination of three elements within the person; namely, attitudes toward the behavior, subjective norms and perceived behavioral control. Attitudes toward a given behavior are beliefs about its likely consequences. Subjective norms refer to the individual’s beliefs about others’ expectations and the extent to which they influence his/her behaviors. Perceived behavioral control is the set of beliefs about the possibility of success of a given behavior. Additionally, people of comparable attitudes and beliefs tend to create bonds at a higher rate than people dissimilar in these characteristics, as well as share

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perceptions (McPherson et al., 2001) and selectively perceive similar elements in their environment. In terms of innovation adoptions, it can therefore be said that individuals of similar orientations will innovate in similar ways; be subjected to similar social pressures; share similar expectations about success; and have similar levels of environmental and informational uncertainty. Importantly, behaviors – and therefore decision making – are constrained by internal (attitudes toward a behavior such as norms and beliefs) and external (how significant others perceive it) elements. Since intentions are the basis of corporate strategy, it is through them that we define the groups. These intentions are either political, economic, moral or a need to reduce information asymmetry to jump to another command group. Consequently, we define command as the major constraint under which a person/organization chooses to innovate. Furthermore, the environment in which companies evolve as well as organizational intentions are dynamic; the carrying capacity for each command group might vary over time, causing company commands to shift. Political command This group comprises all actors that seek to maximize economic returns given social constraints. It is a status-seeking group that is motivated by the symbolic aspects of innovation. It innovates with the intention of gaining and maintaining support from the wider group and has strong authority. It can be defined as a group that has a low level of internal consistency (norms and beliefs) and a strong external focus (desiring to fulfill others’ expectations). Consequently, organizations in this command will tend to be volatile in their actions but have a large following. The low level of internal consistency of these firms leads to high levels of inefficiency, which can be exploited by firms in legal command. Furthermore, the high level of volatility will often lead to short bursts of high value – creation followed by periods of loss. Economic pressures can exacerbate inconsistencies between words or policies and actions in corporations following command. This mechanism tends to operate through a lack of transparency on the part of the corporation and this will tend to diminish incentives to be internally consistent while at the same time seeking to boost external consistency. In terms of sustainable development this phenomenon has often been seen in the concept of ‘greenwashing’, whereby a corporation professes green practices in an effort to gain support, without truly abiding to green principles. Economic pressures on a political command can therefore exacerbate the gap between strategic intentions and strategy implementation. In order to pre-empt formal political pressure, corporations can capture


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institutions, a process by which ‘business interests unduly influence the decision-making processes of standard-setting and regulatory institutions’ (Utting, 2000: 28) such as think-tanks and NGOs and use them as proxy structures. The latter third-party technique may be used by corporations to further their agenda while maintaining external consistency depending on the impact of pressures and commands. This kind of positioning can help extend corporate credibility and has an impact on policy making through lobbying and advocacy. It is also an indispensable tool for knowledge transfer between corporations, institutions and organizations. Corporate elites are usually skilled in turning threats to their advantage (Utting, 2000), as shareholders expect value creation. Therefore formal political pressure could result in a bargaining process whereby the corporation drops a certain behavior/innovation for more of another privilege, in a positive or negative manner. However, when the above measures fail, corporations have no choice but to comply with centrally imposed measures. In terms of changes to corporate governance, a recent and obvious example is the Sarbanes–Oxley Act, which is intended to mitigate accounting frauds. The very nature of this command group will tend to make it less prone to informal political pressure than the other two. Indeed, by successfully innovating and gaining mass support, this command group tends to be favorably viewed by the public at large. On the other hand, if unsuccessful, corporations desiring to be part of this command will become part of the information command group. Legal command This group comprises all the actors that seek to maximize economic returns within the existing legal constraints. It possesses strong authority and will seldom be contested. It is motivated by the economic aspects of innovation and seeks efficiency above all else. Internal consistency is very strong due to the search for efficiency, though this is tilted toward financial/economic optimization. However, the strong internal focus leads to slight regard for external opinions as long as this attitude is consistent with sustained efficiency. This command group therefore does not actively seek status or social recognition. If law is defined as a ‘collection of rules imposed by authority’ (Princeton Dictionary, 2008), law defines the limits of behavior tolerable in a society before the governing body takes action. According to this definition, corporations that follow the legal command will go as far as they can within the very limits of tolerable behavior as defined by the society in which they operate. This behavior is pushed by the managerial focus on the increase of profits (Kolstad, 2006) and the thought that the ‘social responsibility

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of business is to increase its profits’ (Friedman, 1970). Such limit-probing behavior can result in tighter regulations. A legal command will make corporations less prone to economic pressure. This group thus leads innovation adoptions that increase shareholder value and face less market pressure to change its ways. Win–win situations (Utting, 2000) in which one company’s waste is another company’s product can further boost the standing of corporations following this legal command. In Holland, for example, Shell has started providing the CO2 emitted by its factories to greenhouses that need it. In summer, this reduces the greenhouses’ cost of producing CO2 by half while adding to Shell’s revenue and reducing the overall CO2 released in the atmosphere (Stafford, 2006). While this type of situation remains rare, it could create a framework for CEOs to actively seek solutions that would recycle their waste products for the benefit of others. Furthermore, win–win situations can help solidly underpin corporate strategy. The reaction of the legal command to formal political pressure is similar to that of the political command. That is, three attitudes exist towards this pressure: pre-emption, negotiation or compliance. As mentioned above, corporations can pre-empt by using third-party interventions. In the case of sustainable development, the development of closed-loop no-waste processes, for example, avoids regulatory compliance burdens; however, regulators expose the firm to additional external pressure (e.g. IP/06/445, Brussels, 4 April 2006, Spain: Commission continues legal action for breaches of environmental law, Press Releases, Commission of the European Communities). In an attempt to set regulations that will play against competitors, corporations can also anticipate innovations and force their innovations on other companies, using governments as proxies for promoting their methods. This pressure can then be turned to the firm’s advantage. For example, Shell’s selling its excess CO2 to greenhouses might prompt legislation whereby corporations would be forced to investigate ways in which waste can be recycled and periodically report on their efforts. Informal political pressure can have the effect of pushing corporations from one command group to another. When brand image and consumer loyalty are major sources of value for corporations, keeping a clean slate is invaluable. As corporations that rely on external factors realize that transparency and social action can lead to increased revenue, they will tend to polish their image accordingly. This has been exemplified in the past with corporations such as Nike, Reebok and Adidas: the three companies joined forces against their tarnished images by becoming members of the Fair Labor Association, which promotes better working conditions in the sweatshop factories around the world.


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Moral command This group innovates with the intention of maximizing economic returns through intelligent use of moral constraints. It possesses strong authoritative powers and will seldom be contested. Also, following a moral command does not exclude this group from referring to coercive powers. Similar to the legal command, innovation is motivated by a desire for efficiency. However, efficiency is defined in a wider sense and is not purely economic or financial; it may, for example, be measured by the satisfaction of a community goal. Hence the focus of innovation adoption may be social, environmental, philosophical or simply supportive of the moral stance of the innovator. This command group will also tend to act firmly within the legal boundaries defined by a society, as long as they are perceived as ethical. Furthermore, the moral focus calls for internal consistency as well as a strong external focus. That is, the command group will abide by its norms and beliefs while also seeking wider support for its actions. In the case of controversial innovation it will tend to propose debates so as to maintain social cohesion in decision making and allow for sustained action in a given direction. Nonetheless, one needs to note that adhering to an ethical stance might be geographically limited due to different interpretations of ethics and morals worldwide. Corporations following the moral command tend to be vulnerable to economic pressure. The financial suboptimality that tends to arise from a moral focus can attract the attention of financial optimizers such as corporate raiders or conglomerates. This was the case with Ben and Jerry’s (B&J) when it was absorbed by Unilever in 2000; the social report that B&J had released every year since 1999 ceased in 2004. Although Unilever has also adopted the practice of releasing yearly sustainability reports, the B&J report was much more complete and specific than Unilever’s. Hence, moving from a branch-/acquisition-specific reporting system to a global reporting system may lead to loss of specificity and clarity and to regression in terms of SD innovation. Restructuring along financial lines can indeed lead to a change of command through a change or lack of selfdefinition. Due to its very stance, this command group tends to be less prone to formal political pressure than other groups. The assumed tendency here would be to debate or negotiate with the aim of proving the moral validity of its claim. However, as mentioned previously, ethics and morals are often locally defined. Hence the case of a corporation openly disagreeing with accepted ethics in a given country could end up facing strong political pressure to abide by these. Wal-Mart exemplifies this in an odd way. Wal-Mart was forced, by law, to sell the ‘morning-after pill’. Hence, even

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though Wal-Mart follows openly conservative lines, politics can get in the way of ethics unsupported by the government. Perceptions of right and wrong can vary tremendously from one person to another and while there are some (nearly) universally accepted rights and wrongs, there are definitely others that are contested. Information command This group innovates with the intention of maximizing economic returns given knowledge constraints. The group is constrained by environmental uncertainties and is only as good as the quality of its (poor) information allows. Its authoritative powers are very weak, which causes its position to be constantly contested. In terms of innovation adoption, this group tends to lack internal as well as external consistency until it shifts command. A lack of self-definition tends to cause volatility and irrationality in decision making and an innovation adoption decision might be a response to a need (or simply the creation of a need); that is, the innovation is adopted before having any usage in the firm. Uncertainty causes organizations in this command group to have oscillating behaviors until a sufficient level of internal and/or external consistency is reached. This command group tends to be vulnerable to all types of pressure due to its lack of self-definition. However, as the firm comes to grips with its aims and starts shifting to another group, the pressures will also tend to shift.

4.

DISCUSSION

This taxonomy has isolated and positioned the categories of pressures and commands underlying SD-related principles and their diffusion. A brief analysis of the history of SD and CSR suggested shifts in command groups. That is, the legal, ideological and economic constraints of the environment are such that, at different times, the carrying capacity for firms following either the political or legal command will vary. Indeed, the contrast between the previous and current decade in terms of corporate integration of SD concepts is evident. Assuming that the carrying capacity for SD paradigms changes over time, certain views lose momentum in favor of others and create vacuums that force corporations to adopt one command rather than another. Clarke (2004) has shown that corporations are prone to excess in expansive phases of business cycles and cautious behavior during busts, so as to avoid regulations. In the terms of our framework, this could translate into moving from a legal to a political command, with all the innovations that


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ensue. Innovations would shift corporations to a moral command if the long term were privileged over the short term. This does not yet appear to be the case. However, a resource-dependence theory combined with a ‘classical’ (e.g. Rogers, 1995; Strang and Soule, 1998) approach to the diffusion of innovations suggests that diffusion happens in clusters and tends to be a sticky/slow process. That is, networks of similar actors will tend to innovate together and reinforce their decisions, but the strongest players in the network will have a disproportionate weight in the decision’s adoption process. This can be observed in corporate networks in which the major MNEs made a lopsided decision, adopting shareholder value and imposed this on other actors. This is illustrated by the World Business Council for Sustainable Development (WBCSD) constituency of MNEs and the weight it holds in the shaping of business and governmental approaches to CSR. SD is content-rich because it is shared and complemented by a heterogeneous, (almost planetary) loose community of common interest. It acquires the status of an economic (in the long term) and symbolic (in the short term) value that is subject to political resistance in the short term and economic resistance in the long term, since command structures develop an adherence to similar objectives (e.g. EU- and UN-led initiatives or CRS Europe). However, the content-rich aspect of SD means increased complexity in terms of the ideological requirements for its adoption. Therefore new management paradigms could lead to SD as an extension to shareholder value (exclusively through win–win situations) or a departure from such a view of the corporation (a redistributive process). In the former case, the knowledge developed by consumers, increased government intervention and control and social pressures would force corporations into seeking these win–win situations. In the latter case, the corporation would take the lead in having consumers make wiser choices and therefore in changing attitudes for a cleaner future. While strong evidence exists in favor of a status-quo-seeking elite (that manages to balance its interests with those of other stakeholder constituencies in such a way as to maintain a dominant position (Utting, 2005)), academics have engaged in changing paradigms of late. Prahalad and Ghoshal, among others, have criticized the usefulness of a purely shareholder-value-driven paradigm. Prahalad claims that this paradigm is inherently crisis-driven (1993, in Chew, 1997: 48) and that the assumptions of financial economists are erroneous. Ghoshal (2005) argues that agency theory has trained a generation of ruthlessly opportunistic managers while the ‘pretence of knowledge’ gives invalid credibility to many models used in business studies. These comments might change the way in which future corporate actors act by changing the norms held by the professional force.

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To be meaningful in the long run, corporations need to maintain and reinforce beliefs and norms that favor SD by actively engaging in sense making and value creation for both the community and the corporation, so that innovations and paradigms can be ‘unloaded’ and interpreted, adapting to cultures and contexts. Meaningful contributions from the political community can reinforce the ideology building required to bring SD to maturity, hand in hand with globalization: hence the necessity of developing theoretical tools that can lead to an understanding of the diffusion of SD principles and provide the best options for a convergence of goal between shareholders, stakeholders and the community at large for mutual benefit.

NOTE 1. The views expressed in this chapter are those of the author and do not necessarily reflect the views held by Deloitte Mexico.

REFERENCES Abbott, A. and S. De Viney (1992), ‘The welfare state as transnational event: evidence from sequences of policy adoption’, Social Science History, 16: 245–74. Abrahamson, E. (1991), ‘Managerial fads and fashions: the diffusion and rejection of innovations’, Academy of Management Review, 16 (3): 586–612. Ajzen, I. (1991), ‘The theory of planned behavior’, Organizational Behavior and Human Decision Processes, 50: 179–211. All Experts (2008), ‘Definition of politics’, http://en.allexperts.com/e/p/po/politics. htm accessed 14 November. Clarke, T. (2004), ‘Cycles of crisis and regulation: the enduring agency and stewardship problems of corporate governance’, Corporate Governance: An International Review, 12 (2): 153–61. DiMaggio, P.J. and W.W. Powell (1983), ‘The Iron Cage revisited: institutional isomorphism and collective rationality in organizational fields’, American Sociological Review, 48 (2): 147–60. Dyck, A. and L. Zingales (2002), ‘The corporate governance role of the media’, NBER Working Paper No. W9309, National Bureau of Economic Research, Cambridge, MA. Elg, U. and U. Johansson (1997), ‘Decision making in inter-firm networks as a political process’, Organization Studies, 18 (3): 361–84. European Union (2006), Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee, Implementing the partnership for growth and jobs: Making Europe a pole of Excellence on Corporate Social Responsibility (COM(2006)136final). Friedman, M. (1970), ‘The social responsibility of business is to increase its profits’, New York Times Magazine, 13 September, pp. 32–3.


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Fukuyama, F. (1992). The End of History and the Last Man, New York: Avon. Ghoshal, S. (2005), ‘Bad management theories are destroying good management practices’, Academy of Management Learning and Education, 4 (1): 75–91. Granovetter, M.S. (1973), ‘The strength of weak ties’, American Journal of Sociology, 78 (6), 1360–80. Kahler, M. and D.A. Lake (2003), Governance in a Global Economy, Princeton, NJ: Princeton University Press. Kolstad, I. (2006), ‘Why firms should not always maximize profits’, Chr. Michelsen Institute, CMI, Working Paper 2006:11, retrieved 6 January 2008, from http:// www.cmi.no/publications/file/?2349=why-firms-should-not-always-maximizeprofits. Lillrank P. (1995), ‘The transfer of management innovations from Japan’, Organization Studies, 16: 971–89. McPherson, M., L. Smith-Lovin and J.M. Cook (2001), ‘Birds of a feather: homophily in social networks’, Annual Review of Sociology, 27: 415–44. Mebratu, D. (1998), ‘Sustainability and sustainable development: historical and conceptual review’, Environmental Impact Assessment Review, 18 (6): 493–520. Prahalad, C.K. (1993), ‘Corporate governance or corporate value added? Rethinking the primacy of shareholder value’, in D.H. Chew, Studies in International Corporate Finance and Governance Systems, New York: Oxford University Press, 1997, pp. 46–56. Princeton Dictionary, ‘Definition of law’, retrieved 14 November 2008 from http:// wordnet.princeton.edu/perl/webwn?s=law Rogers, E. (1995), Diffusion of Innovations, New York: Free Press. Simmons, B.A. and Z. Elkins (2003), ‘Globalization and policy diffusion: explaining three decades of liberalization’, in M. Kahler and D.A. Lake (2003), Governance in a Global Economy, Princeton, NJ: Princeton University Press, pp. 275–304. Stafford, N. (2006), ‘Gas for the greenhouse’, Nature, 442 (3): 499. Strang, D. and S.A. Soule (1998), ‘Diffusion in organizations and social movements: from hybrid corn to poison pills’, Annual Review of Sociology, 24: 265–90. Suder, G. (2008), International Business Under Adversity: A Role in Corporate Responsibility, Conflict Prevention and Peace. Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Tarter, J.C. and W.K. Hoy (1998), ‘Towards a contingency theory of decision making’, Journal of Educational Administration, 36 (3): 212–28. Utting, P. (2000), Business Responsibility for Sustainable Development, Geneva: United Nations Research Institute for Social Development. Utting, P. (2005), ‘Corporate responsibility and the movement of business’, Development in Practice, 15 (3–4), 375–88. WCED (1987), Our Common Future (The Brundtland Report), Oxford: Oxford University Press. Wejnert, B. (2002), ‘Integrating models of diffusion innovations: a conceptual framework’, Annual Review of Sociology, 28: 297–326.

PART II

Strategic Implications and Assessment

8.

Multinationals’ sustainable supply chains and influence on suppliers inside and outside the USA: a comparative approach Bernd Philipp

1.

MNES AND SUSTAINABLE SUPPLY CHAINS

A multinational enterprise (MNE) is defined as a company having at least one production unit abroad (Mucchielli, 1998: 18) or as a company that produces, in several national markets, goods and services adapted to these foreign markets (response to a specific local demand) (Meier and Schier, 2005). From a strategic point of view, MNEs possess or control companies or physical and financial assets in at least two world-economy countries. A comparative study of MNEs regarding their origin is possible because they can be distinguished according to their nationality. On the other hand, the distinction between a MNE’s national and international activities becomes increasingly difficult with the development of MNE localizations and branches abroad. Increasing sustainable development (SD) or corporate social responsibility (CSR) concerns not only affect MNEs considered as isolated units, but in fine their supply chains. This is true for market push (regulation or quasi-regulation) and market pull (sustainable consumerism) dynamics. In fact, regulatory constraints (or quasi-regulatory constraints such as ecological or social norms) are aimed not only at MNEs, but also at their supply chain links and suppliers. For example, there are repercussions from (quasi-compulsory) ISO14000 family certification regulations on MNEs’ outsourcing of partners and suppliers, reflecting the norms’ incentive character. Similarly, social constraints not only address ‘isolated’ MNEs and their branches or subsidiaries. Compliance with different social constraints, e.g. ILO principles or host-country regulations, is also required by MNEs’

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direct or indirect suppliers. In this context, MNEs adopt an important role in assessment: ‘This last point is one of the most essential ones, because it enables us to guarantee that MNEs do not try to “outsource” the social constraint’ (Meier and Schier, 2005: 287). Certification and qualifying as an ‘SA 8000 (Social Accountability 8000) member’ implies that each unit of the MNE and its suppliers are certified. SA 8000, under UN patronage and ‘guaranteeing the ethical origin of goods’ and services’ production’, translates into norms which the ILO denotes as the ‘declaration of workers’ basic rights’. Sustainable reporting has become compulsory for French-listed MNEs (regulation: 2001’s ‘new economic regulations’ law, completed by a 2002 decree). Compliance with ILO principles also involves outsourcing partners, suppliers and subsidiaries in host countries. The Global Reporting Index (GRI), representing an independent Dutch association (originally under UN patronage) and proposing 11 principles (guidelines) for writing a sustainable report includes: ● ●

Information on suppliers regarding economic, ecological1 and social performance indicators. Information on suppliers’ selection criteria regarding governance structure, organizational structure and management systems.

Sustainable consumerism, a market pull dynamic, can be considered as another constraint on MNEs’ supply chains. Indeed, we are aware of the repercussions from ecological and social perspectives and from big customers, shippers and retailers towards the whole industry – including suppliers (repercussions from downstream to upstream). Consequently, purchasing departments, in addition to their traditional selection criteria of price, quality and delivery time, also have to integrate ecological and social norms into their buying decisions. For example, in order to protest the planned sea immersion of a Shell-operated oil platform, consumers boycotted the MNE’s gas stations (1995). Dutch Shell responded in a manner similar to that of the USA’s Nike Corporation,2 whose questionable social practices (including the use of child labor by their suppliers) – also in the 1990s – were revealed by various stakeholder groups, seriously affecting the company’s results and motivating its transition to more proactive ‘basic sustainable strategies’ (Meffert and Kirchgeorg, 1993).

2.

TERMINOLOGY

Supply chain management (SCM), which adopts a company-specific perspective (supply and trade relationships of a focal company), can be

Sustainable supply chains inside and outside the USA

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distinguished from value chain management, which adopts a companyindependent perspective and supply management, which concentrates solely on purchase and sourcing. The Council of Supply Chain Management Professionals (CSCMP) defines SCM (Vitasek, 2003): Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers and customers. In essence, SCM integrates supply and demand management within and across companies. SCM is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and highperforming business model. It includes all of the logistics management activities noted above, as well as manufacturing operations and it drives coordination of processes and activities with and across marketing, sales, product design, finance and information technology.

According to Handfield and Nichols (1999: 2): the supply chain encompasses all activities associated with the flow and transformation of goods from raw materials stage (extraction), through to the end user, as well as the associated information flows. Material and information flow both up and down the supply chain. SCM is the integration of these activities through improved supply chain relationships, to achieve a sustainable competitive advantage.

These definitions highlight that SCM possesses pronounced modalities compared with other concepts such as the logistics chain, the logistics channel, or the logistics system, regarding considerations such as perspective, positioning, range, scope, systemic boundaries, relational register, philosophy and ideology (Philipp, 2007). Indeed, SCM, not far from the network concept, reflects an integrated vision of the extended logistics chain: solidarity and a common project to be valorized. SCM is also close to the relationship marketing paradigm, as trust and commitment often appear as constitutive variables (see, e.g., Carter and Jennings, 2002, on sustainable supply chains/CSR and supply chains). The two concepts of sustainable supply chains and socially responsible supply chains have many overlaps. Stricto sensu, CSR and SD are not synonyms. CSR is the older concept, except for Carlowitz’s (1713) pioneer contribution to sustainable forestry. Indeed, the arrival in business and management of the larger SD concept (stemming from political and scientific spheres) is not equivalent to the birth of CSR. It is true that

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CSR represents the company’s vector of commitment to SD (Lauriol, 2004), but the former concept can look back on a long-standing tradition, especially in Anglo-Saxon literature and business practice, related to well-established concepts such as management ethics, business ethics and opportunistic behavior. Table 8.1 attempts to summarize the common points and main differences between CSR and SD. CSR’s – culture-specific – scientific maturity is not necessarily proportional to a respective government or authority’s commitment. Indeed, we observe that the USA has no strategy to promote or even discuss global CSR. In Canada, CSR strategies are seen as important complements to trade policy. For the EU, CSR is considered to be a strategic objective (European Commission, 2001). In its 2006 communication on CSR (22 March), the European Commission launched the European Alliance for CSR as part of its strategy to ‘make Europe a pole of excellence on CSR’. Within Europe, however, the image is not homogeneous. Indeed, large national differences exist in the following categories (Riess, 2006): responsible authority, national strategies, visibility, transparency and reporting,3 finance, supply, foreign trade, coordinated national strategy (the UK and the Netherlands) and government’s explicit role in encouraging CSR initiatives (UK). Also, the development of CSR-related regulations concerns older EU countries much more than Eastern Europe. On the other hand, for example, Germany and the US Environmental Protection Agency have national, official research strategies in the field of sustainability, i.e. CSR seems to converge4 across a great number of points, particularly points relevant to SCM (e.g. the need for collaborative problem solving and for more integrated and system-oriented strategies). The relationship between SCM, SD and CSR reveals the sustainable supply chains’ objective, which is located along a continuum5 of two ideal boundaries: 1. 2.

Sustainability – CSR within supply chains: SCM’s traditional operations respect social and ecological requirements. Supply chains within sustainability – CSR: SCM represents sustainability’s constitutive processes, i.e. serving sustainability. Thanks to sustainable supply chains, one can substitute non-renewables with secondary raw materials and engage small producers. Keeping in mind the geographical spread of successive production and distribution chain links in characterizing today’s economics or network logic, SCM is becoming an essential vector/motor/initiator for realizing sustainability and CSR (Philipp, 2007).


Table 8.1

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Common points and differences between SD and CSR CSR

SD

Type of initiatives Level (scope, range) of measures Age, tradition

Voluntary Both operational and strategic

Analysis level

Microeconomic level (CSR’s addressee = companies) CSR = company’s contribution to SD or the company’s vector of commitment to SD Ecological and social (economic Economic, ecological, dimension only as frame condition) social (explicit triple bottom line) Only EU-wide; many different Yes, worldwide (WCED, definitions worldwide 1987/1997): ‘A concept whereby companies ‘a development that meets integrate social and environmental the needs of the present concerns in their business without compromising operations and in their interaction the ability of future with their stakeholders on a generations to meet their voluntary basis’ (European own needs’. Commission, 2001) (US) Carroll’s (1979, 1991) four responsibility levels:a 1. economic (make profit) – required 2. legal (comply) – required 3. ethical (be ethical) – expected 4. charitable / philanthropic / discretionary (be a good corporate citizen) – desired (US) Carter and Jennings (2004): ‘meeting the discretionary responsibilities expected by society’, encompassing (1) diversity, (2) the environment, (3) human rights, (4) philanthropy and community and (5) safety.

Relationship between concepts Constitutive dimensions Existence of an official unique definition?

Scientific definitions

Note: Source:

a

SD the older concept. CSR has a long tradition in Anglo-Saxon countries: Bowen (1953); Friedman (1970); Davis (1973); Freeman (1984); Wartick and Cochran (1985); Carroll (1979, 1991)

Towards maximum wealth (a→d). Personal elaboration inspired by Loew et al. (2004).

Brundtland (1987/1997). European (except Englishlanguage) literature generally prefers the sustainability terminology (cf. Müller and Seuring, 2006, 2008) Macroeconomic level

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3.


SUSTAINABLE SUPPLY CHAINS IN MNES’ PRACTICE: CODES OF CONDUCT

The expectations of various stakeholders concerning sustainable supply chains are often expressed through codes of conduct. Whereas company-specific codes of conduct belong to the focal MNE’s strategic core, macro- and micro-environment considerations involve industry and branch associations and solutions (business stakeholders and networks) and triggers stemming from NGOs, IGOs (inter-government organizations) or governmental bodies. Codes of conduct explicitly tackling sustainable supply chains include: 1.

2.

3.

OECD guidelines for MNEs (1976, modified 2000), treating responsibility for the supply chain and relationships with suppliers6 (Chapter 10 § 2 of the OECD guidelines). Their application can be considered as country-specific, as we are aware of a large potential for interpretation according to the different national points of contact7 (national government authorities). In Germany, for example, OECD guidelines are seldom applied (Riess, 2006: 38). The addition of the ‘where practicable’ language (regarding the adequate design of relationships with suppliers, Chapter 10 § 2) restricts the guidelines’ potential range and also leaves many degrees of freedom to country-specific interpretation. The OECD guidelines for MNEs are commented and/or criticized by various business and MNE stakeholders, including the BIAC (Business and Industry Advisory Committee to the OECD), with a discussion paper dedicated to SCM.8 Draft UN norms might provide a solution in this context according to NGOs’ criticism of OECD guidelines. These future norms explicitly mention the suppliers’ SCM issues and do not carry out an artificial distinction between trade and investment relationships. The UN Global Compact (2000, amended in 2004) (GC) is a voluntary international corporate citizenship network initiated to support the participation of the private sector and other social actors to advance responsible corporate citizenship and universal social and environmental principles to meet the challenges of globalization. Their ten principles concern human rights, labor, environment and anti-corruption. Although the GC’s scope goes far beyond sustainable SCM, this latter concept has been identified as its key issue, as ‘supply chains provide the nexus for global commerce and represent an important value framework for implementing the nine [ten] principles’. The June 2003 inaugural meeting of the GC Policy Dialogue on SCM in New York highlighted obstacles prohibiting the effective


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implementation of the GC Principles in global supply chains. These obstacles include an emphasis on SCM monitoring at the expense of remediation and training (cf. Loew, 2005) and insufficient collective action, especially towards suppliers, in a given industry, i.e. the freerider problem.9 The GC’s reference to MNEs by the Multinational Enterprises Team, which is responsible for ILO’s participation in the UN GC, appears relevant. Further missions include coordinating ILO’s work on CSR and the promotion and follow-up of the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. The Tripartite Declaration is the only development-oriented instrument in the area of CSR that is based on universal principles and standards which also has the support of employers, workers and governments.

4.

MNE’S INFLUENCE EXERTION ON SUPPLIER RESPONSIBILITY

In management science, we find some general explanations regarding potential influence exertion in our specific research issue, i.e. influence exertion upon suppliers concerning ecological and the social issues. Loew (2005: 45) observes, in this context, that discussions are dominated by the ‘David-against-Goliath image’, with MNEs dominating small suppliers, especially if MNEs add little value. This metaphor or cliché, however, does not always correspond to the actual power constellation in the supply chain. Indeed, MNEs with a high level of added value often face equally larger or even larger suppliers. In management science, responsibilities are determined by economic dependencies10 (scope/range). Distinguishing two postures in this context is possible (Stephan, 2003): 1.

2.

Investment relationships or investment nexus. This logic presents some disadvantages: the adequate threshold or percentage of the capital contribution is difficult to determine and may be questioned, and the distinction between investment and trade relationships may be considered to be artificial. This attitude is mainly adopted by ‘reactive firms’11 (regarding, e.g., OECD principles applied to multinationals). Investment-like relationships that can be explained by market power. There is either domination by the customer or by the supplier. Transaction cost theory examines co-specific investments (i.e. more long-term relationships – Heydenreich, 2003). This attitude is mainly

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adopted by ‘proactive’ firms (e.g. regarding OECD principles applied to multinationals). Hybrid organization forms – located somewhere between market (responsibility impossible) and hierarchy (responsibility via instructiondirectives) – dominate the marketplace (value chain or network vision). Influence exertion is fostered based on the following conditions: 1. 2. 3.

If the number of actors is limited: a focal company in immediate contact with its main value-adding partners. The closer the relationship, the better the quality of the relationship, or the longer-term. If the coordination forms structure is hierarchical rather than polycentric (complexity of the supply chain – Heydenreich, 2003).

The literature identifies several means or modes of influence exertion relevant to our research issue, specifically audits, codes of conduct and staff training. 4.1

Conceptualization of Sustainable Supply Chains

Based upon an extensive literature review (130 contributions) understood as systematic content analysis from a methodological perspective, Müller and Seuring’s (2006, 2008) works represent pioneer contributions aiming at conceptualization in the field of sustainable SCM, which can be seen as an initial step towards theory building (see Table 8.2). Müller and Seuring (2006) combined keywords from the SCM side and from the sustainability side for the search. Clear boundaries were drawn, excluding publications on: public purchasing, ethical demands placed on purchasing staff (e.g. acceptance of goods) and downstream supply chain issues like reverse logistics. Potential criticisms that might be addressed regarding these boundaries include: 1.

2.

Even though the research included keywords like ‘social’ and ‘ethics’ or ‘ethical’, there was no explicit inclusion of the CSR concept. One might regret this restriction, as CSR and SD are not synonymous. The exclusion of reverse logistics is questionable (cf. Philipp, 2007). Indeed, a supply issue is not independent from a delivery issue, not just within the same ‘linear’ supply chain, but also between two different supply chains linked to each other by the ‘multi-cyclic’ nature of products they carry and the fact that waste valorization has several modalities, including material recycling or reuse. The interdependent


Table 8.2

149

Müller and Seuring’s (2006, 2008) literature review findings relevant to our research issue

Methodology

Relevance for our research issue

No comparative approach (regarding authors’ or MNE’s origins) ● Extensive literature review (130 contributions in English): sustainable supply chains by derivation: ● In academic literature, compliance-oriented approaches (‘monitoring, evaluation, reporting and sanctions’ as sustainable SCM-supporting factors) dominate more partnering approaches (‘training and education of suppliers’) ● Partnering approaches (cooperation with suppliers, supplier development, training and education) are more likely if the company adopts a proactive, competition-oriented strategy (labeled ‘SCM for sustainable products’ rather than if a company adopts an alternative strategy labeled ‘avoiding risks from global supply chains’ ●

impact is visible through both service quality (bottleneck repercussions from one supply chain to another, supply of new materials combined with take-back of technically or economically obsolete equipments) and costs (realized monetary savings from the substitution of raw materials by secondary raw materials). Within reverse logistics, logistics service quality can be addressed from an input perspective (supply issue) or from an output perspective (disposal issue). In the light of SD/CSR, SCM reveals its full potential as a ‘conceptual bridge between upstream and downstream logistics’ (Paché and Colin, 2000: 38).12 Only scientific publications in the English language were taken into account. The publication period lasted from 1994 to 2004. Major publisher databases and Internet library services were used to identify relevant articles. Cited references were used as a secondary source. One hundred and thirty publications were identified and differentiated into five categories: theoretical (29 publications), case study (51), survey (33), modeling (13) and literature review (4). Müller and Seuring (2006) did not conduct a comparative analysis regarding the origins of various authors or the treated MNEs, but focused on the allocation within the publications:

150

1. 2.

3. 4.


The dimension(s) addressed or, in the authors’ words, ‘the coverage of SD’ (ecological, social or sustainable). The relationship of goals between business objectives and SD (win– win situation, trade-off situation, minimum performance for ecology and social welfare as an order qualifier). Barriers and supporting factors for sustainable SCM. Pressures and incentives. The authors’ general conclusions are as follows:

1. 2. 3.

Case studies are dominating, but theoretical basis is often missing. Environmental aspects clearly dominate, but social and integrative13 sustainable aspects are neglected. The supply chain focus is evident, so purchasing issues are not the only issues addressed.

Other considerations that are relevant to the issue of influence exertion on suppliers, our specific research issue, appear regarding internal barriers (higher costs, coordination effort, insufficient communication in the supply chain) and supporting factors for sustainable SCM (company overlapping communication, monitoring, evaluation, reporting and sanctions, training and permanent education of purchasing employees and suppliers). Regarding influence exertion on suppliers, we observe that compliance-oriented approaches (monitoring, evaluation, reporting and sanctions: 61 papers of 130 mention this supporting factor) dominate the more ‘partnering’ approaches (training and education of suppliers: only 41 papers out of 130). However, Müller and Seuring (2006) did not consider the cultural origins of various authors or referenced companies. Müller and Seuring’s (2006) findings suggest that the extent of partnering depends on the nature of reactive strategy adopted by the company. These strategies are based on external triggers14 placed on focal companies by customers, stakeholders and governance agencies. The first strategy is labeled as ‘avoiding risks from global supply chains’. One major fear of companies following this kind of strategy is a loss of reputation if related problems are raised. Thus additional environmental and social criteria are taken up to complement economically based supplier evaluation, including evaluation schemes and self-evaluation schemes, which reflect a more compliance-oriented approach. Environmental and social standards play a central role in enabling this approach. The second strategy is called ‘SCM for sustainable products’. This usually demands the definition of life-cyclebased standards for the environmental and social performance of products, which then are implemented throughout the supply chain. Aiming for


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an overall competitive advantage, this latter strategy has a more partnering approach, visible through cooperation with suppliers and fostering supplier development by considerable investment, training and education,15 and improvement and enhancement of information flows with suppliers. 4.2

Sustainable Supply Chains and Influence Exertion on Suppliers in Academic Literature: a Comparative Approach

Zsidisin and Hendrick’s (1998) US article is restricted to environmental performance. Environmental performance is modeled as the dependent variable and managerial involvement in ecological SCM is the independent variable (see Table 8.3). However, there has not yet been any empirical testing of the model. An exploratory factor analysis revealed four elements of managerial involvement in SCM related to environment issues: involvement in hazardous materials, investment recovery, product design and supply chain relationships. The last issue is relevant to our research issues on means of influence exertion within MNEs’ purchaser–supplier relationships. It has five items: (1) provide design specifications to suppliers that include environmental requirements for purchased items, (2) ISO 14000 environmental certification, (3) collaboration with suppliers to provide materials, equipment, parts and services that support environmental goals, (4) companywide environmental audits and (5) environmental audits of suppliers.16 Table 8.3

Country-specific ecological involvement levels regarding three supply chain relationship items (purchasing managers as survey respondents)

Level of involvement/ supply relationship item (as managerial involvement element)

Relatively high (desired or actual)

Relatively low (desired or actual)

ISO 14000 environmental certification Design specifications (supply chain relationship element) Collaboration with suppliers (supply chain relationship element)

Germany (desired level)

USA (desired level)

USA; Germany (actual level)

UK (actual level)

USA; Germany (actual level)

UK (actual level)

Source:

Adapted from Zsidisin and Hendrick (1998).

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Using a one-way ANOVA (analysis of variance), the authors attempted to derive statistical differences between three countries: Germany (responses received from 57 companies), the UK (50 companies) and the USA (93 companies).17 The questionnaires’ respondents were all purchasing managers. The sample is not explicitly limited to MNEs, but results seem highly relevant at least to larger MNEs. In fact, only larger companies (greater than US$1.7 billion annual sales and US$700 million in annual purchases) are represented in the sample. All of the US companies interviewed represent Fortune 500 corporations, i.e. the largest corporations in the USA. The authors’ conclusion (Zsidisin and Hendrick, 1998: 319), placing environmental harm within an international perspective, also corroborates the assumption that MNEs formed the major part of the sample. The authors conducted a gap analysis by comparing actual activity, importance and change in purchasing managers’ perceived involvement in the four environmental issues to corresponding levels of desired activity, importance and change. According to the results, German purchasing managers’ desired involvement in environmental supply chain participation issues is much higher than the current, actual level. Indeed, German purchasers’ desired involvement level regarding the second item, ‘ISO 14000 environmental certification’ exceeds that of their US counterparts. Actual involvement of UK purchasing managers regarding environmental supply chain relationships is relatively low, even though their desired level is slightly higher.18 One explanation might be the over-representation of service companies within the UK sample. Current US involvement levels are high regarding two supply chain relationship items: provision of design specifications (current involvement levels in the USA are higher than those in the UK) and collaboration with suppliers (current involvement levels in the USA and Germany are superior to those in the UK) and items that involve measures more associated with trust, especially relevant to US purchasers with a more strategic, as opposed to tactical or operational, focus. Dobilas and MacPherson (1997), lecturers in geography in Canada and the USA, examined contract allocation with suppliers from the purchaser’s perspective. The buying companies are explicitly MNEs (methodology: telephone interviews with 12 MNEs). This article represents exploratory research (i.e. no testing of hypotheses) examining the extent to which environmental considerations enter into a MNE’s planning and decision-making process or corporate planning. Social aspects, the third dimension of SD, are not considered. More precisely, the impact or ‘change potential’ of the greening of a corporation’s overall strategy (i.e. an emerging MNE’s environmental policies) on the MNE’s sourcing strategy is explored. The authors expect that, in addition to traditional criteria


153

such as costs, quality, delivery time and relationship quality (supply chain stability, longevity contracts, trust), new, ecological parameters also influence sourcing policy in terms of domestic and international sourcing patterns (i.e. changes in the institutional regulation of supply chain formation, ‘organizational change’ such as the potential for geographical substitution of supply sources and changes in the geography of transborder production linkages). Thus the environmental dimension appears as a potentially new policy variable in corporate planning. Observed influence exertion is either forced compliance (the extreme case) or formal or informal cooperative partnerships. The question is how ‘to encourage or to force suppliers to integrate environmental standards’. The possibility and extent of influence exertion is determined by market power and dependence (cf. Stephan, 2003), in other words by the availability of alternative suppliers and the degree of monopsony or oligopsony held by the contractor. In this regard, it is possible to hypothesize that firms with clearly defined environmental policies (but no enforcement mechanisms to govern suppliers) enjoy only weak19 bargaining power when it comes to initiating changes outside the corporation. (Dobilas and MacPherson, 1997: 19)

Motivations for adopting environmental policies are: 1. 2. 3. 4.

