Forster N. - Maximum performance (2005)(en)
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where the refusal to accept such a gift would injure Motorola’s legitimate business interests [ ] so long as the gift contributes to the benefit of Motorola and not to the benefit of the Motorola employee.’
(Donaldson, 1996: 56, 60)
One example of this has become part of the folklore of the company, and is still recounted in stories to new employees. In 1950, a senior executive of the company was negotiating a sale with a South American government that would have increased Motorola’s profits that year by 25 per cent. However, after extensive negotiations, the executive walked away from the deal because the officials he was dealing with were demanding one million dollars in ‘fees’. The then CEO, Robert Galvin, not only supported this decision, but also made it clear that the company would have no further dealings with this government (cited by Donaldson, 1996: 60). Another example is the multinational resource and mining company, BHP-Billiton. The company’s guidelines are clear: ‘Under no circumstances will BHP approve any irregular payment in kind to win business or to influence a business decision in the company’s favour. Bribes, kick-backs, secret commissions and similar payments are strictly prohibited [and] payments to domestic or foreign government officials to influence a decision or to gain a benefit either directly or through a thirdparty are strictly prohibited’ (BHP-Billiton website, 5 July 2002). Other companies have backed their policies up with concrete actions. For example, Royal Dutch Shell fired 23 employees in 1997 who had been engaged in bribery and also terminated contracts with 95 firms on ethical grounds. All Shell managers operate under the clear understanding that they will not be penalized if they lose business because they have refused to pay bribes in other countries or engage in conduct that violates the company’s ethical trading policies (Walsh, 1998: 40).
Creating ethical guidelines that establish clear boundaries and parameters, while allowing some personal discretion, is very difficult and there will always be ambiguous situations where a simple choice between ‘ethical’ and ‘non-ethical’ is hard to make. Nevertheless, it’s worth spending some time developing these, to act as guiding lights if you, or your business, find yourself facing the kinds of dilemmas described above. Donaldson (1996:52) has suggested that business in any context should be guided by three fundamental principles: (a) a respect for core human values that determine the minimum moral threshold for the business activities that a business and its employees will engage in, (b) a respect for local traditions and customs, which does not violate the first principle, and (c) a belief that context does matter when deciding what is ‘right’ and ‘wrong’.
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Another way of approaching this issue is by referring to the equity and parity principles discussed in Chapters 1 and 6. These have at their core a fundamental respect for the rights, freedoms and liberties of all people, regardless of their national origin, culture, religion or gender. Almost every culture in the world has basic guidelines and rules about how we should treat others (even if we don’t always manage to follow these). In Christianity, we have ‘Do unto others as you would have them do unto you’. In Confucianism, there is the principle of mutual reciprocity, or not to do to others what they would not do to themselves. All of the world’s major religious traditions, such as Kyosei (Japan), Dharma (Hindu), Sanatuchi (Buddhist) and Zakat (Muslim), and secular humanism have some common assumptions about how we should treat our fellow human beings. First, they recognize that all people have an intrinsic value as human beings and should not be treated as exploitable and expendable objects. Second, all individuals and communities should be treated in ways that respect basic human rights. Third, it is incumbent on all members of a community to support those institutions and laws on which the collective well-being of all its citizens depends (ibid.: 53). Many of these principles are embodied in the United Nations Universal Declaration on Human Rights. Because this is a set of principles that draws on many cultural and religious traditions, it is a statement of basic personal rights that almost every country in the world has signed up to (even though some of these do not adhere to its principles). It also represents a set of principles that all businesses can aspire to.
Alternatively, if all this sounds rather complicated, the following questions could be asked instead:
•What kinds of business practices would you consider to be unacceptable if your family, children, friends or you were on the receiving end of them?
•How would you feel if a foreign company was operating in your neighbourhood that routinely polluted the local environment, ‘employed’ your children on subsistence slave wages in dangerous factories, denied them an education and paid kickbacks to corrupt local politicians to engage in these activities?
•What practices and standards are employed by honest business people in your country, state or local community? Can you still do business in other countries by maintaining these practices and standards?
