Global Business Citizenship Research Paper

The research-paper begins by briefly examining the challenges to the 20th-century concept of corporate social responsibility (CSR) in the 21st century. Then it describes how the concept of citizenship for individual persons can be translated to citizenship for business organizations and how the local and national arenas of citizenship can be expanded to incorporate new global realities. Finally, the process of implementing global business citizenship (GBC) is explained in a four-step model.

Corporate Social Responsibility In The 20th Century

Although the elements of the concept and some practices of CSR had existed in the first half of the 20th century (e.g., Dodd, 1932; Heald, 1970), the term was initially popularized in the 1950s and 1960s to promote voluntary community programs and business self-regulation that addresses social concerns and creates a better society (Bowen, 1953; Frederick, 1986). Much of the scholarly literature through the 1970s focused on the debate with neoclassical economists about whether firms had responsibilities beyond a narrow economic mandate to maximize profits for the shareholders, and if so, how these responsibilities were to be defined and understood (e.g., Carroll, 1979; Preston & Post, 1975; Votaw & Sethi, 1973). Meanwhile, the public and many executives supported CSR as a means to deal with equal opportunity, urban decay, environmental pollution, worker and product safety, and other social issues.

During the last 2 decades of the 20th century, the early strong flavor of CSR—the idea that business could and should contribute to a more just and healthy society—began to be ignored as the economic environment shifted to high inflation and interest rates, declining international competitiveness, and growing costs to comply with increasing government regulations. The backlash against CSR reflected the free-market conservative rhetoric of the “Reagan/Thatcher Revolution” of the 1980s. Executives were urged to focus on short-term profitability in order to increase stock prices rather than consider the welfare of all groups affected by their decisions. Downsizing, reengineering, and outsourcing broke the bonds that firms had formerly developed with employees, communities, and suppliers.

Ironically or perhaps providentially, it was during this period that business ethics began to emerge in scholarly and popular business literature as a major topic to address the growing mistrust of executives by the public. As government’s role in regulating business behavior diminished, what standards would managers apply when making decisions? The concept of the “stakeholder” also became widespread to capture the notion that firms were faced with many issues and interest groups beyond the traditional shareholder, employee, and consumer relationships (Freeman, 1984; Clarkson, 1998).

In the 1990s, corporate and scholarly attention shifted from the concept of CSR to favor the idea of “corporate citizenship.” Funding initiatives, conferences, awards programs, and research by major institutions such as the Conference Board (Alperson, 1995) and the Hitachi Foundation (Logan, Roy, & Regelbrugge, 1997) pointed to interest in corporate citizenship as a vehicle for corporate involvement in communities and social change. Academic research identified corporate citizenship as a new concept by progressive corporations to contribute to society and often as a new term to replace CSR, which had been criticized as difficult to define and measure (e.g., Mcintosh, Leipziger, Jones, & Coleman, 1998; Tichy, McGill, & St. Clair, 1997). Corporate executives preferred the term corporate citizenship over CSR.

Many uses of the term corporate citizenship focused almost exclusively on corporate-community relations, rather than on the broad responsiveness to societal needs and expectations that were embodied in CSR (Burke, 1999). (See Wood & Logsdon, 2001 for a comparison of corporate social responsibility and corporate citizenship.) Philanthropic contributions and voluntary initiatives characterize the “good corporate citizen.” However, what is often lost in shifting from corporate social responsibility to corporate citizenship is the broad ethics-based and problem-solving norms of social reciprocity that must be incorporated into business thinking in the 21st century. A new term, “global business citizenship” (GBC) has been proposed to incorporate the core moral and social content of CSR and place corporate-community relations and philanthropy among the larger set of rights, duties, and stakeholder relationships emerging from the citizenship concept (Wood & Logsdon, 2002a; Logsdon & Wood, 2002).

Emerging 21st-Century Challenges

While international trade has existed for centuries, the forces to create a truly global economy challenge the very identity of business organizations and call into question the structures and institutions for social control that fit 20th-century industries and economies. Three of these forces are described here: global competitive pressures ratcheting up the pace of change; the declining capacity for governments to deal with social and environmental needs; and increasing expectations from global stakeholder groups.

