reflection

R I. D VIEW when is different just different, and when is different wrong} by Thomas Donaldson When we leave home and cross our nation's boundaries, moral clar- ity often hlurs. Without a backdrop of shared attitudes, and without familiar laws and judicial procedures that define standards of ethical con- duct, certainty is elusive. Should a company invest in a foreign country where civil and political rights are violated? Should a company go along with a host country's discriminatory employment practices? If companies in developed countries shift facili- ties to developing nations that lack strict environmental and health reg- ulations, or if those companies choose to fill management and other top-level positions in a host nation with people from the home country, whose standards should prevail?

Even the hest-informed, best- intentioned executives must re- think their assumptions about busi- ness practice in foreign settings.

What works in a company's home country can fail in a country with different standards of ethical conduct. Such difficulties are unavoidable for businesspeople who live and work abroad.

But how can managers resolve the problems? What are the principles that can help them work through the maze of cultural differences and establish codes of conduct for glob- ally ethical business practice? How can companies answer the toughest question in global business ethics:

What happens when a host country's ethical standards seem lower than the home country's?

Competing Answers One answer is as old as philosoph- ical discourse. According to cultural relativism, no culture's ethics are better than any other's; therefore there are no international rights and wrongs. If the people of Indonesia tolerate the hrihery of their puhlic officials, so what? Their attitude is no hetter or worse than that of peo- ple in Denmark or Singapore who refuse to offer or accept bribes. Like- wise, if Belgians fail to find insider trading morally repugnant, who cares? Not enforcing insider-trading laws is no more or less ethical than enforcing such laws.

The cultural relativist's creed- When in Rome, do as the Romans do - is tempting, especially when failing to do as the locals do means forfeiting husiness opportunities.

The inadequacy of cultural rela- tivism, however, becomes apparent when the practices in question are more damaging than petty bribery or insider trading.

In the late 1980s, some European tanneries and pharmaceutical com- panies were looking for cheap waste- dumping sites. They approached vir- tually every country on Africa's west coast from Morocco to the Congo.

Values in Tension:

Nigeria agreed to take highly toxic polychlorinated biphenyls. Unpro- tected local workers, wearing thongs and shorts, unloaded barrels of PCBs and placed them near a residential area. Neither the residents nor the workers knew that the barrels con- tained toxic waste.

We may denounce governments that permit such ahuses, but many countries are unable to police trans- national corporations adequately even if they want to. And in many countries, the combination of inef- fective enforcement and inadequate regulations leads to hehavior by un- scrupulous companies that is clearly wrong. A few years ago, for example, a group of investors hecame inter- ested in restoring the SS United States, once a luxurious ocean liner.

Before the actual restoration could begin, the ship had to he stripped of its asbestos lining. A bid from a U.S.

company, hased on U.S. standards for ashestos removal, priced the job 48 DRAWINGS BY MICHAEL REAGAN at more than $100 million. A com- pany in the Ukranian city of Sevas- topol offered to do the work for less than $2 million. In October 1993, the ship was towed to Sevastopol.

A cultural relativist would have no problem with that outcome, but I do.

A country has the right to estab- lish its own health and safety regu- lations, but in the case described above, the standards and the terms of the contract could not possibly have protected workers in Sevas- topol from known health risks.

Even if the contract met Ukranian stan- dards, ethical businesspeople must object. Cultural relativism is moral- ly blind. Tbere are fundamental val- ues that cross cultures, and compa- nies must uphold them. [For an economic argument against cultural relativism, see the insert "Tbe Cul- ture and Ethics of Software Piracy.") WORLD VIEW they bad used witb U.S. managers:

the participants were asked to dis- cuss a case in which a manager makes sexually explicit remarks to a new female employee over drinks in a bar. The instructors failed to consider how the exercise would work in a culture witb strict conven- tions governing relationships be- tween men and women. As a result, tbe training sessions were ludicrous.

Tbey baffled and offended the Saudi participants, and the message to avoid coercion and sexual discrimi- nation was lost, y--"'--'^' The theory behind ethical imperi- alism is absolutism, wbich is based on tbree problematic principles. Ab- solutists believe tbat there is a single list of truths, tbat they can be ex- pressed only with one set of con- cepts, and that they call for exactly the same behavior around tbe world.

loyalty to their companies, their business networks, and tbeir nation.

