Managing corporate community responsibility in multinational corporations: Resolving institutional duality

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Managing corporate community responsibility in multinational corporations: Resolving institutional duality Eshani Beddewela Huddersfield Business School, Queensgate, University of Huddersfield, Huddersfield, HD1 3DH, UK

A R T IC LE I N F O

ABS TRA CT

Keywords: Corporate social responsibility Corporate community initiatives Institutional duality Institutional isomorphism Multinational corporations Legitimacy

Addressing calls to explore how subsidiaries of MNCs operating in different institutional contexts resolve institutional duality, this paper brings together dual theoretical explanations from legitimacy and neo-institutional theory, to examine how decision-making for corporate community responsibility (CCR) occurs across ten subsidiaries operating in Sri Lanka. Using qualitative data, it shows that while subsidiaries’ implementation of local CCR conform to that of their parents at an aggregate level, those subsidiaries encountering higher levels of institutional conflict in the host-country, are sanctioned by their parent companies to de-couple their local CCR projects. These findings raise interesting questions about the dynamism in subsidiary responses to resolving institutional duality relevant for future scholarly research.

Introduction Globalisation has changed the landscape of the multinational corporation (MNC). Today MNCs not only have to proactively manage their competitive internationalisation strategies but crucially engage in corporate social responsibility (CSR) practices (Kolk and Tulder, 2010). Corporate Community Responsibility (CCR), associated with the discretionary responsibilities of corporations, is often identified as the oldest form of corporate social responsibility (Chapple and Moon, 2005), and refers to ‘business involvement in social initiatives by way of contributing financial, in-kind and human resources to meet the social and economic needs of the communities in which they operate’ (Muthuri et al., 2009; p 431). Although, conventionally identified as being altruistic in nature (Saiia et al., 2003), CCR practices have been found to have instrumental benefits such as the conferment of reputational gains for companies (Sana-ur-Rehman and Beise-Zee, 2011) and enabling positive stakeholder relationships (Sen et al., 2006; Seitanidi and Ryan, 2007). For MNCs operating in developing countries, where institutional deficits and complex governance systems prevail, gaining legitimacy from their host country's polities and society is critically important (Frynas and Stephens, 2014; Fooks et al., 2013; Mondejar and Zhao, 2013; Zhao, 2012). Herein, CCR can become an important tool for legitimation (Beddewela and Fairbrass, 2016; Blowfield and Frynas, 2005). The application of legitimacy to MNCs (Meyer and Scott, 1983), has been studied in a series of early articles published by Kostova and others (See Kostova et al., 2008; Kostova and Roth, 2002; Kostova and Zaheer, 1999). They argue that a multinational subsidiary has to gain ‘dual’ legitimacy and is therefore, in a state of ‘institutional duality’ where they need to gain legitimacy from their internal (parent company) constituents as well as external (host-country) constituents (Hamprecht and Schwarzkopf, 2014). Previous studies have argued that when resolving institutional duality, subsidiaries would usually adopt those practices of crucial importance to them (conformance) and de-couple themselves from practices deemed to be of lesser importance (Kostova et al., 2008; Tempel and Walgenbach, 2007). Other theorists have argued for the need to focus more on exploring the role of agency-structure relations within

E-mail address: [email protected]. https://doi.org/10.1016/j.lrp.2019.101911 Received 22 May 2017; Received in revised form 6 August 2019; Accepted 19 August 2019 0024-6301/ © 2019 Published by Elsevier Ltd.

Please cite this article as: Eshani Beddewela, Long Range Planning, https://doi.org/10.1016/j.lrp.2019.101911

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the MNC, endorsing a strategic stance towards managing institutional duality (Hamprecht and Schwarzkopf, 2014; Poutsma et al., 2006; Pache and Santos, 2010). Managing CCR within the context of institutional duality poses a challenge of conformance for subsidiaries, as they have to simultaneously champion the global CCR agenda of their head offices, while addressing specific socio-economic expectations of their host-country communities and institutions (Park and Ghauri, 2014; Hah and Freeman, 2014). Subsidiaries' dependence on the resources of the MNCs’ head offices, presupposes that they will need to adopt CCR practices, for which resources are allocated (Muller, 2006; Husted and Allen, 2006), supportive of internal conformance (Chang et al., 2009). However, when subsidiaries encounter hostcountry institutional contexts requiring them to engage in CCR unique to the operational requirements specific to those hostcountries, they also meet their first challenge – How can they implement local CCR projects while maintaining internal legitimacy with their parent company? This paper argues that to answer this question, the nature of the institutional conflict as manifested through the presence of institutional duality have to be examined. More specifically, researchers need to examine the internal decision-making which occur between subsidiaries and MNC head-offices (at regional and/or global levels), thus exploring whether subsidiaries can adopt different responses other than conforming to head-office directives when implementing local CCR projects in pursuit of internal legitimacy. Although international business literature seeking insights into the manifestation of institutional duality within certain MNC organisational strategies do exist, it is confined in terms of its focus upon strategies such as political strategy (See Hillman and Wan, 2005; Wan and Hillman, 2006), human resources strategy (See Brewster et al., 2008: Ferner et al., 2004), and environmental strategy (See Hsu et al., 2014; Hamprecht and Schwarzkopf, 2014). Those few studies which do examine CSR (See Marano and Kostova, 2016; Hah and Freeman, 2014) do so from a more holistic CSR strategy perspective and overlook the influence of the MNCs’ internal relational context upon decisions undertaken at subsidiary level related to the implementation of local CCR projects. Researchers have also proposed typologies of strategic organisational responses to resolve conflicting institutional pressures arising from external institutional contexts; for example, acquiescence, manipulation, compromise, avoidance and defiance (See Oliver 1991), evasive de-coupling and emergent de-coupling (See Crilly et al., 2012) and selective coupling (Pache and Santos, 2013). Nevertheless, extant research examining subsidiary responses to resolve institutional duality remains scarce (See Kostova and Roth, 2002; Kostova et al., 2008; Holm et al., 2017). These studies have argued that subsidiaries would attempt to manage institutional duality by either conforming to or de-coupling from head-office directives (Kostova and Roth, 2002; Kostova et al., 2008) or by testing them or postponing (or delaying) their compliance (Holm et al., 2017). Nevertheless, in the case of MNC subsidiaries, the choice of selecting a strategic response could also be severely restricted, due to the predominance of the internal relational context of the MNC over the external host-country institutional context leading to subsidiary acquiescence (or conformance) to internal rather than external institutional pressures. Thus, there is a need to understand how conformance as a strategic response to institutional duality occurs within the MNC at the global-regional-local levels (Kostova et al., 2008). Furthermore, extant CSR literature focusing yet again on the broader CSR strategies of MNCs, have acknowledged the influence of global and local pressures whilst neglecting to examine the influence of institutional duality upon the same (See Barin Cruz and Boehe, 2010; Jamali, 2010; Muller, 2006; Mohan, 2006; Bondy and Starkey, 2014). A few studies have provided much needed insights into the complexities associated with managing CCR within MNC subsidiaries in institutionally different countries (Arenas and Ayuso, 2016; Beddewela and Fairbrass, 2016; Idemudia, 2014; Reimann et al., 2015), but they have not examined how subsidiaries resolve institutional duality when making decisions related to the implementation of local CCR projects. Thus, our understanding of whether subsidiaries seeking legitimacy can manage institutional duality, manifesting in the implementation of CCR, by adopting dynamic strategic organisational responses is as yet unresolved. This neglect in empirical research is particularly problematic now, with the growing importance of CCR in MNC strategies, particularly its ability to confer reputational gains for the MNC in host countries (Campbell et al., 2012), bridge governance gaps through socio-economic contributions to the country (Detomasi, 2015) and enable positive business-government relations (Beddewela and Fairbrass, 2016; Zhao, 2012) at the host-country level. The findings of the study indicate that rather than a dichotomous ‘either’ and ‘or’ logic, negotiated decisions are undertaken between the subsidiary and its parent to generate viable localised solutions to resolve institutional conflict, thus, enabling these subsidiaries to seek legitimacy from powerful institutional actors in the host-country, whose continued support is crucial for their long-term economic sustainability. As such, the paper contributes to literature in the following ways; first, the study contributes to literature on institutional duality within MNCs (Kostova et al., 2008; Kostova and Roth, 2002; Kostova and Zaheer, 1999). By following Kostova and Roth (2002), the study explores the decision-making which occurs in the within-organisation domain (or the relational context) of the MNC in relation to the implementation of local CCR projects, and show that subsidiaries are pressured to conform to head-office directives and are less likely to do this ceremonially, without the sanction of their parent. The study also provides empirical support for Kostova and Roth (2002) provocative argument that there is in fact less pressure for isomorphism at the meso-level in the MNC. Following on from the above, the study's second contribution is to existing typologies of organisational responses to institutional conflict (Oliver, 1991; Pache and Santos, 2010; Crilly et al., 2012; Holm et al., 2017). The findings of the study extend the existing typology of responses by identifying the varying distinctions which can be made in relation to conformance as a strategic organisational response. Thus it distinguishes between subsidiary conformance with their global head-offices (i.e. formal-conformance) and with that of their regional head-offices (i.e. negotiated conformance). The study also identifies a novel response category, sanctioned decoupling, which together with its previous distinctions about conformance clearly affirms the importance of gaining internal legitimacy for subsidiaries of MNCs. Third, the study advances our understanding of the negotiated decision-making which is undertaken by MNC subsidiaries, 2

