Multinational Companies - Case Study Example

 Governance, Politics, and Corporate Accountability Behaviour Word Count: 1980 Question: Are MNC’s accountable for the protection of human rights within primary global supply chains? 
 Introduction As the world progresses towards a more integrated economy, with multinational companies (MNC’s) not only operating across the world but also manufacturing or sourcing goods from a global supply chain, it has become essential that they source from suppliers, who implement ethical practices in their operations. However, it has become increasingly difficult for many of these firms to control or implement ethical practices, especially within the supply chain they cannot manage completely. Donaldson (1996) sums it up succinctly; as companies widen their range of operations, cross national boundaries and businesses in countries with both legal and moral values different from those of the MNC, which country’s law are they bound to follow? Most MNC’s would generally favour working according to the laws of the host country or disdain from taking any legal responsibility for actions outside their purview, as they would not be directly responsible. However, Donaldson (1996) questions, whether a company’s moral obligations disappear when they move to other countries? This essay explores to what extent MNC’s are held accountable for the actions of the firms in their supply chain, by firstly addressing the role that MNC’s play in the global economic environment today. The essay continues to examine the effectiveness of key stakeholders of MNC’s in holding these companies accountable, considered through the examples of the 2013 Rana Plaza factory fire in Bangladesh, and Nike’s unethical practices in the 1990’s. Finally, the essay concludes to argue that while MNC’s may not necessarily be responsible for the actions of the firms they employ, the power and influence of a combination of their stakeholders hold them accountable. The Role of MNC’s According to Ruggie and Nelson (2015), the 1990’s saw the rise of MNC’s stemming from the liberalization of trade and the emergence of global markets. MNC’s have had a significant impact on the global economy and individual nations, besides the move of many firms to outsource production to countries with cheaper labour and the rise of various financial centers. This step led to major trade agreements between nations/states in order to allow this creation of a global economy as many developing nations used their competitive advantage to create employment and supply goods for transnational companies at cheap prices benefitting both parties. Business enterprises including MNC’s realise that every action that they undertake; social, environmental, or economic has an impact, which the enterprises can be held accountable for and as they operate on a global scale wielding the global power they are bound to have greater responsibility. Moreover, as MNC’s expand operations resulting in both social and environmental problems, they are subject to increasing scrutiny and responsibility by their stakeholders (Crane and Matten, 2004; Gilbert and Rasche, 2007). Specifically, the significant loss of lives in incidents like the Dhaka 2013 fire and subsequent collapse of a factory housing manufacturing units for Primark and Walmart, forced the MNC’s under public pressure to take action and responsibility and sign the “Accord for Fire and Building Safety in Bangladesh” (Reinecke and Donaghey, 2015). In order to be successful, corporations need to ensure that they build and maintain the trust of these stakeholders. This accountability ensures that they cannot ignore vital issues like child labor, unhealthy work environments, corruption and less than subsistence wages (Kolk and Van Tulder, 2004). The Effects of Stakeholders Nonetheless, the abuses of human rights in supply chains across various countries continue to occur till date. A case in point being Nike in the 1990’s, which created headlines for sourcing products from sweatshops employing child labor amidst horrible health and safety conditions and supply chain contractors abusing employee rights and forcing them to work in conditions, which would not be tolerated in the industrialized west. Many MNC’s and host countries decried this by citing different cultural practices and also economic development, besides the inability to police these abuses (Donaldson, 1996). Today however, not only does Nike abide by international legislation put forth by Non-Governmental Organisations (NGO’s), they now practice self-regulation by creating and enforcing their own codes of conduct. Such changes in practices are influenced through external stakeholders holding MNC’s accountable for the actions of their supply chain. NGO’s In the late 1990’s due to rampant abuse of labor and the propensity of supply chains to keep costs to a minimum, MNC’S sought out those contractors who could supply them with products at cheaper prices. The subsequent headlines in the papers, forced international non-governmental bodies like the United Nations (UN) to implement reforms to regulate the responsibility of transnational companies towards their supply chains. Though an attempt had been made with the OECD guidelines for Multinational Enterprises, it failed due to being non-binding on multinationals and a lack of enforcement on the part of nation states. The guidelines were revised in 2000 and though corporate adherence was still voluntary, the scope for the same expanded and the transnational companies were advised to respect human rights of those affected by the company’s operations (Buhmann, 2015). The UN Secretary-General’s Special Representative, Professor John Ruggie formulated a Global Compact to protect human rights (also known as the Ruggie Framework). The UN’s guiding principles on human rights and business rests on three main pillars, “the state’s duty to protect against the exploitation of human rights by third parties, including businesses; the corporate responsibility to respect human rights; and the need for more effective access to remedies, both judicial and non-judicial” (United Nations, 2010). This allowed individuals, organizations or any interested party to file a complaint against any MNC belonging to or operating in the countries adhering to the guidelines, ensuring that they extend due diligence to their business relationships including their supply chains (Ruggie and Nelson, 2015). This thus puts a burden on the MNC’s to protect the human rights of the workers, employed by them or by