Journal of Business Ethics (2008) 82:793–805
Springer 2007

DOI 10.1007/s10551-007-9593-z

Multinational Corporations and Local

Communities: A Critical Analysis
of Conflict Lisa Calvano

ABSTRACT. As conflict between multinational corpo- fishing and diving community of Manado (Perlez,
rations and local communities escalates, scholars, execu- 2006).
tives, activists, and community leaders are calling for At the same time that Newmont was on trial in
companies to become more accountable for the impact of Indonesia, the government of Ecuador declared a
their activities on external stakeholders. In order for state of emergency in northeastern Napo province to
business to do so, managers must first understand the
quash violent protests by indigenous communities
causes of conflict with local communities, and commu-
nities must understand what courses of action are available
aimed at disrupting Occidental Petroleum’s oil
to challenge activities they deem harmful to their inter- production in the rainforest. The protests resulted in
ests. In this article, I present a framework for examining the closure of two pipelines and the local airport as
the factors that contribute to multinational and commu- well as hundreds of injuries (New York Times,
nity conflict including stakeholder power inequality, 2006a). Several months later, the government of
stakeholder perception gaps and cultural context. More- Ecuador revoked Occidental’s contract (New York
over, I describe some of the ways that communities can Times, 2006b). As a result of the successful fight
increase their leverage in conflict situations. against Occidental, more than 20,000 local protes-
tors in nearby Orellana province erected a blockade
KEY WORDS: community relations, corporate social around the production facilities of French oil
responsibility, globalization, international ethics, stake- company Perenco in July 2006. The protestors
holder conflict
demanded that Perenco leave the region and reim-
burse the government for environmental damage in
the region (Upside Down World, 2006).
In November 2005, police officers in the Brim Stories such as these appear in the business press
North District of Ghana’s Eastern Region shot and on a regular basis, reflecting the growing tension
killed a resident and injured three others during a between multinational corporations (MNCs) and the
protest against Newmont Mining Company’s local communities in which they operate. During
proposed method to compensate local farmers for the post-colonial and cold war eras of the 1970’s and
economic losses. According to a police version of early 1980’s, national governments often opposed
the incident, ‘‘the Police Commander…received a MNC entry. However, the economic globalization
call from an official of the Newmont Mining of the 1990’s ushered in an era of increased coop-
Company… [saying] that the youth of the town had eration between MNCs and national governments
erected blockades on all roads in the town and were (Dunning, 1998; Luo, 2001; Wells, 1998). Even
preventing vehicles and workers of the company formerly hostile governments opened their doors to
from passing’’ (Ghana News Agency, 2005). Three MNCs because, either trade and loan agreements
months after the incident in Ghana, Newmont compelled them to do so or they believed that free-
officials were forced to defend the company in an market capitalism would improve everyone’s standard
Indonesian court where they were charged with of living (Greider, 1997). Thus, with the broad-
illegally dumping mining waste into the sea near the based acceptance of neoliberal economic policies
794 Lisa Calvano

