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Put Your Ethics To A Global Test

January 1, 1996
Related Topics: Global Business Issues, Ethics, Featured Article
Global scandals make headlines daily. There was the Daiwa Bank trading scandal, in which billions of dollars were lost from improper bond trading—and hidden by high banking officials. There was the 1995 U.S. Department of Labor report documenting child labor abuse in 56 countries where children are used to mine gold, among other things. Then there was the Ex xon Valdez disaster, the BCCI (Bank of Credit and Commerce International) debacle, and the Bhopal catastrophe. And there were other events that never made the newspapers: piracy of intellectual property, payments to third parties so companies could do business, nepotism and conflict of interest.

All these incidents have one thing in common: they're a matter of ethics—or a lack thereof. The issue of global business ethics is the ultimate dilemma for many U.S. businesses. As companies do more and more business around the globe, their assumptions about ethical codes of conduct are put to the test. Corporate executives may face simple questions regarding the appropriate amount of money to spend on a business gift, or the legitimacy of payments to liaisons to "expedite" business. Or they may encounter out-and-out bribery, child-labor disputes, environmental abuse and unscrupulous business practices. As organizations expand globally, HR managers must play a role in helping to define and achieve ethical behavior from employees throughout the world.

To accomplish this, many international businesses are creating codes of conduct, like the ones such companies as IBM, Xerox and Shell Oil have had for years. These three companies, and others, including Levi Strauss, Honeywell, Digital Equipment and H.B. Fuller, are taking their efforts even further—by incorporating their messages into everyday business practices and making them living documents.

What are global ethics and how do they impact business?
Defining ethical behavior in a domestic setting is tricky enough. Not only do people respond differently to moral questions, but individuals—even in the same culture—interpret morality differently. When you add the cultural overlay, business ethics can become a quagmire of moral questions. Some even say the term "global ethics" is an oxymoron. Is it?

"One of the myths about global business ethics is that when you do business in other cultures, they will have a whole set of different ethical values and mores. That simply is blown out of proportion," says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Massachusetts, and co-author of "Emerging Global Business Ethics."

"When you dig deeply enough and scrape away all the trappings, the real ethical solid building blocks or principles of most cultures are the same."

For example, most people agree mistreating children is wrong, but they sometimes disagree about what constitutes mistreatment. For instance, most Americans consider child labor mistreatment. But in countries in which economic conditions warrant child labor, and laws and definitions of the family unit support it, it isn't regarded as cruel, but rather as a fact of life. "You have to understand the full context of the ethical decision-making of each culture. Once you understand it, you might say it's ethically incorrect without believing it's immoral," says Hoffman.

He says it's important for Americans—who sometimes get too moralistic—to walk a moral tightrope between the two extremes of ethical fanaticism and ethical relativism as we venture into other societies. "Ethical fanaticism is the position that says my ethical position is right, and I have the absolute answers. It doesn't recognize legitimate ethical disagreement and has no tolerance or appreciation of different perspectives, including cultural perspectives," Hoffman explains. "Ethical relativism is an equally bad extreme because it's saying there are no absolute values, which eventually leads to a state in which there's nothing right absolutely or wrong absolutely. It's a philosophical position that says I have no way of telling you you're morally wrong if you go out and kill or eat people because there are no absolute values."

Walking the middle road isn't always easy, however. Some global actions clearly lack ethics, such as the actions of Nazi Germany, for example. But there are others that are gray, such as the use of DDT in countries where there are no substitutes and without which the crops would be consumed by insects. Even the use of bribes can be debated on moral grounds. Bribes of hundreds of thousands of dollars to line a military general's pocket, most would agree is wrong, but what about payments to people who take goods off the docks to expedite service? That isn't considered unethical under many circumstances.

Ethics are a matter of business.
In response to these questions, some groups are taking a leadership role. The Caux Round Table is one such organization. Created in 1986 by Frederik Philips (former president of Philips Electronics) and Olivier Giscard d'Estaing (vice chairman of INSEAD), the Round Table brings together leaders from Europe, Japan and the United States. Their mission: To focus attention on global corporate responsibility, in the belief that the world business community plays a role in improving economic and social conditions.

Including such giants as Siemens AG, The Chase Manhattan Corp., ITT Corp., World Bank (France), Minnesota Mining & Manufacturing Co., Canon Inc. and Matsushita Electric Industrial Co. Ltd., the group has developed world standards to measure ethical behavior. The standards are based on two principles: the concept of human dignity, and the Japanese doctrine of kyosei—the idea of living and working together for the common good to enable mutual prosperity. The Round Table is proactive in its commitment to global responsibility. Founders believe business can be a powerful force for good because it's essential to provide employment and products and—more importantly—because it has the capacity to improve the lives of its customers and employees.

