{"id":2397,"date":"2024-03-27T15:06:00","date_gmt":"2024-03-27T19:06:00","guid":{"rendered":"https:\/\/damore-mckim.northeastern.edu\/cem\/?post_type=dmsb_resource&#038;p=2397"},"modified":"2026-07-13T14:27:00","modified_gmt":"2026-07-13T18:27:00","slug":"why-multinationals-improve-their-sustainability-after-their-foreign-subsidiaries-and-suppliers-misbehave","status":"publish","type":"dmsb_resource","link":"https:\/\/damore-mckim.northeastern.edu\/cem\/resources\/why-multinationals-improve-their-sustainability-after-their-foreign-subsidiaries-and-suppliers-misbehave\/","title":{"rendered":"Why multinationals improve their sustainability after their foreign subsidiaries and suppliers misbehave"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><em>This brief is part of the <\/em><a href=\"https:\/\/damore-mckim.northeastern.edu\/cem\/insights\/\" target=\"_blank\" rel=\"noreferrer noopener\"><em>Insights @ Center for Emerging Markets<\/em><\/a><em>, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets<\/em>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><em>By Alvaro Cuervo-Cazurra (Northeastern University) and Cheng Li (University of Manitoba)<\/em><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Li and Cuervo-Cazurra identified instances of ESG corporate misconduct in the network of suppliers and subsidiaries of 1,262 multinationals between 2008 and 2018. Their goal was to compare the CSR track record of these corporations, before and after the incidents, with those of companies that did not suffer major ESG breaches. Such a comparison helped ascertain whether these events motivated the affected multinationals to improve their CSR performance.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Illegal and unethical actions by subsidiaries and suppliers can cause damage on two levels. Directly, such behaviors can harm local communities' environment, public health, and trust in institutions. They can also lead to tangible corporate losses through reduced business and fines. Indirectly, a corporation's overall reputation and standing suffer, often resulting in broader damage to its business operations and pushing the parent firm to enforce better practices worldwide, not just in the affected region. Once multinationals become aware of the misconduct, they often not only seek to mitigate the immediate issue, but also work proactively to prevent future violations within their entire global supply and subsidiary networks. This is particularly true in highly public cases in which multinationals are forced to respond to external pressures from stakeholders, such as regulators, business partners, investors, and the general public.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One case that illustrates how addressing misbehavior at a subsidiary level can result in positive change throughout the organization was American aluminum producer Alcoa. In 2014, its Australian subsidiary was discovered to have engaged in bribery and overcharging through a middleman dealing with a state-owned Bahraini aluminum smelter. After paying a large fine and suffering reputational damage when the misconduct came to light, Alcoa took action by reforming practices and creating a company-wide integrity hotline that encouraged general disclosure of CSR lapses. These improvements eventually helped earn Alcoa recognition as one of the world's most sustainable companies in the S&amp;P Dow Jones Sustainability Indices for ESG performance.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Managerial Implications \/ Policy Implications<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The research identifies how regulations that require transparent public CSR reporting and robust enforcement of social and environmental standards in the home country not only press multinationals to improve their overall CSR performance but also become more responsive to misbehavior among their foreign suppliers and subsidiaries. Home country CSR regulations thus not only foster responsible business behavior at home, but also make multinationals improve their sustainability abroad, particularly when they face reputational harm from the misbehavior of their suppliers and subsidiaries.