The Effect of National Business Systems on Social and Environmental Disclosure: A Comparison between Brazil and Canada.
| Autor | Soares, Romulo Alves |
1 Introduction
Institutional theory establishes that there are three sets of factors that shape organizational legitimacy: (1) characteristics of the institutional environment; (2) characteristics and actions of the organization; and (3) the process of legitimation by which the environment constructs its perceptions about the organization (Hybels, 1995). The process of legitimation involves continuous interaction with the environment (Baum & Oliver, 1991). An essential part of the legitimation process is the disclosure of organizational practices to stakeholders. Gonzalez-Benito and Gonzalez-Benito (2006) argue that disclosure is important to improve the economic and social context in which the firm operates, and it builds communication channels with government, employees, clients, investors, and other stakeholders.
Companies are influenced by the institutional environment when structuring economic, environmental, and social policies and practices (Matten & Moon, 2008). This idea is expanded by Whitley (2003), arguing that the national business system is related to the coherence of the institutional environment, and it helps to define the firm's strategic elements. The national business system involves five dimensions: "political," "financial," "education," "labor," and "culture," which are interconnected. Differences between national business systems reflect the degree of cooperation between consumers and suppliers and among competitors; the way in which the firm and controls are structured; the variety of resources and activities integrated through administrative hierarchies; the size of organizational integration; and the long-term interdependence between employees and employers (Brookes, Brewster, & Wood, 2005).
Ioannou and Serafeim (2012) argue that the influence of the national business system on corporate social responsibility (CSR) practices is based on regulatory aspects, which end up homogenizing the way companies operate. Based on this perspective Jamali and Karam (2018) observe that there is a gap between national business systems in developed and developing countries, which contribute to the legitimacy of CSR practices. In developing countries, the philanthropic aspect is more important than legal and ethical dimensions, since there are institutional voids such as a lack of norms and regulations needed for full market operations (Schrammel, 2013).
Understanding how countries differ in their institutional dimensions (i.e. identifying the institutional distance between two countries) probably provides insight into the appropriate behavior of companies (Xu & Shenkar, 2000). Kostova (1996) defined institutional distance as the difference or similarity between the regulatory, cognitive, and normative institutions of two countries. This distance affects the ability of the company to understand and correctly interpret local institutional requirements, as well as influencing its ability to identify the adjustment needed. According to Kogut (1991), organizational structures, policies, and practices tend to reflect the institutional environment in which they were developed.
Berry, Guillen, and Zhou (2010) argue that two countries may be distant from one another, not only for geographic reasons but also because of economic, social, cultural, and political issues. Youg and Rivers (2009) show that when there is a great divergence between the institutional environment of the country a company has its headquarters in, and the country the same company has a subsidiary in, the subsidiary rarely adopts the parent company's CSR practices, tending to adopt the local market's practices. Firms, therefore, tend to adopt the CSR practices observed in the local market.
When comparing firms that operate in institutionally distant environments, the organizational strategies observed can be explained based on differences in the political, financial, cultural, education, and labor systems, rather than by the firms' characteristics. This scenario can be exemplified in Brazil and Canada. From an economic point of view, the two countries are practically the same. In 2015, Brazil moved to 9th position and Canada to 10th among the world's largest economies. When considering human development, however, Canada is better ranked than Brazil. Between 2007 and 2014, Canada's Human Development Index (HDI) increased from 0.895 to 0.913, while Brazil's increased from 0.721 to 0.755 (UNDP, 2017).
Brazil and Canada have distinct characteristics in their institutional structures. These differences significantly affect various aspects of the organizations in the countries (Delmas, 2002), especially the social and environmental practices they adopt (Matten & Moon, 2008). For Thorne, Mahoney, Gregory, and Convery (2015), Canadian companies engage in social and environmental practices and strategic alliances in response to stakeholder pressures regarding CSR. In Brazil, as pointed out by Abreu, Cunha, and Barlow (2015), there is an institutional environment in which society, companies, and government do not act in a systematic way regarding social responsibility.
This study expands the debate on disclosure of CSR practices, examining the following research question: To what extent do the characteristics of the national business systems, in two institutionally distant countries, influence the disclosure of social and environmental practices? The relevance of this research lies in the need to understand the main factors that affect disclosure, especially the elements that are beyond the managers' direct control (Ioannou & Serafeim, 2012).
Institutional diversity is regarded as the "distance" between the national business systems of Canada and Brazil since different institutional arrangements have distinct strengths and weaknesses for different types of economic activity. Countries differ in their economic, financial, and administrative practices, and such differences stem from demographic, geographic, cultural, and political factors and are capable of affecting managerial decision-making (Berry, Guillen, & Zhou, 2010).
This study provides two contributions. First, it shows how isomorphic forces, operating in the institutional field, affect the adoption of socially responsible behavior, and it explores the effect of heterogeneity among countries on local isomorphism. Second, by basing the research on Brazil and Canada, the study contributes to the limited body of knowledge about the influence of national business systems on disclosure of CSR practices in institutionally distant countries (Tschopp, Wells, & Barney, 2012; Orlitzk, Louche, Gond, & Chapple, 2017).
The next section presents the hypotheses regarding the influence of the political, financial, education, and labor systems on the disclosure of CSR practices. The following section describes the methodology used to perform the econometric modeling using panel data based on the period from 2007 to 2015. Based on the data collected in the reports of firms listed on the BM&FBovespa Brazilian stock exchange and the Toronto Stock Exchange (Canada), the sample contained 264 observations, of 127 of firms in Brazil and 137 firms in Canada. Finally, the article presents and discusses the results obtained, which show different isomorphic pressures influencing the disclosure of CSR practices.
2 Influence of the national business system on the disclosure of social and environmental practices
Global companies face market and institutional pressures to be socially responsible and disclose practices (Golob & Bartlett, 2007). Abreu et al. (2015) reinforce the need to pay more attention to the relationship between the organizational field and institutional dynamics, which has an impact on different CSR approaches among developed and developing countries. In developing countries in general, national business systems have evolved in environments with high corruption levels, weak regulatory oversight and financial institutions, governance complications, and difficulties regarding citizens' voice and action. In this context, CSR is usually characterized as less formalized, more submerged, and more philanthropic (Visser, 2008).
Matten and Moon (2008) suggest a framework demonstrating how isomorphic institutional forces and specific national institutional structures act upon the firm and influence its explicit and implicit CSR practices. They explain that while the explicit and implicit forms of CSR result in similar practices, "explicit CSR" results from deliberate, voluntary, and often strategic corporate decisions. On the other hand, "implicit CSR" is a reflection of the obligations of the institutional environment of the company. therefore, "explicit" social and environmental practices are spreading globally due to coercive, mimetic, and normative isomorphism.
Tang and Li (2009) argue that disclosure meets society's demand for accountability, reporting the social and environmental impact of the organization's economic activities. Disclosure exposes the firm's return for the economic gains obtained when using natural, material, or human resources in a given locality (Conceicao et al., 2011).
2.1 The influence of the political system on the disclosure of social and environmental practices
Regarding the influence of the political system, it is important to observe that the government is evaluated by principles, governance processes, and implementation of public policies (Bovaird & Loffler, 2003). Whitley (1999) showed that the essential feature of any political system is the extent to which the state dominates the economy and shares risks so that businesses are dependent on state policies and actions. Ntim and Soobaroyen (2013) note that governments, as social institutions, have the coercive power of the state (for instance, through laws and monitoring) to regulate the behavior of companies and society.
Bovaird and Loffler (2003) emphasize that governments cannot be evaluated exclusively for the...
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