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Journal of Business Ethics (2007) 73:1–9 Ó Springer 2006

DOI 10.1007/s10551-006-9192-4

The Social Responsibilities


of International Business Firms Frederick Bird
in Developing Areas Joseph Smucker

ABSTRACT. Three principles must be taken into ac- Business enterprises can be the means by which
count in assessing the social responsibilities of interna- resources in developing areas are transformed into
tional business firms in developing areas. The first is an goods and services that enrich lives in many ways.
awareness of the historical and institutional dynamics of They also provide opportunities for income, the
local communities. This influences the type and range of development of skills, and tax revenues. But there
responsibilities the firm can be expected to assume; it also
are costs involved. Resources are consumed; benefits
reveals the limitations of any universal codes of conduct.
The second is the necessity of non-intimidating com-
are seldom shared in an equitable manner; traditions
munication with local constituencies. This requires the and social institutions can be destroyed without
firm to temper its power and influence by recognizing adequate replacements. The papers collected for this
and responding to local concerns in the pursuit of its own special edition illustrate the variety of ways in which
objectives. The third is the degree to which the firm’s these problems have emerged and the ways business
operations safeguard and indeed improve the social and enterprises in different cultural contexts have sought
economic assets of local communities. At issue is the to minimize the effects of these problems. In one
question of adequate compensation for the inevitable case, efforts to ‘‘do good’’ resulted in even more
disruptions that an international business brings to a local destruction of the local social fabric. In another case,
community. Beneficial returns must be shared and sus- failure to act for the common good, despite the
tained over the long term in an equitable manner. The companies’ claims to the contrary, required the state
nine studies in this special edition illustrate in different
to intervene to ensure pharmaceuticals were mar-
ways the importance of these three principles.
keted at affordable prices. The common theme
KEY WORDS: dialog, sustainability, social responsi- running through this special collection is not only
bility, institutional context the question of accountability and responsibility that
business firms owe to their social constituencies and
physical environments, but also the questions of the
scope of their responsibilities and the most effective
Frederick Bird holds a Research Chair in Comparative Ethics at means to carry out their obligations.
Concordia University, Montreal. He is the author of The
Muted Conscience: Moral Silence and the Practice of Ethics
in Business (1996), and has co-edited three volumes of essays Conceptualizing the responsibilities
on international business ethics: International Businesses and of the business firm
the Challenges of Poverty in the Developing World (2004),
International Business and the Dilemmas of Development
If we assume that business firms should be socially
(2005), and Just Business Practices in a Diverse and
responsible, in what ways should this be exercised? Is
Developing World 2006).
Joseph Smucker is Professor Emeritus, Department of Sociology it enough, as some would argue (Sternberg, 2000),
and Anthropology, Concordia University, Montreal. His to focus only on ethical business relationships and
research publications are in the areas of industrialization, labor transparency in organizational governance? Or
markets, labor market policies, and models of economic should the more expansive concept of ‘‘stakehold-
development. ers’’ be embraced, requiring firms to assume
2 Frederick Bird and Joseph Smucker

