Research Proposal draft 06 03

Research Proposal Multinationals & Globalization: Friends or foes?

Supervisor

Annelies de Kleijn

Names

Wietske van der Knaap Gabriëlle Boer Isabelle Coppens

Team

Team 3

Date

08-11-2007

294689 298637 297950

Research Proposal: Multinationals & Globalisation: Friends or Foes? Team 3

07-11-2007

Table of contents 1. Introduction....................................................................................................................3 2. Literature review.............................................................................................................4 2.1 Corporate Social Responsibility............................................................... .........................4 2.2 Content of codes of conduct........................................................................... ...................4 2.3 Codes of conduct of Non Governmental Organizations (NGO’s)..................................5 2.4 Corporate codes of conduct................................................................... ............................6 2.5 Child labour.................................................................................................... ...................7 2.6 Codes of conduct and child labour................................................................. ..................8

3.Problem definition & Research questions......................................................................9 4. Theory and propositions...............................................................................................10 4.1 Evaluation of propositions..................................................................... ..........................10 4.2 Definition of concepts............................................................................ ...........................11 4.3 Conceptual model........................................................................................ .....................12

5. Data and methodology..................................................................................................14 5.1 Research strategy..................................................................................................... ........14

6. Timeframe.....................................................................................................................15 7. Executive Summary......................................................................................................16 8. References.....................................................................................................................18

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1.

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Introduction

The ethics of business are becoming more and more important for Multinational Enterprises (Pedersen and Andersen, 2006). It is no longer all about making profit. MNE’s find themselves under a larger amount of social pressure. They have to meet needs of not only employees, but also NGO’s and other interest groups. In response to the increasing societal pressure, many companies adapt the concept of corporate social responsibility (CSR) by introducing codes of conduct that are expected to ensure socially responsible business practices throughout the chain – from supplier of raw materials to final end-users (Pedersen and Andersen, 2006). Codes of conduct are discussed for some years now, but still there are no clearly defined recommendations on what a good code should include to be effective. Furthermore, different parties can be involved in establishing codes like governments, business associations or NGO’s. These players in the field of codes of conduct all have their own ideas of what a code should include, how it has to be implemented or monitored. NGO’s are expected to establish effective codes of conduct, but in practice non governmental regulation shows some short comings (O’Rourke, 2006). Less research has been done concerning the content of codes established by NGO’s. This research aims to compare non governmental codes with those made by corporations themselves as to discover which are more effective.

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2.

Literature review

2.1

Corporate Social Responsibility

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Companies are increasingly held responsible for the conditions under which products are being produced (Roberts, 2003 and Jenkins, 2005 cited Pedersen and Andersen, 2006). Issues regarding environment, working hours and child labour for example, are very important nowadays. More and more stakeholders show their interest in this subject. Organizations consider the interest of society in using the concept of corporate social responsibility (CSR). Corporate Social Responsibility are actions taken by the firm intended to further social goods beyond the direct interest of the firm and that which is required by law (McWilliams and Siegel, 2001 cited Doh and Guay, 2006). CSR suggests that companies have responsibilities beyond those of their shareholders to include those of other stakeholders (employees, suppliers, environmentalists, communities, etc) and the broader society in which they operate (Doh and Guay, 2006). The responsibilities of organisations are no longer addressed only by trade unions and environmental lobbies. In particular, “new” groupings such as employees, customers, managers, economists, shareholders and public servants are taking up the subject of Corporate Social Responsibility (Donaldson, 1995 cited Nijhof et al., 2003). Within the diverse set of management instruments for stimulating en monitoring corporate social responsibility, codes of conduct seem to be one of the most widely adopted instruments (Nijhof et al., 2003).

