Ethical Dilemma in Today

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Ethical Dilemma in Today's Business

Global interdependence is a compelling dimension of the global businessenvironment, creating demands on international managers to take a positivestance on issues of ethical behavior, social responsibility, economicdevelopment in host countries, and environmental protection around theworld. However, there were still several large multinational companiesindulging in ethically questionable practices. If MNCs behave unethically,it soon comes to the notice of the publ ic and the companys image istainted. Multinationals are often worse off for having behaved unethicallyin the interest of short term gains, as the bad publicity generated byunethical practices leads to far greater losses in the long run.

In the challenge of modern society, manager or worker often encounters asituation than challenges ones ethical beliefs and standards. Managing

across border increasingly includes difficult ethical dilemmas. It is lessclear where to draw the line between ethical behavior and the corporationsother concerns, or between the conflicting expectations of ethical behavioramong different countries. The paper aims to (1) discuss current ethicaldilemmas in global environmental ethics, (2) examine how multinationalwould address conflicting norms and expectations by illustrating one casestudy of ethical dilemma and its resolution.

*Nestls Corporate Crimes*

*1.0 **Nestls ethical dilemmas*

*1.1. **Unethical marketing practices*

*Infant formula*

In 1977, Nestle got embroiled in a controversy, when it was criticized forusing unethical marketing practices endangering consumer health to promoteits infant formula in developing nation. A number of aid agencies calledfor the boycott of Nestle products and this protest continued right intothe 1980s, when Nestle agreed to adopt the infant formula marketing code

laid down by the World Health Organization and UNICEF. Although Nestle hada charter on infant formula, the company is usually violated the principleslaid down in it (Refer to reference3).

*Genetically Modified Foods*

Nestle was criticized for using genetically modified


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(GM)[1]ingredients in itsfood products, and was accused of dumping productsrejected in Europe in developing Asian countries where the laws on GMproducts were either absent or less stringent.

For Kant, the companys decision makers would have to be willing toadvocate marketing the product even if they were themselves in the positionof uniformed consumers. Therefore, providing unsafe products standard andill-informed consumers by Nestle is absolutely wrong.

*1.2. **Overcharged prices *

Nestle launched bottled water, called Pure Life in some Asian countrieslike Pakistan and India (in 1998 and 2001 respectively). Nestle introducedbottled water, which provided safe clean water but priced it so high that

it was unaffordable for the lower income groups. It turned water into aluxury by pricing it around $ 0.4 (in Pakistan) for a one liter bottle.

According to utilitarianism, ethical action is evaluated by looking at itsconsequences, weighing the good effects against the bad effects on all thepeople affect by it (Shaw & Barry, 2004). Most developing countries lacedbasic drinking water facilities. A very high water price was charged byNestle limiting a number of people to buy it. Nestls action produces the worse for the greatest number of South Asian because people could notafford for water which is basic human needs and is sporadic andcontaminated in south Asia countries.

* *

*1.3. **Unfair labor practices*

Nestle was one of the biggest purchasers of cocoa from Ivory Coast, acountry in West Africa. UNICEF studies and International Labor Organization(2002) revealed that the workers on these plantation lived and worked inpoor conditions. They were paid minimal wages and exploited by theland-owners. Most of the workers had been trafficked by bought and sold,

making them practically slave labor. Nestle purchased cocoa from thesefarms despite its awareness of the conditions of the laborers, thus makingit a party to their exploitation.

Child labor was also employed on the plantation. UNICEF and TheInternational Institute of Tropical Agriculture (IITA) studies (2002)revealed that over 200,000 children were shipped to Ivory Coast and other
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cocoa producing countries in Western Africa from neighboring countries likeMali and Burkina Faso, to work on the plantations, especially during theharvesting of cocoa or coffee beans.

Another unfair labor practice was occurred in Thailand. When a group of 13workers, wording in a sub-contracting facility of Nestle in Thailand,organized themselves to form a union, Nestle immediately cut the number oforders to that company and asked the company to put the unionized workerson indefinite leave with half pay. The workers were force to quit becauseof their lowered pay (Manager 2001). In doing so, Nestle had clearly deniedthese workers their right to organize themselves to better their interests.

*1.2. **Applying De Georges principles*

International business ethics refers to the conduct of MNCs in theirrelationships to all individuals and entities with whom they come intocontact (Daft, 2002). Ethical behavior is judged and based largely on thecultural value system and the generally accepted ways of doing business ineach country or society. MNC Manager must decide whether to base theirethical standards on those of the host country or those of the home countryand whether these different standards can be reconciled (Donalson, 1996).

*1.2.1. **Do no harm*

Thompson & Stickerland, (2003, p. 65) asserts that a company has ethical duties to owners, employees, customers, suppliers, the communities where itoperates, and the public at large. The norm of doing no harm requiresNestls management to look beyond its own interests (i.e., cheap cocoa, and high market-share). Unethical marketing of infant formula and GM foodsin developing countries are example of doing harm knowingly and willinglyand of benefiting from the lack of legal restraints to the detriment of theeventual consumers. If business follow Kants rule, it will provide a

quality and safe product to its entire market. Nestle decide to sellunsafe (GM) foods even it knows that the product is unsafe. In addition,Nestls marketing strategy in developing countries was to distribute freesamples to nursing mothers, thus getting the baby used to the formula veryearly in order to get a hold on its captive market. Unethically, Nestlpromoted the use of infant milk formula as a substitute for mothers milk. This unethical manner causes widespread infant malnutrition andsusceptibility to infection, which could even lead to infant death.Following this norm, Nestle should preserve the safety and health of


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consumers by disclosure of appropriate information, proper labeling andaccurate advertising.

Workers on cocoa production from Ivory cost were paid below minimal wagesand were practiced as slave labor. Despite its awareness of the conditionsof the labors, Nestle continued purchased of cocoa from these suppliers.The company must pressurize its suppliers to change because it is in aposition ofmajor buyer. Regarding to Nestls in Thailand, the company should respect the right of employees to organize for the purpose ofcollective bargaining. Nestle had better prohibit retaliation to theiremployees, though disciplinary action, or an anti-harassment policy. Inaddition to Anti- harassment, companies need to develop policies andprocedures to prevent retaliation against individual who file complaints ofharassment or discrimination or who participate in their investigation(Zimmerman, 2002).

*1.2.2. **Do more good*

In Ivory Coast, Children worked in hazardous conditions using machetes andspraying pesticides and insecticides without the necessary protectiveequipments. Such exploitation involves in significant Nestls profit since the labors received only a very small proportion of the price paid for theNestle product by the final consumer. According to the norm of doing moregood than harm to host country, Nestle must stop buying cocoa from South

Africa, which is under apartheid and uses child labor in hazardous workingcondition. For a utilitarian, however, these are considerations that canbe balanced against other considerations, such as the benefit to others. Onthe other side of the balance are factors like corporate reputation (Orts,1995). These factors can make corporate altruism worthwhile in the longrun, even at the short-run expense of the stockholders. Nestle shoulddemonstrate its ethical commitment through philanthropic contribution anduse of its expertise and resources on numerous social problem in hostcountries.

Importantly, Nestle should integrate social and ethical issue in strategicprocess (see figure4). Along with an investment appraisal, such planningshould include an environmental impact assessment. According to Whetton &Cameron (2005) leadership is the key success for organizational change aswell as the key to aligning organizational systems and follower behaviorsaround a new organizational vision. Ethical leadership practices arenecessary prerequisite for organizational effectiveness (Ausguien, 2001).Therefore, Nestle top management must train to be ethical leadership (seeRecommendation action in appendix3).


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Figure4: Integrating social and ethical issues in the strategic managementprocess

Social & Ethical Issues

Environmental Analysis

Establishing Organizational Direction

Strategic

Implementation

Strategic Formulation

Strategic

Control

Source: Adapted from Thompson & Stickerland (2003, p.7)

To upgrade companys ethics, Nestle must impose codes of conduct thattreating other person with respect and should provide leaderships ethicaltraining as leaderships are key person to make a strategic-decision.Examples of codes of conduct include do not use child or forced labor,provide a safe working environment, and respect worker rights to unionize(Refer to figure2). Corporate moral excellence can be alternative todevelop Nestls ethical culture. For a corporate to be morally excellent,it must develop and act out of a moral corporate culture (Hoffman, 1994).In a situation with intolerance arise, manager should be guided by precisestatements that spell out the behavior and operating practices thatNestls demand. Nestle must be careful when placing a foreign manager in acountry whose values are incongruent with his own because this could leadto conflict with local managers, governmental bodies, customers andsuppliers.

