Forster N. - Maximum performance (2005)(en)

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shooter and is regarded as honest and trustworthy, business will flow your way. There is a yin and yang dimension to this: what you give out you will get back (eventually). Ethics can help personal self-interest, particularly in an era where more and more consumers are making purchasing decisions that are influenced by companies’ ethical and environmental records. For example, 84 per cent of Americans surveyed in Marketing Magazine in 1995 believed that good corporate image influenced their purchasing decisions. Two-thirds indicated that they would prefer to buy products from companies that did not exploit children or pay subsistence wages, even if this meant a premium of up to 10 per cent on the purchase price of these goods (Dionne, 1998). Many western companies also introduced ethical guidelines covering both individual and corporate behaviour in the 1990s. For example, in the USA, more than 90 per cent of all Fortune 500 companies surveyed in 2002 had ethical policies, compared to only 11 per cent in 1990. Furthermore, many commentators suggested that the spate of organizational fraud, corruption and bankruptcy cases during 1999–2003 marked a turning point in the corporate world, particularly in the USA. According to one survey:

Four out of five investors have little faith in those running big business, while more than two-thirds believe the share market treats investors unfairly [ ] The public perception is that corporate America now operates like a giant pyramid scheme: a handful of executives at the top reap mindboggling rewards, investment banks prosper by offering favourable research and undertaking corporate advisory work, and investors who provide the capital in the first place sit at the bottom, receiving whatever is left.

(Collins, 2002)

The instances of executives lining their own pockets while their companies, investors and employees went to the wall, investment analysts lying to their clients to make money and cases of ‘creative accounting’ became so endemic that revamps of both regulatory frameworks and ethical standards in business were put in place during 2003–4, in order to restore the faith that investors and the general public had in the corporate world. Between 2002 and 2004, a dozen US congressional committees were involved in investigating Enron, Global Crossing, Worldcom, Tyco, Arthur Andersen, Kmart, Qwest Communications, PG&E, Adelphia Communications, Computer Associates and other companies, who collectively had managed to vaporize close to one trillion dollars in equity capital (Dalton, 2002). John Steele, a regular contributor to The Wall Street Journal observed at the time, ‘The trouble is that while the capitalist system is by far the best system ever created, individual capitalists do not care for the system as a whole. Which is why you need referees’ (cited by Collins, 2002). Warren Scott, a US and Australian securities lawyer with Coudert Brothers, made these

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comments: ‘Make no mistake about it, these corporate scandals are possibly the greatest challenge to the integrity of US capital markets since the Great Depression [ ] In cleaning up the mess, the SEC, Congress and the Stock Exchange face a monumental task to restore integrity to the system’ (Scott, 2002).

In response to widespread public disquiet about these events, the US Congress implemented several new laws in the Sarbanes–Oxley Act passed on 15 July 2002. They included the following:

•The creation of a new Corporate Fraud Taskforce and a Public Company Accounting Oversight Board.

•The injection of an additional $US100 million in funding for the Securities and Exchange Commission.

•The tightening of general corporate regulation and accounting standards.

•The legally enforceable separation of the auditing and consulting services provided by accounting companies.

•Larger fines and increased prison sentences of up to ten years for financial advisers found guilty of defrauding shareholders.

•Making CEOs and CFOs legally responsible for the accuracy of their company’s annual financial statements (The Economist, 2002a).

Other measures that came into law were:

•Tightening regulations on the advice that financial advisors can give to investors.

•Barring CEOs and company officers found guilty in the courts from serving as directors of companies in the future.

•Increasing jail sentences to 20 years for CEOs/CFOs found guilty of negligence in financial reporting or accounting fraud.

•Requiring all large companies to have full-time independent salaried executive members, who are not allowed to own stock options in the companies whose boards they sit on (Bloomberg, 2002b).

Although there was considerable pressure from consumers’ rights advocates and some legal groups, two additional proposals that would have imposed restrictions on the number of stock options that CEOs and senior managers could receive and minimum timelines within which they can cash in their stocks or shares (for example, ten years) were not passed by the US Congress in 2003–4. A similar fate befell measures to provide greater legal protection for whistleblowers.

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example, should we work in countries with poor records on human rights or ones where corruption, fraud and cronyism are endemic? Should we work in countries that prohibit equality of opportunity for women, or that discriminate against their ethnic minority groups?5 Should we overlook slack regulations that lead to widespread environmental pollution and ecological destruction in countries that are industrializing rapidly? For example, what would you do if confronted with these two real-life scenarios?

In the late 1980s, some European tanneries and pharmaceutical companies were looking for cheap waste-dumping sites. They approached virtually every country on Africa’s West Coast, from Morocco to the Congo. Nigeria agreed to take highly toxic polychlorinated biphenyls. Unprotected local workers, wearing thongs and shorts, unloaded barrels of PCBs and placed them near a residential area. Neither the workers nor the residents were told that the barrels contained toxic waste.

