University of Otago
Department of Management
MANT 435: International Management

Corporate Codes of Ethics

by: Christian Bacher

Table of Contents

1 Introduction  2

2 Ethics and its theories 3

3 The market and morality  9

4 Why do Codes of Ethics exist? Answers  12

5 The global context 13

6 Universalism, relativism and culture 15

7 Ways out of the dilemma  21

8 Conclusion 24

Appendix 1 - Codes of Conduct - Caux Roundtable Principles for Business  25
Appendix 2 - Codes of Ethics - Sara Lee Corporation  30
Appendix 3 - International Codes of Ethics 34

List of References 36

1 Introduction

As long as human societies exist, the life of man has been based on norms, rules, values and practices that governed human behaviour. Individual and communal-shared ethics even make life within society possible as we know it. Part of this social life is doing business, in form of exchanging goods to fulfil basic needs and to achieve higher levels of satisfaction for oneself and for others. However, to combine moral thinking and acting with today′s business activities in a free market economy seems to be counterintuitive. Somehow both notions do not really fit together.¹ Still, Corporate Codes of Ethics exist. This essay consist of two parts. Each part reflects one question or problem that I found worthy of having more light shed on it. The first part answers the question "Why do corporate Codes of Ethics exist?" or "Why do corporations establish corporate Codes of Ethics?" under the basic assumptions, that ethics are ′costly′ and therefore against the idea of maximising profit which is predominant in the market ideology. Proving these assumptions is not so easy. First the term ethics will be defined and selected theories which could be the basis for Codes of Ethics will be portrayed. Then it is important to know what kind of morality is underlying the modern market ideology as we know it. Following that a correlation is sought between the market morality and corporate ethics, ending in the insight that corporate morality is costly and, therefore, is against economic intuition. Part one finishes then with a surprisingly simple answer to the question why codes exist.

The second part brings the findings of the first part in a broader context. The considered corporation of part one now ′grows′ beyond borders and begins to conduct business globally, as a multinational corporation. Its existing set of corporate Codes of Ethics are now confronted with other nations, societies and cultures and, possibly, other ethicities. Whether the company should ′do as the Romans do′ or not is the major question of the second part, closely connected to the keywords relativism and universalism. The problems revealed by each approach, and possible solutions to them, will be shown in part two. The conclusion, finally, summarises the findings of the essay briefly, but, moreover, shows further questions and problems that would be worth to explore in the overlapping areas of applied ethics and international management.

2 Ethics and its theories

Codes of Ethics² represent norms and values that are inherent in the company′s objectives, that the corporation stands for and can be held accountable for.³ These standards are established in a written document and is, therefore, very transparent for the company′s internal and external environment. The codes delineate the corporation’s responsibilities to this environment which is, in its entirety, the sum of its stakeholders⁴. Furthermore, codes also describe expectations towards these stakeholders, i.e. employee⁵s or suppliers (Kaptein, 2004; Clark & Leonard, 1998; Langlois & Schlegelmilch, 1990 and see part of a Corporate Code of Ethics in appendix 2).

Based on a content-research Kaptein (2004) summarised the main responsibilities of a corporation as providing a high-quality product or service, maximising long term returns to stakeholders or achieving at least a acceptable return and contributing to the well-being and development of society. In pursuing this, the corporation considers itself complying to transparency, honesty and fairness in their activities. Besides responsibility Kaptein found that the most cited corporate values are teamwork, open communication and innovation. Regarding the internal conduct, most organisations in Kaptein′s comparative study require that their employees do not commit any acts which violate human rights like discrimination, sexual intimidation, or contain forwarding of confidential information or acceptance of gifts⁶. A rather processional issue, that some of the codes contain, are the implementation of the code and its compliance.

When speaking about Codes of Ethics it should also be clarified what is behind the abstract term ′ethics′, what concepts, what theories and whose ethics. A good basis for this part of the essay is laid by the writing of Frankena (1973). According to whom ethics, as a branch of philosophy, deals with moral thinking, moral problems or moral judgements. It is a moral philosophy. It tries to look behind the stage of traditional rules that govern behaviour in order to confront ourselves with common assumptions about the good and the bad and to lead finally to (self-)awareness and knowledge about the distinctiveness and conflicts of general ethic terms. But ethics is not only a branch of science which generally deals "with a philosophical inquiry in a moral-type phenomenon" (Pekkola & Pekkola, 2001, p. 11). It is also commonly used in a different sense, as a synonym for morals or morality⁷. Ethics does not only address the individual, it is also a "social enterprise", or, like Frankena writes "it exits before the individual, who is inducted into it and becomes more or less a participant in it, and it goes on existing after him" (1973, p. 6). So, individuals are at first externally confronted with morals, that they consciously or unconsciously internalise over time. Morality defined this way means seeing it as an "instrument of society" (Frankena, 1973, p. 6). Instrumental, morals are guidelines, rules and learned practices which govern human behaviour (Pekkola & Pekkola, 2001). If morality applies to larger societies it is also valid for smaller groups, Frankena argues. Through a process of reflection and thinking groups and even individuals might have worked out their own, well founded ""value systems" moralities" (Frankena, 1973, p. 6). Codes of Ethics are such a value system, ideally consistent and well founded. But what kinds of foundations are available?

The development or moral philosophy has not been linear, uniform or constant. With the progression of mankind moral theories developed, reflecting knowledge and history of their time. That does not mean that older theories are displaced by newer ones. Based on different assumptions they rather coexist side by side, contradicting each other in their findings about good and bad. The concepts or theories that are most influencing for the topic of this essay deserve a closer consideration.⁸ Consequentialism or teleology is concerned with the consequences or goals of activities; the predominant form of consequentialist reasoning is called utilitarianism (Getz, 1990), which derives from the ideas of Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1873). Utility is regarded as the "sole stardard of right, wrong and obligation"

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1 This is my feeling, and, of course, this essay is premised on my ideas of ethics and of doing business. Even if not my own words are used directly, it is still my selection of authors and literature and that reflects my point of view.

2 The term ′Codes of Ethics′ and ′corporate codes′ will synonymously be used for ′Corporate Codes of Ethics′.

3 Norms are expressed with normative sentences, according to which acts are placed into categories: should, allowed, not allowed. Accordingly, acts are put into the categories: responsibility, allowed or prohibited. In ethical discussion, the expressions "good" and "bad" are used. These terms are called normative. Values: are expressed by sentences of value, according to which phenomena are classified as positive and negative and sometimes indifferent. It is possible to express greater and minor value. There are several terms of value but the most important ones are "good" and "bad" (Pekkola & Pekkola, 2001).

4 The stakeholders of the company are commonly regarded as the parties the company has relationships with, who are somehow affected by the company′s activity or who have enforceable claims on the company. In a broader sense they consist of employees and shareholders, customers and suppliers, the legal authorities and nongovernmental organisations (NGOs), competitors and partners, the local community and the global society. The stakeholders name the interest groups the company′s loyalty aims at (Pekkola & Pekkola, 2001).

5 The term employees does not only contain the average blue-collar workers or administrative white-collar employees, the decision-making, ′employed′ management of the organization is meant as well.

6 Especially the last requirement causes confusion and misunderstanding between different countries, based on different cultures and business customs. This, the issue of bribery, will be explored in the second part of this essay.

7 I use ethics interchangeably with morals and morality in this essay

8 Ethical concepts can describe what the morality of a certain society or individual are or determine what the ethical convictions of a society or individual should be. This essay, however, is only based on the latter, normative, use of ethical concepts.