*1.2.3. **Respect the human rights of their employees*

Doing good business and being a good employer is pivotal and importantguidelines in doing todays multinationals. In fact, ethical business mustrespect for human dignity, and protect the fundamental rights of people.

According to Aristotelian, equal should be treated equally and unequalunequally (Hirschman, 2001). This infers that individuals should be treatedthe same, unless they differ in ways that are relevant to the situation in


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which they are involved. If labors work the same jobs, they should be paidthe same wage. If Nestle pays its labors less than other companies, thenNestle has an injustice in remuneration system. Violating human rights isimmoral practices due to Kants principle. This indicates that Nestleexploited and treated others as means rather than as ends, as thing ratherthan as person. Not only does Nestle (exploiter) fail to do its duty toothers, but also fails to do this duty to itself; Nestle make itself intoan object.

*1.2.4. **Respect local regulations*

MNCs are subject to the laws, regulations, and jurisdiction of thecountries in which they operate (OECD, 2004). Nestle must not resistagainst law that protect the countrys workers or consumers, even if such laws make operating in these countries less profitable. It is evidence that

Nestle did not respect for domestic rules and regulation. Nestle broke Thailaw bys paying workers less than minimum wage and cut them off. Forconsumer safety, Nestle did not respect the laws and regulations of thecountries in which they operate with regard to consumer protection. InChina, there is a regulation of GM food, which required that all productswhich were contained GM ingredients, be labeled explicitly. Despite consistof GM ingredients, Nestle products were not labeled. Indeed, it could notunilaterally continue with its double standard practice and ignore theconcerns and demands of the general public in Asia.

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[1] Genetically modified foodsare lab-crated grains, vegetables, fruits and other primary foods. Theiruse has been somewhat controversial. Some people are concerned about theconsequences to their health of the use of these products. Europeancountries require all GM foods to be clearly labeled as such; however, incountries Canada and the US, labeling is optional.

Leadership: Facing Moral and Ethical Dilemmas

Published in Leadership Advantage Newsletter, Vol. IV Number 4

We need a Nobel Prize in business, awarded to organizations thatdemonstrate how business effectiveness (meaning survival, market share,profits, and stock value) results directly from ethical behavior. A societythat is not built on ethics on fairness, freedom, and mature hearts andminds cannot survive for long.Peter Koestenbaum, 2002

Last year in the U.S. alone 257 public companies with $258 billion in
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assets declared bankruptcy. This was a huge increase over the previousyears record of 176 companies with $95 billion. This year will certainl ybe worse in terms of big companies going bust. Big Fortune 500 companiesarent expected to collapse.

Taking a look at what went wrong and why these companies failed revealsmoral and ethical shortcomings. There are other obvious factors thatcontribute to a companys demise. A bad economy, financial risks that dontpay off, accounting manipulations that seemed smart at the time, loss ofcompetitive advantage, (breakdowns in execution, growing too fast) andrapidly changing market preferences are undeniably strong negative factors.But to truly understand, one must look deeper, into the very hearts andsouls of the leaders who guide corporate responsibility. One must look atthe moral and ethical stance of an organization and the role of leadershipin creating a culture of values.

September 11th was a tragedy that brought harsh consequences for many

businesses. One can blame terrorism. But the recent rash of bankruptcies ismore frightening in that we brought this on ourselves. True, one can pointfingers at the CEOs in charge. There is no doubt there some were in a position to know when to jump ship before the rest of us.

But how do large organizations get to that point overnight? What createsthe organizational culture that allows a house of cards to be built in the

first place? (What drives good leaders to make unethical choices?) Whereare the ethically responsible leaders? To assume that all of the leaders inEnron were evil, greedy and selfish is too simplistic. There is more to thestory, and we must understand how such ethical violations and consequentcollapses occur.

How can it happen?

In 1986 the space shuttle Challenger exploded causing the death of sevenastronauts. A subsequent investigation of the culture at NASA revealedimportant lessons. There was not one single error that occurred, andneither did the managers intentionally commit wrongdoing. Yet it could havebeen prevented. The errors were years in the making. NASA engineers noticeddamage to crucial O-rings yet they repeatedly convinced themselves thedamage was acceptable. One analyst described it as an incremental descent

into poor judgment. (What prevents us from seeing that which is in front of our eyes?)

The culture at NASA was extremely success-oriented. They had hired the bestof the best, and had highly complex and sophisticated performance goals.The pressure to succeed gradually mounted until minor violations ofstandards became the standard. Nothing looked wrong until it was all over.

The culture at Enron was very similar. They hired the brightest from


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graduate schools. Success was rewarded and non-performers shunned (whatswrong with that?) . The emphasis was on the numbers and immediate successrather than on long term values. There was a gradual descent into poor

judgment, denial, (failure to challenge the system) , greed, deceit, ego,wishful thinking, poor communications and lax oversight. But it wasapparent only in retrospect. No one noticed at the time as everyone wasimmersed in the culture.

The question to ask is not how did this happen at Enron, but how is ithappening in ones own organization right now? (What are the standards? Howand to what degree are they communicated and reinforced?) Where arecorporate standards being violated? As a leader, in what ways is onecontributing to a loosening of ethical and moral values? What does one needto do to improve organizational integrity?

Ethical and professional dilemmas are not new. In the past people reliedmore on religious doctrine to guide standards, however, evil carried out in

the name of religion has shaken confidence in religious traditions. Theseare difficult times in terms of peoples ability to know what is the right thing to do and still remain successful in their professions.

Is business ethics an oxymoron?

We seem to accept that modern businesses have morality and ethics differentfrom societal traditions. Robert Jackall (1997) suggests that the modernbureaucracy has created a society within a society in which there is a set of ethical standards that may not be consistent with those of thelarger society. This might help explain how certain corporate leaders coulddo what they did and still look themselves in the mirror. Our currentcapitalistic society goes along with these special societies, as long asthey are successful. Enron was touted as one of the most innovativeorganizations five years in a row by Fortune magazine. Only when there is acollapse is there a cry of foul. (What constitutes success? Examples ofsuccess stories??)

In America, the Protestant work ethic at one time formed the basis of goodbusiness relationships. A persons word was his bond and business could becounted on with a handshake. Personal integrity and reputation mattered.But in business, there is also a dog eat dog mentality. To the victorgoes the spoils. Somehow, when it comes to business, there is such an

emphasis on success, that morals and ethics take a back seat. (The desireto make it big and do it quickly becomes hypnotic. Ref Jim Collins work Good To Great the sustainably successful companies take a long time anda lot of hard work to create. They are not overnight successes and theyalways focused on understanding and meeting customer needs. When donesuccessfully, that delivered stakeholder return.)

The larger an organization, the more complex the strategy and operations,the easier it becomes to stretch standards and change the numbers to


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reflect what is desired, rather than what is. Meeting the numbers seemsmore desirable than sticking to reality. Besides, one might reason thatreality or truth is really just a question of which version, whichperspective.

Heres the way one cynical executive put it: Lets be honest. We lie and our colleagues lie to us. Thats how human beings operate. People prefer totell each other what they want to hear. I dont need perfect people, I need successful people who can think for themselves and get the job done. Ifthey need to tell a little white lie, I can live with that.

Facing ethical dilemmas: living in the gray

In business, more than anywhere else, we are faced with moral and ethicaldecisions daily. Not only are we faced with questions between right andwrong, but between right and right. According to Joseph Badaracco, We have all experienced situations in which our professional responsibilities

unexpectedly come into conflict with our deepest values we are caught in aconflict between right and right. And no matter which option we choose, wefeel like weve come up short.

A slogan on an ethics poster for Boeing states the heavy truth: Betweenright and wrong is a troublesome gray area.

Research on moral standards and business ethics is sparse. Weber in 1998found that 85.9 percent of managers claim that they draw their moralstandards at work from the expectations perceived in the work environment.Trevino (1990) adds that organizational norms that are embodied by thecorporations culture are strong determinants of individual thought andbehavior in the workplace. Gillespie (1997) notes that corporate culture isrecognized as a key contextual influence in establishing and maintainingnorms.

