Ethics in International Management [Reprint 2015 ed.] 9783110806540, 9783110154474

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de Gruyter Studies in Organization 84 Ethics in International Management

de Gruyter Studies in Organization Organizational Theory and Research

This de Gruyter Series aims at publishing theoretical and methodological studies of organizations as well as research findings, which yield insight in and knowledge about organizations. The whole spectrum of perspectives will be considered: organizational analyses rooted in the sociological as well as the economic tradition, from a sociopsychological or a political science angle, mainstream as well as critical or ethnomethodological contributions. Equally, all kinds of organizations will be considered: firms, public agencies, non-profit institutions, voluntary associations, inter-organizational networks, supra-national organizations etc. Emphasis is on publication of new contributions, or significant revisions of existing approaches. However, summaries or critical reflections on current thinking and research will also be considered. This series represents an effort to advance the social scientific study of organizations across national boundaries and academic disciplines. An Advisory Board consisting of representatives of a variety of perspectives and from different cultural areas is responsible for achieving this task. This series addresses organization researchers within and outside universities, but also practitioners who have an interest in grounding their work on recent social scientific knowledge and insights. Editor Prof. Dr. Alfred Kieser, Universität Mannheim, Mannheim, Germany Advisory Board: Prof. Anna Grandori, CRORA, Università Commerciale Luigi Bocconi, Milano, Italy Prof. Dr. Comelis Lammers, FSW Rijksuniversiteit Leiden, Leiden, The Netherlands Prof. Dr. Marshall W. Meyer, The Wharton School, University of Pennsylvania, Philadelphia, U.S.A. Prof Jean-Claude Thoenig, Université de Paris I, Paris, France Prof. Mayer F. Zald, The University of Michigan, Ann Arbor, U.S.A.

Ethics in International Management

Edited by Brij Nino Kumar Horst Steinmann

w DE

G Walter de Gruyter • Berlin • New York 1998

Editors Prof. Dr. Brij Nino Kumar Department of Business and International Management, Friedrich-Alexander-Universität, Erlangen-Nuremberg, Germany. Prof. Dr. Dr. h. c. Horst Steinmann Department of Business and Management, Friedrich-Alexander-Universität, Erlangen-Nuremberg, Germany. With 8 figures and 8 tables. © Printed on acid-free paper which falls within the guidelines of the ANSI to ensure permanence and durability. Library of Congress Cataloging-in-Publication Data Ethics in international management / edited by Brij Nino Kumar, Horst Steinmann. p. cm. — (De Gruyter studies in organization ; 84) Includes some papers presented at a 1995 conference organized by the editors, with additional papers written for this volume. Includes bibliographical references and index. ISBN 3-11-015447-1 (cloth : alk. paper). ISBN 3-11-015448-X (pbk. : alk. paper) 1. International business enterprises — Management Moral and ethical aspects. 2. Business ethics. I. Kumar, Brij. II. Steinmann, Horst. III. Series. HD62.4.E864 1998 174'.4—dc21 98-16969 CIP

Die Deutsche Bibliothek — Cataloging-in-Publication Data Ethics in international management / ed. by Brij Nino Kumar ; Horst Steinmann. — Berlin ; New York : de Gruyter, 1998 (De Gruyter studies in organization ; 84 : Organizational theory and research) ISBN 3-11-015448-X brosch. ISBN 3-11-015447-1 Gb.

© Copyright 1998 by Walter de Gruyter GmbH & Co., D-10785 Berlin All rights reserved, including those of translation into foreign languages. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the publisher. Printed in Germany. Printing and Binding: WB-Druck GmbH, Rieden am Forggensee. Cover Design: Johannes Rother, Berlin.

Preface

The idea of this volume cropped up at a conference in 1995 on Ethics in International Management which was jointly organized by the editors: Brij Nino Kumar, then Chairman of the Scientific Commission of International Management, German Association of Professors of Business Economics and Management and Horst Steinmann as Chairman of the German Business Ethics Network. The joint conference was attended all together by about 150 academicians and practitioners, and in the two and a half days of paper presentations and panel discussions it became apparent that internationalization and globalization both pose a challenge to the moral foundations of the activities of multinational corporations. For one, the diversity of environments in which multinational corporations operate raises the question of cultural relativity and ethical differences. Secondly, it seemed important to look at the increasing moral responsibility of these firms in the face of expanding globalization and diminishing government control. Both aspects offer a plethoria of problems and issues which in a volume like this can only be covered to a limited extent. Several papers included in the volume were presented at the conference; others were invited. In both cases we express gratitude to the authors for agreeing to participate and making this volume possible. We would also like to thank Christoph Schirmer, de Gruyter, for his helpful support all through the project and our team of assistants under the competent and untiring guidance of Frank Schmidt for putting the manuscript together. Nuremberg, Spring 1998

Brij Kumar Horst Steinmann

Contents in Brief

Introduction to the Volume: Ethics in Multinational Corporations Brij Nino Kumar and Horst Steinmann

Part One Theoretical Foundation of Corporate and Management Ethics in the Context of Multinational Enterprise and Globalization

1

11

Corporate Ethics and Global Business: Philosophical Considerations on Intercultural Management Horst Steinmann and Andreas Georg Scherer

13

Constructivist Anthropology and Cultural Pluralism: Methodological Reflections on Cultural Integration Harald Wohlrapp

47

The Competitive Context of Ethical Decision-Making in Business S. Prakash Sethi and Linda M. Sama The Role of International Industry Associations in the Development and Implementation of Corporate Ethics: The Case of the Chemical Industry and Responsible Care Hans-Peter Meister and Henning Banthien Social Capital Investments, Property Rights and the Ethics of Win-Win: Why Multinational Enterprise Management Should Engage in Institution Building of their Host Countries André Habisch Globalization, Development and Ethics: Moral Responsibility and Strategies of International Management in the Perspective of 'Sustainable Development' Brij Nino Kumar and Ina Graf

Part Two Ethics in International Strategies and Management Functions Global Responsibility for Sustainable Development: The Role of Multinational Corporations Klaus M. Leisinger

65

87

109

127

161 163

VIII

Contents in Brief

Corruption in International Business Relations: Problems and Solutions Michael H. Wiehert

183

Ethics - A Global Business Challenge Robert D. Haas

213

Ethical Issues in International Marketing Gopalkrishnan R. Iyer

221

Concepts and Experience of the "Valuing Diversity and Ethics" Workshops at Levi Strauss and Company Marvin T. Brown

243

Orientation for a Globally Competent Human Resources Function in Preventing and Resolving Cross-cultural Conflicts D.J. Clackworthy

259

Part Three Morals in Religion and National Traditions: Cultures as Points of Departure for Foundations of Corporate Ethics in International Business

279

Ethics for Business and Management: Explorations in Hindu Thought Shitangshu K. Chakraborty

281

Business Ethics in China: Confucianism, Socialist Market Economy and the Multinational Enterprises Kam-hon Lee

309

"Contextualism" in Business and Ethical Issues in Japan Iwao Taka

323

An Islamic Framework for International Marketing Ethics Mohammad Saeed and Zafar U. Ahmed

341

Business and Corporate Ethics in the USA: Philosophy and Practice Georges Enderle

367

Business Ethics in the Catholic Value System: The Spanish Case Adela Cortina

401

Contents in Brief

IX

Business Ethics in a Transforming Economy: Applying the Integrative Social Contracts Theory to Russia Sheila M. Puffer and Daniel J.

The Interfaith Declaration: Context, Issues and Problems of Application of a Code of Ethics for International Business among those of three Major Religions Simon

Webley

419

McCarthy

439

Contents

Introduction to the Volume: Ethics in Multinational Corporations Brij Nino Kumar and Horst Steinmann

1

1 An Arising Problem in International Business Practice 1 2 Ethics in MNCs: Aspects of the Conceptual Framework of the Volume... 3 3 Summary of Contributions 4 References 10 Part One Theoretical Foundation of Corporate and Management Ethics in the Context of Multinational Enterprise and Globalization Corporate Ethics and Global Business: Philosophical Considerations on Intercultural Management Horst Steinmann and Andreas Georg Scherer 1 2

3 4

5 6

The Point of Departure: The Multinational Enterprise in the Tense Area of Structural Globalization and Cultural Fragmentation The US-Model Business Principles - A Recent Suggestion and its Problems 2.1 The US-Model Business Principles 2.2 The US-Initiative Seen From the Situation of Global Cultural and Economic Conflict 2.3 The Philosophical Fundamental Problems of the US-Initiative The Reactions of Management Theory Philosophical Perspectives: Universalism and Culturalism 4.1 The Problem Situation 4.2 Transcendental Pragmatics: A Universalistic Perspective 4.3 The Culturalistic Suggestion of Methodic Constructivism 4.3.1 The Ethical-Political Concept of Lorenzen 4.3.2 The Culturalistic Approach of Kambartel 4.3.3 The Concept of Wohlrapp Consequences for the Management of International Companies Final Remarks References

11

13

13 16 16 17 19 20 22 22 23 28 29 30 32 35 39 39

XII

Contents

Constructivist Anthropology and Cultural Pluralism: Methodological Reflections on Cultural Integration Harald Wohlrapp

47

1 On the Meaning of the Question and the Link with Constructivism 47 2 Paul Lorenzen's Proposals on Political Anthropology 49 3 Critique of Two Presuppositions 52 4 Constructivist Method and Interaction with Respect to Interculturality... 55 5 Three Steps of Communicative Cultural Integration 58 5.1 Experience 58 5.2 Understanding 59 5.3 Producing Peaceability 60 References 62 The Competitive Context of Ethical Decision-Making in Business S. Prakash Sethi and Linda M. Sama

65

1 Abstract 2 Scope of the Paper 3 Business Ethics Defined 4 Linkages between Competitive Environment and Ethical Business Behavior 5 Linkages between Industry Structure and Ethical Business Behavior 6 Summary and Implications for Future Research References

65 68 69

The Role of International Industry Associations in the Development and Implementation of Corporate Ethics: The Case of the Chemical Industry and Responsible Care Hans-Peter Meister and Henning Banthien 1

2

Corporate Ethics as Interactive Economics 1.1 Framework as a Moral Location 1.2 Corporate Responsibility: Ethical Options for a Company Responsibility for Rules: Sharing the Responsibility between Company and Industry Association 2.1 The Responsible Care Program 2.2 Results of the Responsible Care Initiative 2.3 Appreciation of Responsible Care 2.4 Dialogue is a Main Principle

70 72 81 83

87

87 88 89 91 93 96 97 98

Contents

3

4

Recommendations for the Further Development of the Program 3.1 The Principle of Interaction: Innovation Created out of Cooperation and Communication 3.2 Broadened Problem Horizons: Sustainability, Globalization and Active Trading of the Chemical Industry 3.3 Problems in the Implementation: Support through the Mediatory Function of Industry Associations The Realization of Discourses in the Economy References

Social Capital Investments, Property Rights and the Ethics of Win-Win Why Multinational Enterprise Management Should Engage in Institution Building of their Host Countries André Habisch 1 2 3 4 5 6 7 8

Introduction Trust and Social Capital Theory Trust, Institutions and Development Social Capital Creation and the Role of MNE Social Capital, Distrust and the Recognition of Property Rights Roads of Engagement: Investing in Social Capital Social Capital Investments and the Changing Relations between Business and State Business, State and the Ethics of Win-Win References

Globalization, Development and Ethics: Moral Responsibility and Strategies of International Management in the Perspective of 'Sustainable Development' Brij Nino Kumar and Ina Graf 1

2

Introduction 1.1 Globalization: Pitfall or Panacea? 1.2 Objective of the Paper The Multinational Corporation and their Moral Responsibility in Global Economy 2.1 Features of Multinational Corporation and Globalization 2.1.1 Transfer of Resources 2.1.2 Local Responsiveness versus Global Integration 2.1.3 Aspects of Globalization 2.2 The Role of Multinational Corporations in the Global World and their Moral Responsibility

XIII 99 100 101 102 104 106

109

109 110 112 114 117 119 122 123 125

127

127 127 128 129 129 129 129 130 132

XIV 3

4

5

Contents

Reflections on the Foundations of Ethical Behaviour of Multinational Corporations 3.1 Normative Guidelines for Legitimizing Multinational Corporations 3.1.1 Concept of Sustainable Development 3.1.2 Conflict Potential of Globalization with Reference to Sustainable Development 3.1.3 Norms for Sustainable Action 3.2 Processual Procedure for Legitimizing Multinational Corporations Multinational Strategy for Sustainable Development 4.1 Planning of the Objective Function 4.1.1 Awareness and Commitment to Sustainable Development 4.1.2 Goal Conflict 4.2 Strategic Analysis 4.2.1 Environmental Analysis 4.2.2 Corporate Analysis 4.3 Strategy Formulation 4.3.1 Resource Transfer Strategy 4.3.2 International Management Strategy 4.4 Strategy Implementation Conclusion References

135 136 136 137 144 145 146 146 146 148 149 149 150 151 151 152 154 155 157

Part Two Ethics in International Strategies and Management Functions

161

Global Responsibility for Sustainable Development: The Role of Multinational Corporations

163

Klaus M.

1 2

Leisinger

Industry's Conduct, Environmental Protection, and the Sociopolitical Mesh The Question of Different Environmental Standards as between Industrial and Developing Countries 2.1 A Holistic Perspective: the "EcoSpace" Concept 2.2 Consequences for Individual Companies 2.3 Exports of Special Wastes to Developing Countries 2.4 The Question of Variable Product Policies as between Industrial and Developing Countries

164 168 169 172 175 176

Contents

XV

2.5

Variable Product Ranges as a Consequence of Distinct Market Characteristics 177 2.6 The DDT Case 177 References 181 Corruption in International Business Relations: Problems and Solutions.... 183 Michael H. Wiehen

1 2 3 4 5 6

7

8 9

10

Introduction Definitions Aspects of Corruption The Corruption Perception Index Legal Treatment Sample Cases 6.1 Zaire - International Airports Instrumentation Case 6.2 Belgium - Agusta Helicopter Case 6.3 India - Bofors Case 6.4 Japan - Pharmaceuticals Scandal 6.5 Germany - Munich Water Treatment Works Scandal 6.6 Singapore - Power Generation Investment Case Costs of Corruption 7.1 Type of Costs 7.2 Who bears the costs? Public Reaction Corrective Action 9.1 International Initiatives 9.1.1 The United Nations 9.1.2 The World Trade Organization 9.1.3 The Organization for Economic Cooperation and Development (OECD) 9.1.4 European Institutions 9.1.5 Other Regional Initiatives 9.1.6 The International Chamber of Commerce (ICC) 9.2 Company Codes of Conduct 9.2.1 Position of Industry 9.2.2 The Consulting Engineers 9.2.3 Self-Protection by Government Contracting Agencies 9.3 The Role of the International Financial Institutions (IFIs) 9.3.1 Civil Society 9.3.2 Transparency International (TI) 9.3.3 The TI Integrity Pact (TI-IP) Conclusion

183 184 185 185 186 187 187 187 187 188 188 188 189 189 190 191 192 193 193 194 195 198 200 201 203 203 204 206 207 208 208 209 210

XVI

Contents

Ethics - A Global Business Challenge Robert D. Haas

213

Ethical Issues in International Marketing Gopalkrishnan R. Iyer

221

1 2 3 4

221 223 226 230 231 232 232 233 234 235 235 235 236 237 239

5

6

Introduction Ethical Theory in Marketing and International Business Ethical Issues in International Marketing Exchanges Ethical Adaptation of International Marketing Strategies 4.1 International Market Selection and Access Decisions 4.2 International Product Strategy 4.3 International Promotions Strategy 4.4 International Pricing Strategy 4.5 International Distribution Strategy International Marketing Ethics and Transnational Corporations 5.1 Costs/Profitability 5.2 Competition 5.3 Cultural Context Conclusions References

Concepts and Experience of the "Valuing Diversity and Ethics" Workshops at Levi Strauss and Company Marvin T. Brown 1 2 3 4 5 6 7 8 9 10 11

An Overview of the Valuing Diversity and Ethics Workshop Connecting Ethics and Diversity Using Principles to Connect Ethics and Diversity Using Assumptions to Connect Ethics and Diversity The Ethical Decision Making Model Analysis of Assumptions Using Dialogue to Connect Ethics and Diversity Four Components of Dialogue Balancing of Inquiry and Advocacy Acknowledging Ambiguity The Resources are in the Room References

243

243 244 245 248 248 251 252 253 254 254 256 256

Contents

Orientation for a Globally Competent Human Resources Function in Preventing and Resolving Cross-cultural Conflicts D.J. Clackworthy 1 2 3 4

Abstract Definitions The "Whys" of a Cross-cultural Conflict Finding a Common Language 4.1 Universal Interaction Modes 4.2 Recognizing and Understanding Interaction Modes 5 The "Whats" of a Cross-cultural Conflict 5.1 Modes and Strategies 5.2 The Interaction Modes are not Conflict Solving Strategies 6 Ethical, Interculturally Effective Interaction and Transaction Strategies 6.1 Integration through Dialogue 6.2 Purpose Generation 7 Implications for Business Leadership 8 The "Hows" of a Cross-cultural Conflict 9 Preventing Culture Clashes in a Global HR Function 9.1 Strategic HR Leadership 9.2 HR Development 9.3 Corporate Communications 9.4 Employment Contracts 9.5 Employee Support 9.6 Human Resources within the HR Function 10 Conclusion References

XVII

259

259 259 260 260 261 265 265 265 265 266 266 268 269 271 272 272 273 274 275 276 276 277 277

XVin

Part Three Morals in Religion and National Traditions: Cultures as Points of Departure for Foundations of Corporate Ethics in International Business Ethics for Business and Management: Explorations in Hindu Thought Shitangshu K. Chakraborty 1 2 3 4

5 6

The Setting Involution Theory and the Will-to-Ethics Excellence, Competition and Ethics Guna, Karmavada and Karmayoga Theories of Ethics 4.1 Guna Theory 4.1.1 On Knowledge 4.1.2 On Work 4.1.3 On Intellect 4.2 Karmavada Theory 4.3 Nishkam Karma Conclusion: The Indian Theory of Consciousness Ethics Ethics/Non-Ethics in Action: A Few Vignettes 6.1 Mr. Gopal of National Engineering Ltd 6.2 Fast Growth Ltd 6.3 Cement Conglomerate Ltd 6.4 David Airlines vs. Goliath Airways 6.5 Pesticides Incorporated Ltd References

Business Ethics in China: Confucianism, Socialist Market Economy and the Multinational Enterprises Kam-hon Lee 1 2 3 4 5 6

Introduction Business Development in China Confucianism and Personal Ethics Socialist Market Economy and Legal Framework Multinational Enterprises and the World Economy Conclusion References

Contents

279

281

281 282 286 291 292 292 293 292 294 296 297 299 299 301 302 304 305 306

309

309 311 315 316 319 320 321

Contents

XIX

"Contextualism" in Business and Ethical Issues in Japan Iwao Taka

323

1

323 324 324 325 326 327 329 330 331 331 332 334 334 336 337

2

3

4

Philosophical and Cultural Background of Contextualism 1.1 Philosophical Background 1.2 Contextualism in Japanese Culture Advantages of Contextualism in Business 2.1 Employees/Managers 2.2 Shareholders/Creditors 2.3 Customers/Community 2.4 Competitors/Regulators Disadvantages of Contextualism in Business 3.1 Employees/Managers 3.2 Shareholders/Creditors 3.3 Customers/Community 3.4 Competitors/Regulators Ethics Embedded in Business Context References

An Islamic Framework for International Marketing Ethics Mohammad Saeed and Zafar U. Ahmed 1

2

3

4

341

Introduction 341 1.1 Importance of Islamic Countries for International Marketing 341 1.2 Importance of the Topic: Examples of Unethical Marketing Practice 342 Foundations of Islamic Framework with respect to Ethical Behavior.... 343 2.1 In View of World Perspective 343 2.2 Higher Responsibilities: Societal/Environmental Approach 346 Just Profit Synthesis: Value Maximization Approach 348 3.1 Corruption in Marketing: An Ethical Perspective 348 3.2 Social Regulatory Institution: Legal Perspective 350 Islamic Ethics for Marketing Decision Making 351 4.1 Basic Concepts 351 4.2 Ethics in Product Decision Making 354 4.2.1 General Guidelines 354 4.2.2 Islam and Product Safety 357 4.3 Ethics and Promotion Decision Making 358 4.3.1 General Islamic Principles 358 4.3.2 The Art of Personal Selling and Sales Promotion 359 4.3.3 The Art of Advertising 359

XX

Contents

4.4

5

Ethics and Pricing Decision Making 4.4.1 General Islamic Principles 4.4.2 Ethical Lapses in Pricing 4.5 Ethics and Distribution Decision Making Conclusion 5.1 Managerial Implications for the Multinationals 5.2 Outlook References

360 360 361 362 363 363 364 365

Business and Corporate Ethics in the USA: Philosophy and Practice Georges Enderle

367

1 2 3

367 368

4 5

Introduction: Business Ethics in the USA - Neither Fad nor Mature Methodological and Other Remarks Taking Stock of Business and Corporate Ethics in the USA an Attempt 3.1 Sources and Semantics 3.2 Origins and Focus 3.3 Rival Approaches to Business and Corporate Ethics 3.3.1 Corporate Social Responsibility 3.3.2 Stakeholder Approach 3.3.3 Social Contract Theory 3.3.4 Virtue Ethics 3.3.5 Integrity Approaches 3.3.6 Bridges to the Firm in Economic Theory 3.3.7 The American Corporation 3.4 Business Ethics Initiatives in Practice: from a Reactive to a Proactive Approach? 3.4.1 Substantial initiatives 3.4.2 Codes of conduct 3.4.3 Ethics training 3.4.4 Ethics officers 3.4.5 Business ethics awards Two Types of Reasoning: The Intrinsic versus the Instrumental Value of Ethics Conclusions and Open Questions 5.1 An Appropriate Ethics-related Concept of the Firm 5.2 Integrating Systemic Issues 5.3 Facing International Challenges References

371 371 373 377 378 379 380 380 381 382 383 385 385 387 387 388 388 392 393 395 395 396 397

Contents

XXI

Business Ethics in the Catholic Value System: The Spanish Case Adela Cortina

401

1 2 3 4 5

401 403 407 407 410 410 412 416 416

6

Towards an Intercultural Business Ethics The Spanish World of Values at the Origins of Capitalism The Emergence of Social Market Economy in Spain From "Franquismo" to the Welfare State Ethics and Business in the Spain Heading into the 21st Century 5.1 Moral Life in Business 5.2 Moral Theory Asa Very Brief Conclusion References

Business Ethics in a Transforming Economy: Applying the Integrative Social Contracts Theory to Russia Sheila M. Puffer and Daniel J. McCarthy

419

1 Integrative Social Contracts Theory 2 Three Forces Influencing Business Ethics in Russia 3 Applying Theory to Practice 3.1 Extortion 3.2 Managerial Buy-Outs of Enterprises 3.3 Breaking Contracts 3.4 Ignoring Arbitrary or "Senseless" Laws 3.5 Personal Favoritism or Blat 3.6 Employee Layoffs 4 Conclusion References

420 422 424 424 427 428 430 432 433 434 436

The Interfaith Declaration: Context, Issues and Problems of Application of a Code of Ethics for International Business among those of three Major Religions 439 Simon Webley 1 The Spread of Global Information 2 Rise of Public Awareness of Moral Issues 3 Interfaith Declaration 4 Method 5 Some Key Principles 5.1 Justice 5.2 Mutual Respect (love)

441 442 443 445 445 446 446

XXII

Contents

5.3 Stewardship 5.4 Honesty 6 The Declaration 6.1 Business and Political Economy 6.2 The Policies of a Business 6.3 Conduct of Individuals at Work 7 The Use of the Code References

447 448 449 449 450 452 453 454

List of Contributors Index

455 457

Introduction to the Volume: Ethics in Multinational Corporations Brij Nino Kumar and Horst Steinmann

1

An Arising Problem in International Business Practice

It is an established fact today that globalization and the spread of Multinational Corporations (MNCs) are strongly interrelated. To the extent, however, that globalization gains importance in world economy there is an increasing need for the MNCs not only to act as economic agents but to more and more take over the role as moral actors. The main reason for this proposition lies in the decline of the sovereignty of national states with respect to laying down and controlling the normative foundations of economic activity. The economics of globalization based on world-wide integrated-spread of corporate activity have led to the phenomenon that scope and possibilities of national jurisdiction on one hand and the economic reach of private enterprise on the other are more and more drifting apart. MNCs are increasingly locally decentralizing on a global base their managerial and operational functions. They set up - in their endeavor to maximize return on investments - their activities world-wide in locations wherever they can expect and are offered best business environmental conditions, e.g. with respect to labor laws and labor cost, taxation, pollution laws etc. Subsequently the traditional assumption of the MNC as a centralized hub and locus of power that could be made responsible for complying to the national laws loses more and more its original validity. In this situation the problem becomes pertinent that and how international harmonization of the normative base of business conduct be established. The contribution of the supranational institutions such as ILO, UNCTAD, OECD, WTO (GATT) and others in achieving this objective has been - as is well known - rather disappointing in the past (Thurow 1996: 131). Even where multi- and bilateral agreements exist, they have in most cases proven to be ineffective because of divergence of interests of the national states. For instance, harmonization is difficult in the area of social work norms because of implacability and intransigence of values and interests of the developed nations as on one hand and developing countries on the other (UNCTAD 1994: 247). Issues that are classified by the former as moral standards in connection with humane work places (e.g. banning child labor) are seen by the latter na-

2

Brij Nino Kumar and Horst Steinmann

tions in the frame of comparative competitive advantage. Here moral and economic categories often stand in conflict with one another. Indeed, this divergence provides the very base of rivalry between international locations which in competition with each other bid for foreign investment and MNCs. Considering that such differences between locations are often deeply rooted in diverging cultural traditions and also emanate from economic constraints of developing countries, it is evident that supranational organizations have little scope for entailing harmonization, especially since they also hold no political power and are dependent on the jurisdiction of national states for enforcement of rules and regulations. With the sovereignty of national states at bay - as Raymond Vernon put it as a far back as in the 1970s (Vernon 1971) - and the futile efforts of the supranational organizations, it appears that in the next future world economy will have to cope without a political solution of the harmonization problem. There seems to be no institution at hand which could take over this task. To suggest a "world-government" or "world-police" seems to be a remote idea at this point of time, though some proposals for reform point in this direction (Group of Lisbon 1995). In this situation characterized by a "normative vacuum" in the political arena, the responsibility of achieving harmony between economic efficiency and moral standards will inevitability rest to a large extent with the MNCs as the original source and locus of decision-making. Its management must realize that this will become an important task of the future. Depending on how well this responsibility of MNCs will be executed within its autonomous decision making discretion, will it be possible at all to further legitimize the capitalistic system and market economy on a world-wide basis. It is still very vague how MNCs could and should handle this problem. The traditional perception that MNCs should behave as "good corporate" citizens is not sufficient any more. This is so because national laws and regulations as such do not (necessarily) reflect universally valid norms according to which corporate management should act. It is the management itself which - in reflecting on its world-wide responsibility - has to strive for universalizable norms, developed in consensus with the groups affected by (intended) corporate strategy (see R. Haas in this volume). Also the expectation does not seem to be realistic that in economic perspective the "win-win situation" could become the prevailing frame of action for MNCs, so that conflicts of interest could be solved by the common surplus of cooperation. Thus, the MNC will be challenged in the future with the important role of a moral actor; it must become an important locus of autonomous moral reflexion. In this endeavor it must and will, of course, be flanked by other institutions such as the supranational organizations mentioned above or the NGOs. On the other hand, one has to keep in mind that basically the MNC is an economic institution that has to bear up with and op-

Introduction to the Volume: Ethics in Multinational Corporations

3

erate within the context of international competition. This means that the extent to which the MNC individually takes up moral responsibility will be inevitably limited according to the specific circumstances of the individual case. But even then the responsibility of contributing to the worldwide harmonization of (relevant) norms underlying its economic activities remains a central task to which the MNC must devote itself in an active way by promoting institutional solutions outside the system of market competition, for example, on the level of industry associations, NGOs, or supranational organizations. As is well known one such initiative has been taken up by the International Federation of Chemical Industries in the form of the so called Responsible Care Program (see chapter Meister/Banthien in this volume).

2

Ethics in MNCs: Aspects of the Conceptual Framework of the Volume

Because of this development in contemporary international business it seems important to also theoretically reflect on the possibilities and the concrete role which corporate ethics has to play within the context of the MNC. Such reflexions must relate to three general problem areas which are treated in the three parts of this volume. Theoretical reflexions on possible improvements of status quo in morals in international business must begin with the, foundations and objectives of a reform (Part 1). The central issue to be treated here is how foreign cultures could interact to set up common orientations for peacefully living together. What is - methodologically speaking - the right approach in achieving this objective? As we all know, in this context "relativism" and "universalism" are philosophical positions which stand in strong conflict with one another today. Is there a solution to this conflict and what are the consequences for action of corporations and federations of industry (e.g. with respect to the need of integrating the universal goal of sustainable development into the corporate objective function). Subsequently one must think about the consequences which result from the fundamental considerations for corporate policy and operations of the MNC (Part 2). In this connection the volume deals, first, with two central issues of corporate policy today, namely sustainable development and corruption. Then some major managerial functions are investigated with respect to implementation of corporate ethics. To avoid Utopian solutions here one has simultaneously to take into account the historical contingencies for action. Of importance are here on a general

4

Brij Nino Kumar and Horst Steinmann

level the societies' value systems which stem from religious and national traditions. Part 3 contains a selection of papers which deals with some of such issues. These three areas are covered in this volume in 20 chapters. The diversity of problems and approaches applied gives the volume a strong interdisciplinary character ranging from philosophy and religion to economics and management.

3

Summary of Contributions

Part one, Theoretical Foundations of Corporate and Management Ethics in the Context of Multinational Enterprise and Globalization, consists of six papers. In chapter 1, "Corporate Ethics and Global Business. Philosophical Considerations on Intercultural Management", H. Steinmann and A. Scherer argue that under the current conditions of globalization international firms are facing more cultural conflicts without suitable means of national or international law available for dealing with these conflicts. Therefore, it is necessary that global firms determine their own policy and behave as moral actors, as is for example suggested by the US-Model Business Principles. Firms should formulate codes of conduct for operating in different cultural environments or adopt the codes of conduct suggested by the US-Model Business Principles. However, the justification of such policies and efforts is at issue. Are they just another example of western world's cultural imperialism as it is claimed by Asian politicians or can such efforts be ethically justified. Both in philosophy and in political sciences scholars discuss whether and how it is possible to interculturally justify norms in order to find a reasonable position between universalism and relativism. The authors exemplify these discussions explaining two different schools of thought in recent German philosophy and their contribution to intercultural conflict resolution: transcendental pragmatics and philosophical constructivism. From these considerations important implications for the interpretation of the US-Model Business Principles and the management of international firms are drawn. In chapter 2 H. Wohlrapp addresses the question of how cultural integration and individuality of different cultures can both be possible. In his paper "Constructivist Anthropology as the Basis for a Concept of Cultural Pluralism?" he develops the answer based on the approach of the political philosophy of Paul Lorenzen and the so called Erlanger-School (Lorenzen 1987; Bults/Brown 1989). Cultural difference is defined as difference of forms of life. Cultural integration is then the overcoming of cultural difference in a process in which increasing understanding of the other and one own's culture go hand in hand.

Introduction to the Volume: Ethics in Multinational Corporations

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P. Sethi and L. Sama discuss in chapter 3 "The Competitive Context of Ethical Decision-Making in Business". The authors argue that in the real world corporate actions are influenced to a great extent by external marketbased conditions. Therefore, a more comprehensive explanation of ethical business conduct must include both corporate, i.e. internal considerations, and competitive, industry structure-based, i.e. external conditions. A framework is presented that provides a systematic analysis of the interactive effect between different types of external market-based competitive conditions, institutional opportunities to engage in ethical behavior and the likelihood that corporations would do so. The relevance for multinational corporations' ethical conduct can be derived considering the varying of market-based competitive conditions in connection with different countries and cultures. In chapter 4 H.P. Meister and H. Banthien address "The Role of Industry Associations in the Development and Implementation of Corporate Ethics: The Case of the Chemical Industry and Responsible Care". Their point of departure is that the demands of sustainability and of a globally expanding economy force companies as well as society to confront various challenges on a social, political, and economic level. The authors argue that solutions to these challenges have to be considered from an ethical view-point. The principle of dialogue is a key means for developing ethically sound judgements in the face of complex modernity. Furthermore, it is a suitable instrument for the cooperative implementation of responsible actions. In order to be able to act ethically under the conditions of market competition, companies have to focus on the development and implementation of a socio-economic-political framework that allows for moral entrepreneurship. However, the creation of this framework cannot be solely achieved by individual companies. For this, the specific knowledge-, initiating-, and steering-competencies of industry associations are essential. The authors propose that industry associations are able to establish a discourse on ethics in the market economy beneficial to all sides. In participating in this discourse, companies can fulfill their responsibility for setting rules of the framework. The case of the chemical industry and the Responsible Care program shows the practicability of these conceptual thoughts. The point of departure for A. Habisch in his article "Social Capital Investments, Property Rights and Ethics of Win-Win" in chapter 5 is that recent social science has identified the crucial role of social capitalism for sustainable socio-economic development. His argument is that in the globalized economy of the 21st century, more than ever before multinational enterprises will form part of their host country's society. In this new context constitutional order with stable property rights, predictable political patterns and rational economic policy can no longer be taken for granted. With economic success depending on a sustainable political environment, multinational enterprises will have to invest in local social capital. Overcoming dilemmas of distrust and

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lack of cooperation may create 'win-win' scenarios and transform the relationship between business and civil society. B.N. Kumar and I. Graf reason in their article "Globalization, Development and Ethics: Moral Responsibility and Strategies of Multinational Management in the Perspective of Sustainable Development" in chapter 6 about developing a normative frame of corporate action which addresses the major conflicts accruing from the characteristics of the globalization process as it emerges from the modus vivendi of multinational corporations. They argue that the multinational corporation in lieu of governmental institutions must voluntarily shoulder the moral responsibility for the consequences of globalization. The conflicts resulting out of globalization are shown, and their relationship to Sustainable Development offering a frame for normative guidelines of ethical behaviour and legitimacy of multinational corporations is identified. The authors go on to show the processual procedure of integrating these guidelines with the operations of multinational corporation with the help of the strategic management process. From these considerations important inferences are drawn for the policies and strategies of multinational corporations. Part two of the volume addresses Ethics in International Strategies and Management Functions in six chapters. The article by K. Leisinger, "Global Responsibility for Sustainable Development: The Role of Multinational Corporations" in chapter 7, makes for a good transition from part 1 which closed with reflections on Sustainable Development as a normative foundation for mutinational strategy. It is clear that commercial success is normally the supreme objective of any business. However, in well-managed national and multinational companies the environmental compatibility of that success has an importance comparable with that given social compatibility. The author argues that environmentally consonant corporate behavior is a matter of both ethics and of business prudence and correctly perceived self-interest. Opportunities exist for forward-looking companies to play an active part in shaping the environment policy. Progressive and hence environmentally responsible businesses not only help to bequeath a world worth living in to future generations; they also garner credibility and public acceptance. Double standards that lead to the infliction of avoidable or even irreversible harm on humans and nature are ethically indefensible. In chapter 8 M. Wiehen deals with "Corruption (Bribery and Extortion) in International Business Relations" which can be seen as global cancer leading to massive misallocation and wastage of resources and erosion of democracy and the social and moral fabric of many societies. Although condemed in public option almost everywhere in the world, in most industrial countries bribery is still not a criminal act, and bribes paid are generously tax deductible. The author shows that many countries have started strengthening their integrity systems. The OECD member states are close to agreement on a con-

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vention that will criminalize corruption and end tax deductibility. The European institutions are preparing parallel legislative action. The International Chamber of Commerce has prepared a model Code of Conduct for business. Civil Society is becoming active in many countries. The author also addresses Transparency International, an international NGO dedicated to fighting corruption globally through coalition building among governments, business and civil society, which has developed an Integrity Pact concept that is about to be tested in several countries for public procurement under major investment projects financed by international and national financing agencies. The article "Ethics - A Global Business Challenge" by R.D. Haas in chapter 9 is one of the very few papers available which reports the practical experience of corporate ethics in an international environment. The contribution is based on a speech given by Haas as CEO of Levi Strauss before the Conference Board. The author reflects thoughtfully on the practice of ethics management in his multinational firm. The article discusses the approaches to the problem: (1) neglect it; (2) compliance based programs, and (3) value-oriented programs (integrity approach). He makes clear why the first two are inadequate and why the company commits itself to the integrity model. It is symptomatic for Haas' approach and thinking that he concludes with the statement "ethics must trump all other considerations". In chapter 10 G. Iyer in his article "Ethical Issues in International Marketing" rejects the notion that ethical responsibilities for international marketing decisions can be readily extended either from a set of multinational corporate responsibilities or from ethical theories. Arguing that the crucial element of international marketing is exchange, he develops a set of universal ethical principles for international exchanges. These principles are then extended to various strategic decisions within international marketing. His framework contests relativist or culturalist approaches to international marketing ethics and underscores the need for understanding cross-cultural contexts and the ways in which a variety of organizational, market and non market considerations may influence ethical evaluations and conduct. M. Brown's essay "Concepts and Experince of the Valuing Diversity and Ethics" in chapter 11 explores the relationship between ethics and diversity by reflecting on the development of Levi Strauss and Company's "Valuing Diversity and Ethics" training program. Instead of seeing diversity as a problem for ethics, Brown shows how valuing diversity enriches ethical reflections. In his examination of the concepts and methods of the Levi program, he highlights three different ways that ethics and diversity are related: through ethical principles, at the level of cultural assumptions, and through dialogue. In chapter 12 D.J. Clackworthy addresses the issue "Orientation for Globally Competent Human Resource Function in Preventing and Resolving Cross-cultural Conflicts". He suggests that a competent global HR function

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should master three competencies: cultural awareness, in order to understand the real intentions of the parties; cultural deftness, in order to translate this knowledge to the parties themselves in an understandable way, and cultural wisdom, in order to advise the parties on culturally and ethical acceptable strategies for overcoming the conflict. He suggests a universal "shorthand" to support the first two competencies, and two principles as a basis of the third. The principles are a new version of the age-old dichotomy between task/goal and relationships orientation, or typically masculine and feminine approaches: generating a common purpose and integrating different human resources work he goes on to illustrate the application of these principles in global HR policymaking. Part three of the volume deals with Morals in Religion and National Traditions: Cultures as Points of Departure for Foundations of Corporate Ethics in International Business. The first four chapters address Eastern and Oriental religion and thought, the following three chapters religion and specific institutional contingencies in the Western and European world. The final chapter closes the volume with a cross-cultural approach. This part is opened by chapter 13 where S.K. Chakraborty reflects on "Ethics for Business and Management: Explorations in Hindu Thought". In this the author attempts a metaphysical-psychological survey of theoretical principles of ethics and morals from mainstream Indian ethos. The focus is on individual endeavor and transformation towards higher levels of consciousness. Ethical choice and behavior then tend to become integral and spontaneous at the being level in the individual. Enabling organizational structures, systems, rules, codes and all that then rest on a spontaneous and secure foundation. The five vignettes in the chapter illustrate how according to Chakraborty formal structures have miserably failed to sustain ethicality because of the intrinsic consciousness gap. K.H. Lee in his article "Business Ethics in China" in chapter 14 expresses a genuine concern on the prevalence of corruption in China business. The Chinese convention of ethical emphasis is one's way to properly relate to one another. This convention, while effective up to 1985, proves to be inadequate as China becomes more integrated with the world economy. The present challenge for China is to continue to adopt the open door policy, to fight against corruption with different measures, and to develop a legal framework and nurture a commensurate culture in order to create an environment for handling effectively impersonal business transaction. I. Taka addresses in chapter 15 "Contextualism in Business and Ethical Issues in Japan". Contextualism, deeply rooted in Japanese culture, is an individual tendency to take social context into consideration and decide a course of action from the viewpoint of the context. The author shows that although this tendency has brought a number of competitive edges to Japanese corpo-

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rations, it also has been a main source of business scandals in Japan. In order to rectify the problematic aspects of contextualism, the necessity to introduce business ethics to Japanese corporate culture is described. M. Saeed and Z. Ahmed take the stand that international marketing activities can contribute positively in satisfying human needs and elevating the standard of living of the people around the world provided the ethical foundation of international marketing system is sound. In this joint paper in chapter 16 they endeavor to identify the salient features of "Islamic Framework of International Marketing Ethics". In it they highlight the capability and strength of Islam for creating and sustaining a strong culture of ethical international marketing. The authors examine the dimensions of international marketing ethics from an Islamic perspective and take the view-point that wholehearted adherance to them will lead to a value - loaded ethical marketing system that is capable of establishing harmony and meaningful cooperation between international marketers and consumers in Muslim target markets worldwide. G. Enderle in chapter 17 deals with "Business and Corporate Ethics in the USA." which has considerably developed in the last 25-plus years and covers now a wide range of activities in business and academia. First, in order to put his survey in the international context, some thoughts about international comparisons in business ethics and the particular role of the USA in the 1990s and beyond are presented. The main part of the article explores a number of factors contributing to the development of business ethics in the USA and takes stock of both theoretical approaches and practical business initiatives. The concluding remarks offer several lessons to be learned from the "American experience" and suggest some directions in which business and corporate ethics might be developed further. In chapter 18 A. Cortina describes "Business Ethics in the Catholic Value System: The Spanish Case". The author makes clear that the companies that wish to survive and to assume their responsibility in building a lasting peace must incorporate a dialogical intercultural ethics as a management tool and a way to comply with a principle of responsibility. For this purpose they will have to make an attempt to understand better the values and customs of different societies. Given that different people's ways of life are often ultimately guided by the majority's religion the author attempts to set out what the values and customs guiding Spanish companies are, with special emphasis on the way the Catholic values affect these ways of life, as Catholicism has for centuries been the majority religion in Spain. S. Puffer and D. McCarthy analyse "Business Ethics in a Transforming Economy" with respect to Russia in chapter 19. Russia's economic transition from a centrally-planned to a market-oriented economy has occurred within a changing political, social, and cultural context. The authors discuss three major forces shaping ethical principles and business practices in Russia: the cul-

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ture, history, and religion of Russia, Communist ideology and the centrallyplanned economy, and the country's current business practices are analyzed using Donaldson and Dunfee's Integrative Social Contract Theory. These practices are extortion, managerial buy-outs, breaking contracts, ignoring senseless laws, personal favoritism (blat), and layoffs. Finally, in chapter 20, S. Webley investigates "The Interfaith Declaration: Context, Issues and Problems of Application of a Code of Ethics for International Business among Three Major Religions". Point of departure is that boards of international companies are having to address the question of how non-commercial factors, including ethics, have to be considered in international business decisions. Driven by rising public awareness of moral issues and readily available information, companies are looking for guidance on how best to respond to the need to enhance their reputations for integrity in the market place. The author analyzes "The Interfaith Declaration of International Business Ethics" as an example of practical code of ethics based on values of Christian, Muslim and Jewish Faiths.

References Bults, R. and J.R. Brown (eds.)(1989), Constructivism and Science. Essays in recent German philosophy. Dordrecht: Kluwer Academic Publishers. Group of Lisbon (1995), Limits to competition. Cambridge, MA: MIT Press. Lorenzen, P. (1987), Constructive Philosophy. Translated by K.R. Pavlovic. Amhurst, MA: University of Massachusetts Press. Thurow, L. (1996), Reclaiming Prosperity: A Blueprint for Progressiv Economic Research. Economic Policy Institute. United Nations Conference on Trade and Development (UNCTAD) (1994), Relationship Between the Trading System and Internationally Recognized Labour Standards, in: "United Nations Conference on Trade and Development: The Outcome of The Uruguay Round": An Initial Assessment, Supporting Papers to the Trade and Development Report, Annex 4: 245-247 Vernon, R. (1971), Sovereignty at bay: The multinational spread of US enterprises. London: Longmann.

Part One Theoretical Foundation of Corporate and Management Ethics in the Context of Multinational Enterprise and Globalization

Corporate Ethics and Global Business: Philosophical Considerations on Intercultural Management* Horst Steinmann and Andreas Georg Scherer

1

The Point of Departure: The Multinational Enterprise in the Tense Area of Structural Globalization and Cultural Fragmentation

In the course of the globalization of the economy and the resulting internationalization of the activities of business, the management of multinational companies is faced with new tasks and challenges (see for example Bartlett/Ghoshal 1989; Ohmae 1989; Porter 1986, 1990; Yip 1992). On the one hand, management must adjust itself to the new structures of a global economy, on the other hand it must learn to deal with increasing cultural diversity (cf. for example Burke 1997; Dülfer 1995; Harris/Moran 1996). There are especial difficulties in dealing with cultural conflicts which can arise in the course of the diverse international activities of companies. This potential conflict affects all activities and areas of company business: beginning with obtaining the raw resources and materials via the production of goods and services right up to the marketing and sales. Within nation states there are suitable means of peacefully dealing with conflicts, using valid laws and company ethics (cf. for example Steinmann/Lohr 1994, 1996). In this case the necessary foundation for dealing with conflicts is offered by the legislative and law-enforcing institutions as well as the common cultural basis with a practical (at least in part) successfully applied concept of "good and just life" (cf. Gergen 1995: 520 ff.). However, through the increasing globalization of business activities, this control mechanism is losing its foundation more and more. The mobility of

*

This chapter is a revised version of a paper originally published in German: Steinmann H., and A.G. Scherer (1997), Die multinationale Unternehmung als moralischer Akteur. Bemerkungen zu einigen normativen Grundlagenproblemen des interkulturellen Managements, in: J. Engelhard (ed.): Interkulturelles Management, Theoretische Fundierung und funktionsbereichsspezifische Konzepte, 23-53. Wiesbaden: Gabler. We thank Susan Pope and Michael J. Dowling for their support during the composition of this English revision.

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capital and of information causes the activities of multinational enterprises to spread like a network over more and more countries and cultures and therefore to be removed increasingly from the control of individual states and their legislation (Drucker 1993; Ohmae 1995; Reich 1991; Thurow 1996). Capital follows the logic of the market economy and looks for the most reasonable supplier of workforce, know-how and material resources. This process is supported in a sustainable manner by the improvement of information processing and the cheapening of transportation. All these developments cause the role and importance of the nation state as a control location for setting the guidelines for economic activity to be questioned persistently (Drucker 1993; Ohmae 1995; Reich 1991), without a suitable, functioning substitute being formed as yet (Thurow 1996). Multinational organizations such as the United Nations (UN), the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) and other institutions have been working for decades on a new solid basis for control, without, however, coming to a satisfactory solution as of yet (cf. Gergen 1995: 522; Orts 1995; Thurow 1996: 131 ff.). The negotiations within these organizations are rather often characterized by national egoisms which do not sufficiently take into account the new conditions of the global economy (cf. Ohmae 1995: 117 ff.). It is known for a long time that the ability of governments to successfully influence market relationships via legislation and administration is principally limited. However, under conditions of globalization nation states compete with each other for business investments and jobs which even lead to a downward spiral of social standards: they rather tend to lower welfare regulations, social standards and taxation in order to lure or hold businesses (Deetz 1995; Greider 1997). The free flow of money, goods, technologies and information results in and this has been known for some time (cf. for example Levitt 1983; Ohmae 1989) - the consumer behavior of different peoples becoming similar at least in parts. Ohmae (Ohmae 1995: 28 ff.) puts forward the theory in his latest book that in the course of this development the cultural values and ways of life also converge. If this were the case, then cultural integration on the basis of values about good and just life that are shared everywhere could replace nation state integration. It may remain open whether this status will in fact occur at the end of a long process of development and whether this should be desirable at all. In the current interregnum, however, a contrary effect can in fact be observed. At the moment the structural globalization in the area of the economy, communication and transport is namely accompanied by a cultural fragmentation and this all the more, the stronger the importance and effectiveness of the nation state as an instrument of integration is reduced (cf. Huntington 1993, 1996; Thurow 1996: 232 ff.; Tibi 1992: 16 ff., 1995: 67 ff.) The na-

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tion state is replaced by the awareness of the people that they belong to a culture that separates them from other cultures. In our day and age, people become closer to one another because of globalization, but the new awareness of one's own civilization creates barriers at the same time and separates them again. With this, the unifying tendencies of globalization are culturally impeded because people from different civilizations reject each other. (Tibi 1995: 41, transl. by the authors)

This conflict, according to Tibi (1992, 1995) exists in particular between Islam and the West, since both represent their own values with the claim to universality which fundamentally question the other's values (see also Huntington 1996). The economic imperative of globalization forces, on the one hand, more and more companies to expand their activities world-wide. On the other hand, companies are more and more exposed to cultural differences and their conflict-prone consequences without there being sufficient nation state or multinational mechanisms of control available. Rather the companies often see themselves as needing to explore the cultural terrain themselves and to create norms which make possible a peaceful business activity in foreign cultures. The multinational enterprise must therefore function as a moral actor. The companies help themselves (as for example Levi Strauss & Co., Reebok, Nike and others) with own codes of conduct (cf. Beaver 1995; Engelhard 1989; Haas 1995; Rosenzweig 1995) or orient themselves explicitly to guidelines on international activities of companies such as those - as explained later in this paper - which were suggested by the current US administration. These guidelines give a behavior orientation on avoiding conflicts or dealing with conflicts with foreign cultures. Therefore, they support the firm on its search for ethically justified actions. When misunderstood, in our opinion, these guidelines become a new source of conflicts, namely when they conflict with fundamental values of foreign cultures (cf. Steinmann/Scherer 1998): "the problem is that of multiple and competing constructions of the good" (Gergen 1995: 521). We suggest that a solution of these problems can no longer take place via the simple use of formal or material norms, but the solution must rather be sought and attempted in concrete actions. We will explain this theory using the example of the "US Model Business Principles" (Section 2) and will discuss this further in the following remarks. We will mark out a fundamental problem of reasoning and, after casting a short glance at management theories (section 3), we will show with two philosophical positions how this problem is discussed in modern German philosophy (section 4). Finally the consequences for the role of multinational enterprises will be briefly sketched out (section 5).

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The US-Model Business Principles A Recent Suggestion and its Problems

2.1 The US-Model Business Principles The United States Department of Commerce published the so-called Model Business Principles at the beginning of 1995 and asked the American corporations to actively participate in the world-wide implementation of these principles (see United States Department of Commerce 1995, for preceding initiatives see Orentlicher/Gelatt 1993). With this initiative, American companies should be convinced to abide voluntarily by a number of principles which serve the upkeep and promotion of human rights, both in a national and an international context. In five statements, the codex calls upon the American companies to create safe and healthy jobs, to deal responsibly with the environment, to refrain from all types of discrimination, child labor and forced labor and to respect the right to form trade union organizations. The companies are, in addition, called upon to take suitable steps to ensure that the laws are complied with, that every sort of corruption and the payment of bribes is refrained from and that fair competition rules are adhered to. Companies are also asked to develop a corporate culture which does not handicap freedom of speech, which avoids political pressure at the workplace, which promotes good corporate citizenship and which contributes in a positive way to supporting the municipalities in which the company operates. Such a corporate culture should make provisions to ensure that ethical behavior is perceived as such, and valued and adhered to by the employees. In our context, it must be emphasized that the Model Business Principles stress the positive role of the USA. enterprises in leading the way. Recognizing the positive role of US business in upholding and promoting adherence to universal standards of human rights, the Administration encourages all business to adopt and implement voluntary codes of conduct for doing business around the world [...]. (United States Department of Commerce 1995)

Apart from these principles, the United States Department of Commerce has commenced certain organizational measures which should promote acceptance and implementation of these principles in the American economy (see e.g. the US Sentencing Commission Guidelines, cf. Dalton/Metzger/Hill 1994; Nagel/Swenson 1993). The American government will also take steps to encourage other countries to take such political action. This underlines in all clarity that an important initiative is being dealt with: the maintenance and world-wide promotion of universal standards of human rights (Orentlicher/ Gelatt 1993).

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2.2 The US-Initiative Seen From the Situation of Global Cultural and Economic Conflict This initiative of US politics can be seen as an attempt to speed up the political efforts to unify the normative bases of the international economy which have been going on for years. For the areas of conflict mentioned in the Model Business Principles (as for many other conflict areas), no binding and sufficiently effective rules have been created on a political level as yet. The initiatives which have been going on for so long have been supported mainly by intergovernmental organizations such as the International Labor Organization (ILO), the United Nations Commission on Transnational Corporations (CTC), the United Nations Conference on Trade and Development (UNCTAD) and in the future the World Trade Organization (WTO) (cf. here in overview for example W.C. Frederick 1991; Getz 1995). Despite in part the decades of attempts, it has not been possible to build a sufficiently stable net of generally recognized standards (Orts 1995). It is true that a whole range of principles have been formulated and passed, but so far a number of states have withdrawn their agreement to some of the regulations. Furthermore, the concrete implementation of the principles and the control that they are being observed is lacking (cf. Gergen 1995: 522; Thurow 1996: 130 ff.; UNCTAD 1994). This situation becomes increasingly dramatic the more - in the course of the globalization of the economy - the different values of nation states and cultures collide. In particular, it is the conflict between the old highly developed industrial states, on the one hand, and the emergent nations and developing countries, on the other hand, that characterize the current problem. In the course of globalization, different ideals of morals and values meet, which are directly relevant for competition via costs and proceeds. Suggestions from the western industrial states aim at reducing this dramatic conflict situation by developing and implementing general rules which should be recognized by all countries. The initiative of the US Department of Commerce can be seen as an attempt to further the process of world-wide unifying of normative business standards on the level of multinational enterprises, i.e., on the "private business level". Because, on the one hand, the industrial states cannot directly influence the legislative practice in the emergent nations and developing countries and, on the other hand, the attempts of the non-governmental organizations do not (yet) reach far enough, the relationship and power potential of world-wide operating companies should be used to create validity for humane principles (Deetz 1995). In particular, two arguments are used against the universalizing attempts of the western industrial nations by the emergent nations and developing countries. The economic argument affects the comparative competitive advantages which arise from the different normative standards (on the protection of work,

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environment, consumers etc.). These countries interpret such attempts of the developed industrial nations as protectionist measures which are used to close the entry to the large world markets to them for as long as they do not bend down to the explicitly moral demands of the industrial nations (cf. UNCTAD 1994: 245 if.; International Labor Conference 1994; Rodrik 1997: 46). Furthermore, the emergent nations and developing countries put forward with their cultural argument that the developed countries are trying to impose their western cultural ideas by developing and implementing general principles. In this way, local cultures would be harmed in their independence and undermined (cf. Lee 1994; Mahathir 1995; Rodrik 1997: 46, 52, note 36, and for a critical overview Tibi 1991, 1995). In contrast to this the developed countries point to the moral impetus of their initiative with the argument that it is not here a matter of trade protectionism, but it is a matter of the protection of the people. They declare that it is not their intention to establish world-wide minimum wages (cf. UNCTAD 1994: 247). Explicitly moral points of view are therefore being claimed to justify one's own point and are given precedence over economic considerations. It may have been the aggravation of the conflict situation at the political level which gave the motivation for the US-initiative. To the extent that the conflicts are increased at the political level and have no real chance of being solved in the short-term, the multinational company should be brought in as a moral actor. Multinational firms are linked in diverse ways with the countries in which they operate. They are therefore confronted directly with the conflicts mentioned and must cope with these in one way or another. On this new level of action, the basic question must be posed as to whether universalistically inspired strategies such as in the sense of the US-initiative are at all legitimate and if so, whether they are a suitable way to success. In order to answer this question, an intimate understanding of the problem itself must be developed. Is it right to understand the moral claim to the multinational firms that is formulated here as the task of implementing values that have already been once and for all legitimated? This would be a simple technological understanding of the task. Or is the achievement of legitimization itself inseparably linked to the question of the implementation of values, so that the moral mission to the multinational companies must be at the same time seen as a demand to get involved in a process of substantiation with the particular cultures in question? In this case the legitimization of the US-initiative should be questioned itself at first. The intention of the US-initiative is in our opinion to be understood as the first alternative. It seems to assume implicitly that there are universally valid standards whose realization can rightly be demanded by all cultures. The initiative would then be seen as emancipatory anticipation, as

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an attempt with strategic means to help the Western idea of good and just life succeed (cf. Apel 1988: 247 ff., 1992: 35 if.; Bohler 1995: 242 ff.). Seen in this way, however, an idea is expressed in the Model Business Principles which is in dispute at the moment not only in discussion of world politics but also in philosophical reflection on basic principles (cf. Gergen 1995: 521; Habermas 1992; Kambartel 1989a; Nemetz/Christensen 1996).

2.3 The Philosophical Fundamental Problems of the US-Initiative The philosophical fundamental question which is being dealt with here is that of the possibility ofjustifying universalistic positions in principle. Only when such a justification is in fact possible and has succeeded can the US-initiative be legitimated; otherwise it would simply be the expression of a pure use of power, it would be the expression of the existing distribution of power, in whose service the multinational companies should be placed (cf. Steinmann/Scherer 1998). Recent discussions have shown that representatives of relativistic positions vehemently turn against the possibility of justification (cf. as an overview Harré/Krausz 1996; Hatch 1983; Krausz 1989). Thus, in parts of anthropology, the opinion prevails that there are no absolute, culture-free values, but rather moral judgements, which were always dependent on their cultural background (cf. critically Hatch 1983: 1 ff.). Therefore, a criticism of foreign cultures would no longer be possible, it should be replaced by a total commandment of tolerance: "We ought to be completely tolerant of other ways of life." (Hatch 1983: 2) This would mean that a rational criticism of the local conditions in foreign cultures would be just as impossible as for representatives of foreign cultures rationally to criticize the activities of international companies (cf. critically Freeman/Gilbert 1988: 20 f f ) . One would mutually have to accept the actors as they were. At first sight, there is nothing that can be said against such a form of real co-existence. However, where there are, in concrete situations, pragmatical conflicts between different values, the question as to how these conflicts should be solved will be posed (Freeman/Gilbert 1988: 37 ff.). For the relativist, who denies the possibility of a reasonable conflict solution right from the start, there is no choice but to accept the division of power as it is. This would lead to a solution through "assimilation", i.e., dominance of powerful cultures over minorities. Relativistic positions are often actually implicitly practiced in international management, without the normative question as to the reasoning being raised at all. Only here and there they are also explicitly defended, as in the context of bribery, which is common in many countries (Lane/Simpson 1984; Pastin/Hooker 1990). Pastin and Hooker (1990: 553), for instance, establish

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this in their critical debate on the Foreign Corrupt Practices Act (FCPA) which forbids companies the payment of bribes in international business: "bribes paid to foreign officials may not involve deception when they accord with recognized local practices" (For a critical response see R.E. Frederick 1990). Even in the case of human rights, their universal validity is actually disputed (see Huntington 1996). Firstly, it is argued that the UN Convention on Human Rights of 1948 is based on European and American values, which are not shared by other cultures, and not even understood by the latter. This concerns especially those cultures which do not recognize individual rights because in these cultures, the community and the duties imposed by the community have always been the decisive point of reference for social order from the outset. Secondly, attempts to give human rights universal validity are discredited as cultural imperialism, which unjustifiably disregards the local peculiarities of other cultures (see e.g., the statements of the Malayan Primeminister Mohamad Mahathir (1995) or of the former Singaporian leader Lee Kuan Yew (1994)). Now, such a complaint could, of course, simply be ignored. However, such an attitude in no way solves the problem of justifying human rights. The fact that something is claimed as universal does not mean that it is therefore universal in some operational or meaningful way. (Galtung 1994: 10, transl. by the authors)

3

The Reactions of Management Theory

Management research, as far as it is at all concerned explicitly with questions of corporate ethics, has up till now only seldom attempted to deal with the practical problems mentioned. The reason for this situation is, amongst other things, that in the theory of international business, the mainstream are economic approaches which explicitly claim to be culture-free (see critically Boddewyn 1988; Jones 1995). These approaches, therefore, disregard the problem of the importance of local cultures in the context of global corporate strategies. Nevertheless, there are approaches in intercultural management research which examine the differences between the various cultures and discuss their consequences for the management of international companies (e.g., Adler/Graham 1989; Hofstede 1980). These approaches are based, however, in the main on descriptive research and therefore cannot produce sufficient orientation to solve intercultural conflicts. And business ethics-approaches have up till now dealt rather with the intracultural conflicts of Western economic systems and have only recently begun to include the intercultural dimension in their thoughts (Brady 1996; Car-

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roll/Gannon 1997; De George 1993; Donaldson 1989; Donaldson/Dunfee 1994; Kumar/Sjurts 1991; Jostingmeier 1994). In particular the work of Donaldson and Dunfee (1994) is relevant here. They explicitly claim to offer a general framework of reference to deal with intercultural conflicts, which however remains relatively vague and unclear as to the fundamental philosophical question. Donaldson/Dunfee (1994) construct two stages of a social contract in their Integrative Social Contracts Theory in a thought experiment; the business subjects would make a macro contract on the one hand, which would make the rules for the contracts on the microlevel available. On the microlevel, the individuals would then on the other hand make contracts whose conditions would be adapted to their particular concrete situation. The substantiation problem appears in the concept of Donaldson and Dunfee where they ask for what they call hypernorms as part of a macrocontract. Hypernorms must have a higher validity than simple local (so-called "authentic") norms, they should enable the creation of microcontracts within and between all cultures. In order to correctly make this claim, the hypernorms must naturally be justified themselves in an way in which intercultural consensus is possible. But exactly this problem of reasoning is not discussed in sufficient detail by the authors. On the contrary, they explicitly turn against ways of proceeding which assume fundamental epistemological questions, the answer to which would need a particular philosophical reflection (cf. Donaldson/Dunfee 1994: 265). First clues for the crystallization of hypernorms can rather be won from the existence of the convergence of religious, cultural and philosophical opinions in respect of certain core principles (Donaldson/Dunfee 1994: 265): For even if hypernorms could be certified solely through the light of reason, we should expect to encounter patterns of the acceptance of hypernorms among people around the world. Hence, patterns of religious, cultural, and philosophical belief can serve as a clue, even if not as total validation, for the identification of hypernorms.

The authors truly believe that they can recognize a certain consensus already on such core principles in the area of anthropology, political science, law and economics. They especially hold true today, where fundamental principles for human co-existence have been formulated in "legal terms", candidates for hypernorms are supposed to be present. The authors lead on from the discussion on basic rights, point to the Declaration of Human Rights of 1948 or the suggestion of the UN (1990) in Code of Conduct for Transnational Companies which states in § 14: Transnational companies shall respect human rights and fundamental freedoms in the countries in which they operate. In their social and industrial relations, transnational corporations shall not discriminate on the basis of race, color, sex, religion etc.

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It is obvious that no satisfactory answer has been found with these clues in the fundamental argument between universalists and relativists. Firstly, merely empirical evidence is brought forward to secure the claims, while rejecting the philosophical ways of procedure (cf. on this point also W.C. Frederick 1991: 174; Getz 1995) whereby the arguments seem almost to be coming close to a naturalistic fallacy. Secondly, it can be argued whether Donaldson and Dunfee's claimed convergences of cultural values in fact exist here (cf. for example French/Granrose 1995: 168 f.; Huntington 1993, 1996; Tibi 1995). Our introductory sketch of the problem should have showed that the opposite is rather the case. Neither has up till now a legally codified solution for most of the disputed norm questions been found, nor have the principles which were formulated in the language of law, e.g. the ILO, the GATT or the WTO, found general recognition (cf. UNCTAD 1994; Thurow 1996: 131 ff.). And even if a common "core" of different codices of non-governmental organizations could be distinguished (cf. Getz 1995), it must still be shown that these organizations are not simply ruled by the values of the industrial countries (cf. Steinmann/Scherer 1998; Deetz 1995: 57 ff.). As a result, the suggestions of Donaldson and Dunfee contribute little to the interesting fundamental argument between universalists and relativists. There is therefore sufficient cause to go into this question once again in an attempt to better underpin the role of the multinational enterprises as a moral actor.

4

Philosophical Perspectives: Universalism and Culturalism

4.1 The Problem Situation The philosophical fundamental dispute between universalists and relativists is therefore the question of whether and how a unified opinion of reason can be found in view of the variety of specific norms and values (cf. Habermas 1992). This question is particularly relevant where cultures with different interpretative schemes and normative ideas meet together. Within cultures the individuals have always possessed common sources of meaning and values which have constituted via the common actions and which more or less ensure co-ordination of social actions in the family, politics and the business sphere (Giddens 1984). In view of the globalization of the economy that was described, the problem now arises that cultures with different values meet each other so that the danger is growing that the (necessary) co-ordination achievements will be seriously disrupted by misunderstandings and conflicts of values (cf. Gergen 1995: 520 f.). Norms which would enable reasonable actions are not automatically available as the actors cannot refer to a practice of interaction that has already proved successful (Wohlrapp 1995).

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In order to deal with the problem, various positions are being discussed at the moment in philosophy (cf. Habermas 1992, 1995). With this brief paper, this discussion can only be outlined with the aid of two different positions of German philosophy (cf. Steinmann/Scherer 1998): transcendental pragmatics and methodic constructivism. Transcendental pragmatics supports a universalistic position and searches for the "place of unity" in culture-free conditions of the possibility of understanding. In contrast to this, methodic constructivism develops a much stronger sensibility for the fact that language rules and values are linked to culture. At the same time methodic constructivism does not resort to cultural relativism. Rather it takes into consideration the possibility of starting attempts to universalize. However, such attempts cannot take place merely on the level of theoretical analysis, but on the level of practical actions and orientations to be achieved jointly. In contrast to transcendental pragmatics, the problem of universalization is not conceptionalized in the mode of "discovering" common points which were presumed on the level of language, but in the mode of "creating' (i.e., constructing) a common use of words which should take up a (potential) common practice of life, which however would yet itself need to be established.

4.2 Transcendental Pragmatics: A Universalistic Perspective Transcendental pragmatics starts looking for a definite "instance of validity" for the justification of actions and norms and for the truth of theoretical or empirical statements respectively. The claim of validity is not limited to particular cultures or forms of life. Transcendental pragmatics instead claims universal validity and, in this respect, culture invariance for the set of rules suggested (Apel 1986). In this respect, this philosophical approach presents a promising "candidate" for reflection on the possibilities of solving intercultural conflicts. Transcendental pragmatics is aimed at the development and reasoning of a discourse ethics that is oriented towards principles and which provides the formal rules with which theoretical and practical problems should be solved (Apel 1973, 1987a, 1988, 1992). Transcendental pragmatics asks for those rules which form a commitment for everyone who is arguing, as these formal rules cannot be disputed by anyone in meaningful arguments. Two principles are essentially formulated (Bohler 1991, 1995; Habermas 1990a): the discourse principle and the principle of universality. Firstly, the discourse principle by which each person arguing recognizes already contra-factually "the unlimited universe of discourse in which an ideal argumentative consensus would appear" as the final resort to check the justifi-

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cation of actions and norms or rather the truth of theoretical and empirical statements. This principle claims "absolute validity" (Bohler 1992: 203, transl. by the authors). It acts as a "regulative idea" of the "actual and definite legitimization and truth" (B8hler 1995: 251, transl. by the authors) by which the actors can assess their real statements and actions. Secondly, discourse ethics formulates a principle of universality by which every speaker claims validity against all others with his/her arguments and is therefore committed to defending his/her arguments against all meaningful criticism. Consequently, the speaker must attempt to find an argumentative consensus and to create the ideal conditions, i.e., of structures and institutions which make such a consensus possible. It can be seen already at this stage that the term "argumentation" is a central part of the conception. It is a matter of proving the lack of alternatives of rules for the practice of argumentation. The possibility of the existence of alternative concepts of argumentation is thereby decisively excluded (cf. Habermas 1990a: 95). It is possible, admittedly, to break these rules in communicative actions, for instance, with a strategic intent, but then it is no longer argumentative dealing in the sense of these rules anyway. Transcendental pragmatics claims to show that this set of rules of argumentation possesses validity as well over radically different cultures and incommensurable forms of life (cf. Apel 1986: 6). With regard to our problem of solving intercultural conflicts, this would mean that the preconditions of a promising conflict solution are already present in the necessary conditions for argumentation (Habermas 1996). These conditions exist, as it were, behind the backs of the actors, irrespective of culture and forms of life; and they should be enforced by us, if necessary, via "emancipatory anticipation" upon the prevailing actual conditions (Apel 1973, 1992). Since the conditions of a universalistic ethic of principles in the social world, especially in the intercultural context, do not exist here and now, the attempt at unreserved comprehension would eventually be dysfunctional. This situation, therefore, requires a mediation procedure - appropriate to the situation - between unconditional comprehension and a "legitimate interest" in self-assertion. This mediation could be rationally enforced through "strategic" anticipation of the necessary conditions for the use of reason (cf. Apel 1988: 247 if., 1992: 35 ff.; Bohler 1995: 242 f.). Transcendental pragmatics assumes that the problem of justification to create an "ideal community of communication" (Apel) or an "ideal speech-situation" (Habermas) is already solved. This is so because such a justification of the rules of argumentation is shown through a general reflection upon the necessary conditions of (reasonable) argumentation, which cannot be dispensed with by speakers to avoid an actual self contradiction. One would thus not need to attempt to find additional reason for the rules of argumentation itself in a conflict situation - on a meta

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level - but could commence immediately with the implementation of these formal rules followed by the correct examination of theses and anti-theses in the dispute. In accordance with the transcendental pragmatic conception, other speakers should be recognized as equal partners; however, "only arguments should be considered as valid, not points of view which are not arguments" (Bohler 1991: 161, transí, by the authors). But we know from experience that in our conversations it is a matter of dispute whether an argument is permissible or not and what should be valid as an argument at all. Thereby the term "argumentation" itoe/f becomes an object of dispute without one being able to fall back on an unquestionable understanding of argumentation to solve the dispute. Such a situation will especially appear in an intercultural context where the actors have learnt different understandings of argumentation. Recently, it has been explicitly proposed that people are not born knowing argumentation but rather learn argumentation during the process of socialization (cf. Cohen/Arato 1995: 376 ff.; Kambartel 1989a: 34 ff.; Schneider 1994: 22 ff.). Both, these transcendental-philosophical discussions of Apel and his followers and the discourse theoretical considerations of Habermas (no further details given here) have been extremely inspiring for thoughts on business ethics in management research not only in German (Steinmann/Lohr 1994; Ulrich 1987), but also in English literature (Alvesson/Deetz 1996; Cohen/Arato 1995; Deetz 1995; French/Granrose 1995; Willmott 1997). Nevertheless, there are also fundamental objections against these concepts. Considering the specific problem of intercultural conflicts within the framework of international management has, moreover, led to certain doubts about the soundness of these conceptions with regard to dealing with such conflicts. These doubts concern, in particular, the suggested concept of argumentation which is rule-oriented, and, according to some critics, a too narrow conception of pragmatics. In the following, we wish to put forward some of these counter-arguments which seem to us to be of utmost relevance in situations of intercultural conflicts. (1) Transcendental pragmatics searches for the constituent rules of the linguistic game called "argumentation". This search is based on three preconditions (cf. Bohler 1991: 156 f.). Firstly, it assumes that there are not simply deductive forms of reasoning, but also other forms of argumentation which one can correctly ascribe the predicator "reasoning" to. Secondly, it assumes that the principle of fallibilism that was propagated by critical rationalism (Popper 1959) is not valid for the rules of doubting and arguing (cf. Apel 1973: 405 ff., 1987b: 172 ff.; Habermas 1990a: 79 ff.). The rules of arguing that were reconstructed by transcendental pragmatics are therefore neither deceivable nor

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can they be doubted. Thirdly, transcendental philosophy finally asserts that the constitutive rules of argumentation are not to be understood as simple technical rules but as social rules with normative power. For whether an argument is considered worthy of being discussed or is expelled from the discussion as a failed argumentation attempt - that is whether the speaker concerned is recognized or not with his/her speech in the argumentation community - depends on one keeping to these rules. (Bflhler 1991:157, transl. by the authors)

Only one side of the coin is dealt with, however. It is assumed that human beings follow available, indisputable rules when arguing. The process of constituting these rules itself is not taken into consideration at all. But Bohler (1991) himself pointed out that a syntactic-semantic understanding of argumentation does not go far enough, since in this way, pragmatics as "primary locus of the construction of meaning" (Bohler 1991: 152, transl. by the authors) is left out. An understanding of an arrangement of signs (Syntax) with the purpose of referring to an object in a proposition (Semantics) is only possible, according to Bohler, if it is based on "the speech rules of a historical language community and its implicit world view or rather unfolding of a world" (1991: 152 f., transl. by the authors, see also Apel 1987b: 164, 184). This should be agreed with; however, this point will also be valid for the understanding of the word "argumentation" in contrast to the second preliminary decision of transcendental pragmatics that was dealt with above. With this, transcendental pragmatics immunizes itself against criticism. In accordance with the remarks of Bohler (1991, 1995), the question as to the admissibility of an argument will always be dependent on keeping to certain (implicit or explicit) rules. However, one has to keep in mind that it is the practice of argumentation itself which constitutes the meaning of the word "argumentation". Viewed this way, the relation propagated by Bohler (1991, 1995) is then turned around. If one - together with Kambartel (1980, 1991) and H.J. Schneider (1992, cf. Kambartel/Schneider 1981), who on their own admission follow the later Wittgenstein (1952) here - thinks the pragmatic turn in linguistic philosophy consistently through to the end, then it becomes obvious that one can only meaningfully speak of the meaning of "argumentation" (just as of the meaning of the words "reason" or "rationality") when a corresponding use of the word has been already established in a praxis that accompanies this usage. What we call "argumentation" is not fixed by keeping to some predetermined rules which exist already before practice, but is constituted on the basis of using this word in action. Its strict meaning is therefore dependent primarily on the praxis behind it: the word "argumentation" receives its character from this praxis and not vice versa (cf. Kambartel 1989a: 38 ff.; Wittgenstein 1952).

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(2) With this background, some authors put forward the argument that the transcendental pragmatic approach operates ultimately with a narrow understanding of pragmatics (cf. Gethmann 1987; Kambartel 1992; Lueken 1992: 223 ff.; Schneider 1994). Here, the differentiation between a fundamental pragmatic and a partial pragmatic approach becomes relevant (Lueken 1992). Fundamental pragmatics describes a method of procedure which "starting from unproblematic abilities and concrete contexts of action and keeping in mind the adequate relation to this concrete level, develops theoretical objects, descriptions and explanations step by step for the purpose of solving practical problems, whereby then the relevant or interesting aspects can be emphasized by way of abstraction" (Lueken 1992: 223, transl. by the authors). A partial pragmatic method of procedure understands pragmatics as a linguisticphilosophical sub-discipline which, next to syntax and semantics "concerns itself with the question of what we do when speaking or more generally, when using and understanding symbols and what rules we follow in this case. Symbols or similar objects are thereby presumed; the research interest is in the use - adhering to rules - of these objects in concrete use" (Lueken 1992: 224, transl. by the authors). Therefore, while fundamental pragmatics advances from the bottom upwards ("bottom-up"), from concrete usage to theoretical objects, partial pragmatics views the object to be examined from the perspective of developed theories from the top downwards ("top-down"). Based on this differentiation, Lueken (1992: 228) voiced his suspicion that the discourse theory of Habermas and also of Apel and their underlying formal pragmatics gives shape to actions via theoretical guidelines from linguistic philosophy (e.g. Chomsky, Morris, Searl) instead of gaining them reflexively from concrete actions. If this were so, this would obviously have consequences for the universal validity claim made by transcendental philosophy. (3) As we saw above, Bohler (1991) himself pointed out that the understanding of a linguistic expression is very much dependent on the "rules about using words of a historical language community" (Bohler 1991: 152 f., transl. by the authors): nevertheless he neglected the validity of this sentence for the concept of argumentation. We would now like to tentatively remove this assumption and logically think this pragmatic approach to its end. According to what has been said above, the meaning of the word "argumentation" is very much dependent on the practice of life that underlies it. This point of departure has consequences for the universal validity claim which is connected with the concept of argumentation in transcendental pragmatics. This validity claim would then be dependent on the existence of a universal historical language community. The extent to which the transcendental concept of argumentation is universally valid then somehow becomes an empirical question. Now, we do not need to perform an empirical examination here about the make-up of our language communities. A couple of common clues will suffice to raise

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doubts about the assumption of a universal historical language community. The current discussion and the growing pluralism of forms of life, individualization tendencies in society, the restrengthening of the different varieties of fundamentalism, also religious, the breaking out of ethnic conflicts and the relevance of post-modern thought, are all at least signs that could underpin the justification of such doubt. Habermas referring to McCarthy offers the following clue (Habermas 1993: 90): We can draw less and less on experiences and straightforward examples that have the same significance for different groups and individuals. We can count less and less on the same reasons having the same weight for different individuals and groups within different systems of relevance.

Are we not, however, dependent on such common experiences when arguing meaningfully? Is it not exactly the central idea of the pragmatic turn in philosophy to be able to argue only because argumentation is based on common practice into which we were born and in which we learn, first of all, in our socialization process what it is to argue meaningfully? Is it not a rationalistic mistake of transcendental pragmatics to believe that universal rules of arguing can be gained analytically without "referring rigorously" - as Kambartel (1995) calls it - to the practical culture of argumentation? After all, Habermas himself seems to have gained a certain critical distance in regards to his own rationalistic attempt to gain universally valid rules of the use for reason from analytical considerations, as he refers firmly to the principally practical limits of such a possibility (Habermas 1993: 91, see also the critical comments by Cohen/Arato 1995: 345 ff.): Only if it could be shown in principle that moral discourses must prove unfruitful despite the growing consensus concerning human rights and democracy - for example because common interests can no longer even be identified in incommensurable languages - would the deontological endeavor to uncouple questions of justice from context-dependent questions of the good life have failed.

Obviously, the validity of the analytical access to the problem is made dependent here on the empirical existence of a common resource concerning the meaning of words.

4.3

The Culturalistic Suggestion of Methodic Constructivism

The methodic constructivism of the so-called "Erlangen School" attempts, in order to answer the question on the possibility of science, to substantiate the

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same and tries to present a suitable concept of rationality and reason (for an overview see Butts/Brown 1989; Scherer/Dowling 1995; Steinmann/Lohr 1996). It looks for the cause and methodical starting point of the development of theories in practical actions. Humans already possess ability to cope with life to a greater or lesser extent before any science. However as the actions of humans are not always successful, it is necessary to develop theories to support the practice that lies behind this. As, vice versa, humans' actions do not always totally fail, it is at the same time possible to consider partially successful ability as an indispensable precondition for the possibility of science (Mittelstrass 1977, 1985, 1991). Seen in this way, methodic thought is a "refining stylisation of that which always constituted life of men and women" (Lorenzen 1968: 26). The newer developments around methodic constructivism show a greater sensibility towards culturally conditioned validity claims (cf. in overview Gethmann 1992; Scherer 1995: 345 ff.), so that a positive contribution for the problem dealt with here can be expected from this philosophical perspective.

4.3.1

The Ethical-Political Concept of Lorenzen

In the 60s, representatives of constructive philosophy still tried to substantiate an ethic for the pre-political life of humans and started from the assumption, as with the technical sciences, that there was a universally shared practice of life which was able to form the foundation for the formulation of culture-free principles of reason (cf. for an overview Gethmann 1992; Scherer 1993, 1995: 345 ff.). The concept newly developed by Lorenzen in his "Handbook on the Theory of Constructive Science" (1987a) now drops this claim (for an overview over Lorenzen's work in English see Lorenzen 1981, 1982, 1987b). Instead he formulates the essential features of a theory of political knowledge which should serve in post-traditional societies to make peace more stable. Lorenzen suggests a path to substantiate wholly ethical-political knowledge on the basis of practical attempts for peace - attempts which have long since been started in post-traditional societies within the framework of legislative practice. He says that a variety of forms of life have evolved in posttraditional societies with the increasingly intermediated patterns of actions. These forms of life are in (potential) conflict with one another. The task of ethical politics is to make the variety of forms of life more compatible with legislation and administration. The "pluralism of incompatible aims" should become a "plurality of forms of life which are compatible with one another" and therefore peace should be made more stable (Lorenzen 1987a, 232 f., transl. by the authors). In contrast to the technical practice of technical sciences, the legislative counseling is a verbal practice of argumentation.

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We know from experience that it is not always possible to make the competing aims of citizens compatible with each other. This "need of political practice" (Lorenzen 1987a: 239, transl. by the authors), is the reason for its theoretical support from ethical-political sciences. It aims at improving the practice of argumentation, educating a political culture of arguing which stabilizes the peace which is based on general and voluntary recognition of the laws. The "will of the citizen to have peace" (Gethmann 1992: 151, transl. by the authors) provides the historical and cultural precondition without which one cannot distinguish in practice between reason and non-reason. The aims of sciences must be "ascertained from the pre-scientific practice of humans", (Lorenzen 1989: 32, transl. by the authors), as has been known since the pragmatic turn in the theory of science. How then can an improvement of the practice of argumentation be achieved? Lorenzen (1987a: 249 ff.) introduces here the concept of reasoned argumentation which is characterized by the transubjectivity of those arguing. According to Lorenzen in many cases, stable peace is not possible without changing the incompatible aims. A general free consensus is not to be achieved if each person hold onto his/her own peculiarities and minority links. Instead, it is necessary for those arguing to move towards each other and distance themselves from themselves to a certain extent in order to achieve mutual understanding and free agreement (consensus). The concept of reasoned argumentation is however not characterized by formal criteria, rather it can be learned in practical argumentation what it means to argue transubjectively, i.e., "regardless of the person" (cf. Lorenzen 1989: 50, transl. by the authors). Lorenzen's considerations are first directed at the political legislator. There is a certain limitation here which is problematic in view of the well-known limits of control that the law has (e.g., Stone 1975). Gethmann (1992: 158 f.) refers to this. However the basic thoughts of transubjective counsel can be understood as an aid to orientation for all social areas where a peaceful solution to conflicts is sought (e.g., family, companies, federations, politics); Lorenzen (1987a: 248 f.) himself pointed this out. Understood in this way, Lorenzen's considerations follow Kambartel's concept (1989a, 1989b, 1991, 1992, 1998a, 1998b) which is similarly culturalistically orientated.

4.3.2

The Culturalistic Approach of Kambartel

In his in German philosophy widely discussed paper "Vernunft - Kriterium oder Kultur?" ("Reason - criterion or culture?") Kambartel (1989a) points out that when we are led by reason, we make a judgement as participants in a concrete situation and win orientation without each time being able to follow a general theoretical criterion or principle of the use of reason. We, as learned

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reasonable beings, make adequate judgements in concrete situations and gain orientation without having a general principle at our disposal. We learn to use our reason and to use different standards adequately in order to gain reasonable orientation. "And adequacy here is not just another, higher, criterion! That is, there is no universal standard of adequacy, no standard for all (possible) situations." (Kambartel 1984: 10) To apply adequate standards is possible because we are embedded in a common culture in which we learn from our childhood through practical participation to move within our society: in this way we become experienced in dealing with problem situations and in overcoming them. "We are not born as reasonable beings [...] we educate ourselves to reason, we are led to reason through education; and can then ourselves contribute to it" (Kambartel 1989a: 36, transl. by the authors). Philosophical and scientific treatises on reason should refer to this culture since as, otherwise, talking about reason simply would be "verbal"; it would lack, as Kambartel (1992, 1995) refers to it, rigor (Strenge) and therefore would miss what the understanding of reason is at all. Such an understanding cannot be gained via a simple "verbal" (nominal) definition as it were on the desk of the philosopher. Instead, an adaequate understanding is dependent on the practical embedding of this word in a concrete life situation (Wittgenstein 1952). Kambartel (1991) calls this the "dialogue-practical basis of understanding". Thus, what Kambartel calls the culture of reason is a practice of judging which is already established. If we examine our culture more closely, it contains already universalistic characteristics which oppose simply particularistic orientations and ways of life. The normativeness is embedded in this culture already as it were. If we want to explain these universalistic characteristics, we could follow Kambartel's attempt and conclude (1989a: 42, transl. by the authors): -

that we base ourselves in certain situations (in various respects) on generally formulated (and addressed) orientations; that reasonable consideration does not recognize any privileged positions grammatically, neither on the level of participation nor on the level of argumentation; that we recognize the interests of others, the inclusion of all those affected as a perspective for our considerations; that we renounce the limited perspective of our own life and interest situations in favor of those of an unbiased consideration; that we orient ourselves in view of freely shared human common features; in connection with this, also the moral recognition of the other person

These aspects are prima facie compatible with conceptual considerations, as presented also within the framework of "discourse ethics" (Habermas 1990a, 1993); there, concepts such as "non-prejudice", "non-persuasiveness" and "non-coercion" play the role of constitutive features of reasonable argumentation (cf. Habermas 1996: 62).

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In taking a closer look, it turns out that these aspects have quite a different meaning in the fundamental pragmatic conception of Kambartel. They are namely not to be understood as "criteria" which are gained in the sense of a presuppositioned analysis through reflection on the conditions of the possibility of argumentation. They are rather to be understood as surfacing illustrations (Erläuterungen) of our cultural practice, with which Kambartel wishes to show that our culture already contains elements of overcoming particularistic orientation. The words used here should not simulate that there is a general criterion of reason with which reason could be identified without referring to the underlying practice: The conceptual differentiation of practical reason, which we come up against under the headings of self-determination, recognition, equality, justice etc., can only be unfolded in its essence from the inside, i.e., only in accompaniment to our practical entry into practice and experience of a particular condition of life. The reasons and judgements which are based on this conceptual landscape cannot even be suitably understood without us taking part to a certain extent in the form of life in which these judgements intervene for orientation. (Kambartel 1998a, transl. by the authors)

4.3.3 The Concept of Wohlrapp In order to use these considerations in our existing problem of coping with conflicts between different cultures, we must recall that the concepts of Lorenzen and Kambartel refer in the first place (explicitly and implicitly) to regulating conflicts within post-traditional societies. Wohlrapp (1995, 1998) picks up from this, certainly, but removes two preconditions in order to enlarge the concept for cases of intercultural conflict situations. These preconditions concern the condition of post-traditionality and the assumption of an already existing practice of legislation. First of all, it is exactly a matter of conflicts between the representatives of post-traditional and traditional cultures. Secondly, there is as yet no practice of legislation that has been institutionally drawn up and which is able to regulate relationships between two (radically) different cultures. But also underneath the legislative level, according to Wohlrapp, "[t]here are no or too few unproblematic interactions which might be able to provide the practical basis for a common normative order" (1998: 58). Instead of this, cultures often meet only in conflict or in one-sided exploitation so that the actors experience what is foreign to them as being hostile. This experience is strongest where the cultural differences are large, especially then in the relationship between post-traditional and traditional cultures. Therefore, the fundamentalpragmatic approach lacks here (first of all) the necessary practical basis. "This means, expressed somewhat too pointedly, that we are unable to base our the-

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ory on practices in which intercultural communication and interaction would be about 'right'. Instead we are faced with the question whether and how we can enter a little into the cultural territory of the others" (Wohlrapp 1998: 59). Nevertheless, Lorenzen's (1987a) suggestion offers a starting point in that he aims at the "creation of compatibility" (Verträglichkeit). As there is, as yet, no common practical basis which could support a theoretical approach, it is a question of creating or constructing such a basis. This corresponds again to the concept of the constructive theory of science which Gethmann (1987: 269, transl. by the authors) paraphrased clearly with the sentence: "If we don't have what we urgently need, then we must create it." Wohlrapp suggests a procedure "in which interaction with members of foreign cultures is taken up and the form of this interaction is at once explored and shaped such that the separate forms of life become compatible" (1998: 59). Whilst the development of technical sciences can be based on technical practices and the repeatability of the results of an action in dealing with inanimate objects, the cultural scientific construction of a theory assumes from the start a social interaction between the researcher and his/her "object", which is actually not an object at all but itself a subject (cf. Scherer 1995: 341 ff.). Wohlrapp outlines three steps of communicative cultural integration (Wohlrapp 1998, see also Lueken 1992: 288 ff.). "The first step is to submit oneself to the experience of what is unfamiliar" (Wohlrapp 1998: 61). In many cases this experience will simply occur to actors, they will often not have actively sought it. In the second step, the experiences of what is foreign are reflected more closely. Such reflection is based first of all on own activities as a frame of reference. Differences can be identified relative to one's own experiences and ideas and what is foreign can be recognized as such, as a variation of one's own possibilities. In order to create such an understanding it is generally necessary to have some sort of interaction in which a pragmatic situation of acting with one another is created. It is through this interaction that the desired understanding can be controlled (Kambartel 1991). But in situations where conflicts arise, this experiencing and understanding of what is foreign is not sufficient to achieve peaceful co-ordination. Rather, the construction of compatibility must be attempted in a third step. Wohlrapp builds again on Lorenzen's thoughts (Wohlrapp 1998: 65): It is reasonable in the process of arguing to leave aside accustomed peculiarities, if they generate incompatibilities, i.e., to distance oneself from them for the sake of peace.

However, the simple articulation of such a principle can itself not solve conflicts. It is a matter of actually implementing the distancing from one's own peculiarities, and for this purpose, according to Wohlrapp, those affected must

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realize that in case of doubt "one can also live without the disputed pecularities" (1998: 65). Without such realization, peace cannot be stabilized. Whether the creation of compatibility is successful or not cannot be anticipated with theoretical means or even secured, rather it is up to those affected by the conflict to attempt this together. As a consequence, this means that in interaction with radically different cultures we cannot refer to universal criteria of reason, in case of doubt, therefore, not to "freedom" or "absolute human or individual rights". Measured by the standards of western societies, traditional cultures appear namely constantly to be deficient. Therefore, instead of - shoulder-shrugging and railing - making our willingness for discussion dependent on other cultures and ethnic groups "catching up with the Enlightenment", we should rather, according to Wohlrapp, "look for a position from which we can enter into communication reasonably with the members of traditional cultures. This should not, of course, take place by means of a retrograde step into the religious attitudes of the Middle Ages in Europe, nor should it occur by ascending into a position above and outside of all cultural ties" (1998: 58). Instead, we should look for a procedure of interaction which enables mutual understanding of other forms of life and ideas with the background of one's own horizon of experience. This procedure is, however, no longer the procedure of proclamation, as is part of the European "culture of instruction", but is rather a procedure of mutual learning, where it remains open as to who learns from whom. Where "a reasonable community is not yet assured practice", and here we build again on Kambartel (1989b: 87, transl. by the authors), or where it is shown in conflicts that there are incommensurable ideas of what it is meant by "reasonable", the practical instance for a start is lacking, the instance on which a common use or concept of reason could be based at all. An understanding of or even agreement with what is "foreign" cannot be achieved as long as it is not possible to create common practice, at least to a certain extent. Nevertheless, the post-traditionalist's own intention of reason can serve to "open the (non excluded) alternative of a reasonable community or to keep it open." (Kambartel 1989b: 87, transl. by the authors) That does not mean, however, that the post-traditionalist simply proclaims what the correct concept of reason is. His/her concept of universalization must also refer to overcoming one's own perspective (Kambartel 1998b); he/she must thereby be open himself/herself to and get involved in the foreign culture (cf. Habermas 1990b: 153; Scherer 1995: 323 f.; Wohlrapp 1995: 156 ff.). Of course this is always set with risks, eventually it is the risk of having to change one's own position. Nevertheless, where there is as yet no common culture of reason, one must take risks as, according to Kambartel, a "common, reasonable life cannot be achieved in this case without some people first of all setting off without a safety net" (1989b: 87, transl. by the authors).

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Consequences for the Management of International Companies

These philosophical considerations give rise to the necessity of interpreting afresh both the initiative mentioned at the beginning that was made by the USPresident and the Model Business Principles. Their aim of supporting the current political processes of peaceful conflict solution in the area of international business and speeding up the process of creating common normative basic principles can only be achieved, according to our theory, if one relinquishes the universalistic claim to proclamation that is linked to it. Such a claim rather has the capacity to fuel such a conflict because it denies the specific problem situation in dealing with intercultural conflicts. The universalistic position has a priori secured the correctness of its own position and only gets involved with foreign cultures with the strategic attitude of bringing them to reason step by step and in line with the situation. Learning from foreign cultures is only necessary in as far as the knowledge gained is useful for the process of teaching foreign cultures. In the light of our philosophical comments, one must rather see the Model Business Principles as the suggestion to initiate common processes of learning and must develop a perspective which from the very beginning does not claim exclusive correctness for certain material and formal sets of norms, but is structured as to allow an open process of understanding between the cultures. The culturalism that was sketched out by us starts with the concrete conditions of local problem areas and tries at first to develop local solutions, oriented towards the problem, less by simply using general rules but more by concrete practical actions (cf. also on this subject Gergen 1995: 526 ff.). These local solutions can however still be checked as to their suitability for further universalization as far as the situation demands. Kambartel (1991) operates here with the concept of "dialogical networks", with the help of which locally achieved understanding or consents can be transferred to other situations as well. The suggestion to understand the US Model Business Principles as a proposal to introduce a common process of learning and not as an attempt simply to implement certain principles has a range of pragmatic consequences for the management of multinational enterprises. Their basic orientation aims at a bottom-up approach in contrast to the top-down approach of a universalistic strategy. This will be shown in the following with the aid of several central problem areas of international management. (1) A first problem area concerns the role of the enterprises in the recognition and implementation of human rights (cf. for example Enderle 1995; Galtung 1994: 200; Smith 1994). The universalistically inspired initiative of the US

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Model Business Principles leads to an either-or policy. In its most radical form the role of the firm would lead to it refusing co-operation in business. In this way the company Levi Strauss & Co. withdrew from China as it could not see any chance in the foreseeable future that the situation of human rights in China would improve (cf. Beaver 1995). The management therefore becomes the prisoner of its rigorous moral principles (cf. Gergen 1995). The possibility of helping with processes of change and of taking part in the creation of a common, normative basis is therefore closed off. This possibility is opened up, however, with the culturalistic perspective. It would, it is true, not demand giving up one's own company guiding principles or the Model Business Principles. However, it would be necessary to put aside the binding nature - seen from the point of view of company policy - of these principles in the concrete situations in an appropriate manner in order to enable a mutual process of learning, as in the sense of the three step procedure suggested by Wohlrapp (1995, 1998). Starting such a process of learning would, however, be an indispensable consequence of the culturalistic point of view and would differentiate this from the arbitrariness of cultural relativism. Gergen also refers in his relativistic post-modern concept to the norm-generating power of local practices (1995: 526 ff.), without, however, being able to offer a concept which brings unity, like, for example, the peace concept (Lorenzen) or the concept of compatibility (Wohlrapp). Such a learning process must then be actively sought internally and externally by global firms. Internally this would have consequences, for example, for the behavior of senior staff and for the training and development of employees. It would be a matter of awakening an awareness of the diversity of cultures and of the creation of the ability to deal with it (Arredondo 1996; Cox 1991, 1993; Dülfer 1995). Cultural differences would no longer simply have to be solved via the dominance of the values of western expatriates. Instead, the possibility of a mutual adaptation of values must be opened (cf. Cox 1991: 35 ff.). For this purpose a multi-cultural organizational structure could be conceptualized which sees the co-operation (and conflict) of various cultures not only as a threat but also as a chance of creating new forms of handling problems (e.g. Arredondo 1996; Cox 1991, 1993; Fine 1995; Larkey 1996; Thomas 1996). Externally - for example when dealing with the political system the company would not appear as the proclaimer of western values, but would attempt to participate as far as possible in public discourse processes. It would see itself as the change-agent of a process where the results would not yet be certain a priori in contrast to universalistic strategies. The universalistic approach tends after all to propagate the intercultural validity of humans rights and loses therefore some of its power of conviction (see, e.g., Tibi 1995: 125 ff.). A culturalistic approach sees the western understanding of human rights simply as the only model available today which poses the question as to

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peaceful living together of various cultures at all. Moreover, it is the only one that has developed a possibility of solving this conflict. In a "negative way of reasoning" this point of view expresses that we have nothing better or know nothing better at the moment, the culturalistic approach claims in contrast to the universalistic approach no validity for all times (see, e.g., Welsch 1995: 739 ff., in difference to Cohen/Arato 1995: 384 f.). (2) A second area of management where both philosophical points of view have different implications concerns the relationship of efficiency and ethics in international management. Here, the proposition would be that a universalistic approach would make this relationship considerably more prone to conflict than a culturalistic strategy. This is true at least for cases where the implementation of corporate ethics costs money. Because of the rigorousness of universalistic positions, more alternatives are eliminated as ethically unpermittable from the very beginning than with a culturalistic approach. In cases of conflict, a mutually innovative learning process, as part of a culturalistic approach, may create new possibilities to restore compatibility in concrete situations which remain undetected from the limited perspective of abstract universalistic principles. A culturalistic approach will deal differently with the problem of bribing, for example, than its universalistic counterpart. The granting of baksheesh can possibly be an important part of a culture which must be accepted for the time being due to the prevailing social conditions which cannot be changed at present directly (cf. Steinmann/Olbrich 1994: 131). (3) A third area where the differences between both philosophical positions may become of managerial relevance is human-resource-management. In management theory, there has been a long standing dispute about whether management principles are culture-free or culture-bound. While the "universalists" are defending a culture-free position (e.g. Koontz 1969; Ouchi 1981), more and more scholars have recently criticized such a position. Instead, a culture-bound approach to HR-management demands a cultural "fit" (Mendonca/Kanungo 1994). Now, whatever the outcome of the philosophic dispute between universalism and culturalism may be, it still has profound effects on human resource-management, which is often regarded to be "the most local of all management functions" (Evans 1995: 651). All tools of HRmanagement (compensation, motivation, selection and development) would also then be affected (Wolf 1994). This may mean, for example, that the preparation of employees for a term abroad and the corresponding programs of development would have different contents depending on which role is envisaged for the employees when confronted with the foreign cultures (cf. Evans 1995: 659 ff.): Should they - as representatives of universal western values - proclaim these in the way of missionaries and act more or less rigor-

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ously according to these? Or should they be trained to accept the foreignness of other cultures without prejudices and try to understand it and - where conflicts arise - to decide together with those affected in a mutual learning process which cultural peculiarities are dispensable in order to (re-)create compatibility (cf. Cox 1991; Wohlrapp 1995: 161). (4) A fourth example concerns the processes of planning, decision-making and information in international companies (see e.g. Knyphausen-Aufsess 1995: 267 ff.). Because of its great sensitivity for the local pecularities, a culturalistic approach must attempt to integrate them into the process of planning and decision-making as early and as comprehensively as necessary via suitable channels of information and participation. It is necessary, therefore, to structure these channels more "bottom-up" than "top-down". International companies are thus to be understood as a cultural "place of learning". However, where management already believes that it possesses the correct universal standards for all cultures, such a process of mutual learning does not make much sense. It is even probable that the universalistic attitude of management rather promotes a corporate culture which is orientated towards preaching and instructing rather than mutual learning. (5) Fifthly, the controversy between a universalistic and a culturalistic approach also concerns the design of organizational structures (Kieser 1989; Macharzina 1992) and the choice of a suitable leadership style (cf. Kanungo/Mendonca 1996: 106 ff.; Keller 1995). In management theory, various models are being discussed in this respect. It is postulated that their effectiveness and efficiency varies depending on the different prevailing cultural conditions. One only has to think of the current discussion about the American, European, Japanese, Korean or Arab models of management which formulate various demands for organizational structures or propagate a specific style of management respectively (cf. Evans 1995: 655 ff.; KnyphausenAufsess 1995: 235 ff.; Macharzina 1995: 769 ff.). A "culturalistic" approach, in the sense discussed here, seems to be a new way which is beyond the alternative of culture-bound and culture-free use of management models. On the one hand, such an approach develops a much stronger sensitivity for local conditions and normative claims in multinational environments. This is in contrast to a "universalistic" approach. Even when it is formulated as a contingency model, which takes into account the "local culture" as a special context variable, it nevertheless functionalizes organizational design and leadership in order to achieve its own criteria of success. In an universalistic approach these normative criteria are not further considered, but are taken as granted. A culturalistic approach enables, on the other hand, not only the greatest possible openness in setting the content of business goals and politics, but also in the process in which these are formulated and in which cultural conflicts are resolved. This does not mean, of course, that "anything goes".

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This approach pursues rather the central idea of a culture of learning which aims at creating cultural compatibility as far as it is necessary to resolve conflict. The design of all managerial functions is thereby affected. A multicultural organization could be conceived on the basis of this idea, where there is potential to deal reasonably with inter-organizatory diversity and innercultural and inter-cultural conflicts (cf., e.g., Cox 1991; Fine 1995; Larkey 1996: 467 ff.).

6

Final Remarks

These few clues should have made sufficiently clear how consequence-prone the different interpretations of the US Model Business Principles are for theory and practice of intercultural management. In view of the increasing diversity of cultural values, the solutions of inter-cultural problems and conflicts can be achieved in fewer and fewer cases with the help of general principles right from the start (Gergen 1995). Rather it seems necessary to commence with the concrete local problems themselves and to attempt to work out transsubjectively-orientated solutions from here. Dealing with such problems must therefore begin, first of all, with local validity claims and try to transcend these particularistic orientations, as far as the current conflict demands this. In this sense, one can agree with Stephen Toulmin (1990) when he says in his book "Kosmopolis" that dealing with the current problems of modem times requires a transition to what is more "oral", "particular", "local" and "timely". Theorists of inter-cultural management are called upon to check these suggestions further.

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Lueken, G.-L. (1992), Inkommensurabilität als Problem rationalen Argumentierens. Stuttgart-Bad Cannstatt: Fromann-Holzboog. Macharzina, K. (1992), Organisation der internationalen Unternehmensaktivität, in: B.N. Kumar and H. Haussmann (eds.): Handbuch der Internationalen Unternehmenstätigkeit, 591-607. München: Beck. Macharzina, K. (1995), Unternehmensfiihrung. Das internationale Managementwissen. 2. edition. Wiesbaden: Gabler. Mahathir, M. (1995), Sie zelebrieren das Chaos. Malaysias Premier Mahathir über asiatische Werte und den Niedergang des Westens. Mohamad Mahathir im Gespräch mit Erich Follath und Birgit Schwarz, Der Spiegel 34/1995: 136-139 Mendonca, M., and R.N. Kanungo (1994), Managing Human Resources. The Issue of Cultural Fit, Journal of Management Inquiry 3: 189-205 Mittelstrass, J. (1977), Changing Concepts of the Apriori, in: R.E. Butts and J. Hintikka (eds.): Historical and Philosophical Dimensions of Logic, Methodology and Philosophy of Science, 113-128. Dordrecht (Netherlands): Reidel. Mittelstrass, J. (1985), Scientific Rationality and its Reconstruction, in: N. Rescher (ed.): Reason and Rationality in Natural Science. 83-102. Lanham, MD: University Press of America. Mittelstrass, J. (1991), Das lebensweltliche Apriori. Paul Lorenzen zum 70. Geburtstag, in: C.F. Gethmann (ed.): Lebenswelt unf Wissenschaft. Studien zum Verhältnis vom Phänomologie und Wissenschaftstheorie, 114-142. Bonn: Bouvier. Nagel, I., and W.M. Swenson (1993), The Federal Sentencing Guidelines for Corporations: Their Development, Theoretical Underpinnings, and Some Thoughts About Their Future, Washington University Law Quarterly 71(2): 205-259 Nemetz, P.L., and S.L. Christensen (1996), The Challenge of Cultural Diversity: Harnessing a Diversity of Views to Understand Multiculturalism, Academy of Management Review 21: 434-462 Ohmae, K. (1989), Managing in a Borderless World, Harvard Business Review 67 (MayJune 1989): 152-161 Ohmae, K. (1995), The End of the Nation State. The Rise of Regional Economics. New York: Free Press. Orentlicher, D.F., and T.A. Gelatt (1993), Public Law, Private Actors: The Impact of Human Rights on Business Investors in China, Northwestern Journal of International Law and Business 14: 66-129 Orts, E.W. (1995), The Legitimacy of Multinational Corporations, in:L.E. Mitchell (ed): Progressive Corporate Law, 247-279. Boulder, CO: Westview Press. Ouchi, W.G. (1981), Theory Z. How American Business Can Meet the Japanese Challenge. Reading, MA: Addison-Wesley. Pastin, M., and M. Hooker (1990), Ethics and the Foreign Corrupt Practices Act, in: W.M. Hoffmann and J.M. Moore (eds.): Business Ethics. Readings and Cases in Corporate Morality. 2. edition, 550-554. New York: McGraw-Hill. Popper, K.R. (1959), The Logic of Scientific Discovery. London: Hutchinson. Porter, M.E. (1990), The Competitive Advantage of Nations. New York. Free Press. Porter, M.E. (ed.) (1986), Competition in Global Industries. Boston, MA, MA: Harvard Business School Press. Reich R.R. (1991), The Work of Nations. Preparing Ourselves for 21st-century Capitalism. New York: Knopf. Rodrik, D. (1997), Has Globalization Gone Too Far?, California Management Review, 39(3), (Spring 1997), 29-53

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Rosenzweig, P.M. (1995), International Sourcing in Athletic Fortwear: Nike and Reebok, in: Ch.A. Bartlett and S. Ghoshal (eds.): Transnational Management. 2. edition, 170182. Chicago, IL: Irwin Publishing. Scherer, A.G. (1993), Rationalität und Begründung - Antworten auf Stephan Zelewski, Betriebswirtschaftliche Forschung und Praxis 45: 207-227 Scherer, A.G. (1995), Pluralismus im Strategischen Management. Der Beitrag der Teilnehmerperspektive zur Lösung von Inkommensurabilitätsproblemen in Forschung und Praxis. Wiesbaden: Gabler. Scherer, A.G., and M.J. Dowling (1995), Towards a Reconciliation of the Theory Pluralism in Strategic Management - Incommensurability and the Constructivist Approach of the Erlangen School, in: P. Shrivastava and Ch. Stubbart (ed.),: Advances in Strategic Management Vol. 12a, 195-248. Greenwich, CT: JAI. Schneider, H.J. (1992), Phantasie und Kalkül. Über die Polarität von Handlung und Struktur in der Sprache. Frankfurt a. M.: Suhrkamp. Schneider, H J . (1994), Ethisches Argumentieren, in: H. Hastedt and E. Martens (eds.): Ethik. Ein Grundkurs. 13-47. Reinbeck: Rowohlt. Smith, T. (1994), The Power of Business for Human Rights, Business and Society Review (Winter 1994): 36-38 Steinmann, H., and A. Lohr (1994), Grundlagen der Unternehmensethik. 2. edition. Stuttgart: Poeschel. Steinmann, H., and A. Löhr (1996), A Republican Concept of Corporate Ethics, in: S. Urban (ed.): Europe's Challenges. Economic Efficiency and Social Solidarity, 21-60. Wiesbaden: Gabler. Steinmann, H., and T. Olbrich (1994), Untemehmensethik und internationales Management. Implementationsprobleme einer Untemehmensethik der internationalen Unternehmung, in: B. Schiemenz and H.-J. Wurl (eds.): Internationales Management: Beiträge zur Zusammenarbeit. Eberhard Dülfer zum 70. Geburtstag, 117-144. Wiesbaden: Gabler. Steinmann, H., and A.G. Scherer (1998), Interkulturelles Management zwischen Universalismus und Relativismus. Kritische Anfragen der Betriebswirtschaftslehre an die Philosophie, in: H. Steinmann and A.G. Scherer (eds.): Zwischen Universalismus und Relativismus. Philosophische Grundlagenprobleme des Interkulturellen Managements. Frankfurt a. M.: Suhrkamp (forthcoming). Stone, C. D. (1975), Where the Law Ends. The Social Control of Corporate Behavior. New York: Harper and Row. Thomas, R.R. Jr. (1996), Redefining Diversity. New York: Amacom. Thorow, L.C. (1996), The Future of Capitalism. How Today's Forces Shape Tomorrow's World. New York: William Morrow and Company. Tibi, B. (1991), Islamischer Fundamentalismus als Antwort auf die doppelte Krise. Der Islam, das Projekt der kulturellen Moderne und seine institutionelle Dimension, die Menschenrechte und die Verheißung einer Postmoderne, in: B. Tibi: Die Krise des modernen Islam, 2. edition, 202-279. Frankfurt a. M.: Suhrkamp. Tibi, B. (1992), Die fundamentalistische Herausforderung. Der Islam und die Weltpolitik, München: Beck. Tibi, B. (1995), Krieg der Zivilisationen. Politik und Religion zwischen Vernunft und Fundamentalismus. Hamburg: Hoffmann und Campe. Toulmin, S. (1990), Cosmopolis. The Hidden Agenda of Modernity. New York: Free Press. Ulrich, P. (1987), Transformation der ökonomischen Vernunft. Fortschrittsperspektiven der modernen Industriegesellschaft, 2. edition. Bern: Haupt.

