Unpacking the Institutional Complexity in Adoption of CSR Practices in Multinational Enterprises

• Author: Tatiana Kostova,Valentina Marano
• Date: 01 January 2016
• DOI: http://doi.org/10.1111/joms.12124
• Published date: 01 January 2016

Unpacking the Institutional Complexity in Adoption of

CSR Practices in Multinational Enterprises

Valentina Marano and Tatiana Kostova

D’Amore-McKim School of Business, Northeastern University; Moore School of Business, University of

South Carolina

ABSTRACT Multinational enterprises (MNEs) operate in complex transnational organizational

fields with multiple, diverse, and possibly conflicting institutional forces. This paper examines

how such complex environments affect a firm’s adoption of Corporate Social Responsibility

(CSR) practices. To capture the effect of transnational fields, we consider the institutional

influences of all country environments to which the firm is linked through its portfolio of

operations and propose that these effects will be weighted depending on their relative salience.

We identify a set of factors that make certain pressures more salient than others, including

firm’s economic dependence on a particular country, heterogeneity of institutional forces

within the firm’s transnational field, exposure to leading countries with more stringent CSR

templates, and intensity and commitment to particular economic linkages (i.e., foreign direct

investment versus international trade). Our hypotheses are tested and supported in a study of

710 US MNEs from 2007 to 2011 with global ties to over 100 countries.

Keywords: corporate social responsibility, institutional theory, multinational enterprise,

practice adoption, transnational organizational field

INTRODUCTION

The international business literature provides compelling evidence for the global diffu-

sion of corporate social responsibility (CSR) practices (e.g., Bansal and Roth, 2000;

Christmann and Taylor, 2001, 2006; Muller and Kolk, 2010) and the important role

that multinational enterprises (MNEs) play in this process (e.g., Brammer et al., 2009;

Strike et al., 2006). In particular, MNEs’ foreign direct investment (FDI) and interna-

tional trade activities have been discussed as conduits for the cross-border spread of

CSR (e.g., Husted and Allen, 2006; Lund-Thomsen and Nadvi, 2010). For example,

Guler et al. (2002) found that firms are more likely to adopt international

Address for reprints: Tatiana Kostova, Moore School of Business, University of South Carolina, 1014

Greene Street, Columbia, SC 29208, USA (kostova@sc.edu).

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C2015 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 53:1 January 2016

doi: 10.1111/joms.12124

environmental standards in countries with higher levels of FDI, and Locke and Romis

(2007) show that MNEs can help their foreign suppliers from developing countries

become more socially responsible.

The phenomenon of cross-border transfer and diffusion of organizational practices

has been of key interest to international management research as it captures one of the

main competitive advantages of MNEs (Bartlett and Ghoshal, 2009). A starting point in

this research is that organizational practices are embedded in, and therefore reflect, the

institutional environments in which firms operate. Laws and regulations, social knowl-

edge, and social norms exert isomorphic and legitimacy pressures on companies to adopt

institutionalized structures, processes, and practices (Meyer and Rowan, 1977). Since

institutions are for the most part country-specific, organizational practices including

CSR tend to vary from country to country (Williams and Aguilera, 2008). This presents

particular challenges to MNEs, which operate simultaneously in multiple institutional

environments and may face different and even conflicting prescriptions on legitimate

practices (Busenitz et al., 2000; Kostova, 1999; Kostova and Roth, 2002; Meyer et al.,

2011). The question of how MNEs deal with such institutional multiplicity and complex-

ity has generated a lot of research interest (Greenwood et al., 2006). For example, schol-

ars have explored ‘dual embeddedness’ of MNE subunits and the way they balance host

country requirements and parent company expectations (Kostova and Roth, 2002).

Depending on the particular external and internal conditions, unit outcomes range from

complete adoption and internalization, to ceremonial adoption of only the formal aspects

of the practice, to minimal or no adoption at all (Kostova and Roth, 2002). MNE subu-

nits may adopt practices that are less common in their host countries but are expected by

the headquarters, or conversely, practices that are institutionalized in their host countries

although not required by the parent organization (Surroca et al., 2013).

In this paper, we seek to contribute to the MNE research on practice adoption

looking further into the ‘relationship between institutional complexity and organiza-

tional responses’ (Greenwood et al., 2006, p. 319), using the example of CSR. Institu-

tional complexity refers to the multiplicity and heterogeneity of CSR institutional

forces to which MNEs are exposed (Greenwood et al., 2006, p. 318). Specifically, we

address the following questions: How do the multiple institutional environments in

MNEs’ portfolio of operations affect the adoption of CSR? How do companies decide

on their level of engagement with this practice given the varying templates they see

across countries? Which country templates do they follow and why?

We build on several key ideas to develop our model. First, instead of limiting the

discussion to duality of home and host country institutional pressures, we examine the

aggregate impact of the multitude of transnational institutional forces to which MNEs

are exposed through their international business activities. We suggest that these

demands present themselves simultaneously and need to be evaluated in combination

rather than in isolation. That is, MNEs need to consider at the same time the expect-

ations of all relevant national institutional environments where their stakeholders

including business partners, governments and communities, employees and sharehold-

ers, are situated. This approach allows a comprehensive examination of the set of

institutional forces on MNEs and thus better captures the complexity of their cross-

border activities. Second, the inherent multiplicity and heterogeneity of the

29Institutional Complexity, MNEs, and CSR Practices

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