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International Company and Ethics

The issue of business ethics is engaging companies more and more – both domestically and internationally. This trend is accentuated by high-profile examples of breaches of accepted standards of ethical behavior. For example, the recent Enron case where inadequate checks and balances within the firm enabled unethical behavior to occur, a development made easier by the failure of the external auditor to fulfill its role properly. Assumptions about ethics and business are influenced inevitably by fundamental beliefs about the role of business in society. On the one hand, there are those who believe that the sole social responsibility of business is to generate profit. For some proponents of this view, profit generation itself takes on a moral dimension whereas others see profits as the key to wealth generation – the main way of addressing social issues (Davies, 1997, p. 88). On the other hand, others believe that the role of business is much broader than that of profit generation and that all those who are affected by the way a company operates – shareholders, employees, customers, suppliers, the local community, future generations (especially in relation to environmental issues) – have a legitimate interest and stake in the way a company conducts itself.

Many of these concerns are relevant to business whether it is domestic or international in nature. However, international business poses particular challenges and questions over and above those facing purely domestic business. In order to reconcile doing business internationally and remain ethical, the company should follow the main principles of human rights, comply with legal norms related to labor, avoid corruption and correspond to standards of environmental protection. Even though it is not easy to combine making profit and adjusting to ethical principles, sometimes failure to comply with legal norms and standards my result in negative public image for the international company and loss of customers. Therefore, international company can suffer even more damages if it decides not to follow the ethical principles.

The first issue related to ethics is human rights. It is a generally accepted principle that international company should not engage in direct infringement of human rights the UN Universal Declaration of Human Rights (UDHR) is commonly taken as the appropriate benchmark. However, some people would go further, preferring companies to refrain from doing business in countries known to infringe human rights on a systematic basis. Opponents of this view argue that if an international company abstains from conducting business in a country with an ethically dubious regime, the only concrete result is to hand over business opportunities to companies without such reservations (Barlett and Ghoshall, 1998, p. 110).

On coming to office in 1992, for example, President Clinton proposed to withdraw MFN status from China as a result of the Tiananmen Square massacre in 1989 in which many pro-democracy demonstrators were killed (Kepstein, 2001, p. 108). Such action would have provoked retaliation against US companies operating in China and US business lobbied hard to persuade the president to change his mind. They argued that US business interests would be irrevocably damaged in a rapidly growing market and that the outcome would not be an improvement in human rights in China but a boost to the business prospects of American business rivals in China. The lobbying campaign was successful: the link between trade and human rights was broken and replaced by the doctrine that the possibility of bringing about change is greater if business and other links and contacts are maintained.

International labor issues can be linked with human rights, especially regarding matters of forced labor and child labor. Ethical labor issues also occur outside the framework of the Universal Declaration of Human Rights in circumstances where certain labor practices may be legal and commonplace in the host country but do not necessarily represent fair and equitable treatment of the workforce. The issue facing an international company is: does it maximize its competitive advantage by locating in a low-cost/low-regulation country and adopt local practices or does it refrain from reaping all the labor cost benefits by adopting higher standards and more ethical practices than strict compliance with local legal norms requires? A firm may choose to take the latter path and still experience significant competitiveness gains.

Corporate codes of conduct governing general corporate behavior and treatment of the workforce in particular are not new. Their modern manifestation began in the mid-twentieth century in the form of codes from the International Chamber of Commerce and other collective codes (Donaldson, 1989, p. 55). Their popularity surged once more in the 1990s in response to pressure from NGOs, the emergence of corporate social responsibility as a key consideration for firms and the phenomenon of socially responsible investment and shareholder action. Additionally, discussion of the possible inclusion of labour regulation under the WTO umbrella encouraged international firms to assume greater responsibility for their own labor standards, if only to demonstrate that international regulation was unnecessary. Corporate codes of conduct take many forms. Many international firms have developed their own individual codes to cover their own employees and those of their contractors and suppliers. Some industries have developed their own codes. Whatever form they take, codes are necessary for the positive public image of international company and they demonstrate that the company reconciles doing business and acting ethically. Codes need to comply with a number of conditions before they can be said to operate equitably and with credibility (DeGeorge, 1993, p. 88):

1.the contents of the code must be clearly worded and, at a minimum, comply with core standards;

2.the company adopting the code must be committed to it and be prepared to provide the resources to ensure its implementation, including training, information systems for monitoring and compliance and staff to implement new procedures;

3.knowledge of the code throughout the organization is essential to its implementation: in particular, employees of the firm and its subcontractors and suppliers must know of the contents of the code and a reporting system must be established that enables workers to report infringements without fear of reprisals;

4.the code should be subject to verification by independent assessors who have access to the site unannounced at any time.