Urgency of a life-cycle analysis posture due to the firm’s products, processes and industry. Green consumerism. Economic factors (first-mover advantages, universal standards which avoid confusion). Competitive advantages.

Table 8.4 summarizes the means of influence exertion for each observed MNE and provides an explanation for the companies’ choice. Min and Galle’s (2001) article focuses only on US firms, i.e. there is no comparative approach regarding other countries or continents. Only the ecological dimension is considered. The perspective adopted is that of the buying company and the survey’s respondents are purchasing professionals. The sample is composed of companies, not only MNEs, and includes ‘heavy producers of scrap and waste materials’. Five hundred and twentyseven responses were received, producing a response rate of almost 18 percent. Fewer than half of the respondents said (i.e. sample description) that their firms have an environmental mission statement, which is confirmed by Murphy and Poist’s (2003: 125) results.20 According to the results, ecological issues (products and packages) are an integral part of supplier selection criteria, though not as important

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Table 8.4

A comparison of ecological influence exertion mechanisms on suppliers

MNE (and origin)

Means of ecological influence exertion upon suppliers

Explanation (for the means of influence exertion)

BT (UK)

ENFORCE (especially for suppliers with relative importance)

NT (Canada)

ENCOURAGE (suppliers environmental policies; training; partnerships) and ENFORCE (government regulations and standards) ENCOURAGE

High bargaining power (technological and commercial leadership), elevation of environmental matters to executive positions within corporate hierarchy High bargaining power (technological and commercial leadership), elevation of environmental matters to executive positions within corporate hierarchy No enforcement mechanisms, weak bargaining power Particularities of the MNE’s products, processes, and industry (urgency, high environmental risks)

‘many European and US MNEs’, like Xerox (USA) DuPont (USA)

ENFORCE

Varity (USA)

ENFORCE

Source:

Personal elaboration based upon Zsidisin and Hendrick (1998).

as traditional criteria such as quality, delivery performance and price. Results also show that firm size, reflected by a greater volume of purchasing capability of large firms compared to small firms, had no significant impact21 on its influence exertion over suppliers (‘push environmental initiatives on their trading partners such as suppliers’). The possibility of influence exertion or ‘ability to motivate’ is theorized by the supplier’s dependence on the buyer. Purchasers do not adopt an explicit partnership approach towards suppliers because, according to the results, ‘environmental partnership with supplier’ is the least important environmental variable for supplier selection. Suppliers’ advances in providing ecological packages and products also were


Table 8.5

155

Min and Galle’s (2001) findings relevant to our research issue

Companies surveyed

Descriptive statistics result Results: ecological influence exertion factors Results: means of ecological influence exertion

Only US companies; purchasers are ‘heavy producers of scrap and waste materials’, not only MNEs Fewer than half of the companies have a formal environmental mission statement Dependence; not firm size Compliance-oriented (supplier selection criteria); no partnership approach

among the less important ecological selection criteria. Similarly, respondents consider the ‘lack of supplier awareness’ as one of the less important obstacles to effective green purchasing, revealing a relative absence of empathy or a failure to consider the supply chain as a whole. However, these results might also be influenced by the authors’ research design and positioning.22 For example, education and training programs (concerning source reduction strategy) are theorized only regarding employee participants (Min and Galle, 2001) and not for suppliers or other supply chain partners. Table 8.5 summarizes Min and Galle’s (2001) findings that are relevant to our research issue. Murphy and Poist (2003) address only the environmental dimension of sustainability. ‘Environmental issues’ are modeled as having a potential impact on ‘various logistics functions’. The empirical and exploratory study’s sample encompasses larger firms (in the multinational association CLM, where English is the primary communication language, member companies have high revenues and are at the leading edge of logistical practices), specifically, 133 US and 55 non-US (Canadian and European) firms, not only purchasers. Respondents were from the director level or above. Significant differences between US and non-US companies were: 1.

2.

The type of environmental policy is mainly formal for non-US companies and mainly informal for US companies. This is consistent with Min and Galle’s (2001: 1224) findings. Visual and odor pollution are considered more important for US companies than for non-US companies. The environmental issue or ‘environmental dimension’ (Paulus, 1996) of visual and odor pollution is the only issue with significant differences between US and non-US companies.

No significant differences between US and non-US companies were found with respect to the following issues:

156

1. 2.

3.

4.


Environmental issues. The major reasons for environmental policies are of a tactical and reactive (cost reductions) nature rather than of a strategic and proactive nature for US and for non-US companies alike, a finding contradictory to Rogers and Tibben-Lembke’s (1998) results (competitiveness and strategic advantage). Suppliers who fail to support environmental issues are rejected with equal frequency. This is the only issue relevant to sustainable influence exertion on suppliers or supplier selection. The degree to which environmental issues impact various logistics functions. Only one issue, ‘facility location’, shows a significant difference: non-US firms consider the environmental impact on facility location as minimal, whereas US firms consider it as significant.

Table 8.6 summarizes Murphy and Poist’s (2003) comparative results regarding both general ecological concerns and our specific research issue. The findings of our comparative literature review are presented in the Table 8.7 and are further discussed in the next section.

CONCLUSION We observed the predominance of ecological issues in the available academic literature, preferring ‘green or ecological supply’ to ‘sustainable supply chains’. One of the only contributions aiming explicitly at sustainable supply, simultaneously integrating economic, ecological and social dimensions, was Müller and Seuring’s (2006, 2008) exhaustive literature review. However, they did not provide a comparative, country-specific approach. On a general ecological level, US and non-US MNEs show many similarities. Environmental issues are as important for US as for non-US MNEs (Murphy and Poist, 2003). US and non-US firms have the same view about the degree to which environmental issues impact various logistics functions (Murphy and Poist, 2003). Major reasons for environmental policies are tactical and reactive rather than strategic or proactive factors for both US and non-US firms (Murphy and Poist, 2003). This last result, however, is contradictory with the findings of Rogers and Tibben-Lembke (1998), who, for US companies, stated strategic factors as leading motives for carrying out reverse logistics. This contradiction might be explained by the same authors’ mindset because they considered reverse logistics proximate to the after-sales service conception and not necessarily linked to ecological missions. Only one major difference was identified regarding general ecological


Table 8.6

157

Murphy and Poist’s (2003) findings relevant to our research issue US firms

Sample Sample size and sharing General comparative result: importance of environmental issues General comparative result: major reasons for environmental policies General comparative result: environmental issues’ impact on logistics functions General comparative result: type of environmental policy General comparative result: importance of visual and order pollution Specific result: means of ecological influence exertion

Non-US firms (Canadian and European)

Bigger firms; members of CLM; not just purchasers; respondents at director level or above 133 55 Environmental issues are as important for US as for non-US firms. Tactical and reactive (→ cost reductions) rather than strategic or proactive factors for both US and non-US firms US and non-US firms have the same view about the degree to which environmental issues will impact various logistics functions Informal

Formal

Higher

Lower

Compliance (supplier selection), otherwise, rejection, i.e. no partnership approach, for both US and non-US firms

issues. The US MNEs’ environmental policy is generally informal, whereas non-US MNEs typically have explicit environmental mission statements (Murphy and Poist, 2003; Min and Galle, 2001). Regarding MNEs’ sustainable influence exertion on suppliers, our comparative literature review yielded the following results: compliance-oriented approaches (‘monitoring, evaluating, reporting and sanctioning’ as sustainable SCM-supporting factors) dominate more partnering approaches (Müller and Seuring, 2006). Partnership approaches (cooperation with suppliers, supplier development, training and education of suppliers) are more likely if the company adopts a proactive, competition-oriented strategy (labeled ‘SCM for sustainable products’) rather than if the company adopts an alternative strategy labeled ‘avoiding risks from global supply chains’ (Müller and Seuring, 2006). The confrontation with Murphy and Poist’s (2003) results helps to explain why MNEs prefer compliance-oriented

158

Table 8.7


Synopsis of our findings US

General results General: importance of environmental issues General comparative result: major reasons for environmental policies General comparative result: environmental issues’ impact on logistics/ SCM functions General comparative result: type of environmental policy

Specific results Specific result

Preconditions for partnering approaches with suppliers

Factors (preconditions) for ecological influence exertion

Specific result: means of ecological influence exertion

Non-US

Environmental issues are as important for US compared to non-US MNEs (Murphy and Poist, 2003) Tactical and reactive (→ cost reductions) rather than strategic or proactive factors for both US and non-US firms (Murphy and Poist, 2003) US and non-US firms have the same view about the degree to which environmental issues impact various logistics functions (Murphy and Poist, 2003)

Informal (no explicit environmental mission statement) (Murphy and Poist, 2003; Min and Galle, 2001)

Formal (explicit environmental mission statement) (Murphy and Poist, 2003; Min and Galle, 2001)

In the academic literature, compliance-oriented approaches (‘monitoring, evaluation, reporting and sanctions’ as sustainable SCM-supporting factors) dominate more partnering approaches (‘training and education of suppliers’) (Müller and Seuring, 2006, 2008) Partnering approaches (cooperation with suppliers, supplier development, training and education) are more likely if the company adopts a proactive, competition-oriented strategy (labeled ‘SCM for sustainable products’) rather than if the company adopts an alternative strategy labeled ‘avoiding risks from global supply chains’ (Müller and Seuring, 2006, 2008) Dependence (Stephan, Dependence (Min and 2003) Galle, 2001) (Dobilas and MacPherson, 1997); not firm size (Min and Galle, 2001) Compliance (supplier selection), otherwise, rejection, i.e. no partnership approach, for both US and non-US firms (Murphy and Poist, 2003)


Table 8.7

159

(continued) US

Specific result: means of ecological influence exertion

Compliance-oriented (supplier selection criteria); no partnership approach (Min and Galle, 2001)

Company-specific results Forced compliance •

Forced compliance coexisting with cooperative partnerships

Absence of enforcement mechanisms and weak bargaining power towards suppliers

Non-US

UK British Telecom, explained by high bargaining power (technological and commercial leadership), elevation of environmental matters to executive • positions within corporate hierarchy (Dobilas and MacPherson, 1997) Canadian Northern Telecom • Forced compliance (government regulations and standards), explained by high bargaining power (technological and commercial leadership), elevation of environmental matters to executive positions within corporate hierarchy • Cooperative partnerships (suppliers environmental policies, training) (Dobilas and MacPherson, 1997) For many European and US MNEs, like US Xerox (Dobilas and MacPherson, 1997) US DuPont, explained by particularities of the MNE’s products, processes, and industry (urgency, high environmental risks) US Varity (Dobilas and MacPherson, 1997)

160


approaches regarding sustainable influence exertion on suppliers, including supplier selection. In a survey limited to US companies, Min and Galle (2001) confirm this predominance of compliance-oriented approaches, again including supplier selection criteria. However, US and German companies seem to be more involved in collaboration with suppliers than their UK counterparts (Zsidisin and Hendrick, 1998). Not surprisingly, in this context of the domination of complianceoriented approaches, dependence and market power are cited as principal explaining factors or preconditions for ecological influence exertion, by US, Canadian (Min and Galle, 2001; Dobilas and MacPherson, 1997) and European authors (Stephan, 2003). Dobilas and MacPherson (1997) cite other explaining factors that might accompany, amplify or outweigh cultural reasons, including MNEs’ products, processes, industry, technological and commercial leadership and the elevation of environmental matters to executive-level considerations within the corporate hierarchy. The authors observe the coexistence of forced compliance and cooperative partnerships for only one Canadian company (Northern Telecom), whereas forced compliance is confirmed for both US (DuPont, Varity) and non-US companies (British Telecom). They assume the absence of enforcement mechanisms and weak bargaining power over suppliers for many European and US MNEs. However, their conclusions lack empirical evidence and do not explicitly conceive partnering approaches as an alternative in this context. More empirical evidence is needed to confirm our findings. We also encourage the scientific community to compare various theoretical models, which are likely to reveal significant differences regarding the authors’ culture and origin. Indeed, SD and CSR sometimes appear as independent and dependent variables. The adopted logic is sometimes normative, sometimes economic.

NOTES 1. 2. 3. 4. 5. 6.

Example concerning supply chain management: logistics’ environmental impacts (transport mode etc.). Cf. Gasmi and Grolleau (2005). In France, environmental and social reports have become compulsory for listed companies since 2001. In Sweden, larger companies have had to report their environmental impacts since 1999. In the USA, social and ecological reporting is poorly developed. Source: EPA (2005). Inspired by Pfohl et al.’s (1992) conceptual distinction between, on the one hand, ‘environmental protection within logistics’ and ‘logistics within environmental protection’, on the other. Exertion of influence is possible more upstream than downstream (national regulations on markets); cf. BIAC (2002).

Sustainable supply chains inside and outside the USA 7. 8.

161

The national contact points must cooperate with the CIME (Committee for International investments and Multinational Enterprises). BIAC’s position in this context (BIAC, 2002): •

Preference of suppliers’ self-monitoring to avoid competitive cost disadvantages, especially regarding MNE activities in developing countries. • One major issue is the adequate sharing of responsibilities, distinguishing regulatory framework (i.e. political factors, implementation and enforcement of national laws and regulation) from the company’s sphere of influence.

9.

Participants in the Policy Dialogue concluded that GC companies should strive to: • move from a top-down enforcement management strategies to empowerment, capacity building and training (cf. also Loew, 2005); • actively support multi-stakeholder global initiatives for SCM problems beyond the reach of individual companies or sectors. GC participants also agreed to identify and explore ways to disseminate existing tools and databases related to SCM.

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

A working group will explore the possibility of developing simple, pragmatic guides to implementing the nine principles in SCM (source: O’Brien, 2003). The GC needs to adapt its message, tools and products to regional and national circumstances. This adaptation requirement is particularly true for sustainable supply chain management issues, giving rise to dedicated regional meetings (UNESCAP, UN Economic and Social Commission for Asia and the Pacific, 2006) and workshops (Latin America, 2003) in different sourcing regions (countries), important both for Europe and the USA. → Questioning the MNE’s boundaries. ‘Reactive’ and ‘proactive’ may be interpreted as two opposite modalities of ecological or sustainable basis strategies (cf. Meffert and Kirchgeorg, 1993). What or where is upstream? What or where is downstream? → Triple bottom line. And on internal incentives and barriers. Cf. Loew (2005: 19). As (new, assisting, simplifying) element of ‘supplier screening’: Zsidisin and Hendrick (1998: 314). Overall response rate: 14.3 percent. Especially concerning the fourth item, ‘company-wide environmental audits’, where the desired level is higher than that of their US counterparts. This concerns, for example, Xerox, as opposed to companies that have elevated environmental matters to executive-level consideration within the corporate hierarchy, such as Northern Telecom and British Telecom. According to the latter results, most US companies have an ‘informal environmental policy’ compared to non-US firms, which mainly have formal policies. I.e. respective hypothesis not supported. This is confirmed by Müller and Seuring (2008: 1706): ‘in conceptual research the knowledge, experience and mindset of the researcher or research group have a great impact on the results’.

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9.

Sustainability metrics for multinational corporations – greater profits and a more sustainable world Salwa M. Beheiry

1.

INTRODUCTION AND BACKGROUND

What does not get measured does not get improved. Corporations are quite aware of this and employ metrics in managing most aspects of capitalintensive projects. Sustainable practices are viewed as business expenditure. However, they are yet to be systematically benchmarked, measured, baselined and improved on a wide scale in today’s corporate world. Benchmarking is a measurement process that allows multinationals to compare their project and program management practices internally and against Best in Class international corporations. Benchmarking should be a continuous improvement process that gives corporate management an insight into the effectiveness of their efforts in integrating sustainability into their current corporate practices. This chapter introduces a benchmarking model designed to examine the impact of corporate commitment to the three pillars of sustainability on capital project performance. Sustainable development (SD) or sustainability continues to gain favor worldwide, but multinationals are skeptical about its ultimate business value. Prior research in this area emphasized the influence of the environmental pillar of sustainability. While the environmental dimension of SD is vital, a balanced approach to the three pillars is needed. The impact of the social and the economic development aspects of sustainability has attracted more multinational business attention lately and needs to be integrated with the concept of environmental prudence before any business value analysis can be performed. Understanding this interface between the three pillars is essential to studying any causal relationship with the financial bottom line (Beheiry, 2005). The historical tendency to focus on environmental sustainability

164

Sustainability metrics for multinationals

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associated SD with the green movement and estranged business executives. Consequently, multinationals focused more on improving the regulated environmental aspects of projects and less was done regarding the voluntary economic and social aspects of sustainability. Over-alignment of SD with the green agenda has also prompted a natural gravitation in research towards relating the business case for sustainability with the technological savings in the life-cycle costs of the built assets (Ochoa et al., 2005; Guggemos and Horvath, 2005). The complete commitment of multinationals to all three pillars of SD is important because their international presence allows them unique access to promote sustainability practices. Unlike many governments, multinationals have interests and influence that go beyond national borders. Many multinational corporations already have environmental management systems (EMSs), pollution reduction and energy-saving practices in place. However, environmental pollution and global warming remain issues and social and economic development continues to lag behind in many parts of the world. There are many reasons for this very slow manifestation of SD as an international initiative. Willard et al. (2002) argued that one of the reasons for lagging corporate endorsement of a comprehensive approach to SD is the lack of an appropriate business case to quantify and justify such opportunities. The easier energy and waste savings (low-hanging fruit) have already been applied to the companies’ bottom line. There is a general expectation that the law of diminishing returns is bound to set in and reduce further benefits from more investment in waste and energy technologies. However, there are examples of business justifications for SD. For instance, DuPont has turned its international leadership in safe industrial operations into a profit-making venture by creating a new business unit to market this knowledge base globally. Companies that take the lead in this area may reap the benefits of not squandering shareholders’ money by underestimating when it pays to be sustainable, and if firms have to compete with rivals for customers and workers, then they will need to focus on their reputation for quality and fair dealing. Various industries and companies are coming to the conclusion that an SD approach brings value to the company and it is only a matter of time before companies realize that (Gilding et al., 2002). SD is classically portrayed as the interface between environmental, economic and social sustainability (Goodland and Daly, 1993) and the idea is regularly presented in a diagram of three interlocking circles, with SD representing the point of overlap. The popularity of this illustration stems from its close depiction of the circular or continuous interface between the three pillars, as shown in Figure 9.1.

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Economic development Community economic development

Economic growth Market expansion Externalize costs

SD Social development

Ecological development

Local self-reliance Basic human needs Equity Participation Social accountability Appropriate technology

Carrying capacity Sustainable yield Resource conservation Biodiversity

Deep ecology

Figure 9.1

The three pillars of sustainability

Economic development is defined as ethical, wholesome economic growth. Social development is typically referred to as corporate social responsibility or CSR and is defined as the responsibility that multinationals hold to behave fairly in their host countries and to reduce the effects of industrial development on the local communities they encounter. Environmental prudence, on the other hand, is defined as accepting our obligation to future generations to reduce our ecological footprint on planet earth. Overdevelopment can reduce the current quality of life and deprive future generations of their rights to a livable habitat. It is essential for any accurate measurement of sustainability commitment to address all three pillars. Extensive research addresses further aspects of sustainably. Ochoa et al. (2005) focused on life-cycle assessment of residential buildings. Guggemos and Horvath (2005) developed a decision support tool for environmental analysis of commercial building structures. Gambatese and Rajendran (2005) focused on sustainable roadway construction. Ghailan (2005) explored the modification of concrete by using waste material as coarse aggregate. Riley et al. (2005) examined the role of design–build mechanical


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competencies in the design and construction of green buildings. El-Diraby and Wang (2005) focused on the use of a semantic model to represent sustainability aspects of highway projects to local communities. However, questions remain concerning the motivation for corporate commitment to sustainability. 1.1

The Dow Jones Sustainability Index

The Dow Jones Sustainability Index (DJSI) was launched in 1999 to investigate a business argument for sustainability based on shareholder value. It is a family of indices used to identify and track the performance of sustainability-run companies. It tracks the performance of the top 10 percent of the leading sustainable companies in the Dow Jones Global Index (DJGI) that outperformed the more generalized DJGI with respect to market capitalization growth from 1999 to 2002 (Holliday et al., 2002). The DJSI performance indicates some business value for sustainable practices. As a research tool, however, the DJSI is unwieldy and does not measure the commitment of a corporation at the project level. 1.2

Sustainability and the Construction Sector

New roads in a picturesque countryside, refineries in coastal wetlands and dams on scarce river resources are typical projects that attract fierce debate. Although the industry and market forces tend to decide what is built and where it is located, local communities’ acceptance and society at large significantly influence the long-term success of such ventures. Development decisions require a process of trade-offs between sustainability issues and the economic demand for such facilities. Building professionals share the responsibility with developers in ensuring that projects are built in such a way as to minimize environmental impacts. UNEP (2002) argued that in addition to the construction industry being the foundation for capital investment in the industrial, infrastructure and housing sectors, it is also a major energy consumer. It uses nearly 40 percent of Europe’s energy and contributes largely to greenhouse gases in the USA. The UNEP report also attests that R&D is increasingly being focused on sustainability issues, especially the development of renewable energy sources for applications in buildings. Finally, the report clearly points out the recognized industry need to develop a set of sustainability indices against which it can benchmark its performance in respect of increased sustainability. It further highlights some difficulties in obtaining necessary data and statistics to support

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these proposals. Collecting and modeling some statistical data regarding the impact of sustainability awareness and effort geared towards sustainability on capital project performance should complement efforts to quantify the business case for sustainability and facilitate further creation of various relevant and specialized sustainability indices within the construction industry.

2.

STUDY OBJECTIVES

The main objective of this research was to establish a basis upon which the impact of owner corporate commitment to sustainability on capital project planning and performance can be studied. The research methodology involved the creation of five sub-objectives to support the main objective, including: (1) develop a Corporate Sustainability Commitment Index (CSCI) that enfolds the three pillars of sustainability (economic, social and environmental), with clear emphasis on issues of social justice and implement a survey to measure CSCI and validate the survey using expert opinions; (2) develop a Sustainability Component of Project Planning Index (SCPPI) and implement a survey to measure SCPPI and validate the survey using expert opinions; (3) examine the relationship between CSCI and project performance; (4) examine the relationship between CSCI and SCPPI and (5) examine the relationship between SCPPI and project performance.

3.

RESEARCH HYPOTHESIS

It was hypothesized that a higher balanced commitment to the three pillars of sustainability leads to better capital project planning and ultimately to better cost and schedule performance in large industrial and building projects by mitigating the risks in project execution. Corporations that are more aware of and more committed to sustainability (ethical financial practices, social responsibility and environmental prudence) should have relatively better capital project performance in terms of meeting their cost and schedule estimates. This would especially be the case when this commitment is reflected at the level of planning for sustainability-related risks in capital projects. Sustainable project practices address capital projects risk factors, such as stakeholders’ buy-in, local community acceptance, safe operations and labor satisfaction. If not addressed properly during project planning and definition, these risk factors can negatively influence project performance by delaying projects and consuming contingency


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on unforeseen obstacles. They can also disturb site operations with high occurrences of injury incidents and reduce labor satisfaction, hence increasing the rate of turnover and affecting productivity.

4.

RESEARCH SCOPE

This research was restricted to ‘Fortune 100’ owner corporations with substantial international operations. These companies are more likely to have sizable sustainability or SD units at headquarters. They also tend to execute more large international projects that are located in underprivileged communities and are hence more capable of providing data that are relevant to this research. Sustainable practices tend to have a greater effect in reducing risk in larger greenfield projects. Smaller revamp and modernization projects do not typically involve developing new sites and interacting with new local communities, and hence do not fall under the same SD rules as large greenfield projects. Therefore, to obtain valid survey responses and to keep the data analysis consistent, the projects chosen were restricted to large or mega-industrial projects. The project performance measures were also restricted to the more crucial elements, cost and schedule deviation. Some contractor organizations were also contacted, but only a few responded, rendering any comparison between owners and contractor practices unviable.

5.

RESEARCH METHODOLOGY

To achieve the objective of this study, first a survey tool had to be created and its format validated. Second, data had to be collected on the final survey version to measure corporate sustainability commitment and the degree of integration of sustainability practices in capital project planning. The survey also had to be used to collect data on capital project performance. Third, the data collected had to be examined to verify the validity of using this research mechanism in measuring the impact of sustainability commitment on project performance. The survey tool was designed in three sections, the Corporate Sustainability Commitment Index (CSCI) section, the Sustainability Component of Project Planning Index (SCPPI) section and the Capital Project Performance section. The CSCI was developed by condensing the sustainability indicators for the three pillars of SD into a Likert Scale survey format. SCPPI was also designed on a Likert Scale for uniformity and user friendliness. SCPPI measured the degree to which commitment

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to the sustainability indicators at the top of the multinational corporations was filtering down to best practices at the project planning level. A set of 38 companies was identified as suitable participants in the study. Several sustainability experts from these companies were contacted to obtain feedback on the survey format and contents. Moreover, a workshop was held at the Construction Industry Institute (CII) annual conference on sustainability in Vancouver in July 2004. During that meeting, ten senior industry representatives shared insights regarding the survey format and the research direction. When the format of the survey had been validated, its final version was issued. It was mailed to all 38 companies. Several companies agreed to participate via electronic mail or teleconferencing and a number of teleconferences were held to collect data from these companies. The responses were then validated by referring to the applicable corporate performance annual reports, SD annual reports and online sustainability publications. The participants were also directly contacted for clarification when discrepancies were detected in the survey responses. Subsequently, results from the corrected responses to the survey were computed to create a 1 (low) to 10 (high) CSCI score for each corporation. The respondents were then asked to volunteer one or more projects to complete the SCPPI Likert Scale portion of the survey and the project performance section. Similar to CSCI, the responses for SCPPI were calculated to create a 1–10 index score for each company. The data were then examined via fundamental statistical methods to assess the validity of using this research mechanism as a basis for establishing the relationships among the two indices and project performance. The indices and research results were also shared with a group of academics and industry professionals at the National Science Foundation’s (NSF) Construction and the Environment – Research Foci for a Sustainable Future Workshop. This workshop was held at the University of South Carolina in Columbia, South Carolina, in January 2005. The response to the indices and research model was positive. Furthermore, the group recognized the urgent need for sustainability metrics and benchmarking as a foundation for sustainability research in the USA and stated this need as one of the workshop’s top recommendations to the NSF for future research funding.

6.

SUSTAINABILITY INDICATORS AND INDEX CREATION

Any accurate measurement of sustainability commitment needs to address the three pillars, economic, social and environmental. Thus it is very


171

Environmental planning Community involvement planning

CSCI

SCPPI

Financial planning

Figure 9.2

COST GROWTH

MODEL

SCHEDULE GROWTH

CORPORATE BOTTOM LINE

SAFETY

Research premise of indirect influence of sustainable practices

important to develop the research methodology based on the issues underlying all the pillars. The definition of ‘indicator’ is an operational representation of an attribute (quality, characteristic, property) of a system (Gallopin, 1997), while data are actual measurements or observations of the values of the indicators (Bell and Morse, 1999). An index is an amalgam of more than one indicator (Liverman et al., 1988). Indices are also viewed as signs or signals to measure a status or predict an outlook. The research framework of sustainability indicators was developed to address the three conventional pillars of SD. Figure 9.2 illustrates the research premise concerning the relationship between the two indices and project performance. Top management buy-in on sustainable practices (as measured by the Corporate Sustainability Commitment Index – CSCI) should filter down to best practices at the project planning level (as measured by the Sustainability Component of Project Planning Index – SCPPI). This should in turn affect project performance (as measured by Cost and Schedule Predictability). The higher the commitment at the top, the better and more sustainable the planning and definition of capital projects and the higher the chances of project success. Figure 9.3, on the other hand, illustrates some hypothesized causal links between SD concerns and project risks. Sustainability is the umbrella under which many ethical financial practices, philanthropic community development activities and environmental compliance strategies fall. The influence diagram suggests that corporations that are not diligently pursuing a sustainable agenda are reducing the value of their investments and hence their competitive advantage. For instance, lack of stakeholder buy-in disrupts operations, reduces productivity and delays projects. Similarly, unsafe operations reduce productivity, increase labor turnover, tarnish reputation and increase cost of insurance and the cost of capital.

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Lack of stakeholders’ buy-in Limited local community acceptance Unsustainable corporate practices

Influence

Figure 9.3

Delay projects

Consume contingency

Reduce cost competitiveness

Erode investor confidence

Unsafe operations

Disrupt operations

Erode consumer confidence

Low labor satisfaction

Reduce productivity

Damage brand image

Inadequate waste minimization

Tarnish reputation

Raise costs of insurance

Hypothesized influence diagram for impact of unsustainable practices

7.

SURVEY DEVELOPMENT AND ALGORITHM

7.1

Corporate Sustainability Commitment Index (CSCI)

The CSCI survey is divided into three main sections, each addressing one pillar of sustainability. Subsection A of the economic pillar in the CSCI survey measures top-level corporate organization and resultant strategic sustainability planning. Subsection B focuses on the connection between sustainability and investor relations at the top level. Subsection C measures the frequency of sustainability benchmarking in the corporation. Subsection D deals with customer satisfaction and brand loyalty. Subsection E reviews corporation marketing policies. The social pillar of the survey covers eight major areas, namely ethics and codes of conduct within the organization, stakeholder identification, labor practices, health and safety plans, human capital attraction and retention, philanthropy, R&D, bioethics and drug access in developing worlds. Subsection A reviews the comprehensiveness of the company’s code of conduct. Subsection B addresses stakeholder’s acknowledgment of local communities and indigenous people. Subsection C addresses


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organizations’ labor practices and awareness and compliance with the International Labor Organization (ILO) conventions. Subsection D examines whether occupational health and safety policy is externally audited. Subsection E reviews the effectiveness of human resource policy in attracting and retaining talents. Subsection F measures R&D investment. Subsection G is geared towards biomedical and pharmaceutical companies and addresses concepts such as fair sharing of and access to companies’ resources in host countries, improving drug access in developing countries and organizational formal policy on animal testing. Subsection H addresses organizational philanthropic efforts. The environmental pillar, on the other hand, reviews three major sustainability indicators, namely corporations’ usage of Environmental Impact Assessments (EIAs) in subsection A, reduction targets for eco-efficiency in subsection B and environmental leadership in subsection C. 7.2

Sustainability Component of Project Planning Index (SCPPI)

Similarly, SCPPI is divided into three major sustainability pillars. Subsection A of the economic pillar assesses status of preparation and document of project-specific financial transparency guidelines. Subsection B examines the degree of completeness of investor relations studies (IRSs). Subsection C examines the completeness of sustainability benchmarking studies on capital project on the project location. Subsection D looks at the status of brand loyalty during project execution. The social pillar component of the survey addresses the completeness of the corporate ethical code at the project planning stage, stakeholder identification process during project scoping and the status of health and safety plans at the project planning stage. The social pillar also examines human resource management plans, sustainability of long-term profitable operation, fair R&D practices, resource sharing with host countries and status of philanthropic plans. The environmental pillar of the index looks at the degree of environmental planning that goes into the capital project before authorization. These include environmental compliance with regulations and environmental permits. 7.3

Project Performance Metrics and Project Performance Indicators

Cost, schedule, design changes and safety are the four parameters that are commonly used to measure project success. Cost deviation is defined as a [(Actual total project cost – Initial predicted project cost). Initial predicted project cost]. Initial project cost is the project estimate highlighted in the authorization for execution documents and approved by

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top management. Industrial capital project costs cover all overhead costs, the costs of project planning and definition, detailed engineering, procurement and purchasing and construction and start-up. Capital costs typically include all capitalized costs of the project and exclude expensed costs. The differences between capitalized and expensed costs are technical and depend largely on corporate accounting systems. On the other hand, actual costs cover the reported costs of all phases of the project after the project is completed. Schedule growth on the other hand is measured as [(Actual total project duration – Initial predicted project duration)/Initial predicted project duration]. Project duration spans from the formation of the project team to pursue a business idea to a steady-state operation of the industrial asset. This covers the five major phases of project development (definition, detailed engineering, procurement, construction and start-up). Initial project duration is the baseline duration set by the project team after reviewing the work breakdown structure (WBS) and producing a detailed network analysis. It is produced at the authorization stage of the project to provide top management with realistic expectations of the duration of the project for financial decisions. Actual project duration is the real time in which the project is executed. Design changes are measured in the survey in terms of the ratio of the cost of the design changes against the cost of the total project. They are also measured in terms of the net addition or reduction caused by the design change on the schedule compared to the initial project duration. No data were provided on these two parameters, therefore no analysis is performed on design changes in this chapter. Safety is measured in terms of OSHA Recordables (RIR) and Days Away from Work, Restricted and Transferred (DART). [RIR = (Total number of recordable cases × 200 000)/Total site work-hours]. [DART=Total number of DART cases × 200 000)/Total site work-hours]. Unfortunately, very limited data were obtained in this section since most companies did not follow the exact OSHA format either because they were internationally based or because the projects were executed internationally. Hence no analysis was performed on safety in this study.

8.

DATA COLLECTION AND RESPONSES VALIDATION

After reviewing the received completed questionnaires, teleconference data collections took 2–2.5 hours per company. Although the questionnaire was sent to all participants ahead of time, a considerable amount of


175

follow-up was needed to improve the quality of the data. After completing the data validation, a copy of the cleaned-up questionnaire was returned to the participant for feedback. The responses were rigorously validated by consulting online and published corporate documentation, including annual financial and sustainability reports. References were also made to oil industry news wires, and various news articles about the sustainability efforts of the specific multinationals were studied. The survey was completed and/or the responses adjusted in contentious questions to reflect the documentation.

9.

DATA ANALYSIS

The data collection and analysis was not used to establish statistically significant correlations but to examine the feasibility of using the created indices and the survey as a measurement tool for SD practices in capital projects. In keeping with observed benchmarking tradition, the data analysis included only the 17 multinational owner corporations that were pooled from the Fortune 100 industrial, petrochemical, pharmaceutical and consumer product companies. Contractor data were noted on the graphs with different symbols, but were not included in the simple correlation attempt. Primarily, both owner and contractor data were requested to establish the nuclei for a comprehensive future database and to keep research opportunities open. In the future, if enough data are obtained from both owners and contractors, further comparative studies could be performed to assess the difference in practices between owner-run projects and contractor-run projects. Large alliance contractors are typically the real executors in large industrial projects and hence in charge of sustainable practices including safety and environmental performance, because many owners downsized and outsourced most of the detailed duties of project planning, engineering, procurement and construction over the past 15 years. However, SD planning remains chiefly an owner forté and owner commitment continues to be the driving force behind sustainable behavior in the execution of capital projects. The data sample was chosen based on the degree of relevance of the corporation to the research, i.e. the size of the corporation and the locations and extent of its international operations and contact with vulnerable indigenous communities. The choice of the corporation was also based on the existence of a sizable SD or CSR unit that can provide relevant feedback and would have access to sample projects. Relatively thorough responses for CSCI and SCPPI were available for all owner companies.

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However, only nine of the 17 provided data for completed capital projects. The cost of the sample projects provided ranged from $200 million to $5 billion. No data were received for design changes and only four corporations responded to the safety questions.

10.

HYPOTHESIS TESTING

Five hypotheses were tested in this research to examine the viability of using this mechanism to assess the relationship between commitment to sustainability and project performance. These hypotheses include: (1) the level of owner commitment to sustainable practices (CSCI) affects the level of owner economic, environmental and social planning and definition of large projects, as measured by the Sustainability Component of the Pre Project Planning Index (SCPPI), (2) the level of owner commitment to sustainable practices (CSCI) should influence project cost performance, (3) the level of owner commitment to sustainable practices (CSCI) should influence project schedule performance, (4) the degree of integration of sustainable practices in project planning (SCPPI) should influence project cost performance and (5) the degree of integration of sustainable practices in project planning (SCPPI) should influence project schedule performance. Although correlation does not necessarily mean causation, statistics can reflect trends in relationships between dependent and independent variables. Empirical indices and quantified relationships help illustrate points much faster than paragraphs of written words, especially in the engineering and science fields. Therefore hypothesis testing is the study of the likelihood of the hypothesis’s merit, a mere examination of the relationships taking into consideration that the sample is not the whole population. Due to the low number of data points in this research, it would be meaningless to analyze exact relationships between the factors. Thus the analysis is aimed only at providing a framework for examining relationships so that future research can more specifically improve on the current research findings. Therefore, despite the small sample size, all the common statistical analysis steps were followed. Mindful of that, statistical indicators are viewed as trend indicators. The correlation between two variables reflects the degree to which the variables are related or the degree of relationship between the two variables. In a situation where sample size is statistically significant and hypothesis acceptance or rejection is being determined, the P-value for the hypothesis is typically set at 0.1 or 0.05. P-value measures the significance of the difference between two populations/samples. An insignificant difference


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indicates that little or no relationship exists between the populations’/ samples’ means while a significant difference indicates that some sort of relationship exists. In other words, the P-value is the probability of our assumptions being incorrect. Hence the lower the P-value, the sounder the analysis. The combination effects of R2 and P-value is typically used to determine the usefulness of the measured relationships. Correlation coefficients can be used to test the strength of a relationship, while regression analyses can be used to formally describe any such relationship. Regression involves finding a trend (line) that best describes the relationship in bivariate data and can be used to predict the relationship between x and y. This might be a future application of this research, once more data points are collected to allow modeling and use of the research data as a predictive tool. If a company can measure its CSCI or its SCPPI scores, it can look at a regression model and be able to roughly estimate where their project performance should lie and the extent to which its adherence to sustainability practices is an influencing factor. Furthermore, the true values of R2 were assessed using a mathematical adjustment to R2 known as validity shrinkage. Smaller sample sizes tend to bias regression results. In this research N = 17 data points. Given the complexities and interdependencies involved in these hypothesized potential relationships, a considerable number of data points would be required before any confidence could be placed in the impact of the practices measured by the indices proposed here. Until then it should be noted that the value of R2 in a smaller sample is generally biased (overestimated) compared to the population R2 and should be unbiased or adjusted. The smaller the sample size the bigger the adjustment to R2 based on the validity shrinkage formula R2 pop = 1–( (n–1)/(n–p–1))(1–R2). It should be noted that collecting accurate cost data in corporations is more challenging than collecting schedule data. Accounting intricacies and coding differences between project budgets and corporate accounts IT software require a good deal of skill to ascertain that project budgets are not taxed with heavy overheads or general administration costs that do not belong specifically to the named project. Many project managers are not equipped to handle this challenge. Moreover, many organizations have risk-averse cultures that frown upon exceeding project budgets and encourage coming under budget. Although it may seem to be financially prudent, this cautious culture tends to prompt project managers to inflate or pad their estimates to assure coming on or lower than budgeted. Estimate padding can be very harmful for corporations for many reasons. When the authorization for execution (AFE) document is handed to top management, it represents the project team or project unit’s commitment to certain cost and schedule deliverables. Top management, on

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Table 9.1

Descriptive statistics

CSCI SCPPI Cost deviation Schedule deviation

N

Minimum

Maximum

Mean

Std deviation

17 17 9 8

5.42 5.50 210.90 0.00

9.56 8.79 4.90 33.33

7.58 7.51 20.52 9.98

1.17 1.09 4.50 13.47

the other hand, by signing on a project, commits to making the designated amount of funds available to the team for the duration of the project. Inflating estimates engages funds that could be otherwise invested in different assets to enhance the productivity or competitiveness in the organization. Moreover, excess project money left on the table tends to be money spent on items that could be beyond the original project scope. Therefore accurate data might not be collected about the true costs of projects for future financial planning. All of the above-mentioned reasons make cost deviation a thorny parameter to measure. Schedule deviation data, on the other hand, are less problematic to collect. Tracking differences between estimated and actual project duration is less challenging than cost. Corporations do not typically make the connection between longer schedules and more spending, so they are more prone to openly share that information. This is despite the fact that projects that are longer than necessary also tend to be more expensive. Longer projects consume more overhead and are more susceptible to rework and changes. Table 9.1 presents the descriptive statistics of collected data from the 17 companies. Only nine companies provided data for cost performance and eight companies for schedule performance. Table 9.2 summarizes and presents the statistical analyses between CSCI, SCPPI, Cost deviation and Schedule deviation. Figures 9.4 to 9.8 plot the data, but only one relationship appears to possibly be emerging at this preliminary data collection stage.

