Munich Personal RePEc Archive

Corporate and Global Supply Chains: How Self - Replaces the Lack of Regulatory Initiatives or Do Regulatory Initiatives Add Value to Corporate Governance

Boeva, Bistra

University of National and World Economy

2015

Online at https://mpra.ub.uni-muenchen.de/70680/ MPRA Paper No. 70680, posted 14 Apr 2016 07:18 UTC Corporate Governance Articles and Global Supply Chains Corporate Governance and Global Supply Chains: How Self -regulation Replaces the Lack of Regulatory Initiatives or Do Regulatory Initiatives Add Value to Corporate Governance

Bistra Boeva* stakeholders. Traditional research methods are employed to meet the objective of the Summary: study: literature survey and case studies.. Key words: corporate governance, This paper poses some questions stakeholders, global supply chains, related to the current state of international corporate social responsibility, boards, non- and the way it is governed by big financial multinationals. The author aims to examine critically how corporate boards of listed JEL Classification: F23,G3 design and monitor the of About the rationale of the paper their companies towards their suppliers - Global Supply Chains. Environmental and t present, academia, international social issues in the buyer-supplier relations Ainstitutions, business community, are on the agenda of policy makers at as well as NGOs put Global Supply both national and international levels. Global Chains/GSC/ and the related to their business players devise initiatives to fight functioning economic, environmental child abuse, pollution, improper usage of and social issues (ESG) on their list of natural resource. Academia examines the priorities. Their interests differ. NGOs above issues through the prism of macro- focus on environmental and social issues. and microeconomic studies, social and “Rana plaza” tragedy that occurred in environmental research. This paper aims Bangladesh in 2013 catalyzed the activities to analyze the role of good corporate of the stakeholders: numerous meetings governance in coping with bad working and publications channel the efforts of conditions in factories in developing NGOs in their attempts to cope with economies and related environmental the violations that took place in apparel problems. The focus is on the compliance factories in Bangladesh. IFC and local with one of the six corporate governance business people and communities initiated principles: recognizing the rights of projects on improving labour conditions in the

* Professor, D.Sc. University of National and World Economy, e-mail address: [email protected]

5 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains local suppliers. The German Development an attempt is made to see how corporate Agency /GTZ/ coordinated representatives governance deals with stakeholders of multinational/transnational including suppliers and GSC. We examine /TNCs/ for finding acceptable solutions of how Corporate Social Responsibility, the problems within the relations between Shared Values and ESG cope with social the buyers/TNC and suppliers/local SMEs. and environmental issues within GSC (part Even though the media focused on poor four). In part five we communicate some labour conditions in factories and results of our theoretical observations on instances of non–compliance with health ESG policy of corporate boards towards and safety , some preliminary their suppliers within GSC. Our theoretical research revealed that the problems were observations offer some conclusions that related to the efficient regulation and address our research topics. We reviewed functioning of the GSCs as a system. some initiatives of international institutions On the other hand, supply chains related to CSCs and sustainability (part six). (GSCs) that connect partners all over the Our aim to test theoretical observations with world change the landscape of world . findings from the practice was achieved via The paradigm shifts from trade between few case studies (part seven). countries to trade between the partners of 1. Global supply chains: practical GSCs (Lamy, 2013). Politicians, experts and views and some theoretical international institutions (UNCTAD, 2013; observations WTO, OECD, World Bank, 2014) set among their priorities the regulation of the above Global Supply Chains (GSCs) or Global relationships. Some concerns are raised Value Chains (GVCs)1 connect over the improper assessment of trade flows all over the world. It is the private sector that among the partners within GSC as well. for many years has initiated and maintained The increasing role of GSC in the world relations in agriculture, extracting, food economy and the problems mentioned processing and manufacturing industries. above, on one hand, and our previous work Services are outsourced and delivered on international determinants of corporate within GSC, as well. About 60 per cent governance, on the other, direct our research of global trade, which today amounts to towards the examination of possibilities more than $20 trillion, consists of trade of corporate governance to contribute to in intermediate goods and services that good regulation and functioning of GSCs. are incorporated at various stages in The paper is organized in five sections. the production process of goods and It starts with a discussion of GSCs and services for final consumption (WIR, 2013). their role in both developed and emerging Gradually new borderless production economies (part one). Next we intend to systems emerged. These systems (global describe GSC in the system of relations or regional) are commonly referred to as within corporate governance with focus global value chains. (WIR, 2013) Networks on stakeholders (part two). In part three are launched and coordinated by TNC,

1 The survey of literature and documents of official national and international institutions do not offer an agreed term about GSC. Irrespective of some theoretical differences academia and official institutions use the terms as synonyms. In the document under reference N 1 the authors do not make any differences. GSC and GVC are interchangeable. However our understanding is that both terms depict one and the same phenomenon with different focuses on this phenomenon: from the perspective of transactions/GSC/ and from the perspective of added value or economic perspective. In the process of our research we used the multifaceted model of GSC/GVC.

