tl.

i
FI

I{
A

Managing Interdependence

hi

Social Responsibility, Ethics,

i.t

Sustainability

OUTLINE
Opening Profile: McDonqldb CSR Experience in China
The Social Responsibility of MNCs
Under the Lens: Managing CSRin the Workplace
CSR: Global Consensus or Regional Variation?
From CSR to Shared Value?
MNC Responsibility Toward Human Rights

Ethics in Global Management

Comparative Management in Focus: Doing Business in

Managing Environmental Interdependence and

Sustainability

Under the Lens: Mining Corporation and Pollution

Charges-Lynas Corporation in Malaysia
Management in Action: Recycling Lives-Social

Entrepreneurship Breaking Down Bariers

Implementing Sustainability Strategies

Conclusion
Summary of Key Points

China-CSR and the Human Rights Challenge

Discussion Questions

Ethics in Uses of Technology

Application Exercise
Experientinl Exercise

Bribery
Making the Right Decision
Managing Interdependence

Internet Resources
Case Study: Nike's CSR Challenge

Foreign Subsidiaries in the United States

Managing Subsidiary-Host Country Interdependence

oBJECTIYES
1. To appreciate the complexities involved in the corporation's obligations toward its various constituencies around
the world.
2. To understand the changing perceptions of and demands on corporations doing business in other countries, in particular
their responsibilities toward human rights.

3. To acknowledge the strategic role that CSR and codes of ethics mus[ play in global management.
4. To provide guidance to managers to maintain ethical behavior amid the varying standards and practices around the
world.

5. To recognize that companies must provide benefits to the host country in which they operate in order to maintain
cooperation.

6. To discuss the need for corporations to consider sustainabilib,in their long-term plans in order to manage environmen-

tal impacts on host locations.

7. To identify the challenges involved in human rights issues when operating around the world.

58

6S

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l)NIONldlOUlINl DNI9VNVIAI'

Ull-dVH)

THE GLOBAL MANAGER'S ENVIRONMENT

CSR. Certainly, we think that a big part of our brand and a big paft of our reputation involves gaining
the trust of customers, including those in China. We want them to trust our business, trust that the :l
food we serve comes from high-quality, safe sources; that we treat our people right; that we treat the !l
environment right. lt's going to pay off in the end.
i1

Source: CheungKong Graduate School ofBusiness, www.cheungkong-gsb.com,2011.

Used with

Pennission. ,l

Global interdependence is a compelling factor in the global business environment, creating demands
on intemational managers to take a positive stance on issues of social responsibility and ethical behavior, economic development in host countries, and ecological protection around the world.
Managers today are usually quite sensitive to issues of social responsibility and ethical behavior because of pressures from the public, from interest groups, from legal and governmental
concerns, and from media coverage (as illustrated in the opening profi1e). The United Nations
published guidelines for the responsibilities of transnational corporations and called for companies to be subject to monitoring, verification, and censure. Though many companies agree with
the guidelines, they resist the notion that coryorate responsibility should be regulated and question where to draw the line between socially responsible behavior and the concerns of the corporation's other stakeholders.l In the domestic arena, managers are faced with numerous ethical
complexities. In the international arena, such concerns are compounded by the larger numbers of
stakeholders involved, including customers, communities, allies, and owners in various countries.
This chapter's discussion focuses separately on issues of social responsibility and ethical

behavior, though considerable overlap can be observed. The difference between the two is a
matter of scope and degree. Whereas ethics deals with decisions and interactions mostly on an
individual level, decisions about social responsibility are broader in scope, tend to be made at a
higher level, affect more people, and reflect a general stance taken by a company or a number of
decision makers. Also discussed separately is the topic of sustainability-although it, too, falls
under the umbrella of corporate social responsibility (CSR).

THE SOCIAL RESPONSIBILITY OF MNCs

"

corporate social responsibility consider it a wealth-creating opportuniQ that

employees, and the potential for reduced capital cost;
critics claim corporate social responsibility is s form of taxation that reduces the value-

..

. advocates of

will attract new consumers, idealistic

...

creation proces s of capital."

Ha.nva,no BusrNsss Rsvrew,

JuNz 201

l.

"Ikea is investing 125 million, or $163 million, in social programs to help women and children in India and elsewhere in South Asia.... We're not on the stock exchange, so we can be
verl long term."

Mxa.Br OulssoN, Ixpa CEO, www.NyrIMES.coM,

SsProMeoa 20, 20103

Multinational corporations (MNCs) and multinational enterprises (MNEs) have been, and-to

extent-continue to be, at the center of debate regarding colporate social responsibility

(CSR), particularly the benefits versus harm wrought by their operations around the world, especially in developing countries. The criticisms of MNCs have been lessened in recent years by the
decreasing economic differences among countries, by the emergence of developing countries'
own multinationals, and by the greater emphasis on social responsibility by MNCs.
Issues of social responsibility continue to center on poverty and lack of equal opportunity
around the world, the environment, consumer concerns, and employee safety and welfare. Many
argue that, since MNCs operate in a global context, they should use their capital, skills, and
power to play proactive roles in handling worldwide social and economic problems and that, at
the least, they should be concerned with host-country welfare. Others argue that MNCs already
a lesser

t9

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UIIdVH)

PARTl

THEGLOBAL MANAGER'S ENVIRONMENT

MNC Stakeholders

MNC Stokeholders

Home Country

Host Country

Owners

Economy
Employees

Customers
Employees
Unions
Suppliers
Distributors
Strotegic ollies

Community
Hosi government
Consumers
Strotegic ollies
Suppliers
Distributors

Community
Economy

Government

Society in Generol
(globol interdependence/
siondord of living)
Globol environment ond ecology
Sustoinoble resources