The morality and ethics of the modern workplace are a product of the (mindsof the) leaders of the organization (, the policies they establish and thebehavior they model) . There seems to be an increasing sense of distrust ofleaders motives as they are seen to serve the owners and themselves,rather than the employees, the community, the environment, or even thecustomers! They are seen as not telling the truth, and doing whatever ittakes to increase shareholder value.

Such erosion of trust may be pandemic. One bad apple spoils the barrel.What happened at Enron and WorldCom colors all employees views of howleaders operate. When the corporate culture is undermined by distrust, theoriginal excitement and enthusiasm about a job and commitment to anemployer turns to cynicism, alienation and disengagement. When thishappens, work suffers. Such an organizational culture negatively impactsemployees motivation and performance.


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Leaders have a responsibility for creating trust and cultivating culturalvalues

Leaders are the most important and powerful influence on the culture of anorganization and are responsible for creating credibility and trust. It isobvious that employees contribute more when they are working for somethingthey believe in. Kouze and Posner (1987) put it well:

There is more to work than is commonly assumed. There is rich opportunityhere for leaders to appeal to more than just the material rewards. Greatleaders, like great companies and countries, create meaning, not just money.

The aim is to operate organizations in such a way that they achieve statedgoals and do so in a manner that is consistent with the higher values ofthe organizational community. When employees have no clear picture of themoral or ethical stance of the organization, they tend to operate at thelowest perceived level.

Creating and promoting institutional integrity becomes one of the mostimportant functions of leadership. Moral and ethical stances need beconsistently reiterated and clarified. One of the most pervasive issues inthe American workplace today is the justice of corporations paying millionsin bonuses to executives and haggling over pennies with salaried and hourlyemployees. Until this issue is addressed and adjustments made, leaders willhave a hard time rebuilding trust and credibility in organizationalcultures.

Everyday leaders create symbolic messages to employees about theorganizations values of justice, fairness, and equity. Unless leaders(need to) pay (more) attention to the ways in which morals and ethics areexpressed (and modeled with), then employees will think that such thingsare not important. Employees express themselves in absenteeism and inwasting supplies and productive time. (Employees, over time, replicate thebehavior and ethics of their leaders. Like it or not, leaders are teachers

the question is, what are they teaching?)

An analysis of the relationship between ethical behavior and effectiveleadership reveals that it is a matter of choosing both the ends and themeans. A business enterprise must be profitable in order to survive.Service organizations must satisfy consumers expectations. Government must

meet the needs of its citizens. The ends are the very reason for existenceof the enterprise.

At the same time, the means by which they achieve those ends areincreasingly important. Placing value on short term gains at the detrimentof long term results ends in disaster. The demise of a company is a tragedybecause it affects the lives of families. Families depend on theresponsible decisions of business leaders. At the core of all businessdecisions are moral and ethical principles. Failure to (clearly state and)


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support and withhold high standards has consequences.

President Bush is right when he says that the health of the Americaneconomy depends on ethical standards upheld by responsible business leaders, and that ultimately the ethics of American business depends onthe conscience of American business leaders. But it is much more than an

American problem. The health and the economy of the globe depend on theethical standards of our leaders.

There is no doubt that these are turbulent times. There are powerfuleconomic, political, social and cultural forces at play in our lives todaythat may lead us to feel powerless to oppose them. It may seem easier to

just go along rather than to speak out. Each person must weigh alternativesand make choices in light of personal values and goals, but also withconsideration to organizational and professional success. Decisions have tobe made that are optimal and that we can live with in the long run.

One can expect to see ethical training workshops being implemented withmore frequency in corporations. As leaders wake up to needed reforms, therewill be an increased emphasis on the need for training and coaching onethical and moral values. There will be an increased emphasis for ethicalresponsibility in leaders if organizations are to thrive.

Never doubt that a small group of committed people can change the world;indeed, it is the only thing that ever has. Margaret Mead

How to solve an ethical dilemma

Peter Drucker (2001) refers to the Hipprocratic oath of 2500 years ago whenhe writes about business ethics. A professional can promise he or she willnot knowingly do harm. He states that it is not an easy rule to live up to, but that its very modesty and self-constraint make it the right rulefor the ethics that managers need, the ethics of responsibility.

Given that ethical and moral dilemmas present themselves on a daily basis,what do the experts say are the steps for solving an ethical dilemma? Lifeand business are rarely simple, and between right and wrong there is a lotof gray area. How does one make an ethical decision?

There are two major approaches that philosophers use in handling ethical

dilemmas. One is to focus on the practical consequences of what we do, andthe other focuses on the actions themselves and weighs the rightness of theaction alone. The first school of thought argues that if there is no harm,there is no foul. The second claims that some actions are simply wrong inand of themselves.

Here is a three step process for solving an ethical problem:Step One: Analyze the consequencesWho will be helped by what you do?


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Who will be harmed?What kind of benefits and harms are we talking about? (Some are morevaluable or more harmful than others: good health, someones trust and aclean environment are very valuable benefits, more so than a faster remotecontrol device.)How does all of this look over the long run as well as the short run?Step Two: Analyze the actions.Consider all of the options from a different perspective, without thinkingabout the consequences.How do the actions measure up against moral principles like honest,fairness, equality, respecting the dignity of others, peoples rights?(Consider the common good)Do any of the actions cross the line?Iftheres a conflict between principles or between the rights of different people involved, is there a way to see one principle as more important thanthe others?Which option offers actions that are least problematic?

Step Three: Make a decisionTake both parts of your analysis into account and make a decision. Thisstrategy at least gives you some basic steps you can follow.

BUSINESS ETHICS

James Fieser

1. Approaches to Business Ethics

2. Doing Business in Foreign Countries

3. Business and the Environment

*1. APPROACHES TO BUSINESS ETHICS*

* *

When business people speak about business ethics they usually mean one of three things: (1) avoid breaking the criminal law in oneswork-related activity; (2) avoid action that may result in civil law suitsagainst the company; and (3) avoid actions that are bad for the companyimage. Businesses are especially concerned with these three things sincethey involve loss of money and company reputation. In theory, a businesscould address these three concerns by assigning corporate attorneys andpublic relations experts to escort employees on their daily activities.


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Anytime an employee might stray from the straight and narrow path ofacceptable conduct, the experts would guide him back. Obviously thissolution would be a financial disaster if carried out in practice since itwould cost a business more in attorney and public relations fees than theywould save from proper employee conduct. Perhaps reluctantly, businessesturn to philosophers to instruct employees on becoming moral. For over2,000 years philosophers have systematically addressed the issue of rightand wrong conduct. Presumably, then, philosophers can teach employees abasic understanding of morality will keep them out of trouble.

However, it is not likely that philosophers can *teach* anyoneto be ethical. The job of teaching morality rests squarely on the shouldersof parents and ones early social environment. By the time philosophers enter the picture, it is too late to change the moral predispositions of anadult. Also, even if philosophers could teach morality, theirrecommendations are not always the most financially efficient. Althoughbeing moral may save a company from some legal and public relations

nightmares, morality in business is also costly. A morally responsiblecompany must pay special attention to product safety, environmental impact,truthful advertising, scrupulous marketing, and humane working conditions.This may be more than a tight-budgeted business bargained for.

We cannot easily resolve this tension between the ethicalinterests of the money-minded businessperson and the ideal-mindedphilosopher. In most issues of business ethics, ideal moral principles willbe checked by economic viability. To understand what is at stake, we willlook at three different ways of deriving standards of business ethics.

*Deriving Business Ethics from the Profit Motive.* Somebusinesspeople argue that there is a symbiotic relation between ethics andbusiness in which ethics naturally emerges from a profit-oriented business.There are both weak and strong versions of this approach. The weak versionis often expressed in the dictum that *good ethics results in good business*,which simply means that moral businesses practices are profitable. Forexample, it is profitable to make safe products since this will reduceproduct liability lawsuits. Similarly, it may be in the best financialinterests of businesses to respect employee privacy, since this willimprove morale and thus improve work efficiency. Robert F. Hartley's

book, *BusinessEthics*, takes this approach. Using 20 case studies as illustrations,Hartley argues that the long-term best interests of businesses are servedby seeking a trusting relation with the public (Hartley, 1993). This weakversion, however, has problems. First, many moral business practices willhave an economic advantage *only* in the long run. This provides littleincentive for businesses that are designed to exclusively to seekshort-term profits. As more and more businesses compete for the samemarket, short-term profits will dictate the decisions of many companies


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simply as a matter of survival. Second, some moral business practices maynot be economically viable even in the long run. For example, this might bethe case with retaining older workers who are inefficient, as opposed toreplacing them with younger and more efficient workers. Third, and mostimportantly, those moral business practices that are good for businessdepend upon what *at that time* will produce a profit. In a differentmarket, the same practices might not be economically viable. Thus, anyoverlap that exists between morality and profit is both limited andincidental.

