Purchasing agents working for three different U.S. multinational clothing manufacturers in a Southeast Asian country all placed orders for 100,000 bolts of silk. Various factors led to a temporary shortage of silk, and all three orders were returned marked "Back ordered—estimate delivery 3-6 months." The day after receiving the returned order, Cathy Denton, the purchasing agent of one of the companies, received a call from someone who said that, for a separate cash payment to him of $1 per bolt, or $100,000, she could get her company's shipment within a week. She paid the money and received the shipment. Don Eden, the purchasing agent for one of the other two firms, called a local government official whom he knew and offered to pay him $100,000, no questions asked, if he could get his shipment within a week. The official agreed to do what he could, Don delivered the money, and the order arrived. Harry Goodman, the third company's purchasing agent considered it unethical either to offer or to pay bribes. He did neither and received his shipment in six months.
Ethical issues are always issues faced by an individual, either in his or her own right or as a representative of the corporation. Cathy, Don, and Harry confronted their situations on their own, and we don't know whether they acted in accord with company policy or in violation of it.
The ethical problems faced by people in corporations often arise from conflicts between personal and corporate values. Although some people consider any instance of an ethical conflict to be an ethical dilemma, a narrower definition of ethical dilemmas is situations in which neither of two available alternatives seems ethically acceptable.' People typically take such dilemmas at their face value and attempt to resolve them at the level at which they appear. However, some ethical dilemmas are in fact unresolvable when approached at face value. By staying at that level, a person may conclude that an ethical issue is unresolvable, except through some ethical sleight-of-hand reasoning. But our analysis of them should not end there.
Ethical dilemmas can arise on any of the levels at which people and firms operate: the personal level, the level of the firm or corporation, the level of the industry or of other groups of firms, the national level, and the international level. Each level has its own problems. Yet ethical dilemmas at any level may yield to the technique of ethical displacement.
Ethical displacement consists of resolving a dilemma—or sometimes of solving an ethical problem—by seeking a solution on a level other than the one on which the dilemma or problem appears. Thus a dilemma encountered by an individual on a personal level may only find a solution on the corporate level; that is, the solution to a personal dilemma may require one or more changes in corporate structure. Corporate dilemmas, in turn, may require changes in industry structures to guarantee fair conditions of competition. Industry-wide dilemmas may require changes in national policies or legislation. National business dilemmas, such as pollution problems, may require changes in structures or agreements on an international level. And international dilemmas may sometimes only be resolved by moving simultaneously on that level and on the national level.
Many dilemmas faced by individuals in a firm cannot be resolved simply by the individual's acting ethically, and they are not amenable to intuitive solutions on the individual level. If the existing structures of a firm caused the dilemma, the only way to resolve it is to rise above the level of individual ethical analysis. Persons facing such dilemmas must still deal with the unresolved problem of how to act if they cannot effect change on the next level. But at least the person will have clarified the need for change at the next higher level if such dilemmas are to be resolved.
The technique of displacement analysis is initially a descriptive technique and then a diagnostic technique. Any solution that results from it will not be easy, since changing corporate structures and policies implies a host of considerations that must be worked through. The attitude that ethical issues are simple and are easy for ethical people to resolve intuitively must be overcome both at the personal level and at the corporate level. Acting with integrity does not mean acting only on the basis of one's moral intuitions. It also means being willing to make the effort and bear the cost of determining the right thing to do in a given situation. Clearly, conscientiously applying the seven ethical guidelines and considering which others might apply is not simply a matter of using one's ethical intuition.
Business executives would not consider approaching complex financial problems intuitively and without conducting an exhaustive study; neither can they hope to resolve complex ethical problems intuitively and without conducting an exhaustive study. Analyzing ethical issues in business within the frame-work of interactive levels is essential in approaching many problems, especially on the international level.
If a superior tells an employee to falsify a record, or if a worker knows that construction concrete is being diluted below specifications and may present dangers to the ultimate users, the employee or worker is placed in the position of either disobeying a superior and risking loss of job or acting in ways that are manifestly wrong. People in such situations need access to some other alternative, such as some means of making their situation known to top management (assuming that the improper orders do not come from there). This is important both for the individual and for the firm. Ethical hot lines and the position of ombudsman, instituted by a number of Fortune 500 companies, can help. Employees can use ethical hot lines to report their ethical concerns or get their ethical questions resolved. Ombudsmen function as confidential intermediaries for workers; they try to resolve ethical conflicts while preserving the employee's anonymity. Yet these approaches rarely lead to structural changes within a company or to genuine debates about the ethics of a company's practices. Such debates may take place in the board room or in the of fices of the top management, but few companies consider it appropriate for lower echelon employees to raise such issues. Ethical hot lines were not instituted to handle complaints that threaten the existing structure of the corporation but to answer or allay day-to-day concerns of employees, usually on fairly straightforward and obvious issues of right and wrong. A company that wishes to act with integrity should ask and answer such questions as these: Who attempts to resolve dilemmas involving ethical displacement? Where are the ethical gray areas in the company? Who internally challenges corporate procedures or structures from an ethical point of view? How might such questioning or attempts at resolution be institutionalized? Does the company need a devil's (or an angel's) advocate to do just that? Such questions are too seldom raised.
To be effective someone highly placed in a corporation (and who thus has other functions) should have the explicit task of anticipating complaints from workers, consumers, suppliers, and the general public, and of arguing from an ethical point of view for changes in corporate structures and policies. Only then will ethics be integrated into the company's operating procedures, as it must be in a company interested in acting with integrity. To be effective such a person should be rewarded for raising and pressing ethical concerns about corporate policies and structures and should be penalized for failing to do so (as evidenced by employee whistle-blowing or consumer suits). Multi-nationals have an even greater need than domestic firms for such positions, and the necessary structures become more complicated; yet the basic purpose is the same.
The widespread need for such persons emphasizes that many ethical problems faced by individuals in corporations are not simply a particular employee's problems. They cannot be resolved adequately by recommending that the individual act in accordance with his or her conscience or by seeking advice from someone in the company. The individual problem must be displaced to the institutional level, and a solution must be sought there— frequently through institutional change. Individual dilemmas are replicated at the corporate level. Sometimes corporations in a given industry are driven to compete in ways set by the least ethical among them. In such cases the solution must be sought industry wide. Ethical displacement thus operates at all levels and among all levels.
When dilemmas on a particular level can be resolved only by rising to a higher level, the solutions to them are seldom intuitive; and if properly approached, solutions that go beyond a corporation's immediate domain of action are often so costly, time-consuming, or unusual that people have an inherent reluctance to raise them. To the extent that they involve changes in existing structures or ways of doing business, they are seen as threatening and hostile; and so they may well be. If they were not, the moral dilemmas involving ethical displacement would not arise. Such moral dilemmas are symptomatic of the need for structural changes. Here ethical analysis yields both a threat and a possibility for creative corporate action.
Some ethical dilemmas at the industry or consortium level may only be resolvable by rising to the international level, as in the case of unfair international trade practices that no particular industry can change. Dilemmas at this level are even more difficult to resolve than are dilemmas at the industry level, but solutions are by no means impossible. They necessitate concerted international action, they may involve applying political pressure or negotiation, and they frequently require that someone or some nation be willing to take the lead. Other candidates for the technique of ethical displacement are global pollution issues, depletion of nonrenewable resources, and damage to the ozone layer of the atmosphere—problems to which a particular company may contribute, but that no individual company can solve.3
Cathy paid a bribe in response to an offer. Don offered a bribe. Both got their orders filled quickly. Clearly there was some silk available. If we assume that there truly was a shortage overall, then they received their shipment while someone who would otherwise have received a shipment did not. Or perhaps the distributor sent all his customers the same notice, knowing that those who wanted earlier shipments would offer or pay a bribe to receive them. One might respond that such a system is the local custom: what is wrong with the custom, and what is wrong with paying or offering the bribe? Without the timely arrival of the silk, Cathy's and Don's plants might have been forced to close, putting their workers at least temporarily out of work and causing delays in filling orders for the completed garments, possibly until after the season for which they were intended.
Were the payments made by Don and Cathy actually bribes, or were they simply a way of doing business in a tight market? To characterize the payments as bribes is to characterize them as unethical from the start, for bribery by definition involves unfairness. The case as described tends to justify that characterization.
Bribery is unethical for several reasons. First, it undermines the fairness of the market, which presupposes a system of open competition. In a fair system, all compete on equal terms. In the given situation the fair thing for the supplier to do would have been either to deliver the silk that was available at its regular price on a first-come, first-served basis or to delay all orders, announce a $1.00 a bolt rise in price, and then sell at that rate on a first-come, first-served basis. Either method would have given all buyers an equal chance at getting their goods, since the increase in price reflects the shortage of supply as opposed to demand. The fact that some silk was deliverable to Don and Cathy raises the question of what the actual situation was and whether, if no special payments had been made, no one would have received silk shipments for six months.
In general, the presence of bribery on a large scale—especially if it involves highly placed government officials—is symptomatic of a contrived, manipulated, or otherwise inefficient market. If it possible for a firm to pay bribes over and above its normal costs for whatever it gets in return, the nominal price does not represent the actual market price. If the nominal price were the market price, no firm could afford to pay the bribe in addition to the standard price and still remain competitive. If a country sells its raw materials at below the world market price, its leaders or those who control the economy can ask for bribes and still hope to sell their resources. The reason is that the total price (fixed price + bribe) does not exceed the world market price. If it did exceed that price, companies would have no incentive to pay the bribe. Those in a position to set prices can set them so that they personally benefit from the difference between the real value of the goods sold or of the orders placed and the price asked. In countries where bribery is endemic, it is typically tolerated on the lower levels because those higher up also receive their cut or in other ways participate in the system of graft. Bribery thus not only undermines the fairness of the market but also indicates its inefficiency. The fact that Don worked through a government official is prima facie evidence of corruption within the system.
Second, the people who receive the bribes are not necessarily those who should have received any compensation at all in a fair market. As the situation is described, the money paid by Don went to a government official who was somehow able to influence the shipment of the goods—not to the manufacturer of the silk. The official in question was in a position to have the silk shipped, but the payment was neither the ordinary wage of that person nor the person's ordinary commission. The payment gained Don special treatment that he would not have received otherwise and to which he was not entitled in a fair allocation of goods. Cathy paid some unknown person— possibly a government official, possibly someone else. That person may have had legitimate access to the silk; but the request for $100,000 in cash makes that prospect seem unlikely.
Third, if there is a shortage, someone who would otherwise have received the goods under a fair allocation does not get them, and thus is unfairly injured through the payment of the bribe.
Fourth, since the payment is not stated as a legitimate increase in the cost of the goods received, it cannot be counted as such. If recorded, it must be
recorded as a payment to an individual. If such payments are not allowed, they must either be covered up or be paid from unrecorded funds. Both approaches would violate U.S. and other tax laws and would not present an honest picture of costs and assets to the home office or to shareholders. Deception is involved in the payments; otherwise, they would not be bribes. Neither Cathy nor Don seem to be in a position to record their payments accurately and honestly. If the $1 per bolt payment asked were truly and simply a temporary increase in the price, it would cause no problem. It could be paid, openly recorded, and managed as part of the normal way of doing business. But because it is not part of the normal way, because it is deceptive and unfair, it is unethical.