The application of such codes can enhance internal governance and facilitate internal management across geographically dispersed sites. There is some evidence to show that real commercial benefits can be gained from the proper application of fair and equitable labor standards, although more widespread research needs to be done on this (DeGeorge, 1993, p. 111). Provided the code of conduct adopted by a firm has external credibility, it can both protect and enhance a firm’s reputation, particularly important these days when more is expected of firms in terms of corporate social responsibility.

Levi Strauss is one of the world’s largest brand-name clothes manufacturers and also one of the first international companies to adopt a corporate code of conduct to apply to all contractors who manufacture and finish its products and to aid selection of which countries in which to operate (DeGeorge, 1993, p. 118). The Code of Conduct has two parts:

1.Business partner terms of engagement: Levi Strauss uses these to select business partners that follow workplace standards and practices consistent with its policies and to help identify potential problems. In addition to meeting acceptable general ethical standards, complying with all legal requirements and sharing Levi Strauss’s commitment to the environment and community involvement, Levi Strauss’s business partners must adhere to the following employment guidelines:

-Wages and benefits: business partners must comply with any applicable law and the prevailing manufacturing and finishing industry practices.

-Working hours: partners must respect local legal limits on working hours and preference will be given to those who operate less than a 60-hour working week. Levi Strauss will not use partners that regularly require workers to work in excess of 60 hours. Employees should also have at least one day off per week.

-Child labor: use of child labor is not permissible in any of the facilities of the business partner. Workers must not be below 15 years of age or below the compulsory school age.

-Disciplinary practices: Levi Strauss will not use business partners who use corporal punishment or other forms of physical or mental coercion.

-Prison/forced labor: no prison or forced labor is to be used by business partners nor will Levi Strauss use or buy materials from companies using prison or forced labor.

-Freedom of association: the rights of workers to join unions and to bargain collectively must be respected.

-Discrimination: while respecting cultural differences, Levi Strauss believes workers should be employed on the basis of their ability to do their job

-Health and safety: Levi Strauss undertakes to use business partners who provide a safe and healthy working environment and, where appropriate residential facilities

2.Country assessment guidelines: these are used to address broad issues beyond the control of individual business and are intended to help Levi Strauss assess the degree to which its global reputation and success may be exposed to unreasonable risk. It was an adverse country assessment that caused Levi Strauss to cease its engagement in China in the early 1990s, largely on human rights grounds – a decision that has subsequently been reversed. In particular, the company assesses whether:

-the brand image will be adversely affected by the perception or image of a country among customers;

-the health and safety of employees and their families will be exposed to unreasonable risk;

-the human rights environment prevents the company from conducting business activities in a manner consistent with the global guidelines and other company policies;

-the legal system prevents the company from adequately protecting trademarks, investments or other commercial interests;

-the political, economic and social environment protects the company’s commercial interests and brand corporate image.

Levi Strauss is the example of the company that successfully combines doing business and following ethical practices. As we see, the company code of ethics demonstrates that Levi Strauss complies with the most labor norms and environmental standards; at the same time such actions of the company do not have any negative impact upon its business. On the contrary, since Levi Strauss has positive public image the customers should be more attracted to its products.

Some of the other important ethical issues that the company should consider is bribery and corruption. Bribery/corruption is not as clear-cut an issue as might first appear; indeed it can be rather a grey area. In some cultures, it is regarded as perfectly normal to give an official or host a gift (Asgary and Mitschow, 2002, p. 245). In others, only minimal value token gifts or no gifts at all are allowed. A problem arises when it is the norm for a contract to be signed only after the payment of a ‘commission’ to a key official or officials (Asgary and Mitschow, 2002, p. 240). Such circumstances place international companies in a difficult position: without payment of these commissions, the contract will not materialize and, if they do not make the payment, many other companies will (although that is not an ethical justification for going ahead with the commission). The position of the US is unequivocal about this: it regards all such payments as bribes and, as such, they are both unethical and illegal. The Foreign Corrupt Practices Law forbids US companies from making improper payments to foreign governments, politicians or political parties to obtain or retain business. Therefore, the only choice that American companies have regarding bribery is not to make any payments regarded as bribes; otherwise, it can be considered that a company violates the law.

The last ethical challenge that international companies face is related to environmental protection. Firms can encounter damaging publicity as a result of the environmental outcome of their activities as pollution attracts more and more media attention (Barlett and Ghoshal, 1998, p. 98). For many, environmental protection and corporate responsibility in this field has a clear ethical dimension. This debate is couched in terms of the ‘global commons’ in which all human beings have both a stake and a responsibility to ensure the well-being of the environment for future generations (Donaldson, 1989, p. 211).