Americans place a higher value on liberty tban on loyalty; tbe U.S. tra- dition of rights emphasizes equality, fairness, and individual freedom. It is hard to conclude that truth lies on one side or tbe other, but an abso- lutist would have us select just one.

The second problem witb abso- lutism is tbe presumption tbat peo- ple must express moral truth using only one set of concepts. For in- stance, some absolutists insist that the language of basic rights provide the framework for any discussion of continued on page 52 Ethics Away from Home At the other end of tbe spectrum from cultural relativism is etbical imperialism, wbicb directs people to do everywbere exactly as they do at home. Again, an understandably ap- pealing approach but one tbat is clearly inadequate. Consider the large U.S. computer-products com- pany tbat in 1993 introduced a course on sexual harassment in its Saudi Arabian facility. Under the banner of global consistency, in- structors used the same approach to train Saudi Arabian managers that Tbe first claim clasbes with many people's belief tbat different cultural traditions must be respected. In some cultures, loyalty to a commu- nity - family, organization, or soci- ety - is tbe foundation of all etbical behavior. The Japanese, for example, define business ethics in terms of Thomas Donaldson is a professor at the Wharton School of the Univer- sity of Pennsylvania in Philadelphia, where he teaches business ethics.

He wrote The Etbics of International Business (Oxford University Press, 1989) and is the coauthor, with Thomas W. Dunfee, of Business Ethics as Social Contracts, to be published by the Harvard Business School Press in the fall of 1997.

HARVARD BUSINESS REVIEW September-October 1996 WORLD VIEW The Culture and Ethics of Softv^are Piracy Before jumping on the cultural relativism bandwagon, stop and consider the potential economic consequences of a when-in-Rome attitude toward business ethics.

Take a look at tbe current statis- tics on software piracy: In the United States, pirated software is estimated to be 35% of the total software market, and industry losses are estimated at $2.3 bil- lion per year. Tbe piracy rate is 57% in Germany and 80% in Italy and Japan; tbe rates in most Asian countries are estimated to be nearly 100%.

Tbere are similar laws against software piracy in those coun- tries.

What, then, accounts for tbe differences? Although a coun- try's level of economic develop- ment plays a large part, culture, including etbical attitudes, may be a more crucial factor. The 1995 annual report of the Software Publishers Association connects software piracy directly to cul- ture and attitude. It describes Italy and Hong Kong as having "'first world' per capita incomes, along with 'third world' rates of piracy." When asked whether one should use software without pay- ing for it, most people, including people in Italy and Hong Kong, etbics.

Tbat means, tbough, that en- tire cultural traditions must he ig- nored. Tbe notion of a right evolved with tbe rise of democracy in post- Renaissance Europe and the United States, but the term is not found in either Confucian or Buddhist tradi- tions.

We all learn ethics in the con- text of our particular cultures, and tbe power in tbe principles is deeply tied to tbe way in which tbey are expressed. Internationally accepted lists of moral principles, such as tbe United Nations' Universal Declara- tion of Human Rights, draw on say no. But people in some coun- tries regard the practice as less unethical tban people in other countries do. Confucian culture, for example, stresses tbat individ- uals should share what they cre- ate with society. That may be, in part, what prompts the Chinese and other Asians to view the con- cept of intellectual property as a means for tbe West to monopo- lize its technological superiority.

What happens if ethical atti- tudes around tbe world permit large-scale software piracy? Soft- ware companies won't want to in- vest as much in developing new products, because tbey cannot ex- pect any return on their invest- ment in certain parts of the world. When etbics fail to sup- port technological creativity, there are consequences that go beyond statistics - jobs are lost and liveliboods jeopardized.

Companies must do more tban lobby foreign governments for tougher enforcement of piracy laws.

They must cooperate witb other companies and with local organizations to help citizens un- derstand the consequences of piracy and to encourage the evo- lution of a different ethic toward the practice.

many cultural and religious tradi- tions.

As philosopher Michael Walzer has noted, "There is no Esperanto of global etbics." The third prohlem with abso- lutism is tbe belief in a global stan- dard of ethical behavior. Context must shape ethical practice. Very low wages, for example, may be con- sidered unethical in rich, advanced countries, but developing nations may be acting ethically if tbey en- courage investment and improve liv- ing standards by accepting low wages. Likewise, when people are malnourished or starving, a govern- ment may he wise to use more fertil- izer in order to improve crop yields, even though that means settling for relatively high levels of thermal wa- ter pollution.

