Sunday, January 15, 2006

Essay: A Quest for Multi-National Corporate Ethics

Essay: A Quest for Multi-National Corporate Ethics

Application of ethical principles globally by multinational organizations and their employees is necessary. UN Secretary-General Kofi Annan warns, “make sure that in your own corporate practices you uphold and respect human rights; and that you are not yourselves complicit in human rights abuses” (UN, 1999 in Richter, 2001, p. 14). International deregulations have allowed growth across borders, and access to under-skilled, under-educated, under-paid labour, “FDI in the developing world rose from roughly $20 billion a year during the 1980s to over $200 billion a year by the late 1990s” (Litvin, 2003, p. 219). Globalization permits few new national or international regulations, coinciding with the arrival of the WTO in 1995. Thankfully, social responsibility is becoming more important to investors, stakeholder interests are growing, and accountability is becoming more feasible through a variety of management models. These three financial factors should encourage multinationals to develop ethical principles.

Concepts of global ethics are not new, nor are they necessarily costly. Many nations encouraged ratifications of ILO standards over the past century. Additionally, globalization improves standards, “…the number of people in the East Asia region (excluding China) living on less than a dollar a day fell from 114 million in 1987 to 54 million in 1998” (Litvin, 2003, p. 235). However, Legge (2000) believes most effective HRM practices perpetuate exploitation of workforces through full-time versus peripheral/flexible designations. For example, flexibilization among multinationals causes relocation to exploit their workforces. While some corporations claim ethical principles already in place as the core of their business practices, more commonly, ethics appear reactionary to media criticism, supporting, “… a close relationship between E and F in the alphabet. E is for exploitation and F is for flexibility “(Purcell and Purcell, 1996, in Legge, 2000, p.36).

There are two ways of arguing that a multinational is not responsible for the global ethics of their subsidiaries or subcontractors. The first argument is that host-country and home-country governments have not instituted regulations upon multinationals addressing the issues of child labour, minimum wage rates, workplace safety, educational programs, or job security. This allows MNCs to operate through the utilitarianism of Milton Friedman, “using resources and engaging in activities designed to increase profits so long as it stays within the rules that have been defined” (Kok, van der Weile, McKenna, and Brown, 2001, p.288). Global rules of work at MNC levels have never been defined, partially as a result of corporate resistance to regulations. IR support systems in many developing economies are weak, or rudimentary, multinationals claim they cannot establish ethics based upon profits alone or throughout diverse host-countries systems of supplier networks and subcontracting factories. Since corporate will demands self-regulation, good governance of multinational ethical principles is difficult to establish without complete commitment of executive management, which remains elusive due to perceived costs, lack of global experience, lack or understanding of local conditions.

Body Shop International (BSI) claims investment in local economies and positive impact upon the quality of life of their workforce, particularly a small group of Kayapo Indians in Brazil, widely publicized in a ‘Trade not Aid’ program. BSI ranked first in 1995 for a UNEP award and for green reports in the UK in 1998, although some question the degree of BSI corporate social responsibility. For example, the German Government sued BSI for false advertising in 1989, and won, claiming that, ”all cosmetics companies use ingredients tested on animals by third parties”(Dennis, Neck, and Goldsby, 1998, p.651). In addition, the Kayapos received a meager portion of some 0.165 percent of gross sales dedicated to the entire ‘Trade not Aid’ program, and were also used in advertising without compensation (Bavaria et al., 1994, in Dennis, Neck, and Goldsby, 1998). More recently, BSI was evaluated as incomplete in transparency and social responsibility reporting (Livesey and Kearins, 2002). Although the company is innovative, the evidence suggests BSI may not be as ethical as its image, exemplifying that, “corporate volunteerism alone will not be sufficient to correct fundamental failures in the market system; government regulation as well as informal regulation by advocacy and citizens groups will continue to have a critical part to play… “(Newton & Hart, 1997, in Livesey and Kearins, 2002, p.256). This example illustrates that ethical branding of corporate images are insufficient, ethical principles need to be employed by corporations who claim a higher standard.

Ethical principles should also apply to marketing, and sale of products, to ensure the safety of consumers. As recently as the year 2000, the World Health Organization estimated 1.5 million children continue to die annually of preventable deaths as a result of not being breast-fed (Richter, 2001). Since the early 1970s, UNICEF and the World Council of Churches were among other NGOs and special-interest groups advocating regulation, and continued monitoring, of Nestlé Corporation’s business practices worldwide. These included subsidized and free distribution of formula falsely advertised as equivalent to breast milk (to encourage dependency) at hospitals, medical clinics, and through ‘milk-nurses’ giving samples and advice to new mothers.