6 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains their contractual partners and arm’s-length Porter) to sharing basic knowledge; from suppliers (WIR, 2013). This paper looks focusing on core activities to mitigating at the GSC as a system and the existing unemployment (OECD, 2007) and relations between the partners. "GVCs have bringing stability to SMEs.; hierarchies of their own, in which leading y Key players are TNCs from developed firms play different roles from their smaller economies and suppliers and sub- partners."(Baldwin, 2013). Leading firms that suppliers from emerging and transition originate from developed economies are economies; well known multinational and international y GSCs are an alternative to FDI and retailers. Some studies on GSCs (Baldwin, encompass non-equity modes of 2013) pointed out that global supply chains entry (NME): cooperation, transfer of are driven mainly by large wage gaps is highly technology. such as misleading. It is not the purpose of the paper manufacturing/assembling, outsourcing, to go into detail with regard to the typology offshoring/licensing, franchising and and structure of GSCs. As mentioned above, contract farming are the pillars of GSCs. we try to find out how corporate governance (WIR, 2011, 2013) ; copes with environmental and social y GSCs’ mirrored current connectivity issues related to GSCs. Or put differently, between various partners around the world periodically some fatal events ease poses new imperatives to politicians: the stakeholders’ contempt and GCS are seen "them and us" of old thinking about trade from a different perspective: how partners has increasingly been shunted aside by deal with environmental issues/pollution, an "us" focus (Lamy, 2013)2 greenhouse emissions or deforestation In our research we tried to collect etc./social issues/human rights abuse, some theoretical views about GSC that are gender non- equality/or governance related to our conceptual framework. We issues. (UNIDO, 2014) turned to the International For the purpose of our study we define of thought. Scholars such as St. Hymer, GSCs as a set of determinants such as: P. Buckley, M. Casson, J. Dunning etc. not y Long-term relationships determined by only explored the nature of the key players globalization processes. Globalization is in in GSCs - multinationals/TNCs, but studied line with information and communication the ways they choose to penetrate the technologies, liberalization and new global markets. Eclectic paradigm or the business opportunities bounds processes O(ownership)L(location)I(internalization) and tasks within GSCs in automotive theory is not only about the drivers of global industry, apparel industry, food processing expansion of TNC. It offers a framework for industry, electronics, etc.; evaluating alternative ways via which firms y GSC are initiated by big companies, may organize the creation and exploitation most of which are key players on capital of their core competencies, given the markets, and declare to comply with locational attractions of different countries Corporate Governance Code/ Standards. or regions (Dunning, 2000). According to The rationale behind the GSC differs the international business theory, contractual for the partners across the industries: relationship is more expensive for the TNCs from enhancing operating efficacy (M. than the costs incurred within intra-firm

2 It is important to underline that the World Bank studies government , business activities in the supply chains with focus on the measures on annual basis (see Logistics Performance -Index LPI 2014)

7 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains relationship (parent companies and their directors and managers. It has to contribute subsidiaries). Internalization determined to the long-term financial stability of the by capital, financial, technological and corporations. Good and fair relations connections between the with stakeholders are a must for good parent and the subsidiaries is less risky corporate governance. According to the for the owner/TNC. It is the opportunistic Principles of Corporate Governance (/ behavior of the partner or non-compliance OECD, 2015) suppliers of raw materials, with the contractual agreement that causes intermediary products and final products higher risks and costs for the multinationals. are stakeholders. What is more, they Opportunistic behavior is neither associated contribute to the economic benefits of with environmental, nor with social issues. the companies. The competitiveness In his recent studies J. Dunning addressed and ultimate success of a some of the above issues. He broadens the is the result of teamwork that embodies domain of his research and encompasses contributions from a range of different social responsibility of TNS (Dunning, 2008) resource providers including , Despite international business theory and employees, creditors, and suppliers.3 the eclectic paradigm OLI do not provide (G20/OECD, 2015) Good corporate theoretical answers about GSCs, some governance is about essential clues are suggested: contractual y recognition on the part of the relations are alternative for TNCs activities on that stakeholders constitute a valuable the global arena. The opportunistic behavior resource for building competitive and of the partners is the major drawback for the profitable companies (OECD, 2004; parent company. Some current ESG issues Zollinger, P., 2009) that are related to GSCs could be labeled y Recognition and protection of the rights opportunistic behavior. of the stakeholders established by law or Social issues within GSC are examined by through mutual agreements (G20/OECD, another international research - R. Baldwin. 2015) As a researcher into international y Co-operation between corporations and issues, he studies GSC from the perspective stakeholders (G20/OECD, 2015) of social issues. According to his observations, G20/OECD CG Principles (G20/OECD, labour costs and salaries of the employees in 2015) shed light on the role the suppliers the "factories" in emerging markets increase play for the company performance and in 21st century ( Baldwin, 2013). Although its competitiveness. Good corporate his views are not always supported by real governance is responsible for the good and life, his observations underline that GSCs long-term relations with the stakeholders are not only about exchange of resources including suppliers. The new document and . Social issues and sheds light on the issues related to the the way they are being resolved impact the globally functioning suppliers - human rights relations between the buyers and suppliers. protection; proper usage of the natural Environmental issues are not on his agenda. resources. 2. Corporate Governance and GSCs The choice of G20/ OECD principles is determined by various reasons, among Corporate governance is a system of which the role of the international institutions relations that encompasses , in encouraging business community to

