Labor Lawsuits Research Articles

Identifying liabilities of foreignness and strategies to minimize their effects: the case of labor lawsuit judgments in the United States

AbstractMost foreign direct investment (FDI) theories assume that foreign subsidiaries are at a disadvantage relative to domestic firms; that is, they suffer a liability of foreignness. Following this reasoning, most FDI research has focused on advantages foreign investors must possess to overcome whatever disadvantages they face. Research directly investigating the sources of foreign subsidiary disadvantages has been notably lacking, despite the fact that understanding disadvantages could uncover ways to reduce exposure to these liabilities of foreignness and improve management of FDI. This study focuses on whether labor lawsuit judgments represent a liability for foreign subsidiaries operating in the United States (U.S.). Specifically, I tested whether 486 British, German, and Japanese subsidiaries operating in the U.S. had more labor lawsuits brought to judgment than a matched sample of U.S.‐owned firms. Results indicate that foreign subsidiaries faced significantly more labor lawsuit judgments in both federal and state jurisdictions. I also investigated several variables hypothesized to be associated with a reduction in labor lawsuit judgments facing foreign subsidiaries. Foreign subsidiaries who used American top officers or whose parent firms had more U.S. operations faced fewer lawsuits, while foreign subsidiaries using human resource professionals actually faced more labor lawsuit judgments. Implications of these findings and avenues for future research are discussed. Copyright © 2002 John Wiley & Sons, Ltd.

In search of redress for historical injustice: The slave labor lawsuits against Japanese corporations

In search of redress for historical injustice: The slave labor lawsuits against Japanese corporations

DO LABOR LAWSUITS REPRESENT A LIABILITY OF FOREIGNNESS FOR FOREIGN SUBSIDIARIES OPERATING IN THE UNITED STATES?

Most theories of foreign direct investment (FDI) assume that foreign subsidiaries will beat a disadvantage relative to their domestic counterparts for a variety of reasons such as information asymmetries, distance impeding decision making and communication, and local biases. Most studies of international business focus on sources of advantage foreign investors must posses to overcome whatever disadvantages exist. Understanding liabilities of foreignness could uncover ways to reduce exposure to disadvantages and improve management of FDI. This study examines a specific disadvantage - labor lawsuits as a liability for foreign subsidiaries operating in the United States (US). Foreign firms often employ different Human Resource practices than those commonly used in the US and compliance with complex American labor laws and regulations may be especially difficult for foreign managers. Consequently, foreign subsidiaries may face more labor lawsuits than their domestic counterparts. This paper used Poisson and Negative Binomial regression to test if 486 subsidiaries of British, German and Japanese owned subsidiaries operating in the US had more labor lawsuits brought to judgement than a matched sample of US owned firms. Empirical results for federal and state lawsuits indicate that foreign subsidiaries faced significantly more labor lawsuits. Foreign subsidiaries whose parent firms had more US operations and who used American top officers faced fewer lawsuits while foreign subsidiaries with Human Resource (HR) professionals on location actually faced more labor lawsuits. Implications of these findings and avenues for future research are discussed.

The Reputational Penalty Firms Bear from Committing Criminal Fraud

Introduction Optimal penalties for corporate fraud require that firms face expected penalties equal to the total social costs of the crime. Yet formal courtimposed sanctions for committing fraud often represent a small fraction of the damage produced by the fraud. Sheer and Ho (1989), for example, estimate that the median and mean ratios of criminal fines to the private loss from private fraud were 0.14 and 0.73 in 1988. The corresponding median and mean ratios for government procurement fraud were 0.29 and 1.60. Including criminal restitution raises the median dollar sanction-to-loss ratio for private fraud to 0.84 and for government procurement fraud to 0.68. These ratios are for private parties convicted of fraud. The ratio of the expected court-imposed penalty to the social cost of the fraud is undoubtedly smaller. Particularly when compared to other crimes such as environmental pollution, where the median ratio of criminal fines to private loss is 3.71, the penalty for fraud seems surprisingly low. The perceived underpunishment of corporate frauds has recently affected public policy. Reflecting popular opinion that existing penalties were too low, the US Sentencing Commission – the federal agency responsible for setting the penalty guidelines used by judges – established corporate sentencing guidelines in 1991 that raised median corporate fraud penalties by over twentyfold. This article criticises the conventional wisdom about corporate fraud in two ways. First, we explain that the typical optimal criminal penalty for private corporate fraud is small because the external effects of such frauds are usually small. An increase in criminal penalties for corporate fraud can do more harm than good because it encourages the substitution of criminal penalties for reputation as a mechanism to police fraudulent behaviour.