Responsibility of Companies Has Historically

¶ … responsibility of companies has historically been defined in purely economic terms. For example, Friedman (1990) considered maximization of shareholder wealth as being the sole objective and responsibility of a well-managed company. This perspective, though, generally viewed corporate social responsibility activities as a distraction rather than a goal. From this perspective, any expenditures of resources in the interests of social responsibility was at the expense of shareholders, and the interests of shareholders and other stakeholders were defined implicitly as conflicting and mutually exclusive. Today, though, stakeholder theory maintains that stakeholders should be considered as an important component in a company's overall business plan. By sharp contrast, neoclassical economic theory treats companies as unitary actors that seek to maximize their profits. The stakeholder approach to doing business suggests that all people who hold a legitimate interest in an entity have a right to be heard, and to have their views must be considered as well. Today, the stakeholders in a corporation include not only shareholders and officers, but also customers, lenders (including those other than creditors), employees, creditors, suppliers and the community at large. The vast majority of multinational corporations, though, compete in environments that are characterized by a lack of regulatory or other oversight. This paucity of regulatory guidance has compelled many corporations to forego their responsibilities to their stakeholders in favor of more profits in the near-term, a practice that some observers believe is no longer a sustainable approach to doing business in an increasingly globalized marketplace.

To gain some additional insights into how these forces are playing out in the real world today, this study examines the scholarly and refereed literature to identify the salient issues involved in stakeholder theory as they apply to multinational corporations, and what companies can do today to ensure their long-term profitability while balancing the needs of all of their stakeholders. A summary of the research and findings is presented in the conclusion, followed by personal reflective journal in the appendix.

Chapter 1: Introduction

General Overview

Problem Statement

Research Question

Purpose and Significance of Study

Scope of Study

Research Method of the Study

Chapter 2: Literature Review

Chapter 3: Methodology

Description of the Study Approach

Data-gathering Method and Database of Study

Chapter 4: Data Analysis

Chapter 5: Summary, Conclusions and Recommendations

Study of Relationships between Corporate Social Responsibilities Promotion and Corporate Performance in Multinational Corporations

Introduction

According to Mcmenamin (1999), today, it is not possible, or even desirable, for a company to seek to achieve shareholder wealth maximization in terms of profitability to the total exclusion of all other considerations. Indeed, this author reports that, "In the management of a firm there are a diverse group of interests, often conflicting interests, which need to be recognized and included within the goals and objectives of the firm" (p. 40). For example, there is the primary group of the company's managers who are responsible for operating and controlling the company on a day-to-day basis on behalf of the shareholders, the actual owners of the enterprise. Further, in larger publicly owned companies, there is a principal-agent relationship between shareholders and managers, with managers acting as agents on behalf of shareholders as their principals (Mcmenamin, 1999).

This separation of ownership and control, or agency relationship, particularly in large corporations, can result in conflicts and problems between the interests of managers and the interests of shareholders. Mcmenamin notes that this conflict of interests is known as the agency issue or the agency problem. "In addition to the interests of shareholders and managers, there are other 'stakeholders' whose interests need to be considered," he says. "That is, other groups exist who can be considered to have a legitimate interest, or stake (economic or otherwise) in the goals and objectives of the firm" (p. 40).

For instance, all corporations have employees, customers, and community groups, all with interests that are frequently different and even competing that must be taken into account.

Proponents of the stakeholder theory suggest an all-inclusive approach to management by recognizing the rights of all the diverse interest groups in managing the activities of the corporation; further, stakeholder theory applies equally to public sector and not-for-profit organizations (Mcmenamin, 1999).

General overview

Multinational corporations have become increasingly common in recent years, a process that suddenly accelerated in the late 1990s, particularly in the fields of telecommunications and energy; further, approximately one-third of the $3.3 trillion in goods and services traded internationally in 1990 was comprised of transactions within a single firm (Korten, 1995, p. 43). The globalization of markets, the increased need for working capital, and new technology, combined with an improved investment environment, are contributing to this acceleration today as well (Miller, 2000). According to Rao (1999), "Globalization, with its corollaries of global products, global consumers and the global marketplace, appears to signify the crystallization of the entire world as a single place. The questions are: what economic, political or cultural parameters does this process of globalization render invisible? What groups of people or regions are excluded from this discourse?" (pp. 58-9). These fundamental issues have emerged as the result of the globalization of the world's marketplace, a process that has been driven by two primary technological forces. First, transportation costs have decreased dramatically with the introduction of improved physical communications such as better vehicles, modern aircraft; containerization; and expanses of interstate and international motorways. Second, and more spectacular, advances in computing power and in telecommunications through the introduction of a wide range of computer-based systems, satellite technology, and, more recently, fiber optics; these innovations have fundamentally improved the ease, speed, quantity, and quality of international information flows around the world (Cable, 1995).

