Global Business Ethics

Global Business Ethics: Regulation, Code, or Self-Restraint
Author(s): Gerald F. Cavanagh

Source: Business Ethics Quarterly, Vol. 14, No. 4, Business Ethics in a Global Economy (Oct., 2004
), pp. 625-642
Published by: Philosophy Documentation Center
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GLOBALBUSINESSETHICS:
REGULATIONS
CODE,OR SELF-RESTRAINT
GeraldF.Cavanagh
A6stract:Threestrategiesfordevelopingjustandconsistentglobalbusiness
practicesareexamined:l ) international
treatiesandagreements,2)global
codes of businessconduct,and 3) voluntaryselfSrestraint.International
agreementsinvestigatedare:NAFTA, GlobalWarming Treaty,OECDAnti-
Briber5r
TreatyandInfantFornzula Agreement. Thecodesexaminedarethe
CauxRoundTablelsPnnciplesfor Business,
The GlobalSullivanPnnciples
andThe
UnitedNationsGlobalCompactwithsusiness.Eachof these threestrategies
is probedforits relativestrengthsandweaknesses,andits prospectsfor
developingethicalbusinesspractices especiallyinthe areasofimprovt
ingthe environment,humanrightsandworkingconditions.
nverseas anddomesticsweatshopsandenvironmental degradationareamongthe

tJmoral chargesregularlyleveled againstthe global corporation(French,2002;
Starke,2002). Withinthe U.S. wherelegislation,regulationandfinancialauditsare
in place,we havewitnessedtheethicallyflawedactionsof Enron,WorldCom,Global
Crossing,Quest,TycoSArthurAndersen,and Merrill-Lynch; these firmsattempted
to inflate revenuesand hide costs. Employees,suppliers,customers,shareholders
andthe communitywere severelyhurtin each of these cases. But the international
problemis even greater,since thereare fewer commonlyacceptednormsor inter-
nationalinstrumentsfor effectivelyguidingor regulatingglobal businessactivities
(Byrne,2002; Morgenson,2002). At an international conferenceon globalizationat
SantaClaraUniversitywhichbroughttogethereducatorsandpeoplefromdevelop-
ing countrieswho workwith the poor,the keynotespeakerpointedto his dislikefor
globalization's"imposition,its pretensions,its culturalimperialismandits grinding
injustice"(NationalJesuitNews, 2003).
Mostglobalfirmsareresponsibleandmostexecutivestryto be ethicalandjust in
theiractivities;nevertheless,
themarketoftenpressuresexecutivesto increaserevenues
or reduceexpenseson, for example,wages and waste disposal.This heightensthe
needforprovidinginstrumentsto supportmorejust andconsistentbusinessbehavior
amongglobal fis (Donaldson,1994, 1992). Globallythis is especiallytruewith
regardto wagesSwork place conditions,environmentalpreservation,briberyand
corruption(De George,1994).
GlobaleconomicinstitutionsS suchas theWorldTradeOrganization andtheInter-
nationalMonetaryFund,arerelativelystrongandinfluential.GlobalinstitutionsS such
f8)2004. Basiness Ethics Quarterly,Xlolume14, Issue 4. ISSN 1052-1SOX. pp. 625 642
626 BUSINESS ETHICSQUARTERLY
as the InternationalLaborOrganization,chargedwith workerprotectionare weak,

and thereare few effectiveglobal agreementsfor environmentalprotection.At the
sametime,globalizationis pushingdecisionmakingto international levels,so "many
people aroundthe worldworrythatdemocracyandaccountabilityarebeing lost in
the process"(French,2002). Hence some governancesystemis essentialfor global
trade,prosperity,justice andaccountability(Young,1999;Cooper,1989).
Therearethreedifferentstrategiesto bnngaboutjustandconsistentglobalbusiness
practices.Eachof thesemodesencourages effiicalaIldlimitsuneffiical
businessbehavior,
andcouldhelpto "levelthe playingfield"for all firms.Thesethreestrategiesare:
1. Regulationin the formof multilateraltreatiesandinternationalagreements;
2. GlobalCodesof businessconduct;
3. Voluntaryself-restraintof individualexecutivesandfirms.
We will examinethe strengthsandweaknessesof each of these strategiesin an
attemptto determinethe comparativerealandpotentialeffectivenessof each.So our
questionsare:
Whatstrategies are most appropriatefor helping global businessf rms achieve
moreethical operationsfor all stakeholders?Underwhatcircumstancesare these
strategiesappropriate?
Thisinvestigationcoversanimmensesubject,sincetherearehundredsof multilat-
eralWeatiesandscoresof globalcodesof conduct.Tomakeit manageable, we selectfour
major,representative examplesof international agreements.Theyarelistedin Table1.
Let us proceedto examinethosemultilateraltreatiesandinternational agreements.
Table 1
Multilateral Treaties and International Agreements
Focus Agreement Signed by the U.S.
Trade NorthAtlanticFree TradeAgreement 1992
Environment Kyoto Treatyon Global Warming 1999*
Corruption OECDAnti-BriberyAgreement 1997
InfantSafety InfantFormulaAgreement *
*U.S. supportwas laterwithdrawnby a succeedingpresident
Multilateral Treaties and Agreements

The treatiesandcodeshavebeen selectedbecauseeach:1) has potentiallya great
impacton businesspolicies and actions;2) has receivedconsiderableattentionand
discussionin thebusinesscommunity;3) is accompaniedby strongargumentsfavoring
andopposingit. Let us firstexaminethe NorthAmericanFreeTradeAgreement.
NorthAmericanFree TradeAgreement
The NorthAmericanFreeTradeAgreement(NAFTA)was signedby the leaders
of Canada,Mexicoandthe U.S. in 1992 andapprovedby theU.S. Congressin 1994.
Its purposeis to eliminaterestrictionson the flow of goods, services,andinvestment
GLOBALBUSINESS ETHICS 627
in NorthAmericaby phasingout tariffsovera 15-yearperiod(PrestonandWindsor,

1997).NAFTAcreatedthe largestfreetradeareaandtherichestmarketin the world.
Theagreementalsoprotectsintellectualproperty,andprovidesfordisputeresolution.
Later"side agreements"were negotiatedto betterprotectthe environment,worker
wages andworkingconditions(CongressionalDigest, 1993;Yoffie, 1993).
BusinessexecutivesfromglobalfirmssupportedNAFTAfromthebeginning,and
businesslobbyingcontributedto the final approvalof NAFTA.Laborunions,many
environmentalgroups,Ross Perot,andPat BuchananopposedNAFTAand almost
defeatedit. Most of the pnncipalargumentsused to opposeNAFTAin the U.S. are
also used to oppose globalizationin general the lack of considerationof human
rights,wages, workingconditionsand environmentalprotection.These arguments
havebeenrepeatedduringprotestsatinternational meetings,suchas thatof theWorld
TradeOrganization,International MonetaryFundandthe WorldBank.However,it
shouldbe notedthatat these meetingssome representatives of developingnations
objectedwhen developednationsraisedthese issues. Some in poor countriesview
low wagesandrelaxedenvironmental regulationsas theirowncompetitiveadvantage
in the globalmarket.
NAFTA"is the most comprehensive regionaltradeagreementevernegotiatedby
the UnitedStatesandis scheduledto be fully implementedby the year2008"(United
StatesDepartment of Commerce,1998).Theeffectof NAFTAis to encourage economies
amongErns andcitizensof Canada,MexicoandtheU.S., suchthatgoodsandservices
becomelessexpensiveforall.Moreover, thetreatyprovideshundredsof thousandsof new
jobs forpoorpeoplein Mexico,anoutcomethatsocialjusticeadvocatesapplaud.
Tradeagreementsrequiretreaties.Nation statesrecognizethat withoutlegally
bindingtreatieswith enforcementprocedures,agreementssuch as NAFTAwould
not succeed.Codesor voluntaryagreementsarenot capableof accomplishingwhat
NAFTAhas accomplished.
KyotoTreatyon Global Warming

