Business ethics is a form of applied ethics that examines ethical principles and moral or ethical problems that arise in a business environment. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles). Businesses can often attain short-term gains by acting in an unethical fashion; however, such antics tend to undermine the economy over time. Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).
Overview of issues in business ethics
General business ethics
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This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else. Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duties existing between companies and society is debated. Issues regarding the moral rights and duties between a company and its shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept. Ethical issues concerning relations between different companies: e.g. hostile takeovers, industrial espionage. Leadership issues: corporate governance. Political contributions made by corporations. Law reform, such as the ethical debate over introducing a crime of corporate manslaughter. The misuse of corporate ethics policies as marketing instruments.
Ethics of accounting information
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Creative accounting, earnings management, misleading financial analysis. Insider trading, securities fraud, bucket shops, forex scams: concerns (criminal) manipulation of the financial markets. Executive compensation: concerns excessive payments made to corporate CEO's and top management. Bribery, kickbacks, facilitation payments: while these may be in the (short-term) interests of the company and its shareholders, these practices may be anticompetitive or offend against the values of society.
Cases: accounting scandals, Enron, WorldCom Ethics of human resource management The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.
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Discrimination issues include discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness. See also: affirmative action, sexual harassment. Issues surrounding the representation of employees and the democratization of the workplace: union busting, strike breaking. Issues affecting the privacy of the employee: workplace surveillance, drug testing. See also: privacy. Issues affecting the privacy of the employer: whistle-blowing. Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law. Occupational safety and health.
Ethics of sales and marketing Main article: marketing ethics Marketing which goes beyond the mere provision of information about (and access to) a product may seek to manipulate our values and behavior. To some extent society regards this as acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps strongly with media ethics, because marketing makes heavy use of media. However, media ethics is a much larger topic and extends outside business ethics.
Pricing: price fixing, price discrimination, price skimming. Anti-competitive practices: these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains. See: anti-competitive practices, antitrust law.
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Specific marketing strategies: greenwash, bait and switch, shill, viral marketing, spam (electronic), pyramid scheme, planned obsolescence. Content of advertisements: attack ads, subliminal messages, sex in advertising, products regarded as immoral or harmful Children and marketing: marketing in schools. Black markets, grey markets.
Ethics of production This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.
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Defective, addictive and inherently dangerous products and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping). Ethical relations between the company and the environment: pollution, environmental ethics, carbon emissions trading Ethical problems arising out of new technologies: genetically modified food, mobile phone radiation and health. Product testing ethics: animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects.
Ethics of intellectual property, knowledge and skills Knowledge and skills are valuable but not easily "ownable" as objects. Nor is it obvious who has the greater rights to an idea: the company who trained the employee, or the employee themselves? The country in which the plant grew, or the company which discovered and developed the plant's medicinal potential? As a result, attempts to assert ownership and ethical disputes over ownership arise.
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Patent infringement, copyright infringement, trademark infringement. Misuse of the intellectual property systems to stifle competition: patent misuse, copyright misuse, patent troll, submarine patent. Even the notion of intellectual property itself has been criticised on ethical grounds: see intellectual property. Employee raiding: the practice of attracting key employees away from a competitor to take unfair advantage of the knowledge or skills they may possess. The practice of employing all the most talented people in a specific field, regardless of need, in order to prevent any competitors employing them. Bioprospecting (ethical) and biopiracy (unethical). Business intelligence and industrial espionage.
International business ethics and ethics of economic systems
The issues here are grouped together because they involve a much wider, global view on business ethical matters. International business ethics While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:
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The search for universal values as a basis for international commercial behaviour. Comparison of business ethical traditions in different countries. Comparison of business ethical traditions from various religious perspectives. Ethical issues arising out of international business transactions; e.g. bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing. Issues such as globalization and cultural imperialism. Varying global standards - e.g. the use of child labor. The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centres) to lowwage countries. The permissibility of international commerce with pariah states.
Ethics of economic systems This vaguely defined area, perhaps not part of but only related to business ethics, is where business ethicists venture into the fields of political economy and political philosophy, focusing on the rights and wrongs of various systems for the distribution of economic benefits. The work of John Rawls and Robert Nozick are both notable contributors.
Theoretical issues in business ethics
Business ethics can be examined from various perspectives, including the perspective of the employee, the commercial enterprise, and society as a whole. Very often, situations arise in which there is conflict between one or more of the parties, such that serving the interest of one party is a detriment to the other(s). For example, a particular outcome might be good for the employee, whereas, it would be bad for the company, society, or vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.
Ethical issues and approaches
Philosophers and others disagree about the purpose of a business ethic in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged, because any others function as a tax on profits. Some believe that the only companies that are likely to survive in a competitive marketplace are those that place profit maximization above everything else. However, some point out that self-interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. The noted economist Milton Friedman was a leading proponent of this view. Some take the position that organizations are not capable of moral agency. Under this, ethical behavior is required of individual human beings, but not of the business or corporation. Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. They would say that stakeholders have certain rights with regard to how the business operates, and some would suggest that this includes even rights of governance. Some theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the "quality movement" that emerged in the 1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a "fair agreement" between the parties, using a combination of i) macro-principles that all rational people would agree upon as universal principles, and, ii) micro-principles formulated by actual agreements among the interested parties. Critics say the proponents of contract theories miss a central point, namely, that a business is someone's property and not a mini-state or a means of distributing social justice. Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the developing country in which it does business? To illustrate, United States law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business. Similar
problems can occur with regard to child labor, employee safety, work hours, wages, discrimination, and environmental protection laws. It is sometimes claimed that a Gresham's law of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in a competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits.
Business ethics in the field
Corporate ethics policies
As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly-generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioral requirements (typically called corporate ethics codes). They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters. An increasing number of companies also requires employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct. Many companies are assessing the environmental factors that can lead employees to engage in unethical conduct. Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment. Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company's legal liability, or to curry public favor by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem would not have arisen if the employee had only followed the code properly. Sometimes there is disconnection between the company's code of ethics and the company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.
To be successful, most ethicists would suggest that an ethics policy should be:
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Given the unequivocal support of top management, by both word and example. Explained in writing and orally, with periodic reinforcement. Doable....something employees can both understand and perform. Monitored by top management, with routine inspections for compliance and improvement. Backed up by clearly stated consequences in the case of disobedience. Remain neutral and nonsexist.