11.

ANALYSIS CONCLUSIONS

Primarily, there is some evidence that owner corporate commitment to sustainability tends to translate to project commitment by filtering down the organization to the capital project planning level (Table 9.2 and Figure 9.4). Corporations that are more aware of the three pillars of sustainability and more vocal about them tend to incorporate that consciousness into their large and mega-project planning. This is encouraging since it implies


Table 9.2

179

Data analysis summary Correlation 1 Correlation 2 Correlation 3 Correlation 4 Correlation 5

N Independent variable Dependent variable R2 Adjusted R2 I Significant T a F Significant F Curve estimationb Please refer to

17 CSCI

9 CSCI

SCPPI

Cost deviation 0.45 0.27 22.2 0.07 2.00 0.21

0.71 0.69 6.08 0.00 37.00 0.00 Linear Figure 9.4

8 SCPPI

Figure 9.5

9 CSCI

Cost Schedule deviation deviation 0.51 0.89 0.35 0.84 22.33 22.6 0.06 0.04 1.69 19.64 0.26 0.004 Model: {y = a + bx + cx2 + dx3} Figure 9.6

Figure 9.7

8 SCPPI Schedule deviation 0.92 0.89 23.74 0.01 28.7 0.00

Figure 9.8

Notes: a P-value was set to 0.05; model parameters for schedule deviation analysis could be acceptable if data were sufficient. b However, a valid statistically significant model cannot be developed with N = 8 and low R2, therefore this is only an illustration of the potential data trends.

10

9

SCPPI

8

7

6

5 5

6

7

8 CSCI

Figure 9.4

The relationship between CSCI and SCPPI

9

10

180

Multinational enterprises and sustainable development 10

Cost deviation

0

–10

–20 5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

CSCI

Figure 9.5

The relationship between CSCI and cost deviation

Cost deviation

10

0

–10

–20 5.0

Figure 9.6

5.5

6.0

6.5

7.0 SCPPI

7.5

8.0

8.5

The relationship between SCPPI and cost deviation

9.0


181

40

Schedule deviation

30

20

10

0

–10 5

Figure 9.7

6

7 CSCI

8

9

The relationship between CSCI and schedule deviation

40

Schedule deviation

30

20

10

0

–10 5.0

Figure 9.8

5.5

6.0

6.5

7.0 SCPPI

7.5

8.0

8.5

9.0

The relationship between SCPPI and schedule deviation

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that corporate commitment is not simply window dressing or a public relations exercise. Second, there are indications that commitment to sustainability at the higher levels of a multinational corporation can be measured by CSCI. More data may lead to more statistically significant relationships with project cost and schedule predictability. The two indices can be useful measures for both industrial multinationals and the governments of host countries.

12.

STUDY CONCLUSIONS

Three conclusions can be drawn from this research effort. First of all, the two metrics that were created in the study (CSCI and SCPPI) appear to be useful sustainability measurement tools. Index results were approximately normally distributed, with the expected positive skewness characteristic of self-reported survey results. Second, it appears that corporate commitment to sustainability at the executive level is translating to better planning for sustainable project practices at the project definition level. Third, there are general indications that the commitment to sustainability at the higher levels of multinational corporations can be measured by CSCI and more data should lead to establishing more statistically significant relationships with project cost and schedule predictability.

REFERENCES Beheiry, S. (2005), ‘Examining the impact of corporate commitment to sustainability’, doctoral dissertation, the University of Texas at Austin. Bell, S. and S. Morse (1999), Measuring the Immeasurable. The Theory and Use of Sustainability Indicators in Development, London: Earthscan. El-Diraby, T.E. and B. Wang (2005), ‘A prototype e-society portal: using a semantic model to represent sustainability aspects of highway projects to local communities’, Proceedings of the Construction Research Congress: Broadening Perspectives San Diego, CA, 5–7 April, pp. 119–23. Gallopin, G. (1997), ‘Indicators and their use: information for decision making’, in B. Moldan and S. Billharz (eds), Sustainability Indicators; Report on the Project on Indicators for Sustainable Development, Chichester, UK: John Wiley, pp. 13–27. Gambatese, J.A. and A. Rajendran (2005), ‘Sustainable roadway construction: energy consumption and material water generation of roadways’, Proceedings of the Construction Research Congress: Broadening Perspectives, San Diego, CA, 5–7 April, pp. 102–8. Ghailan, A.H. (2005), ‘Modified concrete by using waste material as a course


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aggregate’, Proceedings of the Construction Research Congress: Broadening Perspectives, San Diego, CA, 5–7 April, pp. 109–13. Goodland, R. and H. Daly (1993), ‘Poverty alleviation is essential for environmental sustainability’, Divisional Working Paper 1993-42 for the Environmental Economics and Pollution Division of The World Bank, Washington, DC. Guggemos, A.A. and A. Horvath (2005), ‘Decision support tool for environmental analysis of commercial building structures’, Proceedings of the Construction Research Congress: Broadening Perspectives, San Diego, CA, 5–7 April, pp. 92–7. Holliday, C.O., S. Schmidheiny and P. Watts (2002), Walking the Talk: The Business Case for Sustainable Development, San Francisco, CA: Berrett-Koehler Publishers, pp. 19–31. Liverman, D.M., M.E. Hanson, B.J. Brown and R.W. Meredith Jr (1988), ‘Global sustainability: toward measurement’, Environmental Management, 20 (2), 133–43. Ochoa, L., R. Ries, H.S. Matthews and C. Hendrickson (2005), ‘Life cycle assessment of residential buildings’, Proceedings of the Construction Research Congress: Broadening Perspectives, San Diego, CA, 5–7 April, pp. 87–91. Gilding P., M. Hogarth and R. Humphries (2002), ‘Safe companies: an alternative approach to operationalizing sustainability’, Corporate Environmental Strategy, 9 (4), 390–97. Riley, D., V. Sanvido, M. Horman, Kerr, D. and M. McLaughlin (2005), ‘Lean and green: the role of design-building mechanical competencies in the design and construction of green buildings’, Proceedings of the Construction Research Congress: Broadening Perspectives, San Diego, CA, 5–7 April, pp. 114–18. UNEP (2002), Industry as a Partner for Sustainable Development, UNEP Publications and Reports. Willard, B., O. Dudok van heel and J. Elkington (2002), The Sustainability Advantage: Seven Business Case Benefits of a Triple Bottom Line, Gabriola Island, BC, Canada: New Society Publisher.

10.

Assessing the sustainable development commitment of European MNEs Silvester Ivanaj, Jacky Koehl, Sandrine Peney and E. Günter Schumacher

1.

INTRODUCTION

It is quite common in the fields of sociology and cultural anthropology to describe and analyze what is considered as ‘moral’ or ‘immoral’ by social groups or societies, and what concrete consequences morals imply in different cultures. Researchers in ethics, however, normally prefer to integrate a normative element in their arguments. This can be done via the substantiation of norms and values (‘moral philosophy’) or by applying selected1 norms/values to a certain field (‘applied philosophy’, ‘applied ethics’). As a result, we find explicit value judgments linked to the scientific analysis, satisfying the demand of many people in these fields for rationally based advice for ‘right behavior’. All the same, we can sometimes observe in the field of ethics researchers who work without integrating a normative perspective and without establishing value judgments. Proceeding like the above-mentioned sociologists or cultural anthropologists, these researchers nevertheless feel linked to the discipline of ethics. Such an approach of ethics can be designated as ‘descriptive ethics’. This designation is not very common in Anglophone cultures nor in Francophone countries, but it is well established in the German-speaking academic world (Rich, 1984; Stückelberger, 2002). It is from this point of view of a ‘descriptive ethics’ that we tried to look at the commitment of multinational enterprises (MNEs) to sustainable development. The choice of this ethical perspective offers two advantages. On the one hand, it offers the possibility of analyzing the question of commitment to sustainable development without the obligation to establish value judgments, which would be especially difficult in the context of comparison of cultures and rarely is more than a claim, due to the vagueness of the concept of sustainable development. On the other hand, it allows the 184

The sustainable development commitment of European MNEs

185

researcher, by the choice of notion and discipline, to take into consideration the fact that for the actors in this field (international organizations, governments, MNEs, NGOs and consumer–citizens) the concept of sustainable development does not consist of a purely technological approach, but is characterized by a clear link to normative foundations and the intention to promote real ‘good behavior’ in the world.

2.

MNES’ COMMITMENT TO SUSTAINABLE DEVELOPMENT

MNEs have to take a position on sustainable development in the face of strong political and social demand in this field. This positioning has to be done in a context characterized by: ● ● ● ● ● ● ●

the vagueness of the sustainable development concept (sometimes confused with the concept of ‘social responsibility’ of companies); globalization, which reinforces the tensions between short-term orientation (financial markets) and long-term orientation (ecology), a complexity of political reference systems (national, continental and global), a complexity of cultures and values, consumers’ rising ecological and political awareness, an increasing influence of NGOs, the fact that most MNEs present their sustainable development commitment as a commitment encompassing clearly a ‘moral dimension’ (= ‘our commitment is not only due to legal obligations or the result of a cynical marketing strategy, but it is a result of our corporate culture-values/norms’).

This study aims to obtain a clearer idea of the ‘true’ nature of this commitment. Observing and analyzing different practices, where these commitments are translated and reacted to, allows us to draw some conclusions about the nature of the commitments themselves and about the way the different actors in the field of ethical investment perceive them. Three different practices have been chosen for this empirical part of our research: Sustainability reporting on the Internet MNEs have increased the influence of economic, environmental and social dimensions in their activity reports. On the one hand, there are many benefits for MNEs of voluntary sustainability reporting, given that it is a critical management tool that

186


insures better stakeholder engagement while building the trust of external parties. This reporting opens up internal conversations where they would not occur otherwise, helps management to evaluate potentially damaging developments before they develop into unsolicited surprises, helps the assessment of natural, human and social capital, and reduces volatility and uncertainty in share price, etc. (Sustainability Reporting Guidelines, 2002). On the other hand, national and international laws concerning reporting practices have tended to become stricter for companies; the civil society empowered by information technologies is becoming increasingly active in pressuring companies to account for their different commitments. Organization and management structure implementation. Throughout the last decade, MNEs have started ‘sustainable development’ (or social responsibility) processes. Meanwhile, many surveys have taken place in order to find out how this new problem is dealt with, mainly among large companies. These surveys show that MNEs are involved in sustainable development processes via annual reports, managers’ statements or notations and indexes. Therefore the surveys rely on very declarative documents. Surveys concerning sustainable development policy implementation are mainly focused on the policy objectives and results presented by the company. Operational implementation research, as well as integrating sustainable development into organizations, is still rather uncommon. After a ‘pragmatic’ phase during which the uncertainty and vagueness characterizing the definition of a sustainable development (or social responsibility) led businesses to act in an unorganized and pragmatic way, businesses then started committing themselves to defining a structure for ‘sustainable development’ functions. This point of view is the subject of the following investigations as presented below. Ethical investment (market of financial capital) In order to select MNEs for their socially responsible investment (SRI) portfolio, responsible investors may use three different information sources. These three sources, sorted in decreasing order in terms of cost necessary for acquiring information, relate to an SRI index, information contained in the annual activity reports, and extra-financial analysis results (Stone, 2001). According to a survey recently carried out in France among responsible investors, the use of extra-financial analyses seems quite rare,2 whereas belonging to an SRI index and using annual company activity reports are the two main information sources preferred by responsible investors. Therefore, belonging to an SRI index seems to be one of the best ways for a company to be considered as virtuous, which should therefore allow it to attract responsible investors. But does belonging to an SD index and having SRI funds in


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the company’s capital put specific extra pressure on businesses, and if so, what type of pressure? This study is based on the following sample: European MNEs that form the European Stock Exchange DJ EURO STOXX 50 index. It covers the 50 corporations with the highest market capitalizations in the Euro Zone (see index composition in Appendix A). This sample has been chosen in order to show the actual accomplishments of the larger European companies. The same sample has been used to analyze the three SD practices mentioned above. Sustainable development reporting is considered to be the first step in the sustainable policy and the best way to communicate it. The main sources of information, in terms of reporting, are generally the reports issued by firms. These reports employ a variety of reporting approaches (Learning Curve, ISO 140001, GRI Guidelines, EMS, Triple Bottom Line, Integrated Reports, Innovative Reports and many others). Information contained in sustainability reports is sometimes considered to be inaccurate, incomplete and irrelevant. Indeed, strong institutional support for organizations is needed in order to avoid biased information and to progressively incorporate stronger sustainable reporting systems (Monevaa et al., 2006). Nevertheless, sustainability reporting is a good way to show a willingness to adopt a sustainable development approach. This study examines the reporting practices of major European MNEs, focusing mainly on reports available on the Internet. This is due to the large amount of available information and the ease with which people can access these reports. In some cases, the main problem related to sustainability reporting is to how to be sure that a company is reporting on all the relevant issues and that the data published are accurate. The first item (relevancy) raises an issue mainly because it derives from voluntary reporting and shows the lack of a unique international standard. The second item (accuracy) concerns data collection, quality and the reliability of information. All sorts of available reports linked to sustainable development have been taken into account. The following documents have been used for this empirical analysis: Sustainability report (SR), Environmental report (ER), Health and safety report (HR), Social reports (SOS), Annual financial report (AR), Intellectual capital management report (IR), Corporate governance report (CGR), R&D report (RDR), Employee relations report (ERR), Stakeholders’ report (SHR). In order to set up a common and fair analysis, information used in this study concerns sustainability reporting from only the year 2004. Due to the recent launch of this study (early 2006), some companies had not yet published their 2005 reports. Three key elements of sustainable development have been analyzed using different

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Table 10.1

Corporate sustainability assessment criteria

Economic indicators ● ● ● ● ● ●

Code of conduct/Compliance/Corruption and bribery/Ethics Corporate governance Customer relationship management Investor/Shareholders relations Supplier relations Risk and crisis management

Environmental indicators ● ● ●

Environmental policy/Management Environmental performance Environmental reporting

Social indicators ● ● ● ● ● ●

Corporate citizenship/Philanthropy Stakeholder engagement: any type of commitment to stakeholders Labor practices Human capital development Social reporting: figures about the employees Talent attraction and retention

Source:

http://www.sustainability-index.com, 15 July 2006.

indicators: economic, environmental and social aspects. This allowed us to understand and compare the reports’ contents (Table 10.1). These criteria have been set up by the Dow Jones Sustainability Index (DJSI) and SAM, to evaluate the sustainability of the world’s leading companies. The criteria are only used to indicate whether European MNEs publish any information on these topics. The study evaluates neither the accuracy nor the quantity of the data. In addition, this study focuses on the report’s format in order to analyze how companies are declared ‘sustainable’ and how they present their sustainable policy and actions. This is all according to the DJSI. Questions arise: do they have a dedicated report? Is this report separated from other annual reports? Are the different components of sustainable development presented separately? What kind of reports do the MNEs issue? Special attention is also given to reports’ titles and the possible link between titles and content. The main questions asked about the reporting format are: are there any reports? If so, how many are there? If not, is there any other information available online? Has the company issued a report in 2005? The rest of the questions are concerned with the


Table 10.2

189

Types and ranking of sustainability reports published

Type of reporting Sustainability report Environmental report Health and safety report Social reports Annual financial report Corporate governance report Other reports

Rates, %

Rank

25.0 15.9 2.3 11.4 9.1 9.1 27.3

2 3 6 4 5 5 1

types and titles of reports. What kind of report is it? Does the title show a trend? Do MNEs respect a common frame for reporting? About 63 percent of MNEs analyzed have published only one report related to sustainability, 27 percent have published multiple reports and only 10 percent of them have no Internet-based reports for 2004. However, half of this group published reports for 2005. The general trend is to publish only one report dedicated to sustainable development. Table 10.2 shows the weight and rank of different reports published by European MNEs. Among the different types of reports published, the most frequent are the ‘Other reports’ and ‘Sustainable reports’; ‘Other reports’ deal mainly with corporate or social responsibility and citizenship. However, this report can be easily assimilated to the sustainable report because of the structure and the topics covered. As mentioned above, the majority of the MNEs analyzed in this study have published only one report. Thus most reports found deal with all sustainable aspects while not being separated into different reports. The environmental report also has a very important place in the ranking. Perhaps this is because of legal requirements urging companies to issue a report dedicated to their environmental policy and performance. As can be seen in Table 10.2, 27.3 percent of sustainability reports are entitled ‘Others’. It is safe to conclude that European MNEs produce their reports based on maximizing stakeholder satisfaction. They have mainly entitled their reports ‘Sustainability Report’ or ‘Corporate Social Responsibility Report’, which means that sustainability is considered valuable in its original form as well as a social matter. Economic indicator rates are at a height of more than 70 percent. As shown in Table 10.3, economic indicators such as corporate governance (88.9 percent) and code of conduct (74.1 percent) are the most important topics in sustainable reporting. This is because they set the basis for the sustainability policy of any company. It is important to note that the code

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Table 10.3

Economic indicator rates

Economic indicators Code of conduct/Ethics Corporate governance CRM Investor relations Supplier relations Risk and crisis management

Table 10.4

Rates, %

Rank

74.1 88.9 100.0 77.8 85.2 70.4

5 2 1 4 3 6

Rates, %

Rank

96.3 92.6 74.1

1 2 3

Environmental indicator rates

Environmental indicators Environmental policy Environmental performance Environmental reporting

of conduct is often separate from the rest of the report and can be obtained individually. Customer relationship management (100 percent) and suppliers’ relations (85.2 percent) must be understood as management of the value chain. The good rates of the European MNEs show a high commitment to the management of the whole process of production: from product design, through the suppliers’ relationship, to customer satisfaction. Regardless of the figures, risk and crisis management is the topic covered least in reports. Moreover, risk can take various forms such as operational, safety, health and financial. This makes risk management difficult to compare among different companies. The environmental indicators obtained the highest rates of fulfillment (Table 10.4). As expected, environment in general, along with environmental policies and performances, is the most treated topic in sustainability reporting. This could be explained by the logic of reasoning behind environmental reporting. First, a company communicates about its policy by describing its project and planning. It then presents what was done to achieve these goals and to respect the policy presented. Finally, the company presents figures and facts in detail to support the performance presentation. This gives a better value to the environmental policy because it shows the willingness of the company to actually implement effective actions. Social indicators are dealt with under topics such as ‘human capital


Table 10.5

191

Social indicator rates

Social indicators Corporate citizenship/Philanthropy Stakeholder engagement Labor practice indicators Human capital development Social reporting Talent attraction and retention Health and safety

Rates, %

Rank

70.3 51.8 44.4 96.3 81.5 70.4 88.9

4 5 6 1 3 4 2

development’ and ‘health and safety’, which seem to be commonly considered by European MNEs. These indicators concern the effective social policy of an MNE. In contrast, indicators considered part of external policies and actions, such as ‘corporate citizenship / philanthropy’, ‘stakeholders’ engagement’ and ‘labor practice indicators’, are lower. In conclusion, European MNEs focus more of their reporting on internal social actions rather than on the social responsibility they have toward external stakeholders.

3.

THE IMPLEMENTATION OF SUSTAINABILITY POLICY IN THE ORGANIZATION AND MANAGEMENT STRUCTURE

This part of the study is intended to show European MNEs’ commitment to sustainable development policies via their implementation in the organization and management structure. Therefore an inductive procedure is used to reflect upon this topic. For these MNEs, analyzing activity reports and ‘sustainable development’ reports, augmented with information available on their sites, provides the following observations: 1.

Corporate social responsibility (CSR) is most often defined as a project to which several functions are assigned: a ‘strategic’ function, in which its main mission is to define the content and objectives of a social responsibility policy; an ‘operational’ function, which takes the creation of management instruments into consideration (this makes it possible to show how performance and sustainable development actions are developed); and finally a ‘communication’ function, which takes into consideration internal construction of sustainable development representation and communicating with other parts.

192

2.


Although in many cases ‘sustainable development’ projects are presented as being an important strategic line of thought, some situations seem to consider it as a ‘fashion’. Only 39 of the 50 MNEs studied provided information concerning the organization and management structure set-up. It is also interesting to note their wide range of vocabulary: sustainable development, social responsibility, business responsibility, etc. The following research questions arise from this study: does a socially responsible (SR) or sustainable development (SD) function explicitly appear in the company’s organizational structure? Does explicitly considering an SR or SD function take the shape of a specific structure or an integrated structure? If it is part of an integrated structure, how is it related to the rest? In other words, these questions seem to show how SD in MNEs is taken into consideration via another operational implementation. The many ways of organization used by the companies reflect the way this function is slowly starting to take shape in organizational structures. Organizational choices considered by MNEs concerning SD are based mainly around three forms: (a) A ‘project’ form This is the most common form (20 cases). However, this project form may consist of several different types of management action: a transverse project above other company functions (usually directly part of general management) or the identified project. Although the project form is probably the best suited for incorporating this ‘new’ function into the company, it may also mean questioning the project’s durability. It must therefore be considered as a transitional form. (b) Creating a specific top management area This means creating a special SD area. This solution was used by seven MNEs in the sample. (c) Creating a ‘hybrid’ structure Attaching SD to other top management areas was used in 12 cases. The areas of attachment are usually information and communication (five cases), a ‘functional’ top management area, most often human resources (three cases), and an operational top management area (four cases).

In most cases studied, the establishment of dedicated structures is presented as an attempt to demonstrate the importance of SD in the company’s strategic decisions. However, the actual choice of forms in these structures permits as to graduate this presentation. Attached structures (more specifically, those attached to the top management areas of


193

communication and information) show an organization focusing predominantly on the production of sustainable development reports. These choices are determined both by the specific organization required by the function of SD, which is by nature transverse, and by the symbolic aspect of the considered choices. Sustainable development is naturally a transverse function in companies: it concerns all functions, all activities and territories, as well as many different partners. Choosing a specific structure (often emphasized by the existence of a sustainable development top management area) reflects the consideration of this particularity via the consideration of its symbolic side. Choosing an integrated structure shows a risk of dilution (as what is urgent may exceed what is important), and also may let sustainable development appear as an ‘accessory’. Analyzing the usual contingency factors like size (the sample includes only big European MNEs), sector of activity and nationality does not show any significant links with the company’s organizational choice. Social responsibility has only recently started to become an explicit function among organizations. However, comparing it with the rise of quality policies, which characterized the 1980s, may prove to be useful (Waddock and Bodwell, 2004). There are many common points between the implementation of ‘quality’ policies in businesses in the 1980s and the rise in ‘social responsibility’ or ‘sustainable development’, the most important being: ●

● ●

4.

The notion’s polysemy: quality policy and social responsibility both had very different ways of being accepted at first. This characteristic makes identifying the missions and defining the function rather delicate. The mainly external orientation: (customer satisfaction versus stakeholder satisfaction). Difficulties in measurement: ‘Measurement is a cornerstone of the quality movement’ (Waddock and Bodwell, 2004, pp. 25–37) How could this statement not be used in social responsibility?

SOCIALLY RESPONSIBLE INVESTING (SRI) AND EUROPEAN MNES

The point of this section is to check whether belonging to an SRI index will increase the probability of responsible investors selecting the company. In order to accomplish this, we examine what way the DJ EURO STOXX 50 corporations also take part in the SRI index, then we analyze 128 SRI funds marketed in France. Contrary to what most people would (quite

194


rightly) expect (Déjean, 2006), the result of our observations does not show a very clear attractive effect coming from businesses identified as being virtuous by SRI index conceivers. The considerable development of the SRI market3 was accompanied by the creation of a few SRI-specific indexes (Capelle-Blanchard and Giamporcaro-Saunière, 2006). Hence new actors such as Arese and Ethibel respectively launched the ASPI (Advanced Sustainable Performance Indices) index and the Ethibel Sustainability Index Excellence (ESI). The traditional stock exchange informers such as the Dow Jones and the Financial Times Stock Exchange also have their own SRI indexes, i.e. the DJSI and the FTSE4Good Index. Our objective, in this first section, is to determine how virtuous the largest European MNEs are, or to be more precise, which are identified as virtuous by the four SRI index producers mentioned above. Examining how the SRI indexes are composed will then allow us to continue our descriptive analysis by looking at the choice of virtuous MNEs, a choice used, on one hand, for the SRI index production and, on the other hand, for creating SRI portfolios. In Table 10.6, for each of the four SRI indexes studied, a ‘yes’ means that the concerned DJ EURO STOXX 50 business is part of the indicated SRI index. After reading this table, it seems that a large percentage of the DJ EURO STOXX 50 index businesses are part of ethical indexes. In fact, 72 percent of the DJ EURO STOXX 50 index titles are present in at least two of the four SRI indexes. Taking into consideration the size of the SRI indexes (respectively 120, 302, 156, 290 securities for the ASPI, FSTE4Good, DJSI STOXX and ESI indexes) allows us to estimate how many of the DJ EURO STOXX 50 index companies are part of the total number of SRI index companies. This percentage is considerably different between indexes: from 24 percent for the DJSI to 8.3 percent for the ESI index, 20 percent for the ASPI index and 10.3 percent for the FTSE4Good index. On average, the titles are present in two indexes out of four. Only four businesses (BSCH, E.On, CS Group, Generali Assurances) are not part of any of the studied SRI indexes, and eight businesses are simultaneously part of all four indexes. To conclude, the title selection procedures used to build the SRI indexes are different, so that belonging to a particular SRI index is not a sufficient criterion for identifying a virtuous business. In other words, the notion of a virtuous business is a relative one. This situation should not be seen predominantly as the result of the arbitrary choice made by index producers, but as the reflection of the heterogeneous notion of SRI. This heterogeneity is often noted in literature covering the topic (e.g. Capelle-Blanchard and Giamporcaro-Saunière, 2006). To summarize, identifying a business as virtuous is different from one


Table 10.6

195

The DJ EURO STOXX 50 businesses in the main SRI indexes at June 2006

ABN Amro Allianz Anglo American AstraZeneca Aviva AXA Barclays BASF BCO Bilbao Bnp Paribas BP BSCH BT Group Carrefour CS Group DaimlerChrysler Deutsche Bank Deutsche Telekom Diageo E.on Eni Ericsson Fortis France Télécom Generali Ass. GlaxoSmithKline HBOS HSBC ING Group L’Oréal Lloyds Nestlé Nokia Novartis Rio Tinto Roche Roy. Philips Electr. Royal Bk Scot. Royal Dutch Shell

APSI Eurozone

FTSE4Good Europe

DJSI STOXX

ESI

X X

X

X X X

X

X X X X

X X X X

X X X

X X X X X X

X

X X

X X

X X

X X X

X X X X

X X

X X

X X

X X

X

X X

X

X X X X

X X X X X

X X

X X X X

X

X X X X X X

X X

X X

X

X

X X X X X

X X X

196


Table 10.6

(continued)

SAP Siemens Société Générale Suez Telecom Italia Telefonica Tesco Total UBS Unilever Vodafone

APSI Eurozone

FTSE4Good Europe

DJSI STOXX

ESI

X X X X X X

X

X X

X

X X

X X X X X X X

X X X X X X X

X X X X

index producer to another, but what about this divergence when it comes to fund managers? How does selection of virtuous MNEs, by fund managers, correspond to their selection by index producers, further up the line (Statman, 2000)? In order to answer this question, let us look at the 128 funds marketed in France in 2006. More specifically, let us look first at the presence of DJ EURO STOXX 50 businesses in these particular funds and then compare these results with those noted in the section above. This procedure allows us to demonstrate the absence of any consensus when identifying virtuous businesses in the DJ EURO STOXX 50 index. In order to find out whether DJ EURO STOXX 50 MNEs are considered responsible enough by SRI fund managers to enter their portfolio, it will be interesting to examine the 128 SRI funds marketed in France in 2006.4 Table 10.7 shows the SRI funds marketed in France which contain at least one DJ EURO STOXX 50 index company from the columns. According to the results, the DJ EURO STOXX 50 index companies are present in only 13 of the 128 recognized SRI funds (see Table 10.8), which represents a very mediocre identification of quality managers in terms of social responsibility. We noted previously that approximately three-quarters of the DJ EURO STOXX 50 index were part of at least two SRI indexes. Even more surprising, some DJ EURO STOXX 50 index titles are not even present in any of the SRI funds marketed in France, even though they form part of several SRI indexes. This is the case for the Roche Company, present in three SRI indexes, as well as the DaimlerChrysler and Rio Tinto companies, present in two SRI indexes.


Table 10.7

197

French SRI funds with at least one title in the DJ EURO STOXX 50 index

DJ EURO STOXX 50 businesses\titles*

1

ABN Amro Allianz Anglo American AstraZeneca Aviva AXA Barclays BASF BCO Bilbao Bnp Paribas BP BSCH BT Group Carrefour CS Group DaimlerChrysler Deutsche Bank Deutsche Telekom Diageo E.on Eni Ericsson Fortis France Télécom Generali Ass. GlaxoSmithKline HBOS HSBC Holdings ING Group Lloyds TSB Group L’Oréal Nestlé Nom. Nokia Novartis N Rio Tinto Roche Holding BJ Roy. Philips Electr. Royal Bk Scot. Grp Royal Dutch Shel A

X

X X

2

X X X X X

3

4

5

6

7

8

X

X X

X X

X X

X

X

X

X

X

X

X

X

X

X X X

X X

X X

X X X

X

X

X X

X

X X

X

X X

X

X

X

X

X X X X

X X

X

X X

X X X

X

X

X

X X

X

X

X

X

X X

X

X X X X

X X X

X

X

X

X

X X

X X

X X X

X X X

X X X X X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X X X

X X X

X

X

X X

X X X X

X

X

X

X

X

X

X

X X X X X X X

X X X

X

X X X

12 13

X

X

X X

X X

11

X X

X

X

10

X

X X

X

9

X

X

X

X

X

X

X X X X

X X

198


Table 10.7

(continued)

DJ EURO STOXX 50 businesses\titles* SAP Siemens Société Générale A Suez Telecom Italia Telefonica Tesco Total UBS N Unilever CVA Vodafone Group

1

X X X

2 X X X X X X X

X

3

X X X

4 X X X X X X

5

X X X

6

7

8

9

10

X X X X X X

X X X X X X

X X X X X X

X X X X

X

X

X

X

X

X

X X

X

X

X

11

X X X X

X X X X

12 13

X X X

X X X X

X X

X

X

X X

X X

X

X

* See Table 10.8 for SRI fund title (1 out of 13).

Table 10.8

French SRI funds titles and number of titles in the fund

No.

SRI fund title

1 2 3 4 5 6 7 8 9 10 11 12 13

AGF Valeurs durables BNP Etheis Choix Solidaire Dexia Ethique Gestion diversifiée Epargne Ethique Actions Ethiciel Etoile Environnement Etoile Partenaire HSBC Sélection Valeurs Responsables Insertion Emplois Libertés et Solidarités Natexis Développement Durable SGAM Investissement Développement Durable

Number of titles in the fund 77 82 25 68 35 84 54 59 81 50 46 71 61

Conversely, businesses that are not or are scarcely recognized as responsible by index producers seem to be frequently selected by SRI fund managers. For example, France Télécom shows up in just one SRI index, but is present in 11 of the 13 SRI funds that invest in the DJ EURO STOXX 50 index businesses. Some businesses, although not many, seem to create consensus: Nokia


199

and Telefonica are strongly represented in both the SRI indexes (both companies are present in the four studied IDR indexes) and the SRI funds, because they are in the portfolio of 11 of 13 SRI funds with at least one DJ EURO STOXX 50 index in their portfolio.

5.

CONCLUSIONS FROM THE EMPIRICAL RESEARCH

European MNEs remain paper-oriented and make a point of issuing a special report on their sustainability policies. Environment is the mostdiscussed, and seemingly the widest-known, topic in the sustainability policies. This is because in sustainable development, people’s most common concern is the protection of the environment. European MNEs commonly named their reports ‘Corporate social responsibility’. This shows that MNEs view sustainability policies as a social responsibility to their community. The most treated topics are the ones subject to legal regulation, such as environment, health, safety, and human capital development. In addition, almost all companies have developed a corporate code of conduct to show their willingness to foster sustainable development within their company and toward external stakeholders. The reporting, taken as one of the first steps of a sustainability policy, already reveals some tendencies in the field of the European MNEs, including the emphasis put on environmental topics and the frequent use of the CSR notion, which certainly reflects the fact that in the official EU terminology, the definition of CSR integrates fully the three dimensions of the classical sustainable development definition. Reporting is one of the first steps in the field of sustainable development, but we have used scientific observation to try to deepen the analysis of the actions behind the written documents. This study used a predominantly hybrid form to integrate sustainable development into the organizational chart. The difficulties in defining, structuring, managing and monitoring an SD function must not be masked by the company’s actions and policies. Integrating this ‘new’ function into MNEs shows how authentic the company’s approach is. The results of the organizational analysis underline that the cross-disciplinary function of sustainable development has only recently become an explicit function in Europe. The analogy with the quality approach of the 1980s shows the problems linked to the vagueness of the notion, a predominantly extrinsic motivation of the companies and problems to find efficient indicators to measure the performance in this field.

200


According to the results of our DJ EURO STOXX 50 index observations, it seems that although belonging to a standard index considerably increases the probability of belonging to an SRI index, a company’s presence in an SRI index does not necessarily mean that it will automatically be selected to enter SRI funds. Conversely, managers select businesses they consider to be responsible, but which do not appear in the lists drawn up by index producers. A company’s absence in an SRI index does not seem to be crippling for appearing in an SRI fund and vice versa. Having said this, does being present in an SRI index and/or an SRI fund lead businesses to change their activity report? It would indeed be interesting to see if, having studied the annual reports, it is possible to show that belonging to a SD index and/ or an SRI fund has a (quantitative or qualitative) effect in terms of information provided by the concerned businesses. In other words, is there a specific way of treating sustainable development in the activity report for virtuous businesses depending on whether the SRI index producer’s point of view is used, or the investor’s point of view is used (knowing that, on the other hand, there is probably no or little effect due to fund or SRI index pressure on business capital supply and demand)? Perhaps the percentage of SRI funds should be higher in Europe in order to prompt polluting businesses to change their production processes.

6.

OBSERVED EUROPEAN REALITY AND THE MORAL DIMENSION

The empirical research presented above reveals a relatively heterogeneous state among the 50 biggest European MNEs with regard to SD, which is itself a concept characterized by the polysemy of the relevant expressions ‘sustainable development’ and ‘corporate social responsibility’. This vagueness is certainly accentuated by the fact that the EU-inspired legal framework uses both expressions regularly as synonyms. The research on reporting in Europe and on the organizational translation of the SD commitment shows the relative importance given in this field to documentation and communication. This is, without any doubt, due to legal constraints and to the intention of many of these companies to inform stakeholders above what is legally necessary on this topic. This external orientation of the SD policy of the MNEs, combined with the polysemy of the words, represents a parallel to the ‘quality’ approach of the 1980s. The organizational translation of the SD commitment is heterogeneous, but it becomes evident that for most of the 50 biggest European MNEs, organizational SD commitment takes the form of a ‘project’; in other


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words, a form with ‘transitional’ rather than ‘sustainable’ character. The attachment of the SD area to other top management areas, which can also be regularly observed, includes the risk of dissolution. Considering the transverse and symbolic nature of the SD commitment, an organizational translation in the form of a ‘specific structure’ seems to us to be more adequate. Our research demonstrates that the vagueness of the notions and the relative ‘youth’ of the SD and CSR approach are also reflected in the market for ethical investment, with the surprising discovery that only 10 percent of those companies composing the DJ EURO STOXX 50 are considered virtuous by managers of ethical funds, although 75 percent of them are found in ethical indexes. Considering these results, what can we conclude from the point of view of ethics? For centuries, ethics has provided different possibilities to morally justify values and norms, which could be used here to judge the moral dimension of the SD commitment of the European MNEs. If you take the ‘good’ (SD) conviction as criterion, and if you suppose that official communication, which includes in our case also the existence of many corporate codes of conduct, reflects this good conviction correctly, than you could say that the moral dimension is evident here. If you choose the approach of ethics of responsibility (Max Weber), according to which morality is given when the consequences of your intentions/convictions are ‘good’, then things look different. Consequently the organizational implementation and the reaction of financial markets have to be integrated in this ethical observation and judgment process. In view of our empirical results, emphasizing vagueness, lack of coherence, transitional or fragile organizational forms of implementation, and a clear emphasis on declarations, doubts concerning the existence of a real moral dimension could be formulated. Choosing the utilitarian ethics approach would not permit an easy answer in so far as one would have to define ‘greatest utility to most people’ in this SD area. It would take a significant effort to make this notion operational. Other ethical conclusions would be possible, depending on the choice of criterion (situationist approach, behavioristic approach, religious approach, the approach of reason or the eudemonistic approach). Remaining loyal to our descriptive ethics perspective, we have not chosen one of these criteria to judge the existence of a moral dimension of the SD commitment of European MNEs. So the public is free to choose and justify its own judgment of this topic on the basis of the empirical facts and the analytical elements of ethics presented in this chapter.