Scientistsfromaroundtheworldrecognizethepotentiallycatastrophic problemof
globalwarming(Brownet al., 2001). Almostall now agreethatburningfossil fuels
accountsformostof thisartificialwarmingof theearth.Mostof thisgradualwarming
is causedby a "greenhouseeffect"surrounding the earth,formedby carbondioxide
pollutionthatis emitted-especially fromthe burningof coal andpetroleum(Dunn
andFlavin,2002).IntheU.S. themajorsourcesof carbondioxideareelectricalpower
plants(43 percentof total),cars, trucksand othertransportation (24 percent),and
manufacturing (14 percent).Forestsandoceansnaturallyabsorbcarbondioxide,but
the increasingamountof emissionsandthe clearcuttingof forestsis overwhelming
this naturalbalance(WorldPressReview,2001). Globalwarmingis causingglaciers
to shrinkandoceansto rise, with the potentialof floodingcoastalcities andloss of
islands,increasinglikelihoodof droughts,spreadingdeserts,andincreasingfrequency
of diseaseandpoliticalupheaval(PackardandReinhardt,2000). So delegatesfrom
160 nationsgatheredin Kyoto,Japan,in 1997to negotiatea treatythatwouldreduce
greenhousegases (Young,1999).
628 ETHICSQUARTERLY
BUSINESS
thanone thirdof the
Those who live in developednations,who constituteless
gases. The U.S.,
people of the world,emit morethan69 percentof the greenhouse
of global carbon
with 4.5 percentof the world'spopulation,contnbutes25 percent
(Gardner,2002). The
outputand U.S. emissionsrose 18 percentfrom 1990-2000
industrialized world.The U.S. uses
U.S.is istheleast energyefficientsociety of the
product as does Japanandabout
twiceas muchenergyper dollarof gross domestic
1.5times as muchas westernEurope"(Richter,2002).
by 2010 theywould
Developednationsthatsignedthe KyotoTreatypledgedthat
nations
reduce theircarbondioxideemissionsto belowtheir1990levels.Developing
arguedthatit more
is
emitless, but increasingamountsofSgreenhousegases;they
gases.
important to lift theirpeopleout of povertythanto reducegreenhouse
Treaty in the U.S. led by Exxon
Therehas been strongoppositionto the Kyoto and
the United Mine Workers,
Mobil(Lee, 2003) the U.S. Chamberof Commerce di-
firms. Reducing carbon
someotherpetroleum,electricpowerandtransportation and/or
its use of energy,
oxideemissionsrequiresa firmto becomemoreefficientin
sources,such as solar,wind or hydro.This is costly in
shiftto non-pollutingenergy
theshortterm.
warmingwas a
AlthoughPresidentGeorgeW. Bush acknowledgedthatglobal
WarmingTreatyin 2001
majorproblem,he withdrewtheU.S. fromtheKyotoGlobal
withdrawing fromtheTreaty:
ratherthantryto renegotiateit. He citedas reasonsfor
of scientific certaintyabout
theseverenegativeimpacton theU.S. economy,the lack nations
that developing
theongin of andthe impactof globalwarming,andthe fact
werenot askedto reducetheircarbonemissions.
of businessfirms
Neverthelessacknowledgingtheirrolein theproblemfa number
emissions.Duponthas
haveindependentlypledgedto reducetheircarbondioxide
below their 1990 levels
pledgedto reducecarbondioxideemissionsto 65 percent
additions Ford,Dow Chemical,
andtheyarewell on theirway to thatgoal already.In
Alcan Aluminum,Duncor
IBM, Johnson& Johnson,BP Shell DaimlerChrysler
reducingtheir
EnergyandOntarioPowerhavealsoindicatedthattheyarevoluntarily
emissionsof greenhousegases (DunnandFlavin,2002).
2001 fashionedan
Even withoutthe participationof the U.S., 178 nationsin
havepledgedto: 1.
agreementto implementtheKyotoTreaty.Thedevelopednations
2. Establishsystemsto
Reducecarbonemissionswithpenaltiesif goals arenot met;
energy efficient projectsoverseas;
tradecreditsforemissionsreductionforinvestingin
2001).
and3. Set up a fundto help developingnationsadapt(RaeburnS
or voluntaryaction
Let us now returnto ourbasic question.Is regulation,a code
in thiscasecarbon
mosteffectiveforsolvingtheproblemof globalwang? Pollution
Otherwise,the
dioxideemissions,generallyis mostefficientlyhandledby regulation.
pollution,will havelower
';freerider"thatis, the firmthatdoes not investto reduce
most of the nations
costs in the shortterm,andwill thusbenefitfinancially.Hence treaty
have signed an implementation
of the world,with the exceptionof the U.S., in the
the wealthiest nation
to lower carbondioxideemissions.The UnitedStates,
world,is herethe ;'freerider.s
GLOBALBUSINESSETHICS
629
OECDAnti-BriberyAgreement
TheUnitedStatesCongresspasseddomesticlegislationin 1977,theForeignCor-
ruptPracticesAct (FCPA),whichprohibitsbriberyof foreignofficials(Steinerand
Steiner,1997).Hencethe U.S. has arguedfor an international agreementthatwould
outlawbriberyof foreignofElcials,so thatobservingthe FCPAwouldnot penalize
U.S. firms.The U.S. Departmentof CommerceestimatedU.S. firmslost $11 billion
in contractsbecauseof theirobservanceof the FCPAin just one threeyearperiod,
199v97 (Tronnes,2000). So theU.S. tookits case to theOrganization forEconomic
CooperationandDevelopment(OECD),whichcomprisestwenty-nineof thewealthi-
est industrialized nations(WeberandGetz,2003).Formanyyears?Japan,Franceand
Germanywere reluctantto agreeto such a treaty,while CanadaandGermanyhad
even allowedfirmsto deductbribesas an expenseof business(GetzandVolkema,
2001; Getz, 2000).
Briberyof governmentofficialsto obtainan advantageunderminesfree competi-
tion. It resultsin increasedcosts for businesses,customersandtaxpayers.Moreover,
it has a negativeimpacton "development: economicgrowth,domesticandforeign
investmentand poverty"(Tronnes,2000), and also underminespublic supportfor
government(Hamra,2000; PrestonandWindsor,1997; Roodman,1999). In addi-
tion,briberyis also unethical,andpracticallyall governmentsoutlawbriberyof their
governmentofficialsby theirown citizens(Frederick,1991;Noonan,1984).
In 1997,aftertwoyearsof negotiation,theOECDmembernationssignedanagree-
mentby whicheachnationagreedto passdomesticlegislationthatwouldcriminalize
andpenalizebriberyof foreignofficials(Getz,2000). The OECDtreatywas signed
by the UnitedStatesthatsameyear,1997, andwas ratifiedby the U.S. Senatea year
later(Hamra,2000).Theagreementincludesa "workingGroup"thatis chargedwith
monitoringeachnation'scompliancewiththeagreement;thisgroupprovidesregular
informationto the public on that compliance(Hamra,2000; OECDWebsite).No
companyhas yet been prosecutedbecauseof the Agreement,and some claim that
the OECDAgreementhas hadlittle or no effect on globalbribery;nevertheless,the
Convention"setsthe stage for continuingregimedevelopmentand valueschange"
(WeberandGetz, 2003). It shouldalso be notedthatTransparency Internationalhas
also been effectivein placingglobal briberybeforethe publicandthusreducingit
throughtheir annualrankingof nations,the CorruptionPerceptionIndex,and the
BribePayersIndex(Transparency InternationalWebsite).
Briberyincreasescosts and decreasesefElciency,competitivenessand fairness.
Yetthereis still an advantageto be obtainedfor a singleElrmon a profitablecontract
whena managerbribesa foreigngovernmentofficialto obtainthatcontract.Hence,
voluntaryactions globalcodes andevenlegislationin the UnitedStateswas not suf-
ficientto 4'levelthe playingfield.''Toreducebnberyof foreignofficialsrequiresthe
cooperativeactionof the OECDnationsto each sign andimplementa globaltreaty
thathas enforcementprovisions.
GlobalInfantFormulaAgreement
Infantformulais used as a substitutefor mother'sbreastmilk when a motheris
ill or for otherreasonscannotprovideenoughmilk for her infant.It is popularin
wealthiercountriesbecauseit is moreconvenientthanis nursing.This marketis not
increasing,however,so infantformulamakershavemarketedthe formulato mothers
in developingcountries(PrestonandWindsorS 1997).tIowever,advertisingclaimsthat
infantformulais betterforaninfantthanbreastmilkarenottrue.Infantformulais not
a good substituteforbreastmilkbecause1) it does not containthe antibodiesthatan
infantneedsearlyin life to protectitself fromdiseases;2) it is soldin powderedform
andthusrequireswater,whichis not sanitaryin manypoorcountries;thusdiseases
aretransmittedto the infant;and3) it is expensiveandoftenrequiresa largeportion
of a poorfamily'sdisposableincome.
As early as 1970 physicians,public interestand religious groupsobjectedto
marketinginfantformulato poormothers,andtheWorldHealthOrganization invited
businessexecutives,nutritionistsandgovernmentofficialsto a conferenceto discuss
the difficulties.Americanmanufacturers werepresentat the conference,andfromit
came TheInternationalCodefor MarketingInfantFormula(Post,2000, 1978).
The U.S. government,underPresidentJimmyCarter,supportedthe substanceof
the agreement,andthe threemajorAmericanmanufacturers of infantformulathen
supportedthis position.The electionof RonaldReaganas presidentin 1980, how-
ever,shiftedthe politicalclimatetowardunregulatedfree enterpriseandopposedto
international codes.I he U.S. manufacturers thenalso changedtheirownposition.At
the finalvote on the Codein 1981, 115 nationsvotedin favorof the agreementwith
the U.S. being the only nationopposed(Sethi, 1994).
Let us now examinethe effectivenessof the InfantFormulaAgreement.The In-
fantFormulaCode is voluntary,yet "enforcementis essentialfor an effectivecode
of conduct.Failureto createa workingmechanismcan dooma code to failurein the
worldof practice"(Post,2000). This was the majorweaknessof the InfantFormula
Code.Even though115 countriesvotedfor the code;the code can only be effective
if eachcountryaltersits own domesticlegislationin line withthe code. By 1986The
EuropeanUnioncountriesdidalterlocal lawsto reinforcetheresponsibilityof health
careworkersto informnewmothersontheadvantages of breast-feedingandto limitthe
advertisingof infantformula(Sethi,1994).However,theproblemof infantmortality
is largelyin developingcountries,andherethe recordis less positive.
Of 123developingcountriesinAfrica,AsiaandCentralandSouthArnerica, only 10
countrieshadadoptedthe informalcode fully intolocal legislationby 1988.Another
27 countrieshadenactedsome of the provisionsinto law.By farthe largestgroup,a
totalof 75 countrieshad takenno actionat all or was sCstill studyingthe issue."The
code statesthatall countries,includingdevelopingcountries,havea responsibilityto
educatenew motherson the advantagesof breastmilkfor newborns.Sucheducation
can be expensive,andmanycountrieschoose otherprioritiesoverthe healthof their
people (Sethi, 1994). Moreover,manydevelopingcountries,amongthemIndia,al-
lowedtheirowndomesticmanufacturers of infantformulato violatethecodeby their
advertising.Since the Code had no effectiveenforcementprovisions,even though
it was signed by 115 nations,it has not been as effective as it could have been in
reducinginfantmortality.
Treatiesas Instrumentsof Global Justice