Ethics officers (sometimes called "compliance" or "business conduct officers") have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption and abuse scandals that afflicted the U.S. defense industry at that time. This led to the creation of the Defense Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business practices. The DII set an early benchmark for ethics management in corporations. In 1991, the Ethics & Compliance Officer Association (ECOA) -- originally the Ethics Officer Association (EOA)-- was founded at the Center for Business Ethics(at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations' efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,100 members) and was soon established as an independent organization. Another critical factor in the decisions of companies to appoint ethics/compliance officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offense. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching. In the wake of numerous corporate scandals between 2001-04 (affecting large corporations like Enron, WorldCom and Tyco), even small and medium-sized companies have begun to appoint ethics officers. They often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company's activities, making recommendations regarding the company's ethical policies, and disseminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the United States, which was enacted in reaction to the above scandals. A related trend is the introduction of risk assessment officers that monitor how shareholders' investments might be affected by the company's decisions. The effectiveness of ethics officers in the marketplace is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect the efficacy to be minimal, at least, over the short term. In part, this is because ethical business practices
result from a corporate culture that consistently places value on ethical behavior, a culture and climate that usually emanates from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behaviour: a more systemic programme with consistent support from general management will be necessary. The foundation for ethical behavior goes well beyond corporate culture and the policies of any given company, for it also depends greatly upon an individual's early moral training, the other institutions that affect an individual, the competitive business environment the company is in and, indeed, society as a whole.
] Religious views on business ethics
The historical and global importance of religious views on business ethics is sometimes underestimated in standard introductions to business ethics. Particularly in Asia and the Middle East, religious and cultural perspectives have a strong influence on the conduct of business and the creation of business values. Examples include:
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Islamic banking, associated with the avoidance of charging interest on loans. Traditional Confucian disapproval of the profit-seeking motive. Quaker testimony on fair dealing
Business ethics should be distinguished from the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible -- those who dispute that premise, such as libertarian socialists, (who contend that "business ethics" is an oxymoron) do so by definition outside of the domain of business ethics proper. The philosophy of business also deals with questions such as what, if any, are the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise. Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues.
1. ^ "Ethics the easy way". H.E.R.O.. 2. 3. 4. 5. 6. 7.
http://www.hero.ac.uk/uk/business/archives/2003/ethics_the_easy_way5043.cfm. Retrieved on 2008-05-21. ^ "Miliband draws up green tax plan". BBC. 2006-10-30. http://news.bbc.co.uk/1/hi/uk/6095680.stm. Retrieved on 2008-05-21. ^ Friedman, Milton (1970-09-13). "The Social Responsibility of Business is to Increase Its Profits". The New York Times Magazine. http://wwwrohan.sdsu.edu/faculty/dunnweb/rprnts.friedman.html. ^ Hare, R. M. (1979). "What is wrong with slavery". Philosophy and Public Affairs 8: 103–121. ^ Enderle, Georges (1999). International Business Ethics. University of Notre Dame Press. pp. 1. ISBN 0-268-01214-8. ^ George, Richard de (1999). Business Ethics. ^ http://www.stthom.edu/academics/centers/cbes/jonachan.html
ETHICS INCORPORATED: HOW AMERICA'S CORPORATIONS ARE INSTITUTIONALIZING MORAL VALUES Thomas I. White Center for Ethics and Business Loyola Marymount University Los Angeles, CA
Imagine that one day someone in your organization walks in with a copy of your chief competitor's bid on a big contract. He swears he got it legally, but you aren't sure. And whether he did or didn't, it's still proprietary information. Are you going to use it in developing your bid? Or what if someone in sales is up against some very tough quarterly objectives, but she can make them by concealing from a customer that the product he's interested in will be made obsolete by a new line in six months. Should she do it? Suppose the man who heads your most productive department regularly favors white males. Or what if you hear that another very productive manager fired a fairly decent worker and replaced him with the inexperienced son of a friend? Is this within these executives' "managerial prerogatives"? * These cases have two things in common: how they're handled can dramatically help or hurt your organization; and they're ethical issues. But how would you want the people in your company to handle these situations? What have you done to let them know what they should do? What have you done to help them? If you're like 3 out of 4 of the nation's major corporations, you have a code of conduct that might give your employees help with some of these situations. If you're like 1 out of 3, you also offer ethics training in your company which probably helps employees work through some difficult cases. If you require this of all of your employees you're in a distinct minority-about 15%. The more of these you offer, the better prepared your employees will be to handle ethical dilemmas. If you have none of these, you may be asking for trouble. Ethical problems are inevitable at all levels of a business and this means that it's simply good sense for companies to take seriously the task of
institutionalizing ethics in their organizations. Accordingly, an important segment of corporate America has begun relying on such tools as: statements of corporate values, codes of conduct, ethics workshops, hotlines, even corporate ethics offices and board level ethics committees. In short, they are setting up corporate ethics programs. Formal ethics programs are relatively new to the world of American business. Although a handful of companies have had them for twenty to thirty years, the majority of ethics programs are no more than a few years old and some have been around for only a few months. Nonetheless, their number is growing as their usefulness becomes evident. What does an ethics program look like? What does it do? Most importantly, what should you do--and not do--if you want to set one up?
WHY ETHICS? THE VIEW FROM THE TOP
When one looks at corporations with a strong commitment to ethics, the first thing one notices is that the leaders of these organizations are the strongest advocates of corporate integrity. CEOs and Chairmen of such companies are clear and vocal, forcefully charging everyone in the company to look at not only how profitable their actions are but how ethical. To the skeptics who think that ethics and business go together as well as oil and water, their message is little short of heresy. But how can the heads of these companies really mean what they say? How does a CEO see dollars in ethics? Why does a businessman responsible for the profitable use of billions of dollars of assets think that a corporation should expend large amounts of time and money on ethics? How does this make good business sense? How can ethics be anything but a financial black hole? Despite the fact that most people probably think that there are no financial benefits to doing business ethically, some senior managers argue there's a direct connection between ethics and the bottom line. For example, Andrew Sigler, Chairman and CEO of Champion International asserts, "I don't believe that ethical behavior is an impairment to profitability. I cannot remember situations where if I do the bad thing we'll make a lot of money, but if I do the right thing we'll suffer." "Lots of responsible decisions," he explains, "aren't just ethically sound. They're damn smart and very smart business." The heads of corporations are also quick to point out the long term financial costs of doing business unethically. "If I do something unethical for some short term gain," explains Jerry R. Junkins, President and CEO of Texas Instruments, "somebody else is going to get hurt, and they're not going to forget it. You're clearly trading a short term gain for something that's inevitably going to be worse down the road--you'll eventually lose business."