Technological “creative destruction” has always threatened mature industries with pressures for cost reduction and innovations to replace products and processes. In the 21st century, the pace of technological change with its drive to create “disruptive technologies” has become so rapid that products often do not have sufficient life cycles in which the producer can recoup research and development (R&D) costs. The search for cost-reduction strategies has pressured companies to use suppliers from faraway parts of the globe or open their own plants there. Outsourcing is becoming part of the initial business plan for new enterprises. The older concept of CSR, which developed in a period of high economic stability and relatively low international competitive pressures, is not adequately developed to deal with rapid turbulence, instability, and cross-cultural differences.

In the past, the rules and norms of business behavior in most industries were primarily guided by national cultures, social institutions, and legal parameters. Companies typically had a home country and an organizational identity shaped by the home culture. In a global economy, a particular set of cultural norms are likely to have less influence, and national governments have less leverage because corporations have many choices about where to do business. Pressures to minimize the costs of doing business include the costs of complying with regulations and social expectations. Thus, even basic legal responsibilities are likely to be minimized as some firms “shop around” for lax rules or enforcement.

A third force relates to increasing stakeholder expectations for ethical and responsible behavior, coupled with greater power to call attention to their needs and claims. Information is more widely available through instant global communication so company policies and practices in one locale can be easily compared to those in other locations.

More powerful stakeholder groups in one country can lend support to the complaints of less powerful stakeholders in another country. Media are eager to fill the 24/7 news cycle with corporate crises and scandals to capture audience ratings. The traditional scope of CSR attention was on home-country stakeholders. Executives have had little guidance on how to expand CSR to incorporate all stakeholder interests.

The concept of citizenship holds valuable insights to expand and refine the fundamental elements of CSR into a philosophy to deal with 21st-century challenges.

The Nature Of Citizenship

The concept of citizenship is typically associated with individual persons and their status of membership in a political unit. Citizenship in a democracy involves participation in electing political leaders and protections based upon rights guaranteed by the political and legal constitutions of the polity. Most rights involve freedom from interference and freedom from harm. For example, the U.S. Constitution has a Bill of Rights that specifies rights of the citizens to freedom of speech and freedom of assembly, and the right against self-incrimination, among others.

Citizens also have duties, such as the duty to pay taxes and to serve in the military in many nations. Rules about when rights and duties apply to the citizen are determined by the political jurisdiction. For example, in the United States, the citizen’s right to vote and the duty for male citizens to register for military service occur at age 18. The right to representation at trial is granted to every citizen, regardless of age.

Another facet of citizenship is the formation of individual identity as a citizen of a particular place, which is bound up with the nature and history of the community and nation. Boundaries and rules of membership are highly significant, and the obligation to favor one’s own community over others becomes justifiable and, in heavily socialized cultures, is sometimes even required.

Considerable debate and often concern have focused on the questions of whether businesses can be and should be citizens in the same way that individual persons are. For example, should corporations have the same rights to free speech as individual citizens? Do they have the same duties? How are rules made for corporations that operate in many different political jurisdictions? If corporations have business dealings in many parts of the world, are they citizens everywhere they do business? As a way to begin to address these questions, the concept of GBC provides a framework in which to examine individual and organizational citizen status.

Global Business Citizenship (GBC)

Because citizenship is ordinarily a status of persons in a place, we need to examine two shifts in the level of analysis to arrive at GBC. That is, we need to move conceptually

• from the individual person to the business organization as citizen, and
• from the local polity to a global setting.

Table 14.1 illustrates the four states of citizenship that exist when one considers (a) individual persons and organizations as units of analysis, and (b) local scope or global scope as levels of analysis. Individual persons can be local citizens of a polity and/or global citizens of the planet. Similarly, organizations can be “corporate citizens” tied to a particular culture or polity or they can be “global citizens,” acting responsibly within and across polities.