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United Nations Conference on Trade and Development (UNCTAD) (1994), Relationship Between the Trading System and Internationally Recognized Labour Standards, in: "United Nations Conference on Trade and Development: The Outcome of The Uruguay Round": An Initial Assessment, Supporting Papers to the Trade and Development Report, Annex 4. 245-247. United Nations Declaration of Human Rights (1948), in: T. Donaldson and P.H. Werhane (eds.) (1996): Ethical Issues in Business. A Philosophical Approach. 5. edition, 124-128. Upper Sadde River, NJ: Prentice Hall. United States Departmnet of Commerce (1995), Model Business Principles, Washington D. C., The New York Times, 27 May 1995: 17 Welsch, W. (1995), Vernunft. Die zeitgenössische Vernunftkritik und das Konzept der transversalen Vernunft. Frankfurt a. M.: Suhrkamp. Willmott, H. (1997), Management and Organization Studies as Science? Organization 4: 309-344 Wittgenstein, L. (1952), Philosophische Untersuchungen. Werkausgabe Band 1. Frankfurt a. M.: Suhrkamp 1984. (English: Wittgenstein, L. (1994), Philosophical Investigations. Trans, by G.E. M. Anscombe. 3. edition. Oxford: Basil Blackwell). Wohlrapp, H. (1995), Konstruktive Anthropologie als Basis eines Konzepts von Kulturpluralismus?, in: E. Jelden (ed.): Prototheorien - Praxis und Erkenntnis? 149-163. Leipzig: Leipziger Universitätsverlag. Wohlrapp, H. (1998), Constructivist Anthropology and Cultural Pluralism: Methodological Reflections on Cultural Integration, in: B.N. Kumar and H. Steinmann (eds.): Ethics in International Business. 65-81. Berlin/New York: Walter deGruyter. Wolf, J. (1994), Internationales Personalmanagement. Kontext, Koordinationen, Erfolg. Wiesbaden: Gabler. Yip, G. (1992), Total Global Strategy: Managing For Worldwide Competitive Advantage. Englewood Cliffs, NJ: Prentice Hall.

Constructivist Anthropology and Cultural Pluralism: Methodological Reflections on Cultural Integration* Harald Wohlrapp

1

On the Meaning of the Question and the Link with Constructivism

Cultural pluralism is one of the great themes of our time. It marks an endeavor to avoid the false dualism between an increasingly undifferentiated Western culture and the violent enforcement of specific cultural peculiarities and interests. In theoretical terms, this is the alternative between universalism and relativism. It is not difficult to see that this alternative cannot be the last word. We in the West stake universal claims on the basis of the know-ledge we have produced in the sciences and in the humanities, i.e., on the basis of our technology and our political and economic structures. But the suspicion that this universalism might have an ideological side is hard to allay in view of the fact that we also take economic charge of most other cultures. On the other hand, opposed to universalism is cultural relativism, which is a place strangely lacking a location and one that can be used to justify a great deal. If necessary, even xenophobia. But even those who are fully at ease with Felafel, turbans, Chinese music etc. come up against a barrier with the Rushdie affair, a barrier beyond which relativism must either be abandoned or thoroughly watered down. It then says little more than that there will be some truth in everything, as long it is not taken to extremes. What is needed, then, is a concept of cultural pluralism as a presentation of how the cultures, while retaining their individuality, may coexist peaceably within a global system. In the following I have assembled a number of considerations on this. After a preliminary remark on the project of methodical constructivism, the train of thought is taken up with Paul Lorenzen's theses on political anthropology, proceeding to show that in the formation of some concepts he makes certain presumptions which are at odds with the realities we have to grapple with. *

This chapter is a revised version of a paper originally published in German: Wohlrapp, H. (1995), Konstruktive Anthropologie als Basis eines Konzepts von Kulturpluralismus?, in: E. Jelden (ed.): Prototheorien - Praxis und Erkenntnis? 149-163. Leipzig: Leipziger Universitätsbuchhandlung. The author thanks Horst Steinmann for providing a professional translator and Michael Stingi and Carol & John Woods for collegual support with the final grind.

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After eliminating these presumptions, I sketch three steps of a dynamic understanding of cultural integration within the remaining conceptual framework provided by Lorenzen and illustrate this by topical cases of conflicts which stem from cultural differences. Certainly, the question of cultural pluralism can be discussed in various ways. In philosophy and the social sciences, there have of course been extensive studies and discussions of concepts of culture and cultural theories, discussions which to some considerable extent are also empirically supported. It makes sense to take up the work of methodical constructivism when the differences between societies - and indeed the fascination exercised by what is unfamiliar - are to be approached not only descriptively and analytically, but also with an engagement in the major ruptures and problems of a world which has grown smaller as a result of the extension of markets and the growth in means of communication. A treatment centered on practical problems has namely always a normative aspect in so far as there is reflection needed on the goals, evaluations and estimates which enter the choice of concepts and procedures in research and inference and in so far as these have to be justified and methodologically sound. From this perspective, the number of promising candidates for taking up the thread is much diminished and the approach of methodical constructivism becomes interesting. However, the starting positions of this approach, i.e., the considerations which are summarized in the methodological and dialogical principle,1 do not of their own generate conceptual framework for the social or cultural sciences. The question of how culture might be handled in a methodically sound way and in particular whether proto-theories are needed first and the extent to which these might be shaped similarly to those in the natural sciences has been handled differently in the course of the (so far, brief) history of constructivism and a definite answer has not been found. At the time of the Erlangen School (roughly 1965-75), the idea held sway that theories of culture, being academic disciplines about purposes, could be founded by an ethics or at any rate by a precise distinction between merely subjective and justifiably recognized motives. It was thought that this distinction could be achieved by a methodically sound theory of the development of needs. Justified reasons for action would then result through a very sophisticated sequence of research and deliberation, known as "dialectical spiral". The basic idea here was to define the justification of purposes as it were recurThe present essay was originally written for a conference where the participants were all philosophers of science. Knowledge about mathematical constructivism and its concern with the normative side of science was presupposed. The reader who is not familiar with this approach can get information on all the details (as on proto-theories, on the methodological and the dialogical principle etc.) in Lorenzen (1987a), in the essays in Butts/Brown (1989), and, most concisely, in the handbook article Thiel (1984).

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sively. The sequence was to proceed from a group of natural needs which were justified per se. Historical studies were then to analyze the cultural transformation of the needs in developing purpose-means systems, and reasonable deliberation was to judge the extent to which each step was a reasonable continuation of the development reconstructed so far as reasonable. The basic thoughts of this construction were formulated in a variety of versions (Lorenzen 1968, 1978; Lorenzen/Schwemmer 1973; Thiel 1972) without the matter being spelt out satisfactorily and the defects being eliminated. A big problem remained with the description of an initial system of justified needs. Another one was the possibility of critical approvement of development steps which had in fact been completed (e.g. the appropriation of the "New World" or the emergence of the capitalist economies). Finally, the possibility was repeatedly disputed of cultural changes which are genuinely supported commonly (i.e., not imposed by an élite of some kind)2. In the 1980s all this was abandoned. Lorenzen realized that an ethics was not susceptible of theory because it lacked a practical basis in a common morality. Thereupon he classified it as belonging to the private sphere and he developed a political theory as the basic discipline of the study of culture. Here the seat of reason is no longer situated in the praxis of individuals, confronted with the question "What should I do?", but in the shaping of the public sphere, or, rather, in the political constitution of social life. Lorenzen presents his reflections on this as a political anthropology. The task is to obtain a reasonable conception of the competences and tasks of the person "as a politician" (Lorenzen 1987a: 241), i.e., the extent to which he/she acts for the sake of the common life (cf. Lorenzen 1987b: 47). Lorenzen calls this political anthropology alternatively "protopolitics" or "ethics" (cf. Lorenzen 1987a: 239, 1987c: 47). I shall now discuss very briefly the broad lines of this "political anthropology" in so far as it might be of significance for the treatment of cultural pluralism.

2

Paul Lorenzen's Proposals on Political Anthropology

Obviously, common life does not take on a unified form in the modern territory-based states, but has multifarious forms. This variety may have its pleasing aspects, but for Lorenzen's theory the predominant consideration is that it is problematic. The task of the politician should, therefore, consist in "promoting the peaceability of a variety of forms of life by legislation and 2

Cf., e.g., Nanninga (1979).

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administration" (Lorenzen 1987a: 233). What is decisive for my present purposes is how these forms of life and their possible compatibility or incompatibility is conceptualized. The expression "form of life" (Lebensform) is usually associated to Wittgenstein. In the "Philosophical Investigations" he used the expression somewhat incidentally, at any rate without any express of theoretical ambitions. Lorenzen adopted this expression (as many others did) and (in contrast to many others) elaborated it as a concept. It begins with the assertion that in human life the "simple motions of life" such as feeding and copulation are enacted. Obviously, means are necessary for these simple life motions to be acted out (hunting, cultivation, shelter, clothing, etc.) for which in turn other means are required which may not be immediately available so that their provision must in turn be made into a network of purposes. In particular, there emerge apparently sovereign purposes of elaborating theories and normative orders. Thus we have ultimately to consider long series of purpose-means hierarchies, which in the final analysis can be related to the guarantee of those simple life motions as "highest purposes". With different geological or climatic conditions, the concrete constitution of the life motions are different differences that through the innumerable possibilities of variety in the development of technologies and the linkage with traditions can be differentiated further. With regard to such differences, Lorenzen speaks then of the forms of the guarantee of the highest purposes as "forms of life". (Lorenzen 1987a: 232) To a form of life, as its "inside" so to speak, there belongs a "sense of meaning", in Lorenzen's words (1987b: 273), a Sinngehalt. This expression designates the understanding that people have of their circumstances and through which their life may acquire a meaning. The Sinngehalt is a conglomerate of needs, purposes, goals on the one hand and theories about their attainability and justification on the other. "Theory", however, is meant here in only a very rough sense. Ideals, values, ideologies through to the most obscure notions might belong to the Sinngehalt. Through the Sinngehalt, people are bound to their form of life. Some objectives seem to them to constitute unavoidable needs, whereas others may seem rather arbitrary desires. Here at the latest it should be clear that differences in form of life are not only encountered within a particular society in which there are sufficiently basic differences in the life of larger or smaller groups (e.g. the so-called sub-cultures) but much more clearly and more profoundly in the great cultural differences (such as between Chinese, African and European culture). Hence the differences in form of life understood in this way might prove fruitful for the concept of cultural pluralism. Lorenzen then assumes that the Western societies live "post traditionally" (Lorenzen 1987a: 231, 242). This means that the people here have assumed

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the shaping of their lives autonomously and in general no longer rely on spiritual or worldly rulers and protectors, but on their own works, in particular on technology, economy and politics. Nonetheless, the Sinngehalt of most people, as Lorenzen also realizes, contains residues of moral and religious traditions and hence is connected with elements which cannot be rationally derived from the technical, economic and political practices but have priority over them as "final values". In this it is agreed that such ties are private affairs and that their variety enjoys the protection of freedom of opinion or conscience, in particular among the politically and economically influential. Thus a situation arises in which the various Sinngehalte and with them the life forms are incompatible. This incompatibility is usually not considered to be a source of potential danger but as a sign of freedom. The task of politics is then determined as evening out with compromises the conflicts which stem from the differences in forms of life. Lorenzen however considers that the appeal to final values which are no longer subject to negotiation to be a rhetorical masking of the underlying power interests; and the resulting condition which is usually appreciated as "pluralism" to be a delicate "confrontation without war" (Lorenzen 1987a: 234). In contrast to this, he describes the task of the politician as follows (Lorenzen 1987a: 248): A deliberation about laws which should lead from the incompatible "pluralism" of purposes to a peaceable "plurality", to a "realm" of purposes.

Obviously, here the expression "pluralism" is being used in the usual sense, i.e., for the relationship of interest groups that are acting alongside and against each other. On the level of the various cultures, this would result, I assume, in that relationship which has cultural relativism in its sights, whereas the "plurality" of purposes Lorenzen describes presents itself as a candidate for the sought-after concept of cultural pluralism. The deliberations of politicians have to fulfill certain requirements in order to achieve the compatibility of forms of life. "The deliberations must be managed such that everyone who is willing - and sufficiently competent - can follow" (Lorenzen 1987a: 250). This "general understandability" results when objectives are drawn up which "are not tied to the person who is presenting the arguments, to his/her characteristics or his/her belonging to sub-groups" (Lorenzen 1987a: 251). And also: "[...] the politician is charged with overcoming his/her subjectivity" (idem). "Subjectivity" is "holding fast to [...] peculiarities and particular ties" (idem), overcoming it means letting them go. This overcoming - Lorenzen uses for this the expression "transsubjectivity" is also the definition of the concept of reason, or rather, its "negative defini-

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tion", the positive definition being "the orientation on the generally free consensus" (idem) or, more simply, peace.

3

Critique of Two Presuppositions

I should like first to stress that Lorenzen did not try to apply his proposals in the context concerned here, i.e., cultural pluralism3. Lorenzen, who speaks of "culture" primarily in contrast to "nature", does not even explicate the forms of life in terms of cultures (and subcultures). This is, then, my addition, and so to this extent I am responsible for the following inconsistencies. Not fully though, for Lorenzen's theory does claim to articulate certain basic facts of common life at the fundamental level of a philosophical anthropology. Furthermore, he endeavors to do this not from a particular, Eurocentric perspective, but "culturally invariable [...]" (Lorenzen 1987a: 245) or rather "transculturally" (Lorenzen 1987b: 48). To this extent, the question also remains justified whether Lorenzen himself did not perhaps conceive of the variety of heterogenous forms of life as a state to be eliminated and so did not intend to avoid the alternative mentioned at the beginning, but favors a decision for universalism. What militates against this, however, are the formulations of the "peaceable plurality" of the forms of life as a goal of reasonable politics. This promises something different to the ideas of a uniform "cultural reform" in the older Erlangen School. This ambivalence must be kept in mind when now refering to problems of cultural pluralism. Nonetheless, in making this connection a number of problems appear, which I summarize in two objections, a first against the presupposition of "post-traditionality" and a second against the "legislator perspective". As was stated above, Lorenzen diagnoses post-traditionality as a fundamental feature of the Sinngehalte of Western man (Lorenzen 1987a: 231). In particular, this is supposed to mean that religious ties, in so far as they do still subsist, belong to the private sphere and do not enter into reasoning for interactions of political importance, or do not count. The presentation of reasonable arguments only begins where religion has made its exit. I believe that we can understand this prima facie without further ado. E.g. in the preamble to the German Constitution, appeal is made to God, but not in the substantive debate of the German abortion law. Why not? Because no justificatory force is attributed to this appeal. It is as if someone were to make appeal to dreams, As I know from my personal correspondence with Lorenzen, he considered the solution of these problems to be quite impossible at the present time.

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visions or highly personal convictions. That would not be a link-up with a generally accessible theoretical basis, but an imposition. As justified as this precondition for post-traditionality may be for intracultural lines of argument in the West, it must surely be abandoned if peaceable inter-cultural relationships are aimed at. At least two thirds of the world population practice a "traditionalist" life style. A large part of inter-cultural conflict has a religious side. I would refer to two examples for this, a small one and a large one. The small one first. At the end of 1993, the funeral of a black African catholic in the cemetery of Aachen (a small German city in the Rhineland) led to a local scandal. The responsible priest had given approval for an African funeral with drums, dancing and wailing women. He was reprimanded by the supervisory authority for massive infringement of the cemetery rules. People living nearby and citizens of Aachen fell into opposing camps, who accused each other of contempt towards well-established customs on the one hand and xenophobia on the other. The big example is the Rushdie affair, an affair which is now known to be only the tip of an iceberg. A Muslim of Indian descent with British citizenship is condemned to death by the head of the Iranian state for publishing a blasphemous book. Especially this condemnation - which according to the norms of the Islamic states is legal - shows that the separation of religion, law, politics, science and customs which has been achieved in the West has not taken place in the cultures of the Third World. And this state of affairs is not seen as a failing, least of all in the strident Islamic states. What can be done in the face of this fact? Shrug our shoulders or get all worked up, or make our willingness to engage in discourse dependent on such cultures catching up with the Enlightenment?4 I believe we should, rather, look for a position from which we can enter into communication reasonably with the members of traditional cultures. This

Bassam Tibi, a Syrian political scientist living in Germany, has argued for about 15 years now in many publications that in the Islamic culture law and science should be separated and human rights should be respected. The reply that this would be equivalent with taking over the individualistic Western lifestyle, which regards freedom as arbitrariness and which has led to the cultural decline in the late 20th century is answered by Tibi with the idea of cosmopolitan human beings who have rights not because they belong to a certain culture but because they are "human beings" (cf. Schult (1981): 68-98). As far as I can see here an abstract idea is taken up to decide concrete cases; and that might not easily work out. It is true that on the abstract level we can consider us all as human beings. But what if the Islamic abstraction to what a human being is differs from the Western one?

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should not, of course, take place by means of a retrograde step into the religious attitudes of the Middle Ages in Europe, nor should it occur by ascending into a position above and outside of all cultural ties. What should be sought, rather, is a determination of our actual Sinngehalt so that the barrier established by the Enlightenment between religiosity and modern autonomy becomes permeable again. I should like to submit the following thought on this. The anthropological theory of modernism, which defines man as a creature of reason, does not manage without belief. The belief in God has been replaced by the belief that we humans can live by our own reason. In the course of the 20th century, this reasonable self-confidence has been so worn down by self-made disasters that now a state of affairs has been reached which can be compared with the end of the traditional epoch. As soon as we take that seriously, we have defined our standpoint as comparable with that of traditional cultures. We admit that we also live with a "belief' that is risky and does not allow of further justification (Wohlrapp 1984). Obviously this is a "post-modernist" thought. But it does not oblige us to consider the concept of argument obsolete or to celebrate stylistic concoctions in architecture or writing. Now to the second objection, namely the questioning of what I here provisionally call the "legislator's perspective". The concept of form of life produces the false impression that the "How" of our life praxis is accessible without further ado. In fact, we know little about how we live as, e.g. Europeans, intellectuals, Germans, Wessis (i.e., west Germans), etc. In general, we know this only on the basis of experiences of difference and their successful processing. That means the specific features of a form of life being usually discovered and shaped simultaneously. The legislator's perspective results from considering this process - of getting to know oneself as self-determination against the foil of the other - as setteled. It is a perspective which is taken in the discussion about the foundations of ethics as given, and it is also contained in Lorenzen's proposals. Here the life praxis is as a whole supposed to be normatively well constituted, so that it is only a matter of extrapolating laws, i.e., of reformulating them for conflict avoidance. It is, to put it another way, assumed that our form of life is transparent for us, that we have worked our way through it and therefore know what is essential and what is marginal. The assumption of such a self-distance has in turn its justification as long as intra-cultural matters are concerned. But inter-culturally it is highly problematic, for then something quite essential is left out. There are no or too few unproblematic interactions which might be able to provide the practical basis for a common normative order. This is a fact that follows analytically from the understanding of cultures as (largely) separate forms of life. Yet it certainly has an empirical content, too: in the whole of known history cultural contacts

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have been mainly of a problematic nature, taking the form of wars, conquests and colonisations. In particular the encounters of our European culture with all other cultures on the globe over the last five hundred years have taken this form. This is a fact that we (Europeans) should not leave out of account when asking for a theory of cultural pluralism (not for reasons of guilt, but in order to determine appropriately where we stand in relation to the others). This means, expressed somewhat too pointedly, that we are unable to base our theory on practices in which intercultural communication and interaction would be about "right". Instead we are faced with the question whether and how we can enter a little into the cultural territory of the others (cf. Lueken 1992). If we now look back at Lorenzen's proposals, something remains, even after accommodating the two objections. There is in the constructivistanthropological perspective something that opposes the attractive or resignatory ideas of the insurmountability of difference, as formulated, for example, in Feyerabend's notion of incommensurability or in Lyotards différend. There is an approach to a concept of mankind which (still) has confidence in reason in the sense of the production of peaceability ( Verträglichkeit) by establishing appropriate norms; and hence a call to work out the details of the cultural theory with respect to such peaceability.

4

Constructivist Method and Interaction with Respect to Inter-culturality

As a proposed answer to the question of cultural pluralism I think of a process in which interaction with members of foreign cultures is taken up and the form of this interaction is at once explored and shaped such that the separate forms of life become compatible. In essentials, here an extension of existing Sinngehalte takes place by integrating the alien as of parts of the own which until then were latent or rejected. The cognitive layer of this process contains argumentative elements with reference to which I shall now speak of "intercultural argumentation". The issue here is the further development of the theoretical basis against the foil which the foreign culture presents. The validity concept for results of such argument (at least for the normative case) is Lorenzen's peaceability (Verträglichkeit). Because, however, no (pairs of) theses can be clearly designated by this, the result of such argumentative efforts is not truth or correctness of the norms submitted as theses, but "permeability" of the respective Sinngehalte for each other. In so far as such permeability is achieved, members of different forms of life are prepared to keep to the same norms, whereby however these norms may mean something different for the separate parties. In semantic terms, this says that concepts from previously

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separate conceptual systems become transferable to each other at some points. In pragmatic terms, it means that the same forms of action incarnate different actions or can have a different meaning (e.g. dance for west Africans and for Germans, blasphemy for Arabs and Europeans). Before I sketch such a process, I want to stand back and pose the question of how far such a project, if it starts in the context of methodical constructivism, must not merely cast off certain peculiarities of Lorenzen's anthropology, but must also overcome more fundamental limitations of the approach. The constructivist method can be quite generally characterized as initiating theory as reflection on praxis with the goal of stabilizing the latter and grasping how it is possible. This method developed its special strengths in the sciences. There it produced the above mentioned proto-theories which reconstruct how descriptions, data and hypotheses of theory are a given, made possible by the scientific norms. Now it is remarkable that the practices referred to for the norms are technical practices and that they enter the reconstruction only in a stylized form. Activities such as lining up objects, polishing surfaces, etc. are in fact not actions, but specially structured operations. They are (1) object-oriented (handling objects, not people); (2) able to be isolated (can be separated from the rest of the praxis of life); and (3) they have strictly the character of means (separation of end and means, elimination of selfexpression, experience of self, etc.). With this operational concept of praxis it is possible, granted, to represent rationally certain aspects of actions. But it is too narrow a concept to capture what might be a reasonable way of behaving among people. Social (reciprocal) interaction cannot be reconstructed by such operations alone. What counts as action among our social doings, what is just occuring, event, fate, what is essential and what transient, what belongs and what can just as easily be left aside - all this is not a matter of observation but has to be determined from the perspective of the participant. It needs arguing and deliberation and cannot be understood merely as a result of teaching and learning. It rather produces education, i.e., a (more or less clearly) reflected relationship to self and understanding of self. This point covers partly what I above set out as a problem under the "legislator's perspective". Our motives (purposes, goals, ideals) and their conditions (memories, fears, hopes) are not without further ado transparent to us. But let me point out that this has far-reaching consequences for the pragmatic aspect of every theory of social circumstances and phenomena. The educational processes of the subjects (individuals and communities) interact namely directly with the social conditions - a fact that expresses itself, for example, in the effect of self-fulfilling and self-destroying prophecies. Because of this different nature of the pragmatism involved, theory formation in the cultural and social disciplines always has (whether wanted or not)

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an element of "action research": to a large extent, exploration and shaping of the matter take place simultaneously (Wohlrapp 1979). With respect to a concept of cultural pluralism, the question now arises as to how interaction is possible when the participants belong to different cultures. Obviously this condition reinforces the above-mentioned complications (namely that people cannot investigate their social relationships without bringing themselves in interactively and so changing themselves) so much that cross-cultural interaction becomes almost impossible. Social interaction is namely for the most part dependent on (1) fundamental skills with respect to the life world (Lebenswelt)5 being similarly developed; and (2) the existence of a certain social trust 6 . If the cultural differences are very great, however, these conditions cannot be fulfilled. As far as the common ground in the life world is concerned, fundamental distinctions (e.g. what is an action by a person and what is something that befalls a person) are conceived of differently. The same applies with basic experiences of what can be effected (the healing of illness, use of material, etc.). Social trust is hampered by the fact that foreign faces and expressions and unfamiliar conduct cannot be "read" without further ado, but must be interpreted individually. If the obstacles are considerable, they cannot be removed simply through the like of teaching/learning situations. For when such situations are presented not merely for the sake of theoretical reconstruction, but are really acted out, then they are themselves social interactions and may be in need of the very conditions which they are meant to generate7. Incidentally, as far as techniques or isolated operations are concerned, these can evidently also be taught and learned even in the face of profound cultural differences. There are no special problems in integrating, for instance, Vietnamese or Africans farmers in certain practices which are foreign to them (sorting garbage, cleaning buildings). This is all the more the case when there is no real social interaction involved (which would activate the cultural background and so make the absence of the conditions mentioned perceptible). These observations can be summarized by saying that, from the perspective of methodical constructivism, inter-cultural interaction is in fact a chimera, since it presupposes itself. In order to see how peaceability might be achieved while maintaining cultural independence, we have to look at what has already been achieved in the way of interaction. And here, as has already been indicated, we find mostly 5 6

7

cf. Mittelstrass (1991). In this respect Lorenzen's maxim "Without trust there is no reason" (1987c: 54) is absolutely justified. This is an argument against Lueken's proposals of overcoming incommensurability through teaching/learning situations (cf. Lueken (1992), Section 3.3.2).

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problematic encounters, i.e., wars and conquests. The world market which has emerged in the 20th century, too, has only exceptionally been an expression of peaceful trade between peoples, and on the whole has consisted in continuing conquest and colonization by other means. Nonetheless, the global intermingling and convergence of the cultures has become a fact of life. A comprehensive process of cultural confrontation is under way that has military, economic, legal and journalistic dimensions and that eradicates cultural distinctiveness much as environmental degradation destroys species of animals and plants. The resistance, more desperate than fully self-conscious8, leads then to the alternative mentioned at the beginning of the present essay, an alternative which it is the task of reason to subvert. Of course, the notion that philosophical theory (and at that argumentative-interactive hermeneutics such as I intend here) might control the practice of leveling out and convergence is mischief; especially since direct encounters between members of foreign cultures play the smallest of roles there. I begin as it were from the beginning again with the process sketched here, well knowing that these reflections have very little impact on the solution of cross-cultural problems of the day. But I hope they can help to establish an adaquate theoretical background for dealing with them conceptually.

5

Three Steps of Communicative Cultural Integration

The following three steps are methodically constructed on each other. As usual with representations in methodical constructivism, this should enable the reader to follow the train of thought. It does not imply any assertion as to a preferred sequence and temporal spacing of the steps in an actual situation.

5.1

Experience

The first step is to submit oneself to the experience of what is unfamiliar, i.e., to allow or trust oneself to experience something that is beyond the boundaries of the Sinngehalt. We all know experiences of unfamiliarity - and not only with the members of other cultures, but also with fellow citizens, even with people we know very well. Something different, unexpected, strange, beautiful, terrible presents itself. The processing is first all that of simple description. I remember how my three-year-old daughter found herself sitting oppo8

Tibi (1991) argues that Islamic fundamentalism is a sign for the internal crisis of Islam.

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site a black woman in the subway for the first time. She looked at her deeply impressed and then whispered to me "The woman is completely brown". That was something like a pure encounter. Usually the encounter with the unfamiliar is not "pure" in this sense, for what is experienced corresponds, once described, to an available category. Because different people notice different things, and evaluate them differently, the unfamiliar is sometimes experienced as enriching, and sometimes as disturbing. In Hamburg, Africans are experienced as full of the joys of life and that is enriching. They are also experienced as unreliable, and that is disturbing. The larger part of the cultural contacts arising from migration are at present interpreted on these lines. Those who appreciate multi-culturalism see the enrichment, and they discount whatever is disturbing. And those who are accused of being xenophobic stress what is disturbing and discount the enrichments. It is obvious that simplifications are being made in both cases.

5.2

Understanding

In the second step, it is a matter of no longer allowing experiences of foreignness to take their effect directly, but of reflecting on them. For reflection, a foil is needed, a spot in our Sinngehalt, at which we can take up the unfamiliar. Now the unfamiliar is not the familiar and so the "taking up" will not be possible without further ado. I propose to proceed such that, for the unfamiliar behavior or action, some correspondence is sought in our own conduct. This correspondence should be the foil which enables identification and so then enables any articulation of difference. Candidates for correspondences can be more - or less - appropriate. When they are brought to discussion, the focus is analogies of form: unfamiliar behavior is meaningful (and potentially reasonable) in so far as it can be assigned to a particular kind of situation which is analogous to a situation of one's own in which a mode of conduct or action which to this extent "corresponds" makes sense. I am going to apply that to the case of the African funeral in Aachen. But first the central meaning of the quest for correspondences should be recognized. In searching for and discussing correspondences, a decisive differentiation takes place. A divide opens up between what we do and how we do it. This divide is the origin of the concept of a life form. The understanding of the alien or the new consists in seeing it as a new variant of possibilities of one's own - whereby typically these own possibilities only emerge viz. become visible through this perspective. What can be made out then on the conflict about the funeral? As far as we are prepared to take the participating Africans seriously, a change occurs from immediate alienation to a reflection on forms of mourning. In northern Europe

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(even in the well-humored Rhineland, where Aachen is situated), grief, especially grief for a deceased person, is quiet and contemplative. There is solemn music, tears, and serious, apprehensive countenances. And even if here a certain spectrum has meanwhile been achieved, drumming, dancing and screaming are as far removed from it as the night-club from the cemetery chapel. In order to perceive the African happenings as a form of mourning, two watertight areas of our life must be experienced as permeable. To loosen up this boundary, we might recall that dancing can be the expression of things other than joy or boisterousness. Free dance is for us an artistic form only, but it demonstrates that for us, too, grief might be expressed in a form of movement. To the subsequent question, as to whether something can be (genuine) grief if it is not shown in an emotionally restrained manner, the loosening up of the boundary can occur concretely and partially. In taking leave from a deceased person, a departure is enacted. And for us too - all the more so as we are certain we shall meet again - there are noisy send-offs. Of course, such divides cannot be bridged with thoughts alone. Understanding (Verstehen) is described here as an intellectual activity. That this must have an emotional underpinning goes (I hope) without saying. But it is important to say that appeals to sympathy and emotional openness can be misleading. It is not a matter of denying or disregarding the differences. We are not "really" all the same. For understanding of what is culturally separate, cognition is needed. And in order to bring this cognition about, we need something the same or corresponding to serve as an identification foil against which the differences appear as differences of form only. In this we complete a "distancing". On the occasion of the concrete experience of alienation, we can raise ourselves above the mere immersion or indeed imprisonment in a practice and language which we have grown used to. We can recall and reexamine our own conceptual contexts and the practical situations we find ourselves in so that these are opened for encountering what is unfamiliar.

5.3 Producing Peaceability Experience and understanding are not enough. We need interaction in order to grasp what the otherness of the other cultural unit is. Efforts to understand can pave the way for interaction and reflect interaction which has commenced. Where conflicts occur, norms are necessary for acting which are respected equally, even if - as has already been said — they can be understood differently. To the extent that restrictions on previous habits have to be made for the formulation of such norms, here again Lorenzen's concept of reason is relevant. It is reasonable in the process of arguing to leave aside accustomed peculiarities, if they generate incompatibilities, i.e., to distance oneself from

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them for the sake of peace. Obviously, no conflict can be settled only by articulating this principle. No single norm, as has been noted above, is to be selected by the demand for "peaceability". I propose that for the distancing from one's own attitudes, insight (Einsicht) is necessary: insight that one can also live without the disputed peculiarities. This insight must not necessarily be there prior to the establishment of a norm which is recognized as compatible - it might also make its mark gradually as the norm is lived out. The fact that it is indeed necessary is shown by the cases in which individuals and communities have been forced to abandon their way of life, for example, parts of the native populations of the Arctic, America and Australia who are sinking into apathy, resignation and alcoholism. I am well aware that I veer close to the brink of shameful naivety when, for the achievement of peaceability, I put my faith on insight in the face of such situations. For this reason, I prefer to try it again with another remark on the conflict in Aachen. Efforts to understand as sketched above might give rise to the readiness to revamp the cemetery rules so that different kinds of funeral can take place without disturbing each other. The idea that a German cemetery can be desecrated by a traditional African funeral or that, on the other hand, such a burial does not fit in the conditions of a German parish because of the time it takes or the noise it makes - those are peculiarities which should be abandoned. Finally, as I have already used the affair to mark the borderline of relativism, another remark on the Rushdie affair. It is clear to every outside observer of Islamic culture that law, politics and religion are not separate there. In consequence, freedom and human rights are understood differently. Religion is not a private affair, but the medium from which the emotional and intellectual criteria come for what a good and successful life is. Rushdie's book fulfills in the context of this legal, political and religious system the statutory offense of apostate. And that is a crime which is punishable with death. I think that, in the briefest of summaries, this is what we need in the way of information if we want something more than to lend expression to our state of shock and horror. Do we have anything in Western culture that at least enables a partial identification with the other side? In the Christian Middle Ages, heretics and blasphemers were "saved" from eternal damnation by the death penalty. With the choice of this correspondence, however, present-day Islam would amount to something basically medieval, an option which is considered correct by some reputable Islamists. But I think that we Europeans would be making it too easy for ourselves. In our life practice, it is certainly possible to identify structures which allow in their effects a comparison with the condemnation of Salmon Rushdie. The place of religion as the source for the dominant criteria of what a good and successful life is has arguably been taken now at the end

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of the 20th century by success, money and the influence that proceeds from them. In our public life law, politics, ethics, science etc. are separate, but the system of power and money penetrates more or less unaffected all the seperated areas. An apostate is not provided for as in the medieval epochs of the "high religions". It should be clear that the analogy flags. The pseudo-religion of money is informal; drop-outs are not publicly condemned. And mostly there is some possibility of survival. Nonetheless, I consider it more reasonable not to set out our ideal of the free individual and his/her sacrosanct human rights against the real extremes of Islamic culture, but the reality of our treatment of apostates. Here there is indeed an identification foil: just as our pseudo-religion can tolerate backsliders, without endangering itself, so can Islam. The death penalty for apostates comes from the beginnings when the Muslim religion was constituted by a tiny, endangered community. In view of the 550 to 600 million Muslims there are today that is an obsolete rule, a peculiarity that can be given up. That is, incidentally, how it is largely seen even within Islam. There are in the major cities of the Islamic states many thousands of Muslims who have given up their religion in word and deed without being persecuted.

References Butts, R.E., and J.R. Brown (eds.)(1989), Constructivism and Science. Essays in Recent German Philosophy. Dordrecht: Kluwer. Lorenzen, P. (1968), Normative Logic and Ethics. Mannheim: Bibliographisches Institut. Lorenzen, P. (1978), Regeln des vernünftigen Argumentierens, in: P. Lorenzen (ed.), Theorie der technischen und politischen Vernunft, 4-57. Stuttgart: Reclam. Lorenzen, P. (1987a), Lehrbuch der Konstruktiven Wissenschaftstheorie. Mannheim:Bibliographisches Institut. Lorenzen, P. (1987b), Constructive Philosophy. 42-55. Amherst, MA: The University of Massachusetts Press. Lorenzen, P., and O. Schwemmer (1973), Konstruktive Logik, Ethik und Wissenschaftstheorie. Mannheim: Bibliographisches Institut. Lueken, G.-L. (1992), Inkommensurabilität als Problem rationalen Argumentierens. Stuttgart-Bad Cannstatt: Frommann-Holzboog. Mittelstrass, J. (1991), Das lebensweltliche Apriori, in: C.F. Gethmann (ed.) Lebenswelt und Wissenschaft. München: Bouvier. Nanninga, J. (1979), Zur Kritik der konstruktiven Ethik und Theorie des praktischen Wissens, in: J. Mittelstrass (ed.) Methodenprobleme der Wissenschaften vom gesellschaftlichen Handeln-. 273-296. Frankfurt a. M.: Suhrkamp. Schult, G. (ed.) (1981), Islam: Herausforderung an West und Ost. Altenberge: Verlag für Christl.-Islam. Schrifttum. Thiel, C. (1972), Grundlagenkrise und Grundlagenstreit. Studie über das normative Fundament der Wissenschaften am Beispiel von Mathematik und Sozialwissenschaft. Meisenheim: Hain.

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Thiel, C. (1984), Konstruktivismus, in: J. Mittelstrass (ed.), Enzyklopädie Philosophie und Wissenschaftstheorie, vol. 2. Mannheim: Bibliographisches Institut. Tibi, B. (1991), Die Krise des modernen Islam. Frankfurt a. M.: Suhrkamp. Wohlrapp, H. (1979), Handlungsforschung, in: J. Mittelstrass (ed.), Methodenprobleme der Wissenschaften vom gesellschaftlichen Handeln, 122-214. Frankfurt a. M.: Suhrkamp. Wohlrapp, H. (1984), Über die Notwendigkeit des Glaubens für das Wissen, in: Religionsphilosophie, Akten des 8. Internationalen Wittgenstein Symposiums. Wien.

The Competitive Context of Ethical Decision-Making in Business* S. Prakash Sethi and Linda M. Sama

1

Abstract

Analysis of ethical conduct of business organizations has hitherto placed primary emphasis on the conduct of that corporation's managers because ethical conduct, like all conduct, must manifest itself through individual behavior. This paper argues that in the real world corporate actions are influenced, to a considerable extent, by external market-based conditions. Therefore, a more comprehensive explanation of ethical business conduct must incorporate both corporate, i.e., internal considerations, and competitive, industry structurebased, i.e., external considerations. A framework is presented that provides a systematic analysis of the interactive effect between different types of external market-based competitive conditions, institutional opportunities to engage in ethical behavior, and the likelihood that corporations would do so. The analytical framework leads to recommendations as to the types of actions that might be more effective in improving business ethical conduct under varying sets of market-based competitive conditions. Current approaches to analyzing the situational context of unethical business behavior place heavy emphasis on the individual conduct examined within the institutional framework (Ferrell/Gresham 1985; Weaver/Ferrell 1977). The focus is viewed generally "at the micro level", and the examined conduct is that of the corporate manager acting in a business context that gets reflected in the adverse social impact of the business organization. Philoso*

This paper has amply benefited from many thoughtful comments and constructive criticism from a number of colleagues who reviewed it in its various "working paper" versions. In particular, we gratefully acknowledge the valuable inputs of Ivar Berg, Richard De George, Thomas Donaldson, Thomas W. Dunfee, Georges Enderle, Michael Hoffman, Gene Laczniak, Ian Maitland, Alex C. Michalos, Paul Steidlmeier, David Vogel, Clarence Walton, Patricia Werhane, Murray Weidenbaum, Oliver Williams and two unnamed referees of Business Ethics Quarterly. Nevertheless, the final version, with all its sins of omission and commission, must remain the sole responsibility of the authors. An earlier, and highly condensed, version of this paper was presented at "The First World Congress of Business, Economics and Ethics" sponsored by The International Society of Business, Economics and Ethics Institute of Moralogy, Reitaku University, Tokyo, Japan, July 25-28, 1996.

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phers and ethicists have also addressed the issues of institutional constraints and environmental imperatives (De George 1991, 1993, 1994; Donaldson 1989, 1991; Hofiman/Frederick/Petry 1990a, 1990b; Sethi 1994a; Wogaman 1986). The significance of an individual-institution based focus on the analysis of business ethics is clearly extremely important. However, by itself such an analytical framework offers only a partial explanation of the conditions that might explain unethical behavior on the part of business institutions and individuals. In this paper, we offer an added dimension to the study of business ethics through a more structured analysis of those market-based factors, i.e., competitive intensity and industry characteristics, that create powerful inducements and impediments to the options available, and choices made, by corporations and executives in guiding the ethical orientation of their business decisions. Given the nature of the activity engaged in by business firms, it is logical that the primacy of the business organization's goals, i.e., efficiency in input factor utilization and profitability in market-exchange transactions, would temper and define the outer limits of ethical discretion, and the mode in which it manifests itself, on the part of business institutions and their managers. These market-based considerations impose severe pressures, and may even threaten the survival of the firm, and thereby significantly alter the dimensions of the choice-band within which business firms, and their managers, must make ethical decisions (Michelman 1983). Any significant change in business behavior requiring ethical choices, therefore, must concern itself with the dual set of variables, i.e., those related to an organization's culture, value norms and traditions, and, the external constraints that alter the relative costs and pay-off matrix - be it in terms of making moral choices or calculating economic sacrifices - for the firm's decision-makers. Nor is such constraining behavior a unique characteristic of economic institutions. Instead, it can be found in the behavior of all of a society's major institutions where leaders must make choices among various hierarchies of conflicting goals so as to maximize achievable social good while at the same time ensuring the survival and growth of the institution and preserving its core values. Concerns about the proper role of business institutions in society have been an ever-present issue across all ages and cultures. Nor are these concerns limited to violations of legal standards by business institutions, their owners and managers. Instead they encompass all aspects of business activity. At a cerebral level, these concerns reveal themselves in the notions of the possession of economic power, and the rights and responsibilities of those of who exercise such power. At a more visceral level, economic institutions are evaluated in terms of the fairness with which they acquire a society's resources, i.e., factors of production, the way they distribute the resultant output, and the exchange of values they seek from those who consume this output. Although both these

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concepts are inter-related, the former views the social role of the corporation in terms of one's notion of a just society, i.e., the role of corporate power, while the latter focuses on elements of what might be called distributive justice, i.e., how corporate power is exercised in exchange relationships with the corporation's stakeholders. Both scholarly and popular literature abound with examples of business behavior that violate prevailing norms and ethical standards of society. Even a brief review of business history, both in the United States and in many other nations of the world1, would indicate the occurrence of unethical business conduct, even of the most egregious kind, among large and small firms and in good and bad times. For example, American history is replete with examples of corporate misdeeds from the Tea Pot Dome scandals and the robber barons to the price rigging conspiracies of the early 60s involving General Electric and other electrical industry giants2. Anecdotal evidence also attests to the claim that lapses in business ethical behavior are not confined to hard times but seem to occur with equal vigor in prosperous times as well. Thus in the United States we saw the fabulous wealth creation in the eighties accompanied by abuse of public trust and a disregard of societal norms by some of the people who were at the pinnacle of wealth and corporate power 3 . A handful of empirical studies conducted to date pertaining to ethical conduct of business and the impact of its external environment found contradictory results in terms of whether the hostility or munificence of the external environment was more likely to be related to illegal or unethical business behavior (Baucus/Near 1991; Clinard/Yeager/Brissette/Petra-shek/Harries 1979; Cochran/Nigh 1987; Staw/Szwajkowski 1975). However, as we would demonstrate in this paper, such ambiguity in results could be explained when the phenomenon is investigated within an analytic framework that views environmental munificence as 1

2

3

Cases of egregious assault on public trust are to be found with similar equanimity amongst the scions of industry in countries all over the world ranging from the most industrially advanced to the most economically backward, from countries with cultures that are thousands of years old to countries with young and evolving cultures, from countries with long tradition of democratic political systems to countries with authoritarian and repressive political regimes, and from countries with largely private, competitive economic systems to countries where command economies and state ownership of productive resources hold sway. For specific examples, see: Berkowitz/Helsing 1987; Damton 1994; Hoagland 1995; Hoon/Sherry 1995; Huddle/Reich/Stiskin 1975; Kamata 1982; Moore 1994; Richburg 1994; Sapsford/ Shirouzu 1995; Sethi 1975; Sethi 1994b; Shenon 1994; Sjogren 1987; and Sullivan 1995. For a review of these scandals, see Cook 1966; Fuller 1962; Herling 1962; Smith 1961a, 1961b; Tygiel 1994; and Walton/Cleveland 1964. For a discussion of the abuses that were rampant in the US during the eighties, please refer to Binstein/Bowden 1993; Burrough/Helyar 1990; Day 1993; Lewis 1989; Lorsch 1989; Stewart 1991; and, Vise/Coll 1991.

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external to corporate actions, and external environment is defined in terms of industry structure. Therefore, we must seek answers as to the nature and extent of the prevalence of unethical business conduct among those structural factors that persist across different economic conditions, industry types, and firm characteristics.

2

Scope of the Paper

Our focus in this paper, therefore, is in developing: (a) an understanding of the external conditions, i.e. competitive market-based, that give rise to unethical business behavior, and the issue of realistic limits within which such unethical behavior can be constrained, if not eliminated; and, (b) an assessment of the import and potential impact of various instrumentalities that might be available to enhance ethical business conduct at both the institutional and individual level. This paper is divided into three parts. 1. The first part discusses the general economic-competitive environment prevailing in particular markets and their potential impact on ethical business behavior. The focus here is on the intensity of competition and its effect on ethically proactive, discretionary business behavior that is at variance with other businesses operating in the same market. 2. The second part, which constitutes the major part of our paper, deals with the conditions of industry structure and their impact on an individual firm's actions operating in that industry. A framework is presented that analyzes the industry-structure conditions on two intersecting dimensions, i.e., structural opportunities for exploitation based on industry composition and the firm's position therein, and, an organization's institutional proclivities toward such exploitation based on that firm's internal structure, decisionmaking processes, corporate culture, and, perceived risks and rewards for engaging in illegal/unethical behavior. Such an approach should help in improving our understanding of the confluence of market-based (external) and institutional/individual (internal) factors in determining business' ethical behavior. 3. The last part discusses some of the implications of the above-mentioned external conditions on various strategic and operational approaches - and their relative efficiency and efficacy - that might be developed so as to enhance the propensity toward a higher level of ethical conduct on the part of businesses and their executives (Sethi/Falbe 1987). Finally, it suggests directions for future research that might further sharpen our understanding of

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the underlying factors affecting business ethical behavior and thereby help us in devising better approaches to cope with them.

3

Business Ethics Defined

Scholars of business ethics have defined the ethical context of business primarily in teleological or deontological terms (Donaldson/Werhane 1996; Solomon 1992). Teleological ethical theory is concerned with outcomes. Decisions are deemed ethical to the extent taht they achieve desirable ends, i.e., creating the greatest good for the greatest number. The type of analysis used is utilitarian, or aggregated cost-benefit analysis in social and normative terms. Deontological theory is concerned with process. Decisions are deemed ethical to the extent they are morally motivated and guided by normative rules of conduct. Several alternative analyses are used in the deontological theoretical context depending on which philosophical base one's rationale is built. Kantians use the concept of categorical imperative; followers of Locke the natural rights of man assertion; and, Rawlsians the distributive justice rationale. These concepts offer tremendous insights into the understanding of various notions of ethics (process) and the consequences of applying ethics within the context of business (outcomes). They, nevertheless, leave a large area of uncertainty as to the degree to which ethical conduct is determined by the relative choices that individual executives must make on behalf of their corporations, i.e. institutional context, and the constraints of external conditions, i.e. market-based, competitive-environmental context. And, it is the interactive effect of external competitive conditions and institutional resources - human and physical - that must be constantly evaluated by the executives if they are to make decisions that are ethically justified, institutionally proactive in terms of fairness to various constituencies, and economically rational given the exigencies of competitive markets. Therefore, to encompass the notions of individual behavior, institutional impact, and, external constraints, we develop a three-step approach in defining ethical business conduct: 1. 2.

The first step is the minimum level of ethical business conduct as defined by the legal norms for such conduct in a society. The next step of ethical business conduct is for the organization to conform to and abide by the prevailing societal norms, traditions, and culture of the relevant environment. As we shall demonstrate through our analytical framework, firms and their managers are likely to vary in their adherence to this level of ethical business conduct in response to exter-

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nal, competitive-economic factors, organizational imperatives, e.g., corporate culture, and institutionalized standards and values. The third step in evaluating business ethical behavior has to do with the extent to which a corporation and its managers are willing to exploit their market power in dealing with the firm's various constituencies in a measure that is disproportionate to the other party's (a) access to information to make reasoned choices, (b) competency to engage in transactions in an equitable manner, and (c) ability to protect its own interests (Sethi 1994c). In other words, this level of ethical conduct is directly related to the nature of fairness with which a business interacts with its stakeholders. As we shall demonstrate in a later section of this paper, it is the third stage of evaluating ethical conduct that offers the most opportunities for business to operate either ethically or unethically, and the greatest challenges for ethicists to induce and to help businesses improve their ethical conduct (Sethi 1994c).

Historically, research and writing in the fields of corporate social responsibility and business ethics seemed to have evolved independently of each other. The former has been the province of management theorists, economists, sociologists and corporate legal scholars, while the latter field has been dominated by scholars from the academic disciplines of philosophy, theology, and law, to name a few. However, from our perspective this distinction appears to be somewhat arbitrary and unnecessary so far as it applies to business conduct. Ethical precepts provide one important foundation from which to evaluate the adequacy and appropriateness of business conduct - both as to process and outcome. Since corporate action in the economic and socio-political arena are connected, i.e., emanate from the same source, they should not be viewed in isolation or justified on separate grounds. This is the approach we adopt in this paper.

4

Linkages between Competitive Environment and Ethical Business Behavior

Conventional wisdom and popular folklore hold that competition keeps businesses honest. It should, therefore, follow that firms would act more ethically, even in the economic sense of maximizing social welfare, as markets approximate the ideal conditions of perfect competition. Given this line of argument, proponents of classical economic theory would argue that the social responsibility of business is to make profit while operating within the legal

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bounds and that no further action on the part of business is necessary or desirable, and may even be counterproductive (Baumol 1991; Friedman 1971; Hayek 1944; Sen 1992; Solomon 1992). Under this scenario, competitive markets strive for productivity and allocative efficiency and thereby serve the general welfare even when the business firm is pursuing its own self-interest and is not concerned about promoting general welfare. Firms, having little discretionary sources, would have no option to engage in conduct beyond what the market would dictate. To do so otherwise would incur additional costs that a firm could not absorb since buyers, being perfectly informed, would refuse to pay higher prices for products that could be bought more cheaply elsewhere (Baumol 1991; Sethi 1994a). Unfortunately, the reality is quite different from this perception when applied to business morality. While efficient markets may prompt firms to act smartly, they do not induce them to act ethically, and, 'perfect' markets are highly imperfect in their enforcement of business morality (Baumol 1991: 24). Indeed, a counter-intuitive argument can be made to suggest that markets approaching perfect competition create the conditions that are ripe for unethical behavior. We concede that in the theoretical world of perfect competition, market conditions preclude either the producer or the consumer to act differently than the narrow conditions of the market permit, and ethical, or any other kind of voluntary behavior, is not possible. Nonetheless, in the real world, where perfect competition is simply a theoretical point on a continuum employed to facilitate our analysis of the competitive phenomenon, the ideal characteristics pertaining to perfect markets seldom, if ever, exist as a bundle. Rather, what we generally have are markets approaching certain characteristics of perfect competition where an infinitely large number of small businesses compete vigorously with each other for customers who hold no loyalty to a particular business and product, and who offer little inducement to the business to work toward gaining their loyalty or repeat business. Under these circumstances, even the minimally imposed legal standards of behavior are likely to be violated by firms operating with razor thin profit margins in highly competitive markets. Further, the anonymity inherent in these markets is an inducement for firms to act deceptively since both interfirm and customer relations are not based on long-term relational concepts of trust and good will (Maitland 1995). The only exception to this logic, as Baumol (1991) suggests, is when ethical behavior in excess of minimum requirements contributes to profits. While it has been argued that business ethics is an implicit condition of capitalistic economic systems, it is only so when such systems are understood in their imperfect form, or more to the point, when such systems fail. Economist Amartya Sen and others have convincingly argued that Adam Smith, who has been misunderstood and inappropriately cited as a proponent of an ethic-free market exchange, also did not equate competitive mar-

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kets with ethical markets. Rather, Smith's assertion was that perfect markets were efficient markets and were ethical only in the sense that they maximized individual choices (Bishop 1995; Black 1994; Sen 1993a, 1993b). This line of enquiry suggests two propositions: Proposition 1 The intensity of competition approximating ideal markets will have a deleterious effect on a firm's ability to behave ethically or beyond what is minimally required by law and regulations. Therefore, firms that inhabit these markets are those that are comfortable in such an operating environment. Intensely competitive markets nevertheless generate tempoProposition 2 rary lags in consumer equality in bargaining power. However, given the process of adverse selection, firms operating in an intensely competitive environment are more likely to use this situation to extract additional profits by exploiting information mis-match and externalizing some of the firm's internal costs rather than elevating the level of their ethical conduct. Our analysis does not preclude the possibility that some companies may behave more ethically even under conditions that would cause them to incur serious financial losses. However, while these examples might give us our inspirational role models, they do not yield fruitful avenues of systematic analysis as to conditions that would explain and/or predict the likelihood of ethical behavior on the part of business institutions. Therefore, we contend that while the opportunity and propensity to engage in ethical/unethical behavior is determined, to a large extent, by market-competitive factors, it is the internal factor related to the corporations and their managers that would determine the institutional modes of behavior, as reflected in the choice of actions that a firm would take in responding to external opportunities and constraints. Thus, the two concepts are invariably linked and inter-dependent, and must be so used to explain ethical behavior on the part of business organizations and their executives.

5

Linkages between Industry Structure and Ethical Business Behavior

Notwithstanding the severe constraints imposed by intensely competitive markets on ethical business behavior, the fact remains that a very large domain of organized business activity is characterized by highly imperfect mar-

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kets that are dominated by large economic institutions. These twin conditions, i.e., imperfect markets and large corporations, create an environment which provides both the opportunities and incentives for business institutions to behave ethically in dealing with their internal and external stakeholders. Businesses constantly strive both to exploit existing marketplace imperfections, and to create such imperfections. They seek to escape from the pricebased tyranny of intensely competitive markets and to generate "above market rents" or "above normal profits". This former situation may arise from, among others, technological factors, information asymmetry, and large capital requirements; government regulations; or, other types of entry barriers that may limit the number of competitors in a given market. These conditions give rise to oligopolistic market structures where a handful of firms account for a majority of business in a given market or industry. Moreover, as new technologies grow and mature, and new markets are discovered and nurtured, they invariably acquire the characteristics of oligopolistic structures. They require huge amounts of capital and organizational resources before they can be successfully harnessed. They also need large markets to generate scale economies and require marketing skills and distributional resources. This state of economic activity currently accounts for an overwhelming portion of business operations in market-oriented economies of the industrialized Western world. The second situation arises where firms create protected market segments through, among others, product innovation, specialized market niches and customer loyalty by providing unique set of services, communications and real or perceived product-usage satisfactions. These conditions assure firms of above normal gains and create inducements for them to behave in a manner that would allow them to sustain these gains on a continuous basis. Market imperfections are a necessary but not a sufficient condition for companies to act ethically. While the size of discretionary resources available to a firm, based on its favorable market situation or unique intra-firm resources, provide the firm with an opportunity to engage in above normal ethical conduct, its propensity to do so would depend, to a large extent, on (a) competitive factors, and (b) traditions, cultural norms, and other factors pertaining to the internal structure of the corporation. The aforementioned suggests the following proposition: Proposition 3

A firm's opportunity to act ethically and socially proactively is directly and positively related to the extent of market power and resultant "above market profits" available to its management.

A partial support for this proposition can be found in Staw and Szwajkowski (1975) where they argue that firms operating in a munificent environment

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tend to commit fewer illegal acts than firms operating in an environment of scarcity. However, while we agree with the authors' findings, we disagree with their definition of environmental munificence which they equate with firm profitability. Environmental munificence must be measured on criteria that are external to the firm. Otherwise, the concept being measured reflects not the external environment, i.e., industry structure, but a firm's internal ability to exploit its environment, whether munificent or scarce, compared with other incumbent firms. Firm profitability is determined by a number of criteria, of which the external industry structure is but one, and is therefore not an appropriate operationalization of environmental munificence. This critique would also explain why Staw and Szwajkowski's findings have not been replicated or confirmed in other, more recent studies of the firm's ethical behavior and the conditions of its external competitive environment (Baucus/Near 1991; Beliveau/Cottrill/O'Neill 1994). Imperfect Markets and Large Corporations. Oligopolistic markets and other forms of restrictive competition also give rise to the creation of large corporations which in turn sustain and perpetuate market concentration and limited competition. Thus the character of large corporations imposes its own conditions on the behavior of its members and impacts their ethical choices. As economic activity becomes more complex and technologically oriented, it is unhinged from the mooring of individual actions. Large scale economic activity inevitably requires collective action - both within institutions and among institutions - where each individual contributes but a tiny fraction to the whole with only partial understanding or appreciation of cause-effect linkages. The institutional reward system in the business context is not based except in the extreme circumstances and quite often after the fact - on the acts of individuals for their ethical content. On the contrary, institutional rewards may be increasingly and inversely related to the intensity of moral persistence with which an individual guides his/her behavior within the institutional context and where individual morality and institutional welfare, however defined, are perceived to be in conflict. Confluence of market-based (external) and institutional/individual (internal) factors in determining business' ethical behavior. In the previous section, we have argued that different types of market and competitive conditions provide, alternately, greater incentives for businesses to act ethically and may also severely punish them for doing so when their behavior causes market forces to shift demand away from them and thus reduce their profitability, competitive strength, and discretion for adapting ethical standards of behavior that are higher than prevailing norms in the industry (Sethi 1994a). The schematic framework presented in Figure 1 attempts to provide a basis for classifying various industry types and the differential impact of structural (external) opportunities for exploitation and institutional (internal) temptations toward exploitation. This framework is presented as an illustrative classification

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schema, and does not purport to offer mutually exclusive categories. At the border, sectors would overlap. The sectors are defined, however, to suggest the dominant patterns of behavior to be found within them (Sethi 1979). The framework indicates that level of ethical conduct by businesses is likely to vary greatly given differential sets of external, market-based competitive conditions. Furthermore, it would be influenced by one's perceived opportunities for engaging in unethical behavior, the magnitude of potential rewards, and the likelihood of success in such ventures. An analysis of individual businesses and industry groups within the parameters of this framework should help both business ethics scholars and executives in devising approaches that would be more appropriate in guiding corporations toward a higher level of ethical conduct.

Sector D Intensely Competitive and Entrepreneurial Environment Emphasis on changes in individual behavior

IL •a eo X P •e a o g" ou

I

Ethically Hostile Environment

Adverse Selection

i-

Structural Opportunities Low so

Sector A

for Exploitation

S'

1 1 1

High SI

i

Sector C

Sector B

a> H

Regulated or Highly Stable and Mature Environment Institutions and individuals exercise high level of self-restraint

Figure 1:

High Growth Economic Activity Environment

a •a a ir

u

Emphasis on changes in institutional behavior

Confluence of Market-Based External and Institutional/Individual (internal) Factors in Determining Business' Ethical Behavior

1. The Ethically Hostile Environment. In Figure 1, Sector A is delineated by the dimensions 77 T' and SI S'. It suggests market conditions that offer tremendous opportunities for exploitation, i.e., engaging in unethical behavior that is accompanied by a high level of inducement/temptation to do so. The environment is inherently hostile to ethical and socially desirable conduct and

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is populated by illegal enterprises whose very raison d'être is criminal and anti-social. The nature of the enterprises and the attendant rewards and risks are the breeding ground of criminal/unethical acts, and the individuals that are drawn to these enterprises are predisposed to engage in them. The concept is called adverse selection, i.e., enterprises inhabiting this Sector A deliberately opt for behavioral choices that are per se unethical. Therefore, within broad parameters, it would be unrealistic to expect these enterprises to respond to society's entreaties to refrain from socially harmful activities. Proposition 4 Firms that engage in inherently illegal and unethical enterprises are not likely to respond to societal pressures aimed at improving their ethical conduct. Society's options, in this instance, are at best limited to creating legally enforceable sanctions that limit the scope of these enterprises' activities within socially tolerable boundaries. The reaction of the external socio-political environment to these enterprises would be to create conditions that are prescriptive in nature and use legallybased coercive techniques as well as social ostracism to constrain their activity domain. The enterprises' response would most likely be to appear to behave within legally prescribed limits so as to minimize the scope and impact of these sanctions on the conduct of their business (Sethi 1979). 2. The High Growth Economic Activity Environment. Sector B, as defined by dimensions TO T' and SI S' presents those operational conditions where structural opportunities for exploitation are high, i.e., the business operates in a high growth environment with tremendous structural opportunities for gaining market advantage, while institutional temptations for exploitation are relatively low and restricted by a concern for the "reputational" effect on a firm's market position. Illustrative of businesses in this sector are companies in various new technology environments. These industries are in the middle stage of the technology growth cycle where emphasis is placed on converting innovative technologies into mass-produced and marketed products (Ansoff/McDonnell 1990; Grant 1995; Harris/Carman 1991). The industry structure leans towards further concentration as firms consolidate to protect their market gains and exploit economies of scale. These firms and industries are not encumbered with heavy regulatory oversight and operate in a relatively laissez-faire environment. The primary focus of improving ethical behavior in this sector is to place emphasis on changes in institutional behavior. New technologies, production systems, and consumption patterns also give rise to socio-political, economicphysical, and environmental externalities that raise public discomfort for some of the aggressive business practices used by these fast-growth companies. In-

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ter-firm rivalry for consumer franchise emphasizes non-price competition. Public goodwill and corporate image are important assets. The free rider problem is a critical one here because of the highly competitive nature of the industries involved. These industries have not yet developed suitable means of forcing the recalcitrant player to toe the line, i.e., there is relative absence of traditional enforcement via the usual market signals available to leading firms in more mature industries. Firms are more likely to rely on their reputation to mitigate the problem of free rider (Forbrum/Shanley 1990). A firm's reputation for ethical conduct becomes a competitive advantage in the marketplace. In this sector, leading firms are likely to exercise significant influence through "demonstrated conduct" on the behavior of recalcitrant members. Companies are sensitive to societal perceptions as to the quality of their ethical conduct. Thus, while they are aggressive competitors, they are also willing cooperators in changing their conduct. These firms are more likely to create organizational processes that would integrate good corporate conduct as a necessary ingredient of doing business, e.g., corporate codes of conduct, industry standards, etc. The social response mode of these firms is anticipatory and interactive (Sethi 1979). They seek integrative solutions that will earn the trust of partnering stakeholders and are willing to experiment with innovative, albeit untested, solutions and form strategic alliances with non-traditional third parties and external stakeholders (Sethi 1994b). A practical example is the participation of chemical companies in adhering to the Montreal Protocol, and in the Chemical Manufacturer's Association 's (CMA) involvement in the Responsible Care movement (Dudek/LeBlanc/Sewall 1990; Powell 1990). Another new development supporting institutionalized changes in this sector has been the US Sentencing Guidelines for corporate and white-collar crimes which have induced firms to become more proactive through creating internal monitoring systems and control procedures that anticipate and seek to prevent potential illegal-unethical acts. These guidelines contain procedures whereby a company charged with illegal behavior receives more favorable consideration in sentencing if it can be shown that the company had in-place and institutionalized procedures to prevent the occurrence of such behavior and that the individual incident was an aberration. (Bucy 1991; Coffee 1981; Cohen 1991, 1992; Fisse 1983; Harvard Law Review 1979; Holcomb/Sethi 1992; Kennedy 1985; Sethi 1978, 1987; US Sentencing Commission 1991). Proposition 5 A firm in an environment of high growth economic activity (Sector B) is more likely to use its gains from market power in a proactive ethical and social manner where it can gain competitive advantage in terms of customer loyalty, preferential availability of capital and other factors of production, and, a higher level of public trust and community goodwill.

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Proposition 6 The likelihood of a firm's acting ethically in Sector B is increased where it can control the problem of free rider, i.e., deny the recalcitrant members of the industry from taking advantage of another company's good name at the latter's expense. The norms of ethical conduct and public expectations are invariably set by the firms with the highest standards which other firms are forced to emulate if they hope to keep their reputations intact. Firms in this sector are loathe to engage in any activity that might tip the scales in favor of a more scrupulous incumbent or new entrant. And yet, an individual firm is unlikely to drift much beyond the industry standard of ethical conduct for fear that other firms, with equally good reputations, may fail to follow suit and thereby gain a free rider advantage. Raising and maintaining a higher level of ethical norms in companies falling in this sector are more likely to come through external pressures that help create industry-wide standards. 3. The Regulated or Highly Stable, Mature Business Environment Sector C, bounded by the dimensions SO S' and TO T\ offers conditions that are further ahead in the direction of stable markets than Sector B, while they are the opposite of those prevailing in Sector A. In Sector C, the structural opportunities for exploitation are low as are the institutional temptations toward exploitation of those opportunities. Two types of industries fall into this category: (a) highly regulated industries that are subject to extensive governmental regulation and reporting requirements, focus of media attention, and concern of informed public interest groups and individuals; and, (b) highly mature industries that are oligopolistic in character. Both of these operating environments are well understood by segments of the public that are concerned with the member firms' historical conduct and problems related particularly to negative externalities. The free rider problem is less severe here compared to the one prevailing in Sector B. Institutions and individuals are under constant pressure to behave in an exemplary manner. Actions of any single firm that are perceived as unethical or socially irresponsible may subject other firms in the industry to further public scrutiny. The emphasis is on finding common ways of doing things through industry-wide consensus or government-imposed solutions because the regulatory character of Sector C renders players unlikely to engage in deviant behavior. Enforcement is more commonplace and market signals are used effectively to keep incumbent firms playing on a level field. Firms falling in this sector tend to be highly bureaucratized, leaning toward a reliance on process, standard operating procedures, and formal rules. Firms and executives in this sector are more likely to have formalized codes of con-

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duct for corporate behavior and systematic processes of ethical decisionmaking. Ethical problems are generally addressed by the rulebook, i.e., they would use conventional and socially acceptable means of demonstrating ethical conduct to match, but not necessarily exceed, societal expectations. The social response mode is one of trouble-shooting in a reactive manner rather than proactive anticipation of issues (Sethi 1979, 1994b). The ethical context of business behavior for enterprises in this sector can be summarized in the following propositions: Proposition 7

Companies in regulated and highly stable or mature environments (Sector C) are likely to act more ethically where: (a) their unethical behavior is difficult to conceal, and (b) affected parties have market or political power to retaliate and are willing to exercise that power, and (c) where their products and services create a high level of public anxiety and are likely to subject them to government regulation.

Proposition 8

Individual companies within Sector C are more likely to create formal and institutionalized standards and procedures of corporate and individual conduct both: (a) as a matter of public commitment, response to societal expectations and regulatory pressures; and, (b) to create intracorporate operating procedures and systems of rewards and punishments that are commensurate with these standards.

Proposition 9

The highly regulatory character of the external environment described in Sector C, coupled with a high level of public expectations, is likely to act as a powerful inducement for individual companies to strive for ever higher levels of ethical behavior.

A corollary to this situation is that, given a high level of public scrutiny and regulatory oversight, these companies are likely to be risk-averse in that they would be reluctant to experiment with novel approaches that might yield potentially high rewards but might also carry a higher risk of failure. The use of ethical training programs, inducements for ethical compliance, penalties for ethical lapses, installation of ethical hot lines, and encouragement of internal whistle-blowing are all instruments of change that might prove most effective here.

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4. The Intensely Competitive and Entrepreneurial Environment. Sector D, delineated by dimensions SO S' and T1 T\ defines an area where structural opportunities for exploitation are low, and yet it offers tremendous opportunities for individuals to exploit specific situations that arise from market aberrations. This sector is characterized by a competitive environment often populated by companies that have entrepreneurial empire builders at their helms, and where opportunism is the coin of the realm. The entrepreneurial owner plays a dominant role and is a maverick risk-taker. Driven by a personal vision of what is right, his or her organization may either be in consonance, or may just as likely be out of line, with societal expectations. The implication is that ethical demeanor may be viewed as under or over the mark. The organization's preference for different forms of ethical behavior will most likely be driven by a uniquely personal vision of the entrepreneur-owner and influenced by individuals and groups, e.g., family and church members, rather than behavioral patterns of other businesses or industries. History is replete with instances of entrepreneurial empire builders, e.g., Henry Ford, John D. Rockefeller, Andrew Carnegie and Colonel Eli Lilly, in how they managed their businesses and the nature of their unique vision of ethical norms of corporate behavior as expressed in their philanthropic activities. One can find similar iconoclastic behavior patterns, in more recent times, in the actions of companies like Levi Strauss & Company, Body Shop International, and Ben and Jerry's Homemade Inc. (Beaver 1995; Carlin 1995; McClenahen 1995; Stevenson 1994; Verespej 1994). Companies in this sector are likely to resist any externally imposed standards of ethical conduct that differ from the ethos of their owner/managers. Given the fact that the entrepreneur works in an environment where personal fortune is closely tied to the firm's success, there is also the temptation to cut corners and to gain short-term advantage at the expense of the firm, its customers, and other stakeholders. To wit, firm behavior in this sector is likely to vary widely across the entire spectrum of conduct from highly ethical to highly unethical. Improving ethical conduct for businesses in this sector is less likely to be influenced through bureaucratic and institutionalized organizational procedures and more driven by the personal values of the entrepreneur/manager, empire-builder. The character of the enterprise, being closely related to that of its owner/manager, is likely to yield highly idiosyncratic criteria for ethical conduct that may even run counter to the prevailing concept of acceptable business behavior. Changes in ethical behavior may come through externally imposed legal standards since entrepreneurs are likely to conform to laws and sanctions where non-compliance would threaten the survival of their firms and their dreams. Driven by a desire to expand, such constraints may be the second most important impetus, the first one being their personal vision, to forcing

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adherence to ethical codes heretofore ignored. Compromise is seen as a temporary inconvenience to be borne only if the larger vision is at stake. Proposition 10 The entrepreneurial firm's willingness to address social wrongs is directly and positively related to operational conditions where these social wrongs: (a) are in alignment with the perceptions of the firm's owner; (b) impact the firm's ability to continue expansion; or, (c) incur severe legal sanctions that threaten personal and organizational survival.

6

Summary and Implications for Future Research

This paper demonstrates the importance of external economic-competitive factors and their impact on the extent and nature of ethical choices available to business organizations. As such, this framework adds a valuable predictive and prescriptive component to the existing body of literature in business ethics with regard to our understanding of the factors that affect a corporation's ethical posture, and the instrumentalities that might be effectively used to enhance that posture. We assert that contrary to conventional wisdom, highly competitive markets, while making businesses more efficient, also create greater opportunities for unethical behavior. Thus, it is the imperfect market that provides the firm with an opportunity to gain above normal profits and inducement to behave ethically both for reasons of protecting above normal profits, and, also because they are driven by higher ethical standards. It is simply not enough to want to be ethical above and beyond what dominant competitors do, social customs and government regulations require, and customers are willing to support. We contend that imperfect markets, yielding above normal profits, must exist as a necessary condition before firms will have the wherewithal to engage in ethical behavior. Otherwise, ethical conduct beyond the very minimum that is legally mandated, will more likely express itself in exception rather than manifest itself as normal pattern of corporate behavior. Finally, it is argued that given the existence of opportunities to engage in ethical behavior in the marketplace, an individual firm's choice of ethical/unethical behavior would be influenced by such factors as corporate culture and managers' ethical values. Scholarly literature in business ethics, hitherto, has focused almost exclusively on the importance of creating internal structures that integrate ethical values and norms into corporate decisions, and sensitizing managers to ethical values. This has manifested itself in the development of practicing guidelines and teaching curricula that:

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a) suggest the development of organizational structures which facilitate intraorganizational ethical decision-making, and, general principles that should guide corporate behavior, e.g., codes of conduct; and, b) inculcate in managers those principles and decision criteria that would help them identify the ethical nature of business decisions, apply appropriate ethical rules, and create priorities. Our framework suggests that such an approach would have a higher probability of success and effectiveness under certain types of industry-structure and competitive conditions as described in Sectors B and C. In other environments, it would be more appropriate to seek different, albeit externally imposed, even mandatory and coercive, systems of compliance with ethical standards to achieve a society's goals for acceptable corporate behavior. The confluence of external economic-competitive factors, and internal corporate structural context and institutional value norms, opens up a vast new area for both theory development and empirical research. These would include: a) systematic analysis of how different external and internal factors would interact with each other; b) the impact of different industry structures, e.g., from highly concentrated to highly fragmented, from mature to emerging technologies, and from single-product/industry companies to highly diversified conglomerates, on a company's opportunities for making ethically pro-active decisions and the proclivities of its managers to do so; and, c) the role of corporate culture and managerial orientation, including the risktaking propensities of managers and how they might manifest themselves in companies acting as leaders, followers, or deviants in establishing ethical standards for their industry. Research may also suggest areas where, given market-competitive conditions, voluntary action to enhance ethical behavior on the part of companies and industries is unlikely; where government regulation might have to play an explicit role in establishing at least minimum norms of ethical conduct; where public interest groups, news media and social activists might fruitfully engage in the role of catalysts for change in defining the new parameters of businesssociety relations; and, where externally imposed performance and evaluation standards for surveying ethical conduct might be necessary to counteract for a widening gap between corporate legitimacy and societal expectations, and corporate performance and public perception thereof. Practicing managers may glean specific insights from such an analysis. An understanding of the interaction of structural market-competitive conditions and institutional inclinations toward ethical behavior lends itself to an appro-

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priate strategic posture vis a vis the establishment of ethical standards. Firms can assess their position on a matrix of external conditions and available options in determining when it is prudent to set industry-wide norms; when cooperative arrangements with other industry members is suitable; when it is opportune to stake out a new individualist course of action; and importantly, when unique relationships with stakeholders, especially public interest groups and consumers, may be necessary to promote an essential level of trust on the part of the larger community towards the company, industry and business as a whole.

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Holcomb, J., and S.P. Sethi (1992), Corporate and executive criminal liability: Appropriate standards, remedies, and managerial responses, Business and the Contemporary World 4(3) Summer: 81-105 Hoon, S. and A. Sherry (1995), Cutting the knot, Far Eastern Economic Review, November 30: 66-70 Huddle, N., M. Reich, and N. Stiskin (1975), Island of dreams: Environmental crisis in Japan. New York: Autumn Press. Kamata, S. (1982), Japan in a passing lane: An insider's account of life in a Japanese auto factory. New York: Pantheon. Kennedy, C. (1985), Criminal sentences for corporations: Alternative fining mechanisms, California Law Review 73: 448-482 Lewis, M. (1989), Liar's poker: Rising through the wreckage on Wall Street. New York: Norton. Lorsch, J.W., with E. Maclver (1989), Pawns or potentates: The reality of America's corporate boards. Boston, MA : Harvard Business School Press. Maitland, I. (1995), Virtuous markets: The market as school of the virtues, Paper presented at the Annual Meeting of the "Society for Business Ethics", Vancouver, B.C., Canada, August 3-6 McClenahen, J.S. (1995), Good enough, Industry Week 244(4): 58-62 Michelman, J.H. (1983), Some ethical consequences of economic competition, Journal of Business Ethics 2: 79-87 Moore, M. (1994), The second disaster in Bhopal, Business and Society Review 88 (Winter): 26-28 Powell, D. (1990), The development and implementation of industry-wide environmental codes of practice, in: W.M. Hofifman, R. Frederick, and E.S. Petry, Jr. (eds.), The corporation, ethics, and the environment, 163-171. New York: Quorum Books. Richburg, K.B. (1994), An African giant falls under its own weight, Washington Post, July 10: Al Sapsford, J., and N. Shirouzu, (1995), Scandal-ridden executives in Japan may lose face, but not their shirts, Wall Street Journal, October 19: A19 Sen, A. (1992), Inequality examined. Cambridge, MA: Harvard University Press. Sen A. (1993a), Does business ethics make economic sense?, Business Ethics Quarterly 3(1): 45-54 Sen A. (1993b), Money and value: On the ethics and economics of finance, Economics and Philosophy 9: 203-227 Sethi, S.P. (1978), Liability without fault? The corporate executive as an unwitting criminal, Employee Relations Law Journal 4(2): 185-219 Sethi, S.P. (1979), A Conceptual framework for environmental analysis of social issues and evaluation of business response patterns, Academy of Management Review, January 1979: 63-74 Sethi, S.P. (1987), Corporate law violations and white-collar crime: The expanding scope of executive liability (criminal and civil) for corporate law violations, in: S.P. Sethi and C.M. Falbe (eds.), Business and society: Dimensions of conflict and cooperation, 471506, Lexington, MA: Lexington Books. Sethi, S.P. (1994a), Imperfect markets: Business ethics as an easy virtue, Journal of Business Ethics 13(10): 803-815 Sethi, S.P. (1994b), Multinational corporations and the impact of public advocacy on corporate strategy: Nestle and the infant formula controversy. Boston, MA: Kluwer Academic Publishers.

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Sethi, S.P. (1994c), The Notion of the "Good Corporation" in a Competitive Global Economy - Moving from a Socially Responsible to a Socially Accountable Corporation, Paper presented at a conference sponsored by the University of Notre Dame and Notre Dame Center for Ethics and Religious Values in Business. Notre Dame, IN: April 11-13 Sethi, S.P., and C.M. Falbe (1987), Business and society: Dimensions of conflict and cooperation. Lexington (MA): Lexington Books. Shenon, P. (1994), Bank scandal may expose corrupt links in Indonesia, New York Times, May 28: A35 Sjogren, E. (1987), Who will clean up Europe's pollution?, Management Today (January): 19 Smith, R.A. (1961a), The incredible electrical conspiracy, Part I, Fortune 63 (April): 132137 Smith, R.A. (1961b), The incredible electrical conspiracy, Part II, Fortune 63 (May): 161164 Solomon, R.C. (1992), Ethics and excellence. New York: Oxford University Press. Staw, B.M., and Szwajkowski, E. (1975), The scarcity munificence component of organizational environments and the commission of illegal acts, Administrative Science Quarterly 20: 345-354 Stevenson, R.W. (1994), Body Shop's green image is attacked, New York Times, September 2: Dl, 6 Stewart, J.B. (1991), Den of thieves. New York: Simon and Schuster. Sullivan, K. (1995), S. Korean slush fund disclosed, The Washington Post, October 28: A22 Tygiel, J. (1994), The Great Los Angeles Swindle: Oil, Stocks, and Scandal During the Roaring Twenties. New York: Oxford University Press. US Sentencing Commission (1991), Supplementary report on sentencing guidelines for organizations, August 30:10-11 Verespej, M.A. (1994), Masters of change, Industry Week 243(5): 9 Vise, D.A., and S. Coll (1991), Eagle on the street. New York: Scribners. Walton, C.C., and F.W. Cleveland, Jr. (1964), Corporations on trial: The electrical cases. Belmont, CA: Wadsworth. Weaver, K. Mark, and O.C. Ferrell (1977), The impact of corporate policy on reported ethical beliefs and behavior of marketing practitioners, in: B. Greenberg and D.N. Bellenger (eds.), Contemporary marketing thought. Chicago: American Marketing. Wogaman, J.P. (1986), Economics and Ethics: A Christian Enquiry. Philadelphia: Fortress Press.

The Role of International Industry Associations in the Development and Implementation of Corporate Ethics: The Case of the Chemical Industry and Responsible Care Hans-Peter Meister and Henning Banthien

1

Corporate Ethics as Interactive Economics

Companies in the social market economy are faced with numerous different demands, which are often tied up with normative demands and should in fact be reconciled with ethical claims. For example investors - and in the case of a public company, the share holders - , the employees, the local region through taxation payments made by companies and employees - all have real interests in the company's profits. In addition to this, the well-being of clients and delivery firms depends on company successes, and the expectations, demands and wishes of the surrounding social area, for example of the local inhabitants, churches or the authorities combine to further increase the responsibility of the company. They all expect to live in good relations with a local company; one that is aware of its ecological and social responsibilities and acts and makes decisions accordingly. Assistance in creating an orderly traffic system and the support of social institutions are just as much a part of the palette of demands made by the community as customer requirements for good and inexpensive products and a reliable delivery with friendly service. Local communities and districts hope for secure jobs and high taxation income, in order to fund roads and higher education for example. Banks are interested in solvent borrowers, whilst share holders are concerned to get as high interest as possible on the money which they have, not forgetting the element of speculative trust involved, invested in the company. In total therefore, the company is faced with having to satisfy numerous expectations. A company should prepare a strategy based upon these diverse and sometimes contrary aims which both satisfies the highest possible number of stakeholders as well as the ethical demands placed on it. However, we must not regard all of these "ethical" demands in the same light. Many have no legitimate claim to the description and often simply use it in order to look after or achieve personal advantages. The title "ethical" should only be recognized on a general social level.

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1.1 Framework as a Moral Location The tension between ethical demands and economic corporate aims seems at first to be unbreakable in the confusion of the various social interests involved. What one man calls public welfare, the next will regard as exploitation. Measures which one man believes form the basis of a secure future are considered by another to destroy the economic structure of society (Altvater/Mahnkopf 1996). The way out of this dilemma is provided by the approach adopted by interactive economics, which consequently take account of the economic rules within the market economy and demonstrate specific ways of achieving ethically desirable behavior, even under economic regulations. This approach, which was mainly developed by Homann (Homann/Blome-Drees 1992), suggests that no company can produce ethical achievements over a longer period of time, if it is thereby forced into a disadvantageous economic position which, in the long run, will endanger the company's very existence. All this follows according to the basic principles of the social market economy in which competition is consciously used as a mechanism to steer the market. Competition does not only bring about an efficient allocation of resources, but also forces a business to consequently orientate itself towards the customer wishes and, through the incentives created by widespread entrepreneurial success, triggers off progress and innovation (see Gerybadze 1995: 829-845). However, society has to pay the price for these advantages in the form of a competitive battle, in which individual companies are only able to orientate themselves according to economic success. Within this logic of the market economy, we are presented with two basic options: either one area of human interactions are deliberately removed from the competitive sphere through ethical reasons, or competitive systems are allowed to operate within the framework set up by the state. As far as dealing with ethical problems is concerned, this means that in areas which are subject to competition, in which companies face each other competitively, ethical demands which oppose the economic targets of the business are not considered to be legitimate. Companies can not be expected to carry out an ethical examination of each one of their actions. There is no room for these demands against the background of competition. Ethical demands have to be carried out within the market framework: "The systematic location of morality is the framework" (Homann/Blome-Drees 1992: 35).

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1.2 Corporate Responsibility: Ethical Options for a Company The question must be asked, how companies and industry associations should react to the emergence of new ethical demands and ideas in society, and to their increasing popularity. If customers are prepared to pay back a company's ethical "investments" through greater demand, or if these "investments" can improve the motivation and productivity of the employees, morality can also be a part of increased competitive strength. A company cooperating with industry associations can improve its competitive position through ethical investments (Kohlhaas/Praetorius 1994: 24; Topfer 1994: 27). Should conflicts arise between ethical demands and the economic interests of the company, or if ethical investments can only be realized by placing the company at a disadvantageous competitive position, Homann (Homann/Blome-Drees 1992) shows another way to reach ethical objectives: it is impossible, in the long run, to expect a company to act against its economic interest because of its ethical conscience. If we are serious about creating a specific ethical conduct then it is vital that we adapt the social, political and economic framework so that an ethically responsible code of practice is made possible and is also acknowledged. At least it must be realized without creating a disadvantageous position for itself in the face of competition (Meister 1996a). The following double-track suggestion should be considered: the state can not and, considering the complexity of modern society and industry, should not solely have to be responsible for the modification of the framework. Often the state does not recognize the (ethical) need for adjustment at hand, or it ignores important economic aspects. It is therefore necessary for industrial associations and companies to face and solve conflicts which may occur, by acting on the integral meta-level of the framework of corporate rules in order to address conflict situations in advance. Following on from this, it can be said that one option open to business is to influence the framework. Standards should be introduced here which encourage an ethically desirous behavior. The nature of the norms and standards should be decided through discursive consensus-finding processes. In this way, companies are able to take account of their responsibility for an ethically sound framework. As we shall show, it is primarily the task of the industry association to influence the social, political, and economic framework - the industry association mediating between the individual companies. However, not all of a company's actions have to addressed and regulated by the framework. Daily business involves all sorts of insubstantial, specifically local conflicts, each of which demand an agreed settlement. It is only possible for a great many conflict settlements - again, in the face of modern plurality and stratification - to be found efficiently and adequately in the respective context. According to this, prudent corporate politics, as such the

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second option available for a company's actions, requires the problems to be handled through discussion on the local level. A long term continuance of business within the neighborhood is only possible in consensus with it. Until now, we have shown that companies should act ethically, i.e. they should aim towards public consensus. Discursive processes towards finding this consensus have been suggested as a formal and regulative principle behind problem solving and the setting up of norms. In the face of a pluralistic and increasingly rationalized modern world, traditional forms of conflict solutions and normative regulation can no longer achieve any satisfactory results. No interest group, cultural community or share owner is going to accept a ratified norm as legitimate if he does not feel that - at least potentially - he could have contributed to its creation (Habermas 1988: 103). It is only through involving all those concerned within a discourse that, on the one hand, a general trust in the suitability of the norm and its accuracy can be achieved, and on the other, that all sides can accept the norm. In the sense of the open society (Popper 1992), a discourse can always ascertain at least those elements not felt to belong to the framework of the generally acknowledged consensus of values. This fact enables a regulative principle to be allocated to the discussion of the problem. Because a discourse mirrors, to a certain extent, the complexity of the plural society, it represents a methodically appropriate approach to the treatment of complex interaction-problems. At the same time, a discourse only establishes a formally procedural principle - methodological fairness - which can solely serve to regulate the creation and the setting of norms. But what motivates a participant to want to take part in a discourse? Within the discussion of corporate ethics two explanations for participation in a discourse can be systematically located, both of which suggest that their ethics could be pragmatically realized through discourses (see Steinmann/Lohr 1994 regarding discussion). Karl Homann's approach which is orientated around the direct interests of business, argues that it is the long term strategic interest of a company to create a harmony between its actions and the ethical expectations of society (Homann/Blome-Drees 1992). Thus, a consensus between firms and citizens must be formulated which consequently builds the foundations with which to exercise influence over the framework. It can therefore be said, that a company is an active participant within the ethical discourse of the community. A framework which is ethically agreed and ratified in this way enables a company to run its business efficiently and within "desirable" limits, protecting it at the same time from making those ethical mistakes which would lead to developments damaging for business. In contrast to Homann, Steinmann stresses the necessity of introducing a normative principle which provides an explanation for participating within a discourse. He sees this in the harmony principle (Steinmann/Olbrich 1994; Steinmann/Lohr 1994). A stable coordination of plural interests within society can

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only be ensured through a social harmony based around the voluntary consensus of those involved. Steinmann also views rational discourse as representing the only way with which to achieve this consensus. As soon as this consensus exists, efficient business can go hand in hand with society's values. We can state here that, practically speaking, normative origins as well as strategic origins end in the demand for public discourses to be implemented with which to create a consensus.

2

Responsibility for Rules: Sharing the Responsibility between Company and Industry Association

In many cases it is barely or not at all possible to create a conformity within the social, economic, and political framework (e.g. in international trade) or it would cost vast amounts of time and money to adjust the framework (e.g. lack of state knowledge of controls). However, companies and associations are still left with various options to balance out negative competitive forces according to their responsibility for setting the rules of the framework (IFOK 1997): -

Carefully directed investments (e.g. inexpensive environmentally compatible production processes) which, in the long run, can innovatively do justice to ethical demands whilst staying competitive at the same time;

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Joint projects, in order to produce ethical "investment" - e.g. reduction of costs through joint basis research projects or joint marketing of environmental technology (Aulinger 1996; Wolff 1996) or

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Branch agreements in order to replace the missing controls within the framework and thus keep moral investments out of the line of competition. A branch agreement of this nature can set the example for a possible state regulation, which, in its turn, then forces all traders within the home market to adhere adhere to ethical demands (see also Commision of the EU 1996).

In the cases cited here, we are already enabled to see clearly the moderating function of the industry associations, aiming at creating strategies and types of processes with which to run business and joint project. If, however, an individual company had to implement these new approaches in thought and action, it would suffer under too much additional burdens on top of coping with the competitive forces of every-day life. It is therefore the job of the industry association to act as moderator over the way a company acts within the community.

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The role of an industry association becomes even more essential in areas where the constructive exercise of influence, although often costly, is possible and, more importantly, ethically needed. There is a huge need for regulation on an international level, for example, which governments are only unable to really tackle effectively. Markets outreach the conditions dictated by individual nations. It is now up to companies to fill this ethical vacuum (Steinmann /Olbrich 1994: 126). But at the same time, it would not be fair to attribute onesided moral commitment to individual firms, because this, again, would be accompanied by a substantial additional burden. For this reason, it is the industry associations which have to be responsible for the reducing the amount of ethical tasks faced by a company. This means that industry associations are required to exert influence on the framework and to find new strategies to initiate and moderate its implementation. Industry associations are able to combine the positions and competencies of their member firms which provides them with a wealth of possibilities regarding knowledge and influence far beyond the radius of an individual firm. This enables them to exercise effective influence not only over the social framework but also internally, over the actions of the member firms. The basic idea behind the division of labor set for industry associations and companies is - regarding the task of the industry association - to establish, on an internal level - among member firms - as well as in a national or international framework, legitimized integral-norms through discursive processes which allow the companies space to conduct their businesses; Whilst on the one hand the individual burden of ethical justification is being eased, companies are nevertheless given the opportunity to behave in an ethically correct way (Steinmann/Olbrich 1994: 133). Globally acting enterprises, which move in diverse socio-economic environments, particularly rely on integral-norms which allow businesses freedom to find solutions relevant for the local context and at the same time enable them to orientate their actions around superior guide-lines. Such a division of labor ensures a legitimized and simultaneously efficient poly-central solution strategy which, additionally, supports the diffusion of ethical standards (Steinmann/Olbrich 1994: 128; Steinmann/Lohr 1994: 151). If the standardization and codification of norms on the macro-level of the industry association were totally abandoned, this would lead to the loss of a unifying subject of responsibility (in the 'person' of the industry association). The industry association would no longer be able to characterize itself as carrier and receiver of responsibility. Subjects capable of responsibility are vital for successful discourses; and this is what the industry association is interested in. It is therefore not in its interest to lose its status as responsible subject. It wants to actively influence the framework as a "good citizen". The ethical and organizational demands shown here daily placed on companies result in central forward-looking competencies and functions for indus-

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try associations. These will be listen in the following chapter. These new competencies aim towards innovative programs and rules for business and for the civilian society on national and global levels of the framework (see also IFOK 1997, chap. 3). These competencies can be described as follows: -

Competency of knowledge: industry associations are aware of social problems and the relevant procedure required; they inform their members of these social demands which are easily overlooked in the everyday competitive situation.

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Competency of initiating: industry associations act as a catalyst, initiating joint projects, by stressing the mutually advantageous (win-win) results.

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Competency of steering: industry associations take on the responsibility that the companies are all contained under one leitmotiv and conform with one catalog of measures. Industry associations are given a moderating and supportive function in this case (see also Mann 1994).

2.1 The Responsible Care Program The Responsible Care program of the chemical industry is the most comprehensive initiative undertaken by industry in the present day to acknowledge a responsibility for playing by the rules. Key characteristics are voluntary selfcommitment and dialog-orientated approaches. Responsible Care (a registered mark of the Chemical Industry) is an initiative of the chemical industry which calls on companies to demonstrate their commitment to improve all aspects of performance which relate to protection of health, safety and environment. This initiative, which started in Canada as a new model for the management of chemicals by the Canadian Chemical Producers' Association (CCPA) in 1985 is gaining world-wide momentum in the chemical industry. The global chemical industry, as represented by the International Council of Chemical Associations (ICCA) views Responsible Care as a practical and visible tool for meeting its obligation to manage safely the risks associated with the ever-widening range of chemical production and products. Agenda 21 (chapter 19.8) encourages the development and promotion of Responsible Care and its attendant product stewardship activities. The chemical industry has responded by expanding the reach of Responsible Care to 40 countries which account for approximately 86 percent of the world's chemical production. In each case, the initiative is sponsored by a nation's leading chemical trade association representing both domestic and multinational chemical producers. Participating chemical companies in each country commit themselves to adhere to the Responsible Care Guiding Principles which state that a com-

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pany will manage its activities so that they represent an acceptably high level of protection for the health and safety of employees, customers and the public and for the environment. Furthermore the companies will reflect these commitments in their policies and practices. The growth and integrity of Responsible Care is guided by the International Council of Chemical Associations (ICCA) and its Responsible Care Leadership Group. Through the Leadership Group, the ICCA has identified certain fundamental features of Responsible Care which must be present in each national association's initiative (ICCA 1996a): The detailed administration of the Responsible Care concept by National Chemical Industry Associations will vary according to national cultures and circumstances. Nevertheless, all programs will need to address: -

A formal commitment to a set of Guiding Principles on behalf of each company, signed by the chairman; Adoption of a title and logo which clearly identify national programs as being consistent with and part of the concept of Responsible Care; A series of Codes, Guidance Notes and Checklists to assist companies to implement the commitment; The progressive development of indicators against which improvements in performance can be measured; An ongoing process of communications on health, safety and environmental matters with interested parties outside the industry; Provision of fora n which companies can share views and exchange experiences on implementation of the commitment; Consideration of how best to encourage all association's member companies to commit to and participate in Responsible Care; Systematic procedures to verify the implementations of the measurable (or practical) elements of Responsible Care by member companies.

As an example for the first feature the General Assembly of the VCI in Germany adopted a set of 10 Guiding Principles in 1995 (Verband der Chemischen Industrie 1995): 1.

The chemical industry considers safety and the protection of human health and the environment a matter of fundamental importance. For this reason, company management shall define environmental guidelines, review these guidelines at regular intervals regarding new requirements and create procedures for the effective implementation of these targets in everyday business practice.

2.

The chemical industry encourages its employees' sense of environmental responsibility and awareness with respect to potential environmental hazards caused by products of plant operations.

3.

The chemical industry takes the general public's questions and concerns regarding its products and business operations seriously and provides appropriate response.

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4.

The chemical industry continuously reduces the dangers and risks involved in the manufacture, storage, transportation, distribution, usage, processing and disposal of its products in order to protect employees, neighbors, customers and consumers, and the environment. Health, safety and environmental aspects are priority issues when new products and production procedures are being developed.

5.

The chemical industry informs its customers in a suitable manner about the safe transport, storage, safe application, processing and disposal of its products.

6.

The chemical industry works continuously on extending its knowledge of the possible adverse effects of products, production procedures and waste on human health and the environment.

7.

The chemical industry will limit the marketing of products or cease production, regardless of economic interests, if the results of a risk assessment call for such limitation of cessation as a precautionary measure to protect human health and the environment. The chemical industry shall inform the public of all such measures.

8.

The chemical industry will initiate any measures required in the event of operationinduced health or environmental dangers; it shall work in close coordination with public authorities and shall inform the general public without delay of any such events.

9.

The chemical industry makes available its knowledge and experience in the preparation of practical and effective laws, directives and standards with the aim of ensuring the protection of humans and the environment.

10. The chemical industry fosters guiding principles and the implementation of the Responsible Care initiative, in particular through the open exchange of knowledge and experience with all those concerned and interested.

The fundamental features of Responsible Care are intended to ensure global consistency of the initiative for the chemical industry and for its stakeholders. It is the view of the ICCA that effective implementation of the fundamental features by an association and its members will lead to improved environment protection and health and security performance, risk reduction, increased influence of interested parties' views within the industry and the spread of the Responsible Care ethic both within and outside the chemical industry. Managing risk for example has been a role traditionally addressed by individual companies working alone or with their stakeholders to comply with regulatory requirements. Individual companies have made progress in reducing chemical risk. In some cases, however, a company's actions were limited to localized improvements or failed to meet standards required by regulators or the expectations of the public. Additionally, company and industry innovation and flexibility in addressing chemical risk management has often been hampered by government command-and-control regulatory pressures. In the developed world, purpose-designed and well-enforced laws and regulations focusing on solely end-of-the-pipe solutions can cause industry to devote

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scarce resources to meeting only minimum requirements in order to avoid penalties and legal actions. In developing countries, enforcement of laws and regulations is often hampered by a lack of resources and uncertainty about what is expected of individual companies. Implementation of Responsible Care by a national chemical association transforms the traditional view of risk management from an individual company activity to the responsibility of a group of like-minded companies representing significant segments of a nation's chemical production. These companies seek broad-based performance improvement, reduction of risk and the establishment of best management practice. Factors driving this new mind-set, which leads to a public commitment by a national chemical trade associations' members to Responsible Care, includes: -

-

-

-

-

Agreement among participating companies that successful risk management and risk reduction practices are to be shared to promote collective performance improvement; Peer pressure among companies driven by an understanding that the failure of one company to deliver on its commitment threatens the entire group's license to operate; Input from interested parties of stakeholders both within and outside the industry which continually emphasizes their expectations and raises industry performance; Belief that given the opportunity to innovate and introduce flexibility into their response to regulation, companies can meet and exceed regulatory and stakeholder expectations, and Awareness that the Responsible Care message and its benefits must be shared throughout the chemical supply and customer chain to foster product stewardship and improved chemical risk management.

2.2 Results of the Responsible Care Initiative Since the early 1990s, many of the national chemical associations implementing Responsible Care have begun to collect environment, health and safety (EHS) data from their members to measure the positive impacts on performance. While the amount of EHS performance data varies between countries, positive trends are beginning to emerge wherever Responsible Care is being implemented (ICCA 1997; CEFIC 1995, 1996). In addition to the positive trend in process- and product- related performance results, the chemical industry has made a concerted effort to respond to the challenges outlined in chapter 19 of Agenda 21. These efforts include risk reduction efforts - many of which were underway prior to Agenda 21 - at the

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company, association and international level. In many cases these risk reduction efforts have been conducted with the participation of customers, suppliers and other stakeholders within the chemical distribution chain. The results and activities reflect a general trend within associations which have committed themselves to Responsible Care. As more and more national chemical associations collect performance data as part of their Responsible Care programs, their member companies will be subject to greater performance expectations from their peers and outside stakeholders. This in turn will lead to greater performance improvements which are best achieved through fall implementation of Responsible Care. Currently more than half of the associations implementing Responsible Care are collecting EHS performance data. Many associations are only beginning to identify performance indicators for future use. The ICCA fully expects EHS performance results in these countries to mirror the progress being made in those countries where the data is already being reported. The global chemical industry has embraced Responsible Care because it is viewed as both "good citizenship" and a positive impact on companies' economic bottom line. For the individual company, implementation of Responsible Care leads to improved efficiency, lower EHS costs and improved relations with stakeholders. For the chemical industry, successful implementation of Responsible Care demonstrates an appropriate public policy which protects its license to operate and its ability to innovate and meet society's demands for its products. For the public, successful implementation of Responsible Care ensures that the chemical industry will continue to provide beneficial products for society and continually reduce its negative impacts on human health and the environment.

2.3 Appreciation of Responsible Care The chemical industry's success with Responsible Care has led to its recognition at the 1992 UNCED meeting in Rio, by the IFCS at numerous forums, by the United Nations Environment Program (UNEP) in its Code of Ethics for the International Trade of Chemicals and by President Clinton's Council on Sustainable Development. Japan's Council for Chemical Safety within the Ministry of International Trade and Industry recognized Responsible Care as an example of an effective, voluntary initiative which, in combination with regulations, can promote chemical safety. In addition, individual chemical companies have received recognition at the national and local level for their efforts under Responsible Care to reduce risk and promote product stewardship.

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In recent years, Responsible Care has also become a model for other industries of institutions which seek voluntary approaches to performance improvement and openness with stakeholders. In New Zealand, the value of Responsible Care is demonstrated by the adoption of the initiative by significant segments of the nations' public and private sectors including the armed forces. In the United States, the Department of Energy has recognized Responsible Care as an effective means of reducing chemical risks and is encouraging adoption of the initiative by its facility contractors.

2.4 Dialogue is a Main Principle One of the key tenets of Responsible Care is openness and responsiveness to public and other stakeholder concerns about the management of chemicals. As a result, the chemical industry has a keen appreciation of the need to seek input from the public (e.g. through interest-groups). The chemical industry makes note of public expectations and criticisms and involves these in the development of its policy, and reports on its progress in meeting these. Following an example pioneered by the Canadian Chemical producers Association (CCPA), a number of national chemical associations have created National Advisory Panels to provide public input into the development and implementation of Responsible Care. These panels ensure that the performance expectations of interested groups are a part of industry planning processes. Formal national Responsible Care panels are now also sponsored by the U. S. Chemical Manufacturers Association (CMA) and the Australian Plastics and Chemical Industries Association (PACIA). The Japan Chemical Industries Association (JCIA) sponsors a panel of experts to provide input to its members on EHS issues while the Netherlands' Vereniging van de Nederlandse Chemische Industrie (VNCI) has created a Board Advisory Panel to provide similar information to its managers. A number of other associations are now in the process of forming national advisory panels as part of their Responsible Care programs. Many other countries seek out public and other stakeholders' views through discussions with "opinion formers", such as the case of the Chemical Industries Association (CIA) in the United Kingdom. Through this process, the associations receive independent national advice on health, safety and environmental issues. In addition to these national advisory processes, individual chemical companies have realized the essential need for local community dialogue concerning their production and distribution facilities. A growing number of formal and informal mechanisms are being established by chemical companies around the world to foster dialogue with local communities. One successful example of company-community dialogue is the local Community Advisory

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Panel. This local version of the National Advisory Panel provides input to chemical facility management and reinforces the local facility's accountability to the community in which it operates. In cases where panels do not yet exist, facility managers seek outside parties' input through other forums such as meetings with local leaders, open houses or progress reports to the media. As part of their commitment to Responsible Care, participating companies and their trade associations report performance data to the public. This voluntary reporting provides the public with specific, relevant data on the industry's EHS performance and demonstrates the industry's commitment to exceeding public expectations. One example of these voluntary reports was published by the German Association of Chemical Industry (VCI 1996).

3

Recommendations for the Further Development of the Program

Although the Responsible Care program can objectively be termed a success, its confrontation with an increasingly pluralistic, demanding and articulated public showed certain weaknesses. Three main deficits are: 1. Despite its claim to dialog-orientation, the program did not come up to the demands of public discourses. The constructively critical discourse aimed at in the program stuck at the point of one-sided transferal of information. 2. The participatory development of programs, projects and corporate visions with which to determine new trends in society and personnel as early as possible and consequently respond to them actively, were insufficient. 3. The alignment of the program regarding content and theme is too orientated on purely environmental themes. The discussions on sustainability concepts lay stress on the substantial importance of integrated politics. The knowledge gained from the open discourses on the model sustainable development and the practical experiences had whilst carrying out the Responsible Care program share a common objective: the principles of cooperation and communication crystallize themselves as models of trade for industry associations and companies (Feindt/Gessenharter/Birzer/Froschling 1996). The background of these models is formed by trends directed towards globalization and sustainable development, which are increasingly gaining in relevancy (Biskup 1996; HMel/Jungnickel 1996; Schmidheiny/Business Council for Sustainable Development 1992). Industry associations and companies consider the increasing dominance of these trends as a many-sided challenge: they are forced to treat economic developments in the same way as social and

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ecological developments. New ways must be found for management which can cope with these challenges.

3.1 The Principle of Interaction: Innovation Created out of Cooperation and Communication As is being shown with increasing poignancy, it is essential for industry associations and companies to clarify their position (areas of influence and areas in which their influence is limited) in the social and market-political process. Active trading which points the way is only made possible by recognizing the relevant social, national and market trends as early as possible. Companies and industry associations exist in a process of interaction between companies, local groups, industry associations and the (national, international as well as cultural) framework. Awareness of this interaction can produce an understanding, especially as far as the industry association is concerned, of the scope of its possibilities and tasks. An industry association is, on the one hand, an active participant and can thus influence the existing social and economic framework. On the other hand, it is itself influenced by - and here we have a plain example of its antithesis - local groups who are perhaps unhappy with corporate policy in their local area. All participants are elements within a process, in which one part influences another and is, in turn, conditioned by another: Every part is largely influenced by its context and has to fall back on the other participants in its progress (Messner 1995: 5). This interaction does not merely exist in the economic area: industry associations are increasingly finding themselves more and more involved within complex social, political and ecological processes (see also Giddens 1996: 63-65). This approach has important consequences with regard to the theme industry associations and corporate ethics. Industry associations have to view their actions from the consciousness of the interactive processes. They are participants who can influence a dynamically developing world order and the actions of their member companies. This means: communication and cooperation are the models through which the Responsible Care program can be further developed, so as to innovatively do justice to the subjects on the agenda in their complexity (their ecological, social and economic aspects). It is only through open communication and mutual cooperation with those organizations and groups (.stakeholders) with whom industry associations interact, that broad and sound knowledge, safe actions and productive learning can be achieved. "Dialogue and Learning" must become a central component within the Responsible Care concept (Scharmer 1996; Senge 1990).

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3.2 Broadened Problem Horizons: Sustainability, Globalization and Active Trading of the Chemical Industry Industry associations must transfer their particular competencies in knowledge, initiating, and steering (as proven in the Responsible Care program) to a new level: sustainability demands new methods when dealing with the complex nature and the mediation of different interests; globalization demands a crossing of national boundaries to create an international network. This will help them to accompany sustainability and globalization in a constructive and innovative way which focuses on the subsequent implementation (IFOK 1997). The Responsible Care program must therefore be developed and aim to provide an effective contribution to sustainability. The foundations for many further education programs have already been laid in the previous Responsible Care initiative. This further development has already become apparent in USA and Canada but also in industry associations on an international level (CCPA 1994; ICC A 1996b). The following show eight development steps which also suggest that influence can be exercised over the framework: 1. Integration of social and economic aspects alongside the ecological aspects to form an sustainability program which continuously optimizes itself (IFOK 1997). 2. Conversion of environmental reports into sustainability reports (IFOK 1997: chap. 3): This involves the thematic expansion of the report (employment, local empowerment through community work, taking part in voluntary self-commitment schemes and discourses, etc.) and the external analysis of data. The reports provide a sensible basis for rankings. 3. Participatory project development: All involved parties should be involved in planning and seeing through reports and projects. This leads to activities, projects and indicators which are closely connected to the local area, as well as to a transparent corporate policy and a perpetual exchange and learning process with external parties (citizens, experts, interest groups). 4. Work in Community Advisory Panels (Meister 1996b): the aim is to develop advisory panels and "round tables" on a local, national and international level. This represents one form of active participation in the general political decision-making process and consequently an exercise of influence over the social framework. 5. Agreement as to how the works committee is to be involved within the business: This is not only an instrument to strengthen the motivation and improve the qualifications of the employees, but is also a starting point for the integration of social themes within the company.

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6. Better documentation and control of self commitment: the indicators should be extended to the use of resources and responsibility for products. They should also include all aspects of sustainable development. 7. Cooperation between chains of participants, social groups, politics and research: One successful attempt to achieve this within the Responsible Care program is the TRANSCAER program. In this case, a chemical company coordinates a cooperation between producers, deliverers and receivers which aims to improve safety during the transportation of chemicals. It is also sensible to extend this to social aspects (e.g. cooperation with works committees). 8. Consequent orientation of dialogues: Conflicts within dialogues between those involved lead to new understandings and thus to new business options. This means that if the principle of dialogue is consequently implemented, the progressive learning process of the program is strengthened. Following on from this, corporate strategies become more efficient and appropriate for the situations addressed. There are a great many starting points for these further developments in the original conception of the Responsible Care program: dialogue, integration, transparency, information and the exchange of experiences are all vital parts of Responsible Care and highlight the many ways in which this program concentrates upon working towards continuous processes of improvement.