The Round Table lays out seven general principles that range from the general edict to protect (and where possible, improve) the environment, to more specific ideas, such as supporting the multilateral trade systems of the world. Underlying these ideals is the assumption that respect for cultural differences requires sensitivity and some flexibility. One of the most astounding aspects of the document is that it's values-driven but steeped in business acumen.

Indeed, Robert MacGregor, president of the Minnesota Center for Corporate Responsibility—the group largely responsible for the language of the Caux Round Table's Principles for Business—sees ethical behavior as a business imperative. "The world has shrunk and is so interconnected that behaviors everywhere affect behavior everywhere else."

For example, although a company can save money by laying off expensive American workers and hiring cheap child labor in Bangladesh, these types of actions will backfire financially for a company in the end. "We want companies to move their jobs and capital around the world while making money, [and still] following responsible standards."

H.B. Fuller Company, makers of adhesives and other specialty chemicals, agrees that honesty and trustworthiness—themselves important—translate into dollars and cents. Case in point: The St. Paul, Minnesota-based company pursued buying a subsidiary from a European adhesive manufacturer. It was the only American firm out of a dozen companies interested in the purchase. The European company was interested in H.B. Fuller's bid, but looked a little nervously at the U.S. company because the subsidiary wasn't making money and had too many people in the business. "Their perception of U.S. companies is that they don't think twice about having massive layoffs regardless of what it does to people," says Tony Andersen, chair of H.B. Fuller's board of directors. "We showed them through oral histories—examples within our company—that our corporate culture values people. That really counted to this large European company, which helped us finance the acquisition."

Clearly stating company values is the first step.
H.B. Fuller's situation demonstrates how ethics stem from corporate values. "You've got to think through very clearly what your company's values are—what you stand for wherever you do business," says John Buckley, ethics officer for Maynard, Massachusetts-based Digital Equipment Corp., which has more than 50% of its employees outside the United States. Digital's Code of Business Conduct clearly defines practices the company expects its employees to use in their daily activities. This substantial 27-page booklet, which addresses such ethical issues as managing company information and gift giving, provides the wisdom in a specific manner that requires employees to think about their behavior. For instance, in the section on gifts and entertainment, employees are given the following scenarios to think about: "You receive an unsolicited holiday gift from a supplier; you're invited to an annual trade show at a resort by a supplier who offers to pay your airfare and hotel bills; customers are visiting a Digital site for the day and you would like to take them to lunch. Do you know the proper business use of gifts and entertainment?" it asks.

The rest of the chapter details the company's position on gift giving and receiving, its implications and possible misinterpretations. It's straightforward and unambiguous, and offers the chance to question one's own actions.

"Wherever we do business, it's highly dependent on personal relationships between the people conducting the business. By basing our code of conduct on the company's core values, we believe it's more transferrable and adaptable internationally," says Buckley.

Step two: Communicate.
Clear principles are one thing, but they're useless unless they're communicated to employees. Digital communicates its values through company newsletters, electronic transmissions and in training programs. Everyone receives a code of conduct booklet, and the company requires all managers to discuss the code with their employees at least once a year.

Honeywell Inc., based in Minneapolis, recently has translated its formal code of ethics into six foreign languages. Senior management regularly communicates the importance of ethics and compliance in newsletters, ethics presentations and other periodic communications. For example, a recent newsletter for the Asia Pacific region included a letter from the president talking about bribery. He reiterated that bribery will not be tolerated at all, and that the company will walk away from business rather than engage in bribery.

Levi Strauss & Co., a recognized leader in corporate social responsibility, encapsulates its values in the company's mission statement, and reiterates them in an Aspirations statement and in a printed code of ethics. The San Francisco-based company clearly defines business ethics and commitment to employee respect and fair treatment. Its statements clarify what's important, and what's expected in behavior.

But Levi Strauss doesn't leave the translation of its statement to chance. Since 1988, the company's HR department has conducted global training on different aspects of the aspiration statement. Managers and employees from around the world participate in three- to five-day courses on various aspects of leadership—one of which is ethics. The three-day ethics course gives people the opportunity to understand the company's expectations and definitions, and also gives them the chance to identify their own moral principles to see where they overlap with the company's.

"When people are clear about their own values and can identify the principles that make up ethical behavior, they have the tools for looking at potential decisions and the possible impact on different stakeholders, and whether or not the decision is an ethical one based on these principles," says Richard Woo, currently senior manager for global communications and previously regional manager for community affairs for Asia-Pacific.

"We were faced on the one hand with principles that were clear, and on the other with the reality of underage workers and impacting their family incomes."

An important part of the ethics training is to help people learn a decision-making tool—a process for making ethical decisions—called the Principled Reasoning Approach. The Principled Reasoning Approach isn't simply a name; it relies on thoughtful evaluation and a rational process to figure out how ethical principles translate into behavior.

Here's an example: The company went through the process when it considered whether or not to enter the South African marketplace. Levi Strauss convened a cross-functional task force, called the South Africa Policy Group, made up of Levi Strauss' managers worldwide and included people from marketing, operations, finance and community affairs.

