Business ethics

Business ethics is a form of applied ethics that examines ethical principles and moral or
ethical problems that arise in a business environment.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for
more ethical business processes and actions (known as ethicism) is increasing.[1]
Simultaneously, pressure is applied on industry to improve business ethics through new
public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles).[2]
Businesses can often attain short-term gains by acting in an unethical fashion; however,
such antics tend to undermine the economy over time.

Business ethics can be both a normative and a descriptive discipline. As a corporate

practice and a career specialization, the field is primarily normative. In academia
descriptive approaches are also taken. The range and quantity of business ethical issues
reflects the degree to which business is perceived to be at odds with non-economic social
values. Historically, interest in business ethics accelerated dramatically during the 1980s
and 1990s, both within major corporations and within academia. For example, today most
major corporate websites lay emphasis on commitment to promoting non-economic
social values under a variety of headings (e.g. ethics codes, social responsibility charters).
In some cases, corporations have redefined their core values in the light of business
ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).

Overview of issues in business ethics

General business ethics

• This part of business ethics overlaps with the philosophy of business, one of the
aims of which is to determine the fundamental purposes of a company. If a
company's main purpose is to maximize the returns to its shareholders, then it
should be seen as unethical for a company to consider the interests and rights of
anyone else.[3]
• Corporate social responsibility or CSR: an umbrella term under which the ethical
rights and duties existing between companies and society is debated.
• Issues regarding the moral rights and duties between a company and its
shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept.
• Ethical issues concerning relations between different companies: e.g. hostile take-
overs, industrial espionage.
• Leadership issues: corporate governance.
• Political contributions made by corporations.
• Law reform, such as the ethical debate over introducing a crime of corporate
manslaughter.
• The misuse of corporate ethics policies as marketing instruments.
Ethics of accounting information

• Creative accounting, earnings management, misleading financial analysis.

• Insider trading, securities fraud, bucket shops, forex scams: concerns (criminal)
manipulation of the financial markets.
• Executive compensation: concerns excessive payments made to corporate CEO's
and top management.
• Bribery, kickbacks, facilitation payments: while these may be in the (short-term)
interests of the company and its shareholders, these practices may be anti-
competitive or offend against the values of society.

Cases: accounting scandals, Enron, WorldCom

Ethics of human resource management

The ethics of human resource management (HRM) covers those ethical issues arising
around the employer-employee relationship, such as the rights and duties owed between
employer and employee.

• Discrimination issues include discrimination on the bases of age (ageism), gender,

race, religion, disabilities, weight and attractiveness. See also: affirmative action,
sexual harassment.
• Issues surrounding the representation of employees and the democratization of the
workplace: union busting, strike breaking.
• Issues affecting the privacy of the employee: workplace surveillance, drug testing.
See also: privacy.
• Issues affecting the privacy of the employer: whistle-blowing.
• Issues relating to the fairness of the employment contract and the balance of
power between employer and employee: slavery,[4] indentured servitude,
employment law.
• Occupational safety and health.

Ethics of sales and marketing

Main article: marketing ethics

Marketing which goes beyond the mere provision of information about (and access to) a
product may seek to manipulate our values and behavior. To some extent society regards
this as acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps
strongly with media ethics, because marketing makes heavy use of media. However,
media ethics is a much larger topic and extends outside business ethics.

• Pricing: price fixing, price discrimination, price skimming.

• Anti-competitive practices: these include but go beyond pricing tactics to cover
issues such as manipulation of loyalty and supply chains. See: anti-competitive
practices, antitrust law.
 • Specific marketing strategies: greenwash, bait and switch, shill, viral marketing,
spam (electronic), pyramid scheme, planned obsolescence.
• Content of advertisements: attack ads, subliminal messages, sex in advertising,
products regarded as immoral or harmful
• Children and marketing: marketing in schools.
• Black markets, grey markets.

Ethics of production

This area of business ethics deals with the duties of a company to ensure that products
and production processes do not cause harm. Some of the more acute dilemmas in this
area arise out of the fact that there is usually a degree of danger in any product or
production process and it is difficult to define a degree of permissibility, or the degree of
permissibility may depend on the changing state of preventative technologies or changing
social perceptions of acceptable risk.

• Defective, addictive and inherently dangerous products and services (e.g. tobacco,
alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).
• Ethical relations between the company and the environment: pollution,
environmental ethics, carbon emissions trading
• Ethical problems arising out of new technologies: genetically modified food,
mobile phone radiation and health.
• Product testing ethics: animal rights and animal testing, use of economically
disadvantaged groups (such as students) as test objects.

Ethics of intellectual property, knowledge and skills

Knowledge and skills are valuable but not easily "ownable" as objects. Nor is it obvious
who has the greater rights to an idea: the company who trained the employee, or the
employee themselves? The country in which the plant grew, or the company which
discovered and developed the plant's medicinal potential? As a result, attempts to assert
ownership and ethical disputes over ownership arise.

• Patent infringement, copyright infringement, trademark infringement.

• Misuse of the intellectual property systems to stifle competition: patent misuse,
copyright misuse, patent troll, submarine patent.
• Even the notion of intellectual property itself has been criticised on ethical
grounds: see intellectual property.
• Employee raiding: the practice of attracting key employees away from a
competitor to take unfair advantage of the knowledge or skills they may possess.
• The practice of employing all the most talented people in a specific field,
regardless of need, in order to prevent any competitors employing them.
• Bioprospecting (ethical) and biopiracy (unethical).
• Business intelligence and industrial espionage.

International business ethics and ethics of economic systems

The issues here are grouped together because they involve a much wider, global view on
business ethical matters.

International business ethics

While business ethics emerged as a field in the 1970s, international business ethics did
not emerge until the late 1990s, looking back on the international developments of that
decade.[5] Many new practical issues arose out of the international context of business.
Theoretical issues such as cultural relativity of ethical values receive more emphasis in
this field. Other, older issues can be grouped here as well. Issues and subfields include:

• The search for universal values as a basis for international commercial behaviour.
• Comparison of business ethical traditions in different countries.
• Comparison of business ethical traditions from various religious perspectives.
• Ethical issues arising out of international business transactions; e.g.
bioprospecting and biopiracy in the pharmaceutical industry; the fair trade
movement; transfer pricing.
• Issues such as globalization and cultural imperialism.
• Varying global standards - e.g. the use of child labor.
• The way in which multinationals take advantage of international differences, such
as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-
wage countries.
• The permissibility of international commerce with pariah states.

Ethics of economic systems

This vaguely defined area, perhaps not part of but only related to business ethics,[6] is
where business ethicists venture into the fields of political economy and political
philosophy, focusing on the rights and wrongs of various systems for the distribution of
economic benefits. The work of John Rawls and Robert Nozick are both notable
contributors.

Theoretical issues in business ethics

Conflicting interests

Business ethics can be examined from various perspectives, including the perspective of
the employee, the commercial enterprise, and society as a whole. Very often, situations
arise in which there is conflict between one or more of the parties, such that serving the
interest of one party is a detriment to the other(s). For example, a particular outcome
might be good for the employee, whereas, it would be bad for the company, society, or
vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the
harmonization and reconciliation of conflicting interests.

Ethical issues and approaches

Philosophers and others disagree about the purpose of a business ethic in society. For
example, some suggest that the principal purpose of a business is to maximize returns to
its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this
view, only those activities that increase profitability and shareholder value should be
encouraged, because any others function as a tax on profits. Some believe that the only
companies that are likely to survive in a competitive marketplace are those that place
profit maximization above everything else. However, some point out that self-interest
would still require a business to obey the law and adhere to basic moral rules, because the
consequences of failing to do so could be very costly in fines, loss of licensure, or
company reputation. The noted economist Milton Friedman was a leading proponent of
this view.

Some take the position that organizations are not capable of moral agency. Under this,
ethical behavior is required of individual human beings, but not of the business or
corporation.

