Social and corporate responsibilities of multinational companies in Asia-Pacific

The discussion of social and corporate responsibilities of multinational companies, especially those operating in developing countries came into the spotlight after the recent April and May 2013 Bangladesh garment factory disasters happening in the country, and the plight of the millions of garment factory workers working in unsafe factory premises.

For the past several years, many multinational companies, including those from the United States, have been setting up factories, and/or outsourcing their production overseas in order to save costs, namely labour, taxes, etc. However, during these few years, many of the issues pertaining to overseas workers’ safety and welfare have come under scrutiny from various interest groups, including the unions, governments, etc. For example, Foxconn Technologies, International (formerly known as Huawei Technologies), a leading Taiwanese contract manufacturer, has business relationships with Apple, Inc. (APPL). Foxconn also outsources its contract manufacturing activities offshore in many Chinese coastal cities, including Shenzhen, etc. During the years 2011 and 2012, there have been various reports of workers committing suicide by jumping off from the factory buildings, the alleged accusations of Apple Inc. hiring underage workers in Foxconn’s premises, walkouts by factory workers over wages and living conditions, etc. These various incidents have put Apple Inc. under close scrutiny from consumers, the Chinese people, and the US government over its treatment of their workers, and the vetting process done on their contract manufacturers overseas. Since the outbreak of the various incidents, both Apple and Foxconn have taken steps to ensure workers’ safety and welfare are not compromised, including the improvement of workers’ living conditions, instituting strict hiring practices against underage workers, regular visits by Apple executives to China to inspect factory conditions, etc.

In a news article dated June 01, 2013, it looked into the various events that led to the increased awareness of multinational companies operating overseas, including companies such as Wal-Mart, which faced accusations of ignoring workers’ safety following the April 2013 collapse of the Rana Plaza factory in Bangladesh – the worst industrial accident recorded in the country’s history. The incident resulted in massive loss of lives to the tune of approximately 1,127 comprising of mostly factory workers, followed by a series of fires, causing a severe tarnish of the image of multinationals operating in improvished countries such as Bangladesh.

Following the April incident, Wal-Mart has responded by vowing to make public safety inspections of all its suppliers’ authorised factories in Bangladesh. The reviews of the 279 plants are expected to be completed within six months, and the factory names and inspection information will be published online. The costs of remediation and safety improvements made in order to restore its credibility are expected to result in one-time charges to its costs of goods purchased.

These various incidents taken place in developing countries highlighted important issues regarding multinational companies’ social and corporate responsibilities towards its overseas employees, stakeholders, the communities that they operate in, governments, etc. The question is whether multinational companies have compromised workers’ safety and welfare by cutting corners, and failed to discharge their responsibilities as good corporate citizens. Second is whether trimming costs down have resulted in the lack of oversight over safety and welfare of its overseas workers. The Bangladesh and Foxconn factory incidents have highlighted the importance of ensuring that there should be sufficient safeguards put in place to prevent such disasters from happening. In this era of maintaining good corporate responsibilities, multinational corporations must realise that it is no longer the era of the Industrial Revolution during the mid to late 19th century where workers’ rights are not being protected, and sometimes violated. By ignoring the capital expenditures needed to be put in place in order to ensure that multinationals demonstrate their commitment in ensuring that incidents such as the Bangladesh factory disasters do not happen again, multinationals risk losing trust in the eyes of the various stakeholders. Corporate executives should be professionally trained to identify certain worker safety issues including the adherence of building codes, ensuring that all fire escape routes remain free from obstruction, conducting regular building inspections, and training local staff on the importance of safety, etc. Worker abuses by supervisors, sexual harassment incidents in the overseas factories should be looked into and dealt with severely.

Given the intensity and the amount of media coverage on the plight of the overseas workers, along with the alleged mistreatment happening under the watch of these multinational companies, critics might respond by advocating additional government legislation to prevent future incidents. However, I believe that self-regulation is more feasible as there needs to be a demonstration of those multinationals’ obligations towards its local workers through cooperation with all parties concerned. Government intervention for most cases might provide the guidance, but I sometimes find that multinational corporations find means and ways to skirt around the rules, thus violating the spirit of the law. Heavy fines might be not be as effective for big multinationals with sufficient reach and financial resources. Banning the multinational corporations might set a precedent for future backlash when it comes to foreign direct investments (FDI), etc. Through these incidents, it is important to bear in mind that ignorance might bring about consequences and it is important that multinational corporations should avoid risking their corporate standing as various stakeholders will be watching constantly on any missteps made, and this will result in unnecessary loss of trust, and reputation.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc