Written Assignment

Should countries regulate their

corporations foreign activities?

Student Name: Tossou, Armand

November 2014

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Table of Contents
1. Introduction.................................................................................................... 2
2. Globalization and MNEs................................................................................2
3. Comparative advantages as a basis for international trade..................3
4. The Invisible Hand and competing theories.........................................4
5. Friedmans corporate theory and evolution of corporate mission........4
6. Business regulations..................................................................................... 5
7. Corporate self-regulation............................................................................. 6
8. Some examples of good business practices.............................................7
9. Obstacles to government regulation in foreign countries.....................9
10.

Toward more effective self-regulation of MNEs foreign activities....9

11.

Conclusion................................................................................................. 10

Bibliography........................................................................................................... 11

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1. Introduction
Trafigura Beheer BV ("Trafigura") is a Netherlands/Switzerland/UK based multinational
corporation specialized in trading raw materials, and oil in particular. A market leader in the
global commodities industry, the company has 167 offices in 58 countries on six continents
(Trafigura, 2014). In recent years, Trafigura has been the epicenter of international scandals,
one of the most significant being the dumping of toxic waste in Cte dIvoire. The story of the
Trafigura scandal started as the company decided to make mighty profits by refining some oil
that they bought from a Mexican company (Pemex International) with a sub-standard chemical
process known as caustic washing. It consists in mixing some low quality crude oil with sodium
hydroxide, which generates an extremely toxic and hard to deal with byproduct. Due to the
hazardous nature of that waste, caustic washing has been banned in most countries, including
the European Union, the United States and Singapore. The operation took place onboard the
ship Probo Koala. To dispose of the leftover waste from the operation, Trafigura first tried to
have it treated in the Amsterdam harbor (in The Netherlands) where it would cost around 1,000
euro/m3 (around $1,750). Deterred by the cost tag, the company explored alternative solutions
and finally turned to a contractor in Cte dIvoire that was paid only 20 euro/m3 (around $35).
The waste was dispersed across several public landfills of Abidjan, and the toxic fumes it
emitted ended up exposing over 10,000 people. According to official reports from Cte dIvoire,
15 deaths were recorded and the city's hospitals were overloaded (Greenpeace International,
2010). The Probo Koala was allowed to leave Cte dIvoire without questions, but later blocked
when it arrived in Estonia by Greenpeace. The latter got backed up by Amnesty International.
Suits were brought upon Trafigura in The Netherlands, The UK and in Cte dIvoire. Trafiguras
history of unethical behavior is not limited to the Ivorian case. In Jamaica for instance, Trafigura
has been accused of bribing several politicians including the Prime Minister, Portia Simpson
Miller (Cassola, 2013). The company has also been embroiled in an investigation concerning
Zambia's justice minister, Wynter Kabimba (Jamaica-Gleaner, 2012).
Like Trafigura, many other multinational enterprises (MNEs) have been involved in international
scandals. For example, Wal-Mart is heavily criticized for exploiting loopholes in labor laws on
overtime, child labor, discrimination, minimum wage, healthcare, etc. (Workplace Fairness,
2014). Coca-Colas employees campaign against anti-labor unionism, illegal monopolistic
marketing practices, intimidation and murder in countries such as China, Colombia, Guatemala,
Turkey, Mexico and India (Killer Coke, 2004). Nike has been accused of using child labor in the
production of its soccer balls in Pakistan (TED, 2014).
In todays globalized world, it has become apparent that many MNEs take advantage of the
gaps in regulatory environments and political economy between different countries, by means of
unethical practices. Given the seriousness of the issue, how should MNEs operations in other
(less developed) countries be regulated? Should they be allowed to take advantage of
differences in regulatory standards between different countries, in the first place? Should home
country governments step in? Should the task rather be left to host countries civil society? Or
should MNEs self-regulate? In this paper, I argue that MNEs need to self-regulate. MNEs should
be given ample freedom to shape their corporate strategies, thereby facilitating global trade in
an optimal way. Individual countries sovereignty and autonomy should also be respected.

