Factors that Shape Global Business Ethics

The impact on global business is now widely recognized and generally assumed to be inevitable because of the increasing scope of trade. Corporations adapt research, production, marketing and service strategies in an effort to “think global, act local” (Kline, 2005, p. 1). National governments have come to accept growing constraints on their sovereign scope for unilateral action even as they maneuver for competitive gains from global commerce. These changes supply both the building blocks and much of the driving force behind the emergence of “globalization” as a contemporary phenomenon.

 When operating internationally, a company should consider its mission (what it will seek to do and become over the long term), its objectives (specific performance targets to fulfill its mission), and strategy (the means to fulfill its objectives). Daniels, Radebaugh & Sullivan (2004) suggested that the three major operating objectives that may induce companies to engage in international business. They are

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• To expand sales.
• To acquire resources.
• To minimize risk.

With the globalization of business, the issue of global ethics had become vital because “[g]lobal ethics emerge from the degree of agreement among societies, corporations and other organizations regarding the appropriate ethical frameworks and behaviors in a given situation” (Buller, Kohls & Anderson ,1991). Furthermore, Buller, Kohls & Anderson (1991) had explained that global business ethics take into account both moral attitudes and moral reasoning. However, the relationship between these two elements is unclear. How do reasons and attitudes diffuse in the development of a global business ethics? Recent studies in business ethics have shown both remarkable similarities and differences across cultures with respect to attitudes toward questionable business practices. During the decades of the 1980s and 1990s business ethics was predominately a subject taught at business schools and debated by academics. It had little impact in the international business world, where the prevailing attitude was that anything goes and everyone is paid to cut a deal. Many governments (including France, Japan and Germany), recognizing the reality of doing business in certain parts of the world, actually allowed businesses to write off bribe payments on their corporate income tax (Mitchell 2003, p. 7).

Recently, business leaders and CEOs already have realized the repercussions of not having solid global ethics guidelines. Corporations of all sizes, especially multinationals, are more attuned to the bottom-line value of being a good corporate citizen and playing by the rules. Individual business people are seeking to do “what is right” (though this is often prodded by corporate ethics standards and local laws) rather than maintaining an attitude of “anything to close the deal.” For example, Royal Caribbean Cruise Lines was indicted for criminal violation of the Clean Water Act. The company acquired much costs as it put together an all-star defense team including two former federal prosecutors and two former United States attorneys general to defend itself (Sorkin 2004, p. A1).

 According to Steiner & Steiner (2006), there are strong forces in organizations that could shape ethical behavior within their organizations. Depending on how they are managed, these forces elevate or depress standards of conduct. Four prominent and interrelated forces that shape conduct are leadership, strategies and policies, organization culture, and individual characteristics.

Leadership

The example of company leaders is perhaps the strongest influence on integrity. Not only do leaders set formal rules, but by their example they can reinforce or undermine right behavior. Subordinates are keen observers and quickly notice if standards are, in practice, upheld or evaded. Exemplary behavior is a powerful tool available to all managers.However, a common failing is for managers to show by their actions that ethical duties may be compromised. For example, when managers give themselves expensive perks, they display an irreverence for the stewardship of money that rightly belongs to investors as owners, not to management. Betsy Bernard, president of AT&T had described how arrogant behavior sends the wrong signals:

Too often through my career I've been at management dinners—no customers—and I see $600 bottles of wine being ordered. Think about the message that sends out through the whole organization. And don't ever think such attitudes don't spread and infect the whole firm. Leadership, after all, is about communicating values. And deeds trump words any day. The message in that bottle is this: Some sales representative and a couple of technicians, supported by others, busted their butts to get that $600 to the bottom line. And their work, as evaluated by the guy who bought the wine, was worth a couple of tasty swallows.

If money is the way we keep track of the good things our employees accomplish for our customers, then who do we think we are spilling it? (Bernard 2002, p. 155). Also, many employees are prone to cynicism. Diverting blame for mistakes, breaking small promises, showing favoritism, and diversion of even trivial company resources for personal use are ill-advised—because if the leader does it, an opportunistic employee can rationalize his or her entitlement to do it also.

Strategies and Policies

Another critical function of managers is to create strong competitive strategies that enable the company to meet financial goals without encouraging ethical compromise. In companies that aim for global trade, managers have great difficulty meeting performance targets and may feel pressure to compromise ethical standards. Even excellent overall strategies need to be carried out with policies that support honest achievement. Unrealistic performance goals can pressure those who must make them work. Also, reward and compensation systems can also expose employees to ethical compromises. When companies adopt policies that put employees under pressure, they should build in strong ethical rules too. Otherwise, the repetitive message to achieve profit goals drowns out the principles in the ethics code framed on the wall.

