姝 Academy of Management Executive, 2004, Vol. 18, No. 2 ........................................................................................................................................................................ Managing ethically with global stakeholders: A present and future challenge Archie B. Carroll In the early 2000s, the era of corporate fraud and corruption defined by the ethical wrongdoing of Enron, WorldCom, Tyco, Arthur Andersen, and HealthSouth captured the world’s attention as never before. It soon became clear, however, that the U. S. had not cornered the market on questionable ethics. The Dutch firm Ahold and Italy’s Parmalat quickly shared center stage with scandals of their own. Domestic business ethics will continue to be a top priority. But global business ethics will demand cutting-edge thinking and practice as companies strive to expand their products, services, sales, and operations throughout the world. Regardless of what is happening in individual countries, whether at home or abroad, the primary venue for ethical debates in the future will more and more be the world stage. shows that of the 100 largest “economies” in the world, only 47 of them are nation states. The other 53 are MNCs. Exxon Mobil Corporation, for example, has annual revenues that exceed the GDP of all but 20 of the world’s 220 nations.1 Clearly, then, the MNCs’ operations throughout the world will constitute a primary arena for business ethics thinking and applications. The focus in this discussion will be on how businesses and managers can deal with the topic of business ethics vis-à-vis their global stakeholders. As Princeton professor of bioethics Peter Singer recently said, “How well we come through the era of globalization will depend on how we respond ethically to the idea that we live in one world.”2 Business’s major stakeholders include consumers, employees, owners, the community, government, competitors, and the natural environment. There are many others, but we will focus primarily on the community and government. In the context of global ethics, the community is the community of host nations in which the firm is doing business, and the government represents all the separate sovereign nations that serve as “hosts” to investing MNCs. This makes for a much more complex situation than, for example, a U.S. MNC doing business in the U. S. It also represents a most-likely scenario in world affairs that doing business in others’ countries will become more of the norm. It is estimated, for example, that while the economies of China and India are much smaller than that of the U. S. now, China is likely to overtake and India to equal the U.S. economy in size by 2050. The world’s economic center of gravity is shifting toward Asia, and U.S. preeminence will undoubtedly diminish though its participation in the global economy is expected to grow. The current controversy over the outsourcing of U. S. jobs is one of the latest debate points in the trend. The primary venue for ethical debates in the future will more and more be the world stage. Globalization characterizes the international setting of business transactions in which U. S. and world multinational corporations (MNCs) will increasingly participate over the next several decades. Despite setbacks such as the attacks upon the World Trade Center in 2001 and the antiglobalization backlash that continues to be seen at major international meetings of the World Trade Organization, International Monetary Fund, and global summits such as the G8 summits, the global economy is irresistible to MNCs, and little will impede the trend toward global capitalism. The explosive growth of MNCs has set the stage for global business ethics to be one of the highest priorities over the coming decades. Recent data 114 2004 Carroll Some Current Knowledge about Global Ethics We know so little for sure about global business ethics. Even so, a number of experts testify to its importance. Tichy and McGill declare that “it is difficult to think of a more important basic business ethical commitment than to be a good citizen in the world of your business—with real involvement of your people, as well as your money.”3 As a practical matter, Sir Philip Watts, the chairman of Royal Dutch/Shell, recently has worked hard to recast his once reviled company as a compassionate corporate citizen.4 We do know that there is a pressing need for more empirical research on global business ethics, but most of the work to date has been quite contingent. Much business ethics research depends upon many factors, including the ubiquitous issue of culture. The extension of business ethics concepts and thinking to the global arena has probably raised more questions than it has answered. Though textbooks have been available for years on the subject of international business ethics,5 we are still in the formative stages of providing conceptual models and applications that readily translate into effective practices for business executives. There is a pressing need for more empirical research on global business ethics. In global ethics decision-making, so much focus is on the extent to which the manager uses homecountry ethical standards versus host-country ethical standards in making decisions and shaping practices. One typology of global types that has been helpful is that of Georges Enderle. He has observed and categorized at least four different types of global firms with respect to their use of home-country versus host-country ethical standards. Enderle’s purpose in this typology is to