3 Text is bolded by the author

8 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains address ESG issues (Walls, Berrone and businesses employ general understanding Phan, 2012). of sustainable development (Brundlandt We found out that some scholars 1988, German Sustainability Code). Others address the role of corporate governance see two forms in corporate governance in overcoming environment, economic and issues related to other stakeholders: social and government problems (Salami, management and social issue Johl and Ibrahim, 2014). Our interest participation/corporate social responsibility focuses on studies that deal with the (Classens and Yourtoglu, 2012). Corporate interrelation between corporate governance social responsibility is addressed by as a system and suppliers with focus on international business scholars ( Dunning, environmental, social and governance 2012). Social and environmental issues issues (Mason and Simmons, 2014). We resonated in Shared Value (Porter and see corporate governance in its relationship Kramer, 2011). And both practitioners and with institutional arrangements that largely academia decode sustainability, sustainable lie outside the corporate and development as a system of ESG indicators limits in company law (Galanis, 2013). Our (Elkington, 1998; Savitz and Weber, 2012 ) research is in line with the understanding As mentioned above standards and that corporate governance defines its policy/ codes for corporate governance do not deal selection of stakeholders because their with GSC. Only suppliers as a component resources fit together (Galanis, 2013). The of this chain are considered. Environmental statement about the interrelation between and social issues within GSC are not GSC and sustainability relates to the aims treated. On the other hand, good corporate of our research. In terms of global value governance practice promotes corporate chains, it is about ensuring that those who social responsibility /CSR/ and Social manufacture and assemble goods Responsible Investment /SRI/ as standards equitably in the benefits. It is about creating for ethical, environmentally friendly business an environment in which small and medium- operations and investments. Both standards sized equity enterprises can participate in refer to the overall companies’ activities and supply chains, without being shut out by do not treat the relations within GSC. SRI is costly regulation, poor administration or about the investment decision that integrates exclusionary behaviour. (Fung, 2013) environmental, social and ethical criteria Irrespective of the limited number (Crifo and Forget, 2008). Non- equity modes of studies on the interrelation between of entry are not within the scope of SRI. corporate governance and GSC we believe that the practice and the standards for We try to find answers in literature corporate governance ( G20/OECD) give us The literature survey provides evidence confidence to raise the issue about social that the paradigm of corporate governance and environmental issues. discussions have shifted progressively 3. Corporate governance, GSC toward contemporary social issues (e.g. and ESG issues climate change, labor rights and corruption) (Walls, Berrone and Phan, 2012). The researcher and the practitioners Most authors explore CSR as a suggest a variety of concepts, guidelines unit for measuring the functions given and definitions about the norms /mandatory above (Walls, Berrone and Phan, 2012). and voluntary/ that are related to fair and Unfortunately both the understandings ethical performance. Researches and and statements of international institutions

