Interactive Effects of External Environmental Conditions and Internal Firm Characteristics on MNEs’ Choice of Strategy in the Development of a Code of Conduct

Effects of globalization have amplified the magnitude and frequency of corporate abuses, particularly in developing economies where weak or absent rules undermine social norms and principles. Improving multinational enterprises’ (MNEs) ethical conduct is a factor of both the ability of firms to change behaviors in the direction of the moral good, and their willingness to do so. Constraints and enablers of a firm’s ability to act ethically emanate from the external environment, including the industry environment of which the firm is a resident, and the host country environment in which it operates. A firm’s willingness to engage in ethical conduct is determined by the effective bundling of internal resources and the commitment of those resources to social ends. The interaction of external and internal conditions carves out categories of expected firm behaviors and suggests interventions that would push these behaviors in a more positive ethical direction. With reference to integrative social contracts theory (ISCT), these categories of firms are examined, and a conceptual model for analysis is developed to explain the drivers of corporate choices in the adoption and implementation of codes of conduct, and the relative power of relevant communities to the process.