By Frank Vogl, Senior ERC Fellow

Components of core strategy

Is it hyperbole to say that never before has the need been greater for corporations to develop core strategies for global business ethics?

It sounds as if it is, but in reality I think this is now a matter of urgency. In these remarks I will strive to make the case, but first let me stress what I mean by core strategies. Corporations need to consider five sets of actions:

1. Learning a lot more about global business ethics.

2. Developing effective in-house corporate global business ethics strategies.

3. Creating internal corporate coalitions involving the corporate Ethics Office, Human Resources, Government Relations, Corporate Communications and Legal, to implement new global business ethics programs.

4. Securing dialogue with civil society groups in all the countries in which you operate.

5. Monitoring the impact of your new global business ethics strategies, and monitoring the rising expectations around the world of public expectations of corporate behavior.

Globalization gathers momentum

Why are these actions so necessary today?

We are meeting at a time of intense global business competition. There are now about 55,000 multinational firms in the world with over 450,000 foreign affiliates. These foreign affiliates are generating sales equal to 7 per cent of global GDP.

Globalization is an engine driving an ever rising volume of world investment. The numbers are impressive. Foreign direct investment in 1997 by all multinational enterprises amounted to $400 billion, which is almost double the total seen in 1990 and seven times the amount recorded in 1980. Flows just to developing countries amounted to $149 billion in 1997, representing 37 per cent of all global foreign direct investment, compared to just $37 billion representing only 17 per cent of all such investment at the start of this decade.

The top 100 largest firms in the world, ranked in foreign assets, have combined foreign sales of more than $2 trillion and employ more than 6 million people overseas. Business has never before been more transnational, more globally competitive, and more dynamic.

The world’s top 100 transnational corporations, ranked by foreign assets, 1996 (assets and sales in billions U.S. dollars)
Rank	Corporation	Country	Industry	Foreign Assets	Foreign Sales	Foreign Employees
1	General Electric	United States	Electronics	82.8	21.1	84,000
2	Shell, Royal Dutch	Netherlands/ United Kingdom	Petroleum	82.1	71.1	79,000
3	Ford Motor Company	United States	Automotive	79.1	65.8	n/a
4	Exxon Corporation	United States	Petroleum	55.6	102.0	n/a
5	General Motors	United States	Automotive	55.4	50.0	221,313
6	IBM	United States	Computers	41.4	46.6	121,655
7	Toyota	Japan	Automotive	39.2	51.7	34,837
8	Volkswagen Group	Germany	Automotive	n/a	41.0	123,042
9	Mitsubishi Corp.	Japan	Diversified	n/a	50.2	3,819
10	Mobil Corporation	United States	Petroleum	31.3	53.1	22,900
Comprehensive data on the top 100 can be found on pages 36 and 37 of the World Investment Report 1998.

Mergers & acquisitions soar

One of the major new trends is the acceleration of mergers and acquisitions in foreign direct investment. The volume of cross-border M&As last year was $359 billion, up from $283 billion in 1996. An increasing amount of this activity involves U.S. and European firms acquiring companies in Asia and in Latin America.

Companies that used to invest in greenfield opportunities and, who gradually built their foreign assets and labor forces, are now moving far faster. They are acquiring large existing enterprises on an unprecedented scale, because investment laws are more liberal, privatization is more common, and there are bargains out there.

So, almost overnight, major global firms are acquiring huge foreign labor forces and teams of foreign managers who know nothing of American business codes and values and principles. They don't know what the Foreign Corrupt Practices Act is, or what environmental standards you hold dear, or what labor and work safety yardsticks you consider ethically right.

The potential for a global business ethics disaster in such circumstances is unprecedented. But, there is worse news.

International finance gets a bad name

Another crucial element in globalization is the expanding role of international finance. The media has had a field day recently playing up the worst instances of banking and hedge fund folly. The media has exaggerated in some instances the degree to which corruption and cronyism have impacted finance in emerging markets.

As a result, the benefits of globalization of finance have been either ignored or downplayed in a lot of the media. This may negatively effect the sentiment of shareholders in major financial institutions and undermine a process of financial globalization that is contributing to economic development and to the dynamism and competitiveness of businesses around the world. A process that has provided investors everywhere with new choices and opportunities, which is surely something to be fostered, not undermined.