Populotion's stondord of living

will mean higher prices for consumers and less profit for shareholders. In
if competitors take their jobs to cheaper overseas factories, a company may go out of
business, which will mean no jobs at all for the domestic employees and a loss for the owners.
employees and unions

addition,

Paul Krugman contends that opposing industrialization based on low wages "means that you
are

willing to deny desperately poor people the best chance they have ofprogress for the

sake

of

what amounts to an aesthetic standard-that is, the fact that you don't like the idea of workers
being paid a pittance to supply rich Westerners with fashion items."s
Clearly, foreign investment in China, for example, has driven spectacular growth, increased
wages, and radically lowered the poverty rate. This compares with Bangladesh, with minimal
foreign investment, and a population continuing in abject poverty.6 Nevertheless, the campaigns
of anti-sweatshop activists have resulted in some improvements in workers' lives in other countries, in particular regarding health and safety issues.
In spite of conflicting agendas, there is some consensus about what CSR means at a basic
level-that "corporate activity should be motivated in part by a concern for the welfare of some
non-owners, and by an underlying commitment to basic principles such as integrity, fairness and
respect for persons."T
In addition, it is clear that there are long-term competitive beneflts deriving from CSR, much
of which result from the goodwill, attractiveness, and loyalty of the various stakeholders connected
with the company. These may be in the local area, such as government, suppliers, employees, brand
reputation, etc., or far-flung, such as consumers. Ikea, quoted previously, is an example of a longterm attitude to CSR. Ikea, the Swedish home retailer with 317 stores worldwide, gave up its plans
to open dozens of stores in India after the Indian government would not lift limits on foreign investment in the retail sector. Even so, Ikea plans to double the amount of goods it buys in India, and is
investing 125 million euro (about $163 million) in social programs to help women and children in
India and elsewhere in South Asia. These investments make Ikea the largest corporate parlner in
the world to aid agencies including UNICEF and Save the Children.s 1As an update, as this book
goes to press, Ikea announced in June 2012that the company had been granted permission to open
25 stores in India under a policy change that allows some retailers to own 100 percent of their units
there.e It would seem, from this development, that the company's benevolence did pay off.)
Manuela Weber suggests that the impact of CSR on business beneflts, listed below, can increase the firm's competitiveness and thus economic success.
Business benefits from CSRI0

.
.

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64

PART

1.

THE GLOBAL MANAGER,S ENVIRONMENT

The difficulty, even in adopting a stance of moral universalism, is in deciding where to draw
the line. Individual managers must at some point decide, based on their own morality, when they
feel a situation is simply not right and to withdraw their involvement.
One fact, however, is inescapable: in a globalized market economy, CSR has to be part of
modern business.
Fromm CSR

to Shared Value?

According to Porter and Kramer, the concept of social responsibility in which societal issues
are regarded by corporations as legal or image concerns outside of the main business is a shortsighted approach to value creation and therefore to competitiveness.15 Creating Shared Value
(CSV)-that is, expanding the pool of economic and social value-"leverages the unique resources and expefiise of the company to create economic value by creating social value."l6 By
viewing the growth, profitability, and sustainability of the corporation as intermeshed with societal and economic progress in the markets in which it operates, companies such as Walmart,
Google, and Intel are creating shared value by: "reconceiving products and markets; redeflning
productivity in the value chain; and enabling local cluster development"rT (clusters of related
business in a local area in which the company operates). Walmart, for example, has reduced its
environmental footprint through its revamping of the plastic used in its stores, and by reducing
its packaging; it also has cut 100 million miles from its delivery routes, saving $200 million even
as

it shipped more products.

In spring 2011, Google announced its plan to go all out to establish the company in Europe
"as more of a local player that is investing in jobs, in facilities, our physical presence, and all
the ancillary things that come with that."18 Google clearly has developed this new approach
in response to challenges on issues including privacy, copyright disputes, antitrust actions, and
taxation. "The company is spending hundreds of millions of euro to try to demonstrate that it is
a responsible corporate citizet and a valuable contributor to the local economy."'' k this case,
one questions whether this is truly creating shared value or simply practicing CSR in response to
Google's negative image and lost opportunities.

MN Responsibility Toward !{uanam RiEhts

Wth almost all tech products now ma^de by contract manufacturers in low-wage nations where
sweatshops are common, ... Hewlett Packard, Dell, IBM, Intel, and twelve other tech companies decided to unite to create the Electronic Industry Code of Conduct (EICC)
BusrNpssWpnr'o
Whereas many situations regarding the morality of the MNC's presence or activities in a country
are quite clear, other situations are not, especially when dealing with human rights. So loud has
been the cry about products coming from so-called sweatshops around the world that former
President Bill Clinton established an Anti-Sweatshop Code of Conduct, which includes a ban
on forced labor, abuse, and discrimination, and requires companies to provide a healthy and safe
work environment and to pay at least the prevailing local minimum wage, among other requirements. Nike's efforts to address its problems include publishing its entire list of contract manufacturers on the Internet in order to gain transparency. The company admits that it is difficult to
keep track of what goes on at its 800-p1us contracted factories around the world.21 (See the case
at the end of this chapter for a review of Nike's approach to human rights in its factories.)
What constitutes "human rights" is clouded by the perceptions and priorities of people in different countries. While the United States often takes the lead in the charge against what it considers
human rights violations around the world, other countries point to the homelessness and high crime
statistics in the United States. Often the discussion of human rights centers around Asia because
many of the products sold in the West are imported from Asia by Western companies using manufacturing facilities located there (see, for example, the accompanying "Comparative Management
in Focus" section which focuses on China). It is commonly held in the West that the best chance to
gain some ground on human rights issues is for large MNCs and govemments around the world to
take a unifled stance; many global players now question the morality of trading for goods that have
been produced by forced labor or child labor. Although laws in the United States ban prison imports,
shady deals between the manufacturers and companies acting as intermediaries make it difficult to
determine the origin of many products-and make it easy for companies wanting access to cheap

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56

PART

THE GLOBAL MANAGER,S ENVIRONMENT

addition, while the culture of profit has resulted in a market economy in much of China, reducing the number

of state-owned enterprises while increasing joint ventures and private ownership, that culture seems to have
led to shortcuts in manufacturing, leading to problems with products, such as the toxic toys that Mattel had to
recalln2007, and poor treatment of workers.
Freedom of information took a particularly hard hit in October 2011 when the media reported that
"Whether spooked by popular uprisings worldwide, a coming leadership transition at home or their own citizens' increasingly provocative tastes, Communist leaders are proposing new limits on media and Intemet
freedoms that include some of the most restrictive measures in years."26 This included curbs on "Twitter"style microblogs that had been critical of the govemment, and severe limits on television programs.
Previously, as is now well known, Google had agreed to China's demands to apply censors' blacklists to its search engine there. In spite of Google's founding principle, "Don't be evil," their business
interests apparently clashed with their principles, leading many to conclude that Google is putting its
own freedoms at risk in China; however, that is also occurring with Microsoft and Yahoo! in China.27

While Internet and technology executives were called to Capitol Hill in February 2006 to defend
their companies' practices in China, it was clear that American corporations and their foreign policy
interests would prevail.28 Rather, the debate continues over how Internet companies can engage more
effectively with Beijing on human rights issues. But, in a blow to the industry, in July 2006, Amnesty
International accused Yahoo!, Microsoft, and Google of overlooking their human rights obligations
in order to tap into China's dynamic online market, stating that "all three companies have in different
ways facilitated or participated in the practice of government censorship in China."2e
The latest censorship moves come as a disappointment because it had seemed that China was becoming more conscious of the need to improve its image regarding CSR as it takes a larger economic
FIGURE

Source:

2-'l

Women in Shoe Factory in China Shoe factory of an unnamed company in China,

where women work very long hours. lf they finish their lunch early, they may rest at
their posts until the lunch time is over.