Other theorists contend that a business has moral duties that extend well beyond serving
the interests of its owners or stockholders, and that these duties consist of more than
simply obeying the law. They believe a business has moral responsibilities to so-called
stakeholders, people who have an interest in the conduct of the business, which might
include employees, customers, vendors, the local community, or even society as a whole.
They would say that stakeholders have certain rights with regard to how the business
operates, and some would suggest that this includes even rights of governance.

Some theorists have adapted social contract theory to business, whereby companies
become quasi-democratic associations, and employees and other stakeholders are given
voice over a company's operations. This approach has become especially popular
subsequent to the revival of contract theory in political philosophy, which is largely due
to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to
solving business problems, an aspect of the "quality movement" that emerged in the
1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract
theory for business, which they call Integrative Social Contracts Theory. They posit that
conflicting interests are best resolved by formulating a "fair agreement" between the
parties, using a combination of i) macro-principles that all rational people would agree
upon as universal principles, and, ii) micro-principles formulated by actual agreements
among the interested parties. Critics say the proponents of contract theories miss a central
point, namely, that a business is someone's property and not a mini-state or a means of
distributing social justice.

Ethical issues can arise when companies must comply with multiple and sometimes
conflicting legal or cultural standards, as in the case of multinational companies that
operate in countries with varying practices. The question arises, for example, ought a
company to obey the laws of its home country, or should it follow the less stringent laws
of the developing country in which it does business? To illustrate, United States law
forbids companies from paying bribes either domestically or overseas; however, in other
parts of the world, bribery is a customary, accepted way of doing business. Similar
problems can occur with regard to child labor, employee safety, work hours, wages,
discrimination, and environmental protection laws.

It is sometimes claimed that a Gresham's law of ethics applies in which bad ethical
practices drive out good ethical practices. It is claimed that in a competitive business
environment, those companies that survive are the ones that recognize that their only role
is to maximize profits.

Business ethics in the field

Corporate ethics policies

As part of more comprehensive compliance and ethics programs, many companies have
formulated internal policies pertaining to the ethical conduct of employees. These
policies can be simple exhortations in broad, highly-generalized language (typically
called a corporate ethics statement), or they can be more detailed policies, containing
specific behavioral requirements (typically called corporate ethics codes). They are
generally meant to identify the company's expectations of workers and to offer guidance
on handling some of the more common ethical problems that might arise in the course of
doing business. It is hoped that having such a policy will lead to greater ethical
awareness, consistency in application, and the avoidance of ethical disasters.

An increasing number of companies also requires employees to attend seminars regarding

business conduct, which often include discussion of the company's policies, specific case
studies, and legal requirements. Some companies even require their employees to sign
agreements stating that they will abide by the company's rules of conduct.

Many companies are assessing the environmental factors that can lead employees to
engage in unethical conduct.

Not everyone supports corporate policies that govern ethical conduct. Some claim that
ethical problems are better dealt with by depending upon employees to use their own
judgment.

Others believe that corporate ethics policies are primarily rooted in utilitarian concerns,
and that they are mainly to limit the company's legal liability, or to curry public favor by
giving the appearance of being a good corporate citizen. Ideally, the company will avoid
a lawsuit because its employees will follow the rules. Should a lawsuit occur, the
company can claim that the problem would not have arisen if the employee had only
followed the code properly.

Sometimes there is disconnection between the company's code of ethics and the
company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by
management, at worst, this makes the policy duplicitous, and, at best, it is merely a
marketing tool.
To be successful, most ethicists would suggest that an ethics policy should be:

• Given the unequivocal support of top management, by both word and example.
• Explained in writing and orally, with periodic reinforcement.
• Doable....something employees can both understand and perform.
• Monitored by top management, with routine inspections for compliance and
improvement.
• Backed up by clearly stated consequences in the case of disobedience.
• Remain neutral and nonsexist.

Ethics officers

Ethics officers (sometimes called "compliance" or "business conduct officers") have been
appointed formally by organizations since the mid-1980s. One of the catalysts for the
creation of this new role was a series of fraud, corruption and abuse scandals that
afflicted the U.S. defense industry at that time. This led to the creation of the Defense
Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business
practices. The DII set an early benchmark for ethics management in corporations. In
1991, the Ethics & Compliance Officer Association (ECOA) -- originally the Ethics
Officer Association (EOA)-- was founded at the Center for Business Ethics(at Bentley
College, Waltham, MA) as a professional association for those responsible for managing
organizations' efforts to achieve ethical best practices. The membership grew rapidly (the
ECOA now has over 1,100 members) and was soon established as an independent
organization.

Another critical factor in the decisions of companies to appoint ethics/compliance

officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991,
which set standards that organizations (large or small, commercial and non-commercial)
had to follow to obtain a reduction in sentence if they should be convicted of a federal
offense. Although intended to assist judges with sentencing, the influence in helping to
establish best practices has been far-reaching.

In the wake of numerous corporate scandals between 2001-04 (affecting large

corporations like Enron, WorldCom and Tyco), even small and medium-sized companies
have begun to appoint ethics officers. They often report to the Chief Executive Officer
and are responsible for assessing the ethical implications of the company's activities,
making recommendations regarding the company's ethical policies, and disseminating
information to employees. They are particularly interested in uncovering or preventing
unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the
United States, which was enacted in reaction to the above scandals. A related trend is the
introduction of risk assessment officers that monitor how shareholders' investments might
be affected by the company's decisions.

The effectiveness of ethics officers in the marketplace is not clear. If the appointment is
made primarily as a reaction to legislative requirements, one might expect the efficacy to
be minimal, at least, over the short term. In part, this is because ethical business practices
result from a corporate culture that consistently places value on ethical behavior, a culture
and climate that usually emanates from the top of the organization. The mere
establishment of a position to oversee ethics will most likely be insufficient to inculcate
ethical behaviour: a more systemic programme with consistent support from general
management will be necessary.

The foundation for ethical behavior goes well beyond corporate culture and the policies
of any given company, for it also depends greatly upon an individual's early moral
training, the other institutions that affect an individual, the competitive business
environment the company is in and, indeed, society as a whole.

] Religious views on business ethics

The historical and global importance of religious views on business ethics is sometimes
underestimated in standard introductions to business ethics. Particularly in Asia and the
Middle East, religious and cultural perspectives have a strong influence on the conduct of
business and the creation of business values.

Examples include:

• Islamic banking, associated with the avoidance of charging interest on loans.

• Traditional Confucian disapproval of the profit-seeking motive.[7]
• Quaker testimony on fair dealing

Related disciplines
Business ethics should be distinguished from the philosophy of business, the branch of
philosophy that deals with the philosophical, political, and ethical underpinnings of
business and economics. Business ethics operates on the premise, for example, that the
ethical operation of a private business is possible -- those who dispute that premise, such
as libertarian socialists, (who contend that "business ethics" is an oxymoron) do so by
definition outside of the domain of business ethics proper.

The philosophy of business also deals with questions such as what, if any, are the social
responsibilities of a business; business management theory; theories of individualism vs.
collectivism; free will among participants in the marketplace; the role of self interest;
invisible hand theories; the requirements of social justice; and natural rights, especially
property rights, in relation to the business enterprise.

Business ethics is also related to political economy, which is economic analysis from
political and historical perspectives. Political economy deals with the distributive
consequences of economic actions. It asks who gains and who loses from economic
activity, and is the resultant distribution fair or just, which are central ethical issues.
References
1. ^ "Ethics the easy way". H.E.R.O..
http://www.hero.ac.uk/uk/business/archives/2003/ethics_the_easy_way5043.cfm.
Retrieved on 2008-05-21.
2. ^ "Miliband draws up green tax plan". BBC. 2006-10-30.
http://news.bbc.co.uk/1/hi/uk/6095680.stm. Retrieved on 2008-05-21.
3. ^ Friedman, Milton (1970-09-13). "The Social Responsibility of Business is to Increase
Its Profits". The New York Times Magazine. http://www-
rohan.sdsu.edu/faculty/dunnweb/rprnts.friedman.html.
4. ^ Hare, R. M. (1979). "What is wrong with slavery". Philosophy and Public Affairs 8:
103–121.
5. ^ Enderle, Georges (1999). International Business Ethics. University of Notre Dame
Press. pp. 1. ISBN 0-268-01214-8.
6. ^ George, Richard de (1999). Business Ethics.
7. ^ http://www.stthom.edu/academics/centers/cbes/jonachan.html
 ETHICS INCORPORATED:
HOW AMERICA'S CORPORATIONS ARE INSTITUTIONALIZING MORAL
VALUES
Thomas I. White
Center for Ethics and Business
Loyola Marymount University
Los Angeles, CA

Imagine that one day someone in your organization walks in with a copy of
your chief competitor's bid on a big contract. He swears he got it legally, but
you aren't sure. And whether he did or didn't, it's still proprietary
information. Are you going to use it in developing your bid?

