3.4 Global Business Ethics
- Define what global business ethics are, and discover how culture impacts business ethics.
- Learn how ethical issues impact global business.
- Identify how companies develop, implement, and enforce ethical standards.
Chapter 1 "Introduction" provided a solid introduction to the concept of global ethics and business. The relationship between ethics and international business is extensive and is impacted by local perceptions, values, and beliefs.
Global Business Ethics
The field of ethicsA branch of philosophy that seeks virtue and morality, addressing questions about “right” and “wrong” behavior for people in a variety of settings; the standards of behavior that tell how human beings ought to act. is a branch of philosophy that seeks to address questions about morality—that is, about concepts such as good and bad, right and wrong, justice, and virtue.Wikipedia s.v. “ethics,” last modified February 13, 2011, accessed February 22, 2011, http://en.wikipedia.org/wiki/Ethics. Ethics impacts many fields—not just business—including medicine, government, and science, to name a few. We must first try to understand the “origins of ethics—whether they come from religion, philosophy, the laws of nature, scientific study, study of political theory relating to ethical norms created in society or other fields of knowledge.”Wallace R. Baker, “A Reflection on Business Ethics: Implications for the United Nations Global Compact and Social Engagement and for Academic Research,” April 2007, accessed February 22, 2011, http://portal.unesco.org/education/en/files/53748/11840802765Baker.pdf/Baker.pdf. The description below on the field of ethics shows how people think about ethics in stages, from where ethical principles come from to how people should apply them to specific tasks or issues.
The field of ethics (or moral philosophy) involves systematizing, defending, and recommending concepts of right and wrong behavior. Philosophers today usually divide ethical theories into three general subject areas: metaethics, normative ethics, and applied ethics. Metaethics investigates where our ethical principles come from, and what they mean. Are they merely social inventions? Do they involve more than expressions of our individual emotions? Metaethical answers to these questions focus on the issues of universal truths, the will of God, the role of reason in ethical judgments, and the meaning of ethical terms themselves. Normative ethics takes on a more practical task, which is to arrive at moral standards that regulate right and wrong conduct. This may involve articulating the good habits that we should acquire, the duties that we should follow, or the consequences of our behavior on others. Finally, applied ethics involves examining specific controversial issues, such as…animal rights, environmental concerns…capital punishment, or nuclear war.James Fieser, “Ethics,” Internet Encyclopedia of Philosophy, last updated May 10, 2009, accessed February 22, 2011, http://www.iep.utm.edu/ethics.
This approach will be used in this chapter to help you understand global business ethics in a modern and current sense. As with this chapter’s review of culture, this section on global business ethics is less about providing you with a tangible list of dos and don’ts than it is about helping you understand the thinking and critical issues that global managers must deal with on an operational and strategic basis.
Where Do Our Values Come From?
Just as people look to history to understand political, technical, and social changes, so too do they look for changes in thinking and philosophy. There’s a history to how thinking has evolved over time. What may or may not have been acceptable just a hundred years ago may be very different today—from how people present themselves and how they act and interact to customs, values, and beliefs.
Ethics can be defined as a system of moral standards or values. You know from the discussion in Section 3.1 "What Is Culture, Anyhow? Values, Customs, and Language" that cultural programming influences our values. A sense of ethics is determined by a number of social, cultural, and religious factors; this sense influences us beginning early in childhood. People are taught how to behave by their families, exposure to education and thinking, and the society in which they live. Ethical behavior also refers to behavior that is generally accepted within a specific culture. Some behaviors are universally accepted—for example, people shouldn’t physically hurt other people. Other actions are less clear, such as discrimination based on age, race, gender, or ethnicity.
Culture impacts how local values influence global business ethics. There are differences in how much importance cultures place on specific ethical behaviors. For example, bribery remains widespread in many countries, and while people may not approve of it, they accept it as a necessity of daily life. Each professional is influenced by the values, social programming, and experiences encountered from childhood on. These collective factors impact how a person perceives an issue and the related correct or incorrect behaviors. Even within a specific culture, individuals have different ideas of what constitutes ethical or unethical behavior. Judgments may differ greatly depending on an individual’s social or economic standing, education, and experiences with other cultures and beliefs. Just as in the example of bribery, it should be noted that there is a difference between ethical behavior and normal practice. It may be acceptable to discriminate in certain cultures, even if the people in that society know that it is not right or fair. In global business ethics, people try to understand what the ethical action is and what the normal practice might be. If these are not consistent, the focus is placed on how to encourage ethical actions.
