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Global CSR: Born This Way

Firms’ international behaviour is often shaped by their home country. What does this mean for setting global standards and being socially responsible?

The essentials

A company’s experience in its home environment — how it interacts with regulators, the political environment, social expectations — may condition how they conduct business in other countries. “They take these ideas with them,” says David Detomasi, adjunct assistant professor of international business and strategy at Smith School of Business. In conversation with Smith Business Insight, Detomasi discusses what this means for corporate social responsibility and Canadian firms operating abroad, and the challenges of developing global industry standards.

International Firms Take Domestic Attitudes With Them

International political economy studies whether or not there are significant and measurable differences in how companies that come out of different institutional backgrounds do things distinctively. It could be anything from how they reward their executives to how they structure themselves internationally to how they practice corporate social responsibility (CSR). 

Most companies aren’t born internationally; they usually develop out of a strong home base before going abroad. I’m interested in whether or not their domestic experience shapes what they do abroad. In terms of CSR, I would argue that a company’s experience in its home environment — how it interacts with regulators, rules, the political environment, social expectations — may condition what they do when they go someplace else. They take these ideas with them. 

For example, would a company from Germany, where there’s heavy political representation from those who want to see higher CSR standards, more likely invoke those standards in its operations abroad? I think they would but not because they necessarily care more about the standard. It’s just that they’re worried about the domestic political ramifications if they don’t. Whereas for international firms based in countries operating under different political systems, the pressure to be leaders in CSR probably would not be as stark. 

If that’s the case, what does it mean for people who try to construct new types of CSR standards? You may be barking up the wrong tree if you think everyone sees the problem the same way you do.

Canadian Firms: Do Good or Go Home?

Where this really hits the road is in resource extraction, mining, big infrastructure developments in developing markets, dams, roads, and bridges. That’s really a fairly small subset of international business activity but is pretty critical for Canada. These industries depend a huge amount on interactions with governments — governments that want to establish control over how things are done. Now if a company from Canada wants to drill for oil in Nigeria and faces domestic opposition in Canada because we disapprove of how Nigeria does things, that’s a burden a Canadian company will have to pay attention to. The company draws largely on Canada for its workforce and its press coverage and most of its investors are probably Canadian. So it will bear that burden where other countries won’t.

An example is Talisman Energy in Sudan. About 15 years ago, Talisman had a 25 percent interest in an oil project in that country, in partnership with the national petroleum companies of China, Malaysia, and Sudan. According to Talisman’s tale, they were very concerned about providing roads and hospitals and helping people, and that their partners weren’t. Canadian shareholders put pressure on Talisman to leave because revenues were going to the Sudanese government to be used to fund the civil war armory. Eventually Talisman said the juice wasn’t worth the squeeze and were bought out by their partners, who promptly closed the hospitals and everything else. CSR advocates were pleased but the Sudanese people were not.

Filling the Governance Gap

Just before the financial crisis, many people were saying that states had retreated from their regulatory power, that companies had grown bigger and sovereign and that there was a “governance gap.” There was a space that needed effective rules and regulations about how companies did things but there was no one to fill that gap. These were issues such as labour standards, environmental standards, workplace conditions. Could companies fill this gap if states themselves had shown they couldn’t? 

The discussion happened at a time when the global economy was growing very quickly. Since then, we’ve had a rebirth of what we call state capitalism, which is code word for home governments taking ownership stakes in companies and appearing to shape what they do to achieve political and economic objectives. 

Given that we want to see improved CSR standards on the international front, what do the standards have to look like in order to appeal both to the Chinas and the Americas? 

Given that we want to see improved CSR standards on the international front, what do the standards have to look like in order to appeal both to the Chinas and the Americas?

In the case of the Forest Stewardship Council, here’s an industry-led governance group that certifies that wood harvested for lumber is done in such a way as to promote sustainability. The idea behind an industry standard like this is to do a few of things: One is to promote goodwill among consumers who care whether or not lumber is harvested sustainably. Secondarily, it also allows for import and entry barriers against countries that choose not to follow that standard. And thirdly, in some cases the industry standards are higher than the standards that government place. A company might want to have one fairly high standard that goes across the dozens of countries that it operates in rather than trying to adapt to every country.

Now we have private sector companies from different places working together to agree on standards that they’re all going to follow. It’s uncomfortable for a lot of people because they’re not accountable or elected. In some areas, it may make sense for the people most involved in the technical work to help set standards for that industry. In other circumstances, it’s not the best idea. A great example is the interplay between Goldman Sachs and the U.S. Treasury; you might want to have an independent body watching what they do that carries the same expertise as the market players themselves. 

Setting Standards and Calibrating Power

Every institution in the world that governs international commerce has to adapt to new economic powers on the rise that may or may not share the same political values as the current economic powers.

Companies have to appreciate that there are questions of power that determine these standards. If you’re a medium-sized firm from Canada and the largest engineering firms are from Europe and the U.S., you have to realize that your views may be in the minority and that they may have to be adjusted. Also, in your corporate strategy, there may be standards that you think are good enough but that may require you to either avoid some markets altogether or be very circumspect about how you’re going to proceed.

Interview by Alan Morantz

The Multinational Corporation as a Political Actor: ‘Varieties of Capitalism’ Revisited, Journal of Business Ethics (May 2015, Vol. 128, Issue 3, pp 685-700)

 

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