Academy ol Management Executive, 2004, Vol. 18, No. 2

Managing ethically with globalstakeholders: A present and

future challenge

Archie B. Carroll

In the early 2000s, the era of corporate fraud andcorruption defined by the ethical wrongdoing ofEnron, WorldCom, Tyco, Arthur Andersen, andHealthSouth captured the world's attention asnever before. It soon became clear, however, thatthe U. S. had not cornered the market on question-able ethics. The Dutch firm Ahold and Italy's Par-malat quickly shared center stage with scandals oftheir own. Domestic business ethics will continueto be a top priority. But global business ethics willdemand cutting-edge thinking and practice ascompanies strive to expand their products, ser-vices, sales, and operations throughout the world.Regardless of what is happening in individualcountries, whether at home or abroad, the primaryvenue for ethical debates in the future will moreand more be the world stage.

The primary venue for ethical debates inthe future will more and more be theworld stage.

Globalization characterizes the internationalsetting of business transactions in which U. S.and world multinational corporations (MNCs) willincreasingly participate over the next severaldecades. Despite setbacks such as the attacksupon the World Trade Center in 2001 and the anti-globalization backlash that continues to be seen atmajor international meetings of the World TradeOrganization, International Monetary Fund, andglobal summits such as the G8 summits, the globaleconomy is irresistible to MNCs, and little willimpede the trend toward global capitalism.

The explosive growth of MNCs has set the stagefor global business ethics to be one of the highestpriorities over the coming decades. Recent data

shows that of the 100 largest "economies" in theworld, only 47 of them are nation states. The other53 are MNCs. Exxon Mobil Corporation, for exam-ple, has annual revenues that exceed the GDP ofall but 20 of the world's 220 nations.^ Clearly, then,the MNCs' operations throughout the world willconstitute a primary arena for business ethicsthinking and applications.

The focus in this discussion will be on how busi-nesses and managers can deal with the topic ofbusiness ethics vis-a-vis their global stakeholders.As Princeton professor of bioethics Peter Singerrecently said, "How well we come through the eraof globalization will depend on how we respondethically to the idea that we live in one world."^

Business's major stakeholders include consum-ers, employees, owners, the community, govern-ment, competitors, and the natural environment.There are many others, but we will focus primarilyon the community and government. In the contextof global ethics, the community is the communityof host nations in which the firm is doing business,and the government represents all the separatesovereign nations that serve as "hosts" to invest-ing MNCs. This makes for a much more complexsituation than, for example, a U.S. MNC doing busi-ness in the U. S. It also represents a most-likelyscenario in world affairs that doing business inothers' countries will become more of the norm. It isestimated, for example, that while the economiesof China and India are much smaller than that ofthe U. S. now, China is likely to overtake and Indiato equal the U.S. economy in size by 2050. Theworld's economic center of gravity is shifting to-ward Asia, and U.S. preeminence will undoubtedlydiminish though its participation in the globaleconomy is expected to grow. The current contro-versy over the outsourcing of U. S. jobs is one of thelatest debate points in the trend.

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Some Current Knowledge about Global Ethics

We know so little for sure about global businessethics. Even so, a number of experts testify to itsimportance. Tichy and McGill declare that "it isdifficult to think of a more important basic busi-ness ethical commitment than to be a good citizenin the world of your business—with real involve-ment of your people, as well as your money."^ As apractical matter. Sir Philip Watts, the chairman ofRoyal Dutch/Shell, recently has worked hard torecast his once reviled company as a compassion-ate corporate citizen.^

We do know that there is a pressing need formore empirical research on global business ethics,but most of the work to date has been quite con-tingent. Much business ethics research dependsupon many factors, including the ubiquitous issueof culture. The extension of business ethics con-cepts and thinking to the global arena has proba-bly raised more questions than it has answered.Though textbooks have been available for years onthe subject of international business ethics,^ weare still in the formative stages of providing con-ceptual models and applications that readilytranslate into effective practices for businessexecutives.