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NOTES 1. This selection can be based either on the researcher’s revealed, personal value reference system or on the adoption, by the researcher, of a value reference system which seems useful for the specific research purpose and does not need a personal normative commitment. 2. According to the survey carried out in France by the Ethifinance analysis company, for more than 60 percent of the time the investor’s choice does not depend on any extrafinancial analysis (Le Journal du Management, 2006). 3. In France, according to the data collected by Novethic, the outstanding SRI funds doubled in 2005, increasing from €5.1 billion at the end of 2004 to €9.9 billion at the end of 2005. The outstanding SRI funds are expanding, but are still very modest compared to those from other countries. Hence, in the USA, the Social Investment Forum estimated the outstanding SRI funds for 2005 at US$2300 billion. 4. Novethic has published the list of these 128 SRI funds marketed in France on its Internet site (www.novethic.com).

REFERENCES Capelle-Blanchard, G. and S. Giamporcaro-Saunière (2006), ‘L’investissement socialement responsable, nouveaux acteurs, nouveaux enjeux’, Cahiers Français, 331, 70–77. Déjean, F. (2006), L’investissement socialement responsable, Paris: Vuilbert. Rich, A. (1984), Wirtschaftsethik, Mohn: Gütersloher Verlagshaus Gerd. Statman, M. (2000), ‘Socially responsible mutual funds’, Financial Analyst Journal, May–June, 30–90. Stückelberger, C. (2002), Global Trade Ethics. An Overview, Geneva: WCC Publications. Waddock, S. and C. Bodwell (2004), ‘Managing responsibility: what can be learned from the quality movement?’, California Management Review, 47 (1): 25–37.

Websites Sustainability Reporting Guidelines, 2002, retrieved 15 July 2006, from www.globalreporting.org. www.sustainability-index.com, retrieved 15 July 2006. www.novethic.com, retrieved 15 June 2006.


APPENDIX A

203

THE DJ EURO STOXX 50 STOCK EXCHANGE INDEX BUSINESSES (LAST REVISION SEPTEMBER 2005)

DJ EURO STOXX 50: one of the main indexes of the Euro zone, this index gathers the 50 largest stock exchange capitalizations of the Euro zone (Austria, Belgium, Finland, France, Germany, Greece, Holland, Ireland, Italy, Portugal and Spain).

Title

Isin code

ABN Amro Holding Allianz N Anglo American AstraZeneca Aviva AXA Barclays BASF AG BCO Bilbao Vizcaya BNP Paribas BP BSCH BT Group Carrefour CS Group N DaimlerChrysler N Deutsche Bank Deutsche Telekom Diageo E.on Eni Ericsson B Fortis France Telecom Generali Ass. GlaxoSmithKline HBOS HSBC Holdings ING Group CVA L’Oréal Lloyds TSB Group Nestle Nom. Nokia Novartis N Rio Tinto

NL0000301109 DE0008404005 GB0004901517 GB0009895292 GB0002162385 FR0000120628 GB0031348658 DE0005151005 ES0113211835 FR0000131104 GB0007980591 ES0113900J37 GB0030913577 FR0000120172 CH0012138530 DE0007100000 DE0005140008 DE0005557508 GB0002374006 DE0007614406 IT0003132476 SE0000108656 BE0003801181 FR0000133308 IT0000062072 GB0009252882 GB0030587504 GB0005405286 NL0000303600 FR0000120321 GB0008706128 CH0012056047 FI0009000681 CH0012005267 GB0007188757

204


Title

Isin code

Roche Holding BJ Roy. Philips Electr. Royal Bk Scot. Grp Royal Dutch Shel A SAP Siemens Société Générale A Suez Telecom Italia Telefonica Tesco Total UBS N Unilever CVA Vodafone Group

CH0012032048 NL0000009538 GB0007547838 GB00B03MLX29 DE0007164600 DE0007236101 FR0000130809 FR0000120529 IT0003497168 ES0178430E18 GB0008847096 FR0000120271 CH0012032030 NL0000009348 GB0007192106

PART III

Discourse and Best Practices

11.

Understanding the self-regulation potential of voluntary international initiatives for corporate conduct: the role of sponsor goals Glen Taylor and Petra Christmann

1.

INTRODUCTION

A multitude of voluntary international initiatives has emerged over the past 25 years with the aim of establishing guidelines, rules and standards for firms’ social and environmental conduct and performance in the global economy. These initiatives include generic and industry-specific codes of conduct, management system standards and performance standards. These voluntary international initiatives have been proposed as a tool for firm self-regulation to improve firms’ global social and environmental conduct and performance. Which factors determine whether such initiatives are effective tools for firm self-regulation? To begin to answer this question we suggest that an initiative needs to satisfy two requirements to be an effective tool for firm self-regulation: first, adoption of the initiative needs to have a significant positive impact on the social and/or environmental conduct and performance of firms; and second, the initiative needs to be widely adopted by many firms. Organizations with differing missions and goals act as sponsors taking the lead in the formation of different initiatives. We suggest that the goals of the sponsoring organization affect the effectiveness of an initiative as a tool for firm self-regulation by shaping the design of the initiative in terms of the requirements specified and by affecting the initiative’s adoption rates. We develop a typology of initiatives based on sponsor goals and examine whether the different types of initiatives are likely to have requirements that lead adopting firms to improve their environmental and/or social conduct or performance and whether they are likely to be widely adopted by firms. Our analysis highlights the limits to international voluntary initiatives as a tool for firm self-regulation by revealing that most initiatives are unlikely to meet both

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requirements for effectiveness. We extend our discussion by examining dynamic changes in initiative design and adoption rates and conclude that over time changes in initiative design and adoption rates may increase the effectiveness of international voluntary initiatives. Voluntary international initiatives have been proposed as a means of firm self-regulation to address the inherent limitations of state-centered government regulation in the global economy. National government regulations are prone to failure because falling barriers to international trade and investment nullify their effectiveness by allowing firms and industries to relocate operations to countries with weak regulations (Leonard, 1988; Low and Yeats, 1992). In addition, many nation-states lack the means and incentives to design and enforce stringent social and environmental regulations because they compete with other nation-states to become favorable locations for investment and production (Christmann and Taylor, 2001; Spar and Yoffie, 2000). Voluntary international initiatives that do not depend on state sponsorship potentially offer new modes of industry selfregulation that move beyond a government-centered approach. Voluntary international initiatives may provide a market-based governance structure for firm and industry self-regulation. Firms adopt voluntary international initiatives not in response to governmental requirements, but in response to pressures by external stakeholders to improve their social and environmental performance. Adoption of these initiatives may also contribute to improving firm reputation and to differentiation in product markets. Indeed, research has shown that customer pressures are a primary reason for the adoption of voluntary initiatives by firms (Christmann and Taylor, 2001; Corbett and Kirsch, 2001; Guler et al., 2002; Potoski and Prakash, 2004). By relying on market pressures and evaluation by external non-governmental stakeholders, voluntary initiatives are amenable as a tool for firm self-regulation where national regulation falls short. Voluntary initiatives differ widely in the stringency and specificity of their requirements and in their enforcement mechanism (Kolk and van Tulder, 2002). Some initiatives set stringent requirements while others provide general guidelines for firm conduct. Some initiatives require little more than a firm’s vague promises to adhere to broadly defined normative guidelines for corporate conduct with no way to objectively evaluate whether or not firms live up to these requirements. Others require a detailed process of external review to verify that firms are in compliance with the initiative’s requirements. External verification mechanisms include third-party monitoring and inspections in participating firms, which can result in certification of firms or their products. External monitoring and certification promises to improve the transparency of corporate behavior to external stakeholders.

The self-regulation potential of voluntary initiatives

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In the pages that follow we shall develop a typology of voluntary international initiatives based on the mandate or goals of the organizations that serve as the sponsors who take the lead in designing particular initiatives and their enforcement mechanisms. We refer to sponsoring organizations as those organizations that convene stakeholders to create and design initiatives, and develop the institutional structure to administer and enforce them. These sponsors play a key role in setting the stage for voluntary collective initiatives (Johnson and Prakash, 2007) by providing the structure and institutional context (Hoffman, 2001) for the standard design process and by convening selected stakeholders and other actors who share a desire to influence how corporate conduct issues are defined and addressed. Participating stakeholders, such as firms or industry groups affected by the issue and non-governmental organizations (NGOs) with a mission to protect the environment, typically differ in the interests they represent. Thus, while all participating stakeholders share an interest in addressing and resolving corporate conduct issues, their views on how to best address these issues may differ. The design of voluntary international initiatives is largely determined by the goals of the convening sponsors despite the fact that the stakeholder groups participating in the design process seek to influence the initiative’s requirements and monitoring mechanisms to promote their own interests. As convening sponsors selectively provide access to participation in the initiative design and establish decision-making rules and administrative roles for the design process, they can empower some stakeholders while limiting or denying influence to others. The access and allocation of influence provided to stakeholders reflects the goals of the sponsor so that stakeholders whose goals are aligned with the sponsor goals are likely to enjoy greater access and influence in defining issues and setting a course as to solutions to be pursued. Sponsor goals provide a means of developing a typology of initiatives. By organizing our analysis around convening sponsor goals we can consider how the goals of a sponsor are likely to influence the design and the adoption rate of initiatives that jointly determine the effectiveness of particular initiatives.

2.

EFFECTIVENESS OF VOLUNTARY INTERNATIONAL INITIATIVES AS TOOLS FOR FIRM SELF-REGULATION

The effectiveness of a voluntary international initiative as a mechanism for firm self-regulation is determined by two conditions. First, the initiative

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has to modify the conduct of adopting firms in such a way that it mitigates the negative environmental or social effects of their operations or products. Second, the standard has to be widely adopted by a large number of firms (Cashore et al., 2007). The extent to which an initiative modifies firm behavior depends on the stringency of requirements specified by the initiative and the enforcement mechanisms provided by the initiative (Hemphill, 2004; Kolk and van Tulder, 2002). The more stringent and specific the requirements of an initiative are, the higher the likelihood that a firm’s adoption of the initiative will lead to a modification of firm behavior in such a way that the environmental or social impact of the firm will be reduced (Sagafi-nejad, 2005). Mechanisms to enforce firm compliance with an initiative’s requirements include independent third-party monitoring of firms and sanctions for non-compliance. Independent monitoring increases the likelihood that a firm’s violations of initiative requirements will be detected, which increases firm compliance with initiative requirements (Christmann and Taylor, 2006a). Thus monitoring also contributes to modification of firm conduct. Adoption rates of initiatives depend on the external pressures for adoption that firms face. Recent research on initiatives has addressed many of the motivations and institutional pressures that lead firms to adopt initiatives (Delmas and Toffel, 2004; Mendel, 2002; Christmann and Taylor, 2001). Pressures by customers have been identified as a primary reason for the widespread adoption of initiatives (Christmann and Taylor, 2001; Corbett and Kirsch, 2001; Guler et al., 2002; Potoski and Prakash, 2004). For example, in industries such as the automobile industry, certification of the ISO 14001 environmental management system standard has become a criterion for selecting suppliers, making the certification a requirement for doing business in the industry. The two criteria for effectiveness of voluntary international initiatives – stringent requirements and enforcement, and widespread adoption – seem to be potentially in conflict. Initiatives with stringent requirements are likely to be more costly and difficult for firms to adopt, thereby limiting the number of firms willing and able to adopt the initiative. Thus initiatives with stringent requirements are likely to be less widely adopted. Likewise, initiatives with weak requirements are less costly for firms to adopt and may therefore enjoy widespread adoption. This suggests that the potential of voluntary international initiatives to serve as a tool for firm and industry self-regulation may be limited because both criteria need to be met for these initiatives to be effective tools for selfregulation.


3.

211

TYPOLOGY OF INTERNATIONAL VOLUNTARY INITIATIVES FOR CORPORATE CONDUCT

In this section, we shall discuss how the goals of sponsoring organizations affect the design of voluntary international initiatives and their adoption rates. Organizations that sponsor voluntary international initiatives differ widely in their missions and goals. Goals and missions of sponsoring organizations derive from the purpose for which the sponsoring organizations were created. Thus goals of environmental NGO, created for the purpose of protecting the environment will differ from the goals of industry associations created to promote collective interests of the industry. Goals can range from proactive efforts to promote leading-edge industry practices on the one hand to defensive efforts to avoid future government regulations or consumer boycotts on the other hand. Some sponsoring organizations set out to achieve broad consensus around emergent norms to underpin the legitimacy of business activities or to augment governmental and intergovernmental regulatory efforts. Others seek to use international initiatives to facilitate and promote trade by establishing standards that help firms overcome potentially conflicting national standards or requirements. These variations in the goals of sponsoring organizations have a direct impact on the design and adoption rates of these voluntary international initiatives and in so doing determine their effectiveness as tools for self-regulation of corporate conduct. While the number of potential designs of voluntary international initiatives for corporate conduct is potentially unlimited, in practice there exists a far more limited set of internally consistent designs that reflect the goals of the sponsoring organization. In this section we identify four fundamental types of initiatives based on sponsor goals and discuss their likely designs and adoption rates: (1) norm-setting initiatives; (2) proactive initiatives; (3) defensive industry initiatives; and (4) trade-promoting initiatives. 3.1

Norm-Setting Initiatives

Some initiatives are designed primarily to define broad norms to guide firm conduct. These initiatives take the form of codes of conduct that establish normative guidelines for firm behavior. They do not establish specific management systems or performance requirements, nor do they create mechanisms to assure or certify the compliance of participating firms. Thus these initiatives do not prescribe what organizations should do beyond non-binding discourse on norms that define acceptable firm behavior. Examples of such codes include the UN Global Compact or

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the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises. Norm-setting codes of conduct raise awareness and stimulate a larger public debate on the role of business in regulating its own conduct (Post, 2000; Florini, 2003). They seek to establish the institutional norms for social action. They can serve as beacons illuminating areas of emerging social consensus. Norm-setting initiatives challenge organizations to accept new social and environmental values and imperatives. On the other hand, because they lack any formal means of guiding behavior, normsetting initiatives are not in themselves likely to alter firm behavior much. They are easy for firms to adopt since there are few if any specific requirements involved other than a pledge to honor and uphold a set of norms and values. They are a form of pledge of allegiance to values and not a roadmap for industry action. Sponsors of norm-setting initiatives Sponsors of norm-setting initiatives are frequently multilateral organizations such as the OECD or the UN. These organizations began to develop codes of conduct to guide corporate behavior in the globalizing world economy in the 1970s. In 1972, 113 governments met in Stockholm for the purpose of creating the first UN program for addressing global environmental problems. Despite the large number of countries gathered for the meeting, little support emerged for a strong UN environmental governance organization. It was at this time that the UN’s effort to develop statesponsored global regulatory mechanisms was widely seen to have stalled as governments saw little to be gained by creating an organization that would encroach on their sovereignty (Ivanova, 2007). Therefore the UN changed its approach and became a focal point for those actors interested in finding solutions beyond the governmental sector. The UN adopted the role of convening sponsor for stakeholders searching for ways to engage the private sector to voluntarily design and adopt initiatives to improve their global environmental conduct. These efforts culminated in the creation of the Global Compact of the UN. Formed in a diplomatic environment and put forward as a followup to the 1992 UN Rio Conference on Environment and Development, the Global Compact takes firms one step closer to acknowledging that the times are changing, that global environmental and social issues are increasingly important to address, and that all firms should set about aligning their actions with a new set of norms that place increasing importance on valuing, protecting and nurturing social and natural environments (Cetindamar and Husoy, 2007). The Global Compact was officially launched in July 2000 by UN Secretary-General Kofi Annan to further the


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achievement of the broader Millennium Development Goals of the UN (Ivanova, 2007), which include protecting our common environment and furthering human rights, democracy and good governance. The Global Compact appeals to business to work alongside the UN to ‘initiate a global compact of shared values and principles, which will give a human face to the global market’ (UN, 1999). The motivation of the Global Compact was largely ethical, seeking to set norms for acceptable corporate conduct in the global economy and to create the world’s largest network of key stakeholders. Even with these new initiatives, Kofi Annan himself has described the institutions for global action as ‘hardly more than embryonic’ (Annan, 2002). Effectiveness as a tool for self-regulation Norm-setting initiatives provide rules of thumb or heuristics that guide firm action only in the most general sense with no direct linkage to specific actions or behaviors, management systems, performance requirements, monitoring or enforcement. For example, firms signing on to the UN Global Compact need to abide by nine very broad principles relating to environmental, human rights and labor issues (see Box 11.1). Similarly, the 1976 OECD Guidelines for Multinational Enterprises designed voluntary non-binding recommendations for responsible firm conduct in various areas including human rights, the environment and combating bribery. The primary means of following the progress of signatory firms to norm-setting codes of conduct is self-evaluation and self-reporting. While the potential for increased transparency through self-reporting cannot be ruled out as a prod to change corporate behavior, reliance on self-evaluation reports is not likely to lead to critical examination of firm performance (Florini, 2003). Without any enforcement mechanism there is limited ability to coerce compliance with the code. Therefore codes of conduct that articulate broad policy statements and lack external enforcement are likely to have little impact on corporate behavior. Norm-setting initiatives also often lack widespread adoption. For example, between its inception in 2000 and November 2006, the UN Global Compact had been adopted by fewer than 3000 companies worldwide. This low rate of adoption is surprising given the relatively weak and generic requirements that many firms should be able to attain at relatively low cost. Possible reasons for this low rate of adoption include perceived lack of benefits, fear of inviting more scrutiny by NGOs and the administrative costs of producing annual reports tracking firm performance on social and environmental issues. Not surprisingly, larger firms are more likely than smaller ones to adopt the Global Compact, with 103 of the Financial Times Global 500 firms now having joined as members of the

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BOX 11.1

THE NINE PRINCIPLES OF THE UN GLOBAL COMPACT

The Secretary-General accordingly challenged business leaders to embrace and enact nine principles derived from the Universal Declaration of Human Rights, the Declaration of the International Labor Organization on fundamental principles and rights, and from the Copenhagen Summit, and from the Rio Declaration of the 1992 UN Conference on Environment and Development (the Earth Summit): Human Rights 1. Business should support and respect the protection of internationally proclaimed human rights within their sphere of influence; and 2. Make sure they are not complicit in human rights abuses. Labor 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; 4. The elimination of all forms of forced and compulsory labour; 5. The effective abolition of child labor; and 6. Eliminate discrimination in respect of employment and occupation. Environment 7. Businesses should support a precautionary approach to environmental challenges; 8. Undertake initiatives to promote greater environmental responsibility; and 9. Encourage the development and diffusion of environmentally friendly technologies. Source: Fact Sheet: The Global Compact, http://www.un.org/partners/business/ otherpages/factsheets/fs1.htm.


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Global Compact. More than half of the Global Compact member firms have more than 250 employees. Given the bias towards a smaller number of very large high-profile firms, the number of firms that formally sign on to norm-setting initiatives might not be the best measure of their impact, so that their actual impact in terms of value of economic transactions affected is larger. While norm-setting initiatives do not meet our two requirements for effective self-regulation, these initiatives highlight the emergence of new societal expectations about firm conduct in the global economy and aspirations to increase the transparency of firms’ actions. Norm-setting initiatives serve as harbingers of social progress even if the number of signatories remains relatively small and external enforcement mechanisms are completely absent. 3.2

Proactive Initiatives

Proactive voluntary international initiatives can be defined as those that promote ideal best practices to address a specific issue. These initiatives are intended to increase beneficial effects and/or to mitigate harmful effects of firm conduct. Consequently, these initiatives set stringent and specific behavioral and/or performance requirements, and participating firms are expected to submit themselves to an external third-party verification of their compliance with these requirements. Because proactive initiatives tend to be tailored to a specific industry or issue, they are designed to be adopted by a targeted segment of firms most often in the context of specific industries. Proactive initiatives include, but are not limited to, product certifications that define the social or environmental conditions under which certified products need to be produced. Examples of such product certifications include the Forest Stewardship Council’s (FSC) Forest Product Certification and the Fair Trade Organization’s Fair Trade Certification. Effective product certification requires monitoring of producer behavior to verify that production methods are in accordance with the initiative’s requirements and frequently also include a chain of custody certification of firms in the distribution chain that handle the product. Product certifications provide customers with information about the product that is otherwise difficult for them to obtain and thereby allows customers to incorporate social and/or environmental criteria in their purchasing decisions. Sponsors of proactive initiatives Sponsors of proactive initiatives are frequently NGO created for the purpose of designing and administering the initiative. These sponsoring

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organizations are often founded by international NGOs that aim protect the environment or improve social conditions. While sponsoring organizations frequently emphasize public and private inclusivity and openness to a broad range of actors and interests, the founding NGOs are likely to occupy key governance roles in the sponsoring organization. These founding NGOs also take the lead role in initiative design and, consistent with their goals, aim to design initiatives that set very high social and environmental expectations for corporate conduct. Proactive firms in an industry that consider themselves ‘leaders’ on issues of responsible corporate conduct are inclined to participate directly in proactive initiatives and in some cases provide resources to support the development of stringent standards. These firms can benefit from the positive publicity of being on the leading edge, which provides an incentive for them to play a prominent advocacy role as their industry moves towards greater self-regulation. The Forest Stewardship Council’s Forest Product Certification program is an example of a proactive initiative. Sustainable forest management is an issue on which NGOs representing environmental, and social perspectives such as Greenpeace, the Worldwide Fund for Nature, the Rainforest Alliance, and Friends of the Earth worked together with concerned companies to design standards for exemplary corporate conduct (Sharma and Henriques, 2005). The formation of the Forest Stewardship Council began in the 1980s when different stakeholders representing environmental, social and economic interests impacted by forestry began to meet informally. They saw that governmental solutions did not bring a resolution to issues of forest management and by the late 1980s NGOs had unsuccessfully organized tropical timber boycotts in an effort to save the remaining tropical forests. The 1992 UN Conference on Environment and Development in Rio de Janeiro set the stage for a new approach to environmental issues such as forestry by achieving a broad agreement that progress towards sustainable development should be a shared responsibility of social, environmental and economic interests. In the aftermath of the Rio Conference, social groups, environmental organizations and firms came together to develop a solution based on the establishment of voluntary international initiatives that use market forces as a means to promote socially beneficial, environmentally appropriate and economically viable forest management. From its inception, the distinguishing feature of the FSC has been the way in which it created a vehicle for proactive forest firms to participate in decision-making with social and environmental stakeholders (Cashore et al., 2004) Since the FSC was founded, the predominant leadership in its governing assembly has been drawn from environmentally and socially oriented NGOs. The governing assembly is structured into three co-equal chambers


217

representing environmental, social and economic interests. Thus, while proactive forest companies have a seat at the table, the design of the FSC standards reflects primarily the goals of NGOs. Effectiveness as a tool for self-regulation Proactive initiatives set stringent requirements and include enforcement mechanisms such as third-party monitoring, so that the first condition for effective self-regulation – modification of firm behavior – is likely to be met. To meet the stringent requirement, adopting firms have to change their conduct in ways that lessen their social and/or environmental impact. Firms are required to undergo external audits that verify that they meet the standard’s requirements in order to obtain certification. For example, the FSC product certification standard requires external audits of forest lands to assure that they comply with the established forest management practices as well as chain of custody certification of distribution chain participants. Only wood that was harvested on FSC-certified land and was handled by FSC-certified supply chain participants can be sold with an FSC label. However, stringent standards are difficult and costly for most firms to adopt. Therefore adoption of initiatives prescribing stringent standards is most often limited to proactive firms that have developed the resources and capabilities to meet the stringent requirements. For other firms it is initially too costly to adhere to stringent and enforced performance requirements. For those firms that are early adopters of proactive initiatives there is a differentiation benefit that is likely to dissipate once the initiative is widely adopted (Christmann and Taylor, 2003; King et al., 2005). Thus proactive initiatives are not likely to meet the second criterion for effectiveness – widespread adoption. This can be illustrated by looking at the adoption rates of the FSC certification. FSC-certified products represent less than 5 percent of total marketed wood (Overdevest, 2004). The fact that the transparency provided by product certifications allows final customers to take social and/or environmental issues into account in their purchasing decisions increases the power of market forces for responsible corporate conduct. If there is substantial customer demand for goods produced under specific social and/or environment conditions, as for example was the case in the dolphin-safe tuna issue, market forces can drive industry participants to conduct their business in a more responsible manner or risk losing their license to operate. Furthermore, the transparency provided by product certifications increases the power of NGOs to pressure firms to adopt these initiatives or else risk protests or negative publicity. Thus, if external pressures for initiative adoption become sufficiently large, widespread adoption can occur despite high costs for firms.

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3.3


Defensive Initiatives

Some initiatives, labeled defensive initiatives, seek to pre-empt governmental regulations and or to provide an alternative to more stringent standards offered by competing initiatives established by other convening sponsors. Defensive initiatives are usually created under the sponsorship of industry organizations such as trade associations that are dominated by firms seeking to protect the industry from the influence of outside interests. The objectives of these sponsoring organizations derive from the defensive goals of firms that aim to mitigate external pressures for greater responsibility. Sponsors aim to achieve their objectives by attempting to redefine issues and providing solutions that protect firms’ economic interests. To firms, stringent standards or initiatives imposed by outside stakeholders can be a costly intrusion into their affairs. Establishing defensive initiatives can challenge the legitimacy of more stringent initiatives, established by competing sponsors, or forestall government regulations by demonstrating that the industry is taking action to address the issue itself so that the establishment of more stringent initiatives or government regulations is not necessary. While defensive initiatives frequently do not entirely succeed at defusing demand for more responsible firm conduct and preventing the future introduction of more stringent requirements, they at least slow down the imposition of more stringent demands, and therefore help firms to delay rapid investments in improved social and environmental management capabilities and allow them more time to build their capabilities in this area. Defensive initiatives can also be intended to improve the collective reputation of the industry (King and Lenox, 2000). By establishing minimum standards and making initiative adoption a requirement for industry association membership, an industry can regulate who will or will not be considered a legitimate member of the industry. These initiatives also can be used as a marketing tool by industry participants. Given the vast number of social and environmental initiatives that have emerged in the past decade, it is difficult for customers to distinguish the meaning of different initiatives. Because most customers cannot or find it difficult to distinguish between responsible providers, defensive initiatives become a marketing tool by presenting customers with a symbolic display of legitimacy that is not otherwise backed by responsible practices. Sponsors of defensive initiatives Sponsors of defensive initiatives are frequently organizations that have a representational role for an industry such as industry associations. Industry associations are non-profit organizations that seek to protect


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and further the interests of their dues-paying membership in a defined industry sector. Companies belonging to industry associations share in the funding of activities that benefit all members of the industry such as public relations advertising, lobbying and the creation of industry initiatives. Industry associations often sponsor defensive initiatives that seek to protect the collective reputation and interests of an industry. Collective interests include the pre-emption of efforts of other stakeholders seeking to establish more stringent initiatives that can impose costs on members of the trade association. A collective industry response to competing standards is likely to be more successful in protecting industry interests than a response by individual firms. By committing resources to improving the prospects for the industry as a whole, individual firms make the industry more financially attractive for themselves (Barnett, 2006). The forestry industry provides an example of the emergence of a defensive initiative developed by an industry association in response to a proactive initiative. In part to blunt the thrust of more stringent FSC standards, a competing initiative emerged directly from firms in the US forestry industry called the Sustainable Forests Initiative (SFI). An industry association, the American Forest and Paper Association (AF&PA) acted as the convening sponsor of this initiative. At its inception in 1995, the industry association set relatively lax requirements for SFI and did not require third-party monitoring or certification. Nor was the SFI open to environmental NGOs participating in its governing bodies. However, the challenges to the legitimacy of the SFI by NGOs undermined its usefulness as a defense of industry practices. In response to these NGO pressures the SFI made several governance and operational changes by 2002 including mandatory performance measurement, third-party monitoring, and broader stakeholder participation through transfer of governance from the AF&PA industry association to an independent non-profit organization and balanced board representation of one-third industry, one-third environmental/conservation organizations, and one-third professional and academic groups (Overdevest, 2004). By gradually increasing the stringency of their standards, SFI allowed more time for industry participants to build their capacity to comply with more stringent standards. A similar pattern of gradually increasing the stringency of defensive industry initiatives also occurred in the chemical industry’s Responsible Care Program (King and Lenox, 2000) that was also subject to criticism by external stakeholders. Effectiveness as a tool for self-regulation Defensive initiatives are not likely to set stringent requirements, at least not initially. To achieve their goals of pre-empting more stringent initiatives

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and future government regulations and of safeguarding the collective reputation of the industry, these initiatives set minimum requirements to weed out unacceptably weak performers. Thus these initiatives establish relatively low requirements that can be met by most firms in the industry with what is viewed by firms to be a reasonable effort at a reasonable cost. Defensive initiatives generally do not include any third-party monitoring, but are self-monitored by the firms participating in the initiative. Thus, while the requirements of defensive initiatives may improve the social and/ or environmental conduct of the firms with weak prior conduct, these initiatives are unlikely to change the behavior of most industry participants. Consequently, these initiatives are unlikely meet the first criterion for effectiveness – modification of firm behavior. The design of defensive initiatives is not static. In response to stakeholder pressures that question the legitimacy of defensive initiatives, many defensive initiatives embraced the participation of outside stakeholders such as NGOs and redesigned their requirements over time to increase stringency and/or to require external monitoring of participating firms. Examples of defensive initiatives that broadened their stakeholder base and increased requirements and monitoring include the chemical industry’s Responsible Care initiative and the forest industry’s SFI. Thus defensive initiatives may over time become a more effective tool to modify firm behavior if stakeholder pressures are high. Adoption of defensive initiatives tends to be widespread. Most if not all firms eventually succumb to the pressure to at least appear to be in step with societal expectations for improved global environmental and/ or social performance, and adoption of defensive initiatives provides a relatively low-cost way of doing so. Defensive initiatives frequently enjoy broad industry adoption, especially in cases where membership in industry associations hinges on the adoption of the initiative, as is the case in the US chemical and forestry industries. Thus defensive initiatives meet the second criterion for effectiveness. The establishment of defensive initiatives can also affect the legitimacy and effectiveness of competing proactive initiatives. Defensive initiatives blunt the proactive initiatives’ demands for higher levels of performance and increased external monitoring. By establishing and subscribing to standards that apply to all firms in the industry, firms can defend their legitimacy, improve their collective reputation, and resist or slow down pressures to more fully address social and environmental issues. Defensive initiatives allow industries to respond to outside calls for more external scrutiny and control through public relations efforts to persuade external stakeholders that most members of the industry are already doing all they can to improve their performance.


3.4

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Trade-Promoting Initiatives

Trade-promoting initiatives aim to serve as a global lubricant for trade. Diverse and potentially conflicting national standards and regulations impose high transaction costs on firms participating in global supply chains. Globally harmonized standards that supersede national government requirements can lower these transaction costs and promote the smooth functioning of global supply chains. Furthermore, if tradepromoting initiatives require external certification, these initiatives can simplify the supplier selection process by providing customers with information that signals supplier characteristics. Suppliers can obtain certifications to signal characteristics that are costly for potential customers to observe, and the resulting increased transparency of supplier conduct allows customers to identify socially and environmentally responsible trading partners in foreign countries at low cost (Christmann and Taylor, 2001). Instead of conducting their own extensive research into all potential trading partners, purchasing firms can rely on external monitoring and certification to screen potential suppliers. Sponsors of trade-promoting initiatives Technical standards organizations such as the International Organization for Standardization (ISO) can act as sponsors of trade-promoting initiatives. Members of these organizations include the national standardization bodies of individual countries, such as the American National Standards Institute of the USA – a non-governmental technical standards body. The goal of organizations such as the ISO is to facilitate commerce by establishing global standards. ISO has developed the most widely adopted global standard addressing environmental issues – the ISO 14001 Environmental Management System Standard that had almost 130 000 certifications worldwide as of January 2007 (ISO, 2008). The design of this initiative is based on the ISO 9000 series of quality management standards. Effectiveness as a tool for self-regulation To achieve their goal of promoting trade by establishing globally harmonized rules of conduct for firms, trade-promoting initiatives need to be adopted by a large number of companies in a multitude of countries. Therefore trade-promoting initiatives tend to establish generic standards that can be adopted by firms of any size in any industry in any country. This level of general applicability does not allow for specific performance requirements, which often tend to be industry specific. Therefore these initiatives generally specify process requirements, such as the implementation of environmental management systems that can be adapted to firms

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in any industry. Environmental management systems provide a framework for integrating environmental management practices into the daily work routines of organizations with the goal to reduce the impact of their operations on the environment. Thus management system adoption has the potential to modify firm behavior so as to reduce their environmental and/or social impact. To achieve their goal of lowering search costs in global supply chains, firms’ compliance with trade-promoting initiatives needs to be independently monitored. Independent monitoring shifts the burden of inspecting suppliers from potential customers to independent monitors that certify that suppliers comply with the initiative’s requirements. This requires the establishment of the global monitoring system that allows firms to obtain certification no matter where they are located. For example, ISO has established a global network of national accrediting organizations that are ISO members. These organizations accredit independent auditors (called registrars in the ISO system) to perform ISO audits and grant ISO certification. Firms seeking certification can hire registrars of their choice. External auditing is intended to assure that certified firms actually follow the initiative’s requirements and is thus likely to also contribute to modification of firm behavior. Despite specifying requirements that are likely to modify firm behavior and requiring independent certification of firms’ compliance with these requirements, concerns have been voiced about the effectiveness of tradepromoting initiatives to modify firm behavior. A reason for these concerns is that process requirements are likely to be less effective in modifying firm behavior than performance requirements. Research has shown that ISO 14001 certification may not lead to an improvement in environmental performance in certified firms (Andrews et al. 2003; King et al., 2005). Furthermore, research has shown that wide variations in the quality of implementation of standards exists between certified firms (Aravind and Christmann, 2007, 2008; Boiral, 2003, 2007; Christmann and Taylor, 2006a) and that firms that do not continuously comply with the initiative’s requirements are able to obtain certification (Boiral, 2003, 2007). This may be because ongoing compliance with process requirements is difficult to evaluate in periodic audits (Christmann and Taylor, 2006a; O’Rourke, 2002) or because auditors may face a conflict of interest in the auditing system established by ISO where they are selected for and paid by the firms seeking certification. Thus certification to trade-promoting initiatives may not sufficiently modify firm behavior, which limits their effectiveness as a tool for firm self-regulation. Firms benefit from certification to the extent that customers and investors have a preference for doing business with certified firms (Florini,


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2003). Many trade-promoting initiatives such as the ISO 9001 quality management system and the ISO 14001 environmental management system are used by potential customers as a criterion to evaluate and screen potential suppliers in countries all over the world (Christmann and Taylor, 2006b). Thus certification to these initiatives becomes a requirement for doing business for firms worldwide. Therefore, trade-promoting initiatives such as ISO 14001 have achieved widespread global adoption and meet the second criterion for effectiveness as a tool for self-regulation.

4.

PROSPECTS AND LIMITS TO THE EFFECTIVENESS OF VOLUNTARY INTERNATIONAL INITIATIVES AS A TOOL FOR FIRM SELF-REGULATION

Not all international voluntary initiatives are equally effective as tools for firm self-regulation in the global economy. The goals of the sponsors that take the lead in the formation of the initiative and convene other stakeholders who are involved in the initiative design process affect two criteria that determine initiatives’ effectiveness – whether adopting firms need to substantially modify their behavior to become more environmentally and/ or socially responsible and whether the initiative is widely adopted by firms. The goals of sponsors of voluntary international initiatives differ widely. We identified four primary goals that sponsors of international voluntary initiatives bring to the standard design process and developed a classification of voluntary international initiative based on these goals. For each type of initiative we evaluated its effectiveness as a tool for firm self-regulation by examining whether the initiative was sufficiently stringent and provided for adequate independent enforcement to improve the environmental and/or social conduct of adopting firms, and whether the initiative was likely to be widely adopted by firms. A summary of our findings can be seen in Table 11.1. Our first type of initiatives – norm-setting initiatives – is intended to define broad norms for internationally acceptable social and/or environmental conduct. Consequently, this type of initiative generally specifies vague codes of conduct that are not externally enforced. Thus, while the adoption of such initiatives is relatively widespread among large multinational companies, these initiatives are unlikely to modify firm behavior in adopting firms. Our second type of initiatives – proactive initiatives – is intended to promote best practices that reduce firms’ social and or environmental conduct. Consequently, proactive initiatives set very stringent requirements that are externally monitored. However, meeting

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Issue advocacy organization (e.g. NGO) International standard-setting organization

3. Proactive

4. Tradepromoting

Industry advocacy Organization (e.g. industry association)

Supranational intergovernmental organization

1. Norm Setting

2. Defensive

Type of sponsoring organization

VII typology

ISO 14001

FSC

SFI

Global Compact

Example of VII Generic global norms for acceptable behavior Uncertified or certified product-specific standards Certified product-specific standards Generic certified management standards

Content

Medium

Strong

Firms in an industry All firms

Firms in an industry

All firms

None

Weak

Scope of standard

Stringency and monitoring

Adopted by a large number of firms across industries and countries

Adopted by a relatively small number firms

Adopted by many firms within a specific industry

Adopted by a relatively small number of larger firms

Adoption rate

VII design parameters and adoption rates

Typology and design of voluntary international initiatives (VIIs)

VII goal

Table 11.1


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these stringent requirements imposes high costs on most firms resulting in low adoption rates. Our third type of initiative – defensive initiatives – is intended to pre-empt more stringent competing initiatives or government regulations or to protect the collective reputation of an industry. Initially, these initiatives tend to set weak requirements and lack external enforcement, but if high stakeholder pressures threaten the legitimacy of defensive initiatives these initiatives are modified over time to specify more stringent requirements and include external enforcement mechanisms. Defensive initiatives are likely to be widely adopted because adoption is frequently a requirement for membership in industry associations and adoption allows firms to avoid being singled out as weak performers. Our fourth type of initiative – trade-promoting initiatives – is intended to facilitate international trade by setting global requirements that supersede potentially competing national government regulations and by lowering transaction costs in global supply chains through increased transparency of firm conduct. To allow adoption by organizations of any size in any industry in any country, trade-promoting initiatives frequently specify process requirements rather than specific performance targets. They provide for external monitoring and certification to increase transparency of firm conduct. While externally monitored process requirements have the potential to modify firms’ conduct, we observe wide variations in the quality of implementation of these requirements among certified firms resulting in variations of the effect of initiative adoption on firm conduct. The preceding discussion illustrates the potential conflict between the two criteria that determine the effectiveness of voluntary international initiatives as tools for firm self-regulation. Initiatives that have stringent requirements are not as likely to achieve widespread adoption because of the high cost of meeting stringent requirements. Initiatives with less stringent requirements are not as likely to modify firm behavior but are more likely to achieve widespread adoption. Those initiatives that are likely to result in the largest modification of firm behavior – proactive initiatives – tend to be not widely adopted and those initiatives that tend to be widely adopted – defensive initiatives and trade-promoting initiatives – are not imposing stringent performance requirements on firms. This suggests that limitations exist that reduce the potential for international voluntary initiatives to be effective mechanisms for firm self-regulation. None of the types of initiatives meets both criteria for effectiveness. However, we do not mean to suggest that international voluntary initiatives are not beneficial. Even if norm-setting initiatives lack specific requirements and enforcement, they force adopting firms to think about their policies with regard to social and environmental issues. Even if stringent proactive initiatives are not widely adopted, they still raise the

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performance bar for industry leaders and may over time influence other less stringent initiatives to increase in stringency as we describe below. Even when less stringent defensive initiatives fall far short of best practice, they can still serve to weed out firms with completely unacceptable environmental or social records. Even if trade-promoting initiatives do not include specific performance requirements, their adoption increases firms’ awareness of their environmental and social conduct and creates internal systems for dealing with them. While our analysis focuses on initiative design and adoption mainly as a static outcome of sponsor goals, we cannot overlook the fact that initiatives and their adoption rates are changing over time in response to external pressures. Our analysis highlights the importance of stakeholder pressures and consumer demand in making international voluntary initiatives more effective mechanisms for firm self-regulation over time. These pressures can contribute to the design of more stringent initiatives that include external monitoring mechanisms as well as to widespread adoption of initiatives by firms. NGO pressures and competing NGO initiatives can contribute to an increase in stringency of defensive initiatives. For example, in the case of forest certification, pressures by NGOs and the proactive FSC initiative attacked the legitimacy of the AF&PA’s competing Sustainable Forestry Initiative and forced the industry association to involve NGOs in the design process of the SFI and to move towards more stringent requirements and external monitoring. Thus, while the FSC initiative has so far failed to achieve widespread adoption, it was very influential in promoting higher standards imposed by the industry association on its member companies. In order for market-based mechanisms for self-regulation to gain widespread adoption among firms, customers have to show a preference for products with environmental or social attributes in their purchasing decisions and be willing to possibly pay higher prices for products with such attributes. Lack of customer demand for environmentally or socially responsible products and management practices is a potential constraint to the effectiveness of voluntary initiatives. One reason for lack of demand is that customer demand varies between environmental and social issues, possibly due to the fact that customers feel a greater emotional attachment to some issues than others – for example dolphins may elicit a higher emotional response that environmental management of factories. Another reason for lack of customer demand for corporate social or environmental responsibility could be that customers are not as well informed about the meaning of different environmental and social certifications and labels. While NGOs have taken a leading role in establishing environmental or social labels, they are not always equally successful at informing final


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customers about the merits of purchasing certified products. The proliferation of competing certifications, and as well as the increase in unverified environmental and social claims by companies makes it difficult for customers to identify the true meaning of different labels or claims. This suggests that while labels are intended to increase transparency for customers, their proliferation may actually increase customer confusion. Thus education of customers is an important role for NGOs that can contribute to more demand for products with proactive certifications and consequently to more widespread adoption by firms. Our analysis has shown that the effectiveness of voluntary international initiatives can change over time in response to pressures by external stakeholders. While our static analysis revealed that none of the types of initiative is likely to meet both criteria for effectiveness as a tool for firm self-regulation, our analysis of dynamic effects shows that over time initiative design and adoption rates can change in response to external pressures. When stakeholder pressures are sufficiently high a ‘race to the top’ (Vogel, 2000) of the requirements of competing initiatives may ensue as these initiatives compete for acceptance and legitimacy in the marketplace. In addition, high pressures by customers contribute to increased adoption of initiatives because initiative adoption may become a requirement for doing business. These dynamic effects leave us optimistic about the prospects for voluntary international initiatives as tools for firm self-regulation at least to address issues that are of high concern to customers and other stakeholders.