When most CEOs explain the value of ethics, however, they generally refer to something less tangible than dollars. In the view of some, it's their company's reputation. "Texas Instruments' reputation for integrity," explains its CEO, "dates back to the founders of the company. And we consider that reputation to be a priceless asset." Walter Klein, CEO of the Bunge Corporation for 27 years and currently Chairman, sees it similarly, "The company gains if it's ethical because that will preserve its reputation." Yet another issue cited is the effect of unethical conduct by the corporation on its employees. Bunge's Walter Klein claims, "If the company is unethical, that company is going to be cheated by its own employees." Taking something as seemingly harmless as lying to help the company, David Clare, former President of Johnson & Johnson, explains, "What you may perceive as a simple lie or a simple misstatement that doesn't hurt anybody and protects the company, sooner or later will come back to bite you. It'll bite you with people in your organization who know it's a lie. If you can't be open and honest at all times, you're sending a signal to the organization that you will let them get away with lying occasionally. And that includes lying to you." More than anything else, however, the view from the top is that ethics is critically important for the health of the organization. CEO's of ethically committed corporations believe that no matter how large the financial gain may be from doing something unethical, there's a cost somewhere else in the business. Characteristic of this view is TI's Jerry Junkins claim that if employees are directed to do something unethical for the company or even if they simply witness dishonesty by their superiors, this inevitably leads to a "rotting of the organization." "And there's no way," points out Junkins, "that you're going to be able to rebuild credibility with those people when you're trying to energize an organization to go do something else. You've created a permanent problem in terms of how people view you as an individual and how they view the management of the organization." Ultimately, the corporate leadership stresses that the activities of a business are simply the interactions of ordinary people. And how these people deal with each other now sets the tone for how (and if) they'll do business in the future. Texas Instruments' CEO asserts, "I don't do business with 'companies,' I do business with individuals--peers, engineers, team members, customers and vendors. If you recognize this, it's very easy to understand why one person wouldn't take unethical treatment from another for very long if they had any choice. And you can draw the same parallel as to interactions between corporations." In sum, then, CEO's who have committed their corporations to ethics have done so in the name of maximizing long term profits and fostering the health of their organizations.
ETHICS--HOW TO DO IT
If commitment from the top is the first characteristic of companies strong on ethics, the existence of a formal and visible ethics program is generally the second.
Ethics programs--what are they?
Corporate ethics programs are fairly new to American business (most are less than a few years old), but their number is growing. They usually consist of a variety of elements aimed at: communicating the corporation's values, describing what constitutes acceptable behavior in problem areas, providing resources for employees with questions or accusations about wrongdoing, and establishing a mechanism for oversight and enforcement. The most extensive ethics programs, generally found in the defense industry, include: statements of corporate values, codes of conduct, ethics workshops, hotlines, even corporate ethics offices and board level ethics committees. A good example is the program at General Dynamics. This was established in 1985 following the decision by the Secretary of the Navy to suspend contracts with two of the company's divisions because of investigations suggesting problems with the corporation's integrity. General Dynamics responded to the government's concerns by establishing an especially full corporate ethics program which aims to integrate and maintain ethical standards in the daily business affairs of the corporation. The program is structured so that it spans every level of the company. It starts with a Board Committee on Corporate Responsibility. This is made up entirely of outside directors and is responsible for overseeing the ethics program. Next comes the Corporate Ethics Steering Group, which consists of the heads of major departments within the corporation, and directs the ethics program's policies and general administration. (There are similar steering groups at some of General Dynamics' divisions.) There's a Corporate Ethics Program Director at corporate headquarters who reports to the Chairman and CEO. And there are also Ethics Program Directors for each division. The Program Directors work with the company's general managers in implementing the program and serve as ombudsmen when necessary. Finally, line management is given the responsibility for overseeing the implementation of proper standards among the company's employees.
At the heart of the program is a set of standards which defines acceptable behavior in a variety of areas: conflicts of interest; selling and marketing; antitrust; pricing, billing and contracting; time card reporting; suppliers and consultants; quality and testing; expense reports; company and consumer resources; security; political contributions; environmental actions; and international business. Violations of these standards carry mandatory sanctions which range from warnings, demotions, and temporary suspensions to discharge and referral for criminal prosecution. Every member of the corporation receives a copy of these standards and also attends an "ethics awareness workshop." These training sessions explain the aims of the ethics program and include exercises that let people practice using the standards. Participants are also told how to get help from the ethics office with resolving ethical problems and how to report infractions. A critical part of the program is a hotline.
ETHICS PROGRAMS--WHAT MAKES THEM WORK?
In light the experience of companies that have such programs, however, what do you need in order to implement one? What makes them work? And where are the pitfalls?
Companies with effective ethics programs unanimously agree that if an ethics program is going to work, the first and most basic requirement is strong and visible support from senior management. As Champion's Sigler explains, "Commitment from the top is very important on this because this is what sets the tone of the company." Furthermore, he warns that if the commitment by top management isn't genuine, then an ethics program will not succeed. "If there's the slightest indication of cynicism on the part of top management," he cautions, "then it's all over."
Another essential but basic element is setting appropriate-- and positive-goals. The general aims of successful ethics program are straightforward and unsurprising--to help employees avoid doing something wrong and, if that fails, to uncover the wrongdoing.
More than anything else the best ethics programs aim at helping, not trapping people. According to Kent Druyvesteyn, Head of General Dynamics' Corporate Ethics program, "The purpose of a good ethics program is positive--to assist and support employees, not to catch them. A program should build on the values the well-intentioned employees already bring to the workplace and to help them steer through the complexities, uncertainties and pressures that they face in their daily business activities." One of the best and simplest descriptions of the aims of ethics programs comes from Champion's CEO, Andrew Sigler, who says that "a good program gives people the courage to do what they want to do." An excellent example of what Sigler is talking about comes out of Texas Instruments--a company that is a little known pioneer in the business ethics movement. They've had a strong tradition of doing business ethically since the early days of the company and this is reflected by the fact that their first company ethics booklet was issued in 1961. The head of TI's ethics office tells the story of more than one manager who left the company for a better opportunity only to return within a few years because of the company's ethical environment. "They say," explains Carl Skooglund, "that they never realized how easy it was to make an ethical decision at TI and not to feel uncomfortable about it." One of the most important reasons for formulating appropriate objectives, however, is that they then become the standard against which to measure a program's success. As Druyvesteyn explains, "I'm sometimes asked how many people we catch--as though that determines if the program's working. But since our first objective is to help employees, we assess the success of our program not by the 200 sanctions we might impose in a year, but the 7500 people who asked questions about what was right before they acted."
As important as establishing appropriate goals is, this is unquestionably easier than achieving them. How, then, do these companies implement ethics programs?
One of the first steps most companies take in initiating an ethics program is to devise a formal structure that underscores its commitment to ethics, extends throughout the company and keeps the process honest by providing oversight at a variety of levels. The most complete programs include a combination of a board level oversight committee, a corporate steering group, and a corporate ethics office.