&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The study provides other valuable insights for managers of multinationals. As companies expand their operations globally, they rely on partners in multiple countries to produce goods and services efficiently and profitably. However, managers must be aware of the potential risks of relationships in far-flung operations. When faced with major misbehavior among their suppliers or subsidiaries, it is not only necessary to implement solutions in the specific supplier or subsidiary to ensure that the problem does not occur again. They also need to revamp their coordination and monitoring practices and improve their CSR in the overall network to compensate for harm done to their reputation and avoid the emergence of misbehavior in other parts of the network.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Original Works<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Li, C., &amp; Cuervo-Cazurra, A. 2023. <a href=\"https:\/\/link.springer.com\/article\/10.1057\/s41267-023-00666-3\">How subsidiary and supplier misbehavior lead to corporate social responsibility performance improvements in multinationals<\/a>.\u202f<em>Journal of International Business Studies<\/em>, 1-22.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Contact<\/strong> <\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">If you are interested in learning more about this work, contact Professor Alvaro Cuervo-Cazurra at <a href=\"mailto:a.cuervocazurra@northeastern.edu\">a.cuervocazurra@northeastern.edu<\/a>.<\/p>\n\n\n\n<div class=\"legacy-content-cards-block line wp-block-dmsb-person\">\n\n\t\n\t<div class=\"legacy-content-card-items row\">\n\t\t<div id=\"post-570\"\n\tclass=\"person-line person-line--story \"\n\titemscope itemtype=\"https:\/\/schema.org\/Person\">\n\n\t\t\t<a\n\t\t\tclass=\"story-card-image\"\n\t\t\thref=\"https:\/\/damore-mckim.northeastern.edu\/cem\/people\/alvaro-cuervo-cazurra\/\"\n\t\t\taria-label=\"View profile of Alvaro Cuervo-Cazurra\"\n\t\t\titemprop=\"image\" itemscope itemtype=\"https:\/\/schema.org\/ImageObject\"\n\t\t>\n\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1040\" src=\"https:\/\/damore-mckim.northeastern.edu\/cem\/wp-content\/uploads\/sites\/6\/2024\/05\/Cuervo-Cazurra_Alvaro_HighRes_260220-1024x1040.png\" class=\"story-card-img wp-post-image\" alt=\"\" itemprop=\"url\" \/>\t\t<\/a>\n\t\n\t<div class=\"person-line-content\">\n\n\t\t<h3 itemprop=\"name\" class=\"person-line-name\">\n\t\t\t<a class=\"person-line-name-link\" href=\"https:\/\/damore-mckim.northeastern.edu\/cem\/people\/alvaro-cuervo-cazurra\/\">\n\t\t\t\tAlvaro Cuervo-Cazurra\t\t\t<\/a>\n\t\t<\/h3>\n\n\t\t\n\t\t\n\t\t<ul class=\"person-line-contact-info\">\n\n\t\t\t\t\t\t\t<li class=\"person-line-contact-item\">\n\t\t\t\t\t<span class=\"dmsb-icon\" aria-hidden=\"true\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"24\" height=\"24\" viewBox=\"0 0 24 24\" fill=\"none\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\" class=\"feather feather-phone w-8 h-8 stroke-1\"><path d=\"M22 16.92v3a2 2 0 0 1-2.18 2 19.79 19.79 0 0 1-8.63-3.07 19.5 19.5 0 0 1-6-6 19.79 19.79 0 0 1-3.07-8.67A2 2 0 0 1 4.11 2h3a2 2 0 0 1 2 1.72 12.84 12.84 0 0 0 .7 2.81 2 2 0 0 1-.45 2.11L8.09 9.91a16 16 0 0 0 6 6l1.27-1.27a2 2 0 0 1 2.11-.45 12.84 12.84 0 0 0 2.81.7A2 2 0 0 1 22 16.92z\"><\/path><\/svg><\/span>\n\t\t\t\t\t<a href=\"tel:6173736568\">\n\t\t\t\t\t\t617.373.6568\t\t\t\t\t<\/a>\n\t\t\t\t<\/li>\n\t\t\t\n\t\t\t\t\t\t\t<li class=\"person-line-contact-item\">\n\t\t\t\t\t<span class=\"dmsb-icon\" aria-hidden=\"true\"><svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"24\" height=\"24\" viewBox=\"0 0 24 24\" fill=\"none\" stroke=\"currentColor\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\" class=\"feather feather-mail w-8 h-8 stroke-1\"><path d=\"M4 4h16c1.1 0 2 .9 2 2v12c0 1.1-.9 2-2 2H4c-1.1 0-2-.9-2-2V6c0-1.1.9-2 2-2z\"><\/path><polyline points=\"22,6 12,13 2,6\"><\/polyline><\/svg><\/span>\n\t\t\t\t\t<!--email_off--><a class=\"person-line-contact-item__email\" href=\"mailto:a.cuervocazurra@northeastern.edu\">\n\t\t\t\t\t\ta.cuervocazurra@northeastern.edu\t\t\t\t\t<\/a><!