The strong version of this profit approach takes a reversestrategy and maintains that, in a competitive and free market, the profitmotive will in fact *bring about* a morally proper environment. That is, ifcustomers demand safe products, or workers demand privacy, then they willbuy from or work for only those businesses that meet their demands.Businesses that do not heed these demands will not survive. Since this viewmaintains that the drive for profit will create morality, the strong

version can be expressed in the dictum that *good business results in goodethics*, which is the converse of the above dictum. Proponents of thisview, such as Milton Friedman, argue that this would happen in the UnitedStates if the government would allow a truly competitive and free market.But this strong view also has problems, since it assumes that consumers orworkers will demand the morally proper thing. In fact, consumers may optfor less safe products if they know they will be saving money. For example,consumers might prefer a cheaper car without air bags, even though doing soplaces their own lives and the lives of their passengers at greater risk,which is morally irresponsible. Similarly, workers may forego demands ofprivacy at work if they are compensated with high enough wages. In short,not every moral business practice will simply emerge from the profitprinciple as suggested by either the weak or strong views.

* Business Ethics Restricted to Following the Law.* A secondapproach to business ethics is that moral obligations in business arerestricted to what the law requires. The most universal aspects of Westernmorality have already been put into our legal system, such as with lawsagainst killing, stealing, fraud, harassment, or reckless endangerment.Moral principles beyond what the law requires or *supra-legal* principles-- appear to be optional since philosophers dispute about their validity

and society wavers about its acceptance. For any specific issue underconsideration, such as determining what counts as responsible marketing oradequate privacy in the workplace, we will find opposing positions on oursupra-legal moral obligations. It is, therefore, unreasonable to expectbusinesses to perform duties about which there is so much disagreement andwhich appear to be optional.

The unreasonableness of such a moral requirement in our societybecomes all the more evident when we consider societies that *do* have a


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strong external source of morality. Islam, for example, contains a broadrange of moral requirements such as an alms mandate, prohibitions againstsleeping partners that collect unearned money, and restrictions on charginginterest for certain types of loans, particularly for relief aid. Thus, inMuslim countries that are not necessarily ruled by Islamic law, there is astrong source of external morality that would be binding on Muslimbusinesses apart from what their laws would require. Similarly,Confucianism has a strong emphasis on filial piety; thus, in Chinese andother Confucian societies, it is reasonable to expect their businesses tomaintain a respect for elders even if it is not part of the legal system.In Western culture, or at least in the United States, we lack a counterpartto an external source of morality as is present in Muslim or Confuciansocieties. One reason is because of our cultural pluralism and the presenceof a wide range of belief systems. Even within Christianity, the diversityof denominations and beliefs prevents it from being a homogeneous source ofChristian values. In short, without a widely recognized system of ethicsthat is external to the law, supra-legal moral obligations in our society

appear to be optional; and, it is unreasonable to expect business people tobe obligated to principles which appear to be optional.

In our culturally pluralistic society, the onlybusiness-related moral obligations that are majority-endorsed by ournational social group are those obligations that are already contained inthe law. These include a range of guidelines for honesty in advertising,product safety, safe working conditions, and fair hiring and firingpractices. In fact, the unifying moral force of businesses within ourdiverse society is the law itself. Beyond the law we find that the moralobligations of businesses are contextually bound by subgroups, such as witha business that is operated by traditional Muslims or environmentalactivists. In these cases, the individual businesses may be bound by theobligations of their subgroups, but such obligations are contingent uponone's association with these social subgroups. And, clearly, theobligations within those subgroups are not binding on those outside thesubgroups. If a business does not belong to any subgroup, then its onlymoral obligations will be those within the context of society at large, andthese obligations are in the law.

Corporations that assume an obligation beyond the law, eitherin their corporate codes or in practice, take on responsibilities that mostoutsiders would designate as optional. A good example is found in the

mission statement of Ben & Jerry's Ice Cream, which includes the following:

Social Mission -- To operate the company in a way that actively recognizesthe central role that business plays in the structure of society byinitiating innovative ways to improve the quality of life of a broadcommunity -- local, national, and international.


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Consistent with this mission, the highest paid employees of Ben & Jerry'swould not earn more than seven times more than the lowest paid full-timeemployees. "We do this," they explain, "because we believe that most

American corporations overpay top management, and underpay entry-levelemployees -- and because everyone who works at Ben & Jerry's is a majorcontributor to our success." In spite of the merits of this pay scalepolicy, it clearly lacks majority endorsement in our national social group,and would not be a binding obligation. In fact, it is not even binding onBen & Jerrys itself since, in recent years, Ben & Jerrys had to abandon its own ideal pay scale in an effort to attract a CEO with the right skillsto expand their company.

* *Strictly following this legal approach to business ethics mayindeed prompt businesses to do the right thing, as prescribed by law.Nevertheless, there are two key problems with restricting morality solely

to what the law requires. First, even in the best legal context, the lawwill lag behind our moral condemnation of certain unscrupulous, yet legalbusiness practices. For example, in the past, drug companies could makeexaggerated claims about the miraculous curative properties of theirproducts. Now government regulations prohibit any exaggerated claims. Thus,prior to the enactment of a law, there will be a period of time when abusiness practice will be deemed immoral, yet the practice will be legal.This would be a continuing problem since changes in products, technology,and marketing strategies would soon present new questionable practices thatwould not be addressed by existing legislation. A second problem with thelaw-based approach is that, at best, it applies only to countries such asour own whose business-related laws are morally conscientious. Thesituation may be different for some developing countries with lesssophisticated laws and regulatory agencies.

* *

* Deriving Business Ethics from General Moral Obligations. *Thethird approach to business ethics is that morality must be introduced as afactor that is external from both the profit motive and the law. This isthe approach taken by most philosophers who write on business ethics, andis expressed most clearly in the following from a well known businessethics essay:

Proper ethical behavior exists on a plane above the law. The law merelyspecifies the lowest common denominator of acceptable behavior. (GeneLaczniak, "Business Ethics: A Manager's Primer," 1983)


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The most convenient way to explore this approach is to consider thesupra-legal moral principles that philosophers commonly offer. Five fairlybroad moral principles suggested by philosophers are as follows:

*Harm principle*: businesses should avoid causing unwarranted harm.

*Fairness principle*: business should be fair in all of their practices.

*Human rights principle*: businesses should respect human rights.

*Autonomy principle*: businesses should not infringe on the rationallyreflective choices of people.

*Veracity principle*: businesses should not be deceptive in their practices.

The attraction of these principles is that they appeal to universal moralnotions that no one would reasonably reject. But, the problem with theseprinciples is that they are *too* general. These principles do not tell us *specifically* what counts as harm, unfairness, or a violation of humanrights. Does all damage to the environment constitute harm? Does it violatean employee's right to privacy if an employer places hidden surveillancecameras in an employee lounge area? Does child-oriented advertising misleadchildren and thus violate the principle of veracity?

The above principles are abstract in nature. That is, theybroadly mandate against harm, and broadly endorse autonomy. Because theyare abstract, they will be difficult to apply to concrete situations andconsequently not give clear guidance in complex situations. An alternativeapproach is to forget the abstract, and focus instead on concretesituations that affect the particular interests of consumers, workers,stockholders, or the community. The recent *stakeholder* approach tobusiness ethics attempts to do this systematically. It may be expressed inthe following:

*Stakeholder principle*: businesses should consider all stakeholders'interests that are affected by a business practice.

A stakeholder is any party affected by a business practice,including employees, suppliers, customers, creditors, competitors,governments, and communities. Accordingly, the stakeholder approach tobusiness ethics emphasizes that we should map out of the various parties


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affected by a business practice. But this approach is limited sinceproponents of this view give us no clear formula for how to prioritize thevarious interests once we map them out. Should all stakeholders' interestsbe treated equally from the largest stockholder down to the garbage manwho empties the factory dumpster? Probably no defenders of the stakeholderapproach would advocate treating all interests equally. Alternatively,should the stockholders' interests have special priority? If we take thisroute, then the stakeholder principle is merely a revision of the profitprinciple.