Martin Marietta's program, for example, starts with a Corporate Ethics Office. The head of this office, the Director of Corporate Ethics, reports to the Corporate Ethics Committee, which is made up of the President of the corporation and five representatives of the company's operating elements. And this committee in turn reports to the Board's Audit and Ethics Committee. Each company of the corporation also has an ethics representative who serves as a contact person for the Corporate Ethics Office. (For a more elaborate structure, see the description of General Dynamics' program above.) As far as the composition of oversight committees go, there are two trends. First, a number of companies pattern their board ethics committees after their audit committees. In fact, some just expand the function of their audit committees. This means that they have only outside directors on the committee. Second, corporate steering groups increasingly consist of representatives from different parts of the company. For example, Martin Marietta's Corporate Ethics Committee is made up of the president of the corporation, the executive vice- president, the vice-president and general counsel, vice-president of personnel, vice-president for audit and the head of the ethics office. Similarly, General Dynamics relies on senior people from human resources, corporate security, internal audit and corporate counsel. They do this in order to keep the ethics program from being dominated by the viewpoint, outlook or values of one part of the company. An especially important part of the formal structure, however, is the person selected to head the corporate ethics office. And there is an emerging consensus about who does and doesn't work in such a post. The most effective ethics directors set a positive tone to the program, communicate this effectively, relate well with every constituency of the company and are equally comfortable functioning as a counselor and as an investigator. In particular, they work especially well with line managers. An ethics director's background or functional area seems to be relatively unimportant. For example, the head of Texas Instrument's ethics office came from operations, and another ethics officer has a background in public relations. The only caution to be offered on this matter is that there is an emerging consensus among ethics officers that attorneys are usually not the best people for ethics programs. "The basic problem with attorneys," explains Major General Winant Sidle (ret.), former head of Martin Marietta's ethics program, "is that when acting as ombudsmen they face a conflict of interest. The ombudsman is basically supposed to represent the employee bringing the complaint. But a corporate attorney already represents the corporation. And since in many cases the employee is making a complaint against the corporation, an attorney has a conflict of interest that he may not be able to get around. When we started our program, 6 of our 10 ethics representatives
were attorneys; now we're down to 1. We're moving away from attorneys because they have trouble wearing two hats."
Probably the most important part of implementing an ethics program, however, is devising statements describing a company's standards. The most thorough ethics programs have two--a code of conduct and a corporate philosophy statement. Codes of conduct are generally short, specific and easy to understand. They lay out specific do's and don'ts about particular problem areas, stating clearly and simply what counts as unacceptable conduct. Depending on a corporation's industry, codes talk about: conflict of interest, proprietary information, gifts and entertainment, record keeping, securities regulations, inside information and the like. Basically, the codes proscribe two types of activities. The first are clearly illegal-- violating securities regulations, cheating on government contracts, and the like. The second are legal, but either unethical or able to influence someone's judgment so that they might compromise their responsibilities--using a company's buying power to coerce a supplier, conflicts of interest, accepting or giving excessive gifts or entertainment. Codes of conduct usually limit themselves to the most important and most obvious areas where employees will face ethical dilemmas. They don't try to cover everything since it's impossible to imagine every conceivable problem. The only caution ethics directors offer about codes has to do with who should write them and echoes their advice about who should be in charge of ethics offices. Accordingly, the consensus seems to be that, in particular, attorneys should not be put in charge of developing a code of conduct. As Gary Edwards Executive Director of the Ethics Resource Center, himself an attorney, explains it, "Codes should be developed by managers. You want them to be responsive to the real issues that people face day to day trying to do the job in that company in that industry. And the lawyers aren't managers and they certainly aren't line managers." Codes developed by attorneys are generally long, detailed, talk almost exclusively about laws and regulations and often rely heavily on legal style and terminology. The head of one ethics program explained, "One of the problems we had when our attorneys drew up the code was that they didn't want to have their words changed even though nobody really understood what they wrote." Sanctions, of course, are the flip side of a code of conduct, and just as necessary. While cautioning against regarding ethics programs as simply enforcement programs, ethics directors nonetheless underscore the necessity of sanctions. "Investigations and sanctions are a very important part of a
program," points out General Dynamics' Kent Druyvesteyn, "because if you don't have them, a lot of people will think the program is nonsense." Bunge's Chairman, Walter Klein concurs, "If you've got a policy, you've got to enforce it. Otherwise everyone will say it's just a sham." What a code of conduct doesn't cover, a corporate philosophy statement will. Such a statement expresses the company's general values and thereby sets the tone and overall standards for a company's entire operation. For example, Johnson & Johnson has a one page document, "Our Credo," which outlines the company's responsibilities to its customers, employees, communities and stockholders. Champion International has something similar called "The Champion Way Statement." This states the company's general objectives (industry leadership and profitable growth) and the principles it will live by in trying to achieve them (employee participation, commitment to excellence, fair and thoughtful treatment of employees, commitment to its employees' communities, candor and truthfulness, and responsibility in dealing with the environment). The heart of the Champion Way is a positive conception of how people should treat one another. As important as codes of conduct are, corporate philosophy statements are probably even more important. First, philosophy statements more effectively set a positive tone about ethics. They say what a company stands for, not against. Second, a code's usefulness is inversely proportional to its length and complexity. Since short and simple can cover only a fairly small number of situations, that means that employees also need a more general standard to use the rest of the time--especially in emergencies. For example, in handling the Tylenol crisis, hundreds of Johnson & Johnson employees had to make independent decisions about how to respond. And the Credo was used as the standard in making such decisions throughout the emergency. Describing the atmosphere in the company, David Clare, President of the company during the crisis, recounts, "There were literally thousands of decisions that had to be made by on the fly every single day by hundreds of people around the organization. And we give great credit to the Credo in helping them make the right decisions because they knew basically what was expected of them. We said, 'You make the decision--whatever it is, whatever it costs us--on the basis of whatever our responsibility is.' And it worked." Something similar, but less dramatic, happened at one of Champion International's mills in North Carolina. A construction accidentally turned the wrong valve and let out a puff of chlorine gas, knocking out 35 people. Since this was shortly after Bhopal, TV crews were on the scene within minutes asking the mill manager for details. Acting on his own initiative, the manager openly told the whole story. And his telling the truth effectively calmed the fears of the people in the local community. When asked by Andrew Sigler, his CEO, how he decided what to do, the mill manager said, "The only thing I could think of was that the Champion Way says we're supposed to be open
and honest." (He was right. The statement reads, "Champion wants to be known as an open, truthful company.") And on still another scale, Sigler believes that the Champion Way Statement played an important role in how their acquisition of St. Regis Paper was handled.
Publicizing the commitment
Nonetheless, as important as it is to have a set of standards and a firm commitment to doing business ethically, these are useless unless they've known throughout the company. Accordingly, another one of the most important facets of existing ethics programs are activities aimed at publicizing the standards and sanctions and at letting people know how to get advice or report violations. Currently, a favorite way that many companies have of bringing a new commitment to ethics to the attention of all employees is to distribute a code of conduct or statement of company values and ask their people to sign a card or form. Many firms now make signing the card a condition of employment for new hires and consultants. What people sign varies greatly. Martin Marietta's statement says simply, "I certify that I have received a copy of Martin Marietta Corporation Code of Ethics and Standards of Conduct." At General Dynamics employees must also say that they've read the standards and understand that it's company policy. And still more rigorous is Goodyear's requirement that employees explain if they're doing anything not in compliance with the company's policies. Managers additionally have to state that they've taken steps to make sure that the people reporting to them understand and are complying with the policies. By and large, however, companies have employees sign not so much to extract a formal agreement to avoid wrongdoing, but to let them know that the company takes ethics seriously, that there are standards everyone is expected to follow, and that there are ways they can get help when they face ethical dilemmas. A number of companies are also relying on films or videos to communicate something about the company's overall values or commitment to ethical conduct. Focusing on the concept of meeting one's responsibilities, Tracor Aerospace has produced a short film that shows the consequences of "cutting corners." (The presentation revolves around a factory that produces cubes. A disembodied voice confronts employees in different departments with a defective cube--one with a corner cut off--and hears a variety of excuses about why the cube is damaged. The film then contrasts this with making cubes without "cutting corners.")