While it’s clear that ethics is not religion, values based on religious teachings have influenced our understanding of ethical behavior. Given the influence of Western thought and philosophy over the world in the last few centuries, many would say that global business has been heavily impacted by the mode of thinking that began with the Reformation and post-Enlightenment values, which placed focus on equality and individual rights. In this mode of thinking, it has become accepted that all people in any country and of any background are equal and should have equal opportunity. Companies incorporate this principle in their employment, management, and operational guidelines; yet enforcing it in global operations can be both tricky and inconsistent.
Did You Know?
What Are the Reformation and Enlightenment?
Modern political and economic philosophies trace their roots back to the Reformation and Enlightenment. The Reformation was a period of European history in the sixteenth century when Protestant thinkers, led by Martin Luther, challenged the teachings of the Roman Catholic Church. As a result of the Reformation, the Catholic Church lost its control over all scientific and intellectual thought. While there were a number of debates and discussions over the ensuing decades and century, the Reformation is widely believed to have led to another historical period called the Age of Enlightenment, which refers to a period in Western philosophical, intellectual, scientific, and cultural life in the eighteenth century. The Enlightenment, as it is commonly called, promoted a set of values in which reason, not religion, was advocated as the primary source for legitimacy and authority. As a result, it is also known as the Age of Reason.
It’s important to understand the impact and influence of these two critical historical periods on our modern sense of global business ethics. The prevailing corporate values—including those of institutional and individual equality; the right of every employee to work hard and reap the rewards, financial and nonfinancial; corporate social responsibility; and the application of science and reason to all management and operational processes—have their roots in the thoughts and values that arose during these periods.
Impact of Ethics on Global Business
At first, it may seem relatively easy to identify unethical behavior. When the topic of business ethics is raised, most people immediately focus on corruption and bribery. While this is a critical result of unethical behavior, the concept of business ethics and—in the context of this book—global business ethics is much broader. It impacts human resources, social responsibility, and the environment. The areas of business impacted by global perceptions of ethical, moral, and socially responsible behavior include the following:
- Ethics and management
- Ethics and corruption
- Corporate social responsibility
Ethics and Management Practices
Ethics impacts various aspects of management and operations, including human resources, marketing, research and development, and even the corporate mission.
The role of ethics in management practices, particularly those practices involving human resources and employment, differs from culture to culture. Local culture impacts the way people view the employee-employer relationship. In many cultures, there are no clear social rules preventing discrimination against people based on age, race, gender, sexual preference, handicap, and so on. Even when there are formal rules or laws against discrimination, they may not be enforced, as normal practice may allow people and companies to act in accordance with local cultural and social practices.
Culture can impact how people see the role of one another in the workplace. For example, gender issues are at times impacted by local perceptions of women in the workplace. So how do companies handle local customs and values for the treatment of women in the workplace? If you’re a senior officer of an American company, do you send a woman to Saudi Arabia or Afghanistan to negotiate with government officials or manage the local office? Does it matter what your industry is or if your firm is the seller or buyer? In theory, most global firms have clear guidelines articulating antidiscrimination policies. In reality, global businesses routinely self-censor. Companies often determine whether a person—based on their gender, ethnicity, or race—can be effective in a specific culture based on the prevailing values in that culture. The largest and most respected global companies, typically the Fortune Global 500, can often make management and employment decisions regardless of local practices. Most people in each country will want to deal with these large and well-respected companies. The person representing the larger company brings the clout of their company to any business interaction. In contrast, lesser-known, midsize, and smaller companies may find that who their representative is will be more important. Often lacking business recognition in the marketplace, these smaller and midsize companies have to rely on their corporate representatives to create the professional image and bond with their in-country counterparts.
