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  • Subject area(s): Business
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  • Published on: 21st September 2019
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It can be agreed upon that there is a general obligation to follow laws if they carry some sort of justice. Logically, our understanding of the law extends to the business world as well. Therefore, when operating a business, there are various legal constraints that managers must follow. These constraints are often very clear and comprehensive when operations are domestic. However, for multinational companies, laws and regulations become a lot less defined and managers often run into ethical dilemmas. Managers have to be cognizant of these differences as well as their use of ethics in their decision making. These dilemmas  stem from the fact that culture and therefore law, politics, and economics vary vastly from country to country. With this in mind, ethics can become an issue of perception as customs that are deemed ethical in one nation can be considered completely unethical in another.  However, generally speaking, the Law is a social contract which one is bound to as a condition of citizenship. Companies are only ethically obligated to follow the laws of the foreign nation in which they do business so long as they do not conflict with domestic laws in a harmful way.

Every legal system contains “obligation imposing laws” this means that citizens follow these laws with the understanding that there is an implied sense of obligation or duty.  We follow laws because they represent what we as a general population have come to believe is the morally right or wrong thing to do. For example, murder is considered a crime based on the premise that it is principally wrong. Therefore, people generally refrain from killing primarily because it is unethical and secondarily because they will face legal consequence.

Because the United States was founded placing value on inalienable rights, it is something many Americans take for granted. However, in foreign, developing nations they may not be valued the same way. This then requires the ethical discretion of management. On the base level, American companies must operate with respect for core human values and local traditions regardless of their personal views of foreign laws. Also, it is important that companies make clear to management the belief that context matters when deciding what is right and what is wrong. Though laws vary between cultures, there is a universal agreement on what it means to be human and that we should respect each others rights. The Universal Declaration of Human Rights, though it is not a legally binding document, outlines the rights all people are entitled to. For example, Article 29 states that “everyone has duties to the community in which alone the free and full development of his personality is possible.” This article can be used to govern the actions taken by managers of multinational corporations.

A company cannot enter a foreign country and completely disregard its laws put in place as this will not be well received by the local “community”. However, at the same time, if the policies of the foreign country are so conflicting with domestic policies and therefore the social contract, it would be a violation for the company to continue its operations in ignorance of this fact. Neither Ignoring the laws of the home country to obey conflicting laws of the host country or the reverse can work effectively because the rights of the company’s employees  will get violated in some capacity. For example, In 1984, the Union Carbide plant in Bhopal, India began to leak 27 tons of methyl isocyanate (a deadly gas). Because none of the safety systems designed to contain such leaks were operational, the gas leaked throughout the city, exposing half a million people to the gas and causing 25,000 people to die (to date)

Union Carbide’s disregard of the poor infrastructure and business regulations of India was temporarily advantageous to the company because it made the budget allocation to salary even lower. However, it was extremely detrimental to India. There is nothing ethically wrong with expanding business to developing countries. However, It was very clear that Bhopal did not have the capacity to oversee the operations of such advanced technology and the result was an irreversible tragedy. This goes to show that  companies cannot adhere to policies that clearly conflict with those of the home country. Union Carbide would definitely not attempt to operate under such conditions in the United States and therefore should not have done so abroad. The economic efficiency of understaffing the plant does not compensate for the aftermath of these decisions. The aftermath of the Union Carbide tragedy makes it clear that companies have an ethical duty to either change policy or terminate operations under unethical conditions in a foreign country.

Companies are not regulated in the same ways that states and individuals are. However, business ethics and personal ethics go hand in hand. The principles that we accept as right and wrong surely play a role in personal conduct. A person who has a strong moral code is less likely to behave in an immoral manner in the business setting. Therefore, because corporate leadership is comprised of various independent individuals, it is critical to evaluate the philosophy that could potentially guide international business relations.

There are two popular views when it comes to culture and human rights; the first of which is cultural relativism. This view States that no culture’s ethics are better than any others and therefore there can be no international rights or wrongs. The Appeal of this view is that the inability to comply with certain foreign laws can cause a company to lose out on certain business opportunities. However,  this view is not sufficient when practices extend past a certain degree of harm they can pose to the company. For example, if gift giving or tipping escalates to something as contentious as bribery this view will become a lot more difficult to uphold.

The Second view is Absolutism which directs people to behave everywhere as they would at home. This view however, is clearly not sustainable. For example, in 1993, a United States computer products company attempted to introduce a sexual harassment course to its facility in Saudi Arabia using the same training methods that they used for managers of its domestic branches. However, the company failed to recognize that gender relations in Saudi Arabia are so different from those in the United States and a lot more strict. Rather than being beneficial, these training sessions were considered offensive, confusing, and overall were counterproductive.

Overall, Absolutism conflicts with many peoples idea that there should be a general level of respect for other cultures. The very way in which we come to understand and practice ethics is through cultural context. Therefore, when cultures have different ethical standards or approaches to handling unethical behavior, management of companies can find themselves in extremely difficult situations.  For example, a manager of a US specialty products company in China caught an employee stealing. She followed the company’s typical protocol and turned the employee over to the provincial authorities and as the norm allowed, he was executed. Again, it is important to recognize that companies cannot perform successfully in another country without knowledge and understanding of that culture’s approach to the law as it pertains to personal and business ethics. Blindly following policies that contrast the moral code of the home country can lead to grave outcomes. Again, as a result of such differences, companies must assist their managers in making distinctions between customs and practices that are simply different and those that are wrong.