responsibility for a broad range of economic and reassess the role of universal standards and codes of
social consequences of their operations?1 If so, how conduct as we searched for morally compelling
should business firms proceed? How vast should be guidelines that would foster socially and environ-
the range of their responsibilities? Can these mentally responsible business practices. While stan-
responsibilities be universally defined, or do they dards may provide guidelines for fair and equitable
depend on the nature, strength and scope of other practices, and suggest objectives to strive for, they
institutions such as the state, the family and kin nevertheless must be interpreted and applied within
group, or religious institutions? Does formal law the context of local exigencies. To be ethically
provide the framework within which business is effective, they must be more than mere statements of
conducted, or do social networks and social norms intent or means to burnish reputation or attempts to
play a major role?2 By what standards should the manage potential risks or efforts to restrict the terms
operations of a firm be judged: by codes designed to of competition.
be universally applicable, or by locally defined In arguing for a contextual approach, we offer
interpretations? Or is it a matter of translating uni- three principles of our own to be followed by busi-
versal codes into particular contexts? And if local ness firms if they are to act responsibly. First, they
contexts are taken into account, how should con- must understand the institutional dynamics of the
flicting interests and objectives be resolved? local communities in which they are located. Second,
It is worth keeping in mind that managers of they must undertake to engage in open, non-intim-
business firms must deal constantly with contradictory idating communication with their constituents,
demands from diverse constituencies even in ‘‘ma- including representatives from the host community.
ture’’ market economies. Market principles them- Third, they must ensure that their operations safe-
selves are based on the resolution of diverse demands. guard the sustainability, if not the improvement, of
Buyers and sellers, with their contradictory objectives, economic and social assets of the host community.
must come to some agreement; competitive pressures These are demanding requirements, since priorities
for low consumer prices must be balanced against fair must be established and choices must be made on
wages for labor; demands from financial investors for frequently ambiguous prognoses. We consider each
maintaining high profit levels must be assessed in of these principles in turn.
relation to long-term investment objectives; and if a
firm is to act ‘‘responsibly’’, private gain must be
measured against public costs (see also Leader, 2005). The importance of local context
In the research that provides the foundation for
the essays in this special issue of the Journal of Business Is it reasonable to require business firms to assume
Ethics, we have been analyzing and assessing the responsibility for the social and economic conse-
social impact of international business firms in quences of their actions? If so, is it possible, is it even
developing areas.3 We have conducted case studies desirable, to establish common standards to ensure
of international business operations in Nigeria, that they take this responsibility seriously? Many
Ghana, Uganda, South Africa, Sudan, and Mada- observers would be quick to answer yes to both
gascar, in Africa; Pakistan, Vietnam, South Korea, questions. A number of organizations such as Social
China, Malaysia, Indonesia, and Fiji, in Asia and the Accountability and the Interfaith Center for Corpo-
Pacific; and Brazil, Mexico, Guatemala, Colombia, rate Responsibility have crafted universally applicable
Guyana and Northern Canada, in the Americas.4 In benchmarks for responsible business practices. The
each case, we have assumed that market principles Caux Round Table and the Global Reporting Ini-
operate at least to some degree. tiative have established standards roughly in keeping
Our research on the operations of Western with these assumptions. Further, firms within specific
international business firms in these diverse cultures industrial sectors such as chemical producers, forestry
brought into dramatic focus the importance of companies and mining companies have developed
contextual variables in assessing their practices. The their own universal codes (Webb, 2004). These
salience of contextual variables on the outcomes of standards are, in effect, rules that govern responsi-
business practices in foreign cultures caused us to ble competitive behavior, regardless of where the
Social Responsibilities of International Business 3

