Archive for the ‘international’ Category
Controversy continues to bubble over the SodaStream countertop carbonator. The popular home gadget — used to turn regular tap water into a variety of fizzy drinks — has generated controversy due to the fact that SodaStream operates a manufacturing plant in the occupied West Bank. For some, raging against the SodaStream is just part of a larger effort to boycott Israeli products, or at least products made in the occupied territories. They point out that Israeli settlement in those territories is illegal under Article 49 of the Fourth Geneva Convention, and has been declared illegal by the International Court of Justice.
None the less, it is probably tempting for many to shrug their shoulders at the whole thing. Many North Americans without a partisan tie to the issue may just think of the conflict between Israel and Palestine as one of “those” conflicts, “over there.” Consider: for the average middle-aged North American, it’s a conflict that has been making headlines for literally our entire lives, with both sides apparently taking turns at acting badly and no end in sight. It’s understandable if a few of us consider it a wash, declining to take sides and staring blankly when the topic comes up.
SodaStream’s spokesperson, incidentally, is none other than Scarlett Johansson. The Jewish Daily Forward referred to Johansson’s affiliation with the company as an unhelpful ‘normalizing’ of the Israeli occupation. After all, what could be more normal and peaceful than opening up a factory and offering people employment? There’s a sense in which that might be an understatement: building factories on occupied land — any occupied land — could easily be thought of as an act of war.
On the other hand, as defenders of the company point out, the factory is giving jobs to a few hundred Palestinians, and giving someone a job is hardly an act of aggression. For that matter, in most parts of the world it is acknowledged that commerce is generally conducive to peace. The more prosperous people are — roughly, the more they have to lose — the less likely they are to engage in warfare.
Does it matter, either way? From the point of view of outcomes, it’s hard to see much value in avoiding buying a SodaStream, even given a principled objection to operating factories in occupied territory. Your purchase (roughly $80 – $120) isn’t buying guns, or barbed wire. And the fraction-of-a-fraction of the purchase price that ends up contributing to the company’s bottom line isn’t going to either keep SodaStream in business or put them out of it. Your purchase, in other words, is trivial.
But isn’t refusal to buy a SodaStream another example of the growing, and generally positive, trend toward conscious consumerism? It arguably is, but in fact the benefits of conscious consumerism are not as obvious as many would have you think. As my friend, Professor Alexei Marcoux, argues, refusing to do business with someone because you disagree with their values is a dangerous road to go down. Given the huge number of moral disagreements in the world, we should think twice about becoming the sort of people who let such disagreements get in the way of engaging in mutually beneficial trade. That’s not a knock-down argument against any and all principled refusals to do business, but it’s a point worth making.
Now, the conflict between Israel and Palestine is no garden-variety disagreement. But that might just be the point. It’s not at all clear that we should want a controversy so bitter, and so protracted, to occupy our purchasing decisions.
Canadian grocery chain Loblaw has announced that it will compensate the families of victims of the factory collapse that happened in Bangladesh’s Rana Plaza this past May. The factory housed a number of garment factories, including some that made garments for the Canadian’ retailer’s “Joe Fresh” line of clothing.
Some will worry that this is a case of too little, too late. And certainly the “too late” part is correct. Compensation is always a distant second best when compared to avoiding deaths in the first place. Whether the compensation is “too little” or not is subject to debate. It’s not clear that Loblaw (or any company) bears direct responsibility for the behaviour of the companies it buys services from, though certainly the case is stronger where the buyer is a highly-capable multi-billion dollar company, and when the companies it buys from are smaller, less-capable companies operating in an under-regulated environment.
Either way, it’s hard not to admire the company for stepping up and assuming responsibility. And the money will surely be a godsend to the families of the victims. But the real benefit of the compensation scheme may well lie in its capacity to reassure Canadians (and other westerners) that the company cares, and that things are going to get better in Bangladesh, so that we can all keep buying goods made there. Because that’s what Bangladesh truly needs.