Cultural norms may make life difficult for the company as well as the employee. In some cultures, companies are seen as “guardians” or paternal figures. Any efforts to lay off or fire employees may be perceived as culturally unethical. In Japan, where lifelong loyalty to the company was expected in return for lifelong employment, the decade-long recession beginning in the 1990s triggered a change in attitude. Japanese companies finally began to alter this ethical perception and lay off workers without being perceived as unethical.
Global corporations are increasingly trying to market their products based not only on the desirability of the goods but also on their social and environmental merits. Companies whose practices are considered unethical may find their global performance impacted when people boycott their products. Most corporations understand this risk. However, ethical questions have grown increasingly complicated, and the “correct” or ethical choice has, in some cases, become difficult to define.
For example, the pharmaceutical industry is involved in a number of issues that have medical ethicists squirming. First, there’s the well-publicized issue of cloning. No matter what choice the companies make about cloning, they are sure to offend a great many consumers. At the same time, pharmaceutical companies must decide whether to forfeit profits and give away free drugs or cheaper medicines to impoverished African nations. Pharmaceutical companies that do donate medicines often promote this practice in their corporate marketing campaigns in hopes that consumers see the companies in a favorable light.
Tobacco companies are similarly embroiled in a long-term ethical debate. Health advocates around the world agree that smoking is bad for a person’s long-term health. Yet in many countries, smoking is not only acceptable but can even confer social status. The United States has banned tobacco companies from adopting marketing practices that target young consumers by exploiting tobacco’s social cache. However, many other countries don’t have such regulations. Should tobacco companies be held responsible for knowingly marketing harmful products to younger audiences in other countries?
Ethics and Corruption
To begin our discussion of corruption, let’s first define it in a business context. Corruption is “giving or obtaining advantage through means which are illegitimate, immoral, and/or inconsistent with one’s duty or the rights of others. Corruption often results from patronage.”BusinessDictionary.com, s.v. “corruption,” accessed January 9, 2011, http://www.businessdictionary.com/definition/corruption.html.
Our modern understanding of business ethics notes that following culturally accepted norms is not always the ethical choice. What may be acceptable at certain points in history, such as racism or sexism, became unacceptable with the further development of society’s mind-set. What happens when cultures change but business practices don’t? Does that behavior become unethical, and is the person engaged in the behavior unethical? In some cultures, there may be conflicts with global business practices, such as in the area of gift giving, which has evolved into bribery—a form of corruption.
Paying bribes is relatively common in many countries, and bribes often take the form of grease payments, which are small inducements intended to expedite decisions and transactions. In India and Mexico, for example, a grease payment may help get your phones installed faster—at home or at work. Transparency International tracks illicit behavior, such as bribery and embezzlement, in the public sector in 180 countries by surveying international business executives. It assigns a CPI (Corruption Perceptions Index) rating to each country. New Zealand, Denmark, Singapore, and Sweden have the lowest levels of corruption, while the highest levels of corruption are seen in most African nations, Russia, Myanmar, and Afghanistan.Transparency International, “Corruption Perceptions Index 2010,” accessed February 22, 2011, http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results.
Even the most respected of global companies has found itself on the wrong side of the ethics issue and the law. In 2008, after years of investigation, Siemens agreed to pay more than 1.34 billion euros in fines to American and European authorities to settle charges that it routinely used bribes and slush funds to secure huge public-works contracts around the world. “Officials said that Siemens, beginning in the mid-1990s, used bribes and kickbacks to foreign officials to secure government contracts for projects like a national identity card project in Argentina, mass transit work in Venezuela, a nationwide cell phone network in Bangladesh and a United Nations oil-for-food program in Iraq under Saddam Hussein. ‘Their actions were not an anomaly,’ said Joseph Persichini Jr., the head of the Washington office of the Federal Bureau of Investigation. ‘They were standard operating procedures for corporate executives who viewed bribery as a business strategy.’”Eric Lichtblau and Carter Dougherty, “Siemens to Pay $1.34 Billion in Fines,” New York Times, December 15, 2008, accessed February 22, 2011, http://www.nytimes.com/2008/12/16/business/worldbusiness/16siemens.html.
