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From Voids to Sophistication: Institutional Environment and MNC CSR Crisis in Emerging Markets


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Why do multinational corporations (MNCs) frequently encounter corporate social responsibility (CSR) crises in leading emerging markets in the new century? Existing research about institutional impacts on MNC CSR has developed a void-based account about how the flawed institutional system allows misdeeds to happen. But the fact that such misdeeds have turned into increasing CSR crises in the new century along with institutional change is rarely taken into account. This paper combines studies of institutional voids, institutional entrepreneurship, and stakeholder theory to develop a concept of institutional sophistication, which refers to both the top-down maturation of the regulatory system that standardizes firm behavior and the bottom-up diversification and intensification of grassroots initiatives that redefine stakeholder membership. Based on this concept, we developed a framework to comprehensively demonstrate how both institutional voids and sophistication drive the MNC CSR crisis in leading emerging markets. Empirically, we established an original database that includes 309 publicized CSR crises encountered by major foreign MNCs in China, India, and Russia, 2000–2011. Through a content analysis, the paper reveals six common sophistication processes that drive the MNC crisis across contexts and also specifies stakeholder strategies that make these processes happen and vary by social problems and national contexts. We also discussed the value of studying corporate social irresponsible behavior in understanding the institution–MNC relationship.
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From Voids to Sophistication: Institutional Environment
and MNC CSR Crisis in Emerging Markets
Meng Zhao
Justin Tan
Seung Ho Park
Received: 27 September 2012 / Accepted: 12 May 2013
Springer Science+Business Media Dordrecht 2013
Abstract Why do multinational corporations (MNCs)
frequently encounter corporate social responsibility (CSR)
crises in leading emerging markets in the new century?
Existing research about institutional impacts on MNC CSR
has developed a void-based account about how the flawed
institutional system allows misdeeds to happen. But the
fact that such misdeeds have turned into increasing CSR
crises in the new century along with institutional change is
rarely taken into account. This paper combines studies of
institutional voids, institutional entrepreneurship, and
stakeholder theory to develop a concept of institutional
sophistication, which refers to both the top-down matura-
tion of the regulatory system that standardizes firm
behavior and the bottom-up diversification and intensifi-
cation of grassroots initiatives that redefine stakeholder
membership. Based on this concept, we developed a
framework to comprehensively demonstrate how both
institutional voids and sophistication drive the MNC CSR
crisis in leading emerging markets. Empirically, we
established an original database that includes 309 publi-
cized CSR crises encountered by major foreign MNCs in
China, India, and Russia, 2000–2011. Through a content
analysis, the paper reveals six common sophistication
processes that drive the MNC crisis across contexts and
also specifies stakeholder strategies that make these pro-
cesses happen and vary by social problems and national
contexts. We also discussed the value of studying corporate
social irresponsible behavior in understanding the institu-
tion–MNC relationship.
Keywords Institutional sophistication Emerging market
MNC China India Russia CSR Crisis
ACFLU All China Federation of Labor Unions
CSE Center for Science and Environment
CSR Corporate social responsibility
IPE Institute of Public and Environment Affairs
MNC Multinational corporation
NGO Non-governmental organizations
PSA Professional supervisory agency
This paper studies a timely but theoretically under-speci-
fied relationship between multinational corporations’
(MNCs) corporate social responsibility (CSR) and the
institutional context in emerging markets. This relationship
concerns a set of processes shared by leading emerging
markets through which institutional change drives growing
stakeholder accusations to MNC misdeeds. A rising risk for
MNCs in emerging markets is that local stakeholders seem
to increasingly perceive MNCs as a source of social and
environmental problems. For example, foreign car manu-
facturers in China have experienced an unprecedented
breakout of consumer accusations since 2005 concerning
product quality issues. In India, a nation-wide boycott
M. Zhao (&) S. H. Park
Institute for Emerging Market Studies, Moscow School
of Management SKOLKOVO, Unit 1608, North Star Times
Tower, No.8 Beichendong Road, Chaoyang, Beijing, China
S. H. Park
J. Tan
Schulich School of Business, York University,
Toronto ON M3J 1P3, Canada
J Bus Ethics
DOI 10.1007/s10551-013-1751-x
Electronic copy available at:
against global beverage giants took off in 2003 and lasted
in subsequent years. In Russia, 2006 witnessed the argu-
ably first court endorsement of the consumer’s compensa-
tion request from foreign food retailers. Furthermore, in the
past decade, labor protests against MNCs had a clear
growth in all three countries (e.g., foreign retailers in China
and foreign car makers in India and Russia). These cases
have turned into CSR crises that were heavily reported by
the mass media and caused financial and reputational
We recognize that MNCs in emerging markets could be
accused and penalized for a complex mix of social, eco-
nomical, and political reasons, even by ungrounded accu-
sations (Zhao 2013). Nevertheless, this paper focuses on
how the social–political transition generates common insti-
tutional tensions across contexts that make perceived MNC
misdeeds less tolerable and more likely to be punished. The
level of the economic development in a country has shown a
profound effect on the manner in which various stakeholders
generate impact on business operation (Jones 1999). After
decades of stakeholder maturation as well as MNCs’ pene-
tration into the mass market, the increasing scrutiny and
criticism on MNCs’ social and environmental misdeeds are
recorded in leading emerging markets (Falkenberg 2004;
Tan 2009). This research examines how the local social
political change is adding new pressures to MNCs following
their long-term operation in the host country.
The flawed institutional environment has been heavily
relied on to account for MNC misdeeds in developing
countries. Compared to developed countries, China, India,
and Russia feature problematic formulation and enforce-
ment of the formal rules of the game and weak grassroots
stakeholder supervision on firm behavior. Examples range
from the failure of government supervision on environment
pollution (Gladwin 1987) to abusive labor practices in
manufacturing factories in China (Amold and Bowie 2003)
to the government’s negligence of duty on tragedies like
the Union Carbide gas leak in Bhopal, India (Ramakrishna
1984; Trotter et al. 1989). MNC activities in developing
countries before 1990s were to a large extent limited to
establishing low-cost offshore production operations
(Arnold and Quelch 1998; Varley et al. 1998). At this time,
MNCs expanded their business quickly in emerging mar-
kets and drew extensive attention for their unethical
behavior (Johnson 1985; Lane and Simpson 1984; Long-
necker et al. 1988). Local governments in China, India, and
Russia at this time often adopted tacit rules of the game
that loosen the request on MNCs’ compliance to environ-
mental, labor, or consumer regulations, if any. A combi-
nation of institutional deficiencies such as the insufficient
attention or motivation in a bureaucratic governance sys-
tem, the corruption, the weak regulation enforcement
capability, and the lopsided focus on foreign direct
investments (FDI) has attributed to this situation.
Institutions in this paper involve both formal rules of the
game governing the relationship among social actors (e.g.,
the MNC–stakeholder relationship) (Fligstein 2001; North
1990), and a shared understanding of who are appropriate
social actors (e.g., who are important stakeholders) (Barley
and Tolbert 1997; Powell and DiMaggio 1991). The legal-
political arrangements and stakeholder dynamics compose
important institutional conditions for MNCs to calculate
the cost effect of conducting social misdeeds and for these
misdeeds to turn into business costs. A view of institutional
voids in emerging markets reveals the lack of social-
political structures that facilitate market operation such as
law enforcement systems and functional consumer redress
mechanisms (Khanna and Palepu 1997, 2010). Instead of
keeping to the conventional understanding of what is
missing in the institutional system, this research moves on
to investigate an updated scenario of institutional com-
plexity in emerging markets. We develop a concept of
institutional sophistication that refers to both the top-down
maturation of the regulatory system that standardizes firm
behavior and the bottom-up diversification and intensifi-
cation of grassroots initiatives that redefine stakeholder
membership. These two components of institutional
sophistication are in line with standardization and mem-
bership strategies, two broad approaches that institutional
entrepreneurs use to shape the institutional environment
(Lawrence 1999). The former strategy provides legal and
normative prescriptions of firm behavior. It hence involves
the substance and implementation of formal rules that
regulate what MNCs can do. The latter one concerns a
‘who are important’ question that MNCs need to address
when they operate in emerging markets. We argue that the
membership of MNC challengers is expanding in leading
emerging markets when increasingly diverse social actors
take on a structurally equivalent (DiMaggio and Powell
1983) role as contributors to the MNC CSR crisis.
Institutional sophistication, one the one hand, argues
against a void-focused perspective of MNC misdeeds
because it has limited power to capture the big picture
considering the rapid social transition in emerging markets.
On the other hand, institutional sophistication also recog-
nizes the stickiness of institutional voids and accommo-
dates the interplay of voids and development as a source of
the MNC CSR crisis. Viewing leading emerging markets as
undergoing a process of institutional sophistication, this
paper has two purposes. First, we develop a framework to
comprehensively account for how both institutional voids
and development influence the MNC CSR crisis in
emerging markets. Second, we aim to identify common
sophistication processes that drive the crisis across
M. Zhao et al.
countries and distinctive stakeholder strategies that make
these processes happen and vary by national contexts.
This paper is organized as follows. First, we draw on
studies of institutional voids, institutional entrepreneurship,
MNC CSR, and stakeholder theory to develop a framework
about the institution–crisis relationship in leading emerging
markets. This framework integrates institutional voids,
institutional sophistication, and the sophistication-voids
interplay to explore the source of the MNC CSR crisis. We
then describe data and methods. Next, we present outcomes
of a content analysis that demonstrates how the framework
works out in practice in China, India, and Russia. The
outcomes reveal common sophistication processes and
distinctive stakeholder strategies. The paper concludes with
a discussion of how this paper contributes to understanding
the institution–MNC relationship in emerging markets.
Suggestions for MNC strategies and future research are
Institutional Environment and MNC CSR Crisis
Both formal governance and social relationship aspects of
the institutional environment are under transition in leading
emerging markets. This is manifested in market-related
institutions necessary to sustain a competitive and fair
business environment, as well as the social cognition and
civil action protecting stakeholder rights. We argue that
China, India, and Russia are undergoing both top-down and
bottom-up sophistication of the institutional environment.
The former process is about the evolution of regulatory
formulation and enforcement, while the latter indicates the
diversification of stakeholder types and approaches, and the
intensification of stakeholder challenges against business
Regulatory System and MNC CSR Crisis
The first set of processes this paper examines is about how
the formulation and enforcement of the formal rules of the
game that govern the relationship between MNCs and
stakeholders has influenced the occurrence of the MNC CSR
crisis. The incompletely formulated and poorly enforced
regulatory system has been viewed as a driver of firm mis-
deeds in emerging markets. The ethical standard conflicts
rooted in different development stages in host and home
countries (e.g., Donaldson and Dunfee 1999) and the weak
regulatory and government systems (e.g., Tan 2009) allow or
even incentivize MNCs’ social misconducts. The gap of
social-environmental regulations between OECD countries
and emerging markets has made the latter an attractive
location for MNCs to build up global competitiveness.