When cultures have different stan- dards of ethical behavior-and differ- ent ways of bandling unethical be- havior - a company that takes an absolutist approacb may find itself making a disastrous mistake. When a manager at a large U.S. specialty- products company in China caught an employee stealing, she followed tbe company's practice and turned the employee over to the provincial authorities, wbo executed bim. Man- agers cannot operate in another cul- ture without being aware of that culture's attitudes toward ethics.

If companies can neither adopt a host country's etbics nor extend the home country's standards, what is tbe answer? Even the traditional lit- mus test-What would people think of your actions if they were written up on the front page of the news- paper? - is an unreliable guide, for there is no international consensus on standards of business conduct.

Balancing the Extremes:

Three Guiding Principles Companies must help managers distinguish between practices that are merely different and tbose that are wrong. For relativists, nothing is sacred and nothing is wrong. For ab- solutists, many things that are dif- ferent are wrong. Neither extreme illuminates the real world of busi- ness decision making. The answer lies somewhere in between.

When it comes to shaping ethical behavior, companies must be guided by tbree principles.

D Respect for core human values, which determine the absolute moral threshold for all husiness activities.

D Respect for local traditions.

DThe belief tbat context matters when deciding what is rigbt and wbat is wrong.

Consider tbose principles in ac- tion. In Japan, people doing business together often exchange gifts-some- times expensive ones - in keeping with long-standing Japanese tradi- tion. When U.S. and European com- 52 HARVARD BUSINESS REVIEW September-October 1996 W O R t D VIEW panies started doing a lot of business in Japan, many Western business- people tbougbt that the practice of gift giving might be wrong rather tban simply different. To them, ac- cepting a gift felt like accepting a bribe. As Western companies have become more familiar with Japanese traditions, however, most bave come to tolerate tbe practice and to set different limits on gift giving in Ja- pan tban they do elsewhere.

Respecting differences is a crucial etbical practice. Researcb shows tbat management ethics differ among cultures; respecting tbose differences means recognizing that some cultures have obvious weak- nesses-as well as hidden strengths.

Managers in Hong Kong, for exam- ple, bave a higher tolerance for some forms of bribery than tbeir Western counterparts, but they have a much lower tolerance for tbe failure to ac- knowledge a subordinate's work. In some parts of tbe Far East, stealing credit from a subordinate is nearly an unpardonable sin.

People often equate respect for local traditions with cultural rela- tivism. That is incorrect. Some prac- tices are clearly wrong. Union Car- bide's tragic experience in Bhopal, India, provides one example. The company's executives seriously un- derestimated bow mucb on-site management involvement was needed at tbe Bhopal plant to com- pensate for the country's poor in- frastructure and regulatory capa- bilities. In the aftermath of the disastrous gas leak, tbe lesson is clear: companies using sophisticated technology in a developing country must evaluate that country's ability to oversee its safe use. Since the inci- dent at Bbopal, Union Carbide bas become a leader in advising compa- nies on using hazardous tecbnolo- gies safely in developing countries.

Some activities are wrong no mat- ter where they take place. But some practices tbat are unethical in one setting may be acceptable in anoth- er. For instance, tbe chemical EDB, a soil fungicide, is banned for use in the United States. In hot climates, however, it quickly becomes harm- less through exposure to intense so- lar radiation and bigb soil tempera- What Do These Values Have in Common?

Non-Western Kyosei [Japanese):

Living and working together for the common good.

Dharma (Hindu):

The fulfillment of inherited duty.

Santutthi (Buddhist):

Tbe importance of limited desires.

Zakat [Muslim):

The duty to give alms to the Muslim poor.

Western Individual liberty Egalitarianism Political participation Human rights tures.

As long as the chemical is monitored, companies may be able to use EDB ethically in certain parts of the world.

Defining the Ethical Threshold: Core Values Few ethical questions are easy for managers to answer. But there are some hard truths that must guide managers' actions, a set of what I call core human values, which de- fine minimum ethical standards for all companies.' The right to good health and the right to economic ad- vancement and an improved stan- dard of living are two core human values. Another is what Westerners call the Golden Rule, which is recog- nizable in every major religious and etbical tradition around the world.

In Book 15 of his Analects, for in- stance, Confucius counsels people to maintain reciprocity, or not to do to others wbat they do not want done to themselves.

Although no single list would sat- isfy every scholar, I believe it is pos- sible to articulate tbree core values tbat incorporate the work of scores of theologians and philosophers around the world. To be broadly rele- vant, these values must include ele- ments found in both Western and non-Western cultural and religious traditions. Consider tbe examples of values in tbe insert "What Do These Values Have in Common?" At first glance, tbe values ex- pressed in the two lists seem quite different. Nonetheless, in the spirit of what philosopher John Rawls calls overlapping consensus, one can see that tbe seemingly divergent val- ues converge at key points. Despite important differences between Western and non-Western cultural and religious traditions, both ex- press shared attitudes about wbat it means to he human. First, individu- als must not treat others simply as tools; in other words, they must rec- ognize a person's value as a human being. Next, individuals and com- munities must treat people in ways that respect people's basic rights. Fi- nally, members of a community must work together to support and improve the institutions on wbich the community depends. I call those HARVARD BUSINESS REVIEW September-October 1996 53 WORLD VIEW three values respect for human dig- nity, respect for basic rights, and good citizenship.

Those values must he the starting point for all companies as they for- mulate and evaluate standards of ethical conduct at home and ahroad.

But they arc only a starting point.

Companies need much more spe- cific guidelines, and the first step to developing those is to translate the core human values into core values for business. What does it mean, for example, for a company to respect human dignity? How can a company be a good citizen?

I helieve that companies can re- spect human dignity by creating and sustaining a corporate culture in which employees, customers, and suppliers are treated not as means to an end hut as people whose intrinsic value must be acknowledged, and by producing safe products and services in a safe workplace. Companies can respect basic rights by acting in ways that support and protect the individ- ual rights of employees, customers, and surrounding communities, and by avoiding relationships that vio- late human heings' rights to health, education, safety, and an adequate standard of living. And companies can be good citizens hy supporting essential social institutions, such as the economic system and the educa- tion system, and by working with host governments and other organi- zations to protect the eiwironment.

The core values es- tahlish a moral com- pass for business prac- tice.

They can help companies identify practices that are ac- ceptable and those that are intolerable - even if the practices are compatihle with a host country's norms and laws.

Dumping pollutants near peo- ple's homes and accepting inade- quate standards for handling haz- ardous materials are two examples of actions that violate core values.

Similarly, if employing children prevents them from receiving a basic education, the practice is intolera- ble.

Lying about product specifica- tions in the act of selling may not affect human lives directly, but it too is intolerable because it violates the trust that is needed to sustain a corporate culture in which cus- tomers are respected.

Sometimes it is not a company's actions but those of a supplier or customer that pose problems. Take Many companies don't do anything >vith their codes of conduct; they simply paste them on the wall.

the case of the Tan family, a large supplier for Lcvi Strauss. The Tans were allegedly forcing 1,200 Chinese and Filipino women to work 74 hours per week in guarded com- pounds on the Mariana Islands. In 1992, after repeated warnings to the Tans, Levi Strauss broke off business relations with them.

Creating an Ethical Corporate Culture The core values for business that I have enumerated can help compa- nies hegin to exercise ethical judg- ment and think about how to oper- ate ethically in foreign cultures, hut they are not specific enough to guide managers through actual ethical dilemmas. Levi Strauss relied on a written code of conduct when figur- ing out how to deal with the Tan family. The company's Glohal Sourc- ing and Operating Guidelines, for- merly called the Business Partner Terms of Engagement, state that Levi Strauss will "seek to identify and utilize husiness partners who as- pire as individuals and in the con- duct of all their businesses to a set of ethical standards not incompatible with our own." Whenever intoler- able business situations arise, man- agers should he guided by precise statements that spell out the behav- ior and operating practices that the company demands.

Ninety percent of all Fortune 500 companies have codes of conduct, and 70% have statements of vision and values. In Europe and the Far East, the percentages are lower but 54 HARVARD BUSINESS REVIEW September-October 1996 are increasing rapidly. Does that mean tbat most companies have wbat tbey need? Hardly. Even tbougb most large U.S. companies bave both statements of values and codes of conduct, many might be better off if they didn't. Too many companies don't do anything with tbe documents; they simply paste tbem on tbe wall to impress employ- ees, customers, suppliers, and the public. As a result, tbe senior man- agers who drafted tbe statements lose credibility by proclaiming val- ues and not living up to them. Com- panies such as Johnson &. Johnson, Levi Strauss, Motorola, Texas In- struments, and Lockheed Martin, however, do a great deal to make tbe words meaningful, Johnson ik John- son, for example, has become well known for its Credo Challenge ses- sions, in which managers discuss ethics in tbe context of their current business problems and are invited to criticize tbe company's credo and make suggestions for changes. The participants' ideas are passed on to the company's senior managers.