Another way of looking at concrete moral obligations inbusiness is to list them issue by issue. This is the strategy behindcorporate codes of ethics that address specific topics such asconfidentiality of corporate information, conflicts of interest, bribes,and political contributions. Consider the following issues from Johnson andJohnson's Credo:

We are responsible to our employees, the men and women who work with usthroughout the world. Everyone must be considered as an individual. We mustrespect their dignity and recognize their merit. They must have a sense ofsecurity in their jobs. Compensation must be fair and adequate, and workingconditions clean, orderly and safe. We must be mindful of ways to help ouremployees fulfill their family responsibilities.

Although corporate codes of ethics are often viewed cynically as attemptsto foster good public relations or to reduce legal liability, a corporatecode of ethics is a reasonable model for understanding how we shouldarticulate moral principles and introduce them into business practice. Thepractical advantage of this approach is that it directly stipulates themorality of certain action types, without becoming ensnared in the problemof deriving particular actions from more abstract principles, such as theharm principle. But, the limitation of the corporate code model is that theprinciples offered will appear to be merely rules of prudence or goodmanners unless we can establish their distinctly *moral* character. Andthis requires relying on more general principles of ethic described above,which, weve seen, comes with its own set of problems.

*Conclusion.* Weve looked at three approaches to businessethics, and weve seen that all three have limitations. If we hope to findan approach to business ethics that is free from conceptual problems, wewill not likely find any. Ethics is a complex subject and its history isfilled with diverse theories that are systematically refuted by rivaltheories. So, we should expect to find controversies when applying ethics


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to the specific practices of business. However, following *any* of theabove three approaches to business ethics will bring us closer toacceptable moral behavior than we might otherwise be. Close attention toones profit motive and the moral interests of consumers might in fact generate some morally responsible business decisions. We can indeed findadditional moral guidance by looking at the laws that apply specifically tobusinesses. In gray areas of moral controversy that are not adequatelyaddressed profit motives and the law, we can turn for guidance to a varietyof general and specific moral principles.

In addition to the above three approaches to business ethics,it also helps to examine stories of businesses that have been morallyirresponsible. By citing specific cases deceptive advertising,environmental irresponsibility, or unsafe products, we can learn by examplewhat we should not do. Such cases often reveal blatantly crude,insensitive, or reckless attitudes of businesses, which we can view aswarning signs of unethical conduct.

*Study Questions for Approaches to Business Ethics*

* Introduction*

(1) What three things do business people usually mean by business ethics?

(2) Why cant philosophers teach people to be ethical?

*Deriving Business Ethics from the Profit Motive*

(3) What is the weak version of theory that connects business ethics to theprofit motive?

(4) What are problems with the weak version?

(5) What is the strong version of theory that connects business ethics tothe profit motive?

(6) What are problems with this?

*Business Ethics Restricted to Following the Law*

(7) Define supra-legal principle.

(8) Why is it unreasonable to expect businesses to follow supra-legal moralprinciples?

(9) What are some supra-legal moral principles that are binding in Muslimcountries?


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(10) What are the problems with restricting business ethics to what the lawrequires?

*Deriving Business Ethics from General Moral Obligations*

(11) Give an example of a broad moral principle suggested by philosophers.

(12) What is the problem with deriving business ethics from broad moralprinciples?

(13) What is a stakeholder?

(14) What is the problem with articulating good business behavior incorporate codes of ethics?

* Conclusion*

(15) What are some benefits of all three approaches to business ethics?

(16) What can we learn by looking at case studies in business ethics?

*2. DOING BUSINESS IN FOREIGN COUNTRIES*

The moral challenge for businesses here in the United States itdifficult enough when balancing ones profit interests against the needs ofemployees, consumers, governments and special interest groups. The moralchallenge is even more intense for multinational companies who need to liveup to moral expectations both in the US and in host foreign countries. Indeveloped countries, the moral expectations of the host country are asstringent as our own. With third world host countries, though, the moralexpectations often more lax, and multinationals are tempted to lower theirstandards when situations permit. In this chapter we will look at threeareas of moral concern for multinationals: bribery, influencing foreigngovernments, and exploiting third world countries.

* Bribery in **Third World** Countries.* When we think of moraldilemmas that multinationals face we usually think of the pressure oncompanies to bribe government officials in third world countries. Althoughbribery of government officials also takes place in the United States, itis rare and severely punished. By contrast, bribery happens with greaterfrequency in third world countries, and there is a feeling that it isnormal practice to bribe government officials. We may succinctly define a


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bribery as condition in which a person, such as a government offical,agrees to be paid to act as dictated by an interested party, rather thandoing what is required of him in his official employment. What is centralto the notion of a bribe is that an agreement is made, even if the actitself is never performed and the payment is never made. It is also centralthat the person being bribed implicitly agreed to abide by the rules of hisgovernment, organization, or legal system. We need to distinguish briberyfrom extortion, which is where an official *requires* payment to performhis otherwise normal duties. For example an agent of the FDA may extort acompany by approving of a product that passes approval standards anyway.Extortion has a victim, whereas bribery has no victim. We also need todistinguish bribery from gift giving, which includes neither implicit norexplicit agreements, even if the giver intends the gift as an inducement.

An official may accept a gift innocently, and sometimes genuine friendshipsare formed that involves exchanging gifts. Further, gift giving in foreigncountries is often part of a needed business ceremony. To avoid doingwrong, the receiver of a gift needs to be confident that he remains

impartial in conducting his official duties. In some occupations, such aslaw enforcement, established codes often forbid gifts since it is tooimportant to risk losing impartiality through gift giving.

Although few business people publicly defend bribing officialsin third world countries, there is a common attitude within multinationorganizations that condones bribery on several grounds. First, there arestrictly financial considerations. Payoffs can prevent delays that mightotherwise throw a company into financial ruin. In a truly capitalisticenvironment, we need an even playing field, and if foreign businessesengage in bribery and US firms do not, then US firms will be at acompetitive disadvantage and will ultimately lose to foreign business.Second, there are practical considerations owing to what appears to be theuniversal nature of bribery in third world countries. Often foreigngovernment officials are so corrupt that it is virtually impossible to dobusiness without playing by the unspoken rules. Thus, theres nothing morally wrong with participating in bribery, especially if the institutionitself is in question, such as a government like Nazi Germany.

Both the financial and practical arguments above reflect anave view of doing business in third world countries. Bribery is in factoutlawed in every country around the world and, although bribery is morecommon in some foreign countries than in the United States, law enforcement

officials in those countries do take bribery violations seriously andpunish offenders. Americans in particular are nave about his, as seen fromthe fact that, in middle east countries, American companies are involved inbribery scandals twice as often companies from other countries. The USgovernment also takes oversees bribery seriously. Under US law, the ForeignCorrupt Practices Act of 1977 establishes that, if caught bribing, acompany may be subject to a 1 million dollar fine, and executives may besubject to $10,000 in fines and five years in prison. These penalties areso severe that critics contend that it restricts ordinary well-intentioned


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business activity because of the fear business people might have ofentering a gray area of activity that is actually legal. In any event, itis reasonably clear that the legal penalties of international briberyoutweigh the possible business benefits.

A dramatic example of bribery naivete involves the LockheedCorporation, which in the 1970s was caught offering a quarter of a billiondollars in bribes overseas. A major US defense contractor, Lockheed fell onhard times for both economic and technological reasons. The US governmentcommissioned the company to design a hybrid aircraft, but, after onecrashed, the government canceled orders. Lockheed received other contractsbased on bids that they made that were far lower than the cost of producingthe project. As a consequence, they lost money on the projects. They triedto move into the commercial jet aircraft market by making planes withengines built by Rolls Royce. Rolls Royce went bankrupt, and Lockheed lost300 million in canceled orders. They believed that the solution to theirfinancial woes was to expand their oversees sales. To get the contracts,

they made a series of payoffs to middlemen from various countries,including the Netherlands, Japan, Saudi Arabia, Iran, Italy, and Spain.Still on the verge of bankruptcy, they requested a loan of 200 milliondollars from the US government, which meant opening their records forscrutiny. Government investigators discovered the extent of Lockheedsbribery. They also discovered that Lockheed offered bribes that totaled 10times more than the bribes made by other US companies. Lockheeds chairmanand president were forced to resign. However, to avoid compromisingnational defense the US government chose not to cancel its contracts withLockheed.