2.2

Content of codes of conduct

Codes of conduct include a set of corporate standards, guidelines and principles regarding social and environmental issues. Realizing that CSR issues arise throughout the supply chain and that companies are increasingly held responsible for the conditions under which their products are being produced, these codes often go well beyond the boundaries of the individual organization and include social and environmental requirements for suppliers (Pedersen and Andersen, 2006). 4


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Nowadays codes of conduct are the preferred instrument for multinational companies to assure better working conditions in global supply chains (Jenkins, 2001; Utting, 2001; Fichter and Sydow, 2002; Rowe, 2004 cited Biedermann, 2006).

2.3

Codes of conduct of Non Governmental Organizations (NGO’s)

A new class of governance institutions has emerged that involve private and nongovernmental stakeholder in negotiating labour, health and environmental standards and monitoring compliance with these standards (O’Rourke, 2006). Non governmental systems of labour monitoring and regulation are both messier and diverse than traditional government standards. Because of the diversity in nongovernmental regulation systems, the implementation, participation, accountability, and transparency of inspections results can vary considerably (O’Rourke, 2006). The aim of non-governmental governance is to create a network of regulators involving multiple stakeholders along in the supply chain. Enforcement relies largely on market sanctions (O’Rourke, 2006). Systems for implementing and evaluating compliance are crucial for the credibility of the codes, but are difficult to arise. Also monitoring of the codes seems to be problematic. A large number of companies prefer to do this themselves, but research has shown that codes often only are used for public relations instead of improving labour conditions (O’Rourke, 2006). Another challenge for non-governmental regulation is simply accessing information on factory locations, workplace conditions and worker concerns. Because of the long and mobile nature of apparel supply chains, even locating a factory can be difficult. Critics surmise that NGO’s will not be able to duplicate national labour inspectors as they cannot track the moving targets of factories (O’Rourke). To make non-governmental codes of conduct more credible, increased transparency is necessary. Key stakeholders need information on locations of factories, results of inspections and audit reports (O’Rourke, 2006). Also fuller and more meaningful worker participation in non-governmental regulation is desirable. Workers can play a central role in identifying problems in factories, and can therefore make codes more accountable (O’Rourke, 2006).

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Research Proposal: Multinationals & Globalisation: Friends or Foes? Team 3 2.4

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Corporate codes of conduct

A corporate code is a policy document that defines responsibilities of the corporation towards its stakeholders and/or the conduct the corporation expects of employees (Kaptein and Wempe, 2002 cited Kaptein 2004). The code clarifies the objectives the company pursues, the norms and values it upholds and what it can be held accountable for (Kaptein, 2004). Corporate codes of conduct could consist of stakeholder responsibilities, stakeholder principles, corporate values, internal employee conduct and implementation and compliance (Kaptein, 2004). Most corporate codes pay attention to consumers, investors, employees, society and the natural environment (Kaptein, 2004). However it seems to be difficult to address these issues in the right matter. Codes can be established with good intentions but in practice they can make the situation worse, for example when they clash with government regulation. An example of this problem can be found in the Thai garment industry. Acceptance of international labour standards will be necessary to successfully compete in global markets as the Thai find themselves under larger international pressure (Kaufman et al., 2004). But the introduction of voluntary labour standards is prohibited by Thai Law. The Thai Labour Protection Act of 1998 permits up to 36 hours overtime per week, whereas the voluntary labour standards advocate 12 hours of overtime (Kaufman et al., 2004). Moreover, the daily wages of workers do not cover their living expenses. Therefore, Thai workers do not support a reduction in working hours as they supplement their income through overtime pay. Voluntary labour standards and codes of conduct that impose a ceiling on overtime further reduce worker’s income (Kaufman et al., 2004). Also issues involving child labour are difficult to solve through an implementation of codes of conduct. What will happen if the children are fired? The problem of child labour does not disappear. In fact, the situation can even deteriorate because the children are forced to find work elsewhere, usually in the informal sector where any form of control on labour conditions is lacking (Kolk and Van Tulder, 2004).

