Acting Globally

Multinational commerce requires fluency in more than one ethical system.

By Keld Jensen

“Relativity applies to physics, not ethics.” —Albert Einstein

It’s quite possible that when Einstein first made this statement he intended to refer only to personal ethics. At the time he said it, most people probably would have agreed that the principle applied to business as well. However, times have changed. As businesses operate in an increasingly globalized world, ethical conduct is certainly not an absolute standard.

In some cases, the parameters for making ethical decisions are simple. Business owners should not pocket cash from the register, practice tax evasion, or deceive customers by selling shoddy products. Business people should operate transparently and with complete integrity toward their employees, vendors, strategic partners, and customers. However, as businesses go from 10 employees to 100 and from operating in 15 states to 15 countries, the issues faced by the C-suite become trickier. Business decisions go from black-and-white to a million shades of grey, and doing the “right thing” becomes a balancing act in which even the most seasoned corporate veterans can slip up without even realizing it.

Multiple axes affect the balance in operating an ethical business. The challenge is that businesses have obligations to various parties, but these obligations are often competing and sometimes conflicting. For instance, companies have an obligation to generate a return for stakeholders, such as investors and the board of directors, as well as job security for employees. They also have a duty to comply with government regulations and pay taxes. Serving all of these interests can create ethical tension.

The New York Times recently reported that General Electric had worldwide profits of $14.2 billion in 2010, but actually paid no United States income tax. The Times reported that the company took advantage of “innovative accounting” to move profits offshore. GE receives revenue from multiple U.S. government contracts and is the beneficiary of the vast U.S. economic infrastructure. To what degree should its financial managers pursue tax avoidance? Reducing the corporate tax obligation contributed meaningfully to the bottom line results in this case. Hypothetically, the accountants have merely taken full advantage of the provisions of the Internal Revenue Code—can anyone argue this is unethical?

Whose Rules Rule?
In addition to the difficulties that come with balancing obligations to stakeholders, the government, and the society at large, managers of even the smallest companies are now faced with the ethical dilemmas that come from doing business in a globalized world. The issue of course, is whose rules should businesses follow?

At one time, many leading ethicists advocated the concept of “situational ethics,” suggesting that businesses should take the approach of “when in Rome, do as the Romans do.” However, over time this theory drew criticism from experts who suggested that its premise was too subjective and that it served as a cover for self-interest. Others have suggested that ethics entails rigorous and universal standards. If a country’s culture does not fit with the culture and policies of the company, then business should not be done there.

As increasing numbers of companies do business with international clients and customers, management teams will be faced with a number of difficult choices. They can:

• Leave ethics up for interpretation depending on location and inevitably watch as the same business scandals that have plagued the U.S. for the last decade continue on a global scale.

• Enforce a rigorous zero-tolerance policy, risk being labeled as an ethical imperialist, and miss out on business opportunities from emerging and developing economies such as China, India, Japan, and South Africa.

• Find an ethical equilibrium that takes a moral stance but still has some degree of flexibility allowing business to be done in the global economy.

Google Goes to China
When Google China was founded, Sergey Brin and Larry Page were looking to take hold of a rapidly expanding market of internet users. However, what they did not anticipate was the push back they received from the Chinese government.

In January 2006, Google launched its China-based google.cn search website, but it was subject to censorship by the Chinese government. Google agreed to ban certain search results that the Chinese government determined were too sensitive and could promote political dissent. This directly conflicted with Google’s ideals and in particular with their motto “Don’t be evil,” and created the perception that Google had sold out on its business morals.

Since that time, Google has had various run-ins with the Chinese government over censorship, cyber attacks against Gmail users, and tax issues. In 2010, Google announced that it was no longer willing to provide censored search results on google.cn and redirected users to a site in Hong Kong. Google threatened to pull the rest of its business operations out of China unless the Chinese government agreed to stop censoring search results.

Google’s threat to go uncensored or exit the Chinese market was applauded by some and hated by others. On one side of the argument, Google was taking a stand for free speech and the right to internet freedom. However, at the same time, Google was leaving its Chinese employees and business partners high and dry, not to mention losing a toehold in the world’s second largest economy. Understanding that they were not going to change Chinese government policy, their stand was futile. Whether they are right or wrong is a matter of judgment and opinion, but it’s also worth mentioning that up to this moment Google has not gone through with its threat. Google is still in China, and the search engine is still censored.

Finding Equilibrium
Google’s “Don’t be evil” corporate motto actually provides a strong foundation for finding an ethical equilibrium, if implemented properly. However, the process broke down by failing to balance the interests of the stakeholders and government with that of the “greater good” to society. Perhaps a stronger slogan would have been “Do no harm,” with the objective of making all the places where it does business better than when it started. In this context, perhaps Google would have found an easier compromise with the Chinese government about censorship while promoting a better work environment and helping its business partners in China.

Business leaders need to take a stand, but they must also understand that, if they are to operate on a global scale, they will need to establish limits on how far they are willing to budge on their principles. Ethics in a large global context is no longer as simple as right or wrong. Contrary to Einstein’s belief, ethics is relative! In fact, ethical judgments are entirely dependent on the time, place, situation, history, and location in which they occur and should never be examined without considering all those variables.

Keld Jensen is chair of the Centre for Negotiation at Copenhagen Business School. Visit www.KeldJensen.com to learn more.

Posted July 1, 2011 in International