enterprise is located. Their requirements make it more Korea (Smucker, 2005a). The opportunities and
difficult for business firms to take advantage of areas constraints, the public expectations and moral de-
where, for example, environmental or labor standards mands facing businesses in South Africa became
are lax, or even nonexistent. quite different after the end of the Apartheid era in
Nonetheless, it is important to keep in mind that comparison to what they had been previously (Daye,
international businesses operate in quite diverse 2005; Kotze, 2005a, b; Raufflet, 2005). We there-
cultures and circumstances. Attitudes toward work fore came to recognize that before assessing the so-
and authority, criteria employed for determining cial responsibility of business practices as formally
wage scales, styles of negotiation and bargaining – all defined by the norms established by specific indus-
can differ widely among ‘‘developing’’ as well as tries (Dashwood, 2006), or the codes formulated by
‘‘developed’’ countries. Transactions that would be independent organizations, an evaluation of the so-
considered questionable in some settings may be cial practices of firms needed to take into account
quite acceptable in others – for example, wedding local contextual variables, including the local cul-
gifts or payment of funeral expenses for a trading ture, the nature of local institutions and their inter-
partner’s family members, or the payment of publicly relationships, as well as the history of the area. All of
recognized facilitation fees. Honest efforts to prevent these studies made us very aware of the dilemmas
discrimination against women by establishing gen- managers of foreign firms faced in fusing together
der-neutral employment guidelines can be seen, in Western business practices with local economic and
some social contexts, as an insensitive disregard for social mores and norms.
women’s special situation and status. The first paper in this issue, ‘‘Social Standards’’,
A number of studies in our project describe how by Thomas Beschorner and Martin Müller, deals
companies dealt with diverse normative standards with the application of two types of codes: those that
that affected hiring policies, management styles, pay emphasize adherence to universal principles, and
scales, equity rules, contract bargaining, and the those which the authors call ‘‘social standards’’ and
acceptability of ‘‘questionable payments’’ (see espe- which are set in place through ‘‘dialogs’’ with local
cially Bird, 2005; Smucker, 2005b, 2006b). Before constituents. The authors argue for a scheme that
setting targets and guidelines for socially responsible requires business firms to exercise their ‘‘organiza-
business practices or evaluating the accomplishments tional learning capacity’’ and to reflect on their roles
of particular firms, it is important to recognize the (to engage in ‘‘reflexivity’’) in the community in the
unique features that distinguish the cultural and course of developing adequate responses. They ar-
institutional contexts in which these firms are lo- gue that compliance with universal standards should
cated. Since those circumstances differ, firms corre- be modified by this processual approach, which in
spondingly face quite different types of turn requires continual communication with local
opportunities, expectations, and obstacles. Moser stakeholders and a readiness to modify modes of
(1998) found that international petroleum firms in operation. In effect, good business behavior within a
the mid-1990s faced quite different opportunities, host community is in constant evolution, rather than
risks, governmental support and government regu- being imposed, ready-made, by codes developed
lations with respect to their environmental practices elsewhere.
in Colombia and Peru. A comparison of the research ‘‘The Geographic, Political and Economic Con-
results of Herman (2004a, b, c) with those of Naguib text for Corporate Social Responsibility in Brazil’’,
(unpublished), reveals in dramatic ways that the by Margaret Griesse, presents a brief history of the
challenges and limitations facing businesses during country’s economic development and also a
the gradual transition toward free-market principles description of the institutional structure of Brazilian
in Vietnam in the 1980s were quite different from society and the nuances of meaning that guide
those faced during the same period by similar firms individual behavior. Griesse also describes the re-
operating in the much more industrialized and gional disparities of the country, its continuing
multi-cultural context of Malaysia. Both differed in poverty and inequalities in spite of rapid industrial-
still other ways from the industrializing, culturally ization, and notes the continuing importance of race
uniform, and corporatist context of the Republic of in understanding the social dynamics in this area.
4 Frederick Bird and Joseph Smucker

Her essay also notes some distrust among the general relation to local contextual exigencies, the outcomes
population toward persons in political authority. of these interpretations may vary considerably. In
Here, we are presented with a unique social terrain, some areas, such as South Africa during the Apart-
which must be taken into account if a business firm heid era, local norms and institutional structures can
wishes to perform as a responsible corporate citizen. become detrimental to the practice of fair and
Against this panoramic background, the reader will equitable business policies. This frequently results in
see that certain broad ethical questions are likely to difficult decisions. Would it be better to continue
emerge. For example, should a business firm disre- operations and offer employment for the under-
gard existing social inequalities while conducting its privileged in an institutional setting that supports
affairs, or should it become engaged with its host racially defined inequality? Or would it be more
society in finding ways to ameliorate these problems? socially responsible to cease operations altogether, as
A second study by Griesse, also set in Brazil, illus- an act of opposition to those policies? In fact those
trates the way an international firm, in this case, the businesses that adopted the Sullivan Principles con-
Caterpillar company, can successfully become an sciously committed themselves to practices not in
integral part of a local community. What is striking in keeping with apartheid laws. In this case, no insti-
her description is the learning stance the company as- tutional means were at hand to ensure equitable
sumed before becoming active in the local affairs of the standards. Hence, these business firms stepped into
community of Piracicaba. Still, Griesse notes, there the breach and in doing so expanded their concep-
remains some tension among community members tions of social and moral responsibility. Extending
regarding the degree to which Caterpillar is contribut- this approach further, one might expect socially
ing to the community’s welfare versus the degree to responsible firms to bargain for just and equitable
which it is an agent of control. Here, we are confronted treatment not only for their own employees but also
with the realities of power and the distrust it can for those of their suppliers and their customers.
create, despite a business firm’s best intentions.5 There are many ways that socially responsive
By being aware of the different trajectories of his- firms can be expected to contextualize general moral
tory and the differences in cultural contexts, one can guidelines. How they respond will depend on their
gain a better understanding of the proper approaches priorities and their resources. Assessments will re-
managers should take in accommodating their firms to quire a determination of what kinds of socially
local communities. ‘‘Beyond Paternalism’’, by Jean- responsible practices they should attend to, when
Baptiste Litrico, illustrates the importance of social they should undertake them, and the amount of
rituals in the interactions between workers and foreign resources they should devote to them (Bird and
managers in Mexico. The author describes the nature Gandz, 1990). It is not enough simply to adopt codes
of traditional forms of social status, how this influences of conduct and to express high moral concerns in the
social interaction, and how the judicious use of formal hopes that this will contribute to a reputation of just
attributes of organizational management in combi- and equitable practices. Indeed, firms that have an-
nation with these traditional social patterns have nounced such policies without demonstrating the
served to reduce interpersonal tensions. He further effects of their application have found themselves
describes how the company fostered a common col- under severe censure (Schwartz and Gibb, 1999, p.
lective interest, transforming personal bonds of trust 11). Nor is it sufficient merely to decry the difficult
into allegiance to the organization as a whole. What is conditions they encounter in their operations.
striking about this account is the care and sensitivity
managers took in attempting to understand local
norms, values, and needs. Like Griesse, Litrico high- The importance of communication
lights strategies that foreign firms have employed in
fostering effective labor policies, working with local In addition to taking into account local contextual
governments, and advancing the welfare of local factors, a second consideration for the practice of so-
communities. cial responsibility has to do with the nature of com-
While socially responsible business firms can be munications between business firms and local
expected to interpret general moral guidelines in communities. There are many cases of international
Social Responsibilities of International Business 5

business firms having been insensitive to local mores, soccer balls took place, namely within the household
unappreciative of current exigencies, and inattentive in which mothers and their children incorporated
to the voiced concerns of local constituencies. In ef- the work into their family routines. As a conse-
fect, these are examples of the abuse of power. Such quence of the dogmatic enforcement of this uni-
abuse has been pervasive and includes such examples versal code, family units were severely strained, and
as De Beers’ treatment of its employees in South in some cases destroyed, as institutions of child
Africa; the role of the United Fruit Company in socialization. Further, norms of gender relations
undermining the government of Guatemala in the were violated. The result was a worsening of eco-
1950s; the literal colonization by Mantesu of nomic and social conditions.
Manchuria; and the role of Union Minière in over- Clearly, in order to understand the local culture
throwing the newly elected government of the Congo and to appreciate the possibilities and obstacles
(Drohan, 2003; Litvin, 2002). We could, as well, cite which local communities might present, business
less notorious cases, which we encountered during firms as well as reform-minded organizations need to
our research, such as the insensitivity of British engage in open conversations with representative
American Tobacco to the economic distress of its groups and individuals. They must question, listen
growers in Uganda (Sejjaaka, 2004), or the failure of to, and explore alternatives with local representatives
Barama Forestry, a Malaysian firm which, despite through mutually respectful interactions.7
seeking a Forestry Stewardship Award, failed to pre-
vent its forestry roads in Guyana from being used by
hundreds of wildcat miners to ravage lands and villages Sustaining and improving assets
of local indigenous people (Whiteman, 2004).
The fact that international businesses are often in Sensitivity to local cultures and dialog with local
positions of power in their negotiations with local representatives are necessary first steps in enabling
constituencies can cause them to act with arrogance business firms to act in socially responsible ways. But
and insensitivity to the needs of the local community these factors alone do not ensure positive outcomes.
(Newell, 2005). But attempts to wield such power Indeed, they can be employed for the firm’s own
may also activate counter-movements, especially in gain and the detriment of the local community.
cases where public institutions like the state have Social responsibility, and indeed the establishment of
available their own resources of power. William trust itself, requires that firms demonstrate that they
Flanagan and Gail Whiteman, in ‘‘AIDS is Not a take seriously the welfare of the community. Busi-
Business’’, describe how the government of Brazil ness firms should conduct their operations so that
quite cleverly created overwhelming pressure on they add to rather than deplete the economic and
giant pharmaceutical firms to lower the cost of their social assets of the areas in which they are operating.
HIV drugs.6 This includes not only contributing fairly to taxes
On the other hand, good intentions can go ter- but also taking an active part, where necessary, in the
ribly wrong when there is no communication with development and upkeep of infrastructure and social
relevant audiences, or when norms of equality services and the advancement of general welfare,
among the participants in communication are not especially in the absence of government or other
established. In ‘‘Representational Approaches Mat- institutional supports.
ter’’, Farzad Rafi Kahn describes in vivid detail the ‘‘Social Investment through Community Enter-
consequences of international organizations’ failing prise’’, by Emeko Nwankwo, Nelson Phillips, and
to engage in dialog with representatives of the Paul Tracey, provides an account of how business
community of Sialkot in Pakistan. In this case, well- interests addressed the problem of ensuring the
meaning NGOs as well as the International Labor ongoing success of a project designed to improve the
Organization demanded that children not be en- living conditions of the local population. The au-
gaged in the manufacture of soccer balls. Kahn’s thors carefully assess a number of approaches business
paper describes the decimating effects of enforcing firms might take in their attempts to build this
this universal code without taking into account the capacity. Based on their extensive field work on
social context within which the manufacture of the development of water systems in Nigerian
6 Frederick Bird and Joseph Smucker

