About MIC Worldwide

Ethics – A Matter of Perspective

Ethics are an important component of a company’s identity and reputation, as well as a principle pillar on which is posed the value of the company’s brand. There is nothing that can lead to a quicker downfall of a company’s image, and even bottom line, than a well-publicized breach of ethics. It is for this reason that companies invest heavily into programs intended to uphold corporate ethics. From the development of training programs, to the drafting of policies, to the creation of compliance teams – these are all intended for the sole purpose of ensuring adherence to the company’s code of ethics. Even governments are firmly on board, with the U.S. Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act. However, few take notice to the fact that ethics are not universal. Ethics are very much affected by your culture and upbringing.

As simply defined, ethics are the moral principles that govern a person’s or group’s behavior – the principles of right and wrong. Culture, on the other hand, is defined as the beliefs, customs, arts, etc. of a particular society, group or place. So it’s safe to say that if two people’s beliefs and customs differ, their moral principles may also differ. Where a person comes from will influence their definition of ethics.

So why is this important? If employees are expected to act in an ethical manner, companies, and in particular multi-national companies, cannot simply issue a blanket order to act ethically. They must first define the standard of ethics to be utilized and measured against.

I recently came across a prime example of the influence of culture on ethics while conducting an investigation into a kickback scheme at a South American subsidiary of a U.S. client.

For the most part, U.S. and European workers understand, at least to some degree, that removing items from the workplace is not proper. Even more understand that taking company money destined for a specific purpose is considered stealing, whether the funds were taken directly or demanded of a company supplier or client. This is not always the case for foreign workers.

In many countries, removing items from the workplace is common practice, and to some extent, even considered an employee’s right. After all, a big corporation has deep pockets and will not be affected by a few missing notebooks, pens, reams of copy paper or staplers each week. But the poor worker would definitely be hurt if denied these simple supplies for home or educational use.

By the same token, while taking money from the company is definitely understood as wrong, there are some places where taking money from a third-party suppler is considered a smart business practice. The logic lies in the fact that no money is being taken from the employer, so there is no ethical violation. After all, the company agreed to pay the funds for services/goods provided by the supplier, so there’s no harm to the company if the employee also benefits. Further, many employees feel that they are entitled to a portion of the funds as a reward for granting the contract to the supplier. Their thought process is that the supplier would never have been granted the contract if it were not for the employee. Taking this one step further, many suppliers build in a percentage to their proposals that they intend to give back to the contracting agent. A win/win situation, right? Not quite.

In this particular investigation, kickbacks had been demanded of third-party suppliers who were providing services to the company. While the initial suspicion was focused on one particular member of the purchasing department, inquiries quickly determined that kickbacks were being made to every member of the purchasing department, as well as the marketing and sales departments. The investigation determined that roughly 90% of the relationships with outside suppliers were affected by these kickback schemes. As can be imagined, this caused quite a commotion with upper management and legal counsel at the company’s U.S. headquarters, which placed a high value on their reputation as an ethical company.

When confronted with the evidence of the kickbacks, virtually all employees involved reacted in the same manner. They were surprised that such a big issue was being made about the kickbacks since the company was not affected financially. By their standards, stealing money from the company was unethical, but demanding money from a third party service provider crossed no ethical boundaries – it was simply an accepted business practice. Conversations with numerous unrelated employees from other companies in the same city confirmed this belief to be almost

universal. However by U.S. and European standards, it was a clear violation of ethics.

While the issue surely exists back home, the upsurge is being seen clearly at subsidiaries of U.S. and European companies operating internationally. This begs the question of whether the culprit is distance from the mothership, or whether the explanation runs much deeper, lodged in the cultural upbringing of an individual or group of individuals. While the former certainly has some bearing, it’s the latter that appears to have the strongest pull.

Two additional investigations for U.S. clients in other foreign countries yielded the same results, with involvement by almost every department within an organization, including sales, marketing, purchasing, distribution, design, transportation groups and IT departments. One of the client’s security department, charged with the responsibility of upholding the ethical behavior of company employees, was not immune to these events when purchasing outside security services.

But it is not only in kickbacks that we see evidence of cultural influence on ethics. Conflicting standards of ethics is also apparent in other aspects of the business practices, where the results of a situation often outweigh the means.

Labor laws in many countries favor the employee heavily over the employer, making terminating an employee close to impossible without having to doll out a small fortune in indemnity fees. To reduce the amount of fees paid, and avoid any related litigation, many employers prefer to negotiate an exit fee with the employee that is less than the indemnity, but paid immediately and in cash, with no discounts for taxes and other employee benefits. Unfortunately, these exit fees are illegal under local law, which clearly state that an employee must either be terminated for cause, or appropriately indemnified by the employer. Illegal activities are clearly violations of ethics by U.S. and European standards, however when related to employee terminations, are common practice throughout the region.

Note that while illegal equates to unethical, legal does not necessarily equate to ethical. For example, a particular medicine that causes birth defects may be legal to distribute in one country without the need of a warning label, but is it really ethical to do so?

Culture even plays a part in a company’s ability to offer standardized perks for their employees. For some companies in the U.S. or Europe, it may be customary to offer their employees certain perks, like extended maternity leave or a company car. In other companies, smaller perks, such as free snacks or drinks while at work are provided. When a U.S.-based multi-national corporation opened a subsidiary in a major South American city, the company extended workers the same perks as in their U.S. headquarters – free snacks and drinks. By the end of the first day, no snacks or drinks remained, and by the end of the first week, the entire month’s supply of drinks and snacks had disappeared. They soon found that employees were loading their backpacks with drinks and snacks each evening. When

management tried to explain the intent of the perks, the concept was totally lost on the workers who argued that there was no difference between consuming the items while at work and consuming them at their home. In both cases, the employees would be consuming the items, so why would the location matter? They saw no moral or ethical issue with simply taking the items. After all, they were free.

Bottom line is that, if we expect employees to act in an ethical manner, we cannot simply issue a blanket order to act ethically. We must first define the standard of ethics to be utilized and measured against. Otherwise, we risk the very real chance of a misunderstanding that could result in the company’s name spread across the front page of every major newspaper, and for all the wrong reasons.

Christopher T. Macolini