Ethics in Action
Each year Transparency International analyzes trends in global corruption. The following is an excerpt from their 2010 Global Corruption Barometer report.
“Corruption has increased over the last three years, say six out of 10 people around the world. One in four people report paying bribes in the last year. These are the findings of the 2010 Global Corruption Barometer.
The 2010 Barometer captures the experiences and views of more than 91,500 people in 86 countries and territories, making it the only world-wide public opinion survey on corruption.
Views on corruption were most negative in Western Europe and North America, where 73 per cent and 67 per cent of people respectively thought corruption had increased over the last three years.
“The fall-out of the financial crises continues to affect people’s opinions of corruption, particular in North America and Western Europe. Institutions everywhere must be resolute in their efforts to restore good governance and trust,” said Huguette Labelle, Chair of Transparency International.
In the past 12 months one in four people reported paying a bribe to one of nine institutions and services, from health to education to tax authorities. The police are cited as being the most frequent recipient of bribes, according to those surveyed. About 30 per cent of those who had contact with the police reported having paid a bribe.
More than 20 countries have reported significant increases in petty bribery since 2006. The biggest increases were in Chile, Colombia, Kenya, FYR Macedonia, Nigeria, Poland, Russia, Senegal and Thailand. More than one in two people in Sub-Saharan Africa reported paying a bribe—more than anywhere else in the world.
Poorer people are twice as likely to pay bribes for basic services, such as education, than wealthier people. A third of all people under the age of 30 reported paying a bribe in the past 12 months, compared to less than one in five people aged 51 years and over.
Most worrying is the fact that bribes to the police have almost doubled since 2006, and more people report paying bribes to the judiciary and for registry and permit services than five years ago.
Sadly, few people trust their governments or politicians. Eight out of 10 say political parties are corrupt or extremely corrupt, while half the people questioned say their government’s action to stop corruption is ineffective.
“The message from the 2010 Barometer is that corruption is insidious. It makes people lose faith. The good news is that people are ready to act,” said Labelle. “Public engagement in the fight against corruption will force those in authority to act—and will give people further courage to speak out and stand up for a cleaner, more transparent world.”Transparency International, “Global Corruption Barometer 2010,” accessed February 22, 2011, http://www.transparency.org/policy_research/surveys_indices/gcb/2010.
Gift giving in the global business world is used to establish or pay respects to a relationship. Bribery, on the other hand, is more commonly considered the practice in which an individual would benefit with little or no benefit to the company. It’s usually paid in relation to winning a business deal, whereas gift giving is more likely to be ingrained in the culture and not associated with winning a specific piece of business. Bribery, usually in the form of a cash payment, has reached such high proportions in some countries that even locals express disgust with the corruption and its impact on daily life for businesses and consumers.
The practice of using connections to advance business interests exists in just about every country in the world. However, the extent and manner in which it is institutionalized differs from culture to culture.
In Western countries, connections are viewed informally and sometimes even with a negative connotation. In the United States and other similar countries, professionals prefer to imply that they have achieved success on their own merits and without any connections. Gift giving is not routine in the United States except during the winter holidays, and even then gift giving involves a modest expression. Businesses operating in the United States send modest gifts or cards to their customers to thank them for business loyalty in the previous year. Certain industries, such as finance, even set clear legal guidelines restricting the value of gifts, typically a maximum of $100.
In contrast, Asian, Latin American, and Middle Eastern cultures are quick to value connections and relationships and view them quite positively. Connections are considered essential for success. In Asia, gift giving is so ingrained in the culture, particularly in Japan and China, that it is formalized and structured.
For example, gift giving in Japan was for centuries an established practice in society and is still taken seriously. There are specific guidelines for gift giving depending on the identity of the giver or recipient, the length of the business relationship, and the number of gifts exchanged. The Japanese may give gifts out of a sense of obligation and duty as well as to convey feelings such as gratitude and regret. Therefore, much care is given to the appropriateness of the gift as well as to its aesthetic beauty. Gift giving has always been widespread in Japan.