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operating in countries with complex institutional environments when implementing local CCR projects. It adds to the few studies which have explored this aspect (Arenas and Ayuso, 2016; Beddewela and Fairbrass, 2016; Idemudia, 2014; Reimann et al., 2015), and clearly establishes that subsidiaries cannot unitarily decide to implement localised CCR projects to address the socio-economic concerns of host-countries, but are constrained by the directives exerted by their head-offices on whom they depend for both legitimacy and resources. The paper now proceeds to establish the theoretical background for the work. Theoretical development Corporate community responsibility Corporate Community Responsibility (CCR), is considered to be the origin of the wider concept of CSR and forms an integral part of a company's CSR agenda (Chapple and Moon, 2005). While the principle of non-reciprocity (Godfrey, 2005) underpins CCR, its scope and implementation methods are much broader than corporate philanthropy (identified as philanthropic donations to social activities for which no payment or guarantee of future payment is made) (Gardberg et al., 2017). In engaging in CCR, organisations use their resources (people, expertise, surplus products, premises, equipment and financial resources) to address problems in the communities in which they operate (Grayson, 1993). Literature has also identified various modes for the implementation of CCR, such as; corporate donations (Waddock, 2008; Saiia et al., 2003), cause-related marketing (Demetriou et al., 2010; Baghi et al., 2009; Varadarajan and Menon, 1988), corporate partnerships (Seitanidi and Crane, 2009), and corporate social investments or capacity building (Warhurst, 2001; Nwankwo et al., 2007). These different modes of CCR are not mutually exclusive and companies tend to use more than one mode to implement their CCR practices (Muthuri et al., 2012). However, CCR practices within companies have more recently been transformed from a voluntary activity to a key strategic management tool (Brammer and Millington, 2004). Research has confirmed that if managed effectively CCR practices would assist organisations to retain and gain customers (Simmons and Becker-Olsen, 2006), foster a sense of commitment from employees (De Gilder et al., 2005; Zappala, 2004; Grayson, 1993) and improve their corporate reputation as a caring business (Arendt and Brettel, 2010; Brammer and Pavelin, 2005; Gardberg et al., 2017; Hillenbrand and Money, 2007) and develop political ties (Wang and Qian, 2011). MNCs however, have to be careful about how they engage in CCR in developing countries. Adopting a global strategy for their CCR allows them to be responsive to their global stakeholders, but can be perceived to be ignorant of the requirements of hostcountry communities (Arenas and Ayuso, 2016; Gruber and Schlegelmilch, 2015). For instance, addressing the developmental deficits experienced by communities in developing countries (Eweje, 2006; Hansen and Spitzeck, 2011; Muthuri et al., 2012) through CCR practices can enable MNCs to gain legitimacy with institutional actors in host-countries, specifically government actors who value firm-level contributions towards socio-economic development (Amaeshi et al., 2006). As legitimisation ultimately seeks to resolve questions raised by institutional actors about what constitutes acceptable corporate behaviour on the part of private actors (Hamann and Acutt, 2010), ‘legitimate’ MNCs can gain access to valued resources required for their future (Sonpar et al., 2009). Within this context, CCR could provide a facilitative mechanism through which MNCs can gain legitimacy (Rotter et al., 2014). Evidence presented in recent research studies, specifically from developing countries, strongly supports this argument, with CCR being used by MNCs to respond to and manage non-regulatory influences of the state (Zhao, 2012), particularly to gain property rights and strengthen political ties (Su and He, 2010; Beddewela and Fairbrass, 2016) and generally as a form of protection against negative forms of regulation (Zhu and Zhang, 2015). Legitimacy, institutional duality and multinational corporations Legitimacy is considered to be a resource or an intangible asset, which firms can gain or lose from their institutional environment (i.e. legitimacy-as-property view1) (Suddaby et al., 2017). Accordingly, legitimacy is defined as ‘a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions’ (Suchman, 1995; p 574). For organisations to ‘gain’ legitimacy they need to maintain a level of congruence between their internal policies, practices and structures and those of their constituents (Dowling and Pfeffer, 1975) thereby meeting their normative expectations (Suchman, 1995; Zimmerman and Zeitz, 2002). The types of legitimacy which organisations can gain have been clustered around its constituent elements; for instance, Suchman (1995) typology of legitimacy consisting of pragmatic, moral and cognitive legitimacy, presupposes the congruence of organisational activities with those of its environment, but each type infers a different behavioural dynamic from both organisations and their constituents. Pragmatic legitimacy, is accorded to organisations by its most immediate constituents when organisations engage in ‘favourable exchanges’ manifested through the adoption of policies, practices or structures, in effect, standards of performance valued by constituents (Suchman, 1995; Dowling and Pfeffer, 1975). Unlike pragmatic legitimacy, moral legitimacy is not an exchange, but rather an evaluation by the constituents of the organisation and its activities (Aldrich and Fiol, 1994). Prior to conferring moral legitimacy to the organisation, the constituents would evaluate whether a given organisational activity is ‘the right thing to do’, in 1 The paper adopts the legitimacy-as-property view of Suddaby et al. (2017) as opposed to considering it as a ‘process’ (i.e. legitimacy-as-process view) or as a ‘perception’ (i.e. legitimacy-as-perception view).