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2. Globalization and MNEs

The International Monetary Fund (IMF) defines economic globalization as a historical process,
the result of human innovation and technological progress, which refers to the increasing
integration of economies around the world, particularly through the movement of goods,
services, and capital across borders. The term sometimes also refers to the movement of
people (labor) and knowledge (technology) across international borders. Additionally, there are
broader cultural, political, and environmental dimensions to globalization (IMF Staff, 2008). As
highlighted in the definition, MNEs are the main agents of globalization. Those corporations
have their home in one country, but also operate under the laws of other countries (Kobrin,
2014). The Top 500 MNEs account for nearly 70% of the worldwide trade; that share has
steadily increased over the past twenty years (GATT, 2014). Also, in 2003 the number of MNEs
was estimated at 63,000 firms, which had more than 800,000 subsidiaries and millions of
suppliers (Vogel, 2008). The overwhelming majority of them are based in the advanced
economies of developed countries although many developing countries play host to their
operations.
For the critics, far from having an altruistic motive, i.e.: to help poor countries improve their
economies and social equity, globalization merely serves as an efficient, low-cost method for
MNEs to take advantage of low taxes, weak regulations and vulnerable labor force (Shah,
2006). That being said, substantial benefits have accrued to mankind through globalization. In
fact, for people in developing countries, the globalization of business brings a wealth of potential
opportunities (Graham & Woods, 2006). According to the IMF, per capita incomes have risen
across virtually all regions for even the poorest segments of population, indicating that the poor
are better off in an absolute sense during this phase of globalization, although incomes for the
relatively well-off have increased at a faster pace. However, consumption data from groups of
developing countries reveals the striking inequality that exists between the richest and the
poorest in populations across different regions, over the past two decades (IMF Staff, 2008). At
this point, one can wonder what role disparities in national trade regulations across the globe
play in globalization.

3. Comparative advantages as a basis for international

trade
The theory of comparative advantage is perhaps the most important concept in international
trade theory. The early logic that free trade could be advantageous for countries was based on
the concept of absolute advantages in production. Adam Smith wrote in The Wealth of Nations:
"If a foreign country can supply us with a commodity cheaper than we ourselves can make it,
better buy it of them with some part of the produce of our own industry, employed in a way in
which we have some advantage (Suranovic, 2007). However, the condition that really enables
international trade is comparative advantage. David Ricardo showed in his 1817 book titled On
the Principles of Political Economy and Taxation that the specialization good in each country
should be that good in which said country has a comparative advantage in production by
comparing the opportunity costs of producing goods across countries. Based on his numerical
example between England and Portugal: A country is said to have a comparative advantage in
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the production of a good (say cloth) if it can produce cloth at a lower opportunity cost than
another country (Suranovic, 2007).
As such, one can argue that gaps in regulatory environments and political economy between
different countries across the globe are a necessary condition for international trade. MNEs
typically leverage those differences, shaping their business strategies accordingly. That typically
results in such decisions as office relocation, process outsourcing, and operations offshoring. In
any case, those strategic moves are ultimately motivated by profit maximization. That being
said, how do companies collectively achieve public good while pursuing their self-interests?