The damage being done to the reputations of financial institutions is even worse than I have suggested. Money laundering captures headlines, projects major financial firms into the headlines and tarnishes all. In sum, the combination of recent bad publicity in the financial sector compounds a much broader negative image of the leading enterprises engaged in international business. But, this is not all there is to worry about.

CEO's face additional pressures

We've met in happier times. The global economy looked more robust. The world's financial markets looked more encouraging. The world's media looked at international business more benignly, although we all knew that couldn't last.

So, we meet now in tougher times as corporate CEOs see weaker share prices, less happy shareholders, more worried employees and less satisfactory earnings prospects. And, no doubt, we find CEOs declaring: "Don't bother me right now with this ethics stuff."

Maybe I over-dramatize. After all, you are the stars. You are here because you know global business ethics is a priority and your firms know it. You are in the vanguard when it comes to business integrity.

Public perceptions of corruption & integrity

But, I am not here to praise you, but to share some harsh realities. I think time is running out. I think the gloomier economic environment is accelerating the tempo of public impatience over the lack of integrity so evident in global business and government.

Two-thirds of the 85 countries ranked in the recent Transparency International Corruption Perception Index get terrible scores…scores so bad that one has to conclude that people across the globe see the governments of these countries as being thoroughly corrupt.

And, it takes two to tango on the corruption dance floor. It takes the politician and civil servant keen to abuse his office for public gain, and it takes the corporation keen to get business for a bribe and a kickback. The general public, in increasing numbers of countries, is voicing its outrage.

This is stimulating greater focus on the full array of business ethics issues in more countries by more players than we have ever seen. If you have doubts, then:

• look at the rising level of media attention to the ethics of major corporations - for example, the very recent Wall Street Journal reporting on Freeport-McMoRan Copper & Gold Inc. in Indonesia;
• look at how the current environment is stimulating public prosecutors to flex their muscles - for example, the efforts in Argentina to secure the cooperation of IBM in a major bribery case; and,
• look at how today's global events are stimulating environmental and human rights groups to become still more adversarial and bold in their global efforts.

Understanding the issues

Ethics matter on the global business stage, but is this well understood?

Do line managers understand this?

Do your counterparts in firms not represented here understand this?

Do HR and PR leaders in corporate America understand this?

Do CEO's understand the total turmoil that can be unleashed in their Board rooms, among their shareholders, and among their customers, when allegations are made against corporations?

Do CEO's have any concept of the impact when allegations are made against their firms that suggest business bribery in Brazil, indifference to human rights in Nigeria, abuse of child labor in Vietnam, exploitation of prison labor in China, and tropical rain forest wreckage in Cambodia?

I think the answers to each of these questions are negative. The issues get studied in an academic environment and discussed in many conferences and seminars, but how many firms have excellent core strategies in place today to cope with global business ethics issues?

We need to find the answer and to learn from the best practice that exists in this field. Our research is likely to show that there are a lot more questions than answers. We are likely to find that the potential adversaries to international firms, in the media, in civil society groups, in public life, are more advanced in their focus on global integrity issues than are U.S. business leaders. This should worry us.

My sense is that the pressures on this front will intensify in the early years of the coming decade. Societal expectations of corporate behavior are likely to rise. This may be due to criticisms by the adversaries, or due to a sense that corporations have deep pockets to meet social community needs as public spending declines, or due to dramatic situations - to the integrity cases involving Nike and Shell - that strengthen publicity around global business ethics issues.

Our challenge is to become pro-active. It is to anticipate the pressures and to design the core strategies. It is to build still stronger understanding, from the Boardroom to the factory floor, across the globe, that the pursuit of excellence in the realm of global business ethics is a vital component of corporate success.

Thank you.

FN1. See World Investment Report 1998, published on November 10, 1998 by the United Nations: see http://www.unctad.org or contact Vogl Communications, Inc., advisors to the United Nations Conference on Trade and Development for foreign direct investment issues.
FN2. To learn more about Transparency International's Corruption Perception Index 1998 see http://www.transparency.de or contact Frank Vogl, Vice Chairman of Transparency International at voglcom@aol.com For Vogl's regular column on global ethics please see http://www.earthimes.org