9 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains

(EC Green Paper on CSR), and some business school defines CSR as the observations by academia representatives responsibility of corporations to meet the do not go beyond the essence of CSR objectives of society (Dunning, 2008). and its relationship with variables of Despite a variety of views and thousands corporate governance such as investors, of pages dedicated to how to decode CRS, stakeholders, remuneration, committees we think that the message is clear : it is (Walls, Berrone and Phan, 2012). The about general social and environmental fundamental concept of A. Carrol (CSR policies. pyramid) does not go beyond the 4 norms We also tried to understand the that the companies have to comply with: essence of another concept that deals economic, legal, ethical and philanthropic with environmental issues and social (Carrol, 1991). In line with our research inclusiveness. Share value (Porter and objective - to study the reaction towards Kramer, 2011) addresses pre- and post- GSC - we have to point out that early crisis problems in developed economies. publications on corporate responsibilities Another school of thought offers underline the fact that it is about indicators to evaluate the response of the responsibilities towards the stakeholders, companies to the pressure of social and including suppliers (Carroll, 1991). environmental issues (Elkington, 1998). Current studies reveal that CRS Critics of the social responsibility of the initiatives go beyond the formal reach business are addressed by Triple Bottom line of organizations (Mason and Simmons, model (Savitz and Kramer ). They decode 2014) . We found that socially responsible social and environmental policies into a set suppliers and logistics practices are of measurable indicators.(ESG), aligned with considered. There is evidence of corporate the system of factors that businesses have to governance that encourages ethical and address - ESG (triple bottom) experts offer responsible behavior within GSC (Mason triple advantage sustainability strategy and Simons, 2014). Meaningful that CRS (WEF/Accenture, 2015): Profitability: deals with the environmental issue with Revenue uplift of 5-20%; supply chain cost think that ESG issues requires broader reduction of 9-16%, brand value increase of framework of measures. CRS is becoming 15-30%, significant company risk reduction; an important topic on the agenda of Local development and societies: Improved corporate boards, on the one hand and customer health, local welfare and labour indicates the relationship between standards (wages, working conditions) and corporate governance, corporate Environment: Carbon gas reduction of 13- social responsibility and sustainable 22% on overall footprint. development (Clarke, 2007). We agree Our observation on the three directions with the understanding that many in the current theory on the responsibility multinationals accept inclusive approach of the companies and their work for better or stakeholder based approach. Good societies revealed similar views. Different corporate governance encompasses events in the end of 20th century and measures that address environmental the beginning of 21st century motivated and social issues (Masson and Machony, scholars. The comparison of the reviewed 2007). This view echoes the statement above theories and concepts aim to find that global CSR is all about thinking out how they treat GSC, on the one hand and acting in socioeconomic categories and how they fit the corporate governance (Eder and Oettingen, 2008). International framework. (Table 1)

10 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains

Table 1. GSC from the perspective of CSR concepts: comparative analysis Concept/ Shared value Triple bottom line (J.Elkington, CRS (A.Carrol) parameters (M.Porter, M. Kramer) А. Savitz, K. Weber) Economic sales, profit, ROI Economic responsibilities :E/S; No explicit statement. paid , monetary flows, new operation efficiency jobs and suppliers relationship. Consumption of water Carbon footprint; pollutants Environmental No explicit statement and energy and impact emitted; recycling and re-usage, on the environment water and energy use, safety and health, Safety and health company impact community, Social issues for employees, skills No explicit statement human rights and privacy and community of employees Training protection, product responsibility Job creation relations with employees. Legal issues Legal responsibilities/ No explicit statement No explicit statement and compliance compliance Ethical responsibilities/ Ethical corporate citizenship, No explicit statement No explicit statement ethical behaviour Philanthropic Philanthropy responsibilities/ No explicit statement No explicit statement charitable activities Author: Bistra Boeva, Observation of publications is disappointing. Sources: Carroll (1991) , Elkington (1998), Savitz We agree with some conclusions that and Weber (2014), Porter and Kramer (2011) the number of studies on the responsible The analysis proves similarity of the three behavior of the corporate boards towards sets of norms and indicators. The authors various stakeholders is limited as well share common concerns about protection (Walls, Berrone and Phan, 2012). A good of environment, social inequality and example of the role of the Board members sustainable development. In this part of in establishing ESG standards within GSC the paper we found that current corporate is Nike (Paine, 2014). According to the governance establishes voluntary norms publication the board and especially to cope with environmental and social independent directors are the most issues that are related to GSC. Because important factors that drive and shape of its improved structure and visibility of the responsible corporate governance parameters that the ESG concept feature, we towards ESG issues within GSC. The employed it for the next step of our research. Board’s role in setting the required standards, on the one hand and the Board’s oversight of 4. Corporate governance, GSC management activities determine company’s and ESG: how corporate boards success in improving the worsened react and the essence reputation of Nike due to some scandals of disclosure with suppliers in emerging markets (Paine, We decided to explore the board 2014). One has to underline the long-term behavior from a more general perspective direction of the board’s policy towards (corporate governance, GSC and sustainability: sustainability, ESG issues ESG issues). Literature is insufficient. within ESG and foreign direct investments