* Endorsing, Influencing, and Opposing ForeignGovernments.*Whether in the US or in foreign countries, big businesseshave an intimaterelation with governments. Businesses lobby for fewer regulations, lightertaxes, governmental subsidies, and access to natural resources. Businessesalso depend on government offices, such as law enforcement agencies, courtsystems, permit offices, and transportation networks. So, when a US companysets up base in a foreign country, its interaction with government createsthe possibility for unpleasant situations. Multinationals often locate incountries with repressive right wing governments since these tend to be

more politically stable. By doing so, they implicitly support thesegovernments, which would otherwise not be supported by socially consciouspeople. At the other end of the spectrum, sometimes multinationals findthemselves in left wing countries that are hostile to the businesss capitalistic interests. In these cases, the business might be tempted tooppose or even undermine that government, irrespective of the benefit thatlocal people derive from that governments left-wing policies. Betweenthese two extremes, there is the normal course of doing business indeveloping countries, which involves the normal lobbying efforts that we


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have here in the US. This involves at least attempting to influencegovernments of third world countries.

An example of the first extreme businesses endorsing rightwing governments is the presence of American multinationals in South

Africa, especially during the 1970s and 1980s. The white Apartheidgovernment at the time endorsed a policy of what amounted toinstitutionalized slavery of its black citizens. Although constituting lessthan 10% of the countrys population, the white Afrikaners controlled thevast majority of the countrys economic wealth. Blacks were segregated,restricted in their speech, jobs, and movements, and constantly underthreat from white policing forces. The white Afrikaners justified their

Apartheid policy by arguing that it was God's plan that Afrikaners are inAfrica, and it is Gods plan to divide people into groups. USmultinationals all recognized the inherently immoral nature of the

Apartheid government and that, at minimum US businesses in South Africaneeded to be sensitive to the oppressed condition of the blacks. The

harshest critics, though, called for complete divestment of Americanbusiness interests from South Africa. Politically, U.S. business in South

Africa offered legitimacy to the Apartheid government. Economically,whatever helped South Africa's economy helped Apartheid, and divestmentwould cripple the South African economy. Also, American companies in South

Africa had a history of civil rights abuses towards blacks.

More moderate critics maintained that companies whose productsdirectly benefit the government should divest, such as those the makepolice weapons. However, companies whose products directly benefit Blacksshould not divest. Companies whose products directly benefit both can goeither way. For example, the Polaroid Company chose to leave South Africasince they could not control the flow of their product into governmenthands, such as use in passbook pictures that regulated the movement of theblack South Africans.

However, other businesses argued that continued Americaninvolvement in South Africa was actually a good thing. The Apartheidgovernment was making some progress toward racial integration, and Americancompanies would be vital sources of peaceful change. Further, US presencein South African would bolster its economy, which would be good for blackssince it would reduce overall unemployment and inflation, and improveeducation. Severing ties with South Africa would at best be a symbolic act,

with little or no economic clout since all products made by U.S. firmscould be bought elsewhere. In this vein, Leon Sullivan, an Afro-American onGeneral Motors board of directors, recommended several principles foroperating in South Africa. They are, (1) non-segregation in eating,restroom, and work facilities; (2) equal employment practices; (3) equalpay; (4) training programs for blacks; (5) more blacks in management; and(6) improving employees lives outside work, including housing,transportation, schooling, recreation, and health.


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The situation of South Africa illustrates what can happen whenAmerican businesses set up camp in countries with oppressive right-winggovernments. At the other extreme, we noted that problems also emerge when

American businesses locate in countries with left-wing countries ofcommunist leanings that are hostile to capitalist ventures. A vividillustration of this is International Telephone and Telegraphsinterference in the Chilean government during the 1970s. At the time, ITTwas the 8th largest fortune 500 company, with 350,000 employees in 80countries, including Chile. The South American country of Chile was poor,but politically stable politically. A presidential candidate named Salvador

Allende campaigned on a communist platform, emphasizing the issue of landreform, and indicating a desire to take control of privately owned Chileantelephone companies because of their inefficiency. Government acquisitionpolicies work two ways. First, a government might buy controlling shares ofprivate companies, paying them at a fair market price. Alternatively, agovernment might *nationalize* or simply take ownership of the company withno compensation, as happened with private businesses in Cuba and Peru

during their communist takeovers.

ITT feared the worst and tried to stop Allende from beingelected, part of which involved an offer of 1 million dollars to the CIAfor support. The scandal surfaced, and critics world wide attacked ITT forinterfering in the activity of a foreign government. Some of ITTs propertywas even bombed in protest. Allende was elected anyway, and in retaliation,he nationalized ITTs Chilean property. Allende did not nationalize otherfirms, however, even though some had to sell the government shares of itsstock. Allende was assassinated shortly after, and ITT later sued forlosses.

The actions of American multinationals in foreign markets havea direct effect on the image on the U.S. itself. People around the worldsee the United States as an economic imperialist, ready to gobble up theresources of small foreign countries. The situation is made worse whenmultinationals coerce foreign governments especially in Third Worldcountries.

* Exploiting **Third World** Countries. *Critics frequentlyaccuse multinational corporations of exploiting the resources and workers

of third world countries. Agricultural businesses often take the best landand use it for export crops, which diminishes the amount of good land thatthe locals can use for their own food needs. Drug companies and hazardouschemical industries take advantage of more lax safety regulations, whichoften results in disaster. Mining industries exploit the wealth of thecountry for only a few rich landowners. Since many of these naturalresources are in finite supply, developing countries have little hope ofrelying on them for future security once they are used up. Banks andfinancial institutions do not hire the local people, yet these businesses


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benefit by bringing in local money. Manufacturing and service industriesintroduce poverty to many areas by attracting more people to a factory thanthey can employ. They typically pay much less to third world employees thanto Americans, which suggest a double standard of labor value. If they paywages to third world employees that are higher than what indigenousbusinesses can pay, then they attract the best workers, which hurtsemployers in surrounding businesses. Also, all of the above types ofbusinesses destroy the local culture by introducing an American climate.

Two cases illustrate the disastrous effects of exploiting thirdworld countries. In 1984, a pesticide factory owned by Union Carbide inBhopal India exploded killing 2,500 people and injuring and additional300,000 people. With a population of 700,000 people, Bhopal is the capitalof Madhya Pradesh, one of Indias poorest and least developed states. Thecity is geographically divided between rich and poor sections, with thefactory located in the poor section. Although it was a multinational,Indian investors owned almost half of the shares of the Indian plant, and

Indians operated the plant. The active ingredient for the pesticide wasstored in 600 gallon tanks. The size of the tanks themselves was a problem.Larger tanks are economically efficient since they hold more gas, but theypose greater risks in case of a tank leak. For his reason, regulations inGermany required a similar Union Carbide plant in that company to restrictits tank size to 100 gallons. The tank that exploded in the Indian plantwas supposed to be refrigerated to zero degrees centigrade; instead therefrigeration unit was not working and it was at room temperature. Althoughthe Indian factory had safety features to prevent disasters, several of thesafety systems were not functioning. The temperature alarm was shut down;the gas scrubber was shut off, which was supposed to neutralize escapedgas; and a flare tower was out of service, which was supposed to burnescaped gas.

The explosion started when someone added water to a 600 gallontank of the chemical, perhaps done as an act of sabotage by a disgruntledemployee. The temperature in the tank rose in a chain reaction, and thetank blew up. A fog of the gas drifted through the streets of Bhopol,killing people on the spots that they stood. Long term medical problems forthe survivors included respiratory ailments and neurological damage. TheIndian government quickly arrested plant managers and eventually spent 40million on various disaster relief projects. Union Carbide Stock plummetedwith losses totaling almost a billion-dollars; Union Carbide sales were

also impacted for several years. The company eventually paid half a billiondollars to victims. Although the US parent company acted quickly andcompassionately to the disaster, the tragedy raised serious questions aboutthe parent companys views on safety in third world countries. Even though Indians ran the Bhopal plant, Union Carbides laissez-faire policy ofdecentralizing subsidiaries was not appropriate in matters of safety. Thetragic lesson is that multinational should follow U.S. safety standardsworldwide, and should not give cost cutting the highest priority.