But on the other hand I continue to worry about Bangladeshi exceptionalism — that is, that all the attention being lavished on the garment industry in Bangladesh will mean little attention gets paid to parallel problems in places like Malaysia, Vietnam, Pakistan, China, and a number of African countries. There are surely factories in many, many developing countries that are ‘Rana Plazas’ just waiting to happen. It’s not clear just what is being done about those.
Finally, many will be asking what still needs to change? Two things come to mind. The first is that companies like Loblaw need to keep getting better at vetting the companies they do business with, in order to weed out the bad ones. This, of course, is much harder than it sounds. The second is that Canadians and other Westerner consumers need to change the way they think about the issue. They need to recognize that Bangladesh is not Canada, and doesn’t have the luxury of North American-style labour standards. They will surely get there, but it will be a long, slow climb.
Most important is that this tragic series of events has focused the world’s attention on an important set of issues. But the challenge lies in harnessing that attention and seeking out reasoned discussion, rather than knee-jerk reactions.
Workers in Bangladesh will be the beneficiaries of yet another massive effort to improve their lot. Will it work? And will it mean anything for workers in countries other than Bangladesh? It’s a welcome move, but it also raises questions.
According to a press release, an alliance of leading North American retailers has committed to a new plan, The Bangladesh Worker Safety Initiative, intended to “dramatically improving factory safety conditions in Bangladesh.” The coalition includes Walmart, Target, Canadian Tire, Gap, Hudson’s Bay Company, and a dozen other major retailers. That means, according to the press release, that the Initiative covers the “overwhelming majority of North American apparel imports.”
This new Initiative should not be confused with the Accord on Fire and Building Safety in Bangladesh, a labour-led agreement that was announced in May, less than a month after the collapsed the collapse of Bangladesh’s 8-story Rana Plaza collapse, a tragedy that eventually claimed 1,129 victims. Signatories to that Accord included Europe’s two biggest clothing retailers, as well as Tommy Hilfiger, H&M, and Canada’s Loblaw, but there were notable abstentions. Walmart, for instance, was criticized for declining to sign on.
The new Initiative “sets aggressive timelines and accountability for inspections, training and worker empowerment.” Of particular note: “Within one year, 100 percent of all factories that conduct work with an alliance member will be inspected,” and members of the alliance have committed to refusing to do business with any factory deemed unsafe. And, in a worthy commitment to transparency, the alliance will make semi-annual progress reports public.
There is, of course, plenty of room for skepticism. Some will see this new Initiative as a PR move, albeit a rather expensive one. Members of the alliance have already committed $42 million, though of course that number has to be put into context by comparing it to the vast profit the alliance members derive from doing business in Bangladesh. The Bangladeshi garment industry is a $19 billion-a-year industry. (Quick math: that means the size of the Alliance budget amounts to roughtly 0.2% of the size of the industry. That’s not necessarily the most relevant comparison, but it gives you a sense of scale.)
Another source of skepticism, for some, is that this is an entirely business-driven initiative, unlike the May Accord, which was driven by labour and which will be guided by a Board that includes representatives of both corporate and labour interests. The Board of the new Initiative is perhaps less clearly unbiased: the 9-member board will consist of “four retailers, four stakeholders who provide specific expertise, and an independent board chair.” Interestingly, however, the Initiative does include specific provisions not just to look after workers, in the paternalistic sense, but to empower them: it calls for members to support the election of Worker Participation Committees at all factories, along with the provision of anonymous worker hotlines to be administered by a third party.
I continue to wonder and worry that both the new The Bangladesh Worker Safety Initiative and May’s Accord on Fire and Building Safety in Bangladesh represent a kind of Bangladeshi exceptionalism. Why are major retailers joining together in now two big agreements to improve conditions in Bangladesh, but in Bangladesh alone? Admittedly, Bangladesh is important — as far as the garment industry goes, it is second only to China among countries exporting Western brands. But still: it worries me that a factory collapse that could have happened in an number of developing nations has apparently drawn attention only to the fate of garment workers in one, admittedly needy, nation.
This past Tuesday I had the honour of being invited to testify before the Standing Committee on Foreign Affairs of Canada’s House of Commons. The hearing was part of a “study on corporate practices by companies supplying and manufacturing products in developing countries for Canadian consumers.” The discussion wasn’t specifically about the factory that collapsed in Bangladesh last month, but that sad event was certainly on everyone’s mind.