3.3 Problems in the Implementation: Support through the Mediatory Function of Industry Associations Individual companies often lack the information, standards or binding conventions required for the implementation of these steps. It is, for example, in the medium and long run advantageous for a single company "to act responsibly" or to enter into cooperative agreements (NalebuffTBrandenburger 1996). Of course, this all costs time and money - resources which can only then be invested when profits are likely to be had. Companies compete against one another and do not have a sufficient amount of information at their disposal which would allow them to enter into cooperation and dialogue; for a step taken on one side only involves the danger of creating financial burdens for oneself from which the competition is free. Companies are therefore interested in a framework which enables them to take innovative steps towards Responsible Care, i.e. prevents competitive disadvantages caused by competitors who are not involved in the program. It is here that the specific knowledge of the industry associations is called on. They have to get over the traditional way of thinking in win-lose categories ("every winner produces a loser some-

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where else") and introduce companies to the idea of win-win situations. The industry associations are in a unique position from which they are able to perceive where cooperative agreements between companies or dialogue circles (complimentaries) could be worthwhile. For example, an international network facilitates an easier transfer of know-how and information and better competitive terms through setting homogenized standards. These abilities of the associations to identify options for mutual benefits and implement suitable programs incorporate a driving force behind the further development of the Responsible Care program. Hence a key task for the industry associations is to set up and ensure a relevant - international - framework which promotes profitable win-win situations, i.e. which make "responsible care" possible (in the sense of sustainable development) or even reward them (Homann/Blome-Drees 1992). In this sense, industry associations are catalysts and initiators of private companies' efforts towards this framework. Industry associations which have an understanding of private companies' positions within a system of interaction must be responsible for the efficiency of this system. Knowledge acquired from the theory of games suggests that exchange processes or cooperative agreements function most effectively when there are as many players as possible (NalebuffTBrandenburger 1996). This is embodied by the support of the local pedant for the "big company" or openness towards public institutions. In other words: criticism is not only accepted, but also encouraged. As we have shown, communication and cooperation work in a most constructive and productive way when all relevant interests groups (stakeholders) are involved in the discourse and when they mutually respect and accept each other. The objective is to bring all participants together through constructive discourse which leads to a consensus and which continues the learning process of the Responsible Care program. Discourses are productive conflicts and are, at the same time, the driving force behind learning processes and innovation; they prepare our consciousness for new information and create new markets. The range of influence within industry associations is made clear in these communicative processes: they form the foundations of its everyday actions (Feindt/Gessenharter/Birzer/Frochling 1996; Scharmer 1996). If the Responsible Care program develops in the complexity we have just described, questions will inevitably occur as to the possibilities of its implementation. It is here that the steering competency of the industry associations is called upon. The leitmotiv of every course and implementation is the open dialogue. At the end of the day, every single company, every works committee and all other stakeholders must be able to consider themselves as joint owners of the programs being carried out (Senge 1990). Communication in a program dealing with sustainability must essentially create a network of dia-

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logues from the bottom upwards. Internal communication must involve the factory worker on the shop floor as well as the office-worker at his desk; external communication must in turn involve local environmental initiatives or church groups. Free riding - reaping benefits without fulfilling duties - will always remain a temptation for a company. Industry associations can prevent this from occurring, by organizing a bench marking system, which culminates in ranking the companies concerned. These are both methods which employ positive incentives by presenting companies as "good citizens". An effective Responsible Care program of the future naturally requires sweeping monitoring and conventional standards but, at the end of the day, the sanctioning mechanisms accepted by all participants are just as important. We have summed up these considerations in the following conclusions for industry associations: 1. A clear understanding of their possibilities (a broader conception of the Responsible Care program) 2. A more comprehensive representation of all relevant participants 3. Active implementation

4

The Realization of Discourses in the Economy

When a company commits itself to ethical behavior (interactive economics) this includes political and social commitment, which in turn makes it necessary for the industrial economy to actively arrange the relevant communication processes. Industry associations can use societal discourses for the continuous assessment and evaluation of conflicts as well as for the initialization or development of internal practice-oriented programs. Discourses also allow industry associations and their member companies to directly obtain early information about social developments and normative changes in society (and through this also about their own employees) which may have repercussions on their business. This is in their own interest. In addition to this, the models of sustainability can only be realized by employing discursive methods (Feindt 1997). These discursive approaches must take the dynamic processes of societal opinion shaping into account. Questionnaires, surveys, statistical methods and other procedures of a one-sided communication are not suitable for this. Instead, procedures in dialogue must be put to use, to mediate a vivid image of what you do or of what you are planning to do, in order to allow valuation of this deed and, through the other participants, to be open to this valuation and

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respect it. This provides the basis for a constructive approach to criticism (Roglin 1995). The following points show several successful and promising possibilities for the structuring of discursive processes of discussion by industry associations and companies: - Community Advisory Panels (CAPs): Community Advisory Panels were originally developed in the USA to assist the communication between a company and the relevant opinion formers connected to a particular production site. Nowadays, as an integral part of the American Responsible Care program, they are considered to be one of the indispensable elements of every professional method of communication on location within the chemical industry (Meisterl996b). - The various forms of WAGE-Processes: in WAGE-processes a company specifically draws external social opinion formers into the process of developing its own products and market strategies, in order to be able to take political and social reactions into consideration before decisions are made. This type of approach is especially recommendable with reference to politically relevant or ecologically or pharmaceutically sensitive products and has proven its usefulness in the most diverse areas, even though the apparatus has only systematically been put into action in a few pioneering companies (Meister/Pinkepank/Staudacher 1996: 251-253). - Consensus conferences: Consensus conferences are employed with similar targets as WAGE-processes. However, the focal point here is not orientated around business management, but relates to fundamental social or political problem-fields according to which the different patterns of consensus and disagreements within the society are investigated. It is therefore typical for consensus conferences to be instigated by political or administrative bodies. The topics discussed here are usually of great interest to companies, because they normally tend to touch areas of economic interest. Most experiences of consensus conferences have been made in the USA, the Netherlands and in Scandinavia; in Germany we are only aware of a few independent projects (van der Daele 1994). - Systems involving opinion leaders in order to investigate 'society demand': the idea of society demand, a driving force behind economic innovation, alongside technology push and market pull has been recognized as a vital part towards a company's success. However, due to the high dynamics of social processes and requirements, the realization of this investigation into societal demands is extremely difficult. The different methods experimented with by many different companies vary in the extent of their successes. Initial attempts at systematically describing and evaluating these approaches (Luth/Meister 1996) show that the processes connected with the investigation of society demand can be compared to the development of the

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structures within learning Companies (Senge 1990). Internal and external discursive elements are essential for structures and instruments like these. Dialogue is the inter-human and social expression of the complex interweaving processes in politics, society and economics. It is the role of industry associations to take part in and support these dialogues on a national and global level, in order to achieve an ethical consensus.

References Altvater, E., and B. Mahnkopf (1996), Grenzen der Globalisierung. Ökonomie, Ökologie und Politik in der Weltgesellschaft. Münster: Westfälisches Dampfboot. Aulinger, A. (1996), (Ko-)Operation Ökologie. Kooperationen im Rahmen ökologischer Unternehmenspolitik. Marburg: Metropolis. Biskup, R. (ed.) (1996), Globalisierung und Wettbewerb. Stuttgart: Haupt. Canadian Chemical Producers' Association (CCPA) (1994), A Primer on Responsible Care and Sustainable Development. Toronto. Commission of the European Union (1996), Über Umweltvereinbarungen. Mitteilungen an den Rat und das Europäische Parlament. Brüssel, 27.11.1996. European Chemical Industries Council (CEFIC) (1995, 1996), Annual Report - Responsible Care. Brüssel. Feindt, P. H. (1997), Sustainability, Urbanität, Identität und Partizipation, in: M. Birzer, P. H. Feindt and E. A. Spindler (eds.): Nachhaltige Stadtentwicklung. Bonn: Economica. Feindt, P. H., W. Gessenharter , M. Birzer and H. Fröchling (eds.)(1996), Konfliktregelung in der offenen Bürgergesellschaft. Dettelbach: Röll. Gerybadze, A. (1995), Innovationsmanagement, in: H. Corsten and M. Reiß (eds.): Handbuch Unternehmensflihrung. Konzepte, Instrumente, Schnittstellen, 829-845. Wiesbaden: Gabler. Giddens, A. (1990), The Consequences of Modernity. Stanford: University Press. Giddens, A. (1996), Kritische Theorie der Spätmoderne. Wien: Passsagen. Habermas, J. (1988), Moralbewußtsein und kommunikatives Handeln. Frankfurt a. M.: Suhrkamp. Härtel, H.-H., and R. Jungnickel (1996), Grenzüberschreitende Produktion und Strukturwandel. Globalisierung der deutschen Wirtschaft. Baden-Baden: Nomos. Homann, K., and F. Blome-Drees (1992), Wirtschafts- und Unternehmensethik. Göttingen: Vandenbroeck und Ruprecht. Institut für Organisationskommunikation (IFOK)(eds.)(1997), Bausteine fur ein zukunftsfähiges Deutschland : Diskursprojekt im Auftrag von VCI und IG Chemie-PapierKeramik. Wiesbaden: Gabler. International Council of Chemical Associations (ICCA) (1996a), Responsible Care Leadership Group, Responsible, Care Implementation Guide for Association, Adopted 9. April 1991 amended 5. October 1996. New York. International Council of Chemical Associations (ICCA) (1996b), Position Paper on Sustainable Development and the Chemical Industry. New York. International Council of Chemical Associations (ICCA) (1997), Responsible Care Status Report. New York.

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Kohlhaas, M., and B. Praetorius (1994), Selbstverpflichtungen der Industrie zur C02 Reduktion. Berlin: Duncker und Humblot. Lüth, A., and H.-P. Meister (1996), Ermittlung des Society Demands - Methodenvergleich am Beispiel des Kunststoffes PVC (Studie im Auftrag der BASF Aktiengesellschaft). Bensheim, (in print) Mann, S. (1994), Macht und Ohnmacht der Verbände. Das Beispiel des Bundesverbandes der Deutschen Industrie (BDI) aus empirisch-analytischer Sicht. Baden-Baden: Nomos. Meister, H.-P. (1996a), Ethische Anforderungen in der industriellen Praxis: Diskurse in der Wirtschaft, in: B. Köstner and M. Vogt (eds.), Mensch und Umwelt. Eine komplexe Beziehung als interdisziplinäre Herausforderung, 99-113. Dettelbach: Rflll. Meister, H.-P. (1996b), Community Advisory Panels in den USA, in: H. Hill {ed.), Dialoge über Grenzen. Kommunikation bei Public Private Partnership. Reihe Staatskommunikation, Bd. 3,17-27. Köln: Heymanns. Meister, H.-P., T. Pinkepank and R. Staudacher (1996), Konfliktvermeidung durch partizipative Kommunikation: Beispiele aus der Praxis, in: P. H. Feindt, W. Gessenharter, M. Birzer and H. Fröchling (eds.) (1996), Konfliktregelung in der offenen Bürgergesellschaft, 243-260. Dettelbach: Röll. Messner, D. (1995), Die Netzwerkgesellschaft. Wirtschaftliche Entwicklung und internationale Wettbewerbsfähigkeit als Probleme gesellschaftlicher Steuerung. Schriftenreihe des Deutschen Instituts für Entwicklungspolitik (DIE), Bd. 108. Köln: Weltforum. Nalebuff, B., and A. Brandenburger (1996), Coopetition. Kooperativ konkurrieren. Frankfurt a. M.: Campus. Popper, K.R. (1992), Die offene Gesellschaft und ihre Feinde. Tübingen: Mohr. Röglin, H.-C. (1995), Eine gefragte Unternehmertugend: Kommunikationsfahigkeit. Institut für angewandte Sozialpsychologie. Berlin: Springer. Scharmer, C.-O. (1996), Reflexive Modernisierung des Kaptitalismus als Revolution von Innen. Auf der Suche nach Infrastrukturen für eine lernende Gesellschaft - dialogische Neugründung von Wissenschaft, Wirtschaft und Politik. Stuttgart: Poeschel. Schmidheiny, S., Business Council for Sustainable Development (1992), Kurswechsel. Globale unternehmerische Perspektiven für Entwicklung und Umwelt. München: Artemis. Senge, P. M. (1990), The fifth discipline: the art and practice of the learning organization. New York: Currency Doubleday. Steinmann, H. and T. Olbrich (1994), Unternehmensethik und internationales Management - Implementationsprobleme einer Unternehmensethik der internationalen Unternehmung, in: B. Schiemenz and H.-J. Wurl (eds.) (1994), Internationales Management. Beiträge zur Zusammenarbeit, 117-144. Wiesbaden: Gabler. Steinmann, H., and A. Lohr (1994), Unternehmensethik - Ein republikanisches Programm in der Kritik, in: Forum für Philosophie Bad Homburg (ed.), Markt und Moral - Die Diskussion um die Unternehmensethik. Schriftenreihe St. Gallener Beiträge zur Wirtschaftsethik, Bd. 13, 145-180. Bern u.a.: Haupt. The President's Council on Sustainable Development (1996), Sustainable America. Washington D.C. The President's Council on Sustainable Development (1997), Building on Consensus. A Progress Report on Sustainable America. Washington D.C. Töpfer, K. (1994), Kooperation von Staat und Wirtschaft zur Sicherung der Umweltrahmenbedingungen und Perspektiven, in: Schmalenbach-Gesellschaft, Deutsche Gesellschaft für Betriebswirtschaft e.V. (ed.), Unternehmensführung und externe Rahmenbedingungen, Kongress-Dokumentation, 47: 21-32

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United Nations Conference on Environment and Development (UNCED) (1992), Agenda 21. Agreements on Environment and Development. Rio de Janeiro. US Government (1995), Reinventing Environmental Regulation. Washington D.C. van der Daele, W. (1994), Technikfolgenabschätzung als politisches Instrument: Diskursives Verfahren zur Technikfolgenabschätzung des Anbaus von Kulturpflanzen mit gentechnisch erzeugter Herbizidresistenz, in: G. Bechmann and T. Petermann (eds.): Interdisziplinäre Technikfolgenabschätzung: Genese, Folgen, Diskurs, 11-146. Frankfurt a. M.: Campus. Verband der Chemischen Industrie (VCI) (1995), Guidelines Responsible Care. Frankfurt a. M. Verband der Chemischen Industrie (VCI) (1996), Responsible Care - Data on Safety, Health and Environmental Protection, Report 1996. Frankfurt a. M. Wolff, B. (1996), Public Private Partnership, in: K.-E. Schenk, D. Schmidtchen and M. E. Streit (ed.), Vom Hoheitsstaat zum Konsensualstaat: Neue Kooperationen zwischen Staat und Privaten. Jahrbuch für Neue Politische Ökonomie, Bd. 15, 243-275. Tübingen: Mohr.

Social Capital Investments, Property Rights and the Ethics of Win-Win Why Multinational Enterprise Management Should Engage in Institution Building of their Host Countries* André Habisch

1

Introduction

After decades of recession, civil war, military regimes and organized state crime the situation in Latin America seems more promising again. Growth rates have risen and democracy has returned to most countries. With the success of Mercosur, the free-trade-area, economic relations between Argentina, Brazil and other member countries have deepened, diminishing the traditional dependence on the big neighbor in the North. With neoliberal ideas shaping almost all the relevant economic policies, some important differences between Latin American countries do remain, however. In most countries, authoritarian political cultures endanger the development of democratic institutions and procedures of legal conflict-resolution. Powerful oligarchies still run the countries. They deny political competition, the rule of law, and fundamental personal freedom. Many Asian regions find themselves in a similar position. In Eastern and Southern China, economic growth has reached heights that had not been foreseen some years before. While Hong Kong, Taiwan and the other "tigers" became advanced developing economies now facing growing labor costs, laborintensive manufacturing has shifted to mainland China, Vietnam and even the "sick old man", the Philippines. The growth potential of the giant consumer markets of China seems enormous lending credence to the view of Asia as the most important economic center of the 21st century (Naisbitt 1996). However, even in Asia further development is threatened by the persistence of the old political structure. In China, the power of the ruling communist party and the military complex is still unquestioned. Fundamental regulatory institutions are absent. Despite of the still unsolved population problem social policy is virtually non-existent. The same holds true for an elementary institutional framework of market-exchange. *

I am deeply indebted to Klaus Deutsch and Frank Boenker for a patient revision of my English as well as important critical remarks.

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Thus, in Latin America and many parts of Asia, sustainable development remains still at stake. High growth rates are possible in sectors like low-wage manufacturing, consumer goods and services. But these first steps can only lead to stable paths of industrial development, if public goods are provided to some extent. Roads, harbors, and airports require large-scale investments which pay off only in very long terms. Growing ecological problems in densely populated areas call for investments in order to preserve the health of the population and to prevent the collapse of the regional and international ecosystems. Some kind of collective action is necessary in order to provide these public goods. Traditional growth theory identified a lack of capital formation as the fundamental problem of the development process. With capital imports of private and public investors like the World Bank or regional development financial institutions, this gap should be closed. However, in many Keynesian models, macroeconomic processes were conceptualized much too technical. Capital imports and financial aid policies created huge economic disincentives, "white-elephant"-projects and a debt crisis which led to further economic decline. Interventions remained exogenous to the local social processes and were considered as foreign affairs', they tried to replace cooperation of local people despite of enhancing it. In the last decades, the concept of human capital, designed by Theodore Schultz and Gary S. Becker, was used to explain the international economic position of a country (Lucas 1988). Highly skilled labor may justify even large wage differences. On the other hand, people only invest in their professional skills if investment costs pay off (Becker 1991). With the extension of capital theory towards "human capital" the social conditions of economic growth have been addressed theoretically. Practical consequences have been an emphasis on schooling in developing countries. Lately, a new element of sustainable development has been identified: the social capital of a society. What does this new concept mean?

2

Trust and Social Capital Theory

Research on social capital seems to provide most stimulating insights into the development of modern societies1. What is the core of the argument? With Adam Smith, the importance of the division of labor and trade in creating the 1

On a more micro level "social capital" theory was scetched by Chicago sociologist J. Coleman (Coleman 1988 and 1990). The articles in D. Gambetta's book on trust (Gambetta 1988) offer further stimulating insights. Habisch (1996) contains a survey of current research on social capital theory.

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"wealth of nations" was identified. However, some very important social presuppositions of the market mechanism have been ignored in later economic literature. Many economic transactions only take place because people trust each other. Cooperation creates interdependence and investments will only pay off, if one or more partners stick to their promises. This already holds true for relatively simple productive relations; it matters even more in financial affairs where money has to be lent and paid back years later. All along in economic history also international trade has been a very risky affair. Incurring time and money to transfer produced goods to trading partners far away presupposed a considerable amount of trust: Will the other honor a contract which could hardly - if ever - be enforced legally? Mutual benefits from exchange might never be realized if one partner gives a negative question to this answer. Thus, it might be rational for partners to invest considerable resources (for example by hiring an agent) just to overcome this dilemma of distrust2. But trust-based relations are crucial also in the political realm. Economic historians have shown that even autocrats not committed to any adherence to due process have a vivid incentive to assure citizens of their trustworthiness. If the fear of expropriation is omnipresent, citizens will not invest and accumulate wealth which then could be taxed by the autocrat. Thus, English kings in early medieval times were paying for the walls that protected citizens against their own royal armies (Kiser/Barzel 1991). Only by committing themselves credibly they could assure their people of their trustworthiness and provide for a stable taxable income. As political scientist Margaret Levi, Margaret emphasizes, trust is crucial even for the modern state. Today's politicians and bureaucrats rather have to think more about assuring the cooperation of their citizens (Levi 1988, 1996). In a recent study Francis Fukuyama compares different national cultures of developed countries (Fukuyama 1995). He claims, that an attitude of distrust prevailing in a culture does even shape economic institutions: Family firms dominate economic life because trust relations within familiar bonds become an important asset for their members. However, strong familiarism is limiting also the efficiency of the division of labor. Thus, "high trust cultures", i.e. countries with a tradition of well developed intermediary institutions (Fukuyama mentions Japan, Germany and the US) face important competitive advantages. They enjoy strong financial institutions, a meritocratic recruiting praxis and - generally speaking - larger corporations, that have become "global players". The already "classic" book of Robert D. Putnam, Robert D. on Italian regions (Putnam 1993) claims that differences between high and low trust cul2

Research of Stanford economist A. Greif (1993) has granted stimulating insights into the institutions of early medieval mediterranean trade.

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tures can also be shown to exist within one country. The authoritarian and familiaristic tradition of Southern Italy created a stable behavioral equilibrium of mutual distrust and defection while in the North flourishing civic life inspired also the economic success. When Putnam emphasizes the importance of voluntary associations and civil society, he is drawing on lines of Alexis de Tocqueville's classical analysis of the American democracy. However, in a more recent contribution Putnam argues that "social capital stocks" are declining even in the US, which traditionally have been well equipped with networks of all kind and ideology (Putnam 1995). Political scientist Elinor Ostrom has done most fruitful empirical as well as game-theoretical research investigating "social capital" on a local level. How is it possible, she asks, that small communities all over the world successfully overcome dilemmas of cooperation resulting of the use of common-poolresources? Her empirical studies from different countries focus on the function of formal and informal rules which enable communities to effectively monitor and punish defectors (Ostrom 1990). Aid policies that ignore or even destroy local customs show very negative results for the sustainability of projects as well as the economic situation of local people (Ostrom/Schroeder/ Wynne 1993)3.

3

Trust, Institutions and Development

Social capital theory has not yet developed an homogenous and coherent set of arguments. However, if there is some common empirical evidence behind the different research agendas, an important question for economic development may be asked: How can situations of notorious mutual distrust - preventing fruitful cooperation - be overcome? Transaction Cost Economics and modern exchange theory point out one answer: by creating institutions (Williamson 1985; North 1990). Institutions and rules provide mechanisms of self-commitment. They enable partners to rule out defection in advance thus signaling their trustworthiness. Formal (i.e. legal institutions) as well as informal rules (i.e. habits and norms) may then be interpreted as devices generating trust in modern society4. In terms of economics: they reduce transac3

4

Thus, E. Ostrom (1992) shows that development projects (such as irrigation systems) may only gain sustainability if the creation of physical capital is accompanied by the creation of social capital; see also OECD (1995). R. Hardin's stimulating contribution (Hardin 1992) emphasizes the difference between experience-based trust in ancient society and institution-based trust in modern society. In today's world people do not trust politicians because of their firm character but because rules and habits secure the right incentives for them to behave cooperatively.

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tion costs and enable individuals to engage in more transactions incurring less costs. But those rules and institutions do not just pop up. Traditional economics has a mushroom theory of institutions', the role of civic society as a platform for generating institutions is ignored. Emerging "social capital theory" attempts to fill that gap. Civic engagement meets many requirements of a Contractarian or Rawlsian approach of procedural justice: people debate about alternative institutional settings, and compromises may be negotiated. Even the widespread lament about "powerful interest groups" and ugly lobbying should not ignore, that these activities produce useful political by-products in that sense. Societies with a rich manual of intermediary institutions between politics and business enterprises, between politics and people and between business and people show some very important competitive advantages. A high degree of social connectedness of a society furthers mutual predictability and trust. In a high-trust society, the acceptance of lawful public authority is generally higher, thus lowering the control costs of policing (AkerlofTYellen 1993). Institutional reform that follows changing macroeconomic conditions is going on more smoothly, thus limiting expenses related to solving social conflicts5. In many low-trust countries of the third world people lack elementary institutional guarantees preventing politicians from exploitation and prédation. Violent protests and even civil war remain the only way of defending one's interests. As Stanford economist Barry Weingast has shown in a stimulating study (Weingast 1994), the American civil war was a response of Southerners to the removal of institutional guarantees of their minority position in the Constitution. And even the violent racial conflicts in Yugoslavia have only begun after the Yugoslavian Constitution had broken down. The removal of institutions generating (limited) trust was the condition necessary for politicians to abuse ethnic conflicts in order to stay in power. On the other hand, rulers and politicians acting in low-trust-societies face totally different incentive structures. Staying in power remains probable only if the support of powerful groups can be assumed. Leaders are more orientated towards the interests of their clients than towards the common good as a whole. Loss of power often means loss of economic positions and sometimes even loosing one's life. Politicians treat the people as dependent and potenFor example compare the budget consolidation in preparation for the European Monetary Union in low-trust countries like France with high trust countries like the Netherlands. In that sense a social capital approach sheds even new light on the advantages of the German economic system of Soziale Marktwirtschaft. However, in order to become "social capital" networks and institutions have to cross social borders within society and to involve relevant socio-economic groups. This distinguishes trust-generating social capital from the "institutional sklerosis" which Mancur Olson focuses on in his classical analysis (Olson 1982).

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tially dangerous. People feel alienated towards the legal and political order and do not comply with the rules. Thus, notorious mutual distrust reaffirms its underlying attitudes and stabilizes a behavioral equilibrium of mutual defection. In the absence of stable institutions and "social capital", even political change remains violent and eruptive. What does this mean for the economic development of a country? In the poor countries of the South low wages and virtually any ecological or health regulations promise high returns for capital imports. Thus, classical economic theory can not explain why most of Foreign Direct Investments (FDI) still flow between countries of the developed world. Recent growth theorists have introduced human capital to answer that question. They point at the importance of schooling and education for sustainable development. However, after our reflections on the relevance of trust for a society, social capital should be introduced here as well. F. Fukuyama reflects trust related differences between the institutional infrastructure of developed countries. R. Putnam links the poor economic performance of Southern Italy to its century-old culture of mutual distrust and defection. Following these authors, one might reflect on the importance of social capitalfor problems in developing countries as well. Before, the situation in Latin America and in big parts of Asia was mentioned: Growth rates have risen, and first steps have been made. What are the next steps to be taken on a road towards sustainable socio-economic development? In an atmosphere of distrust between business and workers even rumors may cause violent riots. Overregulation is a suspicious attempt to secure political interests; however, it threatens economic growth and urges traders into the shadow economy (De Soto 1988). In order to avoid those serious flaws "social capital" has to be accumulated in a society. Networks between relevant groups in the society, between administration and business leaders, between business, worker's and people's representatives, are social platforms for rule creation and monitoring. In the West, traditional social forces such as trade unions and (politically active) churches have been playing an important role in that sense. They may play that role even in today's developing societies6. According to the local cultural heritage, other traditional forms of organization should be taken into considerations as well.

4

Social Capital Creation and the Role of MNE

The idea of social capital is not completely new to the world of modern business enterprise. In recent years the function of internal communication proc6

For example the Catholic church in South Korea is playing that part in the current political struggle.

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esses has been discovered - leading to new forms of organization like teams, workshops, project groups etc. The coordination of different branches of the modern business enterprise is managed by a wide range of internal communication structures between managers. The growing importance of business culture and business ethics has realized that "social capital" is a crucial factor for successful internal coordination as well as motivation (Kreps 1990). Ethical aspects have always been emphasized in that discussion7. This holds true also for the external relations of the business enterprise. Transaction Cost Economics and New Institutionalism have reemphasized the role of incomplete contracts here (Hart 1987, Richter/Furubotn 1997). Cooperation that requires long-term-investments in order to realize mutual gains from trade suffers from problems of hold-up and ex-post-opportunism. The investing party would find itself in an exploitable position and will not enter in such a (however potentially beneficial) relation. Building up a firm's reputation and establishing networks of ongoing bargains are devices to generate trust and stabilize cooperation. The same logic is also valid for the multinational enterprise (MNE) that has to move in the difficult context of developing host countries. Jean J. Boddewyn is one of the few authors who stress the management of political relations as a precondition of entrepreneurial success. He analyzes shortcomings of the traditional business literature here (Boddewyn 1988a: 350): To be sure, the literature on multinational enterprises has not ignored political behavior [...] However, these sources are essentially exogenous givens to which the MNE responds. Similarly, most MNE strategy and administration studies handle non-market variables (e.g., government policy) as given constraints to cost-efficient or market-effective strategies and tactics [...] As such, government is a crucial link in the "value added" chain, and it is appropriate for the MNE to consider integrating it in its position.

Advancing his argument Boddewyn suggests the establishment of an International Public Affairs (IPA) function in the business organization which reflects the mutual dependence ("symbiosis") between MNE and host country administration (Boddewyn 1988b: 12-31): The correct perspective is thus not one of a "zero-sum game", where public power grows only at the expense of private enterprise, but rather a frequent "positive-sum game", where both benefit from the relationship. On the other hand, a very uneven relationship, where one party can dictate the other, is seldom fruitful in the long run because it leads to ill feelings, recriminations, renegotiations, stagnations of investment and/or divestment. Research (Kim/Mauborgne 1993) focuses on the role of procedural justice for the MNE. Corporation routines which are qualified as "just" are a kind of social capital in that sense.

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Thus, the motive of MNE's activities in host countries should be "participating in economic development" rather than "coping with the environment". The MNE should realize that its position in host countries has highly political implications in both senses: it depends on political conditions and it has political consequences. Boddewyn proposes to build cooperative relations to the host-country administration. May we qualify this kind of public relations as "social capital" of host countries, that contributes to their sustainable socio-economic development? In most cases some doubts do remain. Boddewyn himself is aware of the normative ambivalence of the activities suggested. Despite of contributing to the development of judicial and political institutions, MNEs use their bargaining power in order to realize their special interests and short-term-advantages. In many cases, their lobbying does not create positive but negative external effects for the political culture of host countries. But that kind of short-termism does also weaken their own position: Many firms find it hard to adopt such a posture [i.e. participating in development, A.H.] because of the nearly irresistible attractiveness of high profits and of getting something for nothing (or cheaply), and because companies prefer to compensate for high overseas risks through quick and handsome returns. Still, getting all one can get with no thought for the morrow and the other party is inviting trouble overseas just as at home. (Boddewyn 1988b: 12-31)8

Put in less abstract terms, MNEs may pay bribes to important agents of the political administration despite of competing legally for orders. With bribery, everything is possible to achieve in many developing host countries. However, the MNE is also likely to become victim of that kind of "rules". As competitors hardly know about the other's offers, handing out bribes runs a high risk of keeping the sucker's pay-off next time. Hit-and-run strategies may be possible and may help to realize certain profits. However, in order to benefit by low-wage-structures and other advantages host countries can offer, more stable socio-economic contexts have to be created.

M. Porter emphasizes the same contradiction of short-term and long-term interests even in developed countries: "Unfortunately, firms sometimes do not perceive their long-run interests clearly when it comes to government policy. In fact, they are sometimes their own worst enemies. Companies often lobby for quick fixes that undermine the prospects of gaining long-run competitive advantage: protection, guaranteed government procurement, relaxation of regulatory standards, subsidized capital and energy, permission to merge with competitors and so on [...] The most serious mistake is to support policies that will undermine true competitive advantage, reduce the impetus to improve and innovate, and create an attitude of dependence on government" (Porter 1991: 598).

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Therefore, any action a MNE does perform has important consequences for the social capital of host countries. Corruption creates distrust not only inside the business community but also between people and politicians. The development of democratic and judicial institutions will be hampered. Procedural justice and property rights will be blurred. The credibility of governments and the political sector will decrease. Widespread antipathy against foreign managers "exploiting" host countries will be nurtured. Hence, realizing short-term profits from corruption and destructive lobbying, MNEs do also suffer from these consequences. In fact, they do suffer even more than many other groups in society do.

5

Social Capital, Distrust and the Recognition of Property Rights

I have argued that the small share of FDIForeign Direct Investments (FDI) in developing countries is also caused by a lack of social and institutional capital. A culture of prevailing distrust inhibits mutually beneficial cooperation. How does this situation affect already existing MNE activities? The most important point here is that property rights will not be recognized as long as they cannot be enforced. Property rights are not - as libertarian political philosophy claims - "natural rights" preexistent in any political and social order. Property rights do not exist outside of the social process of their recognition. This process originates in a kind of constitutional contract (Buchanan 1975) which specifies the social conditions of private property. "Law" itself appears as a kind of public good in that sense (Buchanan 1975: chapt. 7). In developed countries, the voluntary acceptance of property rights is widespread allowing for very complex exchange and investment transactions. For example, the acceptance of intellectual property rights is crucial for the development of whole industries. As long as intellectual property rights are not secure - as the property of software-producers and artists in the People's Republic of China no investment in these properties will take place. Property rights may be violated in many different ways. People may have their money stolen in the streets. New regulations may be introduced, which devalue assets or rights. Riots or civil war may destroy expectations concerning sales and profits. Tax rates may be raised to an expropriate level. Inflationary policies may shake the monetary basis for economic calculation and devalue savings. Organized crime may violate ownership and even physical integrity. The respect of property rights remains crucial not only for the single business enterprise; it determines the functioning of the economic system as a whole.

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When violation of property rights is widespread, exchange relations are limited to simple and safe transactions. Investments that require long term relations will not be realized9. From the perspective of a constitutional analysis, the respect of even sophisticated property rights in developed economies has to be related to certain socioeconomic institutions. A set of judicial and political institutions reshapes and refines them according to changing (ecological, defense, economic) demands of the polity. A social security system is compensating those citizens, who do not profit from the existing property system. Public education systems allow for social mobility. In developing countries, however, most of these conditions have not been realized yet. Even elementary social security is lacking. A segmented class structure with a few rich, a small middle class, and the mass of poor and very poor people does allow for the development of "vertical" networks. Thus, public discussion remains a matter of a relatively small oligarchic community. Poor people feel alienated from the political and legal system and do adhere to its rules only as long as effective control can be secured. Poorly paid public servants like policemen or clerks do need side payments in order to make a living thus threatening economic exchange and legal security. Administrative law hardly exists at all. In such a social atmosphere, property rights are always at stake, which discourages long term transactions as well as the emergence of economic institutions. In the hierarchy of a host country's society the management of MNEs Multinational Enterprise (MNE) forms part of the very top. However, it does not hold the same interests as other privileged groups such as national political elites and economic oligarchies. More than these they would profit from social change and economic development on a broad basis. This holds true even more if certain predictions of MNE theory will come true. According to M. Porter (Porter 1991) and other leading scientists, international business will reshape significantly in the next decades. In meeting the requirements of international trade, global players will become even more global. In order to be present in one of the world's big trade regions (European Union, NAFTA, Mercosur, Pacific Rim) MNEs have to change their internal structures which are still dominated by one national world headquarters and many smaller or bigger affiliates. Thus, in the twenty-first century there will not be just one headquarters, but a cluster of several continental headquarters, which share equal decision powers

9

G. Brennan and J. Buchanan offer a systematic derivation of that argument (Brennan/ Buchanan 1985: chapt. 5: Time, temptation and the constrained future). Property rights are interpreted as a collective selfcommittment that reduces the danger of exploitation and creates incentives for investments.

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in their region10. If the predictions will come true, the relationship between corporations and host countries will change significantly. As long as small affiliates can easily be shifted from one country to another, a "hit-and-run" strategy may still be advantageous for a MNE Multinational Enterprise (MNE). If the costs of an exit-option are low, Multinationals may be allowed to pay less attention to long term social capital consequences of their activities. However, the high investments to build up "global network" organizations will require much more attention for the socio-economic environment in which economic activities take place. Perspectives will shift from short-term to long-term interest. Managers will stay for a longer time or will even be recruited out of the local elite. This might strengthen the interest for national political affairs and create "social capital" and trust. But more important: Intra-corporation competition will enhance the engagement of local management to strengthen the importance of their region. This could lead to political and social engagement, because optimizing the socioeconomic conditions of their region does result also in growing profits and enhanced importance in the global firm's hierarchy.

6

Roads of Engagement: Investing in Social Capital

With these changes strengthening the importance of regional development for the competitive performance of MNEs, how could the new interest be put into practice? Which kind of investments could be brought on the way in order to "participate in economic development" in spite of just "coping with the environment"? Social capital theory indicates some directions here as well. At the core of our above analysis has been the argument by social scientists, that a lack of mutual trust and integration between relevant economic groups hampers economic growth and erodes property rights. Rules will not be obeyed if they do not form part of a rule system which reflects the interests of the relevant groups. Violent strikes of South Korean workers as well as hostagetaking of diplomats in Lima indicate the problems to obtain stable development in many countries all over the world. Fear of exploitation and mutual distrust prevent interactions and the emergence of productive interdependence between relevant actors. However, a lack of institutions does hinder the creation of these rules as well. Society is trapped in a giant prisoner's dilemma. The reality of MNE is virtually constructed the other way around. Human cooperation within modern business enterprise is most productive when people 10

Even now, corporations seek to become more international by increasing the share of sales in "foreign" markets. The leading car manufacturers and electronic giants already do meet their goal of realizing more profits abroad.

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have learned to organize their interactions in an intelligent way. Stressing this does not imply that there would be no distrust, envy and mutual aggression prevalent in human relations within firms. It would be naive to deny that. However, the comparison with reality in many developing societies shows the difference. People have learned to focus their aggressions by creating institutions of conflict resolution according to their basic common interest (Ury/Brett/Goldberg 1988). May modern business enterprise then be a model for a successful society, as words like "Japan Inc." imply? Of course, not. Inside of a firm people follow common goals in a much narrower sense than in society. However, the comparison provides evidence for the thesis, that it is the "social capital" of a MNEMultinational Enterprise (MNE) (business organization, business culture, corporate identity) that shapes human interactions and is indispensable for successful human cooperation. In that sense, even the existence of MNE's activities in a developing society creates spill-overs for social capital formation. That is because interaction in modern economic life needs "human capital in the creation of social capital"11: People learn to build up relations of trust and cooperation without degenerating into some kind of totalitarian structure. They apply the knowledge gained to other sectors of society transforming their character as well12. Here, a first road of investment in social capital of host countries opens up: to treat workers and local managers as collaborators with a human dignity and personal rights strengthening their co-responsibility and social competence. "Participating in economic development" does meet with the requirements of modern business culture and conflict management, here. This remains a cheap but rather indirect way of influencing the social capital of host countries. In order to meet their urgent political and social problems business enterprises should even engage more explicitly in public affairs. Therefore, this article opts for an active engagement of MVEsMultinational Enterprise (MNE) in the creation of social capital in their host countries. For example, if managers want to secure the provision of certain public goods (roads, schools, security, measures of environmental protection, judicial processes etc.) they should strengthen local or regional collective action by organizing meetings, building networks and foster the emerging of political platforms on a local level; if they want to limit corruption they should aim at the implementation of legal procedures and a praxis of self-commitment between relevant

11

12

The title of J. Coleman's encompassing contribution is "Social Capital in the Creation of Human capital" (Coleman 1988). See Meister/Banthien in this volume for further evidence. In that sense the activities of MNEs against racial discrimination in South Africa have at least indirectly contributed to the peaceful change in that country.

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economic actors13; if they want to prevent inflationary monetary policies they might even take into consideration to build coalitions aiming at the emergence of strong financial institutions such as an independent central bank, banking supervision and similar institutions controlling political and economic power. MNEs may cooperate with NGOs and/or political authorities in creating networks and building political alliances to pursue their goals. This kind of cooperation should involve even more "impartial" political forces such as the churches, well recognized personalities etc. Different MNEs may join in that purpose, thus enlarging their credibility as well as organizational resources14. Of course, this strategy has to be carried out in a very careful and conscious way. If managers openly support one party in a social conflict - for example the government or the ruling party in order to gain its sympathy - engagement will certainly deepen political distrust and produce harmful results in the long run. On the other side supporting openly oppositional forces might bring MNEs in difficult political positions threatening the economic activities as well. The main goal of "social capital strategies" is not to manipulate specific legislation or to directly change the distribution of power in host countries. Rather, it is to enhance civil society and rebuild institutional platforms for rule creation and monitoring. On the basis of its organizational competence and economic power, business can be at the host society's disposal as instructor as well as supporter of social processes that aim at finding institutional solutions for the most urgent political and economic problems. Building up social capital and trust in the environment of host countries first of all requires business to gain the confidence of relevant regional leaders. In most parts of the developing world, people are not used to deal with foreign managers on an equal footing. The sincerity of motivations will remain suspect. Records of economic exploitation and cultural subordination will come up. Thus, social capital investment strategies in host countries require new skills of MNE management. Managers are usually trained to perform well in situations of competition; they are used to get their way following old rules, not of establishing new rules. They force their strategies even through most avid environments; they are not supposed to make efforts in order to cultivate those environments. Hence, the proposal of J. Boddewyn and others to construct a specialized International Public Affairs (IPA) department seems suitable here. 13

14

Therefore, they might cooperate with already existing NGOs like the national chapters of "Transparency International". See Wiehen in this volume. Of course, there does exist a "prisoner's dilemma" among MNEs as well. Every single corporation might hope to "free-ride" from the political engagement of their competitors (I am grateful to Frank Boenker for making that point). However, that seems more relevant for activities on a national level. Furthermore, the reputational effects of the activities should not be ignored.

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IPA managers have to be trained in a special way in order to enhance their sensitivity to the culture and values of local people. Social capital investment strategies imply both, grass-roots activities to enable collective action on a local and communal level as well as engagement for institution building on a national level. MNE interests are obviously involved in tax rules, judicial procedures for certain permits, and questions of workers' protection. Only judicial processes may prevent exploitative ex-post strategies of the political administration once a huge investment is made by the MNE in the country. The creation of public law prevents the emergence of corruptionentrepreneurs, who invent new regulatory claims in order to make money. If the relationship between MNE and regional and national government is not established in a legally accountable way, every change in the political sphere threatens the stability of investments. Thus, a lack of judicial procedures is advantageous for business only at the first glance. If laws may be changed by "personal relations", next time changes will be possible in the reverse direction. Overregulation may be the consequence of lacking judicial procedures in that sense. Social capital and institutions stabilize expectations and form a necessary precondition of successful business.

7

Social Capital Investments and the Changing Relations between Business and State

The proposed strategy reflects important changes in the relationship between business and politics in the emerging world of the 21st century. In the 20th century, a clear division of labor prevailed. With business enterprises acting primarily in the context of well-developed economies managers could take a legal framework and developed political institutions for granted. They could concentrate on maximizing returns on the basis of existing rules. Successful business people do profit more than any other group in society from institutional stability and a general respect for property rights. However, with the globalisation of trade this will change completely. Even in the Western world nation states are losing more and more instruments to effectively regulate multinational corporations. The balance of power has shifted towards Multinationals, which may decide where to pay taxes, where to build up factories, where to organize research etc. Continuous MNE engagement in countries of the developing world does create an even stronger asymmetry between political and MNE power. In this new situation, stable political and judicial rules can not be taken for granted any longer. If managers want to profit from institutional settings as they know them from the Western world, investments have

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to be made in order to secure their emergence. Social capital investments aim at mobilizing the inherent potential of any society in the world to achieve a set of formal and informal institutions, which guarantees freedom, elementary personal security and the respect for property rights. However, to follow such a strategy will require a different perception of self-interest by the relevant actors as well. Managers who live and work constantly in a host country and also personally depend on its environmental conditions will have to engage themselves more in influencing these conditions themselves. Crime in the streets, riots among workers, a lack of infrastructure, a corrupt administration and an inflationary policy are obstacles on a path towards sustainable development, which prevent successful business and diminish returns on investment. If exit options remain less attractive because markets require permanent presence, however, voice options have to be discovered and opened up. An assistance for society will even bear some additional fruits for MNEs. Reputational effects are evident, thus strengthening the identification of local people with business corporations. Their activity has yet a bad reputation because of the record of "United Fruit" and other major exploitative activities. Social capital investment strategies may lead to a new culture of cooperation between business and host countries. That is because in many cases civil leaders of today's world will be their country's political heads of tomorrow. The presidents of South Africa as well as the Czech Republic are only the most prominent examples. If these leader perceive MNEs as more or less sincere brokers in the institutional development of their native countries, a positive attitude towards them will remain. Thus, investing in trust and social capital also means investing in people. Social networks connect the business enterprise with relevant consumer markets and provide for a continuous inflow of information. Last but not least, social capital investment activities might produce positive spill-over effects for corporate culture and business ethics in the MNE as well.

8

Business, State and the Ethics of Win-Win

This article argues in favor of social capital investments strategies for MNE management in developing host countries. Thus, the core of the argument is not a moral appeal to heroic sacrifice but an attempt to instruct the rational self-interest. It does not remind managers that they are also humans, religious believers, or citizens and hence are responsible not only to their business. It does not admonish them that they have to find some kind of compromise between their professional interests and their moral responsibility. Rather, it

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does invite managers to be better managers and to realize their moral intuitions as an integral element of their professional duties. Modern world has been characterized as a system of subsystems. As modern sociology tells us, the "code" of morality cannot really claim any immediate relevance inside of these subsystems. Rather, individual behavior inside of modern business is guided by its endogenous "subsystemic" rationality. However, that does not devalue the claim of morality. Moral intuitions have to be translated into the language of modern subsystems - a project that requires some theoretical strain. Morality does not serve as "code" but as a "program", here. It reminds us of projects of humanity, that have not been realized yet with the existent set of institutions. For example, in the realm of modern business economics, morality serves as an eye-opener for win-win-situations15. If the moral ideal appears in strict contradiction to strong economic necessities, if the better world seems attainable only with heroic sacrifice, it is not the manager who failed morally but the moral philosopher who failed intellectually. In the (morally desirable) world of a competitive market economy, self-sacrifice is rather synonymous with market exit. But market exit of the morally sensible does not contribute to the realization of a better world. Contrary to that kind of moralistic reasoning this article follows a Tocquevillian approach of self-interest rightly understood. Thus, strategies are designed that aim at transforming interactions of the "zero-sum-game" type into such of the "positive-sum-game" type. Business ethics adjusts itself to the logic of the modem economic world, which turned out to be so fruitful in realizing moral goals. Stating that ethics may also be spelled in terms of self-interest does not imply, however, that it has no genuine function at all. In economic thinking many different perspectives of future developments are possible. Modern scientific inquiry does remain ambiguous in that sense. For example, if mainstream economics takes the acceptance of property rights in society for granted, a totally different policy advice for politicians as well as managers will result. From an ethical approach, theory focuses on interactions of the type "win-win " and selects its arguments accordingly. This requires a broader view at the topic and a wider conceptual framework in order to integrate hidden social conditions of the market process. For this reason "social capital" theory turns out to be so fruitful for an ethical analysis of modern economic life. 30 years ago the engagement of multinational corporations was likely to be seen as an unfriendly intervention exploiting the natural richness of a host 15

The moral logic of "win-win" has been emphasized by the popular book of Ury/Brett/ Goldberg (1988).

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country. The activities of the United Fruit Company and other horrific examples of exploitation and alienation created an environment, in which economic policy of host countries was driven by suspicion and distrust against foreign economic actors, private as well as public. The policy of "auto-centered development" reflected this neomarxist dependency approach, which relied on a "zero-sum-game" model of economic interactions. Today, many host countries have learned from experience. They do not ignore that there is an asymmetry of power between MNEMultinational Enterprise (MNE) and themselves. But they have also understood, that economic development will only take place if "win-win " scenarios can be attained and both parties do profit continuously from the exchange. Today, business rather may have to make a bigger step in order to accept that simple truth. At the end of the 20th century, the power of MNEs is greater than ever before. Many times in history, however, abundance of power has already been the seed of decline. Business has to accept that it shares political responsibility, and not only in public speeches. It is an element in order to secure the social basis of its success and to prevent mankind from slipping back into dilemmas of distrust, defection and destruction.

References Akerlof, G. A., and J. L. Yellen (1993), Gang Behavior, Law Enforcement, and Community Values, in: H. J. Aaron, T. E. Mann, and T. Taylor (eds.), Values and Public Policy, 173-209. WA: Brookings Institution. Becker, G. S. (1991), A Treatise on the Family, 2. enlarged edition. Cambridge, MA: Harvard University Press. Boddewyn, J. J. (1988a), Political Aspects of Multinational Enterprise Theory, Journal of International Business Studies Summer 2: 341-363 Boddewyn, J. J. (1988b), International Public Affairs, in: I. Walter and T. Murray (eds.), Handbook of International Business, chap. 12. New York: Wiley. Brennan, G. H., and J. M. Buchanan (1985), The Reason of Rules. Constitutional political economy. Cambridge, MA: Cambridge University Press. Buchanan, J. M. (1975), The Limits of Liberty. Between Anarchy and Leviathan. Chicago: The University of Chicago Press. Coleman, J. S. (1988), Social Capital in the Creation of Human Capital, American Journal of Sociology 93: 95-120 Coleman, J. S. (1990), Foundations of Social Theory. Cambridge, MA: Harvard University Press. Fukuyama, F. (1995), Trust. The Social Virtues and The Creation of Prosperity. New York: The Free Press. Gambetta, D. (ed.) (1988), Trust. Making and Breaking Cooperative Relations. London: Basil Blackwell. Greif, A. (1993), Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders's Coalition, American Economic Review 83: 525-548

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Habisch, A. (1996), Extending Capital Theory. Social Capital Analysis as a New Instrument to Understand Local Institutions, Working Paper, Workshop in Political Theory and Policy Analysis, Bloomington, IN. Hardin, Russel (1992), The Street-Level Epistemology of Trust, Analyse und Kritik 14: 152-176 Hart, Oliver (1987), Incomplete Contracts, in: J. Eatwell et al. (eds.), The New Palgrave: A Dictionary of Economics vol. 2: 752-759. London: MacMillan Press Limited. Kim, W. Chan, and R. A. Mauborgne (1993), Effectively Conceiving and Executing Multinationals' Worldwide Strategy, Journal of International Business Studies 24: 419-448 Kiser, E., and Y. Barzel (1991), Origins of Democracy in England, Rationality/Society 3: 396-422 Kreps, D.M. (1990), Corporate Culture and Economic Theory, in: J. Alt and K. Shepsle (eds.), Perspectives in Positive Political Economy. New York: Cambridge University Press. Levi, M. (1988), Of Rule and Revenue. Berkeley: The University of California Press. Levi, M. (1996), A State of Trust, EUI Working Paper RSC 96/23. Badia Fiesolana: European University Institute. Lucas, R.E. (1988), On the Mechanism of Economic Development, Journal of Monetary Economics 22: 3-42 Naisbitt, J. (1996), Megatrends Asia. Eight Asian Megatrends That Are Reshaping our World. New York: Simon and Schuster. North, D. (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Harvard University Press. Olson, M. (1982), The Rise and Decline of Nations. New Haven: Yale University Press. Organisation for Economic Cooperation and Development (1995), Development and Cooperation Report. Paris: OECD Publications. Ostrom, E. (1990), Governing the Commons. The Evolution of Institutions for Collective Action. New York: Cambridge University Press. Ostrom, E. (1992), Crafting Institutions for Self-Governing Irrigation Systems. San Francisco: ICS Press. Ostrom, E., L. Schoedel, and S. Wynne (1993), Institutional Incentives and Sustainable Development. Infrastructure Policies in Perspective. Boulder: Westview. Porter, M. (1991), The Competitive Advantage of Nations. New York: The Free Press. Putnam, R. (1993), Making Democracy Work. Civic Traditions in Modern Italy. Princeton, NJ: Princeton University Press. Putnam, R. (1995), Bowling Alone: America's Declining Social Capital, Journal of Democracy 6(1): 65-78 Richter, R., and E. Furubotn (1997), Institutions and Economic Theory: An Introduction to and Assessment of the New Institutional Economics. Ann Arbor: University of Michigan Press. Soto, H. de (1989), The Other Path. The Invisible Revolution in the Third World. New York: Harper/Row. Ury, W. L., J. M. Brett, and S. B. Goldberg (1988), Getting Disputes Resolved. San Francisco: Jossey-Bass. Weingast, B. R. (1994), Constructing Trust: The Political and Economic Roots of Ethnic and Regional Violence. Paper presented at the University of Maryland/NSF Conference on Institutions, College, Park, Oct (1994). Williamson, O. (1985), The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting. New York: The Free Press.

Globalization, Development and Ethics: Moral Responsibility and Strategies of International Management in the Perspective of 'Sustainable Development' Brij Nino Kumar and Ina Graf

1 1.1

Introduction Globalization: Pitfall or Panacea?

Globalization of the economy defined as world-wide integration of finance, production and consumption is one of the most outstanding phenomena at the threshold of the 21st century. The multinational corporations (MNCs) are the main players in the globalization process which through an integrated-spread of direct investments and global networks of transplants of production facilities on an international basis is reshaping the sectoral and territorial configuration of world economy. Globalization is generally seen as a motor of powerful economic growth and offers perspectives of betterment of international welfare. First, the "engines of globalization", i.e. liberalization, privatization and deregulation (Group of Lisbon 1995: 32) awaken expectations of democratization across nations. Surely enough, the surge in democratization in countries previously controlled by military regimes (e.g. in Latin America) or in socialistic economies in Eastern Europe dates to the same period that saw the wave of globalization as it caught up to these societies. Second, globalization is interrelated with heightening international competitiveness which in classical theory is seen as the one fundamental source of creativity and innovation needed so badly to sustain future generations. And finally, global integrated networks of economic activity function on exchange of goods, technology and personnel. International trade and employment as an outcome is a major factor which according to traditional economics promotes incomes. Although these and other positive consequences of globalization are theoretically and empirically discernible, it is difficult to say whether those affects will on the long run outweigh the critical problems which are also connected with globalization: Ironically, to the extent that globalization becomes imperative in the context of modern economic and political setups (e.g. GATT agreements, liberalization, regionalization, economic blocks etc.) the more threatening the darker side of globalization gets. Recent developments in vari-

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ous parts of the world show that new dangers characterize the present situation. Just when global production and consumption is spreading, so is inequality, the destruction of the environment and unemployment. Global networks are restricted largely to the countries of the Triad thus marginalizing the greater part of the world. And global production and consumption on one hand is accompanied by rising nationalism, ethnical and religious fundamentalism on the other. According to the Group of Lisbon (1995: xv) the most crucial consequence of globalization is that it gives rise to "unmanaged world competition" which strengthens the above mentioned adverse developments. In this situation complete destabilization of the global system can ensue with long-term, sustainable development of mankind and global peace at bay.

1.2

Objective of the Paper

This chapter is concerned with the role of the multinational corporations as moral actors in tackling the problems of globalization. It deals with the economics of the multinational corporations as global players as they account for the globalization process and the conflicts that accrue from it. It is devoted to developing a normative frame of corporate action which addresses the major challenges of socioeconomic inequalities within and among nations, the exploitation of and damage to global life-support systems and the national and cultural conflicts. Specifically, the following questions will be addressed: What are the characteristics of globalization and how does it emerge from the modus vivendi of multinational corporations? What is the justification that multinational corporations shoulder the moral responsibility for the consequences of globalization? What are the real conflicts that result out of the globalization process and how do they relate to the problems of Sustainable Development? How can the concept of Sustainable Development offer a normative frame for reasoning about corporate moral responsibility and guiding ethical behaviour in the light of globalization problems? With what kind of policies and strategies could multinational corporations envisage conflict resolution within this framework? Contrary to the common debate which usually deals with globalization and its problems in a very general manner, this paper aims at pinpointing the crucial issues at the very source and accordingly offering solutions that have their bearings in the policies and strategies of multinational corporations.

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2.1

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The Multinational Corporation and their Moral Responsibility in Global Economy Features of Multinational Corporation and Globalization

As indicated earlier, the multinational corporation is the major global player responsible for the globalization process. In order to understand the connection and the problems, a short glance at the major features of the multinational corporations is useful.

2.1.1

Transfer of Resources

Multinational corporations are characterized by cross-border transfer of resources in form of direct investment in two or more countries for the purpose of setting up long-term business activities (production operations, marketing affiliates, R&D facilities etc.) within the framework of corporate policies and objectives. Direct investments can be in form of material and immaterial resources and imply direct control of the foreign operations by the investor. There are different motivations for direct investments. Basically, "MNEs are vehicles which bypass bottlenecks to the international transfer of goods, materials and people" (Rugman/Lecraw/Booth 1985: 98), the bottlenecks being set by market failure in international competition. For instance, exploiting market potential abroad is the one most important motivation for local operations when exporting is curtailed by tariffs and non-tariff trade barriers.

2.1.2

Local Responsiveness versus Global Integration

The operation of multinational corporations are characterized by two strategic options. First, management has the choice, in many cases is even forced, to adapt operations and managerial functions to the foreign environment. Adaptation or local responsiveness becomes necessary in the light of different culture, laws, political systems etc. in foreign locations. Not responding with adequate means would mean dysfunctionality and conflict in the host-environment. The degree of local responsiveness practiced depends basically on the variance of the host-environment from the home-country and the specificality of the foreign culture. Second, management has the option to coordinate and integrate foreign operations within a central strategy. The motivation for this approach is the economic imperative of achieving synergies in connection with world-wide trans-

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fer of resources while taking into account the specific locational advantages. The degree of implemented global integration depends on the extent operations and functions, goods and resources can be standardized and transferred across national and cultural borders and on the costs and available organizational coordination mechanisms. Multinational management in practice is in most cases a combination of both strategic orientations organized in corporate global networks which have the capacity to combine both dimensions in different variations. The proportion in which each of the two strategies are mixed depends on the factors mentioned earlier and is also different according to the business, function and task involved (Bartlett/Goshal 1989). Global coordination and integration remains, however, the overriding strategy of multinational corporations (Fayerweather 1969).

2.1.3

Aspects of Globalization

1972

1975

1980

1985

1990

1995

Production and exports: in prices Finance: stocks at the international capital markets Original Date: OECD

Source: Fels (1997): 1 Figure 1: Profile of Globalization

The globalization process is a direct outcome of these features and can be defined as profit-oriented coordinated global utilization of corporate resources and activities decentralized world-wide for the purpose of availing of loca-

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tional advantages. The profile of globalization in world economy is described best by the flows shown in Figure 1. These indicate the acceleration of integration of business activities in that international trade has expanded at a higher rate than world production, that direct investments have grown faster than international trade, and finally international finance transactions achieved even stronger growth rates than direct investments. These features affect directly the globalization process whose corporate - related aspects are summarized in Figure 2.

Aspects of globalization

Promoting environmental factors • Liberalization • Deregulation • Privatization

Indicators of multinational activity

Features of multinational corporations • Resource transfer

Cross-flow of:

• International Multinational trade Strategy: • Direct Inlocal responvestment siveness vs. global inte• Financial gration transactions

Globalization of finance and capital Globalization of markets and production Globalization of technology, information and personnel Globalization of demand/consumption pattern

Figure 2: Interrelatedness between multinational corporate activity and globalization

Globalization of Finance and Capital This is the core aspect of globalization with growth rates of over 4.000% over the past 25 years. Besides direct investment (world-wide volume 1990: US-$ 19.4 bill, 1996: US-$ 349 bill; IMF 1997: 52) financial cross-flows include portfolio-investment and transfers within the world-wide network of multinational corporations. Sometimes it is difficult to identify specific territoriality (legal, economic), although they do have a home-base somewhere.

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Globalization of Markets and Production This includes cross-integration of value-adding-process and industrial purchasing (global sourcing) on the basis of economies of scale and scope to achieve global synergies. Globalization of Technology, Information and Personnel For one, these aspects determine the extent of global integration and coordination. Sophisticated technologies and know-how necessitate universalization trends; on the other hand information and personnel are used as instruments to transfer know-how and facilitate integration. According to estimates of UNCTAD (1994: 162f.) 90% of world patents and know-how are transferred within multinational corporations. And enforcing integration through training and personal contacts is the one most important motive of foreign assignments of corporate staff (Edstròm 1977; Kumar 1992, 1993). Globalization of Demand/Consumption Patterns Standardized products offered by multinational corporations world-wide facilitate equalization of consumption patterns around the globe on one hand; on the other comparable demand structures are functional for formulation and implementation of integration strategies. Diversified and customized markets are regulated by quasi universal norms and standards.

2.2 The Role of Multinational Corporations in the Global World and their Moral Responsibility The aspects of globalization briefly listed above make it clear: (1) the reach of national states to control cross-border economic activities is limited. The traditional definition of nation states and their sovereignty with clear differentiation of inside and outside perspective is in the process of dissolution and does not hold any more in many instances; (2) the discretionary power of companies increases with their ability to spread business activity abroad. With this development in view, the Group of Lisbon (1995: 65) sees "the global firm (is) replacing public authority as the leading actor in directing and controlling the world economy". Although this emphatic statement seems a little exaggerated we do also suggest that the multinational corporation as a key actor is gaining importance as the globalization process becomes a dominating factor in world economy. From our angle three major arguments sup-

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port this development. First, increasing competition between international locations has strengthened the position of the corporations and weakened the position of national states. Regional blocs and countries compete against each other for investments of multinational companies by offering them best investment climate and conditions, e.g. lenient pollution and labor laws, tax exemption etc. Firms often take advantage of this rivalry by dictating own terms and conditions of business. They are hardly made responsible for unheading national laws for fear of losing investments to foreign locations. With no supranational institution to check behavioral and malpractice ("unmanaged competition") firms' discretionary powers have risen opposite to national states. Second, deficits in the legal system and laws of many nation states make controlling of the multinational corporations very difficult. In many countries, especially in the Third World, laws concerning multinational corporations are not clearly formulated because of diffuse interests with respect to the role of direct investment in economic development. Furthermore, laws are not precise enough to account for diffused responsibility in multinational corporations split between local subsidiaries and headquarters in the home-country. Weak legal frameworks in many countries, therefore, also increase decisionmaking scope and discretion of multinational corporations vis-à-vis governmental authorities. And finally, multinational corporations and their global networks have become the most important economic factor in world development with respect to all key indicators like investment, employment, trade, research and development and others. This gives them tremendous negotiation and contractual power which they apply within globally coordinated and unified goals and objectives vis-à-vis groups and institutions who on the other hand are not only weaker in economic terms but often also split in interests across borders. It is well known how difficult it is, for instance, for national labor unions to negotiate with multinational corporations because of differing labor interests in the host-countries. With increasing discretionary power of the multinational corporation on one side and receeding authority of governmental agencies on the other the basis of controlling the former as well as laying down binding normative foundations for economic activity has eroded. Since there is no supranational jurisdiction or institution which can enforce rules and regulations across borders effectively, globalization can be self-defeating if left to itself. Critiques have voiced concern about the widening gap between corporations that plan and operate world-wide with unified strategies and the national states with their particularistic legal and political systems. In this configuration, the power potential of the multinational corporations grows on one side with no authority to control business and - what is more - also to formulate and lay down moral foundations of economic activity, on the other.

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In this situation two solutions to the problem are possible. First, as suggested by the Group of Lisbon (1995: xvii), the creation of a "cooperative framework among nations at the global level, that is, socially accountable and politically democratic forms of global governance". This possibility, however, at this point of time seems too remote. The divergence of economic conditions and priorities, interests and traditions between the involved countries is far too great in order to achieve consensus in the near future on purpose, content and underlying values of a global governance. Differences in basic assumptions, values and policies exist even between countries of similar economic and cultural background. For instance, the USA and Germany have completely different practices for handling corruption in foreign business. Whereas US multinational corporations indulging in corrupt practices can be persecuted in their home-country according to the Foreign Corrupt Practices Act, German companies on the other hand can file tax deduction claims at home for money spent for bribes abroad. The US government has accused Germany for "subsidized corruption" and has criticized that such divergences purport unfair competition and hamper coordinated campaigns against such immoral business practices. However, even at the last OECD-summit in Paris in May 1997 no agreement on harmonization could be reached. How much more difficult would it be to include countries from Asia and other parts of the world in a joint effort to found a global governance? Second, in line with the proposal of Steinmann/Scherer (1997) we believe that with the absence of national and supranational institutions, the task of attending to the issues of normative foundations as well as to conflicts resulting out of consequences of globalization will fall in the responsibility of the multinational corporations themselves. Since living up to the role of a responsible agent may also impinge on the economic goals of the multinational corporations, the motivation must stem from the conviction that compromise is necessary for legitimizing their own existence. As Orts (1995: 252) has argued, it is difficult to find legal legitimacy for multinational corporations in the absence of a supranational corporate law. Hence it is up to them to fortify the grounds of their empirical and systemic legitimacy. The first is possible by reducing the extant distrust against them world-wide and finding universal acceptance on grounds of contribution to common welfare; the second refers to "a critical assessment of whether a corporation exercises power and management according to justifiable rules and with evidence of consent". In other words by exercising voluntarily and without external coercion their autonomous decisionmaking power in moral responsibility and self-commitment multinational corporations can create legitimacy for themselves in a world quite critical of their activity. Over and above this recognition is also a contribution to legitimizing the capitalistic economy which to a major extent is controlled by the multinational corporations. A good example of this kind of responsibility is

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the offer made by the German industry at the Rio-Conference to voluntarily reduce C0 2 -emission between 1990 and 2005 by 20%. In other words the multinational corporation must increasingly take over the role of a moral actor (Steinmann/Scherer 1997: 25). This challenge is in line with the position that the extent of shouldered responsibility should be identical with the reach of human action. As von Westphalen (1988: 148) has put it, whenever and wherever human plan and action influence what virtually happens or doesn't happen, they also have to burden the responsibility for the consequences. Prima facie, multinational corporations behave ethically if their policies and strategies are legitimized by a consensually laid down and recognized normative foundation and justifiable rules of economic activity. In the following section we now turn to discussing what the normative guideline and justifiable rules for multinational corporations can be and how they can connect to management.

3

Reflections on the Foundations of Ethical Behaviour of Multinational Corporations

Even though by pinpointing the moral responsibility of the multinational corporations we outlined their task which they must perform for ethical behaviour, the issue remains vague with regard to two questions: Firstly, what are exactly the consensually justifiable rules and the normative foundations which can empirically and systemically legitimize multinational corporate activity? This is a difficult issue because the perception of host-countries of what multinational corporations should be and what and how they should perform is invariably conditioned by national interests and values that can be very subjective and culturally diverse. To find a consensus about universal normative guidelines to which multinational corporations can be committed to is not easy. Second, the question arises what the actual processual procedure of legitimizing can be? That is to say, on what lines can the normative guidelines be integrated in the activity of multinational corporations considering their distinctive features?

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3.1

Normative Guidelines for Legitimizing Multinational Corporations

3.1.1

Concept of Sustainable Development

The normative guidelines of ethical multinational management must be derived on a consensual basis since all concerned corporations must voluntarily bear the responsibility and must be self-committed to integrate them into their policies and strategies. The normative guideline-frame proposed below is the concept of Sustainable Development and is based on rational consensus (Steinmann/Olbrich 1994: 121) in the sense that it has been attained on grounds of discernable arguments in connection with the universally recognized problems of globalization. The achieved consensus is manifested in the report 'Our Common Future' developed in 1987 by the World Commission on Environment and Development ('Brundtland Commission'). As is well known this report proposes the idea of "development which meets the needs of the present generation without compromising the ability of future generations to meet their own needs" (WCED 1987: 8). This normative base has been universally accepted and endorsed by most governmental, corporate and other institutions worldwide. It has been enforced in numerous specific declarations, e.g. in the 'Agenda 21', a normative abstraction of self-commitment signed by 178 nations in 1992 in Rio ('Spirit of Rio') with respect to desirable policies and measures in the field of environmental protection. Naturally, rational consensus is not possible without prior reasoning about problems and conflict which actually exist as a consequence of economic activity. In the following then we will summarize some of the important critical issues in connection with globalization which are seen as a starting point in conceptualizing Sustainable Development as a normative foundation for ethical multinational management. The problems are classified according to the categories 'economic', 'ecology' and 'socio-cultural'. It is in this concept that the actual and presumptive conflicts (in relation to globalization) can be identified which in line with the concept of Sustainable Development and taken together depict the major elements of the foundation of human life on the globe (Munasinghe 1993: 2). They reflect the recognized multidimensionality of the problem that the large part of the world is still incredibly poor in economic terms, that the global environmental problems and cultural conflicts all together threaten the sustainable development of the earth. Although the task of identifying and interpreting a normative frame is generally immense, interestingly enough, a convergence appears to exist with respect to Sustainable Development.

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137

Conflict Potential of Globalization with Reference to Sustainable Development

3.1.2.1 Economic Conflicts The increased international mobility of multinational corporations against the background of world-wide liberalization, privatization and deregulation tends to accentuate economic inequality and injustice between and within nations. Between Nations By far the major portion of globalization as defined above is embedded in the regions of the Triad. This is substantiated by the fact alone that this region presently accumulates over 50% of world foreign direct investment, whereas the developing countries on the other extreme account for a mere 19% (UNCTC 1996). Also the present share of the latter in world trade is less than 30% (IMF 1997: 72), and according to estimates the share of Africa, Near East, Latin America, Russia and Eastern Europe will drop to approximately 5% (!) in the future, the majority being located in the Triad extended to China and South Asia (FAST 1993). As pointed out earlier, multinational corporations primarily seek to maintain operations in countries and regions with locational advantages, especially with market and productivity potential and international competitive economies. Opposite to widespread belief, cheap labor is on the whole not the paramount motivation to decentralize operations to foreign locations. According to the latest World Investment Report (UNCTAD 1997), market entry motives are mentioned twice as often by multinational corporations as cost differentials. Neither do resource based operations lie in the mainstream of global activities. Judging the position of nations of the world on these criteria, most of them do not come into consideration for direct investment and are in fact completely delinked from the globalization process. Even countries which today rank among the richest in the world like Kuwait and Saudi Arabia fall outside the main stream of globalization when one takes into consideration their world-competitiveness in terms of their export potential in commodities other than natural resources (e.g. petroleum) (Figure 3).

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Rate ofexport growth 1980-90

World average

"Triad's" average Turkey "Hong Kong

STARS

"Korea

"Thailand "China

"Ttiwan

SUPERSTARS

... . . "Mexico Malays^

VULNERABLE

"Singapore "Israel

"Columbia "Morocco ' 10 20

i 40*Bn«q5O

30 n

"VenraiiAa6"0

60

7J

80

"Bulgaria'P'lil'Ppines en-Yugoslavia "Hungary j

"Poiand

i

90 "Triad's" world % exports other than natural resources

°ex-Ckechoslovkia 0

^¡audi Arabia Kuwait

"Rumania

PROMISINt

DELINKED

Source: Group of Lisbon (1995): 47 Figure 3: Grouping of developing countries in global trade

Globalization thus tends to perpetuate and even increase disparity between nations as they compete against each other on grounds of locational factors for attracting multinational corporations to their territories. Countries and regions which are favored by globalization can achieve high growth rates (e.g. Southeast Asia), others are left behind (e.g. African countries), and the inequality gap between rich and poor countries widens. According to the latest UNCTAD (1997) report the per capita income disparity between the seven richest and poorest countries in the world increased from being 20 times in 1965 to 39 times in 1995. In 1980 the share of the world trade of manufactured goods of the 102 poorest countries was 7.9% of world exports and 9% of imports. In 1990 this fell to 1.4% and 4.9% (Figure 4). National governments of the poor countries have little possibility in this situation to attract multinational corporations, not only because of low market attractiveness and missing modern infrastructure, but also because of lack of negotiation and contractual power. It seems that global competition left to itself does not increasingly lead to world-wide growth and income convergence.

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Industrialized world (24 countries) of which G7 (US A,CAN, JAP, GER,FRA,UK,ITA) - the triad - other industrialized countries

1980 62.9 45.2

Exports 1990 72.4 51.8

Imports 1980 67.9 48.2

1990 72.1 51.9

54.8 8.1

64.0 8.5

59.5 8.4

63.8 8.3

Developing world (148 countries) of which - group'stars'(11 countries) - group 1: the poorest (102 countries)

37.1

27.6

32.1

27.9

7.3 7.9

14.6 1.4

8.8 9.0

13.5 4.9

Total

100

100

100

100

Source: Group of Lisbon (1995: 73) Figure 4: Relative share of the world market for manufactured goods

Within Countries Globalization also tends to accentuate the asymmetry between groups that can affiliate to the global sector and those that can not (Rodrik 1997: 31). In the first category are owners of capital, highly skilled workers, many professionals and also specialized small and medium-sized companies who can integrate in the international sourcing networks of multinational companies. Unskilled and semiskilled workers and most middle managers and companies in traditional sectors belong to the second category. According to Rodrik (1997: 31), globalization makes the services of individuals and companies in the second category more elastic. The services of this segment can be more easily substituted by the services of other people and institutions across national boundaries. Essentially, in this situation globalization transforms employment relationship. As companies affiliate to the global sector, workers of the second category lose their jobs. This is especially the case in high-wage countries with high social benefits, like Germany. The higher the wages and social costs companies have to incur, the more they profit from down-sizing and shifting value-added operations overseas. Most large German multinational corporations (e.g. Siemens, Daimler-Benz, Bayer etc.) managed to increase their productivity and annual results in the last ten years by over 25%, while simultaneously down-sizing employment at home and expanding it abroad to the same extent. This relationship is also reflected in the development of the GDP and total national employment in Germany (Figure 5). While GDP rose, total employment fell.

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Source: Group of Lisbon (1995): 40 Figure 5: GDP and employment growth

This also applies to France and Great Britain - in countries where similar to Germany wages and social security of the people are comparatively high; the latter also leaves companies bigger psychological options to lay-off labor. Globalization thus impinges upon the traditional labor-relations justice in many countries where through consensus in social bargaining in the past job security and humane workconditions were negotiated. One major consequence of the above developments is, of course, unemployment on a global scale. And the general prospects of the future are not encouraging considering the increasing capability of multinational corporations to provide for rising demands with greater capital productivity and more efficient global production, in other words with lesser and lesser jobs at home. A direct indication of this development is that all over the world capital gains and shareholder value have increased whereas returns on the factor labor have decreased (UNCTAD 1997). In Germany, for instance, total value of stocks increased from 1991 to 1996 by 288% , wages and salaries only by 108%. It is, therefore, not surprising at all that the German industry in the first half of 1997 (once again) managed to achieve a record volume in exports, while at the same time unemployment in the country also shot up to an all time high. Surprising is rather the widespread and naive belief, especially among the government, that there should be a positive correlation between rise in exports and employment across the industry.

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Disparity and Migration A major conflict resulting from the deepening inequality between and within nations is increasing human migration around the globe. Even small internation economic differentials at low income levels suffice to break loose population flows. Therefore, there is migration between Bangladesh and India just as much as between Eastern and Western Europe and Central and North America. To the extent that migration is uncontrolled and illegal it creates an explosive social environment anywhere in the world. All over the world the better-off nations take extensive measures to check migration from poorer countries. By and large, however, as experience shows, all controls are powerless to ward off humans desperately in search of betterment of their plight. When pressed by need, humans have always found ways and means to leave their habitat in search for new opportunities, even when it meant going through the most adverse conditions. This can be especially said about the contemporary population movements which - opposite to earlier migration flows - are not hampered by cumbersome and expensive transportation. Global airlines today are a major factor which - even though unwillingly make (illegal) migration easier. The only effective way to check uncontrolled influx of aliens is to narrow or eradicate economic inequality between and within nations. 3.1.2.2 Ecology Problems Globalization is connected with increasing interaction with and strain of ecology. This is a source of major global problems and is linked with four factors. First, globalization depends for its global efficiency on the interchange of resources and goods within the units of the world-wide corporate system. Only then can locational advantages be combined into global synergies to achieve higher productivity. According to UNCTAD estimates more than one third of world trade today is accounted by intracompany and intersubsidiary exchanges with increasing tendency (Jungnickel 1995: 52). Furthermore, managing decentralized units world-wide also requires interchange of personnel. Expatriate assignments is perhaps the most important instrument for achieving technology transfer and global coordination (Kumar 1992). Transfer of goods and personnel both rely heavily on international transportation with implications for energy consumption and emission of wastes. Second, productivity improvements through globalization increase environmental strain. As shown in an earlier section, rising productivity as achieved by globalization in many sectors leads and has led to a reshuffling of world-wide division of work in the course of which unemployment follows.

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Unemployment, especially in resourceful countries, is a strong engine for developing new industries and alternative growth potentials. Growth and material expansion tend to become an end by themselves much faster with globalization than without, with the risk of underestimating the attached externalities. As it stands, multinational corporations are responsible for emission of approx. 80% of world green-house gases (UNCTC 1992: 15); and the 25 OECD countries with a major portion of world multinational corporations account for over 50% of world carbon-dioxide emission and 80% of world resource consumption. Unemployment pressures in developed countries as well as rising inequality between the rich and poor countries as a result of globalization tend both to support an ideology of unprecedented quantitative growth world-wide and subsequently an increased environmental contamination. The forest fires and air-pollution in SE-Asia in Fall 1997 with its disastrous consequences for the whole region is a result of this blind growth ideology. Third, increased environmental strain can also result from the specific pattern of technology transfer by multinational corporations. It is theoretically and empirically founded that these tend in principle to transfer standardized and mature technologies and products (especially to Third World locations) which means that they may not conform to the latest standards with respect to energy consumption or pollution. The environmental strain is especially high when obsolete technologies and standards are used, especially in those industries which by nature are heavy on resource consumption and waste emission (e.g. paper, metals, petroleum etc.) (Low/Yeats 1992: 89). The ecological problem is aggravated when multinational corporations relocate these industries to countries with lenient pollution laws as compared to home-countrystandards which require major investments for avoiding or lowering environmental strain. Fourth, environmental interaction is also affected by the fact that 90% of all technology patents are controlled by the multinational companies (UNCTAD 1996a). The argument is that most of the world know-how on environmental problems is utilized within global corporate growth and market objectives, leaving little scope for local institutions to develop solutions in accordance with the bio-diversity which often requires extreme prudence in environmental consumption (Blum 1993; Shiva/Holla-Bahr 1993). 3.1.2.3 Socio-cultural Conflicts Globalization through world-wide integration of production and consumption undoubtedly intensifies cross-cultural interaction which has also been advanced by the tremendous progress in communication technology and cheap and efficient international transportation, in other words by multimedial networking. Interestingly enough, though, the outcome of this process is not what

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one would perhaps expect at first sight to be, namely harmonization of social and cultural norms across borders, but rather paradoxical. It is widely recognized by many authors today (e.g. Tibi 1995, Huntington 1993,1996; Fukuyama 1995; Barber 1996) that globalization has led to the 'global village' but not to a world culture or world civilization. As Tibi (1995) has stressed, the 'global village' generally has been identified with 'MacWorld'. This thinking, however, overlooks the fact that culture's frame of reference is not the consumption of hamburgers, videos and fashion, but rather the local production of meaning (of life). The (false) assumption about standardization of culture negates cultural particularism which is much more a dividing than a joining factor. Tibi (1995) has called this development the simultaneity of structural globalization and cultural fragmentation. Indeed we can discern a widening value and cultural gap parallel to globalization and common lifestyles in many sectors. This view has been particularly advanced by Huntington (1993; 1996) who with the background of globalization even foresees a clash of civilizations. His main hypothesis is twofold: First, with globalization people around the world are forced to surrender their traditions for the sake of 'modernization'. In order to maintain their cultural identity people in such situations resort to fundamental and conflict-laden values stemming from nationalism, tribalism, communalism, religion and other basic differentiating categories. Second, because human groups define themselves on the basis of comparison with each other by stressing differences rather than connotating commonalities, increasing globalization and cross-cultural interaction raises the awareness for one's own frames of references and therefore also the conflict potential. For instance, expatriate assignments in multinational corporations have often proven to be instrumental in confronting home- and host-countryvalues with each other and cementing cultural prejudice and widening the cultural gap rather than narrowing it (Kumar/Steinmann 1984). In sum, there seems to be enough evidence now and historically to show the paucity of a globally integrated economic system in establishing social tolerance across cultures. Two comparative statements stand out in this context: On one hand, universalization through the globalization process seems to be that of market-rationality alone rather than in terms of a collective worldidentity which could bring together different cultures (von Barloewen 1996: 13). On the other hand, however, universalization of market-rationality may be a false notion in itself. As Hosle (1992: 253) emphasizes with respect to the differences of work ethics between the Third and the First World, "it is naive and ahistoric to assume that the homo-oeconomicus always existed. The apparent justice of treating every human being as having the same economic rationality is in truth the greatest injustice". Based on these observations one can conclude: when globalization as such is questionable, the problem of univer-

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salization of any norms does not arise. Differences of values and the conflict potential persist inspite of or because of globalization.

3.1.3

Norms for Sustainable Action

The outlined problems - actual and presumptive - represent the rational base for the factual consensus that has been achieved between most countries of the world as expressed in numerous declarations on Sustainable Development. The concept has been universally recognized as a normative referential frame to which all economic activity should be committed to. Furthermore, in order that world development can be called sustainable, it must encompass all three dimensions: economic, ecological and socio-cultural. For our purpose then there is reason enough to propose that multinational corporations find empirical and systemic legitimacy in the global order by voluntarily bearing responsibility towards Sustainable Development. Their policies and strategies should avoid detrimental influences and contribute actively towards achieving its goals, as formulated in the following statements. Multinational corporations should adopt strategies that avoid creating economic inequality and injustice between and within nations. Multinational corporations should adopt strategies that avoid ecological damage and actively contribute to maintaining the environmental base for human-life Multinational corporations should adopt strategies that avoid diluting cultural values and actively contribute to maintain cultural identity. The formulated norms on sustainability are undoubtedly at a rather high level of abstraction. In order that they may connect to the strategy and actual practice, some technical characteristics, operational indicators and moral injunctions of Sustainable Development are required. These would be the real constraints that must be met while formulating multinational strategy. Naturally these characteristics and indicators would have to be deduced from the three dimensions of Sustainable Development. We cut short this step and borrow the set of constraints from Gladwin et al. (1995: 878) who derive them from representative conceptions of Sustainable Development; almost all of them include the before mentioned definition and the three dimensions 'economy', 'ecology' and 'human-cultural' in some form or the other. In other words the following characteristics and indicators have full relevance for the concept used in this paper.

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Inclusiveness. This implies that development regarding all three dimensions embraces time and space. Connectivity. This entails interdependence of all three dimensions and taking a holistic view of Sustainable Development. Equity. This suggests intergenerational, intragenerational and interspecies fairness in distribution of resources. Prudence. This connotes duty of care, parsimony and prevention of waste, keeping life-supporting ecosystems and socioeconomic systems resilient, for avoiding irreversibility. Security. This demands safety from threats and protection from harmful events ensuring a safe, healthy, high quality of life.

3.2

Processual Procedure for Legitimizing Multinational Corporations

The practical problem lies now in integrating and balancing the developed normative guidelines with the modus operandi of multinational corporations. We conceptualize this task by refering to the Integrative Social Contract Theory developed by Donaldson/Dunfee (1994). Without going into the details of the theory and the critical issues which have been discussed elsewhere (Steinmann/Scherer 1996), we draw on the the central concept which integrates two distinct kinds of contracts with the intention of establishing discourse between two sets of norms: a normative and hypothetical contract among economic participants, the macrosocial contract, and a microsocial contract about norms and practices of economic activity within specific institutions like the multinational corporation. Sustainable Development can be accorded the character of a macrosocial contract in the sense that it represents 'hypernorms' which "entail principles so fundamental to human existence that they serve as a guide in evaluating lower level moral norms". As such the principles are universal and reflect consensus or at least convergence in values and perception about how the world should be (Donaldson/Dunfee 1994: 265). The features of the multinational corporation on the other hand reflect the microsocial contract, i.e. "the lower level norms" and prima facie a "moral free space" open to compliance and integration with the hypernorms of Sustainable Development. For conceptually connecting the two levels, which also means bridging the gap between hypothetical abstraction and reality, we draw on the strategic management process with reference to the features of multinational corpora-

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tions. We argue that connecting the macro- and microlevel is enacting by free choice of goals and means; these are available in the strategic management process. This serves as a conduit to "transport" the normative guidelines "downstream" and to infiltrate corporate activity with the formula. According to latest studies, very few corporations - if at all - have thought about integrating Sustainable Development in any dimension into the strategic process (Hart 1997:79); it is only on this basis, however, that decisions of multinational corporations concerning not only the distribution of profits but also investment, marketing, employment and management can be considered legitimitate. For analytical purposes we draw on the process model of strategic management process (Mintzberg 1989; Quinn 1990). Although variations of the model have been presented in literature, basically it consists of four phases: (1) Planning of the objective function, (2) Strategic analysis, (3) Strategy formulation and (4) strategy implementation. Figure 6 illustrates the paradigm.

4

Multinational Strategy for Sustainable Development

4.1 Planning of the Objective Function Perhaps the most important phase is the planning of the objective function since it is here that Sustainable Development must be embedded as the overall corporate philosophy in the corporate goals. Two major problems arise as it becomes important to integrate the formula.

4.1.1

Awareness and Commitment to Sustainable Development

As Welge/Al-Laham (1997: 794) have shown in their survey of 65 of the 500 largest German companies, about 62% refer to Sustainable Development in their corporate goals by including the criterion "ecological compatibility of products and production process" in their objective function. On the other hand, over 92% of the companies follow the traditional set of goals like profit, return-on-investment and competitiveness. The awareness, as far as it is extant in companies, is mostly restricted to the ecological aspect. Especially the chemical industry has proved to be progressive in this respect in the past years. Of course, this mind-set was originally not intrinsically motivated out of bearing responsibility for the environment, but rather a consequence of several ecological disasters all over the world (e.g. Sandoz-Rhine pollution, Union-Carbide gas catastrophe in Bhopal) caused by the chemical industry. Per-

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Corporate Philosophy Sustainable Development

Normative foundation: Guidelines for legitimizing MNC

cultural

ecological Corporate guidelines Principles Inclu- Connecsiveness tivity

• values

Equity

Prudence

Security

awareness

Corporate goals/ objectives

Planning of objective function

r

2 Strategic analysis

Corporate analysis

Environmental analysis

I

Multinational Strategy formulation Resource transfer

^ Corporate Culture

local responsiveness vs. global integration

Corporate Strategy Strategic Business Unit Strategy

3 Strategy formulation

Corporate Culture

Functional Strategy

Multinational Strategy implementation Operative Planning

+ Work Culture

Functional plans Budgeting

Work Culture

4 Strategy implemen tation

Figure 6: Strategic Management Process and Sustainable Development

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haps the most important outcome is the world-wide Responsible-CareInitiative and the general philosophy to include health, ecology and safety from the very beginning in the decisionmaking process and the operations. Many chemical companies have committed themselves to this initiative and are even subjecting themselves voluntarily to 'Eco-auditing' programs of the national governments (see also chapter 4 in this volume). Also in other branches of industry companies are demonstrating awareness and responsibility to sustainability, e.g. McDonalds by committing $100 mill, to recycling projects. But in general, the awareness, especially with respect to the economic and cultural dimensions and guidelines such as 'connectivity' and 'equity' is by large still lacking. It may be asking for too much of most individual enterprises to accomplish a change in mind-set to this effect by themselves, considering their perennial struggle for survival in competition where priorities are seen to lie on profit and return-on-investment. In this situation joint action among competitors, advanced by themselves or relevant institutions, e.g. industry associations or government agencies, may be effective means to inculcate the need of internalizing goals of sustainability, and also to show that convergence with economic goals and conflict resolution between the two is a possibility.

4.1.2

Goal Conflict

In market economy survival in competition is the ultimate goal for every enterprise. There is no doubt about that. So acceptance of values and goals other than those which are complementary or at least indifferent to maintaining the market position will obviously be outright rejected by any company. It is therefore, first and foremost important that enterprises realize the compatibility of Sustainable Development with economic goals. Naturally, to realize this is easier for companies that produce marketable goods and services connected directly to Sustainable Development. For instance, German companies in the eco-technology sector have been able in the last years to secure for themselves a leading position in the world. Exports in this sector in the early 90s amounted to DM 35 bill. According to estimates of OECD market volume for eco-products and technology is expected to arise to around DM 870 bill. Firms who can participate in this market obviously can be easily inspired for Sustainable Development. Other firms may think about changing the basic mission of their company in order to achieve compatibility with sustainability. In this respect the normative function of strategic goals and planning plays an important role. For instance, by shifting their mission from being manufacturers of passenger cars to becoming suppliers of transport systems automobile manufacturers can af-

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feet a major change in values about acceptance of mass transportation helpful for thinking in terms of sustainability of energy, space and environment. Multinational corporations on grounds of diversity of location have considerable possibilities of balancing corporate objectives with constraints of Sustainable Development. Because of market diversity, growth objectives can be better balanced with economic equity; or cultural diversity of multinational corporations makes it easier to balance consumer oriented objectives like consumer satisfaction with requirements of cultural sustainability.

4.2

Strategic Analysis

Strategic analysis in the strategic management process refers to investigating risks and opportunities in the environment of the enterprise and strengths and weaknesses of the company. With the objective function aligned to Sustainable Development the analyst must look at both elements with the view of finding out constraints that facilitate or inhibit the desirable strategy formulation. For multinational corporations the analysis must include host-country environments and the foreign subsidiaries.

4.2.1

Environmental Analysis

In the past 20 years the perception of the nature and context of international development has certainly envolved in the world. Whatever goals national states may follow, people all over, consumers, producers and government institutions alike have become sensitive to Sustainable Development. For companies with corresponding objective functions the task will include checking the global and competitive environment with special reference to the incorporation of requirements of Sustainable Development. Some of the relevant issues are: -

-

-

awareness and power of customers with respect to issues of Sustainable Development, e.g. customer pressure on Shell after its Brent Spar decision; rules and regulations of nation states with respect to issues of sustainability, e.g. tax incentives for investments in underdeveloped regions, pollution laws, requirements for using recyclable materials etc.; technology development with respect to Sustainable Development, e.g. for waste disposal, prudent use of energy and materials etc.; policies, strengths and weaknesses of competitors with respect to sustainability, e.g. attitude towards cultural diversity, human rights, production in host-countries utilizing child labor.

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Corporate Analysis

In this task the companies' own potentials for formulating and implementing strategies with integrated Sustainable Development are assessed. Some relevant issues are: - Management personnel: Management education and management schools of thought have traditionally been 'value-free' in the sense that corporate decisionmaking has been focused primarily on the means without questioning the underlying goals which have been and still normally are oriented towards profit, return-on-investment, market-share and other quantitative indicators. That means that managers who are trained to think and act in categories of Sustainable Development are probably in most companies a scarce resource. Companies may find problems to secure commitment and adequate responsibility among the managerial staff in this respect. Management personnel can be a constraint in achieving the goals of Sustainable Development in corporations - Product and production technology: Assessment of corporate potential with respect to technology is especially essential in connection with the ecology dimension of Sustainable Development. Corporations which already have developed materials and production processes congenial to environmental protection undoubtedly have advantages; extant technologies are also a sign of a certain developed awareness among the management which in itself can be considered as a support towards contributing to sustainability. - Research and Development: What potential in developing eco-technologies a corporation has is also an important factor towards the goal of Sustainable Development. - Logistics: What possibilities does a corporation have to keep down negative effects of intersubsidiary exchange of goods (ecological damage through transportation) without having to forsake advantages of global integration (economies of scale, locational advantages etc.)? Optimizing transportation routes, reorganizing warehouses and inventory, utilizing ecologically favorable transportation systems like waterways or even switching to local sourcing are some means of raising the logistic potential for sustainability. Especially the international cargo and transportation business has to assess and realize their potentials. The international freight company Schenker, for instance, has oriented itself to Sustainable Development and recently introduced the EUROCARGO-System which works with centralized warehouses ('Hub&Spoke') leading to a considerable reduction of truck mileage with higher efficiency.

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- Auditing: In the past years several models of so-called eco-auditing have been developed and are being applied by many companies. Besides quantifying actual incurred costs and benefits in connection with societal consequences of corporate activity (e.g. value of disposable waste produced, number of new jobs created), such auditing is a powerful normative tool for directing future policies and strategies of corporations. Companies using this instrument are much more liable to formulate strategies according to goals of Sustainable Development than firms without it.

4.3 Strategy Formulation The next phase involves formulating strategies of resource transfer and international management strategy 'local responsiveness - global integration' throughout the organizational hierarchy, i.e. on the corporate, strategic business-unit and functional level. To the extent that the objective function includes elements of Sustainable Development and the environmental conditions and corporate potential are also favorable to this effect, strategy formulation will have lesser problems in determining the pay-off between the economic imperatives of competition and moral requirements of Sustainable Development. Nevertheless, similar to the first phase balancing the two against each other will even here be the crucial issue.

4.3.1

Resource Transfer Strategy

On the corporate and business-unit level resource transfer strategy pertains to deciding on issues like country and region of direct investment, choice of technology transfer to foreign countries and choice of subsidiary ownership abroad. Naturally, the firms as economic institutions must first decide for strategy alternatives that enable long-term survival in global competition. However, the options for reducing some of the above mentioned problems of globalization and abiding to the normative guidelines are the greatest here. For instance, from the point of view of Sustainable Development international strategic alliances and joint ventures should be the preferred strategy over wholly-owned subsidiaries. They not only enable a conciliation of competition and prudent allocation of resources, but also can help to narrow the international technological and social gap much more effectively. Although multinational corporations transfer more technology to wholly-owned subsidiaries than to joint ventures, the diffusion is much more intensive and quicker through motivated learning by the local partner (Kumar 1995). Furthermore, regionalization rather than global dispersion of investment could be a more

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favorable strategy from the view-point of Sustainable Development. Economic power can be built up more effectively when resources are bundled regionwise. Ecological advantages can arise out of shorter transportation routes in exchanging goods and personnel. Even social conflicts can be reduced because of cultural affinity within the region. On the functional level resource transfer strategies pertain to evaluating transferred area strategies like marketing and personnel strategy in compliance with Sustainable Development. For instance, the well-known case of Nestlé in Africa is a point to show how detrimental the transferred marketing strategy to Sustainable Development can be. Or the practice of transferring untrained and culturally insensitive parent-company staff to foreign subsidiaries with foreign cultures has very often led to problems of the type forecasted by Huntington (1996).

4.3.2

International Management Strategy

On the corporate level formulation of international management strategy means deciding the general corporate policy an 'local responsiveness' and 'global integration'. Obviously, the balance between the two dimensions in actual management practice will depend on the type of business, function and task (Bartlett/Goshal 1989). However, on the corporate level the favored direction can be stipulated to some extent. Firms stressing 'local responsiveness' take the attitude that it is essential to assimilate in national cultures and to keep a low foreign profile. On the other hand with the emphasis on 'global integration' firms want to see themselves as something special and outstanding in their host-country. Some would even want to connotate their particular nationality (Chairman of a large German chemical multinational: "We are basically a German company and want to be seen in the world as such in our management practice!"). But apart from the basic philosophy, of course, the economic imperatives must also be taken into consideration. Firms relying on the economic benefits of global networking will have a higher tendency to also formulate a general policy to this effect. The general policy on international management strategy must also take into account requirements of Sustainable Development. Concrete guidelines can be derived from the foundations of the strategy dimensions: When firms opt for global integration they rely heavily on the world-wide deployment of standardized companies' capabilities. As such we have here a practicable model of diffusing modern innovative concepts, e.g. environmental technologies (pollution, energy-saving methods) which are congenial to Sustainable Development world-wide. The Bhopal desaster is a case to show the validity of this argument.

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Furthermore, global integration depends on the optimizing of resource allocation world-wide. This model provides a functional base for balancing quantitative and qualitative growth on a global scale. When multinational corporations concentrate production of standardized goods in the Third World and technology development and production of specialized goods in the developed nations, they in principle contribute with this international division of work to narrowing economic disparity. Singapore, for instance, owes over 80% of its economic growth to investments of multinational corporations. The higher the specialization and productivity in the First-World subsidiaries, the better the possibility of deploying modern production methods in the ThirdWorld plants and reducing the negative external effects that go along with quantitative growth. In sum it would appear that global integration could enhance the possibility of corporate activity in compliance with principles such as equity and prudence in relation with economic and ecological sustainability. When multinational corporations opt for 'local responsiveness'-strategies, they do so to adopt and adapt to local conditions. Considering Huntington's pessimism, however, it would appear that this element of the international management strategy is not developed and enforced strictly enough, if people all over the world are supposedly confronted with products, technologies and work practices that make them feel that their cultural identity is threatened. Even if this was the case, and empirical evidence confirms this to some extent at least, it cannot be denied that theoretically local responsiveness can be driven to the extreme that the foreigness of the corporation is completely overruled by a local identity, thus robbing Huntington's hypotheses of their underlying assumptions. In sum then we propose that the element of local responsiveness could enhance social justice and enforce cultural identity and therefore as a matter of policy (also) be considered in view of appraising its contribution to the social dimension of Sustainable Development. The actual balance between global integration and local responsiveness will be formulated in connection with the requirements of the business unit function and task. In view of the sustainable potential of the strategy dimensions, priorities may have to be reconsidered. For instance, in the Unilever business portfolio the detergent business may require a stronger emphasis of global integration because of the need of synergies in application of advanced technology in global environmental protection than the food business where local responsiveness has a higher importance not only as a matter of consumer taste. Also on the functional and task level finding the balance between local responsiveness and global integration must also be guided by goals and principles of sustainability. The production function may require a stronger global integration with the intention of universalizing modern safety norms developed centrally; the marketing function and here especially advertisement and

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promotion must not offend national norms and cultural identity and may therefore totally resort to local responsiveness, for instance by delegating function and task to local distribution and advertising agencies. An important area on the functional level is personnel since it has a crucial instrumental role to play. Personnel strategy formulation must be directed towards acquiring and developing managerial staff qualified for formulating strategies for Sustainable Development. For instance, one of the general selection criteria that is applied could be the level of awareness and experience of the candidate in dealing with economic disparity and prudence in previous foreign assignments. Personnel appraisal criteria that help to evaluate candidates' sensitivity in handling local cultural influences in foreign subsidiaries are useful in promoting firms' efforts towards social justice and cross-cultural sustainability. Of similar instrumental importance in this phase of the strategy process is designing a corporate culture which is conducive to formulating strategies on Sustainable Development. Understood as an agglomeration of common values, work norms and orientations towards the inside and outside world that result out of a learning process in the company (Schein 1984), the corporate culture can promote or discourage the pursue of Sustainable Strategies. In literature various typologies of organization culture have been proposed and one can assume different contributions from each of the variations. For instance using the Deal/Kennedy (1982) typology, one can expect the "analytical project" type of culture which among other qualities stresses long-term thinking to be relatively more sensitive for the normative pressures of Sustainable Development than for instance the "bread-and-game" type which stresses thinking in terms of short-term opportunities in the corporate environment and the challenge in utilizing them.

4.4 Strategy Implementation Strategy implementation means the specification of actual operations that are needed to realize the formulated strategy. Some critical problems of operative planning in connection with following sustainable strategies are: -

-

defining success factors in connection with relevant operative functions. For instance, implementation of sustainable global integration in production can be realized (and controlled) by setting global standards on energy consumption and materials waste. connecting operations in all functions with the strategic element. Companies are liable to lose sight of Sustainable Development in tackling daily problems. Mechanisms, like incentive systems for prudence in energy

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5

155

consumption on the shop floor level, will help keep the strategy formula alive. overcoming resistance to change and mental barriers which pose hindrances to strategy implementation. Also habitual behavior in operations may need changing. Instrumental for achieving this are development and training programs, for instance seminars or global sustainability or machine handling methods for energy and material conservation.

Conclusion

The gist of the argument in the paper was that multinational corporations in lieu of governmental institutions must voluntarily and in self-commitment take over the moral responsibility of reducing and overcoming the problems of globalization and thereby simultaneously actively contribute to sustainability of economic, ecological and socio-cultural dimensions of human life. Sustainable Development lends itself to the multinational corporation as the normative and strategic foundation for legitimizing its own existence, especially for bridging the gap of empirical and systemic legitimacy which on the long run threatens to undermine the stability of the global civilization (Orts 1995: 258). The deficit in legitimacy in other words can be a real danger to global peace; the multinational corporation for its own sake is forced to take over the moral responsibility of a citoyen mondiale and Genius universalis. An important objective of this paper was to show the processual procedure of dealing with Sustainable Development within the strategic management framework. Strategic management being enacted by free choice, this approach stressed the voluntariness of shouldering the moral responsibility by multinational corporations while simultaneously channelizing the commitment into the corporate decisionmaking process. While multinational corporations bear the moral responsibility in committing themselves to Sustainable Development, the task as such is not free of conflict. Sustainable strategic action by nature calls for a civilization of solidarity. Solidarity even at the lowest end implies forbearance and sacrifice especially from those who have income, jobs, social security, clean environment, cultural identity and social fulfillment. In order that forbearance is voluntary and nonviolent, a fundamental change of thinking and awareness in the world population, in all spheres of life is the conditio sine qua non for future peaceful coexistence. In essence this poses a philosophical problem and challenge, for it raises some of the most difficult moral questions of the modern world. It calls in question the most elementary idea of justice and the concept of rationalism

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and modernity - the very foundation of western civilization. Problems of contemporary industrial western society as seen by critiques (e.g. Guenson (1994), Cioran (1984)) are being traced back to the western 'ideology of rationalism' which since Descartes has been mistaking philosophical thinking for utilitarian intellectualism. According to these critiques this has led to a culture of nihilism which is void of traditional metaphysical truths and transcendental wisdom about human coexistence and only slave to means of science and technology for exploitation of fellow humans and nature. It is symptomatic that subjection and ecological aggression have been and still are classified as a "success criterion" of positivism (Lerch 1997). It is this thinking and the economic and industrial imperatives attached to it, primarily the economic growth paradigm, mass industrial production and consumption, that act as barrier to the practical implementation of international agreements on Sustainable Development. Five years after the signing of Agenda 21 in Rio the delegates at the New York Conference in June 1997 and at the Autumn conference 1997 in Kyoto had to admit that practically none of the points agreed upon had been effectively realized. For instance, the USA, the world's largest carbon-dioxide-polluter of the atmosphere(19.8 tons of emission per capita vs. 1.2 tons Asian average), was still reluctant to abide on short to midterm to agreed reduction standards for fear of impinging on the "American way of life". On the other hand, ironically, the developed world agrees, that in view of ecological destruction on the globe, it is not desirable that developing countries implement their growth strategies so quickly (Hart 1997: 84). In the same vein, it is not only cynical but also pretty much useless from the point of view of Sustainable Development to demand population control in the poorer countries, while at the same time per capita production and consumption continues to soar to record heights multiple times that of the former. As Leisinger (chapter 7) has shown, comparing the per capita C02-emission between China and USA, the American population swells from just 265 million to about 2.2 billion (vis-à-vis 'only' 1.2 billion Chinese). So in global perspective, what motivation would or should China have for population control? It appears that more than global solidarity, survival of the fittest is the prevailing principle in world coexistence. Such criticism may be harsh, but it makes clear that it will require a lot of effort on behalf of society to establish a culture of solidarity and justice which is conducive, even demanding to multinational corporations to indulge in sustainable strategy formulation. Maybe that some cultures, especially those which endorse spirituality, collectivism and nonmaterial values, have a somewhat easier job in creating the adequate environment. It is the intangible gains that have to be listed, and market driven economy must be seen in the correct perspective. Social development must be brought out as an entity in itself and not as subordinate to economics. In such an environment multinational corpo-

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rations have no choice but to voluntarily accept and carry the responsibility as moral agents in the world economic order.

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Part Two Ethics in International Strategies and Management Functions

Global Responsibility for Sustainable Development: The Role of Multinational Corporations Klaus M. Leisinger The experiences in connection with the planned deep sea disposal of the "Brent Spar" offshore rig and oil drilling platform have shown us that it is not enough for a decision to be in conformity with the laws and international regulations. It also needs to be acceptable to society. Deutsche Shell Aktiengesellschaft June 1995 Over the past 25 years the ecologically destructive consequences of nonsustainable social and economic forms of behavior in the industrial and developing countries have come increasingly to the forefront of scientific interest and of public perception. Today environmental problems occupy the investigative committees of various legislative bodies1, are the subject of important publications2, and in the minds of many people present the most urgent challenge facing humankind. In a survey carried out on a representative sample of 2034 young Germans between 14 and 29 years of age the Emnid Institute found that environment-related problems are what cause them the most anxiety3Understandably, in a period of recession and increasing structural unemployment, worries about holding onto one's job and a secure income have become many people's chief concern. Yet even so, collective and individual awareness of environmental problems has grown significantly in recent years. It has been scientifically documented that the public recognizes that core problems and trends toward the worse continue unabated - for example, climatic change, loss of biodiversity, soil degradation and freshwater depletion, amongst others4. 1

2

3 4

See e.g. Enquete-Kommission Schutz der Erdatmosphäre des Deutschen Bundestages (1995). E.g. the regularly published Jahrbuch Ökologie-, Stiftung Entwicklung und Frieden (1991); or Worldwatch Institute (1984); see also the annual "Global Environmental Changes" expertises of "Wissenschaftlicher Beirat der Bundesregierung" (1996). The survey results appeared in Der Spiegel No. 38/1994. Wissenschaftlicher Beirat der Bundesregierung (1996): 11

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This heightened awareness of and critical attitude toward environmental problems is giving rise to new expectations with regard to how business enterprises should conduct themselves.

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Industry's Conduct, Environmental Protection, and the Sociopolitical Mesh

The world of business does not bear the sole responsibility for the environmental problems confronting us - every single member of society does, meaning that private persons and the authorities and everyone else are summoned to change ecological course. However: in the world of political reality it is the impact of industry on the environment - with varying emphasis, depending on the field of activity - that occupies most often the foreground of public attention. Over a century ago that impact provided the stuff of a critical social tale. In 1884 Wilhelm Raabe published an authentic account of how a brook near Brunswick "crashed"5. The stream in question drove the waterwheel of a mill until ongoing pollution put a stop to it. This had palpable negative economic consequences for the mill and its owners, the Pfister family. The hapless miller put up a fight against the unexplained influx of an "appalling, disgustingly discolored, sticky stagnating liquid" emanating from a sugar factory upstream and in 1885 was pronounced entitled to compensation by the German Imperial Court. Because the court in handing down its opinion gave industrial progress paramountcy over environmental protection, however, the deplorable state of affairs went unremedied. This incident is still of interest because in many developing countries today the industrial progress that the economy needs continues to take precedence over protection of the environment. Understandable as this political priority may be from the viewpoint of short-term economic and social interests, in the medium and long term it would conflict starkly with the imperatives of sustainable development6. The Brundtland Committee Report of 1987 defines these imperatives as a social, economic and ecological course of action here and now that "meets the needs of the present without compromising the ability of future generations to meet their own needs".7 5 6

7

Raabe,W. (1985). See the concluding documents of the "UN Conference on Environment and Development" (1993); Scientific discussion of the problem set in going on 50 years ago with Kapp, K.W. (1950). World Commission for Environment and Development (1987): 8

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Clearly, in the long view there is no contradiction in principle between the preservation of a life-worthy environment and successful business activity. Although commercial success is normally the supreme objective of any business, in well-managed companies today the environmental compatibility of that success has an importance comparable with that given social compatibility. It is thus one of the three pillars upon which lasting corporate success stands. The thwarting of the planned sinking of the North Sea oil rig "Brent Spar" was a cautionary example of how corporate activity which a significant section of society feels to be ecologically deleterious can quickly result in a business set-back. The lesson: environmentally consonant corporate behavior is a matter of both ethics and of business prudence and correctly perceived selfinterest.8 Various factors influence how individuals and organizations comport themselves short-term in regard to the environment:9 -

their perception and interpretation of the "subject matter", relevant knowledge and intake of information, attitudes and value judgements, incentives to action (motivation, reinforcement), invitations and opportunities to act, perceived consequences of taking action (feedback); and perceived actions by model individuals and by groups to which one can relate.

For companies in business incentives to action play a central role. As a rule companies are not a priori "green", and certainly not selfless: they will do what is demanded of them or what they consider to be in their own interest. To be sure, there are more and more indications, that investments in protection of the environment bring, in due course, measurable economic returns; while in some cases the sins of the past and the expense of cleansing them from the slate may come back to haunt a company decades later. Short-term, however, environmental protection always entails extra expenditure at the outset - and this is not an incentive but rather an impediment to a greater effort. At present incentives are lacking mainly because the prices that products and services fetch on the market do not express the "ecological truth". 10 The substantial costs of making use of, and damaging, the environment fail to show up fully in corporate accounts, and for that matter in those of govern8 9 10

For a more general discussion of corportate ethics, business prudence and correctly perceived self-interest see: Leisinger, K. M. (1997). Wissenschaftlicher Beirat der Bundesregierung (1996): 21 Weizsäcker, E. U. (1992).

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ments and private households as well. Instead they are mostly "externalized", i.e. passed on by "freeriders" to society at large or to future generations. As things now stand and despite a paradigm shift since the UN Conference on Environment and Development (Rio de Janeiro, 1992), environmental policy is still shaped largely from "above": governments and regulatory authorities carry out the policy deemed befitting at a given time via a command-andcontrol mechanism. But because of the costs involved and their negative impact on profitability the entrepreneurial attitude to such policy in a globespanning field of competition is usually defensive and reactive. In these circumstances environmental protection that goes beyond the official national specifications, and in a developing country local regulations that may leave somewhat to be desired, has to depend solely on the idealism and ethical convictions of individuals in leadership positions. If, in contrast, markets and prices reflected in full the costs of exploiting the environment, then efforts aimed at reducing ecological damage would go hand in hand with efforts to bring down operating costs. With an entrepreneurial - as distinguished from a merely legalistic - structure of motivation, businesspeople would have an incentive to go for maximum "eco-efficiency" in their own interest11. It would then become economically rational to utilize all available possibilities, i.e.: -

introduce environment-friendly technologies, cut down on consumption of energy and non-renewable raw materials, pare waste to the minimum, replace problematic materials with others more sparing of the environment, and use materials that can be re-used or recycled.