Michael Wolf/Redux Pictures

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58

PART

1o

THE GLOBAL MANAGER'S ENVIRONMENT

Globalization has multiplied the ethical problems facing organizations. However, business ethics
have not yet been globalized. Attitudes toward ethics are rooted in culture and business practices.
Swee Hoon Ang found, for example, that while East Asians tended to be less ethical than their
expatriate counterparts from the United States and Britain, it was because they considered deception as amoral and acceptable if it has a positive effect on larger issues such as the company, the
extended family, or the state.36 For an MNC, it is difficult to reconcile consistent and acceptable

behavior around the world with home-country standards. One question, in fact, is whether it
should be reconciled. It seems that, while the United States has been the driving force to legislate moral business conduct overseas, perhaps more scrutiny should have been applied to those

'

lnternational Codes of Conduct for MNEs

MNE and Host Governments

Political Involvement

Economic and Developmental Policies

.
.
.
.
.
.

MNEs should consult with governmental authorities and

national employers' and workers'organizations to ensure
that their investments conform to the economic and social
development policies of the host country. GCC; OECD;

.
.

tions. (UN/CTC)

ILO;UN/CTC)
MNEs should not adversely disfurb the balance-of-payments
or currency exchange rates of the countries in which they
operate. They should try, in consultation with the govemment, to resolve balance-of-payments and exchange rate
difftculties when possible. (ICC; OECD; UN/CTC)
MNEs should cooperate with governmental policies

regarding local equity participation. (ICC; UN/CTC)

MNEs should not dominate the capital markets of the
countries in which they operate. (ICC; UN/CTC)
MNEs should provide the information necessary for
correctly assessing taxes to be paid to host government
authorities. (ICC; OECD)
MNEs should not engage in transfer pricing policies that
modify the tax base on which their entities are assessed.

(OECD;UN/CTC)
MNEs should give preference to local sources for
components and raw materials if prices and quality are
competitive.

(ICC;LO)

MNEs should reinvest some profits in the countries in

which they operate. (ICC)

MNEs and the Public

Technology Thansfer

.
.

MNEs are subject to the laws, regulations, and jurisdiction

of the countries in which they operate. (ICC; OECD;

.
.

by host governments under the domestic law of the host

country. GIN/CTC)

MNEs should respect the laws and regulations

concerning environmental protection of the countries in
which they operate. (OECD;UN/CTC)

MNEs should cooperate with host governments and with

international organizations in the development of national

(ICC;UN/CTC)
MNEs should supply to appropriate host governmental
authorities information concerning the environmental
impact of the products and processes of their entities.

MNEs should respect the right of every country to exercise

OECD;UN/CTC)
MNEs should use appropriate international dispute
settlement mechanisms, including arbitration, to resolve
conflicts with the governments of the countries in which
they operate. (ICC; OECD)
MNEs should resolve disputes arising from expropriation

developing countries and should enhance the technological

capacities of developing countries. (OECD; UN/CTC)
MNEs should develop and adapt technologies to the
needs and characteristics ofthe countries in which they
operate. (ICC; OECD; ILO)
MNEs should conduct research and development activities
in developing countries, using local resources and
personnel to the greatest extent possible. (ICC; UN/CTC)

and international environmental protection standards.

uN/cTC)
control over its natural resources, and to regulate the
activities of entities operating within its territory. (ICC;

MNEs should cooperate with governmental authorities

in assessing the impact oftransfers oftechnology to

Environmental Protection

Laws and Regulations

MNEs should refrain from improper or illegal involvement in local political activities. (OECD; UN/CTC)
MNEs should not pay bribes or render improper benefits
to any public seryant. (OECD; UN/CTC.)
MNEs should not interfere in intergovernmental rela-

(ICC;UN/CTC)

MNEs and Persons

Consumer Protection

.
.

MNEs should respect the laws and regulations of the

countries in which they operate with regard to consumer
protection. (OECD; UN/CTC)
MNEs should preserve the safety and health of
consumers by disclosure of appropriate information,
proper labeling, and accurate advertising. (UN/CTC)
(Continued)

ueIuJoC
11roq elup uo s,^auJp ll 'uorldnJJoc slq8u leql (OCU) tro:4ezrue?to lelueururelo8uou
, .Fuortn,rr"1u1 ,(cueredsuerl ,(q qcreeser .(q tno euJoq ueeq seq ecuetredxe s.uesJeled
ur'ecrlce.rd Peldeccu,(lureue8
sn
e sr fueqrrq ereq,ta. drqsrolElclp e Jepun esoql .relncrgud uI 'selJlunoc pedole.teprepun lnoqe
reluroJ 'uesreled pleuoc sr edorng uI secll
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'suBlureC

sV
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eql
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,,$ercos ro ,(rlunoc qceo ur sseursnq Surop go s,(u.la. peldeccu .{lpreue8 eql pue urels'(s en1e"l
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s3NI i Jo slBroru ro lcnpuoc sseulsnq eql o1 sreJeJ sJlqle sseulsnq lBuoll8uJalul ulrel eqJ,
.ureql qlr.{\ sseursnq puq oq,^A
IIe pue 'see.(oldrue 'sJoJSeAuI Jleql pepne4op
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Jo

JequeI{J

Sururecuo3 seldrcurr4 3:o suorlerelce(l etluedul ecIJJO roqe'I IBuoIlEu

pue uorleredooJ crrxouocg ro; uorleztuuS'to eqJ :CIAO :sa)tnos

lnuorln*"rq eqf :CCt frrroa prrog pue sesufuelug Ieuorteurllntr l

,sesr:fue1ug puorteurllntr\tr JoJ seur1eprng lueudole,teq
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I]uerupunJ puu slq8rr uerunq tcedse"r ppot{s sENhI

.Qelus go spJepuls lseq8q eql ulelulsru plnoqs sfNlz\tr .

