International environment for business

By Simon Longstaff

A version of this article was first published: Australian Business Monthly - August 1994

It may seem odd to link the name of Thomas Hobbes with the topic of business ethics. Yet, a grasp of one of Hobbes' most memorable notions may help us to understand a growing concern about the ethical framework in which international business takes place.

Writing in the seventeenth century, Hobbes advanced a particularly depressing view of humankind's original existence in the 'state of nature'. This was a mythical world in which people would constantly be at war with each other, a condition in which force and fraud would be the two cardinal virtues. As such, life for the individual would be “solitary, poor, nasty, brutish and short”.

Hobbes pointed to international relations as providing a fairly good example of something like the state of nature - a place where countries are “in the state and posture of gladiators”. Sovereign states frequently act like individuals motivated solely by selfish interests; unconstrained by a commonly accepted set of binding rules. Despite the existence of institutions like the United Nations and the existence of super-powers, sovereign states are not kept in check by the sword of a 'Leviathan' capable of keeping order and peace on the world stage. In the final instance, might is still treated as right (or at least as being 'respectable').

It is not only countries that adopt a gladiatorial stance in the international environment. So do many companies. Operating in a context where jurisdictions overlap and local customs and practices come into apparent conflict, some businesses take advantage of this in order to behave in ways that they would never contemplate in their home countries.

They pollute, they dump unsafe products, they employ labour in atrocious conditions, they pay bribes and so on. If called to account, they will frequently argue that they are merely adopting local standards. Mind you, it is interesting to note how selective this respect for local custom tends to be (for example, in failing to observe local religious festivals and holidays)! Other companies, like Levi Strauss, make a conscious decision to establish a benchmark for all their operations - no matter where they occur on the planet.

While there is genuine disagreement about questions such as whether or not it is right for the developed nations to impose their values on the developing world, everybody agrees that the standards for operating internationally are difficult to discern - let alone apply. Real dilemmas arise on a daily basis. People of good will are genuinely perplexed.

Even so, one need only scratch the surface lightly to discover the real worry confronting many in business. Given the intensely competitive international environment, they fear that to do the right thing on a unilateral basis will result in their suffering a competitive disadvantage. In such circumstances, the powerful are sorely tempted to adopt unfair (even unscrupulous) trading policies. They reason that there is no advantage in fighting with one arm tied behind the back. Adopting a defensive posture, they seek to 'even the odds' by engaging in a form of tooth and claw competition. The really strong are impervious to criticism. However, smaller players are often caught in the cross-fire and harmed.

The notion of 'might being right' is at odds with everything that we know about the efficient operation of free markets. If bullies and liars always win, then there is little incentive for the fair trader to enter the market with what might be superior goods or services.

Hobbes' proposed solution to this sort of problem was firstly, that each person should surrender the right to unfettered liberty and only hold that much freedom as would be allowed to others and secondly, that this 'covenant' between individuals should result in power being transferred into the hands of a sovereign who would then exercise it impartially to enforce law and order.

In a contemporary response, there is now a drive to establish some kind of common framework within which international business might be conducted. Even so, the desire for certainty is at odds with a countervailing suspicion of government regulation (people are not keen to allow a Big Brother to police international agreements). Thus, there is growing evidence of support for the development of voluntary global guidelines to co-regulate the international business environment.

This leads to a fundamental question: “How will businesses take responsibility for their own actions when so many have no idea of what it is that they really stand for?” There are still too many people being sent overseas with only a smattering of knowledge about the places in which they have to operate and little understanding of the basic values embedded in their own culture. Some companies are addressing this issue by ensuring that personnel receive expert briefings. Yet, many organisations seem totally oblivious to the need for an agreed company position on fundamental ethical issues that define their character in the world at large.

The real ethical challenge for people operating in the international environment is not the mastery of other people's codes, laws or customs. Nor will the problems be solved by establishing a new 'Leviathan' to impose solutions from above. Rather, companies should be encouraged to develop their basic ethical position so that they can participate in the process of defining the emerging framework for international business. Failure to do this leaves open the possibility of an experience that is, for all but the strongest, nasty, brutish and short.