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A second case illustrating exploitation in third worldcountries concerns the tobacco industry. Information about the atrociousactivities of US tobacco companies over the years is continually being madepublic. As deceptive and uncaring as they have been in the US, they areeven worse in third world countries. In developed countries, tobacco tarlevels have decreased, but in third world countries they have increased.

Almost all developed countries have tobacco legislation, and less than halfthe third world countries do, which is partly the result of cigarettecompanies heavy lobbying efforts. Without restrictions to cigarette production, advertising and sales, cigarette companies expand the bounds ofthird world markets with no thought of the health hazards they create forconsumers. In Argentine, for example, tobacco companies buy 20% of alladvertising time. Thus, although cigarette smoking is on a decline indeveloped countries, it is on a rise in third world countries and,globally, cigarette consumption is growing faster than population. UStobacco companies create strong incentives for local growers to shift totobacco production by paying startup costs to farmers, underwriting loans,

and guaranteeing purchases. By growing tobacco, less acreage is availablefor domestic food production, which particularly bad in countries withlarge numbers of people living at subsistence levels. There are alsoecological effects of flue-cured tobacco production that requires fire. Inthird world countries, wood fires are a main method for curing tobacco,which requires one tree for every 300 cigarettes. This bad since firewoodaccounts for 90% of the heating and cooking fuel in developing countries.

There are three basic positions to take on the problem ofbusinesses exploiting third world countries. The harshest critics of thirdworld exploitation argue that we should just stay out of third worldcountries altogether, and let those countries manage their resources asthey see fit for themselves. Although well intended, this position isunrealistic especially in view of the growing economic interdependence ofcountries around the world. Most large companies today have multinationalinterests, and, if anything, these interests will increase. This positionis also undesirable from the standpoint of the interests of the third worldcountries themselves. Isolationist economic policies are typicallyineffective. If a third world country blocks off outside capitalistventures, outside countries are less inspired to support the businessventures of that third world country.

On the other extreme, some business people argue that, although

issues of exploitation are sociologically interesting, they are not moralissues. On this view, we should not equate US standards with universalmoral standards. For example, FDA, OSHA, and minimum wage standards aregood, but not morally required of all businesses around the world. Further,local governments in the host country must also accept responsibility forwhat happens, especially when they require some control of the company.Governments by and large set the agenda for what businesses can and cannotdo. By accepting control, they also accept responsibility.


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A third and middle ground position on exploitation is thatmultinationals from rich countries can operate effectively in third worldcountries when adhering to basic moral principles. In the next section wewill look at some suggested moral principles for multinationals.

* *

* Cultural Relativism and Universal Moral Principles. *Theabove-discussed problems of interference in foreign government, bribery,and exploitation all raise a range of ethical questions, perhaps the mostimportant is whether companies should adopt the attitude that When in Rome, do as the Romans. This is the issue of *cultural relativism*,namely, whether moral values vary from society to society. Culturalrelativism implies that moral values are completely defined by culturalcontexts, and there is no universal standard of morality that applies toall people at all times. As long as we stay within our own culturalenvironment, this is no problem since we simply act morally as our society

dictates. However, multinationals face the problem of relativism directlyby placing one foot in the moral context of American culture, and anotherfoot in the moral context of a foreign culture. Driven by the profitmotive, multinationals will be tempted to adopt the least costly moralprinciples that a given cultural context will allow.

Is cultural relativism true? Philosophers have debated thisquestion for over two thousand years. Many cultural practices areunquestionably shaped by cultural environments, such as rules requiringwomen to covering their heads in public, and prohibitions against drinkingalcohol or eating types of meat. However, there seem to be somefoundational principles that appear uniformly, such as obligations to carefor ones children and elderly parents, prohibitions against assault, rape,stealing, and murder. Some philosophers argue that these principles appearuniversally in societies since, without them, a society simply could notcontinue. For example, if a society permitted murder, we would all move outof town and live in seclusion. Also, philosophers point out that manyseemingly diverse standards of behavior in fact reflect common values. Forexample, some cultures kill their elderly, which is a practice that we findabhorrent. However, putting the elderly to death is based on the principlethat children should see to the happiness of their parents, and this is aprinciple that we too have.

So, if we grant that there is some commonality to moral valuesaround the world, then, to that extent, multinationals have moralresponsibilities that cross cultural boundaries. Philosopher Norman Bowierecommends three universal moral standards that are appropriate to theactivities of multinationals. First, multinationals should follow the normsthat constitute a moral minimum, which are advocated in all societies.Second, multinationals should follow principles of honesty and trust, whichare moral norms of the market place. These are required as foundational forany business operations, and the systematic violation of moral norms of the


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marketplace would be self-defeating. Third, multinationals should notviolate human rights, such as basic liberty rights. Business depends oneconomic liberty, which is part of political and civil liberty in general.So, if we accept economic liberty, we must accept the whole libertypackage. This means that businesses should not operate in countries withhuman rights violations unless they can be catalysts for democratic reform.

Philosopher Richard T. De George offers a more specific set ofguidelines for the following:

Do no intentional direct harm to the host country

Produce more good than bad for the host country

Contribute to the host country's development

Respect the human rights of its employees

Pay ones fairshare of taxes

Respect the local culture and work with it

Cooperate when local governments reform social institutions, suchas land and tax reform.

De George believes that third world countries lack adequate backgroundinstitutions, such as regulatory agencies, which makes it all the morenecessary for businesses to adherence to moral standards.

In view of how strong the profit motive is to businesses, wemay wonder how realistic many of these cross-cultural moral principles are.Until a few hundred years ago, most philosophers believed that moralprinciples were pretty useless unless people believed in God and wereafraid that God would punish them for evil deeds. In more recent times,social contract theorists argue that fear of punishment from governments isthe only thing that will motivate us to follow moral principles. Perhaps we

can generalize from these views and say that we may not follow even thebest moral principles unless an external authority monitors our actions andpunishes us when we go wrong. We can see the moral responsibility ofmultinationals in the same light. There are reasonable moral guidelinesthat multinationals should follow, such as those offered by Bowie and DeGeorge, which managers of multinationals can probably figure out on theirown. Without an external monitoring authority, though, businesses may setthem aside for reasons of profit. Fortunately, several external mechanismsare already in place to punish irresponsible multinationals. News


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organizations, the United Nations, international human rights groups, andenvironmental groups all take special interests in seeing thatmultinationals live up to high standards. All of these organizations havelimited clout, though, and rely mainly on the threat of bad publicity tobring about change. But even this is effective since most large businessesbelieve that their reputation is their biggest asset.

* *

*Study Questions for Doing Business in Foreign Countries*

* Bribery in Third World Countries*

(1) What is the definition of bribery, and how does it differ fromextortion and gift giving?

(2) What are the two main arguments usually given in favor of bribery?

(3) What is the main problem with both of the arguments for bribery?

(4) What penalty did Lockheed pay when it was caught in a bribery scandal?

* Endorsing, Influencing, and Opposing Foreign Governments*

(5) What problems might arise when a multinational sets up in right-wingcountry and left wing foreign countries respectively?

(6) During the 1970s and 1980s, some critics argued that US companiesshould leave South Africa. What were some of their reasons?

(7) What were the negative consequences of ITT interfering in Chiles government in the 1970s?

* Exploiting Third World Countries.*

(8) What are some ways that multinationals exploit third world countries?

(9) What were the principal irresponsible actions of Union Carbide in theBhopal explosion?

(10) What actions of the Tobacco companies in third world countries areespecially exploitive?

(11) What reasons do some multinationals give for not abiding by USstandards in third world countries?

*Cultural Relativism and Universal Moral Principles*

(12) Define cultural relativism


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(13) What are some moral values that seem to be held by all cultures?

(14) What are Norman Bowies three recommended moral principles formultinationals?

(15) What external monitoring organizations help assure that multinationalsact responsibly?

* *

*3. BUSINESS AND THE ENVIRONMENT*

The greatest damage done to the environment is inflicted bybusiness and industry, and not from domestic activities. Businesses extractthe greatest tolls in terms of energy consumption, toxic waste, air andwater pollution, and deforestation. Increasing amounts of industrial toxicwaste contaminates ground water, which in turn becomes harmful for humanconsumption. Oil spills from petroleum industries destroy shorelines andkill millions of sea animals. The burning of fossil fuels such as oil, gasand coal produces excess carbon dioxide, which adds to global warmingthrough a greenhouse effect. Fluorocarbon gasses used in making domesticproducts such as refrigerators and styrofoam depletes the earth's ozonelayer, which shields the earth from the suns life-destroying ultravioletrays. Some of these problems are expensive nuisances, such as oil spillsand toxic waste. Others, though, threaten the survival of life on ourplanet, such as carbon dioxide production and the release of fluorocarbongasses. In this chapter we will look at some of the causes of environmentalirresponsibility in businesses, and some theories about why businessesshould be more responsible.