(611) 'se8e,t Bur,r.rl crseq'urnturuttu *'Ked plnoqs sENW '
(Ott :CCAO 1331)'epredo,bq] qcq,ro. ut
serrunoc eql ur sref,oldure elqeredruoc Jo asoql ueql Jalleq

ppol{s SENIAtr '

ro ot Ienbo 1ueru,(o1due go spJepuels epra,o.rd

(O'U :COaO l33f 'stcege esrelpu luellnsor eql eleBEIIrr
puu sernsolc 1ue1d yo ocllou ecuelpe e.tl8 ppoqs sflNIA[
(911) 'epredo .(eq1 qcqm uI soulunoc eq] uI sprupuels
pue serlunuoddo 1ueu.(oldure essorcul o1 ,ft1 ppoqs sgNtrAtr

.
.

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EqERI uurunH

'seqllscol repcrged ut serlrungoddo 1ueru,(oldule eJueJc

.slueruu:e,ro3 lsoq qll.,!\ eleredooc plnoqs SIINW

o1 suoJJe

(g1f 'spruzuq qlIBeI{ peleler->lro.^a lnoqe

uorleruroJul elenbepu epra'ord plnoqs puu 'qlpeq pue

(sldraexa) sar.IlJurd luauldoldurg

U)anu,}uo,) g"e

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EB.*Htr

])N]CN]d3OU]INI DNI9VNVIA

70

PART

1.

THE GLOBAL MANAGER,S ENVIRONMENT

A Moral Philosophy of Cross-Cultural Societal Ethics

Mocro-Level Moderotors:
Noturol resources
GDP per copito
Form of government
Politicol stobility

Economic ldeology:
Cooitolism versus
Sociolism

.'- -'.'----..
1 --',.'
I
I

*rlli

"

Dominont
Morol

A
I
I
I

Philosophy

Ethicol or
.:li------_>

Unethicol Societol

Norms

---1-+

'""''-,.,.,.,,,...,::,t;ltiiill'r'

l
I

Culture:
Western versus

Eostern

l
I

,;:,,"
I

Societol Moderolors:
Longuoge
Religion

lr:

Specific
Moderoiors:
Firm

ii;
lil

Lorporofe cullure
Policies

.'l:::::-""111:':,'.,,,,,,,,,,,,,,,,,,,,,,

,.,:a

Profil

molive

t,,,,

rr:rii'rr.r:'r:.:.ir.r:r:"r.irri.r..ri.,:.iiia,rt.,,r,r,:.t:,tr.,.t..,t,,tr,r.r,i:l

Source: C. J. Robertson and W. F. Crittenden, "Mapping Moral Philosophies: Strategic Implications for Multinational
Firms," Strategic Management Journal 24: 385-92 (2003). O John Wiley & Sons, Inc. Reproduced with permission.

fourteen different polls and surveys from thirteen independent institutions around the world to

rank 180 countries, based on results from 63,199 respondents. The organization's year 2010
Global Comrption Barometer (selections are shown in Exhibit 2-4) shows the results of research
into the extent that business and other sectors oftheir society are affected by comrption, as perceived by businesspeople, academics, and risk analysts in 69 countries. A primary focus of the
research was the relative prevalence of bribery in various spheres of people's lives, including

political and business practices.

The 2010 Comrption Perceptions Index shows that nearly three-quarters of the 178 countries in the index score below flve, on a scale from 10 (highly clean) to 0 (highly comrpt). These
results indicate a serious corruption problem.
Overall, the data show that those countries in Western Europe, Singapore, New Zealand,
Canada, and Australia, were the least corrupt, closely followed by Hong Kong and Japan; the
United Kingdom scored 7.6 (dropping from 8.4 ir 2007); and the United States scored 7 .1, for
example, compared with 9.3 for Denmark. South Korea scored 5.4; SouthAfrica 4.5;Brazll
and China 3.5; Mexico scored 3.1; and other countries, such as Vietnam, and African countries
scored far lower, with Russia scoring 2.1.40 Sadly, many scores were lower than previous years:
Notable among decliners over the past year are some of the countries most affected by a financial crisis precipitated by transparency and integrity deficils.4l

The biggest single problem for MNCs in their attempt to define a corporate-wide ethical
posture is the great variation of ethical standards around the world. Many practices that are considered unethical or even illegal in some countries are accepted ways of doing business in others.

"European citizens care deeply about protecting their pivacy and data protection rights," ...
"Any company operating in the E.U. market or any online product that is targeted at E.U.
consumers should comply with E.U. rules."
VrvrENNp RnorNc, Eunoppa,N Jusrrcs CoulrrssroNrn,
M.qy 4, 2011.42

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ecl^res
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ur
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'(uurueg
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"(ueurreg 'luesuoc
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72

PART

THE GLOBAL MANAGER,S ENVIRONMENT

Sribery
There are few other areas where a single employee can, with one instance of misjudgment, create huge embarrassment [for the company].

FrNaNcr.qr Tllmsaa
The computer is on the dock, it's raining, and you have to pay $100
[bribe] to get it picked up.

Wrlua.lr C. Nonnrs, CoNrnor Dl.ra ConpoRnrroNas

MNCs are often caught between being placed at a disadvantage either by refusing to go along
with a country's accepted practices, such as bribery or being subject to criticism at home for
using "unethical" tactics to get the job done. Large companies that have refused to participate
have led the way in taking a moral stand because of their visibility; their potential lmpact on
the
local economy; and, after all, their ability to afford such a stance. Some other large companies,
however, have not always taken a moral stand. Such was the case in April 2011 when a Justice

Deparlment complaint against a Johnson & Johnson subsidiary found internal company emails
that stated that ...
"cash incentives to surgeons is common knowledge in Greece," and that, were the
company to
paying bribes, "we'd lose 95Vo of our business by the end of the year.',