among the national governments and elites of operations (Altman, 1998; Dunham et al., 2006).
formerly communist and developing countries, the These geographic areas are also known as fenceline
domain of opposition to MNC activities shifted communities, a term popularized by NGOs, especially
from host country to local community (Harvey, Friends of the Earth (2006). Having selected this
2006). definition, I also recognize that it has limitations.
Given that local communities are the new First, local communities do not always speak with
battlegrounds on which MNC activities are con- one voice in their opposition to or support of MNC
tested and that the trend has enormous financial and activities because different groups of people within a
reputational consequences for MNCs, this article geographic area may have competing interests and
provides a framework for understanding the factors these interests may also be represented by other
that contribute to MNC and community conflict. stakeholder groups (Greenwood, 2001). For exam-
Moreover, it describes ways that communities can ple, when Wal-Mart was building a store near the
increase their leverage in conflict situations. In the Teotihuacán archeological park in Mexico, local
first section, I define the concepts that are central to activists and small business owners opposed the
my analysis – community and conflict. In the second construction whereas local job seekers and con-
section, I analyze the three components that con- sumers were in favor of it (McKinley, 2004).
tribute to conflict – stakeholder power inequality, Second, post-modern social theory recognizes that
stakeholder perception gaps, and cultural context. In individuals have multiple identities that impact their
the third section, I explore several strategies that social interactions (Gubrium and Holstein, 2003).
communities can use to challenge MNC activities Membership in a particular geographic community
that they consider harmful to their interests. is just one of those identities. Thus, within the
parameters of a geographically delineated commu-
nity, various groups may have competing interests
Conceptualizing community and conflict and individuals may embrace diverse identities.
When the interests of MNCs and communities
Although a uniform definition of community does collide in a particular geographic area, conflict
not exist in the social sciences, scholars across disci- ensues. Rather than being a discrete event, conflict is
plines agree that it includes dimensions of geography, a dynamic process that unfolds over time (Pondy,
social interaction, and identity (Hillery, 1955; Lee and 1967). The nature of MNC and community conflict
Newby, 1983). Which dimensions are considered varies according to several factors, the first of which
most important and what form they take depends on is the role of the MNC (Pinkey, 2005). An MNC
the discipline and subject of study. In an attempt to may be involved in a direct conflict with a com-
distinguish the various types of communities with munity or may play an indirect role in exacerbating
which business interacts, Dunham et al. (2006) pro- existing civil unrest among local factions. Existing
pose a typology of four categories. Communities of place case studies of MNC and community conflict focus
are the geographic locations surrounding corporate on the latter. For example, Hook and Ganguly
facilities or operations. Communities of interest are (2000) study three cases of increased ethnic conflict
advocacy groups that share a common purpose driven in countries where MNCs undertake resource
by a particular agenda such as preventing oil drilling in extraction activities – Shell in the Niger Delta,
the rainforest. Virtual advocacy groups also share a Bougainville Cooper in Papua New Guinea, and
common purpose but it is usually broader than a Freeport McMoran in Indonesia. Richani (2005)
particular interest and entails mobilizing people to examines how the presence of MNCs, especially
participate in a short-term effort such as anti-global- those in the extraction industries, contributed to
ization protests at trade talks. Finally, communities of intensified land conflicts in Colombia. Ikelegbe
practice are professional work groups whose members (2005) studies a similar situation in Nigeria and
share a common identity and mutual obligations. concludes that MNCs fueled the struggle for
I will focus on communities of place because I am resources among local factions and between poor
concerned with conflict that occurs in particular communities and elite groups. Finally, Webersik
geographic locations in close proximity to a firm’s (2005) examines how the withdrawal of MNCs
 Multinational Corporations and Local Communities 795

involved in banana farming triggered conflict have included these two factors in my analysis. I
between local small-scale farmers and plantation have also added culture because it is a critical factor
owners in Somalia. I will focus on direct conflict in the study of conflict within companies operating
between MNCs and local communities rather than across borders (Joshi et al., 2002; Mense-Petermann,
on situations where MNCs exacerbate existing strife. 2006; Morgan, 2001). Thus, as depicted in Figure 1,
In addition to the role of the MNC, intensity and my framework for examining MNC and community
timing are also important factors defining the nature conflict includes three components – stakeholder
of conflict (Pinkey, 2005). The first dimension – power inequality, stakeholder perception gaps, and
intensity – ranges from high to low depending on cultural context. Each of these components is
the level of violence that occurs. Examples of low- composed of several dimensions, which I will ex-
intensity conflict include communities expressing plore in the following sections.
their opposition to MNC activities through peaceful
means such as boycotts and lawsuits. This can be
contrasted with the high-intensity conflict that Stakeholder power inequality
involves injury, property destruction, and death.
The second dimension – timing – refers to the point When communities confront MNCs, they are usu-
at which conflict between MNCs and communities ally at a disadvantage because of their relative lack of
occurs. Communities can contest MNC activities at power. Yet, traditional models for examining busi-
any point before or after they begin. For example, ness’ relationship with its stakeholders usually ignore
local farmers may try to halt the construction of a or minimize power dynamics. In this section,
dam while the plan is still only on paper, lie in front I examine how corporate social responsibility (CSR)
of the bulldozers during construction or try to sab- and stakeholder prioritization models privilege the
otage the finished product. In this article, I will stronger party and how third parties can influence
consider conflicts of all intensities that erupt at all the power dynamic in conflict situations.
points in time as long as the primary parties involved
are MNCs and fenceline communities. The dark side of CSR
The best-known model for studying CSR in an
international context is Carroll’s (2004) Global
Three components of MNC and community Pyramid of Social Responsibility. Implicit in the
conflict application of this model to the study of MNC and
community conflict is the notion that conflict arises
The limited research on business and community because business ignores or minimizes its non-
conflict focuses on community responses to the financial obligations. While CSR proclaims that
negative outcomes of business activities rather than business has a broader set of obligations to society,
on the dynamics of the business and community the dominant view of most of the researches is that
relationship itself (Hook and Gangly, 2000; Ikelegbe,
2005; Richani, 2005; Webersik, 2005). As conflict
between MNCs and communities is not a well-
studied phenomena, it is necessary to borrow con- Stakeholder
cepts from the literature on group conflict within power inequality