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Research Proposal: Multinationals & Globalisation: Friends or Foes? Team 3 2.5

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Child labour

Since the early 20th century, the issue of child labour has been the subject of widespread regulatory and societal attention. After several industrialized countries had adopted laws that limited the minimum working age of children and their working conditions, international organizations were requested to advance similar measures worldwide (Kolk and van Tulder, 2002a) Multinationals and stakeholders deal in different ways with child labour in their codes of conduct. Research has shown that only a small number (13%) of the largest (fortune 500) firms has a company code that includes provisions on child labour (Kolk and van Tulder, 2002b). Smaller firms show a substantially higher share of child labour provisions. Nevertheless, the issue of child labour is most addressed by NGOs and international organizations in their codes of conduct (Kolk and van Tulder, 2002b). The research of Kolk and van Tulder (2002b) shows the effectiveness of corporate codes of conduct with the emphasis on the child labour issue. Multinationals in the garment industry are indirectly forced to draw up codes of conduct on child labour aspects. International companies are confronted with different perceptions of child labour, the position of children in the society and the standards that should be adopted. Many of these aspects of child labour are reflected in the codes of conduct of the companies. Codes of conduct on child labour issues includes minimum age, wages, education, monitoring, sanctions and the organisations targeted (Kolk and van Tulder, 2002b). Only the biggest challenge companies’ face seems to be to address to issue of child labour affectively through a code of conduct. Firstly, most of the codes of conduct of multinationals fail to define which business partners they target. Secondly, correct monitoring of the codes seems to be problematic. Most of the multinationals prefer to do this themselves, whereas international organizations rely on legal authorities. Most NGOs prefer monitoring by combinations of actors (Kolk and van Tulder, 2002b). Thirdly, almost half of the multinational codes do not include sanctions, while 45% takes strong measures such as termination of business relationships. This raises questions, however, what will happen to children in such cases? If the children are fired, the problem of child labour does not disappear. In fact, the situation can even deteriorate because the children

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are forced to find work elsewhere, usually in the informal sector where any form of control on labour conditions is lacking (Kolk and van Tulder, 2004). Companies are supposed to be leading in addressing the issues of child labour, but research has shown that only a small number of multinationals has child labour provisions in their codes (Kolk and van Tulder, 2002b). Lastly, the use of corporate codes may prove to be the most effective tool in combating the use of child labour because the codes are more feasible than alternative strategies such as prescriptive international instruments. They offer the opportunity to effect practical change at the operating level and work quickly (Jaffe and Weiss, 2006).

2.6

Codes of conduct and child labour

Nowadays different parties in the field of multinationals and globalisation are concerned with conducting codes of conduct. Some problems arise concerning the content and implementation of the codes and different opinions exist on which party is best able to handle these. Regulation by NGO’s is not always as effective as it supposed to be. Simply accessing information on factory locations, workplace conditions and worker concerns -even locating a factory- can be difficult for NGO’s (O’Rourke, 2006). Comparative research has been done between corporate codes, business support group codes, social interest groups and codes of international organisations while research towards codes of conduct established by NGO’s is lacking (Kolk and Van Tulder, 2001). It seems to be problematic to give codes a content that causes the desired effect. To make codes more effective workers participation is necessary (O’Rourke, 2006). Because MNE’s can better asses information on themes as workplace conditions and workers concerns they may can better establish codes of conduct which address issues effectively. Especially in the field of child labour MNE’s know best what solutions are needed to improve the situation. That is why they probably can find better solutions for the problems of child labour through codes of conduct. There is less chance a situation gets worse instead of better.

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3. Problem definition & Research questions

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4.

Theory and propositions

4.1

Evaluation of propositions

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We have identified the following propositions from the exploration of theory. The relevance of them for the understanding of our research is explained below. -

Better compliance with codes of conduct lead to less child labour.

Globalisation has made it possible for multinational corporations to board out their production. In developing countries the wages are much lower and that is why many MNC’s board out their production to that countries. Unfortunately there is a lot child labour in those countries as well. Through codes of conduct companies can make clear that they do not use child labour. As mentioned before, the compliance with codes of conduct is not always very good. Globalisation has been an important factor for MNC’s for using child labour which explains the relevance of this proposition. -

More public attention to codes of conduct leads to more compliance.