Or what if someone in sales is up against some very tough quarterly

objectives, but she can make them by concealing from a customer that the
product he's interested in will be made obsolete by a new line in six months.
Should she do it?

Suppose the man who heads your most productive department regularly
favors white males. Or what if you hear that another very productive
manager fired a fairly decent worker and replaced him with the inexperienced
son of a friend? Is this within these executives' "managerial prerogatives"?

These cases have two things in common: how they're handled can
dramatically help or hurt your organization; and they're ethical issues. But
how would you want the people in your company to handle these situations?
What have you done to let them know what they should do? What have you
done to help them?

If you're like 3 out of 4 of the nation's major corporations, you have a code
of conduct that might give your employees help with some of these
situations. If you're like 1 out of 3, you also offer ethics training in your
company which probably helps employees work through some difficult cases.
If you require this of all of your employees you're in a distinct minority--
about 15%. The more of these you offer, the better prepared your employees
will be to handle ethical dilemmas. If you have none of these, you may be
asking for trouble.

Ethical problems are inevitable at all levels of a business and this means that
it's simply good sense for companies to take seriously the task of
institutionalizing ethics in their organizations. Accordingly, an important
segment of corporate America has begun relying on such tools as:
statements of corporate values, codes of conduct, ethics workshops, hotlines,
even corporate ethics offices and board level ethics committees. In short,
they are setting up corporate ethics programs.

Formal ethics programs are relatively new to the world of American business.
Although a handful of companies have had them for twenty to thirty years,
the majority of ethics programs are no more than a few years old and some
have been around for only a few months. Nonetheless, their number is
growing as their usefulness becomes evident.

What does an ethics program look like? What does it do? Most importantly,
what should you do--and not do--if you want to set one up?

WHY ETHICS? THE VIEW FROM THE TOP

When one looks at corporations with a strong commitment to ethics, the first
thing one notices is that the leaders of these organizations are the strongest
advocates of corporate integrity. CEOs and Chairmen of such companies are
clear and vocal, forcefully charging everyone in the company to look at not
only how profitable their actions are but how ethical. To the skeptics who
think that ethics and business go together as well as oil and water, their
message is little short of heresy.

But how can the heads of these companies really mean what they say? How
does a CEO see dollars in ethics? Why does a businessman responsible for
the profitable use of billions of dollars of assets think that a corporation
should expend large amounts of time and money on ethics? How does this
make good business sense? How can ethics be anything but a financial black
hole?

Despite the fact that most people probably think that there are no financial
benefits to doing business ethically, some senior managers argue there's a
direct connection between ethics and the bottom line. For example, Andrew
Sigler, Chairman and CEO of Champion International asserts, "I don't believe
that ethical behavior is an impairment to profitability. I cannot remember
situations where if I do the bad thing we'll make a lot of money, but if I do
the right thing we'll suffer." "Lots of responsible decisions," he explains,
"aren't just ethically sound. They're damn smart and very smart business."

The heads of corporations are also quick to point out the long term financial
costs of doing business unethically. "If I do something unethical for some
short term gain," explains Jerry R. Junkins, President and CEO of Texas
Instruments, "somebody else is going to get hurt, and they're not going to
forget it. You're clearly trading a short term gain for something that's
inevitably going to be worse down the road--you'll eventually lose business."
When most CEOs explain the value of ethics, however, they generally refer to
something less tangible than dollars. In the view of some, it's their
company's reputation. "Texas Instruments' reputation for integrity," explains
its CEO, "dates back to the founders of the company. And we consider that
reputation to be a priceless asset." Walter Klein, CEO of the Bunge
Corporation for 27 years and currently Chairman, sees it similarly, "The
company gains if it's ethical because that will preserve its reputation."

Yet another issue cited is the effect of unethical conduct by the corporation
on its employees. Bunge's Walter Klein claims, "If the company is unethical,
that company is going to be cheated by its own employees." Taking
something as seemingly harmless as lying to help the company, David Clare,
former President of Johnson & Johnson, explains, "What you may perceive as
a simple lie or a simple misstatement that doesn't hurt anybody and protects
the company, sooner or later will come back to bite you. It'll bite you with
people in your organization who know it's a lie. If you can't be open and
honest at all times, you're sending a signal to the organization that you will
let them get away with lying occasionally. And that includes lying to you."

More than anything else, however, the view from the top is that ethics is
critically important for the health of the organization. CEO's of ethically
committed corporations believe that no matter how large the financial gain
may be from doing something unethical, there's a cost somewhere else in the
business. Characteristic of this view is TI's Jerry Junkins claim that if
employees are directed to do something unethical for the company or even if
they simply witness dishonesty by their superiors, this inevitably leads to a
"rotting of the organization." "And there's no way," points out Junkins, "that
you're going to be able to rebuild credibility with those people when you're
trying to energize an organization to go do something else. You've created a
permanent problem in terms of how people view you as an individual and
how they view the management of the organization."

Ultimately, the corporate leadership stresses that the activities of a business

are simply the interactions of ordinary people. And how these people deal
with each other now sets the tone for how (and if) they'll do business in the
future. Texas Instruments' CEO asserts, "I don't do business with
'companies,' I do business with individuals--peers, engineers, team
members, customers and vendors. If you recognize this, it's very easy to
understand why one person wouldn't take unethical treatment from another
for very long if they had any choice. And you can draw the same parallel as
to interactions between corporations."

In sum, then, CEO's who have committed their corporations to ethics have
done so in the name of maximizing long term profits and fostering the health
of their organizations.
ETHICS--HOW TO DO IT
If commitment from the top is the first characteristic of companies strong on
ethics, the existence of a formal and visible ethics program is generally the
second.

Ethics programs--what are they?

Corporate ethics programs are fairly new to American business (most are
less than a few years old), but their number is growing. They usually consist
of a variety of elements aimed at: communicating the corporation's values,
describing what constitutes acceptable behavior in problem areas, providing
resources for employees with questions or accusations about wrongdoing,
and establishing a mechanism for oversight and enforcement. The most
extensive ethics programs, generally found in the defense industry, include:
statements of corporate values, codes of conduct, ethics workshops, hotlines,
even corporate ethics offices and board level ethics committees.

A good example is the program at General Dynamics. This was established in

1985 following the decision by the Secretary of the Navy to suspend
contracts with two of the company's divisions because of investigations
suggesting problems with the corporation's integrity. General Dynamics
responded to the government's concerns by establishing an especially full
corporate ethics program which aims to integrate and maintain ethical
standards in the daily business affairs of the corporation.

The program is structured so that it spans every level of the company. It

starts with a Board Committee on Corporate Responsibility. This is made up
entirely of outside directors and is responsible for overseeing the ethics
program. Next comes the Corporate Ethics Steering Group, which consists of
the heads of major departments within the corporation, and directs the ethics
program's policies and general administration. (There are similar steering
groups at some of General Dynamics' divisions.) There's a Corporate Ethics
Program Director at corporate headquarters who reports to the Chairman and
CEO. And there are also Ethics Program Directors for each division. The
Program Directors work with the company's general managers in
implementing the program and serve as ombudsmen when necessary.
Finally, line management is given the responsibility for overseeing the
implementation of proper standards among the company's employees.
At the heart of the program is a set of standards which defines acceptable
behavior in a variety of areas: conflicts of interest; selling and marketing;
antitrust; pricing, billing and contracting; time card reporting; suppliers and
consultants; quality and testing; expense reports; company and consumer
resources; security; political contributions; environmental actions; and
international business. Violations of these standards carry mandatory
sanctions which range from warnings, demotions, and temporary
suspensions to discharge and referral for criminal prosecution.