organizations. Although there are two dominant

explanations for conflict in this context – the cog- Stakeholder MNC and
community
nitive processes of individuals and the structural perception gaps
conflict
characteristics of the groups (Richter et al., 2005) – I
will focus on the latter because this article examines Cultural
context
organizational-level phenomenon. Since the two
most frequently studied structural components of
conflicts are power (Pondy, 1967) and perception/ Figure 1. Components of MNC and community con-
communication (Jehn, 1995, 1997; Pruitt, 1981), I flict.
796 Lisa Calvano

CSR’s primary function is to enhance firm profit- Finally, although most societies recognize that
ability. The number of published studies linking firm business has an obligation to society, CSR as a re-
social and economic performance is an evidence for search agenda and corporate practice is largely a
this orientation. For example, Margolis and Walsh Western, Anglo-Saxon idea underpinned by Wes-
(2003) found that over the past two decades tern notions of economic rationality (Banerjee,
researchers conducted 127 studies examining the 2003; Blowfield and Frynas, 2005; Munshi and
relationship between firm social and financial per- Kurian, 2005). In fact, most of the academic litera-
formance and, in all but 22 of these studies, social ture on CSR, with its focus on the relationship
performance was used as the independent variable to between firm financial and social performance, has
predict financial performance. Similarly in practice, been generated in the United States (Carroll, 1999).
while CSR is beginning to address international In addition, the issues usually associated with CSR
development issues such as poverty relief and sus- may not be the highest priorities in particular regions
tainability, its underlying interest is primarily econ- of the world (Schmidheiny, 2006). Thus, local
omic (Blowfield, 2005). Thus, when an MNC’s communities may view MNCs as unresponsive to
interests collide with those of the local community, their particular needs even though firms have
the firm’s financial interests will take precedence ambitious CSR programs.
(Palacios, 2004).
Another problem with CSR is that MNCs can The neglect of community stakeholders
use it to manipulate their relationships with com- Although business is taking more of an interest in
munities. First, companies can use corporate phi- finding common ground with external stakeholders
lanthropy to buy-off or silence communities that (Harrison and St. John, 1996), communities still fare
oppose their activities. This is the ‘‘trinkets and poorly relative to other stakeholders even though
beads’’ phenomenon described in a film of the same their opposition can be costly and time consuming
name that examines the relationship between Maxus for firms. The application of traditional theories of
Oil Company and the indigenous Huaorani com- stakeholder relevance in business research neglects or
munity in Ecuador (Walker, 1996). In this case and minimizes the interests of local communities
others, MNCs donate money and/or materials goods (Banerjee, 2000). One theory for understanding
to communities in exchange for their support. how firms balance the competing interests of internal
Although the sums involved are miniscule for the and external groups is the stakeholder salience model
MNCs, they are significant for poor communities. (Mitchell et al., 1997). According to this model, the
This practice may pit individuals within communi- influence that particular stakeholder groups have on
ties against one another, allowing the MNCs to corporate decision-making depends on the accu-
divide and conquer the opposition. In addition to mulation of three characteristics – power, legiti-
using corporate philanthropy to co-opt opposition, macy, and urgency. Thus, stakeholders that possess
MNCs may also use community relations and issues all three variables at the same time and in the greatest
management strategies to spin contentious situations quantities merit the most managerial attention.
in their favor in order to bolster their reputation. An When applying this model to MNC and community
improved reputation was found to benefit a firm by conflict, these criteria are particularly troublesome
preserving its ability to operate within communities for communities because historically they have
(Altman, 1998). In addition, companies may use possessed little or no power relative to other stake-
CSR as a form of greenwashing to divert attention holders. In addition, managers have not perceived
from or cover up misdeeds (Munshi and Kurian, their claims as legitimate even though conflicts can
2005). For example, Nike responded to charges of create a sense of urgency especially when the battle is
using sweatshop labor by getting the endorsement of played out in the media. As a result, the ability of
environmental groups for a proposal to eliminate the communities to influence MNC decision-making in
use of PVC products (Beder, 2002). Similarly, their favor has been slight to non-existent.
Wal-Mart donated $35 million to conservation A competing explanation for how managers pri-
efforts at the same time that it was being criticized oritize stakeholder claims is the organizational life
for its labor practices (Strom, 2005). cycle approach (Jawahar and McLaughlin, 2001).
 Multinational Corporations and Local Communities 797