Corporate Culture

Corporate culture is defined to be “a set of values, norms, rituals, formal rules, and physical artifacts that characterize a company” (Steiner ; Steiner, 2006). Every corporate culture has an ethical dimension reinforced not primarily by formal policies but by daily habit and shared beliefs about which behaviors are rewarded and which are penalized. One factor that contributes to lowered ethical climates in corporations is the inability to raise and discuss ethical issues between managers. At one oil company, an employee requested time to raise an ethical problem during a meeting of division presidents. They refused saying, “If he wants to talk ethics, let him talk to a priest or a psychiatrist.” This phenomenon, which was studied by Bird and Waters and labeled “moral muteness,” is widespread. In their study, Bird and Waters (1989) found that “managers seldom discuss with their colleagues the ethical problems they routinely encounter.” Indeed, of 300 cases of ethical issues their interviews uncovered, only 12 percent were ever openly discussed (Steiner ; Steiner, 2006). There are reasons for this restraint. Some managers think that verbalizing an ethical judgment is confrontational; it involves placing blame and creates anger or grudges. In organizations where formal standards are not followed and deceit is rewarded, ethical arguments lack legitimacy or force. In addition, many managers have a rich vocabulary and logic for parsing business issues but lack these assets in the moral realm. Thus, they tend to reframe ethical issues as business matters. For example, if someone lays out a deceitful ad in a meeting, others will not accuse the person of dishonesty. Instead, they will discuss possible sales and revenue losses if the misrepresentation is discovered—even if their primary motive for opposing the ad is a desire to be honest. This tendency toward moral muteness is probably present to some degree in every company.

Individual Characteristics

Individual behavior is motivated by a mixture of internal disposition and situational incentives. In a corporation with a dreary ethical climate, corrupt leaders, and high pressure to achieve numbers, otherwise honest individuals may be pushed to compromise. However, all things being equal, having employees who are internally disposed to right action is best.

Researchers have tried to discover what personal qualities are associated with ethical behavior. However, strong relationships are elusive. There are indications that higher ethics come with advancing age and longer work experience. Some studies show that women are more ethical than men, but results are mixed. No studies find men to be more ethically sensitive than women, but some show no difference. A few studies suggest that people with more education are more ethical, but others do not. Similarly, some studies find that religious belief leads to more ethical attitudes, but many others fail to discover any relationship. There is considerable evidence that the company environment influences conduct. Individuals seem to act less ethically as corporations increase in size, but they tend to be more ethical where companies have codes of conduct .

Conclusion

The growth of a global political economy facilitates but does not dictate the emergence of a global society and culture. Ethical analysis can assist in examining how globalization affects existing cultures and clarify potential choices regarding whether an evolving world community could or should develop a common global culture. We are living in an era when global managers have become somewhat hailed to high heavens, gracing the covers of news and business magazines and appearing as larger than life icons meant to inspire us lesser mortals to success. Considering historical attitudes towards the ethics of business people, this amounts to a major comeback for the profession of business. Regardless, there are many business analysts who will argue that this celebrity status has actually proven to be a major distraction to many CEOs who are more concerned about their personal image than their company’s bottom-line and long term performance.

Knowing how to work with factors like leadership, strategies and policies, organizational culture, and individual characteristics, managers should base the foundation of their global business ethics policies to work within these areas. However, it is also encouraged that managers explore other factors. Managers can use a range of methods to discourage transgression and encourage high ethics. Likewise, individuals have a range of principles with which to enrich their ethical thinking and powerful methods with which to make ethical decisions. Although all managers face difficult ethical conflicts within their organizations, applying clear guidelines resolves these problems and eventually help their organizations to advance their companies to improve for the better.

References

1. Bird, F.B. and Waters, J.A. (1989, Fall). The Moral Muteness of Managers, California Management Review, p. 74.
2. Buller, P.F., Kohls, J.J. and Anderson, K.S. (1991). The Challenge of Global Ethics. Journal of Business Ethics, 10: 766-75.
3. Daniels, J.D., Radebaugh, L.H. and Sullivan, D.P. (2004). International Business: Environments And Operations, 10th ed. New York: Prentice-Hall-Pearson Education Company.
4. Kline, J. M. (2005). Ethics for International Business: Decision Making in a Global Political Economy. London: Routledge.
5. Mitchell, Charles. (2003). A Short Course in International Business Ethics. Novato, CA, USA: World Trade Press.
6. Sorkin, A.R. (2004, September 9). Ex-Banking Star Given 18 Months for Obstruction. New York Times, p. A1.
7. Steiner, G.A. and Steiner, J.F. (2006). Chapter 7: Business Ethics. Business, Government, and Society: A Managerial Perspective Text and Cases, 11th ed. NJ: The McGraw-Hill Companies, Inc

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