In order to reconcile doing business and meeting environmental ethical standards an international company should comply with the following underlying principles in environmental policy.

The first norm refers to the “polluter pays principle.” It stipulates that polluters should pay the full cost of the environmental damage they cause (DeGeorge, 1993, p. 100). Environmental costs are often referred to as ‘externalities’ (for example, damage to health, rivers, the air, etc. arising from economic activity) that are not incorporated into the costs of a product but are borne by society as a whole (DeGeorge, 1993, p. 100). By making the polluter pay the full cost of its activities, including externalities, this principle provides an incentive to make products less polluting and/or to reduce the consumption of polluting goods. This internalization of external costs can be met through the use of market-based, policy instruments.

The other principle refers to prevention. If the company decides to follow the prevention principle it changes to products and processes to prevent environmental damage occurring rather than relying on remedial action to repair damage after it has taken place (Davies, 1997, p. 108). This implies the development of ‘clean technologies’; minimal use of natural resources; minimal releases into the atmosphere, water and soil; and maximization of the recyclability and lifespan of products.

In conclusion, international business adds an extra dimension to ethical issues within the firm. All organizations have their own culture based on common language and terminology, behavioral norms, dominant values, informality/formality, etc. This inevitably becomes more complex when an organization has a presence in more than one country. Some companies believe a strong corporate culture is a means of overcoming diverse national cultures whereas others evolve different cultures in different organizations and incorporate cultural diversity in their management strategy. Many organizations like Coca-Cola and McDonald’s do use core brands but still adapt their products for local markets and follow ethical standards, either out of necessity or to maximize returns. Ethics and corporate social responsibility are closely related. Debates about corporate social responsibility have been dominated by labor and environmental issues but a growing number of corporate governance scandals involving multinationals is increasing pressure for stricter regulation. International companies can reconcile doing business internationally and remaining ethical if they comply with labor and environmental norms enacted at the international level and establish and follow the code of ethics. In the long run, corporate commitment to sound ethical principles and socially responsible behavior is good for business.

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The study of business ethics and its implications for different stakeholders have seen tremendous growth in the past few decades. There has also been a rise in the use and development of codes of ethics and announcements for ethical practices by many firms; however companies are still criticized for their unethical practices at different levels (Papers4you.com, 2006). Business ethics, according to the literature has been entrenched with the philosophical details of Ethics (Trevino & Nelson, 1999). Ethics has been defined as ‘the activity of examining the moral standards of a society, and asking how these standards apply to ones life and whether these standards are reasonable’ (Velasquez, 1998; p. 11).

The literature on business ethics is divided on its views about the motivation and reason for businesses to have an ethical dimension. Drawing upon Harrison (2001), there are two major schools of thoughts, firstly those who suggest that firms are profit generating institutions and therefore business ethics is yet another way to attract customers, secondly those who support corporate conscience and intrinsic motivation for the adoption of business ethics.

Business ethics has been considered very subjective in nature and according to Paul (2001) is considered a function of time and culture. It has been established that with the passage of time business ethics have evolved and also that the cultural values and norms drive business ethics within national and regional boundaries. One of the major studies regarding the national values has been conducted by Hofstede (1983). According to this research, which was only based on four indicators i.e. individualism, power distance, uncertainty avoidance and masculinity, there is a great deal of differences among values across different nations and consequently the business ethics. Globalization combined with standardization has made businesses financially efficient but at the same time poses questions regarding the standardized codes of business ethics across national boundaries.

Vinten (1991) has divided the business ethical issues at different levels i.e. international business, domestic business and professional ethics. At the international level ethical issues include free-masonry and socialism versus capitalism; at domestic level these include religious dimensions, social marketing and ethical education; and lastly at the individual level these include bribery, corruption and data protection (Papers4you.com, 2006).

There are many reasons and criticisms for the failure of adoption of ethics in the business world. Firstly, the concept is considered to be overly theoretical and it also negates the basic purpose of any business i.e. to create shareholder’s wealth. Secondly, it has lack of direction and unanimity across different cultures and academic groups. Lastly, it has many inherent unresolved dichotomies that according to Sternberg (1994) make it a case of rejected relativism.