According to Mayer (2001), though, today, just a few multinational corporations are increasingly consolidating their hold on the global economy. "Given their impact on our lives," he advises, "it is predictable that individuals will in various ways accommodate their lives to the dynamics and beliefs of corporate values" (p. 215). These trends have resulted in many observers suggesting that multinational corporations owe a higher duty to the communities in which they are situated, with various theories being advanced on how best to accomplish this end. In reality, though, most major multinational corporations are constrained only by various laws and regulations in these venues that do not pertain to their ethical conduct, and the consequences have been both severe and pervasive in many cases. In order to determine how a multinational can compete in an increasingly globalized economy today, this study examines multinational corporate governance policies and what issues have emerged in recent years to compel these companies to afford greater attention to their responsibilities to all of their stakeholders rather than just a few shareholders. Stakeholder theory maintains that there are constituents other than the shareholders of the corporation to whom the corporate leadership has certain responsibilities; these constituents are groups that are likely to be affected, either directly or indirectly, by the decisions of executives. Therefore, these stakeholders are said to have a "stake in the corporation"; stakeholder theorists recognize that corporate managers may act from various incentives and a number of stakeholder theorists recognize that the interests of noninvesting stakeholders may not always override the financial interests of shareholders (Karake-Shalhoub, 1999).

Problem statement

According to Mayer (2001), "The vast majority of international trade and business is carried on by large multinational corporations whose pursuit of ever-increasing global market share is breaking down traditional patterns of life and community, imposing a dynamic of rapid change on many segments of most societies, and severely degrading the natural environment on which business, communities, and human life ultimately depend" (p. 215). "Readers may rightly ask about the corporate responsibilities that accompany those rights. Suffice it to say that the responsibilities are few. With the exception of those activities either banned by government (child labor) or mandated by government (minimum wage, job safety, etc.), the corporate entity operates largely in a do-as-you-please environment" (Gates & Schmidheiny, 1999, p. 313).

Research question

The primary research questions that will guide this study are:

1. What are corporate responsibilities in general and how do they affect multinational corporations in particular; and, 2. Can an ethical multinational corporation compete in a globalized marketplace where other similarly situated companies may not be so concerned about stakeholder rights?

Purpose and significance of study

Claims that various types of corporate activity have a detrimental impact on human welfare are certainly not new, but the assertions today represent different issues both in terms of their origin and their content. According to Ratner (2001), these claims "emanate not from ideologues with a purportedly redistributive agenda, but from international organizations composed of states both rich and poor; and from respected nongovernmental organizations, such as Amnesty International and Human Rights Watch, whose very credibility turns on avoidance of political affiliation" (p. 435). Just as importantly, these groups have not attempted to undermine capitalism or corporate economic power per se; rather, they have leveled increasing amounts of criticism at certain types of corporate behavior that has clearly transcended accepted norms of human rights law based on widely ratified treaties and customary international law (Ratner, 2001).

These claims are virtually all based on the concept that corporations - particularly multinationals -- should be held accountable for their actions within their sphere of operations. "Corporations, for their part, have responded in numerous ways, from denying any duties in the area of human rights to accepting voluntary codes that could constrain their behavior" (Ratner, 2001, p. 436). In fact, this very point is echoed throughout the literature; for example, "At the turn of the 20th century, corporations tended to disregard the public interest willy-nilly. And even as recently as one-half century ago, corporations had so much power over the marketplace and so little responsibility to society" (Sriramesh & Vercic, 2003, p. 450). Despite these trends, things are changing, though, as Ratner points out: "The last decade has witnessed a striking new phenomenon in strategies to protect human rights: a shift by global actors concerned about human rights from nearly exclusive attention on the abuses committed by governments to close scrutiny of the activities of business enterprises, in particular multinational corporations" (p. 435). This closer scrutiny has profound implications for those companies who would seek to expand their market share into the global marketplace.

Research method of the study

The research method used in this study will consist of an exploratory approach comprised of a critical review of the scholarly and refereed literature, with an emphasis on identifying the corporate responsibilities of multinational corporations today based on historic trends and events.

Literature Review

Background and overview.

It just makes good sense the companies must be concerned with their profitability; clearly, without profits, the company would simply cease to exist and there would be no benefits accruing to anyone. In recent years, however, there has been an increasing amount of attention paid to the underlying ethics of how companies, and particularly multinationals, compete in an increasingly globalized marketplace, and precisely what responsibilities are associated with doing business abroad. These questions are not new, but they have assumed increasing importance today. Citing studies by J. Scott Armstrong, Mayer reports that in the 1970s, there was fairly global and homogenous response to increasing corporate pressures to make decisions with their bottom line foremost in mind identified. Armstrong surveyed approximately 2,000 management students from ten countries to play the roles of corporate board members of a multinational pharmaceutical company; the author posed the question of whether the company should remove a drug that had been found to endanger human life from the market. As board members, fully 79% refused to withdraw the drug and sought legal and political actions to either delay or stop government efforts to ban the drug (Mayer, 1999).

Likewise, the Bhopal tragedy caused by Dow Chemical and the Exxon Valdez oil spill are just some of the better-known instances of the disasters that took place in the late 20th century that clearly demonstrated the power of the multinationals to cause enormous devastation on the health and safety of neighboring communities if unconstrained. Not surprisingly, these events have resulted in a demand for the imposition of corporate responsibilities (Mehmet & Mendes, 2003). Unfortunately, these authors point out that, "These patterns of immediate denials and downplaying or withholding of vital information seem a constant theme in these corporate activities which have devastating impacts on local communities. Such exercise of power without responsibility is a serious flaw in the workings of global governance" (Mehmet & Mendes, 2003, p. 122). In order to identify precisely what responsibilities such multinationals have, it is first necessary to define and describe them; these issues are discussed further below.

Corporate responsibilities - What are they?

According to Pava (1999), things have changed in fundamental ways for most companies today. "Most of us, most of the time," he says, "look at business through the commodity-based lens. Business is action-oriented. Defining the corporation in this way does not necessarily entail an amoral view of the business corporation. The best example of a business ethics built upon a commodity-based view of the corporation is the now-familiar 'stakeholder theory'" (p. 6). The stakeholder theory maintains that corporations must recognize their responsibilities to various stakeholder groups in society, beyond just their own stockholders; in this regard, these responsibilities include:

1. Providing customers to produce safe, high-quality products at reasonable prices;

2. Treating suppliers with honesty and with integrity;

3. Ensuring that employees and managers are provided with profitable work opportunities and to be rewarded in an open and just way;

4. Being good corporate citizens with regards to local, national, and global communities; and, 5. Providing their shareholders and creditors with a fair return on their invested capital (Pava, 1999).

While the stakeholder theory assumes that corporate executives are responsible to stockholders, it also maintains that there are other groups that are directly affected by the conduct of the company. For example, employees, consumers, creditors, suppliers, and legal subsystems are representative constituents who have a vested interest in the corporation and who might affect, in one way or another, corporate decision making; consequently, corporate executives have a direct responsibility to promote the interests of these groups. Nevertheless, there remains significant disagreement among stakeholder theorists concerning whether stakeholders' interests of these groups take precedence over the financial interests of stockholders, just as there is disagreement over which of the stakeholders' interests should be the predominant ones (Karake-Shalhoub, 1999).

By sharp contrast, social demandingness theorists maintain that corporations have a fundamental responsibility to protect and to promote certain interests of the general public. According to Karake-Shalhoub:

They [social demandingness theorists] agree with the stakeholder theorists that the interests of stakeholder groups are important, but they believe that these interests do not override nonstakeholders' interests or demands for such things as safety, health, freedom, and prosperity. As with the stakeholder theory, this one repudiates the notion that there is some balanced or sensible list of tangible responsibilities that corporate executives always have toward society. The list varies as the nature and ranking of the interests or demands of the public change. (p. 6).