Eachof the global agreementsexaminedhere,NAFTA,KyotoGlobalWarming
Treaty,OECDAnti-BriberyTreatyandthe Marketingof InfantFormulaAgreement,
arenow in effect.Eachhas broughtsome stabilityto marketsandlong-termbenefits
to manypeople of the world includingsome of the worldispoorestsin spite of the
factthattwo of theseagreements(GlobalWarmingandMarketingof InfantFormula)
do not havethe formalsupportof the U.S.
Fromthesefourcases we notethatworldpoliticalleadershavedecidedthattrades
globalwarmingandcorruptionarebest addressedby formaltreaties.Eachof these
treatieshas a formalmonitoringandenforcementmechanism;thisis necessaryif the
treatyis to be effective.Ourfourthglobalagreement,marketinginfantformula,was
a voluntaryagreement.Thus,it did not haveeffectiveglobalmonitoringor enforce-
mentprovisions.As a result,eventhoughthe problem-infant health-is globaland
serious,the voluntaryagreementhas not been wholly effective.
Global Codes of 13usinessConduct

Developingcodesof conductas anattemptto bringjusticeto internationalbusiness
behavioris not new. The United NationsDeclarationof Human Rights(1948) is an
earlyexample.The International LaborOrganization's(ILO)TripartiteDeclaration
(1977) was also an attemptto betterwages andworkingconditions,andhad inter-
nationallaborunionsas participants.Some now advocatestrengthening the ILOby
postingon the Internetcountriesthatarenot complyingwiththebasicILOstandards
(Weidenbaum, 2002).Thiswouldbe a formof monitoring,andwouldthusstrengthen
theILOConvention;butthissuggestionprobablyhaslittlelikelihoodof beingimple-
mented.HencetheseearlyUnitedNationsattemptsatcodificationX whilewell known,
havehadonly a modesteffecton globalbusinessbehavior.Yetthesecodes andthose
we will considerbelow,havecontnbutedto forming"international policy regimes';
they arepartof a social contractingprocessthatis graduallyevolvingglobalnorms
andsCchanging the rulesof the games'(Windsor,2003).
In this section we will briefly examinethreecomprehensivecodes of business
conductthathave been developedin the last decade.We will examineeach code's
onginSrationaleforthe code,withsomedataon its acceptanceandeffbctiveness.The
codes thatwe will surveyarelistedin Table2 (page632).
CauxRoundTables Principlesfor Business