Richter revealed Nestlé shareholder dividends have been achieved through bribery of local officials in small, poverty-stricken governments, through professional medical sponsorships, pseudo-scientific endorsement of baby food products, and continued, periodic disregard for even the weakest of non-binding agreements tabled by the WHO. Nestlé and its competitors spent millions employing hidden methods to communicate and lobby international and national policy-making bodies, particularly the US government, to protect a multi-billion dollar industry, successfully preventing WHO regulation of the infant-food industry in the early 1980s (Richter, 2001). Marketing which once defined powdered milk as equivalent to mothers’ breast milk, is still implied with Nestlé’s reinterpretations of regulatory standards (Richter, 2001).

This results in continued infant malnutrition, and periodic global boycotts of Nestlé products claiming exploitation and murder. Such an example defines the ethical challenges of globalization, in one small segment of a corporate product line, and the failures of multinationals in the area of self-regulation. Richter states, “Self-regulation may be unproblematic when it comes to ensuring a standardized size of shoes, for example. It is insufficient, in areas of vital importance to society” (2001, p. 206). Nestlé continued to fight national legislation in India as recently as 1999 (Gupta, 1999, in Richter, 2001). This illustrates an impact upon Nestlé profits, through unethical marketing and sale of harmful products, and unethical tactics to resist regulation. Richter concedes Nestlé entry to the US market was severely affected by its brand image as a result of its unethical practices.

Thus ethical interventions do not always succeed, requiring the heightened commitment of global MNCs. As in the case of child labour in Bangladesh, evidence suggests that ill-planned attempts to regulate workplace conditions in the developing world may actually result in more damage to the workforce. For example, Nike attempted to improve working conditions based on media reports of the employment of child labour in their factories, discovering it is nearly impossible to guarantee that their intended global ethical standards are locally maintained at the subcontracting level (Litvin, 2003). Yet, without global media attention, Nike would not have begun to develop corporate social responsibility. Without such programs, global ethics at the self-regulatory level could not be assessed or analyzed (Litvin, 2003). In the long run, Nike is developing ethical principles, but requires innovative methods that are cost effective, to implement them in offshore locations. Despite best intentions, even US lead sanctions against Bangladesh resulted in far worse conditions:

A 1995 Oxfam report reckoned that between 1993-4 around 30,000 of the 50,000 children working in textile firms in Bangladesh were thrown out of factories because suppliers feared losing their business if they continued to employ children. Because of poverty, the majority of these children had been forced to turn to prostitution or other “industries like welding, where conditions pose far greater risks to them.” (Meade, 1994, p. 125)

Companies like Nestlé and Nike exemplify the scope of disparity between developed world perceptions of ethics and their feasible application globally. Their remedial brand image control anticipated ethical concerns especially when spotlighted in the media, through the efforts of spokespeople, like Ken Saro-Wiwa[1], or through the advocacy of organizations such as OXFAM, UNICEF, WHO or the ILO. This implies that MNC ethical principles are necessary to meet local and global measures of their success, which require corporate self-regulations as stringent as national or international standards, to satisfy advocacy groups, and through the media, to satisfy the ethical expectations of global consumers. Nestlé continues to claim it monitors infant-food supplements throughout the world as a member of a self-regulating inter-corporate organization, the International Council of Infant Food Industries (ICIFI). Yet this agency primarily pursued policies to thwart regulation of their industry rather than implement satisfactory regulations (Richter, 2001). Nike engaged criticism of its factory production practices and child-labourers, by agreeing to organize standards committees and regular inspections (Litvin, 2003) (Legge, 2000). But this proved insufficient in regulating thousands of sourcing companies. In each case, some essential flaws in cross-cultural management communications were being made.

Few companies would knowingly perpetuate actions that destroy their brand images. But corporate headquarters of many multinational corporations have simply not kept pace with the responsibilities required of worldwide investment. For example, similar disinterest to global concerns can be registered among local consumers of their goods. Directives may be issued at head office; distance and cross-cultural challenges can inhibit the implementation of ethical codes of practice. Therefore, standards and treatment of developing-world employees are only as effective as management commitment to understanding the local working and living conditions of their employees, or those of their subcontractors and suppliers. “Without a top management commitment to ethics, a company’s ethics practices may be the kind that employees can easily ignore.” (Weaver, Trevino, and Cochran, 1999, p.550)

In the case of Nestlé, negligence appears deliberate, harmful to human life, and damaging to corporate profits and brand image. The world is watching each media report on ethical mismanagement. In the case of Nike, top managers claimed lack of awareness of local working conditions, another form of negligence. Studies reveal, “…managers appear to have been oblivious at first to the ethical dilemmas involved in…expansion in the developing world…”(Litvin, 2003, p. 224). Many managers at companies like Adidas, Nike, The Gap, and Royal Dutch Shell realized their responsibilities too late, when corporate image had already been damaged. This exemplifies that ethical principles should have been the foundation of their global development as, “…managers…hold important, or even primary, responsibility for the integration of responsible corporate processes into organizations daily activities” (Weaver, Trevino, and Cochran, 1999, p. 550).