identify and illustrate the various mixtures or combinations of home- and host-country standards that a business operating in the global sphere might adopt.6 Through description and example, Enderle helps us to understand different options available and their consequences. He would likely reject the “Foreign Country Type,” which simply conforms to local customs and ethics, as being too relativistic. At the other extreme, the “Global Type” strives to abstract from all regional differences and seek ethical principles that would be more globally ac- 115 ceptable. In between these two extremes, he presents the “Empire Type” that applies home-country ethics without any attempt at cultural adaptation and the “Interconnection Type” that blurs national identities and seeks a posture that transcends international boundaries but “connects” with selected clusters, such as the European Union or NAFTA. Though Enderle stops short of offering prescriptive guidelines, the Global model seems preferable to the Foreign Country model as companies seek exemplars. Another major contribution has been Tom Donaldson and Thomas Dunfee’s Integrative Social Contracts Theory (ISCT) as an approach to navigating cross-national cultural differences.7 Their model is depicted as a series of concentric circles representing various ethical norms that might be held by corporations, industries, or economic cultures. At the center of the circles are hypernorms, which represent desired transcultural values. These might include fundamental human rights common to most cultures and countries. Moving out from the center, one would next find consistent norms. These are more culturally specific but are consistent with hypernorms. The next circle is moral free space. Here, one finds norms that are inconsistent with at least some other legitimate norms existing in other economic cultures. These represent strongly held cultural beliefs in particular countries. Thus, Buddhist communities may develop norms that reflect their cultures, and Koreans might develop norms regarding work behavior that reflect their culture.8 Finally, in the outer circle are illegitimate norms, which are norms that are incompatible with hypernorms. An example of these might be the practice of exposing workers to unacceptable levels of carcinogens. In short, ISCT uses the principles of moral free space and adherence to hypernorms as positions that need to be balanced in navigating global international waters. While honoring hypernorms, companies do not have to simply adopt a “do in Rome as the Romans do” philosophy. However, they do need to be sensitive to the transcultural value implications of their actions. In turn, the concept of moral free space makes them ever vigilant of the need to precede judgment with an attempt to understand the local host-country culture. The result is the reality that moral tensions will be an everyday part of doing business in the global sphere.9 ISCT is a contingency model of ethical decision-making as are most constructs that might be useful in global applications. 116 Academy of Management Executive The Timeliness of Corporate Social Responsibility and Ethics Executives want a useful framework for thinking about global business ethics, and the concept of corporate social responsibility, a concept that has endured for decades in the U.S. and is growing exponentially in Europe, fills the bill. This is because companies in diverse industries are conclusively seeing that the public insists that they balance profits with corporate citizenship. According to The Economist, the corporate social responsibility (CSR) movement flowered in the decade of the 1990s and is carrying forward into the 2000s. As recently as the World Economic Forum that gathered in Davos, Switzerland in January 2004, the corporate chieftains in attendance were expressing the conviction that global corporate responsibility and citizenship were the order of the day.10 The literature of CSR has produced many definitions and many concepts over the past half century since its emergence and formalization on the business scene.11 In terms of thinking about a concept or model of CSR that would have global applicability, I began considering how the CSR framework earlier developed12 and then reformulated into a Pyramid of CSR13 would stand up in application to global CSR and business ethics. The basic defini- May tion of CSR is as follows: “The social responsibility of business encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organizations at a given point in time.”14 This notion of CSR is both a stakeholder model and a contingency model. It is a stakeholder model in the sense that various stakeholder groups each send expectations to management about what they expect the organization to do under the banner of economics (profits), law, ethics, and philanthropy. It is a contingency model in several respects, but the most important is that society’s views or expectations of business performance change and evolve over time. The expectation that firms will be good corporate citizens in the global sphere is one of the latest mandates of CSR. A Pyramid of Global CSR as a Framework Having a framework and context for business’s social and ethical responsibilities to global stakeholders is an initial best practice. The Pyramid of Global Corporate Social Responsibility (see Figure 1) is presented as a helpful way to graphically depict the four kinds of social responsibility that business has with respect to global business FIGURE 1 Pyramid of Global Corporate Social Responsibility