Other witnesses included representatives from the Retail Council of Canada (RCC), from Loblaw, from the Shareholder Association for Research and Education (SHARE), and from Gildan Activewear Inc.
Not surprisingly, a range of views were presented to the Committee. Strong government intervention? Solo efforts by individual companies? Collective action through groups like the RCC? Opinions differed on just how to proceed.
Equally unsurprising was that the witnesses were unified in their expression of deep sympathy for the people of Bangladesh. Everyone, as far as I could tell, was also in favour of improving working conditions in places like Bangladesh. Shareholders, for example, according to SHARE’s Peter Chapman, are and ought to be concerned about the “ESG” (ethics, social, & governance) obligations of the companies they invest in. Robert Chant — a senior VP at Loblaw, a company that commissioned clothing from one of the companies that worked out of the factory that collapsed in Bangladesh — said that while his company has always been concerned to monitor working conditions, they simply hadn’t thought to have their subcontractors’ buildings inspected. It wasn’t on their radar. And so the collapse in Bangladesh, said Chant, who showed genuine emotion during his testimony, “Shook us to the core,” and spurred his company to commit to doing better.
In my own testimony, I made 3 key points and 3 recommendations:
First, I noted that Canadian companies do indeed have ethical obligations that go beyond the legal minimum required by the governments of the countries in which they operate. Adherence to the law is seldom enough to guarantee that a company or individual has satisfied all relevant ethical obligations. This is of special significance in developing countries with underdeveloped legal and regulatory systems.
Second, I noted that we cannot expect companies operating in places like Bangladesh or China to adhere to Canadian labour standards. And perhaps no one expects that. Canadians generally enjoy high pay and high labour standards because we can afford to. Other countries, unfortunately, are not there yet.
Third, I asked what is the best way for Canadians to contribute to the well-being of those who work in factories in places like Bangladesh. I suggested three answers to this question. First, Canadians can continue buying things made in places like Bangladesh, because that is what gives a high proportion of Bangladeshis jobs. The second way to help is through charitable donations, both to humanitarian groups as well as to groups that are focused on issues like good governance and fighting corruption.
The third thing Canadians can do is to continue paying attention to this issue, and to continue encouraging Canadian institutions — businesses, governments, and NGOs — to keep working towards making things better. All have a role to play in encouraging and offering guidance on the pursuit of incremental improvements in working conditions in developing nations.
It’s easy to villainize a company like Walmart for being unwilling to sign an agreement seeking to improve safety for workers in Bangladesh. What’s harder is to assess the company’s actual motives, and its obligations.
Headlines recently blared that Walmart has refused to sign the new “Accord on Fire and Building Safety in Bangladesh”, despite the fact that 24 other companies (including Europe’s two largest clothing retailers, as well as American brand Tommy Hilfiger and Canada’s Loblaw) had signed.
Other news sources avoided the Walmart-centric hysteria and pointed out that lots of retail chains have in fact opted not to sign. For its part, Walmart says says it plans to undertake its own plan to verify and improve conditions at its suppliers’ factories in Bangladesh. Supporters of the accord, however, are skeptical about the effectiveness of company’s proposed independent effort.
From the point of view of ethical responsibilities, could a well-intentioned company conscientiously decline to sign the pact?
It’s worth looking at a few reasons why a company might choose not to sign a pact designed to improve, and even save, lives. Walmart presumably believes that its own effort will be sufficient, and perhaps even superior. The company’s famous efficiency and notorious influence over suppliers lend some credibility to such a notion. Other companies have worried that signing the pact would bring new legal liabilities, which of course is precisely the point of a legally-binding document. (Gap, for instance, has said that it will sign only if language regarding arbitration is removed, a stance that effectively amounts to refusal.)
There may also be worries about governance: the accord provides for the appointment of a steering committee “with equal representation chosen by the trade union signatories and company signatories” — equal, but to be chaired by a seventh member selected by the International Labour Organization (ILO). Perhaps some worry that the ILO-appointed chair won’t really be neutral, giving unions an effective majority.