Lockheed Martin has created an in- novative site on the World Wide Web and on its local network that gives employees, customers, and suppliers access to the company's etbical code and the chance to voice complaints.

Codes of conduct must provide clear direction about ethical behav- ior wben tbe temptation to behave unethically is strongest. The pro- nouncement in a code of conduct that bribery is unacceptable is use- less unless accompanied by guide- lines for gift giving, payments to get goods through customs, and "re- quests" from intermediaries wbo are hired to ask for bribes.

Motorola's values are stated very simply as "How we will always act:

jwith| constant respect for people (and] uncompromising integrity." The company's code of conduct, however, is explicit about actual business practice. Witb respect to bribery, for example, tbe code states tbat the "funds and assets of Mo- torola shall not be used, directly or indirectly, for illegal payments of any kind." It is unambiguous about what sort of payment is illegal: "tbe STANFORD PROFESSIONAL EDUCATION, EXECUTIVE PROGRAMS Because Your Business Demands It- ' Now.

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HBR GUIDELINES FOR AUTHORS Interested authors may request a copy of the Harvard Business Reviev/ author guidelines by mail, phone, fax, or E-mail.

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HBR [email protected] The Harvard Business Review strongly encourages interested authors to request the guidelines before submitting any manuscripts. Unsolicited manuscripts v/\\\ be returned only if accompanied by a self- addressed stamped envelope. WORLD VIEW payment of a bribe to a public offi- cial or tbe kickback of funds to an employee of a customer...." The code goes on to prescribe specific procedures for handling commis- sions to intermediaries, issuing sales invoices, and disclosing confidential information in a sales transaction - all situations in wbicb employees might have an opportunity to accept or offer bribes.

Codes of conduct must be explicit to be useful, but tbey must also leave room for a manager to use his or her judgment in situations re- quiring cultural sensitivity. Host- country employees shouldn't be forced to adopt all home-country values and renounce their own.

Again, Motorola's code is exem- plary. First, it gives clear direction:

"Employees of Motorola will respect the laws, customs, and traditions of each country in which tbey operate, but will, at the same time, engage in no course of conduct which, even if legal, customary, and accepted in any sucb country, could be deemed to be in violation of tbe accepted business ethics of Motorola or the laws of tbe United States relating to business etbics." After laying down such absolutes. Motorola's code then makes clear when individual judgment will be necessary. For ex- ample, employees may sometimes accept certain kinds of small gifts "in rare circumstances, where the refusal to accept a gift" would in- jure Motorola's "legitimate business interests." Under certain circum- stances, such gifts "may be accepted so long as the gift inures to the bene- fit of Motorola" and not "to the benefit of the Motorola employee." Striking the appropriate balance between providing clear direction and leaving room for individual Many activities are neither good nor bad but exist in moral free space.

judgment makes crafting corporate values statements and ethics codes one of the hardest tasks that execu- tives confront. Tbe words are only a start. A company's leaders need to refer often to their organization's credo and code and must themselves be credible, committed, and consis- tent. If senior managers act as though ethics don't matter, the rest of the company's employees won't tbink tbey do, either.

Conflicts of Development and Conflicts of Tradition Managers living and working abroad wbo are not prepared to grap- ple with moral ambiguity and ten- sion should pack their bags and come home. The view that all busi- ness practices can be categorized as either ethical or unethical is too simple. As Einstein is reported to have said, "Things should be as simple as possible-but no simpler." Many busi- ness practices that are considered unethical in one setting may be ethi- cal in another. Such activities arc neither black nor white but exist in what Thomas Dunfee and I have called moral free space.''- In tbis gray zone, there arc no tight prescriptions for a company's behavior. Managers must chart their own courses - as long as they do not violate core hu- man values.

Consider tbe following example.

Some successful Indian companies offer employees the opportunity for one of their children to gain a job with the company once the child has completed a certain level in school.