REFERENCES Annan, K., A. Gowers, N. Chomsky, J. Kirkpatrick et al. (2002), Foreign Policy, 132, ABI/INFORM Global, pp. 28–46. Andrews, R.N.L., D. Amaral, N. Darnall, D.R. Gallagher, D. Edwards, A. Hutson, C. D’Amore, L. Sun and Y. Zhang (2003), Environmental Management Systems: Do They Improve Performance? Chapel Hill, NC: The University of North Carolina. Aravind, D. and P. Christmann (2007), ‘Substantive versus symbolic implementation of ISO 14001: the role of corporate headquarters’, Academy of Management Best Paper Proceedings. Aravind, D. and P. Christmann (2008), ‘Institutional and resource-based determinants of substantive implementation of ISO 14001’, Academy of Management Best Paper Proceedings. Barnett, M.L. (2006), ‘Finding a working balance between competitive and communal strategies’, The Journal of Management Studies, 43 (8): 1753–73. Boiral, O. (2003), ‘ISO 9000: Outside the iron cage’, Organization Science, 14 (6), 720–37.

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Boiral, O. (2007), ‘Corporate greening through ISO 14001: a rational myth?’, Organization Science, 18 (1): 127–46. Cashore, B., G. Auld and D. Newsom (2004), Governing Through Markets: Forest Certification and the Emergence of Non-State Authority, New Haven, CT: Yale University Press. Cashore, B., G. Auld, S. Bernstein and C. McDermott (2007), ‘Can non-state governance “ratchet up” global environmental standards? Lessons from the forest sector’, RECIEL, 16 (2): 158–72. Cetindamar, D. and K. Husoy (2007), ‘Corporate social responsibility practices and environmentally responsible behavior: the case of the United Nations Global Compact’, Journal of Business Ethics, 76: 163–76. Christmann, P. and G. Taylor (2001), ‘Globalization and the environment: determinants of firm self-regulation in China. Journal of International Business Studies, 32 (3): 438–58. Christmann, P. and G. Taylor (2003), ‘Environmental self-regulation in the global economy: the role of firm capabilities’, in S. Lundan (ed.), Multinationals, Environment and Global Competition, Amsterdam: Elsevier/JAI, pp. 119–46. Christmann, P. and G. Taylor (2006a), ‘Firm self-regulation through international certifiable standards: Determinants of symbolic versus substantive implementation’, Journal of International Business Studies, 37 (6): 863–78. Christmann, P. and G. Taylor (2006b), ‘International voluntary social and environmental standards: implications for firms and governments’, in S. Vachani (ed.), Transformations in Global Governance: Implications for Multinationals and Other Stakeholders, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, pp. 187–208. Corbett, C.J. and D.A. Kirsch (2001), ‘International diffusion of ISO 14000 certification’, Production and Operations Management, 10 (3): 327–42. Delmas, M. and M. Toffel (2004), ‘Stakeholders and environmental management practices: an institutional framework’, Business Strategy and the Environment, 13 (4): 209–22. Florini, A. (2003), ‘Business and global governance: the growing role of corporate codes of conduct’, The Brookings Review, 21 (2): 4–8. Guler, I., M.F. Guillen and J.M. MacPherson (2002), ‘Global competition, institutions, and the diffusion of organizational practices: the international spread of ISO 9000 quality certificates’, Administrative Science Quarterly, 47 (2): 207–32. Hemphill, T.A. (2004), ‘Monitoring global corporate citizenship: industry selfregulation at a crossroad’, The Journal of Corporate Citizenship, 14: 81–95. Hoffman, A. (2001), ‘Linking organizational and field-level analyses: The diffusion of corporate environmental practice’, Organization and Environment, 14 (2): 133–58. ISO (2008), ISOWORLD, http://www.ecology.or.jp/isoworld/english/analy14k. htm. Ivanova, M. (2007), ‘Designing the United Nations Environment Programme: a story of compromise and confrontation’, International Environmental Agreements, 7: 337–61. Johnson, E.& A. Prakash (2007), ‘NGO research program: a collective action perspective’, Policy Science, 40: 221–40 King, A. and M. Lenox (2000), ‘Industry self-regulation without sanctions: the chemical industries Responsible Care Program’, Academy of Management Journal, 43: 698–716.


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King, A., Lenox, M., and Terlaak, A. (2005). The strategic use of decentralized institutions: Exploring certification with the ISO 14001 management standard. Academy of Management Journal, 48: 1091–1106. Kolk, A. and R. van Tulder (2002), ‘Child labor and multinational conduct: a comparison of international business and stakeholder codes’, Journal of Business Ethics, 36: 291–301. Leonard, H.J. (1988), Pollution and the Struggle for a World Product: Multinational Corporations, Environment, and the Struggle for International Comparative Advantage, Cambridge: Cambridge University Press. Low, P. and A. Yeats (1992), ‘Do dirty industries migrate?’, in P. Low (ed.), International Trade and the Environment, World Bank Discussion Paper 159 Washington, DC: The World Bank, pp. 89–104. Mendel, S. (2002), ‘The ecology of games between public policy and private action’, Nonprofit Management and Leadership, 13 (3): 229–36. Organization for Economic Co-operation and Development (OECD) (2001), Corporate Responsibility: Private Initiatives and Public Goals, Author. O’Rourke, D. (2002), ‘Monitoring the monitors: a critique of corporate third-party labor monitoring’, in R. Jenkins, R. Pearson and G. Seyfang (eds), Corporate Responsibility and Ethical Trade: Codes of Conduct in the Global Economy, London: Earthscan, pp. 196–208. Overdevest, C. (2004), ‘Codes of conduct and standard setting in the forest sector: Constructing markets for democracy?’, Industrial Relations, 59 (1): 172–98. Post, J.E. (2000), ‘Global codes of conduct: activists, lawyers and managers in search of a solution’, in O.F. Williams (ed.), Global Codes of Conduct, South Bend, IN: University of Notre Dame Press, pp. 103–16. Potoski, M. and A. Prakash (2004), ‘Regulatory convergence in nongovernmental regimes: cross-national adoption of ISO 14001 certification’, Journal of Politics, 66 (3): 885–905. Sagafi-nejad, T. (2005), ‘Should global rules have legal teeth? Policing (WHO Framework Convention on Tobacco Control) vs. good citizenship (UN Global Compact)’, International Journal of Business, 10 (4): 363–381. Sharma, S. and I. Henriques (2005), ‘Stakeholder influences on sustainability practices in the Canadian forest products industry’, Strategic Management Journal, 26, 159–80. Spar, D.L. and D.B. Yoffie (2000), ‘A race to the bottom or governance from the top?’, in A. Prakesh and J.A. Hart (eds), Coping with Globalization, London: Routledge, pp. 31–51. United Nations (1999), Global Compact, Author. Vogel, D. (2000), ‘Environmental regulation and economic integration’, Journal of International Economic Law, 3 (2): 265–79.

12.

Sustainable development and corporate social responsibility of multinational enterprises in China Maria Lai-Ling Lam

1.

INTRODUCTION

When many China operations are becoming critical to global supply chain management and under the scrutiny of international organizations, foreign multinational enterprises (MNEs) in China will need to comply with the corporate social responsibility (CSR) requirements demanded by their customers in the global supply chain. Foreign MNEs are increasingly pressed by the Chinese government and international NGOs to take voluntary responsible actions within their social and environmental policies in China (OECD, 2000; Asia Monitor Resource Center, 2006; Welford, 2006). Foreign MNEs are expected to be good models to Chinese enterprises because they are capable of increasing awareness of CSR and improving the CSR practices of their affiliated companies and suppliers in China by being self-regulated (Business Roundtable, 2000; Christmann and Taylor, 2001; Meyer, 2004; Murdoch and Gould, 2004; Tateisi, 2004; World Business Council for Sustainable Development, 2005; China Finance Economic Company, 2006; China Entrepreneurs Survey System, 2007; Wood and Kaufman, 2007). These foreign MNEs can use CSR programs as their ‘soft competitive advantages’ in China and help the Chinese government develop a harmonious society. Some subsidiaries of wellknown MNEs can overcome the liability of being outsiders and reduce their vulnerability to social criticism by carrying out philanthropic programs encouraged by the Chinese government. MNEs can have sustainable development (i.e. achieve economic progress while improving social and environmental welfare) and earn net benefits in both the short and long term in China if MNEs can manage their relationships with many stakeholders in China in socially responsible actions that ‘benefit society beyond the requirements of the law and the direct interest of shareholders’ (McWilliams and Siegel’s, 2001 definition of CSR). 230

Sustainable development and CSR in China

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Many foreign MNEs present environmental welfare as an important sustainable strategy in their CSR or environmental reports. Many intergovernmental organizations command MNEs to follow international environmental guidelines and international institutions.1 The media monitor the environmental practices of some prominent foreign MNEs in China. From many foreign corporations’ environmental reports, the foreign MNEs clearly show their legal compliance concerning the local environment, present helpful environmental information and illustrate how their companies integrate their environmental commitment and financial bottom lines. Will these reports be supported by actual company progress or the integration of social and environmental values in their organization structures and systems? What is the meaning of CSR practices for Chinese executives who are working for their foreign MNEs in China? What should foreign MNEs do to increase their economic, social and environmental performance through their CSR programs? This study is designed to examine the perceptions of Chinese executives about CSR and to explore possible strategies for MNEs to be sustainable through such programs in China. Chinese executives and expatriates have to be integrated and display internal consistency with MNE parent companies and accommodate distinctive Chinese business environments in their day-to-day operations (Farley et al., 2004; Bartlett and Ghoshal, 1987). These Chinese executives have to deal with varying commercial business practices, the market and competitive situations and interpretations of Chinese laws and policies by officials at different levels and different regions in China (Lam, 2000, 2004). The perceptions of Chinese executives about CSR can be affected by many contextual factors such as subsidiary attributes, subsidiary–host-country interdependence, MNEs’ focus, MNEs’ internal system, and the strategic importance of the Chinese subsidiaries to MNEs’ and host–home-country relations. It is important to examine these Chinese executives’ beliefs and to identify how they operate in the area of corporate responsibility. This will allow them to develop better conditions for contributing to and expanding their subsidiaries’ CSR programs.

2.

METHODOLOGY

This research builds upon the researcher’s previous studies with Chinese expatriates in the USA’s and China’s business negotiations (2000), Hong Kong subsidiaries’ Chinese executives’ perceptions (2003, 2004), trust building between US and Chinese negotiators (2005) and with human rights movement organizations in Hong Kong, China (2006). It is also

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based on extensive literature review, personal reflections and three years’ fieldwork in China and the USA during March and April 2008; the CSR practices of three Japanese companies, four American companies and one German company in Beijing were investigated. These in-depth case studies are integrated with the researcher’s 2006 and 2007 studies. Twentythree Chinese executives coming from 16 foreign MNEs were interviewed. Eleven interviewees are responsible for purchasing, sales and marketing. Three hold senior-level managerial positions. Eleven interviewees are responsible for CSR programs and external communication. One is responsible for internal coordination and personnel. During May and June 2006 and May and June 2007, the researcher talked with more than one hundred Chinese executives and graduate students about their expectations for foreign MNEs in various cities of China including Chongqing, Dalian, Qingtao, Zhejiang, Nanjing, Shanghai and Beijing. Several graduate Chinese students also shared their working experiences in their foreign MNEs in China. One hundred and fifty Chinese graduate students and executives in Chongqing University, Qingtao University of Technology and Dalian University of Technology were invited to discuss the impact of foreign MNEs upon communities in China. The researcher also read their companies’ published CSR reports, published Chinese documents, articles and Chinese students’ dissertations on corporate responsibility and multinational corporations. Parts of interviewees’ data were validated by eight interviews in Japan and numerous interviews in American business conferences. The research was designed as an interpretive study of the experiences and perceptions of Chinese executives who are ethnic Chinese and hired by foreign well-established MNEs in mainland China. These MNEs were accustomed to complying with international standards. The multinational corporations’ orientations are identified from their CSR reports. The beliefs of these Chinese executives and their operational behavior are understood through personal semi-structured interviews. Each interview was conducted in the interviewee’s native tongue and lasted from one to three hours. The interview was structured to cover four main sections and to encourage interviewees to express freely their opinions or feelings. The first section was exclusively personal matters: years of experience in foreign multinational corporations and present job, job nature and key customers or suppliers. The second section included internal practices: company’s code of conduct, international standards, implementation of CSR strategies and programs, and internal due process. The third section included the impact of each company on competitors and the Chinese community: corporate socially responsible citizens in their industry in China and the company’s contribution to the Chinese business community. The fourth


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section included expectations and recommended changes in CSR programs in their companies.

3.

MEANINGS OF CORPORATE SOCIAL RESPONSIBILITY

Although many foreign MNEs in China have adapted ISO 140001 and the Global Reporting Initiative Sustainability Reporting Guidelines, their Chinese subsidiaries’ CSR practices are not integrated with their these subsidiaries’ organizational structure and system. Their companies’ CSR reports are not supported by actual market progress. The Chinese executives who are responsible for CSR functions in their Chinese subsidiaries expect to get more support from their supervisors as many internal staff members do not appreciate the value of CSR programs. The interviewees who are responsible for CSR programs tend to focus more on reporting CSR activities rather than managing relationships with many external stakeholders. Interviewees perceive that their subsidiaries’ goals are to make profits and not to solve social problems. These interviewees are responsible for purchasing, sales and marketing relations with companies in China. They accept the reality that the reasons for foreign firms to be in the Chinese labor market are cheap labor and local markets. Their subsidiaries’ responsibilities are to make a profit and to pay taxes. They expect the Chinese government, not foreign companies, to solve social problems. The Chinese executives tend to stress the economic contributions of their foreign MNEs. Many Chinese executives’ interpretations of ethical performance are related to the use of corporate funds and authorities. Employees are required to adhere to sound financial accounting principles, not to misuse funds designated for business purposes and not to accept certain gifts or offer bribes. Their learning of moral values in foreign MNEs is considered by the interviewees as a part of CSR. Among the values to be learned are: honesty, equality between genders, cultural diversity, teamwork, rules of doing things and problem-solving skills. Their concept of stakeholders is mainly customers (i.e. consumers, buyers), employees and the local community. They emphasize providing good products and services to customers, treating employees with respect and expecting improved compensation. Although the researcher was frequently told that they were overworked and had no time to do volunteer work, there was no expressed expectation that CSR programs should create a balance between work and private life.

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All interviewees have been informed of their companies’ code of conduct during their orientation programs. Many interviewees are frequently being asked by the human resource management or labor union to do some charity work such as planting trees or donating money to care for poor children. As previously stated, many cite their work load as the reason they do not have time to participate. It seems that their subsidiaries’ corporate giving often does not engage employees. Except for interviewees who are responsible for CSR activities, no interviewee mentioned any community rewards that their subsidiaries have received in China. It seems that no interviewee in the functional area is being motivated or retained by the social programs. Interviewees who are not responsible for CSR programs do not perceive the need for CSR training. They think that such programs are a kind of superficial public relations activity. Interviewees who are responsible for CSR programs hope to get more support from their internal colleagues. In summary, these interviewees’ interpretation of CSR is oriented to the internal operations of the firm and their personal learning. They focus on economic responsibility and efficiency. They are under pressure to meet many short-term goals and believe that CSR programs are too time-consuming and expensive. Their scope of CSR is mainly related to their performance as required by their companies. Their definition of CSR would not consider ‘the actions of a company to benefit society beyond the requirements of the law and the direct interests of shareholders’ (McWilliams and Siegel, 2001). These interviewees’ perceptions of CSR show that they are ‘transactional leaders’ who are primarily interested in ‘corporate self-interest’ as van Tulder and van der Zwart (2006) described. They perceive that CSRs should be implemented by designated departments or high-ranking leaders in their corporations. In particular the Chinese, who were born in mainland China, are accustomed to relying on the government for social welfare and many Chinese executives do not want their companies to be state-owned enterprises. These state-owned enterprises were inefficient because they had taken on too many of the social responsibilities from the previous communist regime (Walder, 1986). Now, many state-owned enterprises have to be more efficient and get rid of their welfare programs. In this historical, political and social context, many interviewees viewed CSR programs as an operation cost of their enterprises and consequently reducing the profit. These interviewees represent the classical view of CSR as Quazi and O’Brien (2000) described. A classical view of social responsibility means ‘there is no provision to look beyond a narrow view of profit maximization as it is seen to generate a net cost to the company without real benefit flowing from an activity’ (ibid.: 36).


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Many interviewees are willing to seek short-term economic growth at the expense of environmental protection or labor rights. They cannot see the possibility of inviting many stakeholders to respond to local demands as their responsibility and cannot see responding to local demands as an important competitive strategy. Many perceive that their companies have strong internal control to guide them to do things properly. Their narrow perspective of CSR is partly related to the economic development of China and strong internal control of Chinese subsidiaries.

4.

CHALLENGES OF ADOPTING CORPORATE SOCIAL RESPONSIBILITY

This study finds that 16 well-established multinational corporations coming from different industries, national cultural identities and international orientations do not develop different CSR strategies or programs in China. There is no relationship between these MNEs’ international strategy and CSR programs in China. These 16 MNEs’ CSR programs fall short from the expectation of transnational CSR behavior developed by Arthaud-Day (2005) and the practices of MNEs’ CSR in Mexico (Husted and Allen, 2006). In addition, many CSR practices seemed to be converging to a more common universal form across these subsidiaries. These practices are: centralized internal operation control of subsidiaries and similar charity work that is welcomed by the local and national government. The CSR actions of these Chinese subsidiaries are driven mainly by the fulfillment of the requirements of Chinese laws and their economic return and efficiency objectives of Chinese subsidiaries in China. Many interviewees, in particular those who are not responsible for CSR programs, perceived their companies’ programs as superficial public relations, and cannot see how these charity programs improve their morale and their welfare. Their subsidiaries use these programs to develop relationships with the Chinese government and develop social capital to ensure smooth operations. It appears that these well-established MNEs do not handle their CSR issues strategically in China, nor do they establish a set of policies and regulations to implement them. The perception also reflects that the external CSR programs have little impact upon interviewees’ learning and morale. There is no noticeable CSR strategy in these subsidiaries. The development of CSR may be related to the stage of economic development of China and the subsidiaries’ capacity. At the present stage, many subsidiaries focus on human resource management and internal corporate practices as their major responsibility. When these Chinese subsidiaries

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want to maintain legitimacy within both China and home nations, they are supposed to achieve isomorphism with the Chinese and headquarters’ institutional environment (Kostova and Zaheer, 1999; Kostova and Roth, 2002). These Chinese institutional environments include regulatory, cognitive and normative institutions. Since there is weak legal enforcement in China, the cognitive and normative components used by Chinese executives in interpreting the practices of foreign companies in mainland China will have much impact on CSR practices. These Chinese subsidiaries are expected by their respective MNEs and executives to maximize economic return and efficiency. When there is a high need for efficiency and cost competition in the Chinese market, many interviewees expect to have behavioral (i.e. through centralization, articulated procedures, close supervision and behavior appraisal) and output control (i.e. results criteria and performance–rewards link) in human resource management. Their cognitive and normative framework is quite similar to what Jaw and Liu (2004) found in their study of Chinese executives working in Taiwanese subsidiaries in China. These Chinese executives perceive that their subsidiaries are responsible when the staff can follow some standardized operating procedures and still fulfill the targets of certain output. This study shows that Chinese subsidiaries have not yet seen their responsibilities beyond their legal requirements and their immediate stakeholders, and that there is a great gap between headquarters’ attitude and subsidiaries’ attitudes towards CSR. Many MNEs have publicized their progress in CSR or sustainable development in their annual reports in their web pages. However, there is no specific description of their practices in their Chinese subsidiaries. These Chinese subsidiaries still have a long way to go to establish broad relationship management and to influence other competitors in China. All the interviewees reported a high stress level through working in MNEs since they had to follow many organizational procedures while also dealing with many changes in the Chinese operating environment. They indicated that they were operating in a complex macroeconomic, political–legal or social–cultural environment that is very different from that of their parent companies. Many did not know their companies’ CSR strategies and did not perceive any value in knowing them. Interviewees who were not responsible for CSR activities did not expect to receive any CSR training. Many perceived that the difficulties of adopting CSR stemmed from their busy work schedule and the specific Chinese business culture – corruption, intellectual property rights’ violation, cheating and government apathy. The market in China is very price-competitive. It is common for Chinese executives to spend large amounts of money on banquets, including


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drinking, in an effort to make sales. Chinese executives must know how to follow corporate practices and not be tempted to misuse entertainment money or be come involved in any corruption practice. Dealing with intellectual property rights is a very delicate issue. The pricing of many foreign MNEs’ products not only includes the services offered to customers but also the cost of reverse engineering. Foreign MNEs must command their Chinese suppliers to fulfill the intellectual property agreements. Some foreign MNEs would not directly sue small local Chinese enterprises that copied their products because it would cause too much social turmoil. These foreign MNEs would prefer to advocate the issue of infringement of intellectual property rights to the Chinese official organization that is in charge of intellectual property rights. It is very important for foreign MNEs to maintain harmonious relationships with many local small enterprises in the community. Deception is very common in China. Some foreign MNEs appear to pay only lip service to environmental welfare within their CSR programs and are not committed to monitoring the behavior of their suppliers in China. The tensions between the companies’ social compliance auditing programs and their buying behavior in China create many false reports (Harney, 2008: 205). Some companies set up a few ‘five star’ factories to impress auditors while many products are produced in extremely poor environments. Many CSR programs and international codes are criticized as marketing devices to mask the problem of environmental degradation and social justice (Sum and Ngai, 2005; Yu, 2006). Some foreign MNEs’ internal policies only encourage fraud because no one wants to challenge the system. Many Chinese executives are used to embedding themselves in the network of relationships (guan-xi) that prohibit ‘whistle blowing’. Maintaining harmonious relationships with colleagues and external partners is found to be a unique characteristic of organization citizenship behavior in China (Farh et al., 2004). Many interviewees are deeply concerned about the regulations and policies in their corporations but will not vocalize this through the channels created by their corporations because they are afraid of losing their jobs and destroying their harmonious relationships with their colleagues. They are risk-averse and not motivated to experiment with different CSR programs. For example, many members of a company may buy false receipts to claim transportation expenses because the company provides huge transportation allowances and tiny meal allowances. Many companies have to increase their costs of operation and put themselves in a disadvantaged position in a growing competitive market when these companies follow the Chinese labor laws and environmental laws. The Chinese government does not provide adequate tax incentives

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for those companies implementing CSR programs. A few Chinese executives must justify their investment in CSR programs. Foreign MNEs cannot easily find the right NGOs as their partners because the Chinese government has very strict regulations regarding the registration process of NGOs. It is challenging when many interviewees do not: recognize the need for corporate responsibility training, appreciate the values behind their companies’ CSR, relate their quality of life and personal development to their companies’ CSR and know the reasons behind their policies and safety standards. Many interviewees cannot perceive their functional area as that which drives the value of CSR. They seem not to internalize their corporations’ values and do not have a broad-perspective CSR which leads to sustainable development of MNEs in China. When these Chinese employees use the classical view of CSR as their frame of reference, they demand more monetary incentives when they carry out CSR programs. It is very difficult for Chinese employees to develop local CSR programs without some financial rewards.

5.

RECOMMENDATION

The study shows that the key drivers of foreign MNEs, to be corporately responsible in China, are their own companies’ initiatives, accountability to their partners in the global supply chain and the requirements of Chinese laws. Faced with the challenges mentioned in the previous paragraphs, foreign MNEs must know how to develop their Chinese staff to consider and respond to issues beyond the narrow economic, technical and legal requirements of their own firms. Managers at headquarters and Chinese subsidiaries need to know whether it is unfair to ask their Chinese staff members to shoulder more responsibilities when these people pursue economic opportunities in an environment with poor air quality and poor public infrastructure. When there are pervasive corruption practices in China, it seems practical to limit CSR to the fulfillment of corporate practices and the Chinese legal and tax requirements. However, the modern view of CSR, defined as ‘a business maintains its relationship with the broader matrix of society where there are net benefits flowing from socially responsible action in the long run, as well as in the short term’ (Quazi and O’Brian, 2000: 36), is vital to the sustainable development of MNEs. The modern view of CSR needs to be seriously addressed in their Chinese subsidiaries, not just in annual CSR reports. In order to be competitive through sustainable development in China, foreign MNEs must strengthen their internal corporate culture and lobby the Chinese


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government to enforce legal standards that award companies having good CSR programs. Some MNEs already have in practice a set of good codes of conduct that ‘can increase their accountability to developing economics, coordinate the expectations among MNEs and stakeholders and establish norms of conduct for persons in the organizations’ (Hsieh, 2006). These MNEs also have enough resources to develop their Chinese subsidiaries to become more socially responsible and achieve sustainable development. It is important to empower Chinese executives to access information and to know the reasons behind some operation procedures and safety measures. It is important that these Chinese subsidiaries be impartial institutions in which there is reciprocal integrity if MNEs want to achieve sustainable development. Managers at headquarters and subsidiaries need to develop new skills and knowledge to diffuse the concept of social responsibility and sustainable development across different functional areas in their Chinese subsidiaries. Foreign MNEs must take a long-term approach to the socialization process of their Chinese executives in their subsidiaries. MNEs should hire and promote Chinese executives with values and experiences in environmental management or human rights management when ‘MNEs should hire and promote Chinese executives with values and experiences in environmental management or human right management when organization outcomes are said to reflect the values of powerful actors in the organization’ (Hambrick and Mason, 1984). Chinese managers should be good role models and keep reinforcing ethical behaviors and as positive an atmosphere in the work place as possible. When many CSR programs in Chinese subsidiaries are perceived to be implemented by the human resource department, it is important for the department to integrate CSR across corporate functions through aligned incentives and consistent messages derived from their MNEs’ CSR strategies. Employees are encouraged to translate the idea of CSR in business values and their contributions of specific functions to CSR against some CSR checklist (World Business Council for Sustainable Development, 2004). When experts in different functional areas are engaged in the process of finding the benefits of CSR programs to their area, they are motivated to be come involved in local community work and go beyond their narrow scope of corporate responsibility. When the executives at headquarters and Chinese subsidiaries can discuss possible strategies and metrics which can incorporate the voices of many stakeholders, Chinese executives can understand how their careers in their present companies relate to MNEs’ corporate social response strategy and the local social and environmental welfare.

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Many Chinese executives are willing to learn CSR programs if these programs can strengthen their managerial and organization skills, which will increase their competitiveness in the global market economy. It is important to know how to channel their passion for learning into a corporate responsible capacity that ‘can adapt to the social environment by recognizing and responding effectively to the responsibilities inherent in firm–stakeholder relationships’ (Black and Hartel, 2004). Some CSR programs can be framed as a model of managerial training that improves team building and cultural sensitivity. These MNEs must create conditions that encourage personal and organizational integrity in their Chinese subsidiaries. They must examine what these incompatible norms are and how they can work under their universal values and principles. They must examine their problems when they overly rely on system and structure to manage the behavior of Chinese executives. When many middle-level managers are under pressure to meet many short-term goals, they can easily be very cynical about the code of conduct or the modern view of CSR. Senior managers need to develop a code of conduct that can convey values to their employees and be used as a tool to increase the CSR capacity of subsidiaries. These senior managers at MNEs must use the performance appraisal system, which incorporates those values listed in the code of conduct and also keep seeking and responding to feedback from their Chinese executives. They must develop some simple approach to change the attitude of their Chinese executives from the present classical view of CSR to a modern one that can foster sustainable development of MNEs in China. Furthermore, these senior managers at headquarters or subsidiaries must examine their present internal due process in their Chinese subsidiaries and examine how a unilateral level of control violates their organizational integrity. They may set up an employee board or mediator–counselor type of system that can question the appropriateness of policies and the biases in the system that contribute to unethical behavior (Nielsen, 2000). Thus far, MNEs are willing to learn from experimenting with some local CSR programs and listening to the voices of their Chinese subsidiaries; Chinese executives can trust their MNEs. Chinese executives can see their long-term interests linked to their MNEs’ CSR strategies and interests of many stakeholders, including local and Chinese government. It is possible for MNEs and their subsidiaries to address local and world social problems in a strategic way through organizational learning. When the Chinese government promotes a harmonious society and seeks to build a balanced prosperous country, many companies’ CSR initiatives can be valuable in terms of good relationships with the government and the achievement of sustainable development in China. Participating


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in CSR programs or seminars strongly endorsed by the Chinese government can increase organizational reputations and promote a CSR culture among Chinese enterprises. Foreign MNEs can assist the Chinese government by drafting environmental regulations and providing comprehensive corporate data and then sharing their companies’ research on environmental issues. In return, the Chinese government can get credit for issuing enforceable regulations because these regulations can be easily complied with by these foreign MNEs which share corporate data. Consequently, these foreign MNEs can enjoy first-mover advantage by setting up industry regulations. These MNEs can also work with many NGOs and use many tools and resources provided by them to encourage their Chinese executives to be proactive in their CSR approach and learn how to incorporate a modern view of CSR as a model of learning and spiritual growth (Vaill, 1996, 1998). As Chinese subsidiaries gradually develop good corporate responsible capacity, these well-established MNEs could facilitate mobilization by building upon pre-existing social relations with international NGOs and by developing communication networks with various constituents in China. In the process of collaboration among MNEs, their local subsidiaries and international and local NGOs, teams of people from diverse backgrounds and experiences, and networks of organizations with various constituents, can contribute much to the CSR movement and sustainable development of MNEs in China. When these MNEs have developed collaborative relationships with a broad range of stakeholders in China, their subsidiaries can go beyond their narrow focus on short-term economic return and social reporting. The MNEs and their subsidiaries can move toward an organizational response to many stakeholders when they take CSR seriously. They also can work ‘toward a culture of continuous learning, through a commitment to regular, broad-based and systematic stakeholder engagement . . .’ (Faruk, 2004) and increase their own companies’ sustainable development in a complex global market economy. Good, better, best; never let it rest; till the good is better and the better best.

ACKNOWLEDGMENTS The author thanks Dr Peter Vaill, Dr Gerogia Eshelman, Dr Lin Geiger, Dr Martha Cook, Dr John McIntyre, Bert Smith, Gretchen Sudar, Lewis Lam and Alice Lam for their helpful support.

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NOTE 1. OECD (2000), Part V (Environment) provides that ‘Enterprises should, within the framework of laws, regulations and administrative practices in the countries in which they operate and in consideration of relevant international agreements, principles, objectives and standards, take due account of the need to protect the environment, public health and safety and generally to conduct their activities in a manner contributing to the wider goal of sustainable development.’

REFERENCES Arthaud-Day, M.L. (2005), Transnational corporate social responsibility: a tridimensional approach to international CSR research’, Business Ethics Quarterly, 15 (1): 1–22. Asia Monitor Resource Center (2006), retrieved 14 August 2006 from www.amrc. org.hk. Bartlett, C.A. and S. Ghoshal (1987), ‘Managing across borders: new strategic requirements’, Sloan Management Review, 28 (4): 7–17. Black, L.D. and C.E.J. Hartel (2004), ‘The five capabilities of socially responsible companies’, Journal of Public Affairs, 4 (2): 125–44. Business Roundtable (2000), ‘Corporate social responsibility in China: practices by U.S. companies’, White Paper. China Entrepreneurs Survey System (ed.) (2007), Report on Chinese Entrepreneurs’ Growth and Evolution (in Chinese) (2007), China Machine Press. China Finance Economic Company (2006), CSR Report in China, Beijing, China: China Finance Economic Company. Christmann, P. and G. Taylor (2001), ‘Globalization and the environment: determinants of firm self-regulation in China’, Journal of International Business Studies, 32 (3): 439–58. Farh, J.-L., C.-B. Zhong and D.W. Organ (2004), ‘Organizational citizenship behavior in the People’s Republic of China’, Organization Science, 15 (2): 241–53. Farley, J.U., S. Hoenig and J.Z. Yang (2004), ‘Key factors influencing HRM practices of overseas subsidiaries in China’s Transition Economy’, International Journal of Human Resource Management, 15 (4): 688–704. Faruk, A. (2004), ‘Accountability and reporting: new accountabilities, new networks, new leaders; a draft report of the WBCSD’s Accountability and Reporting Project’, Ashbridge, UK: Ashridge Centre for Business and Society, retrieved 24 August 2006 from http://www.wbcsd.org, Hambrick, D.C. and P.A. Mason (2001), ‘Upper echelons: the organization as a reflection of its top managers’, Academy of Management Review, 9 (2): 193–206. Harney, A. (2008), The China Price, New York: Penguin. Hsieh, N.H. (2006), ‘Voluntary code of conduct for multinational corporations: coordinating duties of rescue and justice’, Business Ethics Quarterly, 6 (2): 119–35. Husted, B. and D. Allen (2006), ‘Corporate social responsibility in the multinational enterprise: strategic and institutional approaches’, Academy of International Business Studies, 12: 838–49.


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Jaw, B.S. and W. Liu (2004), ‘Towards an integrative framework of strategic international human resource control: the case of Taiwanese subsidiaries in the People’s Republic of China’, Journal of Human Resource Management, 15 (4): 705–29. Kostova, T. and K. Roth (2002), ‘Adoption of an organizational practice by subsidiaries of multinational corporations: Institutions and relational effects’, Academy of Management Journal, 45 (1): 215–33. Kostova, T. and S. Zaheer (1999), ‘Organizational legitimacy under conditions of complexity: the case of the multinational enterprise’, Academy of Management Review, 24 (1): 64–81. Lam, M.L.L. (2000), Working with Chinese Expatriates in Business Negotiations: Portraits, Issues and Applications, Westport, CT: Quorum Books. Lam, M.L.L. (2004), ‘Hong Kong Chinese executives’ perceptions of United States–Chinese negotiating styles and relationships’, Proceedings of the 38th Academy of Marketing Conference, University of Gloucestershire, Cheltenham, Gloucestershire, UK. McWilliams, A. and D. Siegel (2001), ‘Corporate social responsibility: a theory of the firm perspective’, Academy of Management Review, 26 (1): 117–27. Meyer, K.E. (2004), ‘Perspectives on multinational enterprises in emerging economics’, Journal of International Business Studies, 35 (4): 259–90. Murdoch, H. and D. Gould (2004), Corporate Social Responsibility in China: Mapping the Environment, A study commissioned by the Global Alliance for Communities and Workers, Baltimore, MD: GA Publication Series. Nielsen, R.P. (2000), ‘Do internal due process systems permit adequate political and moral space for ethics, voice, praxis and community?’, Journal of Business Ethics, 24: 1–27. OECD (2000), OECD Guidelines for Multinational Enterprises: 2000 Review, retrieved 15 September 2008, from www.oecd.org. Quazi, A.M. and D. O’Brien (2000), ‘An empirical test of a cross-national model of corporate social responsibility’, Journal of Business Ethics, 25: 33–51. Sum, N.L. and P. Ngai (2005), ‘Globalization and paradoxes of ethical transnational production: code of conduct in a Chinese workplace’, Competition and Change, 9 (2): 181–200. Tateisi, N. (2004), ‘Corporate social responsibility leads to sustainable economic growth in China – observations from the leader of the CBCC Dialogue mission on CSR in the People’s Republic of China’, http://www.keidanren.or.jp/CBCC/ english/report/2004, accessed 8 September 2006. Vaill, P. (1996), Learning as a Way of Being: Strategies for Survival in a World of Permanent White Water, San Francisco, CA: Jossey-Bass. Vaill, P. (1998), Spirited Leading and Learning, San Francisco, CA: Jossey-Bass. Van Tulder, R. and A. van der Zwart (2006), International Business–Society Management, Oxford: Routledge. Walder, A. (1986), Communist Neo-Traditionalism: Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. Welford, R. (2006), ‘New guidelines for Chinese CSR’, CSR Asia Weekly, 2(35), retrieved 4 September 2006 from http://www.csr-asia.com/upload/csrasiaweeklyvol2week35.pdf. Wood, C.H. and A. Kaufman (2007), ‚The communication of corporate social responsibility (CSR) through the supply chain: an SME perspective’, in G.I. Susman (ed.), Small and Medium-Sized Enterprises and the Global

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Economy, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp 140–53. World Business Council for Sustainable Development (2004), ‘Accountability and reporting orbits’, retrieved 24 August 2006 from http://www.wbcsd.org. World Business Council for Sustainable Development (2005), ‘Perspective: corporate responsibility and business success in China’, retrieved 14 August 2006 from http://www.wbcsd.org. Yu, X.M. (2006), ‘Putting corporate codes of conduct regarding labor standards in a global-national–local context: a case study of Reebok’s athletic footwear supplier factory in China’, unpublished dissertation, The Hong Kong University of Science and Technology.