4. The Invisible Hand and competing theories

Adam Smiths invisible hand theory has widely been accepted by economists as a means of
explaining the forces of a free market. It states that individuals pursuing their own interest
frequently promote the good of society more than when they actually intend to. In Adam Smiths
own words published in 1776 in An Inquiry into the Nature and Causes of the Wealth of Nations:
It is not from the benevolence of the butcher, the brewer or the baker, that we expect our
dinner, but from their regard to their own self-interest. We address ourselves, not to their
humanity but to their self-love, and never talk to them of our own necessities but of their
advantages (Ecocommerce101, 2010). Put differently, each economic agent acting in their own
self-interests, generates a demand for goods and services that compels others to deliver those
goods and services in the most efficient manner so that they may be able to receive
compensation from others and make a profit in doing so. In that faction, MNEs contribute to the
greater good of society by seeking to achieve their individual bottom line objectives. A hard core
version of the invisible hand concept is libertarianism. According to the libertarian or "classical
liberal" perspective, individual well-being, prosperity, and social harmony are fostered by "as
much liberty as possible" and "as little government as necessary." (Studies, 2013).
The invisible hand theory has been challenged by competing theories such as the tragedy of
the commons. That scenario consists in a dilemma that arises when multiple individuals, acting
independently and rationally consulting their own self-interest, ultimately deplete a shared
limited resource, even when it is clear that it is not in anyone's long-term interest for that to
happen (Princeton University, 2014). John Nash also pointed out that it takes enlightened selfinterest to achieve an equilibrium for the greater good. In other words, self-interest alone can
lead to disaster for all. It takes self-interest coupled with concern for the good of the group to
most likely benefit everyone (Marjorie, 2009). Lets now explore how those dynamics play out at
the level of an important economic agent: the corporation.

5. Friedmans corporate theory and evolution of

corporate mission
Further to Milton Friedmans 1970 article titled The Social Responsibility of Business is to
Increase its Profits, the corporate mission has long been thought solely as being profit
maximization for shareholders (Friedman, 1970). Fortunately enough, collective consciousness
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has evolved on this matter in such a way that the general public now understands that a
corporation needs to look beyond its immediate shareholders wealth and include all
stakeholders in the equation. In line with that, most companies now engage in such activities as
Corporate Social Responsibility (CSR) for as diverse motives as brand differentiation, customer
loyalty and employee engagement (Epstein-Reeves, 2012). CSR is a concept whereby
companies integrate social and environmental concerns in their business operations and in their
interaction with stakeholders on a voluntary basis (Belz & Peattie, 2010).
There are three major reasons why corporations should care about social responsibility: a
pragmatic reason, an ethical reason, and a strategic reason (Trevino & Nelson, 2014). The
pragmatic reason is based upon the recognition that a business must use its power responsibly
in society or risk losing it. Arthur Andersen, formerly one of the Big Five auditing firms,
experienced that when it lost its license to operate after being involved in the Enron scandal.
The ethical argument in favor of CSR is that businesses, as part of society, have a responsibility
to behave ethically. In this view, responsible executives have an ethical duty to care about
multiple stakeholders because it is simply the right thing to do. Finally for the strategic reason,
CSR initiatives are simultaneously good for the business and for society, given the
interdependence between business and society. In fact, business needs a healthy society to
produce a productive workforce and the rules of the road that make business transactions
possible. A healthy society also needs business to innovate, create jobs, goods, and services,
and pay the taxes that support societal activities.
Beyond CRS, a few innovative legal structures are now available to corporations whose
founders desire to officially pursue extra non-commercial causes. Such legal forms as L3C,
Benefit Corporation, and Flexible-Purpose Corporation relieve the directors and executives from
the fear of having shareholders bring suit against them for failing their fiduciary duty of profit
maximize.
We have thus far analyzed the phenomenon of economic globalization, the exact role assumed
by MNEs in it and the evolution the corporate mission in society. We have hence seen how
MNEs are aligning bottom line and good business practices, in multiple ways. Let us now turn
our attention to the environment in which corporations operate.