Every member of the corporation receives a copy of these standards and also
attends an "ethics awareness workshop." These training sessions explain the
aims of the ethics program and include exercises that let people practice
using the standards. Participants are also told how to get help from the
ethics office with resolving ethical problems and how to report infractions. A
critical part of the program is a hotline.

ETHICS PROGRAMS--WHAT MAKES THEM WORK?

In light the experience of companies that have such programs, however,
what do you need in order to implement one? What makes them work? And
where are the pitfalls?

Management support
Companies with effective ethics programs unanimously agree that if an ethics
program is going to work, the first and most basic requirement is strong and
visible support from senior management. As Champion's Sigler explains,
"Commitment from the top is very important on this because this is what
sets the tone of the company." Furthermore, he warns that if the
commitment by top management isn't genuine, then an ethics program will
not succeed. "If there's the slightest indication of cynicism on the part of top
management," he cautions, "then it's all over."

General goals
Another essential but basic element is setting appropriate-- and positive--
goals. The general aims of successful ethics program are straightforward and
unsurprising--to help employees avoid doing something wrong and, if that
fails, to uncover the wrongdoing.
More than anything else the best ethics programs aim at helping, not
trapping people. According to Kent Druyvesteyn, Head of General Dynamics'
Corporate Ethics program, "The purpose of a good ethics program is
positive--to assist and support employees, not to catch them. A program
should build on the values the well-intentioned employees already bring to
the workplace and to help them steer through the complexities, uncertainties
and pressures that they face in their daily business activities."

One of the best and simplest descriptions of the aims of ethics programs
comes from Champion's CEO, Andrew Sigler, who says that "a good program
gives people the courage to do what they want to do." An excellent example
of what Sigler is talking about comes out of Texas Instruments--a company
that is a little known pioneer in the business ethics movement. They've had a
strong tradition of doing business ethically since the early days of the
company and this is reflected by the fact that their first company ethics
booklet was issued in 1961. The head of TI's ethics office tells the story of
more than one manager who left the company for a better opportunity only
to return within a few years because of the company's ethical environment.
"They say," explains Carl Skooglund, "that they never realized how easy it
was to make an ethical decision at TI and not to feel uncomfortable about it."

One of the most important reasons for formulating appropriate objectives,

however, is that they then become the standard against which to measure a
program's success. As Druyvesteyn explains, "I'm sometimes asked how
many people we catch--as though that determines if the program's working.
But since our first objective is to help employees, we assess the success of
our program not by the 200 sanctions we might impose in a year, but the
7500 people who asked questions about what was right before they acted."

IMPLEMENTATION
As important as establishing appropriate goals is, this is unquestionably
easier than achieving them. How, then, do these companies implement ethics
programs?

Structure
One of the first steps most companies take in initiating an ethics program is
to devise a formal structure that underscores its commitment to ethics,
extends throughout the company and keeps the process honest by providing
oversight at a variety of levels. The most complete programs include a
combination of a board level oversight committee, a corporate steering
group, and a corporate ethics office.
Martin Marietta's program, for example, starts with a Corporate Ethics Office.
The head of this office, the Director of Corporate Ethics, reports to the
Corporate Ethics Committee, which is made up of the President of the
corporation and five representatives of the company's operating elements.
And this committee in turn reports to the Board's Audit and Ethics
Committee. Each company of the corporation also has an ethics
representative who serves as a contact person for the Corporate Ethics
Office. (For a more elaborate structure, see the description of General
Dynamics' program above.)

As far as the composition of oversight committees go, there are two trends.
First, a number of companies pattern their board ethics committees after
their audit committees. In fact, some just expand the function of their audit
committees. This means that they have only outside directors on the
committee. Second, corporate steering groups increasingly consist of
representatives from different parts of the company. For example, Martin
Marietta's Corporate Ethics Committee is made up of the president of the
corporation, the executive vice- president, the vice-president and general
counsel, vice-president of personnel, vice-president for audit and the head of
the ethics office. Similarly, General Dynamics relies on senior people from
human resources, corporate security, internal audit and corporate counsel.
They do this in order to keep the ethics program from being dominated by
the viewpoint, outlook or values of one part of the company.

An especially important part of the formal structure, however, is the person

selected to head the corporate ethics office. And there is an emerging
consensus about who does and doesn't work in such a post.

The most effective ethics directors set a positive tone to the program,
communicate this effectively, relate well with every constituency of the
company and are equally comfortable functioning as a counselor and as an
investigator. In particular, they work especially well with line managers. An
ethics director's background or functional area seems to be relatively
unimportant. For example, the head of Texas Instrument's ethics office came
from operations, and another ethics officer has a background in public
relations.

The only caution to be offered on this matter is that there is an emerging

consensus among ethics officers that attorneys are usually not the best
people for ethics programs. "The basic problem with attorneys," explains
Major General Winant Sidle (ret.), former head of Martin Marietta's ethics
program, "is that when acting as ombudsmen they face a conflict of interest.
The ombudsman is basically supposed to represent the employee bringing
the complaint. But a corporate attorney already represents the corporation.
And since in many cases the employee is making a complaint against the
corporation, an attorney has a conflict of interest that he may not be able to
get around. When we started our program, 6 of our 10 ethics representatives
were attorneys; now we're down to 1. We're moving away from attorneys
because they have trouble wearing two hats."

Standards
Probably the most important part of implementing an ethics program,
however, is devising statements describing a company's standards. The most
thorough ethics programs have two--a code of conduct and a corporate
philosophy statement.

Codes of conduct are generally short, specific and easy to understand. They
lay out specific do's and don'ts about particular problem areas, stating clearly
and simply what counts as unacceptable conduct. Depending on a
corporation's industry, codes talk about: conflict of interest, proprietary
information, gifts and entertainment, record keeping, securities regulations,
inside information and the like. Basically, the codes proscribe two types of
activities. The first are clearly illegal-- violating securities regulations,
cheating on government contracts, and the like. The second are legal, but
either unethical or able to influence someone's judgment so that they might
compromise their responsibilities--using a company's buying power to coerce
a supplier, conflicts of interest, accepting or giving excessive gifts or
entertainment. Codes of conduct usually limit themselves to the most
important and most obvious areas where employees will face ethical
dilemmas. They don't try to cover everything since it's impossible to imagine
every conceivable problem.

The only caution ethics directors offer about codes has to do with who should
write them and echoes their advice about who should be in charge of ethics
offices. Accordingly, the consensus seems to be that, in particular, attorneys
should not be put in charge of developing a code of conduct. As Gary
Edwards Executive Director of the Ethics Resource Center, himself an
attorney, explains it, "Codes should be developed by managers. You want
them to be responsive to the real issues that people face day to day trying to
do the job in that company in that industry. And the lawyers aren't managers
and they certainly aren't line managers." Codes developed by attorneys are
generally long, detailed, talk almost exclusively about laws and regulations
and often rely heavily on legal style and terminology. The head of one ethics
program explained, "One of the problems we had when our attorneys drew
up the code was that they didn't want to have their words changed even
though nobody really understood what they wrote."

Sanctions, of course, are the flip side of a code of conduct, and just as
necessary. While cautioning against regarding ethics programs as simply
enforcement programs, ethics directors nonetheless underscore the necessity
of sanctions. "Investigations and sanctions are a very important part of a
program," points out General Dynamics' Kent Druyvesteyn, "because if you
don't have them, a lot of people will think the program is nonsense." Bunge's
Chairman, Walter Klein concurs, "If you've got a policy, you've got to enforce
it. Otherwise everyone will say it's just a sham."

What a code of conduct doesn't cover, a corporate philosophy statement will.