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that whether it effectively promotes societal well-being. Due to this altruistic rationale and pro-social logic, moral legitimacy is argued to be devoid of the self-interest logic of pragmatic legitimacy (Suchman, 1995). Cognitive legitimacy is based upon the cognition of legitimacy as perceived by the constituents in the external environment. Thus, constituents establish ‘taken-for-granted’ social structures and cultural models, with which the organisation has to comply with, in order for them to be accorded with legitimacy (Suchman, 1995). However, in the case of MNCs, gaining legitimacy and maintaining it is difficult due to the multiplicity of their legitimating environments, the fragmented nature of their institutional contexts (Saka-Helmhout et al., 2016) and the complexities embedded within the process of legitimation (Kostova and Zaheer, 1999; Marano and Kostova, 2016). If we examine this perspective from neoinstitutional theory, the organisation's ‘environment’ is conceptualised as an ‘organisational field’, comprising of constituents who will be determining whether to confer legitimacy upon the organisation or not. In the case of MNCs, these organisational fields, in a neo-institutional theory context do not exist (Kostova et al., 2008), and MNCs and their subsidiaries, encounter multiple institutional environments often in conflict with each other. Three levels of organisational fields can be identified in relation to MNCs; a meta-field (an organisational field which is created by MNCs across countries, and industries which operate according to particular rules, logics and norms and is subject to scrutiny and sanctions by legitimating actors in the case of deviation or violation), a meso-field (the organisational fields encountered by MNC subsidiaries, across different host-countries and which are characterised by their multiplicity, ambiguity, inconsistency and fragmented nature), and an intra-organisational field (the internal organisational field created by the multinational corporation, characterised by a set of regulations, cognitive structures and norms which make certain practices and structures more acceptable than others) (Kostova et al., 2008). Given that the focus of this paper is upon MNC subsidiaries operating in Sri Lanka (a developing country), institutional duality is examined within the meso-organisational field of the MNCs, in relation to the implementation of local CCR projects. In the meso-organisational field, subsidiaries need to gain legitimacy from their external host-country constituents and from their parent companies. Kostova and others (See Kostova et al., 2008; Kostova and Roth, 2002; Kostova and Zaheer, 1999), identify this ‘legitimacy conflict’ encountered by MNC subsidiaries as ‘institutional duality’. In pursuit of internal legitimacy, a subsidiary may be compelled to harmonize its organisational practices with their parent, upholding its values and norms and in effect adopting taken for granted practices transferred by their parent (Kostova et al., 2008). Nevertheless, such internal conformance may be detrimental to the subsidiary's pursuit of external legitimacy (Nell et al., 2015; Westney, 2005) as external host-country constituents, could concur that a subsidiary's practices, in this case CCR practices, may be either inappropriate or insufficient for the local context (Hughes et al., 2017), thereby, compromising its external legitimacy (Heugens and Lander, 2009). Di Maggio and Powell (1983) famously identified three institutional pressures arising from the host-country context for subsidiaries, consisting of mimetic, normative, and coercive isomorphic pressures. Coercive isomorphism would require subsidiaries to adopt CCR practices considered by a powerful institution such as the national government of the host-country as applicable, while normative isomorphism would require them to adopt CCR practices deemed to be the ‘norm’ or that which is considered to be appropriate by the local institutional actors such as trade associations, other professional and powerful stakeholder groups. Finally, mimetic isomorphism would compel subsidiaries to follow their counterparts within the same organisational field, by adopting similar CCR practices in order to maintain their competitive advantages in the sector. In effect, conformance to these external isomorphic pressures would provide the subsidiaries with the same bases for legitimacy within their host-country's institutional environment, as in their internal relational context; pragmatic legitimacy achieved by conforming to the law of the land, moral legitimacy by ‘doing the right thing’, and cognitive legitimacy by adopting a common frame of reference or definition of the situation (i.e. adopting taken for granted practices, policies and structures) (Suchman, 1995). Previous research has examined isomorphism in relation to different aspects of CSR at the firm-level, such as corporate governance (Selekler-goksen and Yildirim Oktem, 2009; Judge et al., 2008; Mason et al., 2007; Seal, 2006) and environmental practices (See for example, Hoffman, 1999; Bansal and Clelland, 2004; Jennings and Zandbergen, 1995). Researchers have also identified different national institutional conditions under which organisations become more socially responsible (Campbell, 2007; Beliveau et al., 1994) and argued that country specific institutional conditions influence firm-level CSR adoption (Matten and Moon, 2008). The influence of isomorphism on MNCs' CSR practices has however mainly been examined in extant literature from an external perspective (Yang and Rivers, 2009; Barin Cruz and Boehe, 2010; Campbell et al., 2012; Husted and Allen, 2006). For instance, Husted and Allen (2006), found that institutional pressures, rather than strategic pressures guided decision-making with respect to CSR practices of subsidiaries operating in Mexico. Others too have found evidence indicative of isomorphic pressures exerted by hostcountry institutions on MNC subsidiaries' CSR, such as increased local adaptation of their CSR (Barin Cruz and Boehe, 2010; Campbell et al., 2012; Yang and Rivers, 2009). However while these studies have advanced our understanding of the impact of host-county level isomorphism on subsidiaries’ adoption of holistic CSR practices, we still know very little about how subsidiaries reconcile these external institutional pressures in conditions of institutional duality (Nell et al., 2015; Pache and Santos, 2010), when MNC subsidiaries may have to make decisions related to the acquisition and maintenance of legitimacy, as conformance to one environment may compromise its achievement of legitimacy in another (Kostova and Zaheer, 1999; Hughes et al., 2017). Relational context of the multinational corporation A subsidiary as a sub-unit of a multinational corporation, is obligated to comply with its internal organisation field, and is thus expected to conform to the internal policies, practices and structures of the parent company, potentially influenced by its homecountry's institutional context (Kostova and Zaheer, 1999). However, decisions related to conformance (at the subsidiary level) can be influenced by the nature of the relational context between the subsidiary and its parent company. Kostova and Roth (2002) identifies 4

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three elements as comprising of the relational context; dependence, trust and identity. Dependence signifies the reliance of subsidiaries upon their parent's resources, and is associative of subordination and control. As the dependence of an organisation influences its compliance with field-level pressures (Rosenzweig and Singh, 1991), it can be argued that those subsidiaries which are highly dependent upon their parent company's resources are more likely to comply with their directives related to CCR. Trust, is depictive of the commitment of the parent towards its subsidiary, and the honesty and fairness accorded to the subsidiary (Kostova and Roth, 2002). Higher levels of trust increases the reliability of the source, in that a subsidiary is more likely to conform to internal organisational field pressures and adopt internal policies, practices and structures of the parent company, if it trusts the parent company. Identification, is about value congruence between the subsidiary and its parent. When a subsidiary identifies more closely (i.e. high level of identification), with its parent, not only will it increase its attachment to it but also strive to become an integral part of the MNC (Kostova and Roth, 2002). Thus, it is more likely to conform with the parent's policies, practices and structures, in order to become similar to its parent. MNCs have also been known to use two broad types of control mechanisms (Cray, 1984; Martinez and Jarillo, 1991, 1989) to regulate policies, practices and structures within its relational context (Ghoshal and Nohria, 1989; Roth et al., 1991; Kostova and Roth, 2002; Mendez, 2003). These consist of output control (Ouchi, 1977; Ouchi and Maguire, 1975), the control asserted by the parent on the use of resources by their subsidiaries by enacting performance reporting systems, established to gather relevant data to gauge their conformance with parent company policies and practices (Egelhoff, 1984) and behaviour control (Hamilton et al., 1996) or control by socialisation (Edstrom and Galbraith, 1977), whereby shared norms and values are used in a process of reinforcement of the parent company's culture within the subsidiary (Baliga and Jaeger, 1984). As such, subsidiaries of MNCs making decisions pertaining to the implementation of local CCR projects, will most likely be influenced by the control mechanisms established by their parent to manage its relational context. . Theoretical framework The preceding discussion elucidated as to how institutional duality could manifest within CCR practices of MNC subsidiaries, by examining the institutional conflict which occurs when pressures arising from a subsidiary's relational context and its external institutional context collide. Subsidiary responses to institutional duality have been argued to comprise of conformance and/or decoupling; De-coupling occurs when a subsidiary formally shows compliance of a parent company's directive, but engages in the policy or practice, in ways which are different but could be more effective in relation to the local institutional context (Kostova et al., 2008). Conformance, on the other hand, implies full compliance with the parent company directives. Whether a subsidiary conforms and/or de-couples its CCR practices, is thus argued to be the result of interactions between its relational context; its level of dependence, trust and identity with its parent company (Kostova and Roth, 2002), the level of institutional pressures arising from the host-country and the type of legitimacy (Suchman, 1995) most sought after by the subsidiary to ensure its long-term survival (See Fig. 1). Methods Research design In keeping with the aim to obtain insights into how subsidiaries resolve dual institutional pressures in their CCR, an exploratory qualitative method (Guba and Lincoln, 1985; Silverman, 2005) complemented by a multiple case-study research design (Eisenhardt, 1989; Yin, 2009) was adopted for this study. Case study design is useful for understanding and articulating organisational practices

Fig. 1. Theoretical framework. 5

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Private Ltd

PLC

PLC

PLC

Nutrition Company

Insurance Company

Telecom Company

Tobacco Company

Private Ltd

Consumer Company 1

Private Ltd

Private Ltd

Cement Company

Drinks Company

Private Ltd

Banking Company 2

Private Ltd

Private Ltd

Banking Company 1

Consumer Company 2

Type

Subsidiary

Europe

Asia-Pacific

Europe

Asia-Pacific

North America

Europe

Europe

Europe

Europe

Europe

Head office location

Manufacturing (Manufacture of Tobacco products)

Information and Communication (Telecommunications)

Financial and Insurance (Insurance, reinsurance and pension funding)

Manufacturing (Manufacture of food products)

Manufacturing (Manufacture of Beverages)

Manufacturing (Manufacture of food products)

Manufacturing (Manufacture of food products)

Manufacturing (Manufacture of other non-metallic mineral products)

Financial and Insurance (Financial service activities)

Financial and Insurance (Financial service activities)

Sector (ISIS Classification)

Table 1 Overview of subsidiaries, interviewees and level of state control in the industry. Source: Author

− − − − − − − − − − − − − − − − − − − − − − − − − − − − − Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee Interviewee

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

(Senior Public Affairs Manager) (Corporate Communications Manager) (Assistant Manager CSR - Education) (Assistance Manager CSR – Environment) (Head of Corporate Affairs) (Corporate Affairs Officer) (Vice-President Sustainable Development) (CSR Manager) (Coordinator Sustainable Development) (Environment Manager) (Corporate Relations Manager) (Consumer Activations Manager) (Brand Manager) (Vice-President Human Resources) (Corporate Communications Manager) (External Affairs and Activations Manager) (Country Human Resources Manager) (Public Affairs and Communications Manager) (Human Resources Director) (Manager Regulatory Affairs and Nutrition) (Assistant General Manager – Marketing) (Communications Manager) (Group Chief Corporate Affairs Manager) (Senior manager Public Policy and Corporate Responsibility) (Senior Executive CSR) (Director Corporate and Regulatory Affairs) (Corporate Social Responsibility Manager) (Corporate Communications Manager) (Corporate Social Investment Manager)