11 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains are among the priorities; future board on . Global Reporting members are educated to be responsible Initiative (GRI) Principles that are towards sustainability and ESG issues. considered invaluable tools for working Long term prioritization of sustainability towards international confidence in the and compliance with ESG good practice trustworthiness of corporate reporting of Nike is considered an exception rather (Clarke, 2007). than a standard for corporate boards. One 5. Do international institutions fourth of Fortune 500 companies have a add value to greener corporate board committee overseeing the natural governance environment (Walls, Berrone and Phan, 2012). The authors clearly communicate As mentioned international institutions that various academic researches offer initiate different measures for coping mixed results on the board’s attitude to with ESG issues that are related to CSR. In their (Walls,Berrone and Phan, GSC and global business. UN Global 2012) study on corporate governance and Compact sets a new voluntary norm for environmental issues they focus on the responsible corporate citizens. We share corporate boards engagement in sorting out the view of some scholars that despite environmental issues. Their research does globally accepted principles of UN Global not address social concerns. Suppliers are Compact (10 principles), give good general not on the radar of the empirical work. directions, not all signatories translate them A different trend is revealed in a review in concrete practical measures (Haack and of the US National Association of Corporate Scherer, 2014). This could be explained by Directors. Corporate responsibility issues the fact that UNGC is a dynamic, voluntary are consistently ranked at the bottom initiative and is far from perfect (Rasche of a number of possible board priorities and Waaddock, 2014). But one has to (Paine, 2014). underline that the initiative aims at a higher We do not address the role of gender degree of involvement of the global players in the ESG involvement of the boards. into the governance of the global markets, Nevertheless, the case with Nike is in line particularly since the state-based solutions with the gender contribution: the main in the international political arena remained hero in Nike ‘s progress is Mrs Conney ( limited (Rasche and Waaddock, 2014). Or Paine, 2014). Some studies confirm the stating it differently, the current practice in existing positive relation between the implementation of UNGC aims to sort out diversification of corporate boards - problems that were declared on previous female and CRS (Walls, Berrone and Phan, stages - lack of governance framework 2012; Webb, 2004). for GSC. Irrespective of different views Board awareness of and engagement on the effectiveness on the UNGC we in directing companies’ sustainable think that it is worth mentioning that their development is associated with voluntary efforts should go beyond the 10 principles disclosure of non- financial information and to propose some practical solutions (Peters and Romi, 2014 ). The study is about (BRSUNGC Supply Chain Report, 2010). a more regulated - GHG (green house gas) The focus is on business policies that - disclosure. Some sources report on the have to establish vision and objectives positive association between CG quality and for supply chain sustainability; establish voluntary disclosure of CSR. Similar views sustainability expectations for the supply are shared by Clarke on the implementation chains. and with

12 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains suppliers are recommended. Disclosure is followers and supporters; transformation among the priorities, as well. Signatories of from general recommendations to practical Global Compact - 84% of big companies guidelines. include corporate responsibility in the The difficulties that challenge our relevant documents (contracts, purchase research activities are shared by some documents). And finally this essential set authors as well: although their evaluation is of guidelines includes norms stipulating subjective, one has to agree about the small the relations with the sub suppliers. With number of studies on corporate governance reference to the aims of our research we and environmental issues that companies found that the guidelines envisage the role are exposed to (Walls, Berrone and Phan). of the boards in overseeing the work of the Theoretical assumptions or clear theoretical management with suppliers to guarantee evidence on the above relation are at an effective solution of ESG issues (BRSUNGC initial stage. One has to point out that it Supply Chain Report, 2010) refers not only to overseeing boards on Similar activities are followed by compliance with legal requirements, but it another international institution - UNIDO is also valid for their proactive role in going recognizes that aligning business beyond the legal requirements. strategies, operations and supply chains 6. Why our research does not cover with sustainable development outcomes traditional academic requirements is not only a social responsibility, but also increasingly a business imperative. We find theoretical evidence about Adopting more socially inclusive and the increasing role of the suppliers in the environmentally sustainable business structure of the stakeholders with whom operations will help to mitigate risks, develop the corporate boards have to cooperate new markets and cultivate sustainable and whose interests they have to respect in relationships with suppliers, customers and their global business activities. Suppliers investors (UNIDO, 2014). In 2009, UNIDO and from all over the world raise new issues: the METRO Group, one of the world’s largest protection of limited natural resources, retailers, joined forces in a strategic alliance coping with carbon emission, protection for safe and sustainable food supplies. of human rights and fair payment. Some Through the first full-scale application of the of these issuse are addressed by CSR Global Markets Protocol, established by the initiatives. Voluntary disclosure of non- Global Food Safety Initiative (GFSI), a joint financial information (GRI-G4) exemplifies capacity-building programme was developed these new trends. ESG format of disclosure and successfully implemented, enabling is embedded in the Sustainability Codes of 4 clusters of suppliers to meet METRO and German Multinationals. GFSI requirements in terms of food Our preliminary research plan envisages safety and quality (UNIDO, 2014). UN Value empirical research. Our goal is to find chains and supplier development Inclusive evidence on: and Sustainable Industrial Development. y How does corporate governance on We observe the initiatives whose spill the level of multinationals’ off effect is visible: increasing number of deal with ESG in their relation with suppliers(GSC);