Such a statement expresses the company's general values and thereby sets
the tone and overall standards for a company's entire operation. For
example, Johnson & Johnson has a one page document, "Our Credo," which
outlines the company's responsibilities to its customers, employees,
communities and stockholders. Champion International has something similar
called "The Champion Way Statement." This states the company's general
objectives (industry leadership and profitable growth) and the principles it
will live by in trying to achieve them (employee participation, commitment to
excellence, fair and thoughtful treatment of employees, commitment to its
employees' communities, candor and truthfulness, and responsibility in
dealing with the environment). The heart of the Champion Way is a positive
conception of how people should treat one another.

As important as codes of conduct are, corporate philosophy statements are

probably even more important. First, philosophy statements more effectively
set a positive tone about ethics. They say what a company stands for, not
against. Second, a code's usefulness is inversely proportional to its length
and complexity. Since short and simple can cover only a fairly small number
of situations, that means that employees also need a more general standard
to use the rest of the time--especially in emergencies.

For example, in handling the Tylenol crisis, hundreds of Johnson & Johnson
employees had to make independent decisions about how to respond. And
the Credo was used as the standard in making such decisions throughout the
emergency. Describing the atmosphere in the company, David Clare,
President of the company during the crisis, recounts, "There were literally
thousands of decisions that had to be made by on the fly every single day by
hundreds of people around the organization. And we give great credit to the
Credo in helping them make the right decisions because they knew basically
what was expected of them. We said, 'You make the decision--whatever it is,
whatever it costs us--on the basis of whatever our responsibility is.' And it
worked."

Something similar, but less dramatic, happened at one of Champion

International's mills in North Carolina. A construction accidentally turned the
wrong valve and let out a puff of chlorine gas, knocking out 35 people. Since
this was shortly after Bhopal, TV crews were on the scene within minutes
asking the mill manager for details. Acting on his own initiative, the manager
openly told the whole story. And his telling the truth effectively calmed the
fears of the people in the local community. When asked by Andrew Sigler, his
CEO, how he decided what to do, the mill manager said, "The only thing I
could think of was that the Champion Way says we're supposed to be open
and honest." (He was right. The statement reads, "Champion wants to be
known as an open, truthful company.")

And on still another scale, Sigler believes that the Champion Way Statement
played an important role in how their acquisition of St. Regis Paper was
handled.

Publicizing the commitment

Nonetheless, as important as it is to have a set of standards and a firm
commitment to doing business ethically, these are useless unless they've
known throughout the company. Accordingly, another one of the most
important facets of existing ethics programs are activities aimed at
publicizing the standards and sanctions and at letting people know how to
get advice or report violations.

Currently, a favorite way that many companies have of bringing a new

commitment to ethics to the attention of all employees is to distribute a code
of conduct or statement of company values and ask their people to sign a
card or form. Many firms now make signing the card a condition of
employment for new hires and consultants. What people sign varies greatly.
Martin Marietta's statement says simply, "I certify that I have received a
copy of Martin Marietta Corporation Code of Ethics and Standards of
Conduct." At General Dynamics employees must also say that they've read
the standards and understand that it's company policy. And still more
rigorous is Goodyear's requirement that employees explain if they're doing
anything not in compliance with the company's policies. Managers
additionally have to state that they've taken steps to make sure that the
people reporting to them understand and are complying with the policies.

By and large, however, companies have employees sign not so much to

extract a formal agreement to avoid wrongdoing, but to let them know that
the company takes ethics seriously, that there are standards everyone is
expected to follow, and that there are ways they can get help when they face
ethical dilemmas.

A number of companies are also relying on films or videos to communicate

something about the company's overall values or commitment to ethical
conduct. Focusing on the concept of meeting one's responsibilities, Tracor
Aerospace has produced a short film that shows the consequences of "cutting
corners." (The presentation revolves around a factory that produces cubes. A
disembodied voice confronts employees in different departments with a
defective cube--one with a corner cut off--and hears a variety of excuses
about why the cube is damaged. The film then contrasts this with making
cubes without "cutting corners.")
General Dynamics uses a film entitled "Your Values Are Our Values" which
encourages individual integrity. It explains that the corporation's values are
simply an outgrowth of the values of the individuals who work for the
company.

And taking yet another approach, Texas Instruments tries to communicate its
corporate values by using a videotape of a statement by its CEO. "Let there
be no mistake," intones Jerry Junkins, "We will not let the pursuit of sales,
billings or profits distort our ethical principles. We always have, and we
always will place integrity before shipping, before billings, before profits,
before anything. If it comes down to a choice between making a desired
profit and doing it right," TI's CEO explains, "you don't have a choice. You'll
do it right."

Communication
A major part of what's involved in implementing an ethics program, then, is
communication. In fact, the head of Texas Instrument's ethics office explains
their whole program in this light. Says Carl Skooglund, "the primary purpose
of our ethics office is simply to provide better communication of what we
require and what our values are as well as a mechanism for employees to get
in touch with us if they have questions or concerns."

Setting up mechanisms for communication, then, is an important aspect of

implementation. For getting advice about the standards, all that's needed is a
phone line with someone on the other end who knows the answer. But most
ethics programs use more than that. Many companies now have hotlines--
even operate 24 hours a day. Mailboxes outside the corporate mail system
are also common. Texas Instruments even has a special telex terminal that
goes just to desk of the ethics director. (Security on the system is such that
no one can trace where it came from and even the machine that sent it loses
all knowledge of having done so.)

However, most companies with ethics programs are also careful to provide
for opportunities for communicating face to face since a surprising number of
serious allegations are made in person, not over the phone or by mail. (In
Martin Marietta's experience, more than one half of the reports of violations
are made by people who simply walk in to the office.) Some companies
handle this by having an ethics representative at each one of their facilities,
some have the head of their ethics office spend time throughout the
organization, and some do both.
Training
Closely connected with the process of communicating with the company's
employees about the importance of ethics is yet another critical part of
implementing an ethics program--training. The aim of most corporate ethics
programs is to expose everyone in the company to ethics training
appropriate to their situation. People are introduced to the company's values,
the details of the code and what they should do when they need help, have
questions or want to report violations.

In particular, training sessions introduce employees to the ethical problems

that they're going to face in their specific part of the business, be it
marketing, purchasing, sales or whatever. This seems to be best done with
actual cases. Texas Instruments started using some hypothetical cases
presented on video tape that an outside organization produced, but as Carl
Skooglund explains it, "one request we kept getting from our employees was
`please individualize the material, make it something usable so that when I
go back to my job tomorrow morning I don't have just a bunch of high level
principles but some tools, something to use in the day to day dilemmas that I
encounter.'" As a result, TI is developing supplementary printed material
geared to about half a dozen different areas of the business. Using a question
and answer format, the material will constitute what Skooglund calls "rifle
shot training" keyed to the specific problems faced by, for example, sales
representatives out meeting customers or procurement people dealing with
suppliers.

In the same vein, Martin Marietta developed a set of cases from within the
company. They asked people from different parts of the organization to
describe ethical problems they've faced, and they use these cases in their
workshops along with some generic cases developed by groups working in
line with the Defense Industry Initiative. Martin Marietta also does separate
workshops for every major function in the company: contracts, marketing,
accounting, finance, procurement, quality control and manufacturing
operations.

SPECIAL CHALLENGES

As well developed as a number of ethics programs are, however, there are

still some important problems that no one has been able to solve.
Rewards
As any manager knows, incentives and rewards play an important role in
motivating employees to accomplish corporate goals. Logically, a company
committed to doing business ethically would want to reward its people for
that. But the matter of rewarding employees for ethical behavior is the least
well developed part of current ethics programs.

As General Dynamics' Druyvesteyn describes the problem, "Everyone says

it's a nice idea to reward people for ethical conduct, but reward them for
what? Telling the truth? Presumably that's expected. Telling on someone who
doesn't tell the truth? That suggests a 'fink of the month' or 'rat of the year'
award or even bounties. In ethics programs we have a hard time thinking
about how we show our support and gratitude for right conduct."

So far, the only way this problem has been approached is that some
companies are making a concern with ethics a regular part of a manager's
responsibilities. General Dynamics has adopted the policy that managers and
supervisors have special leadership responsibilities for implementing the
ethics standards and will be measured in how well they carry out those
responsibilities. However, they haven't yet figured out how to do that. Martin
Marietta has gotten more specific and made it a responsibility of their
supervisors to talk to their employees about ethics at least once a year.