General Dynamics uses a film entitled "Your Values Are Our Values" which encourages individual integrity. It explains that the corporation's values are simply an outgrowth of the values of the individuals who work for the company. And taking yet another approach, Texas Instruments tries to communicate its corporate values by using a videotape of a statement by its CEO. "Let there be no mistake," intones Jerry Junkins, "We will not let the pursuit of sales, billings or profits distort our ethical principles. We always have, and we always will place integrity before shipping, before billings, before profits, before anything. If it comes down to a choice between making a desired profit and doing it right," TI's CEO explains, "you don't have a choice. You'll do it right."
A major part of what's involved in implementing an ethics program, then, is communication. In fact, the head of Texas Instrument's ethics office explains their whole program in this light. Says Carl Skooglund, "the primary purpose of our ethics office is simply to provide better communication of what we require and what our values are as well as a mechanism for employees to get in touch with us if they have questions or concerns." Setting up mechanisms for communication, then, is an important aspect of implementation. For getting advice about the standards, all that's needed is a phone line with someone on the other end who knows the answer. But most ethics programs use more than that. Many companies now have hotlines-even operate 24 hours a day. Mailboxes outside the corporate mail system are also common. Texas Instruments even has a special telex terminal that goes just to desk of the ethics director. (Security on the system is such that no one can trace where it came from and even the machine that sent it loses all knowledge of having done so.) However, most companies with ethics programs are also careful to provide for opportunities for communicating face to face since a surprising number of serious allegations are made in person, not over the phone or by mail. (In Martin Marietta's experience, more than one half of the reports of violations are made by people who simply walk in to the office.) Some companies handle this by having an ethics representative at each one of their facilities, some have the head of their ethics office spend time throughout the organization, and some do both.
Closely connected with the process of communicating with the company's employees about the importance of ethics is yet another critical part of implementing an ethics program--training. The aim of most corporate ethics programs is to expose everyone in the company to ethics training appropriate to their situation. People are introduced to the company's values, the details of the code and what they should do when they need help, have questions or want to report violations. In particular, training sessions introduce employees to the ethical problems that they're going to face in their specific part of the business, be it marketing, purchasing, sales or whatever. This seems to be best done with actual cases. Texas Instruments started using some hypothetical cases presented on video tape that an outside organization produced, but as Carl Skooglund explains it, "one request we kept getting from our employees was `please individualize the material, make it something usable so that when I go back to my job tomorrow morning I don't have just a bunch of high level principles but some tools, something to use in the day to day dilemmas that I encounter.'" As a result, TI is developing supplementary printed material geared to about half a dozen different areas of the business. Using a question and answer format, the material will constitute what Skooglund calls "rifle shot training" keyed to the specific problems faced by, for example, sales representatives out meeting customers or procurement people dealing with suppliers. In the same vein, Martin Marietta developed a set of cases from within the company. They asked people from different parts of the organization to describe ethical problems they've faced, and they use these cases in their workshops along with some generic cases developed by groups working in line with the Defense Industry Initiative. Martin Marietta also does separate workshops for every major function in the company: contracts, marketing, accounting, finance, procurement, quality control and manufacturing operations.
SPECIAL CHALLENGES As well developed as a number of ethics programs are, however, there are still some important problems that no one has been able to solve.
As any manager knows, incentives and rewards play an important role in motivating employees to accomplish corporate goals. Logically, a company committed to doing business ethically would want to reward its people for that. But the matter of rewarding employees for ethical behavior is the least well developed part of current ethics programs. As General Dynamics' Druyvesteyn describes the problem, "Everyone says it's a nice idea to reward people for ethical conduct, but reward them for what? Telling the truth? Presumably that's expected. Telling on someone who doesn't tell the truth? That suggests a 'fink of the month' or 'rat of the year' award or even bounties. In ethics programs we have a hard time thinking about how we show our support and gratitude for right conduct." So far, the only way this problem has been approached is that some companies are making a concern with ethics a regular part of a manager's responsibilities. General Dynamics has adopted the policy that managers and supervisors have special leadership responsibilities for implementing the ethics standards and will be measured in how well they carry out those responsibilities. However, they haven't yet figured out how to do that. Martin Marietta has gotten more specific and made it a responsibility of their supervisors to talk to their employees about ethics at least once a year.
The matter of rewards, however, brings us full circle and back to the issue of "cheating for the company" which opened this article. After all, what employees are rewarded for is one of the main factors that determines how strong the temptation will be for them to bend or break the rules--or even the law. The more that employees are rewarded simply for meeting quarterly objectives, the stronger that temptation will be. "Employees learn very quickly what they really get stroked for," points out TI's Skooglund, "and if the rewards come solely from shipping product or making financial forecasts, then that's the drumbeat they're going to march to. And that's a tough problem for any company's ethics." However, the greatest ethical danger occurs when raises, bonuses and promotions depend on unrealistic objectives. As Gary Edwards of the Ethics Resource Center explains, "When objectives are set improperly--too aggressively or without respect for a particular unit's inability to meet a goal that may be reasonable for the corporation overall--all kinds of unethical conduct can be generated." Another major challenge in incorporating ethical values into an organization, then, is to set objectives which stretch
employees to the full extent of their capacities but do not push them to the point where they'll be tempted to meet them by wrongdoing.
What this discussion of rewards and objectives ultimately points to is the critical role that supervisors play in determining the ethical character of a company. In a survey of more than 300 managers by the National Institute of Business Management, the behavior of an employee's superiors was ranked as the second most important factor in influencing decision making. This was surpassed only by a personal code, and outstripped the behavior of one's peers, formal company policy and the ethical climate in the industry. As a result, another major challenge in institutionalizing ethics in a business is to be particularly sensitive to the danger of supervisors exerting the wrong kind of pressure. TI's Skooglund observes that "If you're going to have the kind of pressure that'll make decent people go wrong, you'll find it in the employee-supervisor relationship." Relating this issue directly to other major challenges just mentioned, Skooglund notes that "there are two ways that the employee-supervisor relationship can really go wrong: 1) if you set goals that realistically cannot be met, and 2) if you have an environment where the employee is made to feel that failure is totally unacceptable." When the cost of failure is too high, people feel enormous pressure to compromise both their own values and the company's stated standards. And for all practical purposes, it's an employee's supervisor who determines the cost of failure.