Details of Interviewees (2008–2009)

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which are dynamic and complex, thereby enabling emergent theorisations (Eisenhardt and Graebner, 2007). Data collection Using theoretical sampling (Yin, 2009), data was collected from ten selected cases (i.e. MNC subsidiaries) in one specific host country (i.e. Sri Lanka) to minimise host country effects (such as cultural, economic, social and political factors) which would have rendered comparison of cases difficult or less meaningful otherwise. The subsidiaries were thus selected on the basis of their ability to provide revelatory data to understand the phenomena being examined (Yin, 2009). In order to select the sample of subsidiaries, a ranking scheme titled the ‘Most Respected Entities in Sri Lanka’ (LMD, 2010), commissioned by Sri Lanka's leading business magazine, the Lanka Monthly Digest (LMD) was used. From an overall ranking of 100 companies, the first ten MNC subsidiaries with the highest rankings were selected for the purposes of this research. Within these selected subsidiaries, the main variation in the group was in terms of the industry. Table 1 lists all ten of the subsidiaries and provide details about their operations, global affiliations as well as the details of the interviewees from each of the subsidiaries. In total, 29 corporate managers, all Sri Lankan nationals working in the selected MNCs, were interviewed, during a period of 6 months in 2008–2009. All 29 interviewees were directly or indirectly involved in decision-making for CSR at the subsidiaries. The indepth interviews were conducted using an interview guide, which comprised of five key themes: the scope and extent of engagement in CSR and CCR; the company's motives for engaging in CCR; and the firm's engagement with host-country institutional actors and their reciprocal influence; the internal control of CCR with global and/or regional head offices and management control processes in place for CCR within the subsidiaries. Although the interview guide was followed as a means of maintaining a strong focus throughout the interviews, probing questions were also used to gather more detailed information from the interviewees. All the interviews were conducted faceto-face at the offices of the MNC subsidiaries. Each interview lasted between 30 and 60 min and all respondents were assured of anonymity. Data analysis During the data collection all 29 interviews were digitally recorded, transcribed and transferred to a database created by using NVivo10. The 29 interview transcripts were then coded using first-order (open coding) and second-order coding (axial coding) (Eisenhardt and Graebner, 2007) (See Fig. 2). The initial coding (or open coding) sought insights related to the main constructs identified in the theoretical framework, such as institutional conflicts and subsidiary responses in relation to the implementation of local CCR projects. This resulted in 15 first-order codes, which were then drawn upon to create the second-order codes. Through several iterations of axial coding (i.e. the activity of relating codes to each other) (Strauss and Corbin, 2008), the first-order codes were categorised into 04 s-order codes. The further analysis of the potential interactions between these 04 s-order codes revealed two aggregate approaches adopted by subsidiaries for managing CCR (Eisenhardt and Graebner, 2007). After the two aggregate approaches were identified, further analysis of two specific local CCR projects, depicting unique cases of institutional conflict, were undertaken. As shown in Fig. 3 below, a new subsidiary response, i.e. ‘sanctioned de-coupling’ was duly identified.

Fig. 2. Preliminary coding. 7

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Fig. 3. Additional coding.

Research context: Sri Lanka In order to provide sufficient background to the findings, it is important at this juncture to examine the country context for the study. Sri Lanka is a middle-income country located in South Asia with a population of 20.48 million people (WorldBank, 2015). With the end of the armed conflict in Sri Lanka, in May 2009, the Sri Lankan economy has been growing steadily, driven by an inflow of foreign direct investments and a far-ranging infrastructure development programme (IPS, 2014). The economic policies adopted by the previous Government of Sri Lanka (GOSL), guided by Mahinda Chintana, known as ‘Mahinda's thoughts' (GOSL, 2013), influenced most of the post-conflict economic agenda, although concerns were raised about its increasing ‘nationalistic’ focus with its intervention to suspend the privatization of loss-making state enterprises and the promotion of state control within key industries, through the re-nationalisation of selected private businesses (Aneez and Sirilal, 2011). However, the election of a coalition government in early 2015, have created an institutionally complex environment for businesses, with expected constitutional reforms followed by general elections resulting in political uncertainty in the country (Economist, 2015). CSR however, has always been in the corporate agendas of the private sector, due to the cultural norms related to corporate philanthropy (Mayer and Salih, 2006). The more westernised CSR practices, and its adoption have been steadily increasing within the corporate sector (ACCA, 2007) indicated by an increase in the voluntary reporting of CSR practices amongst public limited companies (Rajapakse, 2009) and MNC subsidiaries (Beddewela and Herzig, 2013). The institutional actors in the country, have also been increasing their efforts to promote CSR in the country; for example, several award schemes to recognise the pro-active engagement in CSR has been launched in recent years. Amongst these the Association of Chartered Certified Accountants (ACCA) of Sri Lanka's awards for ‘Sustainability Reporting’ (ACCA, 2007), the National Chamber of Commerce of Sri Lanka's ‘Business Excellence Awards’2 (NCCSL, 2015), and the Ceylon Chamber of Commerce's annual award scheme for the ‘Ten Best Corporate Citizens’3 (CCC, 2015) remain quite prominent. Furthermore, some of Sri Lanka's leading companies have also adopted global standards for CSR, such as the United Nations Global Compact (UNGC) principles and industry initiatives, presently being promoted by the Global Compact Network Ceylon (GCNC). Other aspects of CSR such as gender equality and worker's rights are also being influenced by the work of the Employers Federation of Ceylon (EFC, 2015), with industry-wide initiatives such as ‘Garments without guilt’, promoted by Sri Lanka Apparel (SLA), the industry body for Sri Lanka's apparel industry (SLA, 2013), also making a significant contribution towards changing corporate perceptions of CSR in the country. The GOSL and its various departments have also made a concerted effort to incorporate CSR through public-private partnership models (NCED, 2008) and more regulated efforts through policies related to environmental protection and worker's rights, amongst others. The recent establishment of CSR Sri Lanka (Guarantee) limited, by a group of leading private sector companies in Sri Lanka, aimed at creating sustainable value through CCR projects (thus aligning the long-term developmental goals of the country with company-based projects) (CSR Sri Lanka, 2015), however is indicative of the increasing awareness amongst the corporate sector that a more pro-active approach to CCR is required, specifically given the increasing political volatility in the country.

Findings The findings offer insights into the aggregate response approaches adopted by MNC subsidiaries to implement local CCR in Sri Lanka. While two such response approaches were identified across the ten subsidiaries, consisting of a ‘formal-conformance’ approach and a ‘negotiated-conformance’ approach, further analysis, indicated that in specific instances of high levels of institutional conflict, a more dynamic response; sanctioned de-coupling, was also adopted by some subsidiaries.

2 The National Chamber of Commerce of Sri Lanka's ‘Business Excellence Awards’ are designed to recognise local enterprises who have built sustainable market competitiveness (i.e. sustainable growth) together with CSR. 3 The Ceylon Chamber of Commerce's annual award scheme for the ‘Ten Best Corporate Citizens’ raises awareness about CSR and encourages the adoption of CSR practices among companies in Sri Lanka.

