Stigma and Firm Reactivity: Understanding the Drivers of Human Rights Policy Adoption at MNEs

Abstract

While global supply chains have long been implicated in human rights abuses, the processes firms use to discover, remedy, and prevent abuses in their operations are still emerging. The primary objective of this research is to analyze the emergence of new corporate behaviors, specifically the diffusion of corporate human rights policies amongst MNEs. We build an “Awareness-Motivation-Capability (AMC)” model to identify and analyze firm and industry-level factors that shape a firm’s decision to adopt a human right policy. This paper contributes to empirical research on business and human rights by systematically analyzing corporate adoption of human rights policies at 7,400 global companies over time, 1999 – 2018, using ASSET4 data. Given the dynamic nature of policy adoption, we employ a Cox proportional hazard model. This enables us to understand the significance of each factor and whether it delays or advances the timing of policy adoption. Recognizing that the human rights abuses of MNEs are “stigma-producing” events helps explain our surprising finding; the occurrence of human rights controversies motivates firms to respond with human rights policy activity only when the firm itself is affected, implying reactive rather than proactive policy adoption strategy is at play for MNEs.