4 It is necessary to point out the EU Directive on non-financial disclosure( 2014) will shift the focus from voluntary to mandatory ESG disclosure. G20OECD Principles of corporate governance (2015) recommend non-financial disclosure

13 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains y How do suppliers/factories in emerging Pre-collapse initiatives markets become aware of the buyers / In 2010 a joint initiative was launched multinationals activities for protecting to address social and environmental environment, respecting human rights problems in the local suppliers facilities and contributing to better quality of life in - the Bangladesh Responsible Sourcing the community of suppliers. Initiative- BRSI. The Multi stakeholders We tried to use traditional tool-field theory is supported by the structure of the research with two groups of respondents: BRSI: Government; private sector actors y Bulgarian suppliers (SME) for international from supply chains (textile mills; local buyers (we include in our group of trade associations; auditors; multinational respondents suppliers that deliver products corporations and retail brands) development for multinationals from EU ()5 institutions (World Bank; Natural Resources y Suppliers form emerging economies Defensive Council/US based NGO, the (Bangladesh, ) network of which include Gap; Wal- Unfortunately we did not get sufficient Mart; H&M, Levi’s; Li &Fung; International data - responses to our questionnaires Finance Corporation). The document puts (Appendix N1). The questionnaires are forward recommendations for clean textile based on the items of GRI-G4. The and garment industries in Bangladesh. focus is on the policy of the buyers (big This initiative proves the importance of multinationals) towards the compliance with theoretical statements (theory about the ESG norms in their work with the suppliers/ numerous stakeholders, on the one hand, sub-suppliers from emerging economies. and the algorithm that guides corporate Because of difficulties with data boards and management how to work collection we employed another research with the stakeholders including suppliers tool - a case study. We elaborated two (Global Compact; IFC; WEF/Accenture). small case studies: "Rana plaza" ( case The publication focuses on standards and study N 1) and "Sub suppliers case" guideline for cleaner manufacturing. It (case study N2)6 was clear that intuitive exists and that both Case study N1 buyers and suppliers are involved. Rana Plaza case Post collapse period Some investigation within Rana plaza The collapse case shed light on the lack of adequate The Collapse of Rana Plaza (2013) poses practice that causes the fears of local concerns, criticism and initiatives. The story expertise: factories often lack the necessary drew our attention to a very important issue: knowledge, information, and skills to improve although companies/buyers develop their their social and environmental compliance efficient ESG policy within their corporate status. The retail chains do not see it as governance framework, this policy does their role to provide education and training not cope with some ESG issues within programmes for their suppliers. (Koch, 2013) the hierarchy of GSC. In the case of Rana The above statements do not provide Plaza that accommodates many local for generalization on ethical behavior and suppliers disclosed non-compliance of corporate governance measures towards the local suppliers on the site. GSC. The gap is bridged by development

5 By the end of 2015 some results of the study in Bulgaria are expected to be received. 6 Both cases are prepared by the author of the article. Information from various sources was used.

14 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains agencies that work on ESG awareness of paper - "ESG integration appears as another suppliers (Koch 2013). From the perspective tool used to reduce information asymmetry and of corporate governance of the buyers this to improve business (Crifo and Forget , 2008). could increase the pressure for mitigating ESG Another project associated with the issue is risks within GSC. According to international the non compliance with labour standards media this was the that tried to in a construction project for Qatar’s World coordinate the buyers measures in regard Cup facilities: during 2014, construction and to the Rana Plaza collapse. It is important to engineering companies including Carillion, point out that the Rana Plaza disaster led to Hochtief, Bilfinger, Siemens, Bouygues and increasing the number of multinational brands Vinci were accused of benefiting from the (100) that joined the initiative. exploitation of workers (RepRisk MCP Report, 2014). Annual reports of some of the above Case study N2 companies were analyzed and disclosure on Sub suppliers case the above deviations was not found. The above findings focus our interest on Both brief cases reveal deviation from exploring some other practices related to the established norms and ethical and corporate governance and GSC. We tried responsible behavior of the multinationals. to match some reports on negative cases in There is not sufficient information and emerging markets (suppliers; factories) and evidence to support some of our theoretical disclosure policy of some buyers (multinationals; assumptions. Despite the limited data, we headquarters ) in developed economies. We believe that our research highlights some took data from the annual ranking of RepRisk, issues ranking high on the agenda of a leading provider of on corporate governance researchers. ESG risks. For year 2014 the company ranks as the most controversial project (RepRisk 7. Conclusions MCP Report, 2014). The Kunshan Zhongrong We offer some preliminary observation Metal Plating Factory in is owned by that new players on the global business Zhongrong - a subcontractor for General arena - global supply chains that connect Motors , Volkswagen and Mitsubishi Motors. In companies from developed economies and the explosion in the factory on August 2, 2014 SMS/farmers from emerging economies more than 70 workers were killed and more than - challenge corporate governance. Our 180 others were injured. Experts explained the research confirms that it is a new domain for explosion with bad working conditions and corporate governance and the analyses of non-compliance with the safety and healthy interactions with suppliers and CRS-related regulations. We tried to find how this event issues are almost empty research fields in was addressed by the German car producer: emerging market countries (Classens and an in compliance with the Yourtogly, 2012). This paper contributes Sustainability Code was examined. Information to the limited knowledge and research on about the accident was not disclosed. It is corporate governance from the perspective difficult to draw reliable conclusions on how the of the suppliers and ESG/CRS related issues disclosure policy – a key principle of corporate More attention has to be given to GSC within governance, really shed lights on triple the framework of corporate governance. bottom line. Academia correctness provides a Currently only voluntary disclosure signals statement that needs further examination since about corporate governance engagement with current disclosure policy does not support ESG within GSC. We suggest that companies some findings in the theoretical part of the have to incorporate norms that corporate