The basic principle of mutual reciprocity, or ‘Do unto others as you would like them to do unto you’ is appealing. Adopting this principle means that companies can act in ways that respect basic human rights
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and, at the same time, avoid business relationships that violate inalienable rights to decent wages, health, education, work safety or a decent standard of living. Companies can also choose to become more involved in other activities, by supporting local communities, building schools and maintaining high environmental standards. So, if employing children means that they are denied an education, this would not be acceptable. In unambiguous situations, the final decision must rely on the answer to one question: does this decision violate any of the three core human principles: respect for human dignity, respect for basic human rights and good corporate citizenship? On this basis, cultural traditions only deserve our respect insofar as they respect the fundamental human rights of men and women. Some companies, such as BP, Royal Dutch Shell, Johnson & Johnson, Motorola, The Body Shop, Lockheed Martin and HP, have embraced these principles and included them in employee codes of conduct covering ethical behaviour, trading practices and environmental standards in industrializing countries (Corporate Watch, 2002). Objective ethical standards are ingrained in their organizational cultures and in the mind-sets of employees, and their contracts of employment clearly indicate that staff have the right to report violations of laws or ethical standards, without fear of recrimination (although all have been accused at times of violating these lofty principles). Embracing ethical policies also means that the giving or receiving of bribes and financial ‘inducements’ is prohibited. Not only can this be a dangerous game to play, but there is little evidence that this helps business, because it undermines market efficiency and profitability (Donaldson, 1996). Consequently, more than 30 countries, including the USA, Canada, the UK and Australia, have introduced laws prohibiting the payment of bribes in other countries, and similar laws now apply in all EEC countries (Towers, 2000).
One example of an organization that has enjoyed the benefits of good corporate governance and socially responsible business practices is the Korean company, Samsung. It had sowed the seeds of good community relationships long before the Asian economic crisis of 1997 and, in the aftermath, reaped considerable benefits. After taking over the firm from his father in 1987, the company’s CEO, Lee Kun Hee, stressed initiatives to improve the lives of local employees, and their communities, as part of a broader drive towards greater corporate citizenship in its East Asian operations. In 1997, the firm spent some $US120 million on ‘social contributions’ (set against profits of only $US291 million). In Indonesia, community initiatives included river environmental schemes, supporting educational initiatives for children and the elderly, and infrastructure development. In Malaysia, a park near Kuala Lumpur was renamed as Samsung Park as a result of the company’s initiatives to clean it up. How did these initiatives benefit
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Samsung? In Indonesia the company avoided the worst of the backlash and rioting against foreign firms. At the height of the political unrest and riots in 1998, its local employees pulled together to defend the refrigerator factory and shield expatriate workers from the rioters (reported in Time, 19 February 1999). Since this time, Samsung has been twice voted ‘The most ethical company in SE Asia’ in the East Asian Economic Review.
Not only is unethical behaviour bad for legitimate business and capitalism, but there is abundant evidence that such conduct also hampers economic development in industrializing countries and impedes the development of an inclusive and integrated global economy. For justification of this assertion, please refer to Table 12.3.
Table 12.3 Transparency International corruption perceptions index, 2003
Least corrupt countries: Finland, Iceland, Denmark, New Zealand, Singapore, Sweden, Netherlands, Australia, Norway, Switzerland, Canada, Luxembourg, United Kingdom, Hong Kong, Austria, Germany, Belgium, Ireland, USA, Chile, Israel, Japan, France, Spain and Portugal.
Most corrupt countries: Zimbabwe, Pakistan, Philippines, Romania, Zambia, Albania, Guatemala, Nicaragua, Venezuela, Vietnam, Georgia, Ukraine, Kazakhstan, Bolivia, Cameroon, Ecuador, Moldova, Uganda, Azerbaijan, Indonesia, Kenya, Angola, Madacascar, Paraguay, Myanmar, Haiti, Nigeria and Bangladesh.
Source: Transparency International website, 5 January 2004; 133 countries were included in this survey.
What differentiates countries in the top echelon from those at the bottom of the index? One commentator, P.J. O’Rourke (1999), has suggested that there are seven main characteristics that distinguish stable and affluent countries from those that are poor, corrupt and autocratic:
1a sense of personal responsibility for achievement and success in life,
2a culture of hard work and enterprise,
3high levels of education,
4established property rights,
5respect for the rule of law and an independent judicial system,
6strong legal regulation of business,
7the presence of mature and accountable democratic government.