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Table 2 Characteristics of subsidiaries adopting a ‘formal-conformance’ approach to implementing local CCR. Source: Author Subsidiary

Consumer Company 1

Consumer Company 2

Drinks Company

Nutrition Company

Industry

Manufacturing (Manufacture of food products) Global Head Office Health Nutrition Hygiene Water Instrumental Marketing Division

Manufacturing (Manufacture of food products)

Manufacturing (Manufacture of Beverages)

Global Head Office Nutrition Water Rural Development Instrumental Marketing Division

Global Head Office Water Stewardship Active Health Living Community Recycling Education Instrumental Marketing Division

Manufacturing (Manufacture of food products) Global Head Office Nutrition Community development

Brand Managers Consumer Activations Unit

Brand Managers Brand Activations Team

Brand Managers Brand Activations Team

Marketing

Marketing

Marketing

− Brand Managers External affairs and activations unit Marketing

Regional Head Office Regional Head Office

Regional Head Office Regional Head Office

Regional Head Office Regional Head Office

Regional Head Office Regional Head Office

Overall CSR Values/Key focus areas

Primary CCR Motive Budget holder for CCR at subsidiary Individual/s with responsibility for CCR projects Operational plan within which CCR is planned under Authorisation for CCR budgets Periodic Reporting

• • • •

• • •

• • • •

• •

Instrumental Marketing Division

Aggregate response approaches for implementing local CCR by subsidiaries Formal-conformance Subsidiaries operating in the fast-moving consumer goods sector adopted ‘formal-conformance’ approach when implementing local CCR projects (See Table 2 for specific characteristics). The ‘formal-conformance’ approach consisted of these subsidiaries adopting their regional head-quarters’ (RHQ) CCR agendas. Local CCR projects were resourced by the RHQs and were implemented as part of the subsidiaries' brand plans, with the aim of creating brand value. As stated by the External Affairs and Activations Manager of Consumer Company 2 ‘When it comes to CCR [its] about the core values of the brands. There is no CCR without business benefit. So we do the CCR based on the brand value’. Most of our community development programmes are done by our brands, because our brands are uniquely placed to address the [different societal issues] as they operate in the areas of health, nutrition, hygiene and personal care […] So each of those have identified CCR activities (Corporate Relations Manager, Consumer Company 1) Our brands have been in this country for the last 20 years 30 years […] so our projects involving communities [is linked] to our brands […] we believe that community needs to invest in their future as well for there to be sustainability […] from a brand activations point of view CCR is brand related and business triggered, but with this underlying responsibility” (Vice-President, Human Resource, Consumer Company 2). These subsidiaries' local CCR projects consisted mainly of sponsorships, and cause-related marketing projects, with their budgets being allocated from the subsidiary's brand plans, so that each project could be associated or identified with a specific product brand marketed by them in Sri Lanka. This close association of product brands and CCR of the subsidiaries were supported by the policies and structures in place within their relational context. For instance, all planning was either carried out by their RHQs or plans created at the subsidiary had to be approved by the RHQs. This affected the CCR of the subsidiaries by limiting the scope and nature of the local CCR projects they could implement in Sri Lanka and by increasing the dependence of the subsidiaries upon their RHQ's budgets for their CCR plans. We have a plan [each year]. Now for 2010 I will be starting my plan in August of 2009 and those plans will get cleared by December from the region and from January we will start implementing them in Sri Lanka. We hardly do ad-hoc things [in Sri Lanka]. The main key [CSR] initiatives [are from] the regional brand plan from a brand building point of view”. (Country Marketing Manager, Drinks Company) [We have] annual regional forums [where] a formal regional brand team meeting happens. The regional brand building for operational countries [happens in the regional head office] and we don't get involved in the development process. There are brand developers sitting in that region who develop whatever the necessary innovations or activations or the conceptualization and they hand it over to us in Sri Lanka [for implementation] as social projects (Brand Manager, Consumer Company 1) If you take a regional brand [there are] regional campaigns which are implemented across the region. […] Once a year a formal regional brand team meeting happens [and that is where] the regional brand building for operational countries [take place] (Brand Manager, Consumer Company 2)

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Relatedly, there was strong guidance given by their RHQs, as to what the subsidiaries could and could not do as local CCR projects in Sri Lanka. As noted above, their need to gain budgetary approval for CCR from their RHQs compelled the subsidiaries to adhere to their parent company policies for CCR. However, the subsidiaries were allowed some flexibility in relation to aligning their local CCR projects with consumer needs of the country, although they still had to comply with the broader CCR theme/s of the parent company. I mean there are set guidelines that we can work within. [For example] ‘Activating consumer passion’ is one of them for our products. [Likewise] there are guidelines for each specific brand but within a market we have the room to play around with [the guideline]. Now the ‘Cricket Pathway’ sponsorship programme is based on the global lines of ‘Activating consumer passion’ as here in Sri Lanka [a consumer passion] is Cricket” (Country Marketing Manager, Drinks Company) Whatever we [have] implemented periodically we [have to] update to [our] regional offices. Brand activations come as a whole through our Marketing section […] But some [of these brand] activations, although there is a common parameter, we can change and localise those” (External Affairs and Activations Manager, Consumer Company 2) The local CCR projects of the subsidiaries were also closely monitored by the RHQs, through the use of output controls (such as brand plans, budgets and KPIs) further facilitating formal-conformance; for these subsidiaries the parent company mandated policies (CCR guidelines, key focus areas, modes of implementation), structures (regional head-office/marketing division), and practices (local CCR projects as brand activations), for CCR made formal-conformance easier. [We get targets] from the region. We need to give feedback and say post this brand activity this is how these indicators have moved […] Each brand [has KPIs] and every quarter [the region] will come and do a cross check to see whether the brand activity happened or not happened and if it was delayed what was the reason and all that's reported to the region (Brand Manager, Consumer Company 1) If you take a regional brand [there are] regional campaigns which are implemented across the region. […] Once a year a formal regional brand team meeting happens [and that is where] the regional brand building for operational countries [take place]. [Now] more and more we receive mixes developed for the extended Asian continent (Brand Manager, Consumer Company 2) It's with India that we are aligned with. We do have our own freedom of working and developing the brand […] but the regional office coordinates with the brand and says what can be conducted and so we have category heads and these category head will coordinate with you and come and sit with us on activations and then we take it from there [before implementing any of the brand activations] (Consumer Activations Manager, Consumer Company 1) From the perspective of legitimation, ‘formal-conformance’ response approach was driven by the need for the subsidiaries to gain pragmatic legitimacy from their RHQs when managing CCR, primarily for their own self-interests, as they were dependent upon them for their CCR budgets. By aligning the local CCR projects very stringently with the RHQ's CCR requirements, these subsidiaries were also doing what was considered to be ‘right’ by their parent companies (i.e. moral legitimacy) and adopting those practices, policies and structures which were taken-for-granted by their parent companies (i.e. cognitive legitimacy). Thus collectively, these four subsidiaries encountering high relational context pressures (Fig. 1), were compelled to fully conform to their regional head-quarters directives for implementing local CCR projects. They were further able to adopt this ‘formal-conformance’ response approach, due to the presence of low host-country institutional pressures, identified as low mimetic isomorphism, which could be attributed to the nature of the sector (manufacturing of food and beverage products), with its competitive consumer markets. We want to see what [our competitors] are doing obviously but that doesn't mean we copy them […] if there is a key area that we've missed we might want to re-appraise (Vice-President Human Resources, Consumer Company 2) We are in the chamber of commerce […] [I am also] chairing the interest group of the food sector [at the Chamber]. So we have to show [to our competitors] that we are the leaders when it comes to food and nutrition [in Sri Lanka]. So […] to that extent […] we have a lot to do in relation to CSR (Manager Regulatory Affairs and Nutrition, Nutrition Company) Our competitors [have] won CSR awards. So, [although] we want to appear low key, but we are want to also showcase our CSR projects to our competitors as I think we are very genuine in our efforts (Country Human Resources Manager, Drinks Company) Negotiated-conformance response approach The other six subsidiaries examined in this study, exhibited a ‘negotiated-conformance’ response approach in decision-making for local CCR projects implementation. This approach was indicative of a more supportive internal relational context, where decisions related to local CCR projects were mostly negotiated between the subsidiaries and their parent companies. The specific operational characteristics of this approach is shown in Table 3 below. These subsidiaries' CCR were focused upon developing and building their corporate ‘brand’ in Sri Lanka through long-term oriented local CCR projects. “[Our CSR initiatives] usually are long-term oriented. It will take a minimum of 10 years […] to create a significant impact [to the nation]. This will definitely enhance the equity of the corporate brand […] we consciously select initiatives where we can create a substantial impact in the market” (Assistant General Manager-Marketing, Insurance Company) 10

Global statement of business principles Key Global focus areas for CSR: Sustainable agriculture Civic life Empowerment Political Corporate Affairs and Regulatory Affairs Division (CORA) Director CORA, CSR Manager and Corporate Social Investment Manager CORA

Overall CSR Values/Key focus areas

11

Periodic Reporting

Individual/s with responsibility for CSR projects Operational plan within (CSR plan) Authorisation for CSR budgets

Primary CSR Motive Budget holder for CSR at subsidiary

Manufacturing (Manufacture of Tobacco products)

Sector (ISIS Classification)

Subsidiary

Regional - No periodic reporting related to CSR Global – Annual CSR questionnaire

Regional – Project KPIs Global – Annual CSR report

General Manager Partnerships & Marketing Executives Marketing

Instrumental Marketing and Planning Division

• •

Financial and Insurance (Insurance, reinsurance and pension funding) No globally defined CSR guidelines Key subsidiary-level CSR areas: Safety Education