Corporate objectives
The matter of rewards, however, brings us full circle and back to the issue of
"cheating for the company" which opened this article. After all, what
employees are rewarded for is one of the main factors that determines how
strong the temptation will be for them to bend or break the rules--or even
the law. The more that employees are rewarded simply for meeting quarterly
objectives, the stronger that temptation will be. "Employees learn very
quickly what they really get stroked for," points out TI's Skooglund, "and if
the rewards come solely from shipping product or making financial forecasts,
then that's the drumbeat they're going to march to. And that's a tough
problem for any company's ethics."

However, the greatest ethical danger occurs when raises, bonuses and
promotions depend on unrealistic objectives. As Gary Edwards of the Ethics
Resource Center explains, "When objectives are set improperly--too
aggressively or without respect for a particular unit's inability to meet a goal
that may be reasonable for the corporation overall--all kinds of unethical
conduct can be generated." Another major challenge in incorporating ethical
values into an organization, then, is to set objectives which stretch
employees to the full extent of their capacities but do not push them to the
point where they'll be tempted to meet them by wrongdoing.

Supervisors
What this discussion of rewards and objectives ultimately points to is the
critical role that supervisors play in determining the ethical character of a
company. In a survey of more than 300 managers by the National Institute
of Business Management, the behavior of an employee's superiors was
ranked as the second most important factor in influencing decision making.
This was surpassed only by a personal code, and outstripped the behavior of
one's peers, formal company policy and the ethical climate in the industry.

As a result, another major challenge in institutionalizing ethics in a business

is to be particularly sensitive to the danger of supervisors exerting the wrong
kind of pressure. TI's Skooglund observes that "If you're going to have the
kind of pressure that'll make decent people go wrong, you'll find it in the
employee-supervisor relationship." Relating this issue directly to other major
challenges just mentioned, Skooglund notes that "there are two ways that
the employee-supervisor relationship can really go wrong: 1) if you set goals
that realistically cannot be met, and 2) if you have an environment where the
employee is made to feel that failure is totally unacceptable." When the cost
of failure is too high, people feel enormous pressure to compromise both
their own values and the company's stated standards. And for all practical
purposes, it's an employee's supervisor who determines the cost of failure.

Other problems
Finally, there is the need to guard against two particular problems that
threaten to undermine any ethics program. As Kent Druyvesteyn of General
Dynamics explains, "We have found that we have to pay very careful
attention to two things: reprisals against someone for using the ethics
program, and someone using the program to hurt somebody." Reprisals can
be direct, indirect, obvious or subtle, ranging from being fired or demoted to
being ostracized. "We take this matter extremely seriously," observed
another ethics director. "We require all of our employees to report actual or
suspected unethical conduct, and we promise that they won't be retaliated
against for doing so. But I have to spend a good bit of time making sure
nothing does happen."

False accusations can be similarly wide ranging and serious. In one instance,
one employee alleged to the ethics office that another employee was stealing
from the company. Investigation revealed, however, not only that there was
no theft, but that the accuser had bragged to other employees before making
the charge that he would find some way of getting the other employee fired.
"Because of the danger of abuse," emphasizes Druyvesteyn, "it's imperative
to conduct investigations on the basis of facts, not rumor or innuendo."

A FINAL WORD
Incorporating ethics into the life of a corporation, then, is an involved
process. It requires commitment, resources and patience. Patience is
particularly necessary because establishing a strong ethical environment in a
corporation simply takes time. As Dennis Merrick, Senior Vice-President and
Director of Human Resources for the First Atlanta Corporation, points out,
"The ethical standards of a company are part of the corporate culture. They
become established over a long period of time as a result of hundreds and
thousands of individual, day to day decisions. They are the cumulative result
of these decisions that become in fact the corporate standard of ethics."

Companies that have committed themselves to this path, however, see

themselves stronger because of it. As Andrew Sigler, Champion's CEO puts it,
"an ethical company will in the short run and in the long term be a better
institution. . . . Ethical behavior is simply good business."

Business ethics in the textile,

clothing and footwear (TCF)
industries:
Codes of conduct: A general overview
Characteristics

The codes of conduct or codes of practice adopted by a number of mainly

multinational enterprises include a variable number of principles which define the
ethical standards of the enterprise. These may be general principles such as, for
example, the concept of non-discrimination while, in a number of cases, there is a
detailed description of the social practices which the enterprise wishes to see
respected in the production and sale of the goods and services which it markets.
Some enterprises make a distinction between the basic principles which regulate
its internal activity and those which it wants to apply in the selection and
monitoring of activities of its subcontractors. A number of codes make explicit
reference to ILO Conventions, in particular those concerning the respect of human
rights at work. In other cases, the reference is more indirect, even if the principles
established are often based on fundamental ILO Conventions.

The agrofood, forestry, chemicals and consumer products sectors are amongst
those which have progressively introduced a number of codes of practice.
However, while the concept of ethical practice has made a remarkable comeback
in recent years in the strategic policy of industrial and commercial enterprises, it is
above all in the textile sector, and in particular in clothing and footwear, that the
trend is the most evident. United States enterprises have played a pioneering role
in this respect. Since Levi Strauss adopted in 1992 a code entitled "Business
partner terms of engagement and guidelines for country selection", many other
enterprises producing apparel and footwear as well as major retail groups have
followed suit. In Europe, the trend has been longer in coming, although increasing
attention is now being given at the headquarters of the major European enterprises
in the TCF sectors to the specific application of codes of "good practice" and
codes of conduct. In the developing countries, practically no initiatives of this kind
have been taken; on the other hand, a growing number of production enterprises
working under subcontracting arrangements for the multinational enterprises of
the industrialized countries must respect the codes established by the latter, which
significantly affects their activities.

Origin and rationale of the phenomenon

In the 1970s, considerable criticism was levelled against multinational enterprises

concerning their activities in the developing countries. National and international
trade unions as well as a number of host countries accused them of carrying out
their activities without consideration of the harmonious social and economic
development of the countries in which they operated. It was such criticism which
led to the establishment, by a number of government international organizations,
of draft codes of conduct some of which, such as that of the United Nations, have
remained a dead letter. In the social sphere, the International Labour Organization
adopted in 1977 a Tripartite Declaration of Principles on Multinational Enterprises
and Social Policy which is still in force and to which trade unions in the TCF
sector attach considerable importance, as can be seen from a draft resolution tabled
by the Workers' group at the recent ILO Tripartite Meeting on the Globalization of
the Footwear, Textiles and Clothing Industries: Effects on Employment and
Working Conditions, held in Geneva between 28 October and 1 November 1996.

To some extent the codes drawn up by intergovernmental international

organizations, and in particular that of the ILO in this sphere of social policy,
which were of a voluntary kind can be seen as the forerunners of subsequent
initiatives taken unilaterally by individual enterprises.

Other external factors have contributed to the recent publication of codes of

conduct. The pressure brought to bear by the international trade union movement
has without doubt played an important role in this process. In the TCF sectors the
International Textile, Garment and Leather Workers' Federation has for many
years been calling for a greater sense of social responsibility by enterprises in the
sectors and has provided support to national federations in their campaign for the
respect of human rights at work. Of the progress made in this sphere, mention may
be made, for example, of the United States where in May 1995 the Clothing
Manufacturers' Association of the United States of America (employers) and the
Amalgamated Clothing Textiles Workers' Union (workers) signed for the first time
a national branch collective agreement which included, amongst other aspects, a
code of conduct applicable to enterprises and their subcontractors which
established minimum standards regarding wages, hours of work, forced labour,
child labour, freedom of association, non-discrimination as well as occupational
safety and health.

Consumers' associations as well as a number of non-governmental organizations

have also endeavoured to draw the attention of consumers, the public authorities
and the enterprises concerned to the need to respect a number of minimum rules
regarding human rights.