communities, they conclude that the most enduring They have to do with the stewardship of natural
and accountable arrangements for ensuring the resources, the creation and distribution of financial
continued viability of local water systems is through assets, the development of productive assets, the
the support of local community enterprises rather enhancement of human assets, and the integrity and
than through direct intervention. effectiveness of social assets embedded in social
In ‘‘Developing Social Responsibility’’, Margaret institutions (Bird, 2003; Sachs, 2005).
Griesse returns to Brazil to study the operations of Unfortunately, there have been far too many
DuPont, and how the corporation introduced examples of ruthless destruction of potential assets.
international standards of health and safety in man- Rubber harvesting as practiced in the Congo in the
aging its work force, as well as its activities to raise early twentieth century depleted natural resources,
education standards in the community. DuPont has reduced human assets (by killing and maiming many
also supported sustainable-development programs, workers and their families), and destroyed the social
particularly with respect to Brazilian rain forests. In assets embodied in the traditional patterns of com-
response to fears of its sales of genetically modified munal life (Drohan, 2003). By turning our attention
seeds, it has set up an advisory board of experts to asset development, we shift our focus from the
responsible to the local community. Still, as Griesse means by which economic activity is carried out to
points out, there remains the problem of how con- the consequences of that activity. In practice, it can be
sumers can be assured that safeguards for the use of argued that all renewable resources should be used in
these seeds have been implemented and maintained. sustainable ways insofar as that it feasible. From the
Here is a case where a company is treading a fine line perspective of an ordinary sense of justice, it can also
between pursuing its own interests and assuring the be argued that there should be an augmentation of
local population that its operations and involvement other resources as compensation for the depletion of
in the community have long-term benefits. those resources that are not renewable.
The controversy over the use of genetically mod- In practice, a commitment to asset development
ified seeds illustrates an additional concern that should understood in this way assigns priority to practices that
be on the agenda of socially responsible firms. Business develop skills and capabilities of workers (Nussbaum,
firms need to ensure that they can be trusted to en- 1999; Sen, 1999), strengthen local suppliers and
hance the social welfare of their host communities. This commerce, help to develop local physical and social
might mean going beyond merely ensuring that their infrastructures, increase the productive capacities of
products are safe or that they pay their fair share in local enterprises, and strengthen local systems of credit
supporting government-sponsored welfare programs, (Bird, 2006a, b, c; Sachs, 2005). By pursuing these
or that they donate funds to philanthropic projects. It objectives, business firms can strengthen local insti-
might mean actively intervening to ameliorate specific tutions and their associated networks and thus create
social problems. ‘‘Building Bridges between Business the means whereby individuals and groups can not
and Society’’, Emmanuel Raufflet and Cecilia Gurgel only conserve, but also enhance their varied assets.
do Amaral’s account of the development of the Abrinq Too often, international business firms are likely
Foundation, is a striking example of positive activism to see their foreign direct investments as a major
by a group of business leaders who took it upon component of cost-minimization policies. If they
themselves to develop programs designed to protect were to view their investments as a means to en-
homeless children and to enhance their personal hance their assets, these firms might be more likely
development. to incorporate the welfare of their host community
These studies illustrate that what matters most, in their business plans. This distinction in strategy is
from the perspective of people living in developing relevant to the operation of foreign firms in China.
areas, is whether international businesses operating Some firms located or contracted their operations in
in their communities advance their social and eco- China as a means of employing cheap labor. They
nomic welfare, or whether they exploit the social invested little in these operations, and sought to
and material resources of these areas solely for private minimize costs in order to increase short-term
gain. These questions go beyond mundane matters profits. In contrast, other firms, especially those
of wage rates, and the payment of taxes and royalties. interested in the ever-growing consumer markets in
Social Responsibilities of International Business 7