As mentioned in the literature review, it is hard to monitor the codes of conduct. To avoid that MNC’s have defined codes of conduct but do not comply with them, it is important to have a clear monitoring system. Through codes of conduct MNC’s can make clear that they feel responsible for the society. Corporate Social Responsibility is very important especially in multinational corporations because of the cultural differences. -

To effectively conduct and monitor codes of conduct just one player in the field, NGOs, government or multinational, should take responsibility for them.

At this moment there are a lot of different parties in the field of making and monitoring codes of conduct which al have their different ideas of what is the best approach to these codes. Because of all of these different approaches, codes of conduct and their monitoring aren’t transparent any longer which can lead to abuse of the codes. Currently all kind of regulations exist for example child labour which blurs the field. There should be a clear view on what are effective codes. No matter which party has responsibility for conducting codes, workers participation is very important. 10

Research Proposal: Multinationals & Globalisation: Friends or Foes? Team 3 -

07-11-2007

When multinationals establish their own codes of conduct regarding the issue of child labour this will result in a larger decline of child labour in the supply chain, than multinationals implement the codes of conduct of NGO’s.

NGO’s are expected to be the problem solvers of societal issues like environmental pollution, child labour and poor working conditions. In practice these issues seem not always to be best solved at non governmental regulation, because lack of knowledge at NGO’s. Multinationals however, have all the information needed to address issues in the right manner. For example, they easily can assure worker participation in establishing codes of conduct. The chosen proposition is the last one, which derived from the exploration of theory. Comparative research has been done between corporate codes, business support group codes, social interest groups and codes of international organisations while research towards codes of conduct established by NGO’s is lacking (Kolk and Van Tulder, 2001). Less research has been done concerning the content of codes established by NGO’s. This proposition aims to compare non governmental codes with those made by corporations themselves as to discover which are more effective.

4.2

Definition of concepts

The final proposition is derived from the improved literature review: “When MNE’s establish their own codes regarding the issue of child labour, this will result in a larger decline of child labour in the supply chain, than when MNE’s implement the codes of conduct of NGO’s.” The concepts in this proposition are: - MNE’s - Codes of conduct - Child labour - NGO’s

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A Multinational Enterprise is defined as a corporation that manages production facilities in at least two countries (Jaffe and Weiss, 2006). MNE’s are able to establish their own codes of conduct, which include a set of corporate standards, guidelines and principles regarding social and environmental issues (Pedersen and Andersen, 2006). In ILO convention No. 138 (1973) Child labour is defined as light work which is not likely to be harmful to (children’s) health or development, and which is not such as to prejudice their attendance at school. The convention stipulates a minimum age of 13 years for this type of employment; in exceptional cases, this may be lowered to 12 years (Kolk and van Tulder 2002a). This definition can be discussed. Child labour is interpreted different in most cases. In articles regarding codes of conduct and child labour, child labour is seen as labour for very young children in bad working conditions. This is not in common with the definition in ILO convention No. 138, because this convention mentioned that child labour is not harmful, while in most articles it is interpret as harmful. MNE’s are also able to implement codes of conduct which are established by NGO’s. NGO’s are defined as non-profit groups that combine resource mobilization, information provision and activism to advocate for changes in certain issue areas (Spar and La Mure, 2003).

4.3

Conceptual model

Our object of study is codes of conduct in the supply chain of MNE’s. We specified our object of study further by codes of conduct established by MNE’s and codes of conduct of NGO’s implemented by MNE’s regarding the child labour issue. We would like to specify the domain of our study to an industry where child labour is still an issue, which is the garment industry. The proposition can be seen as a causal relation with two causal factors.

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The independent variables are: -

MNE’s establish their own codes of conduct.

-

MNE’s implement the codes of conduct of NGO’s.

The dependent variable is: -

Decline of child labour.

MNE’s establish their own codes of conduct

Probabilistic

Decline of child labour

MNE’s implement the codes of conduct of NGO’s

Figure 1 Conceptual model

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5.