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O’Rourke’s thesis is compelling. By looking at the comparative economic success of eight countries, he showed that those nation-states that have these principles and characteristics enshrined in their political governance, legal systems and business cultures are always more affluent, stable and peaceful than those that have not. Here are a few examples from East Asia of how the absence of these principles and characteristics, combined with low ethical standards, can have a negative impact on the economic development of some industrializing countries in the region.
In Indonesia, the hostile treatment of the Chinese between 1997 and 2000 by indigenous Indonesians forced many of this affluent minority ethnic group to emigrate. They also moved at least $US50 billion in assets out of the country during this time, and 50 per cent of this was lodged with Singapore banks. In terms of both capital and the loss of large numbers of entrepreneurs, this represented a serious loss to the Indonesian economy. After the destructive forest fires in 1998, it was revealed that one of the main reasons why government authorities did so little to extinguish these fires was that millions of rupiah had been secretly channelled from fire fighting services to fund the development of an Indonesian national car. The company building this was Timot Putra, which was controlled by ‘Tommy’ Suharto, ex-President Suharto’s youngest son (IMF Chief Michael Camdessus, cited in The Australian, 23 January 1998). The government that replaced Suharto promised to stamp out corruption, and has since estimated that corrupt business practices by Suharto, his family and other assorted cronies cost the state as much as $US580 million between 1994 and 1999. In 1998, the government also terminated dozens of investment projects tainted by collusion and nepotism, saving the state an additional $US430 million dollars over the next two years (World Bank, 2002). On 26 July 2002 Tommy Suharto was also found guilty of murdering a Supreme Court Judge, Justice Syafuid Kartasasmita, who had indicted him on fraud and corruption charges in 1998.
In Cambodia, overfishing and illegal logging have almost entirely destroyed the country’s fishing and forestry industries. This rape of natural resources has not benefited the Cambodian people; the people who have benefited are top government politicians, bureaucrats and crime syndicates. In Cambodia, Vietnam, Thailand and Burma, there are also thriving trades in paedophilia, serving a largely white-male western ‘clientele’. In Burma, the military junta actively collaborates with international drug syndicates in the production and trafficking of illegal drugs. The export of opium and heroin is amongst this country’s biggest cash-earners. This means that if you trade with, or support, this vicious military regime, you are directly responsible for helping to put heroin on the streets of your country’s cities (Robinson, 1998).
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For some time, there have been growing concerns about the activities of companies operating in countries like Burma, who have very poor records on human rights, and those that employ children and wageslaves in their factories (for example, Nike and Gap). Several companies, such as the Burton Group, Reebok and Coca-Cola, have all moved their operations out of the country in response to consumer disquiet about the military regime there, the continuing use of torture against political opponents, slave labour and forced relocation and land confiscation (Lyall, 2002). Shell and BP have both responded positively in recent years to consumer disquiet about their activities in Nigeria, Colombia and Burma. Even companies like Nike and Reebok, long the subject of criticisms of their violations of worker’s rights, the use of child labour and dangerous factory conditions in their Third World operations, made changes to their employment and pay policies in East Asian countries during the late 1990s (AFP, 1998; Dionne, 1998). All of the countries that these companies have withdrawn their business from continue to be characterized by human rights’ abuses, endemic corruption and economic and political instability.
In fact, countries that are most effective in combating corruption and fraud, and who are pushing for the establishment of democratic government, enjoy faster and more stable economic growth. According to one survey, by the Political and Economic Risk Consultancy in Hong Kong, Asian countries that are most effective in fighting corruption are likely to emerge as the economic leaders of the future. Singapore, Hong Kong and Japan are regarded as the least corrupt countries in the region and Indonesia, Vietnam, Cambodia and China the most corrupt. This study goes on to say:
The most striking feature of our most recent survey into corruption is the way those countries that have all along been most effective in fighting the problem have widened the [economic] gap in the past year compared with those countries whose systems have historically been less effective in combating graft. This could have significant implications for the pace and pattern of economic development in the future by stimulating investment and growth in those countries that keep on top of corruption relative to those who allow the problem to flourish.