stop

www.nytimes.com,
Apnru 8, 2011.46

Whereas the upper limits of ethical standards for international activities are set by the
individual standards of certain leading companies-or, more realistically, by the moral values of
their top managers-it is more difficult to set the lower limits of those standards; that limit gets
set in each speciflc situation by whether the laws are actually enforced in that location.
The bribery of offlcials is prohibited by law in all countries, but it still goes on as an accepted practice; often, it is the only way to get anything done. In such cases, ttle MNC managers
have to decide which standard of behavior they wil follow. what about the $100 bribe to get trr"
computer off the rainy dock? William Norris says he told his managers to pay the
$100 because
to refuse would be taking things too far. Generally, Control Data did not yleld to such pressure,
though it said sales were lost as a result.aT
A speciflc ethical issue for managers in the international arena is that of questionable payments. These are business payments that raise significant questions of appropriate moral tet uuior either in the host nation or in other nations. Such questions arise out of differences in laws,
customs, and ethics in various countries, and whether the payments in question are political payments, extortion, bribes, sales commissions, or "grease money"-payments to expedite
,outin"
transactions. Other common types of payments are made to speed the clearance of goods ports
at
of entry and to obtain required certifications. They are called different names in different countries: tokens of appreciation, la mordida ("the bite," in Mexico), bastarella ("little envelope,,
in
Italy), and por-de-vin ('Jug of wine" in France). For the sake of simplicity, all these difierent
types of questionable payments are categorized in this text as some foim of bribery.
In Mexico,
for example, companies make monthly payments to the mail carriers or their mail gets ..lost.,,
Most managers perceive bribery as "endemic in business and government in parts of Africa
and south and East Asia. Comrption and bribery are considered to be parl of the culture
and environment of certain markets, and will not simply go away."a8 In some parts of Latin America,
for example, customs officers are paid poorly and so are encouraged to take bribes to supplement
their incomes. However, developed countries are not immune to bribery-as demonstiated in
2002 when several members of the International Olympic Committee were expelled for
accepting bribes during Salt Lake City's campaign to host the 2002winter olympics.
The dilemma for Americans operating abroad is how much to adhere to their own ethical
standards in the face of foreign customs or how much to follow local ways to be competitive.
Certainly, in some societies, gift giving is common to building social and familial ties, and such
gifts incur obligation. Nevertheless, a bribe is different from a gift or other reciprocation,
and
those involved know that by whether it has a covert nature. In his book on bribes. Noonan
takes
the following position:

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sarlunoc eql ul uorldnxoc pue tr aqFq Surpreser suorleSqqo p3e1 eql 'uo JJo peuSrs
pue .poolsJepun eluq see,(o1due leqt s,4Aoqs luql urels,(s ecuurlduroc 1eqo13 e 3ut.te11

:Surpnlcur 'uorlncesord;o {sIJ eql ezltulurru o1 sessecord eceld

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PART

1.

THE GLOBAL MANAGER,S ENVIRONMENT

Making employees aware of the penalties and ramifications for lone actions, such as
criminal sanctions.
Having a system in place to investigate any foreign agents and overseas partners who
be negotiating contracts.
Keeping an effective whistle-blowing system in

will

p1ace.s6

As far as the actions that individual managers take when doing business overseas,

if

we

agree that accepting or giving a bribe is always wrong, then our decisions as managers, salespersons, and so on are always clear, no matter where we are.

However, many businesspeople believe that it is just part of the cost of doing business in
many countries to pay small bribes to simply get people to do their jobs, and they are willing to
engage in bribery as an everyday part of meeting their business objectives. Frequently corporate officials, in fact, avoid any moral issue by simply "turning a blind eye" to what goes on in
subsidiaries. Some companies avoid these issues by hiring a 1ocal agent who takes care of the
paperwork and pays al1 the so-called fees in return for a salary or consultant's fee. The FCPA
does allow "grease" payments to facilitate business in a foreign country, if in fact those payments
are lawful there. However, other payments prohibited by the FCPA remain subject to prosecution even if the company says it did not know that its agents or subsidiaries were making such
payments-the so-called "reason to know" provision.

Critics of the FCPA contend that the law represents an ethnocentric attempt to impose
U.S. standards on the rest of the world and puts U.S. firms at a competitive disadvantage. In any
event, many feel that business activities that cannot stand scrutiny are clearly unethical, corupt,
and, in the long run, comrpting. Bribery fails three important tests of ethical corporate actions:
(1) is it legal? (2) does it work (in the long run)? and (3) can it be talked about?s7
Many MNCs have decided to confront concerns about ethical behavior and social responsibility by developing worldwide practices that represent the company's posture. Among those
policies are the following:

.
o
.
.

Develop a worldwide code of ethics.

Build ethical policies into strategy development.

Plan regular assessment of the company's ethical posture.

If ethical problems cannot

be resolved, withdraw from that market.

As an example, General Electric (GE) decided to take a hard line on comrption, electing to
"level up, not down," and withdrawing from Nigeria and Russia when comrption was especially
rife.s8 In fact, according to GE's Mr. Rice:
The firm's hard line on conuption is actually helping it win business in many developing countries. Increasingly they understand that corruption is a barrier to improving the standard of
living of the poorest people and they want to do business more and more with an ethicalfirm.se

THp EcoNoursr

Maki*rg the Right Becision

How is a manager operating abroad to know what is the "right" decision when faced with questionable or unfamiliar circumstances of doing business? Usually, the manager or salesperson is
faced with wanting to make certain decisions which will benefit her company and or her career.
That decision, or set of actions, is likely to be profitable for the company and secure new market
opportunities. However, there are many other considerations that make it less clear whether to
continue to pursue that avenue, in particular in countries or settings that provide less transparency, and often certain pressures, about what to do. If the manager is faced with such a situation,
she has a number of steps that can help her clarify the way to proceed.
Steps to an Ethical Decision

L. Consult the laws of both the home and the host countries-such

as the FCPA. If any of

those laws would be violated, then you, the manager, must look to some other way to
complete the business transaction, or withdraw altogether.

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76

PART

THE GLOBAL MANAGER,S ENVIRONMENT

MANAGING INTERDEPENDENCE
Because multinational firms (or other organizations, such as the Red Cross) represent global
interdependency, their managers at all levels must recognize lhat what they do, in the aggregate, has long-term implications for the socioeconomic interdependence of nations. Simply
to describe ethical issues as part of the general environment does not address the fact that

managers must control their activities at all levels-from simple, daily business transactions involving local workers, intermediaries, or consumers, to global concerns of ecological
responsibility-for the future benefit of all concerned. Whatever the situation, the powerful long-term effects of MNC and MNE action (or inaction) should be planned for and
controlled-and not haphazardly considered as part of the side effects of business. The profitability of individual companies depends on a cooperative and constructive attitude toward
global interdependence.

Soreigm $uhsidiarler in

the United States

Much of the preceding discussion has related to U.S. subsidiaries around the world. HoweveE to
globally highlight the growing interdependence and changing balance ofbusiness power, foreign
subsidiaries in the United States should also be considered. Since much criticism about a lack of
responsibility has been directed toward MNCs with headquarters in the United States, we must
think of these criticisms from an outsider's perspective. The number of foreign subsidiaries in the
United States has grown and continues to grow dramatically; FDI in the United States by other
countries is, in a number of industries, far more than U.S. investment outward. Americans are
thus becoming more sensitive to what they perceive as a lack of control over their own country's
business.