Cathy paid a bribe when it was requested. Don offered a bribe. Both paid the same amount of money and got the same delivery. Is there any difference in their actions? Cathy acceded to an unethical practice, initiated by an unknown individual. Don initiated an unethical action with a government official. In doing so, he not only acted unethically himself but also took the lead in possibly corrupting someone else. Perhaps that person was ready and anxious to be approached in this way by Don. Nevertheless, initiating a bribe is ethically worse than paying one, although both are unethical; and corrupting or abetting the corruption of government officials is worse than acceding to the blandishments of corrupt private individuals, since the former involves not only private but also public corruption. Both Cathy and Don continued production, got their goods out on time, helped keep the workers in their firms employed, and fulfilled their customers' orders. Harry acted ethically, but his firm may have been forced to close down temporarily, leaving its workers without an income and its orders unfilled. The pressure on Don and Cathy to act as they did, rather than to suffer Harry's fate, is understandable. Arguably neither of them did what they did entirely for personal gain but did it to benefit the companies for which they work; and in the process they certainly helped their firm's workers and customers. Neither the actions of Cathy and Don nor the results for Harry, are completely satisfactory.
If we are to place blame, it should fall in large part on the system that allows the market to be skewed in this way through the payment of bribes. This analysis suggests a number of difficulties that require remedying on another level. First, individual purchasing agents should not have to choose between obtaining material in a period of shortage through bribery or doing without. Even if it is widely practiced in a given society or country, bribery is unethical. The individual acting for a firm should decide, as Harry did, not to pay or to offer a bribe. But the result may damage his firm, and he may find his own job in jeopardy—especially if his competitors deliver the goods and he does not. It is unfair to place such a burden on the individual. The decision properly belongs at the level of the firm rather than at the level of the individual.
Making the choice at the level of the firm enables the firm and its employees thenceforth to follow an established policy. If the policy is to pay bribes or to offer bribes when necessary to get goods that are in short supply, the individuals who execute the policy may rightly feel uncomfortable (and they would be ethically justified in refusing to follow the policy), but at least the firm's expectations are clear and its decision has been made at the proper level. A firm that wishes to act with integrity will not adopt a policy of paying bribes, nor will it place its employees in the position of having to decide whether or not to pay bribes. The embarrassment most companies would feel at publishing a policy of paying bribes "as necessary" to accomplish economic objectives is an excellent indication that the policy is unethical. Moreover, such a policy, if explicitly acknowledged, would open a firm to suits and legal prosecution.
Having placed the decision at the level where it belongs, we must ask how a firm of integrity can compete ethically in this situation. The issue cannot be resolved simply by deciding not to pay bribes while ignoring the fact that other firms do. Although the company may stay ethically clean, it puts itself at a serious competitive disadvantage. Instead, it should seek to eliminate or circumvent the process of bribery by all means at its disposal. The most effective approach would be for all companies subject to the system to present a solid front and to refuse to pay bribes. By passing legislation that outlaws bribery or by enforcing existing legislation, a government can produce conditions of fair competition. Complaining about bribery, reporting it, and publicizing it are all legitimate reactions for an ethical business. Even if they ultimately prove to be ineffective, the present point is to see where responsibility lies and what level of response might provide a solution.
The U.S. Foreign Corrupt Practices Act was passed in 1977, partly as a reaction to a well-publicized incident in which Carl Kotchian, President of Lockheed, made $12.5 million in payments to Japanese agents and govern-ment officials to secure a large order from Nippon Air for Lockheed's TriStar airplanes. Japanese trade agents had approached Kotchian and told him that, if he wanted to make the sale, he would have to make certain payments. After making the initial payments, he was asked for additional ones. No one doubts that the TriStar was a good plane. But was it the best for the money that Nippon Air (the official Japanese airline) could get? If it was, Nippon Air should have bought it without requiring any secret payments; on the other hand, if the asking price was $12.5 million too high, Nippon Air should have negotiated the price down. As it was, Nippon Air paid the full asking price, but Lockheed netted $12.5 million less. The difference went into the individ-ual pockets of intermediate agents and government officials who had the authority to order the planes. It is not clear whether Nippon Air would have agreed to buy the planes if Lockheed had refused the payments. The intermediate agents might have gone to producers of its second choice of plane and tried the same demands, and so on, until it found a company that would pay. The airline would then have purchased a poorer-quality airplane—the primary criterion being not the quality of the planes but the under-the-table payments to the agents.
If buyers require payments before they will even consider purchasing a company's products, they run the risk of ruling out the best product or the best value; consequently, they do a disservice to the country or to the people they represent. If buyers require payments only after an assessment of relative product quality has determined the initial choice, they again run the risk of not getting the best for their money. If the producer is willing to pay the bribes, it must still anticipate an acceptable profit; therefore, the buyers presumably could have negotiated the price down to the same level—to the benefit of the country's coffers instead of their own pockets. The paying of bribes must be covered up because it involves deception. It also involves treating one or more third parties unfairly, so it is doubly unethical.
When the Lockheed payments were made public, Lockheed was charged with falsification of its records and tax violations, and its reputation was tarnished. Although such payments supposedly were an accepted way of doing business in Japan, news of the payments created a furor there. The government ministers in question were criminally charged, one committed suicide, the government fell in disgrace, the Japanese people were scandalized. This is not the normal reaction to disclosure of an accepted practice. The claim that the practice was "accepted" really meant that it was widely practiced and that it was tolerated when kept secret. The Japanese public's reaction clearly indicated that the Japanese people did not subscribe to the view that the practice was acceptable or ethically justifiable. This incident illustrates the importance of publicity in judging and enforcing ethical rules. The reaction of the U.S. government was to pass the Foreign Corrupt Practices Act. The drafters of this act recognized that the problem of bribery could not be solved satisfactorily at the level of the individual, of the individual firm, or even of a particular industry. Rather, the government had to face the problem at the highest level it could. In fact the problem is an international one and can be fully resolved only at the level of international agreement. The UN Commission on Transnationals recommends similar anti-bribery legislation for all countries, but many are reluctant to enact such laws.
The Foreign Corrupt Practices Act forbids the paying of bribes. Later amendments to the act permit what are called "facilitating payments" a distinction we discussed in Chapter 1. Facilitating payments are not payments to pass goods that should not be passed, nor are they payments to obtain exclusive preferential treatment. They are payments to ensure receiving the standard treatment that one ought to get but otherwise may not. Although Americans would prefer a system in which no facilitating payments were necessary, U.S. Law tolerates them in business abroad. Since such payments are legally acceptable, they can be reported openly.
The Foreign Corrupt Practices Act has been criticized for two main reasons. First, some critics claim that it imposes U.S. ethical norms on conduct in other countries and is thus ethically imperialistic. Second, critics argue that it places American firms at a competitive disadvantage vis-a-vis firms from other nations that are not similarly disallowed to pay bribes by the laws of their home country. The claim of ethical imperialism assumes that in some countries bribery is ethically permissible. Yet no country openly defends the demand for or the payment of bribes as ethically permissible. Bribery is a means of bypassing the normal way of doing business. If it were the accepted norm, it would simply become part of the price one paid to do business. It would be open, above-board, required, and legally sanctioned; it would cause no harm and require no deception. It would then not be bribery. Bribery is a way of getting preferential treatment. If it were part of the normal way of doing business, it would not be preferential. If it did not result in anyone's being treated unfairly as a result of the bribe, it would not have to be done surreptitiously, for no one would have any basis for complaint. Bribery is also a means by which an individual acquires wealth outside the usual ways of paying for goods and services. If it were simply a standard fee for legitimate services, it would not be a bribe.
In no country do high government officials openly practice and publicly justify the acceptance of large sums of money for preferential treatment. If the practice were ethically justifiable and acceptable to the public, the whole point of paying bribes would be lost. It would become a normal way of doing business, and no special advantages could be gained from it. This is not to deny that bribery is widely practiced in some places. Since bribery cannot be ethically justified, at most one can claim that certain countries tolerate bribery or that many people justify their actions by asserting that such payments are necessary in a given country. These characterizations are compatible with the practice's being unethical in those countries. To call it unethical neither contradicts the ethical norms of other countries nor imposes one's own ethical views on them. American companies, when approached for a bribe, may reply that American laws prohibit such payments. This can hardly be equated with ethical imperialism, even if it may lessen the pervasiveness of bribery in some countries.
The second charge is that bribery puts American firms at a competitive disadvantage. The reply to this is threefold. First, if the action is wrong, the fact that other people do it does not justify American firms' acting in a similar way. To make the payment of bribes legal and reportable in the United States would be to put American firms in the position not only of paying bribes but of contributing to the continuation and promotion of bribery in other countries. This is a far more serious form of wrongdoing than ethical imperialism, because it amounts to promoting corruption. Second, no hard evidence shows that American firms have operated at a competitive disadvantage because of the Foreign Corrupt Practices Act.'° Part of the reason for this may be that data are simply not available. No published reports detail who pays which bribes to whom, and which deals American firms would have closed had they paid bribes to certain agents or firms. The evidence indicating that American firms now operate at a competitive disadvantage is at best anecdotal, and it is not very persuasive overall. A 1981 study by the U.S. General Accounting Office indicated that less than 1 percent of the 250 American businesses surveyed claimed any loss of business due to the law. Since then, other studies have shown that U.S. exports have not declined as a result of the law, nor has the law made U.S. firms less competitive, even though some deals may have been lost. Third, if the American firms are at a competitive disadvantage because of the Foreign Corrupt Practices Act, their proper response should be to pressure the U.S. government to be more aggressive in protecting their interests by negotiating with other governments to pass similar laws in those countries. This would level the playing field for all. The technique of ethical displacement shows that the ultimate solution to the problem must be found at the international level. The UN Economic and Social Council has recommended a legally binding agreement on illicit payments similar to the provisions of the Foreign Corrupt Practices Act, as has the International Chamber of Commerce in its International Code of Marketing Practice.'3 Binding agreements are possible, although they are not yet in place.
Various kinds of ethical conflicts must be resolved on a higher level. Three kinds of conflicts are commonplace: pressures on individuals to violate personal norms; inconsistent cultural norms; and host-vs.-home-country interests and values.
Individuals working abroad in multinational firms experience more than the usual degree of pressure to violate their personal norms. First, they are away from their ordinary milieu and supporting culture, and they are psychologically and geographically distant from the parent company. Second, a multinational operating away from home functions in a mix of cultures and values that tends to undermine the authority of both the home set of norms and the norms established in the host country. The psychological and geographical distance involved means that the home office has less control over daily operations and less detailed knowledge of actual conditions in the subsidiary abroad. One of the easiest ways for managers to pressure their employees to act unethically is to give them such unrealistic goals or assignments that they can only fulfill these by cutting corners or acting unethically. The manager who says, Get this done by such and such a date. I don t care how you do it, but get it done or I'll find someone who can, is inviting unethical behavior. Home offices may make unrealistic demands on a distant subsidiary because they lack day-to-day knowledge of the subsidiary s operations. Because of the great distance, the home office is also less able to see how its orders are implemented down the line on a day-to-day basis, and it may fail to exercise adequate control. Often, those who implement the orders do not feel responsible for what they do, since they are simply following orders. Not only does each office tend to take less ethical responsibility for its actions than it should, but each may act progressively more unethically. Such a situation calls for more conscious responsibility and for altered procedures that compensate for the distance. The changes should reinforce ethical behavior, rather than making unethical behavior more probable. Subsidiaries in less developed countries need ombudsmen and ethical hot lines like those that have been instituted in many firms in the United States. These should be linked to the home office so that ethical difficulties encountered in the MNC abroad can get a hearing at home as well. The mix of employees and managers from two countries—the United States and the host country—increases the likelihood that individuals will feel pressured to do things they feel they should not do. Whose ethics should the MNC follow? We have already seen that a company with integrity will not change its ethics as it changes locales. Hence the ethical norms of the American parent firm should be inculcated and followed by the firm wherever it operates. But non-American workers in the multinational abroad will certainly want to follow their own sense of what is right and wrong, as they should. Their consciences are no less to be respected than are American workers' consciences. The potential for what appear to be ethical conflicts in this setting increases the need for ethical mediators. The ombudsman or the person on the answering end of the ethical hot line should know the customs and values of both countries and should have the confidence of workers and managers from both countries. Companies need to think about ethical structures and to develop a corporate culture that reinforces the importance of personal integrity and upholds corporate integrity while at the same time respecting the legitimate values and customs of the host country.