* Businesses Resistance to EnvironmentalResponsibility.*Although businesses dont consciously set out to harmthe environment,

several factors create an unfortunate situation, which in many cases isworse than it needs to be. First, large businesses and industries areinherently imposing on nature. They take pieces of nature and reshape theminto things that didnt exist before, such as automobiles, skyscrapers,television sets and shopping malls. Not only are the end productsartificial, and in that sense unnatural, but the means of producing thesethings are taxing on natural resources. Second, it is easy to disregardnatural resources that are held in common and seem abundant, such as airand water. It doesnt seem wrong to pollute the air if, technically, no one


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owns the air and the particular damage that I do isnt too no ticeable.Environmentalists sometimes refer to this phenomenon as a *tragedy of thecommons*, that is, a disaster that happens to things that are held incommon. Given the size and complexity of businesses in industrialcountries, such as the US, it is not surprising that they contributeheavily to this tragedy.

Third, businesses are driven by the motive to make a profit. Stockholdersdemand a return on their investment, and this mandate transfers downthrough the management hierarchy. Part of making a profit is to reducecosts, and environmental responsibility is highly costly, with fewimmediate financial rewards. Finally, government environmental watchdogagencies, such as the Environmental Protection Agency, are limited in whatthey can do in imposing restrictions on businesses. To protect theirfinancial interests, businesses lobby for support at all levels ofgovernment, and agencies such as the EPA must be politically compromising.

Agencies such as the EPA say that they know that they do their jobs

correctly when everyone is angry with them. That is, businesses feel thatthe EPA restricts them too much, and environmental advocates such as theSierra Club will feel that the EPA does too little to protect theenvironment.

On a global level, many of the environmental offenders arebusinesses in third world countries. Underdeveloped countries are trying tocatch up to the economic level of industrialized countries, and certainlyhave a right to do so. However, they cannot play catch up in a way that isboth economically feasible and environmentally responsible. Maintaining abalance between economic development and energy conservation is far moredifficult for poorer countries than it is for wealthier ones. For example,developed countries can shift to energy sources that give off lesspollution, but developing countries cannot do so easily. Environmentalproblems are intensified in third world countries because of growth inpopulation, which doubles about every 70 years. Increased population placesincreased demand on the utilization of land, which, in turn, leads todeforestation. It is not effective to simply encourage developing countriesto do better. Recommendations from world organizations, such as the UnitedNations, have only limited leverage. Sometimes developed countries, such asthe United States, try to assist developing countries by offering them freetechnology. But this is only partially effective.

* *Since the 1960s, our society has become increasingly more environmentally conscious, and now we simply take it for granted that weall are responsible for maintaining the integrity of the environment.However, conservative businesses people commonly feel that theirresponsibility to the environment is limited. Typically, they give twodistinct arguments for their views. First, they argue that businesses donot have an obligation to protect the environment above what the lawrequires. Although laws are strict concerning environmental regulation,they are not perfect and they allow for many kinds of environment judgement


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calls. If businesses showed special concern for the environment beyond whatthe law requires, then this would interfere with their ability to compete.Ultimately, they argue, environmental responsibility rests with consumers.If consumers are not interested in favoring businesses that haveenvironmentally friendly policies, then it is not up to businesses tochampion environmental policies on their own. The problem with this view isthat environmental responsibility cannot be left to what consumers arewilling to tolerate. Most consumers will be attracted to the leastexpensive consumer products, irrespective of moral considerationssurrounding the manufacturing of those products. Even if I knew that a pairof tennis shoes was manufactured in a third world sweatshop, my purchasedecision might still be motivated only by the price tag. This is so toowith my motivation to purchase products that are manufactured byenvironmentally unfriendly companies. In a sense, businesses need to saveconsumers from succumbing to their most thrifty inclinations.

Second, if businesses agree that they have an environmental

responsibility beyond what the law requires, they often take a good ethics is good business approach and emphasize areas of environmentalresponsibility that will generate a profit. For example, they might pushrecycling, which they can indicate on their packaging and thereby attractenvironmentally conscious consumers. They might also update olderenergy-hungry heating or production units if the investment has the rightpayoff. However, as noted above, what is best for the environment is notalways financially best for business. When cases of conflict arise betweenthe environment and profit motive, the good ethics is good businessapproach quickly appears deceptive and shallow.

* Examples of Environmentally unsound Business Practices. *Althoughmost companies are guilty of varying degrees of environmentalirresponsibility, some extreme cases vividly illustrate irresponsibility atits worst. A first case involves resistance to air pollution controlmeasures. In the early 1950s, Union Carbide built a series of metal andchemical plants in the Ohio valley, between Ohio and West Virginia.Mountains on both sides of the valley trap in soot, ash, and other airpollutants, which resulted in increased incidents of respiratory diseaseamong local residents. During the 1960s, Union Carbide refuse toparticipate public discussions about the problem and ignored a governmental

request for an on site inspection. The company soon became a symbol ofcorporate resistance to pollution control. Part of their resistance owes tothe fact that the environment was not an issue in the 1950s and newpollution control measures were both expensive and untested. Also, UnionCarbide was less susceptible to consumer boycotts since only 20% of itsproducts were direct consumer goods that we might purchase in a departmentstore, such as antifreeze. In 1970s they became the target of theinvestigation by the newly formed Environmental Protection Agency, whichinstructed Union Carbide on several pollution control measures. Union


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Carbide responded by shutting down a boiler plant and laying off workers,claiming that was the only way they could comply with the requiredpollution reduction. Critics charged that Union Carbides tactics amounted to environmental blackmail, threatening to cut jobs if they had to beenvironmentally responsible. Ultimately, Union Carbide restructured theircompany and adhered to pollution control standards.

A second case of environmental irresponsibility involvesnuclear power accidents. There are currently around 400 nuclear powerplants world wide, providing about 15% of the worlds electricity. For thepast few decades, the nuclear power industry has been under attack byenvironmentalists and few new plants have been started. Ironically, theoriginal intent of nuclear power was to provide a safe, clean, and cheapalternative to coal and oil, which are notoriously damaging to theenvironment. Nuclear power produces no smoke or carbon dioxide, and onlyharmless steam. It also doesnt require environmentally intrusive mining ordrilling efforts. Two major disasters contributed to the now tarnished

image of the nuclear power industry, both the result of safety violationsand human error. First occurred at the Three Mile Island nuclear powerplant in Harrisburg, Pennsylvania. In 1979, a series of mechanical andhuman failures contributed to a partial core meltdown to one of itsreactors. Radiation was released into the local community, and, althoughconnections with health problems were difficult to prove, a family of aDowns Syndrome child received 1 million dollars in compensation. A muchmore serious nuclear power disaster occurred in 1986 in the Ukrainian cityof Chernobyl, then part of the Soviet Union. Partly from negligence andpartly from design problems, a steam explosion and fires threw tons ofradioactive material into the environment. 31 people were killed and 1,000injured from direct exposure to radioactive material by means of inhalingradioactive gasses and dust, and ingesting contaminated food or water.135,000 people were evacuated from the surrounding area, hundreds of squaremiles of land was contaminated, and the long term health effects of theaccident are still being assessed. Financial losses reached $3 billion, andcountries throughout Europe claimed losses into the hundreds of millions ofdollars.

Although the Soviet government owned the Chernobyl plant -- andnot private industry -- the disaster had a decisive impact on the entirenuclear power industry. In addition to the risks of catastrophic disasterssuch as Chernobyl, nuclear power plants create other environmental problems

that involve nuclear waste disposal. Nuclear waste is deadly to animallife, and remains toxic for a very long time. After Three Mile Island andChernobyl, critics called for a moratorium on the construction all futurenuclear power plants, and a systematic closing of the ones currently inuse. Defenders, though, argue that nuclear energy is necessary in view ofthe limitations of alternative energy sources, such as coal, oil, and solartechnology. They also argue that nuclear waste sites need to confine wastesfor only a few thousand years since after 1,000 years the ingestiontoxicity is

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