Tbe companies honor this commit- ment even when other applicants are more qualified tban an employ- ee's child, Tbe perk is extremely valuable in a country where jobs are hard to find, and it reflects tbe Indi- an culture's belief that the West has gone too far in allowing economic opportunities to break up families.

Not surprisingly, the perk is among the most cherished by employees, but in most Western countries, it would be branded unacceptable nepotism. In the United States, for example, the ethical principle of equal opportunity holds that jobs sbould go to the applicants with the best qualifications. If a U.S. com- pany made sucb promises to its em- 56 HARVARD BUSINESS REVIEW September-October ployees, it would violate regulations established by the Equal Employ- ment Opportunity Commission.

Given this difference in ethical atti- tudes, how should U.S. managers react to Indian nepotism? Should they condemn the Indian compa- nies, refusing to accept them as part- ners or suppliers until they agree to clean up their act?

Despite the obvious tension be- tween nepotism and principles of equal opportunity, I cannot con- demn the practice for Indians. In a country, such as India, that empha- sizes clan and family relationships and has catastrophic levels of un- employment, the practice must be viewed in moral free space. The deci- sion to allow a special perk for em- ployees and their children is not nec- essarily wrong-at least for members of that country.

How can managers discover the limits of moral free space? That is, how can they learn to distinguish a value in tension with their own from one that is intolerable? Helping managers develop good ethical judg- ment requires companies to be clear about their core values and codes of conduct. But even the most explicit set of guidelines cannot always pro- vide answers. That is especially true in the thorniest ethical dilemmas, in which the host country's ethical standards not only are different hut also seem lower than the home country's. Managers must recognize that when countries have different ethical standards, there are two types of conflict that commonly arise.

Each type requires its own line of reasoning.

In the first type of conflict, which I call a conflict of relative develop- ment, ethical standards conflict be- cause of the countries' different lev- els of economic development. As mentioned before, developing coun- tries may accept wage rates that seem inhumane to more advanced countries in order to attract invest- ment. As economic conditions in a developing country improve, the incidence of that sort of conflict usu- ally decreases. The second type of conflict is a conflict of cultural tra- dition. For example, Saudi Arahia, unlike most other countries, does not allow women to serve as corpo- rate managers, instead, women may work in only a few professions, such as education and health care. The prohibition stems from strongly held religious and cultural beliefs; any increase in the country's level of economic development, which is already qnite high, is not likely to change the rnles.

To resolve a conflict of relative de- velopment, a manager must ask the following question: Would the prac- tice be acceptable at home if my country were in a similar stage of economic development? Consider the difference between wage and safety standards in the United States and in Angola, where eitizens accept lower standards on both counts. If a U.S.

oil company is hiring Angolans to work on an offshore Angolan oil rig, can the company pay them lower wages than it pays U.S. workers in The Problem v^ith Bribery Bribery is widespread and in- sidious. Managers in transnation- al companies routinely confront bribery even though most coun- tries have laws against it. The fact is that officials in many develop- ing countries wink at the prac- tice, and the salaries of local bu- reaucrats are so low that many consider bribes a form of remu- neration. The U.S. Foreign Cor- rupt Practices Act defines allow- able limits on petty bribery in the form of routine payments required to move goods through customs. But demands for hribes often exceed those limits, and there is seldom a good solution.

Bribery disrupts distribution channels when goods languish on doeks until local handlers are paid off, and it destroys incen- tives to compete on quality and cost when purchasing decisions are based on who pays what under the table. Refusing to acquiesce is often tantamount to giving busi- ness to unscrupulous companies.

I believe tbat even routine bribery is intolerable. Bribery un- dermines market efficiency and predictability, thus ultimately denying people their right to a minimal standard of living. Some degree of ethical commitment - some sense that everyone will play by the rules-is necessary for a sound economy. Without an ability to predict outcomes, who would be willing to invest?

There was a U.S. company whose shipping crates were regu- larly pilfered by bandlers on the docks of Rio de Janeiro. The han- dlers would take about 10% of the contents of the crates, but the company was never sure which 10% it would be.

In a partial solu- tion, the company began sending two crates-the first with 90% of the merchandise, the second with 10%.

The handlers learned to take the seeond crate and leave the first untouched. From the company's perspective, at least knowing which goods it would lose was an improvement.

Bribery does more than destroy predictahility; it undermines es- sential social and economic sys- tems.