6. Business regulations
Regulations can be regarded as the laws that determine how easily a business can be started
and closed, the efficiency with which contracts are enforced, the rules of administration
pertaining to a variety of activities, such as getting permits for electricity and doing the
paperwork for exports and imports (The World Bank, 2014). They also govern issues pertaining
to labor (legal working age, minimum wage, number of working hours a week, healthcare and
retirement package, constitution of unions, etc.), capital (e.g.: ability to transfer profits to foreign
countries), tax legislation and merger restrictions. Government regulations actually seek to
internalize externalities, referring to situations in which the effect of production or consumption
of goods and services imposes costs or benefits on others which are not reflected in the prices
charged for the goods and services being provided (OECD, 2003).
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Due to the nature of their activities, MNEs are subject to regulations from several sources: home
country, host country, regional, and international. International regulation originates from
sources such as international agreements, treaties, and conventions. A major international
institution that affects international business is the World Trade Organization, tasked with the
mission of enforcing the General Agreement on Tariffs and Trade (GATT), the purpose of which
is to reduce or eliminate trade barriers, such as tariffs, quantity restrictions, and non-tariff
barriers to trade. Pertaining to the foreign countries in which an MNE is doing business, host
country regulation translates into a variety of conditions, such as conditional entry (the firm can
operate in foreign land under certain conditions), control over capital movements, tax legislation
and disclosure legislation (the firms need to disclose a certain amount of information on its
operations) (BV Publishing, 2014). Home country regulation refers to the laws of the country
where the entity has its principal place of business (or is legally incorporated).
In the United States, there are three major underlying legal principles of international trade: the
principle of comity, the act of state doctrine, and the doctrine of sovereign Immunity. They are
based largely on the notions of courtesy and respect in international business (USLegal,
2014). According to the principle of comity, one nation will defer and give effect to the laws and
judicial decrees of another nation, as long as those laws and decrees are consistent with the
law and public policy of the accommodating nation. By virtue of the act of state doctrine, the judicial branch of one country will not examine the validity of public acts committed by a recognized foreign government within its own territory. That doctrine avoids disturbing diplomatic
relations. As far as the doctrine of sovereign immunity is concerned, the Foreign Sovereign
Immunities Act (FSIA) of 1976 governs the circumstances in which an action may be brought in
the United States against a foreign nation, including attempts to attach a foreign nations
property.
Some home country regulations may apply to MNEs foreign activities. In the United States, The
Foreign Corrupt Practices Act (FCPA) is an excellent example of such regulations. Enacted in
1977, the FCPA generally prohibits the payment of bribes to foreign officials to assist in
obtaining or retaining business. It applies to three types of individuals and corporate entities:
issuers, domestic concerns and any person other than an issuer or domestic concern including
foreign nationals or businesses within the territory of the U.S. (U.S. Department of Justice,
2014). That being said, payments to foreign officials for facilitation, often referred to as grease
payments, are not prohibited under FCPA so long as these payments are made only to get
officials to do their normal jobs that they might not do, or would do slowly, without some
payment. Indeed, those payments can be made only to secure a permit or license; obtain paper
processing; secure police protection; provide phone, water, or power supply; or similar such
actions. In the name of the FCPA, many MNEs and their executives have been charged for their
wrongdoing in foreign markets. It is worth mentioning, however, that most companies report
their wrongdoing voluntarily to the Securities and Exchange Commission (SEC). For instance,
the latest case involved Layne Christensen Co. The Texas-based water, mineral and energy
management, construction and drilling company was charged by the SEC on October 27, 2014
with violating the FCPA by making improper payments to foreign officials in several African
countries (Mali, Burkina Faso, Guinea, Tanzania, and the Democratic Republic of the Congo) in
order to obtain beneficial treatment and reduce its tax liability (U.S. Securities and Exchange
Commission, 2014).
Rather than adopting a passive attitude toward government regulations, most industries have
adhered to voluntary rules and codes of conducts.
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7. Corporate self-regulation
By adopting and developing international standards, MNEs may be able to control their conduct
with even greater efficiency than traditional state regulation (Graham & Woods, 2006). The term
self-regulation describes a variety of attempts by corporations to establish some constraints
for their behavior without the direct coercive intervention of states, countries or other external
actors. That way, many firms have adopted voluntary regulatory standards to avoid additional
regulation and/or to protect their reputations and brands. Going beyond mere compliance with
legal requirements, many global firms have demonstrated increased willingness to assume
responsibility for ameliorating their negative environmental impacts. Indeed, there has been a
significant change in corporate norms regarding environmental practices, due in part to the
increased awareness by many firms and industries of the benefits of eco-efficiency (Vogel,
2008).
Traditionally, the governments of developed nations have supported corporate self-regulatory
efforts such as through the promulgation of OECD Guidelines for Multinational Enterprises
which invite corporations to uphold principles of human rights, labor rights, and environmental
conduct, across the whole extent of their global operations. Hence, corporations are
encouraged to regulate their own conduct in line with broad, internationally agreed standards
where effective governmental regulation is not present (Graham & Woods, 2006). With a surge
in civil regulation marked by the participation of private and non-governmental actors, global
business regulation has shifted from state-centric forms toward new multilateral, non-territorial
modes of regulation (Vogel, 2008). The primary motives behind the surge in self-regulation
remain the public pressures of activist campaigns and the threat of regulation whereby firms are
pressured to make expenditures and commitments that they would not otherwise have made.
Pressures exercised by the public on MNEs can be assigned to four specific areas:
Pressure from risk management
This includes risks to reputation which may trigger adverse reactions from consumers and
investors and cause consequent financial losses.
Pressure from investors
In a global context affected by social and environmental externalities, corporations that manage
the related risks with effective self-regulation will generate higher returns to their shareholders.
The pressure from investors on MNEs is primarily exercised through screening and shareholder
advocacy. Screened funds invest only in corporations which meet the funds standards of
performance in key ethical areas. Investments managed in screened accounts exceed 2.4
billion in the United Kingdom (Graham & Woods, 2006). In the United States, socially
responsible investments grew more than 13% in the past five years (despite the worst economic
downturn since the Great Depression) and account for more than $3 trillion in professionally
managed assets (Esposito, 2013). As far as shareholder advocacy is concerned, it consists in
investors using their voting rights in firms in which they hold shares to improve corporate
regulatory policies, which has a greater role in prompting self-regulation by MNEs.
Pressure from consumers and activists
MNEs may be induced to self-regulate in direct response to consumer pressure, intensified and
assisted by NGO campaigns sparking boycotts of firms with poor social and environmental
standards. This pressure is likely to be more effective with highly visible corporations and which
rely heavily on branding.
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 Pressure to attract and retain employees

Firms with poor reputations are likely to find it more difficult to recruit and retain employees in
tight labor markets. Even where NGO campaigns and consumer boycotts lead only to small
losses in market share, they may have significant negative ripple effects on the labor market in
both the MNEs host and home countries.
The hike in civil regulation correlates with an increased demand for transparency on the part of
MNEs. More than anything else, that can be accounted for with the easy access to information
characterizing todays society. Indeed, technology has both created the expectation and
produced the tools to deliver greater organizational transparency. Access to information through
the internet has shifted the balance of power toward the customer rather than the supplier (The
Center for Association Leadership, 2003). Emphasizing the role of internet in that societal
change, a study by Mckinsey & Company revealed that search helps all manner of people and
organizations raise awareness about themselves and their offerings (Bughin, et al., 2011). The
same report estimated that 76% of the population in the United States (232 million) used
internet services in 2009 for various purposes.
Let us further dwell upon the way corporations are adapting their strategies in response to those
changes in society.

8. Some examples of good business practices

MNEs in various industries have developed several good practices without direct governmental
pressure. The three cases below are selected for illustration purposes.
Case 1: Corporate Social Responsibility
CSR is no longer perceived as a purely philanthropic activity, nor as an optional ad-on to core
business activities, but as the way in which businesses are managed. It encompasses both
internal (employee rights, health and safety at work, the management of natural resources and
environmental impacts of production) and external (local communities, business partners,
suppliers, consumers, human rights and global environmental concerns) dimensions of the
organization (Belz & Peattie, 2010). Additionally, it is now common practice for the corporations
to release annual CRS reports. For example, when I was still employed at Maersk Line (the
global leader of maritime shipping) in my home country (Benin), I used to be personally involved
in the production of quarterly sustainability (CSR) reports. There is a good reason why
companies now not only engage in CSR activities, but publish them, most importantly.
According to a study by Reputation Institute (a private global consulting firm based in New
York), the average individuals willingness to buy, recommend, work for, and invest in a
company is driven 60% by his/her perception of the company (or its reputation), and only 40%
by his/her perception of the products or services it sells (Smith, 2013). The same study
published a list of the Top 10 corporations with the best CSR reputations which honored MNEs
such as Microsoft, Apple, Google, BMW, Daimler (Mercedes-Benz), Sony, Colgate-Palmolive,
Volkswagen and LEGO Group.
Case 2: Private third-party certifications
What ensures that the information released by corporations is accurate and reliable? The
introduction in March 2003 of the AccountAbility AA1000 Assurance Standard, the first nonPage | 8