The problem of conflicting cultural norms is experienced on a day-to-day basis by individuals, but it is actually a structural-level problem. Norm five (G5) requires multinationals to respect the customs of the host country to the extent that the local culture does not violate ethical norms. But the mere introduction of a new industry or of new technology usually disrupts some aspect of the culture of less developed and only slightly industrialized nations. It is not so much that one country considers ethically right what the other considers wrong as that one way of doing things may be incompatible with another. The requirement to respect local customs does not mean giving up one's integrity, nor does it mean giving up one's way of doing things. But it does mean that American workers abroad should accommodate themselves to the local ways to the extent compatible with ethics. Certain industries demand punctuality: what one person does depends on what others have just done. Such industries may demand punctuality from workers whose notion of time is very different from the standard American view and who in other facets of their lives are not constrained by the clock. Extreme heat may demand that work stop during midday and continue farther into the evening than in a typical American factory. Although this is not an ethical issue, respecting customs and accommodating corporate practice to them are. Everyday practical issues that individuals face should be addressed in company policy—a policy that must take into account the local culture and that should not be set unilaterally by the home office.
A multinational company chooses to operate in a less developed country for specific reasons; the country allows the MNC to operate within its borders for different reasons. Each has its own interests at heart, and these interests differ even though they both lead to the MNC's operating in the country. The MNC may want to employ less expensive labor than is available in the United States; the host country may want to provide more jobs for its people, given a prevailing situation of high unemployment. The MNC's desire for markets may match the host country's desire for the products the MNC makes. The MNC's desire to locate where taxes are lower than in the United States may be matched by the host country's desire to increase its tax base. But the two sets of interests do not always match. The MNC may wish to keep wages as low as possible, while the country may wish them to be as high as possible. The same is true of the price of goods. Since the MNC wants to obtain the greatest profit possible, it wants to charge the highest prices it can competitively get; conversely, the host country wants the lowest prices. The MNC wishes to pay taxes that are as low as possible, while the host country wants to receive as much tax revenue as possible without driving away foreign firms and investment. Neither side's legitimate desires are unethical, even when the interests involved are at odds. Self-restraint and a balance of power tend to keep each from acting unethically. But unless there is such a balance, the MNC may be tempted to seek its own interests at the expense of the host country, in violation of the second and third norms. If the host country pursues its interests too zealously at the expense of the MNC, the latter is likely to close down or sell off its operation and leave.
Clearly, in dealing with cases of ethical displacement, analysis is often not enough. Solutions and guidelines must be implemented, and they can be implemented only by individuals. Personal ethical commitments are not irrelevant to corporate, industrial, national, or international guidelines and policies. They are the starting point for discussions that lead to broader guidelines and structural changes on various levels. These corporate guidelines must cohere with the personal values and ethical beliefs of individuals if they are to be effective and if they are to be followed. In crisis situations, personal moral courage and integrity are necessary to ensure ethical economic survival, as well as to implement the required changes. Corporations with integrity are ultimately a function of individuals with integrity. Many people of integrity ignore or underplay the importance of moral imagination. Yet no fixed code or set of rules can suffice. There is a difference between learning the rules of drawing—such as the laws of perspective—and creating a work of art. The latter requires imagination as well as craft, innovation as well as mastery of the rules. Ethics is similar. We start by learning the moral rules—the Ten Commandments, or the ordinary rules of decent moral behavior. Living by these rules has become second nature to most people and requires no great effort. We all know that, in general, Iying is wrong and that it is ethically impermissible to murder our competitors, no matter how tempted we may be to do so on some days. Moral imagination enters the scene in at least four ways. The first involves attempting to walk in someone else's shoes. Stakeholder analysis is a popular term in business ethics. It means that, in trying to assess the ethics of a particular course of action, we should consider all those who have a stake in the firm. Shareholders are only one set of stakeholders. Others include the employees of the firm (managerial, secretarial, and blue collar); its customers; its suppliers; its creditors; its neighbors; the government; and the general public, insofar as it is affected by the firm's action. A stakeholder analysis considers each of these interests, imagines standing in each place, and looks at the action from each perspective. It is no easy task; and if it is to be done objectively and fairly, it requires not only practice but imagination. How does it feel to be laid off in an economic downturn? How does a neighborhood view a plant's closing? The neighborhood may consist of small shopkeepers—a baker, a shoe repair man, a corner grocer, a dry cleaner; they may have located near the plant to provide services to those who work there. The city or town may have invested in roads, sewers, and streetlights; it may have borrowed to build them; and it may have counted on taxes from the plant to pay for them. A supplier may have been led to believe that it could count on future sales to the firm. What are the consequences for each of them if the plant is suddenly closed? The point is not that sentimentality should decide what is ethical or what a business should do. But analyzing the impact of a plant closing, for instance, involves more than just abstractly considering the money a firm can save by having fewer workers and paying less in overhead and taxes. A very different view of fairness emerges if you put yourself in the shoes of each affected stakeholder, rather than merely considering the closing from the point of view of the shareholders or of management. Using moral imagination means thinking concretely instead of abstractly about the effects of one's actions. Using one's moral imagination to represent the interests of a firm's various international stakeholders requires knowledge of such stakeholders and is clearly more difficult and complex than considering only American stakeholders.
A second aspect of moral imagination involves considering how someone whom one admires as honest and upright might act in a given situation. Ethics is often taught not only by rules and precepts, but also by stories. Religious traditions include stories of holy people or saints, which present them as models for conduct. Their stories stick in one's memory and help stimulate one's moral imagination. Where are the ethical saints and heroes in business, and even more in international business? Surely such saints and heroes will not be exclusively American. Who are the paragons of virtue that MBA students and managers working abroad should be taught to emulate? Business has undoubtedly produced many such models. But neither business nor any-one else has yet produced the litany of business saints necessary and sufficient to illuminate the moral imagination of the business student or practitioner. The recently established Business Enterprise Trust hopes to identify such models. It gives national awards annually to persons and firms that have shown the "courage, integrity and social vision" that "exemplify the highest standards of business responsibility." 6 Anyone deserving such an award will certainly have exercised moral imagination, and may in turn serve as a model for others. The need for similar models on the international level is clear.A third way moral imagination provides insight into the effects of a proposed action and perspective on the ethical propriety of that action is by envisioning how it would be described the next day in a local newspaper if it were known. Since appearances can make or break reputations, actions in business should not only be ethical but also appear to be ethical. A cynic might say that they need only appear to be ethical, but that view is short-sighted. Publicity is an excellent guide to what is ethical. If Carl Kotchian had imagined the headlines that revealed Lockheed's $12.5 million payoff in connection with the sale of TriStar planes to Nippon Air, he might have resisted making those payments. If the Japanese officials who profited from the TriStar payoffs had imagined the headlines that ultimately appeared in Japan, they would surely have acted differently. A person who would be ashamed to have an accurate account of the deal currently being negotiated appear in the paper the next day should reconsider its ethical propriety. The simple act of imagining one's spouse, mother, children, or best friend reading the account in the paper can throw a bright light on the ethics of the act. The trick is to imagine the news item not as we would like to see it portrayed but as a reasonably objective investigative reporter would describe it. Ethical rules demand the moral minimum. But a firm that wishes to act with integrity will imagine, consider, ponder, and attempt to achieve the ideals it holds and the possibility of going the extra mile beyond the moral minimum, even though such actions rarely make the headlines.
The fourth aspect of moral imagination involves continuing to look for alternative solutions to a moral dilemma when none may at first appear to exist. In a moral dilemma, neither identified option seems ethically accept-able. For example, either one must lie or one must reveal a trade secret. Neither is the right thing to do. If in fact those are the only possibilities, then one must choose the lesser of the two evils. But rarely are one's options so narrowly circumscribed. Frequently other alternatives are available, if only one uses one's moral imagination. Alternatives include evading the question, changing the topic of conversation, walking away without answering, and spilling a drink to create the needed diversion. Mahatma Gandhi exemplified moral imagination on a grand scale when he devised the technique of passive resistance. On a less dramatic level, an employee who is told to do something he or she feels is unethical (and who feels trapped between a sense of obedience as a subordinate and an unwillingness to act as commanded) should look for other alternatives. Surprisingly, an often ignored alternative is to discuss an inappropriate command with the person who issued it, stating one's objection to the action, and suggesting some alternative that can get the job done to everyone's satisfaction. The latter may involve applying imagination that the boss should have had. But moral imagination should be treasured wherever it is found.
Leon Sullivan exemplified moral imagination when, as a member of the board of directors of General Motors, he came up with the Sullivan Principles for American firms operating in South Africa. 17 Previously it had seemed that American firms must either engage in apartheid or leave South Africa. But Sullivan's principles provided a strategy whereby U.S. companies could refrain from engaging in apartheid while continuing to operate in South Africa. It was a noble experiment, even though after ten years Sullivan himself finally judged it to have failed as a means of undermining apartheid in South Africa. Moral imagination is a key ingredient in the technique of ethical displacement.
Firms that act with integrity must possess corporate courage, both on the level of the firm and on the level of the individual within the firm, if their ethical concerns are to be taken seriously. Often the most difficult task is to acknowledge that being ethical is not always profitable and may even be costly—at least in the short run. People who claim that ethics is good business are only partly right, and any company that acts ethically only to increase profits runs the risk of resorting to unethical behavior whenever an ethically right action and economic self-interest fail to coincide. In such a situation, moral courage and a commitment to ethics above profits are essential.
Employees need moral courage to say no when corporate superiors instruct them to falsify documents, backdate reports or orders, or produce goods that fall below contracted specifications. Although these are mundane examples, such refusals nonetheless constitute instances of moral courage. More dramatic instances are the famous (or notorious) whistle-blower cases. The film "Silkwood" dramatized one such incident—a case in which a worker's moral courage led to her death: dramatic indeed. Newspapers and the literature on business ethics are peppered with others: the three engineers at BART who warned of a defect that could lead to a train wreck; Dan Gellert, who blew the whistle on Lockheed for a defect in the 1011 aircraft design; Frank Camps, who went public with his concerns about the safety of the Ford Pinto. To draw attention to what they considered dangers to the public, these individuals risked their jobs. Whistle-blowers tend to be depicted in the business ethics literature as heroes, but one aim of business ethics is to preclude the need for whistle-blowing. If firms were sensitized to respond substan-tively to the complaints of their employees about such things as product safety, the employees would not have to go public. Responding appropriately also takes courage. Although we usually refer to moral courage as the courage of individuals, we can also speak of a morally courageous firm. Blowing the whistle on unethical industry practices may make a firm unpopular in the industry—or it may make the firm a leader, as moral courage frequently does among individuals. In some instances moral courage means simply refusing to do what is unethical, as does IBM, which is known for its policy of not paying bribes, even in countries where bribery is considered endemic and "necessary" for doing business. Clearly if a company is good enough, bribery is not necessary.