National and local governments could purposefully ease
business regulations in pursuit of foreign investments, pro-
duction, jobs, and tax revenues (Ohmae 1995). Standard gaps
and low costs of law violation allow MNCs to seek cost
advantage by adopting a pollution haven strategy (Williams
1995; Zarsky 1999) and/or substandard labor practices
(Amold and Bowie 2003; Palley 2002). A flawed regulatory
environment may also appeal to foreign managers who are
accustomed to sub-standard business ethics. Su and Riche-
lieu (1999) pointed out differences between Western man-
agers and Romanian counterparts regarding the perception of
the ethical implication of bribery and corruption. They found
that Western managers who adapt to the Romanian envi-
ronment have been already conditioned to bribery from their
home environment. In summary, institutional voids incen-
tivize MNC misdeeds or at least make them a low-risk
While the void-based view explains the misdeed
occurrence, it does not inform how the misdeed transfers to
increasing crises in the new century. Actually, focusing on
what is missing in the institutional environment constrains
the capability of understanding why firm activities that
were allowed or even incentivized in a context turn into the
target of supervision and penalization. We highlight the
importance of acknowledging the staged features of the
regulatory and government system development in order to
explore the sources of MNC CSR crises in emerging
markets. Indeed, the existence and enforcement of national
regulatory standards in the areas of environmental protec-
tion and workplace safety systematically vary according to
the level of national economic development (e.g., Vogel
1995). The legal system in leading emerging markets dif-
ferentiates from both under-developed economies and
developed countries with regards to its dual features of
voids and development. Evans (1995) uses Zaire, Japan,
and Brazil as an illustration of predatory, developmental,
and hybrid types of government bureaucracies. Zaire marks
a predatory type that squeezes national wealth for private
gain of government leaders. In this context, laws either do
not exist or are not enforced. Japan provides an illustration
for an effective developmental bureaucracy. Brazil is an
example of a hybrid bureaucracy somewhere in between.
The hybrid bureaucracy demonstrates a legal system that
this paper describes as featuring leading emerging markets,
indicating a transition that presents increasing effects of
continuous government initiatives on regulating firm mis-
deeds in parallel with ingrained deficiencies.
Institutional sophistication recognizes the transitional
nature of the regulatory system and emphasizes the social
actors’ strategic power to make change happen. It is timely
to add a view of institutional entrepreneurship to the void-
based perspective decades after the economic and/or the
political system reform in China, India, and Russia. Insti-
tutional entrepreneurship (e.g., Phillips and Tracey 2009)
Institutional Environment and MNC CSR Crisis
interests in how individuals and organizations work to
influence their institutional contexts (Maguire et al. 2004).
Institutional scholars have long recognized that states and
regulatory systems are key sources of institutional change
(Streeck and Thelen 2005; Suchman and Edelman 1996).
In particular, the incumbent authority system could pur-
posively create change and realize self-alteration and hence
plays a role of institutional entrepreneur (Sheingate 2003).
In spite of the lasting deficiencies, both of the regulation
substance and the ability to regulate (Tavis 1982) in the
areas of consumer rights, labor rights, and environmental
protection in China, India, and Russia have made a pro-
gress since 1980s or 1990s. The continuous legislation
efforts in these countries have strengthened the civil
awareness on social-environmental issues. Meanwhile,
governments have to a nontrivial extent enhanced the law
enforcement capability through empowering supervisory
agencies and setting up new enforcement mechanisms.
This paper views the government’s strategic actions to
change the existing regulatory system as top-down
sophistication of the institutional environment. This top-
down sophistication may either directly increase a chance
for business misdeeds to be officially scrutinized, or indi-
rectly give rise to the MNC CSR crisis by facilitating civil
actions. Table 1 summarizes landmark regulations and
enforcement initiatives.
Leading emerging markets present a distinctive feature
that laws and market institutions are becoming increasingly
sophisticated but have not reached the potential (Prahalad
2009). Institutional voids would last for a long time.
Therefore, we ask a question about how the voids and
development components of this transitional regulatory
system gives rise to the MNC CSR crisis? Although it is
not surprising to argue that regulatory progress can gen-
erate risks for firm misconducts to turn into a public crisis,
examining how this process actually unfolds adds micro
insights and a useful complement to the understanding of
the institutional–MNC relationship in emerging markets.
Stakeholder Dynamics and MNC CSR Crisis
Another process of institutional sophistication in leading
emerging markets concerns the diversification of stake-
holders and the intensification of their challenging activi-
ties that may pose substantive pressures to MNC operation.
This process redefines the boundary of who counts as
stakeholders to business firms. This change of membership
rules in social relations is argued to be a key strategy that
institutional entrepreneurs adopt to shape the institutional
environment (Lawrence 1999). Recognizing previously
silent social actors as emerging change makers, there is a
need to broaden the understanding of local stakeholders’
influence on MNC operation in emerging markets. For
instance, Child and Tsai (2005) suggested to study
domestic NGOs as an integral part of the institutional
environment in emerging markets in the scope of institu-
tional analysis on MNC behavior. Stakeholder theory is
useful to identify which parties are important to the busi-
ness and hence to fulfill this need in MNC research.
Freeman (1984) broadly defines a stakeholder as ‘any
group or individual who can affect or is affected by the
achievement of the organization’s objectives’ (1984,
p. 46). This definition is open to critics for its loose
boundary that theoretically almost includes anyone (e.g.,
Mitchell et al. 1997). The volatile boundary, however, adds
a degree of freedom to the application of the concept
considering that the question of who accounts as a stake-
holder varies across countries and across developmental
stages of a country.
Voluntary stakeholders such as an MNC’s global
shareholders and local governments and partners in the
host country, taking shape ‘as a result of having invested
some form of capital, human or financial, something of
value, in a firm’ (Clarkson 1994, p. 5), have been at the
center of the firm’s legitimacy building efforts since it
entered developing countries. In contrast, involuntary
stakeholders, ‘‘as a result of a firm’s activitieswithout the
element of risk there is no stake’ (1994, p. 5), more
intensively represent an institutional change in leading
emerging markets. This change was particularly salient in,
albeit did not start from, the first decade of the new century.
This paper adopts a strict view of stakeholder, meaning
those actors with an increasing level of salience (Mitchell
et al. 1997). Such stakeholders are able to actively chal-
lenge the firm’s reputational and financial performance and
request an urgency of the firm’s response.
In developed countries, grassroots social actors such as
consumers and employees are able to participate in a
competitive market with informed choices so as to monitor
and challenge business behavior. They are often well-rep-
resented by grassroots groups of interests. In China, India,
and Russia, it was and still is to a large extent more of the
government technocrats rather than the free market
mechanism that determine the direction of the economic
and social development (Tavis
1988). Grassroots stake-
holders are under-represented and tend to be passive on
business issues. Hence, institutional forces that facilitate
CSR in developed countries such as non-governmental
organizations (NGOs) (Campbell 2007) often fail to func-
tion in these countries. For example, China and Russia
have a long-established restrictive regulatory system gov-
erning grassroots NGOs and self-organized labor unions,
and the low level of social trust have exacerbated the
already weak civil participation in NGO initiatives (e.g.,
Crotty and Hall 2011;Lu2007). Meanwhile, the idea of
consumer rights was unheard under the planned economy.
M. Zhao et al.
NGOs, employees, and consumers in China and Russia
hence have not been regarded as a stakeholder with salient
influence on business operation for a long time.
The weak grassroots supervision mechanism in emerg-
ing markets has partly contributed to the low transparency
and accountability of MNC activities to the general public.
This point further reduces the cost of MNC misdeeds in
addition to the ineffective regulatory system. However,
along with the economic growth of emerging markets,
MNCs expand production facilities and deepen services in
local markets. Being deeply involved into local contexts
subjects MNCs to growing stakeholder pressures on their
business externalities (Chen et al. 2009). On the one hand,
global and home country pressures began pushing MNCs to
address the needs of local stakeholders beyond sharehold-
ers and local government and business partners (Palazzo
and Richter 2005; Waddock et al. 2002) who were primary
stakeholders that MNCs dealt with in their early operation
in emerging markets. On the other hand, local people
started to demand that business organizations should play a
wider role in the society besides providing products,
employment, and the source of taxes (Kumar et al. 2001;
Treadwell and Pridemore 2004). Domestic stakeholders are
catching up with the global pressure on the MNC behavior
concerning human rights, labor practices, and environment
pollution (for example, Amold and Bowie 2003; Gladwin
1987; Longnecker et al. 1988; Norcia 1989). The growth of
grassroots challenges on firm misdeeds indicates bottom-up
sophistication of the institutional environment in emerging
We argue that bottom-up sophistication demonstrates a
profound change of the manner in which various stake-
holders generate impact on the business operation and
hence redefine who are relevant and influential to the
business. This process would turn MNC misdeeds into
stakeholder accusations and even CSR crises. For instance,
China, India, and Russia experienced the rise of consumer
organizations and consumer protests since the late 1990s
(Auzan 2001; China Consumer’s Association website
2011; Sanjay 2003). Meanwhile, the court cases concerning
labor disputes in the past 10 years have increased in China
(Data collected from Chinese governments’ labor dispute
Table 1 Regulatory progress on consumer rights, labor rights, and environmental protection in China, India, and Russia
Landmark regulation facilitating stakeholder accusation Sample initiative of strengthening regulation
Consumer rights The 1994 National Consumer Rights Protection Law;
the 2004 Defective Automobile Products Recall
China Consumer’s Association in 1984 marks the
start of formal government support in the area of
consumer rights protection
Environmental protection Thirty-one national level laws involving environmental
protection contents since 1979. The 2002
Environment Impact Assessment Law
The rising authority of the State Environment
Protection Administration since 2003
Labor rights 2008 Labor Contract Law; 2008 Labor Dispute
Mediation and Arbitration Law
All China Federation of Labor Unions requests
MNCs to set up labor unions
Consumer rights The Consumer Protection Act of 1986 replaced the
1930 Sale of Goods Act
The central government took systematic measures to
strengthen the consumer movement by supporting
and coordinating voluntary consumer
organizations and consumer activists
Environmental protection The 1986 Environmental Protection Act following the
Bhopal Gas Tragedy started the comprehensive
environment protection regulation
The provision of Public Hearing in January 1997 in
the Environmental Protection Act makes ‘Public
Hearing’ mandatory for all developmental
projects requiring clearance from MOEF
Labor rights N/A. Lack of progress, outdated 1947 Industrial
Disputes Act and 1980s amendments give rise to labor
Major labor unions have political affiliations.
Government officials and parliament members
support the labor union to protest against MNCs
Consumer rights The 2007 Russian Consumer Protection Law revised the
1992 Russian Consumer Protection Act
N/A. Lack of progress
Environmental protection The 2002 Federal Law on Technical Regulation marks a
turning point in the development of the regulatory
The 2002 law made the Environmental Impact
Assessment (EIA) obligatory for the investor. The
2004 administrative reform streamlined
responsibilities on environmental protection. The
revival of special enforcement entities
Labor rights The 2002 labor law replaced the Code of Laws for
Labor effective since Soviet times
N/A. Lack of progress
Institutional Environment and MNC CSR Crisis
arbitration agencies) and Russia (Gimpelson et al. 2009). In
India, about one million factory workers were involved in
250 strikes in 2003, and this number increased to more than
1.5 million workers involved in 255 strikes in 2008 (Media
interview with a director at the India Labour Bureau 2009).
In addition to stakeholders’ direct challenge to firm mis-
deeds, we argue that domestic stakeholders’ outgrowing
problematic existing regulations and business practices
may generate a unique mechanism specific to emerging
markets. This mechanism may trigger or exacerbate the
MNC CSR crisis. This research is aimed to unravel various
underlying processes through which stakeholder growth
has led to the MNC’s CSR crisis.
Based on the above discussions, this paper proposes a
framework (see Fig. 1) that illustrates how institutional
voids, institutional sophistication, and their interplay drive
MNC CSR crisis in emerging markets. This framework
shows that the voids-based account only partly explains
why MNCs find it difficult to maintain social legitimacy
and encounter increasing CSR crises in the host country.
Without a detailed inspection of the social–legal transfor-
mation in emerging markets, we risk ending up with a
static and incomplete understanding about the institution–
MNC relationship. This paper is hence developed to
expand the purview of the institutional analysis in emerg-
ing markets by using a multiple case study to analyze how
institutional forces drive the occurrence of the MNC CSR
Data Collection and Analysis
The empirical analysis tries to identify common sophisti-
cation processes leading to the MNC crisis across China,
India, and Russia, and also identify distinctive strategies
that social actors use to initiate the crisis in different
countries and social problem areas. The outcomes will
clarify who does what in which context. These details
reveal micro processes that make institutional
sophistication (i.e., standardization and membership
expansion) happen and shape the sophistication–crisis
Corporate social responsibility research has heavily
relied on survey data, while exploratory case studies are
under-used (Tan 2009). Case studies have strength to
capture the meaning of social actions embedded in insti-
tutional systems. This is particularly important to explore
complex and sometimes sensitive CSR issues in transi-
tional markets. Considering the lack of extant frameworks
for the analysis of how both institutional voids and
development influences the MNC crisis, we follow an
inductive process that uses ‘data-driven generalization’
(Langley 1999, p. 708). We treat multiple sources of
archives information (e.g., websites and organizational
documents) as formal data to be systematically analyzed
(Ventresca and Mohr 2002). A content analysis of quali-
tative information enables an in-depth analysis of the nat-
ure of crisis incidents and constituents (e.g., initiators,
embodied social and business norms, impacts on the
business, etc.), cross-case and cross-country comparisons
and a longitudinal study (Harris 2001). This is crucial to
grasp the similarity of underlying crisis drivers that take
shape over time in different contexts and also enhance the
generalizability of findings (Eisenhardt 1989).
In order to cover most large MNCs who might have
encountered a CSR crisis, this research used Bloomberg to
screen out top 1,000 firms (both public and private) ranked
by their 2010 total revenue. We then built up an original
database that includes basically all CSR crises encountered
by these MNCs in China, India, and Russia from 2000 to
2011. This dataset drew on three sources of media articles,
research reports, and organizational documents to collect
crisis information. First, Factiva was used to search media
articles in major newspapers. Second, we searched articles
using Google and major local search engines in China
(Baidu) and Russia (Yandex). In India, Google is consid-
ered the best searching tool to find out MNC activities.
Third, we checked through local databases about MNC
Positive influence
Positive influence
Positive influence
Negative influence
MNC CSR CrisisMNC Social and
Environmental Misdeeds
Sophistication-Voids Interplay
Stakeholder requests outgrowing
existing reg
Institutional Sophistication
1. Top-down: maturation of
legislation and enforcement
2. Bottom-up: expansion of
Institutional Voids
1. Problematic regulatory
2. Under-represented and
passive stakeholders
Fig. 1 How institutional environment influences MNC CSR crisis in China, India, and Russia
M. Zhao et al.
scandals. is a major online news content
provider in China. It has a special section that covers MNC
scandals since July 2011. Full-time staffs collect informa-
tion from electronic media throughout the country every
day. We also cross-checked a special section at sina.-, another leading Chinese news content provider.
This section has been reporting firm scandals since 2009.
Two Russian research assistants (RA) and three Chinese
RAs searched for all information related to public accu-
sations against each MNC. We then went through these
articles to identify crisis incidents. An event needs to meet
the following criteria regarding the accuser type, accusa-
tion nature, reporting intensity, and performance impact to
be counted as a CSR crisis incident. First, the firm of
interest received accusations (complaints, lawsuits, etc.)
from domestic stakeholders such as consumers, employees,
or NGOs. Foreign accusations that did not raise domestic
responses are excluded. Second, the accuser charged that
the firm has caused or will potentially cause a loss of their
interests due to unethical behavior such as environmental
pollution, bribery, abusive labor practices, marketing fraud,
and so forth. Third, the even has received ongoing follow-
up reports by formal and influential local media channels,
rather than being covered only by one or two times. Dis-
cussions and complaints on the internet that did not catch
the attention of major media channels are not considered.
Finally, the accusation needs to cause or potentially cause
harm to the firm’s financial performance in the host
country. As a result, we found 224 CSR crisis incidents in
China, 24 in India, and 61 in Russia between January 1st
2000 and October 31st 2011. Considering that one firm
might encounter multiple crises in the same time period
and one crisis may last for months or years, we ensured that
the resultant incidents are distinctive regarding the accu-
sation nature. Table 2 shows the structure of the crisis data.
We analyzed 3,020 articles, 275 articles, and 485 arti-
cles, respectively, for foreign MNCs operating in China,
India, and Russia. Two broad questions guided the content
analysis. First, how is a crisis related to top-down sophis-
tication regarding regulation substance and the govern-
ment’s enforcement capability? We identified two
scenarios of the regulation–crisis relationship: (1) new
regulation substance facilitates stakeholder supervision and
accusation and hence leads to the MNC crisis; (2) enhanced
regulation enforcement drives MNC crisis. Enforcement
can be strengthened through increased authority and
resources of existing supervisory agencies and/or the
establishment of new agencies/mechanisms to ensure reg-
ulation implementation. The second guiding question is
that how a crisis is related to bottom-up sophistication
regarding the stakeholder type, the stakeholder strategy,
and the interaction mode among stakeholders. During the
analysis, we identified three scenarios of the stakeholder
crisis relationship: (1) new (i.e., previously weak, silent, or
absent) stakeholders become aggressive and make a crisis
happen; (2) stakeholders take on new approaches and
Table 2 Data structure of MNC CSR crisis, 2000–2011
Consumer rights violation Labor rights violation Environmental pollution
No. of crises 130 15 19
No. of MNCs encountering a crisis 51 13 14
No. of industries
23 9 9
No. of MNC home countries/regions 14 7 7
Year of crisis occurrence 2000, 2001, 2003–2011 2004–2008, 2010, 2011 2006, 2007, 2009–2011
No. of crises 5 7 5
No. of MNCs encountering a crisis 5 7 5
No. of industries
No. of MNC home countries/regions 1 5 4
Year of crisis occurrence 2003, 2005, 2008, 2010 2005, 2009–2011 2003, 2004, 2008–2010
No. of crises 6 6 7
No. of MNCs encountering a crisis 4 4 6
No. of industries
No. of MNC home countries/regions 1 3 5
Year of crisis occurrence 2005, 2006, 2009, 2011 2005, 2007, 2009–2011 2003, 2005, 2006, 2008, 2009
Bloomberg Industry Group, which is similar to the third level of North American Industry Classification System
Institutional Environment and MNC CSR Crisis
strategies to supervise and challenge MNCs; and (3) the
new mode of inter-stakeholder collaboration can turn MNC
misdeeds into a CSR crisis.
We studied law documents, research articles, and gov-
ernment databases to understand the legal–political system
and the situation of various stakeholders in each country.
Five RAs attended training sessions in which definitions
and analysis schemes were provided. Each of them worked
independently, three on China and India, and two on
Russia. We calculated Cohen’s kappa for the analysis of
the two regulatory progress dimensions and three stake-
holder growth dimensions. The score was larger than 0.9
showing strong inter-rater reliability between coders. We
then discussed and analyzed any discrepancies. Table 3
shows the sample analysis of crisis incidents.
The analysis identified five crisis areas including con-
sumer rights, labor rights, environmental protection, gov-
ernment relations (e.g., bribery or tax evasion), and local
firm relations (e.g., intellectual property infringement or
contract default). This paper concentrates on the areas of
consumer rights, labor rights, and environmental protection
since they are globally recognized by the United Nation
Global Compact, the Global Reporting Initiative, and the
Organization for Economic Cooperation and Development
MNC guidelines as prevalent social concerns that firms
would experience in developing countries.
Findings: How Institutional Sophistication Drives MNC
CSR Crisis
The analysis of 309 crisis incidents identifies six common
sophistication processes (or environmental forces) shared
by all or two of the three countries under study. They
include two top-down sophistication processes (facilitative
legislation and strengthening enforcement), three bottom-
up processes (green NGO growth, labor union growth,
and internet expansion), and one special process regarding
the sophistication’s outgrowing regulatory voids. These
processes make MNCs’ long-practiced misdeeds uncov-
ered and investigated, and increase the chance for an
MNC to receive accusations for problematic behavior that
previously bore few disputes in the country. Although one
process can apply to the same social problem in multiple
countries, the underlying strategies can vary by countries.
For example, while green NGOs have increasingly chal-
lenged MNCs in China, India, and Russia, their approa-
ches are different in each country. We found a set of
stakeholder strategies that vary by social problem areas
and national contexts. Standardization of firm behavior
and stakeholder membership expansion take place through
these strategies.
How Top-Down Sophistication Drives MNC CSR
Facilitative Legislation
China, India, and Russia have commonly formulated reg-
ulations that tend to make the accusations against business
misdeeds easier, cheaper, and processed faster. In 2008, the
new Labor Contract Law and the Labor Dispute Mediation
and Arbitration Law took effect in China. They reduce the
cost of dispute by exempting the arbitration fee and setting
clear deadlines for different stages of reconciliation, arbi-
tration, and court decisions. These regulations engender
new types of labor disputes. Laid-off employees are now
able to ask the firm to re-sign the contract when they
suspect that the firm did not follow the legal procedure of
employment termination. The Labor Contract Law
empowers the labor union and makes it more costly for a
firm to fire employees. For example, a firm can only sign
the fixed term contract twice with an employee, after which
the firm must sign an open-ended contract. The regulatory
change had a clear impact on the MNC behavior. Some
MNCs conducted large-scale layoffs right before the new
labor law took effect. This was widely perceived, although
denied by affected firms, as a strategy to avoid increased
labor costs caused by new regulations. Several crises fol-
lowed these actions. In November 2007, a global retailer
terminated its contract with half of employees in the pur-
chasing department without giving a 1-month notification
to the labor union or affected employees. In December, the
head of the labor union in a store sued the firm for its
violating the new Labor Contract Law. This was the first
time in China when a primary level labor union profiled a
lawsuit against an MNC.