Things look very different from the perspective of Americans employed at a subsidiary of an
overseas MNC. Interdependence takes on a new meaning when people "over there" are calling
the shots regarding strategy, expectations, products, and personnel. Often, Americans' resentment about different ways of doing business by "foreign" companies in the United States inhibits
the cooperation that gave rise to the companies' presence in the first place.
Today, managers from all countries must learn new ways, and most MNCs are trying to
adapt. In Japan, corporate social responsibility has traditionally meant that companies take care
of their employees, whereas in the United States both the public and private sectors are expected
to share responsibility for the community. Part of the explanation for this difference is that
U.S. corporations get tax deductions for corporate philanthropy, whereas Japanese firms do not:
nor are Japanese managers usually familiar with community needs. For these and other reasons,
Japanese subsidiaries in the United States have not been active in U.S. philanthropy.

Managin6 Subridiary-Host (+untry Nnterdapemdence

Nike believes that we are at the beginning of a shift from a seryice- or knowledge-based economy to a sustainability-based economy, as environmental constraints increasingly influence
business choices.

OncaNrz,q.rroNlr DvNnurcs 39,

2010.60

When managing interdependence, international managers must go beyond general issues of

social responsibility and deal with the specific concerns of the MNC subsidiary-hostcountry
relationship. Outdated attitudes that focus only on profitability and autonomy are shortsighted
and usually result in only short-term realization of those goals. Managers in those companies
must learn to accommodate the needs of other organizations and countries:
Interdependence rather than independence, and cooperation rather than confrontation are at
the heart of that accommodation ... the joumey from independence to interdependence rulnaged badly leads to dependence, and that is an unacceptable destination.6l
Most of the past criticism levied at MNCs has focused on their activities in less developed countries (LDCs). Their real or perceived lack of responsibility centers on the transfer in of inappropriate technology, causing unemployment, and the transfer out of scarce financial and other resources,

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78

PART

1.

THE GLOBAL MANAGER,S ENVIRONMENT

EXlllBl? 2-E Potential Benefits and Costs to Host Countries of MNC Operations There
Benefits

Costs

Capital Market Effects

.
.
.
.

Broader access to outside capital

Economic growth
Foreign-exchange eamings
Import substitution effects allow
governments to save foreign exchange
for priority projects

. Risk sharing

. Increased competition for local scarce capital

. Increased interest rates as supply of local
capital decreases

. Capital service effects of balance

of payments

Technology and Production Effects

. Access to new technology and R&D

developments

.
.
.
.

Employee training in new technology

Infrastructure development and support
Export diversification
Introduction of new management techniques

. Technology is not always appropriate

. Plants are often for assembly only and
can be dismantled

. Government infrastructure investment

is higher than expected benefits

. Increased pollution

Employment Effects
. Direct creation of new jobs

. Introduction of more humane employment

standards

. Opportunities for indigenous management

development

. Income multiplier effects on local

community business

. Limited skill development and creation

. Competition for scarce skills
. Low percentage of managerial jobs for
local people

. Employment instability because of ability

to move production operations freely
to other countries

Source:.Based on R. H. Mason and R. S. Spich, Management: An International Perspective,p.202

(Homewood, IL: Irwin, 1987).

trade-offs between strategic plans and operational management. By finding out for themselves the
pressing local conceras and understanding the sources ofpast conflicts, they can learn from mistakes and recognize the consequences of the failure to manage problems. Furthermore, managers

should implement policies that reflect corporate social responsibility regarding local economic
issues, employee welfare, or natural resources. At the least, the failure to effectively manage
interdependence results in constraints on strategy. In the worst case, it results in disastrous consequences for the local area, for the subsidiary, and for the global reputation ofthe company.
The interdependent nature of developing economies and the foreign companies operating there
is of particular concern when discussing social responsibility because of the tentative and fragile nature of the economic progression in those countries. Corporations (and non-governmental
organizations [NGOs]) must set a high moral standard and lay the groundwork for future economic
development. At the minimum, they should ensure that their actions will do no harm. Some recommendations for MNEs operating in and doing business with developing countries are as follows:

1. Do no intentional harm. This includes respect for the integrity of the ecosystem

2.
3.
4.
5.
6.
7.

and

consumer safety.
Produce more good than harm for the host country.
Contribute by their activity to the host country's development.
Respect the human rights of their employees.
To the extent that local culture does not violate ethical norms, respect the local culture
and work with and not against it.
Pay their fair share of taxes.
Cooperate with the local government in developing and enforcing just background
(infrastructure) institutions (i.e., laws, governmental regulations, unions, and consumer
groups, which serve as a means of social control).64

6L

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liiiirl**i so

PART

1o

THE GLOBAL MANAGER,S ENVIRONMENT

farmers are particularly angry in Kala Dera, in the drought-stricken state of Rajasthan. The CocaCola factory there is one of 49 across India. The company has invested over $1 billion dollars building a market for its products in this country. The plant used about 900,000 liters of water ir 2O07,
about a third of it for the soft drinks, the rest to clean bottles and machinery. It is drawn from wel1s
at the plant but also from aquifers Coca-Cola shares with neighboring farmers. The water is virtually
free to all users. The farmers say their problems began after the Coca-Colafactory arrived in 1999.
According to the farmers:
Before, the water level was descending by about one foot per year Now it's 10 feet every year
We have a 3.S-horsepower motox We cannot cope. They (Coca-Cola) hnve a S0-horsepower
pump.
PBS NswsHouR wrrH Jrlr LBnnEn,
Novskrazn 17,2008.14

Coca-Cola agreed to an independent third-party assessment of some of its operations in

India, which confirmed that the Rajasthan plant is contributing to a worsening water situation. It
recommended that the company bring water in from outside the area or shut the factory down.
Coca-Cola rejected that recommendation. For his part, Coca-Cola's India head, Atul Singh, says
it would be irresponsible to leave, saying that "walking away is the easiest thing we can do.
That's not going to help that community build sustainabllity."ls So Coca-Cola, while insisting its
impact on the water supply was minimal, said it would stay and help. The company has agreed to
subsidize one-third of the cost of water-efficient drip irrigation systems for 15 neighboring farmers. The government pays most of the rest; growers themselves must chip in 10 percent. CocaCola has also set up concrete collection systems for rainwater. The farmers remain skeptical.
They also are critical of the government locally for attracting Coca-Cola to a water-scarce region
and nationally for ignoring water policy in a rush to attract industry and foreign investment.T6
The Coca-Cola example makes clear to global managers that effectively managing environmental interdependence and sustainability includes considering ecological interdependence as well
as the economic and social implications of MNC activities. There is an ever-increasing awareness
of, and a mounting concem worldwide about, the effects of global industriahzation on the natural
environment. Clearly, the disasfrous effects of the BP oil spill in the Gulf of Mexico in 2010 has
exacerbated that concern. Government regulations and powerful interest groups are demanding ecological responsibility regarding the use of scarce natural resources and production processes that
threaten permanent damage to the planet. MNCs have to deal with each counfiy's different policies
and techniques for environmental and health protection. Such variations in approach reflect different
levels of industrialization, living standards, government-business relations, philosophies of collective intervention, patterns of industrial competition, and degrees of sophistication in public policy.
In recent years, the export of hazardous wastes from developed countries to less-developed
ones has increased considerably. E-waste-from electronic components, computers, and cell
phones, for example, all of which are full of hazardous materials-has become a major problem
for developing economies, producing sickness and death for its handlers there; this continues in
spite of laws against such dumping by U.S. companies and others. Often, companies choose to
dispose of hazardous waste in less-developed countries to take advantage of weaker regulations
and lower costs. Until we have strict international regulation of trade in hazardous wastes, companies should take it upon themselves to monitor their activities, as Singh and Lakhan demand:
Tb export these wastes to