(Cited by Richardson, 2000)
Consequently, since the 1997 crash in East Asia, more governments, businesses and banks have been paying greater attention to issues such as fraud and corruption, and their effects on business efficiency and profitability, and national economic development. For example, the prime minister of Malaysia, Abdullah Badawi, announced a major crackdown on cronyism and political corruption in early February 2004. Countries that fail to follow this example will find it difficult to make the transition from economies based on raw material supplies,
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agriculture and labour-intensive manufacturing to open knowledgebased economies based on the rule of law. The message for both political and business leaders in industrializing countries has been loud and clear for some time: fraud and corruption are bad for business; they slow economic development and impede the growth of global capitalism.
Having read through this section, how would you now deal with the managers’ dilemmas in Exercise 12.2? Would you now approach these in a different way?
Conclusion
Corporate citizenship is critical. All good companies are now thinking about their long-term impact on the community and the environment. Ethical values can no longer be divorced from the main business strategies of this company.
(Michael Chaney, former CEO of Wesfarmers, Boss, August 2001)
Organizations dominate every aspect of our lives. From birth, through school, work and even in death they influence our lives in many different ways. Almost all of us will spend most of our waking hours either working in or for someone else’s organization or, perhaps, running one of our own. Everything we do, at work or leisure, is influenced and shaped by organizations. They control and regulate us, sometimes exploit us, tax us, entertain us, reward us, provide us with leisure products and services, sometimes care for us and, in their bureaucratic forms, often drive us to exasperation with ‘red tape’. Some multinational companies have economic and political powers that transcend those of smaller nation-states. In many ways, they have usurped the power of those institutions that traditionally wielded moral authority, such as the Church and national governments. Multinational corporations are now so powerful that, human nature being what it is, it is essential that their activities are regulated and controlled. As Anita Roddick has suggested,
In terms of power and influence, you can forget about the church, forget politics. There is no more powerful institution in society than business. I believe it is now more important than ever before for business to assume a moral leadership. The business of business should not be just about money, it should be about responsibility. It should be about public good, not private greed.
(Roddick, 2000: 8)
Hence leaders and managers may need to engage more seriously with the issue of business ethics, not as a fad or an optional extra, but as
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something that can have a profound impact on the overall effectiveness of their organizations. Furthermore, we have established that unethical behaviour, in the form of fraud, corruption, nepotism, cronyism and (in Chapter 6) discrimination, is bad for business and for capitalism. Of course, a few greedy and corrupt individuals, such as the Suharto family in Indonesia, corrupt dictators in Africa and the CEOs of Worldcom and other companies, have benefited from this type of conduct. However, the vast majority of working people – you and I – do not. When individuals, companies and countries behave in this fashion it can have multiple consequences:
•The destruction of people’s reputations, personal lives and careers (for example, Geoffrey Wigand and the US tobacco industry).
•Thousands of redundancies and the loss of employees’ entire pension savings (for example, Enron, Worldcom and many other companies in recent times).
•The destruction of well-respected and established companies (for example, Arthur Andersen).
•Multibillion dollar litigation payouts (for example, the tobacco industry and the dotcom and finance companies described in Chapter 11).
•Thousands of deaths and injuries: in specific cases such as Union Carbide at Bhopal in India (where 8000 died), in many dictatorships in South America, East Asia and Africa and, of course, as a result of the poisonous and toxic products sold by tobacco companies for decades.
•The economic exploitation and sexual abuse of hundreds of thousands of child slaves in many industrializing countries.
•The promotion of global crime and the international drug trade by financial institutions that, until very recently, had routinely turned a blind eye to their laundering of the dirty money generated by these ‘businesses’.
•Slower and/or more erratic rates of economic growth in industrializing countries, and the possibility of the complete meltdown of national economies, as occurred in several East Asian countries in 1997–8.
•Large-scale ecological destruction as a direct result of lax environmental standards in many industrializing countries.
•And, for you and me, the use of our hard-earned taxes to clear up the mess that is left behind, such as the multimillion dollar costs of the many court cases, inquiries and commissions that always follow these events. To cite just two examples from Australia: the total cost to taxpayers of the Royal Commission into police corruption in New South Wales in the 1990s was $A70 million. The cost of probing the collapse of the insurance companies HIH and UMP, and One.Tel, in
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2001–2 was approximately $A80 million. Household insurance premiums in Australia increased by an average of 15 per cent, and corporate liability insurance went through the roof, leading to numerous small companies going out of business in 2002–3 (Westfield and Elliott, 2001). The cost to taxpayers in the USA, Europe and other countries of corporate scandals during the 2000s will be several trillion dollars.