A few years ago, a group of investors became interested in restoring the SS United States, once a luxurious ocean liner. Before the actual restoration could begin, the ship had to be stripped of its asbestos lining. A bid from an American company, based on US standards for asbestos removal, priced the job at more than $US100 million. A company in the Ukrainian city of Sevastapol offered to do the work for less than $US two million. In October 1993, the ship was towed to Sevastopol.

(Donaldson, 1996: 48, 49)

Someone who believes that ‘greed is good’ would have few problems with the decisions described in these vignettes. What do you think? Was it right to simply overlook issues like health and safety? If you knew in advance that the decision to award these contracts to countries with lax employment and environmental standards would lead to illness, cancer, birth defects and even death amongst those employees, families and children affected by exposure to PCBs and asbestos, would this affect your decision? These vignettes show that, if ethical considerations within one’s home country are complicated, they can become even more confusing as we move into the international arena. Furthermore, it was suggested in Chapter 2 that we should strive to treat all cultures as being of equal value. Does this then mean that we should adopt a position of ‘cultural relativism’, and simply ignore business practices and cultural norms that would be regarded as illegal, immoral or unethical at home? How can leaders and managers resolve these dilemmas? The notion, ‘When in another’s village – do as the villagers do’ can have an immediate appeal – particularly if not doing this results in the loss of lucrative business opportunities. With these questions in mind, please complete Exercise 12.2.

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Exercise 12.2

Managers’ dilemmas

You are trying to win a major construction contract in Thailand. The government official you are dealing with makes some ill-disguised references to the very low pay he receives and how much he would like his children to study abroad, if only he could afford it. The message is straightforward. The cost to your company of paying for this would be negligible, compared to the cost of losing the contract.

Would you pay up or pull out? Is it worth paying this small bribe to help the official?

You are the manager of a chemical company operating in Indonesia. You know that you can dump tons of toxic waste into a local river without fear of prosecution. You’ll also save your company tens of thousands of dollars if you don’t bother paying for the safe disposal of this waste.

What would you do? What courses of action are open to you? Who could you turn to for advice about this?

You are the manager of a British IT firm in a strategic alliance with an Indian company that has operations in Delhi and Bombay. The owner of the Indian business wants to appoint his son, who has recently graduated with an MBA from a US university, to be head of the company’s office in Bombay. However, you have already interviewed a German woman who has better qualifications, relevant work experience and is far more suitable for the job.

What would you do in this situation?

You are in Beijing, about to finalize a major joint-venture agreement with a Chinese engineering firm. One of the major stakeholders in the company, a local Communist MPC, tells you that he needs $US20 000 to push the deal quickly through the regional government committee that grants approvals for these. He explains that, without his help, this joint venture will not see the light of day.

Would you pay the bribe? What are the potential dangers of paying this?

There are of course no easy ‘right’ or ‘wrong’ answers to these questions, which are all based on real-life scenarios (Forster, 2000c; Donaldson, 1996). However, the decisions we make in such situations are, ultimately, based on moral and ethical principles, and there are just three positions that could be adopted in these five situations:

•ethical imperialism, where we behave abroad in accordance with the values, customs and ethical/moral principles that we would employ at home;

•ethical relativism, where we largely abandon the ethical values and principles that we would apply in our home country, and subscribe

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and, in 2004, are still features of China. For a bonus point, what do the dates in brackets refer to?

The answers can be found in note 6

Critics of the communist regime in China argue that it has killed more of its subjects, through repression and starvation, than Hitler, Stalin and Pol Pot put together (at least 50 million people, according to Amnesty International and the International Labour Organization). Around 1500 prisoners a year are sentenced to death and their body parts pillaged for sale to western hospitals. It has slave labour, in the

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form of prisoners working in state-run enterprises that western companies trade with. The children of political opponents are housed in brutal state-run orphanages, where they too are used as cheap slave labour and are also exposed to sexual abuse. Harmless religious sects like the Falung Jong are brutally repressed. There were claims during 2001–3 that more than 1000 of its followers had been killed in labour camps. Cultural genocide has been practised in this country over the last 50 years. In one country that it annexed in the 1970s, Tibet, hundreds of Buddhist monks have been tortured and dozens killed. One of the favoured methods of torture on women who oppose the regime there has been the insertion of an electrical cattle prod into their vaginas. One-fifth of the country’s population, mainly Muslim minorities in the west of China and the inhabitants of Tibet, are routinely faced with human rights violations. China is also regarded as one of the most corrupt countries in the world (Amnesty International website, 2002; Blackman, 1999; Hiscock, 2002).

I mean what people don’t realise is that we’re living in the real world and in the real world you have to attract the right quality of person to the job. I mean a salary of one million dollars a year might seem like a lot of money to some people, but I’m responsible for 10 000 employees. It used to be thirty thousand before I took over, but I’m responsible to my shareholders and to tell you the truth I think I did the people I laid off a favour. I mean I brought them down to earth and taught them that they were living in the real world, and in the real world they’d simply priced themselves out of a job. I mean how can I justify to my shareholders paying someone $3000 a month when I can get a Chinese chappie to do the same job for $100 a month? There was a spot of bother at our Beijing factory and my chum Li Ping had to teach the ringleaders that they were living in the real world by executing them, but we have to respect their different cultures and traditions. I mean we’re living in the real world, we may not always like it, but it’s the real world and we must respect it. In many ways our Chinese chums can teach us a lesson or two about the real world. I mean when we opened the Beijing factory what did the 20 000 we laid off in Oregon do? Did they move to China where the jobs are? No! They ran whinging to the unemployment office. They’re simply not living in the real world . . .