their contractors. However similar to the OECD’s guidelines, this is dependent on the MNC’s or states having signed or endorsed an agreement which protects the human rights i.e. any country, which has signed the agreement, can regulate the MNC’s conduct and enforce their compliance with the agreement (Arnold, 2010). Thus, it is evident that only those MNC’s which fall under the purview of the UN Global Compact, or those which are signatory to similar agreements can be held accountable under the law. As a result, organizations like the UN, International Labour Organisation (ILO) and others, are addressing these issues through standardized ethics initiatives like the UN Global Compact, SA 8000, and ISO 26000, which in conjunction with government laws will seek to address social and environmental issues (Frost, 2005; Sandberg, 2006; Gilbert and Rasche, 2007). This approach by the international community represented by the UN and other social and civil movements signifies that MNC’s are responsible and accountable for the protection of human rights in the global supply chain. The standardized ethical initiatives will only aid the MNC’s to understand better the expectations of the stakeholders using procedures, which allow them to reflect on their actions and then communicate them to their stakeholders (Belal, 2002; Gilbert and Rasche, 2007). However, as argued earlier, if a company operates on a global scale and wields global power, it is obligated to accept global responsibility. Customers Legally binding legislation however, is not the sole influence that holds MNC’s accountable for the actions of their supply chains. Even though Nike retorted that it was not legally bound by the law to monitor contractors, public protests and boycott of goods by consumers resulted in Nike losing sales and more importantly a loss of brand image. This forced the company to adopt a code of conduct for its suppliers and today it strictly monitors its supply chain and seeks to ensure that they adhere to the ethical code adopted by Nike. Today Nike enforces its code through 90 compliance officers based in 21 countries and trains its contractors to ensure compliance with its code. A major reform was to ban child labor below 18 in its shoe factories and below 16 in its apparel-manufacturing units. Additionally, it forced its suppliers to adopt OSHA standards for air quality, besides auditing suppliers on three major parameters: first, basic health and safety and environmental audit; second, an in-depth management and working conditions audit and lastly an audit through the Fair Labor Association, of which Nike is a member (Locke et al., 2007). Public pressure thus held the MNC accountable for human rights abuses within its supply chain and even though local laws did not legally bind Nike, it was held accountable by its stakeholders. Government In contrast however, the primary body that is responsible for holding most companies accountable for their actions has largely failed in their approach with MNC’s. Till the 1990’s, the only responsibility of MNC’s was an indirect legal responsibility but that was brought into the limelight by organizations such as Amnesty International and others, leading to the question of responsibility especially in context of a globalizing world (Chandler, 2003; Ruggie, 2006: Kobrin, 2010; Cragg, 2010; Lee and Lee, 2010; Cragg et al., 2012). Due to their fear of losing revenue and economic benefits if MNC’s were to move away, governments have either been incapable or unwilling to regulate or address these issues. However, under pressure, from NGO’s and international agencies, the transnational companies were forced to adopt practices to maintain human rights by adopting codes of conduct. Discussion Before globalization, trade unions and governments played a major role in regulating employers and ensuring that employees were looked after and corporations adhered to regulations. However, today with globalization and the shifting of production across various global supply chains (Gereffi, Humphrey and Sturgeon, 2005) it has become difficult to monitor and regulate firms. Moreover, it is possible that it was to escape this regulation that many transnational companies shifted production to the global supply chain, as this would preclude them from regulation from the trade unions. This resulted in both national unions and global union federations like the ILO pushing nations to introduce clauses in trade agreements, which would ensure fair treatment of labor employed by the transnational companies (Reinecke and Donaghey, 2015). However, as stated earlier, the implementation of local laws and regulations has been lax and many transnational companies got away with abusing human rights instead of protecting them within their global supply chains. Changes such as the rapid rise in globalization are incredibly difficult to predict, and consequently their effects are even more difficult to foresee. As a result, while MNC’s today maybe effectively held accountable by NGO’s and their customers, it is impossible to conclusively argue that this phenomenon will continue. Conclusion It is evident that though laws have been passed governing human rights abuses through the supply chain, many of these are difficult to implement because the supply chains situated in many case countries, are unable to monitor their contractors. However, it is also evident that the stakeholders in most MNC’s hold them accountable for protecting human rights within the supply chain and have taken affirmative actions. This was evident in the case of Nike and the Rana Plaza fire in Dhaka, where public opinion and response forced MNC’s to accept their responsibility towards upholding human rights within their supply chains and take actions to remedy the problem. The UN declaration on human Rights and regulations enforced by host nations has also held the transnational companies responsible for their actions or those of their supply chains. Nonetheless, laws and regulations enforced by host nations may be very different than those existing in the MNC’s home country. It is only through the actions of stakeholders that ensure that the company is held accountable for its actions. The fact that MNC’s have now implemented codes of conduct and ensured compliance within the supply chain implies that the companies are accountable for their actions and thus accept their responsibility in ensuring that the human rights of their workers are protected. REFERENCES Arnold, D. (2010). 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