proprietary, open-source assurance standard for non-financial audits, has been a significant
development in standardized social and environmental auditing (Graham & Woods, 2006). In
fact, AA1000AS (2008) assurance provides a comprehensive way of holding an organization
accountable for its management, performance, and reporting on sustainability issues by
evaluating its adherence to the AccountAbility Principles and the reliability of associated
performance information (AccountAbility, 2012). Likewise, the Global Reporting Initiative (GRI)
has become a leading organization in the sustainability field. It promotes the use of
sustainability reporting as a way for organizations to become more sustainable and contribute to
sustainable development. GRI was founded in Boston in 1997, with its roots lying in the US nonprofit organizations, the Coalition for Environmentally Responsible Economies (CERES) and the
Tellus Institute. GRI has pioneered and developed a comprehensive Sustainability Reporting
Framework that is widely used around the world. Those standardized reporting indicators
enable performance comparison both between firms and against their own codes of practice or
industry association standards (Global Reporting Initiative, 2014). Additional procedures
currently help guarantee that mission-driven organizations walk their talk. Fair Trade and BCorporation certifications are two examples of such novel mechanisms.
Case 3: Increased adoption of novel legal forms of corporation
Beyond the pure legal aspect, a novel thinking has given rise to such mission-driven companies
as TOMS Shoes, D-Light Design, Better World Books, and Warby Parker, to name a few
(Westaway, 2011). Around the world, other hybrid legal structures have emerged. In the U.K. for
instance, a Community Interest Company (CIC) provides tax benefits to organizations that
agree to limit their distributions of profits to investors. CICs have their assets frozen and
designated for general community benefit. Shareholders can receive capped dividends on their
investment, but the principal can never be retrieved (Battilana, Lee, Walker, & Dorsey, 2012).
Despite this general self-regulation movement, some obstacles still restrain its effectiveness in
foreign (developing) countries.

9. Obstacles to government regulation in foreign

countries
There are several hindrance factors to the effective control of MNEs activities in foreign
countries.
First of all, regulation is costly. It takes time, expertise, information, and valuable human
resources (Graham & Woods, 2006). Those resources could otherwise be dedicated to the
provision of other public benefits in the home countries. The limited regulatory capacity in
developing (host) countries can further exacerbate the cost of regulation for developed (home)
countries. Indeed, developing countries are well known to be characterized by weaker rule of
law, limited government administrative capacity, and weak bargaining power vis-a-vis Northernbased MNEs which wield vast resources in terms of financial capital, technology, and
employment (Graham & Woods, 2006).
Second, the regulation of MNEs foreign activities poses some concerns over the sovereignty
and autonomy of the foreign countries. In fact, according to the legal principle of sovereignty,
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each state/country is recognized as supreme and independent of outside authorities in the

exercise of authority within an exclusive territorial enclave demarcated by unambiguous
borders. As far as it is concerned, autonomy is related to control and policy effectiveness, i.e.:
the belief that territorial sovereignty translates into unambiguous control over economies and
economic actors, and that policy effectiveness is not constrained by outside forces (Kobrin,
2014).
Third, enforcing regulations on MNEs activities in foreign land can be a daunting endeavor due
to trivial material challenges. Even within domestic corporations, there exists an information
asymmetry arising from the fact that the firms hold better knowledge over their internal
processes and operations than their state/country authorities. That information asymmetry is
compounded by both the distant operations carried out by MNEs and the opaque business
climate prevailing in their host countries.
What viable alternatives are governments then left with for ensuring a more effective selfregulation of their MNEs?

