International Company and Ethics

International Company and Ethics				environment and community involvement, Levi
The issue of business ethics is engaging companies				Strauss's business partners must adhere to the
more and more - both domestically and internationally.				following employment guidelines:
This trend is accentuated by high-profile examples of				-Wages and benefits: business partners must comply
breaches of accepted standards of ethical behavior.				with any applicable law and the prevailing
For example, the recent Enron case where				manufacturing and finishing industry practices.
inadequate checks and balances within the firm				-Working hours: partners must respect local legal limits
enabled unethical behavior to occur, a development				on working hours and preference will be given to
made easier by the failure of the external auditor to				those who operate less than a 60-hour working
fulfill its role properly. Assumptions about ethics and				week. Levi Strauss will not use partners that regularly
business are influenced inevitably by fundamental				require workers to work in excess of 60 hours.
beliefs about the role of business in society. On the				Employees should also have at least one day off per
one hand, there are those who believe that the sole				week.
social responsibility of business is to generate profit.				-Child labor: use of child labor is not permissible in any
For some proponents of this view, profit generation				of the facilities of the business partner. Workers
itself takes on a moral dimension whereas others see				must not be below 15 years of age or below the
profits as the key to wealth generation - the main				compulsory school age.
way of addressing social issues (Davies, 1997, p. 88).				-Disciplinary practices: Levi Strauss will not use
On the other hand, others believe that the role of				business partners who use corporal punishment or
business is much broader than that of profit				other forms of physical or mental coercion.
generation and that all those who are affected by				-Prison/forced labor: no prison or forced labor is to be
the way a company operates - shareholders,				used by business partners nor will Levi Strauss use or
employees, customers, suppliers, the local community,				buy materials from companies using prison or forced
future generations (especially in relation to				labor.
environmental issues) - have a legitimate interest and				-Freedom of association: the rights of workers to join
stake in the way a company conducts itself.				unions and to bargain collectively must be respected.
Many of these concerns are relevant to business				-Discrimination: while respecting cultural differences,
whether it is domestic or international in nature.				Levi Strauss believes workers should be employed on
However, international business poses particular				the basis of their ability to do their job
challenges and questions over and above those				-Health and safety: Levi Strauss undertakes to use
facing purely domestic business. In order to reconcile				business partners who provide a safe and healthy
doing business internationally and remain ethical, the				working environment and, where appropriate
company should follow the main principles of human				residential facilities
rights, comply with legal norms related to labor, avoid				2.Country assessment guidelines: these are used to
corruption and correspond to standards of				address broad issues beyond the control of individual
environmental protection. Even though it is not easy				business and are intended to help Levi Strauss assess
to combine making profit and adjusting to ethical				the degree to which its global reputation and success
principles, sometimes failure to comply with legal				may be exposed to unreasonable risk. It was an
norms and standards my result in negative public				adverse country assessment that caused Levi
image for the international company and loss of				Strauss to cease its engagement in China in the early
customers. Therefore, international company can				1990s, largely on human rights grounds - a decision
suffer even more damages if it decides not to follow				that has subsequently been reversed. In particular,
the ethical principles.				the company assesses whether:
The first issue related to ethics is human rights. It is a				-the brand image will be adversely affected by the
generally accepted principle that international				perception or image of a country among customers;
company should not engage in direct infringement of				-the health and safety of employees and their
human rights the UN Universal Declaration of Human				families will be exposed to unreasonable risk;
Rights (UDHR) is commonly taken as the appropriate				-the human rights environment prevents the
benchmark. However, some people would go further,				company from conducting business activities in a
preferring companies to refrain from doing business in				manner consistent with the global guidelines and other
countries known to infringe human rights on a				company policies;
systematic basis. Opponents of this view argue that				-the legal system prevents the company from
if an international company abstains from conducting				adequately protecting trademarks, investments or
business in a country with an ethically dubious regime,				other commercial interests;
the only concrete result is to hand over business				-the political, economic and social environment
opportunities to companies without such reservations				protects the company's commercial interests and
(Barlett and Ghoshall, 1998, p. 110).				brand corporate image.