and Performance 2004 Carroll stakeholders. The pyramid portrays the four components of global CSR, beginning with the basic building block of economic performance. At the same time, business is expected to obey the law because law is every country’s codification of acceptable and unacceptable practices. Business also is expected to be ethical. At its most basic level, this is the obligation to do what is right, just, and fair and to avoid or minimize harm to stakeholders. Finally, business is expected to be a good corporate citizen through its philanthropy. Firms today are expected to contribute financial and human resources to the global community and to “give back” so that the quality of life may be enhanced and sustained. No metaphor is perfect, and the Global Pyramid of CSR is no exception. It is intended to illustrate that the global social responsibility of business is composed of four definite components that, when taken together, define what business should be doing in the international sphere. These four components are not mutually exclusive. They are treated separately for discussion purposes and are overlapping to some extent and in frequent tension with one another. A brief explanation of each CSR component is appropriate because these categories dictate corporate actions. The economic responsibilities of the firm, whether domestic or global, remain the bedrock foundation for business. Global companies are expected to produce goods and services and sell them at a profit. Sound strategic management offers guidelines as to how and where this may be achieved in a global setting. At this level, consensus is easy to reach about the economic expectations of business firms. What may vary by country or region of the world is the question of what constitutes an acceptable rate of return or growth rate. Companies functioning in hypercompetitive conditions might look upon this question differently than those operating in developing countries. Therefore, this aspect of the framework is contingent upon local and regional expectations found in financial markets but remains foundational to survival and growth. Legal responsibilities of management and MNCs also are vital. Just as countries have sanctioned economic systems, they also sanction legal systems. The social contract between business firms and host countries varies by country and, thus, legal systems and expectations vary as well. At this level, we observe significant differences in legal systems and responsibilities by countries and regions of the world. For example, we know that Chinese labor laws often are not enforced15 and that foreign investors are finding that China’s 117 legal system resolves few disputes.16 We also know that the absence of a legal system is inhibiting foreign investment in post-war Iraq.17 One thing is clear, however: The legal responsibility does exist and is found in developed, developing, and less developed countries alike. Ethical responsibilities are essential because laws are not adequate and companies and executives care deeply about their reputations, as well as about “doing the right thing.” As long as publications such as Multinational Monitor publish their annual lists of the “ten worst corporations” in global business, executives will find justifiable and practical reasons to care about ethics.18 Ethical responsibilities embrace those activities and practices that are expected or prohibited by society even though they may not be codified into law. Ethical responsibilities encompass the full scope of norms, standards, and expectations that reflect a belief in what employees, consumers, shareholders, and the global community regard as fair, just, and consistent with the respect for and protection of stakeholders’ moral rights. Superimposed on the host country’s expectations of ethics are the implied levels of ethical performance suggested by a consideration of the great ethical principles of moral philosophy, such as justice, rights, and utilitarianism. Ethical responsibilities embrace those activities and practices that are expected or prohibited by society even though they may not be codified into law. The ethical category is where divergent views traceable to different cultures are likely to be most significant. In a real sense, global business ethics is about the reconciliation of home- and hostcountry ethical standards and the identification of norms that will satisfy both. The practice of moral relativism, wherein companies simply adapt to local norms, creates an often untenable situation because many countries, especially developing ones, do not have articulated ethical standards that protect vulnerable stakeholders. Bowie recommends moral universalism as a principle that would create a moral standard that is accepted by all cultures.19 Moral universalism is the identification of ethical standards that would have broad, international support, such as the U.N. Global Compact or the Global Reporting Initiative. Philanthropic responsibilities reflect global society’s expectations that business will engage in social activities that are not mandated by law nor 118 Academy of Management Executive generally expected of business in an ethical sense. Though sometimes imbued with an ethical thread of rationale, philanthropy today is more often than not strategic in nature, with business expected to play an active role in global corporate citizenship. As in the case of law and ethics, philanthropic expectations vary widely by country of the world, and the wise executive will carefully research expectations