Moral courage may seem to come more easily to the big, successful, industry leader than to the struggling, marginal firm. Yet the best of the leaders started out small and showed their moral courage early on. In part they became successful because of that courage. Johnson & Johnson demonstrated its courage in the face of the Tylenol tragedy, when—as we noted earlier—three of its executives looked a $100 million cost in the face and ordered the removal of Tylenol from all store shelves nationwide. The action required courage, which the individuals responsible for the decision had—courage that they claim was fortified by the knowledge that the company would support their decision and by the company's Credo, which they all respected.
Operating in a corrupt environment raises the need for moral courage of another kind. In the 1980s, Colombian drug lords made death threats against the lives and families of Colombian judges and politicians. The courage required of those people parallels the courage required of firms that refuse to do business with drug traffickers in such environments. The local drug pusher is easier to refuse than the national drug lord; but both refusals require moral courage, and that courage does not come overnight. It must be developed the way character is developed, by many small acts of courage over time. A corporate culture can carry the seeds of moral courage and provide an environ-ment where it can eventually blossom under stress. Like personal courage, corporate courage is not a trait that is in constant view. Courage is manifested and is most needed in trying conditions, but it is not the same as foolhardiness. The truly brave do not claim to be brave; they simply act appropriately when the need arises. No enforceable rule can tell an individual or corporation to be brave, and no code can make people or companies courageous. Yet moral courage is central to acting ethically in difficult situations.
Moral courage means doing the right thing, and that sometimes leads to failure. Of course, we hear less about the failures than about the successes. The courage to do the right thing does not mean the courage to keep one's business afloat no matter what the cost and no matter what action that requires. The courage to do the right thing means the courage to do what ethics requires, even if the result is bankruptcy or failure. It would be convenient if ethics always led to profits and if being ethical always resulted in business success and increased profits. Unfortunately, that is not always the case. In general honesty is the best policy. But crooks sometimes succeed in the short run, and now and then they succeed in the longer run as well.
At times, acting ethically takes some toll on a company, and it may even threaten its existence. Although we hold human life sacred, it is sometimes right to lay down one's life for a friend, for one's family, for one's country, or for a cause. Similarly, might not a CEO justifiably lay down the life of the corporation for a cause or principle? Should the CEO at any cost refuse to yield to corruption or extortion, or refuse to engage in unethical practices? The simple answer is yes. But that is the extreme answer, just as sacrificing one's life is the extreme answer. Ordinary life situations rarely require such sacrifice, either of individuals or of companies.
If a firm cannot operate ethically in a corrupt environment, it must either withdraw from that environment or work to change it. American firms are not forced to continue operating in Colombia, should they find that they cannot operate there ethically. If they do operate in a corrupt environment, they must use a good deal of moral imagination to avoid engaging in corrupt activities. At the same time they should do what they can to change the environment, as American firms in South Africa did. The particular circumstances determine the specific requirements. But past experience teaches us that in such a situation neither isolated individuals nor single companies can do much by them-selves. Both must rise to a higher level of action. The situation requires a concerted effort by large groups of people or by groups of firms powerful enough to offset the entrenched practices they are opposing. The example of the citizens of Eastern European countries who demonstrated against their nations' corrupt communist governments shows the importance and effectiveness of moral courage. These events also teach us that courageous ethical action can have costs. A company with integrity must be willing to act courageously when necessary and must be willing to pay the cost that integrity sometimes exacts.
A company intending to begin operations in South Africa in the 1960s or 1970s faced the problem of how to deal with the then-existing apartheid laws. Could it ethically start operations in a country governed by such laws? A company considering opening a plant in Colombia in the 1980s had to decide how to relate to the country's guerrillas and drug lords. Could it operate ethically in such an environment? A company thinking of starting a subsidiary in an LDC where bribery at the highest levels is endemic must decide how it will respond to the pressures it will encounter at all levels to pay bribes to carry on its legitimate activities.
The task of competing in a more-or-less ethically structured environment that includes adequate background institutions is relatively unproblematic, even if doing the right thing is not always easy. But competing in less developed countries that lack adequate background institutions is more difficult and poses special ethical problems. And competing in a country whose business environment is thoroughly corrupt poses the greatest ethical difficulties. The rules of the game are fairly clear when all the players operate ethically and legally. Do the same rules apply when some of the players do not operate ethically or legally, when extortion and intimidation are rampant, and when the government either is ineffective in combating the problem or itself participates in the corruption?
There is no obvious, easy, or intuitive solution to the problem of corruption, because our general ethical intuitions develop in a context where corruption tends to be the exception rather than the rule. Multinational corporations can decide not to operate in such an environment and can decline to enter such areas. But this is not a solution for established and indigenous firms that operate there. The ultimate solution is to eliminate corruption, but the interim solution consists of adopting effective ethical strategies for operating in such situations and for moving toward the elimination of corruption.
The ethical problems and dilemmas that arise from operating in a corrupt environment or from facing unethical competitors have no uniform or easy solution. Yet it is possible to cope with such situations, and the previous chapters suggest a set of ten strategies that will often help in facing such situations.
| 1. In responding to unethical activity do not violate the very norms and values that you seek to preserve and by which you judge your adversary's actions to be unethical. |
One is never ethically permitted to do what is unethical. In confronting immoral opponents one may be tempted to retaliate in kind, or even to go them one better. The temptation is natural and is a manifestation of righteous anger. But to give in to the temptation is to stoop to the adversary's level, to give up one's own integrity, and to give up morality in the process.
A company must counter a competitor's lies with the truth, not with lies of its own. A cynic might reply that following this strategy puts a person of integrity at a disadvantage versus an unethical adversary. The unethical adversary is not inhibited by moral rules and so has the competitive edge, while the person of integrity is constrained by morality. People who are not worried about the morality of their actions are free to do whatever they want and whatever they need to do to win. If winning is one's goal, then restrictive rules and moral qualms simply get in the way of achieving one's end. There is some truth to the cynic's analysis. But for a company of integrity, success or victory won at the cost of one's own principles is hollow. Principles cannot be turned on and off at will. If they do not guide one's response to wrongful activity, there is no assurance they will guide one's response at all. Morality may demand the difficult. It cannot allow the contradictory without our having to give it up as an intelligible (much less as a defensible) enterprise. Some firms that operate in corrupt environments claim implicitly or explicitly that they are ethically justified in doing whatever they must to stay in business. Their usual assumption is that a corporation has not only the right but the obligation to continue to exist. Unless the corporation continues to exist, they reason, it cannot do all the good it might be capable of doing. But from an ethical perspective such a claim is much too broad to be defensible. If valid, this argument would justify the company's doing anything (including engaging in catastrophically immoral acts) that would ensure its continuation—even when the costs incurred by others could never be repaid by "all the good" the corporation might later do.
Ethics does not require that a business capitulate to corruption. Although turning the other cheek and accepting martyrdom may be personal ideals, they are not usually corporate ideals or corporate ethical requirements. But even in the usual case when economic survival and self-defense are morally justifiable aims, these must be pursued ethically.
| 2. Since there are no specific rules for responding to an unethical opponent, in responding ethically use your moral imagination. |
An ethical response to unethical activity must be at least as imaginative as the unethical activity. The injunction to think and act imaginatively is designed both to offset the tendency to consider morality only in terms of cut-and-dried rules and to encourage people of integrity to reconceive the situation in which they find themselves. More alternatives are usually available than the unappealing dyed of suffering at the hands of an unscrupulous opponent or adopting that opponent's tactics. Either/or situations occur less frequently than one might think. Moral imagination pushes ethical individuals to seek advantages that they do not ordinarily consider, to look for weaknesses in their adversaries, and to search for analogies with the responses of those whom they admire. Literature, stories, and the lives of heroes and saints can be more helpful as sources for imaginative ethical responses than any set of rules. In responding to bribery, as well as to other kinds of corruption, imagination is extremely helpful. When a customs official assessed one firm a higher-than-normal fee, company officials sent 500 letters to various government offices asking for an explanation. Customs officials finally found that it was preferable to pass that firm's goods through at the standard fee rather than attempt to extract a higher fee and be besieged in such a way. Why bother with that company when so many others that would make no protest were available?'
| 3. When your response to immorality involves justifiable retaliation or force, apply the principle of restraint and rely on those to whom the use of force is legitimately allocated. |
This principle states that force must be used only in reaction to unethical acts or practices, that it must be justified as the ultimate solution, and that it must consist of the minimum force necessary. The reason is obvious: force always involves harm, and the basic moral minimum is the injunction not to do direct intentional harm.
A corporation operating in an area where it might be attacked by guerrillas and where its personnel might be kidnaped is ethically permitted to use sufficient force to prevent those activities. In general businesses rely on local police forces; and in times of grave crisis, on the host country's army. Security patrols and personnel are legitimate safeguards, if allowed by the host country. Self-defense is a right exercised by each person and by corporations in defense of their employees and representatives. But the waging of personal
wars is clearly not ethically justified, even against guerrilla forces, drug lords, or other such groups.
The principle of restraint requires that the powerful, regardless of the immorality of an adversary's actions, use no more force and cause no more harm than are necessary to accomplish justifiable aims. The more powerful one is, the greater is the restraint one must exercise. Adults dealing with children must apply more restraint than adults dealing with other adults. Police are empowered to exercise civil force, but they are expected to use it with restraint even against suspected criminals. Armies are given a monopoly over the major implements of force, and they are accordingly expected to be restrained in its use. More is appropriately required of the strong than of the weak, because they can inflict so much more damage. This ethical need for restraint leads to the next principle, with which it is closely linked.
| 4. In measuring your response to an unethical opponent apply the principle of proportionality. |
This principle requires that any force used must be commensurate with the offense and harm suffered and with the good to be achieved. It also requires that those who use the force must have some hope that it will be effective in achieving the end for which it is being used. The principle of proportionality is widely used in military ethics but surprisingly little invoked in business ethics, where it is also applicable. The principle applies to economic and political force, as well as (ultimately) to military force. A company that suffers from a competitor's spying can seek legal redress and can loudly complain to the competing company. The principle of proportionality requires the company to keep the harm done to it in perspective, however, and to keep its planned retaliation (if any) legitimate by ensuring that this be proportionate to the offense.
| 5. In responding to unethical forces apply the technique of ethical displacement. |
The U.S. Foreign Corrupt Practices Act, which precludes American firms from soliciting or paying bribes, equalizes the playing field for all American companies. Ethical U. S. individuals and firms do not have to shoulder the complete burden of their integrity. The next step is for all other countries to enact similar legislation. The European Community is currently under pressure to adopt similar rules for European firms. The American and European groups must then get Asian nations to outlaw the practice. The complete solution will only be achieved slowly, but in the long run it is the only adequate response. Simply saying that all individuals and all firms throughout the world should act with integrity and should not solicit or pay bribes is not enough. Nor should one draw the conclusion that law is the only solution. Americans and American companies operating in South Africa faced the local government's demand that they practice discrimination as specified in the South African apartheid laws. Any individual or firm that violated those laws would be prosecuted or be forced to leave. The successful strategy for disobedience in this case consisted in having a large number of American firms agree that they would all publicly violate the apartheid laws by following the Sullivan Principles that precluded discrimination. Together they were so powerful that the South African government had to ignore their violations of its laws. Individual integrity was not enough, even though it took individuals and firms with integrity to pursue the course that they adopted.
The moral to be drawn is that, at the individual level or at the level of the firm, unfair or corrupt competition can sometimes be met only by rising to a higher level—to a level of cooperation among firms or countries that is adequate to deal with the injustice that prevails at the lower level. Integrity is required to muster the forces necessary to achieve the end at the higher level; but individual action is not enough.
| 6. In responding to an unethical adversary, system, or practice use publicity to underscore the immoral actions. |
Corruption operates most effectively in the dark. It is never publicized as justifiable or defended for what it actually is. In this setting publicity serves three functions. First, it opens up the practice to public scrutiny. The public can then evaluate it for what it is. There is a difference between public awareness that corruption exists and the public knowledge of specific in-stances of corruption. Public revelation of particular corruption focuses attention on the corruption and forces an open ethical evaluation. Corruption thrives on people's unwillingness to confront it, either by hiding from it or by hiding it from themselves.