On coming to office in 1992, for example, President				Levi Strauss is the example of the company that
Clinton proposed to withdraw MFN status from China				successfully combines doing business and following
as a result of the Tiananmen Square massacre in				ethical practices. As we see, the company code of
1989 in which many pro-democracy demonstrators				ethics demonstrates that Levi Strauss complies with
were killed (Kepstein, 2001, p. 108). Such action would				the most labor norms and environmental standards;
have provoked retaliation against US companies				at the same time such actions of the company do
operating in China and US business lobbied hard to				not have any negative impact upon its business. On
persuade the president to change his mind. They				the contrary, since Levi Strauss has positive public
argued that US business interests would be				image the customers should be more attracted to its
irrevocably damaged in a rapidly growing market and				products.
that the outcome would not be an improvement in				Some of the other important ethical issues that the
human rights in China but a boost to the business				company should consider is bribery and corruption.
prospects of American business rivals in China. The				Bribery/corruption is not as clear-cut an issue as
lobbying campaign was successful: the link between				might first appear; indeed it can be rather a grey
trade and human rights was broken and replaced by				area. In some cultures, it is regarded as perfectly
the doctrine that the possibility of bringing about				normal to give an official or host a gift (Asgary and
change is greater if business and other links and				Mitschow, 2002, p. 245). In others, only minimal value
contacts are maintained.				token gifts or no gifts at all are allowed. A problem
International labor issues can be linked with human				arises when it is the norm for a contract to be
rights, especially regarding matters of forced labor				signed only after the payment of a 'commission' to a
and child labor. Ethical labor issues also occur outside				key official or officials (Asgary and Mitschow, 2002, p.
the framework of the Universal Declaration of Human				240). Such circumstances place international
Rights in circumstances where certain labor practices				companies in a difficult position: without payment of
may be legal and commonplace in the host country				these commissions, the contract will not materialize
but do not necessarily represent fair and equitable				and, if they do not make the payment, many other
treatment of the workforce. The issue facing an				companies will (although that is not an ethical
international company is: does it maximize its				justification for going ahead with the commission).
competitive advantage by locating in a low-cost				The position of the US is unequivocal about this: it
low-regulation country and adopt local practices or				regards all such payments as bribes and, as such,
does it refrain from reaping all the labor cost benefits				they are both unethical and illegal. The Foreign
by adopting higher standards and more ethical				Corrupt Practices Law forbids US companies from
practices than strict compliance with local legal norms				making improper payments to foreign governments,
requires? A firm may choose to take the latter path				politicians or political parties to obtain or retain
and still experience significant competitiveness gains.				business. Therefore, the only choice that American
Corporate codes of conduct governing general				companies have regarding bribery is not to make any
corporate behavior and treatment of the workforce				payments regarded as bribes; otherwise, it can be
in particular are not new. Their modern manifestation				considered that a company violates the law.
began in the mid-twentieth century in the form of				The last ethical challenge that international companies
codes from the International Chamber of Commerce				face is related to environmental protection. Firms can
and other collective codes (Donaldson, 1989, p. 55).				encounter damaging publicity as a result of the
Their popularity surged once more in the 1990s in				environmental outcome of their activities as pollution
response to pressure from NGOs, the emergence of				attracts more and more media attention (Barlett and
corporate social responsibility as a key consideration				Ghoshal, 1998, p. 98). For many, environmental
for firms and the phenomenon of socially responsible				protection and corporate responsibility in this field has
investment and shareholder action. Additionally,				a clear ethical dimension. This debate is couched in
discussion of the possible inclusion of labour regulation				terms of the 'global commons' in which all human
under the WTO umbrella encouraged international				beings have both a stake and a responsibility to
firms to assume greater responsibility for their own				ensure the well-being of the environment for future
labor standards, if only to demonstrate that				generations (Donaldson, 1989, p. 211).
international regulation was unnecessary. Corporate				In order to reconcile doing business and meeting
codes of conduct take many forms. Many				environmental ethical standards an international
international firms have developed their own individual				company should comply with the following underlying
codes to cover their own employees and those of				principles in environmental policy.