10.
Toward more effective self-regulation of MNEs
foreign activities
It is quite possible to foster more effective self-regulation of MNEs activities in foreign markets,
provided that a number of conditions are met.
First, governments assume a key role in enforcing disclosure. Mandatory disclosure
requirements set by government regulatory authorities in MNEs host countries can constrain
corporations to disclose standardized information on environmental, labor rights, and human
rights performance, in a similar way to the requirements for disclosure of financial information in
annual reports. In fact, the mere threat of government regulation has often been the catalyst for
industry associations and the like to form and to forge voluntary systems and codes of behavior
(Graham & Woods, 2006). Without interfering with the host countries sovereignty and
autonomy, governments in developed countries can help improve the business environment
through the reinforcement of the rule of law and the guarantee of basic rights (freedom of
association, freedom to organize and mobilize, freedom of speech, independence of media,
etc.) in their MNEs host countries. That can be achieved via such mechanisms as the
Millennium Challenge Initiative. The program available to qualified countries upon their own
request. My own country (Benin) benefitted from it for five years (2006-2011), which had a
significant impact in key sectors of the countrys political economy, including the business
climate and access to justice (Millennium Challenge Corporation, 2011).
Second, civil society has proved to be a key player when it comes to upholding transparency.
They act as organized groups which bring citizens together in order to press for information,
monitor the information and publicize non-compliance (Graham & Woods, 2006). On the one
hand, civil society uses social pressure to induce new government regulations and have
corporations embrace voluntary standards. On the other hand, they help control government
actions and corporations compliance with their commitments. That being said, civil society often
faces insurmountable barriers created by corporations and governments, for instance when their
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organization or activities are banned, systematically disrupted, or otherwise strongly

discouraged. Governments in development countries can step in the game at this level by
pressuring their counterparts in developing countries in favor of the establishment of a strong
civil society.
Third, human rights, environmental standards, and the like are governed by international
treaties. Good illustrations of such international instruments are the Universal Declaration of
Human Rights, the International Labor Organizations Fundamental Principles on Rights at
Work, and the Rio Principles on Environment and Development, all of which commit
governments to respect standards to which they have jointly agreed. International organizations
assist in mobilizing civil society within and across countries by creating standards and
expectations (Graham & Woods, 2006). Governments in developed countries wield enough
power within those international organizations. Hence, they can easily influence international
policies in favor of a more effective civil society in developing nations.

11.

Conclusion

By enabling the movement of people, capital, knowledge, goods and services across borders,
MNEs are the major actors of economic globalization. They devise and adjust their strategies in
order to take advantage of disparities in regulatory environments and political economy between
countries. By doing so, many MNEs have been caught in international scandals involving as
many unethical behaviors as using child labor, dumping toxic industrial wastes, developing tax
evasion schemes and bribing government officials in developing countries. In response, home
country governments tend to impose regulations on their MNEs activities in foreign markets.
However, that approach goes against the standards principles of free market. Additionally, it is
not only costly and impractical, but also poses obvious threats to foreign countries sovereignty
and autonomy. Hence, I contend that MNEs should self-regulate. Fortunately, MNEs are
providing a solution to the problem by adopting good business practices such as corporate
social responsibility initiatives and the adoption of voluntary transparency reporting and auditing
standards. Civil society plays a critical role in that change in attitude. By means of effective
social pressure, they motivate both local governments and MNEs to create new rules, adhere to
transparency principles and comply them. As such, civil society in developing countries
represent the key to more effective industry self-regulation. Governments in developed nations
can support that civil society in many ways. They can pressure their counterparts in developing
countries to guarantee much needed resources to civil society groups. They can also lobby for
the creation of international instruments through such organizations as the WTO. Alternatively,
governments in developed nations can champion programs such as the Millennium Challenge
Initiative to help foster a more transparent business climate in developing countries.

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