Second, publicity enables one to mobilize public pressure against corrupt practices and their perpetrators. What is tacitly known and quietly accepted becomes intolerable when fully illuminated. Publicity demands a public reaction, and it makes possible a joint response that individual persons may be too intimidated or frightened to make. For instance, since extortion always hurts someone, it cannot stand the light of publicity. No one openly admits engaging in extortion; much less does anyone engaged in it attempt publicly to defend it
in any particular instance. Where adequate background institutions do not yet exist, publicity is frequently the necessary first step in fighting a corrupt practice. If the society is such that it does not object to the practices, publicity can bring outside pressures to bear in defense of those subject to the harm that corruption imposes.
Third, publicity forces a government to come to terms with corruption within its borders and, at the least, to be consistent in what it can demand of law-abiding citizens, given that it is unable to protect them and unable to enforce its laws.
Of course, if the government itself is corrupt and controls all avenues of publicity, this strategy is precluded within the country. Publicity may also bring retaliation of various kinds on those using it. This consideration leads to the seventh strategy.
| 7. In responding to an immoral opponent seek joint action with others and work for the creation of new social, legal, or popular institutions and structures. |
Individual or personal integrity is not enough when the structures within which one operates hinder rather than foster moral action and so lead to moral dilemmas. Joint action by companies is often much more effective than individual action, and joint action by nations is similarly more effective in international business than unilateral action by any single nation. The stumbling block in working through UN commissions is the difficulty of getting unanimous agreement. But such total agreement is not always necessary on the international level, and the agreement of groups and corporations is often preferable to individual action.
| 8. In responding to unethical activity be ready to act with moral courage. |
Competing with integrity in a corrupt environment requires moral courage, both personal and corporate. A corporation cannot act courageously unless those within it (especially its leaders) act courageously. Personal moral courage is necessary when one's actions may produce serious personal harm— dismissal, destruction of one's property, business failure, or bodily harm to oneself or one's family. Such actions are not to be undertaken lightly.
Moral courage requires one not only to determine what is consistent with one's values but also to act in accordance with them. Frequently it may be easier to ignore the unethical activities of others—even of one's opponents— than to take any action against them; and sometimes it is both proper and wise to do so. But in other cases and at some stage, it is necessary to face the perpetrator of injustice or terror. Knowing where to draw the line and when
to respond rather than to forbear requires prudence and judgment. But such
lines can be drawn, and being willing to draw them requires the courage
of one's convictions and the willingness to stand up to immorality and to
take the risk that this involves. This is especially important when ignoring
injustice will encourage the perpetrator to continue to commit similar actions
or to escalate the degree of terror or injustice.
Responding with courage means being willing to stand up to immorality on one's own, if necessary. But often more important is the realization that in unity there is strength, and that a collective response to injustice is usually stronger and more effective than an individual response. Thus moral courage in conjunction with the previous guidelines, involves being willing to take the initiative in mobilizing others or to join the initiative of others who take a stand. The point of the assertion that integrity is not enough is to emphasize that any individual or company is limited and to acknowledge that immoral forces generally can be overcome only by mobilizing forces at least equal in power to those on the other side.
Companies should be willing to join other companies to fight immorality and should join forces with legitimate governments and organizations as well. This general principle is often ignored by some American companies operating in Colombia, for instance, which prefer to negotiate with drug traffickers rather than join others in opposing them.
| 9. In responding ethically to an unethical opponent be prepared to pay a price—sometimes a high price. |
Unethical activity may initially be cheap for the perpetrator. It is always costly to the victim. Ethical responses may be more costly still. Just as moral courage is required, so is a willingness to bear the costs. A company with integrity should realize that operating ethically in a corrupt environment carries with it a cost. Some firms that operate in corrupt environments claim implicitly or explicitly that it is ethically justifiable for them to do whatever they must to stay in business. But their claim is too broad to be defensible. Ethics does not permit a company to capitulate to corruption. The cost of an aggressive war on those attacked, as well as on those who attempt to repulse or counterattack the aggressor, is obvious. The same is true for businesses. A company of integrity hopes that its ethically justified responses to immorality, despite the cost, will be cost-effective in the long run. In the short run such responses may enhance the company's or nation's self-image, promote morale, and help enhance the company's or nation's reputation. Facing immorality or an immoral opponent early rather than late may lessen one's eventual total cost. History teaches us that those who profit from immorality tend to continue more aggressively in their ways rather than resting content with one round of ill-gotten gains. One aim of the rule of law is to make sure that immorality does not pay. But in the process innocent people must pay the costs others impose on them by their actions.
| 10. In responding to unethical activity, apply the principle of accountability. |
This principle demands that those who impose costs, do damage, and inflict harm on others be held accountable for their actions. Consequently, those who engage in immoral practices should know that they will be held accountable for what they do. The intent of accountability is to preclude anyone (to the extent possible) from benefiting from immoral activity, and so to help remove any incentive for so acting. A rule of law imposes accountability and holds people responsible for their actions. In a business situation accountability is often enforced through the courts and through civil suits in which those adversely affected seek redress from the guilty party. Criminal charges also come into play. In the insider trading scandals and the S&L debacle we saw and will continue to see both sorts of penalties imposed, as guilty parties are held accountable for their actions. In Colombia, the Colombian government is attempting to hold drug lords accountable for their actions, and the fear of the extraditables is that they will be held accountable under the American legal system, which they are less able to manipulate and coerce than the Colombian one.
Imposing accountability on multinational corporations is difficult, since they operate in more than one country and since insufficient international rules and enforcement mechanisms exist as yet. This both points up the need for such mechanisms and underlines the importance of accountability. Despite the difficulties involved in enforcing accountability, the principle is essential in dealing with unethical forces. They must be held accountable by general public opinion, which is mobilized by publicity; by legal bodies, where these have jurisdiction and by the community of nations, when the offenses are between nations. Imposing accountability and fairly enforcing it set important precedents that can help dissuade others from acting similarly in the future. The moral courage to impose accountability is just as essential as is developing adequate mechanisms to assess the proper reparations. Holding corporations, nations, and their leaders accountable for their actions and for the damage they do to others is necessary if we are to achieve a truly civilized world. International mechanisms must be developed and supported that help prevent future harm. Those involved in the process of assessment must be people of integrity if the process is to enjoy the moral support of others and to avoid falling into the trap of vendettas, individual justice, and an eye-for-an-eye mentality, in which integrity quickly goes by the board.
The ten preceding strategies go together. They outline a pattern of appropriate responses to unethical behavior on the part of one's competitors or to unethical elements in any society. Although the list is not exhaustive, it is systematic in the sense that the strategies are interrelated. They are rules of thumb in that they are not exact formulations of duties or obligations but rather describe and prescribe approaches to immoral forces. They organize a number of disparate reactions and preclude inappropriate and immoral ones.
They suggest ways of dealing with unethical competitors and of operating in conditions of corruption.
Companies may compete in at least four different types of corrupt environments, although these types are often found intermingled. The first environ-ment is that of a society with an unethical social system. The second arises when the government and leaders of the country are corrupt, although the social system itself is not. In the third environment, the system is not corrupt, but influential private elements engage in illegal and unethical practices and pose frequent threats to individuals and ethical businesses. In the fourth, the government of a country is not corrupt, but it is ineffective in enforcing its own laws. By looking at each of these environments in turn we can see whether and how our ten strategies can suggest ways of competing with integrity amidst corruption.
The white population and government of South Africa, under that country's apartheid laws, radically and unjustly discriminated against the nation's black majority. Starting in 1948, the laws mandated segregation in restrooms, dining halls, and living areas; they prohibited blacks from being employed in managerial positions that would place them in charge of whites; they reserved certain occupations exclusively for whites; they permitted lower pay for blacks who did the same work as whites; they limited black ownership of land to native reserves that made up only 13 percent of the nation's land surface, although nonwhites accounted for 83 percent of the population (17.7 million, as compared with 3.8 million whites); they prohibited blacks from voting outside the native "homelands" and from having an effective voice in the South African government; they required blacks to obtain special permission to enter urban areas. Even though a majority of white South Africans for many years sup-ported the apartheid laws as ethically justifiable, given the special circumstances of South Africa, the laws were widely condemned internationally as unjust. Numerous countries applied economic sanctions and political pressure on South Africa to change the laws. Many white South Africans acknowledged that the laws were unjust, as well. The problem was how to dismantle the laws with a minimum of risk to their safety and property when the black majority acquired the right to vote.
South Africa under apartheid laws constituted an unethical social, economic, and political system. It was inherently unethical because its faults could not be changed or corrected by anything short of an outright overthrow of the system of apartheid. Just as one cannot ethically permit a little slavery, so one cannot countenance a little apartheid. Given this state of affairs, could a firm ethically conduct business in South Africa? If so, how?
The general ethical rule is that one is not allowed to engage in an unethical practice; therefore, no individual in a firm and no firm in its policy may engage in such a practice. This means that neither a firm nor an individual in a firm may ethically practice apartheid or obey the apartheid laws. The same sort of judgment was made in modern times with respect to plantations or businesses that practiced slavery in the American South and in other parts of the world. One might argue that, given South Africa's apartheid laws, it would be better for a company to run a business that treated blacks reason-ably well, even while obeying the apartheid laws, than to close down and leave the field entirely to those who would treat blacks worse; however, any such defense ultimately fails to justify participation in the system. A kind slave owner is better than a mean slave owner, but neither is ethical.
A white South African manager who abided by the apartheid laws acted unethically, and yet such a person may have seen neither migration nor unemployment as an attractive alternative. In this situation some people rationalized that the system was not really unjust. Others rationalized that, although unjust, it was the lesser of two evils—better than the chaos and violence that the end of white rule would bring. Still others claimed that, since they had no viable alternative, they could work from within to help change the system. These arguments may have been honest justifications or convenient rationalizations, but they cannot excuse the apartheid policy of firms, of highly placed officers, and of others who did have real alternatives. No matter how one evaluates the moral reasoning of white South Africans who engaged in apartheid practices, foreign investors and multinationals could not validly use such reasoning to justify their obedience to the apartheid laws, because they did have an alternative—namely, to leave South Africa.
Could American multinationals ethically remain in South Africa if they did not obey the apartheid laws? If one grants that there is no ethical way to obey the apartheid laws, can one ethically operate in that unethical or corrupt society?
The suggestion of Leon Sullivan, a Baptist minister and a member of the board of directors of General Motors, was that it might be ethically justifiable to operate in that environment if two conditions were fulfilled. The first was that the companies should not obey the apartheid laws. This was a form of passive disobedience. Disobeying unethical laws is ethically justifiable; otherwise, one is forced to conclude that one has an ethical obligation to act unethically because it is commanded by law. The second condition was that the American firms should actively promote, in whatever ways they could, the abolition of the apartheid laws. This was a necessary condition if the firms were to produce more good than bad for the South African people overall, since by their presence and their tax payments the American firms helped support the white apartheid government. Sullivan used great moral imagination in proposing this plan, since it was not an obvious strategy. Proposing it and following it required moral courage. General Motors took the lead in adopting the principles, and other firms followed. Faced with large-scale civil disobedience by MNCs, the South African government
chose to ignore their activities, thus silently capitulating to their violation of the law.