Other companies — including ones like Walmart, which is famous for its efficiency — may worry about the extra administrative burden implied by weaving this accord’s regulatory apparatus into its own systems of supply-chain oversight.
Another worry might be the fact that the accord applies only to Bangladesh, and makes that country the subject of a separate set of procedures. The accord also commits signatories to expenditures specifically on safety in Bangladesh, when from a particular company’s point of view Bangladesh might not be a priority. In the wake of the April factory collapse, it’s worth pointing out that there are other places in the world with unsafe factories and crummy working conditions. It’s not unreasonable for at least some companies to focus their efforts on places where conditions are equally bad, and that host even more of their suppliers.
None of this goes any distance toward excusing inaction. None of it condones apathy. The point is simply that while failure to sign a particular accord makes great headlines, we need to look carefully at reasons, as well as at a company’s full range of obligations, if we are to make sense of such a decision.
In Bangladesh, on Wednesday, a building collapsed, killing at least 260 people.* The factories in the building made garments for a number of global retailers, including Canada’s Joe Fresh. This weekend, I’m very likely going shopping at Joe Fresh, and with a clear conscience. People threatening to boycott the brand are woefully misguided. Their sorrow is justified; a change in their shopping habits is not.
The events in Bangladesh represent an utterly horrible loss of life. Anyone unmoved by such a tragedy is less than human. But to see this as an indictment of Joe Fresh, or of Western consumers, is a serious mistake.
So, just what happened in Bangladesh? The 8-story building that collapsed on Wednesday housed a number of garment factories, a shopping mall, and a bank. The people who died did so partly due to the fact that someone in Bangladesh made a very, very bad decision: police had ordered the building evacuated the day before, due to structural defects, but factory managers ignored that order. That was an immoral decision, and perhaps a criminal one. I hope those managers are brought to justice.
Now, yes, it’s true that the purchasing decisions of Canadian consumers are also part of the causal chain that led to those deaths. But causal connection is not the same as moral responsibility. Every event, tragic or not, is the culmination of countless contributing factors. To be part of a causal chain is not the same as causing something to happen. There is no reasonable sense in which Canadians shopping at Joe Fresh are responsible for Wednesday’s deaths.
In fact, Canadians shopping at Joe Fresh are doing a lot of good. Places like Bangladesh — people in places like Bangladesh — absolutely rely on the jobs provided by the international garment industry. That is, there are people in developing countries who only have jobs because people in the industrialized West buy clothes from retailers who subcontract to manufacturers in places like Bangladesh.
None the less, some people are expressing outrage at the fact that Bangladeshis are dying so that Canadians can have cheap clothes. Is this situation really so unique? In North America, the deadliest trade is commercial fishing, followed closely by mining and logging. Does anyone imagine that no corners are cut in those industries, no safety standards violated? So Canadians, too, are dying…dying so that Canadians can have cheap crab and haddock, cheap oil and aluminum, and cheap wood and paper products. Actually, a lot of that stuff goes for export, so Canadians are dying so that people from other countries can have those things cheaply. Such is globalization: millions of people world-wide take risks that they think are worth taking, in order to make a living, and they can do so because people on the other side of the world are willing to pay them to.
But of course, companies like Joe Fresh still have some obligation to make sure that their subcontractors are treating employees decently. And the company certainly acknowledges as much. According to a statement on the brand’s Facebook page, their parent company, Loblaws Inc. has…
“robust vendor standards designed to ensure that products are manufactured in a socially responsible way, ensuring a safe and sustainable work environment. We engage international auditing firms to inspect against these standards. We will not work with vendors who do not meet our standards.”
In other words, the company makes exactly the promise it ought to make. Of course, there’s only so much it can do to guarantee that its subcontractors won’t break the law, on the other side of the planet. But then again, there’s notoriously little any company can do to guarantee that its subcontractors won’t break the law, whether it operates on the other side of the planet or just down the street.
