In the last twenty years, there has been a drastic change in the nature of the relationship between companies and the society. No longer can firms continue to act as independent entities regardless of the interest of the general public. The evolution of the relationship between companies and society has been one of slow transformation from a humble coexistence to one where the mutual interest of all the stakeholders is gaining increasing importance. Companies are beginning to realize the fact that in order to gain strategic initiative and to ensure continued existence, business practices may have to be molded from the normal practice of solely focusing on profits to include public goodwill and responsible business etiquettes (Raynard & Forstater, 2002).
The purpose of this paper however, is not to argue in favor of or against corporate social responsibility (CSR) and business ethics. But to examine whether the code of ethics and CSR practices that a company follows should be universal wherever it does business regardless of geographical location or is there room for change in some places. The stance that this paper takes on this issue is that companies should have a certain level of adaptability when it comes to issues like this for which I will outline my arguments in the following paragraphs.
ETHICS AND SOCIAL RESPONSIBILITY
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An MNC's social and cultural environments, as they change from time to time, should have a bearing on the MNC's ethical and socially responsible conduct. An MNC's social and cultural environments comprise of three levels: global, regional and host country. Thus, an MNC must take into account the stakeholders at the three levels as it formulates core ethical and socially responsible goals and strategies at the levels of MNC headquarters (HQ), region and host country. Before going any further however, there is a need to explain what the terms ethics and corporate social responsibility really entail. Ethics can be defined as guiding principles that help us decide between what is right and what is wrong. These principles are acceptable parameters in which the business firms are to operate. Ethical behavior means that the individual behaves in a right way which will be accepted by the whole society (Yüksel, 1994).
The European Commission advocates CSR as "Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance and investing more into human capital, the environment and relations with stakeholders." Thus CSR exhorts firms to deviate from their sole aim of maximizing profits and to lay more importance on improving the economic and social standards of the community in their countries of operation.
Two themes come to mind when assessing the above definitions. First is "something acceptable by the whole society" and the second relates to "improving the economic and social standards of the community". These themes can be most easily conveyed by taking the example of Japan and China. In both these countries gift giving is an important ritual and it is difficult to differentiate whether it is bribery or not. But as it is part of their business culture and acceptable in their respective societies and going by Yuksel's (1994) definition of ethics, there shouldn't be any qualms about adopting them. Ethics is embedded in the culture of a nation and Hofstede defines culture as "the collective programming of the mind that distinguishes the members of one group or category of people from another. The core element in culture is values" (Hofstede, 1999) Thus, ethics is subject to cultural values and norms.
Furthermore, let's look at the issue of child labor. Universal standards with regards to child labor might do more harm than good for children whom the standards are designed to help. If the alternatives to working are worse (like starving or even prostitution), children would not benefit from prohibition of child work (ILO, 2003). This is especially the case with developing countries. Only if income transfers to families and also educational and training opportunities are available to those children, employment might be less attractive to them. Therefore strictly enforcing the standards without any compensation would lower family welfare (Yuksel & Murat, 1999). Furthermore engaging in CSR activities requires resources, both human as well as monetary. Therefore in developing economies abandoning CSR activities to increase the number of new recruitments might not be a bad idea. The reason being that the people in these countries might not be as impressed by CSR activities, as they would be by the employment opportunities that a firm provides. Therefore, the firm in directing the funds which might otherwise have been used in for example, some sort of environmental initiative can instead be used to increase the employment rate of a community thereby indirectly, the firm engages in CSR. So an absolute code of ethics and CSR practices would possibly harm the "society" as well as have a drastic effect on the "economic and social standards of the community" thereby negating the essence of ethics and CSR.
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The above argument can be related to the concepts of "Relativism" and "Absolutism". Relativism refers to adopting local norms, which involves behaving in a way which is applicable to the saying "when in Rome, do as the Romans do". On the other hand absolutism argues that "home country cultural (and ethical) values must be applied everywhere" (Donaldson, 1996). Successful MNCs are however, aware of the situation that they cannot simply export practices that are effective domestically to overseas operations. This would hamper trade as well as harm the reputation and image of a firm looking to do business in a foreign market.