Today there are still business gift-giving occasions in Japan, specifically oseibo (year’s end) and ochugen (midsummer). These are must-give occasions for Japanese businesses. Oseibo gifts are presented in the first half of December as a token of gratitude for earlier favors and loyalty. This is a good opportunity to thank clients for their business. Ochugen usually occurs in mid-July in Tokyo and mid-August in some other regions. Originally an occasion to provide consolation to the families of those who had died in the first half of the year, ochugen falls two weeks before obon, a holiday honoring the dead.
Businesses operating in Japan at these times routinely exchange oseibo and ochugen gifts. While a professional is not obligated to participate, it clearly earns goodwill. At the most senior levels, it is not uncommon for people to exchange gifts worth $300 or $400. There is an established price level that one should pay for each corporate level.
Despite these guidelines, gift giving in Japan has occasionally crossed over into bribery. This level of corruption became more apparent in the 1980s as transparency in global business gained media attention. Asians tend to take a very different view of accountability than most Westerners. In the 1980s and 1990s, several Japanese CEOs resigned in order to apologize and take responsibility for their companies’ practices, even when they did not personally engage in the offending practices. This has become an accepted managerial practice in an effort to preserve the honor of the company. While Japanese CEOs may not step down as quickly as in the past, the notion of honor remains an important business characteristic.
Long an established form of relationship development in all business conducted in Asia, the Arab world, and Africa, gift giving was clearly tipping into outright bribery. In the past two decades, many countries have placed limits on the types and value of gifts while simultaneously banning bribery in any form. In the United States, companies must adhere to the Foreign Corrupt Practices Act, a federal law that specifically bans any form of bribery. Even foreign companies that are either listed on an American stock exchange or conduct business with the US government come under the purview of this law.
There are still global firms that engage in questionable business gift giving; when caught, they face fines and sanctions. But for the most part, firms continue with business as usual. Changing the cultural practices of gift giving is an evolving process that will take time, government attention, and more transparency in the awarding of global business contracts.
Companies and their employees routinely try to balance ethical behavior with business interests. While corruption is now widely viewed as unethical, firms still lose business to companies that may be less diligent in adhering to this principle. While the media covers stories of firms that have breached this ethical conduct, the misconduct of many more companies goes undetected. Businesses, business schools, and governments are increasingly making efforts to deter firms and professionals from making and taking bribes. There are still countless less visible gestures that some would argue are also unethical. For example, imagine that an employee works at a firm that wants to land a contract in China. A key government official in China finds out that you went to the business school that his daughter really wants to attend. He asks you to help her in the admission process. Do you? Should you? Is this just a nice thing to do, or is it a potential conflict of interest if you think the official will view your company more favorably? This is a gray area of global business ethics. Interestingly, a professional’s answer to this situation may depend on his or her culture. Cultures that have clear guidelines for right and wrong behavior may see this situation differently than a culture in which doing favors is part of the normal practice. A company may declare this inappropriate behavior, but employees may still do what they think is best for their jobs. Cultures that have a higher tolerance for ambiguity, as this chapter discusses, may find it easier to navigate the gray areas of ethics—when it is not so clear.
Most people agree that bribery in any form only increases the cost of doing business—a cost that is either absorbed by the company or eventually passed on to the buyer or consumer in some form. While businesses agree that corruption is costly and undesirable, losing profitable business opportunities to firms that are less ethically motivated can be just as devastating to the bottom line. Until governments in every country consistently monitor and enforce anticorruption laws, bribery will remain a real and very challenging issue for global businesses.
Corporate Social Responsibility
Corporate social responsibility (CSR) is defined as “the corporate conscience, citizenship, social performance, or sustainable responsible business, and is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms.”Wikipedia, s.v. “Corporate social responsibility,” last modified February 17, 2011, accessed February 22, 2011, http://en.wikipedia.org/wiki/Corporate_social_responsibility.
