The ethical obligations of a multinational corporation toward employment conditions, human rights,

corruption, environmental pollution, and the use of power are not always clear cut. From an
international business perspective- for MNE- with supply chain components spread across the globe, it
becomes important to establish a moral compass to guide an organization to profit its stakeholders. One
important factor (albeit a challenging one) in determining that moral compass is the culture. For
example- an American companys managers goes to a developing country and finds out that 40% of its
sub-contractors labor consists of children under the age of 12. The sub-contractor has hired them
because
a) Children are cheaper than an adult, which results in reduced costs and higher profit for the American
company
b) A part of the process can be handled efficiently by a child (say making carpets)
c) If the child was not allowed to work, consequences will be worse than employing that child for
example prostitution or slavery
D) its a culturally established and acceptable practice in that country
e) Competition is also employing children so abandoning that would result in the loss of a competitive
advantage.
What should the American manager do? Should he allow the status quo and agree with his sub-
contractor? Should the sub-contractor succumb to the pressure from the parent company to meet
unrealistic performance goals that can be attained only by cutting corners or acting in an unethical
manner? Probably not, because that would violate the reasonable prohibition against child labor in the
country of sub-contractor and companys own ethical code. What then is the right thing to do? How far
is the company ethically and legally liable for the actions of its sub-contractors? From one end of
spectrum there is Enron- which was morally bankrupt to Hersheys which are dealing with ethical issues
with a view to enhancing global partnerships at community level.
There are various theories and philosophies to guide international businesses to find their moral
compass in these situations.
The Friedman Doctrine (Friedman, 1970) states that the only responsibility of a company is to increase
its profitability for its shareholder. This notion does not require the parent company be liable for the
actions of its subcontractors as long as they are making profits. Applying this notion to our scenario
would mean that the American company would have to side with a), b) and e) above and violate its own
ethical code (if it has one!) However, this argument break down under examination (Hill): Child labor is
not only morally wrong but also assumes that stakeholders- society, shareholders, management and
consumers of any company will have to accept the social acceptability of its practice.
For example- Hersheys child labor practices to allow its field operators to use children to source coca
was evidently known (Polis, 2012) As a result of fierce criticism by international human rights
organizations and customer base- by the end of 2012, Hershey has pledged to use only cocoa that has
been certified by the Rainforest Alliance for its line of Bliss chocolates. Rainforest Alliance Certified
farms (sub-contractors) meet the organizations three pillars of sustainability: environmental protection,
social equity and economic viability. Additionally, Hershey's plans to invest $10 million in West Africa, to
encourage economic initiatives and to reduce child labor and improve cocoa supply of its sub-
contractors.
Another belief is Culture Relativism (Donaldson, 1996) which states that ethics are nothing more than
the reflection of a cultureall ethics are culturally determined and accordingly- a company should
accept and adopt the ethics of the culture in which it is operating. This notion rejects the notion that
ideas of universal morality transcend cultures. This notion put the liability squarely on the local sub-
contractor. If slavery is acceptable in one culture stakeholders will accepts that elsewhere. In our
scenario, this notion accepts d) (above) which legitimizes rest of the considerations taken by the local
subcontractor in our scenario.
Not all companies agree with this approach. India is culturally known for its facilitation practices when it
comes to get clearances from local government. The business unit of BP took measures not only to
eliminate direct facilitation payments but also extended its policy to agents, distributors and suppliers
(BP, 2002) This shows that BP acted on its moral responsibility to act on corruption where it could even
if it would mean increased costs due to delays in getting clearances.
The Righteous Moralist approach -
A righteous moralist claims that a multinationals home-country standards of ethics are the appropriate
ones for companies to follow in foreign countries (Hill) This is mostly practiced by companies based in
developed countries and seek to enforce their version of morals on their supply chain components
usually based in developing economies. This notion demands accountability from the parent company
for the actions of its sub-contractors abroad. This notion, however, is not without pitfalls- how far a
company should go to ensure it applies home country standards in other countries. Is it okay to apply
same minimum wage across the supply chain as its in the home country? Wouldnt that increase the
cost? My view is that this notion should be applied in a way that establishes fair moral framework
without completely abandoning the moral compass to which its stakeholders subscribe. In other words,
take responsibility of what is happening in factories of your sub-contractors.
At the end of the day- sub-contractors are an essential component of the global supply chain and
parent companies must enforce higher ethical standards of operations. Apple, for example, received a
lot of flak about the child labor and overtime practices of its sub-contractors in China. Should Apple hide
behind the Friedman Doctrine or Cultural Relativism doctrine and say not my fault? The answer is
they cannot. In fact, no global organization can hide behind these doctrines and claim high profitability
by cutting corners. Stakeholders such as consumers, shareholders, managers, employees evaluate a
companys performance not just on dollar revenue but its commitment to social responsibility and
ethical operations.
From a companys perspective- noncompliance with ethical code of conduct will hurt its corporate and
brand image and will result in loss of revenue. Consumers will switch to a brand which offers a higher
level of consistent social approach than a brand which does not subscribe to any ethical standards.
Apple has a very current, leading-edge brand. So the consumer has always believed that the company
must be environmentally and socially responsible as well (Hawthorne, 2012) As a result Apple has
initiated Fair Labor Association to audit its suppliers practices in China.
As we have seen through examples of Hersheys, Apple and BP- a global company has to accept its
responsibility of the ethical practices of its suppliers spread across the world. Stakeholders require a
higher standard of ethical compliance. Profitability is no longer measured in terms of Dollor revenue but
though conscious decisions of a company to work with local partners in removing ills of social and
economic neglect.


References
BP. (2002). Our Code. Retrieved from http://www.bp.com/content/dam/bp/pdf/code-of-
conduct/bp_code_of_conduct.PDF
Donaldson, T. (1996). Values in Tension: Ethics Away from Home. Harvard Business Review. Retrieved
from http://hbr.org/1996/09/values-in-tension-ethics-away-from-home/ar/8
Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. The New York Times
Magazine.
Hawthorne, F. (2012, May 07). Apple's Appalling Ethics. Retrieved from
http://www.huffingtonpost.com/fran-hawthorne/apples-appalling-ethics_b_1651264.html.
Hill, C. W. (n.d.). International business : competing in the global marketplace. Boston: McGraw-
Hill/Irwin.
Polis, C. (2012). Hershey's Child Labor: Chocolate Company To Source Independently Certified Cocoa By
End Of 2012. huffington post. Retrieved from
http://www.huffingtonpost.com/2012/02/01/hersheys-child-labor_n_1247111.html