According to this model, the stakeholders that In addition to NGOs, government is another
receive the most managerial attention meet three external stakeholder that mediates MNC and com-
criteria. First, they have the potential to satisfy munity conflict, especially by determining the level
critical organizational needs. Second, they satisfy the of state protection for community interests. Whether
right needs at the right time according to the stage in government plays a positive or negative role depends
an organization’s life cycle, and finally, their claims on a number of factors including whether it repre-
are more important relative to those of other sents the interests of poor communities or elites, the
stakeholders. When applying this model to MNC cultural context of the region and whether there is
and community relationships, communities again fall direct financial benefit to officials (Garvey and
short because, regardless of the stage of organiza- Newell, 2005). One example of the positive role that
tional growth, their claims are of less priority than government played in a conflict occurred in Kerala
those of other stakeholders. Thus, in relation to state in India where the Panchayat Raj (village
MNC and community conflict, community needs council) opposed the renewal of Coca-Cola’s license
only get addressed if they threaten or enhance a to run a bottling plant in Plachimada in the wake of
firm’s survival, necessitate an emergency response or protests about groundwater contamination (Shiv-
directly impact the bottom line. arajan, 2006). The dispute between Coca-Cola and
the Panchayat ended up before the Kerala High
The mediating role of other stakeholders Court in 2004, which ruled in the community’s
Another issue that arises when applying the stake- favor. While the state of Kerala has unique attributes
holder perspective to an analysis of MNC and such as a communist government that predisposes it
community conflict is that other external stake- to side with the local community, all too often the
holders may play a mediating role (Banerjee, 2001), quest for foreign investment at the national level
thus altering the power dynamic. NGOs often be- trumps local concerns. In addition, an absence of
come involved in conflicts because MNCs identify regulation often makes MNCs seek out poor
them as a more legitimate stakeholder than the local countries in which to invest (Newell, 2005). Finally,
community because of their institutional power. At local communities do not have enough influence
the same time, communities seek NGO assistance over policymaking to make a difference in negoti-
because having access to international activist net- ations with foreign enterprise, although this is
works means their voices are more likely to be heard changing in certain regions such as Latin American
(Newell, 2005). The precise role that NGOs play with the rise of indigenous and peasant political
varies along a continuum from documenting and movements (Powers, 2006).
publicizing cases, engaging in advocacy and lobby-
ing, leading boycotts and other protest activities and Stakeholder perception gap
initiating lawsuits (Winston, 2002). In recent years,
NGOs have placed greater emphasis on cross-sector Compounding the problem of power asymmetry
alliances with MNCs, which provide organizational between MNCs and communities is the perception
legitimacy to businesses and improve accountability that each side has about the other. MNCs may view
and transparency (Rondinelli and London, 2003). As communities as ungrateful for the benefits of eco-
a result of greater cooperation between NGOs and nomic development and communities may view
business and the increased NGO presence on the MNCs are trying to impose their will. This per-
world stage, local communities have become skep- ception gap is influenced by each side’s ideology
tical of NGO intentions. For example, communities with regard to development, the values that under-
may question whether an NGO represents their pin these ideologies and the communication strate-
interests and priorities or those of the NGO’s own gies used to portray each side’s point of view in
management and funders (Blowfield and Frynas, conflict situations.
2005). Thus, although NGOs frequently represent
the interests or act on behalf of local communities, Development ideologies
they are not proxies for them in the analysis of The perception gap between MNCs and local
stakeholder power. communities begins with a set of ideologies that
798 Lisa Calvano