Data and methodology

5.1

Research strategy

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The proposition: ‘When multinationals establish their own codes of conduct regarding the issue of child labour this will result in a larger decline of child labour in the supply chain, than multinationals implement the codes of conduct of NGO’s’ is of probabilistic nature. The first-best strategy for testing a proposition that expresses a probabilistic condition is conducting an experiment. When we would test this proposition in an experiment, we would specify the experiment as following: A multinational enterprise with different plants in a certain area would be approached. The multinational must have under aged children working in at least two plants. We could let the multinationals establish their own codes of conduct concerning child labour and implement it at one of the plants. In another plant we could implement a non governmental code of conduct. We could observe the implications of the implementation of the codes in the two factories and decide which one has a better effect on the situation. The second-best strategy for testing a probabilistic proposition would be a survey. We choose to do not an experiment neither a survey, but a comparative case study. We shall compare codes of conduct of multinational enterprises to those of NGO’s. Comparison is based on different characteristics of code such as content, sanctions, monitoring and implementation.

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6.

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Timeframe

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7.

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Executive Summary

The object of our study is codes of conduct in the supply chain of MNE’s. We specified our object of study further by codes of conduct established by MNE’s and codes of conduct of NGO’s implemented by MNE’s regarding the child labour issue. We would like to specify the domain of our study to an industry where child labour is still an issue, which is the garment industry. The results deriving from our research will be generalizable for MNE’s in the garment industry. The proposition which will be tested: “When MNE’s establish their own codes of conduct regarding the issue of child labour, this will result in a larger decline of child labour in the supply chain, than when MNE’s implement the codes of conduct of NGO’s.” The concepts in this proposition are MNE’s, NGO’s, Codes of conduct and Child labour. A Multinational Enterprise is defined as a corporation that manages production facilities in at least two countries (Jaffe and Weiss, 2006). In ILO convention No. 138 (1973) Child labour is defined as light work which is not likely to be harmful to (children’s) health or development, and which is not such as to prejudice their attendance at school. Codes of conduct on child labour issues includes minimum age, wages, education, monitoring, sanctions and the organisations targeted (Kolk and van Tulder, 2002b). NGO’s are defined as non-profit groups that combine resource mobilization, information provision and activism to advocate for changes in certain issue areas (Spar and La Mure, 2003). The conceptual model which derives from our proposition is as follows: MNE’s establish their own codes of conduct

Probabilistic

Decline of child

MNE’s implement the codes of conduct of NGO’s

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The proposition is of probabilistic nature. The first-best strategy for testing a proposition that expresses a probabilistic condition is conducting an experiment. The second-best strategy for testing a probabilistic proposition would be a survey. We choose to do not an experiment neither a survey, but a comparative case study. We shall compare codes of conduct of multinational enterprises to those of NGO’s. Comparison is based on different characteristics of code such as content, sanctions, monitoring and implementation.

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8.

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References

Articles: Biedermann, R., 2006. From a Weak Letter of Intent to Prevalence: The Toy Industries’ Code of Conduct. Journal of Public Affairs 6, 197-209 Bendixen, M., Abratt, R., 2007. Corporate Identity, Ethics and Reputation in SupplierBuyer Relationships. Journal of Business Ethics 76, 69-82 Cottril, K., 1996. Global codes of conduct. Journal of business strategy 55-59 Doh, J.P., Guay, T.R., 2006. Corporate Social Responsibility, Public Policy, and NGO Activism in Europe and the United States: An Institutional-Stakeholder Perspective. Journal of Management Studies 43, 47-73 Eden, L., Lenway, S., 2001. Introduction to the Symposium Multinationals: The Janus face of Globalization. Journal of International Business Studies. 32 (3), 383-400 Egels-Zandén, N., 2007. Suppliers’ Compliance with MNCs’ Codes of Conduct: Behind the Scenes at Chinese Toy Suppliers, Journal of Business Ethics 75, 45–62 Emmelhainz, M.A., Adams, R.J., 1999. The Apparel Industry Response to “Sweatshop” concerns: A Review and Analysis of Codes of Conduct. Journal of Supply Chain Management 35, 51-57 Jaffe, N., Weiss, J., 2006. The Self-Regulating Corporation: How Corporate Codes can save our Children. Fordham Journal of Corporate and Financial Law 11, 893-922