Furthermore, many companies are seeking to decentralize and make basic corporate functions such as buying, selling, financing, developing, producing, and servicing, more efficient and effective by changing their mode of internal organization; these changes have placed greater reliance on worker initiative and a less rigid division of labor (Dunning, 1999). Today, groups or circles of workers (or 'associates') are being empowered to make front-line decisions based on their own best judgments concerning the best way to run a production line or a specific machine, reduce costs at all stages of production, and improve quality. As a result, "Middle strata (such as supervisors), as a result, are becoming increasingly irrelevant" (Dunning, 1999, p. 433). The fundamental goal of these new business models is to improve company performance by facilitating the flow of information both within the firm, and between the firm and its network of suppliers and clients; and by establishing new incentive regimes for labor, whose greater involvement and increased responsibilities is being rewarded with longer tenure, extensive training, and better compensation (Dunning, 1999).

In reality, though, the key challenge facing multinational corporations and their leadership today does not so much concern the difficulties related to guiding individual behavior, but rather in providing an ethical framework for corporate behavior (Casmir, 1997). In this regard, Casmir suggests that when the individual is the subject of investigation, the majority of attention is afforded to straightforward issues of compliance, while the value of the policy or procedure to which compliance is directed receives little or no attention. "Additionally, the largest issues of responsibility and value relate to systemic problems and collective actions. Clearly this is also the case in international business. There are unethical employees and they do harm (judged by any number of standards and measures), but their compliance to laws and corporate policies will not solve many of today's difficult problems" (Casmir, 1997, p. 190). The primary objectives and day-to-day activities of multinational corporations have become the focus of concern; however, the primary constraint involved here concern developing an adequate public rather than merely private ethic (Casmir, 1997).

According to Casmir, "Today, many lament the weak morality of commercial corporations. Thus, an adequate discussion of ethics must focus on both the individual and corporate levels. But the discussion of corporate responsibilities has been severely hampered by dominant social conceptions which make such a discussion difficult" (p. 190). Indeed, while it is frequently difficult, if not impossible, to provide a "one-size-fits-all" guide concerning the critical issues related to business ethics, the stakeholder theory provides a useful framework for investigating and pinpointing corporate responsibilities while at the same time providing a company's leadership with a powerful reminder that their stockholders are not the only legitimate stakeholders involved (Dunning, 1999, p. 433).

Unfortunately, it would appear that these trends have created more questions than answers, and the underlying issues have been perhaps better described than they have been understood by most observers today. In his essay, "Community, Business Ethics and Global Capitalism," Mayer (2001) advises that, "The field of business ethics is in a quandary. No unified theory has been accepted by its many scholars and practitioners, and, according to some, little practical guidance to business managers has been generated" (p. 215). This is not to say, though, that multinational managers do not have any tools at their disposal to help them make these judgment calls; it is to say, though, that many have not recognized the need or accepted these responsibilities in a meaningful way. For example, Mayer points out that, "Rather than trying to apply the most abstract moral theories (Utilitarianism, Kantian Deontology, or Aristotelian Eudiamonism) to ongoing ethical quandaries, business ethicists as well as managers of multinational enterprises can usefully examine the customs and mores of a particular community to discover viable ethical norms (or microsocial contracts)" (p. 215). This type of attention to the particular extant norms, though, must be balanced by the corporate regard for broader, more universally applicable standards, a process that is inherently confounded by a wide range of social, cultural, geographic as well as a need to continue to focus on a company's bottom line. In this regard, Andrew Carnegie recognized early on the responsibilities of wealth while at the same time maintaining a clear differentiation between personal and corporate responsibilities. For example, in his 1889 essay appropriately titled "The Gospel of Wealth," Carnegie pointed out that the man of wealth has a duty:

to consider all surplus revenues which comes to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community - the man of wealth thus becoming the mere trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could do for themselves (in Krauz & Pava, 1995, p. 113).

In 1919, in the case of Dodge v. Ford, the State of Michigan Supreme Court held that "[a] business corporation is organized and carried on primarily for the profit of the stockholders" (Tsuk, 2003, p. 1861). This concept of corporate responsibility has remained the standard for the doctrine of fiduciary duties; Tsuk notes that this concept is based on the assumption that market competition, "as manifested in the profit motive," is in and of itself a sufficient constraint on corporate power. "Legal doctrine does not exist in a vacuum," though he notes. "Over the past century legal scholars and political scientists helped legitimize the shareholder-centered vision of the corporation by suggesting how different interests would help direct corporate power toward socially beneficial aims" (Tsuk, p. 1861).

