12 Oct 1999  Research & Ideas

Value Judgments: Business Ethics Across Borders

"As different cultural traditions meet in the marketplace and inside organizations, managers face tough choices about the values that they and their organizations will live by," HBS professor Lynn Sharp Paine told participants at a research conference in Hong Kong last winter that was part of the inauguration of the HBS Asia-Pacific Research Office. "In order to be effective, they must find ways to deal with differences in how people think about matters such as authority, fairness, responsibility, and even the very purpose of business."

In her previous work regarding organizational values and business ethics, Paine focused on U.S. companies engaged in business principally at home. But faced with an increasing number of questions from international students about whether U.S. standards and values applied in their home countries, she began searching for answers in a much broader setting. "Students would ask me about the possibility of establishing a global system of business ethics," Paine says, "and whether cultural clashes of one degree or another were inevitable. I needed a systematic way to study the values and standards of high-aspiration companies around the globe in order to find out where and how much they differ."

With a research agenda organized around eight major world cultures — African, Confucian, Hindu/Buddhist, Islamic, Japanese, Latin American, Slavic-Orthodox, and Western — Paine embarked upon an ambitious course-development project in 1997. Writing cases on firms in China, Japan, Thailand, Argentina, Nigeria, and Russia, she focused on businesses indigenous to each culture as well as multinationals moving between cultures. In addition, she chose companies that aspire to excellence along multiple dimensions — in terms of not only financial performance but management practices and reputation in the community.

The result of her efforts is the MBA elective course Globalization, Culture, and Management. According to Paine, as students examine the values and beliefs embraced by companies striving for excellence from different points of cultural reference, they learn to anticipate and deal with the kinds of value conflicts they are likely to face as global managers. Paine points out that students taking her course also develop a business philosophy and a set of values that will help them lead effectively when crossing cultural borders.

Two of the seventeen case sequences she has developed for the course so far — "Siam Cement Group: Corporate Philosophy" and "The Haier Group" — take place in Thailand and China, respectively. Named Asia's most ethical company by Asian executives polled several years ago in Asian Business magazine's annual most admired companies survey, Siam Cement Group (SCG) was one of the first firms in Thailand to develop its own written code of ethics. SCG's philosophy is rooted in the Buddhist concept of fairness and also stresses product quality, the value of the individual, and concern for social responsibility.

As Siam Cement expanded beyond Thailand, however, managers felt pressured to compromise the corporate code of ethics. The company's standards regarding improper payments, for example, made it difficult to compete in places where such transactions are a way of life. The case illustrates a classic dilemma: should organizations conform to the environment they're in, or should they export their ethical standards to other lands? In Paine's view, framing the issue as "my way or your way" tends to heighten the dilemma and limit the possibilities for an effective resolution. Instead, she urges managers to look beyond differences in practice to underlying principles. In many instances, this approach can help managers find a strategy that honors the company's values and also works in a particular environment. "One firm that had built its reputation by being environmentally responsible ran into trouble when it expanded its business into India," she explains, "because people there were not willing to pay for the world-class technology necessary to maintain the stringent emission standards of the company's U.S. plants. After much debate around the choice of technology," she continues, "the company reexamined its concerns about the environment and realized they originated in a broader commitment to social responsibility. Managers then began working with the local community to find meaningful ways — such as support for schools, health centers, sewage disposal, and forest preservation — to be socially responsible within that setting."

A series of cases on the Haier Group describes a Chinese refrigerator and white goods maker aspiring to become a global brand. Among other challenges facing the CEO of this collective enterprise was the need to focus the attention of the work force on performance issues. "His task was to create a value system that favors personal accountability, emphasizes product quality, and centers on serving the market and the customer rather than being responsive to the central planner," Paine notes.

In addition, the chief executive found himself torn between, on the one hand, a deep-seated cultural code of ethics emphasizing loyalty to family and friends and, on the other, a desire to do what was needed to build a world-class company. "Going back to the time of Confucius," says Paine, "the primacy of personal relationships and interpersonal reciprocity has been paramount in China. This poses a problem for those who want to use strictly market criteria when choosing suppliers and employees and entering into contracts."

While there are no easy answers to these predicaments, Paine views the challenges she is uncovering as a beginning for coping with cross-cultural conflict. "Astute managers learn about cultures in order to build bridges and bring about changes that will make their organization more effective and responsible," she concludes. "In any successful change process, an understanding of the starting point is as important as a vision of the ultimate objective."

From Working Knowledge: A Report on Research at Harvard Business School, Spring 1999.