Insurance Company

Regional Regional Steering Committee

• • •

Tobacco Company

Subsidiary

Global – No reporting related to CSR

Global – Annual CSR review and global audit of CSR

Regional - quarterly and annual reports on CSR Global - No reporting related to CSR

Regional Corporate Sustainability Unit

Subsidiary

Global Global sustainable development division

Political Public Affairs Division

• •

Senior Public Affairs Manager & Assistant CSR Managers Public Affairs

Political Group Public Policy and Corporate Responsibility Division

• •

Key Global focus areas for CSR: Education Environment

Financial and Insurance

− Information and Communication (Telecommunications) No globally defined CSR guidelines. Key subsidiary-level CSR areas: Business Integral CSR Outreach CSR

Banking Company 1

Telecom Company

Group Chief Corporate Affairs Manager, Senior Manager Public Policy and CSR & CSR Executives Corporate Affairs

Vice-President Sustainable Development, CSR Manager and CSR Coordinators Sustainable Development

Political Sustainable Development Division

• • •

Manufacturing (Manufacture of other non-metallic mineral products) Global CSR Policy Statement Key Global focus areas for CSR: Education Infrastructure Building Sustainable Community Development

Cement Company

Table 3 Characteristics of subsidiaries adopting a ‘negotiated-conformance’ approach to implementing local CCR. Source: Author

Regional & Global Corporate Affairs Division (Regional) Global Project Coordinators (Global) Regional - quarterly and annual reports on CSR

Corporate Affairs

Head of Corporate Affairs

Political Corporate Affairs Division

• •

Globally designed CCR projects Seeing is Believing Living with HIV

(Financial service activities)

Banking Company 2

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There are two corner stones to our sustainability strategy, sustainable environmental performance [and] corporate social responsibility. These two are critical in creating value […] we can have the best products, we can be giving the best value but it is of no use because our corporate value will not be appreciated (Vice-President Sustainable Development, Cement Company) The above requirement necessitated the subsidiaries to negotiate with their parent companies about what local CCR projects to implement and how to implement those projects in Sri Lanka, departing quite markedly from the ‘formal-conformance’ response approach. Nevertheless, the relational context, across these six subsidiaries were still strong, in that, guidance was provided by the parent companies as to ‘what’ the local CCR projects' focus areas should be in Sri Lanka. Thus, conformance to parent company's global CCR agenda was achieved not because it was mandated by them, but because the subsidiaries identified with and trusted their parent company's CCR agenda, indicative of high levels of moral and cognitive legitimacy. “It's more of a shaping kind of thing [they] won't tell us don't do this rather they would say ‘why don't you concentrate more on this project’ [they know what we do here] because we report to them quarterly and yearly. [So] they [act as] more of a figurehead [by] giving directional support [however once they give us the direction] they would monitor and be with us throughout [implementation]” (Assistant Manager CSR, Banking Company 1) “We have our own freedom to do CSR activities [in Sri Lanka]. But the basic guidelines like basic tools […] is developed by [our head office] […] Sustainable development or CSR is a formal division of the organisation” (Vice-President of Sustainable Development, Cement Company) “Actually our head office gives only broad guidelines [There are three] which are Sustainable Agriculture, Civic Life, and Empowerment. Globally in 180 subsidiaries this is what the company does. So whatever we do [in Sri Lanka] we have to fall in line” (CSR Manager, Tobacco Company) The subsidiaries thus engaged in a process of negotiation with their parent companies to obtain their validation and resource support for their local CCR projects in Sri Lanka. Thus ‘negotiated–conformance’ response, acknowledged the pressures arising from the MNCs' relational context, but allowed the subsidiary to decide upon ‘how’ to respond to these pressures. The head offices across these group of subsidiaries tended to be more liberal in their control of local CCR (see Table 4). There was also less input into the design and implementation of local CCR projects by the head offices, although the outcomes of these local CCR projects (as noted below) were closely monitored through the use of output controls such as KPIs, CSR checklists etc. “At the beginning of the year [we are given] targets [by our group office]. So we (i.e. Corporate Affairs) have to cover it as we are accountable for these group campaigns” (Corporate Affairs Officer, Banking Company 2) “It is a very complicated thing, by the 15th of December every year we have to [fill and send the CSR Questionnaire] It takes a long time to fill it [because you have to enter] figures [and then attach] documents.”. (CSR Manager, Cement Company) “Every year we have an operating plan procedure that is for the whole Bank […] so what we do is during the planning process we re-look at our [CSR] strategy, we review our strategy and then we design our plan for the following year. [We do this] by reviewing the present projects and looking at what new projects that we should go into are and then having a detailed planning process for each project and how much we will allocate for each project”(Senior Public Affairs Manager, Banking Company 1) The subsidiary managers across the six subsidiaries, identified different institutional pressures arising from the Sri Lankan institutional environment. For instance, they identified non-coercive pressures arising from the government of Sri Lanka, as stated by the Assistant Manager CSR in the Banking Company 1, ‘Government involvement in CSR in Sri Lanka is so far not significant […] most of the corporates initiatives are taken on their own. They have identified [the project] themselves [as having] impact and obviously there is a business case for it as well so therefore rather than the Government pushing it as a regulation or as a practice it is mostly Corporates who have volunteered to start the initiatives’. However, the subsidiary managers emphasised the importance of working with the government, through direct engagement, adopting strategies such as a direct sponsorship of government-led local CCR projects and entering into public-private partnerships when implementing their own local CCR projects. “Well the Government is very happy […] and they are supporting our projects, like the Solid Waste Management project and our efforts to promote Sustainable Construction in the country, where we work with the Environment Ministry […] they are encouraging companies to come in take care of rural communities […] they also recognize organizations that support communities and the country.” (Vice-President Sustainable Development, Cement Company). The managers also identified pressures arising from third sector organisations such as the Ceylon Chamber of Commerce (CCC), the National Chamber of Commerce (NCCSL), and global institutions such as the United Nations Development Programme (UNDP) to adopt or adapt local CCR projects in line with country-level requirements for socio-economic development/sustainable development. “We do have peer pressure, not necessarily from companies in the same industry to engage in CSR. For example, 15 years back we didn't have these competitions, encouragement from institutions like the Ceylon Chamber of Commerce to engage in CSR. I would say it is positive development [ …]” (Assistant General Manager Marketing, Insurance Company)

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13

To reach out to rural villagers living below the poverty line and guide them to achieve selfsustenance To uplift the standard of living for whole communities by creating women entrepreneurs in rural villages

Sustainable Agricultural Development Programme [SADP]

Women's Entrepreneurship Programme [WEP]

Focus of the CCR Project

Cases

Table 4 Sanctioned de-coupling for CCR. Source: Author

Consumer Company 1

Tobacco Company

Subsidiary

Conformance (to Regional HQ)

Negotiated Conformance (to Global HQ)

Type of Aggregate Subsidiary Response Approach

To expand the distribution channels to rural areas in Sri Lanka

To align CCR projects with key priority areas for the HQ.