Finally, there is the need to guard against two particular problems that threaten to undermine any ethics program. As Kent Druyvesteyn of General Dynamics explains, "We have found that we have to pay very careful attention to two things: reprisals against someone for using the ethics program, and someone using the program to hurt somebody." Reprisals can be direct, indirect, obvious or subtle, ranging from being fired or demoted to being ostracized. "We take this matter extremely seriously," observed another ethics director. "We require all of our employees to report actual or suspected unethical conduct, and we promise that they won't be retaliated against for doing so. But I have to spend a good bit of time making sure nothing does happen." False accusations can be similarly wide ranging and serious. In one instance, one employee alleged to the ethics office that another employee was stealing
from the company. Investigation revealed, however, not only that there was no theft, but that the accuser had bragged to other employees before making the charge that he would find some way of getting the other employee fired. "Because of the danger of abuse," emphasizes Druyvesteyn, "it's imperative to conduct investigations on the basis of facts, not rumor or innuendo."
A FINAL WORD
Incorporating ethics into the life of a corporation, then, is an involved process. It requires commitment, resources and patience. Patience is particularly necessary because establishing a strong ethical environment in a corporation simply takes time. As Dennis Merrick, Senior Vice-President and Director of Human Resources for the First Atlanta Corporation, points out, "The ethical standards of a company are part of the corporate culture. They become established over a long period of time as a result of hundreds and thousands of individual, day to day decisions. They are the cumulative result of these decisions that become in fact the corporate standard of ethics." Companies that have committed themselves to this path, however, see themselves stronger because of it. As Andrew Sigler, Champion's CEO puts it, "an ethical company will in the short run and in the long term be a better institution. . . . Ethical behavior is simply good business."
Business ethics in the textile, clothing and footwear (TCF) industries:
Codes of conduct: A general overview
The codes of conduct or codes of practice adopted by a number of mainly multinational enterprises include a variable number of principles which define the ethical standards of the enterprise. These may be general principles such as, for example, the concept of non-discrimination while, in a number of cases, there is a detailed description of the social practices which the enterprise wishes to see respected in the production and sale of the goods and services which it markets. Some enterprises make a distinction between the basic principles which regulate its internal activity and those which it wants to apply in the selection and monitoring of activities of its subcontractors. A number of codes make explicit reference to ILO Conventions, in particular those concerning the respect of human rights at work. In other cases, the reference is more indirect, even if the principles established are often based on fundamental ILO Conventions. The agrofood, forestry, chemicals and consumer products sectors are amongst those which have progressively introduced a number of codes of practice. However, while the concept of ethical practice has made a remarkable comeback in recent years in the strategic policy of industrial and commercial enterprises, it is above all in the textile sector, and in particular in clothing and footwear, that the trend is the most evident. United States enterprises have played a pioneering role in this respect. Since Levi Strauss adopted in 1992 a code entitled "Business partner terms of engagement and guidelines for country selection", many other enterprises producing apparel and footwear as well as major retail groups have followed suit. In Europe, the trend has been longer in coming, although increasing attention is now being given at the headquarters of the major European enterprises in the TCF sectors to the specific application of codes of "good practice" and codes of conduct. In the developing countries, practically no initiatives of this kind have been taken; on the other hand, a growing number of production enterprises working under subcontracting arrangements for the multinational enterprises of the industrialized countries must respect the codes established by the latter, which significantly affects their activities.
Origin and rationale of the phenomenon
In the 1970s, considerable criticism was levelled against multinational enterprises concerning their activities in the developing countries. National and international trade unions as well as a number of host countries accused them of carrying out
their activities without consideration of the harmonious social and economic development of the countries in which they operated. It was such criticism which led to the establishment, by a number of government international organizations, of draft codes of conduct some of which, such as that of the United Nations, have remained a dead letter. In the social sphere, the International Labour Organization adopted in 1977 a Tripartite Declaration of Principles on Multinational Enterprises and Social Policy which is still in force and to which trade unions in the TCF sector attach considerable importance, as can be seen from a draft resolution tabled by the Workers' group at the recent ILO Tripartite Meeting on the Globalization of the Footwear, Textiles and Clothing Industries: Effects on Employment and Working Conditions, held in Geneva between 28 October and 1 November 1996. To some extent the codes drawn up by intergovernmental international organizations, and in particular that of the ILO in this sphere of social policy, which were of a voluntary kind can be seen as the forerunners of subsequent initiatives taken unilaterally by individual enterprises. Other external factors have contributed to the recent publication of codes of conduct. The pressure brought to bear by the international trade union movement has without doubt played an important role in this process. In the TCF sectors the International Textile, Garment and Leather Workers' Federation has for many years been calling for a greater sense of social responsibility by enterprises in the sectors and has provided support to national federations in their campaign for the respect of human rights at work. Of the progress made in this sphere, mention may be made, for example, of the United States where in May 1995 the Clothing Manufacturers' Association of the United States of America (employers) and the Amalgamated Clothing Textiles Workers' Union (workers) signed for the first time a national branch collective agreement which included, amongst other aspects, a code of conduct applicable to enterprises and their subcontractors which established minimum standards regarding wages, hours of work, forced labour, child labour, freedom of association, non-discrimination as well as occupational safety and health. Consumers' associations as well as a number of non-governmental organizations have also endeavoured to draw the attention of consumers, the public authorities and the enterprises concerned to the need to respect a number of minimum rules regarding human rights. Although in a large number of cases attention has been focused on the specific problem of child labour, associations and organizations have taken their campaign further either by trying to promote social labels for one or more categories of TCF products, or by organizing campaigns to sensitize the public to the general problems of basic workers' rights or by trying to draw up standard codes which
enterprises could adopt and tailor to their particular needs. The following chapter contains a summary of some of these initiatives which clearly show the increasing awareness of the international community about the social problems raised by globalization in the TCF sectors. Governments have also played a significant role in the promotion of standards concerning the respect of human rights and codes of conduct. In Europe some governments, such as that of France, are calling for greater respect of human rights in the sphere of international trade and are actively participating in national studies as well as research carried out by the European Commission on the social aspect of international subcontracting in the TCF sectors. In the United States, the socalled "No Sweat" campaign introduced by the Clinton Administration in the fight against sweatshops has led to the establishment of a Trendsetter List of enterprises in the TCF sectors which respect labour legislation and human rights in general in their production and marketing activities and ensure that these rights are respected by their subcontractors. The Department of Labor, which had identified a number of deficiencies concerning the respect of human rights and labour legislation in the TCF sectors, in particular in subcontracting of apparel production, and which has been faced with a number of cases involving the exploitation of immigrant workers in sweatshops set up on the United States territory, has taken steps to clean up the sector. At the same time as it stepped up its inspections, it adopted a positive approach by drawing up and distributing to the media a list of socially responsible enterprises in the sectors producing and marketing TCF articles. In 1996, this list, reproduced below, included a large number of enterprises which had adopted a code of conduct.
Enterprises participating in the "No Sweat" campaign
Abercrombie & Fitch Baby Superstore Banana Republic Bath & Body Works Bergners Bryland Boston Stores Cacique Carson Pirie Scott Dana Buchman Elisabeth Express Source: Department of Labor, 25 Mar. 1996.