New regulations drive the MNC crisis by endorsing
stakeholder claims that were previously not protected by
the law. The Chinese government issued the Defective
Automobile Products Recall Regulation in 2004. This
legislation was directly motivated by the fact that an
increasing number of Chinese consumers who have bought
a foreign car were not covered by the firm’s recall policy,
while no regulations are in place to handle related disputes
(Media interview with the director of the Regulation
Department at National General Administration of Quality
Supervision 2012). The 2004 regulation for the first time in
China officially allowed car users to deliver complaints to
and request a recall from multiple parties including man-
ufacturers, retailers, renters, and importers. Whereas no
reports were found about the crisis of foreign car makers
before 2005, 11 crises were heavily reported between 2005
and 2011.
In India, the 1986 Consumer Protection Act replaced the
1930 Sale of Goods Act with a declared purpose to provide
M. Zhao et al.
Table 3 Sample analysis of how institutional sophistication influences MNC crisis
Crisis area Crisis description Regulatory/Govt. system influence Stakeholder influence
In January 2010, more than one
hundred car owners in China
appealed to the Zhejiang province
Consumer Protection Committee
that a global car manufacturer used
dual standards in its recalling policy.
The provincial Administration of
Industry and Commerce and the
Consumer Protection Committee
publicly blamed the firm and
requested compensations
Regulation substance The 2004
Defective Automobile Products
Recall Regulation enables
stakeholder supervision and
Stakeholder type consumer,
government agency, semi-
government social organization
Stakeholder interaction
collaboration between
government agencies and the
consumer protection committee
On 21th June 2011, an employee of a
global oil manufacturer’s revealed
the firm’s oil leak in Bohai Bay on
the MicroBlog (the Chinese version
of Twitter). This unveiled an
unprecedented ocean ecological
disaster in China that has cost the
firm about seven million USD per
day and has led to a compensation of
more than 200 million USD
Enforcement ability The state oceanic
administration (SOA) for the first
time profiled a lawsuit against an
MNC. SOA for the first time
developed a mechanism of
Compensation Foundation to ensure
the compensation
Stakeholder type blogger,
grassroots NGO, government
Stakeholder strategy online
exposure, joint lawsuits by
grassroots NGOs
Stakeholder interaction
China—Labor rights In November 2007, a global retailer
terminated its contract with half of
employees in the purchasing
department, without giving a
1-month notification to the labor
union or to the affected employees.
In December, the head of the labor
union in a local store sued the firm
for its violating the Labor Contract
Regulation substance The 2008 new
labor regulations add labor costs and
may incentivize MNCs to terminate
old contracts before the new
regulations take effect
Enforcement ability The 2008 new
labor regulations make the labor
protest easier, less costly, and
processed faster
Stakeholder type semi-government
social organization
Stakeholder strategy the first time
in China when a primary level
labor union profiled a lawsuit
against an MNC
India—Consumer rights In 2003, a Deli-based grassroots NGO
found that the drink products of two
global beverage firms contain
pesticide residues. The parliament
consequently forbad twelve kinds of
beverages being served in
government meetings. The two firms
soon saw a drop of sales at about
20 %
Enforcement ability The Ministry of
Consumer Affairs, Food and Public
Distribution has been supporting the
growth of consumer activism
Stakeholder type grassroots NGO,
Stakeholder strategy the first time
when an Indian grassroots
environmental NGO launched an
effective attack against the MNC
In 2010, a committee in the Ministry
of Environment and Forests
proposed to revoke the environment
approval of a global steel maker.
This almost killed the largest ever
FDI in India. The firm provided
more than 20 million USD to
reforest and support farmers’
Enforcement ability The shift of
regulation focus from pollution
control to pollution prevention has
led to a proactive supervision on the
MNC’s environmental behavior
India—Labor rights In the fall 2011, Indian employees’
strikes at a giant car manufacturer
resulted in more than 60 % plunge in
the firm’s profits for the second
N/A Stakeholder type employee
Stakeholder strategy the strike and
damage intensity in 2011
indicated a new scale of labor
protests in India
In 2006, a lady in Moscow won a
1-year long lawsuit against a global
beverage firm. She charged that her
gastritis was exacerbated after
drinking their products for years
N/A Stakeholder type consumer
Stakeholder strategy the first court
decision in Russia to punish a
large MNC for the consumer
protection issue
Institutional Environment and MNC CSR Crisis
easy and quick justice to consumers (Saraf 1990). The Act
stipulates that, for example, a consumer needs only to pay a
nominal fee to start an accusation and does not have to send
any notice to the defendant. A consumer can represent
himself and does not need to hire a lawyer. To handle the
increasing amount of consumer complaints within the
regulated time limit, the Parliamentary Standing Commit-
tee requested states to set up benches in their State Com-
missions in 2002. The Second Bench of the National
Consumer Disputes Redressal Commission was established
in 2003 to further boost the complaint disposal process.
The Department of Consumer Affairs at the Ministry of
Consumer Affairs, Food & Public Distribution has been
supporting a consumer movement to address the variance
of the literacy and consumer awareness across states. For
example, the ministry has been sponsoring the founding of
consumer clubs in schools and colleges. 2,245 Consumer
Clubs were established in several states by the end of 2004
(Saraf 1990). After years of government efforts, facilitative
legal tools and prevalent consumer awareness can now
rapidly turn an MNC misdeed into a national level crisis. In
2006, the Center for Science and Environment (CSE), a
Deli-based green NGO, published a report to criticize that
the drink products of two global beverage firms contain
high concentration of pesticide residues. The next day,
demonstrators in the Varanasi state burned advertisements
and urged the government to suspend the firm’s operation
in India. Soon the drinks were widely banned by schools
and government agencies around the country.
The 1992 Russian Consumer Protection Act (RCPA)
tries to make the consumer accusation easier and less costly
as well. RCPA specifies that consumers may receive an
exchange or refund for a non-food product at any time
within 2 weeks of purchase, even if the product is not
defective. The 2007 amendments to Russian Consumer
Protection Law states that if a buyer is dissatisfied with his
purchase, he or she can return it within 15 days and receive
a full refund or exchange. Previously this was possible only
if the product is significantly flawed. Ten more years since
the 1991 reform, consumers began winning lawsuits
against large businesses which was hardly seen in the
Soviet time. In the wake of the 1992 RCPA, even ‘pro-
fessional complainers’ emerged who made living from
firm compensation for violations of their consumer rights
(Auzan 1995, p. 81). The first Russian court decision to
punish a large MNC for consumer rights violation took
place in 2006. A woman won a 1-year long lawsuit against
a global beverage firm. She charged that her gastritis was
exacerbated after consuming the firm’s drink products for
years. With facilitative regulations in place, local lawyers
expected to see more of such consumer-initiated lawsuits
targeted on MNCs. The trend has indeed turned clear in
recent years. In 2011, a man in St. Petersburg demanded
250,000 rubles of compensation from a global food service
firm because he broke a tooth on the rock in the salad. A
few months later, the Consumer Rights Protection Society
in Moscow demanded the firm to disclose all food ingre-
dients to customers.
Strengthened Enforcement
China, India, and Russia feature a bureaucratic and frag-
mented government system. Tensions of interests between
central and local governments and between functional
departments could paralyze the actual implementation of
regulations. The authority and resource of supervisory
agencies are hence a key issue of effective enforcement. In
China, a watershed of regulation enforcement on environ-
ment pollution came between 2003 and 2007, when the
then State Environmental Protection Administration
Table 3 continued
Crisis area Crisis description Regulatory/Govt. system influence Stakeholder influence
In 2005, the Federal Environmental,
Industrial, and Nuclear Supervision
Service profiled a lawsuit to halt a
global electronics maker’s plant
construction in Moscow. The
government argued that the firm
failed to receive building permits
and a positive opinion of the state
ecological expertise before they
started the project
Enforcement ability The Federal
Environmental, Industrial, and
Nuclear Supervision Service
(Rostekhnadzor, or RTN) was
established in 2004 to investigate the
regulation compliance and enforce
Stakeholder type government
Stakeholder strategy new
enforcement mechanism
Russia—Labor rights In 2007, workers of a giant car maker
walked off the job in St. Petersburg.
The strike led to loss of millions of
dollars in lost
N/A Stakeholder type employee
Stakeholder strategy although the
new regulation was argued to
weaken labor union rights, labor
protests clearly increased in the
new century
M. Zhao et al.
(SEPA) launched ‘environmental protection storms.’ In
the 1998 reform of the government system, SEPA was
promoted to the ministry level and was for the first time
officially defined as an agency in charge of supervision and
regulation enforcement. In order to redress the local gov-
ernment’s economy growth model unfriendly to the envi-
ronment, SEPA adopted an exacting anti-pollution system
in four cities in 2007. This system would stop the approval
of all construction projects in a region, many of which
involve MNC investments, unless the problematic projects
have gone through substantive rectification.
State Environmental Protection Administration estab-
lished public databases to track and disclose environment
violation incidents. This work both supported the govern-
ment’s supervision capability and also became the primary
source of information that NGOs and media used to
enforce civic monitoring on firms. In turn, the government
drew on the NGOs’ research outcomes to support further
aggressive supervision and investigation of the business
misdeeds. In 2006, the Xinhua news agency, the dominant
official news outlet in China, made use of the IPE research
to criticize that MNCs had lowered their environmental
standards. The mass media covered little MNC environ-
mental crisis in China until 2007 when SEPA requested a
global chemical enterprise to rectify its illegal wastewater
discharge. After this, MNC pollution has been frequently
exposed to the public each year from 2009 to 2011.
In India, the Bhopal Gas Tragedy generated a substan-
tive impact on environmental legislation and regulation
enforcement. This tragedy led to the release of India’s first
comprehensive environmental act: the 1986 Environmental
Protection Act (EPA). EPA strengthened the parliaments’
ability of tackling the MNC’s pollution behavior (Bala-
krishnan 2009). The 1992 Policy Statement for Abatement
of Pollution made a further step by shifting the legislation
principle from regulating emissions to active prevention,
resulting in proactive supervision on the MNC’s environ-
mental behavior. Since the late 1990s, the Indian govern-
ment has developed regulations that made environmental
audit mandatory. Government took expressive initiatives to
regulate MNC violations in recent years. In 2010, a forest
issue committee under the Ministry of Environment and
Forests proposed to revoke the environment approval
issued to an international steel firm. This proposal almost
killed the largest ever FDI in India ($12 billion). The
officials argued that the environment document issued was
flawed and needed to include more auxiliary conditions.