Internal Relational Context Pressures

To support the government's national priorities for socioeconomic development

To contribute towards poverty alleviation as a national priority

Local Institutional Pressures

Pragmatic vs Cognitive Legitimacy

Pragmatic Vs Moral Legitimacy

Institutional Conflict/Legitimacy Conflict

Sanctioned DeCoupling

Sanctioned DeCoupling

Subsidiary Response

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In our sector there isn't any pressure at all [to engage in CSR] because if you look at the sector there isn't even a smattering of CSR [like we do] in other companies so we wouldn't be able to feel any competition to us from the sector. I personally think that competition [for CSR] is excellent […] because it would put pressure on companies to self-regulate […] and also to make it a more strategic function of the company. (Senior Manager CSR & Public Policy, Telecom Company) Thus, the adoption of a ‘negotiated-conformance’ response by these subsidiaries, allowed them to manage the high-levels of internal relational context pressures, and seek internal legitimacy from their parent companies. It also enabled them, to localise some of their local CCR projects through negotiations with their parent companies, in order to manage the low-levels of external institutional pressures, mostly comprising of normative isomorphic pressures. Sanctioned de-coupling While the identification of the two aggregate response approaches adopted across the ten subsidiaries in this study for decisionmaking in relation to local CCR, confirmed that parent companies still asserted strong conformance over their CCR, the question of whether subsidiaries could be conforming at an aggregate decision-making level for CCR but may be de-coupling in relation to the implementation of specific local CCR projects, remained unanswered. The analysis of two cases of institutional conflict (See Table 4 below), provided further insights in this regard. Case 1. Sustainable Agricultural Development project. The Sustainable Agricultural project (SADP), a pioneering local CCR project implemented by the Tobacco Company, aims to enable self-sustenance amongst rural villagers living below the poverty line in lagging regions of Sri Lanka. The subsidiary, has been involved with rural villages in Sri Lanka for over fifty years since the early 1950s, and getting involved in sustainable agricultural development, is also a core competency for the subsidiary. SADP was designed and initiated at the subsidiary, rather than its parent company and as mentioned by their CSR Manager, the objective at its initiation was to gain moral legitimacy in Sri Lanka, specifically from its most salient institutional actor, the government of Sri Lanka “We wanted to be known as the company who is actually doing some work for poverty alleviation in Sri Lanka and wanted to start a big project […] and we wanted to show people who really matter, like the Finance Minister, Agricultural Minister and all those top government officials, that we are doing a project which is on the government's priority list” (CSR Manager, Tobacco Company) However, the subsidiary then needed to obtain the approval of their parent company, specifically due to resource commitments required for SADP. In this situation of institutional conflict (moral legitimacy vs pragmatic legitimacy), the subsidiary managers (as mentioned below), used different tactics to diffuse the conflict “Our parent company do not ask questions unless they see something out of line […] and our CSR spend in Sri Lanka was out of line as it’s much more than the other [subsidiaries] in the region. They look at it from the business point of view, because shareholders will want to know what is so special about Sri Lanka […] so I did a lot of presentations and somehow I managed to convince our CEO [who] actually visited the area [and] he was so impressed […] and then things came to the correct track and then they wanted me to do a presentation to the Board of Directors [which] was accepted [and] the project was initially approved for a 5000 farmers […] now [our parent company] has accepted [SADP] as one of the key CSR projects for Sri Lanka” (Corporate Social Investment Manager, Tobacco Company) “So we had to make a case to get money from the head-office […] so we showed how SADP [can be] a reputation building arm for us. While the obvious side of it is that we are doing good to society, then there is also our corporate reputation that would be enhanced through this project. We also made a strong case about the engagement part of it […] it would give us avenues for engagement with the government […] (Corporate Communications Manager, Tobacco Company) The subsidiary was thus able to gain the support from its parent company to de-couple its CCR by pursuing a locally developed CCR project. As noted below, the parent company's sanctioning of this de-coupling behaviour, was also due to the operational risks identified in Sri Lanka, specifically as the Tobacco Company operated as a monopoly in Sri Lanka, which is extensively taxed as well as highly regulated, 4 with the Sri Lankan government, introducing graphic pictorial anti-smoking messages, under new labelling and packaging regulations for tobacco products in Sri Lanka (Kirinde, 2012). “[W]hen we decide to invest in long-term CSR projects, like SADP, we prioritise to see how these projects will help in achieving high government impact and high social impact […] Maintaining our reputation in Sri Lanka is important and we have to proactively manage our external environment as we are in a controversial sector […] If you look at government stakeholders [like] the Government Treasury they need our money [in taxes] but if you take the government regulators they are a different lot […] if you take the Ministry of Health they think we create a lot of problems by you know making people sick […] So in a scenario like that what happens is that we need to identify our risks in the country and proactively engage and manage it before it becomes a severe risk issue […] so doing long-term projects with the government helps us to minimize some of these identified external 4 In 2006 the government, enacted a Tobacco Control Act in 2006 for comprehensive tobacco control and established the National Alcohol and Tobacco Authority (NATA) to implement the Act (NATA, 2010), and the price of tobacco products are decided in conjunction with the Ministry of Finance in Sri Lanka, making it 100% price controlled.

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risks […] (CSR Manager, Tobacco Company) The findings show that when compliance with parent company's demands for alignment with their global CCR would have harmed the subsidiary's ability to develop close political ties with the Sri Lankan government, the subsidiary decided to de-couple its CCR. However, the subsidiary had to gain approval from its parent by presenting the associated benefits of the project, such as its ability to sustain positive government-subsidiary relations, thereby resulting in a ‘sanctioned de-coupling’ response to manage institutional duality. Case 2. Women Entrepreneurship Project. The Women Entrepreneurship Project (WEP), was initiated by Consumer Company 1 in 2003. The objective of WEP was to provide rural Sri Lankan women an opportunity to create micro-enterprises as a sustainable source of income, while at the same time improving the distribution capacity of the company across rural areas of the country. The institutional conflict (see Table 4), occurred in this CCR project, due to internal pressures arising from the parent company to expand the subsidiary's distribution network to rural areas, but at the local level, pressures arising from the government to contribute towards the socio-economic development priorities of the country (i.e. pragmatic vs cognitive legitimacy). The Channel Manager of Consumer Company 1, who oversees the project emphasises these pragmatic legitimacy pressures as below: “We started WEP in 2003 as a pilot project. It is connected with our markets and our requirements in Sri Lanka. In Sri Lanka, there are 14000 villages and we needed to have penetration of markets with certain brands in these areas. Most of our products were […] [also in] large pack sizes [and] were not affordable to rural [consumers] so what we identified is that we need to make them smaller, we need to make them affordable and also maintain the quality so that's what we did [and then] we needed to make the products accessible for rural [consumers] to buy our products, and that's when we started the WEP […] So there is a social responsibility aspect to it for sure, but for the company it is more about reaching our markets more effectively and expanding our distribution” (Channel Manager, Consumer Company 1). The Corporate Relations Manager, of Consumer Company 1, however, highlights the need to work with the Sri Lankan government, to contribute towards alleviating rural poverty in the country: “The WEP is a scheme which gives poor families a grant, that is also a government grant, so by working with the government we've identified the really poor people, out of them we identified one lady from a village, apparently we have some ten thousand villages in Sri Lanka from each village we identify one woman to be a champion as an “Entrepreneur” and what we do is we give them a training on how to run an enterprise how to develop a business, after giving them all that what they do is they have to buy products from [us] and then sell it so we give them a discount and they go around their villages and sell the product and they get some income and improve their livelihood […]”(Corporate Relations Manager, Consumer Company 1) In order to obtain cognitive legitimacy from the government for the project, the subsidiary decided to enter into a public-private partnership by collaborating with the Samurdhi Authority of Sri Lanka, the government body responsible for the eradication of rural poverty in the country. “We merged with Samurdhi Authority of Sri Lanka, because they have the network and they [can] give Microfinance facilities to the women […] and we did four pilot projects with them in four different areas and then we selected one of the pilots as the role model for WEP […] So, the Samurdhi Authority of Sri Lanka recruit the women entrepreneurs for us [based on] the selection criteria we have given to them […] I also knew […] the Director General of Samurdhi Authority and I was able to obtain his support […] It's basically easier to collaborate with government and get all the information and our main problem was we didn't have the capital but Samurdhi Authority of Sri Lanka is having their own bank, so they can give the micro credit facilities […] so WEP has also become a key project of theirs […]” (Channel Manager, Consumer Company 1) The partnership operated with the company providing the women with the training they needed to act as direct distributors (i.e. product knowledge and enterprise management skills) and the Samurdhi Authority providing the micro-financing. At the time of data collection, more than 3,500 entrepreneurs had been created through this project. The sanctioned de-coupling response, discussed above, offer insights into a strategic organisational response which MNC subsidiaries adopt to resolve institutional duality. Even when the policies, structures and practices for CCR, supported by integrative mechanisms set-up by their MNCs to establish conformity within their relational context were present, the subsidiaries (in relation to the two specific cases above), were able to still de-couple their CCR, but only with the approval of their parent companies. Discussion and conclusion At the very outset of the paper a question was raised about a fundamental dilemma encountered by MNC subsidiaries; how can a subsidiary implement local CCR projects while maintaining internal legitimacy with their parent company? It was argued that in order to answer this question, we need to understand the nature of institutional conflict as shown through the presence of institutional duality in relation to the implementation of local CCR projects by subsidiaries. The findings of this study clearly indicate that at an aggregate level all ten subsidiaries had to conform with and implement CCR projects transferred to them from either the global and/or regional head-quarters of their parent companies. While some subsidiaries could negotiate their conformance, to allow for some localisation of CCR projects, others had to strictly adhere to the regional headquarters’ directives when implementing local CCR projects. In both cases, the subsidiaries encountered high (internal) relational 15

