Terror‐free investment index screens : Corporate governance implications for non‐US multinational enterprises

Purpose – The purpose of this paper is to address the corporate governance implications of the US terror‐free investment screens, instituted both legislatively and voluntarily, on the operations of non‐US multinational corporations (MNCs) concerning international trade and foreign direct investment with nations designated as “State Sponsors of Terrorism.” Design/methodology/approach – After a brief introduction to the issue of “terror‐free lists” and investment indexes and divestment screens, the paper summarizes the US Federal and State Laws pertaining to state sponsors of terrorism and their direct impact on international trade and investment transactions. The third section evaluates the success of environmental, social, and governance (ESG) indexes and investment screens compared to standard market investment indexes. The fourth section discusses the potential effects of terror‐free stock indexes and divestment (“social”) screens on corporate governance of non‐US corporations. In the final section, the paper offers business policy recommendations concerning international trade and foreign direct investment decisions and the listing of equity stock on the US financial market exchanges, and offer scholarly research questions addressing this issue. Findings – Non‐US MNC managers should recognize, first, the importance of global corporate citizenship and reputation; second, the expansion of terror‐free investing criterion in ESG investment indexes and divestment screens; and third, the growth in the number of state government prohibitions on investing funds with foreign MNCs complicit with terror‐sponsoring states. Originality/value – Exploratory in nature, this seminal paper evaluates an issue of emerging importance to non‐US MNC managers and directors concerned with potential political and economic repercussions of their international trade and foreign direct investment decisions.