their contractors and suppliers. Some industries have				The first norm refers to the "polluter pays principle."
developed their own codes. Whatever form they				It stipulates that polluters should pay the full cost of
take, codes are necessary for the positive public				the environmental damage they cause (DeGeorge,
image of international company and they				1993, p. 100). Environmental costs are often referred
demonstrate that the company reconciles doing				to as 'externalities' (for example, damage to health,
business and acting ethically. Codes need to comply				rivers, the air, etc. arising from economic activity)
with a number of conditions before they can be said				that are not incorporated into the costs of a product
to operate equitably and with credibility (DeGeorge,				but are borne by society as a whole (DeGeorge,
1993, p. 88):				1993, p. 100). By making the polluter pay the full cost
1.the contents of the code must be clearly worded				of its activities, including externalities, this principle
and, at a minimum, comply with core standards;				provides an incentive to make products less polluting
2.the company adopting the code must be				and/or to reduce the consumption of polluting goods.
committed to it and be prepared to provide the				This internalization of external costs can be met
resources to ensure its implementation, including				through the use of market-based, policy instruments.
training, information systems for monitoring and				The other principle refers to prevention. If the
compliance and staff to implement new procedures;				company decides to follow the prevention principle it
3.knowledge of the code throughout the organization				changes to products and processes to prevent
is essential to its implementation: in particular,				environmental damage occurring rather than relying
employees of the firm and its subcontractors and				on remedial action to repair damage after it has
suppliers must know of the contents of the code				taken place (Davies, 1997, p. 108). This implies the
and a reporting system must be established that				development of 'clean technologies'; minimal use of
enables workers to report infringements without fear				natural resources; minimal releases into the
of reprisals;				atmosphere, water and soil; and maximization of the
4.the code should be subject to verification by				recyclability and lifespan of products.
independent assessors who have access to the site				In conclusion, international business adds an extra
unannounced at any time.				dimension to ethical issues within the firm. All
The application of such codes can enhance internal				organizations have their own culture based on
governance and facilitate internal management across				common language and terminology, behavioral norms,
geographically dispersed sites. There is some				dominant values, informality/formality, etc. This
evidence to show that real commercial benefits can				inevitably becomes more complex when an
be gained from the proper application of fair and				organization has a presence in more than one
equitable labor standards, although more widespread				country. Some companies believe a strong corporate
research needs to be done on this (DeGeorge, 1993,				culture is a means of overcoming diverse national
p. 111). Provided the code of conduct adopted by a				cultures whereas others evolve different cultures in
firm has external credibility, it can both protect and				different organizations and incorporate cultural
enhance a firm's reputation, particularly important				diversity in their management strategy. Many
these days when more is expected of firms in terms				organizations like Coca-Cola and McDonald's do use
of corporate social responsibility.				core brands but still adapt their products for local
Levi Strauss is one of the world's largest brand-name				markets and follow ethical standards, either out of
clothes manufacturers and also one of the first				necessity or to maximize returns. Ethics and
international companies to adopt a corporate code of				corporate social responsibility are closely related.
conduct to apply to all contractors who manufacture				Debates about corporate social responsibility have
and finish its products and to aid selection of which				been dominated by labor and environmental issues
countries in which to operate (DeGeorge, 1993, p.				but a growing number of corporate governance
118). The Code of Conduct has two parts:				scandals involving multinationals is increasing pressure
1.Business partner terms of engagement: Levi Strauss				for stricter regulation. International companies can
uses these to select business partners that follow				reconcile doing business internationally and remaining
workplace standards and practices consistent with its				ethical if they comply with labor and environmental
policies and to help identify potential problems. In				norms enacted at the international level and establish
addition to meeting acceptable general ethical				and follow the code of ethics. In the long run,
standards, complying with all legal requirements and				corporate commitment to sound ethical principles and
sharing Levi Strauss's commitment to the				socially responsible behavior is good for business.

Global Trade

International Company and Ethics