Only 2 months ago, the ministry revoked an environmental
permit that allowed an MNC to extract bauxite in the
Orissa state for the same reason.
The new Federal Law on Technical Regulation in 2002
marks a turning point in Russia’ environmental regulatory
system development. It reviewed and revised existing
regulations and empowered the law enforcement authori-
ties. The administrative reform in 2004 has also to some
extent strengthened the institutional stability and enhanced
the power of environmental authorities and courts (OECD
report 2006). Another supervision progress in Russia is the
revival of special enforcement entities such as ‘environ-
mental militia’ (citizens who are funded and organized by
the government to monitor environmental activities) and
environmental prosecutors. Although the government
authority in most regions in Russia tends to be short of
effective implementation on environmental protection,
several administrations have set up strong environmental
committees in charge of the compliance assurance. The
Federal Environmental, Industrial, and Nuclear Supervi-
sion Service (Rostekhnadzor or RTN) was established in
2004 to ensure regulation compliance and enforce penal-
ties. MNCs did not wait long to feel the pressure of the
upgraded regulatory/administrative system. In 2005, RTN
profiled a lawsuit to put in halt a global electronics man-
ufacturer’ plant construction in Moscow, which was 70 %
finished. The Federal Law on Environmental Impact
Assessment stipulated that a firm must receive building
permits and a positive opinion of the state ecological
expertise to continue the project, which the firm failed to
fulfill according to RTN.
How Bottom-Up Sophistication Drives MNC CSR
Bottom-up sophistication is redefining the boundary of
stakeholder membership in China, India, and Russia. In the
past decade, a growing variety of social actors in these
countries have satisfied a strict definition of stakeholder,
which requests two attributes: (1) the ability to make
claims and (2) the ability to influence a firm (Savage et al.
1991). The key features of the recent stakeholder dynamics
in the three countries include the diversification of stake-
holder types and the intensification of their challenging
activities. Previously inactive stakeholders started taking
on sophisticated and strategic actions against the MNC. In
contrast to a reactive action against the direct harm caused
by the business misdeed, a sophisticated strategy is a pro-
active and well-planned approach of defending self-inter-
ests or extending broader social agendas. Stakeholder
sophistication has grown most conspicuously in China,
followed by a more gentle but clear increase in India and
Russia. In China, the MNC CSR crisis in the first few years
in the new century mainly involved affected consumers.
Since 2005, the crisis has included previously silent NGOs,
employees, and community residents who charged MNCs
around a wide range of issues. The crisis initiated by
consumers, employees, and labor unions started growing in
India since 2008. The crisis in Russia before 2005 focused
Institutional Environment and MNC CSR Crisis
on government and business relations such as tax aversion
and commercial bribery. While government agencies
remained to be a major accuser in Russia, consumers,
employees, labor unions, and domestic NGOs started
initiating crises in following years. Table 4 shows the
diversification of social actors who effectively initiated or
deepened the MNC CSR crisis in China, India, and
Grassroots NGO Growth
International NGOs and activists have grown strong fed on
the attacks against MNC misdeeds in developing countries
(e.g., Bartley 2003). More recently, the global MNC–NGO
relationship has been shifting from NGOs stigmatizing
MNCs through media and protests (Fineman and Clarke
1996) to MNCs actively engaging with NGOs (Doh and
Guay 2006). In contrast, an inactive and/or officially con-
strained NGO community in China, India, and Russia has
not posed substantive pressures on MNCs until the new
century. Environmental and health issues are core venues
where grassroots NGOs in these countries have battled
MNC misdeeds. The shock on MNCs started with different
strategies in different contexts.
In China, the 1998 Regulation on Social Organization
Registration and Administration requires that each NGO,
in addition to be supervised by the agency of civil affairs,
affiliate with one ‘‘professional supervisory agency’’ (PSA)
(within or affiliated with the government or the party sys-
tem) in order to receive the approval of the registration.
Even though an NGO managed to secure a relationship
with the usually unfriendly PSA, its geographic scope and
project nature would be highly constrained by government.
Nevertheless, grassroots NGOs have proliferated since the
mid-1990s (Deng 2006). Active grassroots NGOs special-
izing in environmental protection also emerged in the mid-
1990s and achieved a breakout between 2001 and 2005
(Institute of Public and Environment Affairs website 2012).
The MNC’s pollution crisis triggered by the head-on
challenge from grassroots NGOs did not raise the public
attention in China until the mid of 2000s. Building trans-
parency, utilizing market force, and forming alliance play
an effective role in the emergence of NGO challenges. The
Institute of Public and Environment Affairs (IPE) is a
Beijing-based independent NGO founded in 2006. IPE set
up a public database to disclose illegal environmental
activities of more than 100 MNCs. This online database for
the first time integrated dispersed information from official
supervisory agencies all over China and made it easy to
access for everyone. IPE published a blacklist of law vio-
lators in 2006 that drew intensive social attention and was
cited by official media to blame the MNC’s pollution
behavior in China. In 2011, in collaboration with other five
green NGOs, IPE released a report that maps out a global
electronics firm’s pollution activities in China. Soon after
this, implicated suppliers were blacklisted by the local
environmental department and received lawsuits from
employees and local residents falling victim to the pollu-
tion. Green NGOs in China started shifting their approach
from revealing problems to purposefully utilizing market
forces. For instance, IPE launched a ‘Green Choice Ini-
tiative’ that advocated consumers to boycott the products
Table 4 Diversification of MNC crisis creator in China, India, and Russia, 2000–2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
China MED,
India N/A REL N/A NGO,
MED mass media, CON consumer, EMP employee, LCOM local company, FNGO foreign NGO, CEL local celebrity, FCOM foreign company,
FGOV foreign government, GOV government, NGO domestic NGO, BLO blogger, LAW lawyer, STU student, RES local resident, REL
group, SHA shareholder
M. Zhao et al.
of blacklisted firms. This project gave rise a CSR crisis for
several MNCs that for the first time encountered NGO-
initiated market pressures in China.
Another emerging strategy in China is the self-organi-
zation of the NGO sector that features alliance formation
across stakeholder types. Green NGOs for the first time in
China launched attacks in coordination based on the divi-
sion of expertise. For example, 36 green NGOs co-pub-
lished a report in 2011 to criticize a global electronics
product manufacturer’s factory pollution. The report drew
on each NGO’s expertise in specific environmental issues,
locations, and functional capabilities. Also, the govern-
ment–NGO partnership turned out to be an innovative and
powerful means of tackling MNC misdeeds. In 2011,
government agencies and grassroots NGOs joined forces to
develop investigations and litigations in the Bohai Bay
ecological disaster discussed above. These newly formed
bonds not only reflect the growing influence of the NGO
sector, but also pose a new source of pressure on MNCs’
social performance.
NGOs and charities in India enjoyed a centuried and
more facilitative regulatory environment than China and
Russia. The NGO registration policy can be dated to the
Registration of Societies Act of 1860. The government
action that provides tax exemption and fiscal benefits to
NGOs was available as early as the Income Tax Act of
1961 (Sampradaan Indian Centre for Philanthropy report
2004). Since the 1991 reform, the Indian government has
been actively funding and empowering NGOs in the
domain of environmental protection. For example, the
official financial assistance supported about 4,000 NGOs to
develop environmental programs at the end of 2003 (Chitra
2003). For decades, the notorious Bhopal Gas Tragedy in
1984 marked a dominant venue of social tensions against
MNCs in India. Estimated by an independent investigation,
because of the then Union Carbide’s gas leak in Bhopal,
more than 3,000 died within weeks and another 8,000 have
died from gas-related diseases (Trotter et al. 1989).
Entering the new century, the domestic green NGO started
taking on a responsibility to disclose and challenge wider
MNC misdeeds. Through utilizing market forces and
mobilizing protests, NGOs called into question the
behavior of leading MNCs in an aim to redress industry-
wide issues. In 2003, CSE’s pesticide residues accusation
detonated an official investigation that led to the prohibi-
tion of related drink products in government meetings and
education institutions in several states. A wave of protests
lasted in subsequent years. The two related MNCs saw a
drop of sales at about 20 % in the day when CSE released
the above-mentioned report in 2006. According to the CSE
research, most Indian brands in the bottled water industry
do not meet the pesticide residues standard partly due to the
serious water pollution condition in the country. CSE
claimed that they chose global beverage giants because
these firms accounted for three-fourth of the market share.
Although NGOs in Russia sprung up following the
collapse of the Soviet Union, the current regulatory system
remains to be restrictive. The Duma passed a regulation in
2006, following the Orange Revolution in Ukraine, which
required all NGOs operating in the country to register with
a state commission. Limitations were also made on Russian
NGOs’ receiving fund and support from overseas (Mach-
leder 2006). This regulation has resulted in the contraction
of the NGO sector as a whole (Ljubownikow and Crotty
2010). Nevertheless, environmental activism was to a
certain extent facilitated by the Russian government’s
incorporating international environmental agenda such as
the outcomes of the Rio Summit into its regulatory and
administration systems in the mid of 1990s. Although
green NGOs may have very little influence on the firm’s
environmental activity in Russia (Crotty and Rodgers
2012), they have been playing a significant role in civic
monitoring of environmental violations. Although chal-
lenging MNCs in Russia often requires handling a complex
interest network across business and political sectors,
NGOs still made an arduous effort though legal accusation.
The only five legal actions against environmental violators
2004–2005 recorded by Russian governments were all led
by NGOs (OECD report 2006). Our analysis shows that,
after a few silent years in the new century, Russian NGOs
continuously drove high-profile MNC environmental crisis
in 2008 and 2009.
Labor Union Pressure
The labor union in all three countries took an aggressive
manner in dealing with MNCs, albeit in varying approa-
ches partly due to their different levels of political em-
beddedness. The All China Federation of Labor Unions
(ACFLU) is the only legitimate labor union in the country,
headed by a member of the Chinese Communist Party’s
Political Bureau. Unlike India and Russia, the labor union
growth in China is to a large extent about the government
initiative of enforcing existing regulations that require all
business enterprises meeting certain criteria, including
MNCs, to set up a labor union. (China Labor Union Law,
2001 revision; China’s Foreign-Capital Enterprises Law,
2000 revision). Therefore, MNCs in China face a seem-
ingly bottom-up pressure from organized employees that is
actually rooted in the direct top-down authority. In the past
decade, MNCs in China stepped into the center of the
central government’s struggles over the local government’s
being slack on the labor regulation implementation. For
example, some southern provinces allowed MNCs to
postpone founding a labor union or exempt the payment of
social insurance for a few years (ACFLU Report on Labor
Institutional Environment and MNC CSR Crisis
Law Enforcement 2004). In 2004, the standing committee
of the National People’s Congress launched a nation-wide
inspection on the implementation of the Labor Union Law.