The CauxRoundTable(CRT),foundedin 1986 is an organizationof seniorex-
ecutivesof firmsfrom3apan,Europe,the UnitedStates Mexico,ThailandLebanon
andmanyothercountries.ISheirPrinciplesfor Businesswere writtenby executives
andwere firstpublishedin 1994. The principlesincludean introduction,preamble
seven 44general principles' covering
pnnciplesesand specific sets of 4'stakeholder
Table 2
Global Codes of Business Conduct and Their Origins
Authorof Code Code YearInitiated
Business executives from Caux RoundTable'sPrinciplesfor Business 1996
Europe,Japanand the U.S.
Rev. Leon Sullivanand Global SullivanPrinciples 1999
business executives
Kofi Annan and global United Nations Global Compactwith Business 2000
business executives
customers,employees,owners/investors,suppliers,competitors,and communities
(Goodpaster,2000). Severalcurrenttextbooksprovidethe completeCRTPrinciples
for Business (Cavanagh,1998).
TheCauxPrinciples areaspirational,andareofferedas a benchmarkfor a firmin
developing,updatingorimprovingits ownmissionandcodeof businessbehavior.The
Principles havewidespreadsupport,becauseof theirinternational seniormanagement
origin.Forexample,the executivesat the Bankof America,as well as businesslead-
ers in the Netherlands,Australia,Malaysia,China,Russia,Lebanonandmanyother
countrieshaveusedtheCauxPrinciples as a modelfortheirown codes (MacGregor,
2000).TheCRTis anactivegroupof executivesthatmeetsregularly.Theyissueposi-
tionpapersanda recentpriorityis to alleviateworldpovertyandto "makeit possible
for poornationsto sharein globalprosperity"(CauxRoundTableWebsite).
The Caux Principles have been taughtin many business schools worldwide.
Membersof theInternational Associationof JesuitBusinessSchools(IAJBS),which
is madeup of sixty businessschoolsfromsix continents,at a meetingin Yogyakarta,
Indonesiain 1995, voted to supportand teach these principles.As a resultof this,
the CauxPrinciples for Business havebeentaughtin businessschoolsin Barcelona,
Bogota,BuenosAires, Detroit,Los Angeles, Mexico City,Milwaukee,Monterrey,
New Orleansandnumerousothercities worldwide.
The CRThas developeda Self-Assessmentand Improvement(SAIP) process
to help businessesaddressthe growingpublic expectationsthat corporationswill
conducttheiractivitiesin an ethicallyresponsiblemanner.The SAIP"allowssenior
leadersto 'score'the firm'sconductin relationto an acknowledgedglobalstandard
for responsiblebehavior."(Goodpaster, Maines,andRovang,2002). This scoringis
doneprivately,so executivesfeel less riskandwill be ableto be moreforthrightwith
information withless fearof embarrassment becauseof theirdata.However,Goodpas-
ter,Maines,andRovangexpectthatbeforelong executiveswill seekto comparetheir
scoreswith at least some otherfirms,so to learnhow betterto deal withthesesocial
issues. The SAIP self-examinationmatrixis patternedafterthe successfulMalcolm
BaldrigeNationalQualityAwardscoringsystem.At the CRTmeetingof executives
in Mexicoin Sept.2002 one of themajoritemson the agendawas a discussionof the
United Nations Global Compact with Business, whichwe will discussbelow.
Global SullivanPrinciples
Formostof the twentiethcenturySouthAfrica'sapartheidsystemof government
was racistandseverelydiscriminatory towardthemajorityblackpopulation.A Phila-
delphiapastor,the ReverendLeon H. Sullivan,who was a memberof the General
MotorsBoardof Directors,proposeda set of principlesthaturgedemployersto not
discriminateagainstblacks,even whenequaltreatmentwas illegalunderthe laws of
the racistgovernment.In 1977 Sullivanannouncedthese as TheSullivanPrinciples
for firmswith operationsin SouthAfrica.Initiallytwelve largemultinationalfirms
signedthese principles,which were the "culminationof a drawn-outeffort,led by
ReverendSullivan,to cajole andpersuadeleadersof some of the majorU.S. corpo-
rationsto makea hithertounprecedented publiccommitment"(SethiandWilliams,
2001).Theseprincipleswerea majorcontributor to peacefullychangingtheapartheid
systemof governmentin SouthAfrica.
Two decadeslater,afterhis success in SouthAfrica,andviewinghumanrights,
safety,and sweatshopproblemsamongmanyglobalemployers,ReverendSullivan
announcedTheGlobalSullivanPrinciples(GSP)in 1999 (see Fig. 1, p. 634). These
eight principleshave been signedby manylarge,mostly U.S.-based,multinational
firms,suchasAmericanAirlines,BritishAirways,Coca-Cola,FordMotorCompany,
GeneralMotors,HallmarkCards,HersheyFoods,HughesElectronics,PepsiCo,Pfizer,
Procter& Gamble,QuakerOats,andShell.
ReverendSullivandiedin 2001, butsignersof the GlobalSullivanPrinciplesare
still invitedto an annualmeeting,andarealso askedto submita reportwhichwill be
postedon the GSPWebsite.The grouphas also initiateda campaignto introducethe
GSPto collegesanduniversitiesthroughout theU.S. In 2001 GSPmadepresentations
at the BusinessForSocialResponsibilitymeeting.It also offersits seal for a firmto
displayif thatfirmsigns the GSP.
The UnitedKingdomFTSEIndexfor Socially ResponsibleInvestment,jointly
ownedby the FinancialTimesandthe LondonStockExchange,gives a moreposi-
tive ratingto firmsthatendorsethe GSP.However,it is too earlyto tell whateffect
endorsingthe GlobalSullivanPrincipleswill haveon worldwidecorporatebehavior.
At aboutthe sametimethattheseprincipleswerebeingpublicized,in February,1999,
headsof stateandleadersof largecorporationsweregatheringat the annualmeeting
of the WorldEconomicForum.Withina few months,this meetinggave rise to the
UnitedNationsGlobalCompactwithBusiness.
TheUnited Nations Global Compactwith Business