In fact, during the middle of the 20th century, this sharp distinction between personal and corporate responsibilities began to change and the nature of corporate social responsibility today has become focused on transforming these concepts into a set of standards that can be called upon by corporate leaders when they are faced with situations where the ethical alternative may not be so readily discernible though (Krauz & Pava, 1995). According to Mayer, "These more universal standards are called hypernorms, and would limit the moral free space of microsocial contracts by forbidding acts which violate the most fundamental principles of human existence" (p. 215). In response to violations and perceived violations of these fundamental principles, the following small set of claims is representative of the challenges being made today concerning private business activity and the venues in which they take place:

1. The United Nations Security Council condemns illegal trade in diamonds for fueling the civil war in Sierra Leone and asks private diamond trading associations to cooperate in establishing a regime to label diamonds of legitimate origin;

2. The European Parliament, concerned about accusations against European companies of involvement in human rights abuses in the developing world, calls upon the European Commission to develop a "European multilateral framework governing companies' operations worldwide" and to include in it a binding code of conduct;

3. In response to public concern that American companies and their agents are violating the rights of workers in the developing world, the U.S. government endorses and oversees the creation of a voluntary code of conduct for the apparel industry;

4. The South African Truth and Reconciliation Commission, in a searching study of apartheid, devotes three days of hearings and a chapter of its final report to the involvement of the business sector in the practices of apartheid;

5. Human Rights Watch establishes a special unit on corporations and human rights; in 1999, it issues two lengthy reports, one accusing the Texas-based Enron Corporation of "corporate complicity in human rights violations" by the Indian government; and another accusing Shell, Mobil, and other international oil companies operating in Nigeria of cooperating with the government in suppressing political opposition;

6. Citizens of Burma and Indonesia sue Unocal and Freeport-McMoRan in United States courts under the Alien Tort Claims Act and accuse the companies of violating the human rights of people near their operations; the corporations win both suits without a trial.

7. Holocaust survivors sue European banks, insurance companies, and industries for complicity in wartime human rights violations, and, with the aid of the U.S. government, achieve several multimillion-dollar settlements (Ratner, 2001, pp. 436-7).

Stakeholder Theory and Its Implications for Multinational Corporations.

Stakeholder theory is fairly straightforward in its approach to developing effective and ethical corporate governance regimens. The term "stakeholder" first appeared in the business lexicon after its introduction by Robert K. Merton in the 1950s, and it first appeared in the 1963 management literature at Stanford Research Institute (Kakabadse, 2001). The stakeholder concept was defined originally as being "those groups without whose support the organization would cease to exist" (Freeman, 1984, p. 31 cited in Kakabadse, p. 25). Freeman was the first scholar to provide a theory that examined the role and impact of actors with divergent agendas on an enterprise, firm; in his works, he sought to provide an understanding of the dynamic relationships that a typical company develops with its external environment, and its behaviors within this environment (Kakabadse, 2001). This body of early research emphasized the fact that a wide variety of internal and external actors have an impact on a company's actions. As a result, stakeholders today are regarded as being "any group or individual who can affect or is affected by the achievement of the organization's objectives' and as such firms should identify their direct and indirect stakeholders" (Kakabadse, p. 25). Along these lines, Donaldson and Preston (1995) maintain that individual stakeholder groups are not so readily discernible; however, it is the interests that groups represent (internal or external) that can be highlighted. Therefore, Kakabadse suggests that today, it is the "interest" that is the critical variable rather than the individual stakeholders involved.

According to Mcmenamin (1999), "What is needed is for the concept of shareholder to be broadened to that of 'stakeholder.' All those affected by corporate behaviour -- " the general public, workers, consumers, and the surrounding community -- " ought to have some representation on corporate boards" (p. 53). In the private sector, the primary stakeholders are, of course, the company's owners; in the public sector, though, the primary stakeholders are citizens as exemplified by a wide range of citizens' charters, patients' bill of rights, and so on. In addition, a company's employees, lenders (besides its creditors) and any others who may have a direct economic interest in the entity are regarded as secondary stakeholders; while potential investors and their advisers, stockbrokers, tax authorities, members of the public and other users of published accounts are considered to be "tertiary stakeholders" (Mcmenamin, p. 54). Those corporations that subscribe to the stakeholder theory of corporate governance consider these actions to be part of their "social responsibility"; these enterprises tend to believe that encouraging and actively promoting good stakeholder relationships is vital for the long-term benefit and competitiveness of the company. According to Mcmenamin:

For example, providing good value for customers enhances customer loyalty and improves competitiveness, which in turn creates value for the firm, allowing it to create even greater value (wealth) for its other stakeholders such as its employees. Stakeholder theory is reflected in the 'partnership' approach taken by many organizations in their relationships with suppliers, customers and community groups. (p. 54).