That truth is not lost on businesspeople in countries where the practice is woven into the social fabric. CEOs in India admit that their companies en- gage constantly in bribery, and tbey say that they have consider- able disgust for tbe practice. They blame government policies in part, but Indian executives also know that their country's busi- ness practices perpetuate corrupt behavior. Anyone walking the streets of Calcutta, where it is clear that even a dramatic redis- tribution of wealth would still leave most of India's inhabitants in dire poverty, comes face-to- face with the devastating effects of corruption.

58 HARVARD BUSINESS REVIEW September October 1996 the Gulf of Mexico? Reasonable peo- ple have to answer yes if the alterna- tive for Angola is the loss of both tbe foreign investment and tbe jobs.

Consider, too, differences in regu- latory environments. In tbe 1980s, tbe government of India fought bard to be able to import Ciba-Geigy's Entero Vioform, a drug known to be enormously effective in fighting dysentery but one tbat had been banned in tbe United States because If a company declared all gift giving unethical, it vsrouldn't be able to do business in Japan.

some users experienced side effects.

Although dysentery was not a big problem in tbe United States, in In- dia, poor publie sanitation was con- tributing to epidemic levels of tbe disease. Was it unetbical to make tbe drug available in India after it bad been banned in the United States? On the contrary, rational people sbould consider it unetbical not to do so. Apply our test: Would tbe United States, at an earlier stage of development, bave used tbis drug despite its side effects? Tbe answer is clearly yes.

But tbere are many instances wben tbe answer to similar ques- tions is no. Sometimes a bost coun- try's standards are inadequate at any level of economic development. If a country's pollution standards are so low tbat working on an oil rig would considerably increase a person's risk of developing cancer, foreign oil companies must refuse to do busi- ness tbere. Likewise, if tbe danger- ous side effects of a drug treatment outweigb its benefits, managers sbould not accept bealtb standards tbat ignore tbe risks.

Wben relative eeonomic condi- tions do not drive tensions, tbere is a more objeetive test for resolving etbical problems. Managers sbould deem a practice permissible only if tbey can answer no to botb of tbe following questions: Is it possible to conduct business successfully in WORLD VIEW tbe bost country witbout undertak- ing tbe practice? and Is tbe practice a violation of a core buman value?

Japanese gift giving is a perfect ex- ample of a conflict of cultural tradi- tion. Most experienced businesspeo- ple, Japanese and non-Japanese alike, would agree that doing business in Japan would be virtually impossible witbout adopting tbe practice. Does gift giving violate a core human value? I cannot identify one that it violates. As a result, gift giving may be permissi- ble for foreign companies in Japan even if it con- flicts with etbical atti- tudes at bome. In fact, that conclusion is widely accepted^ even by compa- nies sucb as Texas Instru- ments and IBM, wbicb are outspoken against bribery.

Does it follow that all nonmone- tary gifts are acceptable or tbat bribes are generally acceptable in eountries where they are common?

Not at all. (See the insert "The Prob- lem witb Bribery.") Wbat makes the routine practice of gift giving accept- able in Japan are the limits in its scope and mtcntion. When gift giv- ing moves outside tbose limits, it soon collides witb core buman val- ues.

For example, wben Carl Kotcbi- an, president of Lockbeed in tbe 1970s, carried suitcases full of casb to Japanese politicians, be went be- yond tbe norms established by Japanese tradition. Tbat ineident galvanized opinion in tbe United States Congress and belped lead to passage of tbe Foreign Corrupt Prac- tices Act. Likewise, Rob Tae Woo went beyond tbe norms established by Korean cultural tradition wben be accepted $635.4- million in bribes as president of the Republic of Korea between 1988 and 1993.

Guidelines for Ethical Leadership Learning to spot intolerable prac- tices and to exercise good judgment wben ethical conflicts arise requires practice. Creating a company cul- ttire that rewards ethical bebavior is essential. Tbe following guidelines for developing a global etbical per- spective among managers can belp.

Tieat coiporate values and formal standards of conduct as absolutes.

Wbatever etbical standards a com- pany cbooses, it cannot waver on its principles eitber at bome or abroad.