WorldbusinessandpoliticalleadersinvitedKofiAnnan,SecretaryGeneralof the
UnitedNations,to addressthemattheWorldEconomicForumin Davos,Switzerland,
in 1999. In thatspeech,Annanwarnedthat"we have underestimated the fragility"
of the globaleconomy.He pointedout thatmanypeoplearesuspiciousof the global
economysince "thespreadof marketsoutpacesthe abilityof societiesandtheirpo-
liticalsystemsto adjustto them,let aloneguidethe coursetheytake.Historyteaches
thatsuchimbalancebetweenthe economic,social, andpoliticalrealmscanneverbe
Fig. 1
The Global Sullivan Principles
The GlobalSullivanPrinciplesaredesignedso thata firmmightsign them.Manyfirmshave already
done so. The Principlesstate:
As a company which endorses the Global Sullivan Principles we will respect the law, and as a
responsible member of society we will apply these Principleswith integrityconsistent with the
legitimaterole of business.We will develop andimplementcompanypolicies, procedures,training
and internalreportingstructuresto ensure commitmentto these Principlesthroughoutour orga-
nization. We believe the applicationof these Principleswill achieve greatertolerance and better
understandingamong peoples and advancethe cultureof peace.
Accordingly,we will:
Expressoursupportfor universalhumanrightsand, particularly, thoseof ouremploy-
ees, the communitieswithin we operate,and partieswith whom we do business.
Promote equal opportunityfor our employees at all levels of the company with
respect to issues such as color, race, gender,age, ethnicityor religious beliefs, and
operatewithoutunacceptableworkertreatmentsuch as the exploitationof children,
physical punishment,female abuse,involuntaryservitude,or otherforms of abuse.
Respect our employees voluntaryfreedomof association.
Compensateour employees to enable them to meet at least their basic needs and
provide the opportunityto improve their skill and capabilityin orderto raise their
social and economic opportunities.
Provide a safe and healthy workplace;protecthumanhealth and the environment,
and promotesustainabledevelopment.
Promotefaircompetitionincludingrespectfor intellectualandotherpropertyrights,
and not offer, pay or accept bribes.
Workwith governmentsand communitiesin which we do business to improvethe
quality of life in those communities their educational, cultural, economic and
social well-being and seek to providetrainingand opportunitiesfor workersfrom
disadvantagedbackgrounds.
Promotethe applicationof these principlesby those with whom we do business.
We will be transparentin our implementationof these principles and provide informationwhich
demonstratespublicly our commitmentto them.
February1, 1999
sustainedforverylong."Untilpeoplehaveconfidencein theglobaleconomy,it "will

be fragileandvulnerable vulnerableto backlashfromall the 'isms'of ourpost-cold
warworld-protectionism,populism,nationalism,ethnicchauvinism,fanaticism,and
terrorism"(Annan,1999;Cowell, 1999).
To avoidsucha backlashAnnaninvitedleadersof largecorporationsto join with
the UnitedNationsin a "globalcompact"to "supportandenacta set of core values
in the areasof humanrights,laborstandardsandenvironmental practices"in coun-
tries wherethey operate.In returnhe offeredUnitedNationssupportfor "theopen
globalmarket."
Annan'schallengeand suggestionstrucka responsivecord with the corporate
executivesandthey fashionedwhatis now termedthe UnitedNationsGlobalCom-
pact withBusiness(see Fig. 2). The Compactconsistsof nine simpleprinciplesthat
seek to protecthumanrights,workerrights,andthe environment.If a firmdecidesto
participatein the Compact,thatfirmis askedto: 1) submita letterof intentfromthe
firm'schief executiveofficer,and2) publishin its annualreport(orsimilarcorporate

repoL)a descriptionof the waysin whichit is supportingthe GlobalCompactandits
nineprinciples(Kell,2003;Kell andLevin,2002).Ihe goal is to makethe pnnciples
of the Global Compactpartof the firm'sbusinessstrategy,cultureand day-to-day
operations(GlobalCompact2003).
By 2003, 800 Elrmson six continentshadjoinedthe Compact,amongthem,BP,
Cisco Systems,DaimlerChrysler, DeloitteToucheTohmatsu,DuPontS Hewlett-Pack-
ard,Novartis,Shell, Unilever,andVolvo.Annanalso set up an advisorycouncilfor
the Compactconsistingof seniorbusinessexecutives,international laborleadersand
leadersof key non governmentalagencies(Kell,2003).
The GlobalCompacthelpssignatoryfirmsto adhereto thebasicprinciplesandto
writetheirannualreportthrough"LearningForums,"whichprovidean opportunity
for 1S to shareideas and expenenceswith each other.The learningforum"is a
mechanismto stimulateaction,to enhancetransparency andencourageinfonnation
sharing." A learningformwas heldin Chinaanddiscussedhumanandworkerrights.
Tolessentheanxietyof firms theCompactdeclaresthatit "doesnot spolice,'enforce
ormeasurethebehavioror actionsof companies."Ratherit "relieson publicaccount-
ability,transparencyandtheenlightenedself interestof companies."Inorderto insure
impartiality,the Compactdoes not acceptcorporatefundingfor Global Compact
activities,so thattheremay be no accusationsof being "bought"by business(Kell
andLevin, 2002). Throughthe LearningForums,the Global Compactencourages
Fig.2
The United Nations Global Compact with Business
The CompactPrinciples
HumanRights
1. Businesses are asked to supportand respectthe protectionof internationalhumanrights
within their sphereof influence; and
2. make sure theirown corporationsare not complicit in humanrights abuses.
Labor
3. Businesses are asked to uphold freedomof associationand the effective recognitionof
the rightto collective bargaining;
4. the eliminationof all forms of forced and compulsorylabor;
5. the effective abolitionof child labor;and
6. eliminatediscriminationin respect of employmentand occupation.
Environment
7. Businesses are asked to supporta precautionaryapproachto environmentalchallenges;
8. undertakeinitiativesto promotegreaterenvironmentalresponsibility;and
9. encouragethe developmentand diffusion of environmentallyfriendlytechnologies.
Forthe entirelist of those signingthe Compact,plus othercurrentinformationon it, see the Website:
http://www.unglobal .compact.org.
636 BUSINESSETHICSQUARTERLY
collaboration.An outcomeof that collaborationis: 1) firms shareinformation;2)

firms undertakechangecooperatively;and 3) firms individuallywork actively on
change(Senge,2002).
On the otherhand,the Compacthas been chargedwith "bluewashing," thatis,
signingup firms,andallowingthemto displaythe UN Logo, in spiteof the factthat
some firmsdo not file theirannualreportsanddo little to implementthe Principles;
thustheybecome"free-riders." Compactofficershavetriedto addressthesedifficul-
ties with severalinitiativesto makesignatoryfirm'sactionsmoretransparent (Kell
andLevin,2002; UN GlobalCompactWebsite).
Some firmsthathave signedthe Compacthavebeen criticizedby CorpWatch, a
U.S. nongovernmental organization,for violatingprinciplesof the Compact;they
namedAventis,Nike, Unilever,Norsk Hydroand Rio Tinto and the International
Chamberof Commerce.Thegroupcalledforgreateraccountability forfirmsthatsign
the Compact(UN CompactWebsite).A non-UN,non-governmental unitactingas a
watchdoghelpsto increasethe integrityandtransparency of the Compactactivities.
Numerousnon-profitorganizations(NGOs) and global networksare also af-
filiated with the Compact.Among those organizationsis the Global Sullivan
Principles.The completelist of those signing the Compactis on the Website(UN
Global CompactWebsite).
The United Nationsjointly sponsoreda meeting with Notre Dame University,
USA, on the GlobalCompactinApril2002.At thatmeetingHewlett-Packard, Merck,
Motorola,Novartis,DeloitteTouche,Freeport-McMoran, andNike madepresenta-
tions on why they had or were consideringjoining the Compact.For an accountof
thatmeetingsee the UN GlobalCompactWebsite.U.S. basedfirmshavebeenmore
reluctantthanEuropeanorAsianfirmsto participatein the GlobalCompact.
Prospectsfor Global Codes

Eachof the abovecodes has hadlimitedsuccess.The CauxRoundTable'sPrin-
ciplesfor Businesswas writtenby businessexecutives,has the top executivesof the
RoundTableto supportit, andis more detailed it coversmanymore stakeholder
responsibilitiesthanthe othertwo codes discussedhere.In addition,sinceit was one
of the firstof these codes, it has receivedfavorableattentionamongsome business
executivesandsomebusinessschoolfaculty.TheGlobalSullivanPrinciplesreceived
initialattentionbecauseof themoralandpoliticalprestigeof theReverendLeonSul-
livan.As a result,a largenumberof firmsandorganizationssignedon ratherquickly.
Since Sullivanhas died, these Principleshave not receivedthe same attentionthey
once did. The UnitedNationsGlobalCompacthas the advantageof the prestigeof
KofiAnnanandthe globalreachof the UnitedNationsitself. It is the most recent,
andthe simplicityandtransparency of the reportsthatthe GlobalCompactrequires
may give it greaterstabilityandlong runeffectiveness.
However,in Americanlitigious society, corporatelawyersadvise businessex-
ecutivesthatto sign a compactor pledge increasesexposureof a firmto law suits;
a firm mightbe sued if it does not appearto be actingas it pledges in a code. To
avoidexpensivelaw suits, NAFTAset up an intra-national judicialprocessoutside
the U.S. legal system,whichcannotbe appealed,in orderto insurethatfree markets

areenforced.It thus mightbe arguedthatbusinessexecutivesarewilling to submit
to internationallaw for the sake of supportingthe free marketmorereadilythanto
insurefairworkingconditionsor loweringtoxic pollution.
Whenfs do not participatein a voluntarycode, it eliminatesthe best vehicle
forencouragingvoluntarycooperativeaction.Thisthenleavesas thelikelyresulttwo
oppositeandless desirableoutcomes:1) individualisticf actionswhichrewards
sweatshopsandpolluterswithlowercosts,or2) globalregulationandlegalconstraints.
As distastefulandunlikelyas it currentlyseems,globalagreementsof somesortmay
be the mostjust solutionto the moreseriouslong rangeproblems.
VoluntarySelfRestraintof Executivesand Firms