The Local Citizen

Cell 1 represents the ordinary meaning of citizen as a person who holds a legal relationship to and often a national or cultural identity with a specific “local” polity such as a town or city, state or province, nation, or supranational/ regional grouping like the European Union (EU). Citizenship is defined by the rules of that polity, which normally specify what relationship exists between the interests of persons and the polity as well as the rights and duties that accompany citizenship. Individuals typically are citizens of a variety of polities at various levels of government (town, state, country, region), and some are even privileged to have dual national citizenships.

In modern political democracies, the government exists to serve citizens and is seen as an entity that guarantees the baseline conditions for acceptable human life in communities. Citizens are typically granted a bundle of civil and political rights (voting, due process, individual liberties), and they are expected to fulfill duties such as those Aristotle named so long ago: paying taxes, participating in political affairs, and helping to defend the government from its enemies through military or other service.

The Corporate Citizen

Despite the concerns raised earlier, it is not a leap of faith to think of business organizations as citizens of local communities or of nations, as in Cell 2. This is the fundamental perspective underlying current ideas about “corporate citizenship.” A corporate citizen is a business organization that is a responsible player in its local environment. Its community activities emphasize voluntarism and charity, not rights and duties, and the organization’s social identity tends to reflect the local culture.

The duties of citizenship need not be spelled out exactly in order to exist. That is, both individual and corporate citizens may be expected to fulfill some citizenship role without having that role specified precisely. The idea is to give back something relevant and significant in support of a long-term viable relationship between government and its citizens. Corporations that want to be “good citizens” have community-outreach initiatives that are intended to improve the quality of life of human citizens that include the workforce, customers, and other stakeholders. The employees may volunteer in community projects, and the firm may make financial contributions to the local schools or nonprofit arts organizations. In these ways, it demonstrates its willingness to give back to the community in which it operates.

The Global Citizen

Cell 3 refers to the history of ideas concerning individuals as “citizens of the world.” The global citizen is a person who holds a relationship to all peoples, regardless of polity, based on ideas of common humanity, interdependence, and universalism and grounded in a few key rules or laws concerning universal rights and duties of persons to each other. When one begins to travel outside his or her own community, this awareness tends to develop or is strengthened.

By the late 20th century, technological advances in communications and transportation had made it possible for billions of people around the globe to observe the same events contemporaneously, watch the same entertainment, eat the same food, experience the same disasters, and to some extent develop a shared understanding of their common humanity. An understanding of the commonalities among peoples of different cultures rather than a focus on the differences between them gives one the sense of belonging to a larger human community and provincial thinking fades.

After World War II, the United Nations (UN) Declaration of Human Rights provided a common language of rights that has shaped national and international relations since that time. Having a common language of rights and a concept of universal “citizenship” gives credence and power to nongovernmental mechanisms of social control that can override the politics of national sovereignty. In particular, cross-national market pressures of consumption and investment, along with global media attention and risks to reputation, have come to the fore as viable social control mechanisms in the hands of global stakeholders concerned with human rights violations in sovereign nations.

The Global Business Citizen

Finally, in Cell 4, a global business citizen is not just Swiss, Chinese, American, or Brazilian—it is a company that thinks globally and tailors its actions to local conditions within the boundaries of ethical principles. Here, similarly to the global individual citizen, business organizations are considered citizens of the world with corresponding rights and responsibilities along with having citizenship status in the places where it operates. To reiterate the definition, a global business citizen is a business enterprise (including its managers) that responsibly exercises its rights and implements its duties to individuals, stakeholders, and societies within and across national and cultural borders.

But what type of citizen can a company be? Are there different approaches to citizenship for a company? Yes, as we explain in the next section.

Three Approaches To Citizenship

When a company says it is a “good citizen,” what does that mean? Political theory offers a variety of meanings and types of citizenship, but recent scholarship has focused on three relevant approaches to citizenship: the minimalist theory of civic association, the communitarian model, and the universal principles perspective (Parry, 1991). These are useful in sorting out practical and ideological differences in relationships among persons, organizations, communities, and polities. To illustrate the differences among these three approaches, we use an example of how a business might define and respond to a pollution problem within each of these perspectives.