Consider wbat bas become part of company lore at Motorola. Around 1950, a senior executive was negoti- ating with officials of a Soutb Amer- ican government on a $10 million sale tbat would bave increased tbe company's annual net profits by nearly 25%. As the negotiations neared completion, however, tbe ex- ecutive walked away from tbe deal because tbe officials were asking for $1 million for "fees," CEO Robert Galvin not only supported tbe exec- utive's decision but also made it clear tbat Motorola would neither accept tbe sale on any terms nor do business witb tbose government officials again. Retold over tbe decades, tbis story demonstrating Galvin's resolve bas belped cement a culture of etbics for thousands of employees at Motorola, Design and implement conditions of engagement for suppliers and cus- tomers. Will your company do busi- ness witb any customer or supplier?

What if a customer or supplier uses cbild labor? Wbat if it bas strong links witb organized crime? Wbat if it pressures your company to break a bost country's laws? Sucb issues are best not left for spur-of-tbe- moment decisions. Some companies have realized tbat. Sears, for in- stance, has developed a policy of not contracting production to compa- nies tbat use prison labor or infringe on workers' rights to bealtb and safety. And BankAmerica bas spe- cified as a condition for many of its loans to developing countries that environmental standards and buman rigbts must be observed.

Allow foreign business units to help formulate ethical standards and interpret ethical issues. Tbe Freneb pharmaceutical company Rbone- Poulenc Rorer bas allowed foreign subsidiaries to augment lists of cor- porate etbical principles witb tbeir own suggestions. Texas Instruments bas paid special attention to issues of international business etbics by creating tbe Global Business Prac- tices Council, wbicb is made up of 60 HARVARD BUSINESS REVtEW September-October 1996 managers from countries in which the company operates.

With the over- arching intent to create a "global ethics strategy, locally deployed," the council's mandate is to provide ethics education and create local processes that will help managers in the company's foreign husiness units resolve ethical conflicts.

In host countries, support efforts to decrease institutional corruption.

Individual managers will not be ahle to wipe out corruption in a host country, no matter how many hribes they turn down. When a host coun- try's tax system, import and export procedures, and procurement prac- tices favor unethical players, compa- nies must take action.

Many companies have begun to participate in reforming host-coun- try institutions. General Electric, for example, has taken a strong stand in India, using the media to make re- peated condemnations of bribery in husiness and government. General Electric and others bave found, how- ever, that a single company usually cannot drive out entrenched corrup- tion. Transparency International, an organization based in Germany, has heen effective in helping coalitions of companies, government officials, and others work to reform bribery- WORLD VIEW ridden bureaucracies in Russia, Ban- gladesh, and elsewhere.

Exercise moral imagination. Us- ing moral imagination means resolv- ing tensions responsibly and cre- atively. Goca-Cola, for instance, has consistently turned down requests for hribes from Egyptian officials but has managed to gain political sup- port and public trust by sponsoring a project to plant fruit trees. And take the example of Levi Strauss, which discovered in the early 1990s that two of its suppliers in Bangladesh were employing children under the age of 14-a practice that violated the company's principles but was toler- ated in Bangladesh. Forcing the sup- pliers to fire the children would not have ensured that the children re- ceived an education, and it would have caused serious hardship for the families depending on the children's wages. In a creative arrangement, the suppliers agreed to pay the chil- dren's regular wages while they at- tended school and to offer each child a job at age 14. Levi Strauss, in turn, agreed to pay the children's tuition and provide books and uniforms.

That arrangement allowed Levi Strauss to uphold its principles and provide long term henefits to its host country.

Many people think of values as soft; to some they are usually un- spoken. A South Seas island society uses the word mokita, which means, "the truth that everybody knows hut nobody speaks." However difficult they are to articulate, values affect how we all behave. In a global busi- ness environment, values in tension are tbe rule rather than the ex- ception. Without a company's com- mitment, statements of values and codes of ethics end up as empty plat- itudes that provide managers with no foundation for hehaving ethical- ly. Employees need and deserve more, and responsihle memhers of the global business community can set examples for others to follow.

The dark consequences of incidents such as Union Carhide's disaster in Bhopal remind us how high the stakes can he.

1.

In other writings, Thomas W. Dunfee and I havt used the term hypernorm instead of core human value.

2.

Thomas Donaldson and Thomas W. lJuntee, "Toward a Unified Concepmm of Business Ethics: Integrative Social Contracts Theory," Academy of Management Review, April 1994; and "Integrative Social Contracts Theory:

A Communitarian Conception of Economic Erhics," Economic.'i nndPhilosophy, spring 1995.

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62 And then the Food and Drug Administration swooped down on my lemonade stand..." CARTOON BY GEORGE DOLE