13.

The discourses and practices of corporate social responsibility as a new component of the strategies of multinational companies: an illustration with French multinational companies Pierre Bardelli and Manuela Pastore-Chaverot

INTRODUCTION Sustainable development, an already established concept, is nowadays at the heart of several academic debates in the management sciences (Krupicka and Dreveton, 2005). It is also at the center of the concerns of companies, especially multinationals. These companies, with their power, size and planetary presence, are greatly concerned about their economic, social, cultural and ecological environment. Their activities in turn have significant effects on the ecological environment, society and the economy. In this context, many organizations (particularly non-governmental organizations – NGOs) are asking a right to look at the activities of these companies, which do not fall under state regulations. Ecological accidents, social scandals (as with Nike or Puma) and financial scandals (Enron and Worldcom, for example) have altered the image of the big company, bringing about suspicion and mistrust. The commitment of a company to sustainable development and corporate social responsibility appears to be a means to repair a legitimacy that has been damaged (Salmon, 2005) but also a way to prevent certain risks (financial, events that could harm the image and the reputation of the company, ecological issues). According to Bardelli (2006), in response to this development, the discourses and practices of corporate social responsibility (DP-CSR) 245

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is helping form answers from the companies, especially multinationals, to the pressure of the different social actors involved. The NGOs are demanding from the companies an account of the economic, social and ecologic impacts of their activities. Likewise, the DP-CSR is part of a means to avoid scandals like those of Nike or Enron, which led to heavy commercial and financial consequences. The DP-CSR can also allow the big companies to reduce costs and attract new investors while keeping their present shareholders.1 However, the extent of the CSR issue attests that these explanations are not sufficient. Appearing in a post-Ford economic context of important mutations, the DP-CSR has contributed to the regulation of the capitalist system, enabling, notably, changes in the wage–labor relationship, in a context of a calculated enfeeblement of state control. In this chapter, we test these hypotheses. In order to do so, we have studied the DP-CSR through the annual reports of large French companies quoted in the CAC40 at the Paris Stock Exchange. The content analysis of these reports, done with a sample of ten companies, enables us in particular to check various theoretical hypotheses (the existence of a common approach to the DP-CSR of the various companies and their capacity to regulate the economic system). Our study has also created interest in exploring several new research leads, for instance the specificities of each business sector and cultural influences on the content of the DP-CSR. The CSR theme is, of course, worldwide. It seemed interesting to us, as a first step, to study the answer that was given under this pressure by the French companies in order to demonstrate a possible influence of national culture on the multinationals’ CSR discourses and practices.

1.

DEFINITIONS AND ILLUSTRATION OF A VARIETY OF INTERPRETATIONS OF CSR

It is not easy to present exhaustively the various points of view and definitions of sustainable development and CSR concepts. We have therefore limited our focus. 1.1

The Historic Dimension of the Sustainable Development Concept

Even if classical researchers in economics such as Malthus, Ricardo and Jevons never wrote explicitly about sustainable development, the worries that they expressed were similar. In France, after the Second World War, Perroux (1965) put into words a related concept: harmonized growth.

DP-CSR in the strategies of French MNEs

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The business world has been interested in the concept of sustainable development since the beginning of the twentieth century. The first works date from the work of Clark in 1916, followed by Berle and Means (1932). One of the seminal contributions, Howard Bowen’s Social Responsibilities of the Businessman from 1953 (Carroll, 1999), is considered a major step in the theoretical developments of CSR. Two complementary points of view about sustainable development coexist: the macro-voluntarism approach, which deals with the effect of global practices (particularly state practices) on sustainable development, and the micro-behaviorist approach, which deals with companies’ practices in CSR (Bardelli, 2004). According to some authors, CSR would be the appropriate method for transferring issues of sustainable development into the companies (Krupicka and Dreveton, 2005). Thus CSR is strongly related to the concept of sustainable development and is characterized by ‘the companies’ appropriation of the sustainable development issues’ (Capron and Quairel-Lanoizelée, 2004; 22). 1.2

Anglo-Saxon versus French Practices: Different Cultural Bases

Several authors underline the different points of view between the French and Anglo-Saxon conception of CSR, differences that we would like to study in depth in the future by extending this study to Anglo-Saxon companies. A first gap, a cultural one, involves different conceptions of CSR (Bardelli, 2005a, 2005b) and is found in different management practices. In the Anglo-Saxon world, business and non-business identities are dissociated. This disassociation results in a CSR practice extending outside of the business: sponsorship, patronage and foundations. The European management model integrates the social dimension. In Europe, the historical form illustrating this model is paternalism. A second notorious difference between Anglo-Saxon and French practices results from different meanings of ‘social’ in the expression ‘corporate social responsibility’ or ‘responsabilité sociale de l’entreprise’. This notion has a wider connotation in the Anglo-Saxon than in the French expression. The French have a much more restrictive conception of the ‘social,’ one that deals more with employees, wages and working conditions (Capron and Quairel-Lanoizelée, 2004). There is finally a third difference: in general, Latin countries such as France promote rules and restrictive measures (laws and rules), whereas the Anglo-Saxon world promotes initiatives and voluntarism (recommendations). The cultural differences between those two worlds explain, at least in part, the variety of conceptions that exists regarding this topic.

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In times of globalization and because our research examines multinationals’ responses, it seems essential to investigate these national differences, which are also visible in the literature on several levels. Analyzing French discourses and practices is a first step in this research: verifying if belonging to a French culture creates a common basis in these companies. This first investigation could give us avenues into research into the evolution and understanding of multinationals’ CSR behavior. 1.3

The Three Major Research Directions in CSR

Three major approaches exist in studying CSR (Brabet, 2004): ●

●

●

The contractual interpretations approach, according to which the company is a contracts knot. This approach postulates that regulation is carried out by the market. In the pure tradition of neoclassical economists such as Walras and Pareto, social wellbeing comes from economic performance. The stakeholder approach, which relies on a moral (or ethical) perception of the governance of companies. This approach advocates companies’ voluntarism in CSR. When analyzed, this approach leads to a normative attitude. The company has to worry simultaneously about profitability and growth but also about the environmental and social impacts of its activities and about the stakeholders’ preoccupations (Novethic).2 A ‘light’ version of this approach exists; it bases CSR on voluntarism. We can find this in the ‘Green Book’ promoted by the EU. The scope of the work takes into account the indirect economic and financial consequences of the companies’ activities and of all the stakeholders. The global approach, derived from regulation theory, which considers CSR as bound to deep mechanisms of the capitalist economy (and its institutional or structural forms) and as the expression of the companies’ will to influence the wage–labor relationship. The wage–labor relationship is becoming a major stake for companies. It covers, at the same time, direct and non-direct wages conditions (unemployment, illness, old age), safety at work, workday length. To summarize, it is a whole dimension of set-up costs that were previously managed by the state (Ford-model regulation).

This French theoretical approach offers a very interesting perspective on CSR, enabling a macroeconomic vision in which the actual context, characterized by strong, global competition and a search for competitiveness, takes a prominent place.


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As we noted, it is difficult to find consensus in a definition of sustainable development. This is why a definition ‘by default’ seems to be a clever idea; sustainable development represents ‘one of the answers to the incoherencies of a world which became chaotic’ (Férone et al., 2001). The new international environment is the source of new companies’ practices and of the awareness of the different actors concerned with the problems related to the activities of the international companies. The ‘New World’ (Bardelli, 2004, 2005a, 2005b, 2005c) is characterized by a globalization of the economy, an increasingly competitive intensity and a weakening of the regulatory part of states (nations-states). The companies’ regulation stands in place of state regulation. In this context, the involvement of the companies in CSR reveals that a new way of economic and social regulation is emerging. This involvement sets up a means to answer the new competitive constraints, providing a way to perform in this new economic environment.

2.

THE ANNUAL REPORTS: A TOOL FOR THE INSTITUTIONAL COMMUNICATION OF COMPANIES CONCERNING THE DP-CSR

The study of annual reports, based on a rigorous method, permits us to test some theoretical hypotheses, in particular: ●

●

●

2.1

The existence of a common approach or common basis to the discourses and practices of apparently disparate companies, possibly attesting that there are some ‘objective’ and mechanistic constraints imposed by the market economy on the firms’ behavior, particularly the influence of the national culture. The existence of business sector specificities illustrating significant differences between competitive conditions in the various sectors and showing the effects of the nature of the activity on social and especially environmental practices. The existence of a focus of the big companies on the employment relationship. The goal for big companies is to manage it directly, as part of a long-term strategy. Reporting: Legal Foundations and Informative Content

2.1.1 Reporting: from obligation to practice We note that there is no theoretical foundation to reporting, but there are legal (for instance, the New Economic Regulations law in France) or

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strategic foundations. Indeed, the publication of annual reports by the quoted companies corresponds to an information obligation. Generally, companies do not merely present the annual accounts approved by the board of directors. Rather, they use the annual report as a medium of corporate communication, in order to convey a positive and dynamic image and, in particular, to seduce investors, inform consumers and send strong signals to the various ‘stakeholders’ involved in the issues particular to multinational companies (respect for human rights, respect for the environment). In France, the law concerning the New Economic Regulations, called the NER law, comes from a desire to supervise the approaches to CSR. Since May 2001, the 900 companies quoted have had to account for how they manage the social and environmental consequences of their activities. The information that is required is detailed in the application decree. This law aims to supervise the diffusion of information concerning CSR and reduce the gap between American and French companies, inciting the latter to produce more reports concerning sustainable development (Igalens, 2004). This law has led to an increase of the companies’ discourses on their involvement in CSR, inciting them to indicate how they take into account these aspects on a daily basis (Igalens and Joras, 2002). This law has been criticized on different grounds: it relies on declaration and no sanctions are planned in cases of nonconformity. This certainly explains the fact that almost half of the 900 companies did not publish anything (Igalens, 2004). Some consultants and auditors note that the companies did not satisfy the demands of the application decree of Article 116 from the law relative to the New Economic Regulations (Igalens, 2004). Furthermore, the available information remains heterogeneous from one report to another. ‘Lots of managers chose to obey the spirit of the law instead of the letter’ (Igalens, 2004, p.2). Even if the annual report represents the identity card of the company or an instrument for public relations (O’Donovan, 2002), some interpret it as an attempt by the managers to manipulate their image (Suchman, 1995) and present the company in an attractive way (O’Donovan, 2002). Some authors justify this practice by constructing a ‘legitimacy theory’. According to them, organizations must react inside the limits of the ‘politically correct’ or the ‘socially acceptable’ (Frost and Wilmshurst, 2000; O’Donovan, 2002). The process of publishing environmental and social information enables the company to ‘interpret its own activities and to justify their impacts on the social and political environment’ (Garric et al., 2005: 10) and also to ‘construct its own reality, to redefine its image’ (ibid.). It seems that it is more a justificatory than an explanatory theory. We refute this position because the scientific content analysis method


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that we suggest aims mainly at extracting the objective substance3 of the reports and has no justifying mission. 2.1.2

The information contained in annual reports – some precautions to take The French NER law has launched the debate and incited companies to publish more information regarding their CSR and sustainable development actions. From now on, we shall have at our disposal rich material concerning the quoted companies, for which the annual report is becoming the favorite medium to communicate about the DP-CSR. The processing of this information from the big French companies allows us to test various theoretical hypotheses. The annual report of the company has become ‘the favorite investigation medium to analyze the content and the springs of the managerial discourse’ (Attarça and Jacquot, 2005: 9). Moreover, researchers are using these annual reports more and more to study in depth the companies’ DP-CSR.4 However, the evaluation of these companies’ involvement in CSR remains difficult. Indeed the companies frequently mix corporate communication and responsible involvement, making the whole confused and not very homogeneous (Capron and Quairel-Lanoizelée, 2004). Thus ‘the practices of publishing environmental and social reports are more relevant to communication actions than to contributions for the real consequences of the companies’ activities” (ibid.: 189). Nevertheless, content analysis seems to be an appropriate adapted methodology, capable of answering our questions. 2.2

The Suggested Method: Content Analysis

Content analysis permits us to fully explore the wealth of information contained in the annual reports. The content of these reports is an exhibited, intentional and deliberate discourse. The study of the reports by a quantitative and qualitative content analysis reveals precious information about the CSR involvement of these companies. We agree with the idea that ‘Words and sentences convey more than the immediate meaning that we give them. They include a deeper communication of which the actor is unconscious’ (Wacheux, 1996: 236). We also share the principle of content analysis, according to which ‘the repetition of discourse’s unities of analysis (. . .) reveals the preoccupation, the interests of its author’ (Thiétart, 1999: 450). As some researchers testify (Attarça and Jacquot, 2005; Garric et al., 2005), content analysis is a relevant method for studying deeply the DP-CSR and enhancing our understanding. We chose to test our hypotheses of the explanatory factors of the strategic choices in CSR on a sample of ten companies belonging to the CAC40.

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This sample, even if limited, offers a panoramic and synthetic vision of the DP-CSR diffused in the reports. From this and from trying to use the rich possibilities of content analysis at its best, we explore the annual reports of these companies and demonstrate various positions taken as far as CSR is concerned, as well as more general trends. Finally, we infer some potential explanatory factors of the choices made by these companies about CSR. This study helps us to understand more easily the stakes of the DP-CSR for these big companies and opens up interesting research leads for the future, where we will integrate the comparison with other multinational firms.

3.

THE IMPLEMENTATION OF THE ANALYSIS: PROMISING RESULTS

3.1

The Link between Global Strategy and CSR Strategy

We suggest studying the link between global strategy and CSR strategy using a qualitative analysis, which examines the appearance of terms related to sustainable development and the context surrounding the use of those terms in the annual reports. Moreover, a quantitative analysis was made through a theme dictionary, which groups together all the dimensions that could be joined to the CSR. This dictionary plays the role of a filter for the material studied, the annual reports, and reveals the density and the orientation of the responsible involvement of companies. The qualitative part allows us to study the elements in context, whereas the quantitative part appeals to a lexicometric content analysis that enables us to highlight the main characteristics and the diversities of the discourses simultaneously, thanks to the frequency of appearance. The content analysis was conducted in five stages: 1. 2. 3. 4. 5.

The pre-analysis, i.e. to say the delimitation of the material, preparation of the texts the analysis and first reading of the texts. The categorization, which consists in defining a universe of reference for the discourse and selecting the units of analysis. The encryption and counting. The enhancement of the links, cause-and-effect relations, psychological and sociological references. The interpretation.

In light of the extensive concept of CSR, we choose to be as exhaustive as possible, to take into account the different visions held by companies, visions that are shaped by the strategy developed in the annual reports.


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The quantitative indicators (frequencies and relative frequencies) and qualitative indicators reveal the companies’ stance on various issues (working conditions, social issues, environmental issues). Several strategies appear, so we suggest establishing a typology to aid us in our study of these many strategies. Our typology integrates the CSR strategies displayed in the annual reports, in harmony with the existing typologies about CSR strategies. For instance, typologies of CSR reactions and strategies are presented in various works or papers (Chauveau and Rosé, 2003; Capron and Quairel-Lanoizelée, 2004; Alberola and Richez-Battesti, 2005). We find three main levels: the proactive companies, the adapting companies and the companies in a phase of partial integration. ●

The proactive companies, Danone and Véolia in our sample, put sustainable development and CSR in the heart of their vision of the company. The company stance on CSR is quantifiable. This stance transverses the different topics approached in the report. Companies convey a large vision of CSR. Indeed, they do not limit themselves to the aspects directly connected to their activities but cover all the dimensions of the concept. The integration of these preoccupations in their global strategy seems to be easier thanks to a ‘cultural predisposition’ due in particular to the business sector (food for Danone, environment for Véolia). Danone and Véolia so strongly promote their responsible involvement that they make it their main competitive advantage. For these firms, the attachment to responsibility is a part of the company identity and managing model.

Danone: ‘First of all there is a prevalent focus in this company’s history that we call the double economic and social project which deeply influences reaction and behaviors. I have the conviction that this culture is a part of the competitive assets of DANONE’ (Franck Riboud, CSR Report, 2004). Véolia Environnement: ‘SUSTAINABLE DEVELOPMENT: Véolia Environnement wants to carry on taking part actively in the implementation of an involved society in the process of sustainable development’ (Report, 2004). ●

The adapting companies in this group are LVMH, Renault, PSA and Saint-Gobain. The preoccupations of these companies include the environment and all social aspects linked to their main activities. In this way and by their initiatives, they transform the inherent

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threats into assets. We can say that these companies are involved in promoting sustainable development and CSR, even if all reports do not always have a ‘responsible involvement’ tone. LVMH: ‘The preservation of the environment is an implicit message in the luxury concept. The taking into account of the environment in the creation of the products of our Group remains a strong expectation, even if a majority of the consumers don’t express it in precise terms’ (Report, 2004, LVMH). Renault: Renault is convinced that CSR is a long-term factor of success in all its establishments all around the world. In this spirit, Louis Schweitzer, chairman and president of the Renault group, Marcello Mallentacchi . . ., the Renault group committee (RGC) and the signatory trade union organizations of the agreement of 4 April 2003 with the RGC . . ., signed on 12 October 2004 the statement on the fundamental social rights of the Renault group . . . By this statement, Renault committed to ‘respect and make progress all around the world for the women and men working in the company, promote a spirit of freedom, insure the transparency of information, promote equity and conform to the rules fixed by the Renault professional ethics Code’ (Report, 2004, Renault). ●

The companies in the phase of partial integration are Arcelor, Bouygues, Thomson and Thalès. Their preoccupations, sustainable development and CSR, are focused on some particular aspect, such as governance or stakeholders. The environmental aspects and social aspects are less prevalent. The involvement is much more selective, permitting a focus of the approach on the main domains of their strategies.

Thomson: ‘In year 2004, the Group conducted, considering all its operations, 40 internal audits and several projects involving management which covered the essential aspects related to operational, financial and regulation conformity risks. Results are regularly checked by the Risks Committee and by the Audit Committee of the Board of Directors’ (Report, 2004, Thomson). Arcelor: ‘With a target of greater positioning, differentiation and competitiveness, our Group is now completely involved in sustainable development. In accordance with its values, Arcelor targets excellence in the safety domain. With everybody’s effort, we could reduce significantly the frequency and the gravity of industrial accidents. Zero accident[s] remains


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our ambition. . . . Finally, in alignment with our approach aiming at optimizing the transparency and quality of the information published as far as governance is concerned, we created on our website a heading devoted to this topic which usefully completes the governance report and the internal control included in this annual report’ (Report 2004, Arcelor). Even if it is from a study of French companies, this typology, in agreement with the research on this direction in the literature, certainly can be adapted to other companies from other regions of the world. It allows one to distinguish three levels of implication of the company’s CSR response to this ‘pressure’. The study of the CSR discourses and practices offers the opportunity to classify companies according to their commitment level and thus characterize, in a more concrete way, the integration of the CSR strategy in the global strategy. 3.2

The Common Basis of the DP-CSR

Trends that are more general also take shape in the DP-CSR published in the annual reports of the sample. We find them in the different companies, so that we can speak about a ‘common basis’ as far as CSR conception is concerned. We notice that three dimensions in the DP-CSR are recurrent: ●

● ●

The favored status of the traditional, contractual ones and matched stakeholders with a lesser trend to include also the non-contractual stakeholders. The governance dimension, which is focused only on precise aspects such as auditing. The narrow interpretation of the social dimension. It is, from a distance, the more significant general trend. It corresponds to a French vision of the social dimension, which seems to have a more strict meaning than the Anglo-Saxon vision.

These trends, shared by the ten companies of our sample, cause us to think that they share a conception of CSR. However, these companies still give shape to their discourses in different ways, with different strategic implications, adopting one of the three positions: proactive, adapting and partial integration. These choices are certainly related not only to the business sector the company is in, the company culture or the business sector culture and the nature of the product made, but also to the personality of the chairman. These are hypotheses that we will try to test in a later study, based on a larger sample.

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Multinational enterprises and sustainable development Overdetermination: global process of regulation (macroregulation historically determined)

Influence of potential factors: • Business sector • Nature of the product made

CSR strategies adopted

Figure 13.1

Common basis of CSR conception: (General trends particularly related to European culture, even French culture):

Proactive

Adapting strategy

Partial integration

Local regulation process (microregulations)

Theoretical and empirical results

Figure 13.1 represents the results of our study, theoretical and empirical. 3.3

A Difficult Interpretation

3.3.1 Some ambiguities to be removed Certain trends that emerge from our study seem to contradict the hypothesis of a gap between the Anglo-Saxon and French conception. The Anglo-Saxon point of view involves voluntary and auto-regulated actions, whereas the European point of view is framed by law and subject to sanction. It is true that the EU promotes a device fund on voluntarism to set an example as far as CSR is concerned, just as the EU plebiscite mandates soft law instruments (good behavior charter, ethics codes). This trend does not conform to the French legal culture based on written law.5 Nevertheless, this situation does not invalidate our initial hypothesis. For companies, the DP-CSR has a regulatory role: it aims at influencing the nature and the content of the employment relation. The choice made by the companies that we studied, involving voluntary action in CSR, illustrates the substitution effect that we have already described. The companies seem to take over from the state, as far as the employment relation is concerned. The choice of a volunteer action makes them free to change the wage–labor relationship in a completely volatile world context. That is how the conjunction between the macroeconomic mechanism from postFord regulation and the strategies of these companies (micro-regularities) is made.


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Even if some characteristics, common to each of the ten companies, seem to attest to a gap between the French and Anglo-Saxon CSR vision, some mechanisms and reactions from institutions or French or European companies make a more Anglo-Saxon conception more apparent in Europe. Pursuing this study with a longer-lasting perspective, with the integration of more European and Anglo-Saxon companies, will certainly permit us to expand this point. It seems that the dominant conception will be able to influence the CSR reactions and their integration in the company strategy. 3.3.2 The explanatory factors of the choices in CSR The study shows finally that the factors introduced at the beginning have a real explanatory potential as far as CSR is concerned. First are factors that explain the companies’ support of a common basis in terms of CSR. These trends are related to national culture (or European culture), which dictates the understanding and the perception of CSR (Capron and QuairelLanoizelée, 2004) but also is linked to the managing model (Bardelli, 2005a, 2005b, 2005c). We can suppose that companies integrate and communicate about CSR and sustainable development dimensions that best correspond to their strategic stakes. These stakes are internal (human resources, process effectiveness) as well as external (emergence of new markets, customers’ expectations) (Alberola and Richez-Battesti, 2005). The choice that companies make, in terms of involvement and communication in CSR, is a strategic choice. We suppose that factors that influence this choice are the business sector, the nature of the product made, company culture, company history, the first historic activity and the chairman’s personality. Several of these hypotheses have still to be tested. Even though our study is based on only ten companies from the Paris Stock Exchange, we are developing not just a French perspective but also a wider one, since CSR is an international question. This study must therefore be seen more as a first step in a longer research process about understanding the CSR discourses and practices of the big companies, and particularly the concrete, strategic and operational integration of this responsibility in the decisions of the firm.

CONCLUSION The analysis of the DP-CSR, in terms of regulation, gives a promising point of view on CSR. In this sense, this approach permits us, on the

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one hand, to make the connection between the companies’ strategies (the micro-point of view) and the determinants of the productive system (the macro-point of view), and, on the other hand, it allows one to apply the conclusions about the factors of development of the DP-CSR to global reasoning about determining the conditions of economic model regulation. This articulation is supported by the analysis of the wage–labor relationship transformation. This articulation also sets up the foundation on which the economic model is based. The circumstances of the evolution of this pattern are the conditions of the whole model. We can consider that the DP-CSR is an element of micro-regulation aimed at influencing the wage–labor relationship, permitting the big firms to adapt themselves to the New World (characterized by trade internationalization, the race to competitiveness, the weakening of state constraints). However, our empirical analysis confirms also that the practices of the companies concerned are not homogeneous (differences exist as far as degree of involvement and involvement content are concerned). This lack of homogeneity reveals the proper dynamic of this new strategic involvement model of the firms, since it introduces new components into the competition between firms (Bardelli, 2004). It should be noted that nothing attests that the observed practices will converge. Indeed, if no new post-Ford compromise between the partners (employers and employees) is made and no stabilizing tools are constructed, the model will remain volatile. A continuation of this study over a longer time period and with a panel will certainly permit us to deepen the tracks revealed, particularly the factors influencing the CSR discourses and practices, and the strategy adopted. This aspect seems essential to us, even if we have based our study on discourses. The integration of the CSR into the heart of the decisions of the firm, of the management and of the global strategy seems to be indispensable for a durable CSR that is not just a vision. On this point, this study revealed a variety of commitments in quantitative and qualitative terms; the evolution of CSR discourses and practices in the future, in correlation with different pressures, including competitive pressures and stakeholder pressures, will permit us to increase our understanding of the CSR phenomenon.

NOTES 1. Formally, the DP-CSR takes an increasingly prominent place in the corporate communication media. 2. Novethic is a research center on CSR and on responsible investment (www.novethic.fr).


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3. We mean by this that which is intentional from the companies but not necessarily explicit. 4. Recently, several authors have chosen to study involvement in CSR through annual reports (Attarça and Jacquot, 2005; Garric et al., 2005; Igalens, 2004). 5. It seems that the EU chose the American model, known for its aversion to laws relating to industrial relations, considered as a static intrusion in the free enterprise.

REFERENCES Alberola, E. and N. Richez-Battesti (2005), ‘De la Responsabilité Sociale des Entreprises: évaluation du degré d’engagement et d’intégration stratégique, quelle évolution pour les entreprises du CAC 40 entre 2001 et 2003’, paper presented at the meeting of the GREFIGE, Nancy. Attarça, M. and T. Jacquot (2005), ‘La représentation de la Responsabilité Sociale des Entreprises: une confrontation entre les approches théoriques et les visions managériales’, paper presented at the Journée Développement Durable de l’AIMS, Aix en Provence. Bardelli, P. (2004), ‘Les fondements culturels du concept de Développement Durable: la convergence est-elle possible?’, paper presented at the meeting 22ème Université d’été, IAS, Luxembourg. Bardelli, P. (2005a), ‘Nouveau Monde et Responsabilité de l’Entreprise’, paper presented at the meeting of the Association Internationale de recherche sur le travail et l’organisation (AIRTO), Québec. Bardelli, P. (2005b), ‘Nouveau Monde, nouvelle régulation sociale – démystifier la Responsabilité Sociale des Entreprises’, Management et Avenir, no. 6, October. Bardelli, P. (2005c), ‘La pertinence du concept de régulation dans l’explication des discours et pratiques de Responsabilité Sociale de l’Entreprise’, presented at the GREFIGE-CEREMO, Metz. Bardelli, P. (2006), ‘La Responsabilité Sociale de l’Entreprise: argument de régulation post-fordienne et/ou support de micro-régularités’, Working paper of Chaire de Développement Durable de l’Université du Québec à Montréal, no. 1. Berle, A. and G. Means (1932), The Modern Corporation and Private Property, New York: Harcourt, Brace and World. Brabet, J. (2004), ‘Responsabilité sociale et gouvernance de l’entreprise’, in J. Igalens (ed.), Tous responsables, Paris: Organisation. Capron, M. and F. Quairel-Lanoizelée (2004), Mythes et réalités de l’entreprise responsable, Paris: La Découverte. Carroll, A.B. (1999), ‘Corporate social responsibility’, Business and Society, 38 (3): 268–95. Chauveau, A. and J.-J. Rosé (2003), L’entreprise responsable, Paris: Organisation. Clark, J.M. (1916), ‘The changing basis of economic responsibility’, Journal of Political Economy, 24 (3): 209–29. Férone, G., C.H. D’Arcimoles, P. Bello and N. Sassenou (2001), Le développement durable, Paris: Organisation. Frost, G. and T. Wilmshurst (2000), ‘Corporate social reporting: a test of legitimacy theory’, Accounting, Auditing and Accountability Journal, 13 (1): 10–26. Garric, N., I. Léglise and S. Point (2005), ‘Le rapport sociétal et environnemental de Total à l’épreuve de l’analyse de discours’, paper presented at the meeting of the GREFIGE, Nancy.

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Germain, P.L. (2007), ‘Les fonds socialement responsables poursuivent leur croissance en 2006’, Le Journal des Management. Igalens, J. (2004), ‘Comment évaluer les rapports de Développement Durable: vers une convergence européenne’, Revue Française de Gestion, 30, 152. Igalens, J. and M. Joras (2002), La responsabilité sociale de l’entreprise. Comprendre, rédiger le rapport annuel, Paris: Organisation. Krupicka, A. and B. Dreveton (2005), ‘Le Développement Durable: une problématique de gestion’, paper presented at the meeting XIVème conférence internationale de management stratégique, Angers. O’Donovan, G. (2002), ‘Environmental disclosures in the annual report: extending the applicability and predictive power of legitimacy theory’, Accounting, Auditing and Accountability Journal, 15 (3): 344–71. Perroux, F. (1965), Les techniques quantitatives de planification, Paris: PUF. Salmon, A. (2005), ‘Responsabilité des entreprises: un levier de l’exigence démocratique’, Le Monde Economie, 25 December. Suchman, M. (1995), ‘Managing legitimacy: strategic and institutional approaches’, Academy of Management Review, 20 (3): 571–610. Thiétart, R.-A. (1999), Méthodes de recherche en management, Paris: Dunod. Wacheux, F. (1996), Méthodes qualitatives et recherche en gestion, Paris: Economica.

14.

International supply chain management: lever for sustainable development? An analysis of discourses and applications Yvette Masson-Franzil

Redefined in 1987 by the WCED (1987), sustainable development (SD) ‘meets the needs for the present without compromising the ability for the future generations to meet their own needs’. Achieving sustainable development requires the often difficult task of striking a balance across three major dimensions: environmental, economic and social, often called ‘the triple bottom line’ (Ficksel, 1996). The environmental dimension has received more attention recently (Skjoett-Larsen, 2000) and people say that their most commonly perceived enemies are manufacturing and production operations (Ficksel, 1996). This awakening has necessitated a change in manufacturing philosophy (Beamon, 1999), and multinational companies have integrated sustainable development into their general strategies and given environmental accounts as an appendix to their annual reports. Sustainable development is very important to logistics because this sector may be particularly environmentally damaging (Welford, 2003). Over the past decade, a time period dominated both by a need to maintain the cost efficiency of logistic activities (Masson-Franzil, 2005) and by a need to make changes with agility (Huang et al., 2005), firms sought to take on these economic challenges using supply chain management (SCM). SCM is the subject of many academic works (e.g. Gardner and Cooper, 2003). As the term is presently defined, SCM covers multiple inter-firm functions and processes, and aims to generate an integrated approach to increasing value for shareholders (Mentzer et al., 2001). According to Woods (2003: 21), many aspects of SCM (e.g. improved logistics, shared information systems, product quality and integrity throughout the chain) contribute to the operational effectiveness of a chain. Therefore operational effectiveness is necessary but not sufficient for improving business performance. The environmental and sustainable dimensions of SCM also seems important to reaching this objective 261

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(Gbedemah, 2004). Therefore there is a need to look for a new sustainable supply chain management approach (SSCM). Consequently, it appears important to ponder this question: can (international) SCM contribute to current goals and requirements for sustainable development? Little attention has been devoted to these new questions (Trienekens et al., 2003) and, in response to more stringent environmental regulations and changes in industrial management philosophies, the goal of this chapter is to improve our understanding of how SCM contributes to sustainable development. Is SSCM a good opportunity for a company that adopts it? Are there limits to its effectiveness and what are these limits? In order to answer these questions, this chapter first revisits the concepts of SCM and SSCM and examines them in the framework of two currents concerned with the theory of organizations: network and economic approaches. Next, the main strategies of sustainable development are identified and their impacts and limits on the positioning of the supply chain are underscored. This synthesis constitutes a relevant source of lessons for managers. In addition to these analytical investigations, this chapter illustrates and discusses the results of practices implemented by two big multinational companies. A methodology based on an analysis of annual reports published by the studied companies is adopted. The chapter concludes with final comments and presents several tracks for future research.

1.

STATE OF THE ART

1.1

Supply Chain Management Redefined: from the Traditional Version (SCM) to the Concept of Sustainable Supply Chain Management (SSCM)

Supply chain management (SCM) is a recently developed managerial approach that, since the beginning of the 1990s, unquestionably constitutes one of the most fashionable and studied logistic strategies (e.g. Scott and Westbrook, 1991; Lee and Billington, 1993; Arntzen et al. 1995; Beamon, 1996; Bowersox, 1997; Larson and Halldorson, 2002). In order to address confusion regarding this subject, we make our position clear. SCM relates to the management of a supply chain that is either product-oriented or company-centered. When the supply chain is company-oriented, all the relevant chains, including that of the given company, of the suppliers, of the customers and sometimes even that of the suppliers’ suppliers, can be considered. A supply chain can therefore be broken down into many

International supply chain management: an analysis

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levels, with each level generating additional complexity of management. Thus, in agreement with Premkumar (2000), a level 2 chain is already very complex. In this chapter, we focus on the ‘company’ approach. SCM can generally be interpreted in three ways (Mentzer et al., 2001): 1.

2. 3.

It can be a management philosophy (a systemic approach to SCM or a strategic orientation gathering the actors to achieve the best performance or to meet the consumer/customer’s expectations). It can also be interpreted as the application of a chosen management philosophy. It can be seen as a body of processes for managing relational, informational and product flows between two or several companies in order to provide added value to the customer through the synchronized management of these different flows.

Most definitions (e.g. Christopher, 1998; Premkumar, 2000; Stock and Lambert, 2001; Mentzer et al., 2001; Bixby et al., 2004 etc.) are focused on the third viewpoint, and this is also our position. Beyond the definitions, it is interesting to note that the concept is not really stable. The integration of the large concept of sustainable development brings an additional degree of complexity (Beamon, 1999) and leads to epistemological, theoretical, strategic and organizational reconsiderations. We note with Skjoett-Larsen (2000) that, beyond the speeches and other best practices for successful SCM implementation that proliferate, few companies, with the exception of multinationals, practice SCM as it is defined in the literature. 1.1.1 SSCM Sustainable development is growing increasingly important both in the political and social landscapes and in the industrial field (Preschey, 2005). When the three (four1) dimensions (economic, social and environmental) of sustainable development are taken into account, the concept of SCM widens to that of sustainable supply chain management (SSCM). This concept, which according to Schmidt (2005) is not yet very widespread even in big organizations, integrates the dimensions of sustainable development into the internal and external management of the supply chain. The first steps of the SSCM concept are the same as those of the extended supply chain as proposed in the works of Beamon (1999). This type of supply chain includes recycling, reusing and reprocessing products and packaging (Beamon, 1999). These additional activities and long-term objectives, which come within the scope of SD, further complicate SCM (by requiring the mastery of additional inverse flows, by increasing the

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number of actors working toward the objectives of the different parties, by necessitating structural strategic modifications, etc.). In a recent study on inverse logistics of electrical and electronic waste, Monnet (2005: 55) puts forward the difficulties met in SCM in incorporating the expected results in the triple bottom line. Simultaneously, the literature is also interested in increasing value for the parties involved and the competitive advantage that arises when companies adhere to the principles of SD (Lee and Amaral, 2002; Welford, 2003). All the functions become potential ways for sustainable development. Paradoxically, if SCM is complex, this complexity unquestionably offers beneficial opportunities for companies that undertake such a sustainable development strategy. 1.2

Theoretical Foundations

When considering the distribution channels from an economic perspective, it is important to seek the seminal fundamentals of this concept. Logistics was introduced into the analysis of the distribution channel when Bowersox and Morash (1989) distinguished two distinct dimensions in close interaction in this channel: transactional and logistic (Paché, 2000). From a marketing perspective, which limits this analysis to the functional aspect of the channels and ignores the consumer, this concept was enriched by Bucklin (1966). Through the model of ‘Shift and Speculation’ (Bucklin, 1965), heterogeneous expectations of all the categories of actors (producers, distributors, consumers) were taken into account. The economic and behavioral analyses were further developed in an integrating model, the political paradigm of economy (Stern and Reve, 1980). Then, the strategic dimension, founded on the model of Porter (1982), incorporated the company strategies for influencing the channel configurations. The current research is still trying to construct a more complicated model that deviates from the producer–consumer dyad to incorporate contextual evolutions such as (and the list is not exhaustive) the rise of information technology, the emergence of new forms of companies (e.g. company networks), outsourcing policies, etc. Finally, the paradigms that can explain the multiple facets of the supply chain are numerous. We shall adopt the two main approaches briefly summarized below. 1.2.1 Network theory The theory of social networks is a recent approach (Coleman, 1990; Burt, 1997), the principles of which may be found in works on cooperation between companies. Richardson (1972) made the major developments in this area. ‘He was well ahead of his time, when he gave substance to the


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idea that even the cooperation between competitors is likely to stimulate competition’2 (Teece, 1992). From the 1980s, indeed, following the emergence of new organizational forms based on the logic of cooperation, corporate networks became a dominant research theme in strategic management. Where is the concept of SCM in these approaches? The supply chain has a reticular nature (Mariotti, 1999: 72). Its management is linked to flows of products and associated information and it is based on interorganizational and inter-individual relations. It is prompted by collaborative logic that is not purely economic but that also utilizes the notions of power, confidence (Uzzi, 1997) and social capital. SCM is established in order to carry out a joint task, namely the more or less complex management of the multilevel activities of a logistic chain. In the long run, it can lead to relational revenue for the parties due to the combined incremental effects of knowledge acquisition (De Bandt, 1996). To some extent, it is a non-formalized market, based on the win-win principle, a subtle ‘cost– benefit’ balance (Paché, 2000). 1.2.2 Economic approach The neo-institutional current of transaction costs economics (TCE) was also concerned with the cooperative logic of networks. According to Williamson (1991), cooperation between companies would make it possible to minimize the costs of transaction since this system appears to be a hybrid organizational form between the market and the hierarchy. This form of management would be advantageous for transaction costs because the introduction of relationships based on cooperative confidence would reduce information asymmetries and opportunism among the parties. With this logic, indeed, SCM would be a powerful mode of coordination for the companies that would adopt it (Premkumar, 2000). The transaction costs (and in particular the costs of coordination3) would be reduced because of a reduction in informational uncertainty due in particular to the widespread use of inter-organizational systems, specifically electronic data interchange technology (Premkumar, 2000). According to Bucklin (1966), companies may find it beneficial to establish processes favoring confidence in an anonymous business environment in their organizations and in particular in their SCM. Building up relations of confidence becomes one of the core competencies4 of the company. Finally, from a theoretical point of view, this brief and certainly incomplete inventory5 leads us to conclude that the theories of organization are unable to entirely explain the concept of SCM (and furthermore that of SSCM, where a civic dimension is added to an already extremely encumbered concept!), even though certain authors hoped that it would ‘conceptually bridge the gap between upstream and downstream logistics’ (Paché and

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Colin, 2000). This incompleteness is partly due to the extremely transversal character of the function and the multitude of actors along the chain.