15 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains boards have to comply with: this new category Dunning, J., 2000. The eclectic paradigm of suppliers. Current practices: CSR policies, as an envelope for economic and business ESG disclosure, or some objective assessment theories of MNE activity, International ( Dow Jones Sustainability; UNGC, RepRisc Business Review,9. etc.) offer limited information about the result. Dunning, J., 2008. Corporate Social The research and the results are in line Responsibility: an Institutional Perspective with our interest in international activities of listed companies with focus on their GSC. In Corporate Governance and International We think that this paper contributes to Business, edited by Roger, Str. And Gr. opening a new window for research. The Jackson, NY: Palgrave McMillan. future work would be successful provided Eder, Chr., M. Oettingen, 2008. The scholars on both sides: developed Business Case for Global CSR, in Business economies and emerging economies and Poverty, Innovative Strategies for Global cooperate on the research of Corporate CSR, ICEP, CODECA, V. Governance, GSC and ESG. Elkington, J., 1998. Cannibals with Forks: References The triple bottom line of 21st century Baldwin, R., 2013. Global supply chains: business, New Society Publishers why they matter and where they are going, Fung, V. Governance through partnership in a Global value chains in a changing world, changing, edited by Elms, P., P. Law, WTO, 2013 edited by D.K. Elms and P. Low, WTO, G20/OECD Principles of Corporate Bangladesh Responsible Sourcing Initiative Governance, OECD , P.2015 - A new Model for Green Growth, World Galanis, M., 2013. The impact of EMU Bank 2014. W.D.C. on Corporate Governance: Bargaining in BSR UNGC, 2010. Supply Chain Austerity; Oxford Journal of Legal Business, Sustainability, A practical Guide for vol. 33, No3 Continuous Improvement, NY Global Values Chains in the Changing Brundlandt Report, 1988 World, edited by Elms,D.and P.Low, WTO,G.2013Haack, P., A. Scherer, 2014. Carroll, A., 1991. Corporate Social Why Sparing the Rod Does not Spoil the Responsibility: Toward the Moral Management Child: A Critiques of the "StrictFather" Model of Organizational Stakeholders, Business in , Journal of Horizons, July-August , May Clarke, Th., 2007. International Corporate Koch, H., 2013. GIZ is only the advisor, GIZ Governance research, Routledge. publication (www. giz.de), Accessed date: Classens, St., B. Yourtoglu, 2012. Corporate March, 2015) Governance and Development - An Update, Lamy,P., 2013. Foreword in Global Values GCGF/IFC. W.D.C. Chains in the Changing World, ed. by Crifo, P., V. Forget, 2012. Think Global , Elms,D. and P.Low, WTO, G.2013 Invest Responsible: why the private equity Mason Chr., J. Simmons, 2014. Embedding industry goes green, Cahier 2012-03; Ecole Corporate Social Responsibility in Corporate Polytechnique, Centre National De La Governance approach, Journal of Business Rechereche scientifique Ethics,119