Minimalist Citizenship: A Status Of Convenience

The minimalist theory of civic association values individual liberty and the pursuit of self-interest above all. The minimalist acknowledges that some restraints are necessary to keep others from infringing on one’s right to liberty, but restraints must be kept to a minimum, thus the name of this approach. To the minimalist, civic associations form when residents of a common jurisdiction recognize and agree to certain rules that regulate their conduct. Social units (like governments) exist because they are essential for individual survival, but social bonds are viewed as weak. Compliance with laws is seen as contributing to the achievement of one’s personal goals, and citizenship is viewed as a status of convenience as long as it serves the individual’s self-interests and liberty.

Civic association is not to be confused with community, which has the special meaning of shared interests and interdependence. The moral relationship among citizens in a civic association requires the right to justice and equal treatment under law. These rights could be put into effect as basic legal rights such as the right to protection from robbers, the right to legal representation, and so on. Rights evolve and are extended to more groups only as the association discovers intolerable problems that are not dealt with effectively under the more constricted system of rights. This essentially libertarian view of citizenship requires equal treatment in terms of “negative rights”—that is, the right of citizens to pursue their own interests without interference. This approach permits citizen participation in rule making but has no penalties for citizens who do not participate.

Minimalism has a direct counterpart in the stockholder view of the firm. Contracts—among persons who freely enter into them with full knowledge—form the assumed structure of business transactions in the minimalist perspective. The firm itself is not a real entity but is merely a “nexus of contracts” among suppliers of various inputs whose rights are negotiated as part of their contracts with the firm. In this view, shareholders provide capital and acquire property ownership. Management’s role is to coordinate the negotiating process among the various input providers, acting as agents for the shareholder-principals. Shareholders are vulnerable because their delegation of power to agent-managers leaves them with high monitoring and control costs and a subsequent higher risk that managers will succumb to temptation and act in their own interest instead of in the interest of the shareholders. Corporation law, in this view, exists largely to protect the shareholders from managerial opportunism, but only as a supplement to market forces, that is, as a correction to the rare market failure (Wood & Logsdon, 2001).

Managers operating with the minimalist perspective seek the lowest cost of production in order to maximize profit. They would prefer not to spend money to control pollution, but rather dump it into the air, water, or land. If other members of the polity sue because the waste is a nuisance or make a convincing case that their rights are being violated, managers will either install the minimum pollution-control equipment or they will relocate. A minimalist person or company has no loyalty or attachment to the civic association.

Simply put, in a minimalist world, a business organization is merely a shell within which individual sales, employment, and investment contracts are negotiated and fulfilled.

If and only if the principals (in capitalist organizations, the shareholders) perceive it to be in their self-interest, they may direct the organization to act in particular citizen-like ways such as contributing to charity or participating in a community event. The language of citizenship might even be used, but the motivation is not to provide a collective good or to contribute to society’s well-being, but only to achieve a private end. The organization itself cannot “be” a citizen, analogous to individual persons, in the minimalist approach.

Communitarian Citizenship: One for All

Communitarian reasoning embeds citizens in a particular social context, rather than viewing them as essentially autonomous, detached decision makers and actors as the other two models do. One’s personal identity is bound up with the nature and history of one’s community, culture, or country. Boundaries and rules of membership become highly significant, and the obligation to consider one’s own community as more important than other communities becomes justifiable and perhaps even required.

Citizens of the community have a duty to participate in making rules about membership and conduct and in carrying them out in order to preserve the distinctive culture of the community. According to the communitarian view, rights have been overemphasized in some nations, such as in the United States, to the detriment of collective well-being, but the citizens’ duties to the community are just as important as rights, if not more. In addition, communitarians recognize that guaranteeing rights is costly and time-consuming, and thus more stringent requirements for citizenship can make sense in political-economic terms. A communitarian society typically limits membership to “our” people, however defined.