An institutional framework answering to this description would have further positive effects on competitiveness. "Eco-efficient" businesses would put pressure on others to match them. Since laggards have to spend more in order to catch up, taking on the ecological leadership role in such a framework also makes economic sense. In addition there would be a stimulating effect on technological progress toward protecting the environment and minimizing the consumption of resources. Internalizing the costs of environmental protection - and, of course, elimination of harmful subsidies - would be socially beneficial, too. There are strong indications that economic instruments are more cost-effective than the

11

A concept introduced in the business contribution to the Sustainable Development discussion.; cf. Schmidheiny, S. (1992).

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traditional political instruments here 12 . The improved environment that a society aspires to can be brought about at a lower cost if high-priced bureaucratic controls are done away with and means and methods more costeffective than government-imposed ones are introduced in their place. Determining what lies in the present and future interest of a society - as for example by setting environment policy objectives - is, analogous to other areas of public responsibility such as social policy or defense policy, by law and the constitution the task of parliaments and governments. It is therefore the job of politics and not of business to set a price on environmentally relevant goods that is approximately consonant with their scarcity or with society's valuation of what their use is worth. Pollution charges, tradable pollution permits, performance bonds and other, comparable instruments reflecting that worth can serve to create market-economy incentives for environmental protection. Further desiderata for an officially formulated framework of ecologyrelated provisions are duration and predictability. Constant changes in response to how flavor-of-the-month priorities are construed cause uncertainty and confusion among businesspeople. A successful environment policy should also be broadly conceived and internationally coordinated. In view of the global dimension of the most important problems - the greenhouse effect, destruction of the ozone layer, devastation of tropical rainforests, loss of biodiversity - it makes little sense for a nation, not to mention a business' to go it alone. So long as an internationally coordinated internalization of ecological costs does not exist businesses have a perfectly legal right to shift their manufacturing activities - or the "dirty" parts thereof - to developing countries that have less strict environmental legislation and impose fewer conditions. So as to get clear on whether this sort of transfer or other management decisions motivated by the same considerations present problems from the perspective of business ethics, at least three questions need to be answered: -

Are differences in a company's environmental guidelines, as between its activities in an industrial and a developing country, permissible? Is the export of special (= toxic) waste to developing countries, assuming it to be legal, also legitimate? May differences in product policy as these relate to ecological concerns exist between industrial and developing countries, and if so what would justify them?

See for example Government of Canada (1992), Economic Instruments for Environmental Protection. Ottawa, also Repetto, R. (1995): 27-95

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The Question of Different Environmental Standards as between Industrial and Developing Countries

Let us suppose that a company meets the legal requirements and fulfills the officially stipulated conditions in a developing country but does not go beyond the legal minimum, even though this is distinctly below the average level obtaining in the industrial countries. Are these deliberately accepted differences in environmental protection standards legitimate? Although many a stakeholder will intuitively answer no, this response fails to come to terms with the complexity of the whole matter. Once again we have to weigh the pros and cons of various options and their consequences. On the one hand it is true to say that the most inclusive umbrella of environmental protection possible has intrinsic value. Everything that might add to the poverty-driven strain on the environment in many developing countries should be avoided. On the other hand it is also true that certain standards of reference in force in the industrial nations - for example, the degree of contamination tolerated in stretches of running water - are in Third World context luxuries, so to speak. They tend to derive from specific local political constellations in the industrial countries rather than from a sound basis in ecology. Transferring them to a developing country would be out of place and their price in relation to any practical return unbearably high. So a case can be made for going by the less stringent regulations that apply in the developing country: this could create additional, urgently needed paying jobs. The economic and social gains resulting from lower environmental standards would have to be set against the heavier burden on the environment. There is a further argument against making a company adhere to the same standards everywhere in the world. At many industrial sites in developing countries it may happen that the total pollution load is below-average, so that even if a certain company's emissions were higher this would not lead to unacceptable consequences for humans and nature. Black-and-white situations apart, what is "acceptable" and what is not resides to some extent in the eye of the beholder. From the operational point of view go-for-broke acts on the part of individual companies are unattractive, and in holistic perspective they are senseless. At sites where the coverall pollution load is immense because the nearby metropolis lacks a municipal waste treatment plant, the small and mediumsize businesses present are unaware of the environment or state-owned operations ride roughshod over it, the most lavish state-of-the-art outlays for environmental protection by multinational corporations can bring about only marginal improvements at best. It is like pouring drinking water into a sewer. Even under such adverse conditions the company is of course still obliged to

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apply its experience in controlling its own emissions. Anything beyond this, however, would amount to no more than a quixotic squandering of resources. Scrupulous consideration of various sites in developing countries can, then, legitimate the decision taken from case to case. But there are also good reasons for adopting a different approach that favors integral standards. Beyond the consideration, that environmental standards are drawing closer to those of industrial countries and that in view of this trend "timely" investment in up-to-date technology could prove remunerative, in that it might turn out to be less costly than a catch-up effort later on, reasons for a holistic environmental thinking lie outside the corporate sphere.

2.1 A Holistic Perspective: the "EcoSpace" Concept The concept of Ecological Space was first introduced in 1993, in a study titled "Sustainable Netherlands"13. Its guiding premise is the value judgement that every human being, today and in future, in the industrial and developing countries alike, has the same right to a decent environment and equal access to the globe's resources. In 1995 the Wuppertal Institute for Climate, Environment and Energy adopted the EcoSpace concept, applying it to the German Federal Republic in a study titled "Sustainable Germany"14. The train of thought underlying EcoSpace is both simple and persuasive. It calculates for various resource and emission categories (e.g. the "greenhouse" gas C0 2 ) what, from the standpoint of sustainability, the tolerable per capita consumption or emission is today or will be in a given future year. If the actual present-day figures or those anticipated for some future year exceed the level of tolerability, then the corresponding per capita consumption or emission must be reduced by a determinable percent. Since the greenhouse effect probably presents the biggest threat to sustainable global development and mankind's impact on the climate is increasingly dominated by C0 2 15, let us take this example to illustrate the EcoSpace concept. Today it is assumed that the oceans and the terrestrial biosphere absorb around 14 billion tons of carbon dioxide a year. In order to prevent a further increase in the concentration of C0 2 in the atmosphere and avert the discerned potential danger of global climatic change, one key feature of a pathway to sustainable development would thus necessarily be an upper limit of 14 billion tons on annual C0 2 emissions throughout the world. 13 14

Institute for Socio-ecological Research (1992). Wuppertal-Institut für Klima, Umwelt, Energie (1996). See e.g. Enquete-Kommission Schutz der Erdatmosphäre des Deutschen Bundestages (1995): 41 ff.; For further reading on the subject see Intergovernmental Panel on Climate Change (1994).

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This limit would necessitate substantial reductions. For 1992 the World Resources Institute has calculated overall C0 2 emissions of about 26 billion tons. Of that amount industrial activity and motorized traffic caused around 22.3 billion tons, slash-and-burning around 3.4 billion16. If, by way of simplifying the calculation, we assume that the increase in global C0 2 emissions in recent years has continued to be roughly as high as in the early 1990s, then the premise present-day volume could be around twice as high as what is admissible by the yardstick of sustainable development. If we proceed from the premise that every person on earth is entitled to the same, climatically innocuous portion of carbon dioxide emission, then with earth's 1996 population of about 5.8 billion people this would be equivalent to around 2.4 tons per person per year (= 14 billion tons divided by 5.8 billion). But by 2010, with a probable global population of some 7 billion 17 , the per capita figure will have shrunk to just two tons. When one compares these global target values with the known national actual values 18 , one finds in Germany, for instance, an annual per capita emission figure of about 11 tons and in the United States of about 20 tons. Africans and Indians, in contrast, emit only less than one ton per capita per year, the Chinese around 2.3 tons. If to a quantitative population-based analysis we add the qualitative ecological dimension, not just counting numbers of people but factoring in their ecological performance as well, we get a very differently weighted picture. Where carbon dioxide emissions are concerned we cannot compare 950 million Indians with 82 million Germans but rather with around 12.5 times as many of them, i.e. more than one billion Germans. 19 Applying the same yardstick to China and the USA, instead of 1.2 billion Chinese compared with 265 million US citizens the American figure swells to about 2.2 billion. 20 At no time since World War II has the eco-performance of the industrial nations' populations - their behavior in respect of mobility, energy consumption, production and waste disposal - corresponded to the demands of sustainable development. West Europeans - and with them the great majority of people in the USA and Japan, as well as the upper classes in most developing countries - allow themselves on average a far bigger piece of the limited pie of the earth's non-renewable resources than does the vast majority in Africa, Latin America or Asia. A comparison of most industrial countries' per capita 16

World Resources Institute (1996): 326 Population Data from Population Reference Bureau (1997). 18 World Resources Institute (1996): 326 f. 19 10.96 tons of C0 2 per capita emitted in Germany in relation to 0.88 tons per capita in India, multiplied by the population in Germany in 1996, i.e. 81.7 million. 20 19.13 tons of CO2 per capita emitted in the USA in relation to 2.3 tons per capita in China, multiplied by the US population in 1995, i.e. 265.2 million. 17

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consumption of precious metals with developing countries shows the same picture. 21 The affluent 15 or so percent of the world's population also produces a lot more emissions and waste than does the poor majority. Sustainable development of the whole community of life on this earth hinges on a change of ecological course in the industrial countries. A new orientation would also speed up the development of ecologically relevant technological advances, thereby opening up more solutions to the industrialization of the South. Only the romantically minded, or those unfamiliar with private and public poverty in the developing countries, can hold the notion that an improvement in the life quality of the impoverished would be possible without economic growth - and with it at least selective industrial development. The question of whether India or China or other populous developing countries shall industrialize is rhetorical. But if industrialization turned out to be merely a "catching-up" effort grounded in an outdated technological and ecological mind-set, the consequences for the global environment would be fatal. Many of the gains issuing from the industrial countries in reducing strains on the environment would end up being largely irrelevant to global sustainability. The probability that a majority of people in the developing countries will far-sightedly decide to forgo greater prosperity in order to avoid the mistakes we have made is slight. In the absence of ecologically dictated compulsions to act and of a change in the development paradigm that still holds sway in the present industrial world the probability is virtually nil. The global change of ecological course has to come from the industrial countries, not only for reasons of fair play and because they possess more know-how and resources, but also for reasons of feasibility. Sustained global development cannot be achieved unless the efforts of the developing countries to industrialize go forward in conformance with the highest possible standard of present-day environmental protection, rather than being patterned on the ecologically destructive precedent of our 1960s. Only then will there be a possibility that unavoidable local, regional and global stresses on the environment can be contained below thresholds above which long-lasting irreversible damage would ensue. One logical deduction from this reasoning is that - in the enlightened selfinterest of the industrial countries themselves - the transfer of ecology-related technology and techno-cooperation in the framework of joint development efforts must be greatly expanded. A further logical consequence is that multinational corporations should in their investment projects employ those ecologically relevant technologies that can still be financed with the resources available. 21

World Resources Institute (1996): 290

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As a means of sparing individual companies unrealistically high investment costs manifestly above the average in their field of activity it is imperative that broad coalitions and implementation partnerships be pursued. Where the means at the disposal of multilateral or bilateral cooperative programs for development can be applied to supporting the transfer of eco-technology it is legitimate, indeed essential, to do so. Every possibility of effectual joint implementation should also be made use of, with the aim of working on a global front to reduce globally prevalent emissions. Under such an arrangement extra efforts voluntarily undertaken in a developing country could be requited in the form of "credits" allotted elsewhere, for example in an industrial country.

2.2 Consequences for Individual Companies When it comes down to cases, a course of action that seems patently reasonable in holistic and ethical perspective can turn out to be laden with problems as soon as a company sets about putting it into effect. Naturally opportunities exist for forward-looking companies to play an active part in shaping environment policy, and naturally their participation leads in turn to new opportunities, Progressive businesses not only help to bequeath a world worth living in to future generations; they also garner credibility and public acceptance. There is mounting evidence, too, that having a coherent environmental policy and sticking to it can redound to the direct and indirect benefit of a firm: Where less energy and materials are needed, the operational costs will eventually come down, insurance institutions are more readily inclined to deal with "clean" than with "dirty" companies or scale their premiums on the basis of ecological performance; banks are more disposed to lend funds for preventing damage to the environment than for repairing harm already done. After all, whatever the actual cause of "Bhopal" may have been22, the lesson of that catastrophe has not faded, namely that one should perhaps not presume to shift highly hazardous industrial processes to a social milieu that is unable to cope with the risks. Hence, respect for the environment and a commitment to design products and production processes to fulfill their purpose safely and with the least possible environmental impact is in the enlightened self-interest of any corporation striving for sustainable corporate success. Such corporations make it, wherever they operate, a management responsibility to prevent waste and only when this route has been exhaustively explored. 22

An investigation carried out by Arthur D. Little found indication pointing to deliberate sabotage. Even the best environmental policy can scarcely exclude this possibility. See: Kalelkar, A./Arthur D. Little Inc. (1988).

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shall alternatives be considered, and then in the order of their ecological effectiveness, i.e. minimization, recycling, energy recovery, treatment, disposal. Even so: as already pointed out, one company alone cannot long continue to spend heavily on environmental protection when everyone else on the scene is stalling without jeopardizing its competitive position. Being the one white lamb in a herd of black sheep is an untenable situation - and does the environment no more than marginal good anyway. An ecologically responsible course of corporate action is an extremely complex, and as such cost-intensive, matter. These factors all play a role in it: -

Environmental acceptability (with reference to the atmosphere, water and soil) of finished and semi-finished products; Precautions and preventive measures to ensure safety during the transport and storage of problematic substances; Environmental acceptability of manufacturing processes, again with reference to the atmosphere, water and soil; Preventive measures for dealing effectively with accidents during production and transport; Intensity of the company's raw materials and energy consumption (developments in both relative and absolute terms); Volume and make-up of wastes (keeping in mind such possible flows as generation of less but more problematic waste); Continuous efforts to recycle raw/starting materials; Furtherance of eco-efficient technology; Continuous review of the status quo through environment and safety audits.

In short, the company that shoulders ecological responsibility is active at all levels. It does not compromise its commitment for economic or productivity gains. Of such companies we may expect that uniform principles and objectives inform their environmental policy worldwide and that they regularly run checks to ensure adherence to them. Double standards that lead to the infliction of avoidable or even irreversible harm on humans and nature are ethically indefensible. In reality, though, there is a continual trade-off between what is ecologically desirable, technically feasible, and economically affordable. The "limits to morality" are reached where ecologically correct conduct runs counter to sound business management and exceptional environmental exertions start to imperil a company's existence. Accommodations that in local context are necessary and sensible overstep the bounds of legitimacy when they deviate from what a company holds on principle to be right. This applies not just to production technology and process innovations, but to the product range as well. Today cleaning-up processes

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or problem-fixing steps carried out only in the final phase of production or application sequences - so-called end-of-pipe solutions - are no longer considered state-of-the art, though notably in developing countries a warrantable fraction of such operations will always remain because often this is the only way to go forward. Otherwise, however, environmental protection is increasingly understood to be a challenge that cuts across every aspect of a company's activities - from research to product development and on through manufacturing, use and disposal. Adherence to uniform standards need not mean identical technology in every case. On account of the political climate in a specific industrial country that has laid down legally specified limits on pollutants, a company may be forced to spend tens of millions of dollars, pounds, marks or francs on a denitrification plant, for example, in order to reduce its nitrogen oxide emissions by, say, 10 percent so as to stay below the official limit. But this does not mean that equally modern facilities need be built all over the world. A different approach, oriented on environmental conditions as they actually exist at a site in a developing country, can be justified by the fact that altogether different problems occupy front stage, so the same amount of money invested in something else will bring a much greater improvement in local environment quality. Keeping in mind the scarcity of both public funds and investment capital, cost-efficiency in environmental projects is of prime importance precisely in these countries. Taking the overall view rather than dwelling on single contributory factors can, fully in conformity with an envisaged objective, lead to a decision not to invest in further plant - to reduce C0 2 emissions, for example - even if technically feasible, but to put up the money for some alternative purpose - for example, in the framework of joint implementation C 0 2 - absorbing afforestation in developing countries. Because many accidents with negative consequences for the environment stem from human error, sustained programs of communication, training and education, and motivation are essential, particularly of course in countries where basic schooling is sketchy. Active support of programs aimed at enhancing sensitivity to the environment, working together with the authorities on ecological concerns, and the steady transfer of environment-related technology not only contribute to improving the quality of environment but also serve over time to upgrade a country's environmental legislation. This in turn means that as time goes on competitor businesses have fewer opportunities to give themselves an ecological free ride by undercutting others' prices and profiting at the expense of the public welfare. From the ethical standpoint individual company initiatives up to the limit of what is financially and technically practicable should be pressed for, since as said they are intrinsically worthwhile. Yet they can make only a limited

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contribution to a lasting improvement in the ecological status quo. Industrywide codes such as the one drawn up by the chemical industry under the banner of Responsible Care, the Business Charter for Sustainable Developmentoi the International Chamber of Commerce and a public accounting of what has been achieved through this code are encouraging steps in the right direction. In the final reckoning, however, only prices that express the ecological truth can bring about a change of course on a broad front.

2.3 Exports of Special Wastes to Developing Countries The Basel Convention of 198923 outlawed internationally the export of hazardous ("special") waste to developing countries. By 1998 the export of toxic waste from the OECD countries is to be banned "completely". The sad reality is that criminal attempts are being made to circumvent the Convention - for example, by means of false declaration. This kind of shady dealing does not belong to our discussion, however, as it is quite obviously illegal. The spirit of the international agreement is also repeatedly violated, as when substances such as PCB-containing waste oil, banned under the Convention, are mixed with other substances such as woodchips and then exported as "recyclable" material (for example, for use in power plants or as a fuel in steelworks) to developing or former East Bloc countries, where they are used or got rid of with health-endangering effects. Here again the ethical judgement is clear-cut: even if such doings might still be within the letter of the law they are illegitimate and irreconcilable with morally defensible behavior. More need not be said. One niche for the legal export of special waste could conceivably exist for example, if a developing country has built technically acceptable facilities for disposing of it and runs them with trained personnel as a commercial operation in order to earn foreign currency. Continuing the hypothetical example, let us suppose that there are desert areas in the country of no economic value other than as waste disposal sites. And one final assumption: thanks to low wages, government backing and the availability of suitable terrain the waste could be properly disposed of at a fraction of the price it would cost in the industrial countries. Given these conditions, would the legal export of special waste be justifiable? Provided that the waste was in fact as correctly disposed of as it would be in the country of origin, a "No!" to the question could not be substantiated on objective grounds alone. Yet to my mind there are psychological and political 23 The full designation reads Basier Convention on the control of transboundary movements of hazardous wastes and their disposal (1993).

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reasons for an internationally operative business to resist the temptation to solve its special waste problems by dumping in a poor neighbor's backyard. Although I may be accused of ethnocentrism, I think it is fair to state that for a variety of reasons - the technical capacity in place and special knowhow, among others, plus shortcomings in governance with attendant lack of supervisory controls - the responsible handling of special waste is fraught with bigger problems in most developing countries than in most industrial countries. Also, when there is a change in the technological state-of-the-art a developing country is less likely to keep pace than an industrial country. And a final consideration: apart from the ecologically problematic practice of transporting hazardous wastes over long distances, an "out of sight, out of mind" loophole could, by taking the pressure off, impair the motivation to do everything possible to prevent such wastes. Where the disposal problem looms large and the costs it involves are high enough, a company will cultivate a policy and practice of dealing with problematic wastes based on guidelines such as: -

-

-

Prevention and reduction of waste through innovative (and where possible integrated) process development, inclusive of resource-sparing production processes, re-use and disposal, Phasing out products and manufacturing processes which result in waste that cannot be disposed of in an environmentally compatible way, replacing them with (more) compatible products and processes, Disposal of what waste remains in the environmentally most compatible way at their place of origin or, where this would lessen the overall burden on the environment, at a nearby facility.

Were special waste tourism to be made possible, dangers in poor faraway countries and on the way to them would not be the end of the story. It would also mean removing the inducement to retool production technologies, sort out product ranges, and cut down on the volume and toxicity of wastes. All things considered, my value judgement reads: there remains no convincing argument that could tip the scales in favor of special waste exports to developing countries.

2.4 The Question of Variable Product Policies as between Industrial and Developing Countries Should it be allowed to sell products in developing countries that are not sold in industrial countries? For many people engaged in development affairs the question admits of just one answer: "No!". But here again we have to do with a matter that is not so easily settled.

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2.5 Variable Product Ranges as a Consequence of Distinct Market Characteristics The fact that a product is marketed in developing countries but not in industrial countries does not necessarily make it suspect. It may well be the case that, owing to certain climatic conditions or the presence or absence of a specific agricultural or medical problem, there is no market for the product in industrial countries. Normally, for example, you will not find leprosy medicines in a pharmacy in industrial countries, nor will it stock drugs against onchocerciasis and other tropical worm diseases. The number of patients who would require them is simply too small for pharmacists and manufacturers to keep them available in the normal national product range. A comparable situation obtains in regard to plant protection products that are only used in coffee or cotton, for coffee and cotton growers in, say, temperate Germany or Switzerland are few and far between. That is the reason why such products are not on the market in most industrial countries but are sold in those developing countries where a market for them exists. The precondition justifying geographically selective availability of products is that they be both effective and safe to use. This qualification in turn should be based on an internationally acceptable benefit/risk assessment rather than merely on the fact that the products have been registered in the developing countries where they are used. The absence of industrial country markets must not mean that the products have not been tested and approved in at least one industrial country whose regulatory authority is internationally recognized. As I see it there is no other way of ensuring product safety beyond all shadow of a doubt. The benefit/risk valuation of a product may also differ as between an industrial and a developing country, and for ethically unassailable reasons. A good case in point is DDT24.

2.6 The DDT Case In 1939 Paul Miiller, a research chemist with Geigy in Basel, discovered the insecticidal properties of dichloro-diphenyl-trichloroethane, commonly abbreviated to DDT. From 1942 to the early 1960s DDT was successfully used as a "wonder compound" against disease-transmitting insects. Thanks to DDT previously undreamed of progress was made in combating malaria, yellow fever and typhus. In India alone its intensive use resulted in a reduction of the annual death rate due to malaria from 750,000 in 1953 to less than 1600 in 24

See the Case Study of the Swiss Federal Institute of Technology (1990).

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1962. In Sri Lanka the number of cases of malaria plummeted, again thanks to DDT, from well over a million in 1947 to just 17 in 196325. Worldwide the death toll from malaria dropped dramatically. To date DDT has saved over 100 million people from malaria. Comparable successes were achieved in fighting yellow fever and typhus. This is the reason, that a case study of the Swiss Federal Institute of Technology (ETH) in Zurich counts DDT as being, "from the medical point of view [...] among the greatest achievements of our time".26 DDT's massive and undisputed success, the broad and long-lasting effectiveness of the substance, and its low manufacturing price led rapidly to its broadscale use. More and more agricultural crops were treated with DDT as a pesticide. While this brought the desired effect against the target insects, it also fostered the development of (relative) resistance in malaria-transmitting anopheles mosquito strains. This in turn impaired its effectiveness as an antimalaria weapon, with the result that greater and greater quantities were used. In 1962 the American biologist Rachel Carson published "Silent Spring", a book laden with heavy accusations against DDT: it was carcinogenic and mutagenic and could cause sterility. The book conjured up a catastrophic scenario in which all life on earth was endangered. The response was heard around the world, and in very short order the much-praised paragon became a sharply condemned whipping boy. Rachel Carson was unable to offer unshakeable scientific proof of many of her allegations. The substantial body of data available today, 32 years after her death, points to an altogether different risk evaluation. Neither epidemiological investigations of workers in DDT production plants nor animal tests indicate that DDT has carcinogenic effects. In anti-typhus campaigns tens of thousands of people were doused with DDT powder, yet they never showed clinically relevant symptoms27. The ETH study comes to the conclusion that the carcinogenicity of DDT now appears "all the more improbable, since what with the worldwide deployment of billions of tons of DDT over the past 30 years, such an effect would most certainly have had to be observed".28 Yet the lack of evidence to prove the accuracy of Ms Carson's apocalyptic prognostications did not diminish their credibility in the eyes of most readers of "Silent Spring". Its selective perceptions became the gospel truth for a widespread public and thus for political circles as well.29 Although months25 26 27 28 29

Sri Lanka Ministry of Health (1989): 130 Swiss Federal Institute of Technology (1990) Document No. 2. On this point see Mellanby, K. (1992): 20, 41 and 73 Swiss Federal Institute of Technology (1990). In its edition of May 19,1995 (A 10) the Wall Street Journal pointed out that this holds true in many other controversies centering on products or companies and that as a result businesses, even when completely blameless, can be driven into bankruptcy.

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long congressional hearings in the United States ended in the conclusion that there was no irrefutable proof that DDT was harmful, in 1972 the federal Environmental Protection Agency ordered a total prohibition on its use in the USA. Shortly thereafter several, if by no means all, industrial and developing countries followed suit with similar bans. True, the World of DDT was (and is) not perfect through and through. For one thing, uncritical use led as noted to increasing resistance in target pests, and for another it was found to accumulate in the food chain. Even though there are numerous indications suggesting that DDT is broken down much more rapidly in a tropical climate than in a temperate one, in many places on earth it can be detected in human fatty tissue and - more explosive emotionally - in mother's milk. Whatever the potential or actual toxicity of a substance may be, neither of these outcomes is desirable. In addition, various investigations point to the fact that DDT disrupts the reproductive behavior of numerous bird species, impairs the thickness of their eggshells, and in so doing endangers their survival. Also its toxicity to aquatic organisms dictates great restraint in its use. A suitable risk/benefit analysis of DDT has further to take into account that acute toxicity is as a rule more easily and precisely established than is chronic toxicity. This is especially the case when we are dealing with very slight quantities over a long period of time and in an environment where many other pathogenic substances are present, their interaction or accumulation often eluding detection. Its relative harmlessness notwithstanding, DDT is a substance that needs to be handled carefully in order to preclude avoidable harm to human beings and nature. Come to that, the uncritical use of any chemical is, for ecological and economic reasons, inclusive of energy waste, nonsensical. Here, too, the precept "as much as necessaiy and as little as possible" applies unreservedly. The history of DDT shows, however, how essential it is to analyze the facts of a complex and multifaceted case unemotionally and scientifically. Oversimplified pronouncements can result in unsatisfactory and - for people outside the circle ofjudgement - even fatal outcomes. An all-out prohibition fails to do justice to the complexity of the problem. In spite of intense efforts, up to now no one has succeeded in finding a substance to combat insect-borne diseases such as malaria that in respect of effectiveness, price and relatively low toxicity to humans could begin to compare with DDT. That is why the control of disease-transmitting insects (amongst other targets30) has lost ground massively in forcefulness and effecOf course the problems involved in vector control have a number of other causes: for example, lack of the political health sector; lack of efficient carry-through organizations, etc.

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tiveness. According to the latest estimates of the World Health Organization between 300 and 500 million people a year are still being infected with malaria.31 The consequence: anywhere from 1.5 to 2.7 million people, most of them children, die of the disease each year. Overstating the case for the sake of brevity, one can say that the use of DDT may cause the deaths of birds and aquatic organisms, but beyond a doubt it does save human lives. Over the years the human toll exacted by the ban on DDT has climbed to several hundred thousand lives lost - an immense tragedy. Viewed in this light, the total prohibition does not pass ethical muster. The way to resolve a dilemma in which benefits to human health have to be paid for in the coin of damage to the environment is to settle on the lesser evil, not to insist on a total ban. It would accordingly make sense to come down on the side of allowing a use of DDT strictly limited to a few applications serving the interest of public health. With the aim of evading risks alternative products, programs and measures that yield comparable results but are ecologically less dubitable should be followed up. These could include measures to eradicate disease-transmitting insects' breeding grounds (by draining swamps, for example, or hindering accumulations of stagnant water), mechanical and biochemical countermeasures such as traps and juvenile hormones, protective measures such as repellents, mosquito netting or suitable clothing, and others - notably stepped-up research to develop vaccines and better drugs. Where an alternative strategy is not possible or the required products are not available - or, in a financially strapped developing country, not affordable - the position has to examined in terms that, while based on sound science, pay sufficient regard to the specific conditions defining the situation in a given country. Logically, a risk/benefit analysis in an industrial country where malaria is no problem will for obvious reasons come to different conclusions than one applying to a country where masses of people suffer from, and die of, the disease. It is thus quite possible to conclude in good conscience that a company is not committing a breach of ethics if it produces and sells DDT in a developing country for the purpose of malaria control. To be sure, not every situation that calls for a decision on the use of products prohibited in industrial countries replicates the DDT case history. In many instances the position is unmistakable: if a ban has been imposed on the basis of clear-cut scientific findings with respect to impairment of human health or irreversible harm to the environment, then a company must stick to a coherent policy the world over, and the prohibited agricultural or industrial 31

WHO (1997), Malaria Reporting to WHO and Global Estimates of Incidence, http://www.who.org/whosis/malinfo/2-repest.htm (24. Sept. 1997).

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product32 may no longer be sold in developing countries either. Anything else would be tantamount to a double standard, and as such intolerable and immoral.

References Altner, G., B. Mettler-Meibom, U.E. Simonis, and E.U. von Weizsäcker (eds.) Jahrbuch Ökologie. München: Beck Verlag. Basler Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, in: Official Journal of the European Communities, 16.02.1993, No. L 39: pp. 1 ff Carson, R. (1962) Silent Spring. Boston: Mifflin. Enquete-Kommission "Schutz der Erdatmosphäre" des Deutschen Bundestages (1995,), Mehr Zukunft für die Erde. Nachhaltige Energiepolitik für dauerhaften Klimaschutz. Bonn: Economica Verlag. Government of Canada (1992), Economic Instruments for Environmental Protection. Ottawa. Institute for Socio-ecological Research/ Milieu defensie (Friends of the Earth Netherlands) (1992) Sustainable Netherlands. Den Haag. Intergovernmental Panel on Climate Change (1994), Climate Change 1994. New York: Cambridge University Press. Johnson, S.P.; The United Nations Conference on Environment and Development (UNCED) (1993), The Earth Summit. London: Graham and Trotman. Kalelkar, A. and Arthur D. Little Inc. (1988), Investigation of Large Magnitude Incidents: Bhopal as a Case Study. Cambridge, MA.: Arthur D. Little. Kapp, K.W. (1971J, The Social Costs of Private Enterprise. New York : Schocken Books. Leisinger, K.M. (1997), Unternehmensethik. Globale Verantwortung und modernes Management. München: C.H.Beck. Mellanby, K. (1992), The DDT Story. Famharn: British Crop Protection Association. Mintzer I.M. (ed.) (1994) Negotiating Climate Change: The Inside Story of the Rio Convention. Cambridge: Cambridge University Press. Opschoor, J.B.(1989), Economic Instruments for Environmental Protection. Paris: Organisation for Economic Co-operation and Development. Population Reference Bureau (1997), World Population Data Sheet 1997. Washington D.C. Raabe, W. (1985), Pfisters Mühle. Frankfurt a. M.: Insel Verlag. Repetto, R. (1995), Jobs, Competitiveness, and Environmental Regulation What Are the Real Issues? Washington D.C.: World Resources Institute.

With pharmaceuticals a different situation exists. Because practically every drug that is therapeutically effective also has undesirable but also, no matter how strictly prescribed and used, unavoidable side effects, the regulatory authorities have to come to a decision on how acceptable they are when weighted against the therapeutic good a drug does. In the treatment of life-threatening diseases such as cancer expert opinion may, having considered every aspect as objectively as possible, be prepared to accept potentially acute - but certainly not fatal - side effects. In the case of a cold remedy, in contrast, not even loss of hair or a skin rash will be tolerated.

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Schmidheiny, S. (1992), Changing Course: A Global Business Perspective on Development and the Environment. Cambridge, MA: MIT Press. Sri Lanka Ministry of Health (1989), Annual Health Bulletin 1989. Colombo. Starke, L. (ed.) (1997), Vital Sign 1997. New York: Norton. Stiftung Entwicklung und Frieden (1991) Globale Trends. Frankfurt a. M.: Fischer Verlag. Swiss Federal Institute of Technology (1990), DDT- in dubio pro reo? Zürich:ETH. United Nations Conference on Environment and Development (UNCED) (1993), Agenda 21. New York: United Nations. Weizsäcker, E.U. (1992), Erdpolitik. Ökologische Realpolitik an der Schwelle zum Jahrhundert der Umwelt. Darmstadt: Wissenschaftliche Buchgesellschaft. Wissenschaftlicher Beirat der Bundesregierung (German Federal Government's Scientific Advisory Council ) (1996), Wege zur Lösung globaler Umweltprobleme: Jahresgutachten 1995 / Globale Umweltveränderungen. Berlin: Springer. World Commission on Environment and Development (1987), Our Common Future, Oxford: Oxford University Press. World Resources Institute (1996), World Resources 1996-97. A Guide to the Global Environment. Oxford (New York): Oxford University Press. Worldwatch Institute (1984), State of the World. New York: Norton. Wuppertal-Institut für Klima, Umwelt, Energie (Wuppertal Institute for Climate, Environment and Energy), BUND (ed.) (1996), Zukunftsfähiges Deutschland. Ein Beitrag zu einer global nachhaltigen Entwicklung. Basel: Birkhäuser Verlag.

Corruption in International Business Relations: Problems and Solutions Michael H. Wiehen

1

Introduction

Corruption can have many manifestations, and countries typically develop a complex set of institutions, laws, rules and regulations (the integrity system) in order to combat corruption. Bribery and extortion in public sector procurement of goods and services are key manifestations of corruption. In the last few decades, bribery and extortion have reached unprecedented proportions, in developing or Southern countries as much as in industrial or Northern countries. The integrity systems have simply not functioned effectively, and much resignation has set in. The cost of corruption is enormous, and it is being borne by all but a very few. Many governments and business leaders have recognized the high cost of bribery and extortion, be it financial, economic, social, moral or ethical, including a highly distortionary and wasteful impact on government spending, and seek ways to curb and eventually eliminate corruption in such procurement transactions. This contribution will explain how serious a problem and cancer corruption has become. It will present some of the actions already being taken around the globe to combat corruption, and it sets out what can and should be done. Major corruption scandals in a number of countries have galvanized the public against this abuse of public power, and in several countries governments have been chased away in shame. Unfortunately, getting a new government does not necessarily mean cleaner processes, and the public may have to act again. But many governments have started to review and reorient their integrity systems, and they are receiving help from global or regional public institutions; business organizations have also started to introduce more integrity concerns into their business affairs; and civil society in many countries has begun to systematically fight corruption. The stakes are high, and the vested interests are firmly established. But there are first signs of change, and of a broader realization that corruption must be checked before it gets totally out of hand and destroys societies. There are reasons for hope. But success requires that all concerned citizens, in every country, consider themselves responsible to act, and act now.

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Definitions

Corruption, as used in this contribution, is defined as "the abuse of public power for personal gain". It refers to (1) the offer, or the giving, of something of value (money, gifts, services, travel, entertainment, education expenses for children, debt-forgiving etc.) by a business company, acting through individual employees or through agents, to a person exercising a public function, to influence the official in order to obtain or retain business (bribery), and (2) the demand, by such an official, from employees or agents of a business company, for something of value as consideration for acting in favor of the company, such as awarding a contract or allowing inadequate performance of a contract (extortion, in some countries called passive bribery). The gifts often are given not to the official directly but to relatives, friends or agents. If money is given, it usually is transferred into an offshore account. Swiss banks often serve as safe havens, as do banks in other countries with strict banking secrecy. The term corruption normally is used to include what euphemistically is called facilitation payments or petty corruption, which often are defined, perhaps self-servingly, as "minor bribery to obtain more speedily something one is entitled to", such as customs clearances, airport processing and entry visas etc. This contribution will deal mostly with grand corruption in international business transactions, but the issue of facilitation payments comes up in several contexts. Bribery by a private business of another private business is not included here, even though the recent past has seen a number of major scandals breaking into the open, especially in the European automobile industry. Some country reviews of their integrity systems include strengthening of the criminalization provisions dealing with such cases. And yet, one can assume that the private interests being violated by the bribe will be able to look after themselves; here we are concerned with abuse of public power, and damage to public financial interests. As the title indicates, the chapter does not deal with political corruption. However, bribery of (and extortion by) politicians in connection with the award of public contracts is a common manifestation of the grand business corruption. In circumstances where corruption in a country is all-pervasive, it may be impossible to curb business corruption without first curbing the impact and scope of political corruption. Normally companies bribe individually (though often in parallel with other companies), to influence the decision making in their favor. But corruption also frequently takes the form of price fixing or collusion, where the competing companies agree among themselves which company, usually in turn, will submit the lowest (winning) offer, while the others submit protection offers.

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"Officials" will always include civil servants, cabinet members, public employees with responsibility to act on behalf of the state (or a province, large or smaller cities and communes, or a parastatal organization), and exercise discretionary powers. As in more and more countries public functions are devolved to companies set up under private corporate laws, the opinion is rapidly growing that those exercising discretionary power in such companies must also be considered "officials" under the bribery laws. However, this still varies from country to country, and the lines are fluid. "Business" affected by bribery and extortion may be the sale of goods, the agreement for contracting or consultancy services, the sale/purchase of state assets in privatization, mining or logging licenses etc.

3

Aspects of Corruption

Corruption today is a truly global phenomenon. It occurs in just about every country of the world. Spread and financial impact of corruption have grown massively during the last 30 years or so. Until a few years ago citizens of countries in the North believed that corruption was a problem of "the South", citing the horror cases of Ghana, Indonesia, Pakistan, Zaire. Their comfort at believing this "cancer" to be rampant only in far-away countries was rudely shattered when news about major corruption scandals in Belgium, Germany, Italy, Japan and the United States came to light. It is still often said, usually rather self-servingly by industry representatives who admit freely that they pay bribes routinely to obtain export orders, that there is a culture of corruption in many developing countries, suggesting that to participate in such practices is socially and ethically acceptable. Nothing could be more wrong. Every country has declared bribery of its officials illegal. Vast majorities of the people in those countries detest the corrupt practices of their officials, and they suffer severe financial and other damage resulting from corruption. Petty corruption and facilitation payments have been a part of life in many countries, but that does not make them part of the "culture". Grand corruption has been exported and introduced by international business houses. It is a case of chutzpa if major corporations today complain about the "high cost of corruption".

4

The Corruption Perception Index

Several efforts have been made to compare and rank countries as to the incidence and impact of corruption. Using data collected by various business

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magazines and journalists, mostly by polling business people regarding corruption problems encountered by them, Transparency International, an international Non-Governmental Organization dedicated to fighting corruption, in conjunction with Dr. Johann Graf Lambsdorff at the University of Goettingen in Germany, has put together a corruption perception index. The first issue came out in 1995, the third and most recent in July 1997. Ranking countries on a scale of 1-10, the Nordic countries and New Zealand, Canada and the Netherlands came out above 9, indicating that doing business there encounters very little corruption. In the 1997 survey, Nigeria, Bolivia, Columbia, Russia and Pakistan came out last, with a ranking around 2. The lowest-ranked European Union member country was Italy, at 5.03. While the ranking first of all reflects "perceptions", gives perhaps undue weight to business in the Southern countries and is fraught with a number of interpretation and time lag problems, the outcome surprises few people. If nothing else, the index confirms the global nature of corruption.

5

Legal Treatment

Bribing an official in the bribe-giver's own country is illegal and a criminal act everywhere. Yet bribes given in one's own country still are largely taxdeductible as "useful expenditures". Many countries contain some constraints but few of them have any bite. In Germany, under the Jahressteuergesetz for 1996, bribes cannot be deducted if the bribe-giver has been convicted, under a criminal law, of paying a bribe, or has been hit with a fine. Considering that in the majority of bribery cases, no conviction or fine can be obtained, due to the difficult requirements for evidence, this means in reality that domesticallygiven bribes continue to be quite freely deductible. Bribing an official in another country (transnational bribery) is a criminal act explicitly only in the United States, under the Foreign Corrupt Practices Act of 1977 and, with some reservations, in the United Kingdom. In a few countries general criminal provisions may allow the prosecution of transnational bribery, but there are very few actual cases. Bribes given transnationally are generally tax-deductible in most countries (except in the US, the UK and Japan). In the US, the Foreign Corrupt Practices Act (FCPA) was enacted in 1977, under President Jimmy Carter, when it became evident that several major international bribery scandals involving US corporations caused heavy damage to the US-internal economy and to international and domestic politics. The FCPA contains a catalog of outlawed practices, defining bribery rather broadly but excluding specifically facilitation payments. The FCPA also contains detailed accounting standards, enforcing transparency and accountability. The

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FCPA is enforced vigorously, with heavy fines imposed on companies caught violating the Act, and sometimes jail for managers. The Sentencing Guidelines provide for appropriate acknowledgment of the seriousness of the case (with a range between $5000 and $72 million) and the degree of guilt by the corporation (a scale of between 4 and 0.01). The US Securities and Exchange Commission (SEC) and the Department of Justice share enforcement responsibility for the FCPA. Convictions are published through the SEC, and thus will have an impact on the stock exchange performance. Several dozen cases have been concluded under the FCPA. Clearly, changes in the national laws of other countries to criminalize transnational bribery and to end tax-deductibility are an essential step in any country's efforts to reduce and ultimately stamp out business corruption.

6

Sample Cases

6.1 Zaire - International Airports Instrumentation Case Already in the 1970s, a transport minister in Zaire obtained notoriety by signing a contract with a major European electronics manufacturer for the instrumentation to international standards of ten airports in Zaire. It was well known - including to the contractor - that at that time Zaire had only three airports which could handle long-range aircraft. The minister's "commission" was said to be a "modest ten percent".

6.2 Belgium - Agusta Helicopter Case In the mid-1980s, the Italian arms manufacturer Agusta and the German manufacturer MBB competed for the sale of helicopters to Belgium. Agusta succeeded in getting the contract - allegedly through heavy bribery. Among the senior officials who were forced to resign in the wake of this scandal was the then NATO Secretary General Claes.

6.3 India - Bofors Case In 1985 and 1986, the Swedish arms manufacturer Bofors was caught, by the Swedish Auditor General's Office, having transferred about DM 70 million in bribes into several trust accounts in Swiss banks in connection with the company's largest export order ever — to India. The beneficiaries of these bribes

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have not yet been fully established. In the late 1980s the Government of India requested the Government of Switzerland to assist in getting information from the banks as to the true owners of the trust accounts used for the bribe money transfers. India's efforts were nearly frustrated. Finally, in early 1997 a high court in Switzerland decided that India had a right to the requested information. It remains to be seen how and when the Swiss banks will respond to this court ruling.

6.4 Japan - Pharmaceuticals Scandal A particularly sad case of corruption happened in Japan in the 1980s. Two international and three Japanese pharmaceutical companies allegedly paid nearly half a million US-dollars to the director of the Japanese Aids Research Team, for his efforts to persuade the Japanese Government to admit non-heattreated blood plasma into Japan, even though it was already known at the time that the HIV virus could be killed only by heat treatment, and the Japanese laws allowed the import only of heat-treated plasma. The Health Ministry changed its position and allowed the import of non-heat-treated blood plasma. Of 4000 hemophiliacs in Japan, 1800 became HIV positive, and more than 400 died of Aids.

6.5 Germany - Munich Water Treatment Works Scandal In 1992 five Siemens middle managers were convicted - and sent to jail - for bribing Munich city officials in order to get the contract for the process guidance electronics for a new water treatment plant. The most interesting aspect of this case is the fact that the bribe apparently was paid into a Swiss bank account and recorded, in the company books, as "commission for turbine, Korea"; this way, the bribe payment became tax-deductible, with no questions asked.

6.6 Singapore - Power Generation Investment Case In 1996 Singapore surprised the world by blacklisting for five years five major international corporations (Siemens/Germany, Pirelli/Italy, BICC/UK, Marubeni and Tomen/Japan) for having been caught bribing Singaporean officials in order to get contracts for power investments. Siemens explained that they had indeed paid a sizeable commission to an agent in Australia, but claimed not having known that the agent used a major portion of his commission to bribe Singaporean officials.

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Costs of Corruption Type of Costs

Bribery and extortion have a very high cost to the public at large. 1) The investment costs of a specific project, where the contract was obtained by bribery, will escalate, either from the beginning or later during execution. Bribery at the contracting stage will lead to the absence of competition (and the price-moderation usually associated with competition), or it will defeat competition by price-fixing or collusion. Bribery during execution may manifest itself by unplanned cost increases or by reduction of project scope without a commensurate reduction in the price. 2) Bribery during execution will lead to substandard performance (cheaper materials, leaner cement mix, execution below specifications), reducing the life expectancy of the project, or requiring higher maintenance expenditures. 3) Bribery often results in the selection and execution of projects that are uneconomic or unnecessary, thereby preventing the financing of investments or expenditures that economically, ecologically or socially would be much more desirable. A particularly frequent occurrence is that due to the absorption of scarce resources for uneconomic investments, urgent maintenance expenditures are deferred, with the result that buildings, roads, water works or schools deteriorate much faster than they were designed to do. There is much more opportunity for bribery and extortion in investment projects than in maintenance activities, creating a strong bias in favor of heavy expenditure investments. 4) By the wastage of scarce resources, bribery thus contributes to the erosion and undermining of development; it replaces competition and market forces; and after time it will scare off investors (who will shy away from investing their money in a country where the real return on their investment is so uncertain); even honest contractors and suppliers will build the cost of delay and uncertainty into their price structure. 5) In the worst cases, corruption opens the door to organized crime and undermines and endangers democracy. A quantitative assessment of the costs of corruption is difficult. In general, cost increases due to corruption are likely to be in the range of 15-40% of contract value.

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A particularly interesting, even dramatic assessment was announced recently by one of the judges of the Italian Mani Pulite (Clean Hands) pool. This judge reported staggering differences in the costs of several major investment projects in Milano, Italy, prior to and after the anti-corruption actions of the early 90s: Construction of the subway cost $227 million per km in 1991; in 1995 the actual cost amounted to $97 million. For a City rail link, costs were reduced from $54 million per km in 1991 to $26 million in the mid-90s. The new airport terminal was budgeted (in 1991) at $ 3.2 billion; the most recent cost estimate is $ 1.3 billion. Even if only a portion of the savings is due to avoided corruption payments, the results are highly significant. The Milano study suggests that across-the-board savings in infrastructure outlays since the anti-corruption drive started are in the 35-40% range. It is even better news that the City of Milano has been able, with these savings, to significantly increase outlays for the maintenance of schools, roads, street lamps and social services. Another testimony to the high cost of corruption comes from the Ombudsman of the Philippines, who at a public conference in Manila in 1995 reported that the "cost to the Philippines from corruption over the last 20 years amounted to about US$ 48 billion". As evidence that corruption causes heavy financial costs in industrial countries as well, Professor Udo Mueller, the President of the Hessischer Rechnungshof (Auditor General's Office of the State of Hesse), said in 1995 that in the construction field alone, damage to the State of Hesse from corruption could be conservatively estimated at between DM 120 and DM 170 million per year. Chief Prosecutor Schaupensteiner in Hesse estimates that in Hesse construction costs are 20-30% above what fair competition would have resulted in. Prof. Mueller also estimated in 1996 that the damage from corruption in the construction field in Germany was around DM 5 billion per annum. These are staggering numbers indeed.

7.2 Who bears the costs? The costs of corruption are in the first place borne by the people in the country where investment and other economic decisions are influenced by bribery. They suffer under the general deterioration of the ethical and moral environment, they suffer due to misallocations of the country's resources, and they suffer directly, financially, through higher tax obligations that are needed to cover the higher costs. However, a major share of the costs is also borne by the tax payers in the bribe-giver's country: 1) Bribes are generously tax deductible. Even for domestic bribes, the usually more generous treatment of transnational bribes can be harnessed by mak-

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ing transfers through external banks and declaring the payments to be associated with transnational business transactions. 2) Few countries publish the amount of bribes (usually called commissions) for which tax deduction has been granted. Belgium recently published such figures (Reply of Vice Prime Minister and Finance and Trade Minister on July 30, 1996, to question no. 93 asked by a Mr. Verreycken on June 7), and it would be an interesting exercise to get similar data made publicly available in other major exporting countries. The present budget squeeze in many countries should make it possible to mobilize public opinion behind a drive to reduce or eliminate tax deductibility for bribes. 3) Export Credit Guarantee coverage is provided generously by many industrial countries; frequently contracts obtained by bribery go sour, and the state guarantee is invoked. While most national agencies offering such export credit guarantee coverage (funded out of public resources) allow rejection of claims in cases where bribery is demonstrated, no cases are known in which such denial was exercised. In Germany, Hermes has written coverage for huge contract amounts in such countries as Indonesia or Russia, and yet not a single case of denial of claims is known. In the United Kingdom, if the insured contract breaches local law (including the bribery law) cover is automatically invalidated; however, the application of the current somewhat broader interpretation of the bribery law in relation to transnational bribery has yet to be felt. 4) Finally, a number of heavily indebted countries (a portion of the debt being due to contracts obtained through bribery) have been granted debt forgiveness or debt rescheduling. Again, the tax payer in the exporting countries pays the bill.

8

Public Reaction

While for years the people of most countries have accepted corruption as an unavoidable evil, a change in attitude has occurred and is getting stronger. People in many countries have started to protest and demand change. Corrupt governments have been chased away by public anger in such a variety of countries as Japan, Korea, Thailand, India, Pakistan, Italy and Belgium. In Korea, two former presidents have been convicted of crimes combining political and business corruption. In India, a number of Union cabinet ministers and eventually India's Prime Minister himself had to resign on grounds of corruption. The media around the globe expose and attack corrupt politicians and

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civil servants. In early February 1997, 400 French magistrates signed an appeal against international corruption. And many citizens' groups have sprung up globally with the goal of fighting corruption.

9

Corrective Action

What is being done? What can and should be done? The range of possible actions against corruption is broad, and so is the list of activities actually underway in many countries. A few countries have embarked on a sweeping review and reform of their national integrity system, in order to prepare a comprehensive program to eliminate corruption. Typically such programs include actions of preventive nature as well as punishment. A national integrity program could include any or all of the following elements, depending on the present state of affairs: 1) a reform of the civil service system, with the goal of adjusting the size of the civil service to the actual needs (correcting the sometimes severe overstaffing) and paying those who remain adequate ("living") salaries; 2) a reform of government structures and functions, with the goal of limiting the scope for government discretionary power, and thus the opportunities for bribery and extortion; part of this aspect is the acceleration of privatization of government assets and, even more broadly, the privatization of management of certain public functions; in general, the involvement of the state in business activities should be reduced as much as possible, so as to reduce the incentives and opportunities for corruption; 3) a reform of the country's laws and rules governing the procurement of goods and services, with the goal of assuring an economic and efficient process, full and fair competition and transparency; this should include a commitment to procurement by competitive bidding (with very few exceptions, such as for contracts of insignificant value, or true emergency cases), public opening of bids and public access to the bid evaluation report and the bid selection decision including the assessment of the bids and the reasons for selecting the winner; disclosure of all commissions paid, and the blacklisting/debarment of violators; 4) a reform of the country's accounting and auditing requirements and rules, with the goal of achieving full accountability and transparency; this should include a review of the Auditor General's office, to assure it has independence, adequate powers and resources, and that its reports are read and acted upon;

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5) a reform of the country's criminal law and tax systems, with the goal of ensuring criminalization of transnational bribery and the abolishment of tax deductibility of bribes; 6) a reform of the rules governing the disclosure of assets and income of members of the political and the civil service structure, with particular attention to the monitoring and sanctioning instruments and procedure; simply allowing the filing of such disclosure statements with a senior official who will store them unread in a safe room, as is the practice in many countries, should be totally unacceptable; 7) a reform of the rules governing the financing of electoral campaigns (since it is well known that a major reason for extortion by politicians is the objective to pay off the heavy debt incurred in the election campaign); 8) a reform (and normally strengthening) of the institutions charged with monitoring, applying and enforcing a country's integrity system, including the Judiciary, the Auditor and Attorney General's offices, the AntiCorruption Bureau/Commission, the Ombudsman etc., with the goal of ensuring that they have adequate independence, powers, resources and accountability; this should include adequate protection for whistleblowers; and 9) a reform of the laws, rales and regulations within which civil society, nongovernmental organizations and the media work, with the goal of enabling them to make their full and constructive contribution to the strengthening of the country's integrity framework; a more active role of civil society in monitoring government activities and assuring transparency and integrity could make a major difference in the credibility of a government's efforts of persuading its people that it is serious and determined to fight corruption.

9.1

International Initiatives

9.1.1

The United Nations

Several well-meant initiatives of the United Nations (UN) in the last 20 years have failed and have been aborted. In 1977 a Code of Conduct for Transnational Corporations was drafted but was not implemented. In 1980 the Economic and Social Council of the UN (ECOSOC) prepared a Convention against Illicit Practices, but this also was aborted. Finally, on December 16, 1996 the UN General Assembly issued a forceful Declaration against Corruption and Bribery in International Commercial Transactions. In its Preamble, the Declaration refers to:

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[...] the need to promote social responsibility and appropriate standards of ethics on the part of private and public corporations, including transnational corporations^..] inter alia, through observance of the laws and regulations of the countries in which they conduct business, and taking into account the impact of their activities on economic and social development and environmental protection.

Under the Declaration, the Member States commit themselves: 1/ to take effective and concrete action to combat all forms of corruption, bribery and related illicit practices in international commercial transactions [...] 2/ to criminalize such bribery of foreign public officials in an effective and coordinated manner [...]

4/ to deny [...] the tax deductibility of bribes paid by any private or public corporation or individual of a State to any public official or elected representative of another country [...] 5/ to develop or maintain accounting standards and practices that improve the transparency of international commercial transactions [...]

10/ to ensure that bank secrecy provisions do not impede or hinder criminal investigations or other legal proceedings relating to corruption, bribery or related illicit practices in international commercial transactions, and that full cooperation is extended to governments that seek information on such transactions [...].

This Declaration could be a powerful document, since it was passed by consensus in both the General Assembly and the ECOSOC, it calls on several other UNUnited Nations (UN) Organizations to take complementary action, and it instructs the Secretary General of the UN to report to the next session of the General Assembly as to what the UN, its organizations and the Member States have done and are doing to combat corruption. In particular clause 10 referring to bank secrecy provisions could prove to be a useful instrument when governments trying to track down the movements of bribe money face routine bank secrecy claims. However, the UN faces the challenge of pulling together the widely diverging views of many countries.

9.1.2

The World Trade Organization

The first Summit Meeting of the WTO (December 1996, in Singapore) accepted corruption as an issue to be looked after by it, and a Working Group on Corruption was established. Significantly, Indonesia strongly resisted the inclusion of corruption on the WTO agenda, fortunately to no avail.

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The Organization for Economic Cooperation and Development (OECD)

The OECD is managing the presently most promising effort at modifying international law and rules against corruption. On May 27, 1994 the OECD Council issued a Recommendation to its Member States (based on a proposal of the Committee on International Investment and Multinational Enterprises, or CIME), to the following effect: 1) Member States are asked to take effective measures to deter, prevent and combat the bribery of foreign public officials in connection with international business transactions; 2) Member states are asked to examine the following areas concerning the bribery of foreign officials and take meaningful steps to meet the goal: a) criminal laws; b) commercial and administrative laws and regulations; c) tax legislation, regulations and practices insofar as they may indi rectly favor bribery; d) company and business accounting and auditing requirements and practices; e) banking, financial and other provisions so as to assure adequate re cording, and making information available for inspection and in vestigation; f) laws and regulations regarding public subsidies that could be de nied as sanction of bribery; g) international cooperation including the sharing of information and sanctions; and h) an invitation to non-OECD member states to join in this effort. Since then, a Working Group at the OECD has been very active developing more specific and detailed recommendations, and has succeeded in getting several of them approved by its Ministerial Council. On April 11, 1996 the OECD Council issued a much more specific Recommendation on the tax deductibility of bribes to foreign public officials. The main recommendation states: Those member states which do not disallow the deductibility of bribes to foreign public officials are asked to re-examine such treatment with the intention of denying this deductibility.

The Council report acknowledges that denying tax deductibility would mean a departure from the general principle of tax neutrality; nevertheless,

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in view of the commitment of governments to deter bribery, the Committee feels that such a departure is justified.

On May 11, 1996, the Council of the OECD met at Ministerial level and approved the Council Recommendation of April 11, 1996. The Ministers adopted a Plan of Action for OECD governments, and, as part of that Plan, commit to [...]

(x) re-examine the tax deductibility of bribes to foreign public officials, with the intention of denying this deductibility in those Member countries which do not already do so, recognizing that such action may be facilitated by the trend to treat bribes of foreign officials as illegal; and criminalize such bribery in an effective and coordinated manner in order to combat bribery in international business transactions and, for that purpose, further examine the modalities and appropriate international instruments to facilitate criminalization and consider proposals in 1997 [...].

CIME was instructed by the OECD Council to conduct, by the Spring of 1997, an overall review of the compliance by member states with the 1994 Recommendation on Bribery. As part of that review, the OECD Working Group on Bribery conducted a hearing in November 1996 at which industry representatives confirmed their support "in principle" for the fight against corruption, but warned about the danger of non-parallel introduction of antibribery laws (and the possibly different treatment of bribery) and argued for going instead for an international convention. In its Review Report, issued in April 1997, CIME reported that since the 1994 Recommendation, only three countries (Belgium, Netherlands and Norway) had drafted legislation toward criminalizing bribery, and only one (Norway) had abolished tax deductibility. In that same Report CIME also addresses the issue of accounting requirements, external audit and internal company controls. It argues that ...the requirement to keep accurate records, coupled with adequate penalties for violations, deters companies from making illegal payments or creating slush funds.

It also stresses the importance of strong internal company controls: Strong internal management controls, in the sense of both accounting controls and broader systems to create an ethical environment and build safeguards into procedures for authorizing and supervising payments, form an essential bulwark against corruption.

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Among the recommendations relating to: a) Adequate Accounting Requirements: [...] Companies should be prohibited from making off-the-books transactions or keeping off-the-books accounts [...].

b) Independent External Audit: [...] Member countries should require the auditor who discovers indications of a possible illegal act of bribery to report this discovery to management and as appropriate, to corporate monitoring and bodies [...]

and c) Internal Management Control: [... Goverments] should encourage the development and adoption of adequate internal company controls [and governments] should encourage companies to provide channels for communication by, and protection for, persons not willing to violate professional standards or ethics under instructions or pressure from hierarchical superiors [...] the very important protection of whistleblowers.

Concerning the use or denial of access to public procurementas an incentive or sanction related to corrupt behaviour, the Report made the following suggestion: [ ] Members countries' laws and regulations should permit authorities to suspend from competition for public contracts enterprises determined to have bribed foreign public officials in contravention of that Member's national laws and, to the extent a Member applies procurement sanctions to enterprises that are determined to have bribed domestic public officals, such sanctions should be applied equally in case of bribery of foreign public officials.

According to the Report, several countries suggested that Member countries' public procurement contracts should require enterprises to certify that (a) they have complied, and will comply, with all applicable anti-bribery laws with respect to the contract in question; (b) they otherwise conduct their business in compliance with all applicable anti-bribery laws; and (c) they have in place internal management and accounting practices and controls that are adequate to ensure compliance with all applicable anti-bribery laws.

This latter suggestion reflects and largely coincides with the Integrity Pact of Transparency International, described further down in this contribution. However, it did not make it into the final recommendations.

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In an important step forward, the OECD Council at Ministerial Level on May 26, 1997, approved a Revised Recommendation on criminalization, tax deductibility, accounting and auditing and public procurement, adopting largely the text prepared by CIME and the Working Group. While it urged Member countries to adopt appropriate national legislation to deal with the issues of taxes, accounting/auditing and procurement, it made a strange compromise on criminalization: The Member countries commit themselves to submit national legislation proposals to their legislatures by April 1, 1998 and to get them passed by end-1998. At the same time the Council agreed to start immediately with negotiations toward a convention on criminalization, among the OECD Member countries, which is to be fully agreed and ready for signature by December 31, 1997, and to be ratified by enough countries so that it can be in force by the end of 1998. Since the Working Group had prepared extensive „common elements" for the treatment of criminalization, it was able to swing promptly into action, and there is a good chance that a convention text will indeed be ready for signature by the end of this year. Should the convention route fail after all, it is questionable whether the Member countries feel they can act on this thorny issue only if at least their major competitors act in parallel and concurrently. The OECD action is so important because ist 29 Member countries are home to almost all large multinational enterprises. In addition, the Recommendations are binding on all new Member countries, and have already been adopted by non-member countries such as Argentinia, Bulgaria, Chile and the Slovak Republic. If one wishes to see an effective change in national laws criminalizing transnational corruption and ending tax deductibility - and everybody who is interested in serious improvement of the legal structures guiding the fight against corruption should strongly support this - then acting on the OECD Recommendations is clearly the most efficient and effective course of action. The technical work done by the OECD Working Group is of such high technical standard and comprehensiveness that little if any additional work is required. All that is needed now is the political will to adopt the legal framework that finally sends a clear signal that transnational corruption is highly undesirable and must be stopped.

9.1.4

European Institutions

The member states of the European Union regard "the combating of crime damaging the European Union's financial interests as a matter of common interest coming under the cooperation provided for" under the Treaty on European Union. By Act of July 26, 1995 the Council of the European Union drew

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up "as a first agreement, the Convention on the protection of the European Communities' financial interests which is intended more specifically to combat fraud that damages [the European Communities' financial interests]". This Convention needs to be ratified by all member states. That Convention is supplemented by a Protocol - agreed by Council Act of September 27, 1996 - directed more specifically at acts of corruption that involve national and Community officials responsible for the collection, management or disbursement of Community funds, and which damage the European Communities' financial interests. This Protocol also needs to be ratified by all the member states to come into force; it will also require adaptation of conflicting national laws. The Protocol stipulates that the national laws should extend to [...] crimes affecting or likely to affect the revenues or expenditures of the European Communities, including crimes committed by or against persons in whom the highest responsibilities are vested.

In its definition of (passive) corruption, the Protocol in Art. 2 refers to [...] the deliberate action of an official who directly, or through an intermediary, requests or receives advantages of any kind whatsoever, for himself or for a third party, or accepts a promise of such an advantage, to act [...] in a way which damages or is likely to damage the European Communities' financial interests [...]

Active corruption (Art. 3) is the mirror definition (namely the offering or giving of such advantages) of passive corruption. Member States are required to take all the necessary measures to ensure that acts of passive and active corruption are made a criminal offense. The Protocol provides for significant penalties: Art. 5 Sec. 1 reads as follows: Each Member State shall take the necessary measures to ensure that the conduct referred to in Articles 2 and 3, and participating in and instigating the conduct in question, are punishable by effective, proportionate and dissuasive criminal penalties, including, at least in serious cases, penalties involving deprivation of liberty which can give rise to extradition.

The criminalization of corruption provided for under this Protocol is mandatory for acts committed in the territory of a Member State, but the states may restrict applicability ("reserve") where the offense is committed outside the state's territory, even if committed by or against one of its officials. This Protocol and the underlying Convention, once adopted constitutionally by all Member States and 90 days later having come into force (which may take some time), is an important precedent for the criminalization of bribing persons other than a state's own officials. The Protocol's rcfcrcncc to the original

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EU Treaty and its clause on matters of common interest suggests that national authorities in Europe may well interpret this extension beyond their borders quite narrowly. On the other hand, the definition of corruption certainly is broad. Any judgement as to how important the Protocol will be as a precedent will have to await the interpretation by national legal authorities and possibly the European Court of Justice. The fifteen members of the European Union Council of Ministers (Justice and Home Affairs) on 26 May 1997 signed another convention which applies to corruption in general, meaning it is not restricted to EU financial interests. The text, by which member states commit themselves to take all necessary measures to criminalize corruption of foreign officials within the EU territory, has met with the political agreement of all the member states, which is another major breakthrough. This convention also needs ratification by national parliaments. The Commission of the European Communities on 21 May 1997 adopted a policy paper on „Union policy against corruption". This is a comprehensive paper covering practically all relevant aspects (criminal law, tax deductibility, public procurement, accounting and auditing, black listing, development aid etc) and suggests concrete steps in all areas. The document was sent to the EU Council of Ministers and to the European Parliament.

9.1.5

Other Regional Initiatives

In both Africa and Latin America, important regional initiatives have taken place signaling the intention of a wide range of governments to take action against corruption. In Africa, after a first ministerial conference in Pretoria in November 1994, the Organization of African Unity (OAU) in 1996 agreed on a joint approach to fighting corruption, and to put pressure on international corporations to observe the basic rules of integrity in their business activities in Africa. The Global Coalition for Africa has made corruption-fighting its priority issue for 1997. In Latin America, following a call to fight corruption at the Summit of the Americas in December 1994 in Miami, and a similar call for joint action at the Summit of the Rio Group in September 1995 in Quito, Ecuador, 23 member states of the Organization of the American States (Organization of the American States (OAS)) on 29 March 1996 agreed on a Convention against Corruption (the so-called Caracas Convention). The Caracas Convention is now in force between the countries that have ratified it: Bolivia. Costa Rica, Ecuador, Mexico, Paraguay, Peru and Venezuela. It has yet to be tested in terms of how national legislation will develop. At a Transatlantic Summit in January 1996, bringing together the EU and the United States, the Presidents agreed to "combat corruption and bribery by implementing the 1994 OECD Recommendation".

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The communiqués on economic policy of the G-7 summits in Lyon and Denver, held in June 1996 and 1997 respectively, contain calls for action similar to that issued by the Transatlantic Summit. 9.1.6

The International Chamber of Commerce (ICC)

In 1977, the ICC, the leading world business organization, issued a Report on Extortion and Bribery in Business Transactions. It called for complementary and mutually supportive action by governments, intergovernmental bodies and the business community to fight extortion and bribery in international business. This approach reflected the correct assumption that an elimination of corruption could not be achieved by companies alone but required also the commitment of governments (who are major customers of companies selling goods or services) and the international financial institutions. In March 1996, the ICC updated its Report and its recommendations, and made the Report a key instrument in support of international action. In Part I it offers recommendations to governments and international organizations on international cooperation, preventive measures such as strengthened disclosure procedures and the streamlining of economic regulations, clearer rules on political contributions, on auditing and better enforcement measures; it also supports the 1994 OECD Recommendation and stresses the important role of the IFIs. In Part II it offers to business enterprises around the globe, for their voluntary acceptance, Rules of Conduct to Combat Extortion and Bribery, which are intended as a method of self-regulation by international business. The ICC's initial target is "large scale extortion and bribery involving politicians and senior officials". The Report continues as follows: "These represent the greatest threat to democratic institutions and cause the gravest economic distortions. Small payments to low-level officials to expedite routine approvals are not condoned. However, they represent a lesser problem". This question of whether to tolerate facilitation payments in fact haunts all efforts at curbing corruption. The United States' Foreign Corrupt Practices Act (FCPA) contains a clause allowing facilitation payments; the same issue has recently arisen in the OECD Working Group; the language contained in the ICC Rules is interpreted as "looking the other way"; and businesses argue that if no facilitation payments can be made, all activities in some countries would grind to a halt. On the other side, a definition of what constitutes a facilitation payment, what falls under it, and what exceeds it, is very difficult to provide. Furthermore, if facilitation payments are allowed in principle, there is the strong likelihood that some businesses will stretch and abuse this rule, and little would be gained in the overall fight against corruption. Also, no self-respccting country

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could possibly enact legislation that officially allows its officials to accept facilitation payments. The only systematically acceptable and pragmatic solution is to go for a general outlawing of bribery and extortion, and leave it to those asked to enforce the rules to use their good judgement, finding a way out possibly in the materiality test. The ICC Rules of Conduct state the basic rule that all enterprises should comply with the laws and regulations in the country where they operate, and that extortion and bribery (including kickbacks) are not allowed (Art. 1 and 2). They provide guidance on how businesses should deal with agents (pay them no more than appropriate remuneration for legitimate services, warn them not to pass any portion of such payment on as a bribe, and maintain a record of the names and terms of employment of all agents retained by them) (Art. 3). They offer guidance on complete and transparent financial recording and independent systems of auditing (Art. 4). They highlight the responsibilities of the board of directors, or other body with ultimate responsibility for the enterprise, to install and enforce effective internal control systems, periodically review compliance with these rules, and take appropriate action against any director or employee contravening these Rules of Conduct (Art. 5). They also address the issue of political contributions (they should be made only so far as the law allows, and under full compliance with all disclosure and reporting rules) (Art. 6). Finally, in Article 7 the Rules recommend to enterprises that they develop their own company codes of conduct consistent with these ICC Rules and, very importantly, that they [...] develop clear policies, guidelines and training programs for implementing and enforcing the provisions of their codes.

This 1996 version of the ICC Report on Extortion and Bribery in International Business Transactions is an excellent document. To become effective, it will have to be adopted by the numerous member organizations/associations of the ICC, and subsequently by individual enterprises around the globe. The 1977 Report turned out to be rather ineffective, despite its laudable intentions. It can only be hoped that the 1996 version will find much broader acceptance and implementation across enterprises involved in international business. The present high profile of the fight against corruption allows some hope that the ICC's call for combating corruption will be heeded more broadly in the business community than in the past - in their own interest as well as that of society at large. The ICC Secretariat certainly has come out strongly in favor of fighting corruption on all fronts.

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Company Codes of Conduct

Many companies around the globe have adopted codes of conduct and related compliance procedures. Regrettably, almost only major corporations operating globally and US companies, due to the strictures of the Foreign Corrupt Practices Act, commit themselves not to bribe transnationally, and apply their compliance procedures to transnational activities. The Bundesverband der Deutschen Industrie (BDI), the premier industry association in Germany, in 1995 issued recommendations on a code of conduct that explicitly excludes (in its paragraph 4) bribes in transnational transactions; the exclusion is phrased in terms of "customary gifts, expected of all competitors". This is most unfortunate. Even more regrettable is the fact that some international corporations have adopted a (perfectly adequate) code of conduct for the subsidiary that is likely to seek business within the United States, while the rest of the corporation has no such code. The best codes of conduct contain a clear commitment to respect all the laws and regulations in the country where the company does business; to abstain from bribery; to obtain in regular intervals a written confirmation of this commitment from all managers and relevant staff; to organize training for all its employees in this regard; to monitor their behavior, and to impose sanctions where violations occur. Some companies provide for regular rotation of employees in sensitive posts, and apply the four-eyes principle for important decisions, including all procurement.

9.2.1

Position of Industry

Many industry leaders today acknowledge that they use bribery as one means to obtain contracts, but realize that it is expensive, and some of them show great interest in potential solutions which could make bribery unnecessary. It is noteworthy that shortly before the critical OECD Ministerial Council meeting in May 1997, some of the most respected business leaders in several European countries wrote to their respective Ministers of Economy urging them to approve the proposed OECD Recommendations on bribery, thus invalidating the excuse often heard that they could not agree to any action that could jeopardize industry's ability to export and save jobs. One interesting, if modest, initiative directed primarily at domestic construction activities was started in May 1996 by the Bavarian Construction Industry Association, in Germany, namely the creation of an Ethical Management System (EMB). It is described here because it builds on experience gained in the US, it is open to all German construction companies, and in

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principle it applies to domestic as well as international business. The basic idea is to offer membership in the Ethical Management System Association to every company that agrees to abide by specific ethical and business principles (i.a. integrity, fairness, compliance with the relevant laws, not to bribe or collude/ participate in price fixing, transparency in bidding, contracting and billing), introduces internal compliance programs that ensure that these commitments by management are known throughout the company, and can effectively be enforced by management. Members in good standing receive a Certificate which they can use in advertising; compliance is regularly monitored, and in case of violation, the Certificate is recalled. Since the construction industry in Germany, and especially in Bavaria, has been involved in many criminal cases on account of bribery and collusion, this is an interesting effort at self-cleaning of an important industry. Major German construction companies that operate internationally have so far not become members of the EMB.

9.2.2

The Consulting Engineers

The Consulting Engineer profession is closely involved in all the steps in contracting and project execution which are susceptible to corruption, whether they act as design or construction supervision consultants. In fact, much corruption in the tendering and execution stages has its source - by design or by oversight - in the design and preparation phase. A design that favors a particular contractor or supplier is a typical case, often associated with bribes for the consultant engineer by the contractor or supplier, even though such bribes may be well hidden, reflecting perhaps a long-standing relationship between the two. It is therefore most important that consultant organizations establish and promote the highest anti-corruption standards by their members. FIDIC, the International Federation of Consulting Engineers, founded in 1913, comprised of about 60 National Associations whose members comply with FIDIC's Code of Ethics, and today representing most of the independent consulting engineers of the world, in the summer of 1996 issued a Policy Statement on Corruption (as agreed at 133 ECM, June 1996). In that document, corruption in all its forms is firmly rejected and denounced. Corruption "is more than stealing funds, it is stealing trust". In the introduction, it reads: FIDIC and its member associations, representing the leaders of the consulting engineering industry, will neither ignore nor acquiesce with the tide of corruption, nor will it consider that local corruption is cultural and unchangeable. The member firms of FIDIC's Member Associations will neither initiate nor accede to corrupt practices.

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Under the heading "Where corruption occurs" the Policy Statement explains as follows: Corrupt practices can occur at all stages of the procurement process: In the marketing of engineering services; during the design; in preparing tender documents (including specifications); in pre-qualifying tenderers; in evaluating tenders; in supervising the performance of those carrying out the construction; issuing of payment certificates to contractors; and making decisions on contractors' claims. This general statement is admirably elaborated. For example, under Business Development, it is stated: A bribe of whatever form, intended to influence an evaluation committee during the prequalification phase, or later during the final retainer discussions, whether directly or indirectly (using mechanisms such as scholarships, actions of agents, or currency exchange facilities) constitutes unethical behavior. There are similar explanations under headings like "Design, Specification Preparation and Pre-Qualification" and "Construction Supervision and Claims". Among the Recommendations of the FIDIC Corruption Statement are the following: 1) To reduce the opportunities for corruption in the process of procurement of engineering and construction services, qualification-based selection procedures and competitive tendering, respectively, should be used. 2) [...] 3) [...] 4) Consulting Engineers should be aware of local laws regarding corruption and should promptly report criminal behavior to the proper law enforcement authorities. 5) FIDIC Member Associations should take prompt disciplinary actions against any member firm found to have violated the FIDIC Code of Ethics. This should include, among other actions, expulsion and notification of public agencies [...] 6) Member Associations [...] should cooperate candidly with other organizations which seek to reduce corruption [...] 7) Member Associations should foster and support the enactment of legislation in their own countries, which is aimed at curbing and penalizing corrupt practices. This FIDIC Policy Statement on Corruption candidly addresses the broad range of opportunities for consulting engineers to influence critical decision making, and the fact that they will be much tempted to engage in corruption. It may not be quite as strong as one would have wished. However, it could set in

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motion an industry-wide process of facing up to the social responsibility of the consulting engineer. It is certainly an excellent start. A number of individual firms of consulting engineers are considering a more binding, more direct commitment against corruption, but this effort has not yet come to fruition.

9.2.3

Self-Protection by Government Contracting Agencies

Having been caught in many corruption schemes, and having been financially damaged on a grand scale, a number of German government agencies, both at the Federal and the state and community level, have developed procedures which are designed to reduce the opportunities for bribery and extortion. Transparency of all activities, and accountability of those responsible for decision making, are the key elements of such new procedures. More recently, contracts between government agencies and private enterprises sometimes contain two related clauses, the first of which requires a commitment from the bidder not to participate in any collusion/price fixing with competitors, and the second of which states as follows: If the contractor, in connection with the contract award, has entered into an agreement which represents an improper restriction of competition, the contractor has to pay damages to the principal in an amount equivalent to 3 percent of the contract value, unless damage at a different level can be demonstrated.

This clause has significantly facilitated and accelerated the collection of damages by defrauded government agencies. A somewhat different handle is offered to government procurement agencies in Europe. On June 14, 1993 the Council of the European Communities issued two Guidelines for the Coordination of Processes for the Award of Public Supply Contracts and of Public Construction Contracts (Guidelines Nos. 181 and 184, 93/36+37/EWG) which in their Articles 20 and 24 respectively state that government procurement agencies may exclude bidders from the tender process if they: 1) have been convicted on grounds which raise doubts about their professional reliability, 2) in the execution of their professional activities have committed a major violation, documented by the public employer, or 3) in response to enquiries, which the agency can make "in accordance with this chapter", have supplied in a significant degree incorrect information. Although no cases are known in which this opportunity has been utilized,

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one must assume that the enquiries could relate to the existence of price fixing/collusion or the payment of bribes in connection with the contract in question. It is highly encouraging to observe that a number of public procurement agencies, including some in Germany, have resorted to the debarment/blacklisting of corrupt companies, for periods of time that reflect the seriousness of their violation and the internal efforts at cleaning up (the compliance program). A legal problem in this context is that blacklisting a company without an effective conviction may open the procurement agency to claims for damages or defamation by that company. Apparently some agencies have used material evidence (short of conviction) of corruption as a base for debarment, and have found the blacklisted companies much more interested in learning how they can get off the blacklist than in suing the government.

9.3

The Role of the International Financial Institutions (IFIs)

The International Financial Institutions (the World Bank, the Interamerican Development Bank, the Asian Development Bank, the African Development Bank and the European Bank for Reconstruction and Development, globally called the IFIs), which finance a significant share of developing countries' procurement of goods and services, have developed a complex set of procurement rules and guidelines. The World Bank, a long-standing advocate of better governance in its member countries, has recently issued a policy paper entitled „Helping Countries Combat Corruption" (dated September 1997) and has announced a determined effort to use all its instruments to help eliminate corruption. As part of this campaign it has recently adjusted its procurement guidelines to address cases of corruption more forcefully; it now calls for even closer monitoring, public disclosure of all commissions paid, and the blacklisting of proven (in the judgement of the World Bank) violators. The World Bank should also require open access to the bid evaluation report and the decision memorandum. The other IFIs should adopt similar rules. Recently the International Monetary Fund announced that it too will join the international fight against corruption, as part of its long-standing efforts to strengthen the governance in its member countries. Its Managing Director has stated publicly that "in future, the IMF will insist on anti-corruption reforms in those countries which ask for financial support". The precise modalities of the IMF's intervention in this area are being worked out.

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It is very encouraging that civil society in many countries has targeted corruption and has mobilized citizens on a large scale to participate in this fight. It can be extremely effective if citizens and NGOs organize themselves to monitor the quality of government services, to provide effective means to the public to air their complaints, and thus to push governments to act. This requires that governments provide information (including transparent, accurate budget documents), that the public and in particular the media have access to this information, that governments take their own initiative to find out what their citizens think of their service delivery systems, and that citizens with a complaint have a forum where the complaint can be registered and acted upon. Members of civil society should also be involved by governments in monitoring regular service delivery, and in particular, when new systems are introduced, such as procurement under integrity pacts, as described further below. One very interesting civil society initiative is that of PAC - the Public Affairs Center in Bangalore, India. PAC believes that a vigilant and active citizenry is essential to good governance. PAC has organized citizens in a number of large cities to provide feedback on the quality of government services, stressing the importance of accountability and transparency. Its report cards on Public Services in Indian Cities and on Public Accountability have had a significant positive impact. There are numerous NGOs worldwide doing something similar to PAC.

9.3.2

Transparency International (TI)

The largest anti-corruption network acting globally is Transparency International (TI). TI is a Non Governmental Organization headquartered in Berlin, Germany, but functioning primarily through more than 70 National Chapters (NCs). TI was founded in 1993, with the strong support of eminent personalities from mostly Southern, but also some Northern countries who felt that the cancer of corruption was exacting too heavy a toll on their societies. TI aims to: 1) curb corruption through national and international coalitions encouraging governments to establish and implement effective laws, policies and anticorruption programs, 2) strengthen public support for anti-corruption programs and enhance public transparency and accountability in international business transactions and in the administration of public procurement, and

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3) encourage all parties to international business transactions to operate at the highest level of integrity. TI is dedicated primarily to fighting "grand corruption in international business transactions", but its NCs have a high degree of independence and design their own program of action reflecting the particular manifestations of corruption in their country. Thus some NCs focus on political corruption first, believing that addressing business corruption makes little sense until the political corruption has been brought under some degree of control. Other NCs have found that every-day demands, in their society, for small payments in order to get the most basic services provided by officials are such a debilitating practice that they focus on such petty corruption, which is not so petty for many of the citizens from whom it is extracted. Yet all NCs participate and support the present drive for establishing Islands of Integrity in several countries.

9.3.3

The TI Integrity Pact (TI-IP)

While all the other ongoing efforts at fighting and eliminating bribery and extortion are efforts initiated by either governments or industry members, Transparency International has pioneered a cooperative approach. TI is convinced that many governments and business leaders have recognized the high cost of bribery and extortion and seek ways to curb and eventually eliminate corruption in public sector procurement. Many business leaders have expressed their desire to stop paying bribes but are held back by the fear of losing orders if their competitors continue to pay bribes. Instead of cleaning up all its procurement activities at once, a government could demonstrate its willingness and capability to fight corruption by establishing first one or several Islands of Integrity where for selected self-contained projects (or major contracts under a project, or all projects in a selected sector of the economy) corrupt practices would be eliminated by agreement among the government agency/principal and those companies interested in bidding for services or the supply of goods (the TI Integrity Pact, or TI-IP). In cases where an IFI provides funding for the contract in question, the IFI might have to adjust its procurement procedures to allow the TI-IP to function. The TI-IP is intended (1) to enable companies to abstain from bribery by providing them an assurance that their competitors will also refrain from bribing, and that government procurement agencies will undertake to prevent extortion and follow transparent procurement procedures; and (2) to enable governments to reduce the high cost and the distortionary impact of corruption on public sector procurement. The TI-IP functions as follows: A government or government agency (the principal), when inviting contractors or suppliers of goods to tender for a

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specific contract, informs the potential bidders that their tender offer must contain a commitment, signed personally by the company's Chief Executive Officer (CEO), not to offer or pay any bribes in connection with this contract. The government procurement agency on its part commits itself to prevent extortion and the acceptance of bribes by its officials, and to follow transparent procurement procedures. In essence, these commitments are nothing other than a commitment to respect the existing laws of the country. The TI-IP concept could also be employed when a government, as part of its privatization program, invites bidders to tender for the acquisition of government assets, or in the administration of mining or logging licenses. In case of violation, the bidders would be subject to significant sanctions, such as loss of contract, liability for damages (to the government and the competing bidders), forfeiture of the bidding security, and debarment of the offender by the government from government business for an appropriate period of time. Considering that a bidding company acts through many representatives (employees and agents), the CEO's commitment must be implemented through a compliance program which assures that all employees and agents know about, and will observe, the no-bribery commitment. Where the company already has an anti-bribery policy in effect, it can furnish a copy of that policy together with the compliance program implementing that policy. Where a company does not have such a policy, or does not have a written compliance program, it can furnish a copy of the compliance program established for the particular contract. The TI-IP concept was first realized on a major refinery project in Ecuador in 1994; it functioned well, the contracting went quickly and smoothly, at a price below the engineers' estimate, and the project is now under construction. TI is presently discussing additional pilot cases for testing the TI-IP further with a number of governments and business leaders. A particularly promising initiative is the cooperation between the Global Coalition for Africa and the Presidents or Prime Ministers of six African countries, who have recently approached the World Bank and the international donor community in general with the request to apply that Integrity Pact concept to all major contracts funded by them.The TI-IP approach may need some more refining, but as a cooperative approach, appealing to governments as well as the business leaders, it has the potential of creating first smaller and with time ever larger Islands of Integrity.

10 Conclusion Clearly, the time is ripe for a major, systematic, coordinated assault on bribery and extortion in international business transactions. There have simply been

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too many scandals, placing a heavy toll on too many people in too many countries. Many governments appear ready to move; many business leaders acknowledge the high cost - even to them - of corruption; and civil society in many countries is ready to take public action to fight this cancer. The necessary instruments are all available: The OECD Recommendations offer an admirable guide to action; non-OECD states can and should join in the effort. The recent United Nations Declaration against Corruption and Bribery and the various initiatives by European institutions all are consistent with the OECD Recommendations and reflect political consensus to move against corruption. The International Chamber of Commerce has issued excellent, pragmatic proposals for member associations and their individual member companies around the globe to adopt. The International Financial Institutions seem ready to join the fight against corruption. And Civil Society in many countries, not least Transparency International and its more than 70 National Chapters, are alert and fully prepared to offer support, guidance and pressure in this effort. TI's Integrity Pact is a feasible, pragmatic approach to begin the fight on a cooperative basis, bringing governments to work jointly with business enterprises, from the bottom up, project by project, while the efforts at transforming the national laws are underway. At the 8.International Anti-Corruption Conference, held in Lima/Peru September 7-11, 1997, more than a thousand people from nearly one hundred countries had searching discussions of the means to contain corruption around the globe and were united in a vision of an era of international and national cooperation in the next millenium in which the evil of corruption is suppressed. Participants issued The Lima Declaration which is a clarion call for action worldwide. 1998 could become a very important year in the fight against corruption. One can only hope that governments, business leaders, IFIs and civil society will listen to the messages of anger coming from the people and make good use of the opportunities that exist. It may be some time before a similarly promising constellation of factors exists again. Every responsible citizen is called upon to contribute to this effort.

Ethics - A Global Business Challenge Robert D. Haas

We are meeting at a time when it seems that in every facet of contemporary life, people are placing self interest ahead of ethical values. Pick up almost any day's edition of the New York Times and accounts of faltering ethical standards are chronicled in virtually every section of the paper. For purposes of my comments today, however, I want to focus on the business pages, since business and ethics is what we're here to talk about. It wasn't so long ago that everyone had proclaimed that "greed is good" spirit of the 1980s was dead and that the 1990s represented a return to basic values. But an honest evaluation of current business conduct contradicts that assessment, for example: -

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Executives of American Honda are criminally indicted by Federal prosecutors for accepting bribes from dealers in exchange for franchises and hot-selling cars. Thirteen executives face potential prison terms that total 165 years behind bars. Corruption and mismanagement cause Gitano Jeans to lose its largest retail customer. The company's fortunes collapse. It's forced to file for bankruptcy and is ultimately sold. Prudential Securities is sued by its investors who allege it inappropriately sold limited partnerships. The scandal costs hundreds of millions of dollars, and the inquiry into possible corporate misdeeds extends into the company's most senior ranks. National Medical Enterprises agrees to pay more than $300 million to settle charges of health insurance fraud and patient abuse.

It should hardly come as a surprise that such incidents have led to an erosion of public confidence and an eruption of distrust in the major institutions of our society - including business. But these accounts of ethical misconduct are not unique to the US - as recent scandals in Great Britain, Japan, Brazil, Russia and elsewhere suggest. In my comments today, however, I intend to talk primarily about what's going on here in America. While price fixing conspiracies, bribery, fraud and business collusion are not the norm of contemporary business practice, they occur far more frequently than we care to acknowledge - and clearly more often than is permis-

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sible to gain the level of public trust and support that business requires to thrive. What is most puzzling about instances of business wrongdoing is that they clearly contradict both the values that are held by most of us as individuals and the collective standards we have established for appropriate business behavior. When pressed about his company's payment of bribes to Italian political parties in the 80s, the chairman of Olivetti made the startling confession that he personally authorized the payment of bribes and added that he would do it again to protect his company's interests. In his famous essay on civil disobedience, Henry David Thoreau wrote that a corporation "has no conscience, but a corporation of conscientious men is a corporation with a conscience." I'd like to think that if Thoreau were writing today he would have spoken of both men and women with a conscience, though regrettably the corporate world remains more of a male enclave than it should be. If Thoreau is correct, and I believe he is, how do we help honorable men and women confront and address the ethical challenges they face in the every day world of work? This is the puzzle all of us must work to solve. In my remarks this morning, I'd like to talk about some of the ethical struggles that we've faced at my own company and how we've dealt with them. I'd like to begin by conducting a brief quiz. By the way, these are the same questions I raise with my associates at Levi Strauss & Co. when I lead one of our ethics training programs. As I ask these five questions, please respond by raising your hands. -

First, how many of you consider yourselves to be ethical people? How many of you believe that it's important for business to function in an ethical manner? How many of you believe that you know an ethical dilemma when you see it? How many of you feel there are clear answers to ethical problems? Now, how many of you believe that I always know an ethical dilemma when it arises and always know how to resolve it?

Clearly, all of us feel strongly about ethics in the abstract. But at the same time, each of us is keenly aware of the struggle we face as ethical dilemmas arise. It is this common struggle - between our own desire to be ethical and the competing pressures of business performance - that brings us here today. I should admit that when I approached the microphone this morning, I did so with some trepidation because of this very fact. While I am honored to be able to keynote this important, two-day conference, like everyone in this

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room, we at Levi Strauss & Co. struggle every day with how to create a business culture that promotes ethical behavior. All of us can cite our own experiences about ethical problems we've encountered or witnessed first-hand. The real value of this conference is that each of us can offer our own ideas about how to help managers and employees apply their own high ethical standards in the workplace, so that they don't have to check their values at the door when they show up for work. Over the next two days, I know you will reap the mutual benefit of your collective ideas and experiences. As part of this conference, I understand you'll be examining the ethics programs of a number of companies. As you go through this exercise, you might find it useful to bear in mind the three very different approaches to dealing with ethical dilemmas that characterize how companies approach these ethics. These are: 1) Neglect - or the absence of any formal ethical programs; 2) Compliance-based programs; and, 3) Values-oriented programs. I'd like to spend a few moments touching on each of these three concepts. It's hard to imagine that any large company could rationally ignore the importance of ethics or fail to develop management policies and programs given the effect ethical breaches can have on financial performance, sales and corporate reputation. But some companies clearly don't get the message. According to the Institute for Crisis Management, more than one-half of the news crisis stories filed in 1993 were crises brought on by the questionable judgement of management - firings, white-collar crime, government investigations and discrimination suits. Coverage of these types of corporate misdeeds has risen 55 percent since 1989, while coverage of "operational" crises - chemical spills, product tamperings - has declined four percent. Obviously, there are grave consequences for ignoring ethical problems. There is also increasing evidence from academic studies that show positive correlations between responsible business behavior and return-on-investment, stock price, consumer preferences and employee loyalty. The companies that ignore ethics do so based on assumptions that are false and never challenged. They seem to view ethics either as unimportant or as a costly and inconvenient luxury. I think they're wrong on both accounts. I believe - and our company's experience demonstrates - that a company cannot sustain success unless it develops ways to anticipate and address ethical issues as they arise. Doing the right thing from day one helps avoid future setbacks and regrets. Addressing ethical dilemmas when they arise may save your business from serious financial or reputational harm. Many companies share this view, and a number of them have chosen a second approach to ethics - what Lynn Sharp Paine, an associate professor at

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Harvard, refers to as compliance-based programs. These ethics programs are most often designed by corporate counsel. They are based on rules and regulations, with the goal of preventing, detecting and punishing legal violations. Until recently, we were among the companies that took this approach. The centerpiece of our efforts was a comprehensive collection of regulations that spelled out our worldwide code of business ethics. In it, we laid out rules for hiring practices, travel and entertainment expenses, political contributions, compliance with local laws, improper payments, gifts and favors. We addressed topics ranging from accounting practices to potential conflicts of interest. As you might guess, it was a long and weighty list of do's and don'ts for our people to follow. This approach didn't serve us well. First, rules beget rules. And regulations beget regulations. We became buried in paperwork, and any time we faced a unique ethical issue, another rule or regulation was born. Second, our compliance-based program sent a disturbing message to our people We don't respect your intelligence or trust you! Finally, and one of the most compelling reasons for shedding this approach, was that it didn't keep managers or employees from exercising poor judgement and making questionable decisions. We learned that you can't force ethical conduct into an organization. Ethics is a function of the collective attitudes of our people. And these attitudes are cultivated and supported by at least seven factors: 1) 2) 3) 4) 5) 6) 7) 8)

commitment to responsible business conduct; management's leadership; trust in employees; programs and policies that provide people with clarity about the organization's ethical expectations; open, honest and timely communications; tools to help employees resolve ethical problems; and reward and recognition systems that reinforce the importance of ethics.

Ultimately, high ethical standards can be maintained only if they are modeled by management and woven into the fabric of the company. Knowing this, your challenge and mine is to cultivate the kind of environment where people do the right thing. Realizing the importance of each of these elements led Levi Strauss & Co. - and a growing number of other companies - to try a third approach to ethics, based on a values-orientation. This method combines functional values with individual responsibility and accountability. Today, at Levi Strauss & Co., we base our approach to ethics upon six ethical principles - honesty, promise-keeping, fairness, respect for others, compassion and integrity.

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Using this approach, we address ethical issues by first identifying which of these ethical principles applies to the particular business decision. Then, we determine which internal and which external stakeholders' ethical concerns should influence our business decisions. Information on stakeholder issues is gathered and possible recommendations are discussed with high influence stakeholder groups, such as shareholders, employees, customers, members of local communities, public interest groups, our business partners and so forth. This principle-based approach balances the ethical concerns of these various stakeholders with the values of our organization. It is a process that extends trust to an individual's knowledge of the situation. It examines the complexity of issues that must be considered in each decision, and it defines the role each person's judgement plays in carrying out his or her responsibilities in an ethical manner. We're integrating ethics with our other corporate values, which include diversity, open communications, empowerment, recognition, teamwork and honesty, into every aspect of our business - from our human resource practices to our relationships with our business partners. I'd like to illustrate how we're linking ethics and business conduct with an area of increasing importance to many global corporations - the contract manufacturing of products in developing countries. Because Levi Strauss & Co. operates in many countries and diverse cultures, we take special care in selecting contractors and those countries where our goods are produced. We do this to ensure that our products are being made in a manner consistent with our values and that protects our brand image and corporate reputation. So, in 1991, we developed a set of Global Sourcing Guidelines. Our guidelines describe the business conduct we require of our contractors. For instance, the guidelines ban the use of child or prison labor. May stipulate certain environmental requirements. They limit working hours and mandate regularly scheduled days off. Workers must have the right of free association and not be exploited. At a minimum, wages must comply with the law and match prevailing local practice and working conditions must be safe and healthy. We also expect our business partners to be law abiding and to conduct all of their business affairs in an ethical way. In developing our guidelines, we also recognized that there are certain issues beyond the control of our contractors, so we produced a list of country selection criteria. For example, we will not source in countries where conditions, such as the human rights climate, would run counter to our values and have an adverse effect on our global brand image or damage our corporate reputation. Similarly, we will not source in countries where circumstances threaten our employees while traveling, where the legal climate makes it difficult or jeop-

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ardizes our trademarks, and where political or social turmoil threatens our commercial interest. Since adopting our guidelines, we've terminated our business relationships with about 5 percent of our contractors and required workplace improvements of another 25 percent. Likewise, we announced a phased withdrawal from contracting in China and exited Burma due to human rights concerns, although we remain hopeful that the human rights climate in these countries will improve so we can alter these decisions. In the process of creating our guidelines, we formed a working group of 15 employees from a broad cross-section of the company. The working group spent nine months formulating our guidelines. In crafting these guidelines, they used our principle-based decision-making model to guide their deliberations. Drafting these guidelines was difficult. Applying them has proven even more challenging. When we were rolling out our guidelines - which included extensive onsite audits of each of our 700 contractors worldwide - we discovered that two of our manufacturing contractors in Bangladesh and one in Turkey employed under-age workers. This was a clear violation of our guidelines, which prohibit the use of child labor. At the outset, it appeared that we had two options: -

Instruct our contractors to fire these children, knowing that many are the sole wage earners for their families and that if they lost their jobs, their families would face extreme hardships.

or we could: -

Continue to employ under-age children, ignoring our stance against the use of child labor.

By referencing our ethical guidelines to decision making we came up with a different approach and one that we believe helped to minimize adverse ethical consequences. The contractors agreed to pay the underage children their salaries and benefits while they go to school full-time. We agreed to pay for books, tuition and uniforms. When the children reach legal working age, they will be offered jobs in the plant. Due to these efforts, 35 children have attended school in Bangladesh, while another six are currently in school in Turkey. And how did we benefit from this situation? We were able to retain quality contractors that play an important role in our worldwide sourcing strategy. At the same time, we were able to honor our values and protect our brands. Applying our sourcing guidelines has forced us to find creative solutions to vexing ethical dilemmas. Clearly, at times, adhering to these standards has

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added costs. To continue working for us, some contractors have added emergency exits and staircases, increased ventilation, reduced crowding, improved bathroom facilities and invested in water-treatment systems. The costs of these requirements have been passed on to us - at least in part - in the form of higher product prices. In other cases, we have foregone less expensive sources of production due to unsatisfactory working conditions or concerns about the country of origin. Conventional wisdom holds that these added costs put us at a competitive disadvantage. Yes, they limit our options somewhat and squeeze profit margins in the near-term. But over the years, we've found that decisions which emphasize cost to the exclusion of all other factors don't serve a company's and its shareholders' long-term interests. Moreover, as a company that invests hundreds of millions of advertising dollars each year to create consumer preference for our products, we have a huge stake in protecting that investment. In today's world, a television exposé on working conditions can undo years of effort to build brand loyalty. Why squander your investment when, with foresight and commitment, reputational problems can be prevented? But you don't have to take my word for it. There is a growing body of evidence that shows a positive correlation between good corporate citizenship and financial performance. Studies by leading research groups such as Opinion Research Corporation and Yankelovich Partners, respected scholars and socially responsible investment firms underscore the point that companies which look beyond solely maximizing wealth and profits and are driven by values and a sense of purpose, outperform those companies that focus only on short-term gain. Companies with strong corporate reputations have been shown to outperform the S&P 500, have higher sales, sustain greater profits and have stocks that outperform the market. These are results that no bottom-line fixated manager can ignore. Similarly, a recent study suggests that how a company conducts itself affects consumer purchasing decisions and customer loyalty. A vast majority 84 percent - of the American public agrees that a company's reputation can well be the deciding factor in terms of what product or service they buy. These findings mirror our own experience. Our valuesdriven approach has helped us: -

identify contractors who want to work for Levi Strauss & Co. to achieve our "blue ribbon" certification, enhancing their own business stature; we have gained retailer and consumer loyalty. Retailers feel good about having us as business partners because of our commitment to ethical practices. Today's consumer has more products to choose from and more information about those products. A company's reputation forms a part of

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the consumers perceptions of the product and influences purchasing decisions. At the same time: -

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we're better able to attract, retain and motivate the most-talented employees, because the company's values more closely mirror their own personal values. because government and community leaders view us as a responsible corporate citizen we have been welcomed to do business in established and emerging markets.

Let me conclude with a few last thoughts. We are living in an environment in which ethical standards and behaviors are being increasingly challenged. Addressing these dilemmas becomes even more difficult when you overlay the complexities of different cultures and values systems that exist throughout the world. For example, in some cultures honesty will take precedence over caring - "tell the truth even if it hurts"; whereas other cultures find caring, or "saving face" as the predominant value. As you grapple with some fictitious ethical quandaries over the next two days, I encourage you to ask yourselves these questions: -

"How much am I willing to compromise my principles?" "Are there times when I'm willing to risk something I value for doing the right thing?"

For me and my associates at Levi Strauss & Co. I think the answers have become clear: Ethics must trump all other considerations. Ultimately, there are important commercial benefits to be gained from managing your business in a responsible and ethical way that best serves your enterprise's long-term interests. The opposite seems equally clear: the dangers of not doing so are profound. Michael Josephson, a noted ethics expert, defined ethics this way: Ethics is about character and courage and how we meet the challenge when doing the right thing will cost more than we want to pay.

The good news is that courage carries with it a great reward - the prospect of sustained responsible commercial success. I think that's what each of us wants our legacy to be. And I believe ultimately our key stakeholders - all of them will accept nothing less.

Ethical Issues in International Marketing Gopalkrishnan R. Iyer

1

Introduction

With increasing globalization of markets, spurred by liberalization of various historically planned and semi-closed economies, international marketing decisions have also appeared to have taken on a more standardized character. Due to increases in transfers of technology, communication and thus, consumption values, consumers from diverse parts of the world are increasingly exhibiting similar preferences for products ranging from food to clothing to personal computers (Levitt 1983). However, while on the surface it appears that local tastes are converging towards a global median, the size and extent of the global market is still limited by the number of "global" consumers and their unique motivations for consuming the global product. For example, consumption at the local McDonald's in New York may be prompted by convenience, while in New Delhi, consumption motives could include status considerations as well. Indeed, in developing countries, a vast majority of the population is still either on the periphery of globalization or excluded altogether from the "global" market (Iyer 1996). At one level, the gross inequities in resource distribution and consumption patterns in developing countries signal future opportunities for multinational companies; however, at another level, the very inequities raise ethical and moral issues that often translate into political action, justly or unjustly, detrimental to the future viability of multinational enterprises. Consider, for example, the case of Cargill. Cargill is quite possibly the world's largest agricultural commodities trader, with global sales of $51 billion in 1994-95, employing about 72,700 people in 800 locations in 60 countries (Kneen 1995). In response to the India's reduction of duty on imported seeds, Cargill set up a joint venture with a large Indian conglomerate and began constructing a seed processing factory close to Bangalore (Kneen 1995). However, a group of enraged small farmers, mainly protesting against the intellectual property rights proposals of the GATT, linked Cargill's presence with increased dependency and demolished the unfinished Cargill facility "with their bare hands" (Kneen 1995). Increase in global competition calls for increasing attention to global markets even by companies that have traditionally operated within their national boundaries. Usually, the cheaper costs of international sourcing, various incentives and offers made by host governments to attract FDI, and increasing

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opportunities to exploit untapped markets and labor resources, often make international operations more attractive. However, each of these differences may be due primarily from specific environmental differences rather than from clear comparative advantages developed by the host countries. For example, the costs of international operations may be cheaper due to laxity in regulation and enforcement of labor and environmental laws, as critics opposing the NAFTA have repeatedly claimed. Consumer activist Ralph Nader has charged that Mexican maquiladora operations pay pittance to their workforce, deny them the right to organize, and engage them in labor under lax and unenforced workplace and environmental standards (Nader 1993). It is clear that increasing levels of globalization and transnational operations bring to surface many more ethical issues than previously considered. Indeed, frameworks for evaluating ethics in international business operations and multinational responsibilities are now growing in number as well as in sophistication (De George 1993; Donaldson 1989, 1996). At the same time, the growing interest in ethics in the US finds parallel increase in attention to ethical theory and practice within marketing (Hunt/Vitell 1986; Mascarenhas 1995; Smith 1995). However, from a functional stand-point, neither the general approach to international business ethics nor the general conception of ethics in marketing, can be readily extended to develop a framework for the evaluation of ethical actions in international marketing. Instead of developing a set of ethical issues in international marketing from a set of multinational obligations and responsibilities or from an extension of ethical theories, the approach taken here builds a core ethical foundation for international marketing exchanges and extends it to conceptualizing ethical issues in international marketing strategy. The framework so developed is then evaluated against the reality of cross-cultural differences and multinational operations. The starting point for considering ethics in international marketing remains the firm's relationship with its consumers. Exchange between the firm and the consumer - be they individuals, households, organizations, or governments remains central to the analysis, planning and control of international marketing and, likewise, is accorded primacy in the development of a framework of ethical evaluation of international marketing activities. However, in so much as this exchange relation finds distorted effects - positive or negative - due to the firm's objectives, host government interests and home government interventions, as well as supra-concerns of the consumers beyond the exchanged product, the framework so developed is extended to include such considerations as well. A brief review of the primary areas of concerns in marketing, international business, and international marketing ethics is followed by the development of a core set of ethical principles for international marketing exchanges. Interna-

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tional marketing strategy is then evaluated from the viewpoint of exchange ethics. Non-market influences on international marketing are noted, especially in terms of their ethical impacts. In summary, ethics in international marketing are offered as a set of inviolate principles in exchange that emerge from the primary responsibility of the transnational firm to the international consumer and from integrity in international exchange transactions.

2

Ethical Theory in Marketing and International Business

Ideas on ethics within Marketing and International Business theory grapple around three major dimensions - the unit(s) responsible for ethical action, the nature of ethical judgements, and the scope of ethical conduct. These are considered seriatim below. Some scholars argue that ethical action is primarily the responsibility of individual business managers (e.g., Bhide/Stevenson 1990; Cadbury 1987), while others broaden this responsibility to include organizational (e.g., Donaldson 1982; Goodpaster/Mathews 1982; Paine 1994), and institutional dimensions (e.g., Dierkes/Zimmermann 1994) as well. Evaluations of ethical conduct specifically with an individualist orientation assume that the ultimate responsibility for ethical action rests on decision-makers themselves. Such individualistic views on ethics are challenged on various grounds. One, if the decision to act morally rests solely on the individual decision-maker's moral commitment, an inherent tautology is unavoidable: managers take ethical decisions because they perceive themselves to be ethical (Bhide/Stevenson 1990; Cadbury 1987). Two, specific incentives that have unethical consequences, negative impacts of "whistle-blowing", top management orientation, organizational culture, and other aspects of an organization's context, foster and promote ethical or unethical behaviors (e.g., Goodpaster/Mathews 1982; Paine 1994). However, even if corporate values, corporate conscience and organizational integrity are said to result from the individual managers' orientations, shared understanding and transmission of such values, morals, norms and codes presuppose their system-wide permeation. Third, if functional discussions on ethics are to take stock of the nature and scope of the specific function, then the primary conception of what is right must emerge from the function itself. For example, it would be difficult to conceive of a precise notion of accounting ethics merely through the individual ethics of accountants. Four, if crosscultural notions on differences in ethical norms, perceptions and actions do exist, then the varying impacts of broader socio-cultural values on ethics shift attention away from ethics at the individual level to those at the institutional level (Armstrong/Sweeney 1994; Dierkes/Zimmermann 1995; Wood 1995).

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In the debate between individual, organizational, or institutional conception of ethics, discussions of international business ethics have focused attention at the corporate level, primarily to outline frameworks for evaluating or making ethical judgements at the level of the multinational enterprise (Amba-Rao 1993; De George 1993; Donaldson 1989; Rogers/Ogbuehi/Kochunny 1995). On the other hand, some philosophers and economists have also reflected on the moral status of the market mechanism and/or "capitalism" (Friedman/Friedman 1980; Keat 1993; Sen 1985; Wilson 1991). The application of ethical theory to the fields of marketing and international business enables conceptualizing ethical judgements essentially as deontological (rule-based) or teleological (consequentialist) (Hunt/Vitell 1986) or some happy marriage between the two, often as contingency approaches (Ferrell/Gresham 1985; Mascarenhas 1995). Much of the extant literature on business ethics, however, is tilted towards descriptive studies (Tsalikis/ Fritzsche 1989). Surveys and scenarios have been used in determining the ethical perceptions of business executives, executives in specific marketing functions, business and economics students, consumers, and other groups (Hunt/Chonko/Wilcox 1984; Hunt/Wood/Chonko 1989; Tsalikis/Fritzsche 1989). Even when normative ethical theories are offered, these are often of a rather general nature and too abstract to be usable for decision-making (Smith 1995). The scope of ethical conduct varies, with the argument that certain moral norms, such as human rights, are universal and absolute (Donaldson 1996). However, others argue that even those universal norms are subject to some cultural relativism (Bell 1995). Again, it is also argued that absolute values and relativistic norms could co-exist and contextual factors could contribute to the determination of a moral course of action (Donaldson 1996). If the impact of cultural context is important in ethical evaluations of international business activity, then cultural relativism appears paramount. However, even though there appears to be a set of universal moral values that can be considered inviolate across cultural contexts, a precise determination of these universal moral values has yet to obtain consensus. For example, Donaldson (1996) argues that human rights are universal across cultural contexts, and Sternberg (1994) considers distributive justice to be a universal and transnational ethical principle for business. De George (1993) lists norms against arbitrary killing and norms upholding truth, right to property, contracts, and fairness, as universal moral values. Despite their insistence on some moral values that are universal, these and other scholars do recognize that laws, societal values, and cross-cultural norms must be respected transnationally and business dealings have to be adapted to deal with some of these variations. At the broader business level, Donaldson and Dunfee have offered the vision of corporate relationships governed by social contracts (Donaldson 1982;

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Dunfee 1991, 1993). Donaldson (1989) extended the social contract model to an elaboration of the moral foundation of multinational enterprises. In summary, he argued that due consideration to implicit agreements, commitments and claims enables outlining the obligations of multinational enterprises as sets of "maximal" and "minimal" duties. The minimal duties of multinationals includes the preservation of certain basic international rights (10 of these are listed in Donaldson 1989: p. 81). The "minimal" duties of for-profit multinationals, judged in terms of fairness-affordability criteria, include (1) avoiding deprivation of all such rights and (2) helping protect from deprivation of a limited set of rights that are within the scope of multinational enterprise (MNE) operations. However, according to Donaldson (1989), aiding those already deprived of such rights are not within the purview of "minimal" duties of the MNE. Rogers, Ogbuehi and Kochunny (1995) apply the social contract perspective specifically to the case of developing countries and argue that transnational corporations must enhance the economic and social prosperity of the countries in which they do business. The social contracts model in this case enables the evaluation of responsibilities and benefits of the TNC-developing country interactions and its ethical impact. De George (1993) argues against ethical relativism and ethical imperialism in his argument that international business can be guided by certain basic ethical norms. Specifically, he calls for international business to be conducted with the highest self-imposed norms of behavior demanded by ethics and morality. Integrity in international business entails acting consistently with one's own highest ethical values rather than circumscribing ethics within specific business and cultural contexts. Frameworks for analyzing ethical decision-making in international marketing are scarce. An early contribution by Fritzsche (1985) considered utilitarian benefits to the society, individual freedom and individual justice as essential in deciding if multinational marketing action is ethically defensible. However, as within marketing ethics literature, descriptive studies of cross-cultural ethical behaviors are more prevalent (e.g., Armstrong/Sweeney 1994; Becker/ Fritzsche 1987; Graham 1985; Singhapakdi/Vitell/Leelakulthanit 1994). One reason could be that ethical evaluations of multinational actions are rendered difficult by changing societal values and subjective interpretations (Prasad/ Rao 1982). Perhaps the single most widely used construct in international marketing ethics has been the issue of bribery in different cultural contexts (Graham 1985; Usunier 1993; Wood 1995). In general, most authors and managers appear to be in consensus that (un)ethical perceptions and actions derive from the cultural environment (Ferrell/Gresham 1985; Hunt/Vitell 1986), and that unethical business dealings are practically part of the culture in traditional so-

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cieties and less developed economies. However, Wood (1995) notes a double standard made by Western, industrialized countries when evaluating the ethical standards of lesser developed countries (LDCs). He argued that unethical practices are not uncommon in sales, purchasing and generally within business circles in the Western, industrialized countries, and that the ethical standards of these countries are no higher than those in the LDCs. Specific discussion of international marketing issues, while focusing inordinately on one element of the marketing mix, viz., the product, often ignore the ethical content of other elements of the marketing mix, including promotion, distribution and pricing. Moreover, even though exchange is the unit of marketing, little reference is made to the ethical dimension of the exchange itself. The following section attempts a framework for analyzing ethical issues in international marketing with specific attention to the exchange relationship.

3

Ethical Issues in International Marketing Exchanges

Exchange is understood to be the core concept in marketing and hence, the basic unit for the analysis and understanding of marketing relationships (Bagozzi 1975; Houston/Gassenheimer 1987; Hunt 1976). In the study of international business as well, the concept of exchange can be of central importance. Toyne (1988) advanced the view that the international exchange process should be treated as "dynamic, multilevel and, influenced by historical events and national (societal) assumptions concerning the role played by business activity" (Toyne 1988: p. 7). When international exchange relationships are made the focus of analysis in international marketing, a better understanding can be obtained on the cross-cultural differences in values, motives, orientations of the various actors and organizations as well as on cross-national differences in the environmental context of the exchange relationship itself. However, exchange may take different forms and functions in a society, thereby contributing to differences in the basic economic structures of societies. Schmidt (1920) was prescient in his distinction between the actual processes of earning a livelihood and the societal measures adopted for regulating livelihood (cf. Wagner 1960). This paved the way for understanding that economies are distinct not only in the technological means used to obtain livelihood but also in the fact that societal and material conditions play an important part in activities associated with livelihood (Wagner 1960). Building on the works of Max Schmidt, Walter Eucken, Werner Sombart, and Karl Polanyi, Wagner offered a classification of economies into six major types: (1) subsistence (where organization members produce for self-consumption); (2) subsistence with reciprocity (where some exchange present takes the form

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of ceremonial exchange, including gift exchanges); (3) market-peasant (where all good and services are commensurable for exchange purposes); (4) redistributive-peasant (where exchange for reasons beyond subsistence is regulated by a central social agency); (5) market-commercial (where practically all exchange relations are conducted across the market); and (6) redistributivecommercial (where commercial exchanges are regulated by a central social agency). One crucial use of this classification of economies is the realization that while any one form of exchange may be dominant in a particular economy, there is room for other forms to co-exist. For example, in mixed economies, market-commercial and redistributive-commercial exchanges co-exist, while in many developing countries currently on the path of liberalization, marketcommercial exchanges are slowly replacing either redistributive-commercial exchanges (through privatization) or market-peasant exchanges (through increasing industrialization). Market-commercial exchanges are viewed to be transactions bringing a buyer and a seller together for commercial purposes across a market interface. The market-commercial exchange is the exchange relationship that is fundamental to the role and scope of marketing in any society. However, marketcommercial exchanges do not take the same form in all societies. In so much as markets themselves depend on a variety of other institutions for their nurture and spread, market exchanges are affected by different levels of regulation, redistribution, and reciprocity in different contexts and societies. Indeed, there is an increasing recognition that the Western form of capitalism is not universal and that different cultural values impact the different forms of capitalism that emerge in different countries (Hampden-Turner/Trompenaars 1993). On the other hand, differences in capitalistic systems may also be due from distinct and diverse forms of economic organization, such as family businesses, networks and alliances, as well as different market processes that are prevalent in various economies, especially in East Asia and the Scandinavian countries (Clegg/Redding 1990; Orru/Biggart/Hamilton 1997). Essentially, even though economic organization exhibits diversity across different cultures, it is in the institutional context and arrangements that the differences are most sharply noted (Clegg/Redding 1990; Orru/Biggart/Hamilton 1997). If a normative conception of ethics in marketing were to start from its fundamental unit, then the characteristics of market-commercial exchanges can be used to develop the ethical foundations of international marketing. Since the consumer is key to international marketing activity, market-commercial exchanges must provide for consumer sovereignty. Indeed, consumer sovereignty can be viewed as an universal right for the consumer that must be preserved in all market-commercial exchanges. Smith (1995) includes consumer capability for making decisions, providing truthful and sufficient information

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to consumers, and consumer freedom to choose between competing offers as the basis for establishing consumer sovereignty. In addition, various justice considerations are crucial for market-commercial exchanges. Drawing from Wilson's (1991) conception of a moral economy, these can be listed as commutative justice (i.e., equivalence in exchange), productive justice (i.e., equal opportunity to participate and obtain fair benefits from exchange), and distributive justice (i.e., the distribution of benefits of exchange according to uniform application of accepted justice principles). In addition, the concept of integrity in international marketing exchanges can be derived and applied from De George (1993). In such exchanges, integrity is ensured through admitting only honest influences in promotion, preference, or persuasion. Thus, regardless of the context, bribery can be recognized as unethical practice, while truthful advertising and honest bargaining and negotiations admitted as ethically accepted practices. These principles, as stated below, provide the ethical foundations for international marketing exchanges. 1) Consumer Sovereignty: Consumers (individuals, households, organizations, and governments) must possess the capability to evaluate the offer and make decisions; must be provided with truthful and complete information on relevant aspects of the offer, and; must have the necessary freedom to choose. 2) Commutative Justice: All parties to the exchange must respect the other, treat the other fairly, and honor all agreed upon duties and responsibilities. 3) Productive Justice: All parties to the exchange must have equal opportunities to participate and obtain fair benefits from the exchange. 4) Distributive Justice: Uniform application of justice principles for the distribution of benefits of exchange.1 5) Honest Influences: All influences on the exchange, monetary or otherwise, for the purposes of promotion, preference, or, persuasion, must be honest. In reality, market-commercial exchanges are beset by different contextual factors across the world. Such differences spring from the fact that marketcommercial exchanges, and the market economies in which they are found prevalent, are conducted across a diversity of institutional, cultural, regulatory and legal frameworks (Argandona 1994). Indeed, as Argandona (1994) has noted, the market economy can be defined in terms of certain institutions, norms and rules that define private property, free enterprise, individual and Since the concern is only with market-commercial exchanges, distributive justice considerations are mainly procedural. While it could be argued that distributive justice concerns should include initial endowments and post-exchange just distribution of benefits, such concerns cannot be met by the market mechanism or market-commercial exchanges alone.

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social rights, and the State's limited participation. Given the possibility of defining "markets" independent of its support institutions and contexts, it could be argued that market economies do not differ in form, but only in degree. Thus, the extent and size of the market economy in the US may be substantially larger than that in, say, Spain (Boddewyn/Falco 1988). However, the ethical foundations of international marketing exchanges hold true despite contextual differences, thereby obtaining a form of universality in their application. To illustrate, in the exchange between a consumer in the US and a Japanese automobile company, it is not just reasonable, but even right, to presume the sovereignty of the consumer. Consumer sovereignty entails that consumers are not limited in their decision-making due to their vulnerability; accurate information is available on relevant dimensions, such as product, price and warranty information, and; the consumer is free to choose between buying, not buying, and various other options associated with each. On the other hand, the seller also has the right to seek consumer credit risk information and financing. Moreover, there are no a priori obligations on either party to consummate the transaction, and both parties are expected to fulfill their contractual obligations (e.g., monthly payments by the consumer and warranty service by the seller). Here, distributive justice in exchange prevails when the marketer provides a similar offer to every consumer at a given period of time. One could argue that the legal formalism in commercial transactions in the US would ensure all the above issues; however, such issues become clearly ethical considerations when the same transaction is conducted in a different country with somewhat different legal structure. In the case of an exchange with LDC consumers, it is possible for the international marketing firm to maintain the same principles of ethical exchanges, despite differences in laws (which may be either loosely specified or specified in greater detail, and with varying degrees of enforceability). Given the presumption of such an universal ethical foundation for international marketing exchanges, it is not in the translation of market-commercial exchanges in different national environments, that ethical issues become paramount. The imposition of market-commercial exchanges, without concurrent attention to culture and political-legal structures, is in itself an ethical issue. Without the institutional context necessary for market-commercial exchanges to perform fairly and efficiently, the imposition of marketcommercial exchanges (as sought by a hasty rush towards liberalization in many developing countries) would result in unethical practices, detracting from both fairness and efficiency. For example, in LDCs, a vast majority of consumers of convenience and shopping goods may be illiterate and thereby, vulnerable to harm in international marketing exchange. The transnational firm may either take it upon itself to educate potential consumers on the relevant evaluative factors and decision-making criteria, thereby incurring greater

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short-term costs while ensuring long-term viability, or, call upon the host government for increased scrutiny of the exchange so that the burden of consumer education is shifted on to the host government. Marketing, without concurrent consumer education and greater consumer vulnerability, could potentially lead to an erosion of consumer trusts in the market mechanism, marketer, and the host government. Recent events in Albania, where a vast number of people incurred losses in pyramid marketing schemes, would remain a grim reminder of the intensity of political unrest that could come about from an opportunistic exploitation of consumer vulnerability.

4

Ethical Adaptation of International Marketing Strategies

In terms of specific cultural and other adaptations to host country environments, some truly global companies follow a very similar strategy in all countries, with only the minimum customization to account for host country environments. Other MNEs adopt a multidomestic perspective to their international marketing activities, customizing their strategies to each local market. If ethical adaptations were to be conceived as relative to host country environments, as in the cultural relativist accounts of ethics, the MNE would be beset with a myriad range of ethical values and norms that may detract from efficient operations. On the other hand, a set of inviolate and transcultural ethical codes contributes to greater operational efficiency at the cost of adaptations to specific cultures. Arguing from the perspective that a set of inviolate ethical norms in international exchanges do exist despite cross cultural differences in the marketing context, it is possible to develop unique ethical demands for each context, not so much for adapting the MNE ethics to it, but so as to meet the global ethical criteria. Thus, adaptations are made not in the global criteria so that they conform to cross-cultural differences, but to international marketing strategy, so that the resulting exchanges conform to global ethical criteria for international exchanges. In discussions of ethics in marketing, attention has been given to the ethical content of specific areas or elements of the marketing mix, such as ethics in product management, distribution, promotion, and pricing (AMA Code of Ethics; Smith 1995; Tsalikis/Fritzsche 1989). When ethics in international marketing strategy is also conceptualized along these decision areas, the ethical content of various elements of marketing strategy could be evaluated with respect to their ability to provide for and maintain ethical exchanges in a variety of cross-cultural settings. This evaluation starts with the market selection and access decisions and can be extended to the various international marketing mix strategies.

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4.1 International Market Selection and Access Decisions As noted before, the size of the market in each country would depend on the prevalence of market-commercial exchanges within the economy. In LDCs, such exchanges are less prevalent in comparison to the industrialized countries, and in many LDCs, the government itself may be the largest consumer of international products and services. Market selection decision based on ethical international marketing exchanges, would be guided by the criteria that consumers in chosen markets are not vulnerable (i.e., consumers can be informed and are educated enough to participate adequately in the market), and are free to evaluate and exercise preference for competing offers across the market. At the same time, the possibility of ensuring honest and fair dealings must exist and that the distributions resulting from exchange are based on acceptable justice principles. Traditional considerations - such as environmental factors, strategic and political risks, costs, and profitability - could then be applied to identify countries and markets for international market entry. However, it may be noted that MNEs may choose to select markets wherein only one segment of the population, say the richest, is to benefit from MNE activity. In the utilitarian view of MNE responsibility, their actions should benefit the largest number of consumers from developing countries; however, it is unlikely that a firm marketing, say, high quality stereo systems can indeed apply this ethical strategy. A more practical and adaptable criterion is that MNE exchanges to a few must not cause any harm to the greater majority. This can be achieved through greater attention to the various elements of the marketing mix, as detailed later. If firms are to be excluded on the basis of some utilitarian criteria by the host country, as many socialist and welfareoriented countries had in the past, the country's autonomy can be respected as if it were the consumer. Transnational corporations have a host of market entry strategies available to them for accessing chosen markets. Other factors being equal, the level of organizational commitment, in terms of investments and risks, is lower in exporting strategies as compared with strategies of direct investment in the host country. Exporting strategies are also the cause for greatest ethical concern, not simply because of the lower organizational commitment and a shorterterm orientation, but also due to the fact that the firm is often further away in terms of knowledge of and responsibility to the final consumer. This aspect is readily apparent in domestic marketing, where the firm's responsibilities to the consumer extend beyond the transfer to title to a middleman. The situation in sales to a foreign middleman is no different, and for the adequate discharge of ethical responsibilities, the firm must ensure that the middlemen who act as intermediaries between the firm and final consumer do not violate exchange ethics in their transactions. Thus, even though exporting may involve less or-

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ganizational commitment, a firm ensuring ethical exchanges with the final consumer would give more attention to the careful screening of foreign intermediaries and importers.

4.2 International Product Strategy Standardization/customization of the product is one crucial aspect of international product strategies. Economic, strategic, cultural, political, and legal, among other considerations drive the standardization/adaptation decision across multiple national environments (Jain 1989). Standardization/adaptation decisions contribute to economic efficiency (through reduced costs), increased attention to local tastes and preferences, and increased fit between specific strategies and the environmental context. On the other hand, when ethical considerations are included in the standardization/adaptation decision, additional constraints are introduced in the attempts to balance economic efficiency and cultural adaptation. The impact of ethical considerations may lead to a decision that compromises on economic efficiency, though it could always be argued that, due to greater acceptability of their actions in host countries, multinational operations will be rendered more viable in the long-run. Viewed from the perspective of ethical exchanges, product customization should reduce consumer risks due from their vulnerability, by making crucial modifications to the product. For example, product safety aspects have been noted for products marketed to children, elderly and other vulnerable segments of a domestic population. These considerations exist in international product customization decisions as well. Additional ethical concerns in international product strategies include the offer of harmful or domestically banned products to international markets (e.g., the marketing of the US banned chemical DBCP to Equador by US firms - see Schemo 1996); improper adaptation of the product to consumer use contexts, as in the marketing of Nestlé infant formula in developing countries (Kolde 1982), and; the marketing of products and services detrimental to environmental sustainability and community well-being, as in the case of tourism marketing (Payne and Dimanche 1996).

4.3 International Promotions Strategy Again, issues of standardization/customization of the international promotions strategy derive from an understanding of the varied consumption and use contexts of the products. At the same time, however, ethical exchanges call for adaptations of the promotions strategy to provide needed information on

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benefits and risks of consumption. While ultimately the protection of vulnerable sections of the population may be said to rest with the host government, MNE responsibilities, when considered from viewpoint of ethical exchanges, call for additional efforts to ensure that relevant rights and consumer freedom are maintained in the consumers' dealings with the firm. Moreover, bribes and payoffs in international promotion of products (Johnson 1985; Lane and Simpson 1984) can be recognized as unethical since these detract from honesty in exchange. Consideration of exchange ethics call for truthful promotion of products in international markets; providing sufficient and relevant information on the nature of the product, its use, benefits and risks, and; avoiding deceptive or misleading messages, as well as practices that subtly manipulate consumer wants (such as, bait-and-switch advertising). In terms of personal selling strategies, attempts to distort distributive justice in exchanges is a clear ethical consideration in LDCs. Here, due to excessive demand in relation to supply, the marketer may attempt to restrict sales to private networks, and those with the ability to pay a premium or provide for other favors and benefits. One major issue in LDCs is the impact of advertising on the development of needs that are counterproductive to the economic and social ethos of specific cultural groups. Essentially, advertising could create illegitimate wants and drive needs towards less important goods (Galbraith 1976). While the Galbraith thesis has yet to be unequivocally proven empirically, international advertising does result in a number of unintended consequences in LDCs that may be detrimental to their socio-cultural well-being. One, due to lack of adequate media availability in LDCs, specific targeting of advertising messages is rarely possible. Since a number of diverse groups are exposed to the advertising messages, a broad-based cultural status far beyond its intended target is often ascribed to the foreign product. This places on consumers without the means to consume such products, a greater onus to emulate the status achieved by their consuming neighbors. Two, absent high levels of media competition, advertising claims appear more believable and true. Three, due to low levels of product competition in most markets in the LDCs, the advertising-sales growth relation is more elastic. Indeed, absent high levels of competition, sheer advertising intensity contributes to sales growth. This implies that there is often less attention to evaluations of the specific content of advertisements.

4.4 International Pricing Strategy International pricing strategies have to contend with issues such as, uniform versus differentiated pricing, varied pricing objectives, and cost, competition,

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and other factors in price setting (Jain 1993). From the perspective of ethical exchanges, international pricing, when not completely due to market forces, as usually the case, must be guided by the concept of fairness in exchange. Very high prices due to the imputed status of foreign goods, local area monopolization, price fixing by marketers, and price gouging can be recognized as unethical pricing policies. On the other hand, in the case of LDCs, price discrimination may prove to have beneficial impacts on economically weaker sections of the population, e.g., a doctor may reserve weekday afternoons for the poor and charge them lower consultation and medical fees. However, certain forms of price discrimination, apart from the costs, competition, or benefits arguments, can be recognized as unethical. For example, creating artificial shortages of specific varieties of product may enable the opportunist marketer to extract premium prices from certain consumer segments. To illustrate, a public sector automobile company set up with foreign technical collaboration in a LDC, provided a short supply of automobiles of the same model but a different color at a higher price, thereby creating a premium segment based neither on product nor cost variations.

4.5 International Distribution Strategy Tied closely with the market access decision, different distribution strategies entail different degrees of investments and risks. Product piracy, product imitations, artificial product shortages, and gray markets may be unethical practices not only prevalent in specific environments, but also fostered due to a lack of sufficient control over one's distribution strategy. From the perspective of ethical exchanges, a distribution strategy that can implement ethical codes in exchanges with final consumers is to be preferred. However, while the costs of vertically integrating exchanges may be phenomenal, careful screening of intermediaries and the adequate monitoring and control of intermediaries' exchange relationship with consumers such that these are ethical, is ultimately the responsibility of the international marketer. Ethical issues should be of more concern when marketing branded consumer goods in LDCs. In the case of such products, consumer loyalty derives more from consumer identification with the brand and the company, rather than from rational criteria or the nature of the interaction with intermediaries. Intensive distribution and advertising "pull" strategies may emphasize continuing relations with intermediaries primarily on the basis of economic considerations (efficiency, performance, etc.) rather than from ethical considerations. Thus, firms may give relations with intermediaries precedence over their relations with consumers, thereby leaving the field open for varied lapses in ensuring ethical exchanges with consumers.

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International Marketing Ethics and Transnational Corporations

From the above discussion of adaptations to international marketing decisions to ensure ethical exchanges, it may appear that such adaptations are fairly straightforward as long as they follow some inviolate ethical rules. However, costs/profitability, competition and specific cultural contexts may pose challenges to the implementation of international marketing ethics.

5.1 Costs/Profitability Multinational enterprises (MNE) are in a better position to capture economic rents from firm-specific, location-specific and internalization advantages (Dunning 1981), since structural and other imperfections detract from mere cross-border transfers. A number of factors, including increases in scale and scope advantages, easier transfers of technical and management skills, and reduction of transactions costs, among others, may be cited for the growing prevalence of MNE operations (Buckley 1990). The added responsibility of ethical behavior in international marketing exchanges changes the relative advantages of operating in a given environment. For example, the imposition of ethical codes of conduct on exchange partners would have the impact of increasing costs of governing international exchange, since ethical behavior cannot be guaranteed from economic criteria alone. The increased costs of implementing ethical exchanges may negatively impact profitability, especially when the reputation gained from ethical dealings in specific environments is only local and marginal. However, with increasing degrees of globalization, it could be argued that such reputation effects may also have an increasingly transnational impact. For example, preservation of Brazilian rainforests are increasingly a matter of concern not only within Brazil, but for consumers in other countries as well.

5.2 Competition LDC governments as well as LDC consumers may be willing to accept deviations from exchange ethics for specific reasons. Host governments may allow an MNE to market products banned in the MNE's home country, so long as the marginal economic development benefits from using such products exceeds substantially the marginal costs borne in terms of health risks or pollution. In other instances, adequate screening and restriction of MNEs may not be possible due to international pressures, or when FDI entry is conducive to a

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favorable political position in future elections for the current host government. In the case of agricultural and industrial consumers, the multinational product may improve productivity or quality and thus, obtain for them substantial increases in profits from their end products. Ethical exchanges would only make the MNE less attractive for the LDC as compared to when only developmental, political and economic advantages of MNE participation are considered. Thus, the competitive status of the ethical MNE would be weakened if similar MNEs, that are less stringent on ethical concerns, compete for the same markets. This argument is often advanced in defense of MNEs marketing domestically banned products or offering bribes in local contexts that demand them. However, at the same time, the imposition of a uniform set of standards, including product related ethics, is more efficient for MNE organization and governance and often has the impact of imposing similar standards on the competition (Economist 1995a).

5.3 Cultural Context It is often argued that corruption is an integral part of various business cultures. Moreover, certain practices, such as giving and receiving gifts among business partners, is often considered to be part of a sanctified tradition in some cultures. One prescription that has been offered is the rule that if business cannot be conducted without the practice of such influences on exchange, then these influences are permissible so long as they are within their limits in scope and intention (Donaldson 1996). In general, this prescription enables managers to make reasonably good evaluations of their own ethical conduct. However, at the same time, adaptations of business ethics to a variety of cross cultural contexts can only perpetuate, to paraphase Wood (1995), a business culture that is permissive of extra-exchange monetary and non-monetary schemes of creating exchange obligations. In contrast, when a set of inviolate exchange ethics are adopted in international marketing exchanges, behaviors of exchange parties are rendered less uncertain and more open. Business environments with open dealings and trust bear lower transactions costs of economic exchanges, thereby contributing to greater economic efficiency (Dobson 1990). Thus, it can be argued that ethics drives economics rather than the other way around. In sum, even though various economic, strategic, and cultural factors appear to constrain the ethical behaviors of transnationals, ethical marketing exchanges may also provide the benefits of enhanced corporate reputation, greater economic efficiency, and lower transaction costs for the transnational. Additional challenges, however, also come from various non-market sources. Host governments, in their attempts to attract FDI, may directly enter

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into various deals with MNEs that may be questionable morally as well as politically. Even democratically elected governments often act in a clandestine manner, closing deals with foreign companies without providing relevant information to their public. For example, when the Indian government adopted a fast-paced liberalization policy in 1991, it acted in haste to attract foreign investment to privatize the power generation sector. However, unusual for a government that often acted with extreme caution and with tremendous bureaucratic delays, the Indian government accepted a $2.8 billion power project from Enron, essentially without open negotiations and competing bids (Economist 1995c). The method of awarding the contract to Enron evoked suspicions of cost padding and corruption, and the state of Maharashtra, where the plant was to be built, rather ceremoniously scrapped the project (Economist 1995b, 1995c, 1995d). While now some aspects of the initial project proposal have been reworked and government counter-guarantees offered to Enron, much of the tensions, legalities, delays and aspersions on reputations could have been averted had the Indian government adopted a conventional competitive bidding process and kept relevant aspects of the deal open for public scrutiny right at the outset. Thus, explicit consideration of exchange ethics could have prevented the various costs and delays experienced by both parties. Host governments have often lobbied and even threatened unilateral sanctions against governments for closing or obstructing trade in specific industries. As a broad-based measure, such actions and sanctions are justifiable if a country's economic condition and its consumers will be better off with the entry of foreign goods and firms. However, can there be an appropriate moral justification for using such threats and sanctions against governments closing their markets to cigarette trade? For example, the US government has repeatedly and relentlessly worked to open up foreign markets for the US tobacco companies, treating tobacco trade as an issue of fair trade and economic fairness, devoid of the moral and health issues that are characteristic of tobacco consumption within the US (Frankel 1996). However, if the sovereignty of the international consumer is to be respected, these international marketing exchanges can only be recognized as unethical, even if not illegal in the host countries, or detrimental to a multilateral international trading environment.

6

Conclusions

In the final evaluation, international marketing exchanges as well as the market mechanism itself can be considered independent of the question of morality. Ethical considerations emerge from the mis-application of the market

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mechanism and behavioral misconducts in international exchanges and/or from violations of transnational consumer sovereignty. Exchanges and markets that impose unfair and involuntary constraints on the participants or otherwise contribute to negative non-commercial consequences can be criticized for their ethical content. The arguments advanced demonstrate that as far as business is concerned, international marketing exchanges that distort the effects of market-commercial exchanges or otherwise cause undue pecuniary and non-pecuniary harm to international consumers are unethical, regardless of any business constraints or non-market demands. At the same time, the imposition of a market mechanism, either through unilateral sanctions or through host country policies, without concurrent attention to the institutions and values necessary for markets to function efficiently and justly, can be questioned on the basis of an ethical world trading order. One major limitation of this paper has been its restricted focus on international marketing exchanges. Specifically, only the relations in the realm of marketing were analyzed. While some attempt was made to understand the impact of other influences on this exchange, various constituencies not directly party to the exchange but affected by it, such as stakeholders, employees, etc., were not explicitly considered. This atomism is not unjustified given the limitations on the scope of the analysis; however, since in marketing, the customer is sovereign, responsibilities to other claimants within the firm can only be, for the most part, viewed as supplementary and derived (Donaldson 1989). An underlying theme within this discussion has been the notion that cultural relativism is not required for an evaluation of ethics of international exchange, though cultural understanding may provide crucial avenues for ethical conduct. Moral rights and moral wrongs can be clearly distinguished in international exchanges, once the differences in perspectives as to what these are can be resolved. But much of these differences in perceptions could stem from the sanctimonious status, or lack thereof, given to commerce by different societies. While commercial activities obtain a high status in most of the Western world, traditional and religious societies may still look down upon commercial activities in contrast to religious and social ideals. It is not that one is more moral as compared to the other; only that morality in one sphere of living may be more jealously guarded as compared to other spheres. In Western societies, this sphere is commerce, while in traditional societies, it may be religion or the family. However, this paper was careful in identifying the scope of marketing as restricted to market-commercial exchanges, which are prevalent to different degrees across societies. Thus, moral judgements of entire societies or cultures are avoided. The utilitarian case for the MNE, used for justifying the value provided by multinationals in the many countries that they operate in, has not been treated

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in any great detail in this paper. However, it may be observed, in passing, that the mere application of utilitarian criteria often calls attention away from the considerations of fairness and justice in the evaluation of multinational conduct. The issue is similar to the question of colonialism's contribution to developing countries. Attention to factors such as education, communication, transportation and other aspects of infrastructure developed during colonial rule often ignores the plausible alternative that the real reason why many former colonial countries are poor today, and hence euphemistically clubbed "developing", could have been due to colonialism itself. For international marketing, the realization that consumers engaging in marketing exchanges all over the world should deserve the same high levels of respect, dignity and rights, despite structural and cross-cultural encumbrances, appears to be the greatest challenge.

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North, D.C. (1990), Institutions, Institutional Change and Economic Performance. New York: Cambridge University Press. North, D.C. (1994), Economic Performance Through Time, American Economic Review June 84: 369-368 Orríi, M., N.W. Biggart, and G.G. Hamilton (1997), The Economic Organization of East Asian Capitalism. Thousand Oaks: Sage Publications. Paine, L.S. (1994), Managing for Organizational Integrity, Harvard Business Review March-April 72: 106-117 Payne, D., and F. Dimanche (1996), Towards a Code of Conduct for the Tourism Industry, Journal of Business Ethics September 15: 997-1007 Prasad, J.N., and C.P. Rao (1982), Foreign Payoffs and International Business Ethics: Revisited, Southern Marketing Association Proceedings: 260-264 Rogers, H.P., A.O. Ogbuehi, and C.M. Kochunny, (1995), Ethics and Transnational Corporations in Developing Countries: A Social Contract Perspective, Journal of Euromarketing 4: 11-38 Schmidt, M. (1920), Die Soziale Organisation der Menschlichen Wirtschaft, Grundriss der Ethnologischen Volkswirtschaftslehre I. Stuttgart: F. Enke Sen, A. (1985), The Moral Standing of the Market, in: E.F. Paul, J. Paul and F.D. Miller (eds.) Ethics and Economics, 1-19. Oxford: Basil Blackwell. Singhapakdi, A., S.J. Vitell, and O. Leelakulthanit (1994), A Cross-cultural Study of Moral Philosophies, Ethical Perceptions and Judgements, International Marketing Review 11: 65-78 Smith, N.C. (1995), Marketing Strategies for the Ethics Era, Sloan Management Review Summer: 85-97 Sternberg, E. (1994), Relativism Rejected: The Possibility of Transnational Business Ethics, in: W.M. Hoffman, J.B. Kamm, R.E. Frederick, and E.S. Petry, Jr. (eds.), Emerging Global Business Ethics, 143-150. Westport: Quorum Books. Toyne, B. (1989), International Exchange: A Foundation for Theory Building in International Business, Journal of International Business Studies 20: 1-17 Tsalikis, J., and D.J. Fritzsche, (1989), Business Ethics: A Literature Review with a Focus on Marketing Ethics, Journal of Business Ethics September 8: 695-743 Usunier, J.-C. (1993), International Marketing: A Cultural Approach. Hertfordshire: Prentice-Hall. Wagner, P.L. (1960), On Classifying Economies, in: N. Ginsburg (ed.) Essays on Geography and Economic Development, Research Paper No. 62. Chicago, IL: Department of Geography, University of Chicago. Wilson, J.O. (1991), Human Values and Economic Behavior, in: A. Etzioni and P.R. Lawrence (eds.) Socio-economics: Toward a New Synthesis, 233-259. Armonk: M.E. Sharpe. Wood, G. (1995), Ethics at the Purchasing/Sales Interface: An International Perspective, International Marketing Review 12: 7-19

Concepts and Experience of the "Valuing Diversity and Ethics" Workshops at Levi Strauss and Company Marvin T. Brown

What does ethics have to do with diversity? Before I became involved in Levi Strauss and Company's (LS&CO.'s) Valuing Diversity and Ethics workshops, I had a rather narrow answer to this question, because I had a narrow view of diversity. I tended to equate diversity with discussions about such issues as racism, and sexism. Diversity was an issue that business ethics needed to address. I usually did this in my business ethics courses by including a section on affirmative action and sexual harassment in United States. From my work as an external consultant and facilitator at Levi's, I have learned that diversity is much more than one of several ethical issues. Ethics and diversity, in fact, have a multi-dimensional relationship that affects not only what issues we consider, but also the very process of engaging in ethical reflection.* Diversity, of course, has had different meanings for different people.1 So has ethics, for that matter. This commentary on LS&CO.'s Valuing Diversity and Ethics training program explores how they can gain meaning from and through each other.

1

An Overview of the Valuing Diversity and Ethics Workshop

The Valuing Diversity and Ethics workshops are four day programs, usually for about eighty employees. The participants come from different departments such as sales, marketing, accounting, operations, and human relations; and *

1

I wish to express my gratitude to the co-facilitators of the Valuing Diversity and Ethics program, and especially to Toni Wilson, who was LS&CO.'s Ethics Initiative Manager when this program started, for their contributions in developing the connections between ethics and diversity. Although I continue to serve as an external faculty and consultant in this program, my remarks represent only my interpretation, which I hope will encourage further dialogue on the value of diversity and ethics in the global corporation. see Cross/Katz/Miller/Seashor et.al. (1994).

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from all over the United States, as well as from Asia, Europe, and South America. Many are supervisors or managers of small groups or teams. They come to these workshops in part because they know that they belong to a company that values ethics and diversity - a company building a global culture and in part because their managers ask them. During the four days, the employees attend a series of modules, usually in a group of about twenty with two facilitators, and sometimes in a plenary session for everyone. The following outline displays the program's major themes. Day One Theme 1 Theme 2: Theme 3:

Importance of Ethics and Diversity at Levi's Basic Components of Dialogue The Ethics Decision Making Model

Theme 1: Theme 2:

Practice Using the Ethics Decision Making Model Understanding Racism and Engaging in Dialogue

Theme 1: Theme 2: Theme 3: Theme 4:

Understanding Prejudice in the Workplace Learning about Collusion Understanding Cultural Differences A Self-Directed Media Museum on Diversity and Ethics

Theme 1: Theme 2: Theme 3:

The Differently-Abled Diversity in Teams Developing Personal Action Plans

Day Two

Day Three

Day Four

Several things happen as participants move through the four days. They increase their awareness of the significance of ethics and diversity for the contemporary workplace. They learn skills to engage in ethical decision making when faced with controversial issues. They also learn skills to address various forms of devaluing others that shut people down or exclude them from full participation. Most of these goals are similar to other training programs in ethics or in diversity. Unlike most of them, however, this program has combined these goals.

2

Connecting Ethics and Diversity

How should we connect ethics and diversity? If we see ethics as making judgements and diversity as honoring differences, then any connection be-

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tween them may seem tenuous at best. People involved in diversity training have certainly heard more than once: "It is not a question of right or wrong, but of accepting differences." Ethics, on the other hand, facilitates the discernment of what is right and wrong. So it seems that they take almost opposite stances toward conflict and disagreement. From my involvement in the Valuing Diversity and Ethics program, I believe that this view of ethics and diversity is not the final word, even though it is not so easy to escape. How we move beyond it depends on our capacity to entertain multiple connections between ethics and diversity. We have discovered three different ways we can link them together: by commitment to principles, by the exploration of assumptions, and by engaging in a type of dialogue that balances advocacy and inquiry. These different connections are interdependent and build on each other. To show this developmental and accumulative process, we will begin with a description of how ethical principles are used at Levi's, because this sets the tone for approaching both ethics and diversity throughout the company.

3

Using Principles to Connect Ethics and Diversity

Levi Strauss and Company has a long tradition of ethical practices and reflection, which Robert Haas presents elsewhere in this volume. At one of our workshops, an LS&CO. senior manager aptly expressed Levi's general approach to ethics by telling the participants about a meeting on business ethics with other corporate managers. While others at the table had their two or three inch thick ethics manuals in front of them, he had only three pages: the LS&Co. Aspiration Statement, Code of Ethics, and a list of Ethical Principles. When his turn came to tell about the ethics program at LS&CO., he held up the three pages. He said that his company relied on their employees, not on piles of rules and regulations, to ensure that decisions throughout the company were in line with company values. The contrast between the image of the pile of regulations and the image of the three pieces of paper was not lost on the participants. If a company has only a set of principles to guide decisions, then it must rely on the decision makers to connect the principles to specific actions or proposals. For example, a manager may face the question of whether or not to give an employee another chance after she or he has made a mistake. Suppose she decides to follow the ethical principle of respect for others', does this principle tell her what she should do? Not necessarily. Her actual decision will depend on a number of factors. Respecting others could support forgiving or not forgiving the employee. The principle, in other words, does not tell her

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concretely what to do, but it does guide whatever action she chooses. It probably does tell her some things she should not do, such as to ignore different views of what happened or to use the person as an example for other employees. In any case, her concrete decision will depend not only on ethical principles, but also on observations of the situation and assumptions about such themes as forgiveness, responsibility and control in the workplace. Those involved in the situation must always fill in the gap between principles and actions, for only they have access to the necessary resources to make a concrete decision. We will examine shortly how they can discover and use these resources. For now, we only want to emphasize that while the principles provide the guidelines for making decisions, they do not make the decisions. For employees and teams who must make decisions, of course, the company's ethical principles give them precisely what they need: the company's commitments. At this level of commitment, one also finds the first and clearest connection between ethics and diversity. Such principles as Respect for Others, Fairness, and Compassion make a strong claim for the honoring of differences. Diversity awareness also has a long tradition at LS&CO., a tradition that finds expression in the company's Aspirations Statement: "We have committed to taking full advantage of the rich backgrounds and abilities of all our people and to promote a greater diversity in positions of influence. Differing points of view will be sought; diversity will be valued and honestly rewarded, not suppressed." The final phrase in this statement, that diversity will be "honestly rewarded, not suppressed," points to the two sides of valuing diversity. On the one hand, valuing diversity induces people to work together so that everyone is encouraged to contribute to the company's goals through her or his own distinctive way of being. On the other hand, it also leads them to identify and address group or individual behavioral patterns that prevent this from occurring; that is, behaviors that suppress others. Diversity, in other words, needs to address both what prevents and what enhances the honoring of differences. At the level of an aspiration, diversity appears much like an ethical principle: it guides our decision making and our interactions with each other. In many cases, people's commitment to such principles as respect and compassion motivates and challenges them to work through the difficult issues of privilege, power, and prejudice in our society. At the same time, if we limit the connection between ethics and diversity to the level of principles, we face the danger of judging every disagreement about diversity as a disagreement about ethical principles. Making such judgements, however, seem to belie one of the goals of diversity training; the honoring of differences. Consider the following piece that a senior manager read at one of our workshops:

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If I do not want what you want, please try not to tell me that my want is wrong. Or, if I believe other than you, at least pause before you correct my view. Or if my emotion is less than yours, or more, given the same circumstances, try not to ask me to feel more strongly or weakly. Or yet if I act, or fail to act, in the manner of your design for action, let me be. I do not, for the moment at least, ask you to understand me. That will come only when you are willing to give up changing me into a copy of you. I may be your spouse, your parent, your offspring, your friend, or your colleague. If you will allow me any of my own wants, or emotions, or beliefs, or actions, then you open yourself, so that some day these ways of mine might not seem so wrong, and might finally appear to you as right - for me. To put up with me is the first step to understanding me. Not that you embrace my ways as right for you, but that you are no longer irritated or disappointed with me for my seeming waywardness. And in understanding me you might come to prize my differences from you, and, far from seeking to change me, preserve and even nurture those differences.2 On the one hand, probably all of us would like others to approach us with the stance this piece embodies. On the other hand, we need to ask what kind of ethics such a stance can embrace. Perhaps it could embrace an ethics that limits itself to principles, such as the principle of Respect for Others. As we just said, however, ethics involves making concrete decisions, which involves moving beyond principles into the continual interaction between principles and situations. While principles may move us to care about ethics and diversity, this level of discourse alone does not allow us to deal adequately with the conflicts and disagreements that we experience every day in the workplace. If we want to use ethics and diversity to address these situations, we need to look for connections beyond the level of principle. At the initial planning for the Valuing Diversity and Ethics program, we began such a search and found that both ethics and diversity have at least one foot in our world views or assumptions.

author unknown.

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Using Assumptions to Connect Ethics and Diversity

In August 1994, human resource managers from North and South America, Europe, and Asia, as well as external consultants in ethics and diversity were invited to a four day Global Initiative on Values & Strategy Forum. Many of the participants had worked in some of the previous LS&Co. ethics, diversity and leadership training programs that the company had offered since 1991. They shared with those of us who were new to the company what ethics and diversity looked like at Levi's. Toni Wilson, the manager of the training program, asked all of us to stretch our imagination to forge a new vision of ethics and diversity from a global perspective. We began to explore the possibility of a connection at the level of assumptions. Although the importance of assumptions had been implicit in previous ethics programs at Levi's, they were not an explicit part of a decision making process. At the same time, I had developed an ethical decision making process that had a place for assumptions, but I had not connected diversity to ethics. So by combining LS&CO.'s experiences in ethics and diversity with the ethical decision making process that I had first developed in my book on organizational ethics, Working Ethics, and later in my workbook, The Ethical Process 3 , we were able to make explicit the role of assumptions for both of them. A key to this development was sorting out the different levels of discourse in making decisions.

5

The Ethical Decision Making Model

People often imagine ethical decision making as a process of relating actions to the values or ethical principle that support them. This view, however, tends to ignore two other aspects of making decisions that are just as important; namely, our observations about what is happening or is likely to happen, and our assumptions about how things usually happen. A complete picture of the decision making process includes four different levels of discourse. Each one raises a different question and gives a different answer. Our proposals ask the question, "What should we do?" and answer with a specific course of action. Observations ask the question, "Why should we do that?" and answer by describing the situation. Our values ask the question, "Why is this important?" and answer by expressing our general beliefs. And finally, our assumptions ask the question "Why do you think this will work?" and answer by expressing our world view or cultural perception of reality. 3

Brown, M.T. (1990), and Brown, M.T. (1996).

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As we move through the observations, values, principles, and assumptions that support different proposals, we find that most of our disagreements originate from different assumptions. At this level of discourse we find our different cultural perspectives, social visions, and even religious beliefs, or in other words, our diversity. Especially when we take a global perspective, disagreements often have their origin in different cultural perspectives or assumptions about how the world works. To adapt this four-fold model of ethical decision making to the Valuing Diversity and Ethics program, we added a fifth level of discourse: the LS&CO. Ethical Principles: Honesty, Promise-keeping, Fairness, Respect for Others, Compassion, and Integrity. This addition provided a clear normative standard that every decision at Levi's had to meet. For a decision to be acceptable at Levi's, it must find support in the principles, and it must not violate any of them. In other words, these principles serve as normative guidelines for what we can and cannot do. The ethical decision making process does not begin, however, with the analysis of principles, but rather with disagreements on controversial issues. The process was designed for team members who must make a decision and yet disagree about what they should do. It invites the members to state their different proposals and to share their observations about what is going on; to uncover the implicit value judgements on which they relied when stating their proposals and observations; to apply the LS&CO. ethical principles; to discover the different assumptions that each side would have to make in order to agree with the other side; and finally to develop a new proposal from the resources they have been able to generate. This new proposal is then tested to see if it causes undue harm to any of the stakeholders or affected groups. In our workshops, we first "walk-through" the ethical decision making process with the participants, and then let them use the process with issues from their workplaces. To observe the various steps in the process, we can use the following case: Suppose you belong to a group of people in a United States company who must decide whether to develop a policy that encourages female employees to apply for company positions in foreign countries. There is general agreement that in these countries they will encounter more forms of male chauvinism and sexual harassment than they would encounter at home. Some people want to encourage them and others do not. To bring together all the resources in the room, we need to explore the reasons for both views. We start with a proposal:

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Step 1:

Make a Proposal: (What should we do?) "I think we should encourage women to apply for foreign positions."

Step 2:

Identify Your Observation: (Why should we do it?) "Because we observe that promotions usually go to those who have practical knowledge of our foreign markets."

Step 3:

State the Value: (Why is this the right thing to do?) "We believe that women should have the same opportunities for promotion as men."

Step 4:

Align the LS&CO. Ethical Principles: (Which LS&CO. Ethical Principles are reflected in the Proposal?) "Fairness", "Respect for Others", and "Integrity."

Step 5:

Explore The Alternative View: (What are their key Observations, Values, and LS & CO Ethical Principles?) Alternative Proposal: "We should not encourage women to apply for foreign assignments." Observation: "Because in such a hostile environment, they will probably become frustrated and dissatisfied with their work." Value: "We believe that all employees should be placed in positions where they can express their own skills and talents and be satisfied with their performance." LS&CO. Ethical Principles: "Honesty," "Respect for Others," "Promise Keeping,"

Step 6:

Uncovering Assumptions: (What assumptions support the alternative proposal? What assumptions support my proposal? or What would one view have to assume to agree with the other side?) "To agree with not encouraging women to apply for foreign positions, I would have to assume that the work environment has a determining influence on a person's performance." "To agree with encouraging women to apply, I would have to assume that people can perform at their best in any work environment."

Step 7:

Best Option: (What is the best solution?) "I still think that we should encourage women to apply for foreign positions, and we should make sure that we have done everything reasonable to create a supportive environment for them."

Step 8:

Consequence analysis: (Who may be negatively impacted? How can I modify my solution to minimize harm to others?) "The primary groups impacted in this case are US women employees, foreign clients, women in the foreign country, and investors. It seems possible that negative harm may come to local women if we carry our Western culture into their environment in such a way that shows disrespect for them. So we could modify our proposal to include them in our discussions on how to create a supportive work environment for female employees."

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Teams that move through the complete process, from the first to the last step, receive several benefits. The different observations, values, and assumptions they gather increase the group's resources for making a better decision. As people learn more of the reasons behind each person's position, they also increase their appreciation for each other's perspective. And finally, they can be fairly confident that they have made the best decision possible because they have examined all the available resources.

6

Analysis of Assumptions

Step 6 in the process examines different assumptions. Many of our assumptions are taken-for-granted notions of how things work that we have received from childhood. Paradoxically, sometimes we can see other's assumptions much better than we can see our own. In our workshops, we try to use this insight by helping participants use the alternative view's assumption as a mirror in which they can see their own assumptions. To facilitate this, we ask the participants what they would have to assume to agree with the alternative view. Once they have developed such an assumption, we then say that since they do not agree with that view, and therefore probably do not hold that assumption, what do they assume? In this way they are able to examine their own assumptions from the other's point of view. The assumptions expressed in the case we just reviewed refer to different notions of the relationship between individuals and their work environment. In our workshops, we look at such differences as cultural differences. The difference in this case, for example, parallels a general difference between Western cultures that see the individual apart from the group, and Eastern cultures that see the individual as a part of the group.4 We sometimes find similar differences between men and women, or between different ethnic cultures in United States. So what? So, if we are facing cultural differences, then we must decide how we will respond to them. Can we honor each other's ways of being in the world, and still work together to discover the most appropriate action or policy? If we disagree about what to do, and we discover that the disagreement reflects our diversity, and we cannot develop a consensus on any option, then what should we do? As with the connection between ethics and diversity at the level of principle, we again face the difficulty of putting ethics and diversity together. This time, if we want to emphasize the importance of honoring diversity, we could simply enjoy learning about each other's assumptions 4

Trompenaars, F. (1994).

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about how things work. If we were to try to make the right decision, at this point, however, we would need to figure out how one set of assumptions could somehow outweigh the other, or how one set of values or principles could have priority over others. What should we do if we want to give equal emphasis to both diversity and ethics? We have found we must rely on the process of dialogue to move us through this apparent conflict between honoring differences and resolving disagreements.

7

Using Dialogue to Connect Ethics and Diversity.

As we have seen, the ethical process begins when people disagree about what they should do. If everyone agrees, they just do it without wondering why. Only when someone voices disagreement do people have a chance to think about their choices. For disagreement to be productive, however, the participants must join together, rather than fight each other, to find the best course of action. They can only engage in this sort of process if they move away from debating who is right and wrong and move toward a dialogue about what they can learn together. In The Ethical Process, I make the following distinctions between dialogue and debate:5 Dialogue

Debate

Driven by implicit meanings Supports strengths Strengthens community Participants explore positions Face each other as partners

Driven by individual interests Exploits weaknesses Increases alienation Participants protect positions Face each other as combatants

In contrast to debate, dialogue creates a unity of purpose in finding the best answer even when people disagree. This does not mean, of course, that they will necessarily come to an agreement, but it does mean that they will have contributed to the outcome. To enter into dialogue with others who disagree with us, we need to see them as sure of their position as we are of ours. Do you agree that "most people do what they think is right considering the world they think they live in"? If so, then disagreement with others is not so much a conflict between right and wrong, as a conflict between right and right. (You know you are really right, of course, but then so does your partner.) To decide how two, or more than two, right answers relate to each other, one must examine the reasons observations, values, and assumptions - that support them. As team members 5

Brown, M.T. (1996): 46

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explore these reasons, they will notice the strengths and weaknesses of their respective right answers. For dialogue to happen, participants need to recognize each other as different. If I see the other as the same as myself, then I will speak as though I were speaking to myself. I might as well speak to myself. Only when I see the other as another person with her or his own opinions and perspectives, talents and needs, experiences and wisdom, do I have the opportunity to learn more from that person than I already know. When I move into dialogue with someone who is different, then I have the opportunity to see myself not only through my eyes, but also through the eyes of another. We all experience this type of learning when we visit other cultures, or even other families. Most of us learn about ourselves more through differences than we do through similarities. When we consider the power dimension of our relationships, it seems even more true that those with power and privilege learn more from others who are different from them than from those who are similar. White people, for example, will probably not learn as much about what it means to be white from other white people as they will learn from people of color. In essence, to engage in dialogue, we must value diversity, and to value diversity we must engage in dialogue with others.

8

Four Components of Dialogue

In the training program, the first theme we explore is dialogue, because we have learned how central it is to both ethics and diversity. Much of the exploration involves understanding and applying four different dialogical practices: suspension of judgement, listening, assumption identification, and inquiry and reflection.6 The suspension of judgement does not mean that I do not make judgements. We all do that. It does mean that I move my judgement off to the side, or bracket it, so that I can listen to others. Suspension of judgement, in other words, is a requirement for listening. Listening may appear easy, and yet, to actually listen means that we take in something that we do not know, that we do not control, and that we do not have. It means, in other words, honoring the otherness of the speaker. As we begin listening with an awareness of differences, we can also become aware of our immediate responses to another. Perhaps we can even see how our taken-for-granted assumptions about other persons or situations control our responses. Identifying these assumptions is the third component of dialogue. Inquiry and reflection is the fourth. Inquiry and reflection refers to a continual process of asking questions to learn more 6

Gerard, G. and L. Ellinore (1993).

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than we know, and of using the answers to reflect upon our previous understanding of ourselves and others. For this to occur, people need to ask questions of inquiry rather than questions of judgement. When I ask a question of judgement, I already know the answer and want to see if the other person is right or wrong. When I ask questions of inquiry, I ask questions to learn what I do not know. As I ask such questions, I also leam more about assumptions. We have already seen how identification of assumptions belongs to the ethical decision making process and how assumptions bring together ethics and diversity. What dialogue adds to this connection is a process that embraces both making and suspending judgements. In the workshops, we speak of this as the balancing of inquiry and advocacy.

9

Balancing of Inquiry and Advocacy

As we have said, we begin the ethical decision making process by advocating a position or stating a proposal. The dialogical process then invites us to change our stance from that of an advocate to an inquirer. The suspension of judgement, for example, allows us to move from advocating a position to inquiring into the reasons for all the positions in the room, including our own. We ask questions about the implicit values and assumptions that lie behind each person's proposal. We imagine what we would have to assume to agree with another view, or what we would have to assume to change our mind. Once we have completed this inquiry, we try to create a modified proposal that takes into account the best resources in the room. We come to know the best resources as we listen to and learn from each person's perceptions, knowledge, and thoughts about an issue. By balancing advocacy and inquiry, the dialogical process creates the bond or unity that allows us to explore both our disagreements and our differences. This exploration can become a learning process that opens up new possibilities. To understand these possibilities, we need to endorse the ambiguity that is inherent in ethics and in diversity.

10 Acknowledging Ambiguity Ambiguity is not a term currently used as a key concept in Levi's Valuing Diversity and Ethics program, and yet the program does move us in the direction of appreciating ambiguity. The significance of ambiguity is perhaps easier to acknowledge in working with diversity than with ethics, but it belongs to both.

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At one of the early training workshops, we were asked to partner with someone we would not usually select. An African American woman came immediately to me and asked to be my partner. When we were asked to share with each other the reason for our choice, she said that she selected me because I looked like the white males in her office whom she considered racist. Her remark flustered me, because I felt that she had seen me as just another white male. I think I saw her as another African American woman. We were both relying on our assumptions, although she was probably clearer about hers than I was about mine. After this beginning, we shared our own particular experiences of living in the United States. Soon we were able to see each other as particular individuals. Our dialogue not only allowed us to move beyond our initial perceptions, it also allowed us to live with our multiple identities. As a white male, I need to be aware of white privilege and power and of the systemic dynamics of inclusion and exclusion that tend to work in my favor and against many others in my country. I also need to be aware of myself as a particular person. To be present at these workshops, I have found that I cannot slip into one or the other identity, but need to live in between my group and individual identities. Living in this in-between is what I mean by ambiguity. Ambiguity is not only important for individuals, but also for groups. Ambiguity allows the dialogical process to facilitate learning. As long as everything is clearly up or down, in or out, we cannot entertain differences and disagreements, or discover more than we knew before, or change our perceptions of others and of ourselves. Since the ethical process is just as dependent on learning as is diversity, ambiguity is also important for ethics. There is a notion of ethics, of course, that sees ambiguity as a problem. This is an ethic that searches for clear knowledge of the right thing to do. To return to our previous example of whether to forgive someone for making a mistake, such a person would take a stand on the issue, by saying that people must be accountable for their actions. That would probably mean that the employee should be fired. In terms of the four different levels of discourse, this approach disregards the differences between proposals and values, ignores different observations, and remains unconscious of assumptions. As you can imagine, this stance does not allow a dialogue with others that includes the suspension of judgement or the balancing of advocacy and inquiry. If they could separate their proposals from their values or principles, and stand on their principles, rather than on their proposals, then they could listen to different observations and explore different assumptions. In other words, if they allowed some ambiguity about their tightness, they could become receptive to new information and knowledge. If everyone on a team allowed this type of ambiguity, they could work together to find the option that would take advantage of all the resources in the room.

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11 The Resources are in the Room To make the best decision possible, teams need to consist of people who have different ideas about what to do, and because of these different ideas, provide different observations, values, and assumptions to the group. These differences increase the group's resources. For these resources to be available to the whole group, however, everyone must become engaged in co-creating an environment that values each person's differences. In many cases, regrettably, we do not find this environment at work. Some people remain unaware of the background that influences what they say and its impact on others. Others remain silent or silenced and do not contribute to the group. One can make a fairly safe bet that a team's performance decreases in direct proportion to the number of its members who must fit someone else's norm in order to be seen. Valuing diversity means valuing everyone's differences, even one's own. It means preventing anyone from being shut down by others, by patterns of communication and interaction, or by mindlessness. It also means that whoever in the group or team knows what needs to be said has the support to say it. Ethics, too, depends on the speaker who can say what needs to be said. Ethics and diversity have their closest connection at the level of dialogue because dialogue has the potential to uncover the resources in the room. Diversity ensures that everyone has the opportunity to give his or her contribution in a safe context; without fear. The process of ethical decision makes these resources available to all. It sorts out the different aspects of the process and facilitates the discovery of implicit values and assumptions on which people rely when they share their opinions. If we connect ethics and diversity through a creative dialogical process, then we can discover how our different assumptions, observations, and values offer significant resources for making decisions that will align themselves with the company's ethical principles. In this way, we can affirm all three connections between ethics and diversity: held together by dialogue, grounded in assumptions, and protected by principles.

References Brown, M.T. (1990), Working Ethics: Strategies for Decision Making and Organizational Responsibility. San Francisco, CA: Jossey-Bass. Brown, M.T. (1996), The Ethical Process: A Strategy for Making Good Decisions. New York: Prentice Hall. Cross, E.Y., J.H. Katz, F.A. Miller, E. Seashor et.al. (1994), The Promise of Diversity: Over 40 Voices Discuss Strategies for Eliminating Discrimination in Organizations. New York: Irwin Professional Publishing.

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Gerard, G., and L. Ellinore (1993), Reflection on Guidelines and Building Blocks for Dialogue. Laguna Hills, CA: The Dialogue Group. Trompenaars, F. (1994), Riding The Waves of Culture: Understanding Diversity in Global Business. New York: Irwin Professional Publishing.

Orientation for a Globally Competent Human Resources Function in Preventing and Resolving Cross-cultural Conflicts D.J. Clackworthy

1

Abstract

As relationships at work become increasingly cross-cultural, Human Resource specialists face a mounting challenge to improve their contribution towards preventing and resolving conflicts between people from different cultures. At least three compentencies will be in demand: the ability to accurately understand the real intentions of the parties; the ability to "translate" between culturally different ways of expressing these intentions, and the ability to guide leaders in their strategic decision making about what to do with each other. The first competency demands detailed and precise knowledge of the cultures involved, the second a commonly understood "language" with which to mediate and the third an ethic that has universal validity. This chapter suggests a "shorthand" mediation vocabulary as a tool for the second competency, and twin strategic principles as a basis for the third compentency. These twin principles are generating common purpose and integrating different ways of working and interacting. Some examples from the field of human resource policymaking then illustrate the application of these principles.

2

Definitions

Culture is the combination of value, expectation and behavior patterns that each person inherits and learns from his or her human environment. This cultural heritage shapes his or her habitual way of perceiving, interpreting and judging situations, and deciding what to do and how to do it. Simply put, culture is the way "we" do things. Culture clashes occur when people from different cultures differ in their opinions as to why something should be done, what to do, and how to do it. As a result, their interaction with one another becomes dysfunctional. When cultures clash, the HR function, whose specialized responsibilities cover the human issues within the organisation(s), should be called upon to advise on and mediate in the cultural interaction. A globally competent HR function understands the different ways people do things in their cultures, and

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their reasons for wanting to do them that way, and can help them to move from cultural interaction that is dysfunctional and destructive towards cultural interaction that is constructive. Globally competent HR people intervene preemptively to prevent culture clashes by arranging opportunities for the players to learn about each others' ways of doing things and why they are likely to do them that way before clashes arise, thus defusing explosive potentials before explosions occur; when culture clashes occur they help people to resolve them by clarifying the points at issue and facilitating a reconciliation.

3

The "Whys" of a Cross-cultural Conflict

When a clash arises because the parties cannot agree on why something should be done, there is a need for them to describe their intentions and also the values that underlie them, in order to make themselves understood by the other party. However, people may not be able or willing to declare their real intentions, or to be aware of their own values and to verbalize them. Such matters usually remain implicit, i.e. the people concerned are expected to know intuitively - from the context of the situation and from their knowledge of underlying value patterns - what motivates everyone, what they hold dear, what they are really aiming at, etc. This is an invisible part of the "iceberg" of interaction. Experts are then needed who can verbalize each culture's value patterns in ways understandable to the other side and can recognize the genuine intentions of each party at any given moment and can explain them across the cultural barriers. To do this the HR advisors need a common language and a reference framework with which to clarify the intentions of each party at a given time. These should refer to basic interaction modes common to all human beings and therefore understandable in any culture.

4

Finding a Common Language

The common language suggested here can be used in helping groups to understand the why (intentions) and the how (behavior patterns) of their culture clashes. HR advisors can use it as a shorthand language with which conflicting parties can clarify their intentions and perceptions of each other's intentions.

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4.1 Universal Interaction Modes When "we" as a group interact with another group, at least five fundamentally different interaction modes (our real intentions vis-à-vis the other group) are available for us to choose from: moving towards, moving under, moving against, moving over and moving away from. Using the language of ethics, these five interaction modes can also be described as follows: 1) Moving towards: Do unto others as we would have them do unto us (the "golden rule"). 2) Moving under: Do unto others as they would have us do unto them. 3) Moving against: Do unto others what we wish before they do unto us what they wish (or, colloquially, "Do" others before they "do" us.) 4) Moving over: Do unto others so that they do what we wish unto us. 5) Moving away from: Have nothing to do with them. Each of these modes has a characteristic goal of the interaction, a characteristic type of work that is done and a characteristic style of doing things. The shorthand can be the Greek letters a (alpha), P (beta), % (gamma), 8 (delta), and y (lamda). They can also be designated by pictorial representations in order to move the communication from a digital into an analog idiom. Let us look at each of them in turn.

The a (alpha) Mode Characteristic movement:

Towards them

Real intention

Do unto others as we would have them do unto us Do them good Altruism Benevolently

Goal of the interaction: Interactive work being done: How do we do it? (Style, manner):

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The ß (beta) Mode Characteristic movement:

Under them

Real intention

Do unto others as they would have us do unto them Satisfy their needs Service Submissively

Goal of the interaction: Interactive work being done: How do we do it? (Style, manner):

The % (gamma) Mode Characteristic movement:

Against them

Real intention:

Do unto others what we wish before they do unto us what they wish ("Do" others before they "do" us.) Weaken them Conquest Aggressively

Goal of the interaction: Interactive work being done: How do we do it? (Style, manner):

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The Ô (delta) Mode Characteristic movement:

Over them

Real intention:

Do unto others so that they do what we wish unto us Dominate them Manipulation Assertively

Goal of the interaction: Interactive work being done: How do we do it? (Style, manner):

The y (lamda) Mode Characteristic movement:

Away from them

Real intention:

Have nothing to do with others Disengage from them Withdrawal Indifferently

Goal of the interaction: Interactive work being done: How do we do it? (Style, maimer):

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4.2 Recognizing and Understanding Interaction Modes These five modes are recognizable in their pure form in any culture, they occur universally. Each culture will have its own descriptions of them in the local languages. Their manifestations (non-verbal behavior, symbolic communications, rituals, verbal clichés etc.) may not be immediately recognizable to members of another culture. Each party will recognize accurately which mode one of their own people is in at a given moment, but will most probably make false assumptions about the other party. Then a culture clash has arisen. When assumptions are correct, the clash is not a culture clash caused by a cultural misunderstanding, but a normal human conflict. The first step in preventing and resolving cultural clashes is ensuring that the assumptions made about the intentions of the other party are correctly understood. Here knowledgeable HR consultants can help them to avoid misunderstandings by -

recognizing these interaction modes accurately getting the assumptions about interaction modes out into the open giving all sides the opportunity to check whether their own and the assumptions of the others about them are accurate "translating" the signals into the languages understood by each side teaching the parties concerned how to recognize these modes in each other's cultures.

As an aid in overcoming language barriers in these processes they can point to the picture that seems to them to apply best:

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The "Whats" of a Cross-cultural Conflict

5.1 Modes and Strategies The next step in preventing and resolving cultural clashes is advising the parties in their strategic decision making as to what to do with each other in the situation of the moment. Can any of them serve as strategies for preventing and resolving culture clashes about content issues (the what)? Can they be regarded as transactional strategies as well interaction modes? If so, are any of these interaction modes ethically "better" and operationally more effective in solving conflicts than the others? Let us examine them in turn.

5.2

The Interaction Modes are not Conflict Solving Strategies

The a (alpha) mode (do unto others as we would have them do unto us): This mode is known as "the golden rule" because it is propagated by more teachers of ethics than any other we know. By moving towards the others with a view to giving them what we regard as good, we are concerned with their welfare. This is probably the most "ethical" of the five modes, but it has certain practical disadvantages in a cross-cultural situation. It could be that their culture has other "goods" than ours, and that the altruism in our approach is not recognized by them. We may want to be kind to people - but we want to be kind to them in our way; and should it happen that our way is not their way, they will most probably not understand and appreciate our intention of being kind. It could be that our "benevolent" intention is even misconstrued by them at best as paternalism and at worst as arrogance. We need to learn about what they regard as goodwill, benevolence, concern for the welfare of others, etc. in their culture before we can implement our notions of goodwill in their culture. Hence this mode must be modified before it becomes an effective strategy in cross-cultural situations. The P (beta) mode (do unto others as they would have us do unto them): By moving submissively "under" the others and seeking to satisfy their needs we avoid the danger in the a mode of being blind to their ways of doing things and to their expectations. The danger of this approach however is that we waive all rights of our own and subject our interests totally to theirs, taking the full responsibility onto ourselves to learn and follow their expectations. In addition, we withhold from them the benefits of our particular strengths. The x (gamma) mode (do unto others what we wish before they do unto us what they wish, or "do" others before they "do" us.): By moving aggressively against the others we can avoid the weaknesses in the P mode, but if we carry

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this x mode through to its logical conclusion we would end up simply destructing all others. The question is also whether we would not shortly thereafter destruct ourselves by internal strife. The S (delta) mode (do unto others so that they do what we wish unto us): This approach would at least avoid the danger of the x mode, as the efforts of the others would at least be in demand, we are valuing them in a selfish way. However, unless they are also as strong as we are and adopt an equally determined S approach, the ethically unacceptable result of this approach would be a weakening of their ability to fend for themselves and become stronger. The y (l&mda) mode (have nothing to do with others): By moving away from the others we can avoid the dangers inherent in the a, p, x and 8 modes. However, every sign of indifference we show in our manner will convey the message that we are not interested in them or in any form of cooperation for mutual benefit.

6

Ethical, Interculturally Effective Interaction and Transaction Strategies

We have seen that no one of these five modes is both ethically and interculturally suitable as a content strategy for resolving intercultural conflicts. We will therefore have to look further for other strategies or paradigms that can act as orientation guidelines in seeking to solve cross-cultural conflicts from a content, task, purpose or results point of view - the what of the interaction.

6.1 Integration through Dialogue: Interactive movement:

Turning towards

The basic movement of the life of dialogue is the turning towards the other. That, indeed, seems to happen every hour and quite trivially. If you look at someone and address him you turn to him, of course with the body, but also in the requisite measure with the soul, in that you direct your attention to him. [...] To the turning towards the other, completing it, there can be added the realizing of the other in his particular existence, even the encompassing of him, so that the situations common to him and oneself are experienced also from his, the other's end. 1

1

Buber, M. (1960): 40-42

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When we think differently from a man, we may come in time to understand him and even to sympathize with him, if we remain in fellowship with him and talk things over with him; but, if we shut ourselves off from him and from our own little group while he remains in his, there is never any hope of mutual understanding. He drew a circle that shut me out Rebel, heretic, thing to flout But love and I had the wit to win We drew a circle that took him in.2 Real intention: Goal of the interaction: Interactive work being done:

How do we do it? (Style, manner):

Love your neighbor as yourself Understanding how the others think and feel, and giving evidence of this by our actions Exchanging views on the situation, deepening the dialogue, exercising empathy, acting accordingly Respectfully (with respect for the existence of the other)

The pictorial representation can be elaborated symbolically:

2

Barclay, W. (1975): 101

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6.2 Purpose Generation: Interactive movement:

Together with

Real intention:

Do with others what your common purpose demands

Goal of the interaction:

Achieve a result determined by mutual commitment to a common cause Interdependent purpose generation: working with them towards achieving something together that will be a better result than if we were to work independently. In the case of disparate goals, finding a compromise so that we both benefit (we both should win) Proactively, purposefully, interdependently, interactively

Interactive work being done:

How do we do it? (Style, manner):

We could call this the Sigma (I) strategy and represent it pictorially as follows:

Leadership training practitioners will recognize that these two strategies are represented in many theories of leadership, perhaps best known as relationships and task orientation in the Managerial Grid of Blake and Mouton, which (as reported by Maslow) were originally conceived as being archetypal feminine and masculine approaches. It is suggested here that the combination of Q and E strategies offers the maximum universal potential for an ethical and interculturally effective resolution of conflicts. A sublime example of these two principles in action between two people from different cultures can be studied in the following report:

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As Jesus entered Capernaum a centurion came up to ask his help. "Sir," he said, "my servant is lying at home paralyzed and racked with pain." Jesus said, "I will come and cure him." But the centurion replied, "Sir, I am not worthy to have you under my roof. You need only say the word and my servant will be cured. I know, for I am myself under orders, with soldiers under me. I say to one, 'Go,' and he goes; to another, 'Come here'and he comes; and to my servant, 'Do this,' and he does it." Jesus heard him with astonishment, and said to the people following him, "Truly I tell you, nowhere in Israel have I found such faith [...] Then Jesus said to the centurion, "Go home, as you have believed, so let it be." At that very moment the boy recovered.3

Integration through Dialogue plus ^ ^ ^ Purpose Generation ^

The key to effective HR interventions when cultures clash on content issues is to expose a, ¡3, x< S and y modes and encourage the adoption of Î2 and E strategies.

7

Implications for Business Leadership

Teams will be effective when their efforts are synchronized towards a common goal and their strengths are integrated. The effectiveness of the team as a whole is measured by the degree to which it can carry out change promptly to ensure continued achievement of the team's purpose in a turbulent global market. This demands the ability to: mesh with the market, generate innovations to meet the needs of the customers, continually initiate market-driven changes, analyze the most cost effective and quickest route to the goal, plan and decide carefully, execute the work effectively together and continually monitor their own performance. To achieve this goal together demands the dialogue competencies of being able to listen to and understand customers and each other, handle conflicts creatively and build invigorating relationships within the team, with other teams, and with customers. 3

American Bible Society (1992): verses 5-13

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The team continually strives to achieve three goals: Innovation, Profitability and the Unfolding of Human Potential. The team competencies can be grouped under these three goals (Table 1): Table 1: Team Functions Functions relating to Innovation

Functions relating to Profitability

Functions relating to People

Meshing with the market

Analyzing and monitoring

Listening and understanding

Generating ideas

Deciding and planning

Initiating, driving

Executing

Handling conflict Building invigorating relationships

An effectively integrated team is one which all these functions mesh well with each other. The accountability for the overall functioning of the team is carried by the leader, who should be the best purpose generator and integrator in the team. The interplay and balance between these components of effective teams is represented analogically in the "Pilger" model, "Pilger" being the acronym for "Purposeful and Integrative Leadership to Generate Economic Results":

INNOVATION Meshing with the Market Generating Ideas

Initiating. Driving

Invigorating >A Relationships;

fanning, /Deciding

Listening Executing 6 Understanding ^ / Resolving /Analysing, Conflicts V ' Monitoring

IVi Leadership functions

a

V*

'

A.

A*.

Jjitra-team functions

¿s/ Q ¿V

t & O-

Teanj-market functions

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The "Hows" of a Cross-cultural Conflict

When patterns differ as to how to do something, the clash becomes even less accessible to verbal resolution than differences as to the why and the what, because people are generally unaware of their culturally conditioned assumptions and expectations as far as behavior is concerned. How to react, how to speak, how to check for understanding, how to negotiate, how to present oneself, how to reach consensus, how to handle conflicts - these things are extremely difficult to speak about because they are selbstverständlich (or "obvious to any normal human being" as the parochial villager would say). They are part of the sub- or even unconscious "baggage" that we collected as we grew up, as we became socialized. This baggage stems from our family, tribe, nation and religious cultures in private life and from our workgroup, function, divisional, company and industry cultures in our working life. We interpret people's actions according to these expectations, thereby making assumptions about their intentions that could be very mistaken. Globally competent HR specialists understand these hows, these culturally different behavior patterns, can facilitate clarification of the expectations and interpretations, and can influence the parties to together find new ways of doing things and cooperating that are constructive and comfortable for everyone. What is the learning process necessary on the part of both parties when they discover that their behavior patterns are different - that they use different signals to express one of the interaction modes? Globally competent HR experts can help the parties to learn from each other how the others do a particular thing, and to practice doing that in the new way for them. The principle is that both can benefit by expanding their own behavior repertoires when they learn how to do things in new ways, i.e. in the way of the other culture. To take a simple example: continental and US drivers visiting Britain must learn to drive in a right hand drive vehicle on the left hand side of the road. With practice this style switch or style enhancement can be achieved easily from country to country. Style Enhancement 1. Having observed both approaches and discovered the differences, we can consider the behavior pattern that is "foreign" to us, without judging (not good or bad, just different.) 2. We can consider possible reasons why they should use this approach in their home culture (i.e. we can search for related values in their culture.) 3. We can then reflect on how the effective members (leaders) behave in their culture. 4. We can then select and practice those items of their approach we could comfortably adopt when we are working with them without negating our identity, which would enhance our own approach, and

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5. Fit their expectations of a person from our culture visiting their culture. In other words, we can C larify differences //unt for values O bserve how leaders behave, keep our O wn identity, and work on our own S tyle enhancement, based on their E xpectations about our behavior. We may CHOOSE

9

to learn new ways of doing things.

Preventing Culture Clashes in a Global HR Function

Some specific cross-cultural situations in human resource policymaking can be used to illustrate the implementation of Q and £ strategies. The main fields of HR expertise cover: 1) Strategic HR leadership, which includes executive selection and placement, leadership training, organisation development and culture change and vision and mission definition 2) HR development, which includes quantitative and qualitative HR planning, education and training, and in this context especially, intercultural training 3) Corporate communications and community responsibility 4) Employment contracts: including e.g. union relations, conditions of employment, remuneration policies, retirement insurance 5) Employee support: includes welfare, accident prevention, international relocations 6) HR within the HR function: e.g. HR organisation structures, succession planning for key HR positions, development systems for HR high potentials, HR networks.

9.1

Strategic HR Leadership

Typical culture clashes in executive selection and placement occur when too many people from one dominant culture occupy top leadership positions, causing underutilisation and estrangement of top leaders from other cultures (5). An internationally competent HR function will ensure cross-border selection and transfer of the most competent leaders into key positions worldwide (2).

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In the field of organisation development and culture change, -

-

-

Ethnocentricity (5) in leadership styles and philosophies can lead to a lack of commitment among non-Stammhaus leaders. An internationally competent HR function will open up discussion and exchange to include all main cultures in the architecting of transnationally relevant leadership philosophies, visions and values (Q). Opposition could be encountered from the periphery due to a domestic bias in culture change programs (8). This can be countervailed by the inclusion of regional and national experts in central culture change planning teams and task forces (E). A regional unit could mount determinedly independent programs that are incompatible with at least some of the most important values of the Stammhaus (y). This can be mitigated against by cooperation between culture change architects in the regional unit with those of the Stammhaus, agreement on shared values and the degree of local adaptation necessary in order to fit the local culture (Q).

When the company engages in defining key HR policies the vision and mission, lip service to globalization without serious attempts to activate the potential of the cultural diversity in the concern (x) can cause scepsis outside the "inner circles". A globally competent HR function will look for culturespecific combinations for each field of strategic leadership and competitive strength (Q) and give examples with the vision/mission statement. An example would be an executive remuneration structure using American cafeteria system know-how combined with German comparative function ranking know-how.

9.2 HR Development In HR planning, - a typical culture clash would be the perception of the dominant culture's national bias in selection and deployment of key staff (ô). The globally competent HR function will open up access to strategic positions by the establishment of a clearing house for foreseeable needs and own-initiative enquiries as to openings, world-wide (E). In leadership training, - Expertise at the periphery could stay there due to ethnocentrism (A,) instead of being included in global initiatives. Globally competent HR leaders will design central programs for leaders from all over the world (Q) and include inputs from management development programs from the periphery (E).

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-

Language bias in central programs (a) can be overcome by the increased use of a world language in central and regional programs (Q). In staff education and training, - a dominant professional profile unique to the home country will result in a lack of understanding about or even rejection of this occupation outside the home country (x) - example: the German Kaufinann in the USA. The global HR function could develop and disseminate information programmes and materials for the representatives of this group and their counterparts, and train high potentials from the periphery in this discipline (ft). - there could be an overdetermination to transfer basic training programs from the home country to all other countries, even if they are incompatible with local education systems (8). Globally sophisticated training managers will develop flexible combinations of the best elements from the home and host country curricula (Z). By means of intercultural training, - frustration and friction between local and expatriate leaders due to cultural insensitivity or even cultural arrogance (x) can be overcome by predeparture cultural awareness courses for expatriates (Q), extensive transfers of young high potentials to assignments outside their home countries (Q) and intercultural training for key local leaders on the mentality of the mother country (Q). - misunderstandings and uncooperative attitudes (x) in multinational project teams due to lack of cultural competencies can be reduced by cultural interaction training for the project teams (S and Q). - ethnocentrism on the part of specialists and regional business leaders in the headquarters (a) can be countered by commissioning regional task forces incorporating regional leaders who positively form strategies and policies to fit regional cultural patterns (£).

9.3 Corporate Communications With regard to the communication of business results to all employees, a typical culture clash would be when management at plant level informs employees about business results using the format designed by a large central organisation unit (a), instead of producing a news publication in the local languages (Q), preparing business results broken down into the local operating units (Q), and arranging meetings with employees in which the results of local contributions are brought into the larger context (£), answering questions from employees on the relevance for their fields of work and their own futures (£). In communicating company policies, strategies, goals, major decisions about operations in a particular country may be taken only by key people from

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the Stammhaus; local leaders are only told enough to operate further on short term projects (8). Competent global leadership however would ensure that local leaders are involved in middle and long term strategical planning for their country and can influence the decisions and contribute to central policy and strategy development for their regions and even globally (E). Information about significant breakthroughs in product and process innovations in a regional company are belittled, ignored and not publicly recognized by experts in other units ("not invented here" syndrome) (%). Corporate communications specialists regularly carry out best practice and benchmarking exercises to make achievements of regional units known throughout the company (£). In matters of community responsibility, the company may adhere blindly to base country rules for involvement in community affairs, ignoring local needs and values (8). Globally competent HR leaders can on the other hand ensure involvement of local community leaders in shaping community responsibility policies in each country, and in developing creative programs to meet specific needs including appropriate elements of Stammhaus practices (£).

9.4 Employment Contracts Union relations run according to expectations in a foreign country can cost a multinational concern a lot of money. In a fictitious example, the Automotive Workers Union in the USA presses for higher wages from a German company establishing itself in the local market. The Germans settle for a compromise at a too early stage in the negotiations (P), thereby pricing their products out of the market. Later, following more enlightened HR strategies, the German employers use local advisors to guide their timing in wage negotiations, reach better agreements, and bring German works council members together with American trade unionists to help the latter understand the German principle of co-determination (Q). In time the company achieves profitability in the US market. Conditions of employment: A (fictional) company discharges all employees under the age of 15 in its newly acquired factory in India, believing it has to correct the "malpractice" of child labor (a), but thereby increasing the poverty in the region. As a contrast to this, Levi Strauss provides all ex-employees under 15 with bursaries equal to the former salaries to continue their education at local schools (£). Renumeration policies: Expatriates in a low-wage country receive salaries in local currency equal to their nett home base salaries, creating a two-tier salary structure in the local company and a high degree of animosity against expatriates (%). By splitting expatriate income into a local salary in line with

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their colleagues and an off-shore allowance to bring total earnings up to home base levels, the company can influence expatriates to save more at home and not to live in total luxury compared with their colleagues (Q). Retirement insurance: A (fictional) multinational company offers retirement benefits, financed totally by the company, with no vesting rights, in order to bind employees to the company (5). Result: many employees leaving before retirement have no pension entitlement. Improvement: the company introduces a pensions plan whereby company and employees contributions are paid into a local insurance fund, with vesting rights on the company contributions after five years of service (£).

9.5 Employee Support Welfare: Latin American expats in a European country who take time off to care for sick spouses and children are disciplined for absenteeism (%). After checking with South American HR colleagues (Q), the company welfare department gives extra attention to families of Latin American expatriates, knowing (a) that they have no relatives to support them, and (b) that family responsibilities of the breadwinner are often given priority in Latin America over attendance rules at work. Accident prevention: Absence from work after an industrial accident is approved only when a medical doctor certifies sickness (a), causing hardship in African countries in which paramedical healers are often consulted. Rules for granting leave of absence to visit one's local healer could be drawn up by companies who (a) understand the importance of such treatment and (b) involve medical doctors with knowledge of local healing practices (Q) in drafting the rules for such absences. International relocations: Expatriates are given little support in maintaining contacts with their home bases, especially with a view to planning their postexpatriate deployment to make use of their foreign experience (y). Result: professionally frustrated staff. A competent global HR function would undertake long-term planning of post-expatriate deployment before the foreign assignment, so that experience gained in the foreign country is made economically valuable on return (£). Result: highly motivated staff.

9.6 Human Resources within the HR Function HR organisation structures'. Overseas HR departments are structured according to patterns relevant in the Stammhaus, e.g. wage and salary bookkeeping are made HR responsibilities (a). Local practices (e.g. wage administration is

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done by accounts) are adopted in order to attract good local professionals. Stammhaus standards of accuracy, confidentiality etc. are agreed with the local accountant who is also given salary administration training in Stammhaus if necessary (E). Succession planning for key HR positions'. Companies establishing their first green field factory in a foreign country may consider it important to install a HR manager from the Stammhaus (8). Later, after experience has proved to them that the HR leader in any factory must be a local citizen the company revises this policy and provides a less senior HR specialist from Stammhaus for expatriate affairs. It also ensures that the local HR leader receives ample opportunities to exchange ideas with Stammhaus leaders, colleagues and specialists (E). Development opportunities for young high potential HR leaders: Companies that are global newcomers will most probably not have any planned international job rotation scheme in place (y). More sophisticated companies will plan and centrally coordinate job rotation for promising future HR leaders, in order to acquaint them with regional and local practices in other key countries they will be sending people to (Q). HR networks in a fictive multinational company are constituted on nepotistic principles to keep information and with it power in the hands of a small elite group (8). In more globally effective concerns, the likelihood is that topiccentered networks of experts are encouraged and coordinated regionally and world-wide, in order to make their know-how available throughout the company (I).

10 Conclusion By applying the twin principles of purpose generation and integration through dialogue, HR leaders can improve their global competencies in preventing and resolving culture clashes, thereby increasing the value of their contribution both to achieving global business success as an organisation, and to bringing more enjoyment into global interpersonal relationships, based on appreciation of the value of diversity in global working partnerships.

References American Bible Society (1992), The Good News Bible, Mathew's Gospel chapter 8. Barclay, W. (1975), The letters to the Corinthians. Philadelphia: Westminster Press. Buber, M. (1960), Between Man and Man. London: Fontana Library.

Part Three Morals in Religion and National Traditions: Cultures as Points of Departure for Foundations of Corporate Ethics in International Business

Ethics for Business and Management: Explorations in Hindu Thought Shitangshu K. Chakraborty

1

The Setting

It is a sort of irony of our times that while great strides have been made over the last few decades in developing some significant new theories of ethics, the general standard of ethico-moral behavior in all societies at all levels is continuing to decline. Right at our own door-step the recent revelations of corporate misdemeanor by ITC have been staggering. Afar, a commentator on the results of the 1996 US presidential elections said that Thirty years ago Clintons's behavior would have been absolutely disqualifying. [...] It is difficult not to conclude that something about our moral perceptions and reactions has changed profoundly. If that change is permanent the implications for our future are bleak 1 .

Do such events, near and far, demonstrate the long-term risks of values-free professionalism - be it business or politics? Among the major ethical theories found in text books on business ethics are: the eternal law, the utilitarian, the universalist, the distributive justice, and personal liberty theories2. After explaining the merits and demerits of each, authors tend to offer an open-ended, eclectic outlook on decisions with ethical implications - since there is no one theory which is best in every situation. This approach begs a question at a deeper level: since the choice of any one of the theories for a given case will ultimately be subjective, what underlying values-frame of the decision-maker can ensure that such choice itself is free from bias and prejudice? This fundamental issue seems to get lost in the otherwise rich intellectual expositions of these theories, except the first one. It is possible also to inquire whether it is due to implicit concentration on business alone that business ethics texts do not normally engage in the prime theme of "what is the purpose of human life?" That society and business provide only the arena, the setting for the realization of this purpose - this perspective seems to be absent. The holistic backdrop and context of ethical living and functioning missing, such writings do not touch our deeper, subliminal consciousness. We may become more sophisticated in arguments 1 2

The Statesman, November 8,1996: 9 Hosmer.L.T. (1991): 118

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and debates about ethical dilemmas (often assumed ones), yet our existencein-itself may not become more ethical than before. Is business for humanity or is humanity for business? At a recent international conference on business ethics a well-known western academic in the field had declared before a plenary session: "Business ethics has already become big business in my country". This stunning statement indicates that ominous gaps exist in the theoretical bases (for practical conduct) of business ethics as it now stands. It is indeed the "age of commerce" which is upon us! So, the following sections shall present some of the major theoretical perspectives available in Indian3 (Hindu) psycho-philosophy for sustainable ethico-morality. They will reinforce ethical theory with both "metaphysical height" and "psychological depth" - the two neglected dimensions in recent ethical literature becoming available to us. For, ethics without metaphysics is blind, ethics without psychology is lame.

2

Involution Theory and the Will-to-Ethics

Patanjali, the seer-psychologist, had theorized that evolution is truly a progressive manifestation of the perfection already involved in creation. This involved perfection is also termed in Sankhya theory as the Purusha or the eternal core in all beings. Its manifest counterpart, Prakriti, only undergoes evolution. As different physical forms are needed for superior and higher manifestations, Nature evolves them purposively. Man is a result of this will-full process of Nature. If mankind could consciously cooperate with this purposive NatureForce, so much the better for it, and for the earth. Ethics and morals operationalize our willing cooperation with this secret, superordinate intent of Nature. This nutshell presentation of the involution theory offers clues for discerning some major differences between "involution-preceding-evolution" (as Patanjali argues) and "evolution-without-involution" (as modern theory suggests) processes. Let us call them in short as IPE and EWI respectively. According to Sri Aurobindo's analysis, the following points emerge: 1) EWI holds out that the more perfect grows out of the less perfect. IPE holds that the eternally perfect finds better and better expression through evolving 3

Ethical ideas in other major streams of Indian ethos like Buddhism, Jainism and Sikhism are basically similar to these in Vedantic-Santhya Hinduism. Some differences at a deep theoretical level or in detail do not affect the representativeness of the basic ideas presented in this chapter.

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forms. Consciousness (pure) does not evolve, only forms evolve. This is a highly optimistic vision.4 2) EWI holds that Nature-force working in indeterminate Matter has no Conscious-Soul or intent apart from Matter. So, Mind, Life, Consciousness all originate from Matter only through the action of a blindly mechanical Force. 3) IPE theorizes, on the basis of experiential realization, that the Lifeprinciple, the Mind-principle and so on are higher principles in themselves. They do not originate from the Matter-principle. This corresponds also to the ancient Vedic conception of triple world.5 4) EWI does not admit the theme of transcendence in either the metaphysical or psychological sense. IPE implies and provides the scope for understanding that man-the-mental being is, as such, enslaved to matter and life. It also guides man to free himself from such slavery and obtain mastery over life and matter by attaining the real spirit self within. Rising beyond mind is the process of Yoga.6 Sri Aurobindo was alert to a deep connection between the EWI theory, the thought-attitude it fostered, and their practical adverse influence on the moral temperament of society. It was the result of displacement of spiritual sentiments by a comprehensively materialistic notion of all existence.7 He saw great hope and light for the future in discarding such a view of evolution in favor of the Sankhyan IPE theoiy. For, then: Instead of a mechanical, gradual, rigid evolution out of indeterminate Matter by NatureForce, we move towards the perception of a conscious, supple, flexible, intensely surprising and constantly dramatic evolution by a Superconscient Knowledge which reveals things in Matter, Life and Mind.**

If one accepts this Aurobindovian view of the Sankhyan theory, then the door for metaphysical rationality also opens up. One need not then be restricted to the confines of sensual-intellectual rationality alone. The advantage of such an opening is that it reveals the horizon of transcendence without which ethical virtues seem to be incapable of survival. Without a striving for transcendence of the empirical matrix of matter-life-mind, one's being continues to suffer 4 5 6 7 8

Aurobindo, S. (1970): 1 Aurobindo, S. (1970): 4 Aurobindo, S. (1982): 8-10 Aurobindo, S. (1970): 1 Aurobindo, S. (1970): 7

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alienation from the Superconscient, the Eternal, the Infinite. To combat this alienation is a personal endeavor. The wisdom of the seers and prophets only affirms the possibility and the path. The choice is ours. Whether we are conscious of it or not, every society or civilization is secretly driven by the deep urge to express and concretize a certain view, a certain notion of the Eternal in the midst of the transient, of the Infinite in the midst of finites. The ethical implications of this meta-physical urge has been captured by Aurobindo in these words:9 Every ethical ideal [...] must [...] depend for its truth and permanence on [...] the closeness of its fundamental idea to the ultimate truth of the Eternal. If the ideal implies a reading of the Eternal which is only distantly true and confuses Him with His physical or psychical manifestations in this world, then it is a relatively false and impermanent ideal.

With the aid of this principle of "The Eternal in ethics", Aurobindo analyzes several civilizations and arrives at these broad conclusions about each: a) For the Greeks Beauty was the keynote of the Eternal. Ethics and morality for them were therefore matters of taste, balance and sense of proportion. b) Their idea of deity was confined to the beautiful and brilliant rabble of their Olympus, 10which led the charming impermanence of their culture. Beauty is only a partial, externalized aspect of the Eternal. c) The Romans had perceived the Eternal in terms of Law and Order governing the universe. This had resulted in discipline being the keynote of their society. Power was the prime pursuit. Such a view of the Eternal led to egotism, loss of measure and eventual demise of the Roman civilization.11 d) For the Chinese the Eternal was the Father, the Originator, the Disposer, the Arranger. The endurance of the Chinese civilization is due to the greater proximity of this view to the essence of the Eternal than was characteristic of the Greek and Roman cultures.12 e) As for India, the ancient Aryans had raised the veil completely and saw Him (the Eternal) as the universal Transcendent Self of all things who is at the same time the particular Self present in each.13 This perception translated itself into a comprehensive working out of the Eternal in society and its institutions, and also in the life of the individual. 9 10 11 12 13

Aurobindo, Aurobindo, Aurobindo, Aurobindo, Aurobindo,

S. S. S. S. S.

(1972) vol. 27: 20 (1972) vol. 27: 202 (1972) vol. 27: 203 (1972) vol. 27: 203 (1972) vol. 27: 203

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Hence also the relatively greatest many-sided permanence of the Indian civilization, governed as it was by a higher spiritual ideal connected with the Superconscient, the Infinite, the Eternal.14 A few salient points may be culled from these comparative interpretations: a) As soon as the Eternal begins to be personalized and concretized, and spread through and through all human activities from birth to death, it appears that the ethical basis of society becomes more encompassing and durable. This, in all likelihood, is due to the emotional commitment to the transcendent dimension, via personalization, which is a stronger force than intellectual assent only. b) Progressive manifestation of the involved perfection or Superconscient or Eternal or Spirit or Consciousness in society as a whole requires an allinclusive framework of living where nothing is allowed to stay free from the touch and glow of the Transcendent All. In India this secret working rule of external existence is still very much evident in the vast non-urban areas. To a lesser extent this is true of urban India as well. Of course much of this has now become mechanical and ritualistic. Hence the rising wave of unethicality in all spheres. Yet the systemic and theoretical underpinning of such concrete processes cannot be ignored. c) The effort to feel for the Eternal as the Transcendent All, coupled with the recognition of involved perfection within, makes ethical development primarily each individual's personal task. Formalized codes, laws and regulations, assume a secondary role in the empirical context. Yet, the common man-of-the-world, not interested in theories, could well ask: what happiness or pleasure lies in this scheme of ethics for me? Why should I at all engage in such an endeavor which seems so forbidding? The general answer to this question has already been suggested above: the common man need not be burdened with theories; he needs a concrete daily plan of life which organically integrates the fundamental principles. This plan gives him enough meaning and satisfaction. It is really the more articulate and rational intellectual who often poses this question on behalf of the common man. We go again to Sri Aurobindo for an adequate response. He offers a hierarchy of pleasures or happinesses: with "corporeal" at the bottom, rising successively through "emotional", "aesthetic", "intellectual", "ethical", and reaching "spirituality" at the top. 15 What the essentially sensa14 15

Aurobindo, S. (1972) vol. 27: 203-204 Aurobindo, S. (1972) vol. 12: 495

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tional, calculative man needs to learn is that the higher the values or pleasures are, the less obtrusive they tend to be. Utilitarian calculative ethics is again sensational, business-like. It may serve as a limited, short-term starting point but cannot be the true basis of ethics. The intrinsic joy from being ethical is something which needs careful nurturing. The temptations of the crazy, hedonistic contemporary milieu are perhaps dragging us away from even recognizing that there is something like ethical joy which only human beings can and should consciously pursue. Why? Because this ethical joy is the precursor of the final cherishable joy spiritual. This joy (ananda) is involved in each of us, but stays concealed and imprisoned. Temptations-led hedonistic unethicality has to be differentiated from dilemma-driven unethicality. Cases of unethicality which regularly get reported in the media are almost always of the first category. And often enough these are committed by persons or organizations who already have enough in all respects. They need to be brought back on the ethical trail on a priority basis for the well-being of society. While legal and allied processes will do what they can, the spread of education for the will to earn ethical joy, intrinsic and noncontingent, is a preventive imperative indicated by the theory of involved perfection. Dilemma ethics too seems to depend for resolution not so much on a wide repertoire of labored ethical reasoning, but ultimately on the cultivation of a spontaneous right consciousness. More about this later.

3

Excellence, Competition and Ethics

The real import of Indian (Hindu) ethos in the sphere of excellence seems to be this: to excel, not over others, but over one's own present level. If this leads to excelling over another, that is a mere by-product, a secondary phenomenon. Self-exceeding, not other-exceeding, is the keynote. Competition, especially inter-personal, often turns out to be a precarious psychological game. The stressful dissipation of energy caused by the disvalues this spirit fosters is colossal. Inter-corporate competition in the marketplace is somewhat less intensely personal. Yet the unethicality of means adopted to get ahead of the rivals(s) is no less dangerous and destructive in this wider context. Frequently excellence is not the objective at all in such competitive skirmishes. Instead of manifesting the best, often the worst is exposed. Healthy competition becomes an idle phrase - almost a mockery. What then is the theoretical stand in Indian psycho-philosophy on the theme of competition in the total scheme of human existence? We shall offer some notes from the Vedantic response on this aspect. Verses 29 to 32 in

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chapter 6 of the Gita emphasize and elaborate the fundamental principle of "Oneness" with consistent clarity. The picture is as follows16: Verse 6.29.

6.30.

6.31.

6.32.

Key Impulse Sarva-bhutastham -atmanam cha-atmani (the Self residing in all beings and things, the Self in oneself) Ma-pashyati-sarvatra, sarvam mayi pashyati (seeing Me in everything, seeing everything in Me) Mam-bhajati-ekatvam (serving Me in all existence) Atmaupamyena sarvatra sama pashyati (feeling the joys and sufferings of others as one's own because of the sense of identity with all)

Effect on Ethicality Sarvatra-sam-darsanah (One who sees the same Self in himself and others)

Na pranashyami, na pranashyati (No fragmentation, no divisiveness) Sa mayi vartate (Always remains connected with, anchored in the One Eternal) Yogi paramo (The most elevated and ethical person)

It is worth observing the word "Me" and the word "Self' in these verses embody respectively the personified and absolutised aspects of the uncaused Eternal in all existence. The personified versions make it easier for the common man or woman to develop a feeling-based transcendent reference point of one's own choice. Metaphysically speaking, Oneness and Transcendence are inseparable. And this is psychologically true as well. Swami Vivekananda, gives us a brilliant and powerful exposition of this Vedantic principle of Oneness17: [...] the motive power of the whole universe, in whatever way it manifests itself, is that one wonderful thing - unselfishness, renunciation, love - the real, the only living force in existence. Therefore the Vedantist insists upon that Oneness. We insist upon this explanation because we cannot admit two causes (two causes - good and evil) of the universe. [...] My idea is to show that the highest ideal of morality [...] goes hand in hand with the highest metaphysical conception, and that you need not lower your conception to get ethics and morality; but on the other hand, to reach a real basis of morality and ethics you must have the highest philosophical and scientific conceptions.

16 17

Tapasyananda, S. (1986): 179-81 Vivekananda, S. (1958) vol. II: 334-5

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If pursuit of the Oneness-feeling (ekatmanubhuti) is the ultimate foundation and highest conception of ethico-morality, then what implication does this hold for excellence and competition? Quite surely: competition is not essential for excellence. In fact, competition would be a bar against progress towards the true excellence of ekatmanubhuti. And because of this barrier, the ethicomoral infractions will tend to proliferate. Gospels like "struggle for existence", "survival of the fittest" - corollaries of the modern theory of evolution cited in the section Involution Theory and The Will-To-Ethics - intensify the competitive, beat-the-other mentality. And often enough, out of all this, no real excellence is achieved. This state of affairs arises because of inadequate theories about evolution and about the nature of being. By connecting these two issues to the work of the ancient sage Patanjali, Vivekananda cuts down competition to size and gives it the most that is its due18: [...] the great ancient evolutionist, Patanjali, declares that the true secret of evolution is the manifestation of the perfection which is already in every being (i.e., "involved"). These struggles and competitions are but results of our ignorance, because we do not know the proper way to unlock the gate and let the water in. This infinite tide behind must express itself [...] Competitions [...] are only momentary, unnecessary, extraneous efforts [...] Even when all competition has ceased, this perfect nature behind will make us go forward [...] Therefore there is no reason to believe that competition is necessary to progress [...]

A few more shorter excerpts from Vivekananda will not be redundant, especially in the context of the current competitive mania sweeping across the world: 1) The more I study history, the more I find that idea (of competition) to be wrong. [...] The day will come when men will study history from a different light and find that competition is neither the cause nor the effect, simply a thing on the way, not necessary to evolution at all. 19 2) Machines do not solve the poverty question; they simply make men struggle all the more. Competition gets keener.20 3) Each piece of machinery that is invented will make twenty people rich and a twenty thousand people poor. It is the law of competition throughout.21 4) Along with the prosperity (material) all the inborn jealousies and hatreds of the human race will rise to white heat. Competition and merciless cruelty will be the watchword of the day.22 5) Competition - cruel, cold and heartless - is the law of (the West). Our law 18 19 20 21 22

Vivekananda, Vivekananda, Vivekananda, Vivekananda, Vivekananda,

S. S. S. S. S.

(1962) vol. (1959) vol. (1958) vol. (1962) vol. (I960) vol.

I: 292-293 V: 292-293 II: 308 IV: 292-293 Ill: 157

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is caste - the breaking of competition, checking its forces, mitigating its cruelties, smoothing the passage of the human soul through this mystery of life. 23 With sagacious insight into history Vivekananda had demolished competitive ethic as the mainspring of national progress (point 1). With equally flawless farsightedness he had forecasted a century ago the ethico-morally degrading consequences of machine-led materialist prosperity of today (points 2, 3 and 4). And unlike contemporary scholars of Indian society, he had assessed the caste structure for its true original significance - the containment of competition and fostering of coordinated cooperation amongst various functional groups in society. The thrust of Vedantic ethical theory then seems to be: immediate toning down of the divisive competitive temper, and rapid progress upwards to the integrative Oneness feeling. We already have quoted Vivekanadas assertion about the Oneness kernel of Vedanta earlier in this section. A few more brief references to him on this score too will be in order for our disoriented minds which harp on pluralism without admitting the principle of Oneness. 1) [...] ethics is unity [...] the Vedantic mind found this unity as the result of all its analysis, and wanted to base everything upon this one idea of unity. 24 2) The whole universe is a play of unity in variety and of variety in unity. The whole universe is a play of differentiation and oneness [...]. 25 3) The work of ethics has been, and will be in the future, not the destruction of variation, and the establishment of sameness in the external world [...] but to recognize the unity in spite of all these variations [...]. 26 4) This expression of oneness [...] is the basis of all our ethics and morality. This is summed up in the Vedanta philosophy by the celebrated aphorism - tat tvam asi, Thou art That. 27 5) From this monistic (Oneness) principle we get at the basis of ethics, and I venture to say that we cannot get any ethics from anywhere else. 28 What is important to appreciate is that the power to recognize and realize unity in variety, Oneness in differentiation (see the Gita verses cited earlier) can come only from sustained sadhana or dedicated practice of reasoned personal discipline. Through reason only one may reach to higher levels of un23 24 25 26 27 28

Vivekananda, Vivekananda, Vivekananda, Vivekananda, Vivekananda, Vivekananda,

S. (1958) vol. II: 205 S. (1962) vol. I: 432 S. (1962) vol. I: 433 S. (1962) vol. 1:436 S. (1962) vol. I: 389 S. (1958) vol. II: 334

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derstanding beyond reason. Psychological self-discipline for attaining such metaphysical realization is essential - for leadership and similar roles. The Isha Upanishad, a Vedantic text, begins with this verse29 Om! Isha vasyam idam sarva, yat kincha jagatyam jagst, Tena tyaktena bhunjitah, ma gridha kasyaswi dhanam. (All this - whatever moves on the earth - should be perceived as covered by the Supreme. Enjoy through detachment to protect the Self. Do not covet anybody's wealth.)

The three basic ethical principles embedded in this verse are: 1) to cultivate holistic awareness with a transcendent motive; 2) to abjure attached enjoyment by the self (lower) which contains the potential for unethicality which, in turn, makes the goal of accessing the latent Self unrealizable; 3) not to compete (by coveting) to excel others in terms of wealth (material) which again fosters unethicality and is a bar on the way to the Self. Based on a higher, transcendent theory of the human personality, the Upanishad appeals to us for the practice of oneness feeling, for detachment, for noncompetition. Thus, Vivekananda is right when he declares that the competition is not necessary for true progress. The practical framework for ethics embodied in the opening verse of the Isha Upanishad is grounded in a capital distinction made between the shreya (the good) and the preya (the pleasurable) aspects of human life. This insight is available in the Katha Upanishad,30 Recognizing the two basic ruling urges of humanity, prosperity (abhyudaya) for the majority and immortality (nihshreyasa) for the minority, the text acknowledges that the former would opt for the "instantly pleasurable" and the latter for the "distantly wholesome". The former are ignorant (mandah), the latter intelligent (dhirah). The practical implication is clear: cultivating the taste for the "distantly wholesome", through transcendence and detachment, is the real task of ethical education. It is significant that this principle has been expounded by the Katha Upanishad through a dialogue between the Lord of Death and a teen-aged boy, Nachiketa, who resolutely spurned all the material enticements offered to him, and settled only for the highest knowledge - that of Self. As if echoing the Isha verse, Nachiketa at one stage utters the following words:31 Na vittena tarpaniyo manushyo. (Wealth does not really give happiness or satisfaction.)

29 Gambhirananda, S. (1983): 4 30 Gambhirananda, S. (1980) I.ii-1 and 2: 34-6 31 Gambhirananda, S. (1980) I.i. 27: 30

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Here is perhaps a true benchmark, ethico-morally speaking, for the 21st century man. One brief final point to conclude this section. Psychologically, the process implications of both, the involved Sanykhyan Purusha and the self-existent Vedantic Self, are similar for an individual striving for ethical upliftment. But from the metaphysical viewpoint there is an important theoretical difference between the two. The Sankhyan theory admits as many Purushas as there are individuals, whereas Vedantic theory asserts Oneness of the Self in all. In this respect the latter is a more foolproof theoretical foundation for ethics.

4

Guna, Karmavada and Karmayoga Theories of Ethics

The last two sections, by briefly drawing upon the Sankhyan "involution theory" and the Vedantic "Oneness theory", have highlighted primarily the metaphysical aspect of Indian ethical theory. It has been realized that the subtleties of ethics often elude debate, dialogue, arguments, logic, analysis - all the familiar processes of rational-intellectual philosophy and ethics. A transcendent perspective and feel for the situation is the essence of the metaphysics of ethics. The judge in the court occupies a "transcendent" vantage point, and so is able to arrive at a more balanced decision regarding a dispute between an appellant and a defendant. Transcendence implies the ability to comprehend the whole terrain from a height, rather than seeing it by succession only when one is on the ground. This is not avoidance or flight. It makes for more integral and holistic decisions after descent from the height to the ground. That is why kings and leaders in India have always approached humbly the seer or the sage for ethical guidance in secular affairs. This section attempts primarily a brief exposition of the psychological aspect of ethics - as an essential complement to the metaphysical aspect. Indian ethical theory hat labored unceasingly to impart both "metaphysical height" and "psychological depth" to the quest for ethics and beyond in human existence. Psychology of and for ethics imparts operational content to one's subjective ethico-moral project. The Gita, the most well-known syncretic psychophilosophical text of India, already mentioned in section III, is again the primal source of our presentation in respect of the three theories mentioned in the heading above.

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4.1 Guna Theory It is a theory of psychological energies or forces which determine individual propensities and dispositions. These forces are also the constituents of everything in creation, in Prakriti, in Nature. There are three such energies: sattwa, rajas and tamas. The sattwa energy is essentially enlightening and harmonizing. The rajas energy is dynamic but blind and fragmentist. The tamas energy is indecisive and inert. Yet, as for a ñame the wick, the wax and the lighted matchstick are all necessarily required, so also in a human being all these gunas are necessarily present. But their relative proportions differ. This is the key to differences in the tendencies and proclivities, including ethical ones, amongst individuals. The higher the proportion of sattwa in an individual, the stronger are his/her ethical propensities. Transcendence, Oneness, understanding of the involved Self - all this comes naturally and easily when more sattwa prevails. Preponderance of rajas, while imparting strong action-orientation, inevitably carries with it greed, anger, jealousy, vanity, cunning, vindictiveness. These constituent psychological forces of rajas are the prime-movers of unethicality. Tamas lacks action-orientation, yet includes many of the negative psychological forces (dis-values) of rajas. So, it breeds a sort of passive, unproductive unethicality. Let us refer to chapter 18 of the Gita for a few pertinent verses.

4.1.1

On Knowledge 32

Verse 20: That knowledge by which one is able to see a unitary unmodifiable Essence (avibhaktam bhavam), undivided among the divided - know that knowledge to be of the nature of Sattwa. Verse 21: That knowledge which apprehends all beings as multiplicity with mutual distinction and in their separateness only (prithaketwana), without any apprehension of an underlying unity - know that knowledge to be born of Rajas. Verse 22: That by which one dogmatically holds on to a part as if it were whole - a view which is irrational, untrue and silly (ahaitukam, a-tattwa-arthavat) - that knowledge is said to be born of Tamas.

These three verses together seem to expose the myth of the "knowledge worker" as a sort of saviour in our times. For, everything that a contemporary professional or knowledge worker or expert knows is confined to what is described in verses 21 and 22 - rajas and tamas driven as it is. The whole edu32

Tapasyananda, S. (1986) op. cit.: 440-1

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cational process today hangs on the peg of divisive, competitive individuality, although it all probably had started since the renaissance in the West. The medieval or ancient mind may have been more naive or superstitious, but it was more holistic also. All that modern times seem to have achieved is to replace superstitious unethicality by rational unethicality. And this brand of unethicality has perhaps been worse in major respects compared to the earlier variety. From colonial exploitation to environmental denudation - the whole range of unethicality by the human race has been caused by the supersession oisattwic holism by rajasic separateness.

4.1.2

On Work33

Verse 23: Work of the nature of duty done by one without hankering for fruits, and without attachment (a-phala-prepsuna) or passion or hate - such work is spoken of as born of Sattwa. Verse 24: But work that is done by a person merely for the gratification of his desire, and with great strain and a feeling of self-importance is said to be bom of Rajas. Verse 25: And that work which is performed under delusion, without any regard to consequences, loss, injury to others, and to one's own capacity - is said to be born of Tamas.