counties which do not benefit from waste-generating industial prolfestyles that generate such wastes is unethical. It is espe-

cesses or whose citizens do not have

cially unjust to send hazardous wastes to lesser-developed countries which lack the technology
to minimize the deleterious

fficts

of these substances.T1

The exporting of pesticides poses a similar problem, with the United States and Germany being
the main culprits. The United States exports about 200 million pounds of pesticides each year that are
prohibited, resfficted, or not registered for use in the United States. These are only two of the environmental problems facing countries and large corporations today. According to Graedel and Allenby, the
path to truly sustainable development is for corporations to broaden their concept of industrial ecology:

t8

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THE GLOBAL MANAGER,S ENVIRONMENT

&gi&&lA"*? H.ffi ffi ef"g-

gH Ae?'g#

ru

Recycling Liues-S o cial Entrepreneursh ip Bre aking Down

B a,rriersso

When he was released from pison, Sparlcy slept on his brother's sofa for a while, but following a quarrel he was asked to leave and became homeless. After a period sleeping in stairwells and park benches around his hometown of Preston in the UK, and supporting himself
with petty crimes, Sparlq heard about Recycling Lives, a metal and waste recycling business
that maintains a social welfare charity .for homeless people. Recycling lives helped Sparlqt
(amongst many others) to tum his life around.

Recycling Lives-a company that radically improves and changes the lives of the homeless and recycles a
huge range of waste materials-is the brainchild of Steve Jackson. After following his father into the scrap
metal industry aged 16, and having then worked with his father for 13 years, Steve tumed his hand to a
range ofprojects, but didn't frnd anything that really captured his imagination. In 2005, Steve was infroduced to the English humanitarian Terry Waite, and was deeply affected by Waite's imaginative approach
to the problems of the homeless and the unemployed. Steve decided to see whether he could find a way to
utilize his skills and resources and help to tackle these issues himself. He reflected on the long period of
time that he had spent in the scrap business, and the idea for Recycling Lives began to take shape.
Recycling Lives is a social welfare charity supported by a commercial recycling business that
recycles items ranging from old furniture to cars and computers. People who are homeless or at risk
of becoming homeless are provided with accommodation, education, training, and work experience.
The recycling training takes place in a number of areas. It shows recruits how to strip down spectalizedlT and computer equipment, achieving an impressive 100 percent reuse and recycle rate with
the component parts. Employees are also trained to use a unique cathode ray tube (CRT) processing
system that prevents old TVs and computer monitors from going to the landfill. Recycled crushed glass
from the screens doesn't go to waste either, because it is recycled to make attractive glass tiles for commercial use. The service even scraps cars and is able to recycle 99.9 percent of the materials. Around
80 percent of the Recycling Lives workforce is employed directly by the recycling business, and the rest
work in the growing number of businesses that Recycling Lives partners with.
Recycling Lives, which started in 2008 with the aid of government grants of f I million as well
as a considerable investment from Steve, expanded rapidly around the north of England. It has now
extended into two national recycling businesses, Bulky Waste and Furniture Donation Network, while
its other businesses also run national collection services.
Steve's ethos is that coryorate social responsibility is everyone's responsibility. By incorporating
community projects and charity work into the business model of his commercial projects, he challenges the idea that charity work cannot be a core feature of business.
Recycling Lives is an example of a social purpose venture. Such ventures exist because of a
social and environmental mission, but also seek to achieve profitability and growth. Regardless of the
terminology, it is clear that social entrepreneurs such as Steve Jackson provide the systemic change
that is needed to radically improve existing systems.
Source: www.recyclinglives.org; "Sparlry-1'* Proof Recycling Lives Works," www.dwp.gov.uk; and
'An Interview with Steve Jackson," www.bulkywaste.org. Both accessed October 12,2012.

lmplementing Sustainabiliry Strategies

Effective implementation of sustainability strategies, according to Epstein and Buhovac, requires
companies to have both formal and informal systems in place: ttCompanies need the processes,
performance measurement, and reward systems (formal systems) to measure success and to provide internal and external accountability. But they also need the leadership, culture, and people
(informal systems) to support sustainability implementation. An alignment among the formal
and informal systems along with the organizational structure is critical for success."8l
Epstein's model (Exhibit 2-6) provides a system for examining, measuring, and managing the
drivers of corporate sustainability. Essential to success is the commitment of top leadership and
the recognition of sustainability as a process that will benefit the company-i.e., that it is a good

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PART

THE GLOBAL MANAGER,S ENVIRONMENT

Social responsibility, ethical behavior, interdependence, and sustainability are important

concerns to be built into management control-not as afterthoughts but as part of the ongoing
process of planning and controlling intemational operations for the long-term benefit of all.
Parl 2 focuses on the pervasive and powerful influence of culture in the host-country environment in which the international manager operates. Chapter 3 examines the nature of culturewhat are its various dimensions and roots? How does culture affect the behavior and expectations
of employees, and what are the implications for how managers operating in other countries
should behave?

Summary of Key Points

1.

The concept ofinternational social responsibility (known

in business circles as CSR-corporate social respon-

term perspective recognize the need to consider all of

sibility) includes the expectation that MNCs should be

their stakeholders in their business plans.

6. Managers operating abroad are often faced with differing attitudes towards bribery or other payments that raise
significant questions about appropriate moral behavior

concerned about the social and economic effects of

suppliers, governments, and societies. Firms with a long-

their

decisions on activities in other countries, and that they

should build appropriate provisions into their strategic
plans to deal with those potential effects.
Moral universalism refers to the need for a moral standard that is accepted around the world; however. varying
cultural attitudes and business practices make this goal
unattainable at this time. A number of groups of corporations within industries have collaborated on sets of policies for CSR both for their companies and those in their
supply chains. Such collaborations help to raise the standard in host countries and to level the playing fleld for
managers within those industries.