There is a pressing need for moreempirical research on global businessethics.

In global ethics decision-making, so much focusis on the extent to which the manager uses home-country ethical standards versus host-country eth-ical standards in making decisions and shapingpractices. One typology of global types that hasbeen helpful is that of Georges Enderle. He hasobserved and categorized at least four differenttypes of global firms with respect to their use ofhome-country versus host-country ethical stan-dards. Enderle's purpose in this typology is to iden-tify and illustrate the various mixtures or combi-nations of home- and host-country standards thata business operating in the global sphere mightadopt.^

Through description and example, Enderle helpsus to understand different options available andtheir consequences. He would likely reject the"Foreign Country Type," which simply conforms tolocal customs and ethics, as being too relativistic.At the other extreme, the "Global Type" strives toabstract from all regional differences and seekethical principles that would be more globally ac-

ceptable. In between these two extremes, he pre-sents the "Empire Type" that applies home-countryethics without any attempt at cultural adaptationand the "Interconnection Type" that blurs nationalidentities and seeks a posture that transcends in-ternational boundaries but "connects" with se-lected clusters, such as the European Union orNAFTA. Though Enderle stops short of offering pre-scriptive guidelines, the Global model seems pref-erable to the Foreign Country model as companiesseek exemplars.

Another major contribution has been TomDonaldson and Thomas Dunfee's Integrative So-cial Contracts Theory (ISCT) as an approach tonavigating cross-national cultural differences.'^Their model is depicted as a series of concentriccircles representing various ethical norms thatmight be held by corporations, industries, or eco-nomic cultures. At the center of the circles arehypernorms, which represent desired transculturalvalues. These might include fundamental humanrights common to most cultures and countries.Moving out from the center, one would next findconsistent norms. These are more culturally spe-cific but are consistent with hypernorms. The nextcircle is moral free space. Here, one finds normsthat are inconsistent with at least some otherlegitimate norms existing in other economiccultures. These represent strongly held culturalbeliefs in particular countries. Thus, Buddhistcommunities may develop norms that reflect theircultures, and Koreans might develop norms re-garding work behavior that reflect their culture.^Finally, in the outer circle are illegitimate norms,which are norms that are incompatible with hyper-norms. An example of these might be the practiceof exposing workers to unacceptable levels of car-cinogens.

In short, ISCT uses the principles of moral freespace and adherence to hypernorms as positionsthat need to be balanced in navigating global in-ternational waters. While honoring hypernorms,companies do not have to simply adopt a "do inRome as the Romans do" philosophy. However,they do need to be sensitive to the transculturalvalue implications of their actions. In turn, theconcept of moral free space makes them ever vig-ilant of the need to precede judgment with an at-tempt to understand the local host-country culture.The result is the reality that moral tensions will bean everyday part of doing business in the globalsphere.^ ISCT is a contingency model of ethicaldecision-making as are most constructs that mightbe useful in global applications.

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The Timeliness of Corporate SocialResponsibility and Ethics

Executives want a useful framework for thinkingabout global business ethics, and the concept ofcorporate social responsibility, a concept that hasendured for decades in the U.S. and is growingexponentially in Europe, fills the bill. This is be-cause companies in diverse industries are conclu-sively seeing that the public insists that they bal-ance profits with corporate citizenship. Accordingto The Economist, the corporate social responsibil-ity (CSR) movement flowered in the decade of the1990s and is carrying forward into the 2000s. Asrecently as the World Economic Forum that gath-ered in Davos, Switzerland in January 2004, thecorporate chieftains in attendance were express-ing the conviction that global corporate responsi-bility and citizenship were the order of the day.'°

The literature of CSR has produced many defini-tions and many concepts over the past half centurysince its emergence and formalization on the busi-ness scene." In terms of thinking about a conceptor model of CSR that would have global applica-bility, I began considering how the CSR frameworkearlier developed'^ and then reformulated into aPyramid of CSR'̂ would stand up in application toglobal CSR and business ethics. The basic defini-

tion of CSR is as follows: "The social responsibilityof business encompasses the economic, legal, eth-ical, and discretionary (philanthropic) expecta-tions that society has of organizations at a givenpoint in time."'^ This notion of CSR is both a stake-holder model and a contingency model. It is astakeholder model in the sense that various stake-holder groups each send expectations to manage-ment about what they expect the organization to dounder the banner of economics (profits), law, eth-ics, and philanthropy. It is a contingency model inseveral respects, but the most important is thatsociety's views or expectations of business perfor-mance change and evolve over time. The expecta-tion that firms will be good corporate citizens inthe global sphere is one of the latest mandates ofCSR.

A Pyramid of Global CSR as a Framework

Having a framework and context for business'ssocial and ethical responsibilities to global stake-holders is an initial best practice. The Pyramid ofGlobal Corporate Social Responsibility (see Figure1) is presented as a helpful way to graphicallydepict the four kinds of social responsibility thatbusiness has with respect to global business

Be a goodglobalcorporatecitizen

Do what is desiredby global stakeholders

Beethical

Obeythelaw

Beprofit-able

Do what is expecfedby global stakeholders

PhilanthropicResponsibility

EconomicResponsibility

Do what isrequired by globalstakeholders

Do what isrequired byglobalcapitalism

FIGURE 1Pyramid of Global Corporate Social Responsibility and Performance

2004 Carroll 117

stakeholders. The pyramid portrays the four com-ponents of global CSR, beginning with the basicbuilding block of economic performance. At thesame time, business is expected to obey the lawbecause law is every country's codification of ac-ceptable and unacceptable practices. Businessalso is expected to be ethical. At its most basiclevel, this is the obligation to do what is right, just,and fair and to avoid or minimize harm to stake-holders. Finally, business is expected to be a goodcorporate citizen through its philanthropy. Firmstoday are expected to contribute financial and hu-man resources to the global community and to"give back" so that the quality of life may be en-hanced and sustained.

No metaphor is perfect, and the Global Pyramidof CSR is no exception. It is intended to illustratethat the global social responsibility of business iscomposed of four definite components that, whentaken together, define what business should bedoing in the international sphere. These four com-ponents are not mutually exclusive. They aretreated separately for discussion purposes and areoverlapping to some extent and in frequent tensionwith one another. A brief explanation of each CSRcomponent is appropriate because these catego-ries dictate corporate actions.

The economic responsibilities of the firm,whether domestic or global, remain the bedrockfoundation for business. Global companies are ex-pected to produce goods and services and sellthem at a profit. Sound strategic management of-fers guidelines as to how and where this may beachieved in a global setting. At this level, consen-sus is easy to reach about the economic expecta-tions of business firms. What may vary by countryor region of the world is the question of what con-stitutes an acceptable rate of return or growth rate.Companies functioning in hypercompetitive condi-tions might look upon this question differentlythan those operating in developing countries.Therefore, this aspect of the framework is contin-gent upon local and regional expectations found infinancial markets but remains foundational to sur-vival and growth.

Legal responsibilities of management and MNCsalso are vital. Just as countries have sanctionedeconomic systems, they also sanction legal sys-tems. The social contract between business firmsand host countries varies by country and, thus,legal systems and expectations vary as well. Atthis level, we observe significant differences inlegal systems and responsibilities by countriesand regions of the world. For example, we knowthat Chinese labor laws often are not enforced'^and that foreign investors are finding that China's

legal system resolves few disputes.^^ We alsoknow that the absence of a legal system is inhib-iting foreign investment in post-war Iraq.'^ Onething is clear, however: The legal responsibilitydoes exist and is found in developed, developing,and less developed countries alike.

Ethical responsibilities are essential becauselaws are not adequate and companies and execu-tives care deeply about their reputations, as wellas about "doing the right thing." As long as publi-cations such as Multinational Monitor publishtheir annual lists of the "ten worst corporations" inglobal business, executives will find justifiableand practical reasons to care about ethics.^^ Ethi-cal responsibilities embrace those activities andpractices that are expected or prohibited by societyeven though they may not be codified into law.Ethical responsibilities encompass the full scopeof norms, standards, and expectations that reflecta belief in what employees, consumers, sharehold-ers, and the global community regard as fair, just,and consistent with the respect for and protectionof stakeholders' moral rights. Superimposed on thehost country's expectations of ethics are the im-plied levels of ethical performance suggested by aconsideration of the great ethical principles ofmoral philosophy, such as justice, rights, and util-itarianism.

Ethical responsibilities embrace thoseactivities and practices that are expectedor prohibited by society even though theymay not be codified into law.

The ethical category is where divergent viewstraceable to different cultures are likely to be mostsignificant. In a real sense, global business ethicsis about the reconciliation of home- and host-country ethical standards and the identification ofnorms that will satisfy both. The practice of morairelativism, wherein companies simply adapt to lo-cal norms, creates an often untenable situationbecause many countries, especially developingones, do not have articulated ethical standardsthat protect vulnerable stakeholders. Bowie recom-mends moral universalism as a principle thatwould create a moral standard that is accepted byall cultures. 13 Moral universalism is the identifica-tion of ethical standards that would have broad,international support, such as the U.N. GlobalCompact or the Global Reporting Initiative.

Philanthropic responsibilities reflect global soci-ety's expectations that business will engage insocial activities that are not mandated by law nor

118 Academy of Management Executive May

generally expected of business in an ethical sense.Though sometimes imbued with an ethical threadof rationale, philanthropy today is more often thannot strategic in nature, with business expected toplay an active role in global corporate citizenship.As in the case of law and ethics, philanthropicexpectations vary widely by country of the world,and the wise executive will carefully research ex-pectations of the host countries in this category.While presenting this idea in Helsinki, Finland, forexample, I found that the Finns do not regard phi-lanthropy highly because in their system, hightaxes are thought by business to more than takecare of these kinds of citizenship expectations.

The Global Pyramid of CSR provides a concep-tual framework for thinking through the multitudeof expectations that may fall on the MNC or globalmanager. It is intended to illustrate the total socialresponsibility of global businesses. Although thecomponent parts have been separated for discus-sion, they are not mutually exclusive and are not tobe filled in this sequence. The pyramid intends tosuggest the building-block relationship of the fourresponsibilities with economic at the base, be-cause without it the others are beside the point.The pyramid depicts the full range of responsibil-ities that global firms and managers are expectedto fulfill simultaneously.

Stated in more practical and performance-ori-ented terms, the Global CSR Pyramid suggeststhat the MNC should strive to:

• Make a profit consistent with expectations forinternational businesses;

• Obey the law^ of host countries as well as inter-national law;

• Be ethical in its practices, taking host-countryand global standards into consideration;

' Be a good corporate citizen, especially as de-fined by the host country's expectations.

The Global Pyramid of CSR and Performancewill help managers think through in a systematicway the different stakeholder expectations placedon their organizations. It should be recognized thatresponsibility implies performance. Previous re-search does support the contention that managerssee the importance of their responsibilities as fol-lowing this sequence of priorities: economic, legal,ethical, and philanthropic^^

Other Best Practices for Global Ethics

Having a useful model for framing responsibilitiesto global stakeholders is a first, and necessary,best practice. What are some other practices thatglobal managers and organizations can best adoptto be responsive to the pressures and demands of

international stakeholders? How can managers re-spond to the ethical responsibility depicted in theGlobal Pyramid of CSR?

Many global business ethics issues dominatethe news today. It has been argued that the ethicalissues surrounding MNCs or transnational corpo-rations fall into at least eight major categories:bribery and sensitive payments, employment is-sues, marketing practices, impact on the economyand development of host countries, effects on thenatural environment, cultural impacts of opera-tions, relations with host governments, and rela-tions with home countries.^i

Flowing from a desire to address these eightcategories of issues by fulfilling the responsibili-ties emanating from the Global Pyramid of CSR oranother popular concept, the "triple bottom line"(which is a less detailed version in that it catego-rizes issues into economic, social, and environ-mental),̂ ^ companies may pursue several majorstrategies. At a strategic level, companies shoulddevelop both global corporate codes of conductand subscribe to global codes that have been de-veloped by independent international bodies.Well-thought-out corporate codes are illustratedby those developed and adopted by Mattel andCaterpillar Tractor. Examples of respected inde-pendent global codes developed by internationalorganizations include the UN Global Compact, theGlobal Reporting Initiative, OECD Guidelines forMultinational Enterprises, the Caux Principles,and the Principles for Global Corporate Responsi-bility developed by the Interfaith Center on Corpo-rations.23

Companies should develop both globalcorporate codes of conduct andsubscribe to global codes that havebeen developed by independentinternational bodies.

In a similar vein, the integration of ethical prin-ciples into strategic decision-making is anotherbest practice. In this connection, the embracing ofa set of fundamental international rights, such asthose articulated by Tom Donaldson, will allow thecorporation to integrate business ethics into itscorporate strategy. Examples of his ten fundamen-tal human rights include rights that should begiven to employees and other stakeholders such asfreedom from torture, a fair trial, physical security,speech and association, and subsistence. Theserights are regarded as moral minimums for allinternational economic ^̂

2004 Carroll 119

A strong complement to these intemational rightsare Richard DeGeorge's seven moral guidelines forfirms operating globally. According to DeGeorge,MNCs should do no intentional, direct harm; producemore good than bad for the host country; contributeto the host country's development; respect humanrights; pay their fair share of taxes; respect the localculture; and cooperate with the host govemment indeveloping ethical background institutions (e.g.,health and safety standards).^^

A company striving to develop universal ethicalstandards for its operations in 66 countries is ING,the multinational Dutch financial group. In anelaborate program based upon getting input fromits 250 top international managers, ING has devel-oped a global ethics code and is training its 83,000worldwide staff via an interactive CD-ROM linkedto the Internet to apply the company's ethics prin-ciples consistently around the globe. ING's vice-chair of the executive board, Ewald Kist, has said,"This is supposed to be common ground that allour cultures can live with.''^^

With respect to the natural environment of hostcountries, the concept of "sustainable strategicmanagement" sets the standard high. According toW. Edward Stead and Jean Garner Stead, this re-fers to strategic management processes that seekcompetitive advantages consistent with a corevalue of environmental sustainability. With thisenterprise-level strategy, firms base their corpo-rate strategies on an analysis of the ecologicalissues they face, the values they hold that supportsustainability, and the ecological interests of theirstakeholders.27 The Paris-based oil company Total,the world's fourth largest oil company, is strivingto embrace ethics and environmentalism in its sus-tainability quest. To establish credibility with itsstakeholders. Total created a high-level ethicscommittee. Two of its European rivals. Shell andBP, are also making ethics a focal point of theirenvironmental

Toward the Future: Much Research Is Needed

Much research is needed in global business ethics.If there is need for research in one particular area,it is in the reconciliation of home-country and host-country ethical standards such that internationalbusiness ethics moves toward universal ethicalstandards or norms. Global stakeholders will bestbe served, as national borders fall, by the creation,implementation, and sustainability of a set of uni-versal ethical guidelines that the developed econ-omies of the world can use in transactions with

each other and with the developing economies.The best practices described above will moveMNCs toward this goal.

Endnotes

' Melloan, G. Feeling the muscles of the multinationals. WallStreet Journal, 6 January 2004.

^ Singer, P. Navigating the ethics of globalization. The Chron-icle of Higher Education, 11 October 2002, B8.

^ Tichy, N. M., & McGill, A. R. Corporate global citizenship:The ethical path for business," in Tichy, N. M., & McGill, A. R.,The ethical challenge: How to lead v^ith unyielding integrity.San Francisco: Jossey-Bass, 2003, 248.

* Becker, E. At Shell, grades for citizenship. New Voric Times,30 November 2003, 2BU.

^DeGeorge, R. Competing with integrity in internationalbusiness. New York: Oxford University Press, 1993; Donaldson,T. The ethics of international business. New York: Oxford Uni-versity Press, 1989.

^ Enderle, G. What is international? A typolocpy of intema-tional spheres and its relevance for business ethics. Paperpresented at the International Association for Business andSociety, Vienna, Austria, 1995.

^Donaldson, T., and Dunfee, T. 1999. When ethics travel: Thepromise and perils of global business ethics. California Man-agement Review, 41 (4): 48-49.

^ Fritzsche, D. J. 2004. Business ethics: A global and manage-rial perspective. New York: McGraw-Hill, 56-57.

^Ibid.'° Two-faced capitalism. The Economist, 11 January 2004." Carroll, A. B. 1999. Corporate social responsibility: Evolu-

tion of a definitional construct. Business and Society, 38 (3):268-295.

'̂ Carroll, A. B. 1979. A three-dimensional conceptual modelof corporate social performance. Academy of Management Re-view, 4: 497-505.

'•̂ Carroll, A. B. 1991. The pyramid of corporate social respon-sibility: Towards the moral management of organizationalstakeholders. Business Horizons, July-August: 42. An alternativeto the pyramid is a Venn-diagram model presented in M. S.Schwartz & A. B. Carroll. 2003. Corporate social responsibility: Athree-domain approach. Business Ethics Quarterly, 13(4): 503-530.

'̂ Carroll, 1979.'̂ Pan, P. P. Worked to death: Chinese labor laws are rarely

enforced. The Washington Post National Weekly Edition, 17-23June 2002, 15.

'̂ Dolven, B. Foreign investors find that China's legal systemresolves few disputes. Wall Street Journal, 8 April 2003, A14.

' ' King, N., Jr. Iraq's business elite gropes in the dark. WallStreet Journal, 25 June 2003, A4.

'̂ Mokhiber, R., & Weissman, R. 2003. Multiple corporate per-sonality disorder: The 10 worst corporations of 2003. MuJ<ina-tional Monitor, December: 9-20.

'̂ Bowie, N. 1987. The moral obligations of multinational cor-porations. In S. Luper-Foy (ed.). Problems of International Jus-tice. New York: Westview Press, 97-113.

^°Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. 1985. Anempirical examination of the relationship between corporatesocial responsibility and profitability. Academy of Manage-ment Journal, 28(2): 446-463; Pinkston, T. S., & Carroll, A. B. 1994.Corporate citizenship perspectives and foreign direct invest-ment in the U.S. Journal of Business Ethics, 13: 157-169.

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^' Donaldson, T. 1997. International business ethics. In P. H.Werhane & R. E. Freeman (eds.). The Blackwell Dictionary ofBusiness Ethics. Maiden, MA: Blackwell Publishers, 346-348.

^'^ http:/lwww.sustainability.comlphilosophyltriple-bottom/tbl-intro.asp.

^^ Comparison of Selected CSR Standards. San Francisco:Business for Social Responsibility, November 2000: 10-11.

2* Donaldson, 1989,81.^^DeGeorge, 1993.^̂ Maitland, A. Common principles in a diverse world. Finan-

cial Times, 26 August 1999.^̂ Stead, W. E., & Stead, J. G. 2004. SustainabJe strategic

management. Armonk, NY: M. E. Sharpe.^̂ Gumbel, P. Total clean up. Time, 26 January 2004, AlO-

A12.

Archie B. Carroll holds the Rob-ert W. Scherer Chair of Man-agement in the Terry College ofBusiness, University of Georgia,where he also serves as di-rector of the Nonprofit Manage-ment & Community Service Pro-gram. He is co-author of Busi-ness & Society; Ethics &Stakeholder Management, 5thEdition, 2003. His interests spanglobal business ethics, stake-holder management, and busi-ness-and-society. He receivedhis doctorate in managementfrom The Florida State Univer-sity. Contact: acarroiJ@terry.uga.edu.