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Masson,M., J.O. Machony, 2007. Post traditional Salami, Ol., S.Johl, M.Ibrahim, 2014. Holistic Corporate Governance, Governance and Approach to Corporate Governance: A Sustainability, Working Paper Series, LSE conceptual Framework, Global Business and Management Research: An International Krenn, M., 2014. Decoupling as a Journal, Vol. 6 Sustainable Firm Response to Pressures for Convergence and Divergence in Corporate Savitz,A., K. Weber, 2014. The Triple Governance: The Case of Codes of Bottomline, Jossey -Bass, SFr. Good Corporate Governance, Journal of Management Policy and Practice, vol.15 (4) Slob,B., 2008. Glbal Supply Chains: The importance of traceability and transparency Lamy.,P Foreword, in Global Values Chains in Business and Poverty, Innovative Strategies in the Changing World, ed.by Elms,D. and P. for Global CSR, ICEP , CODECA, V. Low, WTO, G.2013 Lessard, D. 2013. Uncertainty and risk in Shrestha,E., 2013. Bangladeshi-German global supply chains in Global value chains project ‘Promotion of Social and in changing world, edit. by Elms, D. and P. Environmental Standards in the Industry’. Low, WTO Ge. Website of the project. The interview was first published in the GIZ brochure OECD, Enhancing the Role of SMEs in "Collective change - collective action" in Global Value Chains, OECD, Tokyo, 2007 February 2013. OECD,WTO, World bank: Global Value Chains: Schmid,M, 2013. Bangladeshi-German project Challenges, opportunities, implications for ‘Promotion of Social and Environmental policies, July 2014 Standards in the Industry’, June 2013 Paine, Lynn, S 2014. Sustainability in the Boardroom, Harvard Business Review, July UNIDO, 2014. Inclusive and sustainable August industrial development, UNIDO, V.2014 Peters,G .A.Romi, 2014. Does the Voluntary Walls,J., P. Berrone, Ph. Phan, 2012. Adoption of Corporate Governance Corporate Governance and Environmental Mechanisms Improve Environmental Risk performance: is there really a link? Strategic Disclosures? Evidence from Greenhouse Management Journal, 33 Gas Emission , Journal of Business Ethics, 4 Webb, E., 2004. An examination of socially responsible board structure, Journal of Porter, M., M.Kramer, 2011. Redefining Management and Governance, 8 Capitalism and the Role of the Corporation in the Society, HBR, January February World Economic Forum Accenture, Beyond Supply Chains Empowering Responsible Value Porter, M., G.Hills, M.Pfitzer, 2013. Chains, World Economic Forum, 2015, Ge Measuring Shared Values, FSG Rasche, A., S. Waddock, 2014. Global World Investment Report (WIR), 2013, sustainability and the UN Global Compact, UNCTAD, Ge 2013 Journal of Business Ethics, June Zollinger P., 2009. Engagement RepRisk Special Report, The Most and the Board: Integrating Best Governance Controversial Projects of 2014 Practices, GCGF, IFC, W.D.C

17 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains

Appendix N1 Questionnaire N1 CG and environment: GSC perspective Positive Negative Comments Comments N Question n.a n.a. answer answer if any if any Does the transportation of products and other goods 1 and materials for foreign buyers have significant environmental impacts

Are local water sources significantly affected by withdrawal incl . water supply to local communities and indigenous peoples

Do the agreements along the 3 supply chain support jobs

Do the companies 4. screen new suppliers on environmental criteria. How many local suppliers are identified as having 5 significant actual and potential negative environmental impact.

Do the companies identify significant actual 6 and potential negative environmental impacts in the supply chain.

Are there any suppliers identified as having significant actual and potential negative 7 environmental impact with which improvements were agreed upon as a result of assessment

18 Economic Alternatives, Issue 4, 2015 Corporate Governance Articles and Global Supply Chains

Questionnaire N2 CG and Human Rights/labour issues: GSC perspective

Positive Negative N Question n.a. answer /yes/ answer /no/ . Does the practice of formal agreements (either local 1 or global) with trade unions cover health and safety.

Does information exist about ratio of the basic salary 2 and remuneration of women to men Ÿ Do foreign buyers screen new suppliers using labor 3 practices criteria. . Are any suppliers identified as having significant actual 4 and potential negative impact on labor practices..

Is there any actual and potential negative impact on labor 5 practices identified in the supply chain.

Do the contracts between foreign buyers and local 6 suppliers include human rights clauses or ones that underwent human rights screening.

Are there any operations and suppliers in which employee 7 rights which exercise freedom of association or collective bargaining may be violated

Do foreign buyers take measures to support rights to 8 exercise freedom of association and collective bargaining

Are there operations and suppliers considered to have 9 significant risk for incidents of: Child labor -Young workers exposed to hazardous work

Do foreign buyers take measures to contribute 10 to the effective abolition of child labor.

11 Are the suppliers screened using human rights criteria.

Are local suppliers familiar with sustainability policy 12 of their foreign buyers Are there suppliers identified as having significant actual 13 and potential negative human rights impact

Are local suppliers screened by the foreign buyers using 14 criteria for exerting impact on society

19 Economic Alternatives, Issue 4, 2015