Galyans Trading GapKids Gerber Childrenswear Guess Inc. Henri Bendel
Mast Industries NFL Properties Nicole Miller
Nordstrom Old Navy Clothing Store Lands End Penhaligon's Jessica McClintock Patagonia Lane Bryant Structure Lerner New York Superior Surgical Mfg. Levi Strauss The Limited Limited Too The Gap Liz Claiborne Victoria's Secret
It is undeniable that this campaign, with the help of the media, has given enterprises an added impetus to adopt codes of conduct. In the specific sphere of child labour, the United States Government has been particularly active. Between 1994 and 1996, the Bureau of International Labor Affairs of the Department of Labor organized three public hearings on international child labour issues which outlined the conditions of child exploitation in the world in all industries which export products to the United States. Its 1996 session offered the opportunity to a number of enterprises and employers' associations in the TCF sectors (Levi Strauss, Sporting Goods Manufacturers' Association, International Mass Retail Association) to show what progress had been achieved in this sphere, in particular through codes of conduct. A number of representatives of non-governmental organizations and trade unions also described their activities in this sphere, including in the promotion of codes. The presence of members of Congress, and in particular Senator Harkin who is responsible for a number of Bills to prohibit the import of products made by children, reflected the growing concern of political circles in the United States about this delicate problem. In 1996, the Department of Labor also published, at the request of Congress, a study on the influence of codes of conduct adopted by United States apparel enterprises on child labour.1 The study, which examined a representative sample of some 48 enterprises selected from the major firms in the production and marketing of clothing in the United States, clearly confirmed that the adoption and
application of codes of conduct which contained a reference to the prohibition of child labour (in 42 out of 48 enterprises) had reduced child labour in the subcontracting enterprises established in the developing countries. The drop was particularly significant in Central America. The report believes that although it is likely that a number of other factors also contributed to this improvement (greater awareness of consumers of the problems of child labour; concern by exporters about possible legislative measures to boycott products made with child labour, etc.), there is no doubt that the most significant impact is due to the increasing number of codes of conduct established over the last five years. By strengthening the role played by the developing countries in international trade, the globalization of the economy has also encouraged greater awareness of the commercial importance of the respect or non-respect of basic standards relating to human rights. It is no longer possible for the developing countries which want to increase or maintain their penetration of the markets of industrialized countries to ignore the existence of various kinds of pressure which exist in this sphere. As a result, in recent years, a number of governments have endeavoured, often with assistance from the ILO, to reduce the obstacles to the ratification of these fundamental standards and their effective application. The most dramatic progress has been made in this sphere of child labour, which benefits from broad media coverage and against which pressure is greatest in the context of the liberalization of trade. Here once again the ILO has played an important role as catalyst, in particular through its International Programme for the Elimination of Child Labour (IPEC). In the TCF sectors, it is for example within the framework of this programme and in collaboration with UNICEF that the Bangladesh Garment Manufacturers' and Exporters' Association signed, with the support of governments and local non-governmental organizations, an agreement to discontinue the employment of children of school age in apparel enterprises and to provide for their participation in special education programmes. Social progress of this kind is without doubt the first step towards the establishment of more elaborate codes of conduct which take account of the new social requirements of international trade. In the industrial countries, the motivations of enterprises which have adopted codes of conduct are often more complex. It is true that pressure brought to bear by trade unions and consumer' associations or non-governmental organizations play an important role. Furthermore, as noted above, some government campaigns may have a significant influence on industrialists and encourage them to give greater attention to social matters. However, the decisive factor for the adoption of such codes is probably the public image which the enterprise wants to project to its clients, employees, suppliers and shareholders. The construction of a positive public image, in which the concept of the socially responsible employer has acquired a new importance, is a long-term and increasingly more complex task in
which management teams are much more involved in the past. An enterprise's public image is now an asset which must be protected and developed to the maximum. In the textile and footwear sectors, a company's public image is particularly important and often determines a decision whether the public will buy its goods. On these highly competitive markets, it is therefore important for a company to project a positive image and to retain a good reputation over the long term. To the extent that the media highlight certain conditions of work which are particularly deplorable both in the sweatshops of the industrialized countries as well as in the developing countries, the adoption by a global enterprise of a code of conduct is an attempt to provide a kind of guarantee for the final consumer that the products made or marketed by the company have not involved any kind of exploitation of workers concerned. It is therefore up to the enterprise to implement the principles established in the code, at the risk of using its credibility. Given the importance of subcontracting practices in the TCF sectors, it is clear that an enterprise which adopts a code of conduct takes a number of risks because any failure to respect the code which is noted by trade unions or the media will have greater impact and a correspondingly negative effect. This explains the importance of application conditions and helps explain why some enterprises prefer to keep a low profile and refrain from giving too much publicity to their codes of conduct. The press, and in particular the Anglo-Saxon press which is more sensitive to the subject, includes many examples of enterprises which have been singled out for their non-respect of their code of conduct. The most frequent examples in the apparel and footwear sectors concern the non-respect of human rights in factories working under subcontracting arrangements for large international brands, most often in the developing countries. However, celebrities who use their fame to promote a given brand of clothing or shoes are also subject to criticism in the media if the products bearing their name have been manufactured in conditions which do not respect the fundamental rights of workers. The recent scandal in the United States caused by the Kathie Lee Gifford case is symptomatic of the influence of the media on the social image of an enterprise. This leading television presenter had to explain why she had agreed to let the Wal-Mart enterprise use her name and her fame to promote a line of clothing some of which had apparently been produced in sweatshops in Honduras and even New York. The combination of factors concerning the person in question and the fact that the Wal-Mart enterprise had its own code of conduct considerably tarnished the image of both parties, and it is by no means sure that the numerous statements of good intentions on both sides have managed fully to re-establish consumer confidence. In the same way, the many articles which have appeared in the press on the cost of manufacturing sport shoes in the developing countries compared with their selling price in the industrialized countries morally penalize leading enterprises in the
sector which are furthermore trying to promote good social practice through their codes of conduct. In their search for a balance between the lowest possible production costs, to protect their competitiveness, and the maintenance of a good social image likely to satisfy consumers and pressure groups, multinational enterprises in the TCF sectors have little room for manoeuvre. Hence the extreme sensitivity to the subject in the context of globalization. It should however be pointed out that although theoretically the importance of the ethical aspect in the management of enterprises has been widely recognized (since the beginning the 1980s, chairs in business ethics have been established in a large number of universities and business schools) it is only recently that a number of financial analysts have noted that enterprises which applied codes of conduct performed better than average on the stock exchange.2 Of course, conclusions cannot be drawn about the existence of a direct link of cause and effect between these two factors since it is generally the most productive enterprises in a given sector which have the human and financial resources enabling them to develop an ethical approach. It can however be noted that the existence of a responsible social attitude is not detrimental to the image which financial markets have of a given enterprise. Some investment consultancy firms now take account of ethical elements in their criteria for the composition of stock exchange portfolios.3 The large majority of trade unions favour the generalization of codes of conduct, provided that their application is not subject to restrictions. In their view, the main weakness of the codes lies in the fact that they are applied and monitored by the enterprise itself which is thus both judge and jury. Furthermore, they believe that even when the enterprise tries to apply, at all levels, its ethical principles, it rarely has the necessary human resources to do so. It is in fact often the employees responsible for product quality and the commercial agents of the firm who control the application of the codes by subcontractors. This twofold responsibility restricts their effectiveness. Trade unions therefore favour a new approach in which the control of the application of codes would be entrusted to independent and trustworthy persons or associations. This would involve developing a kind of "social audit" function comparable to that of a financial audit. Of course, the generalization of such a system raises a number of problems which go beyond the purely financial aspect of the cost of an additional audit and is still a long way off. However, it is worth noting that the case of The Gap enterprise, which accepted the external monitoring of its application of its code (this case will be examined below), is a major precedent which could become standard practice in the future.