Neither of these views are helpful in making decisions as they both require decision makers to be completely objective and leave us left wondering how exactly companies should approach international business operations. If one approaches foreign business practices with views of relativism, no practice can be considered wrong; if one approaches this with absolutism, many foreign practices can be considered wrong simply because they are different. It is hard to not weigh in personal perspective against either view. However, they do make it clear that managers cannot operate business in a foreign nation without some level of awareness of its attitudes towards ethics.

When operating in foreign countries, companies must make their ethical views and legal stance extremely clear. The idea of the law being a social contract applies regardless of location. Companies have the obligation to both uphold and assert the laws of the home country but also should have respect for those of the foreign country in which they operate. It is the norm for companies to make public their ethical views. 90% of all fortune 500 companies have codes of conduct and 70% have statements of vision and values. This is extremely important because it provides a sense of guidance when there is temptation to engage in unethical practice.

For example, in the case of Motorola, it states its values as “How we will always act: [with] constant respect for people [and] uncompromising integrity.” In its code of conduct, it states with respect to bribery that “funds and assets of Motorola shall not be used, directly or indirectly, for illegal payments of any kind...the payment of a bribe to a public official or the kickback of funds to an employee of a customer…” It goes on to state the procedures which should be used for handling payments, sales transactions, and every other situation in which an employee may have the ability to accept a bribe.

This makes Motorola’s stance towards the contentious subject of bribery very clear. Therefore, if they were to operate in a place such as Hong Kong where there is a higher tolerance for bribery, it would be a lot less tolerable if an executive were to partake in such activity. By having policy so explicitly stated, it takes away the ability for employees to engage in practices that would not be morally permissible. This also allows managers to use their perception in regards to cultural sensitivity due to the fact that they cannot force employees in the host-country to adopt United States values in place of their own.

Motorola’s code continues to state “Employees of Motorola will respect the laws, customs, and traditions of each country in which they operate, but will, at the same time, engage in no course of conduct which, even if legal, customary, and accepted in any such country, could be deemed to be in violation of the accepted business ethics of Motorola or the laws of the United States relating to business ethics.” By doing this, Motorola is standing by the idea that the law is a social contract. Though they agreed to operate under the law of foreign countries, they will not tolerate actions or relationships that violate United States Legal Policies and will not follow through on such actions even if they are in compliance with the law of said country. This demonstrates a level of respect for cultural difference and human rights but also asserts the company’s stance on ethical violations

Viewing the law as a social contract can be considered strict constructionism. Another view of the law is more loosely, under the notion that if the law requires you to do something that you perceive to be unethical, it simply should not be done. This mentality essentially states that if doing justice requires a breach of the social contract then “so be it”. This view becomes especially prominent in regards to human rights. For example, during the period of South African Apartheid, the non-white population was denied a lot of basic political rights. Nonwhites experienced mandated segregation and were immobile in their occupations as they were not allowed to manage white people. Though apartheid was something that was not considered morally sound during this time period by the Western world, many Western businesses still operated in South Africa.

In the late 70s and early 80s however, Companies began to change their policies in regards to foreign business relations. General Motors was a prime example of this. They adopted the “Sullivan Principles” which stated that it could be considered ethical for General Motors to continue operations in South Africa as long as they did not obey the apartheid laws and they did everything in their control to promote abolition.  The violation of the laws were ignored by the South African government because they did not want to tamper with important foreign investments. This course of action is obviously appealing as it led to divestments by other companies and the weakening of white majority rule in South Africa. The principles of apartheid simply did not align with General Motors’ code of conduct. Therefore, they demonstrated resistance by disobeying the law thus breaking the social contract. However, this disregard for the law is not sustainable. After 10 years of following Sullivan principles, it became clear that they were not enough to end apartheid and that as an American company following American core principles, the presence of General Motors in South Africa could not be justified. The simple act of operating a business with a disregard for the law is not feasible and presents a conflict of interest. The decision a company makes to pursue their own ethical interests over those of the host country will not be enough to make a change in a deeply rooted set of cultural norms. In the end, the social contract view will prevail.

Operation of foreign business is a difficult task as managers must take into consideration both the ethical and cultural norms of a society before they can run their business properly. Because Codes of Conduct are based off of the principles of domestic business ethics, companies cannot preach one set of values in their home country but expand overseas and have completely different expectations and policies; this is simply unsustainable. Similarly, Companies cannot enter foreign nations and expect workers and employees to drop their customs and cultural beliefs entirely to adopt those of the company’s culture. The idea of the law being a social contract extends beyond all borders. Companies have the obligation to uphold the laws of the home country but also should have respect for those of the foreign country in which they operate. There is a legal obligation to obey the laws of whatever country one decides to operate business in. However, as soon as those laws conflict with the moral codes of the home country, companies must either terminate operations or vehemently assert their policies.

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