Has Joe Fresh done enough in this regard? It’s impossible to say from the outside. But what’s crucial, here, is to see that even an event as tragic as Wednesday’s building collapse in Bangladesh does nothing to impugn the company’s integrity. Should we ask questions? Of course we should. But these events shouldn’t make us jump to conclusions. Nor will they deter me, at least, from going shopping this weekend.
*Note added Oct. 2013: the death toll eventually climbed to over 1,100.
The development goals of many underdeveloped nations are seriously hampered by illicit flows of money. The money sent into those countries in the form of aid and foreign direct investment is, in many cases, dwarfed by the money that flows out as a result of money laundering, bribery, and dodgy transfer pricing. Some estimates put that outflow as high as a trillion dollars. And a lot of that money flows through, between, or within corporations.
I recently took part in a panel discussion on this topic, part of a larger event put on by a group called Academics Standing Against Poverty (ASAP).
Here are a few of what I take to be the key points, not necessarily in order of presentation, from my discussion of the topic:
Corporations have two different categories of responsibilities when it comes to curbing illicit financial flows. First, they are of course responsible for their own behaviour. Under this heading, corporations have three key obligations. First is not to game the system to avoid taxes. Minimizing taxes — even going to significant lengths to avoid taxes — may seem to be part and parcel of a manager’s obligation to maximize profits. But there is no general obligation to maximize profits, and certainly no such obligation to do so ‘at all costs.’ Even the weaker duty to ‘put shareholders first’ is a vague enough concept to be consistent with a principled stance against aggressive tax avoidance, even where taxes can be avoided legally.
A second direct obligation has to do with transparency about transfer pricing. When goods or services are being sold between branches of a multinational, the prices charged should be fair and should be rooted in a clear methodology. And total taxes paid internationally should be reported in a company’s audited annual reports. Even when gaming the system is legal, it is dishonourable.
Third, companies should have zero tolerance for bribery. Besides being corrosive to local economies, bribery is often just a lousy competitive strategy: it involves payments that cannot be guaranteed to work, and when they don’t work there is of course no recourse to the courts. Businesses generally know this, but sometimes see bribery as a necessary evil; they need to work to make it less necessary.
In addition to these direct obligations regarding their own behaviour, big companies arguably have some responsibility for the indirect effects of their operations. Major corporations support entire ecosystems of smaller businesses — suppliers, subcontractors, agents, and so on. And activities within that ecosystem can be a major source of illicit transfers. Corporations should assume some responsibility for illegal and unethical activities in their shadow. This should at least mean setting clear standards for the behaviour of the companies with which they interact, and sharing best practices. Companies are starting to do this with regard to bribery, but they should consider extending that to other areas.
Next, a point with regard to how businesses interact with governments. The least controversial, over-arching norm for business is to play by the rules of the game. Normally, governments set rules and as long as businesses play within those rules, they are at least coming close to meeting their obligations. But not all governments are equally capable of setting and enforcing the requisite rules. And the absence of clear rules doesn’t imply an absence of obligations. So, for example, the fact that the government of a small developing nation hasn’t passed regulations (as Canada and the US have done) that set standards for fairness in transfer pricing doesn’t mean that a company can be complacent.
Finally — and this bit of advice is aimed at development advocates — it is important to avoid thinking of transnational corporations as the enemy. My sense is that a significant subset of folks who are concerned with development are focused on the negative side-effects of corporate involvement in developing nations. What we need to do, though, is to harness the power of corporations rather than regretting it. Business corporations, in addition to being potent organizations, have a vested interest in reducing poverty worldwide. Anyone living on $1.25 a day makes a lousy customer and a lousy employee. Of course, corporations face a collective action problem when considering how to reduce poverty. No one corporation can do much on its own, and it’s a challenge to find ways to get long-term interests in poverty reduction to override short-term interests in profits. But still, the development community needs to see corporations as important partners. We can’t let a culture war over capitalism get in the way of helping the world’s poor.
The video of our panel discussion is now available, here:
I spoke recently to a corporate audience on the topic of Ethics for Leaders. One of the sub-topics I touched on was the fact that leaders need not only to make good ethical decisions, but also to help others make good ethical decisions. As a practical example, we looked at techniques a leader might use to help someone else understand what is ethically problematic about bribery. Sure, someone in a leadership position might have the authority simply to give orders; but in many cases it will be much more effective to explain the values and principles that underlie a particular prohibition.