CSR emerged more than three decades ago, and it has gained increasing strength over time as companies seek to generate goodwill with their employees, customers, and stakeholders. “Corporate social responsibility encompasses not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm.”“Defining Corporate Social Responsibility,” Corporate Social Responsibility Initiative, Harvard Kennedy School, last modified 2008, accessed March 26, 2011, http://www.hks.harvard.edu/m-rcbg/CSRI/init_define.html. Companies may support nonprofit causes and organizations, global initiatives, and prevailing themes. Promoting environmentally friendly and green initiatives is an example of a current prevailing theme.
Coca-Cola is an example of global corporation with a long-term commitment to CSR. In many developing countries, Coca-Cola promotes local economic development through a combination of philanthropy and social and economic development. Whether by using environmentally friendly containers or supporting local education initiatives through its foundation, Coca-Cola is only one of many global companies that seek to increase their commitment to local markets while enhancing their brand, corporate image, and reputation by engaging in socially responsible business practices.“Sustainability,” The Coca-Cola Company, accessed March 27, 2011, http://www.thecoca-colacompany.com/citizenship/index.html.
Companies use a wide range of strategies to communicate their socially responsible strategies and programs. Under the auspices of the United Nations, the Global Compact “is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.”United Nations Global Compact website, accessed January 9, 2011, http://www.unglobalcompact.org. The Global Compact will be discussed in more detail in Chapter 5 "Global and Regional Economic Cooperation and Integration".
Enforcement of Ethical Guidelines and Standards
The concept of culture impacting the perception of ethics is one that many businesspeople debate. While culture does impact business ethics, international companies operate in multiple countries and need a standard set of global operating guidelines. Professionals engage in unethical behavior primarily as a result of their own personal ethical values, the corporate culture within a company, or from unrealistic performance expectations
In the interest of expediency, many governments—the US government included—may not strictly enforce the rules governing corporate ethics. The practice of gift giving is one aspect of business that many governments don’t examine too closely. Many companies have routinely used gifts to win favor from their customers, without engaging in direct bribery. American companies frequently invite prospective buyers to visit their US facilities or attend company conferences in exotic locales with all expenses paid. These trips often have perks included. Should such spending be considered sales and marketing expenses, as they are often booked, or are these companies engaging in questionable behavior? It’s much harder to answer this question when you consider that most of the company’s global competitors are likely to engage in similarly aggressive marketing and sales behavior.
Governments often do not enforce laws until it’s politically expedient to do so. Take child labor, for example. Technically, companies operating in India or Pakistan are not permitted to use child labor in factories, mines, and other areas of hazardous employment. However, child labor is widespread in these countries due to deep-rooted social and economic challenges. Local governments are often unable and unwilling to enforce national rules and regulations. Companies and consumers who purchase goods made by children are often unaware that these practices remain unchecked.
The Evolution of Ethics
Ethics evolves over time. It is difficult for both companies and professionals to operate within one set of accepted standards or guidelines only to see them gradually evolve or change. For example, bribery has been an accepted business practice for centuries in Japan and Korea. When these nations adjusted their practices in order to enter the global system, the questionable practices became illegal. Hence a Korean businessman who engaged in bribery ten or twenty years ago may not do so today without finding himself on the other side of the law. Even in the United States, discrimination and business-regulation laws have changed tremendously over the last several decades. And who can know what the future holds? Some of the business practices that are commonly accepted today may be frowned on tomorrow.
It’s clear that changing values, as influenced by global media, and changing perceptions and cultures will impact global ethics. The most challenging aspect is that global business does not have a single definition of “fair” or “ethical.” While culture influences the definitions of those ideas, many companies are forced to navigate this sensitive area very carefully, as it impacts both their bottom line and their reputations.
- Culture impacts how local values influence the concept of global business ethics. Each professional is influenced by the values, social programming, and experiences he or she has absorbed since childhood. These collective factors impact how a person perceives an issue and the related correct or incorrect behavior. For some cultures, the evolution of international business and culture sometimes creates a conflict, such as what is seen in gift-giving practices or views on women in the workplace.
- Ethics impacts global business in the areas of management, corruption, and corporate social responsibility.
(AACSB: Reflective Thinking, Analytical Skills)
- Define ethics and discuss how it impacts global business.
- How does culture impact global business ethics?
- How can global firms develop and enforce ethical guidelines and standards?