of the host countries in this category. While presenting this idea in Helsinki, Finland, for example, I found that the Finns do not regard philanthropy highly because in their system, high taxes are thought by business to more than take care of these kinds of citizenship expectations. The Global Pyramid of CSR provides a conceptual framework for thinking through the multitude of expectations that may fall on the MNC or global manager. It is intended to illustrate the total social responsibility of global businesses. Although the component parts have been separated for discussion, they are not mutually exclusive and are not to be filled in this sequence. The pyramid intends to suggest the building-block relationship of the four responsibilities with economic at the base, because without it the others are beside the point. The pyramid depicts the full range of responsibilities that global firms and managers are expected to fulfill simultaneously. Stated in more practical and performance-oriented terms, the Global CSR Pyramid suggests that the MNC should strive to: ▪ Make a profit consistent with expectations for international businesses; ▪ Obey the law of host countries as well as international law; ▪ Be ethical in its practices, taking host-country and global standards into consideration; ▪ Be a good corporate citizen, especially as defined by the host country’s expectations. The Global Pyramid of CSR and Performance will help managers think through in a systematic way the different stakeholder expectations placed on their organizations. It should be recognized that responsibility implies performance. Previous research does support the contention that managers see the importance of their responsibilities as following this sequence of priorities: economic, legal, ethical, and philanthropic.20 Other Best Practices for Global Ethics Having a useful model for framing responsibilities to global stakeholders is a first, and necessary, best practice. What are some other practices that global managers and organizations can best adopt to be responsive to the pressures and demands of May international stakeholders? How can managers respond to the ethical responsibility depicted in the Global Pyramid of CSR? Many global business ethics issues dominate the news today. It has been argued that the ethical issues surrounding MNCs or transnational corporations fall into at least eight major categories: bribery and sensitive payments, employment issues, marketing practices, impact on the economy and development of host countries, effects on the natural environment, cultural impacts of operations, relations with host governments, and relations with home countries.21 Flowing from a desire to address these eight categories of issues by fulfilling the responsibilities emanating from the Global Pyramid of CSR or another popular concept, the “triple bottom line” (which is a less detailed version in that it categorizes issues into economic, social, and environmental),22 companies may pursue several major strategies. At a strategic level, companies should develop both global corporate codes of conduct and subscribe to global codes that have been developed by independent international bodies. Well-thought-out corporate codes are illustrated by those developed and adopted by Mattel and Caterpillar Tractor. Examples of respected independent global codes developed by international organizations include the UN Global Compact, the Global Reporting Initiative, OECD Guidelines for Multinational Enterprises, the Caux Principles, and the Principles for Global Corporate Responsibility developed by the Interfaith Center on Corporations.23 Companies should develop both global corporate codes of conduct and subscribe to global codes that have been developed by independent international bodies. In a similar vein, the integration of ethical principles into strategic decision-making is another best practice. In this connection, the embracing of a set of fundamental international rights, such as those articulated by Tom Donaldson, will allow the corporation to integrate business ethics into its corporate strategy. Examples of his ten fundamental human rights include rights that should be given to employees and other stakeholders such as freedom from torture, a fair trial, physical security, speech and association, and subsistence. These rights are regarded as moral minimums for all international economic agents.24 2004 Carroll A strong complement to these international rights are Richard DeGeorge’s seven moral guidelines for firms operating globally. According to DeGeorge, MNCs should do no intentional, direct harm; produce more good than bad for the host country; contribute to the host country’s development; respect human rights; pay their fair share of taxes; respect the local culture; and cooperate with the host government in developing ethical background institutions (e.g., health and safety standards).25 A company striving to develop universal ethical standards for its operations in 66 countries is ING, the multinational Dutch financial group. In an elaborate program based upon getting input from its 250 top international managers, ING has developed a global ethics code and is training its 83,000 worldwide staff via an interactive CD-ROM linked to the Internet to apply the company’s ethics principles consistently around the globe. ING’s vicechair of the executive board, Ewald Kist, has said, “This is supposed to be common ground that all our cultures can live with.”26 With respect to the natural environment of host countries, the