One of the attendees at this session pushed back in a useful way. “I get the ethical argument against bribery, and I agree. But I’ve talked to Sales Managers overseas who say it’s just not realistic to avoid everything that could be construed as a bribe. How do I deal with that, beyond simply pointing to the FCPA?”
This is a tough challenge, one that needs to be taken seriously. Whether it’s bribery or nepotistic hiring practices, local practices that violate the rules of business “back home” can seem hard to avoid. Business is a competitive game, and it sometimes really is the case that scrupulously following the written rules puts a company at a significant — maybe even definitive — disadvantage.
It’s far too easy to play Monday Morning Quarterback and to speak in idealistic terms about integrity in business. But ethics isn’t about being a saint; it’s about finding a way to do your best to find suitable limits on profit-seeking behaviours when those behaviours put other people’s legitimate interests and rights at risk. So, if we are to avoid sounding preachy, what can we say about the Sales Manager above?
First, make sure the “when in Rome” argument isn’t just being used as a fig leaf to cover up what is really an appeal to convenience. Sometimes it may be easier to follow local custom, but that’s not quite the same as necessity.
Second, if — if! — it really is necessary, when doing business overseas, to engage in practices that wouldn’t be allowed back home, are you at least doing what you can to a) minimize the frequency of such violations and b) working, in at least some small way, to improve standards in the local business community? Bribery and other forms of corruption are truly corrosive, and economies in which they are common would be much better off without them. Are you part of the problem or part of the solution?
Third, ask whether unscrupulous (or merely ‘grey zone’) behaviour is being used to cover up poor performance. It may be that the Sales Manager who feels the need to offer bribes simply isn’t very good at his job and is looking for ways to succeed without having sufficient talent or making sufficient effort. Sometimes lack of ethics suggests lack of competency.
And finally, ask what your company can do to change incentives such that a Sales Manager isn’t so single-mindedly driven by numbers that he feels compelled to bend or break the rules. No one within an organization should ever think of themselves as having just a single objective. Yes, a Sales Manager is in charge of Sales. But he also has responsibilities that include risk management (including avoiding bringing the company into shame or into court) and managing morale within the sales team. People will behave according to how you reward them, and so reward mechanisms ought to be as balanced as you would like their performance to be.
The challenges posed by doing business in the global marketplace are never easy. Only by avoiding both naïveté and cynicism can you hope to do good while still doing well.
Samsung and Apple recently shared the spotlight as the parties to a billion dollar intellectual property lawsuit. Now, Samsung has replaced Apple as the tech company in a different spotlight — the spotlight, that is, consisting of accusations of mistreating Chinese workers. A report by the New York-based NGO China Labor Watch says that Chinese factories making devices and components for Samsung are guilty of a range of abuses. Employees working more than 100 hours of overtime in a month. Children under 16 working in factories. Failure to provide safety clothing where appropriate. And on and on.
A few key points are worth noting.
First, a note about overtime. It’s worth pointing out that China Labor Watch criticizes overtime — voluntary overtime — as if overtime were a bad thing. But at the Foxconn factories supplying Apple, at least, the biggest complaint of workers was that they wanted more overtime. If anything similar is the case at the Samsung factories, this implies that stricter limits on overtime would indeed be a bad thing, at least from the workers’ point of view.
Of course, wanting more overtime doesn’t prove that things are great at the factories; it just proves that workers want more money than they make during a regular workday. After all, if you pay people poorly enough, everyone will literally beg you for more overtime.
But then, it’s also worth remembering that “overtime” is a social construct. The amount of hours someone should work in a week is a matter of convention, and in North America and Europe we established the conventional 35 or 40 hour work week once we could afford to do so. Not everyone is yet so lucky.
Second, it is a mistake to lump all the accusations in together, as if they were all of a kind. They aren’t. Some of the complaints have to do with things that are susceptible to tradeoffs. Long hours, for example, may be acceptable if workers believe the loss of leisure time is justified by the extra income. It’s arguably a matter of rational calculations for each worker.