The business organization in the communitarian view is not an empty shell or a mere “nexus of contracts,” but a tangible and functioning member of a community, distinguishable from the individuals who own and work for the organization. Business organizations are entities that emerge to help the community and are expected to act in the community’s interest as a duty of membership. And, indeed, the business organization wants to act in the community’s interest because the community gives meaning to what the organization is and does.

In some ways this view is compatible with early definitions of corporate social responsibility—the idea that businesses should be responsible for how the benefits and harms of their actions are distributed. In addition, the communitarian view is consistent with the concept of corporate citizenship when it is focused exclusively on the concerns and welfare of specific communities (Wood & Logsdon, 2001).

A communitarian firm’s response to pollution would take into account its community’s understandings and norms about collective well-being. Such a firm would likely exercise willingly a duty not to harm the community. However, a communitarian approach to pollution control would be limited to its own specific community and would not include other communities where it does business but is not a member. Thus, a communitarian company-citizen might well keep local waters clean in its home community by putting its wastewater in the streams or sewers of other communities.

Citizenship Based On Universal Principles

The universal principles perspective, a third prevalent view of citizenship, is based on the moral assumption of rights as necessary for the achievement of human agency— defined as the freedom to pursue one’s interests. Citizens with this view see the primary role of government as securing and protecting these conditions of human agency, not just for oneself, but for every individual. Not only must the state protect negative rights of noninterference—those guarantees of human liberty such as protection of the right to free speech and assembly and the right to vote—but it must also identify and protect positive rights that must be provided in order to achieve autonomous human action, such as the right to education and the right to health care. A critical issue in this perspective is the possibility and process of arriving at a set of common values and related rights and duties that can be supported across cultural boundaries and perhaps political ones as well.

Individuals and societies delegate to business organizations much of their ability to achieve their diverse wants and needs, and they must therefore also give organizations a degree of freedom from direct and constant control. Privately owned organizations are given many important tasks needed by the society, such as job creation, economic growth, R&D, and provision of consumer goods. Organizations do not have rights and privileges identical to those of individual persons, but they do have limited rights and associated duties so that they can achieve these goals. The rights and privileges granted to business citizens are those needed to permit the organization to act appropriately as agents of people and societies. Ethical values and mechanisms of social control, such as honesty, trust, and rule of law are ways of structuring relationships and exchanges so that uncertainty is reduced and efficiency can be enhanced. The global business citizen integrates these basic ethical values and mechanisms of social control into its internal ways of making decisions and uses them as guidance everywhere they operate.

A universalist firm would likely enact a duty for all people and all communities to minimize pollution wherever its harms are experienced. Such a firm would not dispose of its waste in an unsafe manner in any community. It would recognize the legitimate need for efficient government regulation to protect humans and the environment from externalities and other market failures. Recycling, reclamation, and redesign to minimize waste in the first place would be preferred ways of addressing pollution problems even if local regulations do not require this degree of pollution control (Wood et al. 2006).

Comparing Views Of Citizenship

It is interesting that although the minimalist position and the universal-principles view seem to be far apart in perspective, they are united in their support of human autonomy and certain rights for citizens. They differ in the means acceptable to reach this desirable end. The minimalist view tends toward a “least government” approach, while the universal-principles view is more willing to accept the validity of government action to ensure rights. In contrast to both, the communitarian position does not emphasize individual liberty above all, preferring to balance concerns for liberty with concerns for the collective well-being. In addition, a communitarian society might have more or less government, depending on what the community believes is needed to enforce rights and duties in its particular context.

Business organizations are viewed very differently in the three approaches to citizenship. Businesses in the minimalist view are just shells within which various actors (investors, employees, customers, suppliers) engage in contracts to pursue their own interests. The organization itself cannot be a citizen in this view. By contrast, firms in the communitarian perspective are citizens in the sense of identifying with their home community and supporting its well-being. “Corporate citizen” is an appropriate term for a firm operating on communitarian assumptions. Finally, a firm that operates according to a universal-principles view of citizenship is one that can claim the name of “global business citizen” from Cell 4 in Table 14.1. Such a company “thinks globally and acts locally” by having basic ethical values that apply everywhere it operates and by implementing those values in a manner consistent with and respectful of legitimate local cultural differences. (See Wood & Logsdon, 2001, 2002a; Logsdon & Wood, 2002, for further explanation of the comparisons between these approaches.)

The Process Of Global Business Citizenship (GBC)

Multinational enterprises are not bound by the rules of a single community but are challenged to deal with differences among community norms, rules, and performance expectations. The traditional view is that corporations should conform to local practice by always following local laws and customs—”when in Rome. . . .” An alternative view has emerged over the past quarter-century that companies should apply uniform policies across their worldwide operations. Both of these approaches have weaknesses, but together they contain the seeds of an optimal hybrid strategy.

What does it mean in the modern world to argue that businesses are members of society and are thus subject to societal-based social controls? Is this a viable idea in a world where virtually all the factors of production move freely among nations and cultures?

Business citizenship defines a business organization’s relationship to nation-states, to other organizations, and to human beings. It is thus an ethical enterprise. But in this diverse world, which ethics—whose ethics—should prevail? GBC addresses this question by acknowledging varying degrees of ethical certainty about what is the right thing to do. A global business citizen accepts a limited number of basic universal principles, such as, “It is wrong to harm innocent persons.” However, in conducting business activities, this organization realizes that although application of the fundamental principles is straightforward in many cases, there are situations where local norms appear to be in conflict with those principles, or application of the principles will cause unintended negative consequences. Situations even exist where the local manager cannot tell whether local customs conform to or conflict with company norms or whether the comparison is even relevant. In these cases, the degree of ethical certainty is much lower.

In international business, a company will struggle to decide between a multidomestic strategy, which tailors its strategy to local conditions, and a globally integrated strategy, which strives to achieve a unified strategy across all units (e.g., Daniels & Radebaugh, 1995). The analysis in Table 14.2 illustrates that one or the other of these strategies alone is inadequate to address global business issues across all levels of ethical certainty.

When a matrix of strategy and ethical certainty is constructed, as seen in Table 14.2, some striking results emerge.

First, ethical relativism is seen to be amoral or even immoral because it can readily allow companies to violate fundamental ethical principles. Ethical relativism does not accept basic universal principles. It is the “when in Rome” philosophy that values compliance with local norms above all. Operating in different ways in different cultures constitutes ethical relativism, which permits injustice to occur through violation of those principles that should be practiced everywhere. An example of ethical relativism would be allowing for racial discrimination in plants in South Africa when Apartheid was legally required while professing and practicing equal opportunity employment in the United States and Canada. The problem, of course, is that managers trying to use a relativist approach can condone practices that are morally abhorrent to themselves and unacceptable to their companies.

A second observation is that a globally integrated approach simply will not work when it comes to the local variations of human practice and belief. A globally integrated approach requires that identical principles and practices occur everywhere a company does business, and that is nothing more than ethical imperialism, that is, “my way or the highway.” This is equally dysfunctional because it fails to recognize and respect legitimate differences in practice that do not violate principles. However, a hybrid approach to strategy and ethics in global business operates in different ways at different levels of ethical certainty. We have eliminated the ethical relativism and ethical imperialism cells of Table 14.2, leaving the four remaining cells to constitute the process of implementing GBC.

Guidelines For Implementing GBC

The final contribution of this research-paper is to explain how a corporation implements GBC. A four-step model is derived from the four remaining cells of Table 14.2 and is depicted graphically in Figure 14.1 (Wood et al. 2006).

Step 1. Values In A Code Of Conduct

As a first step toward GBC, the company identifies a small set of basic principles in a values statement that governs its conduct wherever it operates. At this step, a globally integrated approach is not only appropriate but also desired; a high degree of ethical certainty governs the choice of principles included, and these are the principles the company stands for and lives by.