This set of three verses traces the sources of ethical and unethical emotions (or disvalues) affecting the psychological quality of our day-to-day work.

4.1.3

On Intellect34

Verse 30: That intellect is said to be of the nature of Sattwa which grasps the distinction between [...] the moral and the immoral [...] Verse 31: That intellect is said to be of the nature of Rajas which takes a distorted view of the moral and immoral [...] Verse 32: That intellect is of the nature of Tamas [...] which understands the immoral as the moral [...]

It is important to seize the principle from the third set of verses that, one's innate capacity to distinguish between what is moral and what is not in each situation is not linked to the power of intellectual analysis so much, as to the more basic psychological forces constituting a personality. Gunas influence the character of intellectual analysis itself. 33 Tapasyananda, S. (1986): 441-442 34 Tapasyananda, S. (1986): 445-445

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Taken together, the three sets of verses above provide an integrated blueprint for practical efforts to move towards a sattwic combination of "knowledge (perceptual)-intellect-work". Ethico-moral improvement is aided best by sattwa guna. The many details of psychological practices like breathing, concentration, identification, even food are not being taken up here.

4.2 Karmavada Theory This theory, also known as the "doctrine of karma", runs through all varieties of Indian thought, including Hinduism. The seer-psychologists of India were detached, transcendent, and yet the most concerned and acute observers of existential phenomena. Sustained empirical observation and penetrating intuitive insight produced the generalization that the moral-ethical aspect of human existence has also a cause-and-effect principle underlying it, as has the physical world. The moral world of man is not random. It can be properly managed and guided towards higher levels. But for such an underlying law, life would not have a purpose. It would end up in instant, wanton, impulsive actions and behavior. Much of this kind of phenomena today - from terrorist hijacking to computer crimes - seems to be a result of ignoring appropriate inculcation of this deep awareness in us. It implies the understanding and acceptance that each individual is a moral agent with the potential to either soar or sink. A major Vedantic text, the Brihadarayaka Upanishad, states the karmavada theory very lucidly35: Yathakari, yathachari tatha bhavati - Sadhukari sadhur-bhavati, papakari papi bhavati; Punyah punyena karmane bhavati, papah papena. (As it does, and as it acts, so it becomes: the doer of good becomes good, and the doer of evil becomes evil; he becomes virtuous through a virtuous act and vicious through a vicious act.)

The verse ends by declaring that a desire prompts a resolve, a resolve leads to karma, and karma produces the result. Satprakashananda draws a pertinent distinction between karma and work. Sitting and idling at home on a working day may not involve work, but it surely involves karma. Similarly, intense and quiet contemplation on a problem is obviously karma, though not work apparently. Instinctive action too is not karma. So, karma must mean some volitional action as well as inaction 36 . Taking the Upanishadic exposition of karma theory along with the karmawork distinction, we get a good framework for interpreting several major re-

35 36

Madhavananda, S. (1979) verse 4.5: 357-359 Satprakashananda, S. (1981): 131

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cent events. For instance, the murders of two Indian Prime Ministers in recent years, the imprisonment of two most well-known public and multi-national corporate CEO's for economic offenses, the death of the Singapore-based "biscuit-king" in India, the unceremonious dismissal of a famous TISCO Chairman - all these dramatic events are periodic reminders to us of the inevitable operation of the moral law of cause and effect. Drawing parallels with scientific laws like the law of gravitation in the physical world, Annie Besant describes this inevitability of DOK as a universal condition of the moral world. The inviolability of DOK, widely misunderstood, does not bind - it frees. She is right. Knowing the law of gravitation helps us, not to violate this condition, but to invent and create by obeying this condition. As she explains37: True, it is the man's nature, as he has made it [...] and it is "his karma". But by a knowledge of karma he can change his nature, making it other tomorrow than it is today. He is not in the grip of an inevitable destiny, imposed upon him from outside; he is in a world of law, full of natural forces which he can utilize to bring about the state of things which he desires. Knowledge and will - that is what he needs. He must realize that karma is not a power which crushes, but a statement of conditions out of which invariable results accrue.

Correct understanding of DOK then becomes a strong positive force helping us to become more ethically vigilant. This is a process of aligning ourselves with and for the universal, natural law. It is a call for the human being to a beyond-the-mundane. Asking the question whether being more ethical and transparent or being crafty and unethical yields more money or career success reflects an illogical mental make-up. Such results spring from the simultaneous convergence of many forces, most of which we cannot perceive or connect. We engage in too facile, visible and immediate an exercise in building up such connections. By this we and up with an unstable and unsure basis of functioning. Annie Besant seizes this issue and makes the point tellingly:38 We hear people asking why a good man fails in business while a bad man succeeds. But here is no causal connection between goodness and money-getting. We might as well say: "I am a very good man; why can I not fly in the air?" Goodness is not a cause of flying, nor does it bring in money.

Here is a point of great importance. We should take another look at a current slogan to prompt higher ethicality: "Ethics is Good Business. It is a major corporate asset". Should ethics be subjected to such conditional acceptance on the criterion of its bottom-line effects? 37 38

Besant, A. (1994): 66 Besant, A. (1994): 77

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4.3 Nishkam Karma The guna theory furnishes insights into the three major psychological forces or ingredients which determine either the ethical or unethical propensities of the dynamic, active side of human nature. The karma theory provides the cause-and-effect framework as a precautionary or explanatory system for the g u n a - p r o p e l l e d actions. The nishkam karma (desireless action) theory offers a psychological approach to work which can prevent the guna-\z& unethical motives on the one hand, and promote the ethical ones on the other. Simultaneously, this process dovetails neatly into the karmic theory - ego-less, desireless action will be ethical, a good cause, and hence productive of wholesome effect(s). The mix of gunas could of course also influence one's ability for nishkam karma - relatively high sattwa guna facilitates the practice of nishkam karma, but a preponderance of rajas or tamas hinders such work. We encounter the nishkam karma theory first in verse 48, chapter II of the Gita. Of course it recurs many times with slight variations later in the Gita. It counsels about the "duty to act, but not the right to claim personal fruits from it". The ethical quality of decisions tends to be jeopardized when the deficitdriven lower self clamors for its gratifications from work. Such blind egocentric insistence clouds one's sense of right and wrong, of balance, of proportion and breeds unethicality and inefficiency. Nishkam karma striving, as opposed to sakam karma or kamya karma practice, embodies a process of alignment of human action with that of Nature as a whole. The sun, the tree, the bird, the flower, the river - all are action symbols of conscious Nature performing work as an expression of their respective natural laws of being - swadharma. They do not waste themselves by constant calculations and anxieties about personal gain or recognition. This leads to spontaneity, energy conservation, and freedom from mental fever or stress - yudhhasya vigata jwara as the Gita declares.39 With choice as an additional endowment, the human work-symbol has to initially struggle, unlike the rest of Nature, to work with natural spontaneity. Nishkam karma is a learning process which helps the human being to achieve this psychological state in work. By paving the way to the synchronization of the choice-based human impulse for work with that of the spontaneous Natural cosmic impulse, the nishkam karma theory effects another great synthesis -"work-ethic" with "ethicsin-work". Thus, the excited dynamism from awakened rajas may well produce vigorous work-ethic. Yet this may not be wholesome work; it could even be outright destructive. From colonialism to terrorism we have seen and con39

Tapasyananda, S. (1986); op. cit., verse 3.30: 98

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tinue to see tremendous work-ethic. But "ethics-in-work is the all-important missing factor in such actions. Nishkam karma, by containing self-aggrandizing ego and greed (individual or national), should restore this lost kernel of human work. It trains and guides the exercise of choice in favor of successively higher calls beyond one's egocentric self. This ensures one's ascent along the ethical scale. But why this ascent? Here we climb back from psychological depth to metaphysical height once more. By accelerating inner purification, nishkam karma helps the realization of the Self, of Oneness - the cornerstone of Vedantic ethics. The circle is closed. Yoga or union of the individual with the universal and transcendent is consummated. Hence also the phrase karmayoga which is used synonymously with nishkam karma.

5

Conclusion: The Indian Theory of Consciousness Ethics

The uniqueness of the Indian theory of ethics is its setting against a holistic background of ultimate realization for the human being. Psychological methods and philosophical conceptions have all developed in a complementary manner. A contemporary scholar, Srinivasachari, has aptly observed:40 It is this synthesis between the human and the Divine, the insistence on the recognition of the fact "our wills are ours to make them Thine" that invests the Gita theory of morality with a completeness which is lacking in the partial one-sided views [Kant's categorical imperative, utilitarianism, Christian asceticism etc., S.C.] considered so far.

To be sure the message in this comment is for a transmutation of consciousness itself - not for the use of the merely rational faculties of a confused and turbid consciousness, pinned down to the mind-senses level. Insofar as yoga psychology directs our attention to the management and control of mental and sense fluctuations, it sets before us the goal of achieving prajna or right consciousness. We have it on the authority of Dasgupta that: 41 [Prajna, S.K.] is a new kind of intuition [...] which is entirely different from the ordinary logical type of cognition of thoughts, images etc. This intuition is a direct acquaintance, more or less similar to direct perceptual vision but free from the ordinary errors of all sense-perception.

40 41

Srinivasachari, P. N. (1986): 35 Dasgupta, S. N. (1976): 79

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It is this kind of trans-mental, trans-sensual consciousness which is proposed as the real basis for better ethics and morals in our affairs. Clear and firm grasp of this insight ought to be the starting point for developing truly ethical leaders. Only they can transform and elevate those whom they lead. The higher and the more complex the context of leadership is, the stronger is the need for such an approach. The earliest Vedas had propounded the theory of cosmic moral order and called it Ritam. The later Vedantic theory of morals complemented the Vedic supra-personal outlook with a deeply intra-personal theory of ethics, by laying down the ultimate aim of human life to be that of attaining Moksa. This is freedom from the transient and finite into the Eternal and the Infinite. This again is verily yoga too as stated above. The secular work-life of the vast majority of humanity has to be directed towards this one common aim. This combination of Veda-Vedanta theories of ethico-morality is "truly ethicmetaphysical and spirit-empirical" - as Sharma puts it.42 Finally, a few words about some theoretical basis for genuine cases of dilemma ethics which, though relatively rarer than direct ethics cases, are also real. Such dilemmas can and do confront even those who engage in methodical self-discipline on the lines suggested above for developing consciousness ethics - perhaps even more so. Situations of this nature will involve a ranking of priorities among the alternative decisions possible. This act of ranking will be governed by the level of moral development, willpower and character of the decision-maker(s). At the lowest level, of course, no dilemma may be perceived at all. At higher levels, a morally difficult choice may involve sacrifice of something which also is precious but not more mandatory than the choice dictated by the central project or theme of the decision-context. Such sacrifice of the secondary option may entail feelings like guilt, shame, remorse, regret, etc. These moral sentiments, when genuine and deep, leave the moral agent more enriched after the experience. This helpful perspective on dilemma ethics is expressed well by Matilal:43 The nature of our practical wisdom has a sort of malleability which is comparable to the ever-elusive nature of dharma-ethics [...] in our epic literature [...] It [dharma, S.K.] cannot be completely known by us as universally fixed. But the acknowledgment of possible flexibility does not mean that the fixity and universality of ethical laws will be entirely negotiable [...]. A moral agent needs also a character which is nothing but a disposition to act and react appropriately with moral concerns.

It is this "character" that the theories of involution, oneness, sattwa guna, nishkam karma, and karmavada discussed earlier - all converge to build up 42

«

Sharma, I.C. (1962): 296 Matilal, B.K. (1992): 17

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from the roots, to sustain and to strengthen. There seems hardly any reason to escape engagement with such transempirical and psychological theories if the 21st century has to have sustainable ethics in the empirical domain. For, the complete dominance of the economic model of man in every aspect of society is making life for ethics more and more difficult indeed. Hence the higher must take hold of the lower the sacred of the secular.

6

Ethics/Non-Ethics in Action: A Few Vignettes

It would be appropriate at this stage to add some flesh and blood to the theoretical frameworks outlined above which, to recall as a summary, have presented these keynotes: 1) Involved perfection preceding evolving manifestation (Sankhya); 2) Trans-empirical Oneness of all manifestation ( Vedanta); 3) All manifestation, including human character, is a composite of varied proportions of three primordial psychological energy-forces (Gunas); 4) The cosmic order (Ritam) has its counterpart in the social order as the Law of Karma ', 5) The whole of Nature works through selfless, dis-interested "giving", and the human being is expected to attune and align with this principle (Nishkam Karma). The following paragraphs will try to interpret a few actual corporate/individual events (garbed) to indicate how application of or deviation from these keynotes may have contributed to or detracted from ethical imperatives.

6.1 Mr. Gopal of National Engineering Ltd. Mr. Gopal, the Chief Internal Auditor of NEL, (public sector company) was once asked to verify a deal between NEL and Apex Ltd. (a private sector supplier) whose CEO was a relative of the Director Operations of NEL. The allegation against the latter was about showing undue favor by NEL to Apex because of this relationship. It so happened, however, that only a couple of months ago Gopal was unfavorably evaluated by the Director Operations (as a line boss) which denied him a due promotion. But Gopal set aside from his mind this recent raw deal, investigated the whole deal impartially, and declared the Operations Director to be free from any taint in this deal. In fact

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Gopal, while the investigations were proceeding, was being pressurized by his own functional boss (the Finance Director) to give an adverse report against the Operations Director. For, the former had wanted to settle a personal score against the latter through this incident. Gopal did not oblige. As a result he lost his promotion next year also - this time his own functional boss wrote adversely against him on unrelated subjective grounds. A fortnight after the announcement of next year's promotion list, Gopal wrote the following in his diary: I feel sad that NEL has let me down. Yet, I am happy that I could obey my conscience and stand up to my integrity. I am blessed with a peaceful and harmonious family - a very understanding wife and three children who are brilliant, yet live with and care for us. I recall my father telling me often in my younger days: "Success is not the aim in life, Perfection is".

Gopal continued to work five years more in NEL till retirement, and got only one promotion during this period. Two years hence the Director Operations died in a tragic car accident. The Finance Director was later demoted for his involvement in a major diversification debacle. The possible interpretations form the above vignette are: 1) Gopal had cultivated his higher, involved Self which sustained him internally, even though his deficit-driven lower self was struck with two cruel denials from without. 2) Gopal was largely stable in awakened sattwa guna (illumining psychological force) - so he could exercise and maintain a clear distinction and priority between professional duty and personal ambition. 3) Gopal was able to practice the principle of detached involvement (nishkam karma) which ensured that he maintained his enthusiasm for and dedication to work responsibilities, even though rewards from NEL were not forthcoming. This is what "perfection, not success is the aim of life" means. 4) However, it was Gopal's ethically sound karma in the office which was amply rewarded in his domestic life - like cause, like effect. 5) The adverse events occurring to the two Directors outside the office could be the effect of their bad (unethical) karmas inside the office. Life is an ethico-moral whole. 6) Gopal's example is an inspiration towards ethicalness; those of the two Directors a deterrent against unethicality.

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6.2 Fast Growth Ltd. FGL has been one of the most highly publicized, successful and professionally managed MNC's in India. Its most recent CEO had replaced the earlier corporate motto "Resources For Growth come from Within" by "Growth - the Faster the Better". His ambition was to see FGL included in the Fortune 500 top companies list as early as possible. For this new vision "resources from within" were perceived as quite inadequate. So, besides manufacturing and service industries, it took a huge plunge into the trading business - especially in exports. It did become India's largest export house at one stage. But this was an operation which permitted wide latitude for many kinds of shady deals like over-invoicing imports, under-invoicing exports, foreign exchange swindles and so on. The CEO side-lined most of the inside Directors who had initially challenged these ventures. Instead, he fostered an inner circle, much like a Führer, which would meekly toe his line. The nominee Directors from Financial Institutions did not play a restraining role either. Although none of the inside Directors had resigned from FGL as a protest against the CEO, yet gradually information from within began to trickle out to the press. Many a damaging news began to be revealed e.g. a nearly 1 billionrupee excise duty evasion over the years, several hundred million rupees of foreign exchange violations, putting up front companies abroad, giving out-ofturn promotions to favorites and so on. The parent company abroad instituted inquiries by an Indian firm of Chartered Accountants. After protracted wranglings, the CEO was made to resign (arising from the audit firm's investigations) nearly one and half years before his term was due to expire. Ironically, one of the parting terms agreed to by the MNC and the FGL Board was to confer on the CEO the "Chairman Emeritus" status. The person to succeed him was also to be one of his chosen men. Meanwhile a new Government at the Center took charge, and one fine morning in November 1996 (several months after the CEO had become Chairman Emeritus) the Enforcement Directorate (in charge of foreign exchange violations) swung into action and arrested this last CEO and his predecessor. In course of another few weeks twelve other top executives of FGL were also put behind the bars. At the time of arrest, some newspapers quoted the CEO as saying: "God knows all the truth! I trust in God". When interviewed, the first Chairman Emeritus of FGL (who had retired into a quiet life a decade ago) had remarked: "Not everyone can manage power well". We now offer some possible interpretations of the magnum episode: 1) The CEO did not seem to possess even a faint awareness of the involved, poorna (autonomously whole) higher Self at the core of his being.

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2) As a result, his deficit-driven, externally dependent lower self knew no limits of propriety, prudence and ethics. 3) The goal of Fortune 500 ranking for FGL would seem to be a projection of the CEO's own sense of priority of success over perfection (unlike Gopal). It turned out to be a ruinous obsession for him. 4) Often the CEO would seem to imply that the laws themselves were draconian and stifling and therefore deserved to be broken for the sake of growth. The sense of honor from playing the game well within the laws as existing at the time did not seem to be a worthy achievement to aim at. This would have arisen from active sattwa guna. 5) Externally directed competition to excel others (Fortune 500 listing, for example) had ignited the red heat of rajas (the blindly dynamic psychological force). This resulted in a series of major and minor indiscretions and infractions. 6) With no knowledge and practice of mind-stilling and similar psychological exercises (unlike Gopal again), the CEO had no built-in process of selfreferral and self-scrutiny for making amends on an ongoing basis. 7) The karma theory seemed to have caught up with the CEO very fast in many ways e.g., being forced to resign, being arrested and the like. 8) There seems to have been little trace of ethicality stemming from nishkam karma in the CEO's functioning. That is why he soon became intoxicated with power and went on acting recklessly. If he were trained to consider himself as a trustee, an agent of a Supreme or Divine Power (as most true leaders of humanity from Buddha and Christ to Lincoln and Gandhi have shown), he may have been able to save himself from the ego-driven, selfish and manipulative use of power. It may have been possible for him to transmute secular power into sacred power.

6.3 Cement Conglomerate Ltd. This Indian company (today the largest in this industry) was born in 1937 - an epoch when all indigenous entrepreneurship under British rule was usually guided by a strong impulse of trans-commercial idealism. The founders and successive CEO's and top managers were first of all men of character, and were economic performers only next. Proving a point to the British rulers was perhaps a major inspiring force in them. So, high levels of integrity and ethical standards were essential underpinnings of economic endeavor.

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Till the beginning of the 1980s, cement was a controlled commodity in India. During these decades of "strangulating controls" CCL could have coped more easily with some of its dispatch- and production-related pressures if only it was willing to compromise its moral/ethical uprightness. All other companies were doing so. But CCL never flinched. This created inroads into its market share and bottomline. Similarly, cost-side pressures could have been absorbed by manipulating the statutory proportions of levy (low price) and non-levy (high price) cement sales, by dodging taxes and duties, by clever bypassing of labor laws or of quality standards. None of these demeaning tactics were adopted however. Rather, they were tried to be absorbed by pursuing vigorous R&D efforts. Such ethicality made management more difficult, in the short run at least. Yet the strength to maintain such a dogged stance was internally driven. A team of commissioned researchers into CCL's corporate history discovered that values and ethics had not only set limits to the exercise of corporate freedom in relation to the external environment, but had also exerted a similar influence upon individual/group behavior inside the company. CCL did allow a lot of autonomy to its people in the exercise of initiative and discretion, as well as to preserve their respective religious and cultural identities. Yet, there were two strong boundary conditions for all such freedom: a) task requirements, and b) core values of ethicality, product quality and human dignity. If at any time there was an impending conflict anywhere between (a) and (b), (b) was upheld in preference to (a) - even if this meant losing a deal or a market, or giving up a legally defensible claim. This order of priority was conspicuously manifested in the early decades in terms of adherence to personal integrity and "not telling lies". As times changed towards greater complexity only the nuances of this imperative got modified into: "would the action be upheld in a court of law?" When social mores and values have been rapidly moving away from their traditional anchors in the nineties, the attempt at such a juncture to get a detailed corporate history done, with values-ethics as its keynote, appears to be a good method of reminding the new generation of employees of the rich legacy of values inherited by them. And now some interpretations: 1) It appears that in some way or the other the principle of nishkam karma had acted as a powerful impulse among the founders of CCL. At the very least, there was none of the Fortune 500 listing mentality of the lower ego pervading the corporate climate. Rather, the superordinate call of national duty

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with dignity continued to preserve the ethical temper within the deep structure of the company. 2) Top leadership had a clearly dominant sattwic (illumined) quality at all stages down to the late nineties. This repeatedly showed up in terms of patience to play by the prevailing laws of the land, even if this meant lesser business success in the short run. But no regrets in the long run. 3) The karma theory of ethical cause-and-efifect has shown up in terms of sustained credibility and respect won by CCL from employees, government and society in lieu of uprightness for values. 4) The personnel policies of CCL, in multitudinous details, continuously produced evidence in support of the Oneness theory of ethics. Its house journal is called Parivar (joint family). This spirit has been the mainspring of ethical behavior by CCL towards its employees, including the most critical years of plant sales/close down/voluntary retirements etc.

6.4 David Airlines vs. Goliath Airways We may now turn to a recent European corporate battle in the civil aviation industry. In January 1993 GA concluded a libel case brought against them by DA by tendering unqualified apologies to the CEO of DA and by paying £ 3.6 million in legal costs and damages. Civil aviation is a fiercely competitive business area - especially in respect of flexibility in pricing, customer facilitation, flight adjustments, airport assistance and so on. DA employed only 2400 people, whereas GA had 48.000 people on its roll; DA had 8 aircrafts and GA 227; DA carried 1 million travelers in 1991, GA carried 25 million; DA incurred a loss of £ 3 million in 1991, GA hat earned a profit of over £ 300 million. Since 1985 the Chairman and CEO of GA had been striving to blaze a new trail, for this was the year when GA was privatized. Lots of good things were done to introduce a new customer-driven culture in the company. At the same time, its dealings with the much smaller competitors in its own country were beginning to become murkier. In respect of DA, processes such as below were active: -

phone tapping, people attending meetings with hidden microphones, hiring consultants to invent incriminating reports and stories, persuading DA passengers to switch on to GA by accessing news about flight cancellations on DA's computerized reservation service, armtwisting during negotiations for airport landing time slots and so on.

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Various individuals and the media began describing GA's methods as a "disreputable campaign of deceit, lies, and illegal activities", as "commercial bullying and political manipulation" and the like. After winning the case DA got a good bit of favorable publicity. This is likely to help it to handle competition more effectively. The CEO of DA divided the amount received in damages amongst the employees along with a letter of thanks to them. This too received wide press coverage. We suggest the following insights from the above episode in terms of the theories described earlier in this chapter: 1) Clearly, the competitive drive in GA brought out some of the worst kinds of corporate unethicality. The principle of Oneness is thoroughly undermined by such a spirit of ruthless competition. The lower self is always susceptible to this malaise. 2) The human value of magnanimity by the elder, the larger, the well-to-do party was absent. The insecure deficit-driven corporate personality of GA (and its top people) led to unnecessary panic-stricken behavior and unethical acts. 3) In the absence of the perspective-providing nishkam karma principle, obsession with one's own growth, power, image became counter-productive. Much was lost, little gained by GA. 4) Once more we notice that the blind dynamism (rajas) of GA's leaders generated evil karma (i.e. morally wrong causes) which caught up with the company and tarnished their reputation (i.e. adverse effects). 5) On the other hand, the good karma and the sattwic disposition of both DA and its CEO brought them enhanced reputation and competitive strength without, and greater loyalty within in this apparently unequal battle.

6.5 Pesticides Incorporated Ltd. Recently PIL had applied in the USA for patenting an emulsion (Neemix) prepared from the extracts of neem trees - a species which is special to and abundant in India. Neem has numerous medicinal and chemical properties for which it is an object not only of multifarious daily use, but also an object of veneration as a great boon of Nature. From combating air pollution and toothache, to curing skin sores and fertilizing cropfields - its range of benefits is enormous. In their homespun, backyard, indigenous ways Indians have been using the leaves, the bark, the fruits and the seeds of this tree from time immemorial.

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PIL sensed the great commercial potential of "adding value" by emulsifying raw neem juice through chemical treatment. In this state the extract would have long shelf-life and could thus be sold across the world for use as a herbal pesticide by farmers. The catch, however, was that henceforth PIL alone would have exclusive world rights to market this product. What about the Indian farmer? Henceforth the poor man would have to abandon his backyard processes ("prior art") and pay heavily for using this patented pesticide. Why? Because, otherwise "intellectual property rights" would be violated! This is a symbolic instance of the ethical implications of the relentless drive towards globalized market-economy. Such attempts may be interpreted as new brand technological colonialism for the older territorial colonialism. This kind of grabbing expansionism is an outcome of unbridled rajas nursed by greedfuelled dynamism. It also shows that the ethico-moral dimension does not figure yet in thinking about corporate or R&D strategy. Of course it is too much again to expect, in cases such as this, that the sense of the sacred, of veneration embedded in the sattwa guna could permeate corporate idealism. Episodes such as this also provide the occasion to re-examine what we really mean by catch phrases like "global village". Let us leave aside the basic anomaly in the phrase itself: a village must be "local". Besides, the true trend today is towards a "global city" of internetted atomized existence. The ethics of "local village" is founded on Oneness at the feeling level within a holistic community. In this situation a venture like PIL's would in principle be unthinkable, and in practice a non-starter. It would be a clear case of malafide karma for the doer.

References Aurobindo, S. (1972), Birth Centenary Library. Pondicherry: Sri Aurobindo Ashram Pr. Aurobindo, S. (1970), Evolution. Pondicherry: Sri Aurobindo Ashram Pr. Aurobindo, S. (1982), The Hour of God. Pondicherry: Sri Aurobindo Ashram Pr. Besant, A. (1994), A Study in Karma, in: Ananda (ed.), Contemporary Work Philosophy and Action Cultures, Delhi: Associated Publishing. Dasgupta, S.N. (1978), Hindu Mysticism. Delhi: Motilal Banarsidass. Gambhirananda, S. (1983), Isha Upanishad. Calcutta: Advaita Ashrama. Gambhirananda, S. (1980), Katha Upanishad. Calcutta: Advaita Ashrama. Hosmer, L.T. (1991), The Ethics ofManagement. Homewood: Irwin. Madhavananda, S. (1988), Brihadaranyaka Upanishad. Calcutta: Advaita Ashrama. Matilal, B.K. (1989), Moral Dilemma in the Mahabbaharata. Shimla: Indian Institute of Advanced Study. Satprakashananda, S. (1981), The Goal and The Way. Madras: Sri Ramakrishna Math. Sharma, I.C. (1962), Ethical Philosophies ofIndia. London: George Allen and Unwin Ltd. Srinivasachari, P.N. (1986), Ethical Philosophy of the Gita. Madras: Sri Ramakrishna Math.

Ethics for Business and Management: Explorations in Hindu Thought Tapasyananda, S. (1986), Srimed Bhagwad Gita. Madras: Sri Ramakrishna Math. Vivekananda S. (1958), The Complete Works. Calcutta: Advaita Ashrama.

Business Ethics in China: Confucianism, Socialist Market Economy and the Multinational Enterprises* Kam-hon Lee

1

Introduction

According to the statistics compiled by Asia Week and published on May 23, 1997, in terms of GDP (Gross Domestic Product) (purchasing power parity), China is only second to the United States of America. In the meantime, the GDP growth of 9.4% is much higher than that of the United States, 5.6%. Thus, no one can afford to ignore China and her economic strength. Companies from different countries compete for entries. However, companies do not go there without any hesitation. Up to 1992, foreign companies usually went there to set up representative offices. They did not want to lag behind to establish their presence. In the meantime, they did not want to take unwarranted risks. The representative offices would usually be manned by senior executives close to retirement. Alternatively, the representatives might be young people who were very green in China trade. The profile of the executives there indicates clearly that the foreign companies were basically non-committal. The June 4 event in 1989 became a last stroke at the camel's back and foreign capital flight became real. It became also an unsolicited confirmation of the skeptical stand towards China business. Thus, the early indication and commitment from Motorola after the June 4 event became especially precious in the eyes of China. Deng's indication during his trip to the South became a facilitator of the real indication for China to embrace foreign capital and to affirm the continued stand of the open door policy. Besides political upheaval and uncertain regulatory environment, foreign companies have two major concerns. One is related to the respect and protection of intellectual property right. The other is related to the prevalence of corruption in China business. The issue of intellectual property right mainly deals with unauthorized copies. That is more related to a small set of products like personal computers, computer software, and books. It is also related to fake brands. In terms of technology transfer, it does not constitute a major problem because the foreign companies are very cautious in bringing the technologies *

This project is supported by the Research Grants Council Earmarked Grant CUHK 142/94H, University Grants Committee, Hong Kong.

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to China any way. More likely than not, those brought to China are not the most advanced ones. They will in due course become obsolete technologies the foreign companies do not care to protect. Thus, the issue of intellectual property right may be restricted to certain business areas. However, the corruption issue seems deep and wide spread across all categories of China business. Recently, repeatedly, from different surveys, among different Asian countries, China has been consistently rated over time as one of the most corrupted countries. Table 1 reports the result from Transparency International, which has been validated as a more reliable indicator (Houston/Graham 1997). Table 1:

Scores of Perception of Corruption over the Years on a Scale of 0 (Most Corrupted) to 10 (least Corrupted) 96

95

88/92

80/85

New Zealand

9.43

9.55

9.30

8.41

Singapore

8.80

9.26

9.16

8.41

Australia

8.60

8.80

8.20

8.41

USA

7.66

7.79

7.76

8.41

Japan

7.05

6.72

7.25

7.75

HK

7.01

7.12

6.87

7.35

Malaysia

5.32

5.28

5.10

6.29

South Korea

5.02

4.29

3.50

3.93

Taiwan

4.98

5.08

5.14

5.95

Thailand

3.33

2.79

1.85

2.42

Philippines

2.69

2.77

1.96

1.04

Indonesia

2.65

1.94

0.57

0.20

India

2.63

2.78

2.89

3.67

China

2.43

2.16

4.73

5.13

Source :

Transparency International, various years

Country

Paradoxically, it has been argued that Chinese businesspeople have a tradition to give emphasis on business ethics. This is in line with the result of a macrohistorical review over different generations in China. This is also in line with the prevalent business practice in the overseas Chinese business community

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(Lee 1996). This book chapter explores this paradoxical phenomenon. If Chinese culture has been a strong advocate of business ethics, can it be that China after all is not corrupted, and the perception is only a result of miscommunication? If China is actually quite corrupted, and if it does not come from its culture, what is the cause of this corruption? Culture, as a mental program, the collective programming of the mind (Hofstede 1991), reflects the inheritance over generations from history. This may or may not reflect the prevalent environment, which can be a recent phenomenon. Thus, the natural starting point to have the investigation is to examine the business environment.

2

Business Development in China

While there are many ways to summarize the environmental changes for business operations in China, it is still most effective to date the periodic changes. In dating the various periods, there are two significant principles to observe. First, the periods should be dated according to homogeneity within the period and heterogeneity between adjacent periods. The nature of a period will form the first base for periodic dating. Secondly, for earlier periods, there is no need to be too precise. On the contrary, the latter periods should be studied more carefully. This is in line with the concept of "present value" when one is studying the impact on current business practice. Following these two principles, one can first compartmentalize the China history into three periods. They are: the period before 1949, the period between 1949 and 1979, and the period after 1979. Then, for the period after 1979, it is possible to further subdivide it into three stages. They include the period up to 1985, the period between 1985 and 1992, and the period after 1992. Before 1949, China was basically running a feudal economy. (While the Republic of China was trying to do something different between 1911 and 1949, because of the warlords and Japanese invasion, and then the civil war, there was basically not much changes.) Emperor was the dictator whose policy would be deeply penetrating into everyday life including business practices. During the Warring States, the Chin Dynasty saw the importance of the peasant class. Peasants were dependable as sources of food supply, sources of soldiers, and because of tying down to the land fields, they were not mobile and they were loyal. Their fate and the emperor's fate were basically integrated. During the warring periods, for merchants, basically the opposite was true. Thus, the emperor's will was to put peasants immediately below the ruling class (the government officials) and definitely above the merchants. During the peaceful periods, merchants, because of wealth from business opera-

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tions, became quite threatening to the emperor. Also, it developed a sense of inequity among people of different classes. In order to preserve stability in the society, the emperor again had to suppress the merchant class in order to uphold the peasants. Thus, there were regulations preventing merchants and their siblings from taking government examinations and becoming government officials. Peasants and their siblings would be given that opportunity. Thus, a sense of equity would be preserved and social mobility managed to strike a balance between political and economic power. Because of this background, business operation could not prosper too much. By and large, the intelligentsia (the most precious human capital in the society) would not take part in it. Even if some intelligentsia managed to establish significant business enterprises, the system and the society would not allow it to prosper further. The fear of being too wealthy itself would already be a forceful inhibiting factor for economic progress. Thus, before 1949, during the feudal economic period, economic prosperity, if any, was not significant and long lasting. When the People's Republic of China took over in 1949, the focus on economic development was distributive justice. That was understandable because of the general poverty and the social injustice prevalent in certain cities like Shanghai. "Chinese people had stood up!" Mao Zedong's appeal at Tiananmun was social justice for the crowd. Economic progress hinged on the hopeful signs of economic strength of the then Soviet economy. The mode of a command economy prevailed. Initially, because the economy was relatively simple and lacking order, the central planning efforts made good progress in equity and prosperity. However, after the initial period, still in the 1950s, the difficulties of the command economy and the side effect of central planning became obvious. Open minded leaders had ideological fights with the central figure of the Communist Party, Mao Zedong. After several periods of debates and movements in a tug of war fashion, in 1966, Mao launched a decisive move and initiated the Cultural Revolution. The impact of this move was disastrous and the Chinese economy was completely destroyed. The 1966 to 1976 period should be a period for deep reflection for Chinese people in general. It later became an opportunity for reflection and charting a new course not only politically but also economically. Deng Xiaoping's influence after 1976 became obvious nowadays. It was then not that clear. Basically, the whole period after 1976 could be further divided into three sub-periods. The first few years were basically for nurturing consensus. The period of 1979 to 1985 was the launch of economic reform (market economy) in the rural area. It was obvious and safe. Basically, it was reverting the economic system to the feudal economy mode except that the central government was a Communist Party rather than an emperor. In the

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meantime, the central government authority was at least following an autocratic benevolence policy. The economic impact was clear and self evident. This move would help first ordinary people, the peasants. They were those who were many in number and particularly poor. This move would also plant the support of a market economy operation on the minds of ordinary people. The reform after 1985 was on the economic reform in the urban cities. This would touch the industrial sector and this became more difficult. The approach was to allow favorable investment policies for foreign investors who would bring forth investments, technologies, and even business connections, to facilitate silent economic reforms. The changes were impactful and yet difficult. It touched on the price reform issue. It also touched on the unemployment issue for the SOEs (State Owned Enterprises). Because of inexperience and uncertain terms, while many foreign companies came forward to discuss different joint ventures, not many were actual investments. The exception might be the investors from Hong Kong and to some extent Taiwan, who dare to invest in their home counties because of their ethnic identities and their knowledge (as insiders) of the operation environments. The progress to attract foreign investors (the MNCs from developed countries) was relatively slow. Motorola, Proctor&Gamble, and Coca-Cola were the few exceptions. The June 4 event in 1989 posed difficulties for all parties. For China, it was a test of the will to follow an open door policy. For the MNCs, it was a test of the will to bet on the future of China inspite of apparent short term uncertainties. While quite a number of difficulties surfaced including the downfall of Zhao Ziyang, Deng's visit to the South in 1992 signified a clear commitment to the open door policy. Ideologically, Deng also coined the term socialist market economy, which claimed that market economy was not the sole property of capitalism. Rather, it could also be implemented in a socialist country. Thus, there was no more concern for China to embrace market economy, while preserving the identity as a socialist country. After 1992, MNCs began to pour foreign investment into China and the snowball effect became apparent. Table 2 reports the foreign direct investment over the years. In reading foreign direct investment in China, the amount utilized indicates the real commitment. It is clear that the real transition occurred in 1992.

314 Table 2:

Year

Kam-hon Lee Foreign Direct Investment in China

Number of Contracts

Amount Contracted (Million US$)

Amount Utilized (Million US$)

1986

1,498

2,834

2,245

1987

2,233

3,709

2,647

1988

5,945

5,297

3,740

1989

5,779

5,600

3,774

1990

7,273

6,596

3,410

1991

12,978

11,980

4,366

1992

48,764

58,122

11,008

1993

83,437

111,436

27,515

1994

47,490

81,406

33,787

1995

37,126

90,300

37,700

1996

24,529

73,210

42,350

Sources:

The China Business Review, May-June 1997: 37

Thus, for China, the culture of business ethics had been nurtured for several thousand years under the mode of feudal economy before 1949. After 1949, at least before 1985, the Chinese economy was still under the feudal economy in reality although not in name. From 1949 to 1976, it was under a command economy. From 1977 to 1984, it was slowly reverting back to a feudal economy where the rural area enjoyed free market operation. Economic reforms in the urban areas started in 1985 (Cao/Chi 1993a). Since economic structure in the urban areas was highly integrated just like other developed market economies, in a way, only economic reforms in the urban areas would encounter the real test of reforms towards a market economy. Thus, as of today, the market economy experience for China has been around for only a bit more than 10 years, including painful incidents like the June 4 event and loss of economic and political leaders like Hu Yaobong and Zhao Ziyang. In summary, for Chinese people in general, in terms of culture, they inherited what was prevalent in a feudal economy. However, they were facing challenges in regulating and dealing business transactions with the most advanced economies in the world where market economy practices have been there for more than 200 years. Against this background, it became easier to understand the

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"program" of the Chinese mind and the requirement of modern business practice.

3

Confucianism and Personal Ethics

Beginning in the Han Dynasty, in line with the emperor's interest to rule the country and stabilize the society, Confucianism has been featured as the dominant ethical standard to guide people's thinking. The pecking order of the four categories of people is only part of the ethical system. A unique feature of the Chinese convention of ethical emphasis is one's way to properly relate to one another (Chen 1994). An addendum is to manage the relationship from one's relationship to oneself, to one's family, to one's state, and then to the world. The origin of this idea is for one to do the basics well before one should attempt to handle the more complicated matters. When it comes to everyday practice, it becomes a hierarchy to separate the insider from the outsider. While there is an obligation to handle well one's relationship with an insider, one may even ignore one's relationship with outsiders (Sun 1987). This line of thought also gives emphasis on the importance of the development of one's personal moral character. It varies among individuals regarding one's moral integrity. For those who are very well accomplished in the development of moral character, they will treat strangers from different corners of the world as if they were their brothers. For those who are not that accomplished, they will consider only their relationships with people close to their personal circles. Thus, while there has been an emphasis of the importance of moral consideration in making one's strategic business decisions (Lee 1996), the dimension of moral consideration is quite different from that in the West. Moral consideration in the Chinese society is: 1. a personal accomplishment, which is used to differentiate a treasured business employee/partner from a less treasured one, 2. a varying manifestation depending on the relationship between the two parties involved (with an uncle or with a stranger), other things being equal, 3. a part of a long-term consideration in nurturing relationships, rather than one off transaction, and 4. judged by the conscience of bystanders and/or members of the society whether one is doing properly. The overseas Chinese community adopts this framework in screening employees/partners in business transactions. They praise those who have high

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moral accomplishment, those who would not cheat even old people and children. They would want to have more business dealings (a reward mechanism) with those who have moral integrity. They can understand and accept that people will treat insiders and outsiders differently. One important move is to pick and choose the right persons to have close affiliations. It is important to choose friends who can bring you benefits because they are upright, loving/friendly, and knowledgeable. By the same token, it is important to stay away from those who are not. Otherwise, they will become liabilities rather than assets. The way to relate to these valuable relationships becomes a specialty, which is as important as knowledge acquisition. Thus, Guanxixue becomes a proper subject of study. This is proven true or especially clear in mainland China (Yang 1994). In daily life, one has to reciprocate properly towards each other in all dealings. In some situations, it may create tension between doing what is right for handling issues and what is proper in handling the interwoven relationships. Cases in mainland China may serve to illustrate the complications involved. This is especially critical when mainland China began to enter into new business spheres, whether one was talking about the Chen Xitong's scandals or Zhu Rongi's determination to handle the triangular debts. Thus, while mainland China has gone into an advanced stage of business development, including monetary reforms and the establishment of capital markets, the popular culture in the society still depends on interpersonal network to sustain what is right and how to strike a balance for equitable treatments towards different parties. The prevailing business ethics is still personal ethics which may be inadequate in sustaining the operation of sophisticated business systems. Corruption is to make use of public office to seek private gain. When the use of information is not easy to discern and differentiate, when private gain is in the form of benefiting people one knows personally (rather than actually seeking gains for oneself directly and explicitly), judgement becomes difficult and corruption becomes likely. This will become increasingly more difficult when the economy becomes more highly developed.

4

Socialist Market Economy and Legal Framework

The ideological positioning of mainland China nowadays is socialist market economy. It carries two connotations: 1. China will observe the status quo of a socialist country. 2. China will adopt market economy system in handling economic activities.

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These two seemingly contradicting assertions are harmonized by the dominance of the SOEs in economic activities. Even when China adopted an open door policy and tried to introduce the concept of market orientation, in reality, most economic activities were still under the auspices of the SOEs, which held the key of the strategic industries and dominated most economic activities. However, as China continued to develop, some SOEs became privatized through joint venture arrangement. As more and more economic activities were dominated by JVs (joint ventures) and later by wholly owned foreign investments and even private enterprises, the roles of SOEs became diminished. Governance over JVs and wholly owned FDIs (foreign direct investments) could be handled by regulations governing FDIs. Ruling over private enterprises could be governed by market mechanism. Enterprises would become bankrupt and operations could be closed down like what was common in the free market economy. The only troublesome area came from the SOEs. When they did not operate profitably, government would hesitate to close them down because that would create more unemployment and social unrest. In order to survive, SOEs would borrow money from banks to sustain the business operations although they were poorly run. These debts need not be repaid if the operation continued to be unprofitable. Nothing could be done because both the lender and the borrower were in fact government officials. SOEs were essential in lessening the burden of unemployment, in maintaining the huge economic operation, and in preserving national interests. However, gradually, they were sold or dissolved whenever there was a way to have a smooth transition. Conceptually, SOEs would not be in a good position to compete with JVs, FDIs and private enterprises, because those employees at SOEs who had a much higher market value than average (because of one's knowledge, expertise, competence, and connections), would leave the SOEs and join the JVs, FDIs, and even start their own private enterprises. When they were working for the latter group of enterprises, they were allowed officially to earn what the market could bear. Thus, SOEs would not be able to compete with the other types of business enterprises. Since the legal system and the framework for governing impersonal transaction were yet to be developed and fine tuned, the business transactions were complex, and the demarcation line between justified and unjustified personal gains was unclear, it motivated competent people to join the non-SOE types of enterprises to seek personal gains. This phenomenon created uncomfortable business environment for FDIs who did not feel that it was right to follow suit or who did not know how to follow suit. FDIs would depend on China hands or partner companies (PRC or Hong Kong based) to handle the interpersonal connections including Guanxi and bribery. This is especially challenging when it was dealing with cross border operation. Take for instance, the case of import tax.

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If one had to import goods into China and paid the import tax, the competitive strength would be drastically reduced and it was unlikely that the goods would survive competition. However, if the goods were sold in Hong Kong, there would be no import tax involved. China companies operating in Hong Kong would enjoy the same benefits. Then, through internal transportation of goods from Hong Kong to mainland China, since there was no transaction involved any more, the China side would be able to use the goods without paying the import duty. This arrangement would be acceptable for the foreign partners because: 1. The transaction was done in Hong Kong where the legal system would give adequate protection to impersonal business transaction. 2. The transaction in fact was selling to the China market. 3. The risk of violating China rule was on the China company rather than on the foreign company. For the China company, again, the handling was in the gray area. It would still be acceptable ethically since nothing illegal was involved and there was no intention to do anything improper. It was regarded as a "wise" arrangement due to the establishment of operations in Hong Kong. When this is the mode of operation, activities in mainland China for the most part are for publicity purpose rather than for direct selling. However, companies cannot handle all business activities in this fashion. For those companies which try to conclude business deals directly in mainland China, more likely than not, they would encounter the problems of differential treatments and the concerns of corruption. When we compare the China figures in Table 1 and Table 2, we can see clearly the contrast before and after 1992. As foreign direct investment increased significantly, scores of perception of corruption in China also worsened significantly. As a matter of fact, as the economy of Hong Kong became more integrated with mainland China, there was evidence that the concerns of corruption in mainland China was also spreading to Hong Kong. It was reported that the number of corruption reports received by the ICAC (Independent Commission Against Corruption in Hong Kong increased from 2,276 cases in 1992, to 3,284 cases in 1993, and 3,600 cases in 1994, and then leveled off at 3,232 cases in 1995. The number of complaints about Chinarelated corruption correspondingly increased from 68 complaints in 1992, to 139 complaints in 1993, 177 complaints in 1994, and then leveled off at 173 complaints in 1995 (Chan 1997). When put together with the figures in Table 1 and Table 2, these statistics suggest the following observations: 1. As China economy entered into a new phase of economic development, there was an upsurge of corruption cases in China.

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2. Since Hong Kong and China were closely integrated in economic activities, the upsurge phenomenon was also mirrored correspondingly in Hong Kong. 3. China-related corruption still constituted a small percentage of total number of corruption cases in Hong Kong. This might be due to the fact that the ICAC did not police cross-border corruption activities. The above discussion suggests that while there was an upsurge of economic activities in China beginning in 1993, the original prevailing ethical framework in Chinese culture became no longer sufficient to sustain an environment for ethical business practices. While the legal framework in Hong Kong could absorb certain amount of business activities and guide them through a legally acceptable course, the growth was in such a stature that there were clear signs that ethical practices were at stake both in China and in Hong Kong.

5

Multinational Enterprises and the World Economy

There was a recognition long time ago that China and the MNCs need each other (Wang 1984). This conviction was recently confirmed by an official publication (Li 1995). Li Lanquin served as the editor of that publication. Wu Yee served as one of the associate editors. Ziang Zemin wrote a foreword. The names of these heavy weight figures sent a clear signal through this publication that China would continue to adopt an open door policy and would continue to welcome foreign direct investment. In the meantime, the trend towards globalization and the interest in China continued to grow among the MNCs. Thus, it is reasonable to expect that there will be increased interaction between China and the MNCs in the years to come. At present, there is a recognition in China about the urgent need to develop a legal framework which can be used to govern and regulate global business activities nowadays. However, the legal framework is far from being developed and the culture to sustain that framework is still lacking (He 1996). Thus, for the time being, China is highly vulnerable to bribing and corruption. Since it takes two to tango, the level of business ethics in China business also depends on the conduct of the MNCs going to China. The United States of America has been a major trading partner with China. The Foreign Corrupt Practices Act basically has been regulating the behavior of American firms even in foreign countries. It has been validated that this act has in fact affected America's share of trade (Houston/Graham 1997). However, if John Pepper of Procter&Gamble is representative of the stand of American MNCs, one would

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expect that American firms would not compromise on matters of principles (Pepper 1997). At present, the world bank views corruption as a major issue in international development policy (Chang 1996). A consensus is being built to combat corruption at the international level. Thus, it becomes appropriate for a country to regulate the business behavior of national companies even in a foreign land. When such acts are established in Hong Kong (similar to the Foreign Corrupt Practices Act in America), it will greatly help the situation in China. Economies that make this commitment are taking a long-term view. While this view will inevitably hurt performance, it takes a strong commitment to go for it all the way in order to create an environment for the longterm welfare for all parties. While the legal framework of the developed economies can help, the major challenge still lies with the situation in China. In November 1996, Interim Regulations Forbidding Commercial Bribery law came into effect and banned the payment of "cash or materials in the name of promotional costs, publicity fees, donations, research and development costs, labor service fees, consulting fees or commissions, or by means of reimbursement of various costs" (Seidlitz/Murphy 1997). Regulations like these showed clearly the awareness and determination on the China side. They also showed that it would take some time before the legal framework is in good shape. In addition, the effectiveness of these regulations also has to do with the revision of salary structure in China, especially for the civil servants. It also has to do with the revision of the social insurance system so that people can cope with unemployment and retirement. It is quite clear that China is keenly aware of the need and the agenda to make these changes (Cao/Chi 1993b). When China is determined to integrate the China economy with the world economy, these become inevitable steps. Before these changes are all in place, there will be confusion, uncertainty and frustration.

6

Conclusion

There has been a strong emphasis on ethics and business ethics in Chinese culture. The code of practice, however, was nurtured in a feudal economy. It does not stand up well when China is going through rapidly the modernization process. Personal ethics, no matter how strong it is, becomes inadequate to handle impersonal business transactions. It takes time to develop the legal framework and to put other facilitating conditions in place. When they are in place, the long tradition of ethical emphasis in Chinese culture will further enhance an environment to sustain the efforts to make good and healthy international as well as local business deals.

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References Cao, S., and F. Chi (eds.) (1993a), A New Historical Beginning: Toward a Market Economy in China - Theory and Practice. Hainan: Hainan Publisher (in Chinese). Cao, S., and F. Chi (eds.) (1993b), Foundation of Stability: The Establishment of a New Social Insurance System in China. Hainan: Hainan Publisher (in Chinese). Chan, K. (1997), Combating corruption and the ICAC, in: J.Y.S. Cheng (ed.) The Other Hong Kong Report, 101-121. Hong Kong: The Chinese University Press. Chang, J. K. (1996), Ethical Issues in Economic Development, a paper delivered at the "International Conference on Business Ethics" held in Beijing in October. Chen, T. (1994), Ethics: An Exposition. Taipei: Tung Da Book Publisher (in Chinese). Hofstede, G. (1991), Cultures and Organizations, Software of the Mind. London: McGrawHill. He, Y. (1996), Business Ethics During a Period of Economic Transition, Reports of the Chinese Economic Reforms Institute Vol. 41, October 11 (in Chinese). Houston, H.R., and J.L. Graham (1997), Some Antecedents and Consequences of Corruption in Foreign Markets. Irvine, CA: Graduate School of Management, University of California, unpublished manuscript. Lee, K. (1996), Moral Consideration and Strategic Management Moves: The Chinese Case, Management Decision 34(9): 65-70 Li, L. (ed.) (1995), Foundation Knowledge to Make Use of Foreign Direct Investment in China. Beijing: China Central Party Publisher and China Economics and International Business Publisher (in Chinese). Pepper, J.E. (1997), The Boa Principle, Operating Ethically in Today's Business Environment, a speech delivered at Florida A&M University on January 30. Seidlitz, P., and D. Murphy (1997), Business Ethics Focus of Mainland Conference, South China Morning Post, April 13: 3 Sun, R. (1987), The Structure of the Chinese Culture. Hong Kong: Chap Yin Publisher (in Chinese). Wang, N.T. (1984), China's Modernization and Transnational Corporations. Lexington, MA: Lexington Books. Yang, M.M. (1994), Gifts, Favors and Banquets: Ute Art of Social Relationships in China. Ithaca, NY: Cornell University Press.

"Contextualism" in Business and Ethical Issues in Japan Iwao Taka

Throughout the 1990s, the Japanese economy has been suffering from a longlasting slump. In the wake of the securities scandals of 1989 (Taka/Dunfee 1996), a series of stories of the disgraceful conduct of bureaucrats, politicians, and business people has started to come to the surface. Japanese society has been critical of those people and business corporations which took key roles in these recent scandals (Taka 1996a). Contextualism, which I will discuss in this article, is one of the main causes of the current corporate misconduct.1 Assuming contextualism as a critical concept of business ethics in Japan, first I will clarify the philosophical and cultural background of the concept, referring to the Confucian concepts of ten (ultimate law) and ri (right way). Second, in terms of stakeholders, I will shed light on the advantageous aspects of contextualism in business. Third, again from the same perspective, I will point out the disadvantages of contextualism. Last, I will explore some ways of eliminating the disadvantageous characteristics of contextualism, while retaining its advantages.

1

Philosophical and Cultural Background of Contextualism

Contextualism is an individual tendency to take social context into consideration and decide a course of actions from the viewpoint of the context. For Japanese, importance is placed upon how others see one's behavior, or how others feel about one's actions. Namely, they consciously or unconsciously put emphasis on outside standards, and let their own inside standards follow

Originally, the term contextualism was proposed by E. Hamaguchi. He summarizes contextual in comparison with the concept individual as follows: "An individual is not a simple unit or element of a society, but a positive and subjective member. This socalled individual-centered model of man is the typical human model of the western society. This model, however, is clearly different from the Japanese model. The Japanese human model is a being-between-people or an internalized being in its relations. This can be called the contextual in contrast with the individual." (Hamaguchi 1988: 66-67)

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the outside standards. I would like to call this Japanese propensity contextualism. According to recent research (Nakano 1995), Japanese managers are likely to consider ethical issues in terms of corporate goals (outside standards) rather than from their own conscience (inside standards). Of course, this does not imply that Japanese business practitioners do not have clear consciences. Since I can assume putting much value on others' logic/feelings as an altruistic attitude, I may be able to conclude that the contextual behavior of Japanese managers is also based upon conscience.

1.1 Philosophical Background To understand the philosophical background of contextualism, it is very useful to examine how Japanese consider the meanings of ten (ultimate law) and of ri (makoto, right way, integrity), which are crucial concepts in Confucianism. Ten, a central notion of Confucianism, means the ultimate law governing all things in nature. Confucianism tells us that if people follow ten, they can develop and reach the higher stages of morality. Ri is regarded as a mental attitude to follow ten so that ri is a pivotal concept for people's fate (Taka 1990). Then, what kind of a mental attitude makes it possible to follow ten? Japanese have long understood that it is "pure mind" and learned the importance of making one's mind as pure as a limpid stream. There are important practical ways of keeping one's mind pure in daily life. In this regard, Japanese have thought the commonest ways are not to pursue only one's own benefits, not to betray others, not to destroy extant social orders, not to criticize others, and the like, because mental attitudes required to criticize others or speak ill of everybody but oneself would disturb one's own peace of mind. Understanding how to keep their minds pure in this way, they have long interpreted ri as a mental attitude necessary to respect the social context, to reconsider social matters from the viewpoint of relevant others, and solve social issues in a harmonious manner (Mizoguchi 1972).

1.2 Contextualism in Japanese Culture Concepts like harmony, coexistence, seniority, groupism, inside-outside, and social atmosphere are often pointed out as key words to characterize Japanese culture or society. As I explain below, all of them are closely connected with contextualism. The main reason to put emphasis on a harmonious way of solving conflicts is related to contextualism. Lately influential business leaders of Japanese

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corporations have put stress on kyosei (coexistence), which implies survival and bringing prosperity to all the relevant parties in a balanced manner (Yamaji 1996). As easily imagined, there are strong relationships between ideas of coexistence and contextualism. The seniority system is one of the institutions that show younger members' respect to the seniors who have contributed to the survival and development of their community. This system is also a mechanism used to settle unnecessary disputes within the community. When the community members face conflict and cannot find a satisfactory resolution as a final resort, they often ask some of the seniors for advice. In most cases, they will follow the seniors' advice, because they implicitly presume this way of solving disputes to be the least destructive measure (Laufer/Taka 1995: pp. 520-522). Groupism could be understood as another form of contextualism, Japanese are said to consider social matters or events from the viewpoint of the group to which they belong. Inside-outside differentiation might be a part of contextualism, too. Attaching importance to inside members' logic/feelings, Japanese are likely to make various decisions for the benefit of those inside members (Nakane 1967). Those concepts like group or inside members' logic/feelings could be replaced by the idea of contextualism. Kuki (social atmosphere) is also an indispensable concept for characterizing Japanese culture (Yamamoto 1977; Tsuda 1994). The atmosphere is not just an environment but a social inertia or perceived mood in a given situation. This is not logically taught, but emotionally understood by the members. Therefore, those who cannot understand what kind of atmosphere exists or how to live up with the atmosphere are labeled as trouble-makers or outsiders. Especially when Japanese have to decide something new or inaugurate brand new action programs, they are expected to respect the extant social atmosphere and figure out a course of actions which should be tolerable for all the involved parties. Again, this concept of kuki is almost the same as that of contextualism.

2

Advantages of Contextualism in Business

With this philosophical background and cultural characteristics in mind, I would like to focus upon the advantageous aspects of contextualism in business, from the viewpoint of seemingly important stakeholders. In the Japanese business context, main stakeholders could be classified into (1) employees/managers, (2) shareholders/creditors, (3) customers/community, and (4) competitors/regulators. According to this categorization, let me pinpoint the advantages of contextualism.

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2.1 Employees/Managers In Japanese corporations, relationships among employees, managers, and executives (top management) are so important that executives try to treat the employees/managers in a humanistic way. The business context between the executives and employees/managers has been encouraging the executives to take such a stance. For example, the high ranking executives (managers) usually let the lower ranking managers (employees) make a series of decisions, trusting their abilities and loyalty to the corporation. Of course, when their decisions cause some serious trouble for the corporation, the executives (managers) interfere in the decision-making processes. Nonetheless, their basic attitude is always to keep their opinions out of the decisions.2 It is often pointed out that Japan is a hierarchical or vertically organized society. Yet, this does not simply mean that decision-making processes in Japanese organizations are top-down (Nakane 1989). If executives (managers) try to give orders to managers (employees) unilaterally, their relationships to the subordinates will be destroyed sooner or later. Opinions from a higher organizational position are shown, only when decisions by the subordinates are exclusive against one another and when they cannot find a satisfactory way by themselves. The reason why the opinions from the higher position are required, and eventually accepted by the subordinates is that they tacitly accept that following the higher authority is the wisest choice, in order not to damage extant human relationships within the corporation. Another measure to keep the organizational context friendly is the life-long employment system. Thanks to this institution - one effective way to show respect for the humanity of all the members - employees/managers can implicitly think of their corporation as a warmhearted community like their homes, whose important condition is not to exclude the members unilaterally. If a corporation, which does not have such a system, forcefully fires its employees/managers, it will destroy the family-like atmosphere, thereby discouraging them from working ardently and sincerely. In this sense, the lifelong employment system has been regarded as one of the advantageous institutions the Japanese business community has created. Some point out that the family-like atmosphere might hurt competition 2

For example, workers in the Japanese autoindustry are given a relatively large amount of discretion. The workers can propose better ways of decision-making and working, and have actually changed company practices and ways of manufacturing. The workers have been given authority to stop the whole assembly line, when they find a defect or other problems. The workers could not have been given such discretion, unless the executives trusted them... Such power makes it possible for them to commit sabotage. (Shimada 1988).

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among the members. Partly because, however, the members are evaluated by one another in terms of how much they have contributed to the development of the corporation (and partly because, for the sake of the community, they tend to consider ways to improve their businesses), the corporation as a whole can generally maintain its competitive edge. Although this mutual evaluation is not formally announced, the process leads eventually to a point where, consciously or unconsciously, they understand how they are assessed within the corporation. Furthermore, their organizational context (other members' eyes) makes it possible for them to realize what they are expected to do for the development of the corporation (Taka/Foglia 1994). With those contextualistic characteristics in mind, once again, I would like to emphasize that Japanese employees/managers are more humanely treated than their western counterparts, and this so-called "humanistic management" is not damaging but strengthening corporate competitiveness (Itami 1987; NUMMI 1988).

2.2

Shareholders/Creditors

Before describing what kind of advantages contextualism brings to relationships between shareholders/creditors and corporations, let me summarize the legal corporate governance structure in Japan. According to the Japanese Commercial Law, business corporations are to be monitored and directed by shareholders, directors, and auditors. Simply put, each takes a role of legislation, execution, and jurisdiction at the corporate level. First, shareholders have ultimate power over the corporation's policies and actions. At the shareholders' meeting, if they dislike ways the executive officers run their corporation, they attempt to replace the incumbent officers with others, putting the directors under pressure. Individually, they are also empowered to sue the directors, auditors, or executives, when they find some unacceptable conduct (e.g. unethical business practices). Second, directors are given legal responsibility for almost all the business affairs of the corporation. With duties of care and loyalty, each director and the board of directors are supposed to review corporate activities, in order to make sure that the corporation is fairly run. One of the important functions of the board is to assign officers to executive posts and to remove them from those positions.3

3

In Japan, because shareholders are supposed to sue the directors, auditors, or officers for the sake of their corporation, the penalty paid by them will be collected by the corporation, not by the shareholders. The cost of shareholders' class action lawsuit is uniformly set at just 8,200 yen, about 80 dollars (Aizawa 1994).

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In principle, directors are to keep their eyes on behaviors of the executive officers. In reality, however, since the president (top executives) nominates his/her subordinates from the corporate hierarchy to be the directors, the executive as a chairman of the board can control all the directors in a convenient way. On account of this, without worrying about surveillance by the other directors, the executives can do whatever they want. In order to rectify this corporate governance structure, the Commercial Law requires corporations to have auditors as well. Like directors, the auditors are also given legal responsibility for checking corporate behavior including financial and transactional activities. If they find some wrongdoing or illegal conduct, they have to report this to the board of directors, or in some serious cases, to the shareholders' meeting (Kubori 1994). With this basic governance structure in perspective, let me describe some advantages of contextualism observed in relationships between shareholders and corporations. As mentioned above, the shareholders hold ultimate control over their corporation. Yet, influential shareholders have let the executives run the corporation as they want. Because of the cross-shareholding practice, which allows the corporations (institutional shareholders) to hold large blocks of each others' shares, the institutional shareholders have kept silent at the shareholders' meetings, thereby making it easier for the executives to run their corporation as they plan. In general, the executives appreciate this silence of the shareholders, because the silence is regarded as a gesture of trust. And from the context, they also understand that in return they are expected to be quiet, when they themselves attend the other corporations' meeting as stockholders. 4 In any event, in order to respond to the institutional shareholders' gesture of trust, the executives have tried to make their corporations much more efficient and effective. Freedom offered by the shareholders has enabled the executives to map out long-term business strategies, and this long-term strategic planning has helped make many Japanese corporations competitive in the international market (Yoshikawa 1991).5 Not only shareholders but also creditors should be mentioned here, mainly because creditors such as commercial banks have been taking almost the same role as the institutional shareholders (especially up until the early 1980s). By 4

5

Institutional shareholders are sometimes members of the same keiretsu. Keiretsu can be classified into vertical and horizontal. (Negishi/Tsuji/Yokokawa/Kishida 1990; Okumura 1983). The major institutional shareholders are sometimes expected to exert their influence over the officers. When the officers cannot weather a standoff or cannot overcome a corporate crisis by themselves, the institutional shareholders are expected to come in and take necessary action. As easily imagined, this function is very similar to that of the executives, who coordinate conflicts among the employees/managers.

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and large, Japanese corporations have long borrowed a large amount of capital from financial institutions so they have been under the influence of their creditors. To be sure, when corporations have faced serious difficulties, their creditors have helped them survive the crisis. In general, however, creditors, like the shareholders described above, have not intervened in the management processes. This attitude of the creditors has been fully appreciated, and has actually paid off as a form of capital gain. Judging from those historical facts, I would like to assert that, thanks to the contextual agreement between corporations and shareholders/creditors, Japanese executives have enjoyed discretion of management, and the long-term thinking by the executives have made it possible for the corporations to survive and develop in this competitive business world.

2.3

Customers/Community

Contextualism also brings some advantages to relationships between consumers/community people and corporations as well. In the case of mass production, corporations just try to manufacture a large number of the same products, and sell them to as many people as possible. Where the corporations take for granted that demand for the products exists in society, individual differences in the demand is likely to be ignored. Stated otherwise, the outside business context is not regarded as important. Without changing the existing organizational structure and corporate goals - assuming the inside factors are already given - , the corporations continue to manufacture the same products and supply them to the market through the same distribution channels. In order to characterize this pattern of corporate behavior, I will name it "inside-out." On the other hand, where the outside context is emphasized in production and marketing strategies, first of all, corporations would rather take diversified demand of consumers into consideration, and then try to develop products from the viewpoint of the consumers (the outside context). In contrast with "inside-out", I will call this "outside-in". Generally speaking, the behavioral pattern of Japanese corporations could be in this category, in that they have been following this pattern almost spontaneously and unconsciously. A symbolic example of this kind is found in a very basic marketing strategy of Japanese automakers. While the US auto-makers have long been attempting to sell their cars with steering wheels on the left to the Japanese market, where right side steering wheels are the rule, the Japanese have manufactured and exported left side steering wheel cars to the US from the beginning of their efforts to penetrate the American market. This corporate attitude to lay stress on the outside context is also observed in relationships between Japanese corporations and people in the community.

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In Japan, how outside people see corporations - their image of the corporations - is significant for the survival of the corporations. As is often pointed out, Japanese people consider themselves to be representatives of their corporation, even if they are not its executives or high ranking officials. Due to this, each of them rarely engages in disgraceful actions, worrying that such misconduct could tarnish the corporate image. Soiling the corporation's reputation is almost equivalent for the corporation to being ostracized in Japanese society. For this reason, the corporations and their members usually refrain from involvement in social wrongdoing. This corporate behavior could be explained in terms of the "outside-in" pattern, too. Needless to say, this corporate tendency to respect the outside context brings advantageous elements to both the corporations and the customers/community: Consumeroriented goods and services, and a relatively small number of corporate crimes (Laufer/Taka 1995).

2.4 Competitors/Regulators Without doubt, the Japanese market is based on the principle of free competition. But this does not mean that the Japanese economy is exactly the same as its western counterparts. A big difference stems from contextualism. For example, each corporation tends to think about what kind of impact its action might cause on the industry. Of course, the competitors in the same industry are not allowed to manipulate cooperatively the number of products they manufacture, the price of the products, tiring of release of new products, and the like. They have to abide by the Japanese Anti-Monopoly Law. Nevertheless, if the corporations voluntarily refrain from excessive competition, taking harmful influences on their industry in perspective, their behavior is not considered illegal (Negishi 1990). In fact, excessive competition often ends up creating a monopolistic market, where only two or three companies hold the dominant power. For free competition to be workable, there should be more players in the market. If this is the case, I might be able to conclude that corporate behavior, such as consideration of the negative influences on the other competitors and understanding others' expectations from the tacitly planted context of the industry, have been contributing to keeping up the competitiveness of the industry. The same could go for governmental regulators, including the MITI (Ministry of International Trade and Industry), the MOF {Ministry of Finance), the MOC (Ministry of Construction), etc. When a regulator, taking care of the industry's future, wants to rectify some business practices, it often makes use of informal communications channels through which it indirectly provides an inkling of its hope to change the practices. Although this informal

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suggestion does not have any binding power, the relevant corporations have often followed the regulator's suggestion. Stated differently, the corporations understand what they had better do from the context, through which the regulator is sending signals to them. This contextual communication between regulators and business corporations has enabled the regulators to take action as quickly as possible, and it has also prevented them from drafting and elaborating an increasing number of related laws and regulations, where the corporations could suffer for heavily regulated surveillance. For these reasons, I insist that contextualism has long offered important advantages to both Japanese corporations and regulators.6

3

Disadvantages of Contextualism in Business

I have highlighted only the bright side of contextualism. In order to demonstrate a fair picture of contextualism in business, I have to shed light on the dark side, too. Especially when it comes to ethical issues, the disadvantageous aspects are much more important to discuss. Here again, from the viewpoint of the same stakeholders, I would like to describe negative characteristics that the Japanese business community has long manifests.

3.1 Employees/Managers One of the serious problems is that Japanese corporations do not clearly define where responsibility lies or who is responsible within the corporations so that they tend to get involved in social wrongdoing. Particularly, when the executive officers pressure the employees/managers to increase sales by whatever means - usually, the executives do not clearly suggest that they do not care 6

Whenever necessary, regulators also come in to settle problems as mediators, similar to the role of institutional shareholders/creditors previously described. A typical example of this kind might be the Itoman Scandal. In the 1980s, Yoshihiko Kawamura, then president of Itoman (trading company in the Sumitomo group), had radically increased Itoman group's debt, borrowing from Sumitomo Bank, and making use of Sumitomo's name value for borrowing from other banks. With that borrowed money, he aggressively invested in real estate and stocks, employing a syndicate-related personnel as Itoman's executive and using several related corporations, some of which were connected with a crime syndicate. Seeing that Itoman's corporate climate was deteriorating, many managers and employees began to criticize Kawamura, and requested the MOF to solve the complicated group problem (Magami 1992; Nikkei 1991: 290-296).

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about the ways to increase sales - , the employees/managers are likely to mistake the means for the end. Formally the executives prohibit all members from involving in social wrongdoing. Nonetheless, such a formal statement is often different from signals the members receive from the business context. In many cases, the employees/managers read executives' real wishes and, if necessary, take unethical measures. Where the structure of responsibility within a corporation is obscure, even if this unethical conduct comes to light, the employees/managers can easily escape legal or social punishment. What is worse, in case an executive officer takes all responsibility for the actions of lower level managers/employees, he/she is likely to be praised by the other members. Because of this, the Japanese business context has often let executives and employees/managers err in their ethical judgement. Another problem is that the context does not encourage the employees/managers to raise questions on unethical practices, even if they find some problems with those practices. A typical example of this kind could be observed in the latest scandal of the Green Cross Corporation, one of the largest pharmaceutical companies in Japan. Up until mid-1985, Green Cross continued to sell HIV-tainted unheated blood products, which were originally introduced to treat hemophiliac patients, even after many experts had pointed out that the products could infect the patients with AIDS virus. According to an employee of Green Cross, its employees with some general information about AIDS should have been well aware of the danger of unheated blood products. In spite of that, they could not say anything about it within the corporation. Simply put, the company's business context did not allow them to raise an ethical question about selling those products (Yomiuri 1995b).7

3.2

Shareholders/Creditors

Contextualism often pulls the teeth from the legal corporate governance structure, weakening self-control mechanisms built in the corporations. As noted above, because of the cross-shareholding practice, the institutional shareholders usually keep silent in the shareholders' meeting of other corporations. Suppose there are X and Y corporations which hold each other's shares. If X is quiet at the Y's shareholders' meeting, Y will keep silent at X's meeting. In this way, Japanese corporations as institutional shareholders (e.g. 7

What is worse, Green Cross allegedly submitted a false report in 1987, describing that it had completed recalling unheated products more than a year before it actually did (Japan Times 1996).

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X Corp.) have offered much discretion to the executive officers of the other corporation (e.g. Y Corp.). Although relationships between creditors and corporations are a little bit different from those between the institutional shareholders and the corporations, the creditors have also given a lot of freedom to the executives of the corporation to which they loan money. This merit for the executives, however, has often paralyzed corporate selfchecking mechanisms. Although the Japanese Commercial Law, in order to prevent this from happening, requires the corporations to assign auditors - In case of large corporations, at least one outside auditor should be assigned - to monitor the executives, these auditors have not functioned as they were originally expected. Because the executive officers have been given the power to nominate not only the directors but also the auditors, they are likely to choose easily controllable auditors. Needless to say, the executives do not directly ask the auditors to be quiet. Yet, from the implicit business context between them, the auditors easily understand what they are expected to do in the corporations: be loyal to the officers and remain calm (Tada 1995a, 1995b). This entrenchment of corporate governance has often led many Japanese corporations to unrecoverable disaster. For instance, in the 1980s, the seven biggest Japanese housing loan companies continued to invest large amounts of capital in lucrative real estate businesses, and actually enjoyed huge windfall profits. This success made it almost impossible for the executives to change their ongoing corporate strategies. In the early 1990s, when land prices went into a steep fall, they did not take other courses of action but stayed in the same real estate business, hoping the economy would recover soon. Contrary to their expectations, however, the economy did not recover quickly. As a result, during the first half of the 1990s, the amount of non-performing loans held by the seven companies had grown considerably, and by the mid-1990s, all of them went bankrupt. Because of the silent shareholders, directors, and auditors in those corporations, the corporate governance of the seven corporations did not work properly at all. In the early 1990s, the financial regulator (the MOF) once expressed serious concern about the way those corporations were doing business, saying that huge losses could be expected soon. Responding to this suggestion, on the surface the corporations drew up reconstruction plans. But they did not include drastic measures for dealing with an enormous amount of bad loans. Namely, the directors and auditors could not force the executives to take drastic measures to overcome the situation. In this housing loan scandal, contextualism completely paralyzed the self-controlling mechanisms of those corporations.

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Customers/Community

Simply put, contextualism is an attitude to place emphasis not on the inside but on the outside. It can also be interpreted as an open-minded attitude to take feelings/logic of outside people into consideration seriously, refraining from forcing the outside people to follow one's own feelings/logic. At first glance, this attitude could be understood as altruistic, because one's own logic always comes after others'. Yet, defining a context is a tricky issue. To define the context, moral agents like executives have to draw a line among various stakeholders. The way is usually so arbitrary that the executives might set up the convenient context to justify their decisions and actions. In other words, they come to indulge in wishful thinking, excluding seemingly less important people from the context.8 For example, the Japanese gas supply industry has maintained a notorious practice for about 20 years, which has eventually discriminated against individual users. In this practice, when the individual users of LP gas wanted to have pipe-line-gas service, the pipe-line-gas dealers paid 50,000 to 60,000 yen (about 500 dollars) to the LP gas suppliers, in order to make up the possible losses of the LP gas suppliers. And the pipeline companies had collected the same amount from the users under a pretext. As is easily understood, while the competitors have been included in the business context, the ordinary users have been excluded from the context (Yomiuri 1995a). The same could go for people in the community. If they are not directly related to the corporations' businesses, their feelings/logic might be excluded from the business context, too. Under the name of social welfare or the economic development (benefits of broader society), the executive officers might risk local people's lives. In the worst case, this kind of simplified context might make the officers insensitive to unethical aspects of corporate decisions and behavior.

3.4

Competitors/Regulators

Contextual understanding among competitors, when it goes to extremes, might be against the law. Dango (bid-rigging) and kickback practices in the construction industry could be typical examples of this kind. Legally speaking, construction companies have been prohibited from negotiating the bid price with each other before a sealed tender. But because 8

In general, Japanese executive officers (and corporations) recognize their social environment as concentric circles: quasi-family, fellow, Japan, and the world circles. People and groups in the quasi-family/fellow circles are so important that the executives are likely to include them in the context, believing their benefits will in return contribute to the survival and development of their corporations in the long run (Taka 1994).

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there has often existed a tacit agreement, on which the next successful bidder is contextually predetermined, they have usually made the bidding environment favorable for the next taker. Mainly because this practice has been based on an implicit understanding among all the bidders, and partly because regulators (e.g. the MOC) have been contextually expected to help the industry develop, they have rarely taken serious actions against the practice. 9 Kickback practices are also based upon an unwritten agreement. It is said that there has long been a contextual norm which would require construction companies to kick back about one percent of the value of each contract to politicians, who are considered to help the corporations get the deal (Tamiya 1993b; Asahi 1993b; Ishizawa 1993: pp: 9, 27). In most cases, those politicians and construction companies have done this "give-and-take" in a tacit and indirect way, leaving no clear-cut evidence of bribery. On account of this, regulators (e.g., the Japanese Fair Trade Commission) have rarely indicted anyone for those practices. Contextual relationships between corporations and regulators sometimes get the regulators involved in a problematic scheme, too. In general, regulators such as the MOF have not only monitored the relevant industry, but also helped it develop in a harmonious way. Especially the latter role has been highly appreciated by the corporations. In Japan, however, those regulators are not just neutral observers, helpers, or caretakers. In some cases, they act just like private corporations. When they act as ordinary market players, problems are likely to emerge, for they can make good use of that appreciation by the industry for their own benefits. For example, when the Japanese government planed to release its long-held stock in NTT, the largest telephone corporation in Japan, the MOF allegedly suggested that the securities firms push up the price of the stock, just before it was sold. Although the MOF did not ask them directly to do so, the securities firms understood what they were expected to do, based on the business context between the industry and the MOF. That is to say, taking the real wishes of the MOF into consideration, the securities industry had faithfully raised the price of NTT's stock, by recommending that numerous investors buy the stock. In a sense, this could be judged as insider trading (Miyao 1991; Mizusawa/Tateyama 1991).

9

In order to hide under-the-table activities, Japanese construction companies used to have dango experts. These experts usually did not take top positions in the company so as to allow the top executives to remain safe from any possible criminal charges. Yet, in the case of Hazama, the dango experts had become chairman and president. When Hazama's involvement in bribes and other disgraceful behavior came to light (July 6, 1993), the three arrested officers of Hazama resigned their posts, taking responsibility for the misconduct (Asahi 1993a; Tamiya 1993a).

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Ethics Embedded in Business Context

As I have mentioned, contextualism in business has both advantageous and disadvantageous aspects. As far as disadvantageous characteristics are concerned, the best way to rectify them could be to change the contextual way of thinking/understanding itself. But, is it possible, or is it practical? I want to answer this question by saying that it is neither possible nor practical to change contextualism itself, simply because this way of thinking is deeply rooted in and widely spread throughout Japanese culture and society - even if Japanese people try, it would take more than a century. What is more, such efforts to change contextualism, if successful, might ruin advantageous characteristics, too. Then, there is the question of whether it is realistic to try to solve the problems stemming from the disadvantageous aspects, and at the same time keep the advantageous characteristics as they are. To be sure, it is not easy to achieve both. Nevertheless, there could be some ways to pursue those ends simultaneously. As defined at the beginning of this article, contextualism is an individual tendency to take the context into consideration and decide a course of action from the viewpoint of the context. Therefore, just teaching ethical rules to individuals would not change corporate behavior in an effective manner. Usually those rules are regarded as only tatemae (official statements) to give outsiders a good impression. As long as the rules are considered tatemae, they are likely to be applied almost arbitrarily depending upon the context - not the rules but the context takes a critical role in ethical judgement (Taka 1994). For this reason, I would like to recommend that first and foremost corporations make efforts to embed ethics in the business context. But again, I have to ask the same question: Is it possible? I believe this is not impossible. In the past, many Japanese business corporations have successfully deployed a Total Quality Control movement (Imai 1986). Their success has heavily depended upon efforts to build a qualityoriented context, in which employees/managers are motivated to get involved in the movement. Of course, when the corporations began to introduce TQC, training/education for all the members took a very important role. But the most prominent effect of the training was to alter their business context, not just to change individuals' principles of work. Besides training, various attempts, such as periodic committee meetings, establishment of reward and follow-up systems, and annual/monthly competitions among those groups, have all contributed to forming a quality-oriented business context. Once this context was recognized as critical for them, they began to take quality issues very seriously.

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I think that this kind of trial is also possible in the field of business ethics. If executive officers take strong leadership in introducing ethics into corporations and demonstrating to the employees/managers that all the members including the executives will take part in this ethical movement, their corporation will steadily incorporate an ethic-oriented context into the corporate structure. This does not mean that the corporations do not need codes of conduct, ethical rules, ethics training programs, etc. (Taka 1996b). On the contrary, those codes/rules/programs are definitely required to introduce ethics into the business context. Nevertheless, the most important factor in establishing such an ethical context and making it function is the executives' attitudes: their serious commitment to the ethical movement. When the employees/managers see their seriousness, the employees/managers naturally think of this movement not as tatemae but as a real movement driven by the executives. Once all the members recognize the existence of the ethicoriented context, they will consider various tricky ethical issues more sincerely and voluntarily. 10 The ethic-oriented context will make it very difficult for inside members (such as executives, employees, and managers) to make and follow unethical decisions. Under this context, they cannot easily discriminate against other inside members, make illicit use of freedom offered by the shareholders, hide important information from consumers/community people, manipulate the number of products in conspiracy with other competitors, or employ former high-ranking officials just as a token of appreciation. When they face those ethical issues, their context would simply not let them ignore the issues. It would rather encourage them to address themselves to the ethical issues, even if some executives intentionally ignore those issues. For this very reason, again I would like to assert that Japanese corporations should make efforts to get their business context ethic-oriented, taking advantage of the contextualism which has long existed in Japanese society.

References Aizawa, M. (ed.) (1994), Kabunushi Daihyo Sosho (Shareholders' Class Action Suit). Tokyo: Seibunsha. Asahi (1993a), Hazama Kaichora Kainia (Chairman, President, and Senior Managing Director Resign), Asahi Shinbun 7(7): 23 Asahi (1993b), Shimizu Kensetsu Kaicho wo Taiho. (Chairman of Shimizu under Arrest), Asahi Shinbun 9(21): 1 10 Unfortunately, most Japanese corporations have not yet started altering their business context itself. They have just begun introducing codes of ethics (JPCSED 1991).

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Hamaguchi, E. (1988), Nihon Rashisa no Saihakken (Rediscovery of Japaneseness). Tokyo: Kodansha. Imai, M. (1986), Kaizen: The Key to Japan's Competitive Success. New York: McGrawHill. Ishizawa, M. (1993), Shimizu Chairman's Arrest Stains Construction Industry, Nikkei Weekly 9(27): 1, 27 Itami, H. (1987), Jinpon Shugi Kigyo (Human-Centered Corporations). Tokyo: Chikuma Shobo. Japan Times (1996), Firm Falsified Blood Recall Data, Kan Says, The Japan Times 2/28: 1 JPCSED (1991), Kigyo Rinri no Seidoka ni Mukete (Toward Institutionalization of Business Ethics). Tokyo: The Japan Productivity Center for Socio-Economic Development. Kubori, H. (1994), Nihon no Kaishasoshiki no Jittai to Corporate Governance (Reality of Japanese Corporation and Corporate Governance), Jurist No. 1050: 39-43 Laufer, W.S., and I. Taka (1995), Japan, Regulatory Compliance, and the Wisdom of Extraterritorial Social Controls, Hastings International and Comparative Law Review 18 (3): 487-530 Magami, H., (1992), Itoman Saiban: Nikkei vs. Kensatsu no Kikikaikai (Itoman Case: Nikkei versus Prosecutors). Bungei Shunju, March 1992. Miyao, T. (1991), Shoken Shijo no Kanshi Kikan ha Do Arubekika (How should the Surveillance Commission be in the Securities Market), Keizai Seminar No. 443: 11-16 Mizoguchi, Y. (1972), Dochaku Chugoku ni taisuru Kono Dochaku Nihon (Indigenous Japan in Comparison with Indigenous China). Riso No. 470: 34-52 Mizusawa, K., and M. Tateyama (1991), Nomura Shoken Scandal no Kensho (Inspection of Nomura Securities Scandals). Tokyo: Kenyukan. Nakane, C. (1967), Tate Shakai no Ningen Kankei (Human Relations or Vertical Society). Tokyo: Kodansha. Nakane, C. (1989), Shakai Kozo (Social Structure), Nihon Minzoku to Nihon Bunka (Japanese People and Japanese Culture). Tokyo: Yamakawa Shuppan. Nakano, C. (1995), An Empirical Study of Japanese Managers' Beliefs on Business Ethics, Reitaku Journal ofInterdisciplinary Studies 3 (1): 29-50 Negishi, A., Y. Tsuji, K. Yokokawa, and M. Kishida et. al., (1990), Kigyo Keiretsu to Ho (Corporate Groups and Laws), Tokyo: Sanseido. Nikkei (1991), Itoman/Sumigin Jiken (Itoman and Sumitomo Bank Scandal). Tokyo: Nihon Keizai Shinbunsha. NUMMI (1988), New United Manufacturing, Inc., Fremont, CA: The New United Motor Manufacturing, Inc. Okumura, H. (1983), Shin Nihon no Rokudai Kigyo Shudan (The New Biggest Six Corporate Groups in Japan). Tokyo: Diamondsha. Shimada, H. (1988), Hyumanware no Keizaigaku (Economics of Humanware). Tokyo: Iwanami Shoten. Tada, A. (1995a), Shagai Kansayaku Seido (Outside Auditor System). Commercial Law Review No. 1394: 32-33 Tada, A. (1995b), Kansayaku no Dokuritsusei no Kakuho (Independence of Auditors). Commercial Law Review No. 1390: 24-25 Taka, I. (1990), History and Philosophy: A Study on Sontoku Ninomiya, Studies in Moralogy No. 29: 105-124 Taka, I. (1994), Business Ethics: A Japanese View, Business Ethics Quarterly 4 (1): 53-78 Taka, I. (1996a), Business Ethics in Japan, "The Proceedings of the First World Congress of Business, Economics, and Ethics", paper presented in Tokyo, July 25-28.

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Taka, I. (1996b), ISCT and Business Ethics: Probability of Transparency Test, Organizational Science 29 (3): 69-78 Taka, I., and W.D. Foglia (1994), Ethical Aspects of Japanese Leadership Style, Journal of Business Ethics 13: 135-148 Taka, I., and W.T. Dunfee (1996), The House of Nomura and the Japanese Securities Scandals, in: S.P. Sethi, and P. Steidlmeier (eds.) Up against the corporate wall. Case in business and society, 173-186. Upper Saddle River, NJ: Prentice-Hall. Tamiya, A. (1993a), Hazama Reeling from Arrest of Officials, The Nikkei Weekly (7)26: 10 Tamiya, A. (1993b), Cash Flow Fosters Web of Corruption among Politicians, Contractors, The Nikkei Weekly 8(23): 2 Tsuda, M. (1994), Nihon no Keiei Bunka (Business Culture of Japan). Kyoto: Mineruba Shobo. Yamaji, K. (1996), A Global Perspective of Ethics in Business: Entrepreneurial Spirit and Business Ethics, The Proceedings of the "First World Congress of Business, Economics, and Ethics", held in Tokyo, July 25-28. Yamamoto, S. (1977), Kuki no Kenkyu (A Study of Social Atmosphere). Tokyo: Bungeishunju. Yomiuri (1995a), LP Gas Gyosha he Tenkan Sonshitsu Hoten (LP Gas Suppliers were Compensated), Yomiuri Shinbun 10(10): 39 Yomiuri (1995b), Hikanetsu Seizai nao Urikomu (Continued to Sell Unheated Blood Products), Yomiuri Shinbun, (eve.) 10(13): 19 Yoshikawa, H. (1991), Nihon Kigyo no Toshi Kodo (Investment Activities of Japanese Corporations), in: H. Uzawa (ed.), Nihon Kigyo no Dainamizumu (Dynamism of Japanese Corporations), 47-73. Tokyo: Tokyo University Press.

An Islamic Framework for International Marketing Ethics* Mohammad Saeed and Zafar U. Ahmed

1 Introduction 1.1 Importance of Islamic Countries for International Marketing Islamic religious perspective has acquired considerable importance in the arena of global business ethics because it provides the framework for the foundation of morality and ethical behavior in Muslim countries. Multinational corporations operating in Muslim societies such as Saudi Arabia and Malaysia, where Islamic religious perspective is considered more important than western business practices, should appreciate the importance of such a perspective. An Islamic mindset based on faith and divinity should not be challenged by international marketers and strict adherence to the Islamic ethical framework will facilitate the success of international marketing activities in Muslim societies. Though western business magazines such as Journal of Business Ethics, exclusively devoted to the dissemination of new knowledge in the arena of business ethics, have published numerous studies on the role of religions such as Buddhism in business ethics, Islamic perspective has remained outside the domain of these studies. This piece of research is designed to fill this vacuum in the contemporary literature on international business ethics. Islam is the second largest religion after Christianity in the world. Its more than one billion followers (called Muslims) form absolute majority in more than 55 countries and are present in most of the countries in the world. Certain nations such as Malaysia and Saudi Arabia have implemented strict code of conduct laid down by the Islam's holy book (Qur'an) in all walks of life including international marketing. An appreciation of morality and ethics from an Islamic perspective will help multinationals to succeed in these markets, where Islamic perspective is the hallmark of success.

*

Acknowledgement: The authors would like to acknowledge the assistance of Ng Kooi Fong (Tracy) in the preparation of this manuscript.

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Importance of the Topic: Examples of Unethical Marketing Practice

International marketing literature is full of innumerable examples of acts of immorality and unethical practices being pursued by the global marketers around the world for vested interests and selfish ends. The following paragraphs present few examples of such unethical practices to make a case for appreciating the importance of Islamic perspective. Philip Morris, the largest firm in the Tobacco industry, has been very active in trying to shape a number of elements in the general environment which have been seen as hostile to their business endeavors. These elements are specifically related to the anti-smoking trend. It publishes a magazine (distributed free to smokers) encouraging them to be actively pro smoking as the opposing forces are anti-smoking. It lobbies government agencies at various levels to limit further regulation of smoking, and has given millions of dollars for philanthropic causes in order to improve its public image, such as $30 million Television campaign celebrating the bill of Rights' two hundredth anniversary. Furthermore, due to the increasing pressure at home, it has now shifted its focus and emphasis on marketing tobacco products globally (Miller/Deiss 1996: 87). In 1991, the beer industry in US experienced a 2.1% decline in sales from previous years. But one sector of industry was able to achieve a sensational growth of 10.4% - the malt liquor category, which is the high potency end of the brewing industry. Whereas a regular beer contains 3.5% to 4% alcohol content, malt beverages contain 4.5% to 6% alcohol. Aggressive marketing practices played a major role in this surge. Marketing efforts were turning aggressively to inner city African-Americans and Hispanics. To do this, they used popular rap musicians, some of whom were notorious for their gang culture ties. The rap artists afforded a psychological appeal to young urban poors by casting the products with elements of danger and machismo. Other liquor manufacturers are entering the market with an aggressive advertising by the theme "it's the power" referring to higher alcohol content (Hartley 1993: 252). In order to create a climate more favorable for corporate activity, International Telephone and Telegraph allegedly contributed large sums of money to "destabilize" the duly elected Government of Chile. Even though advised by the scientific community that the practice is lethal, major chemical companies reportedly continue to dump large amounts of carcinogens into the water supply of various areas around the world and at the same time, lobby to prevent legislation against such practices. General Motors corporation, other automobile manufacturer, and Firestone Tire and Rubber Corporation have frequently defended themselves against the charge that they knowingly and

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willingly marketed a product globally that, owing to defective design, had been reliably predicted to kill a certain percent of its world-wide users and, moreover refused to recall promptly the product even when Governmental agencies documented the large incidence of death as a result of the defective product (Almeder 1983: 84). Lockheed Aircraft Corporation made a number of 'sensative payments' to high officials in the Japanese Government in order to receive contracts for the Tristar and other Aircrafts from Japan. Lockheed defended this practice, ... Company ... believes that such payments are consistent with practices engaged in by numerous other companies abroad, including many of its competitors (Werhame 1983: 145). All of these incidents and many other such ones have become a usual phenomena in today's global business. These depicted patterns of international marketing behavior have very nice justification for those who are committed to them. The justification ground ranges from ethical relativism to maximization of shareholders' wealth. In a broader perspective, their justification reflects the existence of moral crisis in the international marketing corpus. Through this paper an attempt has been made to evaluate and examine the ethical aspects of International Marketing Practices from an Islamic perspective, in order to address the issues arising due to a moral crisis in the marketing corpus.

2

Foundations of Islamic Framework with respect to Ethical Behavior

2.1 In View of World Perspective Research has shown that most CEOs agree that maintaining a strong culture of ethical behavior results in the creation of meaningful strategic advantage. It does so by encouraging socially responsible actions and decisions that inspire the customers' trust and loyalty and help to avoid the negative results of unethical behavior, including lawsuits, fines and tarnished image (Miller/Deiss 1996: 385). Maintaining a strong culture of ethical behavior will lead to conducive market interaction, people will become aware of the corporate responsibility, fair dealing, integrity and other higher qualities; thus, they will be willing and eager to involve in mutual business dealings which will facilitate an international company in gaining competitive edge globally (AI-Razi 1985:7: 181182). The Islamic perspective can be extended to the area of international marketing, where it is found to be relevant and effective in developing and

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maintaining a strong culture of ethical behavior. It has a foundation which is based on principles of equity, justice, quest to create value and elevate the standard of living of the people around the world. Islam receives itself as a complete way of life and can be projected to all economic activities, including international marketing whether domestic or global. It is a fact that no religious belief is entirely divorced from the realities of human experience in its manifold practical aspects. Islam has an unique nature regarding this aspect. First, Islam does not recognize any division between the temporal and the spiritual aspects since a person's desire to propitiate Allah (swt) and follow His commands permeates' every fiber of human activity (Nadwi 1978: 27). Second, all endeavors of a person including international marketing constitute worship of religion itself, of the raison d'être of His creation (Al-Faruqi 1992: 174). Everything that he/she carries out is a part of Ibadah (worship of Allah swt). Third, in Islam, international marketing activities are considered at par with other forms of Ibadah (Al-Qur'an:107: 1-7). The underlying reason for this assertion is that they are the backbone of every organization including MNCs. They have a good or adverse influence on customers and at the same time determine the effectiveness of professionals, customers, suppliers, etc. In either case, international marketing activities are part and parcel of people's life; and whole life in Islam constitutes the examination period, thus international marketing activities will determine people's real success in both worlds. Lastly, marketing ethics, as a separate discipline, has been given special attention in Islam. This has been clearly manifested in all books of 'Hadith' (Traditions of Prophet Muhammad pbh) where there are special chapters dealing with muamalat (Transactions) which contain indepth elaboration of business issues. From world view perspective, it can be observed that Islam has its own value system and criteria in classifying and evaluating domestic or international marketing ethical behavior. Furthermore, it has given clear guidelines to reach international marketing goals. Secular model philosophers have put forward certain theories to guide an ethical decision making process. Important ones are utilitarian, justice, and fairness theories. The utilitarian grounding of ethical behavior has put greater emphasis on positivistic approaches while neglecting or showing no interest in transcendental aspects (Safi 1996: 174). The concepts of justice and utility have been taken in a shallow and narrow sense in secular approaches. Besides, these concepts lack in transcendental aspects and have limited view on the purpose of the existence of other creations. These objectives render them to be interpreted according to the whims and the desires of the corporate leaders. Furthermore, besides these defects, the concept of relativism is taking ground. International marketing relativism, as a reflection of ethical relativism, is becoming a dominant approach. By this approach, international busi-

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ness strategies and judgments are based on experience; and the experience is interpreted by each international marketing executive in terms of his or her own culture. Thus, experience and culture have become criteria of what is ethical. Even though this approach has facilitated international marketing strategies, still there is a great and unavoidable room to guide international marketing executives to questionable international marketing adaptation behavior. These secular approaches to international marketing ethics have an impact even upon the business teaching methodology (Laurence 1991: 71). These trends show that there is current and future potential that international marketing executives will be ready to adapt to any environment as long as there is profit. In addition, it shows that international marketing executives are guided by the famous schema of maximizing profits by whatever means. These aspects and others render them incapable of providing and instilling the psychic mechanism or conscience to put a brake upon the insatiable appetite for maximizing one's earnings (Al-Faruqi 1992: 177). In contrast, Islamic international marketing ethics does not see itself as being relative but absolute with a deep rooted and sound foundation from Islamic sources. Hence, they could not be modified or changed according to the whims and desires of the international marketing executives. In addition to this transcendental aspect of absoluteness and non-malleable nature, Islamic international marketing ethics aspire to have tremendous ability to be implanted in human conscience and change the behavior of international marketing executives positively. This is due to the fact that ethics is deeply ingrained in all Islamic concepts and is part and parcel of all Qur'anic commandments. Despite the dominance of ethical relativism and other secular moral international marketing ethics approaches, current studies show that there is a tremendous indication of the emergence of 'trans-societal or global moral order (Husted 1996: 392) as a result of the emergence of consensus among different cultures on moral judgments or attitudes regarding questionable business and international marketing practices. This is a sound development and also a reflection that there exist innate universal moral values in every human being. This observation is the best example of the natural law described in the Qur'an: For the scum disappears like froth cast out; while that which is for the good of mankind remains on the earth (Al-Qur'an 13: 17).

Social cognitive and moral development theories have been claimed to provide a more sophisticated model of cultural diffusion (Husted 1996: 394-396), which have resulted in the emergence of this trend of global moral order. This analysis is questionable because it takes as its basis those theories which have ignored that moral reasoning is a part and parcel of human nature. From the

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point of view of Islam it is obvious that this perception has its roots in Darwin's theory of evolution - which denies the existence of God and true origin of man. To give a credit of this phenomena to social, cognitive and moral development theories is a great mistake. Islam believes in 'Fitrah', i.e. a natural inclination to higher ideals. Therefore, accounting to this the emergence of global moral order is the reflection that spiritual nature of human beings cannot be eliminated or covered completely. The existence of cultural diversity is not an excuse that there is moral pluralism and it also does not mean that moral reasoning to social issues and questionable business practices will be impeded. In Islamic view, non observance of international ethical norms or lack of sincerity in pursuing them is due to the fact that the pure human nature has been distorted and corrupted through nurturing and dominance of evil forces in societies. The impact of nurturing and environment have acted as factors which blur rational thinking and facilitate easy inclination to unethical international marketing practices. The following aspects describe the major demands of the framework.

2.2 Higher Responsibilities: Societal/Environmental Approach The export of hazardous waste by some developed countries to lesser developed ones, besides having ethical and environmental implications, has given a rise to the question of responsibility and the accountability (Cateora 1996: 72). International marketing related environmental disasters have spread hints that socially and environmentally conscious consumer behavior will become more and more popular in the next century as an effective method for changing international marketer's and producer's thinking. People are becoming more aware regarding their rights and are not ready to tolerate anymore unethical international marketing behavior. Some studies have shown that the consumerism trend with its environmental concern and social consciousness will have great impact on the international marketing and production process. This is due to the fact that the product that is socially/environmentally responsible requires changes in advertising, media appeals, product design, channels of distribution and packaging (Roberts 1996: 79). In the following discussion the concept of responsibility and accountability in Islam will be examined. In addition, its compatibility to the international marketing ethics will be explored. Allah (swt) has said, "And they (all humans) shall be reckoned with" (Al -Qur'an 21: 23). "Then, shall ye be questioned that day about the joy (ye indulged in)" (Al-Qur'an 102: 8). According to Islam bounties of Allah are innumerable, and there is no ability to count the

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bounties of Allah (swt) upon us. In this perspective, international marketing skills are among His bounties. For sure, international marketing executives will be accountable to Allah (swt) on how they have utilized their skills and abilities. According to Islamic perspective, international marketing responsibilities can be divided into four areas: Firstly Responsibility to Allah (swt). He is the Only One Who has created and given us the international resources. We are responsible to obey all His commands without reservations. It is the responsibility of the international marketing executives to uphold His rights in their daily international marketing activities. Secondly, international marketers are responsible to society in general. Preservation of consumers' rights and products' safety form a part and parcel of this responsibility. International consumers are not supposed to be betrayed or cheated, lied or humiliated. Everything belonging to a consumer, his honor, his wealth, his blood is sacrosanct. It is important for the international marketing executives to be accountable to Allah (swt) and society. Thirdly, they are responsible in respect of their own welfare in this life and hereafter. International marketing executives are bound to take extra care in fulfilling the trust given by the society. Their reputation and image will depend on their consciousness and alertness in fulfilling other's rights. The flourishing or growth of the international business by unethical means cannot last longer and is bound to collapse in a short period. The world trends show that people are increasingly becoming aware about consumers' rights. Lenders, depositors, shareholders, security holders are demanding that their funds should be utilized in an ethical way, e.g., these should not be invested in harmful industries like tobacco and alcoholic industry or environmental-nonfriendly industries. Lastly, they are required to be responsible to natural environment which is an 'amanah' i.e. trust given by Allah (swt) to human beings in order to facilitate their existence on earth and actualization of the divine will. It is imperative that international marketing executives will be accountable to Allah (swt) as regards their interaction with natural environment. Accountability is a necessary condition of a moral obligation. There are no responsibilities without accountability. From the Islamic point of view international marketing accountability in this world and the hereafter is part of the divine scheme. The existence and inevitability of international marketing accountability is a pre-requisite in ensuring the smooth actualization of international marketing ethics. In short, international marketing executives are accountable in wether they have nurtured and imparted international marketing knowledge to their subordinates, how they have utilized their international marketing skills in suppressing and subduing the rational thinking of consumers and wether they have destroyed conducive culture and lifestyle of the local people in a particular country.

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Just Profit Synthesis: Value Maximization Approach

Miskawayh (1968: 21) has analyzed the application of Justice in Marketing from the Islamic view point by categorizing it into fair play and honest dealing. Fair play means to give and take in business with fairness and according to the interest of all concerned. Furthermore, he elaborated justice as a virtue which causes one to be fair to oneself and others by refraining from giving of the useful more to himself and less to others, and of the harmful vice versa, i.e. less to himself and more to others. This behavior has conducive impact to international marketing interactions and interdependence. In addition, it will create harmonious atmosphere which will lead to mutual international marketing appreciation and collaboration. According to Miskawayh, (1968: 25) it is a part of justice not to be greedy in lawful earning. For him an honest and just businessman should have recourse to Allah (swt), to his promise, and to this covenant at the utterance of every word, at every glance of the eye. He is not worthy of this rank (that of a person) who has an excessive love of money for his eagerness of acquiring money prevents him from being kind, observing what is right and giving what he should. This behavior will lead him to treason, lying, fabrication, false testimony, standing in the way of duty and assiduous search and the pursuit of valueless earnings. In this struggle of amassing wealth, he will be ready to sacrifice his honor and forsake the higher values. It is observable that the main thrust behind the majority of the unethical practices is the profit maximization motive. Even though it is the main objective of people involved in business, it is questionable wether it should be the end of the international marketing activities. For the global market trends show that a genuine environmental or social appeal may give a product a competitive edge, which will be there after meeting other competitive requirements.

3.1 Corruption in Marketing: An Ethical Perspective The Qur'an declares: Do not eat up your property among yourselves for vanities, nor use it as bait for the judges, the intent that ye may eat up wrongfully and knowingly a little of (other) people's property. (Al-Qur'an 2: 188)

The holy prophet (pbh) is also reported to have said:

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If you get from the people because of your position, it is bribery. Would you get it if you are not holding that position, or if you stay in your father's house?

In another tradition, the prophet (pbh) said: When I nominate a person from amongst you on some job, and if that person hides even a needle or anything lesser than that from me, then this act will amount to misappropriation; and he will have to produce such thing on the day of judgment. 'I once more say this that the person whom I appoint to any (public) office must render account of his charge in full. (An-Nawawi, n.y.: 1:149)

According to another hadith, the prophet (pbh) appointed a man belonging to Azd Tribe named Ibn-ul-Lutbiyyah as a collector of zakat. When he returned (to Madina) he said that so much is yours, which I have collected as zakat, and so much is given to me by way of gifts. On hearing this, the prophet (pbh) mounted on the pulpit and delivered a sermon. He first praised and glorified Allah (swt) and then said: "I have deputed a person from among you to do some duty." On the completion of his mission that man comes back and says: This is your property, and that has been presented to me as a gift. Then if he is telling the truth then why does he not stay in the house of his father or mother, till somebody comes to him and presents him gifts? By Allah, if anyone of you takes anything without the rights, he will have to face Allah on the day of judgement, with burden of such things. Therefore, I would not like to see anyone of you face Allah carrying a grunting camel, a mooing cow or a bleeding goat (laden with illegally acquired goods).

Then rising his arms so high that the whiteness of his armpits could be seen he said: "Oh Allah, I have conveyed thy command and repeated it thrice" (AlBukhari/Muslim). From the observation of these teachings, it is obvious that the purpose of Islamic teachings is the welfare of the society. That's why Islam has condemned bribery in unequivocal terms in its all forms not for mere protection of business transactions in the global market but for maintenance of scales and insuring just, fair and honest international marketing procedures and techniques. So that the rights of international marketers and consumers are not hampered with. Thus, the establishment of justice, equity and corruption-free atmosphere is one of the fundamental aims and purposes of divine revelation. According to the teachings of the prophet (pbh), when the gifts are given by international marketers in order to smoothen and strengthen their international marketing activities, it becomes bribery, hence unethical. The action will become totally prohibited if gifts are meant to oblige custom and law enforcement officers to abuse their position or power. Due to different political, legal, social and cultural variables, there have emerged various forms of corruption. Some of them are known as subornation, lubrication, gifts, commissions, extortion, kickbacks, etc. All these forms

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are used in one way or another as elements of marketing techniques or strategies. Usually, they are used as short-cuts for gaining market share or as a way to conform to socio-cultural demands of a specific target market. In either way corruption is regarded and perceived in Islam as a form of eating other's wealth in vanity. If corruption will be rampant in the international markets, the social cost will increase tremendously, while genuine criteria of winning contracts and penetrating into international market segments on the basis of effectiveness and sound international marketing skills will be sacrificed. Products and services which have not met required safety or quality standards and even ideas, detriment to the society will be left unchecked or overlooked. Because of their skill and financial resources, international marketers will get away while the weak and the innocent masses will suffer. Even though the international companies might have met all standards and regulations, still circumstances or situations will force them to involve in corruption. In either case lubrication, subornation and other forms of corruption will be treated by domestic companies as well as MNCs as a part of their production costs. Eventually prices of the products will be increased to cover these (illicit) costs. At the end of the day, these unethical practices will harm the innocent masses who are disorganized and not well equipped to face the challenge of enormous uncontrollable powers of international marketers.

3.2 Social Regulatory Institution: Legal Perspective Islam has laid great emphasis on international markets' self regulatory mechanism in abiding to international marketing ethical behavior. Self regulatory approach to international marketing behavior is the most preferred one. In addition, Islam has profound confidence in its ability to act as a reliable moral filter. 'Hisbah' institution can be recommended as a moral filter for international marketers. In case, people do not actualize their ethical marketing behavior, Hisbah institution will play a complementary role. This social regulatory institution in the market order propounded by Muslims scholars is for endogenously ethical transformation of polity-market interrelations (Choudhury 1996: 367). Hisbah department was purely a market overseeing institution, first established by the prophet (pbh) at Madina. Through evolution, 'Hisbah' department became an agency for protecting the rights of consumers and labor, with adequate administrative and judicial powers over the society (Zaman 1981: 330). Thus, it became responsible for inspection and standardization of weights and measures, prevention of adulteration of goods, overwork by employees, unsafe working conditions, encroachment on thoroughfares and cruelty to animals (Haq 1995).

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A legal action for those who are found involved in fraud and marketing dishonesty can vary according to space and time. For example, Muslim scholars are of the opinion that those who are found guilty of fraud and dishonesty, should be 'punished by imprisonment and expulsion from the market (Ibn Taymiya 1982: 68). The following is a good example of some of the consequences as a result of legal action taken against those who are not adhering to marketing ethics: It is related that Abu Sa'id al-Istkhu, muhtasib of Baghdad in the reign of Muqtadir, closed the market where 'dadhi' was sold on the ground that it was used only for the making of nabidh (liquor), a forbidden thing. And he sanctioned the toy market, on the ground that the prophet (pbh) had not forbidden 'Aishah to play with dolls' (Al-Qur'an 23: 7).