2.

SCM OPPORTUNITIES FOR SUSTAINABLE DEVELOPMENT

Would SCM be a precursor to integrating the concept of sustainable development? To try to answer this question, we shall look into the developments that follow the general concept of sustainable development. From the abundant literature, which is often interested in only one logistic policy for integrating sustainable development, or which looks at only the environmental aspects of sustainable development while neglecting social responsibility, we list the possible dimensions for sustainable development and their strategies throughout the supply chain. These are the environment and ethics axis and the CSR (corporate social responsibility) axis. In agreement with Welford (2003), both dimensions contribute to the goal of sustainable development and become new business opportunities. Looking at one without the other, like considering only one part of the chain while being unaware of the whole, would be merely a superficial approach and would eliminate advantageous long- and medium-term effects (Beamon, 1999). 2.1

Sustainable Development

The main (and ambitious) idea of sustainable development, as an international concept that has been widely adopted by companies, is to reconcile global economic development with a harmonious social evolution while safeguarding environmental resources. This philosophical overall goal involves several fundamental concepts: ●

●

Holistic point of view: any entity in a system is simultaneously a whole entity comprising sub-entities and a sub-entity portion of one or more super-entities. Thus, concerning sustainable development, this idea implies the recognition that our use of technology has an impact on the environment. Tackling complex problems from a holistic point of view makes it possible to recognize the interconnection of the elements and to act accordingly, Ecology: the adoption of a holistic view of ecology, a component of the durability dimension of sustainable development, thus enables a link between ethical, cultural, societal, economic and environmental issues. There is an ecological dimension in the concept of SCM since


●

2.2

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eco-design or SPSD (sustainable products and service development, a wider version including services), defines itself as ‘the process of making products or services in a more sustainable way throughout their entire lifecycle, from conception to end of life’ (Maxwell and van der Vorst, 2003: 884). This requires a strategic approach that relates to all the levels of the company, a long-term vision, multidisciplinary competencies (Dewberry, 1995) relating both to the logistic function and to internal and external SCM dynamics. Freedoms and human rights: these are the core of sustainable development, which in turn supports the four pillars of sustainable development: environment, economics, society and culture. Two Axes of Strategies for Sustainable Supply Chain Management

2.2.1 Environment axis In this dimension, Brunel (2004: 75) integrates: ‘biodiversity (protection and threats with in particular the primary issues of forests and GMO), water, renewable natural resources, exhaustion of fossil resources, wastes, global warming and greenhouse effect, continental water pollutions’. Concerning the related management, we have adopted the definition of ISO 14001 (ISO, 1996): ‘that part of the overall management system which includes the organizational structure, planning activities, responsibilities, practices, procedures, processes and resources for developing, implementing, achieving, reviewing and maintaining the environmental policy’. Table 14.1 presents the main strategies of sustainable development oriented towards the environment and underlines both their impact on the positioning of the supply chain and their limits. 2.2.2 CSR axis Although environmental actions are more popular in the field of logistics because of ‘its cross-functional and integrative nature’ (Wu and Dunn, 1995), SCM also contains niches of support for the principles of sustainable development within the framework of social responsibility. In addition, to confine oneself to internal actions toward the goal of sustainable development and to forget the external dimensions (space and time) of the supply chain would likely call into question all of the authorized efforts (Welford, 2003). Indeed, if at the beginning of the chain, certain suppliers do not consider the external dimension, the whole chain suffers because of it (ORSE, 2004). The content of the CSR is not approved unanimously among researchers (Gendron, 2000). According to Woods (2003), the societal and organizational implications of this responsibility are sometimes contradictory.

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Table 14.1 Main strategies of sustainable development (environment axis) SD progress axes

Activities concerned

Single or parallel strategies

Opportunities

Reduction:

Physical logistics activities in particular: transport, storage

Substitution: Alternatives: river or rail transport, fuel and other energy-operated equipment (biofuels)

●

Global warming and greenhouse effect Exhaustion of fossil reserves

●

Design of flexible platforms near distribution centers or in common with other companies Relocalization: of productions and supplying (SkjoettLarsen, 2000) to reduce distances

●

Dematerialization: Reduction of equipment flows by reordering of logistic organization (e.g. arbitration between reduction of the number of warehouses and loading of trucks) Revision: equipment (vehicles) to be maintained rigorously and to be renewed regularly (wellmaintained or new equipment is less polluting) ●

●

To reconsider investments, to adopt a longterm vision (Robert et al., 2002). Sustainable strategic planning (Preschey, 2005) according to a return on longterm investments of the SD equipment carried out, flexible investments To adopt the precautionary principle (especially in a very dubious economic context) To have a reliable, efficient information system (e.g. ECRa (Wu and Dunn, 1995)

Limits ●

●

●

●

●

●

●

●

To reconsider the supply chain (e.g. to reduce the number of cargoes returning empty)

●

● ●

Waterways not always existing or incomplete. Hence total or partial reliance on road transport Less pollution but not removed Firms do not always have necessary multidisciplinary competences Fear of change and risk taking Increased monitoring if available To establish relations based on confidence with service providers and other suppliers Increase costs (?) Less pollution but not removed Increased costs Reduced but not eliminated costs


Table 14.1

(continued)

SD progress axes



Opportunities

Reduction:

●

Exhaustion of fossil reserves

Conditioning Storage Transport

Integration of the concept of recycling into the design of the products (or services) (ecodesign, Janin, 2000) ● Monitoring of chemical content of the product (or service) ● Control of power consumption ● Anticipated treatment of the product when worn out ● Substitution: temporary packaging to reusable packaging ● Reduction: – Volume of packaging – Removal: – Wasteful overpackaging ● Recycling, ● Reverse logistic (Schmidt, 2005)

●

Waste management

All supply chain (internal and external)

● ●

● ●

●

●

Stimulation of organizational aptitudes, of potentiality of company resources (Métais, 2004) Stop imitation Stimulation of the creative innovation processes (Dosi, 1988b) Reduction of packaging costs Reorganization chains to take into account the movements due to reverse logistics Developed management of returns Common solutions in partnership with logistic suppliers, customers and T.P.L

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Limits Changes in management that can generate organizational resistance (Twede, 1992) To change consumers’ habits (intervention of marketing function, interests are not always convergent)

Notes: a Efficient customer response enables each player in the network to synchronize its production and logistics resources. b In the evolutionary sense where innovation results from the process of problem solving.

This assertion is also advanced by Gendron et al. (2003: 4), who ascribe this fact to confusion between practices, discourses and questioning. These authors also state that according to studies, many big companies that take initiatives outside the law are motivated by the resulting competitive

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advantage and voluntarily anticipate those measures that will soon be sanctioned by law (ibid.: 5). The actions regarding CSR, contrary to those concerning the environment, are not assessed by a legal framework. Consequently, companies are free to take broad initiatives (Villeneuve, 2005). From the literature, we selected the principal CSR-oriented strategies in terms of supply chain management6 (see Table 14.2).

3.

THE STUDY OF SUSTAINABLE DEVELOPMENT REPORTS OF TWO MULTINATIONAL COMPANIES

The objective of this study is to establish a connection between academic research and company practice in order to make an inventory of the recurring problems in sustainable development, and of convergences and divergences. We have adopted a methodology based on a lexical analysis of annual reports (2005) on SD published by two companies in different types of activities: Group C (Distribution) and Company L (Sports). 3.1

Methodology

Our analysis methodology is inspired by both content analysis (Berelson, 1954) and textual data analysis based on the frequencies of words (and other graphic forms) (Austin, 1979) that can be found in SD annual reports. Based on the strategies indexed in the conceptual part (see Tables 14.1 and 14.2), we examined the significant words that are redundant in each of them. We thus established a framework of a priori references based on the literature, with the understanding that this framework was then enriched by elements gradually discovered through readings and analysis (Desmarais and Moscarola, 2002). The original framework includes approximately 150 words, to which 50 other words were added from the SD reports of the studied multinationals. The occurrences of the words contained in the SD reports were transferred to this theoretical framework (Tables 14.3 and 14.4). The connection between the theoretical and the augmented frameworks then made it possible to proceed to an analysis for each company. 3.1.1 Company C: group profile C is an international ‘multi- format’7 distribution group (Report, p. 1) operating in 30 countries. It is number 1 in Europe and number 2 in the world. Its 2005 turnover was €93.614 billion, with 47.5 percent in France, 39 percent


Table 14.2

271

Main strategies of sustainable development (CSR axis)

SD actions



Opportunities

Societal responsibility

Whole supply chain

Goods traceability

●

●

●

●

●

Audits of suppliers, reduction of suppliers (reduction in the costs of midterm transactions) Fruitful development of consumer loyalty for business relations. Choice of more reliable and technologically more competitive suppliers (SkjoettLarsen, 2000) (Short-term savings on costs can be lost by additional costs such as quality problems, delivery delays, etc.) Establish close connections with all the structures playing a part in the supply chain win to win philosophy (reduction of longterm costs). Dialogue between suppliers and big distribution (towards reduced power of big distribution?) Increase of the quality of the products: Competitive advantage (Welford, 2003)

Limits

Control costs Opportunism Information asymmetries ● Cultural barriers (languages, traditions, customs and habits, etc.) ● Problem of the numerous regulations, which can be different from one country to another ● Control ● Costs

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Table 14.2

(continued)

SD actions



Opportunities

Limits

Social responsibility

Whole supply chain

To take into account the ethical dimension within human resources

Develop image, reputation

●

Social performance (Welford, 2003) To favor freedom of expression, personal achievement, the feeling of membership of the group of employees and collaborators (Villeneuve, 2005)

To recognize the native cultures, to avoid exclusion

Fruitfulness of exchanges allowing creativity and an increase of innovation

●

●

Transparency

Whole supply chain

To give the parties concerned (suppliers, contractors, subcontractors, collaborators, employees) transparent information

Favors collaboration and confidence

●

To take care of one’s image

●

Inadequacy between the profit targets sought by the company and the common good (the company is not a philanthropist and has its own ethics, often different from that of the individuals who compose it) (Brenkert, 1995) Definition of the perimeter of responsibility: to what extent is the leader company responsible? (ORSE, 2004) Different social legislations from one country to another Limits related to the insufficiencies of information systems and managing tools Political aspects


Table 14.3

Occurrence rates of company C

Classification

Occurrence

%a Classification

1. Sustainable development

57

29

2. Stakeholders 3. Environment (environmental) 4. Responsibility (responsible citizen?) 5. Dialogue

24 23

12 12

21

11

Note:

a

19

19

10

15 11

8 6

10

5

9

5

6. Action (to achieve, to establish, to design, to generalize, to launch) 7. Audit 8. Mobilization

Occurrence rates of company L

Sustainable development Eco-design (eco-designed) Commitment (committed, to commit) Products Environment (environmental) Partnerships (partners) Progress (axes of progress) a

%

9. Reduction (to reduce, diminution) 10 10. Risks (food, Sanitary)

Classification

Note:

Occurrence

Percentage of occurrence of the theme.

Table 14.4

1. 2. 3. 4. 5. 6. 7.

273

Occurrence

%

31 22 20 18 17 14 8

16 11 10 9 9 7 4

Percentage of occurrence of the theme.

in Europe (except France), 7 percent in Asia and 6.5 percent in North and South America. It numbers 12 028 stores and 436 474 collaborators. C has formalized its procedure for sustainable development, which started in 1992, nearly 15 years ago, with the creation of the ‘C Quality Line’. 3.1.2 Textual study The document gives an impression of heaviness due to the numerous repetitions and the large amount of space concerned with advertising and

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illustration (30 percent, 20 pages out of 70). It is organized around the different parties and, outside the key indicators, there is no section dedicated to logistics. The ellipse ‘logistic’ on the second page could, however, imply that a large amount of space is devoted to this function, particularly a distribution group acting as a logistics distributor. The logistics part should have a leading role in the supply chain since there is no manufacturing – even the products bearing the group label are manufactured by producer–suppliers. ‘SD’ is part of the group’s ‘strong values’ (first position, occurrence rate 29 percent). The strategy is deliberately ‘articulated around the stakeholders’ (Report, p.8, second position, 12 percent). ‘Environmental management’ (third position, 12 percent), which is more frequently quoted in the ‘History part’, is an important pillar of the SD strategy. Along the supply chain, the environmental actions include control of CO2 emissions (through a reorganization of flows, designing alternative and mutualized transport, backhauling, etc.); an analysis of the life cycle of certain products; and waste recycling (sorting cardboard, plastics and other waste that can be reused). It is, however, difficult to evaluate these efforts. Indeed, the majority of the logistic indicators, which are not easily assessable, are quoted by country. The data concerning prior years are missing. Often, the reported procedures are associated with one given store or country. One then learns that a key indicator from 16 to 20 means ‘continuous improvement’ of the ‘maturity level’ of the ‘self-assessed logistic procedure’ (Hypers: Brazil). Between 11 and 15 (Hypers: Greece), the procedure has been ‘put into action’ (Hypers: France). Between 6 and 10 (Hypers: Spain), it is ‘being put into action’ and finally between 1 and 5, it is ‘being tested’ (Maxidiscompt: Korea). The CSR axis constitutes the second pillar of the SD strategy of the group. The high occurrence rate corresponds to the logic of the report. By giving more importance to the ‘parties’, the concept of responsibility reinforces the ideology that the private company should take into account the common interest (Gendron, 2000). According to C, ‘dialogue’ (occurrence rate of the term 10 percent) has been established with all of the parties ‘permanently’, ‘everywhere’, ‘at all levels’, ‘with all the countries’ through a strong ‘mobilization’ and ‘actions’ (occurrence rate of the term 10 percent) for reduction (5 percent) of consumables and energy. Among the studied pages, we found many technical terms corresponding to our reference framework and related to SSCM, which seems to indicate a strong commitment in this particular field (alternative transport, analyses of the product cycle, recycled waste, eco-design, power consumption, greenhouse effect, backhaulage, food miles, etc.). Surprising topics can also be found, but they seem to be guided


275

by a spirit of marketing (differentiation through teaching the consumer to adopt responsible consumption). One example is the creation of ‘Act’ products or a civic consciousness with ‘responsible lobbying’ ‘to enable Europe to compete with the other regions of the world’ (Report, p. 13). A strong marketing spirit guided the drafting of this sustainability report for a distribution group that, taking into account the important pressures on the company, chose to see SD as an opportunity to be integrated in their corporate strategy throughout SCM. Almost all of the theoretical SSCM-oriented actions listed are put into practice. However, bearing in mind the strong influence and the various activities of the group, it is extremely difficult to measure these efforts. No comprehensive statement can be made. The complexity and the vague character of the topic give multinationals the freedom to use all of the possibilities offered by information and communication technology to treat it as skillfully as possible. Moreover, they have the political, human and financial resources to implement it. In other words, it is difficult to tell the discourse from reality. 3.1.3 Company L: profile Company L is a major actor in the outdoor market and is organized around four key brands concerned with four main product ranges: textiles, camping furniture, footwear and mountain hiking equipment. This group is the European leader with estimated sales of €250 million. In 2005, its business around the world was as follows: France, 59.1 percent; Europe (excluding France), 26.5 percent; North America, 3.7 percent; and others (including Asia), 10.7 percent. The company has been wholly dedicated to a sustainable development approach for two years, but it started this strategy as early as 1992. 3.1.4 Textual study Logistics occupies only two-thirds of a page (that is to say, about 300 words). The ‘SD’ strategy (first position, occurrence rate 16 percent) is related to the ‘eco design’ of products (second position, 11 percent). Is this the case because of a strategy of differentiation or because of a SD-oriented strategy? Indeed, as the occurrence rates show, strategies in favor of SD are generally presented as ‘commitments’ (third position, 10 percent) and not as firmly finalized actions. If in fact the group is sensitive to the goals of SD, the analysis of the report does not show any implementation of a real major process of change concerned with the ‘environmental’ (fifth position, 9 percent) dimension (choice of investments, resource exploitation, structural changes, etc.), which is older and more popular in the industry than the eco-design dimension. Thus the company certainly

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continues its efforts in the field, but it makes increased efforts towards eco-design, a more fashionable concept that is more beneficial in terms of competition. However, in terms of logistics, the goals of environmental SD are far from being satisfied. Perhaps this is because the regulations for big polluters are insufficiently applied and are not very restricting. Thus we find in the part devoted to logistics that only 10 percent of continental transport will be carried out in a ‘clean’ way (river, rail) in 2007, which is not much. The efforts made in logistics are not very ambitious even though logistics can be particularly environmentally damaging (Welford, 2003). The physical activities of transport and storage are especially concerning because they use fossil fuels. In fact, the harmful effects of transport influence two pillars of sustainable development: environment (by contributing to the greenhouse effect in the atmosphere) and society (since pollution due to vehicles is responsible for human pathologies). Moreover, the consequences of these harmful effects can be short term or long term, direct or indirect, local or global and above all predictable or unknown (Bringezu, 2002). As for packaging, equipment maintenance and supply chain optimization, few procedures or objectives are specified. On the other hand, the famous quotation ‘offer more and better with less’ (or ‘offering more with less’) appears on several occasions, indicating a definite marketing spirit in the drafting of this report. Furthermore, we were surprised that terms specific to SD actions appear very sparingly: energy, energetic (4), recycling (3), reduction, to reduce (3), responsibility (3), waste (2), greenhouse effect (2), to salvage (3), wasting (2), repackaging (2), flows (2) non-renewable resources (1), life cycle (1), precautionary principle (1), to quote only the main ones. Other terms do not appear: ‘supply chain’ and dematerialization, pollution, reusable packaging, temporary packaging, biofuels, chemical content, risk, global warming, renewal. As for the supply chain, it seems surprising that we did not find any terms related to time and space. Finally, at first glance, the astutely presented report, filled with quite strong marketing, leaves the reader (consumer) with a harmonious impression of the company’s interest in SD. However, a thorough textual analysis reveals that few concrete actions are ultimately carried out (although we see in Tables 14.1 and 14.2 that the opportunities for reducing harmful environmental effects are numerous throughout the supply chain). The strategies related to the eco-design of products are highlighted as far as production and commercial targets are concerned, but is this so because of a strategy of differentiation, because of an SD-oriented strategy or because of both at the same time? It is very difficult to answer.


4.

277

CONCLUSIONS

Is SSCM an opportunity for the company? Would this type of management be a precursor to SD? The theoretical and empirical studies conducted here allow us to answer positively. Even if other analyses of annual SD reports deserve our attention (here we consequently underscore a methodological limit of our work), we think that in terms of organization, the adoption of this type of management is one lever for sustainable development, but is not sufficient. What emerges from our analysis is that the two companies were able to seize the opportunities offered by this type of management. The image of the multinational company, a competitive advantage based on differentiation and the creative effects related to change are the three factors tangibly revealed by this work. The image of the company, enhanced by taking SD into account, benefits all the parties involved. Indeed, in the obvious interest of their stakeholders to whom they are indebted (in terms of the resources they bring or the products they buy), multinational companies, well known by the general public, are better off persuading society that they work to safeguard the planet. In this respect, SSCM represents multiple opportunities (green logistics, eco-design, reverse logistics, etc). Consequently, we do not share the opinion that responsible management is the ‘exclusive prerogative of the marketing and communication departments’ (ORSE and Novethic, 2004: 1). On the contrary, we believe that in a group such as C, for example, this approach fits well with the general strategy of the group and depends on the competence of the top management. Thus it would be interesting to reconsider the conditions under which the management of a sustainable supply chain gives logistics in particular, but also production and purchasing, an important role in company strategy. In the same way, since research has confirmed the sources of competitive advantage of SCM both through cost domination strategies and through differentiation strategies (Porter, 1982), the same procedures should be considered for SSCM. Our analysis revealed that the two multinationals had benefited from environmental constraints by building a marketing strategy based on differentiation. Consequently, the interface between SCM and distribution and consumer behavior is again revisited. Indeed, until now, the final consumer has been neglected in the reorganization of flows or has been regarded as extremely volatile (Paché, 2000). With the SSCM orientation, companies will have to take into account the behavior of a consumer/customer who is increasingly attentive to his own consumption and thus to the civic attitude of companies. By raising the question of how to integrate the principles of SD into its

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management modes, a company is inevitably in a process of change that, as we see it, stimulates its creative innovation processes. In addition, this reorganization helps to eliminate old habits and other routines in favor of new organizational ideas, and also a certain organizational weariness that does not favor the stimulation of resources, in particular human resources. Several questions remain to be addressed. We shall not be able to mention them all. For instance, among so many others, how large are the engaged efforts and the required improvements and how can we measure them at a general level? In the studied companies, SSCD is certainly on the move, but it is still far from reaching saturation point. Theoretically, this type of management can be seen as a full reorganization of companies and their networks. But are all theoretical ideas applicable? Thus our reasoning brings us to the in se contradiction of the very concept of SD: isn’t development more related to growth and increase than to their antonyms? Finally, we would like to mention a few limits that seem to us as numerous as the questions. The multinationality of the chains makes an already challenging subject even more complex: a lack of measuring instruments, especially those for measuring performance; the increasing difficulty of implementing control and information systems; the spreading of responsibilities due in particular to the multitude of actors and levels in a supply chain (with the risks of interface contradiction and disturbances); the development of opportunistic behaviors (in particular in outsourcing relations); and differences between words and reality. How important are the real committed efforts in favor of SD and thus in favor of our world? A vast field of research is open to our academic world.

NOTES 1. Indeed, the cultural dimension has been unanimously adopted by the 31st Session of the General Conference of UNESCO (Paris, 2 November 2001) and added by the World Summit on Sustainable Development in Johannesburg South Africa (26 August – 4 September 2002). 2. This idea was already developed in the 1970s by the French economist F. Perroux, who recommended thinking of competition and cooperation as complementary, rather than opposite, strategies. 3. According to Premkumar (2000), coordination costs include the cost of exchanging information about the product, demand, etc. 4. This concept, due to Prahalad and Hamel (1990), brings out the strategic resource base view (Penrose, 1959) that also constitutes a theoretical current, certain precepts of which can explain SSCM. 5. Indeed, other currents could have been mentioned: agency theory, game theory or the resource-based view, to quote only the most cited in the literature.


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6. We should note that the border between CSR and the environment is not delineated. On the contrary, these actions are strongly interwoven (e.g. in terms of goods traceability since several supply chain levels are considered, including that of suppliers and other subcontractors). On the other hand, certain authors (Rondinelli and Berry, 1999) believe that these actions are more oriented towards supply chain external management. 7. This means that the group comprises at the same time hypermarkets, supermarkets, local mini-markets of proximity, cash-and-carry trade and online trade.

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15.

The search for a sustainable approach to traditional French wine production in the face of competition from multinational companies Marie-Pierre Arzelier

INTRODUCTION The aim of this chapter is to find a theoretical basis for strategies developed by wine producers by comparing MNFs (multinational firms) from the New World (‘New World’ countries, such as Chile, Argentina, Australia, the USA, New Zealand and South Africa, are so named because their wine production is more recent than that in Europe) to small French companies belonging to owner–growers. Originally from Mediterranean countries, wine is today produced in many places in the world. Today, wine production in France is in crisis, because new producers from other continents are starting to compete with French wines on the French market. This happens most of all in export markets, the main outlets for French producers (France being a net wine exporter). The producers’ attitude toward and vision of their product are essential factors in understanding the situation. These producers are generally hostile to the possibility of adapting to consumers’ new tastes in wine (consumers generally want sweeter and more wooded flavors), although the technology is available to meet these demands. The particular taste of each wine is, for procedures, part of the ‘French cultural heritage’, to be carefully guarded (like paintings or local landscapes). The gap between what the French will offer and what the world (mainly the Anglo-Saxon world) demands creates an opening for new producers that offer products suited to the new tastes of consumers. It is not so much a difference of structure (small companies versus large MNFs) or products, but rather a difference over what the product represents that creates different strategies. It is 283

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noteworthy that, in France, producers consider any change to the production method to be risking a double loss, namely of: ● ●

specialized knowledge used in the production process (ancestral production methods), and the product itself. In France the wine bottle is considered an object of art, not merely a product of consumption, while the New World producers (and consumers) have a different vision.

Hence it seems that wine production involves notions of intergenerational transfer of knowledge and culture, similar to the idea of global public goods, in the sense of the UN Development Program (UNDP). Know-how in wine production can therefore be considered in the same way as the protection of biodiversity, endangered species (e.g. the rhinoceros) or endangered landscapes (e.g. Niagara). Knowledge inherited from previous generations and specialized production methods (both of which are under serious threat) belong to recognized categories of global public goods: as a synthesis between nature and human activity, wine growing is well suited to a sustainable development study. This is important in the context of the globalization of this sector (producers and consumers) and of maintaining regional character and community identification. Having defined the epistemological grid, it is now possible to explain the paradoxical situations affecting French wine production today and its strategies.

1.

BUSINESSES AND ENTREPRENEURS

1.1

The Importance of Wine Production in France

The main global commercial trades for wine are built upon a few export streams (Europe, the USA, Chile, Argentina, South Africa, Australia, New Zealand), while, at the same time, more than 60 countries are wine producers (Le Gars and Hinnewinkel, 2000; Dauce, 2003). The size of the alcoholic beverage market in France is equivalent to the value of 120 airbuses. Wines and champagnes make up more than 60 percent of this market (the remaining 40 percent are brandy, spirits, beer and cider). France is the largest worldwide wine exporter (about 45 percent of the total market) and has 22 percent of worldwide production. This prominence contributes to the positive image of France abroad. Within France, this activity is highly regional, contributing to the

A sustainable approach to French wine production

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development of some regions (such as Bordelais, Languedoc, Alsace and Bourgogne) and is related, directly or indirectly, to thousands of jobs (about 1500 companies, 260 000 direct and permanent jobs, among them 150 000 wine growers and 5000 related jobs) (data from FEVS – Fedération des Exportateurs de Vin et de Spiritueux de France). 1.2

The Crisis Situation in this Area of Production

Although worldwide production keeps increasing due to new non-French companies contributing to this market (wine being a high-value-added product), consumption in France has been regularly decreasing for the last 15 years (Ayouz et al., 2002). The wine market is undergoing great changes: ● ● ● ●

occasional consumption (rather than with every meal) along with competition from other drinks, especially among young people; wine being considered a ‘luxury product’; changes in the tastes of consumers, who prefer sweeter wines, which are not as much of an acquired taste; and negative public health pronouncements against drugs (including alcohol).

The Evin Law in France (10 January 1991) restricts the advertisement of alcoholic beverages. The advertising content is subject to laws that require health warnings, and some types of sponsorship and corporate sponsorship are forbidden. These laws relate to particular media (television, cinema, written press other than that for adults) and some time slots are forbidden for radio. The only information allowed in advertisements is the alcoholic content of the beverage, its origin, the names of its producer and agents, its production method, how it is sold and how it should be consumed. Also allowed are references to ‘terroir’ and any honors awarded. Moreover, in France, since 1998, health authorities have considered all forms of alcohol as toxic (due to the risk of cirrhosis, cancer, accidents on the road or at work, absences, violence against partners or children, sexually risky acts and illegal behavior). The report of Professor B. Roques on the danger of addictive substances has made official the classification of alcohol (liquors, beer and wine) as addictive. Prevention of risks linked to alcoholism is a European priority. These changes have made export markets vital to the French industry. 1.3

Market Structure

The market is made up of many small French producers (small companies, micro-companies) together with a few MNFs, mainly from the New World

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(Coelho and Rastoin, 2002). The number and diversity of players in this market are therefore great. However, the distribution streams are all similar: sales in big supermarkets, shops or hypermarkets and from wine merchants. Competition is fierce; products are located on adjacent shelves and the buyer makes his choice in a few minutes (see several studies, e.g. Onivins). If the method of sale is identical (except that French producers can sell on site, i.e. in their place of production), the mode of production of wines between the ‘Old World’ and the ‘New World’ is very different. In France, there can be major quality variations, whereas a New World wine has the advantage of consistency. Territorial reference, a key factor in the French ‘AOC’ (appellation d’origine contrôlée) system, does not exist in other countries. Therefore the production process for the MNFs of New World countries is less restricted and less costly than in France; the production process need not take place in the growing area itself, allowing for larger volumes with a higher level of mechanization. According to Porter (1990), lower costs give the MNFs from the New World a competitive advantage. It is especially within agriculture that cost reduction is obtained by economies of scale (strategy A). It is mainly at the level of production itself that New World companies obtain such a result (Lockshin, 2002). In smaller companies in France, where cost advantages cannot be obtained, a strategy of differentiation is used (strategy B). The product delivered to the consumer is unique: its intrinsic attributes set it apart from its competitors. Such a status may be attained in two ways: through marketing (building an image, however, is costly and here again a strategy used by New World MNFs – strategy B1) and/or by creating the product’s unique characteristics (this may be used by small companies, as it does not require large investments – strategy B2). Thus, again, small European companies use strategy B2, while the large companies of the New World use hybrid strategies A and B1.

2.

AN UNDERSTANDING IN TERMS OF SUSTAINABLE DEVELOPMENT

2.1

For the Product: Using the ‘Region’ as a Marketing Tool

In France, marketing strategies are based on the ‘regional product’, as the region has unique physical (ground, climate, etc.) and cultural (history, people, etc.) characteristics. Wine is hence linked to a particular soil, which may be real or imaginary (stereotypes, symbols about the lifestyle of the wine growers) (Maby, 2005).


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Objective aspects Wine marketing uses images of the region (Stervinou, 2003; Falque and Remaud, 2002; Filippi and Triboulet, 2003; Dedeire, 2003; Brodhag, 2000), which is strongly connected to this type of product: the place of origin of the product is fundamental, because it builds in its unique taste by way of growing and production methods, climate and soil, etc. Region also suggests quality within the context of a growing interest in natural products. Wine’s position, compared to that of other alimentary products (although wine is a food), is based on reputation: product and producer are linked. The prestige of a wine can provide an advantage over competitors, based on trust (Rastoin and Vissac-Charles, 1999; Sirieix, 2001; Boude and Charles, 2004). Wine does not generate the same health concerns as certain other foods (worries concerning listeria and hormones – see Onivins, various studies – D’Hauteville and Laporte, 2002). Subjective aspects The connotations of drinking wine are numerous and positive. Culturally, wine is associated with good living (gastronomy, French conviviality, pleasure and social dimensions). According to Rastoin and Vissac-Charles (1999), for example, wine corresponds to a good in which the ‘cultural’ is predominant. It is an alimentary product with a strong identity. Its intrinsic qualities (taste) are subordinated during the buying process. The purchaser is highly influenced by subjective criteria, not by price alone. In France, there is a true culture of ‘drinking’ that goes beyond the notion of region (similar cultures exist for Roquefort, olive oil, goats’ cheese). This symbolic dimension constitutes an added value for AOC with regard to competitors, because it relates to local culture (Maby, 2005) and counteracts the uniformity of alimentary products that is linked to globalization. The long history of wine links past and present. These aspects of wine consumption are, we believe, fundamental to understanding the present situation: the notion of inheritance comes in at different levels (transmission of know-how, habits, etc.). For producers, changing the taste of wine would be equivalent to standardization and the loss of something precious handed down by previous generations. 2.2

For the Production Process

We consider these issues in the context of globalization. Specialized knowledge (of the wine production process) allows those ‘in the know’ to produce goods (wine), which can be considered global public goods that must be protected. (Of course, the idea developed here is that the point is not the profits of individual capitalists, but the sum of knowledge

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necessary for the production of wine. If such knowledge is lost, then it is a loss for all of humanity.) The idea of knowledge transfer through generations is important here – French wine producers insist that they continue to use processes handed down from previous generations. If the market does not allow them to use this knowledge, it will disappear. French wine growers ultimately relate their economic viability to the protection of a way of life from standardization linked to globalization. For the MNFs of the New World (in the sense of wine-producing countries), the understanding is totally different: wine is a product just like many others. Equating the production process and product with global public goods has consequences for the procedures’ strategy. It also leads to the paradoxes introduced below.

3.

BUSINESS STRATEGIES

3.1

Global Public Goods

Global public goods can encompass many different areas. In the literature, what may be included varies by author, the country’s level of development and its strategy of integration into the world economy. The definition of global public goods can also include the concept of an intergenerational link (Allaire and Dupeuble, 2004; Aussilloux et al., 2002). This definition is used today within the context of globalization and worldwide interdependence (a flexible understanding of global public goods, see Hugon and Gabas, 2001). The two meanings of global public goods are: ● ●

assets, services or resources useful for all individuals, and assets, services or resources resulting from collective choices (and thus protecting a joint cultural heritage).

They may be (UNDP classification, official definition): ● ●

●

Tangible public property (e.g., waste management, reduction of global warming), Intangible or ‘human’ public properties perhaps of a political nature (knowledge, security, justice, human rights, cultural heritage, peace, health, financial stability, fight against poverty, free trade agreements, etc.), or Natural or environmental public property (climate, preserved biotopes and landscapes, biodiversity, etc.).


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There are many possible types of management of global public goods, which differ according to the nature of the good (Hugon and Gabas, 2001): ●

●

●

Public goods produced by organizations (companies and/or countries) are considered the most efficient (such as best-shot goods, i.e. a vaccine against AIDS or the development of the Internet), Public goods whose efficiency is threatened by the weakest link (i.e. weakest-link goods), such as failure to eradicate a disease because one country refuses the vaccination and Summation goods, whose existence is only possible if all the actors pull together (such as the global climate and arms control).

This third category seems to correspond to our analysis, because traditional French wine production is similar to global climate preservation: even if that wine exists as a product within a market, produced for profit, the most important thing is that, for the French producers, it is produced with love and the result of know-how to transmit between generations (as a work of art), unlike companies in New World countries, where wine is considered as a product intended to make a profit. Today in France, organizations frame and manage these global public goods. The issue then is how best to retain this knowledge for the future. Wine growers collectively choose to delegate power to regional joint-trade organizations and each grower then follows the common rules. The decision-making bodies referred to above are private companies. They facilitate the transfer of specialized knowledge and organize production, thus ensuring superior quality: this type of public good results from cooperation between actors. However, three negative processes threaten public goods: ●

● ●

the prisoner’s dilemma: lack of trust between actors or imperfect information about strategies chosen by others leads to suboptimal individual choices from a collective viewpoint; sheep-like behavior: nobody wants to be first in resolving the problems; the ‘free-riding’ phenomenon: one actor benefits from the actions of the rest of the group without sharing the costs and/or constraints.

To avoid these three phenomena, French wine growers voluntarily belong to joint-trade organizations. This also produces a collective strategy. However, the MNFs from the New World benefit from this positive image without sharing the costs: they are thus in a ‘free-rider’ position and are generating the present difficulties of the wine industry in France.

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In addition, in France, foreign MNFs benefit from the positive image of wines in general, an image generated by the collective strategies. Only a few advertisements mention the threatened knowledge of the French wine growers. As a product’s positive image is built slowly, new companies entering the wine market (the MNFs of the New World) can make use of the image already created by the small French companies for their particular region. As consumers are largely ignorant of this (see Onivins, various studies), wines from the New World sold in France benefit from the image and advertisements, due to the confusion between the products. It is because of this confusion that the MNFs can infiltrate the market. This represents the free-rider problem enacted on a worldwide basis. 3.2

Strategic Implications

The structure of the world wine market (MNFs coexisting with small and medium-sized companies) clashes with the concepts of sustainable development and global public goods from French producers’ point of view. It will be difficult to find a lasting solution to this crisis. Paradoxically, a sustainable development strategy (global public goods) based on (1) a unique, irreplaceable product and (2) tradition tied to a specific region from previous generations opens the door to companies that have delocalized their production (the MNFs of the New World), selling wines that have different tastes from those produced in Europe. Eventually, it will be as if one bottle of wine is no different from the next, whereas all the French efforts underline the particular and unique nature of the product (as is also the case with books, movies, art productions and so on). There is another paradox. Although trust is created by common rules, understanding and decision making (De Rosa, 2004; Rastoin and VissacCharles, 1999; Chiffoleau et al., 2003), which are achieved in France by the AOC, it is precisely this system that handicaps French wines because it is misunderstood by the consumers. They tend to see the AOC as conferring a guarantee of quality, whereas in reality they regulate growing and production methods and regions. In this way, the French system allows the entry of non-European wines that do not respect these rules. These two paradoxes might be resolved by helping the consumer acquire a better knowledge of the product. Numerous studies and official analyses have recommended the development of wine circuits and vineyard visits to educate consumers to appreciate different wines and their unique characteristics (Vandecandelaere, 2003). The aim is to create an image built on interpersonal knowledge, rather than mass production and consumption (i.e. sales in supermarkets). These recommendations and the work already done in this direction are not trivial. They indicate a wish to ‘educate’ the


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consumer in order to overcome the paradoxes and keep the notion of wine as a regional product. However, at the same time, modifications within the French market by public authorities and producer associations appear to be incompatible with this idea. These authorities and associations are trying to introduce foreign large-scale methods, possibly removing the AOC label in the long term (Giraud-Heraud et al., 2002). This would seem to open the door even wider to foreign wine imports, because it considers wine as a product without geographical connections.

CONCLUSION France is a country with strong traditions with regard to wine. Wine continues to occupy a large place in its total agricultural exports. However, the crisis described here is of concern to public authorities, growers and producers. Two points are worth noting. First, a decrease in consumption is linked with an increase in global competition. Current market structures (small French companies facing mainly foreign multinationals) leave little room for maneuver. However, although wine is classed as a food, in France there is an important cultural dimension to it, an image of class, authenticity, conviviality and ‘parties’. Wine concentrates the symbols of all that is valued in France: love of the soil, work well done, secrets of production and respect for natural cycles are all elements that help one understand the thinking of the French producer. Second, the French wine grower believes he has a unique product and specialized knowledge based on trust from his ancestors to guard against the threat of standardization. He thinks in terms of sustainable development and global public goods. These theoretical concepts may help organizations that regulate production understand how best to change conflict into cooperation. Thinking along these lines might lead to the reintroduction of collective controls within the free market. However, current political thinking in this sector seems to lack internal coherence. The place of the consumer is at the heart of this debate and leads to paradoxes yet to be resolved by the actors in the wine-producing sector.