concept of “sustainable strategic management” sets the standard high. According to W. Edward Stead and Jean Garner Stead, this refers to strategic management processes that seek competitive advantages consistent with a core value of environmental sustainability. With this enterprise-level strategy, firms base their corporate strategies on an analysis of the ecological issues they face, the values they hold that support sustainability, and the ecological interests of their stakeholders.27 The Paris-based oil company Total, the world’s fourth largest oil company, is striving to embrace ethics and environmentalism in its sustainability quest. To establish credibility with its stakeholders, Total created a high-level ethics committee. Two of its European rivals, Shell and BP, are also making ethics a focal point of their environmental practices.28 Toward the Future: Much Research Is Needed Much research is needed in global business ethics. If there is need for research in one particular area, it is in the reconciliation of home-country and hostcountry ethical standards such that international business ethics moves toward universal ethical standards or norms. Global stakeholders will best be served, as national borders fall, by the creation, implementation, and sustainability of a set of universal ethical guidelines that the developed economies of the world can use in transactions with 119 each other and with the developing economies. The best practices described above will move MNCs toward this goal. Endnotes 1 Melloan, G. Feeling the muscles of the multinationals. Wall Street Journal, 6 January 2004. 2 Singer, P. Navigating the ethics of globalization. The Chronicle of Higher Education, 11 October 2002, B8. 3 Tichy, N. M., & McGill, A. R. Corporate global citizenship: The ethical path for business,” in Tichy, N. M., & McGill, A. R., The ethical challenge: How to lead with unyielding integrity. San Francisco: Jossey-Bass, 2003, 248. 4 Becker, E. At Shell, grades for citizenship. New York Times, 30 November 2003, 2BU. 5 DeGeorge, R. Competing with integrity in international business. New York: Oxford University Press, 1993; Donaldson, T. The ethics of international business. New York: Oxford University Press, 1989. 6 Enderle, G. What is international? A typology of international spheres and its relevance for business ethics. Paper presented at the International Association for Business and Society, Vienna, Austria, 1995. 7 Donaldson, T., and Dunfee, T. 1999. When ethics travel: The promise and perils of global business ethics. California Management Review, 41 (4): 48 – 49. 8 Fritzsche, D. J. 2004. Business ethics: A global and managerial perspective. New York: McGraw-Hill, 56 –57. 9 Ibid. 10 Two-faced capitalism. The Economist, 22 January 2004. 11 Carroll, A. B. 1999. Corporate social responsibility: Evolution of a definitional construct. Business and Society, 38 (3): 268 –295. 12 Carroll, A. B. 1979. A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4: 497–505. 13 Carroll, A. B. 1991. The pyramid of corporate social responsibility: Towards the moral management of organizational stakeholders. Business Horizons, July-August: 42. An alternative to the pyramid is a Venn-diagram model presented in M. S. Schwartz & A. B. Carroll. 2003. Corporate social responsibility: A three-domain approach. Business Ethics Quarterly, 13(4): 503– 530. 14 Carroll, 1979. 15 Pan, P. P. Worked to death: Chinese labor laws are rarely enforced. The Washington Post National Weekly Edition, 17–23 June 2002, 15. 16 Dolven, B. Foreign investors find that China’s legal system resolves few disputes. Wall Street Journal, 8 April 2003, A14. 17 King, N., Jr. Iraq’s business elite gropes in the dark. Wall Street Journal, 25 June 2003, A4. 18 Mokhiber, R., & Weissman, R. 2003. Multiple corporate personality disorder: The 10 worst corporations of 2003. Multinational Monitor, December: 9 –20. 19 Bowie, N. 1987. The moral obligations of multinational corporations. In S. Luper-Foy (ed.), Problems of International Justice. New York: Westview Press, 97–113. 20 Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. 1985. An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28(2): 446 – 463; Pinkston, T. S., & Carroll, A. B. 1994. Corporate citizenship perspectives and foreign direct investment in the U.S. Journal of Business Ethics, 13: 157–169. 120 Academy of Management Executive 21 Donaldson, T. 1997. International business ethics. In P. H. Werhane & R. E. Freeman (eds.), The Blackwell Dictionary of Business Ethics. Malden, MA: Blackwell Publishers, 346 –348. 22 http://www.sustainability.com/philosophy/triple-bottom/tblintro.asp. 23 Comparison of Selected CSR Standards. San Francisco: Business for Social Responsibility, November 2000: 10 –11. 24 Donaldson, 1989, 81. 25 DeGeorge, 1993. 26 Maitland, A. Common principles in a diverse world. Financial Times, 26 August 1999. 27 Stead, W. E., & Stead, J. G. 2004. Sustainable strategic management. Armonk, NY: M. E. Sharpe. 28 Gumbel, P. Total clean up. Time, 26 January 2004, A10 – A12. May Archie B. Carroll holds the Robert W. Scherer Chair of Management in the Terry College of Business, University of Georgia, where he also serves as director of the Nonprofit Management & Community Service Program. He is co-author of Business & Society: Ethics & Stakeholder Management, 5th Edition, 2003. His interests span global business ethics, stakeholder management, and business-and-society. He received his doctorate in management from The Florida State University. Contact: acarroll@terry. uga.edu.