China, were able to tailor their operations in the Notes


service of long-term objectives. As a result, they
1
were more likely to invest in projects that increased For a history of the interest in socially responsible
productive capacities (such as skills development for business practices, see Heald (1970) and the recent essay
their workers), and to support infrastructure devel- by Smucker (2006a), who argues that demands for
opment. They were also more likely to look for greater social responsibility increase or decrease,
depending on the degree of influence of business enter-
ways to use local suppliers (Santoro, 2000). By
prises on the larger society, relative to that of other
developing these assets, these firms contributed to
institutions which defend the interests of civil society,
the well-being of the larger community. including the state. Chamberlain (1973), in a most
intriguing account, documents the transformations of
Conclusions the societal role expected of business corporations in the
United States.
2
It is significant, we believe, that much is now being It should be noted that the ‘‘rule of law’’ does not
necessarily ensure equal civil rights or equal access to
asked of major business enterprises. But a moment’s
the formal market (see De Soto, 1989, pp. 131–172).
reflection will not find this surprising in this era 3
We use the term ‘‘international businesses’’ broadly
when international business corporations play a to include not only transnational enterprises but also lo-
dominant role in national affairs and in international cal businesses in developing areas connected to foreign
relations, and where economic wealth is defined as a firms as partners, affiliates, or suppliers.
4
necessary condition for well-being. In assuming such More than thirty scholars from 13 countries partici-
an important and influential role, more will be ex- pated in this research, which was supported by a grant
pected of business firms. They cannot assume such from the Social Sciences and Humanities Research
positions of authority without acting responsibly. Council of Canada. The case studies and essays based
They cannot restrict the range of that responsibility if on this research have appeared in three books published
their actions have negative effects on the common by Palgrave Macmillan (Bird and Herman, 2004; Bird
good, and certainly not if other societal institutions, et al., 2005; Bird and Velasquez, 2006).
5
For other examples, see Herman, 2004b; Velasquez,
especially governments and their agencies, are weak,
2006.
ineffective or corrupt. Yet it must also be recognized 6
Vogel (2005) notes that business corporations are
that ultimately business interests, by definition, are limited in what they can accomplish on their own.
limited in their response to the range of responsi- Accordingly they should support those government pol-
bilities they may be asked to assume.8 Most business icies that serve to strengthen civil society and that re-
firms have had to confront these issues, if only be- quire all firms to act responsibly toward that end.
7
cause their responses are crucial to their reputations – Bird has further developed this position, arguing for
an important attribute of growing importance in an understanding of ethics as ‘‘good conversation’’ (see
competitive markets. Being recognized as a good Bird, 1996a, b; Bird and Waters, 1989).
8
corporate citizen can have a direct influence on sales For examples of various approaches to this problem,
as well as investments. see Blowfield, 2005; Jenkins, 2005; Margolis and Walsh,
2003; Palacios, 2005; Pearson and Seyfang, 2001, p. 17,
The research findings reported in the following
and Utting, 2005.
essays well illustrate, we think, the myriad ways in
which business firms have responded to their ‘‘pub-
lics’’. We have argued that these are not merely
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