3. Concerns about MNC social responsibility revolve around

issues of human rights in other countries. Many organiza-

tions develop codes of conduct that specifically deal with

human rights in their operations around the world.
4. International business ethics refers to the conduct of
managers in their relationships to all individuals and entities with whom they come into contact. Ethical behavior
is judged and based largely on the cultural value system
and the generally accepted ways of doing business in
each country or society. Managers must decide whether
to base their ethical standards on those of the host country or those of the home country and whether these different standards can be reconciled.
MNCs must balance their responsibility to various stakeholders, such as owners, creditors, consumers, employees,

in either the host nation or other nations, yet bribery

or other payments are frequently demanded to conduct
business. The Foreign Corrupt Practices Act prohibits
most questionable payments by U.S. companies doing
business in other countries.
Managers must control their activities relative to interdependent relationships at all levels-from simple, daily
business transactions involving local workers, intermediaries, or consumers to global concerns of ecological responsibility. Issues of "sustainability" have come to the
forefront as flrms consider their long-term relationships

with host countries.

to effectively manage interdependence will
result in constraints on strategy, in the least, or in disastrous consequences for the local area, the subsidiary, and

8. The failure

the global reputation of the company.

9. Managing environmental interdependence includes the

need to consider ecological interdependence as well as

the economic and social implications of MNC activities.
10. Implementation of sustainability strategies requires the
company to have both formal and informal systems to
support the goals. Essential to success is the commitment
of top leadership and the recognition of sustainability as
a process that will benefit the company-that it is a good
business idea.

Discussion Questions
1.
2.
3.

Discuss the concept of CSR. What role does it play in the relationship between a company and its host country?
Discuss the criticisms that have been leveled against MNCs in the

past regarding their activities in less developed countries' What

counterarguments are there to those criticisms?
What does moral universalism mean? Discuss your perspective on
this concept. Do you think the goal of moral universalism is possible? Is it advisable?

4. What do you think should be the role of MNCs toward human

rights issues in other countries? What are the major human rights

concerns at this time? What ideas do you have for dealing with
these problems? What is the role of corporate codes of conduct in
dealing with these concerns?
What is meant by intemational business ethics? Should the local
culture affect ethical practices? What are the implications of local
norms for ethical decisions by MNC managers?

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PART

THE GLOBAL MANAGER,S ENVIRONMENT

CASE STUDY
Nike's CSR Challenge
In 2005 Nike returned to reporting on its social and environmental practices after a couple ofyears
of silence due to legal concerns. The sports and clothing company is very important to countries
such as Vietnam, where it is the largest private-sector employer with more than 50,000 workers
producing shoes through subcontractors.l Nike's 2005 report makes sobering reading, as it describes widespread problems in Asian factories. The company said it audited hundreds of factories
in 2003 and20o4 and found cases of abusive treatment in more than a quarter of its South Asian
plants. For example, between 257o and 507o of the factories in the region restrict access to toilets
and drinking water during the workday. The same percentage of factories denies workers at least
one day off in seven. In more than half of Nike's factories employees work more than 60 hours per
week. In tp to 25Vo of the factories, workers refusing overtime were punished. Wages were below
the legal minimum at up to 257o of factones.2
For the flrst time in a major corporate report, the details of all the factories were published.
The report was significant for this transparency and being so candid about the problems that
workers for Nike faced, and therefore the continuing challenges for the management. The NGOs
working on these issues know that such problems are common. Indeed, they realize that the
company invested more in improving conditions than many of its competitors. Studies of vo1untary corporate attempts at improving labor standards in global supply chains have suggested
that while they are delivering widespread improvements, new approaches are needed that engage
governments, NGOs, and local businesses.
This realization led to a new strategy from Nike. In May 2005 Nike's vice president of
corporate responsibility, Hannah Jones, told delegates at the Ethical Trading Initiative (ETI)
conference that, whereas the company had previously been looking into how to solve problems for themselves, now they are exploring how to create systemic change in the industry.
She explained that "premium brands are in a lonely leadership position" because "consumers
are not rewarding us" for investments in improved social performance in supply chains. Like
other companies, they have realized that the responsibility of one is to work towards the accountability of all. Consequently, one of Nike's new corporate citizenship goals is "to effect
positive, systemic change in working conditions within the footwear, apparel and equipment
industries." This involves the company engaging labor ministries, civil society, and competitors around the world to try to raise the bar so that all companies have to attain better standards of social and environmental performance. One example is Nike's involvement in the
Multi-Fibre Agreement (MFA) Forum to help countries, unions, and others plan for the consequences of the end of the MFA. (The agreement and the Forum were set up by the World
Trade Organization to help developed countries compete in the textile industry. These have
both since ended.)
This new strategy is beyond what many consultants, media commentators, and academics
currently understand. By claiming to be an advance in thinking, an article in The Economist in
May, 2005, by the worldwide managing director of McKinsey & Company, actually illustrated
the limits of current consulting advice. It suggested that seeking good societal relations should
be seen as both good for society and good for profitability. "Proflts should not be seen as an end
in themselves," suggested Ian Davis, "but rather as a signal from society that their company is
succeeding in its mission of providing something people want.3 However, those who have experience working in this fleld for some years, including Nike, realize that, however we may wish to
talk about the compatibility of profits with people and planet, the current societal frameworks for
business are not making this a reality. The implication is that we have to make this so by changing those frameworks.
The key strategic shift for Nike's management is that they no longer regard the company as
a closed system. Instead, they understand its future depends on the way customers, suppliers,
investors, regulators, and others relate to it. Their challenge is to reshape the signals being given

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88

PART

THE GLOBAL MANAGER,S ENVIRONMENT

Case Questions

1. Discuss the challenges regarding corporate social responsibility that companies in the

2.

apparel industry face in their supply chains around the world.

Discuss the meaning and implications of the statement by a Nike representative that "con-

sumers are not rewarding us for investments

in improved social performance in supply

chains."

3.

What does it mean to have an industry open-systems approach to social responsibility? What
parties are involved? Who are the stakeholders?
4. What is meant by "leadership beyond borders"?
Is it possible to have "a compatibility of profits with people and planet"? Whose responsibility is it to achieve that state?
6. Research Nike's CSR actions since this time frame and why it has earned the reputation as
one of the world's foremost organizations in sustainability.