Other complaints, in comparison, have to do with rights, and rights are traditionally regarded as not being readily subjected to such calculations. We don’t allow voters in a democracy to literally sell their votes, for example. We put such a high value on the right to democratic participation that we forbid voters from making tradeoffs of this kind, from weighing how much they value their ability to vote against how much they value some quantity of money. Now, back to Samsung. One of the issues raised by China Labor Watch is that workers in the factories lacked a mechanism by which to lodge complaints. The existence of such a mechanism in the workplace might arguably be said to be a right. Such being the case, Samsung cannot simply argue that its workers are making a rational tradeoff here. Rights, as the saying goes, are trumps.
Finally, a note about accountability. As law professor Stan Abrams points out, one of the key factors differentiating the Apple and Samsung cases is that Samsung owns or controls many of the factories in question. Apple, on the other hand, was (and is) criticized for conditions at factories owned by its subcontractor. But since it didn’t run those factories it could plausibly deny knowledge and perhaps responsibility. Samsung, on the other hand, has no such refuge. When you own or control a factory, you can’t plausible, ethically, deny that you know how workers are being treated.
That’s not to say that the Apple and Samsung cases are categorically different. In both cases, the companies in question need to take a hard look at how their products are being made. But consumers and investors need to take a hard look, too. And that means not just casting a spotlight, but doing the hard mental work of thinking through some complicated questions of right and wrong.
This is the third in a series of postings on the bribery scandal at Wal-Mart de Mexico and its parent company, Wal-Mart Stores, Inc.
I’ve already dealt with why bribery is so seriously problematic in general. But let’s look here at why this particular instance of bribery (or pattern of bribery, really) by this particular company is especially problematic.
It goes without saying that the bribery that allegedly took place at Wal-Mart de Mexico is a wonderful example of lousy “tone at the top.” Eduardo Castro-Wright, who was CEO of Wal-Mart de Mexico during the bulk of the wrongdoing, is centrally implicated, as are senior people at Wal-Mart Stores, Inc., including CEO Mike Duke. How on earth can they now hope to exercise any ethical leadership? Clearly, they can’t, and that’s why in my opinion they both need to resign or be fired.
But the bad example set by this set of behaviours goes well beyond the walls of Wal-Mart itself.
Wal-Mart is an industry leader, taken by many as an example of how business ought to be done. The signal sent here is particularly corrosive with regard to doing business in Mexico. Mexico clearly has its problems with corruption. But there’s a self-fulfilling prophesy in this regard. If companies see Mexico as a place where bribery is necessary, they’re sometimes going to offer bribes to public officials who, in turn, will come to expect bribes. And if Wal-Mart, of all companies, says it can’t compete effectively in the Mexican market without engaging in that sort of thing — well, the lesson for merely-mortal companies is clear. If Wal-Mart can’t thrive there by playing by the rules, who can?
Think also about Wal-Mart’s supply chain, and the example this behaviour sets for the thousands of companies that supply Wal-Mart, directly or at one or more steps removed, with the goods it sells. Wal-Mart is notoriously tough on its suppliers, insisting on lower and lower prices and higher and higher levels of efficiency. But naturally — naturally! — Wal-Mart wants its suppliers to do all that within the limits of the law, right? Or at least that has to be the company’s official policy. But now, what are suppliers to think? With the revelation of Wal-Mart’s own lawless behaviour, the message to suppliers — thousands and thousands of them — is that getting the job done matters more, and that the ends justify the means.
OK, but won’t the fact that the Wal-Mart executives involved got caught also serve as an example? Well, perhaps. But that depends in part on what action is taken by law enforcement agencies and by the company’s own Board. I strongly suspect that decision-makers at a lot of companies will continue to fall prey to the cognitive illusion that so often facilitates wrongdoing of all kinds: “I’m too smart to get caught.”
So Wal-Mart has provided a clear example in terms of the benefits of bribery, and only a weak one in terms of the costs. Wal-Mart’s shareholders lost $10 billion this past Monday, in the wake of these revelations. But I fear the real impact of the scandal will be much bigger, and broader.