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Index adaptation processes 7 adaptive companies LVMH, Renault, PSA, SaintGobain 253‒4 Adidas, Member of Fair Labor Association better working conditions 132 administrative costs fear 213 adoption decisions 124‒6 adoption rates of FSC certification, low 217 adverse relationships, host and stakeholders and MNE 73 advertising of tobacco products,WHO global rules to curb 37 advocacy, pressure on MNEs 123 agricultural transformation of world 121 alcohol as toxic, to health authorities, France 285 American Forest and Paper Association (AF&PA) 221 sponsor 219 American National Standards Institute of USA NGO technical standards body 221 analysis methodology content analysis and textual data analysis 270 analysis of variance (ANOVA) 152 Anglo-Saxon versus French practices, conception of CSR 247‒8 Anglo-Saxon view, voluntary and auto-regulated actions 256 annual report publication, information obligation 250‒51 annual reports, information source 186‒7 arbitration on responsibility 8 Arcelor, partial integration

reduction of industrial accidents 254‒5 Asia Monitor Resource Center 230 Asian countries 15 assets and resources, host country, inability to capture value of assets 79 auditing, external 222 Australia, validity of CSR in 14 authorization for execution (AFE) document 177‒8 automotive components engineering Delphi in Ciudad Juarez facility 100 automotive industries, NorthAmerican goods tariff on imported vehicles 95 awareness levels of consumers and MNEs 185 Bangladesh, validity of CSR in cross-cultural studies 14 bargaining power 153 host-country, loss of, to investor 80 MNEs to host country 80 behavioral control 129‒30 Ben and Jerry’s (B&J), absorption by Unilever 133 benefit to host country 73 best practice for specific issues 215‒17 best practices in project planning 171 biodiversity for food and a griculture 44 bioenergy, climate change issues 44 bioethics in company 172 biomedical and pharmaceutical companies access to company resources in host countries 173 drug access improvement in host countries 173 formal policy on animal testing 173

295

296


Blanchard, François 32 brand image, major source of value 132 brand names, significance of 60‒61 breast milk as natural contraceptive, and substitutes 36‒9 Bretton Woods institutions 42‒3 bribery and corruption 65 British Telecom (BT), Global Compact goals 41 Brundtland Report (WCED, 1987) 94‒5, 106, 120 economic, social and environmental pillars 89 business and non-business identities, dissociated Anglo-Saxon world 247 business conduct codes, coffee trade 9 business justifications for SD 165 business negotiations in China 231 business organizations migration to niches 97 ‘on the wing’, labor-environmental benefits 100 business self-regulation, profit motives of MNCs 51 business strategies for wine, global public goods 288 business value analysis of SD 164 Canada 86 CSR seen as complement to trade policy 144 capital-intensive technology transfers dangerous and environmentally noxious 55 capital investment in CAFTA venture 100 capital project performance 168 Capital Project Performance section 169 carbon dioxide and methane gases, release of global warming cause 57 Central American Free Trade Agreement (CAFTA) 87‒93

certification and qualification as a Social Accountability 8000 member under UN patronage 142 certification as beneficial to firms 222 cheaper labor in Central America 100 chemical industry, Responsible Care initiative 220 child labor 17, 35 China, developing country accepting cheaper pollutionintensive equipment 55 high economic growth rates, multinational investments 63 moral values in foreign MNEs 233 Chinese employees of foreign MNEs in China lack of awareness of need for CSR training 233 wish for financial rewards for CSR practice 238 Chinese executives, need for change of attitude to CSR 240 Chinese expatriates in USA 231 Chinese subsidiaries failure to see beyond legal requirements 236 focus in human resource management 235 Christian Aid Policy 2002 on MNC environmental abuses 67 clean technologies 55 closed-loop no-waste processes 132 Club of Rome, Limits to Growth 122 codes of conduct on sustainable supply chains draft UN norms, 146‒7 OECD guidelines for MNCs 1976 and 2000 146 UN Global Compact, 2000, 2004 146 coin collection on leaving country, air carriers for world’s needy children 46 collaboration of service provision, pressure on MNCs 123 command constraint for innovations 130 command group, acting on ethical legal boundaries 133‒4

Index commercial trade agreement, North America, Mexico 90 commercial transactions, protection 101 Commission for Environmental Cooperation (CEC) 91 commitment from upper-level management 13 commitment level of companies 255 common language and common culture 113 communication technologies, intranet, groupware 115 communication via shared equipment in cooperative networks 116 company group profile 270‒73 multi-format distribution group 270‒73 outdoor market, camping and hiking equipment 275 company participation in survey 170 competitive advantage against competitors 15, 108 conditions in countries and SD/CSR processes economic, political, social and economic 17 conservation of natural and environmental resources 110 Construction Industry Institute (CII) annual conference workshop on sustainability 170 construction sector, greenhouse gas contributor 167 consumer activism, pressure on MNEs 123 consumer boycott of MNE’s gas stations, Dutch Shell 142 of Nestlé products 38 consumer demand, importance of 226 consumer loyalty, major source of value 132 contaminant releases, report by Mexico 101 content analysis of annual reports, France information about CSR involvement 251‒2 contract allocation with suppliers 152

297

Convention against Corruption, UN 2003 40 cooperation between competitors 265 cooperative networks and sustainable development (SD) links 105‒112 coordinated national strategy, CSR-related questions 144 corporate citizenship network, principles of 120, 146 corporate image and reputation, improvement 16 corporate interest and environmental protection sustainable development (SD) 54 corporate networks, strategic management 265 corporate resources, efficient management human, financial and other 15‒16 corporate social responsibility (CSR) 28, 94, 120, 122, 191 axis, 267, 274 challenges in China 235‒8 characteristics, culture of country, alignment 15 Chinese employees’ interpretation of 234 formation process 7, 8 global implications 3 initiatives in China value relationship with government 240‒1 initiatives in UK, government role in encouraging 144 management capacity 10 multinational enterprises (MNEs) 4 no adoption of, in Chinese subsidiaries 236 no legal framework for assessment 270 older concept than sustainable development (SD) 143 prestigious journals, list 3 responsibility of multinationals 166 SD, points of difference 144 strategy 3, 11 corporate social responsibility research global approach, wage-labor relationship 248

298


social wellbeing from economic performance 248 stakeholder approach 248 corporate strategic behavior, CD/CSR 11 corporate structural inertia 13‒14 corporate sustainability assessment criteria economic, social and environmental indicators 188 Corporate Sustainability Commitment Index (CSCI) 169, 170, 172 economic, social and environmental pillars 168 relationships with cost and schedule deviation 180 relationship with SCPPI 179 corporation as ‘moral person’ of ‘limited liability’ 121 corporations’ role in communities 120‒21 correlation coefficients 177 Cost and Schedule Predictability 171 cost data, collection of, 177‒8 cost reduction in wine growing outside France 286 Council of Supply Chain Management Professionals (CSCMP) 143 critical research, pressure on MNCs 123 cultural anthropology and ethics 184 cultural imperialism, attacks from developing countries 42 cultural pollution, attacks from developing countries 42 customer pressures and voluntary initiatives by firms 208, 210 customer relations management 190 Danone, proactive company SD and CSR at heart of their vision 253 data analysis 174‒6, 179 database storing of knowledge 115 deception in China 237 decision-making process 5, 18‒19, 126 Declaration of Philadelphia 1944 30 Declaration on Fundamental Principles and Rights at Work

International Labor Organization 1998 34‒5 defensive initiatives 225 alternative to stringent standards 218 Dell, global PC industry, accounting irregularities 94 delocalization of wine production by MNEs 290 dematerialization of productive activities 110 deontological process, arbitration on responsibility 8 dependence on resources 5 descriptive statistics table 178 developed and developing countries differences in strategies and standards 17 developing countries experience, 50‒68 fear of environmental regulations discouraging multinationals 62 prevalence of corruption 62 subsidiaries inferior environmental technology by MNEs 55 inferior management practices by MNEs 55 development objectives of MNEs equitable, viable and life-sustaining 108 diffusion, 123‒7 ‘dirty industries’ in developing countries 50 discourses and practices of CSR (DPCSR) 249 means for scandal avoiding 245‒6 diversity management strategies, European countries 16 Doha Round 43 dolphin-safe tuna issue 217 dominance of MNCs in global trade and investment influence on policy outcomes 53 domination by customer or supplier 147 Dow Jones Global Index (DJGI), 167 Dow Jones Sustainability Index (DJSI) 167, 194 DP-CSR common basis trends 255‒6

Index micro-regulation, wage-labor relationship 258 regulatory role 256‒7 drug access in developing worlds 172 DuPont, international leadership, profit-making venture 165 Earth Summit, Rio de Janeiro 106 East Asian countries, FDI benefits convergence via host-country learning 78 eclectic activism, pressure on MNCs 123 eco-conformist behavior, strictly law-abiding 12 ‘eco-feminism’ 120 ecological accidents, Nike, Puma 245 ecological footprint reduction 166 ecological influence exertion mechanisms 154 ecological involvement levels, country-specific 151 ecological issues supplier selection criteria 153‒4, 157 ecology as key factor for firm’s survival 12 ecology, holistic view 266‒7 economic factors of sustainable development financial performance and economic development of base 106 economic indicator rates 189‒90 economic returns maximization 130‒31 economic, social and environmental pillars 94 eco-sensitive behavior, acting beyond legal requirements 12 ECOSOC, New York Multinational Corporations in World Development 33 ‘eco-theology’, global warming 120 education of customers, role for NGOs 226‒7 electrical and electronic waste 264 electricity generation in China reduction of hazardous emissions 51 electronic data interchange technology 265 empirical research conclusions 199‒200 employee relations report (ERR) 187

299

employment and training, ILO studies 32 employment discrimination 35 employment opportunities, need for 50 employment relationship and big companies 249 energy and environment 43 enforcement language on labor/ environmental laws 92 enforcement mechanisms, lack of 59, 213 English as primary communication language multinational association CLM 155 Enron and AIG financial restatement or criminal convictions 94 environmental catastrophes, 1980s MNEs, connection with 54 environmental compliance strategies 171 environmental conservation in manufacture 17 environmental degradation 50 in China 237 environmental dimension of sustainability 155 environmental-economic interface resource saving, value creating, risk limiting 107 environmental expectations, high, stringent standards 216 environmental factors of SD compatibility of business activities with conservation of ecosystem 106 environmental management control of CO2 emissions 274 international regulations on flora conservation 12 life cycle of products, analysis 274 waste recycling 274 environmental policy motivation 153 green consumerism 153 life-cycle analysis posture 153 environmental prudence obligation to future generations 166 environmental report (ER) 187‒9

300


environmental resources, safeguarding 266 increasing importance of 59 environmental SD strategies, integration of 13 environmental standards in developing countries 56 environmental strategies 11‒12 environmental supply chain participation 152 environmental welfare, 231 environment and ethics 266 environment axis, biodiversity, forests and GMO 267 Environment Impact Assessments (EIAs) 173 equipment transfer,too sophisticated or too obsolete 55 ethical behaviour 8, 59, 66 ethical financial practices 171 ethical investment (market of financial capital) 186‒90 pressure on MNEs 123 ethics and codes of conduct of company 172 ethics and morals, local definitions 133 ethics codes, Europe and USA, differences 14 ethics codes, priorities for Europeans employees as primary 14‒15 European Alliance for CSR, large national differences 144 European Court of Human Rights 65 European Management model social dimension, integration of 247 European reality and moral dimension 200‒201 Europeans, ethics codes 14 European Stock Exchange DJ EURO STOXX 50 index 50, 187, 193‒4 businesses, 203‒4 businesses in main SRI indexes 195‒6 French SRI funds 197‒8 European Union CSR seen as strategic objective 144

Evin Law, France 1991 advertising alcoholic beverages restriction 285 health warnings 285 exchanges and flows, linking 98 expense of pollution control equipment 60 export entry mode, ethnocentric 80 export of modern technologies 51 export processing zones 32 exports from domestic firms 75 external audits for firms 217 external focus, strong 133 external pressures 13, 125‒6 extra-financial analysis results, information source 186 fad and fashion, perspectives 128 fair trade movement, pressure on MNEs 123 Fair Trade Organization, Fair Trade Certification 215 fertilizers 44 finance and supply CSR-related questions, strategies to respond 144 financial motivation for SD/CSR activity 12 Financial Times Stock Exchange, FTSE4Good Index 194 firms outsourcing to CAFTA and NAFTA 101 Food and Agricultural Organization (FAO) Millennium Development Goals 43‒4 food safety standards 44 Forbes magazine on US multinational firms 9 foreign companies in mainland China interpretation of actions 236 foreign direct investment (FDI) 28 countries’ fear of losing 62 in developing economies 73‒83 foreign MNEs in China 230, 232 environmental practices monitored 231 fraud encouraged in internal policies 237

Index need for addressing CSR in Chinese subsidiaries 238‒40 foreign ownership, cleaner energy, Mexico, Venezuela, Côte d’Ivoire 51 foreign trade CSR-related questions, strategies to respond 144 forest management, sustainable 216 Forest Product Certification external audits of forest land 217 forestry industry and defensive initiative 143, 219 Forest Stewardship Council (FSC) Forest Product Certification 215‒17 formal political pressure 127‒30 formation process of SD/CSR strategy 9 Fortune 100 product companies 175 fossil fuel from mangrove trees 57 fossil fuels, harmful effect of transport 276 fossil resources, exhaustion 267 Framework Convention of Tobacco Control (FCTC) 37‒8 binding 47 free association, rights to 35 freedom and human rights 267 free press curbing and control over media reaction against globalization by developing countries 42 ‘French cultural heritage’ taste of wine specialized knowledge in production process 284 French legal culture 256 French-listed MNEs, new economic regulations’ law 142 French MNEs, survey 8 French multinational companies, and CSR 245‒59 French wine, unique product 286 consumer education about wines 291 French wine production, know-how transmission 289 Friends of the Earth, standards for corporate conduct 216 future generations’ interests, present and future concern 106

301

gap analysis 152 gas flaring in Niger Delta, contribution to acid rain 57 crop growth stunting, damage to ecosystem 57 gender equity 44 General Agreement on Tariffs and Trade (GATT) 42 General Agreement on Trade in Services (GATS) 43 generic standards 221 genetically modified corn, kills butterfly larvae 86 geographic diversification as antitobacco strategy 37 Germany, research strategies in sustainability 144 global business networks 79 global capitalism, responsible human rights, labor, environment 40 Global Compact, voluntary 47 Global Compact initiative ethics-based concept and instrument 39‒41 TNCs joining 41 Global Compact of the UN UN Rio Conference on Environment and Development 212‒13 global companies, corporate involvement Millennium Development Goals 41 global economic system, strain on nature 121‒2 global environmental problems, first UN program 212 global evolutionary expansion multinational production 75‒9 globalization and dominance of MNCs 62 and ecology 185 and financial markets 185 reaction against 39‒40 globalization deepening Internet and technological revolutions in IT 78‒9 global monitoring system 222 global public goods, meanings and management 288‒9

302


Global Reporting Initiative (GRI) 11 ineffective because voluntary agreement 60 Global Reporting Initiative Sustainability Reporting Guidelines 142, 233 global strategy and CSR strategy, link 252‒5 global supply chains, high transaction costs 221 global-theoretical approach 18 global warming 267 changing migratory flows 86 gold-mining in Ghana ecological effects, cyanide spills into rivers 81 FDI, lack of sustainable development 81 social disruption effects 81 social reaction, backlash from unemployed youth 81 governance mechanisms for social justice 17 green agenda, over-alignment with 165 greenhouse effect 267 Greenpeace, standards for corporate conduct 216 green strategy 5 ‘greenwashing’ , professing green practices, gain support 130 Guidelines for Multinational Corporations ineffective because voluntary agreement 60 health and safety report (HR) 187 health as physical and mental well-being 36 herbicides 44 Hewlett Packard, global PC industry spying on own directors, illegally 94 horizontal production system, FDI value for host country 78 host countries developmental needs 65 essential technical skills 82 human capital attraction and retention 172 human resource management 173, 236

human rights 12, 65 in Hong Kong 231 hunger elimination, aim by 2015 43 hybrid organization forms 148, 192 hypothesis testing 176‒8 ideological beliefs of nature at humanity’s disposal 121 implementation of codes of conduct 9 independent monitoring of firms 210, 222 Indian Oil Corporation, Global Compact goals 41 indigenous people, acknowledgement of 172 industrial ecological behavior eco-defensive, favor short term gains 12 industrial ecology (IE) 85‒102 comparison with biological ecosystem 87‒9 industrialization in developing countries 43 industrial transformation of world 121 industry associations, sponsors of defensive initiatives 219 inequalities between and within countries 120 infant food products, unethical marketing in Africa 38 Infant Formula Action Coalition (INFACT) 38 infant mortality rate higher with infant formula 38 influence diagram for impact of unsustainable practices 172 influence exertion on suppliers 147‒50 in academic literature 151‒6 influence of NGOs and MNEs 185 influences, indirect, of sustainable practices 171 information command 134 information sources on financial analysis 187 information technology (IT) 123, 264 initatives with less stringent requirements low behavior modification 225 initiative for corporate conduct voluntary and international 207‒27

Index initiatives and voluntarism, Anglo-Saxon 247 proactive 215 with stringent requirements 210 low adoption rates 225 with weak requirements 210 innovation adoption decisions 123‒9 desire for efficiency, wider sense 133 moral command 135 study on 8 integrated structure 193 intellectual property protection 45‒6 intellectual property rights 97 China 237 fair distribution 117 Inter-American Court of Human Rights 65 inter-company interaction 108 internal branding, improved 16 internal consistency of firms 130‒33 internal procedures, improvement 16 international business, evolution of, export trade 76‒9 international capital mobility 62 International Finance Corporation (IFC) 42 International Labor Organization (ILO) 92 Charter 30 company’s awareness and compliance 173 compliance with principles 142 Declaration of Fundamental Principles and Rights at Work 214 Multinational Enterprise and Social Policy 33 social justice and labor rights 30 international labor standards Conventions and Recommendations 30 International Monetary Fund (IMF) 42‒3 International Organization for Standardization (ISO) sponsors of trade-promoting initiatives 221 international production stage 3 dispersed production system 78

303

international strategies 12 international supply chain management 261‒79 International Trade Centre (ITC) training programs for developing countries 44‒5 International treaty on Plant Genetic Resources 44 International Union for Conservation of Nature ‘World Conservation Strategy’ 122 international voluntary initiatives for corporate conduct 211 investment-like relationships, market power 147 investment relationships 112, 147 inventions, creation of ideas 123‒4 isomorphism 126 joint-trade organizations, French wine-growers New World in ‘free-rider’ position 289‒90 joint training courses 116 Judaeo-Christian religions placing man over nature 121 Kalundborg, Danish island, industrial operators link 88 Kantian moral standards 8 know-how communications, creation of corporate culture 16‒17 organizational, enhanced motivation, staff involvement 16 technological, products and procedures innovation 16 wine production 284 knowledge cooperative networks 104‒18 knowledge-based economy 104, 106‒10 knowledge inherited, French wine 284 knowledge management, role of 123 within cooperative networks 114‒16 knowledge transfer 11 Labor Commission pollution penalties, little evidence 91 labor expenditure on CAFTA venture 100

304


labor and environmental issues in NAFTA and CAFTA 92 labor practices in company 172‒3 labor relations 32‒4 labor rights 30, 92‒3 land tenure 44 Latin-American countries, laissez-faire attitude to MNEs 63 laws and rules promotion, France 247 learning opportunities 109‒10 legal action for breaches of environment law 132 legal command 131‒3 legal decision-making 8 legal enforcement, weak in China 236 legal foundations, reporting New Economic Regulations, France 249‒51 legitimacy, symbolic display 218 ‘legitimacy theory’ ‘politically correct’ or ‘socially acceptable’ 250 legitimation of corporate actions toward internal and external stakeholders 15 Likert Scale survey format 169 Lima Declaration, 1976 43 literature on research, findings 148‒50 litigation, pressure on MNEs 123 local communities, acknowledgement of 172 local firms and environmental deterioration MNEs, enhanced responsibility because bigger 56 logistics, study on, 8, 143, 264, 274‒6 long term shareholder value 123 low-income countries, lax environmental standards 50 low-income markets, African countries 15 LVMH, adaptive company, report 254 machinery, inferior, to developing countries 50 macroeconomic versus microeconomic 18 macroeconomic context, environmental factors 13‒15 management science 3, 147

management team, characteristics 13 management theory 3 managerial choices and site management 13‒14 managerial involvement 151 managerial practice, new implications 19 mangrove trees in Nigeria, major source of soil stability 57 mankind, survival of 47 market-based mechanisms for self-regulation 226 marketing tool for French wine, ‘regional product’ 286‒7 market power and influence exertion, alternative suppliers 153 market push, regulation or quasiregulation 141 market structure of wines France and MNEs world-wide 285‒6 Marrakech Agreement 42‒3 mass media as external influence 127 medical matters codes of conduct for pharmaceutical giants 36 methodological level 19‒20 Mexican maquiladora program 97 cheaper labor and highly trained 100 Mexico, contaminant release report, late and incomplete 101 microeconomic context, organizational factors 13‒15 milkweed plant and monarch butterflies plant for sustaining migratory flow 86 Millennium Development Goals 29, 213 nine principles 40 ‘mimicry’ completion within groups 125 minimum requirements from defense initiatives 220 models and decision-making process 9 money enforcement penalties against polluters 91 no evidence in USA 91 monitoring, third-party 208 moral command 133‒4 strong authoritative powers 133

Index vulnerability to economic pressure 133 moral constraints, use of maximization of economic returns 133 motorized recreational products sea-doo, ski-doo, research hypothesis 112‒13 Multinational Corporations, environmental construction voluntary codes 59 multinational corporations (MNCs) growth of activity, 1970-2000 53 influence on domestic policy 53 Multinational Enterprises and Social Policy 147 multinational enterprises (MNEs) 5, 17 China 230‒42 coffee trade, list 9‒10 commitment to sustainable development 185‒91 company with at least one production unit abroad 141 control of companies in at least two world-economies 141 and employment, ILO studies, 32 increased investment and environmental sustainability 54 investment,not necessarily good 62‒3 lack of measuring instruments 277 moral dimension of commitments 185 motorized recreational products 113 negative’ influence 32 opportunistic behaviors 277 production in several national markets 141 spreading of responsibilities 277 sustainable development (SD) 50‒68 Multinational Enterprises team 147 multinational owner corporations 175 NAFTA as initial site choice, sustainability roadmap 99 national accrediting organizations ISO Environmental Management System Standard 222 national culture and market economy 249

305

national differences 248 national government regulations 208 national media, state control 42 National Science Foundation (NSF) Construction and the Environment workshop 170 national strategies CSR-related questions, strategies to respond 144 nation-states 28 and MNCs, relationship 62 natural resources husbanding of 111, 267 sustainable agricultural and rural development 43 Natural Resources Management and Environment Department replaces Sustainable Development Department 44 negotiation and compliance 132 Nestlé, giant Swiss TNC WHO controversy on infant food products 38‒9 network theory, social networks 264‒5 New Economic Regulations, France 251 declarations only, no sanctions for nonconformity 250 social and environmental consequences, accounting for 250 New International Economic Order (NIEO) contfrontational concept of 34 New International Information Order (NIIO) 42 New World, trade internationalization, competitiveness 258 New World MNEs in wine trade benefit from wines’ positive image 290 ‘New World’ multinational firms wine production, more recent than Europe’s 283 New World wine, product for profit 289 Nigeria, lack of enforcement of environmental guidelines 58 lack of pollution control policy 58 oil fields, global warming effects 57

306


Nike Corporation, questionable social practices 142 Nike, member of Fair Labor Association better working conditions 132 Nobel Peace Prize for ILO 31 non-governmental organizations (NGOs) informing on certified products 226‒7 sponsoring organizations 216 non-US, explicit environmental policy 157 normative isomorphism 126‒9 normative pressures, culture 125 norms and beliefs 130 norm-setting initiatives 211‒23 lack of widespread adoption 213 North American Agreement on Environmental Cooperation 89‒90 North American Agreement on Labor Cooperation 89 international constraints 90 North American Free Trade Agreement (NAFTA) 87‒91 economic agreement, Mexico,USA, Canada 89‒91 environmental pillar 90‒91 labour commission, social pillar 90 preferential rule of origin 97 social and environmental matters, inclusion 89 obligations on national governments 65 occupational health and safety 30, 173 OECD Guidelines for Multinational Enterprises 212‒13 oil extraction in Niger Delta causing deforestation, gas-flaring, oil spills 57 oil platform, Shell-operated, planned sea immersion 142 oil spills in Niger Delta, high incidence contamination of water bodies 57‒8 mangrove trees, destruction of, by oil spills 57 operations, unsafe 171 options scandal in 100 US corporations 94

organization and management structure sustainability implementation 191‒3 Organization of Economic Cooperation and Development (OECD) 212‒3 Organization of Petroleum-Exporting Countries (OPEC) 42 Ottawa Charter for Health Promotion 36 outputs and inputs, comparison with biological ecosystem 88 outsourcing of business activities, upgrading of labor 101 overdevelopment 166 owner commitment to sustainable practices 176 partial integration phase companies Arcelor, Bouygues, Thomson, Thalès 254 participants, sustained integration 116‒17 partner interaction 110 partner outsourcing in host countries 142 partnership approaches 157 peer group pressure 124 performance appraisal system 240 pesticides 44 petrochemical companies 175 petroleum companies, global, conduct codes 9 pharmaceutical industry 175 bilateral agreement, Thailand and USA 97 philanthropic community development 171 philanthropic programs in China 230 philanthropy in company 172 political pressures, informal 128, 132 pollution abatement technologies 55 pollution-intensive equipments, cheaper 55 pollution-intensive industries 50 positive spillovers in national economy 73 poverty reduction through productive activities 43

Index pressure and commands in SD diffusion 128 price-competitive market in China 236‒7 proactive companies, Danone, Véolia 253 proactive initiatives, low adoption rates, 223, 225 process characteristics 9‒11 process model, SD/CSR research 7‒9 producer behavior monitoring 215 product certifications 215 production of products and services environmentally appropriate methods 79 meeting needs of community 79 production of wine, knowledge transfer fear of knowledge disappearance 287‒8 production sites-exchanges in North America 99 products and services, study on 8 profits generation 51, 54, 121, 132, increase and focus on 131 maximization, primary objective 63 motives of MNEs 66 project form, organizational choice 192 project performance indicators four parameters for project success 173‒4 project cost and schedule performance 176 PR orientation of firm, goals, transactions, behavior 10 protectionist policies 35 protection of firm’s economic interests 218 psychological theory 5 public education pressure on MNEs 123 public goods, threats to 289 public purchasing 148 purchasing staff, ethical demands on 148 quality and service emphasis 108 quality policy, measurement 193

307

R&D investment 172‒3, 187 Rainforest Alliance, standards for corporate conduct 216 rationality 5‒6 reactive strategy of companies risks from global supply chains 150 recycling, reusing, reprocessing products and packaging 263 Reebok, member of Fair Labor Association better working conditions 132 refinery, power station, fish farm, interconnected operations 88 regional trade agreements 87 regional wine production, France 284‒5 regulated environmental aspects versus voluntary economic and social aspects 165 regulation compliance and avoidance 16, 132 regulation of business activities, need for by national governments of developing countries 61 regulation of TNCs, resource guide, 44 regulatory constraints, for supply chains and suppliers 141 regulatory mechanism for MNEs 65‒6 regulatory reform 123 regulatory regime, coherent 59 Renault, adaptive company, professional ethics code 254 report design, content and process, themes 11 reputation of firm, improvement 16 research on ethnic Chinese in foreign MNEs in China 232 on sustainability 166‒7 research findings Min and Galle, environmental issues 155 Murphy and Poist 157 synopsis 158‒9 research hypothesis 168‒9 business of motorized recreational products 112‒13 research methodology 169‒70

308


research proposals and hypotheses building 81‒3 research scope, ‘Fortune 100’ owner corporations 169 resource conservation, long-term 105 resource consumption, excessive firms must avoid, for future generations 95 resource-dependence theory 128, 135 resource-dependent approach, to innovation adoption 126 resource pooling 110 resources, intangible 106 responses validation 174‒5 responsibilities, perceived, of foreign subsidiaries in China profit, not social problem solving 233 responsibility without accountability 67 responsible authority CSR-related questions, strategies to respond 144 retention stage of process 7 reverse logistics 148‒9 rhetorical process 7 right and wrong, perceptions of, variations in 134 Rights to Work Declaration 35 Rio Declaration of 1992 214 risk and crisis management 190 risk-averse workers in China 237 roadmapping 98 Royal Dutch Shell Niger Delta, Nigeria, environmental degradation 56‒9 using carbon-dioxide from factories, in greenhouses 132 rules of conduct and behavior courts and penalties 28 mutual benefit, good citizenship 28 rural employment 44 safety and health practices, ILO studies 32 safety measurement 174 sample size, increased 19‒20 sanctions for non-compliance 210 Sarbanes-Oxley Act on accounting frauds 131

schedule data, collection of 177‒8 scientific maturity 144 selection stage of process 7 self-contained standalone entities, manufacturing firms 78 self-evaluation and self-reporting by firms 213 self-interested homo economicus 121 self-regulation, effectiveness as a tool 213 defensive initiatives 219‒20 potential 207‒27 trade-promoting initiatives 221 self-reporting on implementation of Global Compact 41 shared expertise 113 shareholder accountability 54 activism, pressure on MNCs 123 value 106, 135 value enhancement 51 short-term economic growth at expense of environmental protection, China 235 short-term returns on capital 106 skills management 115 smoking and tobacco companies 36 smoking, preventable cause of death 36‒7 social and economic development lagging in parts of world 165 social and financial scandals, Enron, Worldcom 245 social and labour practices, ILO studies 32 social constraint, host-country regulations 141‒2 social contribution to SD by firm treatment of workers of firm 94 workers in developing countries, offshore involvement 94 social factors of sustainable development effect on firm’s business on interested parties 106 social indicators 190‒91 social justice problem, China 237 socially responsible investment (SRI) 9 European MNEs 193‒9 index, information source 186, 193

Index specific indexes Advanced Sustainable Performance Indices (ASPI) 194 Ethibel Sustainability Index Excellence (ESI) 194 social networks and adoption decisions 124 social reporting, various forms 10 social reports (SO) 187 social responsibility of businesses, 3‒10, 132, 185‒6, 193 Anglo-Saxon and French 247 five capacities 10 four theoretical focus areas 10 viewed as too costly in China 234 social responsibility of MNEs 186 socioeconomic interface 111 employee rights, good governance 107 hygiene, health and safety at work 107 sociology and ethics 184 sourcing policy, ecological parameters 153 Soviet infiltration, fear of, into ILO 31 spillover effects of FDI 75, 81‒2 sponsoring organizations, goals of 207‒27 defensive initiatives, industry associations 218‒19 sponsors of norm-setting initiatives 212‒13 of proactive initiatives 215‒17 stakeholder pressure, importance of 226 stakeholders expectations 9 identification, company 172 interest 10, 11 management 7 needs, meeting of 16 report (SHR) 187 value 123 standards, costly to adopt 217 state-owned enterprises in China 234 state regulation of big business 59 state’s responsibility to use capital 64 statistical differences, Germany, UK, USA 152

309

statistical indicators, as trend indicators 176 statistics in engineering and science fields 176 status or social recognition not sought by legal command 131 status-seeking groups 128, 130 Stockholm Declaration 1972, environmental sustainability 54 strategic decision-making processes 4‒6 stress levels high, in MNEs, China, undervaluation of CSR 236 subjective norms, beliefs about others’ expectation 129 subsidiary outsourcing in host countries 142 substantial strategy leads to response to social demand 11 supplier awareness, lack of 155 suppliers dependence on buyer, influence 154 outsourcing in host countries 142 selection criteria 153‒4 relations 190 supply chain management (SCM) 261‒79 definition of 143 managerial approach 262‒3 purchase and sourcing 142‒3 supply chains 143 influence on suppliers 141‒61 within sustainability 144 supply economy to demand economy 108 supply sources, geographical substitution 153 sustainability and supply chains social and ecological requirements 144 Sustainability Component of Project Planning Index (SCPPI) 168‒9, 176 economic, environmental and social pillars 173 Likert Scale project performance 170 relationship with cost deviation 180 relationship with CSCI 179 relationship with schedule deviation 180

310


sustainability metrics 164‒83 sustainability pillars, economic, environmental, social 96 sustainability reports (SR) 187 types and ranking 189 sustainable agendas, absence of competitive advantage reduction 171 investment value reduction 171 sustainable consumerism, market pull constraint on supply chains 142 sustainable development (SD) 10 93, 120‒23 community of common interest 135 CRS common points and differences 145 CSR process, multidimensional 18 diffusion framework 120‒36 ecological and economic development 166 environment, economics, society and culture 267 FDI in developing economies 73‒83 global economic development 266 interface management 107 macro-voluntarism approach, global practices effect 247 main strategies listing (CSR axis) 271‒3 (environment axis) 268‒9 micro-behaviorist approach companies’ practices in CSR 247 multinational enterprises (MNEs) 4 NAFTA and CAFTA difficulties 101‒102 need for in Chinese business 240 reports of multinational companies 270‒76 research models 18 social development 166 three pillars, balanced approach 164 undermining by MNCs 53 value adding to company 165 Sustainable Forests Initiative (SFI) gradual increase of standard stringency 219 sustainable supply chain management (SSCM) 148‒9, 262‒6, 274, 277 tacit knowledge and communication interpersonal exchanges 115

Taiwanese subsidiaries in China 236 tariff duties 100 tax incentives inadequate for CSR in China 238 technological skills, lack of, in host country 78 technology and environment 266 technology choice in developing countries, ILO studies 32 technology transfer 44, 46 to developing countries 54 telecommunications, multinational enterprises (MNEs) 32 terminology 142‒5 territorial reference for French wine appellation d ‘origine contrôlée (AOC) 286, 290‒91 textile-apparel industries, NorthAmerican goods must be all-American components and work on it 97 textual study 273‒4 Thailand physician, drugs for treatment of AIDS seeking weaker protection for USA IPR 97 theoretical models 9 integrative perspective 18 think tanks 44‒5 business interests and decision-making 131 third-party enforcement mechanism 217 interventions for pre-emption 132 monitoring 219 third party technique 131 third party verification of compliance 215 Third World dictators (Idi Amin) threatened by free press 42 tobacco control, WHO research on smoking 36‒8 opposition to WHO top management buy-in on sustainable practices 171 total quality management (TQM) 123 trade agreements 87 trade capacity-building 43 trade-promoting initiatives 221, 225

Index Trade-Related Aspects of Intellectual Property Rights (TRIPs) 43, 45 royalty fees for transfer of ‘clean’ technologies 55 Trade-Related Investment Measures (TRIMs) 43 illegal to control MNCs through local content requirements 62 trade, replaced by FDI in host country 76 trade unions’ involvement 31 green jobs, ecology, sustainable development 35 trading agreements 95 training and education of populations in developing countries 111 transaction cost economics (TCE) 265 transaction costs 100, 221 from taxes, tariffs and transportation 98 transfer technologies, MNEs to host countries 75 transformation costs/benefits from materials, labor and environment 98 transnational companies (TNCs) 5, 12, 8, 85 contributions to economic and social progress 34 nature and growth enlightened labor relations and employment 33 low-cost niches, easier and cheaper to pollute 101 UNESCO and 41‒2 transparency and reporting CSR-related questions, strategies to respond 144 and social action leading to increased revenue 132 triangulation, quantitative/qualitative data combination 20 Tripartite Declaration 32, 35, 147 statement of principles 34 tropical timber boycotts 216 UN Center on Transnational Corporation (UNCTC) 28

311

UN Committee on Economic, Social and Cultural Rights 56‒7 UN Conference on Trade and Development (UNCTAD) 28 UN Conference on Environment and Development Rio de Janeiro 1992 122, 216 UN Development Program, Our Common Future, 1987 standard definition of sustainable development 122 UN Educational, Scientific and Cultural Organization (UNESCO) New International Economic Order (NIEO) 41‒2 UN Environment Program (UNEP) relocation of hazardous industries, US to Mexico 50 UN galaxy, organs relevant to FDI/ TNCs 29 UN Global Compact ineffective voluntary agreement 60 principles of 213 human rights, labour, environment 214 Unilever, sustainability reports 133 UN Industrial Development Organization (UNIDO) industrialization in developing countries 43 UN Institute for Training and Research (UNITAR) training programs and research 44‒5 unique products and tradition, wines of France 290 United Nations Children’s Fund (UNICEF) 46 United Nations (UN) galaxy 28‒48 United Nations (UN), sponsor for global environment 212 Universal Declarationof Human Rights, 1948 40, 214 UN research Institute for Social Develoment (UNRISD) research on civil society, social movements 44‒5 upper-level management, realization of values 16 Uruguay Round 43

312


USA, no strategy to promote global CSR 144 USA and non-USA companies cost reduction, no differences 156 differences formal policies for non-US, informal for US 155 visual and odor pollution, importance of for US 155 environmental issues, no differences 156 environmental policy, informal 157 rejection of suppliers on environmental grounds 156 US Environmental Protection Agency research strategies in sustainability 144 US forestry industry, Sustainable Forests Initiative (SFI) 219 utilitarian perspective, maximisation of financial results 8 value-added production as spillover effect 81‒3 value chain management company-independent perspective 143 value creation process 106, 108, 131 values or culture of country 13 variables, institutional, pressure groups, media, law, crises 14 variables, managerial, leader commitment, autonomy in decision-making 14 variables, organizational market share, financial performance, capital stucture 14 size, host countries, sector 14 variation stage of process 7 Véolia, proactive company SD and CSR at heart of their vision 253 ‘vertical’ FDI host-country’s technological learning capacity 80 vertical integration production 73 visibility, CSR-related questions, strategies to respond 144 vocational training 30 ‘voluntary code’ 32

voluntary international initiatives 207, 223, 226 conduct guidelines 208 firm and industry self-regulation 208 tools for self-regulation of firms 209‒10 typology and design 224 wages and working conditions, ILO studies 32 Wal-Mart 133‒4 waste recycling, investigation of ways 132 waste valorization 148 watchdog activism, pressure on MNCs 123 water and land management 44 water poisoning in Niger Delta 57 water pollutions, continental 267 weight of strong players 126 ‘whistle blowing’ prohibition in China 237 wine bottle as object of art, France 284 wine circuits and vineyard visits consumer education about wines 290‒91 wine consumption decrease in France, reasons for 285 wine drinking, subjective aspects culture of ‘drinking’ in France, inheritance 287 wine market, world-wide against sustainable development 290 wine production in France crisis 283 French protection from standardization 288 importance of, largest worldwide wine exporter 284‒5 traditional French, competition from MNCs 283‒91 win-win situations 132, 135 women workers in developing countries, ILO studies 32 work breakdown structure 174 workers’ basic rights 142 working conditions, poor in corporate foreign operations 120

Index work standards hygiene, health and safety at work 116 World Bank (WB) 42‒3 World Business Council for Sustainable Development (WBCSD) 135 World Commission for Environment and Development 54, 111 World Economic Forum, Davos Switzerland United Nations global compact 40

World Health Organization (WHO) 35‒9 Thailand physician 97 World Intellectual Property Organization (WIPO) intellectual property rights 45‒6 World Trade Organization (WTO) 42 Worldwide Fund for Nature standards for corporate conduct 216

313

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