The solution was an instance of moral displacement and could not have been exercised effectively by a given individual in a firm. Any American who worked for an American multinational operating in South Africa could not individually have chosen to disobey the apartheid laws. The only recourse would have been to refuse to work in South Africa. Nor is it likely that the South African government would have allowed any individual firm to break the apartheid laws with impunity. But when faced with a strong coalition of large and important American firms, the government decided it had less to lose by allowing them to act on the Sullivan Principles than by closing them down or trying to force them to obey the law.
Did the Sullivan Principles succeed in undermining the apartheid laws and help bring about their repeal? Critics have argued that the South African government allowed American companies to follow the Sullivan Principles because it reaped more benefit than harm from the continued presence of the American firms involved; hence the government must have seen tolerating the Sullivan Principles as, on balance, a reasonable price to pay for keeping the MNCs in South Africa and (indirectly) strengthening the government.
In 1987, Leon Sullivan decided that ten years of applying the principles had failed to undermine apartheid and that observance of the principles no longer sufficed to justify the continued presence of American firms in South Africa. Shortly thereafter, many American companies sold their plants or left in one way or another.5
We can draw several lessons from this study about how to operate in a structurally corrupt environment. The first is that firms may not engage in unethical practices even if those practices are legal. MNCs have alternatives: they can disinvest, leaving the country if they are already there, or they can opt not to go there in the first place.
The second lesson is that disobeying unjust laws is more likely to go unpunished if companies act in concert. Operating together, the American firms were powerful enough to refuse to follow unethical practices. This is a classic example of an ethical problem that resisted solution at the levels of the individual and of the individual firm, but that could be solved by joint action at a higher level. It is also an instance in which publicity in the United States pressured American firms into following the Sullivan Principles.
Nor was that the only instance in which the technique of ethical displacement was implemented. Nations around the world exerted a great deal of pressure on the South African government to change its apartheid policies. Even if the economic sanctions that many countries imposed did not take a severe toll, they played a role in bringing about change, as did the moral pressure and condemnation and the political and social ostracism that were imposed on South Africa by African states, the United States, the European Community, and others.
The third lesson is that publicity was important in effecting change. Publicity threw light on actual conditions in South Africa and on the country's apartheid policies, and it focused attention on companies that operated in South Africa. This forced American companies to think through their policies, to adhere to the Sullivan Principles, and in many instances to divest their holdings in South Africa.
The fourth lesson is that refraining from engaging in unethical practices oneself is not enough. Individuals who operate in an unethical system can only justify their continued presence by establishing as a reasonable expectation the prospect that their activities are undermining or will undermine the system. This means that their actions must do more good than harm to the people of the country, as required by rule two (G2) of the initial seven. Sullivan had the courage to say that a ten-year trial was adequate. He did not try to justify an open-ended time frame that offered no clear means of deter-mining the effectiveness of the firms' tactics in undermining apartheid. The latter approach would have presented too weak a criterion to justify the continued presence of American firms; it would have licensed them to stay in South Africa indefinitely, even if their presence had been counterproductive to achieving their claimed ethical goal. A firm that is unwilling to end its no-longer-justifiable operations at some cost to itself lacks ethical integrity.
The fifth lesson is that some industries, such as banking, cannot ethically justify their operating in a corrupt system. Our initial guidelines continue to be applicable, even when the situation involves operating in a corrupt social system. Banking and other financial industries do not employ many people, and they typically benefit mostly the entrenched powers—in the case of South Africa, either the state or the local enterprises that enforced the apartheid laws. To the extent that such industries have this effect, they violate the second ethical guideline (G2). Nor can industries that directly help the government to enforce its unethical policy be ethically justified. Hence any arms or equipment that might be used by the government or by the police in surveilance or law enforcement cannot ethically be sold to the government because of the known improper uses to which they will be put. Anything that helps support a corrupt system is not ethically justifiable.
When the source of corruption is not the system but the government or the country's leaders, the problems are different. Doing business in such a situation does not involve committing direct unethical acts, and no laws require that one discriminate or treat any individuals or groups unfairly. Theoretically one could operate in such a situation without acting unethically.
Yet two types of ethical problems arise. The first involves the extent of a business's collusion with corruption, if the government or leaders of the country are corrupt: the leaders are unjust to their people; they are tyrannical, repressive, or exploitative; they use public money for their own benefit; they amass great wealth at public expense; they divert aid or loans from legitimate projects to their own pockets. The second type of problem stems from government officials or police who exercise their authority capriciously, who do not enforce the law, who seek bribes and payoffs, or who demand payments to keep them (or others) from damaging a firm or its property. In such a situation the government is not the source of remedy for one's ills. The government is the illness, or at a least part of it.
The easiest course of action for a multinational is not to enter such an environment in the first place. But what if a firm is already operating in the country when the corruption begins? The general rule that one may not engage in unethical practices still holds, as does the rule that one cannot help those who do engage in such practices. Countries with strong leaders are sometimes attractive to multinationals, even if the leaders are repressive or tyrannical toward their own people. The companies feel that such societies are relatively stable and that business property in them is safe from nationalization. The second of our initial seven guidelines (G2) requires that the multinational produce more good than harm to the host country. The corollary to that rule specifies that the good of a country cannot be understood as the good of an elite or of certain corrupt leaders of a country. We can now add that, not only is the good of corrupt leaders to be discounted in determining whether the second rule is fulfilled, but supporting such a government or social elite is not ethically permissible. The argument that this policy imposes American rules of ethical justifiability on foreign governments and their elites cannot be taken seriously. Anything that helps governments and elites exploit their people or siphon off funds for their own purposes is not ethically justifiable. If by operating in such a country a firm helps the corrupt government, its operation is not ethically permissible. The proper question is whether one can both operate in such an environment without helping the corrupt government or elite and bring more good than harm to the people of the country. The odds against this are sometimes high. But because the system itself is not corrupt, some ethical way of operating there may be possible, given integrity, ingenuity, and moral imagination on the part of the firm.
The second type of problem raises the question of what constitutes a proper response to governmental extortion, to unjust laws, or to selective, punitive, or arbitrary enforcement of laws against those who do not pay bribes to prevent officials from enforcing the law. Two principles apply here. The first is that an unjust law is not ethically binding. The second is that people have the right to protect themselves and their property, and that each firm has the right to protect itself and its employees to the extent possible under the circumstances.
The claim that corrupt laws are not ethically binding means that, if the laws are corrupt in what they command (as are the apartheid laws), they cannot ethically be obeyed. If the laws are corrupt because they are selectively enforced against certain people (such as those who do not pay off the officials whose job it is to enforce them), the laws may be resisted by any means possible, and they may validly be protested. Individual protests against unjust laws or their enforcement, against extortion, or against governmental bribery do little good if the government itself is the problem. Joint protests by major firms and by one's home government may or may not be effective, but they are appropriate nonetheless. Paying extortion is less bad than demanding it; but like paying bribes, it is unethical. Paying extortion reinforces the practice; it acquiesces in evil rather than resisting it. At best it may be the lesser of two evils. Although difficult to avoid on the individual level, it can sometimes be fought effectively by uniting with others similarly extorted, by mutually helping one another, and by taking a stand together. The broader the group—and the higher the level at which support can be mobilized—the better the chance of resisting extortion. The obligation to resist corruption thus becomes an obligation to unite to fight it. Since large companies are better situated to lead the fight than are small companies, they have a greater obligation to do so. Civil disobedience that consists in nonviolently breaking one law to publicly protest other unjust laws or government practices is an ethically permissible tactic for firms as well as for individuals. To be effective, it must arouse other people to protest and to action; hence, publicity is a key ingredient. There is no obligation to engage in civil disobedience if it will be ineffective. A person or a firm is ethically required—as opposed to being ethically permitted—to engage in this or other kinds of protest against unjust government laws and policies only when the disobedience is likely to achieve its intended goal, and when it is the only alternative to acting unethically. The latter condition is seldom fulfilled, as long as withdrawal remains a possibility. Are multinationals allowed to take part in, help foment, or give monetary support to the overthrow of a corrupt government? The general rule that multinationals should not enter into the politics of the host country presumes the legitimacy of the government of the host country. But by what right may they decide on the legitimacy of a government and interfere in its operation? Surely, if they are suspected of planning to take part in the government's overthrow, they will not be allowed to operate in the country. Indeed, a frequent complaint against multinationals is that, as long as their own interests are protected, they care little about the corruption to which the people of the country are subjected.
Our seven guidelines require MNCs to walk a narrow line. They may not take part in corruption; they should not succumb to corrupt demands; and they should not support a corrupt government, even if the government does not extort or impose corrupt demands on them. When a government is corrupt, the people ultimately must take over and depose those in power. The people's revolts against corrupt regimes in Eastern and Central Europe is a lesson in the effectiveness of mass movements and protests. The fact that the people in these countries did not act in concerted fashion to overthrow the Communist regimes for forty years shows that state power can keep a people cowed for a long time. Yet even that does not justify any MNC's leading a revolution or directly fomenting or supporting one, even against a corrupt government. Such intervention is overwhelmingly likely to produce more harm than good. Once a company understands what it cannot morally do, it can turn to the strategies for operating in a corrupt environment. The need for moral imagination here becomes paramount. Uniting with other firms of like mind in pursu-ing whatever strategy is effective is more likely to produce positive results than trying to operate independently. Citing the Foreign Corrupt Practices Act as a legitimate reason not to pay bribes has proved effective in many instances. Publicity is a tool that one can sometimes use—if not in the first instance, then as a later defense against continued extortion or unfair treat-ment. Probably the most important strategy is to promote just background institutions. Operating under a corrupt government does not preclude respect-ing the human rights of one's workers or ensuring protection of the environ-ment to the extent one can. As we have seen, the cost of operating with integrity in such an environment may be high. If it becomes too high, the obvious solution is not to capitulate to corruption but to leave.