The second argument that ethical principles should not be applied globally is that no standards of global ethics have been devised which address the diversity of national values. Further, such ethical standards would increase labour costs and preclude investment (Legge, 2000). Finally, due to a lack of globally conceded ethics, no evidence suggests that ethical principles improve the profitability of a corporation (Aupperle et al., 1985, in Warin and Lewer, 2004). But, it is in the interest of irresponsible multinationals to support this evidence, and may be a reflection of inadequate accounting methods for calculating intangible assets, namely, brand image and workforce. There are innovative methods of implementing global ethics in multinational companies.

Martin (2003) provides a strategic framework for corporations called a virtue matrix, which can accurately assess social factors, such as local citizens, employees, political authorities, and not exclusively the decisions made by shareholders. He identifies barriers to corporate virtue and how to overcome them. Kok, van der weile, McKenna, and Brown (2001) developed an audit instrument of social responsibility on the basis of ethical codes that could be included in self-assessment strategies used in international quality awards programs. It consists of a series of progressive assessment categories in ethics management and would allow distinctions in ethical development.

Corporate Social Responsibility Assessment Categories

1. No set minimum standards

2. Only following compulsory laws

3. Planned policy, which only includes special interest groups

4. Evaluated and reviewed, including all parties, not linked to business performances (Kok, van der weile, McKenna, and Brown, 2001)

Innovators in quality control systems, such as Canon, realize improved efficiency and best practice are linked to empowerment of workers and cooperation with management to form mutual trust and good leadership. Kaku (2003) exemplifies ethical corporate practices put in place at Canon, through a five-step program called kyosei (spirit of cooperation). Some aspects of this system are inherently Japanese, but some Japanese multinationals have devised novel methods of evolving global ethical principles, through extension of localized networking. Such a framework signifies five steps of effective global business management that could suitably be incorporated into contemporary quality-award programs. Body Shop International 2004 revenue is estimated at over 711 million, Nestlé SA 2004 revenue is estimated at 70.8 billion, and Nike 2003 revenue at 945.6 million (Hoovers, 2004) but all appear to fall in the stage one category of the kyosei scale, at mere economic survival, although their annual earnings do not support this designation. It also implies that their subsequent stages of globalization and management strategy have yet to occur.

Spirit of Cooperation (Kyosei)

Stage One: Economic Survival
Stage Two: Cooperating with Labour
Stage Three: Cooperating Outside the Company
Stage Four: Global Activism
Stage Five: The Government as Partner
(Kaku, 2003)

What can best be said in regard to a global definition of ethics is that despite difficulty, it remains necessary, it has yet to be agreed upon, and that it could take a form of moral pluralism, which, “refuses to presume that all ethical activities…are in all contexts…determined by the same features…or even that they are subject, in each case, to the same overarching principles” (Stone, 1993, pp.79-80). There are few global benchmarks to determine best practice of multinational ethical principles; thus innovative global ethical principles are still left to CEOs, who, “desperately need a morality beyond culture, and knowledge beyond both morality and culture “(Prodhan, 1994, p.16).

This essay may appear naïve in its assertion, that globalization of workplace ethics is the modern world’s greatest necessity. To choose humanism over our basest weaknesses of greed and complacency in world affairs may be the future role of governments and national standards agencies. However, due to deregulations they are the least equipped to do so. In comparison, MNCs appear to require greater skills, ingenuity, or moral resources to do so themselves. The greatest contribution to social corporate responsibility trends of MNCs could be the influence of the baby-boomer generation, already becoming more socially responsible investors than the previous generation (Waring and Lewer, 2004) and soon to be the wealthiest retirees in history. This influence of investors, in combination with the powers of union-based investment funds, is credited with the successful embargo of South Africa that helped end apartheid. The future of multinational ethical principles represents the growing importance of consumers to a future wave of globalization in the realm of human rights for workers, and ethical investments in action.


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[1] Royal Dutch Shell reacted to negative media reports generated in Ogoni settlements of the Niger River Delta with a revamping of corporate transparency rules and the execution of a commitment to social responsibility. (Litvin, 2003, pp. 249-273)

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