ACFLU blamed some local governments for their undue
pursuit of GDP growth at expense of labor rights. In
December, a global consumer goods firm rejected a local
industry association’s request of setting up a labor union.
The firm asserted that their labor union policy follows the
international convention and does not need to adapt to the
Chinese system. In response, the industry association sued
the firm for violating the Labor Union Law. In 2006,
ACFLU managed to press this firm to establish labor
unions in all stores in China. The organized employees
soon negotiated a pay raise with the management.
In India, MNCs have experienced a wave of labor pro-
tests since 2010. Given the surging awareness of labor
rights protection and an outdated regulatory system, the
MNC’s simply complying with local regulations does not
help to reduce the risk of the CSR crisis. On the one hand,
the current labor law follows principles of the 1947
Industrial Disputes Act (IDA) that allow the government’s
heavy control on labor issues. For example, an amendment
made to IDA in the mid-1980s requires that any firm
employing more than 100 workers get permission from the
state government before dismissing workers. In practice,
such approvals were seldom made (Basu et al. 2007). This
regulation strengthens the labor union’s bargaining power.
On the other hand, while decades of privatization increase
the foreign investment and market competition that in-
centivize the use of contract workers, labor laws enable
firms to offer them very low remuneration and terminate
the contract at will. This leaves millions of contract
workers under-protected. As a result, workers increasingly
feel a need to launch protests that often receive endorse-
ment from parliamentary parties or establish a labor union
where this is none. For example, car manufacturing
workers in India went on strikes in 2010 and 2011, which
led to tens of millions of dollars’ losses to several global
car makers.
Labor protests in Russia have been facing legal obsta-
cles (International Trade Union Confederation report
2012). The 2002 Labor Code of the Russian Federation was
argued to weaken the protection of organized worker pro-
tests. Most strikes have been declared as illegal by the
courts in support of the employers’ claims (International
Trade Union Confederation report 2012). Nevertheless, the
court cases concerning labor disputes in Russia increased
dramatically from 2001 to 2005 (Gimpelson et al. 2009).
Different from government initiatives in China and the
regulation-supported union power in India, labor unions in
Russia have managed to keep fighting in spite of govern-
ment constraints. In this background, an MNC crisis broke
out in 2007 when workers of a global car maker walked off
the job in St. Petersburg. The strike led to loss of millions
of dollars. Although the firm’s wage was among the highest
in the region, the labor union asked to be paid to the
European standard since they produced cars by European
standards. Since then, strikes or collective complaints
appealing for higher remuneration and social welfare from
MNCs were seen in 2009, 2010, and 2011.
Internet Expansion
The widely reached media and internet have facilitated
exposure of firms’ unethical behavior around the world
(Falkenberg 2004; Smith 2003). China, India, and Russia
have leapfrogged to the cutting edge IT technology since
1990s. They had led the global growth of internet users for
years (World Bank database 2012), which turned the cyber
space into a powerful channel of stakeholder complaints
and hence a venue of challenges for MNCs. The internet
enables the low-cost and fast dissemination of complaints
as well as a better coordination of lawsuits and protests.
The internet’s impact on the MNC crisis was particularly
impressive in China. Ten percent of the MNC’s CSR crises
in China since 2000 were initiated by netizens whom
MNCs barely took into account as impactful challengers
before. In 2009, a woman complained in a famous BBS
that the skincare product of a global pharmaceutical firm
almost disfigured her 1-year-old daughter’s face. This
message was browsed by more than 200,000 people and
received hundreds of responds within a few days. 1 week
later, six hundred parents made a joint litigation against the
Besides triggering direct lawsuits, the online exposure of
MNC misdeeds is able to raise social attention and hence
urge government authorities to take actions on issues that
they might otherwise conceal or downplay. In 2011, an
employee of China National Offshore Oil Corporation
(CNOOC), the Chinese partner of a global oil firm, tweeted
that the MNC’s Bohai Bay oil field had been spilling for
2 days. 1 week later, a newspaper reported the event based
on its own investigation. After 2 days, CNOOC made the
first official response which unveiled a case of marine
ecological disaster. This event was not brought to the
public attention until the online exposure even though the
State Bureau of Oceanic Administration in China had
received a report on the oil leak 2 weeks before. The crisis
caused CNOOC’s MNC partner seven million USD per day
due to the clean-up work and the halt in operations. Con-
sequently, the MNC accepted a compensation of more than
$400 million.
Chinese internet users have been more aggressive than
their Indian and Russian counterparts to turn online cri-
tiques into MNC crises. Nevertheless, there were also cases
in Russia that the internet successfully agitated protests
M. Zhao et al.
against MNCs. In 2007, two citizens of the Nizhny Nov-
gorod city posted photos on the web showing how a global
beverage firm’s street advertisement offended Russian
culture by putting inverted crosses and Orthodox churches
in a bottle. The message was rapidly spread and resulted in
a collective action of hundreds of people. They signed an
appeal to various governmental authorities to ban the firm’s
products and profiled a 50 million ruble suit claiming moral
damages from the firm.
How the Sophistication-Voids Interplay Drives MNC
CSR Crisis
The social transition in China, India, and Russia gives rise
to thorny MNC crises not only because of what is new but
also because of the interplay between the old and the new.
In addition to the regulatory progress and stakeholder
growth’s direct impact on crisis occurrence, stakeholders’
outgrowing local regulations and standards can generate
distinct tensions that trigger a new crisis or exacerbate an
existing one. Unlike accusations raised by direct victims or
external supervision agencies, the gap between stakeholder
expectations and the existing regulatory system leads to
distrustful and malcontent social atmosphere that puts
MNCs in a vulnerable position. Stakeholders’ growing
discontent with the problematic regulatory system suggests
that previously accepted regulation gaps between local
contexts and developed countries are losing the taken-for-
grantedness. MNC’s simple legal compliance in emerging
markets may hence no longer win stakeholder sympathy. In
this background, the problems of the regulatory and gov-
ernment systems that fail to convict a perceived MNC
misdeed or allow the misdeed to happen are turning into a
source of MNC crises.
Either regulatory flaws or standard gaps can lead to
consumer boycotts. In 2010, CNN reported that a global
food service firm’s chicken products contained chemical
components that may cause suffocation. The health
inspection administration in China sent an alert that such
components should be treated with caution, while claiming
that they do not have an effective method to detect these
components. However, the State Food and Drug Admin-
istration said that the use of these chemicals is acceptable.
The public was angry with the confusing official stance.
Several stores soon recorded the drop of sales. In India, the
social awareness of the local–global gaps in product stan-
dards has driven a wave of anti-MNC protests. In 2003,
Indian consumers were infuriated by CSE’s finding that the
Indian standard of pesticide residues in particular drinking
products was 30 times lower than the European Union.
Although affected global beverage firms claimed product
safety by the Indian standard, the parliament forbad serving
twelve kinds of their products in any government meetings.
Chinese consumers were similarly aroused in 2011 by the
mass media’s announcement that the level of tolerance for
toxic elements such as arsenic and cadmium in infant foods
in China was hundreds of times higher than that in Sweden.
This caused extensive questioning in a global food enter-
prise’ related products even though the particular products
found to contain toxic elements in Sweden were not sold in
Table 5 summarizes sophistication processes and
stakeholder strategies that drive the MNC CSR crisis in
China, India, and Russia, 2000–2011. Table 6 shows how
sophistication processes and stakeholder strategies vary by
stakeholder types and contexts.
Concluding Remarks and Implications
The existing institutional account of the MNC’s social
performance in emerging markets tends to highlight the
role of institutional voids in the occurrence of MNC mis-
deeds. However, leading emerging markets such as China,
India, and Russia are going through a profound social
transition. On the one hand, the institutional environment
still features an under-developed regulatory system and a
weak civil society that allows or incentivizes firm mis-
deeds. On the other hand, the government’s continuous
legislation efforts, the diversification of grassroots stake-
holders, and the intensification of stakeholder challengers
have started posing substantive pressures on business
misdeeds. We argue that these countries are going through
a process of institutional sophistication regarding the
maturation of the regulatory system and government ini-
tiatives that standardize firm behavior as well as an
expanding boundary about who count as challengers in the
market. Based on this concept, we developed a framework
that comprehensively examines how both the voids and
development components of the institutional environment
influence the MNC CSR crisis in leading emerging
Without capturing the specifics of the relationship
between institutional sophistication and CSR crises, we are
less able to fully understand how institutional forces shape
the MNC’s behavior in emerging markets. This study has a
purpose to add value to CSR literature and MNC research
by offering new insights into: (1) a dynamic purview of
how the institutional environment influences MNC legiti-
macy and performance in emerging markets by considering
both voids and development; (2) the common sophistica-
tion processes and distinctive stakeholder strategies across
leading emerging markets that account for the occurrence
of MNC CSR crises; and (3) the value of studying corpo-
rate social irresponsible behavior in understanding the
institution–MNC relationship.
Institutional Environment and MNC CSR Crisis
First, this research acknowledges the crucial role of both
institutional voids and development in the occurrence of
MNC CSR crises. A society features institutional hetero-
geneity regarding contrasting or contesting norms, values,
and beliefs in different institutional domains (e.g., Meyer
and Rowan 1977) such as the government sector and the
civil society. These institutional domains also characterize
different levels of sophistication regarding the support to
market activities. While some domains remain weak (e.g.,
the acquiescence of commercial bribery by local
Table 5 Institutional sophistication process and stakeholder strategy that drive MNC CSR crisis in China, India, and Russia, 2000–2011
Sophistication process Stakeholder strategy Definition
Top-down sophistication enhanced
regulation formulation and
enforcement enable
standardization of MNC
Facilitation Strengthening stakeholder awareness and making stakeholder challenges
easier and cheaper through legislation
Empowerment Enhancing enforcement authority and resources through government system
reform and/or building new enforcement mechanisms
Bottom-up sophistication
stakeholder diversification and
intensification expand
membership of MNC challengers
Transparency Facilitating public access to MNC misdeed information
Boycott Mobilizing consumer boycott against MNC misdeeds
Alliance Forming inter-stakeholder alliance based on the division of expertise to more
effectively challenge MNC misdeeds
Accusation Filing lawsuits against MNC misdeeds
Request Redressing MNC misdeeds through direct government requests
Online exposure-
Exposing MNC misdeeds on the internet leads to accusations
Online exposure- request Exposing MNC misdeeds on the internet leads to government requests
Online exposure-protest Exposing MNC misdeeds on the internet leads to protests
Sophistication-voids interplay Boycott over regulatory
Discontent over regulatory system problems leads to consumer boycott
Boycott over standard gap Discontent over gaps between local and global standards leads to consumer
Table 6 Institutional sophistication process and stakeholder strategy by stakeholder and context, 2000–2011
Top-down sophistication Bottom-up sophistication Sophistication-
voids interplay
Green NGO Labor
Internet user
Consumer rights Facilitation Empowerment Transparency,
Online exposure-
Boycott over
regulatory flaw,
boycott over
standard gap
Facilitation Empowerment Transparency,
Online exposure-
request, Online
Labor rights Facilitation Empowerment Request
Consumer rights Facilitation Empowerment Boycott, protest Boycott over
standard gap
Facilitation Empowerment Boycott, protest
Labor rights Empowerment Protest
Consumer rights Facilitation Accusation Online exposure-protest
Facilitation Empowerment Accusation
Labor rights Facilitation Protest
M. Zhao et al.
governments), some others are growing fast (e.g., the con-
sumer rights awareness and related redress mechanisms).
Elements of institutional voids and development are,
therefore, unevenly distributed across institutional domains.
It takes time to fill in regulatory loopholes in emerging
markets, but the government is eager to signal the deter-
mination of penalizing business misdeeds in view of surging
civil appeals. MNCs face a challenge considering that the
government can aperiodically boost supervision and pun-
ishment whereas the legal–political system fails to effec-
tively disincentivize the unethical and illegal behavior of
local subsidiaries or suppliers. The coexistence of anecdotal
government initiatives and the lasting regulatory loopholes
partly shapes the ebb and flow of MNCs’ CSR crises in
emerging markets. Future research is needed to develop a
more comprehensive framework to explain how the form
and change of the institution–MNC relationship in emerging
markets are contingent on the mixture of voids and devel-
opment in different institutional domains.
Institutional sophistication described in this paper sug-
gests that leading emerging markets have entered a new
stage of social transition. MNCs may need to review their
strategies by looking beyond the conventional focus on
market expansion and profit growth. Integrating institutional
voids and development in a coherent framework is able to
inform MNC strategies coping with ongoing institutional
challenges. How should MNCs adjust strategies so as to
reduce the risk of voids and appropriate the opportunity of
increasing sophistication? Regulatory change and stake-
holder growth suggest that MNCs are becoming more likely
to pay for institutional voids rather than gaining from them.
MNCs looking for sustaining operation in emerging markets
need to participate in this big trend and establish a com-
petitive position in it. In another word, MNCs need to play a
role of institutional entrepreneur who attains their goals by
intentionally constructing and/or altering institutional
structures in which they operate such as adding voices to
regulatory change. The ability of understanding institutional
complexity enables MNCs to conduct institutional entre-
preneurship in the emerging market context, rather than
taking on a Western-centric view (Kostova et al. 2009)
which sees MNCs as a change agent copying home-country
institutional arrangements to host countries.
Second, this paper examines a recent phenomenon.
Revealing how the institution–crisis relationship unfolds
provides micro insights about what is going on in emerging
markets and hence informs MNC strategies. We analyzed
basically all publicized MNC CSR crises in the areas of
consumer rights, labor rights, and environmental protection
in China, India, and Russia in the first decade of the new
century. We identified that two top-down sophistication
processes, three bottom-up processes, and the sophistica-
tion-voids interplay have commonly driven the MNC crisis
in China, India, and Russia in the new century. The top-
down processes concern the formal rules of the game
involving facilitative legislation and strengthened
enforcement. For instance, Russian citizens started winning
lawsuits against powerful businesses following the con-
sumer law improvement. Labor unions quickly spread out
in MNCs in China due to the enforcement of the labor
union law. Meanwhile, supported by government initia-
tives, Indian consumer activists and environmentalists
started organizing and educating illiterate villagers to
protect their lands from the encroachment by large firms.
Facilitative legislation drives crises by making stakeholder
accusations easier, cheaper, and processed faster and by
endorsing stakeholder claims previously not protected by
the law. The streamlined government system, empowered
supervisory agency, and the creation and recovery of
enforcement mechanisms have put MNCs under increas-
ingly intensive government inspections. However, the
enforcement efforts sometimes led to a crisis even before a
government accusation was proved valid. This implies the
importance for the future research to examine how MNCs
handle the tightened government supervision considering
the arbitrary regulation implementation.
The bottom-up processes show that grassroots forces
including green NGO growth, labor union pressure, and
internet expansion have driven the crisis occurrence. These
factors, although constrained or facilitated to different
extents and showing varying levels of salience in different
countries, point out a shared pattern of the updated stake-
holder–MNC relationship in leading emerging markets.
Previously passive social actors in emerging markets such
as employees, consumers, mass media, domestic NGOs, or
internet users are growing into a strategic, coordinated, and
often officially supported community of MNC challengers.
They can take actions around an MNC misdeed and turn it
into a CSR crisis. This situation suggests that MNCs need
to redefine who are stakeholders and engage in an emerg-
ing crisis network.
Bottom-up sophistication can also outgrow existing
regulations and standards so that the distrustful and mal-
content social atmosphere either gives rise to a crisis or
makes an existing one worse. This process does not rely on
the regulatory progress or single stakeholder initiatives. It
instead feeds on the interplay between the enhanced
stakeholder aspiration and regulatory voids, particularly the
general public’s dissatisfaction with the poorly formulated
and enforced regulatory system. An important implication
for MNCs here is that consistently applying global stan-
dards and best practices across home and host markets is
becoming not only a social responsibility but also a busi-
ness request in emerging markets. Also, while compliance
to local regulations is losing credibility as a good corporate
citizen in the eyes of local stakeholders, using business
Institutional Environment and MNC CSR Crisis
expertise to upgrade host country standards should bring
high reputation leverage for MNCs.
The paper also reveals a set of stakeholder strategies that
shape common sophistication processes from different
angles. Legislators, policy makers, enforcement agencies,
green NGOs, labor unions, and internet users employ a
variety of approaches to initiate and engage in the MNC
crisis. These approaches vary by social problem areas and
countries. Understanding who does what in which context
to give rise to a CSR crisis helps practitioners develop a
context-specific strategy to manage the relationship with
different stakeholders.
Third, this research emphasizes the merit of studying
corporate social irresponsible behavior (CSIR) to grasp the
institution–MNC relationship. Campbell (2007) points out
that a basic but under-studied aspect of CSR is whether or
not a firm knowingly does anything that could harm their
stakeholders. In fact, none of the recent comprehensive
literature reviews has mentioned this issue (Margolis and
Walsh 2003; Orlitzky et al. 2003; Walsh et al. 2003). Given
the recent increase of MNCs’ CSR crises, existing studies
provide surprisingly little knowledge about the drivers of
MNCs’ CSIR in emerging markets and the CSIR’s influ-
ence on MNC performance. The liability of foreignness
(LOF) (Zaheer 1995) is one example where CSIR could
add insights to important inquires in MNC research. MNCs
may be subject to greater social liability for misdeeds than
are domestic firms (Kostova and Zaheer 1999). The ques-
tion is if the form and level of LOF will change over time
considering the growth of social–political institutions?
Could the rising pressure on MNCs’ CSIR indicate a new
form of LOF since that they may bear extra costs in doing
business compared to domestic firms due to local stake-
holders’ discriminatory treatment? It is reasonable to argue
that the increase of MNCs’ CSR crises in China, India, and
Russia would continue in the following years. What has
happened in the past decade might be a prelude of
incoming waves of MNC–stakeholder conflicts in these
countries. CSIR could hence turn into a promising area of
studying MNCs in emerging markets, with a potential
contribution to key issues on the institution–MNC
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... 2. Literature review and hypothesis development 2.1 Sustainability reporting and foreign ownership in an emerging economy In the context of emerging economies, CSR researchers have traditionally focused on MNCs' misdeeds and often promote a prescriptive view of how MNCs can enhance their CSR in the host emerging economies (Zhao et al., 2014). Previous scholars have focused on individual managers (e.g., CEOs) as the driving force for a firm's CSR (Carroll, 1979;De Bakker et al., 2005;Schrempf, 2012;Waldman et al., 2006); however, to study the broader societal contexts, an increasing number of scholars are turning to the institutional theory to explain CSR (e.g., Campbell, 2007;Cordeiro et al., 2018;Oh et al., 2011;Oware and Mallikarjunappa, 2022). ...
... This finding provides important evidence that some emerging economies are catching up with the advanced markets and supports that voluntary sustainability reporting is an effective strategy to improve corporate financial performance in the stock market values. The legitimacy-based view of international business has been utilized in studying the transformation of institutional sophistication for supporting CSR practices in an emerging economy (Zhao et al., 2014). Our findings contribute to the institutional literature and suggest that the disclosure of sustainability practices may serve as an important corporate strategy to gain legitimacy (Miska et al., 2016;Tashman et al., 2019;Zheng et al., 2015a, b), but only to improve market performance, while negatively impacting accounting performance. ...
Purpose Many emerging economy firms are under foreign owners' pressure to embrace the challenges of addressing corporate social responsibility (CSR) and consider adopting sustainability initiatives. However, it is not clear how foreign ownership plays a role to enable or inhibit these emerging economy firms from translating sustainability initiatives into improved financial performance. Utilizing neo-institutional theory, the authors argue that emerging economy firms that voluntarily report sustainability gain legitimacy in the eyes of shareholders and improve stock market performance. However, emerging economy firms may not have the resources to reconcile the internal stakeholders' various legitimacy requirements to promote sustainability practices, resulting in a negative association with accounting performance. Foreign ownership attenuates the relationship between sustainability reporting and firm performance due to the different legitimacy requirements in foreign markets. Design/methodology/approach To test the study’s hypotheses, the authors collected and analyzed a large sample of publicly listed firms between 2010 and 2016 in Taiwan where the types of foreign ownership include foreign trust funds, foreign financial institutions and other foreign legal entities. Regression analyses were conducted to investigate whether the firms that report their sustainable practices have better financial performance, including stock market performance and accounting performance. Additionally, a three-step procedure was employed to address the endogeneity issue with a binary explanatory variable. Findings The positive stock market reaction to the emerging economy firms' voluntary sustainability reporting supports legitimacy gained among investors. By contrast, sustainability reporting has a negative association with accounting performance due to the difficulty of reconciling different legitimacy requirements among various stakeholders in emerging economies. Further, foreign ownership, particularly the trust fund, exhibits a negative moderating effect on the relationship between sustainability reporting in aligning corporate practices with sustainable development goals (SDGs) and the company's stock market performance. Originality/value By examining the less tested contingent role played by foreign ownership in the emerging economy firms' sustainability reporting, the authors provide insights into the influence exerted by different types of foreign ownership on firms' financial performances beyond previous studies that focus on family ownership, state ownership, or managerial ownership in emerging economies. The findings shed light on corporate sustainability strategy and foreign direct investment policies for an emerging economy.
... Additional research is also needed to improve knowledge of the role of corporate control and prevention tools to mitigate the likelihood of CSI under narcissistic individuals (Young et al., 2016). This may open future research that carries out a more thorough study on antecedents at diverse levels, since there is still no clear understanding of which variables are antecedents of CSI (Zhao et al., 2014). Multilevel analysis would significantly improve CSI areas, both at the firm level and the individual level (Iborra and Riera, 2023). ...
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Purpose The aim of this article is to highlight the major part played by executives in the escalation of corporate social irresponsibility (CSI). Based on the upper echelons theory, the authors developed a model which shows the essential role of CEOs in explaining CSI. The authors proposed that the key personality traits of CEOs—narcissism—, as well as their power, could explain the degree of CSI. Design/methodology/approach Due to the significant methodological challenges when investigating CSI, the authors explored a novel method for measuring CSI in order to assess the degree of irresponsible behaviors. The authors build a CSI scale based on the perceptions of key informants, i.e. experts with diverse professional backgrounds. The authors apply CSI scale in a sample of 84 Spanish companies that were involved in CSI. Findings The results of the authors’ empirical study show the positive and significant influence of CEO narcissism and CEO power on the degree of CSI. Research limitations/implications On the one hand, corporate irresponsibility scandals have relevant social consequences and practical implications. On the other hand, narcissism is a natural feature of managers in top positions that is increasing in societies. Practical implications The authors’ findings may help CEOs, TMTs and corporate boards to acknowledge potential sources of CSI decreasing its likelihood through counterbalancing CEO's power and considering the dark side of narcissism. Social implications On the one hand, corporate scandals have relevant social and practical implications. On the other hand, narcissism is a natural feature of managers in top positions that is increasing in societies. Originality/value In this paper, the authors highlight the role of CEOs characteristics and their firms as the key actors for explaining and understanding the degree of CSI.
... The institutional environment of emerging markets is sharply different from the developed ones that include weak regulatory institutions, inefficient capital markets, active political interference, and concentrated ownership (Baloch et al., 2018;Rottig, 2016;Saeed, Belghitar, & Yousaf, 2016;Tracey & Phillips, 2011). Such fragile institutional settings are most likely to increase the uncertainty in a business environment and lead firms to adopt a more conservative approach in corporate decisions which include short-term investment in CSR initiatives (Peng, Sun, & Luo, 2015;Zhao, Tan, & Park, 2014). ...
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Prior research suggests that undertaking corporate social responsibility (CSR) activities affect firm value. We extend this line of research by considering CSR activities over a longer period (a consistent CSR behavior) and examine the impact of CSR permanency on firm value. Using a crosscountry sample of 600 top-listed firms from four leading emerging economies, Brazil, Russia, India, and China (BRIC) over the period 2010-2018, we find that CSR permanency positively impacts firm value after controlling for various firm and country characteristics. This effect is observed more pronounced for family-owned firms. Additional analysis reveals that permanent CSR activities in both social and environmental dimensions positively influence firm value, however, CSR permanent activities in the social dimension exert a larger impact on firm value. Our results make important contributions to theory and practice.
... In international business literature, a stream of research demonstrate that MNCs can co-evolve with the host country's institution (Cantwell, Dunning, & Lundan, 2010) or even shape it (D. Chen, Newburry, & Park, 2009; M. Zhao, Tan, & Park, 2014). MNCs act as a broker that transfers the practices among different institutions. ...
... It is further proven in this paper that the obsession with GDP growth strengthens the negative effect of the government leader's tenure on CSR. Another boundary condition is regional market development (H4), which is generally considered a critical factor in influencing firms' CSR [2,86,87]. Literature suggests that in regions with good market development, a firm's resource dependency on the government is weakened [55]. This paper documents that good market development can mitigate the negative effect of the government leader's tenure on CSR. ...
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The existing literature on corporate social responsibility (CSR) drivers focuses on firm- and institution-level factors and rarely on the role of political incentives. Public officials control enormous resources in China, and their political incentives substantially shape certain firm behaviors. As CSR is one of the critical measures that the central government uses to evaluate the performance of local government, local officials have the incentive to channel firms into accomplishing their political goals. Correspondingly, local firms may strategically implement CSR to build a good relationship with local governments. This study investigates the impact of local officials' political incentives (measured by tenure) on firms' CSR. Using a panel of publicly listed Chinese firms covering 2009-2019, it documents a U-shaped effect of government officials' tenure on the CSR performance of firms within their jurisdiction. To wit, the firm's CSR decreases first and then increases with the growth of tenure. Moreover, this U-shaped effect will be strengthened in regions with a high priority of gross domestic product (GDP) growth and will be weakened in regions with good market development. In addition, there is no significant evidence that party officials' tenure affects firms' CSR. Overall, this study advances our understanding of the political determinants of CSR in emerging markets.
... Mair & Marti, 2009;Rao-Nicholson et al., 2017). In this case, local players are prone to find formal and informal ways to fill the gap exposed by institutional voids and play a stronger part in contributing to the delivery of social innovations to meet social objectives, reconfigure social practices, and promote social development (Puffer et al., 2016;Saka-Helmhout et al., 2021;Zhao et al., 2014). Nevertheless, recent studies observed that in the case of emerging economies, social innovations have the capacity to act as a catalyst to reduce and overcome institutional voids, which become more relevant when we consider that emerging economies are assuming an increasingly prominent position in the global market, providing a new and different context for the development of social innovations (do Adro & Fernandes, 2020;Phillips et al., 2015;Rao-Nicholson et al., 2017). ...
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The impact of the COVID-19 pandemic has increased the search for solutions to social problems associated with the Sustainable Development Goals (SDGs). Main actors are turning to Digital Social Innovations (DSIs), defned as collaborative innovations where enterprises, users and communities collaborate using digital technologies to promote solutions at scale and speed, connecting innovation, the social world and digital ecosystems to reach the 2030 Agenda. This study aims to identify how digital transformations and social innovations solve social problems and address SDGs. We conducted a systematic review based on a sample of 45 peer-reviewed articles published from 2010 to 2022, combining a bibliometric study and a content analysis focusing on opportunities and threats impacting these felds. We observed the spread and increasing use of technologies associated with all 17 SDGs, specially blockchain, IoT, artifcial intelligence, and autonomous robots that are increasing their role and presence exponentially, completely changing the current way of doing things, ofering a dramatic evolution in many diferent segments, such as health care, smart cities, agriculture, and the combat against poverty and inequalities. We identifed many threats concerning ethics, especially with the increased use of public data, and concerns about the impacts on the labor force and the possible instability and impact it may cause in low skill/low pay jobs. We expect that our fndings advance the concept of digital social innovations and the benefts of its adoption to promote social advancements.
... Therefore, the government could regularly publicize and emphasize that every user has the capacity and responsibility to save the environment. Therefore, environmental friendliness has a massive impact on the resolution of pollution challenges [105]. Furthermore, environmental education programs should be enhanced to shift consumer views and attitudes towards environmentally friendly goods. ...
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This study aims to identify the determinants of eco-labelled food product buying behaviour in the Malaysian context. This research develops a comprehensive model proposing that ethical self-efficacy is the moderator, and TPB constructs are the mediators to test empirically. Data were gathered through a questionnaire survey method, and then structural equation modelling was used to analyse the data by AMOS software version 21. The study results confirmed that, besides TPB constructs (attitude, subjective norms, and perceived behavioural control), eco-labelling, perceived value, and self-efficacy affect buying intention. It was found that ethical self-efficacy moderates the relationship between perceived value and eco-labelled food product buying intention. The results also reveal that attitude, perceived behavioural control, and subjective norms mediate the association between environmental concern and eco-labelled food product buying intention. The research stresses the importance of environmental education from both the government and corporate initiatives regarding the path of environmentally conscious buying behaviour.
Purpose: This study aims to contribute to the corporate political activities (CPAs) field by suggesting the effect of campaign contributions on the time that firms wait for regulators’ decisions. Design/methodology/approach: This paper analyzes 358 mergers and acquisitions (M&A) from 2008 to 2017 in Brazil through ordinary least squares regression with robustness control and causal operationalization in a small vote margins treatment. Findings: Campaign contributions speed up the M&A regulator’s decisions. Campaign contributions amounts proved to be effective in decreasing the waiting time for judgments of M&A deals. Besides, National Development Bank disbursements to companies in M&A deals, served as a moderator to help reduce the waiting time. Research limitations/implications: The main implication of this paper to the antecedents of CPA research is the estimation of time as an output of the political efforts of firms. Previous research focuses on what firms could get. Here, the authors focus on when. As a limitation, this study analyzes CPA through campaign contributions, as the only reliable source of CPA publicly available. Firms use multiple mechanisms of CPA. It would be expected for new papers to test different CPA mechanisms, such as political connections and lobbying. Practical implications: This study provides evidence of the use of CPA as a relevant mechanism for firms to avoid institutional risks by getting regulators’ decisions faster. This evidence is useful for firms to grant their competitive advantage in a highly volatile environment, such as an emerging market. Social implications: What happens in the nonmarket environment interferes within markets. Businesses seek to finance political projects with which they are more aligned, and governments provide capital to businesses in exchange for political support. Whether to expand successfully may also depend on early entrants, who will have acquired enough leadership to dominate the market. Originality/value: While most of the research on nonmarket strategy focuses on what firms can get as an output for CPA efforts, this study provides here evidence on when firms can get it. As one can cite, in business, time is money.
As indicated by John F. Kennedy, Consumer by definition incorporates each one. There are the biggest monetary grab influencing and influenced by pretty much every open and private financial choice. the consumer protection act 1986 characterizes the customer as 'one who purchases any merchandise enlists any administrations or incompletely paid and mostly guaranteed or under any arrangement of conceded instalment right from birth all of us turns into a shopper however individuals scarcely think about the rights and obligations they have as a purchaser. The compelling usage of the consumer protection act started since 1990. Huge number of customers and association began moving toward consumer protection act discussions for review of complaints. Act accommodates foundation of shopper chamber to instruct the general population and formation of experts for settlement of purchaser questions. Consumer mindfulness is rising in the nation ideas are changing laws are getting refreshed and shoppers are getting increasingly requesting. So it is fundamental with respect to therapeutic experts to have refreshed and sufficient learning and mindfulness about consumer protection act to give better administrations and anticipate consumer debates. Key words: Consumer Protection, Consumer Rights and Responsibilities.
The purpose of this chapter is to outline the development of the idea of "stakeholder management" as it has come to be applied in strategic management. We begin by developing a brief history of the concept. We then suggest that traditionally the stakeholder approach to strategic management has several related characteristics that serve as distinguishing features. We review recent work on stakeholder theory and suggest how stakeholder management has affected the practice of management. We end by suggesting further research questions.