justify the roles that both poor individuals and leaders and management scholars often mistake it as
developing nations play in the global economy. the only important factor. As a result, local com-
MNCs have traditionally viewed poor people as munities perceive MNCs as insensitive to their non-
sources of cheap labor (Blowfield, 2005). The belief economic needs such as preservation of traditional
that the lives of individuals are commodities that can culture and protection of the natural environment.
be seized and controlled for the purpose of accu- At the same time, MNCs perceive local communi-
mulating wealth within the capitalist system is an ties as ungrateful for the benefits of globalization.
example of the biopower perspective (Foucault, Another criticism of the BOP perspective is that
1978). The premise of biopower is that since the expanding markets for Western products is a form of
only resource poor people have to offer is their neocolonialism (Schirato and Webb, 2003). As early
selves, corporations are able to exercise power over as the 1960’s and 1970’s, some commentators rec-
life itself (Hardt and Negri, 2000). The perception ognized that the foreign direct investment of multi-
that MNCs get rich on the backs of poor people has national business represented a new form of
created growing worldwide resentment, fueling imperialism (Baran and Sweezy, 1966; Shaker, 1970).
conflict between companies and communities According to the neocolonialist perspective, MNCs
(Child, 2002). Although this trend is particularly are the prime carriers of capitalism to developing
apparent in the extraction industries and in free trade countries and, as such, the new agents of imperialism
zones, community discontent with the corporate (Banerjee, 2003; Harrison, 1988; Jones, 1993;
dominance over their lives has also impacted Kapoor, 2002; Oneal and Oneal, 1988). Whereas
industries and brands that symbolize MNC power traditional colonialism encompassed the spread of a
and reach (Klein, 2001). political empire, neocolonialism represents the spread
In recent years, a new view of poor communities of a consumer empire that subsumes and homoge-
has emerged as an alternative to biopower. Known nizes local culture and institutions (Gopal et al.,
as bottom-of-the-pyramid or base-of-the-pyramid 2003). BOP market expansion facilitates the spread of
(BOP) market development, this perspective argues this empire through the promulgation of Western
that the four billion people in the world who earn products to even the most remote corners of the
less than $2000 per year represent a huge untapped world. While the BOP perspective holds the promise
pool of consumers (Prahalad, 2004; Prahalad and of increasing the consumer power of poor people, it
Hammond, 2002). Perhaps in their new role as also runs the risk of inflaming conflicts between local
consumers, community residents in poor countries communities and MNCs by fueling a backlash against
may gain an opportunity to exchange their relatively the threat to their identity and independence (Child,
powerless external stakeholder role for a more salient 2002).
internal one, thus exerting more influence over
MNC decisions. Clash of values
Although the BOP perspective is an improvement The ideologies that MNCs and local communities
over the biopower view, it is not without its flaws. hold about development are underpinned by their
First and foremost, the BOP argument makes respective values. The so-called modern values of
assumptions about the benefits that MNCs will bring economic rationality and faith in technology are
to poor people by turning them into consumers. For considered by both multinational business and the
example, Prahalad and Hammond claim that ‘‘when governments and elites of developing countries to be
MNCs provide basic goods and services that reduce essential to development (Harrison, 1988; Inglehart,
the costs to the poor and help improve their standard 1995; Levy, 1952). On the other hand, so-called post-
of living – while generating an acceptable return on modern values such as concern quality of life, envi-
investment – the results benefit everyone’’ (2002: ronmental protection, and culture are minimized if
51). The essence of this argument is that economic they conflict with economic growth (Inglehart,
growth is always synonymous with improved quality 2002).
of life. While economic development is one of the As modern values are intertwined with specific
most important factors that contribute to improving economic outcomes, MNC executives may perceive
the standard of living in poor communities, business that the creation of low-wage jobs and the introduction
 Multinational Corporations and Local Communities 799