(Adapted from Harry Enfield’s ‘Class Bores – Number 4’, Private Eye (UK), 18 July 1997)

Having won the bid to host the 2008 Olympic games, Chinese Olympic organizers announced that the beach volleyball would take place in Tiananmen Square, the scene of the brutal massacre of peaceful prodemocracy protesters in 1989. One of the strongest supporters of the Chinese bid was one Juan Antonio Samaranch, the recently retired autocrat of the International Olympic Committee (IOC). He was, in his younger days, a lieutenant in Franco’s army in the 1930s and 1940s and a known Nazi sympathizer and anti-Semite. IOC President Jacques Rogge warned the Chinese government that, if they failed to honour their promise of improving human rights, they could lose the 2008 Olympic Games. Time will tell.

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The counter-argument to these criticisms is that it is only by our trading with China, and exposing it to western ways of doing business, that the country can be helped simultaneously to grow its economy and become a more open, democratic and tolerant society (and there were some signs of this beginning to happen during 2004 – at least at the local level). Furthermore, increasing numbers of western companies are setting up in China, with more than 400 of the world’s 500 biggest multinationals already established there. There are also some 200 000 ‘frequent traveller’ visits by business people to China each year. The reasons for this growth are obvious. China has millions of potential new consumers and a rapidly growing middle class. It is slowly but surely rejecting communist ideology in favour of greater entrepreneurialism and consumerism. The potential markets for western companies are enormous: economic growth between 1998 and 2004 averaged 9.3 per cent a year. China also has huge resources, both natural and human. Direct foreign investment has grown at 24 per cent a year over the last five years. There are growing numbers of joint ventures with western companies, particularly in oil and gas exploration, construction, infrastructure development, telecommunications, vehicle manufacturing and electronics, and many other western companies have set up operations in China. Most of these operate from special economic zones (SEZs) set up by the Chinese government. In these regions, foreign firms can employ whom they want, exploit low wage levels, make use of abundant, hard-working (and non-unionized) workforces and also benefit from generous tax incentives.

However, China is still not used to western ways of doing business. As we have seen, it is still dominated by communist bureaucratic control, the involvement of the military in commercial collaborations with the west is rife, public corruption and nepotism are commonplace, and the suppression of independent political thought and ideas continues unabated. Indeed, anger over official corruption was one of the major driving forces behind the Tiananmen Square protests in 1989. Consequently, companies moving into China for the first time can also expect to have to cope with Kafkaesque paperwork for contracts, routine overcharging for services, inefficiencies in support services, officious Chinese bureaucrats, the granting of senior jobs in local operations to those with political connections, and the liberal use of financial and other inducements to obtain contracts and access to markets. Companies must anticipate unexpected events and obstacles at all levels when working in China. This requires enormous persistence when confronted with bureaucratic obstacles and the best expatriates in this situation will not only be technical specialists but also fast learning open-minded diplomats and negotiators. Companies that choose to

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operate in China will need to treat China, not as single market, but as 30 or 40 markets with the business potential of the EEC and NAFTA rolled into one. They will have to take a long-term view of Chinese markets (10–20 years). They will have to spend a lot of time and effort developing personal relationships, and take great care with the presentation of their firms, because appearance and image count for a great deal and are regarded as measures of professionalism. Businessmen and women will need to be diplomatic but tough in negotiations, and accept that expatriate managers will always be seen as Laowai (foreigners), no matter how long they spend living and working in China (abridged and updated from Forster, 2000c: 56–7).

Ethical universality

We agree that putting in place the right frameworks and policies for promoting a globalisation process that works well for all of its participants will be the key challenge for the international community in the 21st century. We need to develop policies to ensure that globalisation brings broad based prosperity and the political and governance arrangements needed to cooperatively implement them.

(From a communiqué from the Group of 20 Leading Industrial Nations, cited in

The Australian, 12 June 2001)

The continuing debates about the rights and wrongs of trading with countries like China would seem to confirm the widely held view that it could be very difficult to implement uniform ethical frameworks when conducting business in a global economy. However, this is a business philosophy that a growing number of western companies are now adopting. How are they doing this? First, they are establishing a set of core ethical values that determine the boundaries within which they will operate and, by extension, define the boundaries that they will not step over. Only by establishing such precise guidelines can all of their employees be clear about what are acceptable operating standards in other countries. Like the team-charters we reviewed in Chapter 5, ethical codes of conduct must be explicit (for example, rules on taking or offering financial inducements to obtain contracts overseas), but leave sufficient elbowroom for managers to use their personal discretion and judgment in other countries. For example, Motorola gives this advice:

‘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.’ Motorola then specifies where individual judgement is allowed. For example, employees may at their discretion accept small gifts, ‘in rare circumstances