The corporate values statement should consider principles that reflect a universally acceptable and reasonably complete set of human values and may be based on core values drawn from the convergence of the world’s major philosophical and religious traditions that apply regardless of common practice or local belief (Logsdon & Wood, 2005). The norms identified in the United Nations Universal Declaration of Human Rights or the United Nations Global Compact might also serve as a good source of such principles because of their pervasive moral authority and widespread acceptance. This exercise is especially beneficial for surfacing and clarifying ethical values for companies that have not been articulate about these values in the past, whether or not they have been acting upon such values.

A code of conduct serves both as a statement of basic ethical principles and as an operational guide to behavior. Thus, the code should provide specific guidance for situations that employees will typically encounter. A useful code of conduct will cover normal business functions and operations, as well as any situations that are specific to the firm or its industry. For example, a company that makes extensive use of subcontractors would include guidance on how to monitor workplace practices onsite to prevent violation of a principle against inhumane labor conditions in the manufacture of its products.

Step 2. Local Implementation

Imagine a firm that has a strong value for respecting workers’ private lives, but then implements this value by imposing home-country religious holidays in all locations. Christmas and Easter would not mean much in Israel; Yom Kippur and Passover might stir labor unrest in Pakistan or be forbidden in Iran. Eid ul-Adha (Muslim), Gantansai (Shinto), Janam Ashtami (Hindu), Maunajiyaras (Jain), and Nichiren Daishonin (Buddhist) are all sacred holidays, but they fall during different times of the year and are observed only by practitioners of that religion.

Managers must implement the global code of ethical conduct in all locations where a company does business. They may have learned how to handle the variety of religious holidays, but this is an easy problem compared to many others. What are managers to do if they don’t want to be ethical imperialists and force an unpalatable solution on the local workforce? The GBC process suggests that as long as the fundamental ethical principles are not violated, there is plenty of room and reason for local variations in implementing a company’s code of conduct.

In some cases, there will be no conflicts or gaps between the guidelines of the code and local customs, cultural norms, or national standards. In such cases, the company can readily apply its code without modification.

But many situations in international business are of moderate ethical certainty. This means that it’s not necessarily clear whether the company’s ethical principles and the locale’s customs and norms are compatible, but at least they do not seem to be incompatible. One can allow and even plan for variations in implementation of the code of conduct without violation of the big principles. To continue with the holiday example, companies doing business in predominantly Christian regions could perhaps have a few fixed holidays and a few floaters to accommodate workers of various religious traditions. The alternative, ethical imperialism, exists when organizations fail to respect or to value the existence of local cultures, and exhibit naive or coercive disrespect of legitimate variations in how ethics are lived out in different locations.

Of course, managers must be conscientious in making these judgments. They must be aware of the problems that may arise by arbitrarily applying the company code in cases where customs or local standards are in conflict with it. Or, there may be unintended consequences from implementing the company code that will either create problems for stakeholders or ethical dilemmas for the company that were simply not addressed in the code itself. Engaging in stakeholder dialogue and being open to feedback about code implementation is essential to uncovering such problems. How would managers discover that the operations of their organizations were in conflict with local norms if they did not talk to the locals?

When it comes to the attention of the organization that conflicts exist, managers must take the next step in the GBC process.

Step 3. Problem Analysis and Experimentation

Ethical uncertainty reigns when cultural norms are incomplete, nonexistent, or appear to be in conflict with those principles that are contained in the code of conduct. When this is the case, the organization must make two important steps in its journey toward citizenship.

First, the company must analyze cases in which local customs or norms seem to be at variance with company standards. These cases may include situations where local custom diverges substantially from the company code, and local managers will need to examine whether these differences should be resolved in favor of the code or not. Second, after thoughtful stakeholder engagement and careful analysis, the organization needs to design experiments to test ways to implement the code in conformance with big principles and with respect for local culture.

Analyzing ethical and cultural conflicts is not much different from analyzing production or financial or distribution problems. The task is to identify the problem, take it apart into its various pieces, and search for similarities and differences that suggest solutions. As with other problems, a manager tries to ask good questions and learn from the experts. Stakeholders can provide important information about local practices, customs, and norms and such input will help the manager analyze conflicts or gaps. It is especially useful in the problem-analysis stage to have an in-depth understanding of the principles underlying the company code.