of low-cost products are of greater importance to local for public relations purposes. The three types that are
communities than protecting the natural environment most relevant to MNC and community conflict are
or preserving their traditional culture. At the same time, framing of issues, responsibility, and news. The
local communities may view the imposition of values framing of issues relates to the way parties involved
associated with capitalism as a threat to their way of life. in a dispute vie to have their preferred interpretation
Neither side can understand the other’s point of view predominate, which is the primary goal of issues
because each sees the greatest good through the lens of management (Gonzalez-Herrero and Pratt, 1996).
their respective values. Furthermore, a strong feeling of The framing of responsibility relates to accepting or
injustice may exist within local communities because denying responsibility for events, which occurs
their relative lack of power means that companies, and when an MNC must embark on crisis management
perhaps even national governments, are likely to view after a conflict has escalated (Coombs, 1995). Finally,
their concerns as less important than those of other the framing of news relates to how stories of conflict
stakeholders. Often, it is this sense of injustice that are portrayed in the media. The framing of news is
motivates communities to take action against MNCs. particularly relevant to the power dimension in
MNC and community conflict because more than
Communication strategies half of all content found in the news media is
When anger toward MNCs builds to the point of supplied by public relations practitioners (Cutlip,
action, communities usually have limited resources 1989). Thus, the side with the most resources – i.e.,
to devote to a fight. Thus, they frequently utilize the MNC – is more likely to have access to public
resistance strategies such as protests, blockades, and relations practitioners, who ensure that the corporate
sabotage to draw attention to their plight while interpretation of events dominate the news.
attempting to thwart corporate activities. Known as Communities also use the framing of issues,
weapons of the weak, these tactics are aimed at responsibility, and news to shape public perception
causing maximum disruption and visibility with of a conflict. In fact, the weapons of the weak tactics
minimum cost (Scott, 1985). Whereas communities of protests, blockades, and sabotage are aimed at
primarily employ weapons of the weak reactively, attracting media attention in order to increase public
MNCs use expensive and sophisticated issues man- awareness and support. Beyond the public relations
agement strategies proactively to gather intelligence, function, however, communities also use framing to
engineer public opinion, and freeze out the oppo- identify specific problems to be addressed, offer
sition in conflict situations (Baskin et al., 1997; remedies to these problems and motivate action on
Bernays, 1952; Richter, 2001). In order to address their behalf (Snow and Benford, 1988). Within the
the power imbalance between weapons of the weak social movement literature, grievances are turned
and issues management, communities are increas- into action through the process of frame alignment
ingly making connections with international activist (Snow et al., 1986). Thus, although both MNCs and
groups and networks. When communities collabo- communities use framing to shape perception in
rate with activist groups, they gain access to a wider conflict situations, framing on the part of commu-
arsenal of tactics as well as technology that enables nities serves the additional function of spurring
them to broadcast their concerns to a wider audi- collective action.
ence. For example, the Zapatista rebellion in Mexico
is frequently referred to as the first ‘‘post-modern’’
revolution because the rebels used the Internet to Cultural context
garner international sympathy and support for their
cause (Collier, 2005). In an increasingly globalized business world, the
How communication strategies shape perception analysis of MNC and community conflict would be
is the domain of framing, the process wherein social incomplete without a discussion of culture. As cul-
actors use certain devices, known as frames, to put ture is a complex topic, I will limit my treatment of
information in context by including, emphasizing or the subject to demonstrating how cultural context
excluding certain content (Entman, 1993). Hallahan may impact the organizational legitimacy of MNCs
(1999) provides a model of seven types of framing in the eyes of local communities and how the lack of
800 Lisa Calvano

consideration of subcultures prevents MNCs from mediate the relationship between culture and stake-
successfully engaging local communities. holder conflict, the link has not yet been established in
Economic explanations for MNC behavior tend theory or research (Greenwood, 2001).
to dominate international business research as evi- While cultural context may impact the organiza-
denced by the popularity of theories such as trans- tional legitimacy of MNCs in the eyes of local com-
action cost economics and agency theory munities, the lack of consideration of subcultures may
(Boddewyn and Brewer; 1994; Jones, 1993; Shen- simultaneously prevent MNCs from successfully
kar, 2004). In response to the criticism of having an engaging local communities. The dominant con-
overly economic orientation, international business ceptualizations of national culture in management
scholars are beginning to recognize the importance research – Hofstede (1980, 1991) and Trompenaars
of cultural sensitivity, i.e., being responsive to (1996) – assume that there is one homogenous na-
national culture while at the same time globalizing tional culture and ignore the presences of subcultures
their operations (Kotabe, 2002; Prahalad and within local communities. In a study of the relation-
Lieberthal, 1998). A term invented by marketers to ship between culture and ethical standards, Bourne
describe this orientation with regard to product and Snead (1999) call these local subcultures the
development is glocalism (Shirato and Webb, 2003). ‘‘microculture’’ in which a firm operates. They argue
The importance of cultural adaptation is also that while studies show a relationship between firm
acknowledged in the study of global CSR and ethics ethical standards and culture, the conceptualization of
(Donaldson, 1996; Muller, 2006; Palacios, 2004; culture is always at the national or macrocultural level
Windsor; 2004). If cultural sensitivity is the new and ignores significant variations in culture at the local
mantra of international management, a key question or community level. In their study, they confirm ‘‘the
with regard to MNC and community conflict is, can existence of a unique, community-based microcul-
it help reduce conflict with external stakeholders by ture that moderates the cultures of respective orga-
increasing organizational legitimacy? nizations’’ (1999: 286). Thus, the same phenomenon
Organizational legitimacy is defined as the accep- would occur in relationships between MNCs and
tance of an organization by its environment (Dowling local communities, contributing to conflict between
and Pfeffer, 1975) and falls within the domain of them. While firms have become more sensitive to
institutional theory (Meyer and Rowan, 1977; cultural difference at the macrolevel, they are still
Powell and DiMaggio, 1991). According to institu- unaware of the differences at the mico- or commu-
tional theory, whether an organization is considered nity-level. For example, indigenous communities
legitimate or not depends on the institutional char- may have different values, perspectives, and concerns
acteristics of the organization and its environment as than the dominant national culture and are often
well as the process by which the environment con- marginalized relative to other social groups (Banerjee,
structs its view of the organization. Within the con- 2001). This latter point is particularly relevant to the
text of multinational enterprises, the question of discussion of MNC and community conflict because
legitimacy is complicated by the fact that both the many conflicts, especially in the extraction industries,
organization itself and the environment in which it occur between companies and indigenous commu-
operates are more complex (Kostova and Zaheer, nities.
1999). Given the importance that national culture
plays in shaping the environment in which MNCs
operate, it is surprising that cultural adaptation does Increasing community power
not play a more central role in discussions of the
legitimacy of multinational enterprises. In fact, some The phenomenon of MNC and community conflict
scholars – while recognizing that cultural adaptation is complex and requires both a deepening of
contributes to legitimacy – caution that national understanding and a reform of structures in order to
culture is difficult to separate from other factors such reduce tension and achieve mutually beneficial
as the political and regulatory climates of host coun- solutions (Child, 2002). Given the advantage that
tries (Kostova and Zaheer, 1999). Thus, while it companies have over communities in conflict situ-
makes intuitive sense to suggest that legitimacy may ations by virtue of their power, their dominant
 Multinational Corporations and Local Communities 801

ideology and their ability to mobilize resources to (ATCA) to prosecute MNCs for human rights
communicate their perspective, managers should abuses and environmental disasters. Originally passed
take the initiative to consider the needs and per- by the United States Congress in 1789, the ATCA
spectives of poor, weak, and isolated stakeholders grants foreign nationals the right to sue in United
(Hart and Sharma, 2004). While the framework States courts for torts in violation of the ‘‘law of
presented in the first part of this article is an attempt nations or a treaty of the United States.’’ In 1980, a
to shed light on factors that contribute to conflict, United States judge ruled that foreign parties could
understanding and goodwill on behalf of the more sue each other under the ATCA for human rights
powerful party is not enough. Communities must violations if they did not expect to receive a fair trial
bolster their power to hold MNCs accountable as in the home country. In an unprecedented move,
part of structural reform. In this section, I describe attorneys from the International Labor Rights Fund
several strategies that communities can use to shift used the ATCA to sue Unocal on behalf of villagers
the balance of power that are beginning to receive in Burma who accused the company of human rights
attention in the management literature. abuses during construction of a natural gas pipeline.
The least confrontational approaches are those that Although this lawsuit did not succeed, it opened the
create mechanisms for stakeholder engagement such door for more than 20 others (Kurlantzick, 2004;
as community-driven regulation (CDR) and multi- Maatman, 2001). Many of these cases are still
stakeholder learning dialogues (MSD). Because these working their way through the legal systems of
strategies involve other groups such as governments various countries. If any one of them succeeds, all
and NGOs, they also enable communities to utilize MNCs will face new constraints when doing busi-
the resources of more powerful stakeholders. In the ness in jurisdictions with weak labor, environmental,
case of CDR, community members employ peaceful and human rights standards.
and constructive mass mobilization efforts to initiate
dialogue between themselves and the state with the
twin goals of fostering debate about regulation of Conclusion
industry and developing bargaining strategies (Ne-
well, 2005). The mass mobilizations that initiate CDR I have argued that increasing conflict between
are not protests for their own sake, but rather tools for MNCs and local communities is a result of the
enlisting government support in negotiations with confluence of three interrelated factors including
MNCs. While CDR assumes that mass mobilizations stakeholder power inequality, stakeholder percep-
will put pressure on government, which in turn will tion gaps and cultural context. In addition, in
put pressure on business, MSD focuses on building developing my framework for understanding MNC
relationships among various stakeholder groups so that and conflict, I uncovered several trends that may
they can learn from one another and find common bode well for a de-escalation of tension in the future.
ground (Payne and Calton, 2003, 2004). Stakeholders The first is the increasing connection between CSR
involved in MSD include business and community, as and the international development goals of poverty
well as government and NGOs. Although CDR and relief and sustainability. The second is a shift to the
MSD are useful methods for stakeholder engagement, BOP perspective, which views local communities in
the processes have not been codified into an actual set poor countries as potential consumers with tre-
of practices, and the pace of change is usually driven by mendous buying power rather than sources of cheap
business (Hamman and Acutt, 2003; Payne and labor power. The final trend is the recognition
Colton, 2004). Finally, some commentators are among corporate executives that being responsive to
skeptical about their potential for long-term benefit local needs makes good business sense. Although
because they provide small incremental improve- these developments offer a glimmer of hope that
ments and ‘‘ignore very real power imbalances among MNCs will become more attuned to the concerns of
participants’’ (Collins et al., 2005: 9). local communities, they do not address the power
Another method that is more confrontational but asymmetry that stands in the way of mutually ben-
has the potential to address the power differential in eficial outcomes. As long as inequalities persist
the long term is the use of the Alien Tort Claims Act communities will always be at a disadvantage in their
802 Lisa Calvano

relationships with MNCs and they will be forced to Blowfield, M. and J. G. Frynas: 2005, ‘Setting New
rely on the goodwill of companies. At the same Agendas: Critical Perspectives on Corporate Social
time, companies will have to devote time and Responsibility in the Developing World’, International
money to defusing conflicts that have the potential Affairs 81(3), 499–513.
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Business Political Behavior: New Theoretical Direc-
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increasing awareness of community perspectives on Determinants of Organizational Ethical Climate: A
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Carroll, A. B.: 2004, ‘Managing Ethically with Global
I would like to thank Lynne Andersson, Michaela Dri- Stakeholders: A Present and Future Challenge’,
ver, Robert Giacalone, Maasaki Kotabe and Gerald Academy of Management Executive 18(2), 114–120.
Zeitz for their helpful comments on previous drafts of Child, J.: 2002, ‘The International Crisis of Confidence
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