Ethics in an international context

Differing Perspectives

Companies operating globally face the challenge of promoting ethical behavior across diverse cultures. When adopting a rules-based approach and implementing codes of conduct, businesses must decide whether ethical standards are universally applicable or should be tailored to specific locations. In Western culture, businesses often prioritize shareholder return and profit maximization, while Eastern culture emphasizes developing and nurturing long-term relationships. Furthermore, Western culture emphasizes personal responsibility and individual empowerment, whereas Eastern culture tends to view issues in terms of collective responsibility and accountability.

Absolutism

The argument favoring a unified approach to ethics across the global enterprise is grounded in the belief that the business’s responsibility to uphold high ethical standards is not location—or culture-dependent. This perspective assumes that adopting another country’s ethical practices is a mistake because ethics should go beyond cultural differences. This view represents the philosophical stance that argues for universal and objective moral principles that serve as a guide for ethical decision-making by offering clear and consistent frameworks for ethical decision-making in business.

The danger in adopting such a stance is that it may be based on ethnocentrism, which assumes that the beliefs emerging from the business’s home country’s culture are superior. These beliefs might be as simple as how employees address management or dress codes to uphold beliefs about the inferiority of certain groups in society.

Relativism

This position contrasts with that which holds that moral principles are context-dependent and vary from one culture or individual to another. Businesses adopting the “when in Rome” approach argue that, in certain situations, flexibility in ethical standards is necessary to account for cultural differences in business policies and practices by respecting diverse perspectives. This approach entails understanding that diverse cultures hold different perspectives on business practices and ethics and encourages companies to tailor their strategies to accommodate these differences. As such, it encourages businesses to be flexible in their approach to ethics and decision-making.

This viewpoint risks being hijacked by opportunistic businesses and their agents to justify unethical practices such as bribery and corruption based on the premise that these practices are culturally appropriate and necessary to succeed in particular locations. Moreover, extreme positions would argue that all moral principles carry equal merit, opening the door to respect for such fundamentals as human rights.

Common Ethical Issues in International Business

Working conditions

It’s essential for companies to prioritize the safety and well-being of their employees, especially when operating internationally. This includes ensuring adequate working conditions, implementing robust safety measures, and adhering to international labor standards, even when faced with lenient labor laws in certain locations. Ethical labor practices involve thorough oversight of supply chains, understanding suppliers’ working conditions, conducting audits, and fostering collaborative relationships to enforce ethical standards. Active engagement with suppliers is crucial for addressing issues and promoting transparency and accountability.

Discrimination and Harassment

Attitudes towards workplace discrimination and harassment vary widely across cultures, leading to varied and often weak protections for minority groups across countries, their respective legal system, and business practices. It is crucial for international businesses to have strong internal non-discrimination practices in place to ensure that their overseas employees and employees in their supply chain are protected. Business organizations need to uphold consistent and robust internal systems to address these challenges.

Human Trafficking

The pervasive outsourcing and subcontracting model in corporate supply chains incentivizes further subcontracting to reduce labor costs, leading to the pervasive problem of human trafficking (Schrempf-Stirling & Westermann-Behaylo, 2019). Human trafficking is a grave issue that involves the use of force, deceit, or coercion to exploit individuals for labor or commercial activities. The impact of human trafficking extends beyond the individuals directly affected to their families, friends, and communities, and it also poses a serious threat to a company’s supply chain. According to the Bureau of International Labor Affairs (ILAB), as of Sept 2022, 159 goods from 78 countries have been identified as products produced by child or forced labor (ILAB, 2022). There were an estimated 27.6 million people who fell victim to forced labor in 2022 (ILO, 2022).

Environmental issues

When businesses embark on global expansion, they must grapple with the ethical considerations surrounding their impact on environmental sustainability. The pursuit of profitability often results in environmental degradation, biodiversity loss, pollution, resource depletion, or the conversion of forests into land for manufacturing or agricultural purposes, for example. It is incumbent upon businesses to uphold the highest of environmental standards, yet they often seek out countries in which they can exploit lax environmental standards and laws to keep costs down. Furthermore, the movement of goods globally as businesses internationalize is a major contributor to environmental problems. Approximately 25% of the EU’s greenhouse gas (GHG) emissions come from transportation. Freight transport in particular has grown by 22% between 2000 and 2019 (EEA, 2024). MIT provided the following summary of CO2 emissions by goods moved in 2021, highlighting the devastating impact freight transportation has on the environment (Climate MIT, 2024).

More data is available from the International Transport Forum’s IT Transport Outlook.

Corruption and Bribery

Corruption and bribery create unfair business environments, allowing companies to gain an edge through unjust means. They undermine fair competition, distort market prices, and create an unfair advantage for businesses that engage in bribery. In many Western cultures, there is a strong aversion to corruption because of its significant ethical, legal, and economic implications, leading to continuous efforts to address and prevent it. Conversely, in some Eastern cultures, there may be a more nuanced approach to corruption, particularly in situations where personal relationships and networks play a crucial role in business operations.

Antidotes to Ethical Issues in International Business

Training with Hofstede’s Culture Dimension Theory

Hofstede’s Culture Dimensions theory provides a framework to describe the effect of a society’s culture on the values of its members and how these values relate to behaviors. Understanding these cultural differences will allow business organizations to develop the most appropriate ethical approach for each country. For example, people in collectivist cultures will be critical of illegal and unethical practices if they threaten the welfare of the collective, whereas people in countries high in individualism will be more concerned about the impact on themselves and perhaps their ingroup.

• Power Distance, is related to the different solutions to the basic problem of human inequality.
• Uncertainty Avoidance is related to the level of stress in a society in the face of an unknown future.
• Individualism versus Collectivism is related to the integration of individuals into primary groups.
• Masculinity versus Femininity is related to the division of emotional roles between women and men.
• Long-term versus Short-Term Orientation is related to the choice of focus for people’s efforts: the future or the present and past.
• Indulgence versus Restraint is related to the gratification versus control of basic human desires related to enjoying life. (Hofstede, 2011)

Establishment of universal standards

In the context of embracing relativism, it is essential to recognize the diverse cultural perspectives on business practices and ethics. While understanding and accommodating these differences is important, it is equally crucial for businesses to identify and uphold universal ethical principles, particularly those pertaining to human rights, corruption, bribery, pollution, and so forth. This requires establishing clear and comprehensive policies and procedures to ensure that these universal standards are consistently applied across all business activities and interactions, regardless of the cultural context in which they occur.

Training on the FCPA

In the United States, Congress passed the Foreign Corrupt Practices Act (FCPA) Congress in 1977 in response to mounting worries about corruption in the global economy. This act encompasses provisions for both civil and criminal enforcement. The FCPA makes it illegal for certain individuals and entities to pay foreign government officials to obtain or keep business contracts. In sufficient countries, the state holds ownership stakes in commercial enterprises, leading to many business executives being considered foreign government officials.

The FCPA applies to

• Foreign and domestic issuers (company with securities listed on a U.S. stock exchange or quoted in the over-the-counter market) and their officers, directors, employees, agents, and stockholders.
• Certain persons and entities doing business in the U.S.

Companies and executives facing FCPA violations have often sought to classify their payments as business “gifts.” However, this depiction does not absolve them from liability when there is evidence indicating that the payments were intended to accomplish illicit objectives. The FCPA has a rule against bribery, but it allows for “facilitating or expediting payments” that are made to help with routine government tasks. This exception applies only when a payment is made to help with non-discretionary acts that are part of routine government work, such as processing visas, providing police protection, or supplying. The FCPA does not consider facilitating payments illegal, but it might break local laws in the countries where the company operates

Illicit payments, whether originating from domestic or international sources, are frequently misrepresented within the financial documentation of corporate entities; therefore, the FCPA also mandates companies with U.S.-listed securities to comply with its accounting provisions, requiring accurate record-keeping and internal accounting controls.

Nine factors guide the U.S. government’s decision to charge a business under the FCPA and influence the terms of any resulting plea or settlement agreement:

1. The nature and seriousness of the offense, including the risk of harm to the public;
2. The pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management;
3. The corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it;
4. The corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents;
5. The existence and effectiveness of the corporation’s pre-existing compliance program;
6. The corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or improve an existing one, replace responsible management, discipline or terminate wrongdoers, pay restitution, and cooperate with the relevant government agencies;
7. Collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution;
8. The adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and
9. The adequacy of remedies, such as civil or regulatory enforcement actions. (DOJ & SEC, 2012)

Businesses can face fines of up to $2 million for each violation of the anti-bribery provisions and fines of up to $25 million for each violation of the accounting provisions. Individuals, including company officers, directors, stockholders, and agents, can face fines of up to $250,000 and imprisonment for up to five years for anti-bribery violations result in fines of up to $5 million and imprisonment for up to 20 years for accounting violations.

To mitigate the risk of federal prosecution, companies engaging in business with foreign entities should establish compliance programs designed to prevent, detect, and address transactions that may violate the FCPA. Implementing a strong compliance program helps prevent and address FCPA violations and demonstrates a commitment to legal adherence, potentially fostering a favorable perception of the company by federal authorities.

Enactment of Global Compact Principles

The UN Global Compact is an initiative by the United Nations to promote sustainable and responsible business practices worldwide. It encourages businesses to uphold principles related to human rights, labor standards, environmental protection, and anti-corruption measures. The goal is to engage the corporate community in collaboration with civil society and organized labor to address these critical issues. Just some of the participating firms include Pfizer, Bank of America, Microsoft, Johnson and Johnson, BlackRock Inc., Verizon, NVIDIA, Dell, Meta, Intel, HP, General Motors, Ford, Nike, and PepsiCo.

The Global Compact Principles require that businesses should:

• support and respect the protection of internationally proclaimed human rights; and make sure that they are not complicit in human rights abuses.
• uphold the freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced and compulsory labor; the effective abolition of child labor; and the elimination of discrimination in respect of employment and occupation.
• support a precautionary approach to environmental challenges; undertake initiatives to promote greater environmental responsibility; and encourage the development and diffusion of environmentally friendly technologies.
• work against corruption in all its forms, including extortion and bribery.  (“The Ten Principles | UN Global Compact”)

References

Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission (DOJ & SEC). (2012) A Resource Guide to the FCPA U.S. Foreign Corrupt Practices. Retrieved from https://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf

European Environment Agency (EEA). (2024). Road transport. https://www.eea.europa.eu/en/topics/in-depth/road-transport

Hofstede, G. (2011). Dimensionalizing cultures: The Hofstede model in context. Online readings in psychology and culture, 2(1), 8. https://doi.org/10.9707/2307-0919.1014

International Labor Affairs. Bureau of (ILAB). (2022). List of Goods Produced by Child Labor or Forced Labor. https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods

MIT Climate Project. (2024). https://climateproject.mit.edu/

“The Ten Principles | UN Global Compact.” (n.d.). https://unglobalcompact.org/what-is-gc/mission/principles

Van Buren III, H. J., Schrempf-Stirling, J., & Westermann-Behaylo, M. (2021). Business and human trafficking: A social connection and political responsibility model. Business & Society, 60(2), 341-375. https://www/doi.org/10.1177/0007650319872509