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Jenkins, R., 2005. Globalization, Corporate Social Responsibility and Poverty. International Affairs 81 (3), 525-540. Kaptein, M., 2004. Business Codes of Multinational Firms: What Do They Say? Journal of business ethics 50, 13-31 Kaufman, A., Tiantubtim, E., Pussayapibul, N., Davids, P., 2004. ‘Implementing Voluntary Labour Standards and Codes Thai Garment Industry’. Journal CC 13, 91-9 Kolk, A., van Tulder, R., 2001. Multinationality and Corporate Ethics: Codes of Conduct in the Sporting Goods Industry. Journal of International Business Studies, 32 (2), 267283 Kolk, A., van Tulder, R., 2002a. ‘Child Labour and Multinational Conduct: a Comparison of International Business and Stakeholder Codes’. Journal of Business Ethics 36, 291301. Kolk, A., van Tulder, R., 2002b. The Effectiveness of Self-regulation: Corporate Codes of Conduct and Child Labour. European Management Journal, 20 (3), 260-271 Kolk, A., van Tulder, R., 2003. Ethics in international business: multinational approaches to child labour. Journal of world business 39, 49-60 La Mure, L.T., Spar, D.L., 2003. The Power of Activism: Assessing the Impact of NGOs on Global Business. California Management Review, 45 (3), 78-101 Locke, R., Kochan, T., Romis, M., Qin, F., 2007. Beyond Corporate Codes of Conduct: Work Organization and Labour Standards at Nike’s Suppliers. International Labour Review, 146, 21-37

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Nijhof, A., Cludts, S., Fisscher, O., Laan, A., 2003. Measuring the Implementation of Codes of Conduct. An Assessment Method Based on a Process Approach of the Responsible Organization. Journal of business ethics, 45, 65-78 O’Rourke, D., 2006. Multi-stakeholder Regulation: Privatizing or Socializing Global Labour Standards? Elsevier, 34 (5), 899-918. O’Rourke, D. 2003. Outsourcing Regulation: Analyzing Nongovernmental Systems of Labour Standards and Monitoring. The policy studies journal, 31, 1-31 Pedersen, E.R., Andersen, M., 2006. Safeguarding Corporate Social Responsibility (CSR) in Global Supply Chains: How Codes of Conduct are managed in Buyer-Supplier Relationships. Journal of Public Affairs, 6, 228-240 Robert, S., 2003. Supply Chain Specific? Understanding the Patchy Success of Ethical Sourcing Initiatives. Journal of Business Ethics, 44 (2/3), 159-170 Sama, L., 2006. Interactive effects of external environmental conditions and international firm characteristics on MNE’s choice of strategy in the development of a code of conduct. Business ethics quarterly, 16, 137-165 Sharfman, M., Shaft, T., Anex, R., 2007. The Road to Cooperative Supply-Chain Environmental Management: Trust and Uncertainty among Pro-Active Firms. Business Strategy and the Environment, published online in Wiley InterScience Scherer, A., Palazzo, G., 2007. Toward a political conception of corporate responsibility: business and society seen from a Habermasian perspective. Academy of management review, 32, 1096-1120

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Sobczak, A., 2006. Are codes of conduct in global supply chains really voluntary? From soft law regulation of labour relations to consumer law. Business ethics quarterly, 16, 167-184 Webster, J. and Watson, R.T., 2002. Analyzing the Past to Prepare for the Future: Writing a Literature Review, MIS Quarterly, 26 Books: Dul, J. and Hak, T., 2007. Case Study Methodology in Business Research. ButterworthHeinemann publications. First edition.

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Research Proposal draft 06 03

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