References:

Harrison, J. (2001), Ethics for Australian Business, Prentice-Hall, French’s Forest

Hofstede, G. (1983), The Cultural Relativity of Organizational Practices and Theories, Journal of International Business Studies, Vol. 14, No. 2, pp.75-89

Papers For You (2006) “S/B/92. What distinguishes ethical from unethical business activity and how significant are the principles of business ethics in modern business?”, Available from http://www.coursework4you.co.uk/sprtbus21.htm [17/06/2006]

Papers For You (2006) “S/B/49. ‘Should businesses strive to be ethical?’ Critically Discuss”, Available from Papers4you.com [18/06/2006]

Paul, S. (2001), Cultural and Business Ethics, Cross Cultural Management: An international Journal, Volume 8 No. 1, pp 22-35

Sternberg, E. (1994), Relativism rejected: the possibility of transnational business ethics, in Hoffman, W.M., Kamm, J.B., Frederick, R.E., Petry, E.S. Jr (Eds), National Conference on Business Ethics. Proceedings from the 9th Conference on Business Ethics Sponsored by the Centre for Business Ethics at Bentley College, Quorum Books, New York, NY, pp.143-50

Trevino, L.K., Nelson, K.A. (1999), Managing Business Ethics: Straight Talk about How to Do It Right, 2nd ed., J. Wiley & Sons, New York, NY

Velasquez, M.G. (1998), Business Ethics: Concepts and Cases, 4th ed., Prentice-Hall, Englewood Cliffs, NJ

Vinten, G. (1991), Business Ethics: Busybody or Corporate Conscience?, Managerial Auditing Journal, Volume 5, Number 2, pp. 123-144

After 8 failed years and decades of the “trickle down” theory’s failure to produce anything more than a giant chasm between the nations rich and it’s poor, the Republicans have the audacity to insist on more tax breaks for the wealthy. If you cut the wealthy’s taxes jobs will come. But what if they are right?

Having given a lot of thought to the current economic crisis and wanting to continue President Obama’s spirit of inclusion and reaching across party lines, I have come up with a way that the wealthy of America, and the world, could once and for all prove their patriotism and end the era of over taxation forever!

It has been known for some time that the richest 1% of Americans possess more wealth than 90% of the rest of us combined. As a true believer in capitalism, I suggest that the wealthiest 1% of the America unite, and prove the Trickle down theory once and for all. Forget government intervention and bailouts. The wealthy of the world should get together and make the following offer: In exchange for a government guarantee of lower tax rates on future profits, they should pledge roughly one tenth of the $37+ TRILLION dollars that Merrill lynch claims “high net worth individuals” controlled as of 2006. Just think what kind of progress the economy could make with a cash infusion of 3.7 TRILLION dollars!

How many good paying jobs could be created with $3.7 trillion dollars? With the best and brightest in the business world, instead of the government, creating them? How many bridges could be built? How many roads repaired? Could we actually improve on the greatest country in the world? A job for everyone who wants and needs one? Make that happen and who would dare oppose tax breaks for the rich again? And all for only one tenth of your portfolio’s?

Show us your patriotism in our time of need. Break open those rusty vaults and rejoice in the power of capitalism while we still can! The opportunity is now, before the sky completely falls and all capitalist and Conservatives are sent into the wilderness. As a would-be believer in both I beseech you, Act NOW!



I doubt this could ever happen however. It goes against the very fiber of their being wealthy. The key to wealth building is NOT spending. Buy low, sell high and never spend unless you have to. This is the sad truth of the “trickle down theory” and every out of work, underemployed person living far under the “high net worth individuals” up on the hill knows, is, that the object of the rich is to get and be rich. At any cost. Without responsibility.

“If you were unaware of the severity of wealth distribution inequities, then you are probably in for an even bigger surprise to learn that the rate, at which the economic elite are getting richer, is simply astounding.

Statistics published in Forbes magazine’s annual survey of America’s billionaires expose this little known but shocking reality. In 1982 there were 13 billionaires; in 1983….15; in 1984….12; in 1985….13; in 1986….26; in 1987….49. Note carefully that prior to 1986 the number of American billionaires had averaged around 13. Then the Reagan administration drastically altered the wealth distribution patterns by introducing new tax legislation favoring the top 1%. In 1986 the number of billionaires DOUBLED, and by 1987 the number of billionaires had virtually QUADRUPLED to 49!! By 1988, there were 68 individuals or families that each had net wealth in excess of $1,000,000,000. By 1989, the number had risen precipitously to 82. And by 1990, the Forbes survey reported the staggering total of 99!! With favorable tax laws in place, the super rich can enjoy bonanza years even during recessions!! The tax laws that allowed this to happen are still in place, and will remain in place till enough people get sufficiently concerned to insist that they be changed. “

Excerpted from the electronic book: Feudalism … Alias American Capitalism