4

Islamic Ethics for Marketing Decision Making

4.1 Basic Concepts In the following an attempt is made to discuss some Qur'anic concepts which can be related to ethical international marketing decision-making. A further discussion on the interrelationship among these concepts and four P's of international marketing will follow. The concepts which will be discussed are Ikrah, Bakhs/Tatfif, Tanafus/Takathur, Kidhb, Riba, Twayyib and Adl. Ikrah (Al-Qur'an 24: 33; 9: 53-54) (coercion), as defined in Majallah (Tyser: 1967: 149-150) is to compel without right a person to do a thing without his consent. Whenever force is applied for the purpose of concluding an international marketing deal, the fundamental and vital condition of mutual consent remains unfulfilled. Moreover, the prophet (pbh) expressingly prohibited Bay' al-Mudtarr i.e. a transaction concluded under constraints (Ahmad 1995: 126). Sexual appeal, emotional appeal, fear appeal, subliminal advertising, pseudo scientific claims etc. have elements of Ikrah, which render them to be categorized as unethical. The incorporation offree and independent judgment or the emphasis of rational thinking is a prerequisite for any type of international marketing activities in Islamic law (Niazi 1991: 111). According to this society should not be deprived of the honest, free from coercion marketing information. It is the responsibility of the international marketers not to resort to any form of coercion. Intellectual integrity and a higher degree of consciousness of the consumers are supposed to be appreciated and sustained in order to create harmonious rapport. In order to make marketing mix ethically sound, customer's marketing decision making freedom is to be protected from elements of coercion. This is

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done in Islam by giving the customer the right and power of having an access to true international marketing information and through ensuring fairness in international business dealings. His right of acquiring honest and true information is the result of his status in Islam. Second, it is the result of the ingrained rights of his wealth which he spends in acquiring those products and services. The hard earned money of the customers is not allowed to be swallowed by clever international marketers. Bakhs (Al-Qur'an 11: 15 etc.) is to reduce something in an unjust way. It may take place through unjust acts like confiscation, stealing, taking bribes and other cheating mechanisms, while Tatfif (Al-Qur'an 83: 1-3) is a form of economic behavior which arises in the course of marketing activities. Both as unethical marketing behavior comprise of the following acts: (1) shortweighting, (2) short counting, (3) short measuring, (4) over-charging, (5) or in value terms in the form of higher prices of the products marketed. These concepts are not new and were also emphasized by the prophet (pbh) and also by the earlier prophets (AS). When prophets came to the people they tried to prevent them from the most observable unethical and harmful actions which they were involved in. The people of prophet Shoaib (AS) were involved in Bakhs and Tatfif. For this reason he started his moral reformation process from these issues. These concepts have their basis in the following principles. First, glorification and submission to the moral order of Allah (swt) which includes confession of Tawhid and belief in Prophethood. Second, empathy and mercy to Allah's creation which includes not doing bakhs and other type of corruption. The impact of refraining from doing harm to others will help in stopping the spread of evil (Al-Razi 1985: 181-182). Adl-e-Islam (Islamic Justice) is most vehement in its condemnation of commercial and marketing dishonesty (Al-Qur'an 23: 91 etc.). The basic principle put forward by Islam regarding marketing ethics is upholding a 'high standard of straight-forwardness', 'reliability' and 'honesty' in all marketing operations (Niazi 1991: 46). Furthermore, Islam requires production of products to be absolutely free from cheating and misrepresentation (Al-Faruqi 1992: 177). The production process and the product besides being Halal (permissable) should be Twayyib (Good) in full sense of this world. Twayyib, the word in its originality means good taste. It means also nice products that have been taken/extracted/obtained from lawful sources, to the extent that is permissible, and from the place which is allowed. The world also signifies that the products are tasteful in eating and tasteful in drinking and are totally free from harmful consequences in this world and the hereafter. Riba (usury), "... is a comprehensive concept which includes aspects related to capital, land, general circumstances and use of laws of nature. In all these aspects, whenever a man claims a private income greater than his equal share

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of natural powers invested in these resources, he is really claiming rububiyya and committing usury" (Abu-Sulayman 1976: 21). Furthermore, "No man has the right to claiming a bigger share since he does not create or generate natural power independently." (Abu-Sulayman 1976: 16) General circumstances can be products scarcity, customers' ignorance, loose regulations on quality standards requirements. These circumstances can be categorized as natural socioeconomic dynamics of society; but, to take advantage from them is unethical. According to Islam, international marketers have no absolute right to exploit or to take advantage of these natural laws or prevailing circumstances in any adverse way. In the case of infringement of these natural laws, the negative consequences will be inevitable. The consequences and impact of marketing riba on socio-economic development of any country can be seen in its role of perpetuating inequality, disharmony and injustice in the society. "... In reality Riba destroys the principle of brotherhood..." (Abu-Sulayman 1976: 17). Manipulating natural laws in order to actualize marketing strategies and techniques is regarded as a form of exploitation. Munafasah (Al-Qur'an 83: 26) literally means to thrive, compete or selfstruggle for the betterment. Another meaning, is to join others in success without hurting or harming them. „This type of competition as depicted in the Qur'an is for those bounties which in its terms are eternal, not temporary. In short it is a competition for the sake of "gaining Allah's pleasure" (Al-Razi 1985: 16-101). This approach is aimed at laying the foundation of 'healthy competition' concept which will not lead to negative consequences to the society and the environment. Instead, it is directed to serving genuine consumer demands, hence both consumers' and marketer's satisfaction. Furthermore, it aims to help in delivering products and services which will contribute to the uplifting of the standard of life. Takathur (Al-Qur'an 102: 8; 100: 8; 3: 14), i.e. acquisitiveness is viewed as a passion for seeking an increase in wealth, position, the number of adherents etc. The desire of amassing wealth in this type of competition is characterized by cut throat competition, monopolizing distribution channels, deceptive advertising and resorting to questionable pricing practices. If the marketing competition behavior and the whole organizational life span is dedicated to amassing of wealth by all possible means the marketing situation creates an atmosphere of leading to an inhuman behavior. This competition behavior will lead to transgression against society, environment and against fellow competitors in the industry. In Islamic perspectives theses are the limits set by Allah (swt). Kadhb, literally means falsehood or cheating, i.e. the opposite of truth. The Qur'an strongly condemns all types of falsehood (Al-Qur'an 43: 19,80 etc.). In marketing, Kadhb can be manifested through false assertions, unfounded accusations, concoctions and false testimonies (Ahmad 1995: 114). The con-

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cept of Kadhb has been elaborated extensively by the prophet (pbh) who emphasized that the seller and the buyer have the right to keep or return the goods so long as they have not parted or till they part. And if both the parties spoke the truth and describe the defects and qualities (of the goods), then they would be blessed in their transaction, and if they told lies or hide something, then the blessing of their transactions will be lost. "One who cheats us is not from among us" (Al-Bukhari 1981: Hadith No. 296). It is not lawful for a Muslim to sell anything to his brother and there remains a defect which he does not show him (or inform him about). Abu Huraira (R.A.) narrated: "I heard Allah's apostle saying": The swearing by the seller may persuade the buyer to purchase the goods but that will be deprived of Allah's blessings. (Al-Bukhari)

In another Hadith narrated by Abdullah bin Abu Aufa (R.A.), a man displayed some goods in the market and swore by Allah (swt) that he had been offered so much for that, which was not offered and he said so, in order to cheat another brother. On that occasion the following Qur'anic verse was revealed: Verily! Those who purchase the small gain at the cost of Allah's covenant and their oaths (they have no portion in the hereafter). (3: 77) (Al-Bukhari 3: Hadith No.301)

The Holy prophet (pbh) said: There are three (kinds) of persons to whom Allah (swt) will neither speak on the day of judgment, nor he will look at them nor purify them. For such persons there has been ear-marked a painful punishment." He repeated this sentence three times. Abu Zarr (R.A.) asked which such persons are doomed: "Who are they, oh messenger of Allah?" He replied: "...One who sells his (inferior) wares with false oaths" (An-Nawawi 1989: Hadith No. 427).

4.2

Ethics in Product Decision Making

4.2.1

General Guidelines

Consumers may not possess the technical expertise to judge the sophisticated products that are necessary for contemporary life. Therefore, they rely primarily on conscientious efforts of business to ensure consumer safety (Shaw 1996: 346). Due to this position, the customers have become weak and vulnerable to marketing strategies which may not necessarily be in their interest. Unfortunately, statistics indicate that the faith, consumers place in manufacturers is often misplaced. Over 20 million Americans per year require medical

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treatment from product related accidents. Of these persons, 110,000 are permanently disabled and 30,000 die (Barry/Shaw 1992: 478). Managers who involve in product development, packaging and branding regularly tackle questions of right and wrong. Ethical behavior is inseparable from the use of brand names, which do not communicate honestly about the product. This has been manifested with the existence and mushrooming of marketers who in their hands have all types of brand stickers and badges which can suit to the immediate demand of the customer. The same is true about pirated products. Due to infringing of intellectual rights of others there is no honest communication about the products. Furthermore, packaging decision making is another case in point. It may or may not realistically portray product's details and matters like safety. In certain cases, products will be packaged in such a way that those cannot be examined by the customers. There are a lot of cases in which MNCs do not follow safety procedures in packaging, for example we have cases of unsealed products and those of related deterioration of the products due to weather exposure. In addition to package decision making, product development techniques have all come under the scrutiny of ethics. It has become a major issue due to the development of differentiation and least-cost leadership strategies. For example, cost leadership strategies can lead to loss of desirable and useful attributes of the products (Miller/Deiss 1996: 152). For the sake of actualization of the same strategies of gaining competitive edge, harmful substances or products like nitrofrun, CFCs are used in the development of products. Sometimes products are developed intentionally with inferior ingredients in order to penetrate into the market at a low price. From the above observations, it is clear that there are problem areas as regards the practices pertaining to product decision making. In the following an attempt is made to examine the ethical product decision making process from the point of view of Islam. Islam emphasizes that, the production operations must be "innocent and pure from beginning to end" (Al-Faruqi 1992: 177) . To be engaged in production process is a part of Ibadah (worship) and is obligatory to all Muslims. To withdraw from production activity is condemned in the eye of Islam (AlFaruqi 1992: 175). Muslim thinkers have laid down clear guidelines to show what is ethical and unethical regarding process. A good example is Ibn Ikhuwa's elaboration on production ethics. Islamic production ethics as discussed by him in Ma 'alim al-Qurba', covered everything from handling of raw materials, mixing, contents of the product, to the finished product. Ibn Ukhuwa, elaborating on the responsibilities of fodder merchants and millers has said:

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(They) must clean the grain of earth before they grind it. The sieves must be renewed periodically. The muhtasib (an official appointed to check) must examine the flour to prevent admixture with flour of chick-pea, etc., and must prevent milling on the work particles of the mill stone, which causes harm to men. (Ibn Al-Ukhuwa 1938)

Regarding bakers and bread-makers he provided: For kneading, men may not use their feet, knees and elbows as doing so implies a lack of respect for the food; also drops of sweat may fall into it. Smocks with tight sleeves must be worn at the task and the face should be veiled. During the day time a man with a fly whisk should drive away the flies. (Ibn Al-Ukhwa 1938: 30)

Marketing ethics and production ethics are inseparable. There is a direct continuous relationship between the latter and the former. The quality of the production process is of a paramount concern in Islamic ethics. This is due to the high importance it gives to the actualization of the optimum welfare of human being. The concept of product decision making as visualized by Muslim thinkers is different with how it is likely to be perceived in the contemporary world. Islamic approaches focus upon the product decision making to be oriented in accordance with moral and transcendental elements. It is guided by such principles (Al-Misri 1991) as lawfulness, twayyib (Pure), existence, deliverability, and precise determination. Firstly, the products in its essence should be lawful and should not cause the dullness of mind (Ibn Al-Ukhwa 1938: 19). It should be mal mutaqawwim, that is its subject matter and underlying cause must be lawful, and not what is prohibited by Islamic law, or it should not lead to nuisance to public order or morality. Secondly, the object of the market must be in the actual possession of the owner. Thirdly, the object should be capable of delivery. The sale of a commodity is not valid if it can not be delivered, as for example the sale of fish in the river, wool on an animal back, milk in the udder (Ibn Al-Ukhwa 1938: 20). The overriding concern of these principles is to prevent conflict, unjustified profits and fraud. Fourthly, the article for sale must be exactly specified as regards its quantity and quality, and the seller must be able to point to the actual commodity. Quality is determined by inspection. Description cannot take the place of visual inspection (Ibn AlUkhwa 1938: 20). This principle has been formulated in order to prevent uncertainty and conflict between contracting parties in situations where a contract is rescinded or terminated due to some cause and either party is seeking a remedy. Fifthly, the object should not be virtually unclean (the sale of swine, ivory etc.). Ibn Al-Ukhwa (1938) has categorized the unclean things into four kinds: those unclean in essence (e.g. dogs and swine), those made unclean by association (contamination), those made unclean by contamination but whose usefulness is not entirely destroyed (e.g. unclean garment), and things unclean

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by contamination which entirely destroys their usefulness (e.g. contaminated olive oil).

4.2.2

Islam and Product Safety

Under the Islamic approach, production process has to be guided by the criteria of the value and the impact of the product upon the society. The primary objective of the production process is to deliver, elevate and satisfy basic human needs; hence societal and welfare approach should be pursued instead of profit maximization (by whatever means) approach. The pursuance of safe and high quality ideals is one aspect of actualizing safe and reliable products and services for the customers (A1 Qur'an (2: 172,7), (7: 160), (20: 81), (2: 168), (5: 88), (8: 69), (16: 114), (23: 51), (5: 4), (5: 5), (7: 157)). In some of the Qur'anic verses the phrase "Eat pure things," precedes "do righteous deeds." It is meant to impress and emphasize the principle that righteous deeds are meaningless without purity in matters pertaining to production, consumption and marketing of pure and lawful products and services. The implications of the Qur'anic verses pertaining to product decision making process need to be understood in the context of present marketing scenarios. For example, the products and services marketed must conform to environmental friendly standards, i.e. designed and marketed in such a way that will have negligible or no contribution at all to global warming process, air and water pollution, landfill expansion, depletion of natural resources etc. Similarly, they are also supposed to be human friendly in terms of safety and quality. That is not to cause to humanity health catastrophes consciously and unconsciously. Furthermore, they are obligated in their normal usage not to inflect harm or cause physical damage to human life. Lastly, the products or services are supposed not to cause moral decadence or contribute to social evils. As long as the producers are aware through their research and available health knowledge about the impact of excessive radiation, cholesterol, sugar etc. and social impact of pornography, violence information etc. they are morally responsible and accountable. It is their responsibility to produce and market those types of products which are harm-free for the consumers. Furthermore the human being should be perceived as a 'lofty creature' to be provided harm-free products and services by producers and marketers. According to these Islamic principles, the product related marketing behavior can be examined and analyzed thoroughly. For example, the current booming of weapons in international business, and how manufacturing companies are promoting their products to developing and third world countries in

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order to sustain their ever increasing expenditure on production costs, especially research and development are the cases in point.

4.3

Ethics and Promotion Decision Making

4.3.1

General Islamic Principles

In pursuance with Islamic teachings marketers are required to disclose all faults in (their) goods, whether obvious or hidden; to do otherwise is to act... fraudulently (Ibn Al-Ukhwa 1938: 42). Islam makes it obligatory for the seller to reveal all available and known information of defects to the purchaser which cannot be seen "on the surface" and cannot be found out by the "cursory glance" (Niazi 1991: 196). In addition, it has been provided in Islamic law that: A sale, without any stipulation, makes it necessary that the thing sold should be free from defect. (Tyser 1967: 336/VI) Marketing disclosure is manifested either by assurance which will be given by word of mouth or in writing, or in some cases silence will mean assurance. (Niazi 1991: 197)

There is no room in Islam to justify any cover up promotional behavior. The prophet (pbh), in the following famous incident, condemned all manipulative promotional behavior. Once the prophet (pbh) passed by a heap of corn and when he pushed his hand into it, his fingers felt some moisture. On this, he asked grain dealer: "Oh! grain dealer! What is this?" The dealer said "Oh messenger of Allah! This grain has been drenched with rain." The prophet (pbh) said: "Why it was not exposed on top so that people might see it? One who cheats (ghassh) is not one of us" (An Nawawi 2: 770. Hadith narrated by Muslim). Islamic principles of promotional behavior are not mere ideals, but practicable and natural, to be translated into action wholeheartedly. The higher echelons in marketing ethics have been shown by prophet's followers. For example Jarir (R.A.) always pointed out to customers the flaws in his goods. When told that his business was bound to collapse he replied, "We promised the prophet (pbh) to deal honestly (in our marketing activities)" (Ibn AlUkhwa 1938: 42). Ibn Miskawayh (1968: 99-100), considered the 'rational man' as the one who sees himself free from blame and his honor untarnished by evil, and finds that he has not defiled himself by any shameful gain or sought such gain by treachery, theft or injustice. And sees also that he has avoided its 'disgraceful' and 'dishonorable' way such as pandering, deceit, selling base commodities,

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inducing (people) to give their money away through cunning and craftiness, helping them in their immoralities praising what is vile to satisfy their desires. Ibn Miskawayh is of the opinion that when this rational man perceives himself in this way in his endeavor, he will get inner satisfaction, will find himself in tranquillity and will not blame his luck or hate the vacissitudes of fortune or envy those who have acquired money by other than fair means. In short, from Islamic perspective, a marketer as a person who has submitted to the will of Allah (swt), will be honest and fair in his marketing activities. In the case of international marketing, true documents which reveal accurate specifications in terms of quality, contents, etc. will exchange hands. To be in an international market is not an excuse of deciding not to reveal accurate marketing information and to take advantage of the ignorance of the customers.

4.3.2

The Art of Personal Selling and Sales Promotion

According to Islamic marketing ethics which guides promotion behavior, it is unethical for the marketer to over praise his products and attribute to them qualities which they do not possess (Ibn Al-Ukhwa 1938: 23). The latter have been categorized as fraudulent and hence not permissible. The current trend of false glorification in the promotional activities as in the field of personal selling should be taken with caution, since 'to hire as salesman to make (unfair) speeches which shall facilitate the sale of goods is not permissible (haram) and anything received by the salesman on account of rank and dignity and the (consequent) respect paid to his word when selling goods is forbidden (Ibn AlUkhwa 1938: 24). The underlying rationale of this prohibition is to stop all means which will lead to fraud and deception. However, there is "no harm in praising qualities present in the goods if the purchaser could not otherwise be aware of them" (Ibn Al-Ukhwa 1938: 24). Sometimes there is no other way of revealing the hidden qualities of the products, but that should not be taken as an excuse for involving in the art of deception.

4.3.3

The Art of Advertising

In an attempt to persuade people to buy their products, advertisers are prone to exploit ambiguity, conceal facts by suppressing information that is unflattering to their products, exaggerate by making claim unsupported by evidence, and employ psychological appeal that is persuading customers by appealing to emotional needs and not to reason (Barry/Shaw 1992: 491-495). From the noble purpose of providing information that may benefit the people, advertising has become an art of deception par excellence. The appeal for various ap-

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petites of humans for vanity, sex, pleasure and comfort, the redefinition of happiness and contentment in purely materialistic and subjective terms, helped to make advertisement the nerve center of the whole marketing process (AlFaruqi 1992: 178). Sexual appeal, emotional appeal, fear appeal, false testimonies and pseudo research appeal, besides being themselves unethical have contributed to the dullness of the mind and extravagance in behavior. Furthermore, they do not lead to truth and transparency in marketing activities. In Islamic framework they can be categorized as one aspect of Ikrah This is due to the fact that these methods are used to take advantage of the basic instinct of human being to promote marketing objectives and to gain market share. Stereotyping of women in advertising, the use of models cladding provocatively, and excessive use of fantasy are unethical. In Islam, women's clothes should be decent not showing physical features, not transparent and not too attractive. The use of suggestive language is totally prohibited. Women as mothers and sisters of believers should not be degraded to the inferior status of objects.

4.4

Ethics and Pricing Decision Making

4.4.1

General Islamic Principles

For many customers, a higher price means a better product. Marketers arbitrarily raise the price of a product to give the impression of superior quality or exclusivity. But often, the price is higher than the product's additional features of quality. Currently, it has become a normal phenomenon for the marketers to exploit human psychology by manipulating price, especially when they sell substantially identical products at different prices. A good example of ethically dubious psychological practice in pricing is printing a suggested retail price on packages that is substantially higher than what retailers are known to charge. When retailers mark a new price over the suggested price, customers get the impression that the item is selling below its usual price (Shaw 1996: 356-357). The Islamic concepts which can be used to evaluate pricing methods in order to identify and eliminate unethical pricing tactics are Maisir, Tatfif, Riba and Ihtikar. Firstly, Maisir literally means getting something too easily without hard labor, or receiving a profit without working for it (Niazi 1991: 117). Secondly, Tatfif can be in value terms like altering the quality and/or quantity of the product without changing the price. Thirdly, Riba, in addition to what has been discussed earlier, will cover price discrimination as well. The prophet (pbh) has said: "To cheat the easy-going customer constitutes illicit gain (riba) (Ibn Taymiya 1982: 62-68)." This hadith, prohibits marketers from

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practicing price discrimination between mumakis (one who bargains) and mustarsil (one who does not bargain), by selling the same merchandise to them for different prices (Ahmad 1995: 117). Lastly, 'Ihtikar' - hoarding is to create an artificial scarcity of products or services. It may involve a false propaganda regarding the position of demand and supply through media, and then to find ways of exploiting the artificial marketing environment. In Islam, the essential conditions of a sound self-operating mechanism of price adjustments are as follows (Niazi 1991: 117): (1) (2) (3) (4)

No No No No

corner market, hoarding of gold and silver price control restriction on Trade

According to Ibn Taymiya (1982: 51), most of the products which were marketed in Madina were imported ones. To compel sellers to sell their goods only at a specified price would have been an unjustifiable coercion, having its adverse consequences to marketers. According to him, some Islamic scholars who are in favor of maintaining and safeguarding public interest provide a different perspective. In a case of the prices of products being very high for customers, the government officers can bring together market leaders or their representatives where the particular product is marketed, in the presence of others as a 'check of their sincerity' and collect from them sufficient marketing data concerning the whole marketing process of the specific commodity. Then, they will negotiate with them down to the level which is satisfactory to both of them and to the public. In Islamic perspective such a negotiation process has its own merits. It will give the sellers sufficient profit to support themselves without prejudice to the public. Official compulsory controls without their agreement may lead to 'black-marketeering' and 'concealment of essential foodstuffs.'

4.4.2

Ethical Lapses in Pricing

According to Islam there are many types of contemporary ethical lapses in pricing (Ibn Al-Ukhwa 1938: 43). Many times, we find some such sellers who first buy goods on their own behalf and then approach others in order to sell. Similarly, real owners of the products pretend that they are not owners and they cause a false increase in price, making people think that a higher price is being offered by real traders. Similarly, another case in point is a collusive agreement with a draper whereby when a merchant comes with goods the draper points out the crier as an honest broker to whom the goods are en-

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trusted and who receives an agreed sum from the draper. Ibn Al-Ukhwa (1938: 43) emphasized the role of muhtasib in insuring that prices are fair and just by curbing all sorts of ethical lapses. He observed that 'The muhtsib must see that a broker receives his commission only from the seller and must not cause the price to be abated in collusion with the buyer.' All ethical lapses in pricing are dhulm, a sin. Profits earned as a result of unjustified prices will be viewed as unethical. Furthermore, they are infringing the unique status of man, his role and responsibilities as viewed under Islamic framework. In order to eliminate this type of dhulm (injustice) the markerter and the customer should treat each other as people who have higher responsibilities on earth.

4.5 Ethics and Distribution Decision Making Physical distribution can be viewed as an integrated collection of information, people, equipment, and organization; and as a process, embracing numerous steps, starting with providing the customer with a means to place an order and ending with putting the product in the customer's hands (Bovee/Thill 1992: 490-491) Ethical dimensions of decision-making pertaining to distribution are of great significance in the area of marketing. For example, transportation as an element of distribution, has undeniable impact on the natural and human environment (Bovee/Thill 1992: 507). A grim reminder of transportation's environmental damage was when it came to the notice that in 1989 Exxon Valdes spilled millions of gallons of crude oil in Alaska. Double-hulled tankers are less vulnerable to the sort of punctures that caused the Exxon disaster, but they cost substantially more to build. Furthermore, oil companies would have to pass all or part of the cost to consumers. Other cases of unethical practices in point are those of packaging designs which do not have adequate protection for the product or are not compatible to the delivery system. In some cases, products are transported through dangerous or unhealthy ways, such as hauling toxic chemicals in trucks that also carry food products. Ibn Al-Ukhwa (1938: 44, 48) identified some of the ethical lapses in distribution channels and mentioned those causing unnecessary delay in the production of ordered products or delay in the delivery, making customers return repeatedly and to cause to them other inconveniences. According to Islam physical distribution ought to be guided by the following policies, propound by the prophet (pbh). The prophet (pbh) said: "Do not raise prices in competition" (An Nawawi 2: 770, narrated by Bukhari and Muslim). He prohibited raising prices in competition. As narrated by Abdullah bin Umar, Allah's Apostle said:

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Do not urge someone to return what he has already bought (i.e. in optional sale) from another seller so as to sell him your own goods. (An Nawawi, narrated by Bukhari and Muslim)

However, we would like to emphasize that Islamic framework shall support, healthy competition and corruption free distribution channels. The prophet (pbh) deplored the behavior of intercepting goods before they reach the market. Furthermore, he forbade the townman to sell for the nomad, and said: "Leave people alone and Allah (swt) will see they provide for one another" (Ibn Taymiya 1982: 32). If marketing people succeeded in their marketing maneuvering in persuading those who do not have access to the marketing information, sellers have an option to repudiate the sale (Ibn Al-Ukhwa 1938: 22). Islam does not support unfair price competition or any tactic which is akin to dumping. Saeed bin Al-Musayyab (R.A.) reported that Umar AlKhattab (R.A.) passed by Hatib bin Abi Balta'ah (R.A.) and found him selling raisins at a much low price with the intention of putting his competitors to loss. Umar Al-Khattab (R.A.) told him: "Either enhance your rate or get away from our market" (Malik, Hadith No. 134). Distribution channels are supposed not to create a burden to the final customer, in terms of higher prices and delays. Their main goals should be to create value and that of uplifting the standard of living by providing ethically satisfactory services. The overriding concern of the marketers should be the optimum welfare of the society and actualizing Allah (swt)'s will.

5

Conclusion

5.1 Managerial Implications for the Multinationals The ever increasing role of multinationals in contemporary global economy makes it incumbent upon them to appreciate the dynamics of Islamic perspective as they are operating in almost every Islamic country from Morocco to Egypt and from Turkey to Indonesia. Islamic organizations, Islamic governments, and Muslims as consumers, subscribing to the Islamic believes, cannot be out-maneuvered by aggressive western marketing practices. Islamic ethical framework is based on which is also the foundation of Islamic mindset. Multinational corporations, instead of showing their insulation from Islamic perspective, should demonstrate their appreciation of the Islamic mindset with respect to the global business ethics. Their marketing strategies and tactics should uphold ethical practices compatible to the Islamic ethical framework in Muslim target markets. International marketing executives,

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working for the multinationals in these countries, should develop an understanding of these issues and attempt not to do anything contrary to the Islamic ethical framework. Since, Islamic mindset and Islamic ethical framework are based on divinity and faith, they can't be changed to suit the needs of contemporary time and the MNC. Hence, an international marketer should not try to justify a change in ethical framework for an Islamic society in order to develop a global ethical framework. Such a perspective will be resented by the Muslims. Islamic ethical framework, as believed by Muslims worldwide, is valid for all times (from the time of prophet Muhammad through the day of judgment).

5.2

Outlook

According to Islamic faith all human beings are equal before Allah (swt). He is the only Sustainer and the Absolute Owner of everything. Under Islamic approach, the freedom of action towards marketing process, strategies and techniques shall be governed by ethical guidelines given by Allah (swt), the All-Knower through Qur'an, revealed to mankind through prophet Mohammad (pbh). The sayings and deeds (Hadith) of the prophet (pbh) are considered the best elaboration of the Qur'an and together they form the primary sources of knowledge, values and laws which govern all aspects of human life, including marketing and its ethical framework. To a Muslim these ethical guidelines can be delicate constraints which in his view cannot be compared with other artificial manmade constraints. These are the ones which according to belief determine the genuine success in this world and the hereafter. Under Islamic marketing guidelines then, international marketers have no unbridled liberty to exploit the customers and to exercise marketing dishonesty by the way of fraud, deceit or other means. To commit unethical marketing practices is to do 'dhulm' (exploitation/oppression/injustice) which is detrimental to the concept of brotherhood and equality of humanity as envisioned by Islam. The Islamic ethical framework points towards ensuring the dignity and freedom of man, his mind, his conscience and his soul from all types of bondages. Inculcation of extravagant behavior besides the impact of diverting the attention from the actualization of higher spiritual objectives of life will lead to marketing slavery. Its manifestation in the form of extreme brand loyalty among some of the consumers is a case in point. This trend will impede rational thinking of the people and will make them slaves of marketing firms. According to Islam it has come to free human beings from all shackles of enslavement. A man is a vicegerant of Allah (swt) on the earth. His welfare in terms of health, safety, and good environment should not be sacrificed for

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petty gains of the few. Furthermore, inculcation of extravagant behavior has an impact upon changing the conducive cultures, lifestyles, and the customs of the people. Therefore, in this context unethical marketing practices and their implications have tremendous side effects on socio-cultural and socioeconomic welfare of the society. A good example of its impact can be that of efforts which delude rural people of developing countries to depend on canned food or carbonated drinks while they have all those products in a natural form. In viewpoint of Islam taking this approach towards marketing ethics will plant the seeds of harmony and order in the society as consumers will be perceived as a lofty creature. Hence their all rights will be maintained and upheld. Furthermore, its adherence is connected with uprooting the selfish extravagant style of living which is greatly influenced by marketers' whims and unethical strategic designs leading to injustice and corruption.

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Haq, Irfan U1 (1995), Economic Doctrines of Islam. Herndon: International Institute of Islamic Thought. Hartley, R.F. (1993), Business Ethics: Violations in the Public Trust. New York: John Wiley and Sons, Inc. Hasanuz Zaman, S.M. (1981), Economic Functions of an Islamic State, Karachi: Islamic Foundation. Husted, B.W. (1996), The Impact of Cross-National Carriers of Business Ethics on Attitudes about Questionable Practices and the Form of Moral Reasoning, in: Journal of International Business Studies, 27 (2) Ibn Al-Ukhwa, Muhammad Ibn Muhammad (1938), Kitab Ma 'alim al-Qurbah fi Ahkam alHisbah, Translated by Reuben Levy (ed.). London: Luzak. Ibn Taymiya, al-Imam al-Shaykh (1982), Public Duties In Islam: The Institution of the Hisba, Translated by Muhtar Holland. Wiltshire: The Islamic Foundation. Malik Ibn Anas (1989), Al-Muwatta of Imam Malik Ibn Anas - The First Formulation of Islamic Law, Translated by Bewley Aisha. London: Kegan Paul International. Miller, A. and G.G. Deiss (1996), Strategic Management. 87. New York: Mc-Graw-Hill. Miskawayh, Ahmad Ibn Muhammad (1968), The Refinement of Character, 21, Translated by Constantine K. Zurayk. Beirut: The American University of Beirut. Nadwi, Abul Hasan Ali (1978), The Most Suitable Religion for Mankind, in: Altaf Gauhar (ed.), The Challenge of Islam. London: Islamic Council of Europe. Niazi, Liaquat Ali Khan (1991), Islamic Law of Contract. Lahore: Research Cell, Dyal Sing Trust Library. Roberts, J.R. (1996), Will The Real Socially Responsible Consumer Please Step Forward, in: Business Horizons (Jan.-Feb. 1996): 79 Safi, Louay (1996), The Foundation of Knowledge - A Comparative Study in Islamic and Western Methods of Inquiry. Kuala Lumpur: International Institute of Islamic Thought. Shaw, W.H. (1996), Business Ethics. Belmont: Wadworth Publishing Company. Tyser, C.R., D.G. Demetriades and Ismail Haqqi Effendi (Trans.) (1967), THE MAJELLE, Being an English Translation of Turkish Law Book Majallah-el Ahkam-i-Adliya and a Complete Code on Islamic Civil Law. Lahore: Law Publishing Company. Werhame, P.H. (1983), Ethical Relativism and Multinational Corporations, in: M. Snoeyenbos and R. Almeder (eds.), Business Ethics. New York: Prometheus Books. Zaman (1981), Economic Function of an Islamic State, 330. Karachi: Islamic Foundation.

Business and Corporate Ethics in the USA: Philosophy and Practice Georges Enderle

1

Introduction: Business Ethics in the USA Neither Fad nor Mature

In the last 25-plus years, business ethics in the USA has evolved considerably, so much so that quite a few observers contend that it has already reached a fairly mature stage. Such an assessment obviously depends on how we define the field of business ethics and what standards we use to benchmark maturation. The fact that business ethics has been around for 25-plus years alone is poor evidence for this contention. Certainly, it also disproves the view of business ethics as a short-lived fad, which has been expressed to me by numerous skeptical Europeans again and again since my "Business Ethics in the USA: Overview and Reflections" in 1983 (Enderle 1983). My personal understanding is that business ethics is a truly long-term undertaking which may reach, as Oswald von Nell-Breuning, the late dean of Catholic Social Thought in Germany, predicted, some maturation in approximately 20 years. For me, a major driving force for the lasting business ethics movement (which can take on multiple forms) lies in a three-fold trend strengthened by the internationalization of business and society: 1) 2) 3)

an increasing importance of business; a growing diversity of ethical beliefs; and an ever more pressing need to address these complex issues.

The more economies and business behavior impact on people's lives and the more ethical values and beliefs diverge and conflict, the more serious and less inescapable business ethics challenges are and the greater the need to come to grips with these challenges in both general and specific terms. While confident about this long-term prospect, I consider the question of maturing business ethics open and demanding a great deal of sustained efforts. As for the definition of the field, it should encompass, in principle, all phenomena of business and economic life including the micro-level (of managers, employees, consumers, etc.), the meso-level (of companies and other eco-

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nomic organizations), and the macro-level (of national and international economies), and aim at improving the ethical quality of decision-making and action on all levels. With regard to different approaches in academia, business ethics should diligently use the rich knowledge of social sciences including economics, courageously address normative-ethical issues, and strive for an integrated, interdisciplinary approach. Regarding the relationship between practitioners and academics, business ethics needs both types of competencies and should promote joint-ventures of complementary (mutual) cooperation. When applying these relatively high standards of a "mature" business ethics, it seems clear that business and corporate ethics in the USA still have a long way to go. That does not mean we should dismiss its achievements and the lessons people in other parts of the world can learn from the American experience. They, too, have long ways to go, which likely differ but also involve a number of common challenges and approaches. (As for a comparison with continental Europe, see Enderle 1996; as for a worldwide survey on business ethics, see Enderle 1997.) In what follows I first offer several methodological and other remarks. Then I present a description and critical evaluation of business and corporate ethics in the USA. Lastly, I draw a number of conclusions in terms of lessons and open questions.

2

Methodological and Other Remarks

As a European living in the USA for nearly five years, I have often encountered the explicit or implicit ethical judgment that there exist an "ethics gap" across the Atlantic, usually involving a higher morality of the speaker's own position. Interestingly enough, this view has been held by people on both sides of the Atlantic. We, therefore, might be well advised to be cautious about our own moral superiority in particular and ethical judgments over countries and continents in general. In spite of these warnings, however, the tendencies and traps to make such judgments are multiple and strong and seem almost unavoidable. Hence, clear methodological awareness, at least, is of paramount importance for international comparisons in business ethics. A first fundamental distinction relating to the modes of understanding of business ethics as "semantics", "practice", or "theory" is crucial for grasping its multiple purposes and the relevance and limits of each mode, particularly in intercultural comparisons. Attitudes towards speaking about ethics, and the terms used and not used, may differ significantly in one cultural setting from those in another cultural setting, which, not surprisingly, is a striking feature of the worldwide survey of business ethics (Enderle 1997). It also character-

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izes a difference between the USA and Europe. To talk about business ethics in North America seems to be easy and widely socially accepted while Europeans are more reluctant to speak about ethical issues in public and tend to understate them, partly for fear of being exposed to public criticism and accountability. Thus the extent of talking about business ethics is an inappropriate indicator of a possible ethics gap. The second mode refers to ethical conduct that is usually not identical with speaking; one can do the latter without doing the former, resulting in a lack of credibility and moral authority. Consequently, an ethics gap in behavior terms normally is more serious than in semantic terms. The third mode of thinking (more) systematically, or theorizing, about business ethics is important not only for theoretical reasons, such as consistency, critical scrutiny and independent evaluation, but also for practical ones, such as clarification of conceptual issues in practice, impartial assessment of business conduct, and providing serious consulting to companies. Here too, we can discover ethics gaps between countries and cultures, which may be differently assessed in behavior terms. In conclusion, these three modes are distinct and cannot replace each other, although they are interrelated in many respects, which makes the assessment of an ethics gap even more difficult. In addition, the distinction between three qualitatively different levels of decision-making and action, already mentioned above, greatly matters in international comparisons. An ethics gap at one level might be compensated, or even overcompensated, by an ethics plus at the other level(s). For instance, a US company, subject to weak labor laws, may use its wide space of freedom to improve the treatment of its employees while a German company, subject to strong labor laws (requiring co-determination, etc.), has less discretionary space and nevertheless outperforms the US counterpart in terms of employee treatment (see more in Enderle 1996). Hence this comprehensive, three-level conception of business ethics involves far-reaching consequences, which will be discussed to some extent in the following chapters. Given the difficulties of international comparisons, it appears recommendable to primarily concentrate on the ethical changes (for the better or worse) of the actors within their respective environments. So, for example, the ethical improvement of a company would take into account its efforts, obstacles, failures, transformations, and achievements over a certain period of its development. The ethical assessment, then, would focus on the process the moral actor went through and the outcome achieved compared to the beginning rather than on international comparisons based on "objective" standards. Accordingly, we would allow for statements such as "The US Defense Industry improved its ethical conduct due to the Defense Industry Initiative" or "The ethical climate in the USA has not gotten better despite the efforts in business ethics." On the other hand, we would refrain from stating that "the ethical

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conduct of the US Defense Industry is higher than the one of its French counterpart" and "the ethical climate in the USA is better than in Mexico." Although this position of restrained ethical assessment seems viable, it nonetheless faces, at least, two major objections. Does it make sense and is it ethically acceptable to refrain from ethical assessment in the international sphere when basic moral norms are violated; like, for instance, when killing one's competitors becomes a way of doing business or grand corruption badly hurts the well-being of the country's population? The second objection relates to the fact of the internationalization of business. On what ethical basis should a corporation going global be evaluated, according to its home country standards or to global standards? What about the ethical assessment of multinational firms competing in the global marketplace? Why should we refrain from evaluating them, despite the complexities of such an undertaking? These questions clearly show that the position of "restrained ethical assessment" is a provisional one that may have some value in discussing the business ethics of a particular country like the USA, but undoubtedly needs further qualifications in order to come to grips with the "ethics of international management" (discussed in several chapters of this volume). Some further remarks are in place, which concern the particular role of the USA in the 1990s and beyond. Native of a small country like Switzerland, it strikes me after several years to realize how important the sheer size of the USA is for understanding its problems, achievements, and failures in both domestic and international affairs. (By the way, such a statement can reasonably be made about China, too, probably the USA's most powerful rival in the 21st century.) Given its bigness and diversity, the United States is not a country, but a continent, and all the cliches of "the wonderland", "a degenerated society", "US imperialism", "superficial" character, and the like are shallow. Looking from outside, e.g., from Europe, one tends to forget these dimensions, a risk that also rises when talking about business ethics in the USA. In the post-Cold-War era, the role of the USA in the world has changed and become more difficult, despite the rhetoric of the triumphant advance of capitalism. The USA is called for being a partner and a leader at the same time. As the only military superpower and an economic giant, the United States exports much more than goods and services, namely political and cultural ideas, certain ways of live, etc. However, because of its often overwhelming influence, the USA has more difficulty to perceive the otherness of different countries and cultures and assume its role as partner among partners (as it was the case with all world powers in human history). On the other side, the USA cannot deny its power position in the world today and needs to be aware of its farreaching consequences. The question is not whether or not the USA should take a leadership role, but what leadership role and how to combine it with a

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partnership role. Such an understanding is quite demanding and far from being accepted by a majority of US citizens. It certainly challenges countries and people outside the USA as well. For them, too, recognizing the US as both partner and leader is not easy, to say the least. At a much smaller scale, these general remarks may help to place the following considerations on business ethics in the USA into a contemporary, international context. Here, too, the perspective is combining the partnership and leadership roles in US business, and maybe in academia as well, which undoubtedly demands a great deal of efforts in the years to come.

3

Taking Stock of Business and Corporate Ethics in the USA - an Attempt

3.1 Sources and Semantics Given the facts and considerations presented in the previous sections, the following description and critical evaluation is but an attempt to define this everexpanding field. The 25-plus years of history (with its long-lasting preceding developments), the multitude of business ethics initiatives in this very big country, and the evolving field that has not yet reached a mature stage, all these and other factors make it difficult to take stock of business ethics in a comprehensive way. Therefore, my account in these few pages will be quite personal and somewhat arbitrary. It heavily relies on survey articles (De George 1987, Enderle 1996, Shaw 1996, Dunfee/Werhane 1997); publications in the Journal of Business Ethics (since 1981), the Business Ethics Quarterly (since 1992), and Business and Society (since 1994); a large number of books, many of them included in the Ruffin Series in Business Ethics and the Kluwer Series in Business Ethics; and a variety of reports and magazines focusing particularly on corporate practices, such as Business Ethics (The Magazine of Socially Responsible Business; now: Insider's Report on Responsible Business; since 1986), Ethikos (Examining Ethical Issues in Business; since 1987), CEP Research Report (Council on Economic Priorities; since 1988), and EOA News (Ethics Officer Association; since 1994). Because this article concentrates on business and corporate ethics in the USA, the situation in Canada is not dealt with. Although linked to the USA in many ways, it has its own characteristics and would deserve special attention (see Vincent DiNorcia's extensive survey, DiNorcia 1997 and other articles in the same IBE issue). Business ethics is not a clearly defined term since business itself involves various meanings. It can lead to serious misunderstandings, particularly when translated into other languages and cultures. In terms like business cycles,

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business is almost equivalent to the economy, so that business ethics implies a very broad notion comparable to economic ethics and the German term Wirtschaftsethik. Three other meanings are included in the famous saying "The business of business is business." Here business stands for "the task/job", "the economic organization," and "to make profit", so that the slogan reads "the task of the company is to make profit." In US textbooks of business ethics, the prevailing notion of this key term (with a few exceptions) includes ethical issues in and of business organizations while taking the economic, legal, and sociocultural business environment for granted. In the "standard model" and "virtue model" but not in the "politics model" (as for these distinctions, see Shaw 1996 and below), the main focus is placed on individual choices and individual agents, be they managers or employees, while corporate ethics, a less common, but increasingly used term, clearly relates to the ethics of (not only in) business organizations (see, e.g., The Conference Board 1989). As for the term values, its acceptance seems to be much broader among business people than academics, who tend to prefer ethics (which, to practitioners, might sound somewhat moralistic). However, counterexamples suggest to differentiate this general statement. For instance, the Conference Board regularly uses the term ethics, as does the professional organization of Ethics Officers, while William C. Frederick, a renowned scholar on manager's values and business ethics, bases his major work on the American corporation on the core concept of values that involve a psychological, sociological, and normative-ethical dimensions (Frederick 1995). With regard to corporate social responsibility, this word has a relatively long and turbulent history (see, e.g., Epstein 1989, De George 1996). Sometimes it involves all types of non-economic responsibilities of business firms (see, e.g., Pava/Krausz 1995), sometimes it seems to include everything, hence meaning nothing. In my opinion, we should not - even if we could drop this term altogether. Rather, we should endeavor to clarify the concept and deal with it more carefully. An attempt in this direction is made in Enderle and Tavis (1997) by distinguishing and identifying economic, social, and environmental responsibilities. As Thomas Dunfee and Patricia Werhane (1997) write in their report on business ethics in North America, the idea of "managing for organizational integrity", coined in a Harvard Business Review article by Lynn Paine (1994), has become an important concept appealing to corporate managers (see also "Competing with Integrity in International Business" by Richard De George 1993). Originally related to individuals, integrity now qualifies organizations as well and International Transparency, a Berlin-based organization, in its handbook for fighting against corruption, even applies it to whole nations. As a human virtue, integrity characterizes the wholeness of a person's moral identity and its close relationship with her acts and choices (Diamond 1992).

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So its meaning goes far beyond individual acts and choices by including the actor herself and the consistency between what she is, says and acts (and even how she is perceived by others, according to some authors). What this term may imply for organizations will be discussed later on.

3.2 Origins and Focus The development of business and corporate ethics over the last 25 years has been influenced by a number of factors closely related to the American society and resulted in the field primarily focusing on ethical issues in and of business organizations. Strong emphasis has been placed on individual decisionmaking and increasingly the quality (virtue) of individual decision-makers. Moreover, growing attention (though still not enough in my opinion) has been paid to the ethics of business organizations (corporate ethics). However, issues of the economic system have been widely ignored by business ethics circles, although they are included, in principle, in the comprehensive three-level conception of business ethics (with its micro-, meso-, and macro-level) and they are discussed to some extent in other circles related to economics, political philosophy, theology, and others. In this focusing process, the teaching of business ethics with its multiple forms and motivations, but also with its clear limitations, played a pivotal role. Three contributing factors to the business ethics movement outside academia should be briefly mentioned. First, the rise of social issues in business in the 1960s, Watergate, DC-10 scandals, bribery, kickbacks, and other types of corporate misconduct all stirred a widespread social perception - in newspapers and films, and on television - that too many businesses lacked a sense of social responsibility and that businesspeople were too frequently prepared to sacrifice ethical concerns to profitability. R. Hartley (1993) discusses 20 examples of violations of the public trust such as General Motors' "killer" car, the Corvair; ITT's interference in Chile; Lockheed's bribes to foreign officials; General Dynamics' misdeeds; Nestlé's infant formula marketing in developing countries; Union Carbide's catastrophe in Bhopal; and the oil spill by Exxon Valdez. In their book "Corporate Misconduct: The Legal, Societal, and Management Issues" M.P. Spencer and R.R. Sims (1995), along with a variety of authors, introduce the topic of corporate crime and address different types of corporate fraud: insider trading, mail fraud, wire fraud, white-collar crime, computer fraud (hacking, viruses, and software piracy), and fraud in an organization's marketing process. While these contributions are mainly written by authors with training and experience in law, the chapters in D. Messick and A. Tenbrunsel's collection (1996) are analyzed by social psychologists, sociologists, economists, and philosophers, including case studies on four

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broad themes: (1) power, influences, and authority; (2) prejudice, discrimination, bigotry, and stereotyping; (3) the ways of which humans fall short of our ideal models of decision making and the ethical consequences of these deficiencies; and (4) the management of risk. Although these books were published only recently, they can provide a fairly illustrative (yet not necessarily representative) picture of corporate problems in the last 30 years, which have raised the public awareness for business ethics issues and provoked the various calls for better business practices. A vast range of consumer and investor initiatives can be lumped together as a second factor. Guided by strong ethical and political beliefs, they use market "mechanisms" in order to influence and change corporate behavior. After first-appearing in multiple and often short-lived forms in the 1960s and 1970s, they became more focused and sophisticated in the 1980s, and some of them have developed since then to non-governmental and private volunteer organizations that are serious partners of business and government. They probably indicate a new type of civil society in which well-organized groups of citizens, independent of business and government, express environmental or other concerns and monitor the conduct of corporations and governmental agencies. An outstanding example is the Council on Economic Priorities (CEP), founded in 1969, that published, among numerous books and reports, Shopping for a Better World. A Quick and Easy Guide to All Your Socially Responsible Shopping (Hollister 1994). The 1994 guide to consumer activism evaluates 191 companies in 17 industries that make over 2,000 brand name products in nearly 500 product categories, rating their performance on eight core issues and 15 additional issues. As for "Ethical Investing" (see, e.g., Kinder/Lydenberg/Domini 1992), since the early 1980s, an increasing number of mutual funds that invest in socially and environmentally responsible companies has developed and are annually evaluated (since 1993) by the Minneapolis-based magazine Business Ethics (January/February issue of each year). As a third contributing factor to the business ethics movement, recent developments in business law should be mentioned, in particular the Foreign Corrupt Practices Act (FCPA), passed in 1977 and amended in 1988, and the US Sentencing Guidelines that took effect in 1991. Although they basically contain legal requirements, they are also motivated by ethical considerations and impact on corporate behavior in ethical terms as well, which is, however, not easy to assess. Because the problem of bribery cannot be solved satisfactorily at the level of the individual, the individual firm, or even a particular industry, the drafters of FCPA recognized that the government had to face the problem at the highest level it could. But because it is in fact an international one, it can be fully resolved only at the level of international agreement (see De George 1993: 102-105). After almost 20 years of the US acting solo, the

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members of the Organization for Economic Development and Cooperation (OECD) now seem to join the US efforts of fighting against corruption. The "new" US Sentencing Commission guidelines are "a wake-up call for corporate America"1 because "rational business organizations are now compelled to sharply intensify their attention to managerial ethics"2. The guidelines (meant for judges, not for corporations) target corporate and other institutional offenders, but also members of the board of directors, like in a recent Delaware Court decision (Ethikos 1997, 10/4). They create uniform penalties and emphasize greater deterrence and punishment of corporate crime. Notably, they set out factors that either mitigate or aggravate sanctions for offenders, which can vary considerably according to the "culpability scores." (Examples show a range between $160 million and $2 million.) They are increased by: prior violations; violating an injunction, probation, or a court order; obstructing justice; or top management's involvement in or knowledge of illegality. Conversely, an organization can reduce its culpability score and thus sanctions for wrongdoing by demonstrating it had an effective compliance program in place to deter, detect, and punish organizational wrongdoing; the compliance program should include disclosing any wrongdoing to the government after the organization detects it and cooperating in any government investigation of the wrongdoing (see Spencer/Sims 1995: chapter 4). In the first years after 1991, the number of cases and the amounts of fines depicted a "still developing" picture. The average fine in 1994 was approximately $420,000, the average fraud fine about $1,000,000, and the highest single fine $15.5 million (involving an environmental fraud office; Ethikos 1995, 9/1). In the meantime, huge penalties were meted out to Daiwa Bank ($340 million; see Ethikos, 9/6, 1996) and Archer-Daniels-Midland ($100 million). Thus, it is not surprising that the new guidelines have created a boom-let in corporate demand for the service of outside counsel and business ethics consultants who can create ethics programs, and that the new law is beginning to have a shadow effect, impacting cases other than those brought directly under the guidelines (Ethikos 1993, 6/6, and 1995, 9/1). All three factors outlined above - corporate misconduct, societal groups' activism, and legal developments - have certainly considerably contributed, at different points in time, to the emergence of business ethics in its present form, although those various influences can be hardly assessed with precision. However, business ethics would not be what it is today if two further factors had not come into play, exerting decisive influence on the shaping of the philosophy and practice of business ethics: the teaching at colleges and universities that began in the late 1970s and the change from more reactive to more 1 2

see Dalton/Metzger/Hill (1994) Dalton/Metzger/Hill (1994): p. 7

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proactive attitudes and behaviors of businesses and businesspeople, which have been strengthened and have become more visible since the late 1980s. Both factors reinforced the concentration on issues at the micro- and the meso-level while neglecting macro-issues. To understand the current philosophy of business and corporate ethics, one has to keep in mind, as W. Shaw correctly points out3, that business ethics as an academic field or university specialty did not begin with advanced research work (like feminist philosophy or post-modern philosophy), which could have satisfied the high standards of philosophers and social scientists. Rather, it emerged because there was a demand for courses in business ethics that might help prepare students for the moral decisions and dilemmas they were likely to face in their working lives. Moreover, the universities were generally given a positive role to play in furthering public discussion of the social responsibilities of business. Today almost all colleges and universities offer such courses and 42 endowed chairs and professorship of business ethics and ethics in the professions exist in the USA and Canada. The fact that the teaching of business ethics came first involved a couple of implications that can be perceived more clearly in retrospect. Particularly in business schools and MBA-Programs, business ethics had to struggle primarily with questions of what we ought to do as (future) employees and managers rather than with questions of how we can "understand the world". However, the existing academic disciplines were not prepared to address this type of questions because, for methodological or other reasons, the prevailing understanding of social sciences, including economics, refrains from, or even denies the possibility of, making moral judgments and engaging in ethical reasoning. Only the two disciplines of management and philosophy, having a certain affinity to these normative issues, could readjust to these new demands to some extent in a reasonable period of time: Experts in management trained to deal with decision-making, mostly from a practical perspective without philosophical underpinning; and philosophers benefiting from John Rawls' groundbreaking advances in political philosophy and applied ethics and qualified to address ethical issues in business, usually without formal training in management or economics. As welcome as this introduction of business ethics to academia might be, it also had its down sides. The traditional split between management science and economics in the US system of higher education, already hard to overcome in traditional terms of social sciences, greatly influenced the development of business ethics by widely neglecting the cooperation with economists who often deal with broader macro-issues. To be fair, one should also mention that most economists were hardly prepared and inclined for such a cooperation, 3

Shaw, W.H. (1996): pp. 490-492

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except a relatively small group of experts in the field of "ethics and economics" (see, e.g., the groundbreaking work of Amartya Sen and the review Economics and Philosophy, since 1986). Moreover, the strong emphasis on teaching came at the expense of comprehensive research, although an academic specialty of business ethics has developed over the years that undoubtedly is more than a fad, but it has not reached a mature stage yet either. The various, mostly philosophical approaches to business ethics discussed in the next chapter offer an interesting picture on recent theoretical developments without, though, taking into account empirical research work.

3.3 Rival Approaches to Business and Corporate Ethics Before discussing the differences in approaching business and corporate ethics, I should point to the common understanding of all these approaches. In line with Kenneth Goodpaster's view (1982), they conceive the ethical dimension as essential as the economic and legal dimensions of the corporation and, thereby, definitively open the narrow and exclusive understanding of the enterprise as a merely economic and legal entity (see Friedman 1970 as a prominent example). This broader conception is also reflected in the Caux Roundtable "Principles for Business", the introduction of which succinctly states: "Laws and market forces are necessary but (are) insufficient guides for conduct." Consequently, as Lynn Paine (1996) put it, "moral thinking in management (is) an essential capability". Certainly, this conceptual framework goes beyond the notions of ethics as a niche and instrumental rationality, stances exemplified by two experts in management science. Archie Carroll (1979, 1995) identifies four kinds of Total Corporate Social Responsibility: economic, legal, ethical, and discretionary (philanthropic) responsibility. Ethical responsibilities "embrace those activities, practices or behaviors that are expected (in a positive sense) or prohibited (in a negative sense) by societal members though they are not codified in law"4. They are conceived as being on equal foot with, and juxtaposed to, the other three kinds. This view involves that the "ethical" has some specific content which is different from the other ones. So the "ethical" has a legitimate, though relatively small "niche" in corporate affairs. The second example is the notion of ethics expressed by Jerry Wind and others (1993) in "Pace-Setting 21st Century Enterprises: A Glimpse of What Might Emerge." Like in an increasing number of statements by American corporations, ethics is mentioned explicitly and plays an important role; however, 4

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only the role of instrumental rationality is described, i.e., as a means to achieve the enterprise's objectives which are not viewed and examined from an ethical point of view. Ethics has its place neither in Vision and Leadership nor in Business Drivers (innovation and quality). Rather, it is a component of the Organizational Architecture and as such on an equal footing with Organizational Design, Human Resources and Empowerment, and Technological Change. All these components affect the Architecture of a 21st century's enterprises in important ways and thus should be used to implement their visions. In my opinion, to qualify the ethical dimension as equally essential as the economic and legal dimension represents a major breakthrough in the mainstream literature on economic organization, which, of course, can take a variety of forms. I first critically present four different "older" approaches and then briefly comment on some more recent proposals. They reflect the situation of businesses in the USA in the last decades and take up important problems and challenges these businesses face. However, it seems to me that, roughly speaking, they in varying degrees do not directly focus on substantive issues in a comprehensive way.

3.3.1

Corporate Social Responsibility

The discussions on corporate social responsibility (CSR) cover a wide range of topics and can hardly be summarized in an extensive review, let alone in a few sentences. On the one hand, for a considerable number of scholars, CSR with its different variants has epitomized the "Business-and-Society Thought" (Frederick 1994, Mitnick 1995) in the context of the broader "Social Issues in Management" research (reviewed by Carroll 1994). In 1989 the approach was "internationalized" with the creation of the International Association for Business and Society (IABS) that since then has organized annual conferences. The annotated bibliography of the 1990-1995 IABS annual proceedings (Business and Society, September 1996) contains an informative overview of almost 500 research questions grouped in seven parts: (1) Business ethics, values, and ideology; (2) Business-government relationships; (3) Social issues; (4) Environmental management and regulation; (5) corporate social performance; (6) Research issues; and (7) Teaching issues. Yet, as mentioned above, the concept of corporate social responsibility seems rather vague and in need of conceptual clarification. Compared to the stakeholder approach and the social contract theories, it seems fair to say that the discussions on corporate social responsibility are more focused on substantive issues (hence the emphasis on corporate social performance by Wood 1991 and others). Nonetheless, the contents of ethical

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responsibility of business are conceived as either rather narrow (i.e., as a "niche" as already mentioned above) or extremely broad (encompassing the "society" as a whole). As for the basic relationship between business (i.e., companies) and society, it is frequently understood as an immediate link that is not intermediated by the "economic system" (as if this systemic level did not matter). Moreover, the depth dimension of ethics seems to be absent or, at least, very hidden and insufficiently treated (see also Swanson's critique 1995).

3.3.2

Stakeholder Approach

Since Edward Freeman' seminal work in 1984, the stakeholder approach has gathered much momentum in North America and beyond (Ackoff 1994, Boatright 1994, Burton and Dunn 1996, Clarkson 1995 and 1995a, Donaldson and Preston 1995, Gilbert 1995, Goodpaster 1991, Jones 1995, Nasi 1995, The Toronto Conference 1996). By now, a large consensus exists over the stakeholder concept itself (Freeman 1984): A stakeholder is any group or individual who can affect or is affected by the achievement of a corporation's purpose.

An important reason for this wide dissemination is undoubtedly its forceful push to open the narrow conception of corporate responsibility geared only to the stockholders by including other "stakeholders" as well (such as customers, employees, suppliers, local communities, even competitors, who more often are mentioned in Japanese than Western discussions). A prominent example of the stakeholder approach at the international level are the Caux Roundtable "Principles for Business" (1994), which, by the way, also include competitors. As Donaldson and Preston argue (1995), the stakeholder approach has reached a crossroad. While agreeing with this view, I would add that this is true not only from a theoretical but also conceptual point of view. The stakeholder concept does not focus on the contents of ethically responsible corporate conduct; rather, it concentrates on groups and individuals ("stakeholders") who are affected by corporate conduct, to whom the firm is supposed to be responsible or accountable, and with whom the contents of responsibilities may be negotiated. However, by listening to, and negotiating with, the stakeholders, the question about the specific contents of corporate responsibilities is not yet answered and avoidance of corporate control is feasible (see Huse/Eide. 1996). Therefore, these different responsibilities should be addressed directly in order to better capture the potential conflicts and overlaps in terms of contents (see Enderle/Tavis 1997; also Freeman's recent call for "a reasonable

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pluralism" regarding the normative core of stakeholder thinking in Freeman 1995: 46). By the same token, this critique does not mean that the stakeholder approach should be dismissed. If one strongly emphasizes the content part, one runs the risk of an elitism that fails to listen to the voices of the stakeholders.

3.3.3

Social Contract Theory

Based on the idea of social contracts between business and society, this approach is theoretically further developed than the two previously discussed ones. It grew out of the Western "contractarian" tradition and now consists of mainly US contributions (Keeley 1988; Donaldson/Dunfee 1994 and 1995; Post 1996; a proposed revision by Taka 1996). Because the theoretical questions cannot be properly discussed in this article, it suffices to point to some conceptual issues. The Integrative Social Contracts Theory of Donaldson and Dunfee provides a formal framework which allows for moral ("authentic") norms in economic communities and, at the same time, maintains the need for universal hypernorms to which the local norms remain subject for legitimacy. Designed as a "communitarian" approach to address ethical issues in an increasingly international business environment, it attempts to reconcile local ethical cultures and universal ethical standards. Although strongly influenced by John Rawls' thoughts in struggling with normative questions, the authors, unlike Rawls, do not deal with developing substantive norms. While the contents of corporate responsibility have to be developed by the economic communities and are subject to the test of legitimacy by hypernorms, the Integrative Social Contracts Theory does not specify these contents in any way.

3.3.4

Virtue Ethics

Criticizing contemporary moral philosophy's characteristic emphasis on rationalistic theories and abstract moral principles, this approach reflects a recent resurgence of interest among ethicists in Aristotle and the tradition of virtue ethics (Solomon 1992 and others), further reinforced by feminist ethics. The central question of human existence - What sort of life should I strive to live? - should be placed in the business context. Instead of trying to identify and conform to abstract moral principles, we need to ask ourselves who we are, where our attachments and commitments lie, what kind of persons we want to be, and what sort of excellence we are trying to achieve in our lives. For today's students just as for Aristotle's students, morality is a matter of character, a product of habit and social training. The focus of interest is the

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moral agent in a person's concrete context, who needs moral sensitivity, practical wisdom, a commitment to certain core values, and the willingness to tolerate moral ambiguity and accept moral complexity (see Shaw's characterization, 1996). In short, virtue ethics heavily concentrates on the person-to-be rather than on the choices-to-make and the actions-to-take. It basically deals with issues at the micro-level, although it could be, and in some instances it is, extended to the level of the virtuous organization. Certainly, the virtue approach rightly emphasizes the importance of the individual (that does not exist in most social science theories and is neglected in many ethical theories as well). However, it does not specify the contents of the virtues (Nietzsche as well as Aristotle belong to the tradition of virtue ethics), and it proves of questionable value in helping us to resolve specific problems. Given its stress on particularity and context-relatedness, it appears to be badly prepared (or even unable) to address complex ethical issues in a pluralistic society and global economy.

3.3.5

Integrity Approaches

Somewhat in line with the virtue approach, the call for managing for organizational integrity by Lynn Paine (1994) also highlights the identity of the moral actor and its consistent behavior, the importance of being of, and acting with (not only talking of), integrity, and the aspiration for excellence. At the same time, it definitely goes beyond virtue ethics by targeting organizational ethics that shape individuals' behavior and for the shaping of which executives play an important role and bear corresponding responsibility. With a number of Harvard Business School case studies (both good and bad examples), Paine shows in an almost narrative way what organizational integrity means and does not mean (Paine 1997). While the concept of integrity is not further discussed, it is used to mark the difference with a purely legal approach and to shed light on the limits of legal compliance programs required by the US Sentencing Guidelines. An integrity-based approach to ethics management combines a concern for the law (in both its letter and its spirit, added by G. E.) with an emphasis on managerial responsibility for ethical behavior. Though integrity strategies may vary in design and scope, all strive to define companies' guiding values, aspirations, and patterns of thought and conduct. When integrated into the day-to-day operations of an organization, such strategies can help prevent damaging ethical lapses while tapping into powerful human impulses for moral thought and action. Then an ethical framework becomes no longer a burdensome constraint within which companies must operate, but the governing ethos of an organization.5

5

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Competing with integrity is the central theme of Richard De George's book on international business ethics. It involves two aspects: "to act in accordance with one's highest self-accepted norms of behavior" and "to impose on oneself the norms demanded by ethics and morality" 6 . Thus corporate ethical norms are self-imposed, not merely dictated by from outside the companies; but, in contrast with organizations like the Mafia, the norms must be "ethically justified", whatever that means. Integrity implies a strong emphasis on the autonomy of the firm and of the top managers, i.e., to act willingly, knowingly, purposefully, and in command of one's action. Autonomy entails corresponding ethical responsibility which encompasses three different kinds of requirement: (1) respecting the ethical minimum; (2) fulfilling positive obligations; and (3) striving for ethical ideals incorporated in the goals of the actor (De George 1993, Chapter 10). By indicating a comprehensive notion of integrity, this threefold distinction helps to not only differentiate the simple question as to whether or not a company is "an ethical company", but it also involves many implications that, particularly in international business, need a great deal of further discussion.

3.3.6

Bridges to the Firm in Economic Theory

As mentioned above, struggling with issues of "ethics and economics" has so far experienced a "Cinderella" existence in business ethics circles, despite scattered attempts from within these circles to improve its status (see, e.g., Business Ethics and Agency Theory, Bowie/Freeman 1992). A new endeavor is made by John Boatright (1996). He proposes the modern contractual theory of the firm, developed in financial economics and corporate law, as an important framework for research in business ethics, conducted from both a descriptive and a normative perspective. Within this framework, the firm is conceived as "a nexus of contracts" with various constituencies or stakeholder groups, the interests of which business ethics should protect or serve. Using fairly developed analytical tools, business ethics can address major problems such as wrongful harms, misallocations, and misappropriations and apply the main solutions, well-known in the relevant literatures, namely the adoption of tort remedies, the expansion of management responsibility, and political action, including government regulation. The author concedes that this approach does not address all business ethics problems, but challenges business ethicists to develop the contractual framework as a necessary first step towards a rival theory with the same intellectual rigor and explanatory power. While welcoming this new initiative that could improve the dialogue with colleagues in financial economics and corporate law, I wonder how much po6

De George, R. (1993): p. 6

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tential this proposal really involves. To begin with, the concept of the firm as "a nexus of contracts" dismisses all the issues concerning its identity and moral agency. Reputation, trust, integrity, and the like would barely have an appropriate place in this approach (see the previous section on integrity). In addition, the contractual theory of the firm represents only one, though important, approach in understanding the firm in economic theory, which, according to Harold Demsetz (1997), is undergoing "a quiet revolution". Furthermore, a multitude of complex foundational implications are at stake which not only need serious and sustained attention but also greatly affect the business ethics conclusions drawn from the contractual framework.

3.3.7

The American Corporation

To wind up this section on rival approaches to business and corporate ethics in the USA, I would like to briefly comment on four monographs about The American Corporation, which distinguish themselves by four very different perspectives. James Kuhn and Donald Shriver's book Beyond Success (1991) emerged from years of the joint teaching of a course to develop dialogue between future business managers and future theologians, and covers important developments of the US corporations in the 20th century. It shows how corporate constituencies (consumers, employees, and the public, but also Wall Street and shareholders) evolved from a long-standing American tradition of voluntary association and how they used market mechanisms, ultimately finding them inadequate to the tasks at hand. On the other hand, managers often took an ambiguous stance vis-à-vis these constituencies. Although committed to market values, they not infrequently departed from the values of competition, efficiency, and individualism and achieved better results for their businesses and society at large. The author's conclusion: Both parties need each other as checks on the partial visions of each, if some larger vision is to guide us beyond (economic) success. The Heroic Enterprise by John Hood (1996) is a kind of counterclaim to Kuhn and Shriver's book and reminds us, in strange terms, of the "virtuous" company: The more the enterprise sticks to its purely economic mission, the better it serves the common good. The heroic enterprise fulfills its social responsibility if, and only if, within the law, it sets profit maximization above all else. Laws and market forces are the only guides for corporate conduct while ethics has no place. Philanthropy, "rightsizing" (of employment), educational initiatives, revitalizing America s cities, promoting health and wealth, selling safety, and a nurturing nature should be extensively used as mere means to in-

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crease the wealth of shareholders. Other benefits like customers satisfaction, employees meaningful work, and environmental protection do not have any intrinsic value. Unfortunately, such a "heroic" behavior is disdained by the illdisposed media and critical academics. But, as the author claims, it alone will save the "free enterprise system". Far beyond ideological rhetoric, John Danley (1994) clarifies and evaluates the crucial debate about corporate responsibility by providing a philosophical analysis of the fundamental question underlying it: What role should the modern corporation play in a free society? The study reconstructs and critically evaluates the arguments that have been used to support the two opposing ideologies generally associated with this century-old debate: the classical business ideology, which holds that a corporation's chief responsibility is to maximize stockholders' profits, and the managerial ideology, which views corporate responsibility in a broader context of increased social responsibility. However, in light of the globalization of markets and the trans-nationalization of the large corporations, the author concludes that these contending conceptions are inadequate and increasingly irrelevant and obsolete. The fourth monograph by William Frederick (1995), Values, Nature, and Culture in the American Corporation, a wide-ranging and systematic work written over 12 years, notes the remarkable tensions that have long persisted between business and society. Identifying these tensions as basically valueconflicts, the author accordingly proposes a comprehensive value-solution. The tensions are generated by three value clusters that oppose, negate, and limit each other. Business operations encompass two of them, one that drives the firm in economically productive directions and another that imposes a hierarchy of rank order and coercive power on that productive economizing process. The third value cluster, lying outside the precincts of the business firm, is derived from ecological networks and integrated ecosystems. To solve these conflicts, a unique concept of technological values is proposed that reconciles business' economizing practices with the community's needs for ecological harmony and balance, and a new normative synthesis is developed that draws on major insights from natural science, social science, and philosophy. These brief remarks may give a snapshot of the broader discussion on The American Corporation in recent years and provide some "flesh" to the sometimes "abstract" and "philosophical" debates in business ethics. But they also indicate that these various approaches offer little help when it comes to the compelling question as to what companies and businesspeople ought to do in concrete and specific terms. So we now turn to Corporate America to see what practical business ethics initiatives have been taken.

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Business Ethics Initiatives in Practice: From a Reactive to a Proactive Approach?

To give a reasonable overview of business ethics activities in the business world is even more difficult than in academia. I therefore use the structure of the landmark report Ethics in American Business: Policies, Programs and Perceptions by the Ethics Resource Center (1994) in order to somewhat organize the findings. This report is based on a large national sample of employees and managers (4,035 respondents) to examine their attitudes toward ethics issues and programs in their own companies. In its introduction, it says: The apparent decline in positive public attitudes about business in recent years has refocused attention on the importance of ethics in business conduct. It is ironic that this deterioration of public confidence has occurred amidst substantial initiatives on the part of corporations about business ethics. These programs include the adoption of codes of conduct, the introduction of ethics into employee and management training, and the establishment of ethics and compliance officers. 7

3.4.1

Substantial initiatives

Skeptics often dismiss ethics initiatives of corporations as window-dressing, fads, subtle tools of enhancing the bottom line, or even as hypocritical postures. Admittedly, these possibilities cannot and should not be excluded since many instances provide evidence enough where companies and people "do not walk the talk." However, to contend that this is what ethics initiatives are all about is a sweeping judgment that is neither realistic nor fair. In fact, the person who pays closer attention to these activities, that often have a long track record in the company's history and normally include mixed motivations, has a more nuanced view and can recognize the commitment involved. To give a few examples of such commitments. The Conference Board which "strives to be the leading global business membership organization that enables senior executives from all industries to explore and exchange ideas of impact on business policy and practices" (excerpt from its mission statement 1996), has, in the last 10 years, published a number of reports and organized a series of conferences on business ethics (The Conference Board 1987, 1992, 1994, 1996). The Board does not intend to promulgate moral appeals and ethical theories, rather to focus on down-to-earth practices such as: how companies are handling business ethics; how they define the organization's basic ethical principles and increase employee sensitivity to ethical issues; how senior executives respond to practical situations that pose ethical dilemmas; 7

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and what experiences companies make with specific issues such as the impact of hot lines, the globalization of ethics programs, and best practices of handling ethics investigations. A second example is the Defense Industry Initiative (DII) on Business Ethics and Conduct which was launched in 1986 by 17 defense contractors in the wake of the contracting scandals in the early- and mid-1980s. It required member companies to implement and promote: codes of ethics, ethics training programs, internal reporting mechanisms for alleged misconduct (such as hotlines), systems to monitor compliance, participation in "Best Practices Forums", and accountability to the public. After seven years, the list of DII signatories has expanded to 60 including the nation's 10 largest defense contractors, and 23 of the 25 largest defense firms, and the DII's evaluation is quite positive. Programs have been institutionalized [...] Overall, one of the most reassuring things we've learned is that there are a lot of tangible benefits. We've found a correlation between doing all these things - hotlines, ethics training, codes of conduct - and compliance achieved. The number of compliance problems has gone down dramatically. (A.R. Yuspeh, DII coordinator, in Ethikos 7/5, 1994).

Thirdly, in 1990 the Chemical Manufacturers Association (CMA) announced The Responsible Care Initiative in order to continuously improve performance in health, safety, and environmental protection. The chemical industry's pledge: the "legacy we leave for the next generation depends on our actions, not our words." In the meantime, the industry is beginning to deliver on its promises. Emissions of toxic chemicals have been slashed by nearly 50 percent (1987-1993), even as production has climbed sharply. And the initiative is receiving high marks from its critics for responding openly and honestly to public concerns about chemicals. At the heart of Responsible Care are ten guiding principles, implemented through six codes of management practices, which cover all activities of the chemical industry. Commitment to Responsible Care is a condition of membership, which transformed CMA as an organization, adding quasi-regulatory responsibilities. Failure to comply can lead to expulsion. To enhance compliance, CMA established a third-party verification system and concrete performance measures. Since its introduction, Responsible Care has been adopted by 41 national chemical associations in North and South America, Europe, Africa, Asia, and Australia (1996). In the last 15-plus years, many more organizations have made serious efforts to institutionalize business ethics, which can be clustered in three sets: codes of conduct, ethics training, and ethics officers. Often times businesses were pressed by outside forces (see Section "Origins and Focus"), but increasingly they are moving from more reactive towards more proactive attitudes and behaviors, supported not the least by the new US Sentencing Guidelines.

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Codes of conduct

Codes and ethics statements including three basic formats of compliance codes, corporate credos, and management philosophy statements are a relatively old and simple form of institutionalizing business ethics and appear to be more widespread in large and North American companies than in smaller and European counterparts (see the Conference Board 1992 and Ethics Resource Center 1994). Interestingly, a code of conduct as the sole component of an ethics initiative seemed to produce employee attitudes and perceptions more negative than where nothing was done (Ethics Resource Center 1994: 7). This finding may indicate that half-hearted and inconsistent measures tend to be rather counterproductive than conducive to better ethical conduct. Also, the studies by Messick and others (1996) emphasized the need to broaden the concept of codes of conduct beyond written or oral "statements" and include comprehensive organizational patterns of attitudes and behavior. As the initiatives of the Defense Industry and Chemical Manufacturers show, codes can be designed by, and addressed to, whole industries, which requires a wide and sustained process of decision-making and implementation. Even more challenging are attempts that involve not only companies but also government agencies and a variety of non-governmental organizations. A case in point is the drafting of an international code for drug donation (see ND conference).

3.4.3

Ethics training

To conduct ethics training in companies implies that business has an educational role to play and expects some positive effects of these efforts. Of course, if one adopts the view that "All I Really Need to Know I Learned in Kindergarten" (Fulghum 1986) ethics training is a waste of time and futile. However, given the decreasing influence of the traditional educators in society - families, churches, and the military - and the increasing impact of business on the people's lives, companies can not but exert an educational role. The question is not whether or not they play such a role, but rather what role they should play. To put the discussion about ethics training in this broader context appears important for trainers and trainees alike. Ethics training programs can take multiple forms (see, e.g., Raychem's practical approach in Ethikos, 10/2, 1996, and Marvin Brown's pedagocical approach, 1997). Well designed, they allow for personal involvement of, and dialogue among, the participants. They can increase moral sensitivity and develop skills in making good decision on controversial issues where the simple application of strict rules does not work.

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According to the report of the Ethics Resource Center: Ethics training as a supplement to a code of conduct, appeared to substantially increase the effectiveness of a corporate code of conduct in guiding business decisions and behavior. Comprehensive ethics programs appeared to correlate strongly with improved employee attitudes toward ethics of their own organization and its management. 8

3.4.4

Ethics officers

"Nothing changes if not specific persons take responsibility." This might be the conviction that led to a new profession in corporate America, the ethics officer, and the professional Ethics Officer Association, founded in 1992 and organizing conferences and workshops on a regular basis. Ethics officers, usually of the rank of vice presidents or higher, may have different names like director of ethics compliance, director of internal audit, senior vice president, environment and business practices, senior vice president, human resources, or ombudsman. But they share common concerns and discuss strategies and problems as follows: how to enlist top management support; how to set up effective ethics programs and processes; how to measure progress; how to answer skeptics; how to support and encourage employee's adherence to organizational values, and more. As for the dissemination of this new profession, the survey mentioned above reports that 33 percent of the respondents worked for companies that had ethics offices or ethics ombudsmen (hereinafter "ethics office"). Fifty-one percent worked for companies without such an office, and 16 percent said they did not know if their companies had an ethics office. This recent development in the business ethics movement, strongly reinforced by the US Sentencing Guidelines of 1991, appears to be uniquely American and might be hardly expanded to companies in other parts of the world. Yet, even if this specific form of professionalization cannot and perhaps should not be exported, the question still remains as to how the underlying concern of dealing with concrete and complex ethical issues in corporate life can taken seriously and addressed effectively, maybe in other forms.

3.4.5

Business ethics awards

As the report of the Ethics Resource Center (1994) points out, the situation in the mid-1990s is somewhat ironic: while public confidence is deteriorating, substantial initiatives on the part of corporations about business ethics are undertaken. In this context, business ethics awards appear to be particularly im8

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portant because, conferred by independent, non-business organizations, they can kill two birds with one stone: providing recognition and publicity to companies with serious and long-term ethical commitments (which is an indispensable support in a market economy) and helping people to better distinguish between good guys and bad guys (which is the only way of effectively improving public confidence). To illustrate, two established awards are briefly introduced. The Council on Economic Priorities (CEP) established the Corporate Conscience Awards in 1987 to celebrate its 20th anniversary and has since then singled out a few companies every year, based on standards developed in CEP's studies and subsequent corporate accountability publications and (since 1993) conferred by a judging panel of experts from business, academia, and non-governmental organizations. Table 1 presents the winners in the various categories from 1993 to 1997. Table 1

Corporate Conscience Award of the Council for Economic Priorities: Winners from 1993 to 1997

Specific Areas of Social Responsibility Community Involvment

Responsiveness Equal Employment Environmental Global Ethics to Employees Opportunity Stewardship

1993 Clorox Company

Merck

Pitney Bowes

Digital Equipment Corporation, Aveda Corp.

(Conversion:) Galileo Electro-Optics

1994 Brooklyn Union Gas Company

SAS Institute

(Silver Anniversary Award:) Xerox Corporation, Shorebank Corporation

S.C. Johnson & Son, Inc.Stonyfield Farm, Inc.

Levi Strauss

1995 ColgatePalmolive, Timberland Company

Polaroid Corporation

The Coca Cola Company

New England Electric Company

Merck

1996 Pfizer, Inc., Working Assets Funding Service

Hewlett Packard

Fannie Mae

Enron, Natural Intern. HuCotton Colman Rights: ours, Inc. Starbucks Coffee, Child Labor. Veillon (Switzerland), Community: Fuji Xerox (Japan),

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Table 1

Corporate Conscience Award of the Council for Economic Priorities: Winners from 1993 to 1997 (cont.)

Specific Areas of Social Responsibility Community Involvment

Responsiveness Equal Employment Environmental Global Ethics Stewardship to Employees Opportunity

Environmental: Otto Versand (Germany) 1997 W.K. Kellogg Foundation and Kellogg Company

Community Pride Food Stores

Cooperative Home Care Associates, Inc.

Novo Nordisk (Denmark) J. Sainsbury (U.K.) W. Wilkening (Germany) Co-operative Bank (U.K.)

Source: CEP Research Reports

The magazine Business Ethics began its annual Business Ethics Award in 1989 to award three outstanding companies for: in 1989 "ethically excellent" firms of the Fortune 500 companies; in 1990 "outstanding emerging companies with a social agenda in mind"; in 1991 companies "not for perfection, but for progress [...] large and small, both old hands and newcomers to the concept of social responsibility." As for the subsequent years, Table 2 shows the focus, criteria, and winners from 1992 to 1996. Compared to the CEP approach (that can rely on a 25-year history), this initiative seems to be less firmly established, having, since 1994, a small judging panel with changing experts and less precise criteria of evaluation. The criteria, slightly developed since 1990, are the following in 1996 {Business Ethics 10/6, 1996): 1. 2. 3. 4. 5.

Be a leader in their field, out ahead of the pack, showing the way ethically. Have programs or initiatives in responsibility that demonstrate sincerity and ongoing vibrancy, and reach deep into the company. Have a significant presence on the national scene, so their ethical behavior sends a loud signal. Be a stand-out in at least one area, though recipients need not be perfect, nor even exemplary, in all areas. Have faced a challenging situation in recent years, and shown they can overcome it with integrity

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Looking at these initiatives from a critical point o f view, it is obvious that they involve a large number of implications about the methodologies o f data gathering, the identification and justification o f the ethical standards, and many other issues. However, this does not mean, in my opinion, that these attempts should be abandoned. Given the special importance o f business ethics awards in today's society, these initiatives should be continuously improved with the support from both business and academia. Table 2 :

Business Ethics Award of the magazine Business Ethics: Winners from 1992 to 1996

Company

Award

1992:

Springfield Remanufacturing For its innovations combining employee ownership with financial education for employees. Weirton Steel For using employee ownership as turnaround strategy in the struggling steel industry. Avis For its ground-breaking efforts in creating 100 percent employee ownership at a major corporation. 1993:

Aveda Levi Strauss Merck

For building environmentalism into every aspect of its business For its leadership in the area of human rights For building a reputation for putting human lives before profit.

1994:

Hewlett-Packard

Digital Equipment Corp.

Silicon Graphics

A humble giant in environmental efforts, communityoriented philanthropy, and affirmative action in hiring subcontractors In hard times, the bottom line remains the same: sustainable development, philanthropy, and commitment to the community. Star quality: employee conditions and community involvement.

1995:

Xerox Corp. Home Depot Inc. Odwalla Inc.

For unprecedented success with workplace diversity and employee relations For superior community involvement from all levels of the company. For incorporating outstanding environmentalism in everything it does.

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Table 2 :

Business Ethics Award of the magazine Business Ethics-. Winners from 1992 to 1996 (cont.)

Company 1996: General Motors Reebok BankAmerica National Labor Committee

Award For environmental excellence: putting the eco back in economics. For human rights initiatives: tackling with child labor. For general excellence in ethics: moving money responsibly. Catalyst Award for promoting human rights.

Source: Business Ethics. The Magazine of Socially Responsible Business

4

Two Types of Reasoning: The Intrinsic versus the Instrumental Value of Ethics

As discussed in the Sections "Origins and Focus", "Rival Approaches to Business and Corporate Ethics" and "Business Ethics Initiatives in Practice: from a Reactive to a Proactive Approach?", the present contours of business and corporate ethics in the USA are heavily influenced by both teaching requirements in academia, which is primarily focused on future managers (e.g., MBA-students), and publicly announced and increasingly proactive business initiatives. Underlying these peculiar characteristics are two types of reasoning as to why ethics matters: a traditional one and a more recent one. The traditional type, prominent in most ethical beliefs and theories, assigns intrinsic value to ethics: we ought to behave ethically because it is the right thing to do. The more recent type, traditionally called prudence, uses ethics as instrumental value and strategy: we ought to behave ethically because "it pays" to be ethical. As a matter of fact, this instrumental view is particularly attractive to business people and business students and has gained momentum in the recent business ethics discussion, not least because, often times, it appears to be a more compelling argument in a society that highly values economic success. Ethics can improve the bottom line, enhance teamwork, unify the workforce, increase productivity, strengthen global competitiveness, stimulate innovative solutions, and save many costs of unethical conduct. Also, the stakeholder approach can be understood in this light (as it is the case, for instance, in Freeman 1984): to satisfy all stakeholders as much as possible lies in the fundamental economic interest of the company. The instrumental type of reasoning is increasingly used by executives in board discussions, public statements, and shareholder meetings in order to

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justify, on economic grounds, social and environmental business practices that seem to contradict, at first sight, "economic sense." In my opinion, this argument should not be easily dismissed because economic and ethical arguments are not necessarily contradictory and can even reinforce each other. However, the instrumental use of ethics is questionable and self-defeating if the ends the instruments are supposed to serve are not subject to ethical examination. The instrumental view becomes the only relevant view. As long as ethics helps to increase the bottom line, it is used, and as soon as it impairs the pursuit of this end, it is rejected. As a result, hot only is ethics as intrinsic value considered irrelevant, but also ethics as instrumental value loses its credibility and power and can turn into a counterproductive force. In short, the widespread saying that "good ethics" and "good business" go hand in hand is both right and wrong (or, neither right nor wrong) and, therefore, needs further qualification.

5

Conclusions and Open Questions

By taking stock of business and corporate ethics in the USA, numerous features were brought to light, which appear genuinely American and hardly duplicable by other countries; to name a few: a certain outspokenness about ethics; implications of the big size of the country; particular experiences and a special business law tradition leading to the US Sentencing Guidelines; and a tendency to deal with ethical issues in primarily individual terms, which, among others, generated the ethics officer profession. Nonetheless, there are a number of suggestions non-US citizens can take from the "American experience." First, compared to business ethics approaches in Continental Europe and Latin countries, the US approaches are characterized by a determined practice-orientation. Business ethics has to deal with practical issues; otherwise, it misses its raison d'être. From a certain academic standpoint, this orientation may seem superficial, and, in fact, many quick-fix proposals support this view. However, struggling with practical issues can be a very complex endeavor because it involves both empirical-analytical and normative-ethical dimensions. It requires an appropriate philosophical underpinning that is provided, though rarely explicitly discussed, by US philosophers like John Dewey and John Rawls. Second, as a vast land with a young history, the USA carries the dream that you can do it if only you want it. To non-US citizens (and many US citizens as well), this belief seems overoptimistic and ignoring the multiple limitations of human existence and behavior. On the other hand, for those who use to stare at the limitations and systemic constraints for doing nothing, this American

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dream is an important challenge and can set free a large potential of forces and initiatives that otherwise would not have been activated. Third, the tendency of "personalizing" ethical issues and ignoring their institutional implications reflects the individualistic culture of the USA and can obstruct the view of more complex and interconnected problems. Yet, taken with moderation, it is an important reminder that individuals greatly matter in the field of business ethics and should not be dismissed as mere (and faceless) role players in organizations and systems. When institutional changes are needed, where should they come from if not initiated by individuals? Because the US approach to business ethics places strong emphasis on individuals, discussions about "ethics and leadership" have developed considerably in recent years and a vast literature has been published (see, e.g., the special issue of the Business Ethics Quarterly, January 1995). Fourth, seemingly contradictory to the "individualistic" approach, multiple efforts were made to institutionalize ethics in corporations in terms of codes of conduct, ethics training, and ethics officers. This widening of attention and this increasing interest in organizational ethics certainly have to do with many reasons, some of which were discussed above. It is also a consequence of the determined practice-orientation that requires new, effective strategies when the existent ones no longer serve the appropriate ends. Because the purely individualistic approach reveals itself to be insufficient to tackle the numerous ethical issues in and of business organizations, cooperation at all levels, based on a certain common ethical ground, is needed, whereby companies may use their self-regulatory competence to prevent recurrent misconduct and foster proactive behavior. As the previous chapter shows, business and corporate ethics in the USA have not yet reached a mature stage. Its field is essentially characterized by micro- and meso-issues. There is little truly interdisciplinary work, much less attempts to integrate these different perspectives. As for the cooperation between business practitioners and academics, some progress has been made (for instance, in organizations like the Ethics Officer Association and The Conference Board, and in the emerging field of business ethics consulting); yet much progress is needed. In what follows, a few open questions are discussed to conclude this overview article.

5.1 An Appropriate Ethics-related Concept of the Firm No one concept of the firm, implied in the discussion above, is appropriate for an integrated approach to business and corporate ethics because important issues can be excluded from ethical consideration by ignoring essential conceptual features of the subject. Reviewing the rival approaches in Section "Rival

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Approaches to Business and Corporate Ethics", three features in particular appear to be neglected. First, various approaches (especially the stakeholder approach, social contract theory, and virtue ethics) refrain from explicitly addressing the contents of corporate decisions and actions. On the one hand, this reluctance might be understandable, given the limitations of theoretical approaches; on the other hand, it results in shirking the responsibilities of struggling with complex and vital issues, for which practitioners may expect advise from business ethicists. Second, most approaches (except Kuhn and Shriver's) conceptualize the firm as a productive unit, a productive "animal", or a production function while completely ignoring its distributive dimension. However, not only in the economy but also in the firm, distributive issues permeate all internal and external relations of the firm, from the distribution of resource endowment to the distributive aspects of the production process and production outcome. Already from a comprehensive economic (and not only from an ethical) perspective, production and distribution are equally important dimensions which are closely interconnected. Therefore, it is too simple to assign efficiency issues to production and fairness issues to distribution. Efficiency also depends on distribution and fairness on production. Such a concept of the firm that balances the productive and distributive dimensions is both more sophisticated and more realistic, but its application in the field of corporate ethics has barely begun and is far away from achieving a mature stage. A third conceptual feature concerns the understanding of the firm as a unity with a certain identity and purpose. If the firm is defined as a "nexus of contracts", "corporate ethics" in the true sense of the word is, therefore, hardly possible because the concept of a "nexus" does not provide sufficient room to cope with the issues of moral agency of an organization. Notions such as corporate responsibility and accountability, integrity and reputation of the company, trust and (un-)ethical climate in the corporation would be purely metaphorical words without proper meaning. Of course, the ethics of organizations covers many complex issues which, though, are not resolved by squarely dismissing the questions. As a result, corporate ethics still faces a wide field of investigation.

5.2 Integrating Systemic Issues A striking and pervasive characteristic of business and corporate ethics in the USA is the weak interest, or even blindness, specifically for macro-issues that concern the economic system and public policies in economic and financial affairs. In fact, the emphasis on micro- and meso-issues implies the down-side of neglecting macro-issues (which, in principle, could be avoided on the basis

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of the three-level conception of business ethics). Not only in many textbooks but also in most research activities, these broader problems are not dealt with. As a case in point, the nearly 500 research questions discussed within the International Association for Business and Society (IABS) do not include issues of the economic system (see bibliography in Business and Society No. 3, 1996). This looks rather strange since the Business and Society tradition focuses on the relationship between business and society. Apparently, here, business means companies and people in companies, and society is the broad societal system without distinguishing between economic, political, sociocultural, and other (sub-) systems. The neglect of the macro-level also involves that the role of economics as an academic discipline that primarily investigates macro-issues, has less importance in narrowly defined business ethics, and is actually often considered to be negligible in this field. A further explanation of this lack of emphasis may be the fact that macro-issues are of less direct practical relevance for corporate decision-making and more difficult to teach to future managers. However, the far-reaching implications of the neglect of macro-issues should not be overlooked. In order to make "good" decisions in business and ethical terms, it is necessary to thoroughly understand the business environment. Macro-issues are in multiple ways connected with, and impact on, meso- and micro-issues. Instead of dismissing them as irrelevant, there is a strong need to reflect on them and take them into account more seriously. Keen awareness of, and careful dealing with, systemic issues particularly matter in the international context. To "export" one's own understanding of business and corporate ethics regardless of its macro-implications involves high risks for both exporters and importers in practice and academia. Not only serious misconceptions and misunderstandings but also the violation of other countries' ethic and culture, as well as harm in economic and social terms, can result.

5.3 Facing International Challenges At the turn to the next millennium, a wide range of major challenges with increasingly international implications loom on the horizon: sustainable development and poverty alleviation (as defined by the Brundtland Commission), fair and efficient markets with ethically acceptable environmental standards and working conditions, cultural and religious diversity, and a common ethical ground for international cooperation, to name a few. Because these challenges involve national and international aspects that are more and more interconnected, countries and companies can not but take position, explicitly or implicitly. For big and small players alike, the question is not whether or not, but how, they should face these challenges.

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In the USA, initiatives in this direction have grown considerably in recent years. The process of institutionalizing ethics in companies in terms of codes of conduct, ethics training, and ethics officers has gained strong impetus from globalization. At many conferences (see, e.g., The Conference Board 1992, 1994, 1996, and Minus 1993), international issues were important topics, and the Council on Economic Priorities began to award US and foreign companies for "global ethics." In academia too, the interest for, and publications on, ethical issues in international business are growing (see, e.g., Donaldson 1989, De George 1993, and special issues of the Business Ethics Quarterly in July 1997 and later). Nevertheless, these initiatives are only first steps and lack a critical mass to provide momentum for effectively influencing Corporate America. As it is the case in any learning process, individuals, companies, and countries need both internal factors, like insight and commitment, and external factors, like monitoring and public pressures, to change their attitudes and behavior.

References Ackoff, R.L. (1994), The Democratic Corporation. A Radical Prescription for Recreating Corporate America and Rediscovering Success. New York: Oxford University Press. Boatright, J.R. (1994), What's so special about Shareholders? Business Ethics Quarterly 4: 393-407 Boatright, J.R. (1996), Business Ethics and the Theory of the Firm, American Business Law Journal 34(2): 217-238 Bowie, N.E. and R.E. Freeman (eds.) (1992), Ethics and Agency Theory. An Introduction. New York: Oxford University Press. Brown, M.T. (1997), The Ethical Process. A Strategy for Making Good Decisions. Upper Saddle River, NJ: Prentice Hall. Burton, B.K. and C.P. Dunn (1996), Feminist Ethics as Moral Grounding for Stakeholder Theory, Business Ethics Quarterly 6: 133-147 Carroll, A.B. (1979), A Three-dimensional conceptual model of corporate social performance, Academy of Management Review 4: 497-505 Carroll, A.B. (1994), Social Issues in Management Research: Experts, Views, Analysis, and Commentary, Business and Society 33(1): 5-29 Carroll, A.B. (1995), Stakeholder Thinking in Three Models of Management Morality: A Perspective with Strategic Implications, in: J. Näsi (ed) (1995), Understanding Stakeholder Thinking, 47-74. Helsinki: LSR-Publications. Clarkson, M.B.E. (1995), A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance, The Acacemy of Management Review 20(1): 92-117 Clarkson, M.B.E. (1995a), The Management of Stakeholder Relationships in Totalitarian and Democratic Societies, in: D. Nigh, and D. Collins (eds.) (1995), International Association for Business and Society. 1995 Proceedings-. 216-221 Dalton, D.R., M.B. Metzger and J.W. Hill, (1994), The New US Sentencing Commission Guidelines: A Wake-up Call for Corporate America, The Academy of Management Executive 8(1): 7-16 Danley, J.R. (1994), The Role of the Modern Corporation in a Free Society. Notre Dame: Notre Dame University Press.

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De George, R.T. (1987), The Status of Business Ethics: Past and Future, Journal of Business Ethics 6: 201-211 De George, R.T. (1993), Competing with Integrity in International Business. New York: Oxford University Press. De George, R.T. (1996), The Myth of Corporate Social Responsibility: Ethics and International Business, in: J.W. Houck, and O.F. Williams (eds.), Is the Good Corporation Dead? Social Responsibility in a Global Economy. Boston: Rowman and Littlefield. Demsetz, H. (1997), The Firm in Economic Theory: A Quiet Revolution, AEA Papers and Proceedings 87(2): 426-429 Diamond, C. (1992), Integrity, in: L.C. Becker, and C.B. Becker (eds.) (1992), Encyclopedia of Ethics. New York: Garland. DiNorcia, V. (1997), Business Ethics in Canada: Distinctiveness and Directions, Journal of Business Ethics 16/6: 583-590 Donaldson, T. (1989), The Ethics of International Business. New York: Oxford University Press. Donaldson, T. and T.W. Dunfee (1994), Toward a Unified Conception of Business Ethics: Integrative Social Contracts Theory, The Acacemy of Management Review 19(2): 252284 Donaldson, T. and T.W. Dunfee, (1995), Integrative Social Contracts Theory. A Communitarian Conception of Economic Ethics, Economics and Philosophy 11: 85-112 Donaldson, T. and L.E. Preston (1995), The Stakeholder Theory of the Corporation: Concepts, Evicence, and Implications, The Acacemy of Management Review 20(1): 65-91 Dunfee, T.W. and P.H. Werhane (1997), Business Ethics in North America, Journal of Business Ethics, October. Enderle, G. (1983), Business Ethics in the USA: Overview and Reflections, Beiträge und Berichte des Instituts für Wirtschaftsethik, Nr. 2, Universität St. Gallen, Switzerland. Enderle, G. (1996), A Comparison of Business Ethics in North America and Continental Europe, Business Ethics - A European Review: 33-46 Enderle, G. (1997), A Worldwide Survey of Business Ethics in the 1990s, Journal of Business Ethics, October. Enderle, G. and L.A. Tavis (1997), A Balanced Concept of the Firm and the Measurement of Its Long-term Planning and Performance, Journal of Business Ethics. Epstein, E.M. (1989), Business Ethics, Corporate Good Citizenship and the Corporate Social Policy Process: A View from the United States, Journal of Business Ethics, 8/8: 583-595 Ethics Resource Center (1994), Ethics in American Business: Policies, Programs and Perceptions. A Report of a Landmark Survey of US Employees. Washington, D.C.: Ethics Resource Center. Frederick, W.C. (1994), From CSR, to CSR2: The Maturing of Business- and Society Thought, (and) Coda: 1994, Business and Society 33(2): 150-166 Frederick, W.C. (1995), Values, Nature, and Culture in the American Corporation. New York: Oxford University Press. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach. Boston: Pitman. Freeman, R.E. (1995), Stakeholder Thinking: The State of the Art in: J. Näsi (ed.). (1995), Understanding Stakeholder Thinking, 35-46. Helsinki: LSR-Publications. Friedman, M. (1970), The Social Responsibility of Business Is to Increase Its Profits, New York Times Magazine, September 13. Fulghum, R. (1986), All I Really Need to Know I Learned in Kindergarten. New York: Ivy Books.

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Gilbert, D.R. Jr. (1995), Management and Four Stakeholder Politics: Corporate Reengineering as a Crossroads Case, Business and Society 34(1): 90-97 Goodpaster, K.E. and B. John Jr. (1982), Can a Corporations Have a Conscience? Harvard Business Review, January-February. Goodpaster, K.E. (1991), Business Ethics and Stakeholder Analysis, Business Ethics Quarterly 1: 53-73 Hartley, R.F. (1993), Business Ethics: Violations of the Public Trust. New York: John Wiley. Hollister, B., R. Will and A.T. Marlin (1994), Shopping for a Better World. San Francisco: Sierra Club Books. Hood, J.M. (1996), The Heroic Enterprise. Business and the Common Good. New York: Free Press. Huse, M. and D. Eide (1996), Stakeholder Management and the Avoidance of Corporate Control, Business and Society 35(2): 211-243 Jones, T.M. (1995), Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics, The Academy of Management Review 20(2): 404-437 Jones, M.T. (1996), Missing the Forest for the Trees: A Critique of the Social Responsibility Concept and Discours, Business and Society 35(1): 7-41 Keeley, M. (1988), A Social-Contract Theory of Organizations. Notre Dame: University of Notre Dame Press. Kinder, P.D., S.D. Lydenberg and A.L. Domini (eds.) (1992), The Social Investment Almanac: A Comprehensive Guide to Socially Responsible Investing. New York: H. Holt and Co. Kuhn, J.W. and D.W. Shriver Jr. (1991), Beyond Success. Corporations and Their Critics in the 1990s. New York: Oxford University Press. Messick, D.M. and A.E. Tenbrunsel (eds.) (1996), Codes of Conduct: Behavioral Research into Business Ethics. New York: Russell Sage Foundation. Minus, P.M. (ed.) (1993), The Ethics of Business in a Global Economy, Dordrecht/Boston/ London: Kluwer Academic Publishers. Mitnick, B.M. (1995), Systematics and CSR: The Theory and Processes of Normative Referencing, Business and Society 34(1): 5-33 Nasi, J. (ed.). (1995), Understanding Stakeholder Thinking, Helsinki: LSR-Publications. Paine, L.S. (1994), Managing for Organizational Integrity, Harvard Business Review 72(2): 106-117 Paine, L.S. (1996), Moral Thinking in Management: An Essential Capability, Business Ethics Quarterly 6(4): 477-492 Paine, L.S. (1997), Cases in Leadership, Ethics, and Organizational Integrity. A Strategic Perspective. Chicago: Irwin. Pava, M.L. and J. Krausz (1995), Corporate Responsibility and Financial Performance. The Paradox of Social Cost. Westport, CT: Quorum Books. Post, J.E. (1996), The New Social Contract: in: J.W. Houck and O.F. Williams (eds.;, Is the Good Corporation Dead? Social Responsibility in a Global Economy. Boston: Rowman and Littlefield. Principles for Business (1994), The Hague. The Netherlands: Caux Round Table Secretariat. Shaw, W.H. (1996), Business Ethics Today: A Survey, Journal of Business Ethics 15: 489500 Solomon, R.C. (1992), Ethics and Excellence. Cooperation and Integrity in Business. New York: Oxford University Press.

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Spencer, M.P. and R.R. Sims (1995), Corporate Misconduct: The Legal, Societal, and Management Issues. Westport, CT: Quorum Books. Swanson, D.L. (1995), Addressing A Theoretical Problem by Reorienting the Corporate Social Performance Model, Academy of Management Review 20(1): 43-64 Talca, I. (1996), Revising Integrative Social Contracts Theory. Toward Solving the Awareness Issue in Japanese Management, Paper presented at the First World Congress of Business, Economics and Ethics, July 25-28, Tokyo: Japan. The Business Roundtable (1988), Corporate Ethics: A Prime Business Asset, New York: The Business Roundtable. The Conference Board (1987), Corporate Ethics, by R.E. Bereriheim. New York: The Conference Board. The Conference Board (1992), Corporate Ethics Practices, by R.E. Berenheim. New York: The Conference Board. The Conference Board (1994), Business Ethics: Generating Trust in the 1990s and Beyond. A Conference Report; edited by S.J. Garone. New York: The Conference Board. The Conference Board (1996), The Evolving Role of Ethics in Business. A Conference Report, edited by K.A. Edelman, New York: The Conference Board. The Toronto Conference: Reflections on Stakeholder Theory (1996), Business and Society 33(1): 82-131 Wind, J., R. Holland, A.P. Jr. West, R. Gunther, (1993), Pace-Setting 21st Century Enterprises: A Glimpse of What Might Emerge, SEI Center for Advanced Studies in Management, The Wharton School of the University of Pennsylvania, Philadelphia. Wood, D.J. (1991), Corporate Social Performance Revisited, Academy of Management Review 16: 691-718

Business Ethics in the Catholic Value System: The Spanish Case Adela Cortina

1

Towards an Intercultural Business Ethics

In 1993 S.P. Huntington published his already famous work The Clash of Civilizations? in which, amongst other aspects, he posed the hypothesis that the ideological conflict between social classes, which according to Marx has appeared through the whole history of man, is being replaced by a new form of conflict. This struggle has two traits distinguishing it from the classic class struggle: it is a confrontation between cultures, not between classes1, and does not need to be settled by violence, but can be dissolved through peaceful means, if there is a will to do so. Huntington's well-known thesis postulates that any interpretation of world relations after the Cold War must necessarily involve the possible clash between civilizations. It is quite true to say that such affirmations as these may well be exaggerated and questionable, but they nevertheless point to a real problem we are facing at this fin de siècle, which is that the ideal of lasting peace can no longer be single-centered. Differences between cultures are still quite real, cultural groups identify with the values in which they have been socialized and are unwilling to grant prominence to any one center when it comes down to building peace. To use an already well-worn expression, lasting peace will either be multi-centered or it will not be at all.2 However, precisely in order to construct a lasting world peace a universal ethics has to be discovered. When confronting universal challenges - said K.O. Apel as early as 1973 (Apel 1973: 359) - it is necessary to respond from the standpoint of universal ethics. As I myself indeed stated some years later, such an ethics should be a minimal ethics and should contain the values that any human being can share from his ethics of maximums, that is from a full conception of good and happy life (Cortina 1986). This does not mean that a 1

2

In fact, Huntington went so far as to say in a later article: "What ultimately counts for people is not political ideology nor economic interests. People identify with faith, blood and beliefs, and it is for these things that they will fight and die". This was one of the conclusions of the Conference on the Third Millennium held in Valencia from 23rd to 25th January 1997 and sponsored by UNESCO and the Ayuntamiento of Valencia.

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minimal ethics has to replace the different ethics of maximums, the different conceptions of good life, but simply that it is necessary to seek the minimums already shared by different cultures and groups in this ethics of maximums. This task in my opinion means that we are required to get an intercultural dialogue under way, one through which each culture can learn from the others and can also understand itself better, in a proper hermeneutic process. When undertaking this intercultural dialogue, the role that national states and also international concerns have to play is undoubtedly of importance. Nevertheless, in these times in which we are gradually becoming persuaded that the real citizen is one who does not only demand rights but also assumes responsibilities, it is essential that civil society should also assume its responsibility for gradually building an intercultural ethics. And in the context of civil society companies have special relevance. Companies are indeed forced to tackle the question of cultural diversity, as they are subject velis nolis to the imperatives of globalization, or world-wide extension. No company can put its stakes on one sole monetary market, be it that of the dollar, the Euro or the Yen, given the variations found between these. For this reason submitting to the imperative of globalization is -, a sine qua non condition for the company to survive. And this imperative will lead it to come up against cultural diversity, which the intelligent company will try to manage, in order to extract resources which improve its profitability from this, whilst the less intelligent company will try to avoid such diversity, wasting a chance for enrichment. For intelligent companies novelties are opportunities for improvement; for the less intelligent ones they are problems which have to be avoided, which is impossible anyway in this case because diversity is a fact. But on the other hand in these times, which have been characterized, amongst others, as the "age of organizations" (Drucker 1993) it is clear that companies, as key organizations in civil society, are essential for carrying out this intercultural dialogue properly. Taking up this dialogue process is thus an obligation for companies in at least two senses: (1) as a pragmatic imperative for survival, which forces them to keep competitive by managing diversity in a globalized economic world; (2) as an ethical imperative which orders them to cooperate responsibly in the civil task of building a lasting peace from a minimal intercultural ethics, persuaded that an understanding of foreign cultures is valuable in itself, and that it is furthermore essential for self-understanding. It thus seems clear that the companies that wish to survive at this fin de siècle period and which are willing to assume their social responsibility in building a lasting peace must incorporate a dialogical intercultural ethics as a management tool and a way to comply with a principle of responsibility. For this purpose they will have to make an attempt to understand better the values

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and customs - the mores of different societies. What specific values, what mores characterize the Spanish economic and business world? What has to be taken into account in this dialogue? Given that different peoples' ways of life are often ultimately guided by the majority's religion this work is expected to set out what the values and customs guiding any Spanish company are, with special emphasis on the ways the Catholic values affect these ways of life, as Catholicism has for centuries been the majority religion in Spain and still indeed is. As the task turns out to be complex, we shall attempt to approach the matter in four separate parts: 1) The influence of Catholicism on the attitude to the economy and the company in late medieval and modern Spain, that is, on the origins of capitalism. 2) The influence exerted by two positions taken by the Papacy: the Syllabus (1864) which condemns liberalism, and the Rerum Novarum (1891) which starts the ascending path of the Church's Social Doctrine, of so much influence in the positive valuation found in Spain of the Social Market Economy, as well as in the development of the Cooperative Movement in this country. 3) The takeoff of the Spanish company from 1960, during Franco's term in power, and the moral values that went along with this up to the consolidation of the welfare state. 4) The Business ethics of the nineties, in a morally pluralist society, brought into Europe, and concerned about the crisis of the welfare state, by Maastricht and by the phenomenon of globalization.

2

The Spanish World of Values at the Origins of Capitalism

If we accept Maclntyre's suggestion that we should attempt to detect the distinctive moral nature of an age in a certain country through what he calls its characters 3 we will come to an interesting result in the case of Spain. 3

According to Maclntyre, both Japanese Noh theatre and English medieval morality plays are distinguished by presenting a set of characters immediately recognized by the audience. These characters partially define the possibilities of the plot and the action. Understanding them is the equivalent of having the resources required to understand the work as a whole, because the other characters use them as reference marks as they perform. The same thing occurs, Maclntyre would say, in a certain sort of specific social rotes in certain cultures (Maclntyre 1985: 7).