In theory global rules are likely to make things less complex but in reality they are unlikely to reflect values and habits consistent for all cultures thereby increasing complexity. A vast majority of these rules are developed by firms from the Westernized countries and they may not incorporate concerns for the developing world. Further, global ethics may be viewed as a 'seal of approval' and thus represent an end point to developing global ethics rather than the beginning point they should be. Global ethics like other standards can respond to but rarely anticipate change. Accordingly organizations may hide behind global codes when conditions change. Organizations may/will find loopholes then use the rules in their defense (Mirwoba, 2009). A global code of ethics also may serve to discourage innovation, as getting a certain job done in a developing part of the world might require "controversial" practices, the end result of which might benefit a country's economy and society as a whole. But assuming global codes restrict it, the opportunity to innovate and bring growth will go begging. In short the rules will be static but globalization is dynamic.
Motorola provides a great example of how following differing standards in different countries can benefit a firm. Motorola calls this initiative the Ethics Renewal Process. With a trained core of senior executives, Motorola's Director of Global Leadership and Organizational Development creates ethical awareness, skill development, and team building in diverse teams of managers in the company's foreign operations. The teams identify ethical issues and devise possible solutions. Particular attention is paid to dialogue on local ethical perspectives that may differ from the Motorola corporate code of ethics. Local ethics committees are formed, trained in various ethical frameworks, and authorized to develop policies and guidelines to address local ethical issues. For example, Motorola has developed specific guidelines for gift giving in Japan that differ from the company's guidelines on gift giving in other countries. The products of these local ethics committees are then shared with other similar committees around the world (Buller & McEvoy, 1999). Motorola has formed numerous ongoing ethics committees across its global operations. Clearly, this kind of comprehensive approach to cross-cultural ethics training and development enhances the organizational learning process and creates the firm-specific knowledge and skills that contribute to sustainable competitive advantage.
However it would be unwise to change your code of ethics to a point where a corporation's practices can be deemed as illegal. Adapting your ethical standards to the local norms and values could be a beneficial strategy; however, there should still be a certain threshold that regulates that companies do not cross the line between being "unethical" and doing something illegal. Some ethicists blame the responsibilities attached to managerial positions within a corporation as the root cause of illegal behavior by executives. The argument is that human beings are inherently ethical, but their actions in an official capacity, for the betterment of the corporation, are often considered unethical. Different legal and commercial standards between markets often force executives of multinational companies to act in a morally unacceptable manner to make sure the corporation remains competitive against others acting in a similarly objectionable manner. For example, high demands for performance and profitability led Enron employees first to cut ethical corners and finally to break laws as well (TIME, 2002). But with the formation of regional trade blocs, we see increasing numbers of trade agreements, commercial policies, and business practices being streamlined between nations. This will make it easier for executives of multinational companies to be morally responsible, as their competition within the trading bloc conforms to the same operating guidelines.
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Another aspect of engaging in local ethical and CSR practices relates to acquiring human capital. In order to draw from the vast talent pool coming up in developing countries, companies need to gain a foothold in these markets by establishing sound business practices addressing social and cultural concerns of the people (Krishnan & Balachandran, 2004). It has been observed that consumers consider switching to another company's products and services, speak out against the company to family/friends, refuse to invest in that company's stock, refuse to work at the company and boycott the company's products and services in case of negative corporate citizenship behaviors (Edenkamp, 2002), yet another reason why firms should adapt to the local practices.
Global ethics and CSR are guidelines for companies in their world-wide operations. However,
the case of "how to behave ethically", is not as clear as is desired, especially when various cultures and different levels of economic development of countries are involved. MNCs must establish a corporate code of ethics that is globally integrative yet locally responsive and create an ethical culture which never allows discrimination against LDCs in deciding ethical issues. Secondly, circumstances in a host country might be completely different to that of the firm's home country. By circumstances I am referring to the culture as well as the economic conditions of that country. In these countries the business code of ethics might be different to the developed world therefore there is a need to mold the codes according to the local norms and values. In this way a firm can do business successfully in a foreign market or with foreign partners and as outlined before, the firm might inadvertently also be engaging in CSR of a different kind.
Motorola's Ethics Renewal Process outlines a great step in addressing ethical issues and is one of the main reasons for their success in international markets.
To conclude, in the highly globalized world, international trade is ever increasing. Corporations from the western world tend to place more emphasis on good business ethics and adequate CSR practices which is admirable. But the fact remains that the values, economic conditions and business culture are quite different in developing countries. Corporations would be wise to create differentiated strategies according to the geographical locations, if they want to maintain long term sustainability. So relativism would be a much better approach than absolutism or universalism.