The third type of problem in dealing with corruption arises when neither the system nor the government is corrupt, but when corrupt private elements dominate or set the environment in which business is done. Examples include parts of the United States during prohibition, where rival groups of gangsters controlled certain industries; parts of Sicily and mainland Italy where the Mafia is powerful and influential;6 and parts of Colombia, where the drug lords are the major economic powers and the richest and most influential people—but hardly the country's elite. Other countries have similar situations. In Bolivia, 25 percent of the country's gross national product comes from coca for cocaine production; and coca is the biggest foreign currency earner in both Bolivia and Peru.8
The Mafia can be traced back to the thirteenth century in Sicily, where it operated a system of private justice during periods when official despotic rulers oppressed the poor. The Mafia not only dispensed its own version of justice but sometimes shared with the common people the wealth it stole from the rich. To some extent the Mafia developed its own "ethics" or rules of behavior, built on notions of revenge, disdain for the official authorities, silence, and loyalty to one's extended family or group. The drug lords of South America have learned from the Mafia. They have gained the support of the farmers who grow the coca leaves by building schools and by taking care of the farmers in ways the government does not. Collaboration with corruption—be it the activities of the Mafia or of South American traders in illegal drugs—is unethical, and all who engage in it are tainted. The Colombian situation is dramatic, and the Colombian government has rightly practiced the technique of ethical displacement in seeking solutions to its problem, arguing that a permanent solution to the dependence of peasant farmers on coca production cannot be found on the level of the individual farmer. It is easy for outsiders to say that, even if threatened with harm, the farmers should not grow coca. It is easy to say that they should grow other crops even if they cannot sell them for as much money or that it is better to starve than to act unethically. But this puts a far greater burden on the farmers than is justified. If they are to stop growing coca, then someone— their own government, multinationals, other governments—must not only protect them from the threats made against them, but also help them change from coca to other crops. They need money and seed to get started; they need markets for their products. They need help to solve their ethical dilemma of either producing coca and keeping their families alive or not producing coca and seeing them die. They cannot solve their problem on the level of the individual or even on the level of individuals acting together.'°
The Colombian situation is dramatic because the government declared war on the drug lords, and the drug lords retaliated with a series of bombings to instill fear in the people and to turn them against the government and its attempts to control the drug industry. "
In such a situation legitimate multinationals have little incentive to carry on operations. The cost of protecting their key people and their property is high. The instability of the political situation is not good for any kind of legitimate business, even though it is not unethical in general to do business in such a situation. But it is unethical to do anything that helps those involved in the drug industry. And this raises questions about what it means to do business with those in the drug industry and what is and is not ethically forbidden. Since no one is ethically permitted to do what is unethical, no firm may ethically sell goods that it knows will be used in the drug trade or will be helpful to the drug trade. Clearly, the sale of arms to any buyer who is likely to employ them or resell them for any illegitimate purpose is unethical. Drug lords use armaments of all kinds against the government, against other factions that threaten their business, and against various third parties. Similarly, the sale of chemicals that are used in Colombia to derive cocaine from coca leaves, such as ether and methyl ethyl ketone, is unethical. Surprisingly, the United States, which is interested in stopping the flow of cocaine from Colombia, did not prohibit the sale of such chemicals by U.S. firms, and had to be asked to do so by Colombia. Yet even before the sale was declared illegal, it was unethical. By similar reasoning other manufacturing, service, or banking companies have the obligation not to take part in cocaine production and not to support and abet those who do. This poses special problems for companies that choose to operate in Colombia. Trucks, computers, and various other products play a key role in drug traffic. How far must a company go in determining who its customers are and how its products will be used? Although there is no general rule or hard-and-fast line separating acceptable from unacceptable practice, the requirement not to take part knowingly and willingly in helping drug traffickers means that a company with integrity will try to determine who its customers are and whether their purposes are or are not legitimate. One might argue that, if one supplier does not sell drug traffickers the goods they want, another will. As in other cases, the reply is that one unethical act does not justify another unethical act. One useful strategy is for all ethical merchants and firms to band together in opposition to the drug traders. In some cases refusal to sell goods leads to threats and (subsequently) to harm, which necessitates joint action between the government and the populace to offset the power of the drug traders. The claim by merchants that they do not know who is involved in the drug trade is often untrue. Reports indicate that the exclusive social clubs in Colombia, for instance, do not admit drug lords, despite their wealth. They are denied prestige and social acceptability, but they are sold goods and services. If they are known for one purpose of exclusion, they are sufficiently known for the other. Those who cooperate cannot claim to be acting with integrity. And whatever excusing conditions might apply to local firms, these cannot serve to excuse MNCs, which always have the option of withdrawal. The argument goes even farther. American, Swiss, and other banks cannot ethically accept drug-generated money, much less launder it. Real estate owner should not sell drug lords land, and stock exchanges should not offer them investment opportunities. Where does one draw the line in accepting drug money? Even though we can draw no precise line, the general rule that it is unethical to take part knowingly in drug trafficking or to support those who do requires that one exercise due care in determining who one's customers are and whether the money one accepts is legitimate. Some may claim that this requirement is too strong, that it violates the rights (for example) of the drug traffickers or of their families. Yet they have no right to any goods if the money being used to pay for them was illicitly obtained. There are some people with whom one cannot ethically do business. The existence of unethical bankers, black-market munitions suppliers, and unscrupulous merchants is no justification for others to act in the same way. The efforts of individuals and firms needs to be reinforced by law. The link between arms and corruption makes it difficult—sometimes even impossible— to fight corruption effectively without also controlling access to arms. A society serious about fighting violent corruption must be serious about controlling firearms. Likewise, laws should prohibit the sale of materials used in the drug trade, the sale of trucks and other legitimate items to drug traders, and the handling of drug money in Colombia, in the United States, and in other countries. Action on the government level and on the international level between governments can reinforce the inclination of individuals and groups at the lower levels to act as they should. The Colombian government has moved along these lines and used moral imagination in freezing all the known assets of the drug lords until they come forward and justify their holdings. That action is appropriate, even if in one or another instance a person's legitimate holdings might be inappropriately frozen until the person does indeed justify them. The harm such a person suffers is not sufficient to render the practice unjust. These actions are not a solution to the drug problem, which would certainly involve cutting demand as well as restricting supply. But they do suggest a first answer to the question of how business can ethically operate in a corrupt environment: it can only do so if its activities do not help those who act corruptly, if it does not itself engage either directly or indirectly in any activity that is unethical, and if it cooperates with those who are fighting the corruption. The claim of the Colombian government to have declared war on the drug lords and on those who produce and traffic in illegal drugs is noteworthy, since it is a declaration of war on Colombia's own people. The United States government has used the rhetoric of the "war on drugs" domestically, too, but it has not taken the rhetoric seriously. Colombia has. War is legitimate only as a response to an unjust attack; it is a country's means of self-defense. Even then the means used must protect the innocent and the amount of violence used must be proportionate to the threat.
In Colombia the very existence and normal functioning of civil society have been threatened. The analogy with war is not altogether misplaced, even though the rules of war cannot be totally invoked or enforced, for the state must continue to guarantee the civil rights of its citizens. Yet the Colombian declaration of war is more than merely symbolic and rhetorical. The war involves the use of police and of the armed forces to pursue drug lords and to engage in search-and-destroy maneuvers against coca crops and cocaine laboratories. Especially significant at all levels is the mobilization and reinforcement of moral courage of the type demonstrated in war. A stigma attaches to those who give aid or comfort to the enemy, by supplying them with goods or aiding them in other ways. By officially declaring war, the Colombian government has in effect branded the drug traders as enemies of the people and of the state and has put pressure on the general population to ostracize them. The technique of displacement looms large throughout this analysis. Given the physical threats and the economic forces at work, American companies that choose to locate in Colombia can legitimately take any precautions and use any force necessary to defend themselves, their property, and their personnel. But they cannot claim neutrality in the drug war or argue that they have no connection with it. Once a company chooses to operate in such an environment, it takes on responsibilities, including the duty to protect its employees—both American and Colombian—to the extent possible. Such a company cannot cooperate with guerrilla and drug lords on the one hand and seek the protection of the government on the other. Integrity requires that it be clear in its refusal to deal with those outside the law. Self-interest and prudence impel it to cooperate with other companies in joint plans of action and to cooperate with the government in its battle against corrupt forces. True courage will often be necessary to cooperate, despite threats, with lawful authorities. The alternative is not to stand alone but to leave. What of the other side—the ethics of the drug lords or of the guerrillas? Rather than siding with the government, wouldn't it be more reasonable to negotiate differences with both sides? The simple answer is no. Attempting to render drug traffic morally justifiable stretches the notion of morality too far. Not everything is justifiable, even if some people engage in the practice and somehow justify it to themselves. Integrity requires that one sometimes draw the line.
Equally difficult problems arise when a government is not corrupt but is ineffective in enforcing certain laws and in controlling some of the corrupt elements within its borders. On one level the paradigm of this situation involves the reluctance of many Italians to pay taxes and the response of the government to build in a presumption that the figures on tax forms are underreported. On another level it is the inability of many governments to curtail the power of crime syndicates and their tolerance of petty bribery and of illegal payments to officials, despite constant complaints about such payments.
What are individuals and companies ethically required to do when the vast majority of other people and firms do not obey the official rules?
The answer arguably is that one is ethically required to play by the rules that are actually followed, provided that in doing so one does not harm others. We can usefully distinguish between ethics and law for this purpose. Since one may never ethically do what is unethical, and since harming others for no good reason is unethical, one may never legitimately harm others without having some justifying reason. Moreover, in general one has an ethical obligation to obey the just laws of a legitimate state. But an unenforced law has dubious standing as a law, and such a law is in general not binding.
The Italian tax procedure acknowledges that a good deal of the Italian economy is an underground economy, in which goods are traded for other goods or services, and in which not all exchanges are reported. In part the underground economy developed because of the inefficiency of the government and its bureaucracy. When rules become too difficult to follow, or when people cannot ascertain the actual rules (that is, rules that are really en-forced), they tend to circumvent the nominal laws to the extent possible. This results in loss of control by the government and inefficiency. Yet analysts credit the underground economy with making the Italian system work. It works not because of government but in spite of it. To call such economic transactions unethical judges them by a totally inadequate criterion. The proper question is whether the transactions are in general fair. If they are, the second question to ask when doing business in such a society is, what are the common practices? That the practices diverge from the letter of the law does not make them unethical within the system. This reasoning does not justify unethical practices or unfairness. It simply does not decide what is unethical or unfair on the basis of the letter of the law.
The distinction between ethics and law is also important in considering unenforced laws. An unenforced law loses its effectiveness and penalizes those who follow it to the letter while allowing those who ignore it to profit from noncompliance. If the law prohibits an unethical practice, the practice remains ethically impermissible whether there is a law or not and whether the
law is enforced or not. But the purpose of some laws is to make competition fair. And if they are not enforced, they fail in their purpose and hence are of dubious validity. As an example, consider an air pollution case.
A statute is passed requiring pollution control and specifying maximum levels of sulfur emission. The law is a good one. Pollution is harmful, and setting limits imposes the same standards on all. Controlling pollution is costly, but the law places the cost on those who produce the pollution instead of on those who suffer its noxious effects. Violating such a law is in general not only illegal, but also unethical, since the firm that ignores the law does not bear its fair share of the burden of pollution control. But what if none of the firm's competitors abide by the law? They take the attitude that they will put in pollution control devices only when—if ever—they are monitored and are forced to do so by direct, specific order. In the meantime, despite the law's having been passed, no one monitors and no one forces compliance. Does the simple fact that the law has been passed mean that an ethical firm must put itself at a competitive disadvantage by spending a considerable sum on installing pollution control equipment while other firms do nothing? From an abstract ethical point of view the answer would seem to be yes. But practically speaking, one firm's installing the mandated equipment will not materially reduce the total amount of pollution, if the pollution is caused by effluents from a large number of firms. The harm done is not caused by any one plant acting alone but by all the plants together. Hence each one individually can claim that alone it would not ethically be bound to control its emissions, since the emissions from one plant alone would not be dangerous. If this is true, then it is only together that the plants are harmful; and only if all of them (or at least the vast majority of them) control their emissions will the level of pollution be reduced sufficiently to be safe for all. The point of passing the law is to require from each firm the same conditions of pollution control and to make the air safe for all. But if the law is not enforced, it fails in its aim and the resulting situation is not fair. Clearly a law that singled out one or two firms for expensive pollution control and that ignored all the others would be unjust. Lack of enforcement amounts to the same thing. Hence this law is not binding unless enforced.
This does not mean that, if a firm knows it is doing harm by polluting, it is ethically allowed to continue doing so until forced to stop by law. A plant that dumps toxic waste into a river acts unethically and should refrain from so acting whether forced to by law or not. Unlike the situation in the air pollution example, the firm's actions are harmful even if no other plant dumps any waste. But laws that aim to create conditions of fair competition must be enforced to be effective. Unless they are effective they give those who choose to ignore them a competitive advantage. The law imposes a restraint and a cost only on those who obey it. In such a situation a firm that acts with integrity will not act unethically. But it does have several options. It may not only obey the law but also demand that the law be fairly enforced, requiring others to comply as well. It may comply whether or not others do. Or it may do its best to identify what ethics requires of it in terms of reducing its pollution, and then act accordingly, rather than expecting the law to deter-mine its fair share of the burden. If the law allocates responsibility for pollution control fairly, it sets norms that coincide with what is ethically required.