The group met over several months for one or two days at a time, and in between, members researched specific issues and reported back to the group. It researched the history of apartheid and the movement of businesses in the country—who decided to leave and who decided to stay. It identified the principle interests and who the different stakeholders were, including the anti-apartheid community that would be affected by Levi Strauss' decision. The task force sent several key members to South Africa to conduct site visits and interviewed the ANC, members of the current government and members of community organizations. Finally, it talked with other multinational corporations already doing business in the country.

All of this took place as South Africa was going through the changes that eventually led to its free elections. The task force was able to make a recommendation to the company: that when certain conditions changed—including free elections—it would be the appropriate time for Levi Strauss to enter South Africa.

Such an inclusive information-gathering process allowed the company to make an informed decision that was based on its principles. It was able to create milestones so the company could judge the most appropriate time.

Since free elections were held, Levi Strauss South Africa opened both marketing and production facilities, including a multiracial, multicultural management team. The business also maintains an active corporate social investment program, which includes charitable contributions to the community—so it can be part of helping the country grow through the transition.

Apprise your business partners of your standards.
Levi Strauss also has global sourcing and operating guidelines that address workplace issues. The company uses these guidelines to select business partners who will manufacture its products. Established in 1992, its guidelines were the first created by a multinational company for its business partners. The terms of engagement detail everything from environmental requirements to health and safety issues. Among them: wages, discrimination, child labor and forced- or prison-labor issues. To create these guidelines, the company used the Principled Reasoning Approach. And to launch them, it conducted audits of contractors it was using worldwide.

Implementing the guidelines, Levi Strauss discovered that in Bangladesh, it had two contractors using workers in the factories who appeared to be underage. International standards have set a reasonable working age at 14. When the company brought it to the attention of the factory owners, the owners asked the company what it wanted the factory to do. There were no birth certificates so there was no way to know exactly how old these children were. Also, even if the children were younger than 14, they would very likely be a significant contributor to the family income and probably would be forced into other ways of making a living that would be more inhumane than working in a factory—such as prostitution or begging.

"So, we were faced on the one hand with a set of principles that were very clear, and on the other with the reality of underage workers and severely impacting their family incomes," says Woo. The solution? "The contractor agreed not to hire any more underage workers," he says. They also hired a physician to examine children who seemed to be less than 14 years old using growth charts identified by the World Health Organization. Although not hiring young workers may force them to find work elsewhere, Levi Strauss' position is to be ethically responsible for business issues it can control—such as responsible child labor conditions—as opposed to social conditions in a country that it has no control over.

Levi Strauss also negotiated for the contractors to remove the under-14 workers they already had from the production line and continue to pay them wages as if they were still working. In exchange, Levi Strauss covered the cost of the children's uniforms, tuition and books so they could go to school. When the underage workers reach the age of 14, they will be offered back their original factory jobs. The contractors complied with all this, "to maintain the contracts with us," says Woo.

As a result of the company's guidelines, the organization has made an impact on suppliers around the globe. It has brought about shorter work hours, seen infrastructures reinforced for better health and safety, seen fire extinguishers and fire exits put into workplaces, and seen contractors install equipment to meet environmental guidelines.

Translate ethical behavior into performance.
Once guidelines such as Levi Strauss' are in place, it's crucial to reinforce principles and ethical actions. Honeywell encourages its business units to use its code as part of their performance evaluations. Levi Strauss includes ethical practices as part of its professional evaluation. In other words, it ties compensation to performance, which includes ethics. Employee's annual performance review includes questions about ethical dilemmas.

Accountability for the company's code of ethics counts at H.B. Fuller, also. The organization identifies people within the business who are in positions that could be subjected to difficult moral decisions. In addition to being sure these employees understand the code of conduct, they receive an "audit" in which they're asked about anyone who has done something that in their view might be questionable. "We communicate that it's really number one in importance," Andersen explains.

Despite its importance, ethics often fall by the wayside because companies aren't clear on what they consider right and wrong. "It's a difficult thing—to understand what's the bedrock that defines your company and the way you operate, while keeping an open mind and trying to learn business practices in other countries," says Buckley. "How do you make the trade off?"

You have to really think about it. Be open-minded. Learn. And be prepared to take the hard stand. "At some point you're going to come up with the decision of not pursuing a piece of business because it violates your values. It could be labor practices or environmental concerns or corrupt payments. It could be that you realize you can't do business while maintaining a diverse work force and that violates your principles."

Hoffman calls it the child test. "If the action gives you any pause—and you can't imagine explaining it to your child—then it's probably a good thing to stop, look and listen before crossing the track."

In any case, managers in multinational companies who are confronted with these situations have to think through their own ethics. It's more than a delicate balance; it's a critical balancing act.

Personnel Journal, January 1996, Vol. 75. No. 1, pp. 66-74.

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