The stakeholder approach to corporate management is also a comprehensive one in that it must recognize the rights of all the diverse interest groups rather than just the rights of the shareholders. As a result, numerous organizational goals are likely to emerge, just one of which the maximization of shareholder return on investment; in fact, this author suggests that for some multinationals, this aspect may not even be the most important goal (Mcmenamin, 1999). In their book, Rethinking Business Ethics: A Pragmatic Approach, Buchholz and Rosenthal point out that effective stakeholder management by multinational corporations demands attention to the legitimate interests of all appropriate stakeholders, including the government as just one among the variety of types of stakeholder; in fact, this is the very basis of the stakeholder model which precludes assigning any inordinate attention to the interests of any one constituency over another. In this regard, Donaldson and Preston emphasize that:

To be sure, it remains to implement in law the sanctions, rules, and precedents that support the stakeholder conception of the corporation.... Yet over time, statutory and common law are almost certainly capable of achieving arrangements that encourage a broader, stakeholder conception of management -- one which eschews single-minded subservience to shareowners' interests -- while at the same time restraining the moral hazard of self-serving managers. (p. 91).

The responsibilities of multinational corporations to society at large as well as their stakeholders in particular has received greater attention in recent years, particularly in view of the above-cited instances of extreme abuses by some companies as well as others that are not as well-known. For instance, in the UK, the Prince of Wales Trust recently sponsored a meeting of the Prince of Wales Business Leaders Forum devoted to the topic of "responsible business" (Kennedy, 2000, p. 206). According to this author, "North American readers may find this obscure, but as one who has lived in the UK for many years, I can tell you it is an event of note in the business community there. Closer to home, hundreds of articles and a score of books have been published every year for the past twenty years extolling the virtues of stakeholder management" (Kennedy, p. 206). The need to assess stakeholder interests while competing on a global basis though carries with it some inherent difficulties that may not be readily discernible to the casual observer. For example, "Duties of care and loyalty emerge in the corporate setting as restraints upon managerial behavior. Corporate profits do not belong to the managers -- they belong to the shareowners. These duties thus compel managers (1) to conduct business in such as way that contributes toward increasing these profits, and (2) not to use corporate profits to serve personal purposes, or the purposes of anyone other than shareowners" (Radin, 2003, p. 620).

Despite these restrictions and frequently indiscernible limitations, though, a number of organizations have been established in North American college campuses that are concerned with the associated issues that have emerged from the stakeholder theory of the corporation, including concepts such as business ethics, corporate responsibility, corporate community relations, and corporate citizenship. Kennedy suggests that one reason the shareholder value theory of the global marketplace has gained such popular acceptance is that it has struck a responsive chord among the citizens of the world. "And as far as it goes, it is true," he adds. "I have argued that the shareholder value theory of the corporate world, though perfectly valid, went wrong in its exploitation of stakeholders when it forced their backs so much to the wall that each and every one of them had to respond aggressively, so that the future viability of corporations is today threatened" (Kennedy, p. 206). The author cautions, though, that these observations are not advocating one position over another, but rather they are simply the reality of doing business in the international marketplace today.

According to Kennedy, "Corporate managers and board members should take heed, or they will be overwhelmed by the forces set in motion against them. There is nothing wrong with the idea that people, even theoretical 'people' like corporations, should do 'right.' It just belongs in the province of religion, not commerce" (p. 206). Clearly, what is "right" in any given setting can be a highly subjective matter, but the vast majority of people appear to have a fine-tuned sense of justice that can readily detect when something does not pass the "smell test." In this regard, Radin suggests that, "Ignoring stakeholder concerns might not affect short-term performance, but it can have a serious negative impact on long-term performance. If we have not learned anything else from the experiences of such companies as Enron, Arthur Andersen, and WorldCom, we should have learned that life catches up to you. This is true for individuals, organizations, and society at large" (emphasis added) (p. 621). Therefore, if a multinational corporation seeks to develop a comprehensive set of ethical guidelines by which it intends to prosecute its business interests abroad, there is much to consider but there are a number of issues involved that may not be readily discernible to the casual observer. These issues are discussed further in the analysis section following a description of the methodology employed below.

