When not doing international business might be a moral imperative

Should Western firms remain operating in or selling to Russia? Can Greek shipping companies continue to transport Russian oil with good conscience after the EU’s decision on an oil embargo? Should Siemens have moral concerns about selling high-speed trains to Egypt? How to deal with the reports around the Xinjiang police files; would Novartis have to close its pharmaceutical office in Urumqi? Is it morally acceptable for tourism companies such as booking.com to continue offering hotels in Myanmar after the 2021 coup d’état?

As soon as firms engage in international business things quickly get morally less clear compared to a completely domestic business model. Often this relates to corruption, but also other questions will appear on the radar screen: How many vacation days should a Danish company (minimum of 25 paid vacation days) offer to local employees when opening an office in Thailand (minimum of 6 paid vacation days)? Can a French automotive company continue to offer Wine at supplier events? Will you send a gay or female sales representative to Saudi Arabia?

Most companies quickly develop coping strategies to balance different moral values and priorities across their different locations. But as soon as fundamental questions around live and death (war!) or human rights are involved, most people intuitively hesitate to just recommend the good old: “when in Rome do as the Romans do.” What to do in such cases? When might it be morally necessary to discontinue international business?

In such situations, two key phases need to be differentiated:

Phase 1 Decision: Is it morally acceptable for you to continue doing business with/in a country with which you disagree morally about fundamental values such as human rights?

To take the decision about dis-/continuation, managers should ask and answer five key questions:

  1. Do the delivered products/services contribute significantly to an improvement of the local living conditions? (Example: Do you sell snacks or essential pharmaceutical products?)
  2. Can you ensure that the delivered products/services cannot be (mis-)used for a violation of human rights? (Example: Can your machinery be misused to produce chemical weapons?)
  3. Can you achieve your value creation on site without major moral compromises? (Example: Would you need to engage in major corruption?)
  4. Can you prevent that your business relationship/transaction is (easily) mis-used for propaganda purposes? (Example: Would you have to take a picture with a dictator to close the deal?)
  5. Are you willing to stand up for your own values abroad (which might require to openly call out disagreements)?

If the answer to one of these questions is “no” you would either have to discontinue your operation or at least be very clear to yourself and your key stakeholders that you are violating your own moral standards. So better be ready to face legitimate stakeholder criticism and constantly ask yourself if there is anything you can do to reduce harm to those most negatively affected.

Phase 2 Execution: Once you have taken the decision about dis-/continuing on basis of the five questions above: How should you implement your decision? Here are six recommendations for the implementation:

  1. Be fast: Especially when dealing with a large-scale and publicly visible issue: Don’t procrastinate with your action – otherwise you might be moved to a merely reactive position and lose credibility with your stakeholders.
  2. Think long-term: Can/will you stick to your decision in the long run? How can you implement your decision so that you don’t have to reverse your course soon?
  3. Avoid rotten compromises: Try to be as consistent as possible, e.g. don’t leave a country officially just to continue selling through agents and intermediaries.
  4. Conduct rationalization checks: Avoid using moral reasoning that is self-serving, by challenging your argumentation through these three tests:
    1. Publicity test:
      • Could you defend your decision and reasoning if/when it became public?
    2. Reversibility test:
      • When looking at your decision from the affected position, could this be reasonably defended?
      • What if the roles of various players/actors were reversed/exchanged?
    3. Generalizability test:
      • What if every organization chose the same action?
      • How does this decision compare to other/similar constellations? Are you consistent?
  5. Communicate your decision: Inform your stakeholders and the public actively and clearly link your decision to your organization’s values
  6. Prepare your argumentation carefully: Even if you consider your decision to be ethical, you might still violate legitimate rights or interests of at least one party. (Moral issues will not always lead to win-win constellations.)

When working your way through these questions you will probably realize that the morally right decision is not necessarily always a discontinuation even if the public might be calling you to do so forcefully. Sometimes you might be ethically allowed or even required to continue doing business even with countries in war or with horrible human rights records, e.g. if you provide life essentials (e.g. food, pharmaceuticals, electricity etc.) and can do so in a reasonably clean way. But in many other constellations you will realize that you might need to bite the bullet and shut down parts of your business for moral considerations.

Proximity of stakeholders and cultural/national biases

I just finished the ETP Salon – an short executive education program exclusively for alumni of ESMT‘s Executive Transition Program. We discussed the broad topic of “Learning from crisis” from various different perspectives. During our discussions we touched a topic with interesting ethical questions:

After the earthquake, tsunami and subsequent problems with the Fukushima nuclear power plant, many international corporations immediately offered their expatriates to return to their home countries (see e.g. the German online portal “SPIEGEL Online“).

On the first sight, this seems to be the right thing to do: After sending their employees to Japan, companies can be understood to have an obligation to ensure their physical well being (see also here). Most of these expatriate employees will have been based in the greater area around Tokyo. The nuclear emission might not have passed the thresholds yet, but the threat was imminent.

So where is the ethical issue when companies act as they ought to do?

The issue lies in the scope / limitation of the target group of such rescue programs: Large international companies (such as Siemens, GE, DHL, Starbucks, McDonald’s etc.) certainly employ more Japanese people in Japan than expatriates. Is it fair just to help the expatriates? Why?

  • What are the limits of a company’s obligation to help it’s employees?
  • Is this just a question of numbers, i.e. the argument that even the large multinational companies just cannot afford/manage to bring all their employees out of the country and therefore have to limit their effort so a small number?
  • Or is the difference only driven by demand? The Japanese employees just might not have wanted to leave the country and/or they might not have been able to relocate to another country e.g. because they didn’t have the necessary visas or financial resources.
  • Is there a bias towards the people from the “own” country? (Which anyway is getting less and less clear: As employees, customers and investors of multinational companies nowadays usually do not come mainly from only one country, we know less clearly what the “own” country of a company is.) Are the expatriates closer to the company than the Japanese employees?
  • Is there a certain element of nationalism, e.g. the assumption that at the end of the day people should end up in their “own” country – so let’s bring back the Germans to Germany, the French to France etc. and sort everything
  • To see how messy it quickly gets, let’s just take the fictitious example of Hans. Hans was born in Japan as son of German parents that worked for Toyota. He spent most of his life in Japan.  But after his studies in Japan he was hired by Volkswagen in Germany. He went to Wolfsburg. But after two years Volkswagen decided to send him as an expatriate (due to his passport and German work contract) to Japan. Compare this situation to Hiroki: Hiroki was born as son of a Japanese couple that lived and worked for Volkswagen in Germany. After his studies in Germany he decided to get to know the country of his parents. There he joined Volkswagen on basis of a local contract. What is the difference in Volkswagen’s obligations to help Hans or Hiroki?

And then you can change the question one more time: How about the large Japanese companies that employ international staff in their headquarters? How about the French, English, American, Indian or South African employees of Sony in Minato, Tokyo? Should they be sent “back” while their colleagues stay in Japan?