Although in a large number of cases attention has been focused on the specific
problem of child labour, associations and organizations have taken their campaign
further either by trying to promote social labels for one or more categories of TCF
products, or by organizing campaigns to sensitize the public to the general
problems of basic workers' rights or by trying to draw up standard codes which
enterprises could adopt and tailor to their particular needs. The following chapter
contains a summary of some of these initiatives which clearly show the increasing
awareness of the international community about the social problems raised by
globalization in the TCF sectors.

Governments have also played a significant role in the promotion of standards

concerning the respect of human rights and codes of conduct. In Europe some
governments, such as that of France, are calling for greater respect of human rights
in the sphere of international trade and are actively participating in national studies
as well as research carried out by the European Commission on the social aspect
of international subcontracting in the TCF sectors. In the United States, the so-
called "No Sweat" campaign introduced by the Clinton Administration in the fight
against sweatshops has led to the establishment of a Trendsetter List of enterprises
in the TCF sectors which respect labour legislation and human rights in general in
their production and marketing activities and ensure that these rights are respected
by their subcontractors. The Department of Labor, which had identified a number
of deficiencies concerning the respect of human rights and labour legislation in the
TCF sectors, in particular in subcontracting of apparel production, and which has
been faced with a number of cases involving the exploitation of immigrant
workers in sweatshops set up on the United States territory, has taken steps to
clean up the sector. At the same time as it stepped up its inspections, it adopted a
positive approach by drawing up and distributing to the media a list of socially
responsible enterprises in the sectors producing and marketing TCF articles.

In 1996, this list, reproduced below, included a large number of enterprises which
had adopted a code of conduct.

Enterprises participating in the "No Sweat" campaign

Abercrombie & Fitch Galyans Trading Mast Industries
Baby Superstore GapKids NFL Properties
Banana Republic Gerber Nicole Miller
Childrenswear
Bath & Body Works Guess Inc. Nordstrom
Bergners Henri Bendel Old Navy Clothing
Store
Bryland Lands End Penhaligon's
Boston Stores Jessica McClintock Patagonia
Cacique Lane Bryant Structure
Carson Pirie Scott Lerner New York Superior Surgical Mfg.
Dana Buchman Levi Strauss The Limited
Elisabeth Limited Too The Gap
Express Liz Claiborne Victoria's Secret
Source: Department of Labor, 25
Mar. 1996.

It is undeniable that this campaign, with the help of the media, has given
enterprises an added impetus to adopt codes of conduct.

In the specific sphere of child labour, the United States Government has been
particularly active. Between 1994 and 1996, the Bureau of International Labor
Affairs of the Department of Labor organized three public hearings on
international child labour issues which outlined the conditions of child exploitation
in the world in all industries which export products to the United States. Its 1996
session offered the opportunity to a number of enterprises and employers'
associations in the TCF sectors (Levi Strauss, Sporting Goods Manufacturers'
Association, International Mass Retail Association) to show what progress had
been achieved in this sphere, in particular through codes of conduct. A number of
representatives of non-governmental organizations and trade unions also described
their activities in this sphere, including in the promotion of codes. The presence of
members of Congress, and in particular Senator Harkin who is responsible for a
number of Bills to prohibit the import of products made by children, reflected the
growing concern of political circles in the United States about this delicate
problem. In 1996, the Department of Labor also published, at the request of
Congress, a study on the influence of codes of conduct adopted by United States
apparel enterprises on child labour.1 The study, which examined a representative
sample of some 48 enterprises selected from the major firms in the production and
marketing of clothing in the United States, clearly confirmed that the adoption and
application of codes of conduct which contained a reference to the prohibition of
child labour (in 42 out of 48 enterprises) had reduced child labour in the
subcontracting enterprises established in the developing countries. The drop was
particularly significant in Central America. The report believes that although it is
likely that a number of other factors also contributed to this improvement (greater
awareness of consumers of the problems of child labour; concern by exporters
about possible legislative measures to boycott products made with child labour,
etc.), there is no doubt that the most significant impact is due to the increasing
number of codes of conduct established over the last five years.

By strengthening the role played by the developing countries in international trade,

the globalization of the economy has also encouraged greater awareness of the
commercial importance of the respect or non-respect of basic standards relating to
human rights. It is no longer possible for the developing countries which want to
increase or maintain their penetration of the markets of industrialized countries to
ignore the existence of various kinds of pressure which exist in this sphere. As a
result, in recent years, a number of governments have endeavoured, often with
assistance from the ILO, to reduce the obstacles to the ratification of these
fundamental standards and their effective application. The most dramatic progress
has been made in this sphere of child labour, which benefits from broad media
coverage and against which pressure is greatest in the context of the liberalization
of trade. Here once again the ILO has played an important role as catalyst, in
particular through its International Programme for the Elimination of Child Labour
(IPEC). In the TCF sectors, it is for example within the framework of this
programme and in collaboration with UNICEF that the Bangladesh Garment
Manufacturers' and Exporters' Association signed, with the support of
governments and local non-governmental organizations, an agreement to
discontinue the employment of children of school age in apparel enterprises and to
provide for their participation in special education programmes. Social progress of
this kind is without doubt the first step towards the establishment of more
elaborate codes of conduct which take account of the new social requirements of
international trade.

In the industrial countries, the motivations of enterprises which have adopted

codes of conduct are often more complex. It is true that pressure brought to bear
by trade unions and consumer' associations or non-governmental organizations
play an important role. Furthermore, as noted above, some government campaigns
may have a significant influence on industrialists and encourage them to give
greater attention to social matters. However, the decisive factor for the adoption of
such codes is probably the public image which the enterprise wants to project to its
clients, employees, suppliers and shareholders. The construction of a positive
public image, in which the concept of the socially responsible employer has
acquired a new importance, is a long-term and increasingly more complex task in
which management teams are much more involved in the past. An enterprise's
public image is now an asset which must be protected and developed to the
maximum. In the textile and footwear sectors, a company's public image is
particularly important and often determines a decision whether the public will buy
its goods. On these highly competitive markets, it is therefore important for a
company to project a positive image and to retain a good reputation over the long
term.

To the extent that the media highlight certain conditions of work which are
particularly deplorable both in the sweatshops of the industrialized countries as
well as in the developing countries, the adoption by a global enterprise of a code
of conduct is an attempt to provide a kind of guarantee for the final consumer that
the products made or marketed by the company have not involved any kind of
exploitation of workers concerned. It is therefore up to the enterprise to implement
the principles established in the code, at the risk of using its credibility. Given the
importance of subcontracting practices in the TCF sectors, it is clear that an
enterprise which adopts a code of conduct takes a number of risks because any
failure to respect the code which is noted by trade unions or the media will have
greater impact and a correspondingly negative effect. This explains the importance
of application conditions and helps explain why some enterprises prefer to keep a
low profile and refrain from giving too much publicity to their codes of conduct.
The press, and in particular the Anglo-Saxon press which is more sensitive to the
subject, includes many examples of enterprises which have been singled out for
their non-respect of their code of conduct. The most frequent examples in the
apparel and footwear sectors concern the non-respect of human rights in factories
working under subcontracting arrangements for large international brands, most
often in the developing countries. However, celebrities who use their fame to
promote a given brand of clothing or shoes are also subject to criticism in the
media if the products bearing their name have been manufactured in conditions
which do not respect the fundamental rights of workers. The recent scandal in the
United States caused by the Kathie Lee Gifford case is symptomatic of the
influence of the media on the social image of an enterprise. This leading television
presenter had to explain why she had agreed to let the Wal-Mart enterprise use her
name and her fame to promote a line of clothing some of which had apparently
been produced in sweatshops in Honduras and even New York. The combination
of factors concerning the person in question and the fact that the Wal-Mart
enterprise had its own code of conduct considerably tarnished the image of both
parties, and it is by no means sure that the numerous statements of good intentions
on both sides have managed fully to re-establish consumer confidence. In the same
way, the many articles which have appeared in the press on the cost of
manufacturing sport shoes in the developing countries compared with their selling
price in the industrialized countries morally penalize leading enterprises in the
sector which are furthermore trying to promote good social practice through their
codes of conduct.