Methodology

As noted above, this study employs a critical review of the scholarly and peer-reviewed literature in an exploratory fashion to answer the guiding research questions. In his book, Social Research Methods (5th ed.), Neuman (2003) reports that, "Reviewing the accumulated knowledge about a question is an essential early step in the research process. As in other areas of life, it is best to find out what is already known about a question before trying to answer it yourself" (p. 96). According to Wood and Ellis (2003), a well-conducted literature review can produce a wide range of positive results including the following:

It helps describe a topic of interest and refine either research questions or directions in which to look;

It presents a clear description and evaluation of the theories and concepts that have informed research into the topic of interest;

It clarifies the relationship to previous research and highlights where new research may contribute by identifying research possibilities which have been overlooked so far in the literature;

It provides insights into the topic of interest that are both methodological and substantive;

It demonstrates powers of critical analysis by, for instance, exposing taken for granted assumptions underpinning previous research and identifying the possibilities of replacing them with alternative assumptions;

It justifies any new research through a coherent critique of what has gone before and demonstrates why new research is both timely and important.

Both primary and secondary sources will be consulted, and a qualitative assessment will be made as to the relevance of the material for the purposes of this analysis.

Analysis

It would seem reasonable to assert that if a multinational corporation seeks to ensure that its behaviors afford the maximum protections and benefits for all of its stakeholders, it would be at a competitive disadvantage compared to those which did not. After all, any efforts that are directed at initiatives that do not contribute to a company's overall profitability would seem to detract from its ability to compete effectively, particularly in a globalized marketplace; however, this is not always the case and studies have shown time and again that to the extent that a multinational seeks to achieve this balance is the extent to which it will enjoy an improved reputation and facilitate consumer loyalty (Rao, 1999). In this regard, Krauz and Pava point out that although there is not a one-to-one relationship between corporate social responsible activities and profitability, nevertheless, these initiatives represent "a signal of the presence of a style of management that extends broadly across the entire business function and leads to more profitable operation" (p. 31). These authors conclude that "it is exactly this ability to sense, adapt, negotiate with, and cope with these forces that is... The sign of managerial excellence and hence profitability" (Krauz & Pava, p. 31).

In his book, Managers and National Culture: A Global Perspective, Peterson (1995) reports that, "International business operations have changed rather dramatically in the latter years of the twentieth century. The first international presence of a German, American, or Japanese firm may have been through exporting a product or establishing a sales operation in another country" (p. 5). A few years later, though, companies may have established an international division to assist in the management of operations in a variety of countries. Even more recently, the same companies may be attempting to compete on a global basis such as exemplified by Unilever (Peterson, 1993). A key feature of the modern global economy has been the emergence of what Dunning terms "alliance" capitalism (also called relational, collective, stakeholder and collaborative capitalism). "While retaining many of the characteristics of hierarchical capitalism," the authors advises, "the distinctive feature of alliance capitalism is the growing extent to which, in order to achieve their respective objectives, the main stakeholders in the wealth-seeking process are needing to collaborate more actively and purposefully with each other" (p. 119). This level of collaboration includes the conclusion of closer, continuing, and more clearly delineated intra-firm relationships, such as that required between functional departments and between management and labor; the growth of a variety of interfirm cooperative agreements between suppliers and customers and among competitors; and the increasing recognition by governments and companies alike concerning the requirement to work as partners if the economic goals of the enterprise itself and society at larger are to realized (Dunning, 2001).

The stakeholder theory suggests that by taking into account the broader interests and responsibilities that go hand-in-hand with multinational enterprises, a firm stands to fulfill its obligations in such a manner that the public will naturally support it (Rao, 1999). Likewise, Karake-Shalhoub (1999) reports that the most commonly endorsed argument in support of the stakeholder theory is the performance one, which has been advanced by some strategic management theorists, who emphasize the advantages that accrue to multinational corporations that subscribe to the stakeholder approach. This view is in stark contrast, though, with some other traditional views about how companies should behave in a globalized marketplace; a comparison of such assumptions is provided in Table 1 below.

Table 1. Comparison of Paradigm Assumptions Concerning Firm Behaviors and Their Implications.

