[ESG] Managing cross-border social vs. corporate responsibilities
In the history of business development, multinational enterprises (MNEs) played a pivotal role in integrating - or segregating - business cultures and social values. Today, MNEs face many dilemmas between the social and the corporate due to the conflicting demands of stakeholders across several countries.
Stakeholders such as shareholders, governments, employees, consumers and societies have frequently been the target of legislative action plans that aim to protect states' social and economic welfare. How do responsible corporate and of social management of MNEs navigate cross-border operations?
RESPONSIBLE CROSS-BORDER CORPORATE MANAGEMENT
MNEs operating in Hong Kong have recently grown in their economic and social profile, but they have also come under increased scrutiny from the government, especially the Inland Revenue Department (IRD). This is due to their tax practices that are perceived as harmful and their alleged lack of concern for local economic well-being.
Many Organisation for Economic Co-operation (OECD) countries have already adopted framework to ensure that MNEs uphold their fiscal responsibilities and maintain transparency to manage their cross-border strategies responsibly with the aim of improving their reputation in national and international settings. This ensures that local information is incorporated into MNE's world strategies with disclosure to provide a mechanism for affiliated entities to share cross-border information and local market intelligence.
MANAGING CROSS-BORDER SOCIAL RESPONSIBILITIES
A responsible investment strategy considers environmental, social and governance (ESG) factors in the selection and management of portfolios. ESG governance provides important insights into how MNEs respond to local social issues when conducting global business initiatives.
Good ESG reporting helps MNEs manage their operational risks more effectively, improve their corporate reputation, provide better access to capital, and enhance their talent retention.
Human rights, environmental protection and workplace benefits top the social justice rankings and have direct implications for corporate management. And even in the most individualistic societies, business development can only be enhanced when social and cultural conflicts are minimised.
WHAT LIES AHEAD IN CROSS-BORDER TRANSACTIONS
As corporate and social responsibilities have substantially altered the economics of the firm, MNEs face additional when establishing the "arm's length" transactions. Actions undertaken in corporate or social responsibilities may not have immediate financial statement impact, but non-pecuniary impact still exert pressure in firm's operating structure.
OECD Guidelines clearly states that "business strategies would take into account many aspects of an enterprise, such as innovation and new product development, degree of diversification, risk aversion, assessment of political changes, input of existing and planned labour laws, duration of arrangements, and other factors bearing upon the daily conduct of business."
As such, MNEs need to examine a broad spectrum of economic, social or political issues globally and locally when reviewing and establishing their cross-border transactions.
Source: Extract from BDO's PERCU article, by Dr. Enoch Hsu, GROWDynamics
Tags: ESG / Integrated management / Sustainability / Leadership / Business Ethics