Experimentation involves searching for creative and practical solutions to values conflicts. One wants to honor the spirit of the code by adapting practice where feasible, and sometimes nothing but trial and error will do. Managers may be up against a conflict they have never experienced or were completely unaware of. Being willing to experiment in good faith, working all the while with affected stakeholders, is key to implementing a global code of conduct in diverse settings.

In cases where the application of the company code will have unintended negative consequences for one or more stakeholders, the manager needs to carefully consider the nature of these consequences and whether they can be mitigated. Because headquarters personnel are not necessarily aware of negative consequences arising in some local cultures, the local manager may need to recommend changes in the company code itself.

For example, in the case of setting a fair wage when first entering a new country, managers quickly determine from local peers, government officials, and workers themselves what the norms and expectations are regarding compensation. Through continuing stakeholder engagement, the managers can discern whether local customs are in conflict with company norms. If they are, it may be that through experimentation managers can find a reasonable way to incorporate local customs and still be consistent with company standards. In other cases, the manager may resolve conflict by supporting the company’s code and will need to communicate clearly and respectfully to locals the reasons why this decision has been made. Principles with universal acceptance can be most helpful and persuasive in articulating these reasons.

The issue of discriminatory wages may arise because in many nations, women can legally be paid less than men, and members of minority groups paid less than members of the dominant ethnic group for doing the same or comparable work. Often, the disadvantaged persons may not even be considered for jobs that pay the best wages regardless of their qualifications. In such circumstances, a GBC company is careful to check the history and practices in the new locale, compare the cultural norms to its values and code, and seek ways of meeting its fundamental principles while, whenever possible, respecting local cultural differences.

Step 4. Learning Within and Outside the Organization

This essential last step in the GBC implementation process is the one that turns trial and error into practical systematic knowledge. No company wants its managers to keep making the same mistakes over and over. Eventually, with good data and a companywide effort to shape and share it, managers can learn to differentiate situations and then apply solutions accordingly.

Local implementation (Step 2) as well as analysis and experimentation (Step 3) will best serve the human enterprise and the organization’s purposes when the corporation institutes feedback loops and learns systematically from all its experiences. Systematic learning involves grasping the structural and normative similarities and differences among the various situations the company encounters in its many locations, extracting the essence of these experiences, and providing models or exemplars of what works and what doesn’t work in terms of adapting and experimenting with implementation.

After systematizing what it has learned from implementation and experiments, a GBC company will institutionalize those policies, practices, and behaviors that best serve the interests of people and the firm wherever it operates. A database, training modules, and other means of incorporating learning throughout the organization are characteristic of this mature phase of global citizenship behavior. For example, Levi Strauss & Co., Inc., after a decade of experiments in implementing its supplier code of conduct and country terms of engagement, finally began to compile a systematic database that will help all the company’s managers identify problems and issues and apply workable, tested solutions. Names, dates, places, and cases all find their way into the database, so no manager need be blindsided by the shenanigans of a known cheater or a subcontractor who likes to skate on the wrong side of labor law.

Ultimately, the GBC process is cyclical. As a company learns to implement its code and understand its local stakeholders, there will be instances where the code turns out to be wrong or unworkable. Cycling back around, then, the good-citizen company learns how to critique its own values and processes and to change its guidelines when it becomes apparent that certain aspects of the code of conduct cannot reasonably be implemented or should not stand as guiding principles.

A final and very important aspect of GBC learning is sharing knowledge with other companies so that the entire business sector can learn. For example, the United Nations Global Compact requires that member companies post status reports on their progress in applying the ten Global Compact principles.

Conclusion

GBC is based on the premise that most companies and their managers want to operate responsibly and ethically, and that they are striving to meet multiple pressures as best they can. These pressures are increasingly complex and growing in frequency and potential impact. GBC theory, process, and guidelines are offered as the conceptual and operational vehicle for bringing the moral conscience into the global economy in the 21st century and for helping managers deal with cross-cultural differences in a responsible way.

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