So what kind of values might organizations, their leaders and employees aspire to? When professionals, managers or MBA students are asked this question, they often mention honesty, integrity, trustworthiness, self-respect, respect for other people, reliability, fairness and loyalty. As we saw earlier in this chapter, it is also significant that a respect for the rights of other people, a sense of justice and fairness, the value of human dignity and honesty in relationships are features of almost every culture, religion and system of morals throughout the world (Boatright, 1999). And recall that these are also values that were identified earlier in this book as being amongst the most desirable qualities of effective and successful leader/managers. How might you build these into your daily people management practices or, if you are the leader of an organization, how could you build these into its culture and employee codes of conduct? How could these values and principles be built into the way you deal with your employees, your customers and your shareholders, and how you do business in other countries?
It was suggested at the beginning of this chapter that the best reason for embracing ethical principles in business is self-interest. Individuals, organizations and countries with higher ethical and legal standards thrive and prosper. Those with lower ethical standards, sooner or later, run into serious problems. If you’re still not convinced about the importance of ethics in business, leadership and people management, try to imagine what a world without any legal, ethical and moral guidelines would look like. It would be a violent and anarchic nightmare. Capitalism without a conscience is untenable, and there are no legitimate businesses that can operate without some reference to legal, moral and ethical frameworks. All the historical evidence shows that, when organizations and their employees have been allowed to operate without these, they have been at best unpleasant and, at worst, truly monstrous. While a few unethical business people and organizations may be ‘successful’, most are not, and it can be argued with equal force that good business practices are only possible with high ethical standards. Even the pro-business George Bush has suggested,
It is time to reaffirm the basic principles and rules that make capitalism work: truthful books and honest people, and well-enforced laws against
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fraud and corruption. All investment is an act of faith, and faith is earned by integrity. In the long run, there’s no capitalism without a conscience; there’s no wealth without character [ ] We will use the full weight of the law to expose and root out corruption. My administration will do everything in our power to end the days of cooking the books, shading the truth and breaking our laws [ ] Corporate leaders who violate the public trust should never be given that trust again. The SEC should be able to punish corporate leaders who are convicted of abusing their powers by banishing them from ever serving again as officers or directors of a publicly held corporation. If an executive is guilty of outright fraud, resignation is not enough. Only a ban on serving at the top of another company will protect other shareholders and employees [ ] Dishonest individuals have failed our system. Now comes the urgent work of enforcement and reform, driven by a new ethic of responsibility.
(Bush, 2002)
Considerable weight was added to these suggestions on 18 July 2002, in a much-anticipated speech to the US Senate by the Federal Reserve Chairman, Alan Greenspan:
Our market system depends critically on trust – trust in the word of our colleagues and trust in the word of those with whom we do business. Falsification and fraud are highly destructive to free-market capitalism and, more broadly, to the underpinning of our society. In recent years, shareholders and potential investors would have been protected from widespread disinformation if any one of the many bulwarks safeguarding appropriate corporate evaluation had held. In many cases, none did. Lawyers, internal and external auditors, corporate boards, Wall Street security analysts, rating agencies and large institutional holders of stock all failed for one reason or another to detect and blow the whistle on those who breached the level of trust essential to well-functioning markets. An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed. Too many corporate executives sought ways to ‘harvest’ some of these stock market gains. As a result, the highly desirable spread of shareholding and options amongst business managers created incentives to artificially inflate reported earnings in order to keep stock prices high and rising.
It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously. Manifestations of lax corporate governance are, in my judgement, largely a symptom of a failed CEO. Having independent directors, whose votes are not controlled by the CEO, is essential for any board of directors. Although we may not be able to change the character of corporate officers, we can change their behavior through incentives and penalties. That, in my judgement, could dramatically improve the state of corporate governance. Fraud and deception are thefts of property and unless the laws governing how markets and corporations function are perceived as fair, our economic system cannot achieve its full potential.
(Abridged from Greenspan, 2002)
Similar sentiments were voiced in Australia, at the 2002 annual meeting of the Australian Institute of Company Directors. During this, Charles Goode, the Director of the ANZ Bank, made these comments about reforming corporate governance: