Spreading the ethical word: multinational companies are learning that profits and corporate ethics go hand in hand.

At the Core

This article:

* Examines the increasing trend of multinational companies establishing ethics policies

* Discusses the value of a business ethics program

For business these days, it's all about doing the right thing, and that attitude is spilling across American borders.

Forget the Enron debacle for a moment and consider the international plan that PricewaterhouseCoopers (PwC), one of the top-five accounting firms, has made for its offices in 150 countries. This summer, the New York City-based firm plans to unveil guidelines on how employees should conduct business in their respective offices in the United States and abroad. It is an ambitious undertaking that will require, in most cases, nuanced adjustments to accommodate the demands of different cultures, but it is one that the company believes is necessary to maintain its integrity--and the health of its bottom line.

PwC's efforts to disseminate its code of business ethics globally mark its completion of International Business Ethics 101. Many multinational corporations already have completed the course and more will sign up. They are learning that it is in their companies' best interests to practice business ethics not only at home, but wherever in the world they do business. They are learning that too much is at stake to not have in place ethical guidelines that must be followed even in the remotest of offices.

Businesses are learning that profits are predicated upon an ethical foundation.

"A lot of corporate benchmark programs in business ethics are just now rolling out," says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Massachusetts. "Many of these corporations have had very strong ethics and business conduct programs here in the United States, but are now developing strategies as to how to introduce that to their divisions and host countries around the world."

The Value of Business Ethics

There are many reasons for multinationals to focus attention on the ethical practices of their foreign offices, but most are obvious. David Eichberg, senior marketing manager at Business for Social Responsibility in San Francisco, quoting from the findings of a 1999 DePaul University study, noted: "Firms that made an explicit commitment to follow an ethics code provided twice the value to shareholders than companies that did not."

Marty Taylor, a vice president at the Institute for Global Ethics, a nonprofit in Camden, Maine, says multinationals that have had overseas offices for years are beginning to recognize they are partly responsible for establishing the business culture in foreign countries. As a major player in a small community, how they do business directly affects how other companies do business, Taylor says.

Multinationals have learned that making money and being ethical appear to be strange bedfellows, but they can sleep comfortably together. "One of the things that most ethicists recognize is that law only comes about when people are unethical. Law is no different than ethics, it's just codified," Taylor contends. "When people are unethical there's a vacuum of ethics, then the law steps in."

The ethics movement really took off with the Federal Sentencing Guidelines. Enacted by the U.S. Congress in 1987, they imposed uniformity for sentencing offenders so those who were convicted of similar offenses in different jurisdictions would receive the same sentence. The guidelines also addressed punishment for organizations and mandated that if a company's employees were convicted of a business-related crime and there was a corporate ethics program in place, the penalty could be reduced up to 60 percent. Companies suddenly saw the need to create ethics departments.

Ten years ago, the Ethics Officer Association (EOA) (www.eoa.org) didn't exist; today, the organization has more than 800 members representing 430 companies--including half the Fortune 100. EONs Mary Zeinieh says the raison d'etre of ethics departments has shifted since the association's creation.

"There are more and more value-based programs," she says. "Companies are really trying to make business conduct and ethics part of the corporate fiber and to incorporate it into everything they do. It really is more of a value-based program and not just, `What we have to do to not get fined.'"

Multinational Ethics

Multinational companies, Hoffman says, "realized that to have a fully unified business ethics program they couldn't just have it at home; they had to have it in all their operations around the world." But another U.S. law, the Foreign Corrupt Practices Act (FCPA), enacted in 1977, also contributed to the drive to ensure that foreign offices toed the line. "The FCPA reaches far beyond the United States, as it's supposed to," he says.

In 1976, the Organization for Economic Cooperation and Development (OECD), a body comprised of 33 industrialized countries, agreed to adhere to a set of recommendations known as the "Guidelines for Multinational Enterprises." The recommendations, which cover business conduct in labor, environment, consumer protection, and corruption, are not binding, but the participating governments are committed to their observance, according to the OECD Washington Center. Multinational companies who want to be "good citizens" are committed to following the recommendations, too. The OECD has endorsed the FCPA, Taylor says.

Adam Greene, director of environmental affairs and corporate responsibility at the U.S. Council for International Business in New York City, says the ease of communicating globally has given multinationals an efficient and cost-effective means to disseminate company policy. When global communication was more difficult, he explains, multinationals ran their operations mostly along geographic or regional lines.

They were "self-contained, autonomous units," he says. "Now you've got a system where global communications are incredibly improved and faster, and it is quite realistic, cost-effective, and efficient to run a global corporate system where you can institute global corporate policies. And you have the capabilities of instituting them, implementing them, and auditing them at a reasonable cost. All the different parts of your company can then follow the same guidelines."

Non-governmental organizations (NGOs)--Greenpeace, Amnesty International, and the Coalition for Environmentally Responsible Economies (CERES), for example--have exposed unfair labor practices, environmental malfeasance, and corruption, and multinationals are now well-aware of their unrelenting scrutiny.

"Having NGOs expose unpleasant situations overseas and here has caused a lot of embarrassment," Taylor states. "Companies understand that brand has a value and when the brand is shown to be tarnished, it loses its value, so they very much want to protect the brand. In this era of increasing transparency where everyone can communicate with the Internet, where a video camera costs almost nothing ... You can't find a dark closet to do bad stuff in anymore."

Often, when corporations are caught doing wrong, it is more a matter of looking the other way than intentionally seeking to break the law, Taylor says. He cites the Barings Bank fiasco as a prime example of company officials ignoring signals that something was amiss because profits were soaring. In 1995, Barings Bank, a London-based multinational financial institution, collapsed after a single trader in the bank's Singapore office lost $1.4 billion. Singapore was the bank's smallest foreign office, yet it was responsible for an inordinate amount of the company's profits.

Taylor contends: "Some manager ought to have looked around and said, `Gee, why does the smallest office make the most profit in the company?' Nobody wanted to check into it because if they checked into it they might have to make the profit go away."

PwC's Perspective

In May, PwC's international code of conduct plan was going through the approval process. While creating the plan, Global Ethics Manager Marius Fourie and Diane Solomon, another manager, grappled with many issues. One of those, according to Fourie, was adapting the plan to fit the many "cultural norms" of each particular country. That problem was solved by adding supplements that reflected accepted practices in the host country to the "base" code of conduct plan. For example, U.S. federal laws strictly regulate gift giving and entertaining, but in Japan, these actions are almost required.

"It's much more of a business courtesy to show respect for the individual that you're dealing with," Solomon notes. "You can be insulting someone by not bringing a gift when doing business in Japan."

Failing to consider cultural differences is sinful, Hoffman concurs. "If we don't take those into consideration, then we're not being ethical, we're being fanatical. There is a very narrow--but important--tightrope between two extremes that we walk as ethical people and as ethical organizations. These extremes are ethical relativism, which declares there are not absolute ethical values, no universal values, and ethical fanaticism, which insists there are universal absolute values."

Privacy laws are another complicated issue. Solomon notes: "They're becoming more prevalent here in the United States and of more concern to people as identity theft becomes a greater issue. They're actually much stricter in Germany. They have some very rigid privacy laws, which even affect how we set up some of our global informational databases within the firm."

In some instances, PwC officials have to get permission to transmit basic employee information across borders, she adds.

Another concern PwC had was making sure that the final document, translated into the appropriate foreign language, unambiguously stated what it was supposed to. Fourie and Solomon resolved that issue by having the code translated into Spanish, for example, and then having someone else translate it back into English.

A crucial step in developing the PwC plan was getting feedback from a group of international employees. According to Hoffman, the chances of an international plan succeeding are better if the company asks its foreign employees what they would like to see in a code of ethics.

"What do they have problems with as it has been designed at headquarters? How do we need to change it? What are some of the sections that may need to be massaged and modified? What are the things that we can't back down on? What are some of the things we need to change and make country- and culture-specific? That kind of dialogue has to happen," Hoffman states.

Ethics in an Unethical World

Fourie says successful codes feature certain minimum requirements, including designating an individual to oversee the program and including the code in employee training sessions. The ultimate goal of well-integrated ethics plans is to nip trouble in the bud. However, that's not always easy when doing business in developing countries where bribery and corruption are as much a part of the infrastructure as bad roads.

"In most developing countries and former communist countries, the legal economy represents roughly 10-15 percent of economic activity," Greene says. Most of the workforce, particularly in developing countries, consist of self-employed entrepreneurs who do not have business licenses for their businesses or legal titles for their homes. Where they live and work is completely outside of the legal framework, so for them to get the simplest of services requires that they operate outside the legal framework, too. "If you don't have legal title to your house, the telephone company won't run a line to it, but the telephone company employee serving the territory will--you just have to line his or her pockets," he explains. "Transfer such machinations to the dynamics of running a business where, in some countries, it can take 12 years just to get a business license."

Indeed, if you look at the number of individuals in developing countries that live outside the legal system, almost everything they do can be counted as bribery because it is not official payment, Greene says.

One dilemma for multinationals that set up shop in such environments is creating a policy for working with suppliers that engage in bribery. The U.S. Sentencing Guidelines, the FCPA, and the OECD Guidelines for Multinational Enterprises are but a few of the many laws and standards that have been internationally promulgated over the years. None of them, however, were created solely by businesses. But the EOA plans to change that.

The EOA has proposed a business conduct management system standard that will "define business conduct and would include the means to measure and credibly demonstrate compliance with the standard," writes C. Lee Essrig, EOA's project director for this program, in an article reprinted from Ethikos (available at www.eoa.org). According to Essrig, "The management system standard could be a tool for any organization to use, among other things, as a benchmark in measuring and demonstrating the effectiveness of its business conduct program and/or as a standard for business partners to meet. The voluntary standard would allow for self-declaration. The EOA plans to take every possible step to ensure that the management system standard is not intended for third-party certification." The standard would be implemented under the auspices of the International Standards Organization (ISO), the revered, internationally recognized body for promoting standardization of trade, technology, and economic activity management. Many companies consider an ISO designation prestigious, and profitable because it opens more doors.

"We're running into a little bit of resistance," Zeinieh says, referring to the plan, "because it doesn't go far enough for some people, it goes too far for others, and we're trying to find middle ground."

The other half of a company's ethics foundation is corporate social responsibility (CSR). Business ethics and CSR are often viewed as separate functions, but they both exist under the "ethics" umbrella. The EOA is incorporating elements of CSR into its proposal while collecting feedback from the international business community, Zeinieh says.

"Over the course of the past 10 years, they've almost been like Mars and Venus," Hoffman says, referring to the chasm separating business ethics and CSR. "It's hard to get the two to talk to each other ... It's a problem that needs to be resolved because these two very important movements need to come together."

Hoffman, who is an advisor to EOA's board of directors, says he wasn't surprised to learn that the EOA's management system standard was attracting heat.

"We're still a long way from seeing light at the end of any tunnel," he says. "I am in favor of trying to come up with a set of internal management conduct standards that companies could adopt and having those standards be certifiable and verifiable. Part of the controversy is whether they have to be third-party independently verifiable or whether they can be self-verifiable."

One Set of Ethics for All?

There have been a number of attempts--and more are coming to the table--to shape corporate behavior, Hoffman says, noting the Sullivan Principles and the Caux Roundtable.

The Sullivan Principles, developed in 1977, is a voluntary code of conduct initially designed to set standards for American businesses and institutions operating in South Africa. Today, the Sullivan Principles advocate universal human rights and equal opportunity. The Caux Roundtable Principles for Business, considered the first international code of ethics for business, originated at a meeting of international business leaders in Caux, Switzerland.

Greene says international standards are used mainly where there are conflicting methods of doing business "that cause market confusion or disrupts the supply chain because people are doing things differently."

As for ethics management, he says, the key isn't how you do it but what outcome you get.

"If two companies have the same objectives and meet the same target of eliminating the instances where they are involved in any kind of corruption or bribery, (and) they take two completely different paths to get there, that isn't something that I think disrupts the market in any way," he says. "The outcome is the critical piece and the management style of how you get there is less important. An international standard on how you get there may or may not be helpful."

According to Taylor, the Institute for Global Ethics would like to see multinationals recognize that there is a set of values that everyone can live by. He cites the principles created by the Caux Roundtable as an example. Instead of creating multiple standards that companies must comply with, one should be introduced that companies can follow because they want to. He says Francis Fukuyama's book, Trust: The Social Virtues and the Creation of Prosperity, best explains importance of business ethics.

"Where you have a community that has a set of shared norms and moral values, there exists trust. And when trust exists in a community, doing business cost less," he says. "The reason it costs less is because transaction costs are lower. In other words, you don't have to hire lawyers every time you utter a syllable."

Mark Richard Moss is a freelance writer in North Carolina. He may be reached at [e-mail].