This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.
By Alvaro Cuervo-Cazurra (Northeastern University), Marleen Dieleman (National University of Singapore) Paul Hirsch (Northwestern University), Suzana B. Rodrigues (Universidade FUMEC, Brazil), Stelios Zyglidopoulos (Carleton University)
Multinational companies' misbehavior refers to the actions of companies that operate in multiple countries and violate expected standards of conduct. Unfortunately, recognizing and analyzing such misbehavior is challenging for managers, because ethical and legal standards vary widely across countries. Moreover, a country's laws may not always align with the moral beliefs or preferences of its people, making it even more challenging for multinational companies to navigate the complexities of their diverse markets.
To better understand this phenomenon and identify practical solutions for managers and policymakers, Cuervo-Cazurra and his colleagues examined all available research about the unethical or improper behavior of multinationals. Through this effort, they identified several relevant trends and common practices.
A Lack of Situational Awareness
Multinationals' cross-border operations make it difficult for managers to monitor and prevent irresponsible conduct, as some managers may take advantage of the differences in national regulations. In emerging markets, where regulations may be less stringent or enforcement may be weaker, multinationals may more easily engage in such misbehavior. Such a “race to the bottom” can provide multinationals with cost or operational advantages while disregarding the negative impacts on the local communities and workforce.
Understanding the motivation behind the misconduct of large multinationals operating in emerging markets is particularly complex. Misconduct sometimes results from managers deliberately breaking rules overseas, because they expect less oversight. But it can also emerge when managers are unaware that their overseas employees are breaking rules for personal benefit. Misbehavior may even occur where wrongdoing happens unintentionally, such as when workers unknowingly assist clients who are involved in money laundering or employ contractors who use child or forced labor. Some multinational managers may even feel pressured to pay bribes in countries where bribery is common and seen as necessary to secure contracts.
Who is Harmed by Multinational Misbehavior?
The harms caused by multinationals' misconduct affect not only the company's own employees but also the local communities and stakeholders. Moreover, corruption, cronyism, and anti-dumping practices can harm the public by exacerbating social inequalities and depriving governments of the revenue needed for public services. These issues are particularly salient in emerging markets because of the vulnerabilities and gaps in governance systems, which exacerbate the negative corporate impacts on the most vulnerable segments of society.
The available research on multinationals' misconduct points to the need for awareness of the behavior of employees in far-flung locations and of the negative impacts on local communities, the environment, and even the local workforce. It suggests that multinational managers must ensure that their employees and business partners uphold ethical and legal standards, as associations with rights violators or corrupt entities can lead to legal repercussions and harm their reputations. With the public increasingly demanding global consistency in ethical behavior, multinationals failing to meet these standards risk criticism and legitimacy challenges, in addition to criminal prosecution of managers abroad and at headquarters. To navigate these issues, multinational managers should:
1. Deepen their understanding of local laws and regulations and cultural norms, especially in emerging markets, through research and stakeholder engagement.
2. Implement ethical guidelines addressing challenges specific to emerging markets, ensuring all parties know the expectations and potential consequences.
3. Foster trust by actively engaging with local communities and stakeholders, prioritizing their concerns and well-being.
In conclusion, managers of multinational companies must be aware of the potential opportunities for misbehavior in their foreign operations and the negative consequences it can have on various stakeholders, especially in emerging markets. By taking proactive measures to understand and navigate the local context, they can uphold ethical standards and contribute to more sustainable development in emerging markets and a superior corporate reputation that contributes to competitive advantage.
Cuervo-Cazurra, A., Dieleman, M., Hirsch, P., Rodrigues, S. B., & Zyglidopoulos, S. (2021). Multinationals' misbehavior. Journal of World Business, 56(5).
If you are interested in learning more about this work, contact Professor Alvaro Cuervo-Cazurra at: