Chapter One
Ethics and Transnational Companies

Companies confront challenges to their legitimacy based on activities such as human rights violations, bribery, the exploitation of impoverished workers and consumers, and negative environmental externalities. Typically such cases involve publicly held companies, based in industrialized "home" nations, operating in a developing "host" nations with limited institutional resources for regulating and policing the practices of corporations and their contractors. Critical attention has also been paid to the social and environmental practices of companies based in advanced developing nations, such as Russia or China, operating in Africa and other less-developed regions. The prevalence of these cases is one indication of the fact that we live and work in an era of economic globalization. While trade among nations has been an important feature of the global economy for centuries, there has been a rapid increase in international trade since 1990. The substantial increase in foreign direct investment (FDI) is one indicator of the steadily growing economic and political influence of corporations operating internationally.

Transnational companies (TNCs) operate in a multitude of political jurisdictions and so are subject to a multitude of legal frameworks. Laws regarding such matters as the treatment of customers, the treatment of employees, and environmental protection vary significantly in different host nations. In the case of developing economies, consumer protection, worker safety, and environmental safeguards are often poorly developed. Even when robust laws exist in developing nations, the law enforcement and judicial apparatus necessary to ensure compliance is often weak or corrupt. TNCs operating in such nations are often free to determine for themselves whether or not they will adhere to host nation laws.

FDI can improve social welfare in developing nations through technology transfer, job creation, and economic growth. However, critics challenge the moral legitimacy of many companies operating in developing nations. Corporate moral legitimacy concerns the evaluation of corporate practices and outcomes from the perspective of diverse stakeholders via the application of moral or ethical norms (Suchman 1995). TNCs confront legitimacy concerns grounded in the perception that they violate basic ethical norms, especially with regard to their relationships with and impacts on base of the pyramid populations. Nongovernmental organizations (NGOs) charge companies with environmental degradation, disregard for the welfare of home-nation employees, and the illegitimate exploitation of offshore factory workers. They argue that when companies move into developing nations they often cause more harm than good for workers, pollute local environments, and illegitimately exploit the natural resources of host nations. For example, NGO and media reports criticize Apple's labor practices in China, Walmart's proactive corruption strategies in Mexico, Disney's use of child labor in supplier factories, China Non-Ferrous Metals Mining Corporation's human rights record in Zambia, and Goldcorp's human rights record in its mining operations in Guatemala, to name only a few examples.

Underlying such allegations are empirical claims about the impact of company activities and normative claims about how companies should conduct themselves in the global marketplace. The truth of a particular empirical claim about the actions of companies can be properly assessed only when the relevant facts are known and understood. Normative claims are explicitly ethical claims about whether or not the actions of companies are consistent with particular conceptions of right action or justice. Conceptions of right action and justice are the domain of ethics. This book is concerned with the ethical norms that should guide the behavior of companies in their global operations, but the arguments deployed take into account many of the empirical dimensions that are most salient to assessing business practices.

This chapter describes modern TNCs and explains why companies and their leaders are properly regarded as responsible for company policies and practices. We then turn our attention to a theory of the moral legitimacy of TNCs. In Chapter 2, a cosmopolitan perspective on international business ethics is defended. First, the claim that corporations are properly understood as agents of justice is explained and defended. Second, two domains of normative legitimacy regarding international business are distinguished. It is argued that the moral legitimacy of organizations is not persuasively accounted for by a Habermasian deliberative democracy perspective. Third, it is argued that proponents of a Rawlsian political perspective on corporate obligations regarding global justice are mistaken. Taken together, these two sections show that the "political" account of corporate social responsibility (CSR) that has proven influential among some business ethics and CSR scholars in recent years cannot provide an adequate theory of international business ethics. An alternative, "ethical" conception of CSR is then defended utilizing a cosmopolitan human rights perspective.

In Chapter 3, I defend an account of human rights cosmopolitanism. It is argued that human rights are claim rights against parties with whom one stands in a relationship. I argue that human rights are ultimately grounded in human agency or the capacity of persons to govern themselves and that the human rights that TNCs and other business enterprises have duties to protect and respect are basic rather than aspirational. In chapter 4, I provide a critical analysis of recent United Nations (UN) initiatives on business and human rights. It is argued that the UN Draft Norms initiative is properly regarded as an example of the "dark side" of human rights. It is then argued that the more recent UN tripartite framework on human rights developed by the UN Secretary-General's Special Representative for Business and Human Rights, and subsequently approved by the UN Human Rights Council, and implemented by the Organisation for Economic Co-operation and Development (OECD) and the International Finance Committee (IFC), has conceptual and analytic weaknesses. It is argued that the tripartite framework cannot be properly regarded as having a merely strategic foundation, but must be regarded as having an ethical foundation grounded in respect for basic human rights. Once this has been provided, the coherence of the tripartite framework is improved. In Chapter 5, the cosmopolitan human rights theory articulated in chapters 2-4 is defended against criticisms.In chapter 6, this human rights framework is extended to working conditions in global supply chains. This chapter defends minimum standards for factory workers regarding the disclosure of risks and health and safety conditions and provides an analysis of wage exploitation in developing nations.

The next two chapters provide an ethical analyses of base of the pyramid (BoP) strategies. Proponents of BoP strategies argue that TNCs can reap enhanced profitability by targeting the four billion people living at the base of the economic pyramid as consumers while providing the poor with valuable goods or services. In Chapter 7, my concern is specifically with that portion of the BoP comprised of the 2.6 billion people living in moderate and extreme (MEP) poverty or less than $2 a day. It is argued that MEP populations are both cognitively and socially vulnerable, rendering them susceptible to harmful exploitation. An empowerment theory of morally legitimate BoP business ventures is defended and a multi-stage opportunity assessment process is described that allows TNC managers to determine when BoP ventures should be pursued and when they should be abandoned. This analysis is then used to criticize instrumental CSR and to defend ethical CSR. In Chapter 8, it is argued that businesses that engage in BoP activities with the ostensible goal of benefitting BoP populations may paradoxically harm BoP populations by degrading the natural environments upon that sustain BoP populations. This chapter provides a conceptual framework for understanding the environmental impacts that firm products, services, and operations can have on the poor. A pragmatic solution aimed at resolving this apparent paradox is then provided.

Transnational Companies

A variety of types and sizes of companies operate internationally. Small or medium sized firms may have supply chains that extend across national boundaries or may service foreign customers, but are based in one nation. Larger organizations that have operations and employees in many nations are the primary subject of analysis in this work. Bartlett and Ghoshal (2002) provide a conceptual framework for understanding the different types of organizational structures of large firms operating in an international context. In recent history, they argue, there have been three main types of organizational structures. First, there are multinational companies characterized by a decentralized governance structure with self-sufficient companies operating in host nations. The strategy of multinational companies is based on sensitivity and responsiveness to national contexts, and knowledge acquired and retained within national units. Second, there are global companies that are characterized by the centralized governance of a parent company operating from a home nation. The...