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According to Maclntyre (1985: 28), the characters of an age are the [...] moral representatives of their culture, and they are so because of the way in which moral and metaphysical ideas and theories assume through them an embodied existence in the social world

so that the remaining actors perform taking these as reference marks. As examples of these characters he proposes the Public School Headmaster, the Explorer and the Engineer in Victorian England; the Prussian Officer, the Professor and the Social Democrat in Wilhelm's Germany. If we were to use this thought-provoking procedure to detect the moral system of values of medieval and modern Spain, we would notice that, in spite of the evolution taking place from one age to another, the most representative social characters would still be the Warrior, the Saint and the Rogue. None of these has the aim in life of generating material wealth and trading with this. The Warrior seeks glory, and, if wealth matters to him at all, it is the wealth obtained through conquest, royal favor or plundering. The Saint renounces wealth in its different forms and seeks unity with God from a stance of disinterestedness and detachment, whether this be through ascetics or a mystical approach. Lastly, the Rogue represents the other side of the coin. He is a poor devil, an anti-hero who makes every effort to live without working, in a world in which the search for either worldly or heavenly glory seems the only worthy aim. But precisely this attempt to survive at the cost of other's stupidity leads him to discover that the great ideals tend to be more of a facade than a reality, and comes through all his endeavors thoroughly fleeced. Of course, none of these characters sets any value on the work of producing material wealth and trading in this, and this could at first sight explain why Spain, in spite of forming part of Europe and having an excellent strategic position for trade, has not attained the same level of industrial and technological development as other European countries. The causes of this, rather than physical, rather than orographic or referring to mineral wealth, are instead cultural - a question of lifestyles (Tortella 1995: 5). In these lifestyles the value set by the Catholic Church on the production of material wealth could have been an influence. Indeed, if we accept Tawney's thesis (Tawney 1954) and that of Weber (Weber 1979) on the connection between the Protestant ethics and the emergence and development of capitalism, we will conclude that traditional Catholic culture in Spain curtailed the creation of wealth, whether direct or through trade, and that this is one of the main reasons why Spanish companies later lagged behind other European companies. Nevertheless, this affirmation receives a good deal of criticism today. Firstly, because one should remember, in so far as the theoretical dimension of the matter is concerned, that late medieval Spanish scholasticism (16th

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century), especially what is called the Salamanca School4, not only failed to condemn creating and trading in wealth, but could be said to have made a contribution to some of the roots of classic liberal thought5. Doctrines common to such authors as Vitoria, Soto, Molina6 or Valencia already contained in a rudimentary form what we would today consider liberal or capitalist premises in the field of private property, public financing, monetary theory, the theory of value, the theory of prices, salaries and profits. The late medieval scholars furthermore recognized the crucial importance of trade for carrying out work as a community and in peace, and for seeking the common good of all the different parts of the world (Chafuen 1986). Whilst on this matter, some authors have even stated that the Jesuits "encouraged the business spirit, freedom to speculate and the expansion of trade as social benefit. One may rest assured that the religion underlying the capitalist spirit is more Jesuitism than Calvinism" (Robertson 1973: 164)7. This is not however the thesis maintained, amongst others, by the traditionalist thinker R. de Maeztu. After a trip to the United States in 1925 he returned to Spain excited by the economic prosperity he had seen there. In his opinion, Weber's theory is right because the Protestant spirit generates a sentiment of religious reverence for efficiency and wealth. For this reason he writes (Maeztu 1957: 139)»: My ideal would consist of multiplying the leaders of industry, the model farmers, the great bankers, the businessmen [...] in Spanish-speaking countries. It is much harder to set up a business creating wealth than to distribute our fortune amongst the poor and go into a convent.

Encouraging a reverential attitude to money in Spanish-speaking countries was thus one of Maeztu's wishes, and did not seem an outlandish proposal to him as he thought that Catholicism was not incompatible with the creation of material wealth. 4

5

6 7

8

The Salamanca School consisted of a group of philosophers of natural law and theology who taught at the University of Salamanca and drew inspiration and instruction from the great Spanish Thomist, Francisco de Vitoria (GriceHutchison 1995:15-17). Chafuen attempts to show how the ideas of the Spanish scholars of the Salamanca School were conveyed to French, Dutch, German and Italian economists and how these ideas had an influence in the 18th century on Ferguson and Hutcheson (Chafuen 1986). Koslowski took the principle according to which obligatio oritur a natura rei from Luise de Molina (Koslowski 1986: 14,1988: 303). A statement which in my opinion should be balanced with the memory of Jesuit "companies" such as the Paraguayan Reducciones which were more of a prelude for what would become a cooperative Tradition than economic liberalism. My thanks to J.M. Lozano, professor of business ethics at ESADE, who provided me with this text by de Maeztu.

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It is obviously not the aim of this work to take a position in a discussion of such scope, but it does seem necessary to take note of the doubt cast on the thesis that in countries where the Catholic church has been predominant people have been more reluctant to develop a business spirit, precisely through the influence of Catholic values. In the case of Spain at least, it can be said that the ensemble of socio-political reasons as a whole has an extraordinary relevance and that economic development was not uniform over the whole Peninsula. As regards these socio-political factors, the nobility, supported by the monarchy and the church, prevailed in the conflict between the nobility and a budding bourgeoisie, so that modern Spain's absolute monarchy represents a pact between the King and the aristocracy, including the church, by means of which the sovereign took the political power and the nobility kept its monopoly over economic resources. This splitting of domains was not seriously threatened until the 19th century (Vicens Vives 1959) when Spain was involved in a lengthy civil war, after Napoleon's invasion. This would explain Spain's backwardness in industry and trade in the 19th century. Indeed the social groups that came out of the conflict on top - monarchy, nobility and church, had no reverential feeling for money earned by work. On the other hand the political and economic growth in the middle and modern ages is not uniform in different parts of Spain. The "Reconquest" lasted from the 8th to the 15th century and there is a considerable difference between the different Christian kingdoms, especially between the Crown of Castile and that of Aragon, of which Aragon, Valencia, Majorca and Barcelona formed part. Above all Valencia, Barcelona and Majorca developed a dynamic commercial system over the Mediterranean. Their participation in the Conquest of America is negligible as far as human resources are concerned, but extremely high in monetary resources: the Valencian Jew Luis de Santangel contributed the money for the conquest. The development of different Spanish nationalities is thus not the same in all parts, nor is this characterized by characters. If imperial Castile appreciates the Warrior and the Saint, even though there were plenty of rogues around; if it exalts the deals of conquest and aristocratic values, thereby curtailing productive work, the industrious and commercial life is a constant in Mediterranean Spain. And it is indeed curious that the two most industrialized regions in recent times, the Basque Country and Catalonia, are precisely those where the Catholic Church is most strongly rooted. This does not mean that it has been a determining factor in this industrialization process, which perhaps owes more to the traditional connection with England in the case of the Basque Country, and links with the rest of Europe in Catalonia's case.

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407

The Emergence of Social Market Economy in Spain

The 19th century saw the start of the reaction of the Catholic church against liberalism, which led to the separation between church and state and the privatization of religious faith. There was censure of modernism9 but also of an economic liberalism which, through making the desire for individual gain the driving force of the economy, could endanger the solidarity required for achieving the common good. This is how a period of confrontation between liberalism and the Catholic church began, one which would find an outlet through the Church's Social Doctrine, that was clearly expressed in Leon XIII's encyclical Rerum Novarum (1891). The intention of the Social Doctrine was to open a third channel, beyond selfish individualism as driving force of the economy, but also beyond the collectivism which cancels out personal conscience. For this reason it came into conflict with supporters of individualist liberalism and with collectivist movements such as Marxism both in Spain and in other countries. As a welldeveloped moral doctrine, it has nevertheless had a great influence on Spanish companies in recent times, and can in fact be found at the base of the social market economy in which it coincided with the social democrats. Indeed, the Spanish entrepreneurs which really did abide by the Church's Social Doctrine guidelines under Franco opted for a social model which bore fruit in specific endeavors, in groups such as Acción Social Empresarial or Fomento Social, and in a widespread and forceful cooperative movement, with such brilliant achievements as those of the Cooperativa de Mondragón in the Basque Country. The Spanish Constitution of 1978, negotiated by the different political groups, presented Spain as a Social and Democratic State, and opted for a Social Economy as being more equitable than one of egoistic individualism or inhuman collectivism. A real consensus of values was emerging in Spain, uniting that of the Catholic Businessman with social concern and that of the Socialists, who were giving up Marxism and in fact opting for social democracy. Spreading economic, social and cultural rights to all was thus the great task ahead.

4

From "Franquismo" to the Welfare State

In the sixties Spain started to undergo a genuine process of modernization and economic change. This was an extremely dynamic period on all levels, with 9

The condemnation is in the encyclical Miran vos by Pope Gregory XVI (1832) in the Syllabus by Pious IX (1864) in Libertas praestantissimum by Leon XIII (1888) and in Pious X's Lamentabili (1907).

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pioneer companies emerging and groups of highly diverse tendencies struggling for the country's democratization. The company developing in this context is a capitalist company, based on private ownership of production resources, free initiative and the profit motive; one which furthermore often enjoyed official protection, with customs barriers which penalized the import of foreign products, with an almost total dearth of tax policies and with pronounced paternalism in labor relations. It was at this time that the first business schools emerged - specifically, the IESE and ESADE, both set up in 1958, and respectively lying in the domain of the Opus Dei and the Jesuits, inspired in the broadest sense in the Church's Social Doctrine. From the ethical point of view, the situation is complex. In so far as official morals are concerned, after Franco's victory in the civil war (1936-39) and an ensuing period of ideological confusion, Franco's authoritarian regime assumed the official doctrine of the Catholic church as its ideological doctrine for legitimating political power. The phenomenon known as NationalCatholicism,10 was thus born, destined to have such a great effect on the way the different social groups would value ethics, and particularly business ethics, as Catholic morals became official morals. But at the same time different church movements, such as the Movimientos de Acción Católica (especially HOAC, JOC and JARC) or Cristianos por el Socialismo, some magazines, such as El Ciervo and Iglesia Viva, came into conflict with Franco's regime on grounds of social justice, demanding a moral doctrine that was not Marxist, but indeed fitting for a democratic socialism (Diaz Salazar 1981/Pérez Díaz 1993: 91-206). One can place in this context the work of particular businessmen and the emergence of the Cooperative Movement, which conceived property and worker participation in the company in an utterly different way to the predominant one, and the appearance of groups such as Acción Social Empresarial (ASE) or Fomento Social. National-Catholicism was officially extinguished with the 1978 Constitution, which recognized the lay nature of the Spanish State, and there was at this time in Spain real bewilderment in ethical matters - confusion found in a similar form in most of the Latin American countries and which also obviously affects business ethics. Indeed, ethics as such was rejected by three types of groups: 10

"National-Catholicism is the response of a political society attempting to solve the disintegration problems involved in modernity by choosing the Catholic tradition as a part of its national project, in order to use Catholicism as an element for cohesion and reducing ideological and social conflict. All other moral and religious conceptions, that is, other cosmovisions, are excluded as being anti-patriotic." (Alvarez Bolado 1981: 322-323).

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1) The most traditional religious groups who identified ethics with Catholic religion and considered that there could be no lay ethics common to believers and non-believers. The foundations of morals can only be laid by values whose content stems from the Christian revelation, as this is interpreted by Church teachings. 2) Positivists, who predominated in Economic Science Schools, and understood that the economy should be led by the Weberian postulate of Wertfreiheit. Economy and business should, in their opinion, follow the dictates of a neutral economic rationality, expressed through a similarly neutral liberalism. 3) Marxists who reject capitalism as a whole, through understanding that capitalist accumulation stems from the surplus wrested from the worker. The money obtained through business procedures is thus tainted from the very root, so there can be no ethical business. And this does not matter anyway because in the long run ethics is merely another part of bourgeois ideology. In a conflictive society, the company cannot be understood as a place for cooperation, but only confrontation This rejection of business ethics by three powerful social sectors had harmful consequences, one of these being that it was actually impossible to value if some companies were behaving more morally than others, because of the disconnection between ethics and business. Meanwhile nevertheless, Spain was gradually bolstering the social dimension referred to in the Constitution and assimilating the model proper to the welfare state. With the victory of the Unión de Centro Democrático (1978) and later of the Partido Socialista Obrero Español (1982) schooling, health care and social benefits were granted for all, through state intervention and tax policies hitherto unusual in Spain. In all this process there was an implicit convergence of the socialist - actually social democrat - politicians, and the Catholics, who were actually guided by the Church's Social Doctrine. In fact, Felipe González, leader of the Spanish Workers' Socialist Party and President of the Government from 1982 to 1996, went so far as to affirm that John Paul II's encyclical Laborem exercens lay farther to the left than his own party. Nevertheless, the eighties also saw the ascendancy of a lifestyle which had greater ties with the figure of the Rogue mentioned above than with socialist or Christian ideals. The possibilities of fast enrichment through speculation created in the financial world what was known as the cultura del pelotazo11 the necessarily short term orientated and immoral fast buck culture. There was much ado about cases of corruption arising both in the political and private company spheres, but also tax fraud scandals, failure to comply with the law, and the black economy. Was the Spanish world more disheartened than be11

Cultura del pelotazo tends to be understood as profit made from a quick deal.

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fore? Not at all. The fact is that in a democracy acts which are unseen in a dictatorial society come out into the light, and secondly, people expected democracy to put an end to these immoral situations. The persistency of such corruption and fraud revealed that political and legal solutions were not enough to get anywhere, if citizens and organizations were not willing to assume their responsibilities themselves.

5

Ethics and Business in the Spain Heading into the 21 st Century

The ethics of business burst into Spain with particular impetus in the nineties. What happened to make this change come about? We could sketch out the reasons on two levels: that of moral life applied by people in their everyday lives, and that of moral theory or moral philosophy,2.

5.1 Moral Life in Business In the nineties in Spain ethics became a highly important issue in different spheres of social life, including that of the company. This topical importance was for causes that were at times common to all applied ethics and specific to the business world in other cases. As General causes we could include the following: 1) The urgency of establishing Ethos with moral quality. The persistence of corruption after ten years of democracy shows that legal/political change is insufficient. If politicians, businessmen, journalists and other professionals do not assume responsibility for carrying out their work according to the goal through which they acquire their social raison d'être and legitimacy, and by using the procedures demanded by the moral conscience attained by society, no external legislation can do this. 2) The values of credibility and trust must be recovered. Corruption scandals create a climate of distrust which prevents us from building a society together, but the challenges society is facing (ending terrorism, creating employment, satisfying the demands of justice made by the welfare state, complying with the Maastricht requirements) are common and can only be tackled through joint effort. 12

I owe the expressions "moral life" and "moral theory" to Josi Luis Aranguren, as used to refer to the morals of everyday life and ethics or moral philosophy, respectively (Aranguren 1994: 165).

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3) We must seek minimums shared by the different "comprehensive doctrines of good" (Rawls 1993: 13), by the different conceptions of a good life or "ethics of maximums" (Cortina 1993: 202) which cohabit in a pluralist society. From these minimums, which form a civic ethics, a society can go about peacefully building its existence as a whole. If these are reasons for ethics to be perceived as an essential requirement in Spain the specific reasons for the business ethics to be a topical issue are at least the following: 1) The conception of the company has gradually changed over recent times. Positivism has revealed its limitations, and companies increasingly appreciate their cultural dimension, bear in mind the symbolic meaning of many aspects of their life, and do not only talk of results, efficiency, effectiveness, but also of symbols, meaning or interpretative patterns13. 2) The self-understanding of the company as a machine for obtaining the greatest profit changes for that of the company as a human group, which is trying to carry out a project, normally on the initiative of a leader. The Taylorist model is replaced by the post-Taylorist one, and the culture of cooperation attempts to replace that of conflict. The business game should not be a zero-sum game but a non-zero-sum game; all the stakeholders should come out of this as winners. 3) Ethics in business management is shown to be necessary to respond to a quadruple challenge (Moreno 1997): 4) The greatest market maturity demands long-term approaches from companies, stances that are guided by values and not short-sighted rules or standards. 5) The growth of competition between companies due to the globalization of the economy demands that companies should make their customers more faithful through work generating credibility and trust. One should no longer trust in protectionism or botched jobs. 6) The increase in complexity inside the company makes it advisable to integrate all those working there, so that they can feel identified with their project. 7) Civil society and public opinion increasingly require companies to assume their social responsibility (Cortina 1995). In this quadruple context ethics are understood to be "profitable" for companies because these are a necessity in open systems, increasing efficiency in the Culture, conceived as shared values and beliefs, allows an organisation ethos to be created, as it provides its members with an identity, generates a commitment to something greater than themselves, increases the stability of the social system and acts as a meaninggiving instrument (Lozano 1997). In decision making the consistency of alternatives with the organisation's value system is taken into account.

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configuration of management systems, reducing a firm's internal and external coordination costs, acting as an innovation factor and a differentiating element which allows long term planning from the standpoint of values. Since Spanish firms are facing the same challenges as others in their area of influence 14 they are gradually realizing that ethics are a requirement of their context and thus a necessity in management.

5.2 Moral Theory In the nineties there was also genuine revitalization in the sphere of moral theory, vouched for by the creation in 1992 of the Etica, Economía y Dirección association, better known as EBEN-España, being the Spanish branch of the European Business Ethics Network or the birth of the ETNOR foundation (for Ethics in Business and Organizations) in 1994 on the basis of a Seminar of Economics and Business Ethics, which had been held since 1991. At Navarre University a permanent seminar on Business and Humanism had been running for some time. Ethics forms part of the curricula at business schools such as ESADE, IESE, ICADE, ETEA, Instituto de Empresa, ISE, ESIC and also at certain universities such as Navarra, Valencia, Castellón and Alcalá de Henares. The Universitas Nebrissensis in Madrid has created the Schweppes Chair of the Ethics of Organizations and Human Resources. The work of ASE and the AEDOS association goes on, and there are evermore seminars and courses on the relations between ethics and business, and also publications on the subject, with new research work being done15. But the ascendancy of business ethics can also be seen in the configuration of more or less highly defined particular ethical tendencies, which generate a certain pluralism of ethical proposals. They cannot be said to have joined open battle yet but there are indeed discrepancies between them which could give rise to fruitful debates. Without wishing to make any claim to be exhaustive, and at the risk of committing more than one injustice, we could point out the following lines of moral theory: I. An extensive school of thought explicitly extends the Tradition of Social Doctrine of the Church, accepting the points made in the new pontifical writings. Business Schools such as the ISE or ESIC come into this category, as well as ASE's magazine Acción Empresarial, the Carta by AEDOS and the work of authors such as G. Higuera or J. Gorosquieta. 14

One must not forget that the fact of having joined the European Union is putting an end to traditional protectionism and that, only a few years after becoming modernised, the Spanish business is facing the challenge of a global economy. For precise information on all these aspects see Argandofia 1996: 23-28

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II. A second line, even accepting the postulates of Church's Social Doctrine in a broader sense, declares itself in favor of an economic liberalism in the line of the Austrian School, especially of Hayek and von Mises, an Aristotelian style of personal ethics and giving these approaches an anthropological foundation. On the matter of economic systems they understand that ethics in the process of resource distribution depends on three types of factors: (1) A society's ideas, values and beliefs; (2) The institutions and organizations which form this society; (3) The unvarying laws of the process of property and resource distribution. They have it that the value system is not the product of capitalism, but that capitalism would be approached in a morally correct way or not depending on the axiological systems and the legal-political organizations. For this reason, they conclude, the value system and institutional system have to be improved. On this level a democratic capitalism like the one proposed by M. Novak would be acceptable (Termes 1992: 197-204). As regards ethics we could also sketch out three central points: 1) Ethics are personal and it is unnecessary to distinguish between different applied ethics; the person who is personally ethical is such in the company and in other social spheres; 2) Ethics is the science of seeking happiness, strengthening virtues, in the Aristotelian sense; 3) A company will be ethical if the people who work in it are, above all the directors (Argandoña 1994). Lastly, the anthropology underlying an economic system is of key importance, because it constitutes "the decisive hermeneutic criterion for valuing all approaches, doctrines or social systems" (Termes 1992: 171). The superiority of capitalism over socialism is seen in so far as the former respects individual freedom, whilst the latter annuls it. One could in my opinion place thinkers concentrating more on economic systems in this trend, such as (though with highly different nuances) P. Schwartz, R. Rubio de Urquía, L. Beltrán or E. Menéndez Ureña, and others who also deal with the concrete world of business, such as R. Termes, D. Meld, A. Argandoña, or J. Huerta de Soto. In this context there are also tendencies such as the liberal movement, creator of Unión Editorial, or Empresa y Humanismo which has philosophers such as A. Llano, R. Alvira, J.M. Ortiz or J. de Garay. III. Alcalá de Henares University, and especially S. García Echevarría, develop a business ethics from the economic theory of companies. The central question in this case would be if ethics can be integrated in the theoretical design of management and consequently in the businessman's economic calcu-

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lations. The positive reply to this question stems from the needs of the economy itself: increasing competitiveness, reducing the costs of coordination, marking the differences between products, etc. From a philosophical stance this school of thought declares itself in favor of a social market economy, which, according to A.F. Utz, has to establish three levels of reflection: (1) The metaphysics of the economy, which characterizes the final objective. This objective is the common good, to which priority should be granted over individual good as it is necessary to create a community. (2) Economic ethics, that is the establishment and development of economic and social arrangement of working in the light of the common good. (3) The business ethics resulting from applying the previous levels to the case of businesses. In this, one fundamental factor is the design and encouragement of a corporate philosophy and culture as integrating element (García Echevarría 1994: 293-304). IV. As personalist ethics of organizations we could characterize the position of authors such as E. Recio, J. Filella, J.M. Lozano or M. Corbi, ESADE professors, of J.L. Fernández, ICADE professor, or I. Camacho, ETEA professor, because their reflection is based on three key points: 1) One can only talk of business ethics from the organisation stance, as the work of the manager or director is only defined in relation with the organisation; 2) The company is an organisation which learns a place of learning in action in the line of C. Argirys, D.A. Schón and P.M. Senge, and the way to integrate people in this is through learning processes, which come about especially in decision making; 3) Human development through the organisation is one of the key factors for an organisation to be effective. From this standpoint, corporate culture is a fundamental factor for integration and identification, but these thinkers point out that there still has to be a connection made between the view of companies as cultures and business ethics, as not any business culture is ethical (Lozano 1997). The requirements of social justice have to be present here. V. Lastly, a group of professors from Valencia and Castellón universities (A. Cortina, J. Conill, D. García Marzá, A. Domingo) defends a singular modality of dialogue-orientated business ethics which takes the ethics of discourse created by K.O. Apel and J. Habermas as its frame, but which incorporates other ethical traditions16. Amongst these, the Spanish Tradition started by Xavier Zubiri, José Luis Aranguren and Pedro Lain.

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In so far as the concept of business ethics17 is concerned, they consider it necessary to complement the everyday concept of ethics as an individual ethics of conviction and disinterest with that of an ethics of institutions and organizations, of convinced responsibility and common interest (Cortina, Conill, Domingo, Garcia Marza 1994). As regards the method, they understand that this should be one of critical hermeneutics, concerned with detecting the peculiar requirements in economic and business activity that are set in this sphere by the principle of ethics of discourse, according to which anyone affected by normative decisions is a valid interlocutor, who should be taken into account in the dialogue when making such decisions. In order to carry out its work legitimately in a modern society, a company should thus take into account at least five points of reference: 1. An Aristotelian moment consisting of analyzing business activity (praxis) to elucidate the aims through which it assumes meaning and social legitimacy. 2. The proper mechanisms to achieve the aims, which in a modern society are the market, competition and the search for profit. 3. The legal-political framework of that society, expressed in democratic countries in the constitution and Legislation in force. Nevertheless, since constitutions are dynamic, the driving force behind reforms must be a modern ethical principle of legitimacy. 4. A Kantian moment as this principle is procedural and responds to the requirements of the critical moral conscience of that society. In societies with a liberal democracy such requirements are the ones made by the principle of the ethics of discourse, which orders that the interests of all those affected should be taken into account through a dialogue. 5. A consequentialist moment in the concrete making of decisions, as is proper to an ethics of convinced responsibility. It could be said that these are the main trends in Moral Theory, which have gradually been constructed in a dialogue with other North American and European theories, and which wish to continue with this dialogue process.

In this sphere they work in connection with the Institut fiir Wirtschaftsethik at St. Gallen, directed by P. Ulrich, the Lehrstuhl fiir Unternehmenjuhrung in ErlangenNümberg, directed by Horst Steinmann and the Chaire Hoover d'ethique économique et sociale in Louvaine La Neuve, directed by Philippe van Parijs. In fact the concept of business ethics which this group defends is closely connected with that of H. Steinmann (Steinmann/Löhr 1994) and P. Ulrich (Ulrich 1987).

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As a Very Brief Conclusion

It is clear that, as we draw closer to the threshold of the 21st century Spanish business is facing the same challenges as other businesses in the Western world, and to overcome these it shares the same values as other societies with a liberal democracy, and suffers from very similar defects. Its great challenge now consists in accepting the fact of globalization and assuming the demand of the world-wide projection that this implies, when only two decades ago it abandoned an authoritarian and protectionist system, which always fosters habits of provincialism, passivity and indolence. Furthermore, along with the other countries in the European Union, it is aware of being driven to build a Social Europe, able to protect the social rights of its peoples, not only in Spain, but also in the Union as a whole, precisely in these times when the welfare state has gone into a state of crisis. And it also knows itself to be driven towards extending the protection of these rights on a cosmopolitan level, as these are the rights of all people everywhere. Carrying out this task requires without a shadow of doubt a dialogue between the groups affected by business activity, between the theoreticians of morals, and an intercultural dialogue allowing contributions from different cultures.

References Alvarez Bolado, A. (1981), Tentación nacionalcatólica en la Iglesia de hoy? Iglesia Viva 94 Apel, K.-O. (1973), Transformation der Philosophie, 2. Bd. Frankfurt a. M.: Suhrkamp. Apel, K.-O. (ed.) (1996), Selected Essays : Ethics and the Theory of Rationality. Atlantic Highlands, NJ: Humanities Press. Aranguren, J. (1994), Obras Completas. Madrid: Trotta. Argandofla, A. (1994), Ética de la empresa. Madrid, Instituto de Estudios Económicos. Argandoña, A. (1996), Business Ethics in Modem Spain, Business Ethics, vol. 5, 1 Cortina, A. (1986), Ética mínima. Madrid: Tecnos. Cortina, A. (1993), Ética aplicada y democracia radical. Madrid: Tecnos. Cortina, A., J. Conili, A. Domingo, and D. García Marzá (1994), Ética de la empresa. Madrid: Trotta. Cortina, A. (1995), The General Public as the Locus of Ethics in Modern Society, in: Ulrich, P. and C. Sarasin (eds.), Facing Public Interest, 43-58. Dordrecht: Kluwer Academic Publishers. Chafuen, A.A. (1986), Christians for Freedom, Late-Scholastic Economics. San Francisco: Ignatius Press. Díaz Salazar, R. (1981), Iglesia, dictadura y democracia. Madrid: HOAC. Drucker, P. F. (1993), La Sociedad Postcapitalista. Barcelona, Apòstrofe. Fernández, J.L. (1994), Ética para empresarios y directivos. Madrid: ESIC. García Echevarría, S. (1994), Introducción a la economía de la empresa. Madrid: Díaz de Santos.

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Gorosquieta, J. (1996), Ética de la empresa. Bilbao: Mensajero. Grice-Hutchison, M. (1995), Ensayos sobre el pensamiento económico en España. Madrid: Alianza. Koslowski, P. (ed.) (1996), Ethics of Capitalism and Critique of Sociology: Two Essays With a Comment. Berlin: Springer Verlag. Koslowski, P. (ed.) (1992), Ethics in Economics, Business, and Economic Policy. Berlin: Springer. Lozano, J.M. (1997), Dimensiones y factores del desarrollo organizativo: la perspectiva . cultural, in: Cortina, A. (ed.), Rentabilidad de los comportamientos éticos para las empresas. Madrid: Fundación Argentaría/Editorial Visor. Maclntyre, A. (1985), After Virtue. 2. edition. A Study in Moral Theory. London: Duckvorth. Maeztu, R. de (1957), El sentido reverencial del dinero. Madrid: Editora Nacional. Moreno, J.Á. (1997), Ética, Empresa y Fundaciones, in: Cortina, A., and J.A. Moreno, (eds.), Etica y empresa: un enfoque multidisciplinar. Madrid: Fundación Argentaría/Editorial Visor. Ortiz Ibars, J.M. (1995), La hora de la ética empresarial. Madrid: McGraw-Hill. Pérez Díaz, V. (1993), La primacía de la sociedad civil. Madrid: Alianza. Rawls, J. (1993), Political Liberalism. New York: Columbia University Press. Robertson, H.M. (1973), Aspects on the Rise of Economic Individualism: A Criticism of Max Weber and His School. Clifton, A.M: Kelly. Steinmann, H., and A. Löhr (1994), Grundlagen der Unternehmensethik, 2. edition. Stuttgart: Poeschel. Tawney, R.H. (1954), Religion and the Rise of Capitalism. New York: New York American Library. Termes, R. (1992), Antropología del capitalismo. Barcelona: Plaza y Janés. Tortella, G. (1995), Los orígenes del capitalismo en España, 3. edition. Madrid: Tecnos, Ulrich, P. (1987), Transformation der ökonomischen Vernunft, 2. Aufl. Stuttgart: Haupt. Vicens Vives, J. (1959), Manual de Historia económica de España. Barcelona: Teide. Weber, M. (1979), Die Protestantische Ethik und der Geist des Kapitalismus. Gütersloh, Mohn.

Business Ethics in a Transforming Economy: Applying the Integrative Social Contracts Theory to Russia* Sheila M. Puffer and Daniel J. McCarthy

Russia's economic transition in the past decade from a centrally-planned to a market-oriented economy has occurred within a dramatically changing political, social and cultural context. The biggest shift occurred in late 1991 when more than seven decades of communist rule came to a swift end, the former USSR was dissolved, and Russia started on a new course toward a more democratic political system and a market-oriented economy. With these changes, many new ideas, attitudes and practices have emerged. Yet, numerous influences from the past continue to affect the thinking and behavior of most Russians (Holt/Ralston/Terpstra 1994; Veiga/Yanouzas/Buchholtz 1995). These converging forces have evoked much uncertainty regarding the interpretation of what constitutes ethically acceptable behavior for Russians, including those involved in business. In this confusing environment, no single set of business ethics has yet emerged. Some observers describe at least two distinct sets of ethics, one which blatantly disregards ethical constraints, and another which observes generally accepted universal ethical norms (Anderson/Shikhirev 1994). The prevailing unstable situation calls into question the future of Russian values and behaviors, including those affecting business practices and their ethical underpinnings. Various scenarios have been visualized for Russian business which are plausible directions given the present uncertainties of ethical boundaries. One analyst summarized two possible scenarios focusing upon the criminal element (Graham 1995). An optimistic scenario emphasizes the need for patience while the criminal element evolves toward more mainstream behavior. This group could emerge as a cadre of "rough-and-ready entrepreneurs of contemporary Russia," much like the "robber barons" of nineteenthcentury America. A more pessimistic scenario emphasizes that the criminal element emerged in unique historical circumstances for an industrialized country: The capital stock passed from the State into the hands of these private individuals, as well as government apparatchiks. None of these groups *

This Article is also being published in University of Pennsylvania Journal of International Economic Law. Vol. 18, No. 4, Winter 1997.

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created the wealth they accumulated through this process. The second scenario concludes that it would be a long time, if ever, before these powerful groups would yield to the forces of a free market and engage in more legitimately-based business activities. Expanding upon the useful observations of these analysts, different ethical principles could be attributed to various groups in Russian business. A disregard for ethical norms is clearly obvious among those involved in the criminal Mafia that is so pervasive in the Russian economy. In contrast, managers in state-owned enterprises as well as government apparatchiks could be seen as deriving ethical principles from their experience in Communist times. A third group which became involved in business activities only after the transition to the market-oriented economy might exhibit behavior seemingly based only on situational ethics. While these are clearly distinct groups in Russian business, to attribute a common ethical framework to all members within any group would be inaccurate and not helpful to understanding the behavior and business practices of managers and entrepreneurs. We believe it is more realistic and useful to look beyond group identification, and instead analyze the forces which have shaped the ethical mindsets of individuals (Puffer/McCarthy/Zhuplev 1996). Various influences may have affected the ethics and behavior of different individuals at different times, and continued to do so in the turbulent and changing environment. The result is that different ethical behaviors may prevail for the same individual, and certainly among individuals, even within the same group. In short, there has been virtually no stable state for ethical principles for many people participating in Russian business. Instead, they have been pulled in many directions by competing forces, some of which prevailed at one time, while others took precedence on other occasions. For instance, although more accepted during the transition period, a climate against entrepreneurs prevailed during most of Russia's history (McCarthy/Puffer/Shekshnia 1993). It is these often-competing forces, which have shaped the ethical principles and business practices that ensued, that are a primary focus of this article. They will be discussed following an overview of Integrative Social Contracts Theory.

1

Integrative Social Contracts Theory

Our analysis of business ethics in Russia applies the framework of Integrative Social Contracts Theory (Donaldson/Dunfee 1994). This framework emphasizes the importance of universal hypernorms, such as core human rights, respect for human dignity, and good citizenship, which are ethical principles

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fundamental to human existence (Donaldson 1996). As such, they constitute the minimum threshold for ethical behavior. These overarching principles, however, coexist with specific norms established and accepted within various communities or groups. Communities are "self-defined, self-circumscribed groups of people who interact in the context of shared tasks, values, or goals, and who are capable of establishing norms of ethical behavior for themselves" (Donaldson/Dunfee 1994: 262). While specific community norms may be different for different communities and conflict with one another, they can be seen as legitimate within their community when they are freely adopted among group members in microcontracts, and do not violate hypernorms. Microcontracts represent "agreements or shared understandings about the moral norms relevant to specific economic interactions" (p. 262). An important feature of Integrated Social Contracts Theory is that different behaviors are recognized to coexist among different communities. When conflicts arise between norms, six criteria proposed in the theory can be applied to help resolve them. These six rules, presented in Table 1, must be applied as a set, with no a priori assessment of relative importance among them. After applying these principles to a given situation, the legitimacy of a community's norm can be established, even if in opposition to legitimate norms of other communities. This framework is particularly applicable when assessing transactions among Russians within the transitional business environment, as well as in situations when Russians engage in business with people from other countries. Russia's unique history and culture, as well as the turbulent transition to a market economy, underscore the value such an approach. Table 1:

Six Principles for Evaluating the Ethicality of Behavior

Rule 1. Transactions solely within a single community, which do not have significant adverse effects on other humans or communities, should be governed by the host community's norms. Rule 2. Community norms indicating a preference for how conflict-of-norms situations should be resolved should be applied, so long as they do not have significant adverse effects on other humans or communities. Rule 3. The more extensive or more global the community which is the source of the norm, the greater the priority which should be given to the norm. Rule 4. Norms essential to the maintenance of the economic environment in which the transaction occurs should have priority over norms potentially damaging to that environment. Rule 5. Where multiple conflicting norms are involved, patterns of consistency among the alternative norms provide a basis for prioritization. Rule 6. Well-defined norms should ordinarily have priority over more general, less precise norms. Source:

Donaldson/Dunfee 1994

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Three Forces Influencing Business Ethics in Russia1

This section summarizes some of the most important forces influencing the development of Russia's business ethics, and is excerpted from our earlier work on this topic (Puffer/McCarthy 1995: 32-34). The forces which will be discussed are: (1) the culture, history and religion of Russia, (2) Communist ideology and the centrally-planned economy, and (3) Russia's present transitional environment, including the legal system, government policy, and social values. Russia's turbulent history has been characterized by oppressive political regimes that have created confusion about the role and importance of business in Russian society, as well as conflicting standards of ethical behavior. This history, coupled with the recent turmoil created by the move toward a market economy, has created ambiguity among business people about what constitutes ethical behavior. Some unfortunate personal consequences of such ambivalence have been the growing number of business people with psychiatric and addictive problems stemming from moral conflicts (Shikhirev 1993). The important and often conflicting influences contributing to this uncertainty and ambiguity surrounding standards of ethical business behavior include the high value placed on strong authority and collective behavior in traditional Russian culture, and Communist ideology, as well as the country's political and legal structure. Russian culture, over the centuries, is replete with ruling elites and authority figures who tightly controlled society and suppressed personal freedom. Among these were leaders of the Russian Orthodox Church, tsars, landowners, and the Communist party elite. Regardless of who was in control of the country, the population was subjugated to the values and behaviors of the leaders. The resulting continuous lack of individual freedom, as well as the pervasiveness of social and economic control, strongly shaped Russian values. The Russian Orthodox Church imbued Russians with Christian values such as obeying the golden rule. However, unlike the Protestant Church's work ethic, the Russian Church did not value work as a religious virtue. People who engaged in business were thus often suspected of having selfish and, implicitly, unethical motives. Instead, the Church emphasized deference and obedience to Church doctrine and religious authority figures, thus reinforcing obedience to authority rather than individual responsibility. Collective values were another funda1

This section, Three Forces Influencing Business Ethics in Russia, is excerpted from our 1995 article, Finding the Common Ground in Russian and American Business Ethics, and is reprinted with permission of the California Management Review and the Regents of the University of California.

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mental element of religious doctrine, and people were encouraged to subjugate personal interests to the common good. The political environment under the tsars and the economic power of the landowners were grounded in the same autocratic and oppressive philosophies. In summary, the entire environment for centuries was one of central control, oppression, and the lack of individual freedom and opportunity. The situation changed little under communist rule, whose ideology provided a second major influence on Russian ethics. Centralized authority, subjugation of the individual, political and economic oppression, and collectivist values predominated. The Communists, however, tried to instill a work ethic to serve Communist goals, but designed a reward system that recognized collective rather than individual achievements. Thus, individuals had little incentive to work hard or take personal responsibility for their actions. Even the collective rewards were not perceived as equitable to many people who became disillusioned with this, as well as other broken promises offering material and psychic gratification. The Communist philosophy was distilled in 1962 into a 12-point moral code intended as a guide for ethical behavior for loyal Communists (DeGeorge 1969). In some respects the code was similar to the ten commandments of the Judeo-Christian tradition, but modified to reflect the atheistic Communist philosophy. But as in other areas of Communist ideology, the code failed in its implementation and few took it seriously. The nomenklatura (ruling Communist elite) violated it as they saw fit, justifying virtually any means, ethical or unethical, to achieve desired ends. This hypocrisy of the ruling elite created a harsh reality that encouraged people at all economic levels to break rules to survive within the rigid demands of the system. In business, an accepted common practice was to pad production figures to give the appearance of meeting the centrally prescribed plan in order to obtain rewards. Another Communist goal was the elimination of status differences in society to provide more equal access to opportunities for people from all social levels. For the first time, people of peasant origin were encouraged to pursue higher education and professional and managerial job opportunities. However, this and other such goals were subverted as the Communist party elite became more entrenched and reserved privileges and positions of influence for themselves. Such actions reinforced the fact that ability and accomplishment were not the determining factors for success. Rather, Communist party membership and loyalty provided the status which became necessary to achieve power and privilege within society. The Communists effectively emerged as the new ruling elite. A third major influence on the development of Russian business ethics has been the country's political and legal structure and institutions. Much of the political environment under the tsars and Communists has been discussed

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above, the primary characteristics being centralized dictatorship, oppression of individual expression, and little freedom of opportunity for most of the population. The result was a passive and obedient population with little tolerance for individual accomplishment, business activities, or entrepreneurship. In the legal environment, laws and edicts were dictated by tsarist and Communist authorities with little opportunity for dispute, and trial by jury did not exist. Under Communism, there were so many meaningless, and often contradictory, laws and regulations governing business activity that managers had to become adept at circumventing them in order to meet the unrealistic goals assigned by central authorities (Berliner 1989). This was a widely accepted practice and even central authorities looked the other way, since it was not considered a serious violation, but simply a pragmatic way of doing business. Nevertheless, flagrantly criminal behavior such as major theft of company property, as well as serious breaches of Communist ethics such as disloyalty to the Party, were severely and publicly punished. The legalization of private enterprises in the late 1980s became a major source of widespread ethical confusion. Communist philosophy did not recognize the existence of private property or profits, yet both became legalized and even mandated by Soviet and Russian laws. Within the developing free enterprise system, many such laws were passed. They often contradicted one another, were frequently amended or rescinded, and were inconsistently enforced. This chaotically evolving legal structure gave little direction to people engaged in business. Individuals had to define for themselves the proper conduct in business relationships. They came from different backgrounds and often held different values. Among those who entered into business were managers for state enterprises, former high-ranking Party officials, academics, students, and other professionals, as well as black marketeers. Some were guided by the values and accepted practices of the former Communist system, others by universal values or religious beliefs, and some by criminal and unscrupulous motives. Others, lacking experience in a market economy, simply were ignorant of what constituted ethical behavior in such radically new and uncertain circumstances.

3

Applying Theory to Practice

To analyze the ethical legitimacy of some current business practices in Russia, we have applied the Integrative Social Contracts Theory to six common situations which many observers would consider ethically questionable in one sense or another. We have particularly emphasized the six principles for re-

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solving conflicts between shared values of specific communities within Russian business, or business communities in other countries. We have also integrated the effects of the primary forces that have shaped values within these different communities. By doing so, we have attempted to clarify the ethical appropriateness of these six particular business practices. These practices and their relationship to the six principles for resolving ethical conflicts are summarized in Table 2. Table 2:

Evaluating the Ethicality of Six Questionable Russian Business Practices

Business Practice

Principles for Evaluating Behavior 1 2 3 4 5 6

Conclusion

1. Extortion

U

U

U

U

U

U

Unethical

2. Managerial Buy-Outs

U

U

U

U

U

U

Unethical

3. Breaking Contracts

U

U

U

U

U

U

Unethical

4. Ignoring Senseless Laws

E

E

E

EAJ

E

E

Ethical

5. Personal Favoritism (Blat)

E

E

E

E

EAJ

E

Ethical

6. Layoffs

U

E/U

U

E

EAJ

EAJ

EthicalAJnethical

E: Ethical U: Unethical EAJ: Ambiguous whether ethical or unethical

We first apply the theory to three highly questionable practices in Russia: extortion, managerial buy-outs of enterprises, and breaking contracts. These practices would be considered by many to violate universal hypernorms as well as the norms of most communities in Russia. Our evaluation of them utilizing the six principles leads to the conclusion that they are clearly unethical behaviors. Three additional practices, ignoring arbitrary or senseless laws, using personal favoritism or blat, and laying off employees, do not violate hypernorms, and we assume that the conflicting community norms are legitimate in the Donaldson and Dunfee sense. Since the ethicality of these practices can be ambiguous in some communities, however, the six principles are especially helpful in drawing conclusions. They do not seem to violate community norms in Russia and generally seem to be ethical there, with the exception of employee layoffs which remains an ethically ambiguous practice.

3.1 Extortion Extortion, which involves demanding money, property or services from others through force or the threat of force, is not only illegal but unethical in virtually

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all societies. It violates hypernorms such as respecting core human rights like the ownership of property, as well as the dignity of other human beings. Various forces have shaped such hypernorms, and for Russia these include the country's history and culture, the Orthodox Church, and Communist ideology. Even in the turbulent environment of Russia's transition to a more open society and market-oriented economy, the practice is considered illegal and immoral. However, extortion and similar activities were pervasive in the transitional Russian business environment (Unwin/Carratu 1996). Many private enterprises and commercial banks were reported to pay an extortion "tax" to the Mafia amounting to 10 to 20 percent of their sales (Economic Newsletter 1994). Virtually all Russian business communities condemn such practices. Yet because of the pervasiveness of the criminal Mafia, and the acceptance of such practices within their community, they might consider such behavior to be "ethical" when dealing with rival Mafia members. Although such behavior within the Mafia would likely be considered unethical by virtually everyone outside the Mafia, we have applied the principles to illustrate why this is so. In summary, this first application of the principles will explain the unethical nature of extortion, and illustrate the utility of the framework by analyzing this obvious breach of ethics. Extortion is repugnant to most people since it violates the hypernorms of respecting human dignity and personal safety, and it is clearly unethical and illegal when Mafia members extort from members of other business communities. However, when the practice is restricted to the Mafia, and does not have significant direct adverse effects on other communities, it could be considered acceptable within the Mafia microcontract (Rule 1). Within that community, this behavior might be the norm, and as long as other people and communities are not hurt, it might again be appropriate (Rule 2). The unethicality of the behavior, however, becomes clearly apparent when applying the next four principles. Although a serious element threatening society, the Mafia is not a very extensive community within Russia; therefore, its norms should not take precedence over those of the broader Russian business community (Rule 3). Similarly, extortion undermines the functioning of a market-oriented economy, and norms essential to maintaining the broader economic environment should have priority over economically damaging norms (Rule 4). Norms against extortion are consistent with norms against murder and money laundering, crimes which often accompany extortion (Rule 5). Lastly, well-defined norms exist against extortion to the extent it is a crime in virtually all societies and subject to strong legal sanctions (Rule 6). The usefulness of the six principles in evaluating questionable practices within business has been demonstrated by applying them to the blatantly unethical, but unfortunately common practice, of extortion in the Russian econ-

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omy. The framework becomes increasingly useful in analyzing five additional practices with more ambiguous ethical interpretations.

3.2 Managerial Buy-Outs of Enterprises Privatization in Russia allowed the ownership of many enterprises to pass from the State to private individuals. By the mid-1990s, more than 20,000 former state enterprises had been privatized, along with countless thousands of small retail shops and services (Boycko/Schleifer/Vishny 1995; Blasi, Kroumova/Kruse 1997). Policies called for distributing ownership vouchers to all workers and managers of the privatized enterprises as well as to other Russian citizens (McCarthy/Puffer 1995). However, many managers subverted the objective of creating citizen shareholders by accumulating large percentages of shares in their own enterprises. The resulting concentration of ownership allowed them to exercise power, often to the detriment of other shareholders, the enterprises, and the Russian economy. In effect, such individuals gained most of the rights and benefits of private entrepreneurs without many of their responsibilities, and with little risk of failure (Filatotchev/StarkeyAVright 1994). The privatization program even came to be dubbed by cynics as prikhvatizatsiia ("grabization"), a play on the word for privatization, privatizatsiia. Such self-serving behavior led one observer to conclude (Zuyev 1995: 20): We do not see many self-made Henry Fords among our new rich. Instead we see the main tools for getting rich are insolence, moral compromise, abuse of one's position within the country's power structures, and crime.

Historically, in feudalistic Russian society, private property was unavailable other than to wealthy landowners and members of the aristocracy. Privatelyowned factories employing hired labor appeared in the mid-nineteenth century, but serfdom that prevailed until that period greatly restricted the notion of private property (Falkus 1972: 43; Kalian 1989). In addition, anticapitalist sentiment was a strong tradition among many social classes in precommunist Russia (Owen 1995: 10). During the Communist period, private property was outlawed, with the State assuming ownership of land, real property, and the means of production. Power resulted from the privilege of position rather than ownership of property. Abuse of this power resulted in Party members and other privileged people receiving favors, goods, and services not available to others. Later, privatization, a cornerstone of the transition to a market economy, was an attempt to distribute ownership of enterprises to Russian citizens. In practice, however, ownership became concentrated in the hands of oppor-

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tunists, including enterprise managers who saw that ownership of their enterprises could bring them control, power and wealth. Abuses resulting from such managerial buy-outs negatively affected many workers, other shareholders and Russian citizens, and violated the spirit and intent of the privatization laws. Such buy-outs also violated norms of the broader Russian society which deemed such behavior as unfair since these individuals did not earn or create the wealth they acquired. In this sense, such behavior violated the norms of the broader host community (Rule 1). Because these behaviors adversely affected other Russian citizens in a significant way, they could not be considered legitimate (Rule 2), and since they violated the norms of the broader Russian society, they should be considered secondary to those more widely-held norms (Rule 3). Perhaps the most compelling argument against the abuse of ownership rights is that these practices have potential for undermining the emerging economic system by unfairly controlling assets (Rule 4). Although abuse of power has long existed in Russia, it has never been viewed as legitimate. The overwhelming preference in society has been for behavioral norms which condemn these abuses. Included would be norms of basic fairness and honesty (Rule 5). These pervasive and well-defined norms should clearly take priority over the opportunistic behavior of some managers during the period of privatization (Rule 6). Taking the six principles in totality, the behavior of many Russian managers who bought control of their enterprises during the privatization period, often at extremely low prices, would be considered by virtually all observers as unethical, even in cases where the practice was legal. This behavior clashes with many well-established norms of Russian society which call for fair and just behavior in transactions with others, dependability in one's word and contracts, and not taking unfair advantage of others who lack information or ability to properly exercise their rights. The uncertainties of new situations such as ownership of private property, and especially of paper shares, created opportunities for some to benefit at the expense of others. In this transition economy, the abuse of power by managers, who exploited others and took ownership of their shares in the process, could not be considered legitimate. Regardless of uncertainties, radical change, and even the possible legality of some of their actions, the negative effects on so many others must be the major criterion for legitimacy. The well-established norms of Russian society would clearly label the actions of these opportunistic individuals as unethical.

3.3 Breaking Contracts Breaking contracts has become more common in the transitional economy, in contrast to the importance given historically to honoring contracts in Russia.

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A highly visible example which affected most Russian enterprises and their workforces during this time has been the government's nonpayment of its debts to enterprises as well as interfirm debt, and the ensuing delays in paying wages for as long as six months. The head of the Russian Orthodox Church, Patriarch Alexii II, voiced the Church's grave concern about this issue (Reuters 1997a): At all times the Church has been and remains on the side of the weak and the unfortunate [...] it cannot fail to raise its voice in defense of those who find themselves on the brink of life and death as a result of tragic impoverishment. We urge the leadership of the country [...] and all those responsible for the non-payment of pensions, wages and student grants to recognize the urgent need for resolution of this problem.

Although perhaps less pervasive than nonpayment of wages and debts, the breaking of various types of business contracts had become more common during the chaotic transitional environment. Historically, the 1832 Russian Civil Code provided a basis for the legitimacy of contracts. And even in Communist times, the State prepared "form" contracts in which, for instance, agreements between Soviet foreign trade organizations and foreign firms were spelled out in specific terms (Bregman/ Carey 1995). Soviet negotiators were generally viewed as reliable, and international arbitration was utilized to resolve disputes with foreign organizations. During the market transition, the validity of contracts was confirmed by passage of a new Western-style commercial code which enabled companies to seek legal recourse through such bodies as the Moscow Arbitration Court. However, even though the Court sometimes ruled in favor of Western parties, it was not uncommon for implicated Russian companies to ignore the rulings (Steffens 1996: 1). A complicating factor in enforcing contracts was that shareholder approval was frequently required before a contract could be signed, yet it was often nearly impossible to determine legitimate ownership of many enterprises. Applying the six principles of Integrative Social Contracts Theory, Rule 1 indicates that contracts between members of Russian business communities should be honored, given the historical and cultural bases for doing so, even though the uncertainties which arose during the market transition often made it difficult. Likewise, the wide acceptance of honoring contracts would take precedence in conflicts about such issues (Rule 2). And the same conclusion ensues given the acceptance by the broader Russian society of the need to honor contracts as well as to keep other promises (Rule 3). The sanctity of contracts is also fundamental to maintaining stability and predictability in the economic environment in which Russian businesses must function (Rule 4). And the norm of honoring contracts is consistent with others such as keeping

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one's word and maintaining trust (Rule 5). Lastly, the norms against breaking contracts are well-defined and also supported by laws (Rule 6). Applying the six principles, breaking contracts is consistently seen as unethical, and usually illegal. The norm of honoring contracts is well established in Russian business communities and supported by broadly accepted social and cultural norms. Complicating factors, however, emerged in the transitional economy. Managers encountered extreme pressures when the government ceased paying subsidies and even debts to enterprises. An acute cash shortage arose among enterprises and resulted in trillions of rubles of interfirm debt and unpaid workers' wages. Recognizing their obligations, many managers reverted to the traditional practice of bartering goods and services to pay debts and wages. Although such resourcefulness could not always enable managers to pay all their enterprise debts, it would be wrong to label their behavior as illegitimate or unethical as long as they attempted to fulfill obligations. Such severe situational constraints must be taken into account when interpreting behavior in the turbulent transitional society. Failure to honor contracts is clearly considered to be unethical in the Russian business community, but it could come to be viewed as legitimate in extreme circumstances.

3.4 Ignoring Arbitrary or "Senseless" Laws Arbitrary laws are those which do not make sense to business people because they are viewed as interfering with the effective functioning of the business environment. Given the circumstances they have faced over time, business persons have applied what might be viewed by some observers as situational ethics to justify ignoring or circumventing laws considered to be arbitrary. The reasons for this behavior can be attributed to several influences. Historically, citizens have been faced with oppressive laws imposed by authorities such as landowners, tsars and Communist officials. Many laws have imposed heavy taxes and restricted freedom, such as the gentry's charter of 1785 which empowered landowners to collect taxes from peasants (Hingley 1991: 89). Since compliance with such laws was often a threat to personal survival and well-being, people developed a view that it was acceptable to circumvent or ignore such laws and regulations. This mentality led the nineteenth-century Russian observer, Shedrin, to remark that bad laws are compensated for by the fact that no one pays attention to them. And the practice of landowners padding their records with the names of dead serfs to obtain land was immortalized in Gogol's nineteenth-century novel, Dead Souls. Many laws and requirements established during the Communist period were seen by managers as being adverse to running their enterprises and

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gaining rewards such as bonuses from central ministries. This led to practices like manipulating data in reports to central authorities, exceeding inventory limits by hoarding, and hiring bloated work forces in excess of authorized numbers (Inkeles/Bauer 1959; Berliner 1989). In addition, accounting practices were centrally-controlled, with the audit function being more a government inspection than an independent financial audit in the Western sense (King 1994). In the transitional economy, conflicting and inconsistently enforced laws and regulations led business people to continue ignoring and circumventing them. For instance, the accumulation of numerous tax laws could have required enterprises to pay taxes exceeding 100 percent of profits. One result was that tax arrears in early 1997 were estimated at $23 billion (Reuters 1997b). Many business people became so adept at legally avoiding the payment of taxes on their profit that often the tax police could not find fault with their methods. This was especially true when such taxes threatened the survival of a business (Lukyanova 1996). The practice of ignoring senseless laws and regulations has been pervasive in the broader Russian society, and consequently is an accepted norm within the business communities. Thus, when laws contradict each other or prevent the reasonable functioning of business, it may be illegal to ignore them, but such actions cannot in themselves be considered unethical (Rule 1). The norms within the business communities show a distinct pattern of circumventing laws to resolve conflict-of-norms situations. Barring a significant adverse effect on other communities within Russia, such as if the nonpayment of taxes were to seriously threaten the government's functioning, these actions could be considered legitimate (Rule 2). As in Rule 1 above, the practice of ignoring arbitrary laws and regulations is generally accepted within Russian society, and therefore this more global norm would likely be accepted in the business communities (Rule 3). However, a clear danger to the developing economic system could emanate from the practice of ignoring so-called arbitrary laws and regulations. Understandably, business persons might ignore these and put their own interests first, but the result could be a weakening of the economic and governmental structures necessary to the development of a market economy. As such, ignoring laws might come to be viewed as unethical (Rule 4). Although ignoring laws comes into conflict with the norms of respecting authority and obeying laws, Russia's history and culture have produced other norms such as buying favors and turning a blind eye to stealing State property. The latter practice became more entrenched as legitimate during the build-up of the Communist welfare state when norms shifted from one of sacrifice to one of entitlement (Bahry 1993: 551). These formed a consistent pattern around behaviors to protect personal survival and well-being rather than unquestioningly following the mandates of higher authorities. As part of such a pattern of acceptable be-

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havior, ignoring senseless laws and regulations could be considered legitimate (Rule 5). And as with personal favoritism, when deciding ethicality, this set of well-defined norms should take precedence over other conflicting or developing norms (Rule 6). Using the six principles for resolving conflict among ethical norms, the practice of ignoring senseless laws would likely be considered legitimate in most circumstances. Russia's authoritarian history and repression of individual freedom have given legitimacy to this and other related practices. But although such behavior by individuals might well be considered acceptable and even ethical during the transition period, in totality they could become destructive to the functioning of a market economy, and work to the detriment of Russian citizens. If this were to materialize, a plausible scenario as the transition continues, the practice would likely come to be viewed as unethical.

3.5 Personal Favoritism or Blat Personal favoritism, known as blat, involves "reliance for favors upon personal contacts with people in influential positions" (Puffer/McCarthy 1995: 37). Blat takes many forms such as giving money, goods, or services to people in power who can help the givers receive or achieve something they value such as a job, promotion, contract, or access to influential people. Securing favor can sometimes involve payments to a series of individuals who are instrumental in gaining access to the final decision maker. Blat has for centuries been a common practice in Russia, but it is considered bribery and illegal when large amounts of money are involved or highly placed authorities blatantly abuse their power. A number of tax collectors, for instance, have been prosecuted during the transition for taking large bribes from taxpayers in exchange for favorable treatment (Rudskii 1996). Historical conditions which encouraged blat included the expectation that serfs would bring gifts to their landowner to gain favor and avoid sanctions. And in the broader Russian society, gift giving has traditionally been widely accepted and expected, with gifts frequently exchanged in business and personal relationships, such as when visiting companies and homes. Gifts help to bind friendships, gain cooperation, and secure specific favors. Severe shortages of goods and limited opportunities for individual rewards during the Communist period further contributed to the use of blat. For instance, individuals would exchange favors such as accepting goods from an enterprise manager in return for facilitating his child's admission to a university. In the market-oriented economy, blat could be used to improve one's business by gaining preferential bank financing and special terms in contracts, or winning access to important customers.

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Because blat has been so pervasive within Russian society, it could also be considered a norm of the business communities, and thus ethical (Rule 1). Similarly, community norms do not bring blat into conflict with other norms, and thus it is considered legitimate until it reaches the point of being illegal bribery (Rule 2). Similar to Rule 1, the broader community's endorsement of gift giving is consistent with the practice of blat in business (Rule 3). Blat in itself is not damaging to the economic system of Russia, and may even facilitate business transactions in a traditionally bureaucratic society. Thus it is can be considered legitimate unless it would harm the economic system such as when bribery occurs (Rule 4). The practice of blat is consistent with other norms that are considered ethical. These include building networks of relatives and friends who are reliable and trustworthy, and refraining from whistleblowing to protect oneself and others against the arbitrary use of power and punishment by authorities. While blat would be considered by many Russians to be inconsistent with the norm of basic fairness, the oppressive conditions under which they lived have promoted blat as a necessity for survival (Rule 5). Blat has long been a well-defined norm and accepted as almost inevitable given the lack of freedom and opportunity under oppressive political regimes (Rule 6). Applying all six rules, blat emerges as an accepted, and generally, legitimate practice within Russia that developed as a mechanism for survival under harsh conditions. However, many Russians would not consider it to be fair, and under other circumstances would likely see it as unethical. As Russia becomes a more market-based economy tied more tightly to the global economy, the ethicality of blat is likely to come into question. For instance, the US Foreign Corrupt Practices Act which regulates Americans' business practices would likely limit the use of blat by Russians in transactions with Americans.

3.6 Employee Layoffs Laying off employees, especially mass layoffs, has historically been considered unethical in Russia. During the market transition, many Russian enterprises resisted layoffs, realizing they would result in large-scale unemployment as well as the possibility of political and social unrest. One vestige from Russian history which influenced this norm was the custom of patriarchal landowners taking responsibility for the well-being of serfs working their land. Likewise, the Church provided care for people and affirmed the right of individuals to secure their living. And during the Communist period, all citizens were entitled to a job and most were obligated by the State to work. The unstable market transition, however, has had a profound influence in business communities on attitudes toward layoffs and resulting

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unemployment. In short, the desperate condition of many Russian enterprises, especially the large obsolete and uncompetitive state-owned and partiallyprivatized firms, necessitated massive layoffs, resulting in an estimated 10 percent annual unemployment rate from 1991 through 1996 (Standing 1997). Because this situation was dramatically different from earlier periods, much ambivalence and uncertainty developed about the ethicality of laying off employees. Applying the principles of Integrative Social Contracts Theory, layoffs would be considered unethical because of adverse effects on those laid off (Rule 1). Community norms in Russian society would show a preference for maintaining employment, but business realities might mandate layoffs for enterprise survival, as well as continued employment for a smaller number of employees (Rule 2). This rule in itself, thus, does not conclusively resolve the ethical conflict, particularly during the difficult transitional economy. Rule 3, however, recognizes the legitimacy of norms emanating from the broader community, and thus would lead to the conclusion that layoffs are unethical. Norms which maintain the economic viability of a society (Rule 4), however, suggest that layoffs are sometimes necessary for firms to survive. State enterprises have been notorious for their bloated work forces whose high cost and inefficiency necessitate layoffs during the new period of market competition. Regarding consistency among norms (Rule 5), during the Communist period, guaranteed employment was consistent with other aspects of social policy such as free education and medical care. In the transitional economy, however, such consistent norms no longer existed, and citizens had to pay for education, health care and other services beyond severely reduced government benefits (Cook 1993). Such changes created confusion among Russians as to what constitutes ethical practices. Because previously well-defined norms about layoffs no longer existed, situational norms developed in their place, bringing much uncertainty to the interpretation of ethical behavior (Rule 6). Taking all six rules into account, no clear resolution emerges as to the ethicality of laying off workers in Russia, and each instance must be evaluated in its own context. People influenced primarily by the values of the past would likely view layoffs as unethical, while those with business experience only in the emerging market economy would almost certainly feel otherwise.

4

Conclusion

In this chapter, we have analyzed six selected business practices in Russia by applying Donaldson and Dunfee's Integrative Social Contracts Theory. The turbulence in Russia during the transition to a market economy has produced a

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number of practices which would likely be considered unethical when applying the hypernorms common to many societies. Yet other practices, while not violating hypernorms, are questionable from an ethical perspective. The value of the Integrative Social Contracts framework lies in its flexibility which requires looking not only at ethical hypernorms. It also requires that the norms of individual communities be considered when evaluating behaviors and practices. The six principles of this theory also take into account various influences on specific communities when judging the legitimacy of business practices, especially when these come into conflict with more broadly accepted norms of other communities. Using this methodology, the historical norms of that broader community, as well as changes in those norms, should be considered when evaluating business practices. For instance, although there has been much consistency in values during the lifetimes of most Russians, changes in social standards and values in the Stalin era and beyond have been initiated by the younger and more educated generations (Bahry 1993: 549, 550). These generational shifts, which encompassed the desire for change and rising expectations, continued into the post-perestroika period, bringing into being new standards and values more consistent with a market-oriented economy. We have referred to a number of important business developments in Russia. For instance, employee layoffs have gained broader acceptance. In addition, members of the nomenklatura, whose activities were often tied closely to the Mafia in the early transition stages of accumulating wealth, later distanced themselves from the criminal element in pursuit of more legitimate status and business practices (Mikheyev 1996: 156). It has been estimated that 87 percent of such Russians have followed this course (Kryshtanovskaia 1994). Although the positive scenario, noted at the beginning of this chapter, of the criminal Mafia moving toward more legitimate business practices may not be in the offing, it is still encouraging that many former members of the nomenklatura have chosen to do so. As Russia becomes more active in the world economy, its business laws and practices are likely to become increasingly influenced by and aligned with the norms of the broader international economic order. For instance, the US ambassador to the Russian Federation, Thomas Pickering, predicted in 1996 that "within three years Russian tax laws and accounting standards are going to approach Western norms and Russia will be one of America's top trading partners" (Sweeney 1996: 2). If positive developments continue to occur, increasing numbers of people from around the world will engage in business transactions with Russians. They should realize that Russia, like other countries, will continue to have its own unique set of norms and standards for ethical behavior. To expect otherwise would be unrealistic given the variations in ethical norms among coun-

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tries, and the unique influences of Russia's history, politics and culture. When evaluating the norms and ethics of various Russian business communities, the reasons for questionable or confusing business practices must be understood. Techniques like the Integrative Social Contracts Theory provide a more thorough and fair ethical evaluation of Russian business practices than is possible by judging them with a set of preconceived standards.

References Anderson, R. and P. Shikhirev (1994), "Akuly" i "del'flny": Psikhologiia i etika rossiiskoamerikanskogo delovogo partnerstva ("Sharks" and "Dolphins": The Psychology and Ethics of Russian and American Business Partnerships). Moscow: Delo. Bahry, D. (1993), Society Transformed?: Rethinking the Social Roots Of Perestroika, Slavic Review, 52(3): 512-530 Berliner, J.S. (1989), Soviet Industry From Stalin To Gorbachev. Aldershot, UK: Edward Elgar. Blasi, J.R., M. Kroumova, and D. Kruse (1997), Kremlin capitalism: Privatizing the Russian Economy. Ithica, NY: Cornell University Press. Boycko, M., A. Schleifer, and R. Vishny (1995), Privatizing Russia. Boston: The MIT Press. Bregman, R., and S. Carey (1995), Contracting in Russia: Not Perfect But It Works, Russian Business Watch 3(1): 41-42 Cook, L. (1993), The Soviet Social Contract and Why It Failed: Welfare Policy and Workers ' Politics From Brezhnev To Yeltsin. Cambridge: Harvard University Press. DeGeorge, R.T. (1969), Soviet Ethics and Morality. Ann Arbor: University of Michigan Press. Donaldson, T. (1996), Values in Tension: Ethics Away From Home, Harvard Business Review September/October: 48-62 Donaldson, T., and T. Dunfee (1994), Toward a Unified Conception of Business Ethics: Integrative Social Contracts Theory, Academy of Management Review 19(2): 252-284 Economic Newsletter (1994), Cambridge: Russian Research Center, Harvard University, 19/8, April 10: 4 Falkus, M.E. (1972), The Industrialisation of Russia 1700-1914. London: Macmillan. Filatotchev, I., K. Starkey and M. Wright (1994), The Ethical Challenges of Management Buy-outs as a Form of Privatisation in Central and Eastern Europe, Journal of Business Ethics 13: 523-532 Graham, L. (1995), Message From the Acting Director, RRC Novosti: The Newsletter of the Russian Research Center 1-2 (Fall). Cambridge: Harvard University. Hingley, R. (1991), Russia: A Concise History. London: Thames and Hudson. Holt, D.H., D.A. Ralston and R.H. Terpstra (1994), Constraints on Capitalism in Russia: The Managerial Psyche, Social Infrastructure and Ideology, California Management Review 36(3): 124-141 Inkeles, A. and R. Bauer (1959), The Soviet Citizen: Daily Life in a Totalitarian Society. Cambridge: Harvard University Press. Kahan, A. (1989), Russian Economic History: The Nineteenth Century. Chicago: The University of Chicago Press.

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King, M.T.R. (1994), The Challenge to Accounting in Eastern Europe, Business & the Contemporary World 1: 112-121 Kryshtanovskaia, O. (1994), Portrait of the Contemporary Business Elite, Delovoi Mir, December 28: 9 Lukyanova, L. (1996), Will Russia Get a Smarter Tax Policy? The Jamestown Foundation Prism 2(3), November. McCarthy, D. J and S. Puffer (1995), Diamonds and Rust on Russia's Road to Privatization: The Profits and Pitfalls for Western Managers, Columbia Journal of World Business 30(3): 57-69 McCarthy, D.J., S.M. Puffer and S.V. Shekshnia (1993), The Resurgence of an Entrepreneurial Class in Russia, Journal of Management Inquiry 2(2): 125-137 Mikheyev, D. (1996), Russia Transformed. Indianapolis: Hudson Institute. Owen, T.C. (1995), Russian Corporate Capitalism From Peter the Great To Perestroika. New York: Oxford University Press. Puffer, S.M. and D.J. McCarthy (1995), Finding the Common Ground in Russian and American Business Ethics, California Management Review 37(2): 29-46 Puffer, S.M., D.J. McCarthy and A.V. Zhuplev (1996), Meeting of the Mindsets in a Changing Russia, Business Horizons 39(6): 52-60 Reuters (1997a), January 6, Russia's Patriarch Slams Poverty, Wage Arrears (Internet source). Reuters (1997b), February 9, Russian Economic Problems Remain After IMF Handout (Internet source). Rudskii, L. (1996), Podarok... vziatka (Gift... Bribe), Novoe Russkoe Slovo (New Russian Word), July 20-21: 17 Shikhirev, P.N. (1993), Ethics, Psychology and Business in Rtissia, paper presented at the international conference on business ethics, Academy of the National Economy, Moscow Standing, G. (1997), Unemployment and Enterprise Restructuring: Reviving Dead Souls. Geneva: International Labor Organization. Steffens, R. (1996), Resolving Commercial Disputes, Bisnis Bulletin. September. Sweeney, P.J. (1996), A Veteran Observer, Bisnis Bulletin. November. Unwin, P., and V. Carratu (1996), The Fight Against Grand Corruption and Piracy in Eastern and Central Europe, RSA Journal, July: 52-59 Veiga, J., J. Yanouzas, and A. Buchholtz (1995), Emerging Cultural Values Among Russian Managers: What Will Tomorrow Bring? Business Horizons, July/August: 20-37 Zuyev, K. (1995), Moscow Times, July 23.

The Interfaith Declaration: Context, Issues and Problems of Application of a Code of Ethics for International Business among those of three Major Religions. Simon Webley

One of the most important decisions which an expanding business has to consider is whether or not to invest some of its assets in another country. This can be a joint venture with an indigenous firm, the building of a major manufacturing plant on a green field site or a number of other options. The difference between this decision and that of investing in the home country is not merely one of degree. It involves operating under different laws, in different currencies and often using a different language. This becomes more complicated when the culture of the country where investment is contemplated is based on different values to those with which the current management team is familiar. While it is reasonably straightforward to employ local professional lawyers and accountants, it is not so easy to know how to behave in an ethical manner in an unfamiliar culture. It is an issue of practical as well as theoretical interest. A company wishing to build and operate a plant in another country may not always be able to transfer its business practices. It might for example, operate an equal opportunities policy in its home country. But in some countries this would not be possible because of the custom and tradition associated with the place of women in that society. For the board of directors, the question can be summed up in this question: In making business decisions, should social, cultural and ethical consideration in the host country be taken in to account, or should commercial factors be the sole determinant?

This type of business dilemma is now being experienced by senior managers who have been given little or no guidance on how to resolve it. It is for this reason that a number of international organizations e.g. the International Chamber of Commerce (ICC), have tried to codify best practice for Multinational Corporations (MNCs)1 on how they should approach this type of prob1

ICC (1996).

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lem. Their motivation has been first, to minimize the disruption caused by decisions made because of ignorance of cultural norms, and second, to try and set common standards or guidelines which can be adopted by international business throughout the world. There is little evidence that these have yet been widely adopted by MNCs but the whole issue is receiving increasing attention by both academics and the business community. The need for such codes of behavior is heightened by the process now known as globalization. This describes the extension of investment and trade across national borders and involves the transfer of products, capital, technology and people on an ever increasing scale. The prosperity that this is bringing to the economies of the largely developed countries of the world - the countries belonging to the Organization for Economic Co-operation and Development (OECD)2 is now seen as likely to have similar effects in developing countries. It depends if the conditions for hosting foreign direct investment (FDI) from Multinational Corporations are seen as mutually beneficial. This process is also gathering momentum. The World Trade Organisation has shown that nearly one-third of the 20 leading host economies for FDI during the decade to 1995 are developing economies. China is in fourth place, with Mexico, Singapore, Malaysia, Argentina, Brazil and Hong Kong on the list. The share of the non-OECD countries in worldwide FDI inflows, which decreased in the 1980s, increased from nearly 20 to about 35 per cent, between 1990 and 1995. However, these flows were highly concentrated, with 10 countries receiving nearly 80 per cent of the total ($78 billion out of $102 billion)3. The need for some international agreement is given increased urgency not only by the effects of economic expansion, but by two other major changes which are taking place throughout the world. The first is the international accessibility to information as a result of the information technology revolution. The written, audio and visual media make it possible for governments and the general public to be informed about corporate behavior, and indeed, that of anyone else, wherever and whenever it occurs. Secondly, there is a measurable increase in awareness of moral dimensions of public life - including the behavior of business environmental issues is a particular example. This is partly associated with more readily available information but is also due to worldwide public attention being drawn to human rights and other issues via a series of well publicized global UN conventions and conferences. At the same time, the growth and effectiveness of "single is2 3

OECD (1996). WTO (1996).

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sue" international pressure groups, such as Amnesty International and Greenpeace, have also contributed to the growth in public consciousness of issues which have a strong moral dimension.

1

The Spread of Global Information

It is a cliché to say that bad news travel fastest but as far as world-wide business is concerned, it is true. A number of incidents in recent years involving MNCs, have been flashed round the world as they happen. These highlight their vulnerability to public reactions and even to litigation for behavior over which they have only remote control. For instance, the leak of methyl isocyanide at Union Carbide's subsidiary at Bohpal in India, the oil spillages from oil tankers off the Alaskan coast, the English Channel and the Welsh and Irish coasts received world wide publicity which tended to be critical of the company concerned irrespective of the causes. The dramatic collapse of the Bank of Credit and Commerce International (BCCI) because of mal-practice by its staff in different countries which was widely reported throughout the world. The problems recently incurred by Barings Bank in London, Diawa Bank in New York and the Sumitomo Commodity Trading Corporation in Japan were also the subject of public debate. Each sustained losses incurred because of the unethical, and in some cases, illegal actions by employees. The Nestlé Corporation's marketing of their infant food formula product in Africa has been the subject of protest and boycotts in a number of countries. These have been countered by a substantial program of public information by the Swiss company. It focused on the assertion that its subsidiaries conformed to the standards laid down by an internationally recognized code produced by the World Health Organization "Marketing of Breast Milk Substitutes". Indeed, the Nestlé group is now considered by European business leaders to be the third most respected international company in Europe 4 . For other cases, see the essay by Michael Wiehen. The immediacy of information having a direct effect on business practice has been well illustrated in the reaction of western retail corporations to reports in the world press concerning the selling of products made by children under the age of 14 in some poor conditions in Asian developing countries. The alleged practice was unlikely to be known widely without rapid means of communications and corporations have been quick to react to the information about child labor of which, in many cases, they were not aware. 4

Europe's Most Respected Companies, Financial Times, London, Sept. 19, 1996

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Corporations are also finding that public opinion is becoming better informed particularly in developed countries. Education and media coverage of high profile events such as human rights conventions and conferences on environmental standards have raised public awareness of world moral issues. Most MNCs welcome this trend but they tend to underestimate its implications for their world-wide business activity. This becomes particularly noticeable when apparent failure to respect such standards is highlighted by public interest groups which increasingly operate on a world-wide basis. For instance, in 1996, Shell International, which has had a code of ethical principles5 for many years, had to abandon its attempt to dispose of the Brent Spar oil production platform in the Atlantic. It was not for any good environmental or economic reason, but because public opinion (and its threatened action against Shell consumer products), forced it to take this action. Information about threats to the stability of the global environment (e.g.: the effects of CFCs on the ozone layer) has led to a wide public awareness of "green" issues. Corporations have responded generally in a positive way by publishing clear policy statements on the topic. Most make reference to care for the environment in their general code of ethics and follow up with specific policies and practices to be followed6. Indeed, a number of corporations have made their global environmental stance a feature of their marketing strategy. Holiday Inns Worldwide for instance, in its hotels throughout the world tells its customers that it "cares about the environment" by participating in a Conserving for Tomorrow program "to save the world's natural resources and protect our environment". So the sustained advance in economic and commercial activity by MNCs throughout the world coupled with increasing media attention being given to corporate activity, is generating growing public awareness of the way business is conducted. Companies and whole industries7 are being required to respond in a positive way to this by making sure that all their operations are conducted to the highest standards of business conduct. It is against this background that international organizations such as the International Chamber of Commerce (ICC) began to produce guidelines for their members on such topics as marketing, sponsorship and advertising. Perhaps its most widely used code is that covering Extortion and Bribery in International Business Transactions. This was first produced in 1977 and was 5 6 7

Shell (1994). Hill/Marshall/Priddey (1994). see essay in this Volume by Meister & Banthien.

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revised in 1996 to take account of recent experiences of members. ICC codes do not have an explicit value basis though some moral basis can be discerned in them. In some countries of the world, it is felt to be important by both political and religious leaders to ground all rules, guidelines and bye laws in their country's prevailing system of values. Any code, however well produced, will attract little attention unless the core moral precepts on which it is based are made explicit.

3

Interfaith Declaration

This was one of the motivations in the formation of a group of distinguished leaders from business, banking, academia and religious institutions drawn from the three major monotheistic religions (Muslim, Jewish and Christian). They met between 1989-94 under the auspices of HRH the Duke of Edinburgh, HRH Crown Prince Hassan of Jordan and Evelyn de Rothschild. Their purpose was to see if it would be possible and useful to draw up a set of guidelines on business ethics which would be applicable wherever economic activity involving adherents of their religions takes place. The group met four times and explored in some depth, the different approaches to behavioral problems arising in business relationships. The participants exchanged experiences, produced papers and generally explored a range of business situations which could not be resolved solely by consulting legal texts or by applying strictly business (profit) criteria. The purpose of the resulting Declaration of International Business Ethics8 was to provide: -

-

a moral basis for international business activity some principles of ethical practice to help business people, traders and investors identify the role they and their organizations perform in the communities in which they operate, and guidance in resolving genuine dilemmas which arise in the course of dayto-day business.

The group was conscious that the recent widespread reporting of the rhetoric and activities by extremist adherents (at least in name) of their three religions had produced in the mind of the general public the idea that only disunity and conflict characterized relationships, including business relationships, between 8

An Interfaith Declaration: a code of ethics on International Business for Christians, Muslims and Jews. This is reproduced in Business Ethics, a European Review Vol. 5 No. 1, January 1996.

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those of different religious beliefs. The meetings of the group and the resultant Declaration indicate that whatever their particular insight of the truth may be and it is acknowledged that there are differences - they nevertheless share a common heritage including a high degree of shared values. This particular group also shared a common historical and ethical basis derived from one book - the Bible - which they considered to be as relevant today as it has been in the past. The need to relate this relevance to contemporary business issues was felt to be particularly important. To do this, they sought to discover the basic values that their respective Faiths have in common which were relevant to economic activity. Underlying this purpose was their shared concern that at the same time as material prosperity grew in the industrialized world, there is also emerging a value system which is considered to be detrimental to the wholesome development of human beings: selfishness and dishonesty are tending to supplant integrity and generosity. As a result, there is evidence that morality and ethical standards are declining. This is exemplified by the wide reporting of dishonest and corrupt practices. Part of the problem was seen to be an ambivalence concerning what is considered right and wrong; economic relationships have not escaped its influence. The participants considered that a reiteration of ethical precepts in the form of a Declaration would make a contribution to sustaining and improving the standards of international business behavior. It was acknowledged that such a code may be more difficult to apply in some countries than in others because of the different degree of influence that religion has within cultures. Both Muslims and, to a lesser extent Jews, operate within a social atmosphere that is conducive to the influence of their religious precepts being heeded, and where it is normal for moral and ethical concerns to be discussed within a religious ethos. Christians in the industrialized countries generally do not enjoy this support and guidance. They are dependent upon personal convictions which often have to be stated in a secular social atmosphere that has little sympathy with them. While the influence of Islamic institutions is more open and obvious, and that of Judaism still strong, the influence of Christianity is largely personal and subsumed. In the final analysis, the application of ethical principles is a matter of personal judgement rather than rules; a code can only set standards. It follows that the Declaration (or indeed any code of ethics) is not a substitute for corporate or individual morality; it is a set of guidelines for good practice. Its authors hoped that it will contribute to maintaining high standards of business behavior as well as a better public understanding of the role of business in society.

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Method

The method used in producing the Interfaith Declaration was to analyze the content of submissions by group members together with a number of existing guidelines and codes which have been used by international organizations. Individual company codes of ethics were also used where appropriate.9 From these sources ethical issues in business were classified under three general headings: -

The morality of the economic system in which business activity takes place. The policies and strategies of organizations which engage in business. The behavior of individual employees in the context of their work.

In the Declaration, the distinction between these categories is recognized and there may indeed be other levels and sub-categories but the three selected are those where moral issues most commonly arise. A second distinction which needs recognition is that while some ethical issues affect all types of industrial and commercial activity, there are others which are distinctive to a particular sector. The outstanding example is that between the provision of financial services (e.g. banking), and the manufacture and trading of products. There is a third distinction. It was recognized that the legal framework in which business is conducted is not the same in all countries. For instance, the duties of company directors vary considerably and employment law e.g. legal notice of dismissal or redundancy is hardly ever the same in any two countries. While recognizing that national law applies to a company registered in that country (irrespective of the nationality of its owners and managers), and that it should be scrupulously followed, the laws on the same matter may be less demanding in, say, the country of the parent company. Some areas of business practice which are covered by law in one country may be the subject self administered regulation or of voluntary codes of behavior in another. Therefore, some subjects covered by the Declaration may, in practice, already have the force of law in some countries.

5

Some Key Principles

Four key ethical concepts were agreed. They recur in the literature of the Faiths as the basis of any human interaction and which are applicable to busi9

For one survey of these see: Webley, S. (1993).

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ness relationships. They are: justice (fairness), mutual respect (love and consideration), stewardship (trusteeship) and honesty (truthfulness).

5.1 Justice The first principle is justice which can be defined as just conduct, fairness, exercise of authority in maintenance of right. In Muslim teaching it is seen as a basis of relationship. The Qur'an, Maida, V. 9 states: stand out firmly for God, as witnesses to fair dealing, and let not the hatred of others to you make you swerve to wrong and depart from justice. Be just: that is next to piety and fear God.

It is also a strong theme in Jewish writing. For instance, a passage on the subject in Deuteronomy 16: 18-20 concludes with the statement: justice, and only justice, you shall follow that you may live and inherit the land which the Lord your God gives you.

Jesus too, suggested that the Jewish teachers of his day neglected the weightier matters of the law: justice and mercy and faith (St. Matthew 23.23), and Christians are urged by St. Paul to "consider what is just" (Phil. 4: 8).

5.2 Mutual Respect (love) The second principle - mutual respect or love and consideration for others - is also inherent in the moral teachings of each religion. The statement in Leviticus Chapter 19: 18 "Love thy neighbor as thyself' which is reiterated by the Prophet Mohammed as "Love for yourself what you love for others" and by Jesus Christ as "You shall love your neighbor as your self' (St. Matthew 22.39) is a common ethical basis for all interpersonal relationships. The application of this has come to mean that self interest only has a place in the community in as much as it takes into account the interests of others. My neighbor in the business context can be defined as any person (individual or corporate) with whom the organisation comes into contact in the course of business life. Of paramount importance in this respect is the employee. The illustration of the Good Samaritan given by Jesus to an enquiry from a Jewish lawyer as to who was his neighbor (St. Luke 10: 30-37), indicates that one's neighbor is not always of the same ethnic origin or economic status as

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oneself. Indeed, a neighbor may be much weaker or vulnerable or a different race or religion. A business application of this would be in the case of a small company supplying a large one. The principle of love would suggest that restraint in the use of power by the strong, especially in difficult times, would be ethically correct, and in accord with the written precepts of the three religions. It follows that a large sophisticated company based in a developed country should treat a supplier or customer from a developing nation in the same way it would treat a firm with whom it does business in its home country.

5.3 Stewardship A third principle which the three faiths have in common is that of stewardship (trusteeship) of resources. While this may be readily understood by an owner of a small business or an inheritor of an agricultural holding, the principle is applicable to anyone who is entrusted with the responsibility of managing scarce resources. It applies equally to individual wealth, the long term viability of a business and the use of renewable resources. Ownership is not seen therefore, to be absolute. As such, businesses have an obligation to use resources for the benefit of the people in society at large as well as for its stockholders. It also has a responsibility to the past (retired employees) and to the future (survival in the long term). Muslims point to two Quranic verses on this topic: And bestow upon them of the wealth of Allah which He has bestowed upon you (Sura (light) No. 24, V. 33). And spend of that whereof He has made you trustees (Sura 57 (iron) V. 7).

An authentic saying of the prophet Mohammed confirms this concept of man's responsibility for his wealth. It proclaims that no man will be allowed to proceed to his reward on the day of the judgement unless he first gives account of his deeds which includes how he obtained his wealth and how he used it. Jews too, have encompassed the concept of stewardship in their teachings concerning responsibility in society. The patriarch David states (1 Chron. 29: 14): Who am I, and what is my people, that we should be able thus to offer willingly? For all things come from thee, and of thy own have we given thee.

The New Testament stresses the accountability of Christians for the way they have used resources. Jesus summed this up by stating (St. Luke 12:48):

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Everyone to whom much is given, of him will much be required.

This principle provides a longer term perspective for business decisions than is likely to be found where the concept of absolute ownership predominates. It also provides the basis for a proper concern for the natural environment on which business activity makes considerable demands. It implies a caring management not a selfish exploitation.

5.4 Honesty The fourth principle inherent to the value system of each of the three faiths is honesty. It incorporates the concepts of truthfulness and reliability and covers all aspects of relationships in human life - thought, word and action. It is more than just accuracy, it is an attitude which is well summed up in the word "integrity". Muslims place considerable emphasis on truthfulness in business. For instance, in a Hadith it is stated: The merchant whose words and transactions are righteous and who is a trusty man will be (resurrected) amongst the martyrs in the day of judgement (Ibn Mace, Sunan, 11/724, No. 2139 (Ticaveti)).

Jews too, constantly stress honesty as the basis for human relationships. Moses in the book of Leviticus is explicit concerning honesty in business: You shall have true scales, true weights, true measures (Leviticus 19: 36)

and all who act dishonestly are an abomination to the Lord (Deut 26: 16)

and regarding truthfulness, the Decalogue states: You should not bear false witness (Exodus 20: 16).

Christians also expect honesty and truthfulness to characterize the lives of believers. Jesus states that doing what is true is a test of obedience to God (St. John 3: 2): He who does what is true comes to the light that it may be clearly seen that his deeds have been wrought of God.

and St. Paul urged the Ephesian Christians (Eph 4: 15):

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You shall speak the truth in love.

These four principles, justice, love, stewardship and honesty form the moral basis of the Declaration that follows.

6

The Declaration

6.1 Business and Political Economy All business activity takes place within the context of a political and economic system. It is recognized that: 1. Business is part of the social order. Its primary purpose is to meet human and material needs by producing and distributing goods and services in an efficient manner. How this role is carried out - the means as well as the ends - is important to the whole of society. 2. Competition between businesses has generally been shown to be the most effective way to ensure that resources are not wasted, costs are minimized and prices fair. The State has a duty to see that markets operate effectively, competition is maintained and natural monopolies are regulated. Business will not seek to frustrate this. 3. All economic systems have flaws; that based on free and open markets is morally neutral and has great potential for good. Private enterprise, sometimes in partnership with the State, has the potential to make efficient and sustainable use of resources, thereby creating wealth which can be used for the benefit of everyone. 4. There is no basic conflict between good business practice and profit making. Profit is one measure of efficiency and is of paramount importance in the functioning of the system. It provides for the maintenance and growth of business, thus expanding employment opportunities and is the means of a rising living standard for all concerned. It also acts as an incentive to work and be enterprising. It is from the profit of companies that society can reasonably levy taxes to finance its wider needs. 5. Because the free market system, like any other, is open to abuse, it can be used for selfish or sectional interests, or it can be used for good. The State has an obligation to provide a framework of law in which business can operate honestly and fairly and business will obey and respect the law of the State in which it operates. 6. As business is a partnership of people of varying gifts they should never be considered as merely a factor of production. The terms of their employment will be consistent with the highest standards of human dignity.

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7. The efficient use of scarce resources will be ensured by the business. Resources employed by corporations include finance (savings), technology (machinery) and land and natural renewable resources. All are important and most are scarce. 8. Business has a responsibility to future generations to improve the quality of goods and service, not to degrade the natural environment in which it operates and seek to enrich the lives of those who work within it. Shortterm profitability should not be pursued at the expense of long term viability of the business. Neither should business operations disadvantage the wider community.

6.2 The Policies of a Business Business activity involves human relationships; it is the question of balancing the reasonable interests of those involved in the process: i.e. the stakeholders, that produces moral and ethical problems. The policies of the business will therefore be based on the principles set out in the paragraphs above and in particular: 1. The board of directors will be responsible for seeing that the business operates strictly within the letter and spirit of the laws of nations in which it works. If these laws are rather less rigorous in some parts of the world where the business operates than in others, the higher standards will normally be applied everywhere. 2. The board will issue a written statement concerning the objectives, operating policies of the organisation and their application. It will set out clearly the obligations of the company towards the different stakeholders involved with a business [employees, shareholders, lenders, customers, suppliers and the community (local and national government)]. 3. The basis of the relationship with the principal stakeholders shall be honesty and fairness, by which is meant integrity, in all relationships as well as reliability in all commitments made on behalf of the organisation. 4. The business shall maintain a continuing relationship with each of the groups with which it is involved. It will provide effective means to communicate information affecting the stakeholders. This relationship is based on trust. 5. The best practice to be adopted in dealings with six particular stakeholders can be summarized as follows: a)

Employees Employees make a unique contribution to an organisation; it follows that in their policies, businesses shall where appropriate, take notice of trade union positions and provide:

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III)

b)

What has been agreed to be repaid at the due dates. Adequate safeguards in using the resources entrusted. Regular information on the operations of the business and opportunities to raise with directors matters concerning their performance.

Customers Without customers a business cannot survive. In selling products or services, a company shall provide for the customer: I) II) III) IV)

d)

Working conditions that are safe and healthy and conducive to high standards of work. Levels of remuneration that are fair and just, that recognize the employees' contribution to the organisation and the performance of the sector of the business in which they work. A respect for the individual (whether male or female) in their beliefs, their family responsibility and their need to grow as human beings. It will provide equal opportunities in training and promotion for all members of the organisation. It will not discriminate in its policies on grounds of race, color, creed, or gender.

Providers of Finance A business cannot operate without finance. There is therefore, a partnership between the provider and the user. The company borrowing money shall give to the lender: I) II) III)

c)

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The quality and standard of service which has been agreed. After-sales service commensurate with the type of product or service and the price paid. Where applicable, a contract written in unambiguous terms. Informative and accurate information regarding the use of the product or service especially where misuse can be dangerous.

Suppliers Suppliers provide a daily flow of raw materials, products and services to enable a business to operate. The relationship with suppliers is normally a long term one and must therefore be based on mutual trust. The company shall:

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452 I) II) III) e)

Community (Local and National Government) While companies have an obligation to work within the law, they must also take into account the effects of their activities on local and national communities. In particularly they shall: I)

II)

III) f)

Undertake to pay its suppliers promptly and in accordance with agreed terms of trade. Not use its buying power in an unscrupulous fashion. Require buyers to report offers of gifts or favors of unusual size or questionable purpose.

Ensure that they protect the local environment from harmful emissions from manufacturing plant, excessive noise and any practice likely to endanger humans, animals or plant life. Consider the social consequences of company decisions e.g. plant closures, choice of new sites or expansion of existing ones. Not tolerate any form of bribery, extortion or other corrupt or corrupting practices in business dealings.

Owners (shareholders) The shareholders undertake the risks of ownership. The elected directors shall: I) II) III)

Protect the interests of shareholders. See that the company's accounting statements are true and timely. See that shareholders are kept informed of all major happenings affecting the company.

6.3 Conduct of Individuals at Work The following are based on best ethical practice for employees in a business. Employees of an organisation shall: 1. Implement the decisions of those to whom he or she is responsible which are lawful and in accordance with the company's policies in cooperation with colleagues. 2. Avoid all abuse of power for personal gain, advantage or prestige and in particular refuse bribes or other inducements of any sort intended to encourage dishonesty or to break the law. 3. Not use any information acquired in the business for personal gain or for the benefit of relatives or outside associates.

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4. Reveal the facts to his superiors whenever his personal business or financial interests become involved with those of the company. 5. Be actively concerned with the difficulties and problems of subordinates, treat them fairly and lead them effectively, assuring them a right of reasonable access and appeal to those to whom their immediate superior is responsible. 6. Bring to the attention of superiors the likely effects on employees of the company's plans for the future so that such effects can be fully taken into account.

7

The Use of the Code

The code has been translated into Arabic and widely circulated in the Islamic World. It has also been distributed to business leaders and business schools throughout the Islamic and Western world. The group hoped that it would form the basis of individual company codes where international business is involved. It was felt that such codes of conduct should be endorsed at the highest level and propagated widely not only to employees, but also to customers and others with which a company has dealings. Experience shows that where terms of business - including business conduct or ethics - are set out in the early stages of a relationship, a considerable amount of misunderstanding, time and expense is subsequently saved. The fact that there are differences in business practice between corporations and societies with widely varying religious and cultural traditions is not disputed. What has so far eluded the business community is a comprehensive and practical set out guidelines which can be used to avoid disputes and resolve differences that occur. The Interfaith Declaration is evidence that there is more common ground between the three Faiths concerned than might have otherwise been expected. Furthermore, it shows that it is possible to agree on practical ways to conduct business cross culturally. These are important in a world where the moderate voice is often drowned by that of the extremist. There was no question in the minds of the participants in the Interfaith consultations of the value of distinct religious doctrines; what they achieved was to address genuine issues experienced in the world of work between those of different religious persuasions using as a basis, the values their respective religions had in common. The exercise now needs to be extended to cover other of the world's major value systems to see if their doctrines and subsequent business practice can be accommodated.

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The Interfaith Declaration has shown that it is possible to achieve agreement on common standards of business morality in a pluralistic society when it is based on explicit values.

References Hill, J., I. Marshall and C. Priddey (1994), Benefiting Business and the Environment. London: Institute of Business Ethics. International Chamber of Commerce (ICC) (1996), Extortion and Bribery in International Business Transactions. Paris: OECD, n.n. (1996), An Interfaith Declaration: A Code of Ethics on International Business for Christians, Muslims and Jews, Business Ethics, a European Review 5(1), January 1996 Organisation for Economic Co-operation and Development (OECD) (1996), Globalisation of Industry. Paris: OECD. Shell (1994), Statement of General Business Principles. London: Shell International Petroleum Company. Webley, S. (1993), Codes of Business Ethics. London: Institute ofBusiness Ethics. World Trade Organisation (WTO) (1996), Trade and Foreign Direct Investment (October). Geneva: WTO.

List of Contributors

Prof. Dr. Zafar U. Ahmed, Senior Visiting Fellow, Nanyang Technological University, Singapore and Professor, Minot State University, Minot (North Dakota) Henning Banthien, program assistant of IFOK (Institut für Organisationskommunikation), Bensheim Marvin Brown, Lecturer, Philosophy Dept., University of San Fransisco Prof. Dr. Daniel J. McCarthy, Philip R. McDonald Professor of Business Administration Northeastern University, Boston, Massachusetts Prof. Dr. Shitangshu K. Chakraborty, Ph.D., AICWA, Professor; Founder-Convener, Management Centre For Human Value, Indian Institute of Management Calcutta Dr. Adela Cortina, Doctora en Filosofia, Catedàtica de Etica y Filosofia Politica Universidad de Valencia Prof. Dr. Georges Enderle, Arthur&Mary O'Neil Professor of International Business Ethics, College of Business Administration, University of Norte Dame, Notre Dame, Indiana Ina Graf, Dipl.-Kfm., Lecturer, International Management, University Erlangen-Niirnberg Robert D. Haas is Chairman of the Board and Chief Executive Officer of Levi Strauss&Co., San Fransisco Dr. André Habisch, Dr. theol., Dipl. Volkswirt, Privatdozent at the University of Würzburg Prof. Dr. Gopalkrishnan Iyer, Assistant Professor of Marketing and International Business, Baruch College of the City University of New York Prof. Dr. Brij Nino Kumar, Professor and Chair for International Management, University Erlangen-Niirnberg Prof. Dr. Kam-hon Lee, Professor of Marketing and Dean of Business Administration, Chinese State University, Hong Kong Prof. Dr. Klaus M. Leisinger, Executive Director and Delegate of the Board of Trustees of the Novartis Foundation for Sustainable Development, Basel; Professor at University of Basel (Sociology/MGU) Dr. Hans Peter Meister, Head of IFOK (Institut für Organisationskommunikation), Bensheim Prof. Dr. Sheila M. Puffer, Professor of International Business and Human Resource Management, Northeastern University, Boston, Massachusetts Prof. Dr. Mohammad Saeed, Professor and Deputy Dean, Faculty of Economics and Management Sciences, International Islamic University, Kuala Lumpur Linda M. Sama, Substitute Instructor and Lecturer of Management, Baruch College of the City University of New York Dr. Andreas Scherer, Senior Lecturer, Department of Management, University ErlangenNümberg

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List of Contributors

Prof. Dr. S. Prakash Sethi, Ph.D., Professor of Management and Director, Executive Programs, Baruch College of the City University of New York Prof. Dr. Horst Steinmann, Professor and Chair for General Management, University Erlangen-Nümberg Prof. Dr. Iwao Taka, Ph.D. Associate Professor, The International School of Economics and Business Administration at Reitaku University, Chiba (Japan) Simon Webley, Director, British-North-American Research Association; Consultant, Institute of Business Ethics (London) Dr. Michael H. Wiehen, Dr. Jur., Rechtsanwalt, Member of the Board Transparency International, München Prof. Dr. Harald Wohlrapp, AOR at Philosophisches Seminar, University Hamburg

Index

Accident prevention 276 Action research 57 Active trading 101 Adverse selection 76 Age of commerce 282 Agency Theory 382 Agenda 21 96 Ambiguity 254 Amnesty International 441 Ananda 286 Aryans 284 Asia 109, 114 Aurobindo, Sri 282 Bank of Credit and Commerce International 441 Barings 441 Bhopal 172,373 Bible 444 Biodiversity 163 Black marketeers 424 Blake and Mouton 268 Blat 425,432f. Board of directors 439, 450 Boddewyn, J. 115,121 Breaking Contracts 425, 428, 430 Brent Spar 165 Bribery 116,183-187,189-197, 200-204, 206, 209f., 432f. Bribes 116 Brihadarayaka Upanishad 294 Brundtland Committee 164 Business culture 115 Business drivers 378 Business ethics 69, 367-378, 382388, 391-394, 396

Business leadership 269 Carson, Rachel 178 Catholic Social Thought 367 Caux Roundtable 377,379 Centrally-planned 419, 422 Chemical Industry 87 Chemical Manufacturers Association (CMA) 386 China 309-314,316-320 Chinese 284 Civic society 113 Civil society 121,374 Climatic change 163 CMA 386 C0 2 emissions 174 Code of ethics 442-444 Collective action 110,120 Command-and-control mechanism 166

Communication 100 Communism 424 Communist ideology 422f., 426 Communist party 422, 423 Community Advisory Panels (CAPs) 105 Community responsibility 272, 275 Company codes of conduct 203 Competency of initiating 93 Competency of knowledge 93 Competency of steering 93 Competition 88,286,288 Competition and caste 289 Competition and evolution 288

458 Competition, especially interpersonal 286 Competitive ethic 289 Competitive individuality 293 Competitive mania 288 Concentric circles 334 Conference Board 372, 385, 387, 394, 397 Conflict solving strategies 265 Confucianism 309,315,324 Consciousness ethics 297 Consciousness, pure 283 Conscious-Soul 283 Consensus conferences 105 Constitutional contract 117 Constructivist method 56 Contextualism 323 Cooperation 100 Corporate communications 274 Corporate Conscience Awards 389 Corporate ethics 368,371-373, 376f, 383, 392-396 Corporate governance 327, 332 Corporate misconduct 373, 375 Corporate responsibility 89 Corporate social responsibility 372, 377, 378 Correspondence 52, 59, 61 Corruption 117,120,122,309311, 316, 318f. Costs of corruption 189 Cross-cultural conflicts 259, 266 Cross-shareholding 328, 332 Cultural differences 48, 50, 57, 251 Cultural integration 47, 58 Cultural interaction 259, 274 Cultural pluralism 47-52, 55, 57 Culture 259f, 264f., 271-274 Culture change 273 Culture of cooperation 123 Culture of corruption 185

Index

Dasgupta 297 DDT 177 Declaration against Corruption and Bribery 193,211 Defense Industry Initiative 369, 386 Developing countries 118 Development 114, 117, 127f., 136f., 144-156 Development and Implementation of Corporate Ethics 87 Dialog-orientation 99 Dialogue 102,252 Diawa 441 Différend 55 Dilemma ethics 286,298 Dilemma of distrust 111 Dilemmas of cooperation 112 Discursive consensus-finding processes 89 Dis-values 286 Diversity 243 Diversity and ethics 243 DOK 295 Double standard 181 Eco-efficiency 166 Eco-efficient technology 173 Ecological truth 165 Ecology problems 141 Economic Conflicts 137 Economic development 116,118 Economic results 270 EcoSpace concept 169 Ekatmanubhuti 288 Emotional commitment 285 Employee 450,452 Employee support 276 Empowerment 378 End-of-pipe solutions 174 Enlightenment 53, 54 Environmental 440,442

459

Index

Environmental guidelines 167 Environmental protection 164f. Eternal 284 Eternal in ethics 284 Ethical business conduct 69 Ethical conduct 65 Ethical decision making 248 Ethical dilemmas 282 Ethical joy 286 Ethical joy, earn 286 Ethical Management System 203 Ethical principles 245 Ethical theories 281 Ethically responsible code of practice 89 Ethics gap 368f. Ethics of Win-Win 123 Ethics Officer Association 371, 388, 394 European institutions 198 Executive selection and placement 272 Exploiting 117 Extortion 183-185, 189, 192f., 201 f., 206, 209f., 425f. Exxon Valdez 373 Facilitation payments 184-186, 201 Familiarism 111 Federal Environmental Protection Agency 179 FIDIC 204f. Financial institutions 121 Foreign Direct Investments (FDI) 117, 313f., 317-319 Form of life 49f., 54 Formalized codes 285 Forms of life 5 If., 54f. Framework 88 Freeriders 166 Fukuyama 111

Gita 296 Global integration 129 Global players 118 Globalisation 273 Globalization 99,127,129-132, 137-142, 440 Good citizenship 97 Greeks 284 Greenhouse effect 167 Greenpeace 441 Groupism 325 Growth theorists 114 Growth theory 110 Harmony principle 90 Hassan of Jordan 443 Hierarchy of pleasures 285 High potentials 277 Holiday Inns Worldwide 442 Hpernorms 425f. HR Function 272,276 HR planning 272f. HR policies 273 Human capital 110, 114 Human potential 270 Human resources 378 Human rights 440, 442 Humanistic management 327 Hypernorms 380, 420,426,435 ICAC (Independent Commission Against Corruption 318 ICC 20If. Identification 123 Ignoring arbitrary 425,431 Incommensurability 55, 57 Incomplete contracts 115 Infinite 284 Information technology 440 Innovation 100,270 Inside-out 329 Insight 61

460 Institutions 114,118,123 Instrumental rationality 377f. Integral-norms 92 Integration through dialogue 266 Integrative social contracts theory 419f., 424,429, 434,436 Integrity 372, 38If. Integrity Pact 197,209,211 Integrity system 183, 192f. Intellect 293 Intellectual assent 285 Interaction 100 Interactive economics 88 Inter-corporate competition 286 Intercultural training, 274 Interfaith declaration 439, 443, 445,453f. Intermediary institutions 113 International Industry Associations 87 International Monetary Fund 207 International Public Affairs 115, 121 International relocations 276 International trade 111 International Transparency 372 Intrinsic value 384, 392f. Investments 118 Involution theory 282,288, 291 Involved perfection 285 Isha Upanishad 290 Japanese Commercial Law 327, 333 Jesus 269, 446-448 Jews 443f., 447f. Joint-ventures 368 Judaism 444 Kamya Karma 296 Karmavada theory 294 Kickback 334

Index

Knowledge 292 Knowledge worker 292 Kyosei 325 Latin America 109,114 Layoffs 425,433-435 Leadership 290 Leadership training 272f. Legitimacy 134,144, 155 Levi Strauss and Company 243 Levi, Margaret 111 Life-long employment system 326 Limits to morality 173 Local responsiveness 129 Mafia 420, 426,435 Malaria 178 Managerial buy-outs 425, 427 Market mechanism 111 Matilal 298 Mediatory function of industry associations 102 Metaphysical height 282 Metaphysical rationality 283 Microcontracts 421 Minimal ethics 401 Mission 272f. Mohammed 446f. Monistic principle 289 Moral philosopher 124 Moral Responsibility 127, 129, 132 Morality 124 Multinational Corporations (MNC) 127, 163,313,319,439, 440 Multinational Enterprises (MNE) 115, 118-120, 125 Muslims 443f., 446-448 Nestlé Corporation's 441 NGOs 121 Nishkam Karma 296 Nomenklatura 423, 435

461

Index

Nonpayment of debts 429 Nonpayment of taxes 431 Not invented here syndrome 275 OECD 195f., 198,200f., 211, 375 Officials 185 Oneness 287 Oneness theory 291 Organisation development 272, 273 Organization for Economic Cooperation and Development 440 Organization of the American States (OAS) 200 Organizational Architecture 378 Organizational Design 378 Ostrom, Elinor 112 Outside-in 329 Overregulation 122 Ozone layer 167 Participatory development 99 Participatory project development 101 Passive bribery 184 Patanjali 282,288 Peaceability 49, 55, 57, 61 Perestroika 435 Perfection 286 Personal favoritism 425, 432 Personalization 285 Personified versions 287 Petty corruption 184,209 Pluralism 289 Positive-sum-game 124 Post-traditionality 52, 53 Prakriti 282,292 Principle of interaction 100 Principles for business 377, 379 Prisoner's dilemma 119 Privatization 427f. Profit 449

Profitability 270 Property rights 117f., 122, 124 Prudence 392 Psychological depth 282 Public consensus 90 Public goods 110,120 Purpose generation 268, 277 Purpose of human life 281 Purusha 282 Putnam, Robert D. I l l Rajas energy 292 Rajasic separateness 293 Rational self-interest 123 Rational unethicality 293 Reduction of waste 176 Relationship between business and politics 122 Relativism 47,51,61 Remuneration 275 Reputation 115 Reputational 123 Responsible Care 87, 175 Responsible Care Initiative 386 Responsible Care program 93 Retirement insurance 276 Right consciousness 286 Risk/benefit analysis 179 Ritam 298 Romans 284 Rothschild 443 Rule creation 121 Rules 119 Russian Orthodox Church 422, 429 Safety audits 173 Sakam Karma 296 Sankhya 282 Sattwa energy 292 Sattwic holism 293 Self-commitment 134, 136,155

462 Self-exceeding 286 Self-interest 123f. Senseless laws 425,43If. Sensual-intellectual rationality 283 Serfdom 427 Serfs 430,432f. Shadow effect 375 Shareholders 450,452 Shell International 442 Sinngehalt 50-52, 54f., 58f. Skills of MNE management 121 Social capital 110, 114, 116f., 119, 121 Social capital investments 123 Social capital theory 124 Social security 118 Socialist market economy 309, 316 Society demand 105 Socio-cultural conflicts 142 Solidarity 155 Special interests 116 Special waste tourism 176 Srinivasachari 297 St. Paul 446, 448 Stakeholders 100 State Owned Enterprises (SOE) 313,317 Strategic HR Leadership 272 Strategic management process 145f., 149 Style enhancement 271 Succession planning 277 Sumitomo 441 Superconscient 284 Superconscient knowledge 283 Superstitious unethicality 293 Sustainability 99 Sustainability of 149, 155 Sustainability reports 101 Sustainable development 99, 110, 123, 127f., 136f., 144-156, 163

Index

Sustainable Germany 169 Swadharma 296 Tamas energy 292 Tatemae 336 Taxes 430f. Team 269, 270, 273, 274 Technological Change 378 Tocqueville, Alexis de 112 Tocquevillian 124 Toxic waste 167 Transatlantic Summit 200f. Transcendence 283, 287 Transcendent All 285 Transfer of Resources 129 Transparency International (TI) 208,310 Transsubjectivity 51 Trends 100 Trust 110 United Nations Conference on Environment and Development (UNCAD) 166 Union Carbide's 373,441 Union relations 275 United Nations (UN) 193,194 Universal interaction modes 261 Universalism 47, 52 US Defense Industry 369 US Foreign Corrupt Practices Act 433 US Sentencing Commission 375 US Sentencing Guidelines 374, 381,386,388, 393 Utilitarian calculative ethics 286 Values 367, 372, 378, 381, 383f., 388, 392 Values-free professionalism 281 Virtue 372, 373, 380, 381, 395 Vision 272, 273

463

Index

WAGE-Processes 105 Weingast, Barry 113 Welfare 276 Welfare state 431 Will-To-Ethics 288 Win-win scenarios 125 Win-win situations 103 Wirtschaftsethik 372 Work 293

Working Group 194-196, 198, 201 World Bank 207 World Health Organization (WHO) 441 World Resources Institute 170 World Trade Organisation 440 Yoga 283 Zero-sum-game 124