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context pressures, and low (external) institutional isomorphism (Kostova and Roth, 2002), mostly confined to mimetic and normative isomorphic pressures. As such, the first answer to the question above is that when subsidiaries encounter low institutional isomorphism, but higher relational context pressures (See Fig. 1), they would conform to global and/or regional CCR directives, thereby gaining legitimacy from their parent companies. These findings also contribute to our understanding of institutional duality and the role of legitimacy in the decision-making undertaken in the within-organisation domain (or the relational context) of MNCs (Kostova et al., 2008; Kostova and Roth, 2002; Kostova and Zaheer, 1999). While several authors have stressed the challenges in gaining legitimacy for subsidiaries encountering conflicting institutional pressures (Brenner and Ambos, 2013), and have argued that subsidiaries tend to adopt alternative organisational responses (Durand and Jacqueminet, 2015; Nell et al., 2015), examination of subsidiary responses to their internal relational context (comprising of internal pressures arising from the MNCs' meta and intra organisational fields) is quite rare in extant research (Pache and Santos, 2010). The findings of this study affirm the importance of a subsidiary's relational context in influencing the nature and scope of local CCR practices carried out in host countries and confirms that subsidiaries pursuing pragmatic legitimacy, will adopt their parent company's policies, practices and structures related to CCR. This finding also differs from previous studies which have emphasised the primacy of the external host-country institutional context in influencing the local CCR practices of MNC subsidiaries (See Barin Cruz and Boehe, 2010; Campbell et al., 2012; Husted and Allen, 2006; Yang and Rivers, 2009). It also affirms that in the case of MNC subsidiaries, one cannot consider them as unitary actors developing strategic organisational responses to external host-country pressures, and an acknowledgment has to be made about the role of intra-organisational dynamics within the MNCs' organisational field itself (Greenwood et al., 2014). Nevertheless, a question still remained as to whether there could be an alternative to such a definitive either-or-logic for managing institutional duality (Oliver, 1991), and whether subsidiaries (such as the case study companies in this study), can conform and de-couple their local CCR at the same time. By further analysing specific cases of institutional duality, the findings of the study provides a second answer to its central question. When subsidiaries encountered high levels of institutional conflict (i.e. high institutional isomorphism and high relational context pressures), they deliberately de-couple their local CCR (by developing new innovative local CCR projects different to those transferred to them by their parent companies), with the full approval of their parent companies. Thus, while institutional duality can result in a de-coupling of local CCR, it is one which is sanctioned by the parent company. Herein, the study affirms arguments which have been made by previous scholars that subsidiaries do not always conform to external and internal institutional actor pressures (Durand and Jacqueminet, 2015), and that, where de-coupling does occur, it can be done intentionally by subsidiary managers (Crilly et al., 2012), indicative of the role of agency-structure relations within the MNC in resolving institutional duality (Hamprecht and Schwarzkopf, 2014; Poutsma et al., 2006; Pache and Santos, 2010). Furthermore, the conformance responses, and sanctioned de-coupling response, identified in this study, extend extant typologies of strategic responses to institutional conflict (Oliver, 1991; Pache and Santos, 2010; Crilly et al., 2012; Holm et al., 2017). By clearly distinguishing between conformance at the global-local level (i.e. formal-conformance) with conformance at the regional-local level (i.e. negotiated-conformance), the study identifies different types of conformance which could occur within the MNC at the globalregional-local levels (Kostova et al., 2008). The sanctioned de-coupling response, presents a novel response category previously unspecified in literature. Previously typologies have characterised de-coupling as ceremonial adoption (Kostova et al., 2008); where organisations pretend adherence to institutionalised norms and rules, whilst engaging in behaviours which are contradictory, evasive de-coupling (Crilly et al., 2012); where firms consistently conceal their lack of implementation of institutionalised practices, and emergent de-coupling (Crilly et al., 2012); where firms refrain from the implementation of organisational practices due to the inability of managers to reach a consensus. However, the sanctioned de-coupling response differs from the above in that the subsidiaries’ non-adoption of institutionalised practices (in this case global and/or regional CCR practices), were not concealed from their parent companies, but in fact occurred with their full knowledge and approval. As such, while presenting an alternative to an either-or-logic for managing institutional duality (Oliver, 1991), sanctioned de-coupling also demonstrates the potential for the collective construction of CCR practices whereby the subsidiary conforms to internal and external institutional pressures simultaneously (Pache and Santos, 2010; Kostova et al., 2008). The study findings also raises fundamental questions about the ability of MNCs' CCR practices to contribute to the sustainable socio-economic development of countries such as Sri Lanka. The type of local CCR projects implemented by those subsidiaries adopting a conformance response to local CCR, were characterised by low-levels of corporate-community interactions during their implementation (Idemudia, 2011) and were short-term in nature (Goddard, 2005), leading to ineffective contributions towards sustainable socio-economic development (Muthuri et al., 2009). In contrast, the findings also indicate that the implementation of innovative local CCR projects, which treats local communities as agents of their own development (Muthuri et al., 2012) is possible, even within the presence of limited isomorphism (Kostova et al., 2008), when the subsidiary managers pro-actively sought their parent company's permission to develop and implement new local CCR projects, as was in the cases of the sanctioned de-coupling response. Thus, what subsidiaries do in relation to CCR seems to be very much dependent upon what their parent company allows them to do in the host country (Hamprecht and Schwarzkopf, 2014; Poutsma et al., 2006; Pache and Santos, 2010). Finally, several important considerations related to the management of local CCR projects by MNC subsidiaries operating in developing countries can also be raised. One possible implication is that MNCs need to be willing to implement innovative solutions for local CCR, specifically in instances where it could result in the negation or mitigation of political and operational risks (Mondejar and Zhao, 2013; Zhao, 2012; Beddewela and Fairbrass, 2016) in the host-country. Relatedly, as argued by recent scholars (See Marano and Kostova, 2016 and Saka-Helmhout et al., 2016), this would also allow MNCs to utilise resources and capabilities from multiple local contexts to create competitive local CCR projects contributing to globally sustainable competitive advantages. Perhaps, MNCs should change their mind-set about institutional contexts as constraining influences (Saka-Helmhout and Geppert, 2011), but 16

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as enabling MNCs' competences (Regnér and Edman, 2014). The study also makes a strong argument for subsidiary managers to be more proactive in integrating their local CCR within their local political strategies, specifically when it could result in establishing strong political ties with governmental constituents in the host-countries (Nell et al., 2015; Shirodkar et al., 2018). For example, empirical studies examining the tobacco industry have provided evidence of MNCs’ providing philanthropic donations to engage in strategic relationship-building with external stakeholders such as labour unions and minority groups (McDaniel and Malone, 2009; Yang and Malone, 2008) and to neutralise opposition to their products (Fooks et al., 2013). Clearly further research is required to understand whether MNCs adopt different aggregate responses for managing local CCR across their subsidiaries. In this context, obtaining insights from the MNC head-quarters to complement those from their subsidiaries, would overcome a key limitation acknowledged in the present study. Furthermore, subsidiary responses to institutional conflict was dynamic as was evident from the specific cases explored in this study, and it could very well be that this dynamism needs to be examined over time, thereby acknowledging that a subsidiary response such as that of sanctioned decoupling could change over time (Holm et al., 2017), thus necessitating longitudinal explorations. In conclusion, the study shows that amidst a rapidly changing global business and societal landscape, MNCs strive to achieve a semblance of uniformity by enabling conformity in their internal configuration of policies, practices and structures for CCR, resulting in more globalised CCR rather than localised CCR as conventionally assumed. Appendix A. 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Antecedents of CSR practices in MNCs' subsidiaries: a stakeholder and institutional perspective. J. Bus. Ethics 86, 155–169. Yin, R.K., 2009. Case Study Research: Design and Methods (Applied Social Research Methods Series). Sage, London. Zappala, G., 2004. Corporate citizenship and human resource management: a new tool or a missed opportunity? Asia Pac. J. Hum. Resour. 42 (2), 185. Zhao, M., 2012. CSR-based political legitimacy strategy: managing the state by doing good in China and Russia. J. Bus. Ethics 111 (4), 439–460. Zhu, Q., Zhang, Q., 2015. Evaluating practices and drivers of corporate social responsibility: the Chinese context. J. Clean. Prod. 100, 315–324. Zimmerman, M.A., Zeitz, G.J., 2002. Beyond survival: achieving new venture growth by building legitimacy. Academy of Management. Acad. Manag. Rev. 27 (3), 414–431. Dr Eshani Beddewela is a Reader in Corporate Social Responsibility (CSR) at the Huddersfield Business School, University of Huddersfield. She received her PhD in CSR and International Business from Bradford University School of Management on implementing CSR within multinational enterprises in Sri Lanka. Eshani is a past Commonwealth Scholar and a Fellow of the Higher Education Academy. She has published in journals such as the Journal of Business Ethics and Accounting Forum, and contributed to edited collections.

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