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

July 2013
Journal of Business Ethics 122(4)

DOI:10.1007/s10551-013-1751-x

Authors:

Meng Zhao

Nanyang Business School

Justin Tan

York University

Seung Ho Park

China Europe International Business School

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.

How institutional environment influences MNC CSR crisis in China, India, and Russia

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Regulatory progress on consumer rights, labor rights, and environmental protection in China, India, and Russia

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Data structure of MNC CSR crisis, 2000–2011

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Figures - uploaded by Meng Zhao

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Content uploaded by Meng Zhao

Content may be subject to copyright.

Electronic copy available at: http://ssrn.com/abstract=2280283

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

Abbreviations

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

Introduction

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

e-mail: meng_zhao@skolkovo.ru

S. H. Park

e-mail: spark@skolkovo.ru

J. Tan

Schulich School of Business, York University,

Toronto ON M3J 1P3, Canada

e-mail: jtan@schulich.yorku.ca

123

J Bus Ethics

DOI 10.1007/s10551-013-1751-x

Electronic copy available at: http://ssrn.com/abstract=2280283

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

losses.

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.

123

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

provided.

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

misdeeds.

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

investment.

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

123

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 activities…without 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.

123

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

markets.

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

enforcement

China

Consumer rights The 1994 National Consumer Rights Protection Law;

the 2004 Defective Automobile Products Recall

Regulation

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

India

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

protests

Major labor unions have political afﬁliations.

Government ofﬁcials and parliament members

support the labor union to protest against MNCs

Russia

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

framework

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

123

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

crisis.

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

relationship.

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

Negative influence

MNC CSR CrisisMNC Social and

Environmental Misdeeds

Sophistication-Voids Interplay

Stakeholder requests outgrowing

existing reg

ulations/standards

Time

Institutional Sophistication

1. Top-down: maturation of

legislation and enforcement

2. Bottom-up: expansion of

stakeholdermembership

Institutional Voids

1. Problematic regulatory

system

2. Under-represented and

passive stakeholders

Fig. 1 How institutional environment inﬂuences MNC CSR crisis in China, India, and Russia

M. Zhao et al.

123

scandals. People.com.cn 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.-

com.cn, 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

China

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

India

No. of crises 5 7 5

No. of MNCs encountering a crisis 5 7 5

No. of industries

435

No. of MNC home countries/regions 1 5 4

Year of crisis occurrence 2003, 2005, 2008, 2010 2005, 2009–2011 2003, 2004, 2008–2010

Russia

No. of crises 6 6 7

No. of MNCs encountering a crisis 4 4 6

No. of industries

445

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

123

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

Crisis

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.

123

Table 3 Sample analysis of how institutional sophistication inﬂuences MNC crisis

Crisis area Crisis description Regulatory/Govt. system inﬂuence Stakeholder inﬂuence

China—Consumer

rights

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

accusation

Stakeholder type consumer,

government agency, semi-

government social organization

Stakeholder interaction

collaboration between

government agencies and the

consumer protection committee

China—Environmental

protection

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

agency

Stakeholder strategy online

exposure, joint lawsuits by

grassroots NGOs

Stakeholder interaction

government–NGO-victim

partnership

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

Law

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,

parliament

Stakeholder strategy the ﬁrst time

when an Indian grassroots

environmental NGO launched an

effective attack against the MNC

India—Environmental

protection

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’

livelihood

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

N/A

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

quarter

N/A Stakeholder type employee

Stakeholder strategy the strike and

damage intensity in 2011

indicated a new scale of labor

protests in India

Russia—Consumer

rights

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

123

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

Russia—Environmental

protection

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

penalties

Stakeholder type government

agency

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.

123

(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

Crisis

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

123

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

Russia.