Neoclassical

Environmental

Goals

Maximize wealth through consumption and economic expansion

Survival and quality-of-life issues

Economic growth

Sustainable development

Context of external environment

Social, political, cultural, economic

Social, political, cultural, economic, biophysical

Resource constraints

Financial, human, technological

Financial, human, technological, natural

Progress

Unlimited growth and resources

Limits to growth, limited resources

Strategy focus

Resource conservation and utilization

Resource conservation

Nature of relationship

Anthropocentric, reversible processes

Holistic, irreversible processes

Time span

Short to medium, focus on present and immediate future

Ecological time span, longterm, future generations

Stakeholder groups

Shareholders, customers, public, institutions

Shareholders, customers, public, institutions, planet preservation, future generations

Source: Rao, 1999, p. 57.

In his essay, "Transaction Costs and the Historical Evolution of the Capitalist Firm," Pitelis (1998) observes that the neoclassical view holds that "institutions are sets of rules, compliance procedures, and moral and ethical behavioral norms designed to constrain the behavior of individuals in the interests of maximizing the wealth or utility of principals" (p. 999). The proponents of the neoclassical approach to competing in a global marketplace maintain that corporate law requires managers to exercise their power to maximize shareholder value, not the interests of other corporate constituencies, specifically workers; however, the collapse of Enron and the enormous losses suffered by its rank-and-file workers identified serious problems with this shareholder-centered vision of corporate law (particularly the short-term shareholder-wealth-maximization norm) (Tsuk, 2003).

According to Prakash (2000), neoclassical economists view the social objective of business is to maximize shareholders' wealth; by contrast, stakeholder theory maintains that multinationals should (and in some cases do) design corporate policies by taking into account the preferences of multiple stakeholders; stakeholders being "any group or individual who can affect or is affected by the achievement of the organization's objectives" (p. 5). In a similar vein, the literature on corporate social performance, responsibility, and responsiveness suggests that companies have inherent societal responsibilities other than the goal of maximizing shareholder wealth. For example, Ostas (2001) points out that some authorities on corporate social responsibility may simply adopt a formalist perspective that naturally assumes that the relevant "law" comprises a set of singular and well-defined commands. "When a corporate social responsibility issue arises," Ostas notes, "the manager is advised to consult in-house counsel, and the legal consequences of alternative actions will be made clear. The manager has no real discretion; he or she must simply follow 'the law'" (p. 261). By contrast, Prakash notes that corporate social performance policies are frequently adopted by many multinational companies simply because they are the "right things to do" (p. 5). However, in her book, The Governance of Corporate Groups, Dine (2000) points out that:

major difficulty with stakeholder theory, at least as it has been applied in Britain, is that the term 'stakeholding' has been used to refer to a very wide range of interests which are loosely related at best... If the category of stakeholding interests is widened to include those of all potential consumers of the company's products, for example, or to refer to the general interest of society in the sustainability of the environment, there is a danger that the idea of stakeholding will cease to be relevant. (p. 20)

Of course, different stakeholders and institutions have different expectations; sometimes expectations may even be mutually exclusive; Rao makes the point, though, that all of these frameworks have been based on Western perspectives to the virtual exclusion of other worldviews, a fact that compelled many researchers to reexamine their underlying tenets in the face of the new realities of the 21st century if companies want to attract and retain loyal customers. According to Kennedy, though, "Consumer loyalty is at best a nebulous concept. Does it mean a consumer is willing to buy something more than once or shop regularly at the same retail outlet? Or does it mean a consumer has a regular and immutable pattern of buying only one brand and not another?" (p. 149). Taken together, this means that identifying where consumer loyalty stands at any point in time is challenging, but it is a basic precept to ensuring the survival of almost every organization today.

Based on the important nature of developing consumer loyalty, it is little wonder that so much attention has been focused on attempting to quantify it. The results of a survey of food-buying behavior in 1997, for example, found that: fewer than one in four consumers in any food category relies on a brand; 26% of consumers who do have a preferred brand buy instead what best fits their budget at the time; 37% of those who think of themselves as brand loyal indicate they try other brands all the time; and, 71% of those surveyed who did switch brands said they experienced no difference from the switch (Kennedy, 2000). Likewise, a 1998 survey of traveler brand loyalty determined that fully 65% of travelers avowed loyalty to a particular brand in 1998, a decrease from 75% in the same survey in 1997; however, 45% of the leisure travelers surveyed indicated they were more than willing to change brands, and business travelers reported that their brand allegiance (which is frequently obtained at great expense through airline or hotel loyalty programs) was important only when it was convenient for them. Similarly, a 1996 research study of loyalty to 500 separate brands concluded that only 12% of consumers were "highly loyal to any brand" (Kennedy, p. 150).