The principles that a dubious law does not bind and that an unenforced law is a dubious law do not justify disobedience to laws just because others break them. Despite the law, ethical rules always apply; and if the law prohibits what ethics prohibits, those actions remain ethically impermissible whether the law is enforced or not. Nor does the fact that some laws are frequently broken allow others to break them, provided that the government makes reasonable attempts to enforce them. The American prohibition laws were laws that everyone was ethically required to follow, even though they were so widely broken that they were eventually repealed.
What about laws that are enforced to some extent? For example, suppose that a firm is inspected for compliance, but it pays the enforcing inspector not to report violations. Or suppose that an inspector comes around every year and takes emission readings; if the readings are over the specified amount, the plant is fined a certain sum each day until it comes into compliance. To be effective, the fine must be so high that it is cheaper for the plant's owner to install the pollution control equipment than to continue paying the fine indefinitely. But suppose that the firm pays the inspector the equivalent of one week's pay not to file charges, and that this payment is much cheaper than installing the equipment. No firm with integrity will make such payments. But is compliance in such a situation very different from the case in which a firm complies with unenforced laws? What is the purpose of laws in such a situation, and how do the inspectors get away with such procedures on a large scale? That is a point of entry for an ethical analysis.
A complying firm may protest the system and the corruption to whatever authorities will listen (and who are not in turn receiving some of the payment to ignore violations). An individual firm may have little impact and may receive little attention. But a group of complying firms will get more attention. And as a group they may seek media coverage to bring the situation to public light and to garner public support. One or all of the firms interested in compliance may refuse to comply with the law in order to get cited and thus bring the case to court for judicial action. Other techniques, requiring imagination and courage, are possible. If in the end local apathy, public indifference, or official ineffectiveness do not change the unfair situation, is the law unjust? The answer is yes. To the extent that it is unjust, as in the case of nonenforcement of air pollution standards, the affected firms are not ethically bound to comply. But unlike in the prior case, they will be fined for noncompliance unless they pay the inspector. Paying the inspector not to report violations is not a facilitating payment—that is, a payment made to get an official to do his or her job. In this case paying the inspector not to do his or her job is unethical and, usually, illegal.
There is no easy or happy solution to this situation on the level of the firm. Although ethics does not strictly bind the firm to obey the ineffective law, ethics does preclude the firm from paying off the inspector. The only way to achieve a true solution is to rise to a higher level, which involves trying to change the system. In most societies publicity is the key. In almost any society, if the corruption is gross enough and at a high enough level, people may be moved to apply real pressures or to take significant action. But with low-level petty corruption, marshaling public opinion may be difficult if such corruption is rampant. It is not that people think the corruption is ethically justifiable; if it were ethically justifiable, it would not be called corruption. Rather the corruption is so pervasive that people feel it would take too much energy to fight it in one place, knowing all the while that it is also present and every bit as bad in several dozen other places as well. Why get aroused about this particular in-stance simply because one company or group of companies complains?
Multinationals have several options. Presumably they locate where they do because it is profitable to do so. If abiding by the laws—even though these are only selectively enforced due to illegal payments—makes it unprofitable for them to operate in a given area or country, they can leave. Making public their reasons for leaving would be a service to the country. And if the companies are big enough to provide many jobs and significant tax revenues, they may be important enough to make a difference. A company's size and its importance to a community or region are factors that may enable it to act ethically and profitably. Willingness to act with integrity means willingness to close down if it becomes impossible to operate both ethically and profitably. Small firms do not have as much leeway as large firms. If a multinational closes down a firm in one location, it still has other locations and the possibility of opening up new facilities elsewhere. A small firm that has few other locations and no relocation possibilities may face a choice of being ethical and going bankrupt or making unethical payments and staying afloat. Sometimes one cannot compete ethically and survive in a corrupt environment. But even a small firm can use imagination; attempt various means of getting public attention and publicity; name and embarrass those engaged in the unethical practices; protest to high-placed elected officials, to the courts, and to the media; and do whatever else is possible. This effort consumes time, is costly, and puts one more strain on a firm that may be only marginally profitable. The burden of fighting petty bribery is sometimes made greater by the threat of violence or by the strict enforcement of other laws that are on the books but are not generally enforced. Any troublemaker—that is, anyone who complains too loudly or who threatens to upset the vested interests of the officials involved—is open to legal harassment at best and to physical threat to himself or his property at worst. The cost of being an individual reformer of the system is high, so it is not surprising that few choose to be reformers. For this reason a system tends to remain as it is. On the individual level, the cost of being ethical may well take the form of an inability to compete effectively. An adequate solution can be found only when businesses interested in being ethical join forces against the corrupt practice. As a unit they can fight for their standards, get more effective enforcement through changes within the government, marshal public opinion, or join with firms that are large enough to exercise leadership. In these ways they can initiate or support significant change.
The question of how to compete ethically with corruption is still partly unanswered. Add political corruption to the corruption of crime syndicates, and consider operating ethically in such a situation. A large multinational may have the resources to operate ethically even in this situation. It may be able to protect itself against criminal violence when the police or local authorities are unable to do so, and it may be so important to the economy of the country that its protests about bribery are effective in changing how it is treated. In the first case, self-defense is an established right; if a government cannot provide adequate protection, multinationals can frequently hire the protection they need for their key personnel and their facilities. This is a cost of doing business in some areas. If the cost is too high, the firm closes down or moves.
In a society like the United States the institution of investigative reporting is an effective means of uncovering corruption by public officials. Although publicity is a powerful tool against corruption, a difficulty of operating in some countries that have corrupt governments is that the governments control the media. Hence the internal use of such organs to throw light on corrupt practices is precluded. The use of media outside the country may be possible, and it may or may not be effective. Almost certainly a repressive government will do what it can to disallow such outside reports, and to forbid a company from issuing any such reports as a condition of its continuing to do business there.
Sometimes, those interested in acting ethically can organize and present a common front against those who threaten them or who compete unethically. If the legal system is effective, such organizations can keep competition fair, making it possible for individual firms to compete ethically and successfully.
No special rules permit a marginal company to act in a way that would be unethical if it were a profitable company. No company has a right to continued existence analogous to a person's right to life. A starving man may be justified in taking a loaf of bread from an affluent neighbor if that is the only way he can keep himself alive, arguing that the right to property is a lesser right than the right to life. A sinking company, however, has no right to take property from an individual or from any other company, for it enjoys no comparable right to life.
Suppose that firms in a given city cannot get their truck deliveries unless they give the drivers additional payments. Traffic is always so congested that any driver can plausibly claim that it is impossible to get access to the delivery area. But if all those from whom such payments are demanded banded together and refused to make such payments, the drivers' employers would soon ensure deliveries or the trucking companies would go out of business. But the problem does not threaten the existence of any firm, and the remedy costs more than any firm feels impelled to spend. Often firms complain but they continue making their payments to get what they should get without such payments. The truck drivers act unethically in demanding extra payments. Is it unethical to make such payments? If they are made secretly (and hence in a way not reportable for tax and other purposes), the answer would have to be yes, because of the duplicity, Lying, and manipulation of funds that go along with it. But suppose that the payments are made openly and are reported as a legitimate expense of doing business? Consider a rule that says that any such payment necessary for doing business is permissible provided that it is made publicly, at least in the sense that it is claimed as a legitimate cost of doing business. Publicly means that, at a minimum, it is entered on one's books as a business expense and is reported to the tax or other authorities. It is hard to imagine any company publicly announcing that it is paying extortion and then defending its payments to its shareholders and to the public by citing this rule. But if it is both necessary and ethically permissible, why not? When nations engage in what they consider just wars, they publicly justify the killing, bombing, maiming, and destruction of the lives and property of the enemy. A reasonable way to test the morality of paying extortion in a corrupt environment is to see whether it is reported openly and whether it is justified as necessary because of the circumstances in which one operates. Publicity as a contributory justifying condition helps open the practice to public opinion and to possible governmental and intergovernmental action. Those who demand extortion or facilitating payments usually do not accept checks or anything else that can be traced, and they do not give receipts. Even if the extortionists explicitly impose the condition that the payment not be reported, a company of integrity (according to this rule) may only make payments if it can publicly report them.
Publicity is one of the most important tools in dealing with corruption of any sort, because it can arouse popular resistance and possibly generate sufficient support for governmental or (if necessary) international action. The INFACT boycott against the Nestle Corporation is an example of how publicty mobilized an international public reaction that finally brought about de-sired changes in Nestle's policies and led to the development and adoption of international guidelines for the advertising and sale of infant milk substitutes.
Protection payments to those who would do one harm if they were not paid are extortion payments. Such payments are unfair to those forced to pay, and they also encourage the extortionist to extort from others. But since such payments are unfair primarily to those who pay, the payers' acceptance of such harm does not directly affect others. It is clearly a greater evil to demand extortion than to pay it. The harm those who pay extortion do indirectly by supporting the practice can be offset by the good done by making the payment public and so (indirectly) undermining the practice. In general, large companies are less subject to extortion than small businesses. They are better able to withstand threats and better able to protect themselves, if government is unwilling or unable to protect them. To the extent that they can help shield smaller businesses from harm, they make the atmosphere better for all.
The fight against crime syndicates is properly a function of state power. But where such power is not used or is ineffective, large corporations can help by doing what they can within the limits of the law. Moral imagination comes into play. It is not out of place for corporations to organize small competing businesses to stand up against a syndicate. It is in the self-interest of all to clean out corruption from an industry.
A government should protect businesses and individuals against extortion. It cannot legally allow illegal payments. Publicity will put pressure on the government to take action; and justice will require that it take action not against the person who is subjected to extortion and who honestly reports it, but against the extortionist.
Since corruption breeds corruption, competing with integrity in a corrupt environment is costly. The cost is both external and internal. If a company acts unethically, it should not be surprised if its employees get the message that acting unethically is acceptable. But even if the company acts with integrity, an atmosphere of corruption may adversely influence employees. Corrupt employees may sell company goods and pocket the proceeds; they may get kickbacks, steal or embezzle money, sell trade secrets, or provide keys to warehouses. Clearly, companies are allowed to take needed countermeasures in these instances, while respecting the rights of employees as persons. A corrupt firm will exploit its workers, try to mislead its customers, take advantage of them, provide them with inferior goods, and substitute poorer-quality materials for those originally advertised or promised. The list is endless. An employee with integrity will refuse to take part in such activities or even to work for such an employer. If all employers are corrupt—a highly unlikely scenario, since business would soon grind to a halt if they were—the employee might have to settle for the least bad situation, comparable to the Colombian farmer who plants coca. The solution is to change the system, using joint action, publicity, and any other possible means and strategies.
If a firm's policy or practice threatens serious harm to others, an employee is obliged to do what he or she can to prevent such harm. The employee may be able to do nothing. In a society with investigative media or with an effective government, employees are ethically required to blow the whistle on the firm (that is, go public with the information) if the threatened harm is serious, if the employee has exhausted all internal channels to bring about the change, if the employee has evidence of the threatened harm, and if there is a good chance that going public will diminish the harm. The effectiveness of whistle-blowing is greatly diminished in a corrupt society. The rule still holds, but the conditions that make the rule into an actual obligation are less likely to be met. Situations of corruption are often situations of quasi-anarchy and some-times of unrestrained power. The lack of effective legal constraints and other background institutions—such as organized public opinion; consumer, environ-mental and workers' groups; and investigative media—make ethical guidelines all the more pressing in this area. The absence of adequate regulations and agreements points up the need for an interim set of guidelines, for international agreements, and for actions by multinationals and by nations to help provide structures that will promote ethical actions by multinational corporations.