US Department of Labor, Bureau of International Labor Affairs: "The apparel industry and codes of conduct: A solution to the international child labor problem?", Washington, DC, 1996, 242 pp.
A conclusion reached, for example, in a study published in 1996 by Peter Prowse Associatives on the annual reports of the 100 main companies quoted on the stock exchanges in Europe.
In Switzerland the branch of a Scandinavian bank (Edouard Constant bank) has had an ethical portfolio since 1 January 1997. It is therefore the first Swiss private bank to propose ethical criteria.
Enhancing Business Ethics, Corporate Governance & Corporate Social Responsibility
Ethics as described by oxford dictionary is a set of moral principles, moral is concerned with goodness or badness of human character. The concept of ethics comes from Greek word ‘Ethos’, meaning both an individual’s character & a community’s culture. The Institute of Global Ethics defines ethics as ‘The obedience of the un enforceable.
Individual as Nucleus of Society & Stages of Ethics : Individual forms the nucleus of any company or a community or society. Personal integrity and collective integrity of group of individuals and their commitment to high moral values & ethics influences the Corporate Governance as well as Corporate Social Responsibility. Seeds of ethics are sown in the family, that’s where one ‘learns’ the concept of ethics. What is described as ‘sanskaras’ by Indian social scientists. The same can also be described as ‘DNA’ of human character. Going further, ethics are ‘nurtured’ in schools and colleges. Every individual’s ethical behavior is driven by a personal desire or a ‘resolve’ as to what he or she wants to be known as, while living & remembered as beyond their life. And it is not easy to arrive at this ‘resolve’, when Peter Drucker was 13 years old his teacher asked him, what he wanted to be remembered for ? Drucker, now over 80 yrs says, he is still trying to answer that question. It is the workplace where the individual ethics ‘mature’ and eventually get casted in stone. Until school & college level ethics largely remain in ‘personal’ domain but the moment individuals get into work situations, they get into the realm of ‘collective ethics’.
Model of Nucleus of Ethics & it’s circle of influence
Corporate Governance & Business Ethics : At the company level the Board is the torch bearer, the collective ethics of Directors decide the quality of Corporate Governance. Generally people believe business ethics involves adhering to legal & regulatory standards. But true governance is not necessarily rule based but the one which is principle based. People can
always bend rules but they do not like to bend /compromise their principles. It always comes from within i.e. a belief in principles of fairness, truth honesty and Transparency. That is why despite Sarbannes Oxley, corporate America continues to witness major financial frauds and so do other countries despite so called stringent Corporate Governance codes (Clause 49 of SEBI in India).
People need to be regularly reminded of the need for individual & business integrity thus, companies come up with code of conduct / Ethics. People across the organization are encouraged to adhere to stated principles in the code. However, integrity cannot be mandated, it requires a belief in a set of moral principles that extends beyond printed guidelines. The essence of ethics is captured very well in the statement by Jim Kelly, Chairman, United Parcel Post Service, he says “ethical behavior is not an act but a HABIT. Just as good health requires cultivating the habits of getting enough sleep & eating wholesome food, Aristotle believed that right action was the result of developing good moral habits. In a business context, this means training and at the deepest level, some thing we call Corporate Culture.” It is this corporate culture, which is key to business ethics and this ethical behavior should be reflected in the fair & transparent behavior of board & the management team alike, when they deal with five major Constituencies or sets of Relationships.
Shareholders and others who provide finance Employees Suppliers Customers The community / society at large One of the major ethical issues faced by the Boards is the way in which prosperity of company should be achieved. The most difficult task for the Board of Directors is to weigh up the short and long term interest of the company and then decide on the right course of action. If the ‘Purpose of Business’ is well defined using principle based approach, it will always guide the boards when in dilemma.
One such company that puts ethics before profit is Body Shop of UK. In 1991 – The Body Shop took a decision to phase out the use of PVC from its packaging & products. Whilst the company acknowledges the versatility of PVC as a packaging & product material, but the social and environmental implications associated with PVC overrides any decision to use it in the products, packaging or shop fits.
Corporate Social Responsibility Myth v/s Fact : Borrowing from Maslows need hierarchy, at individual level ‘Self actualization need’ is the higher order need. At the company level ‘Self actualization need” prompts boards & management to move towards Corporate Social Responsibility (CSR). One ‘Myth’ that prevails is ‘CSR’ might confuse existing business objectives i.e. it may not be a profitable business. However the ‘fact’ is just reverse of it, i.e. sound ‘CSR’ policy can provide real Long term benefits to the companies. This point is well proven with the fact that “When Dow Jones Sustainability Index was launched in 1999, the economist agreed that ‘companies with an eye on triple bottom line – Economic, Environmental & Social Sustainability – outperform their less fastidious peers on the stock market’. This may be why Social Responsibility Investment (SRI) criteria are now used by a number of leading fund managers.
Michael Porter professor of Strategy at Harvard Business School has summed it very aptly, “In a more socially & environmentally aware world, Corporate Social Responsibly in these spheres will itself be a source & competitive advantage”. A social investment forum survey found that 59% of occupational pension schemes now incorporate (SRI) into their investment strategies and new ethical indexes are on the way among them FTSE 4 good.
Enhancing Business ethics & Corporate Governance : The challenge is in matching values of the company with those of the individuals, so that the individuals are intrinsically motivated to alter their behavior. Value led or principle based approach is more effective than the rule based approach. This approach conveys to employees that you are being paid in order to make the right decisions based on a certain set of values & principles. Once a Value based culture is developed it will be sustainable and ensure
longevity of organizations beyond the lifespan of promoters. This is the real driver because people then intuitively & instinctively do the right things without “going by the rule book”. At the society level, we will have to constantly reinforce ethical behaviour at all levels such as individuals, corporate leaders (board members & senior management), bureaucrats, political leaders & finally civil society at large. This can only be achieved when our leaders in all spheres start leading through examples. Hence, reinforcement of ethics will have to be top down.