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,

CON

MED,

CON,

EMP

CON CON,

FNGO,

CEL

MED,

CON,

FCOM,

FGOV,

GOV

MED,

CON,

EMP,

FGOV,

GOV,

FNGO,

LCOM

MED,

CON,

EMP,

FGOV,

GOV,

FNGO,

LCOM,

NGO

MED,

CON,

EMP,

GOV,

FNGO,

LCOM,

NGO,

CEL,

BLO

MED, CON,

EMP, MED,

GOV,

LCOM,

NGO, CEL,

BLO, LAW,

STU

MED,

CON,

GOV,

NGO,

RES

MED,

CON,

EMP,

FGOV,

GOV,

FNGO,

LCOM,

NGO,

RES

India N/A REL N/A NGO,

RES

GOV EMP,

GOV

N/A GOV CON, RES,

GOV

EMP,

RES

CON, EMP,

GOV,

FNGO,

LAW

Russia N/A GOV N/A GOV N/A CON,

EMP,

GOV

FGOV,

NGO,

GOV,

LCOM

GOV,

EMP,

REL

FNGO, NGO,

GOV,

LCOM,

SHA

FNGO,

NGO,

GOV,

EMP,

LCOM

FCOM,

LCOM,

FGOV,

GOV,

LAW

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

religious

group, SHA shareholder

M. Zhao et al.

123

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

123

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

ﬁrm.

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.

123

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

China.

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

markets.

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

123

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

behavior

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-

accusation

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

ﬂaw

Discontent over regulatory system problems leads to consumer boycott

Boycott over standard gap Discontent over gaps between local and global standards leads to consumer

boycott

Table 6 Institutional sophistication process and stakeholder strategy by stakeholder and context, 2000–2011

Top-down sophistication Bottom-up sophistication Sophistication-

voids interplay

Legislator/

policy-maker

Enforcement

agency

Green NGO Labor

union

Internet user

China

Consumer rights Facilitation Empowerment Transparency,

boycott,

alliance

Online exposure-

accusation

Boycott over

regulatory ﬂaw,

boycott over

standard gap

Environmental

protection

Facilitation Empowerment Transparency,

boycott,

alliance

Online exposure-

request, Online

exposure-accusation

Labor rights Facilitation Empowerment Request

India

Consumer rights Facilitation Empowerment Boycott, protest Boycott over

standard gap

Environmental

protection

Facilitation Empowerment Boycott, protest

Labor rights Empowerment Protest

Russia

Consumer rights Facilitation Accusation Online exposure-protest

Environmental

protection

Facilitation Empowerment Accusation

Labor rights Facilitation Protest

M. Zhao et al.

123

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

123

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

relationship.

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The cost of foreign ownership: Voluntary sustainability reporting and financial performance in an emerging economy

Article

Jun 2023

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.

Looking at the darker side of the mirror: the impact of CEO's narcissism on corporate social irresponsibility

Article

Full-text available

Sep 2023

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.

CSR permanency, family ownership, and firm value: Evidence from emerging economies

Article

Full-text available

Apr 2020

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.

A Study on MNE’s Local Standardization Participation: The Mechanism of Institutional Logic

Chapter

Full-text available

Jul 2023

Dong Fang Zhang

Do political incentives promote or inhibit corporate social responsibility? The role of local officials' tenure

Article

Full-text available

Mar 2023
PLOS ONE

Yunyu Wu

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.

The role of digital social innovations to address SDGs: A systematic review

Article

Full-text available

Feb 2023
Environ Dev Sustain

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.

Buying Behaviour towards Eco-Labelled Food Products: Mediation Moderation Analysis

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Jan 2023

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.

Digital technology usage, strategic flexibility, and business model innovation in traditional manufacturing firms: The moderating role of the institutional environment

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Sep 2023
TECHNOL FORECAST SOC

The role of environmental sustainability in the relocation choices of MNEs: Back to the home country or welcome in a new host country?

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J INT MANAG

Money pills: corporate political activity effect on mergers and acquisitions

Article

Feb 2023

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.

Labor Retrenchment Laws and Their Effect on Wages and Employment: A Theoretical Investigation

Article

Jan 2007

CONSUMER RIGHTS AND PROTECTION IN INDIA

Article

Nov 2019

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.

Transforming Russian Political Mores

Chapter

Jun 2019

Aleksandr Auzan

Environmental policy making and the implementation challenge

Chapter

May 2019

Bernadette Connaughton

The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist Societies

Book

Dec 2001

Neil Fligstein

Embedded Autonomy: States and Industrial Transformation

Book

Dec 1995

Peter Evans

A Stakeholder Approach to Strategic Management

Chapter

Feb 2008

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.

The End of the Nation-State.

Article

Oct 1996

Peter J. Spiro

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

Abstract and Figures