In their search for a balance between the lowest possible production costs, to
protect their competitiveness, and the maintenance of a good social image likely to
satisfy consumers and pressure groups, multinational enterprises in the TCF
sectors have little room for manoeuvre. Hence the extreme sensitivity to the
subject in the context of globalization. It should however be pointed out that
although theoretically the importance of the ethical aspect in the management of
enterprises has been widely recognized (since the beginning the 1980s, chairs in
business ethics have been established in a large number of universities and
business schools) it is only recently that a number of financial analysts have noted
that enterprises which applied codes of conduct performed better than average on
the stock exchange.2 Of course, conclusions cannot be drawn about the existence
of a direct link of cause and effect between these two factors since it is generally
the most productive enterprises in a given sector which have the human and
financial resources enabling them to develop an ethical approach. It can however
be noted that the existence of a responsible social attitude is not detrimental to the
image which financial markets have of a given enterprise. Some investment
consultancy firms now take account of ethical elements in their criteria for the
composition of stock exchange portfolios.3

The large majority of trade unions favour the generalization of codes of conduct,
provided that their application is not subject to restrictions. In their view, the main
weakness of the codes lies in the fact that they are applied and monitored by the
enterprise itself which is thus both judge and jury. Furthermore, they believe that
even when the enterprise tries to apply, at all levels, its ethical principles, it rarely
has the necessary human resources to do so. It is in fact often the employees
responsible for product quality and the commercial agents of the firm who control
the application of the codes by subcontractors. This twofold responsibility restricts
their effectiveness. Trade unions therefore favour a new approach in which the
control of the application of codes would be entrusted to independent and
trustworthy persons or associations. This would involve developing a kind of
"social audit" function comparable to that of a financial audit. Of course, the
generalization of such a system raises a number of problems which go beyond the
purely financial aspect of the cost of an additional audit and is still a long way off.
However, it is worth noting that the case of The Gap enterprise, which accepted
the external monitoring of its application of its code (this case will be examined
below), is a major precedent which could become standard practice in the future.

References
1
US Department of Labor, Bureau of International Labor Affairs: "The apparel
industry and codes of conduct: A solution to the international child labor
problem?", Washington, DC, 1996, 242 pp.
2
A conclusion reached, for example, in a study published in 1996 by Peter Prowse
Associatives on the annual reports of the 100 main companies quoted on the stock
exchanges in Europe.
3
In Switzerland the branch of a Scandinavian bank (Edouard Constant bank) has
had an ethical portfolio since 1 January 1997. It is therefore the first Swiss private
bank to propose ethical criteria.

Enhancing Business Ethics, Corporate Governance &

Corporate Social Responsibility
Ethics as described by oxford dictionary is a set of moral principles, moral
is concerned with goodness or badness of human character. The
concept of ethics comes from Greek word ‘Ethos’, meaning both an
individual’s character & a community’s culture. The Institute of
Global Ethics defines ethics as ‘The obedience of the un enforceable.

Individual as Nucleus of Society & Stages of Ethics : Individual forms the

nucleus of any company or a community or society. Personal
integrity and collective integrity of group of individuals and their
commitment to high moral values & ethics influences the Corporate
Governance as well as Corporate Social Responsibility. Seeds of
ethics are sown in the family, that’s where one ‘learns’ the concept of
ethics. What is described as ‘sanskaras’ by Indian social scientists.
The same can also be described as ‘DNA’ of human character. Going
further, ethics are ‘nurtured’ in schools and colleges. Every
individual’s ethical behavior is driven by a personal desire or a
‘resolve’ as to what he or she wants to be known as, while living &
remembered as beyond their life. And it is not easy to arrive at this
‘resolve’, when Peter Drucker was 13 years old his teacher asked
him, what he wanted to be remembered for ? Drucker, now over 80
yrs says, he is still trying to answer that question. It is the workplace
where the individual ethics ‘mature’ and eventually get casted in
stone. Until school & college level ethics largely remain in ‘personal’
domain but the moment individuals get into work situations, they get
into the realm of ‘collective ethics’.
 Model of Nucleus of Ethics & it’s circle of influence

Corporate Governance & Business Ethics : At the company level the Board is the
torch bearer, the collective ethics of Directors decide the quality of
Corporate Governance. Generally people believe business ethics involves
adhering to legal & regulatory standards. But true governance is not
necessarily rule based but the one which is principle based. People can
 always bend rules but they do not like to bend /compromise their
principles. It always comes from within i.e. a belief in principles of
fairness, truth honesty and Transparency. That is why despite Sarbannes
Oxley, corporate America continues to witness major financial frauds and
so do other countries despite so called stringent Corporate Governance
codes (Clause 49 of SEBI in India).

People need to be regularly reminded of the need for individual & business
integrity thus, companies come up with code of conduct / Ethics. People
across the organization are encouraged to adhere to stated principles in
the code. However, integrity cannot be mandated, it requires a belief in a
set of moral principles that extends beyond printed guidelines. The essence
of ethics is captured very well in the statement by Jim Kelly, Chairman,
United Parcel Post Service, he says “ethical behavior is not an act but a
HABIT. Just as good health requires cultivating the habits of getting
enough sleep & eating wholesome food, Aristotle believed that right action
was the result of developing good moral habits. In a business context, this
means training and at the deepest level, some thing we call Corporate
Culture.” It is this corporate culture, which is key to business ethics and
this ethical behavior should be reflected in the fair & transparent behavior
of board & the management team alike, when they deal with five major
Constituencies or sets of Relationships.

Shareholders and others who provide finance

Employees
Suppliers
Customers
The community / society at large

One of the major ethical issues faced by the Boards is the way in which
prosperity of company should be achieved. The most difficult task for the
Board of Directors is to weigh up the short and long term interest of the
company and then decide on the right course of action. If the ‘Purpose of
Business’ is well defined using principle based approach, it will always
guide the boards when in dilemma.
One such company that puts ethics before profit is Body Shop of UK. In 1991
– The Body Shop took a decision to phase out the use of PVC from its
packaging & products. Whilst the company acknowledges the versatility
of PVC as a packaging & product material, but the social and
environmental implications associated with PVC overrides any decision to
use it in the products, packaging or shop fits.

Corporate Social Responsibility Myth v/s Fact : Borrowing from Maslows need
hierarchy, at individual level ‘Self actualization need’ is the higher order
need. At the company level ‘Self actualization need” prompts boards &
management to move towards Corporate Social Responsibility (CSR).
One ‘Myth’ that prevails is ‘CSR’ might confuse existing business
objectives i.e. it may not be a profitable business. However the ‘fact’ is
just reverse of it, i.e. sound ‘CSR’ policy can provide real Long term
benefits to the companies. This point is well proven with the fact that
“When Dow Jones Sustainability Index was launched in 1999, the
economist agreed that ‘companies with an eye on triple bottom line –
Economic, Environmental & Social Sustainability – outperform their less
fastidious peers on the stock market’. This may be why Social
Responsibility Investment (SRI) criteria are now used by a number of
leading fund managers.

Michael Porter professor of Strategy at Harvard Business School has summed it

very aptly, “In a more socially & environmentally aware world, Corporate
Social Responsibly in these spheres will itself be a source & competitive
advantage”. A social investment forum survey found that 59% of
occupational pension schemes now incorporate (SRI) into their investment
strategies and new ethical indexes are on the way among them FTSE 4
good.

Enhancing Business ethics & Corporate Governance : The challenge is in

matching values of the company with those of the individuals, so that the
individuals are intrinsically motivated to alter their behavior. Value led or
principle based approach is more effective than the rule based approach.
This approach conveys to employees that you are being paid in order to
make the right decisions based on a certain set of values & principles.
Once a Value based culture is developed it will be sustainable and ensure
longevity of organizations beyond the lifespan of promoters. This is the
real driver because people then intuitively & instinctively do the right
things without “going by the rule book”. At the society level, we will have
to constantly reinforce ethical behaviour at all levels such as individuals,
corporate leaders (board members & senior management), bureaucrats,
political leaders & finally civil society at large. This can only be achieved
when our leaders in all spheres start leading through examples. Hence,
reinforcement of ethics will have to be top down.