--\/email_off-->\n\t\t\t\t<\/li>\n\t\t\t\t\t<\/ul>\n\n\t\t\n\t<\/div>\n\n<\/div>\n\t<\/div>\n\n\t\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Cheng Li and Alvaro Cuervo-Cazurra investigated the relationship between misconduct by multinationals' foreign suppliers and subsidiaries and the multinationals' corporate social responsibility (CSR). They explain and find that multinationals whose foreign suppliers or subsidiaries experienced major environmental, social, and governance (ESG) breaches improved their CSR performance after the incident when compared to multinationals without such breaches. Additionally, these responses by multinationals to supplier and subsidiary misbehavior are more robust for multinationals from home countries with CSR mandates. Finally, they found that while major subsidiary misbehavior led to higher internal CSR performance, major supplier misbehavior resulted in higher external CSR performance. The findings provide valuable insights for managers of multinationals dealing with the challenges of managing misbehavior in far-flung suppliers and subsidiaries. They need not only to solve the particular misbehavior, but also implement multinational-wide initiatives to compensate for the breach in the social contract with stakeholders<\/p>\n","protected":false},"featured_media":693,"template":"","meta":{"post_unlisted":false,"post_preheader":"","post_footer":"","snapshot_data":"","dmsb_screen_reader_heading":"","hide_preheader":false,"hide_excerpt":false,"hide_date":false,"hide_taxonomies":false,"dmsb_featured_image_focal_point":{"x":0.5,"y":0.5}},"category":[36,57],"dmsb_audience":[66,65,64],"dmsb_group":[],"class_list":["post-2397","dmsb_resource","type-dmsb_resource","status-publish","has-post-thumbnail","hentry","category-insights","category-supply-chains","dmsb_audience-academics","dmsb_audience-practitioners","dmsb_audience-students"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Why multinationals improve their sustainability after their foreign subsidiaries and suppliers misbehave - Center for Emerging Markets<\/title>\n<meta name=\"description\" content=\"Cheng Li and Alvaro Cuervo-Cazurra investigated the relationship between misconduct by multinationals\u2019 foreign suppliers and subsidiaries and the multinationals\u2019 corporate social responsibility (CSR). They explain and find that multinationals whose foreign suppliers or subsidiaries experienced major environmental, social, and governance (ESG) breaches improved their CSR performance after the incident when compared to multinationals without such breaches. Additionally, these responses by multinationals to supplier and subsidiary misbehavior are more robust for multinationals from home countries with CSR mandates. Finally, they found that while major subsidiary misbehavior led to higher internal CSR performance, major supplier misbehavior resulted in higher external CSR performance. The findings provide valuable insights for managers of multinationals dealing with the challenges of managing misbehavior in far-flung suppliers and subsidiaries. They need not only to solve the particular misbehavior, but also implement multinational-wide initiatives to compensate for the breach in the social contract with stakeholders\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/damore-mckim.northeastern.edu\/cem\/resources\/why-multinationals-improve-their-sustainability-after-their-foreign-subsidiaries-and-suppliers-misbehave\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why multinationals improve their sustainability after their foreign subsidiaries and suppliers misbehave - Center for Emerging Markets\" \/>\n<meta property=\"og:description\" content=\"Cheng Li and Alvaro Cuervo-Cazurra investigated the relationship between misconduct by multinationals\u2019 foreign suppliers and subsidiaries and the multinationals\u2019 corporate social responsibility (CSR). They explain and find that multinationals whose foreign suppliers or subsidiaries experienced major environmental, social, and governance (ESG) breaches improved their CSR performance after the incident when compared to multinationals without such breaches. Additionally, these responses by multinationals to supplier and subsidiary misbehavior are more robust for multinationals from home countries with CSR mandates. Finally, they found that while major subsidiary misbehavior led to higher internal CSR performance, major supplier misbehavior resulted in higher external CSR performance. The findings provide valuable insights for managers of multinationals dealing with the challenges of managing misbehavior in far-flung suppliers and subsidiaries. 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