Voluntaryself-restraintof executives and firms in the global marketplace is
the third,and the final optionconsideredhere for dealingwith global sweatshops,
environmental degradationandotherethicalissues.This is the preferredpositionof
those who judge thatthe unregulatedfree marketultimatelyresultsin benefitsfor
all. It is also the fallbackpositionfor those who find difficultieswith international
treatiesandcodes.
For generations,businessgroupshave voluntarilyset requirementsfor such as
electricalfittings,size of bolts,tiresandotherstandardgoods andservices.Accredi-
tationof schools and ISO qualitystandardsare also voluntarilyset standards.The
OECD recommendedGuidelinesfor MultinationalEnterprisestwo decades ago.
These examplesillustratecases wherethereis a long-rangeincentivefor all the ac-
torsto voluntarilyset standards;andin some cases these standardsareenforced.On
the otherhandfor some issues such as workerrights,pollutionandbribery,thereis
oftenlittle shorttermfinancialincentiveto set standards.
Firmslike Dupont,Ford,Dow,andBP on theirowninitiativehavepledgedto sig-
nificantlyreducetheiremissionsof carbondioxideandothergreenhousegases.Onthe
otherhand,ExxonMobilcontinuesits pollutionandhas lobbiedto defeatthe Kyoto
Treatyanddomesticregulationof greenhousegases.It is less expensivefor the Elrm
in the short-termto dumptheirpollutantsinto the airandwater;this lowerscosts for
ExxonMobilandgives thema short-termcompetitiveadvantageoverfirmslike BP.
Globalwarmingis a seriousproblem,whichfacesworldcitizensnow andintofuture
centuries.So is it justto allowshort-term financialrewardsto a Elrmfor addingto this
problem,andat the sametimepenalizefirmsthataretryingto lessen thatthreat?
In sum, relying on voluntaryself-restraintprovidesspottyresults.Some firms
respondto long-termjustice concernsandothersdo not. Moreover,executiveswho
foreseefutureregulationundoubtedlypromptmuchof whatwe see as voluntarynow.
They judge it cheaperto anticipateenvironmentalregulationswhile facilities are
beingbuiltor renovated.Withoutthe prospectof new regulation,thereis oftenlittle
economicincentiveto avoidsweatshopsandto avoidpollutingthe environment.On
the contrary,the economicincentiveis to lowercosts, whichoftenresultsin injuries
to people anddepositingpollutantsin the atmosphereandoceans.
Conclusions
Eachof the abovestrategieshavehadsomesuccessin bringingaboutmoreethical
businessactivities.Eachtreatydiscussedhere,even those which are not supported
by the U.S., have achievednotablebenefits;NAFTA,the Kyoto GlobalWarming,
the Anti-Bribery,and the InfantFormulaAgreementshave all been of benefit to
manypeople.Whilethese treatiesarenot perfect,the advantagesseem to outweigh
the disadvantages. A principlelimitationto anyglobalagreementis thata sovereign
statecan eitheragreeto it or not, andtheneven if a nationdoes agree,it can either
implementthe treatyor neglectit.
Codesarevoluntary,andso aremorereadilysupportedby bothbusinessandgov-
ernment.However,thereinis theirprincipallimitation:thereis little monitoringor
penaltyfornotadheringto thecode.TheCauxRoundTable'sPrinciplesforBusiness
is presentedas a benchmarkfor firmsto use in designingtheirown code.Whilethe
codeis carefullyconceivedandmoredetailedthantheothertwo consideredhere,it is
by thatfactless likelythatfirmswill "sign"the code.The GlobalSullivanPrinciples
areshorter;it is a simplercode, andthusis easierto sign. However,withno monitor-
ing, it is difficultto determinewhatwill be the effect of signingthe code.
TheUnitedNationsGlobalCompactis backedby theprestigeof theUnitedNations
andit is easy to participatein it. The annualreportsthatit requiresarenot difficultto
provide;indeed,a criticismof the Compactis thatsomefirmssign it, receivethe UN
sign of approval,butwill changelittle of theirpolicies andpractices.
Themajorstrengthof voluntaryself-restraint is thatit is easierto accomplish.No
treatiesor codes need to be negotiatedor signed.But thatis also its greatestweak-
ness:participants cannotbe heldaccountable.In addition,responsibleexecutivesand
firms will generallyhave highershort-termexpenses,and irresponsiblefirmsmay
reapshort-termfinancialbenefits.
In sum,giventhe presentfracturedstateof globalopinion,noneof the aboveop-
tions alone promisethe sort of globaljustice thatwill benefitmost worldcitizens.
However,wheretreatiescan be negotiatedandratified,they can accomplishmuch.
Codesalso canhelp wherethereis no formalinternational agreement.Voluntaryini-
tiativeshavealso beeneffectivein somecases wherethereareno effectivetreatiesor
codes. Table3 providesa summaryof the advantagesanddisadvantagesof each of
the threealternatestrategiesfor providingguidelinesfor globalbusiness.
Table3
Advantagesand Disadvantagesof AlternateStrategies
of ProvidingGlobalEthicalGuidelinesfor Business
Strategies Advantages Disadvantages
Regulation Providesclear guidelines, applicableto all Difficult to negotiate
Lessens advantagesof "freerider" Ineffectivewithoutmonitors
and sanctions
Providesenforcementmethods Managers'dislikefor global
controls
A nationcan remainoutside
agreement
Global Codes Focuses managerson ethical issues Manycountriesandfirmsdo

not participate
Easierto supportbecause not coercive U.S. executives fear costly
lawsuits
Initiatescooperationand communication No mandatorymonitors or
sanctions
Self-restraint Enables stakeholdersto identify ethical firms Inadequateto deal with

some issues
Managersable to anticipateregulation Provides spotty long term
results
Imposes no "redtape"or limiting restrictions Gives financialadvantageto
unethicalfirm
Useful if no regulationor code in place
Regulation= Multilateraltreatiesand internationalagreements

Global codes = Global codes of business conduct
Self-restraint= Voluntaryself-restraintof individualexecutives and firms
640 ETHICSQUARTERLY
BUSINESS
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Global Business Ethics: Regulation, Code, or Self-Restraint

Author(s): Gerald F. Cavanagh

nverseas anddomesticsweatshopsandenvironmental degradationareamongthe

as the InternationalLaborOrganization,chargedwith workerprotectionare weak,

*U.S. supportwas laterwithdrawnby a succeedingpresident

Multilateral Treaties and Agreements

in NorthAmericaby phasingout tariffsovera 15-yearperiod(PrestonandWindsor,

KyotoTreatyon Global Warming

Treatiesas Instrumentsof Global Justice

Global Codes of 13usinessConduct

CauxRoundTables Principlesfor Business

TheUnited Nations Global Compactwith Business

sustainedforverylong."Untilpeoplehaveconfidencein theglobaleconomy,it "will

firm'schief executiveofficer,and2) publishin its annualreport(orsimilarcorporate

collaboration.An outcomeof that collaborationis: 1) firms shareinformation;2)

Prospectsfor Global Codes

the U.S. legal system,whichcannotbe appealed,in orderto insurethatfree markets

VoluntarySelfRestraintof Executivesand Firms

Global Codes Focuses managerson ethical issues Manycountriesandfirmsdo

Self-restraint Enables stakeholdersto identify ethical firms Inadequateto deal with

Regulation= Multilateraltreatiesand internationalagreements

Hamra,Wayne.2000. "Bnberyin InternationalBusinessTransactionsandOECDConven-

Tronnes,RobertD.2000. "EnsuringUniformityin the Implementationof the 1997 OECD

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