Ethical scandal is not ethical scandal -‐ The establishment of a framework to categorize ethical scandals, and what firms can learn from it

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Ethical scandal is not ethical scandal

-‐

The establishment of a framework to categorize ethical

scandals, and what firms can learn from it

by Amelie D. Ryschka Student number s2193345 Master’s Thesis

International Business and Management Supervisor: Dr. Ad Visscher

Referent: Dr. Sathyajit Gubbi

University of Groningen Faculty of Economics and Business

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ABSTRACT

This paper attempts to build an ethical framework in order to categorize ethical scandals. The terms defined and explained in the first part of the framework lead to a subsequent establishment of categories. These categories are then tested with two ethical scandals from differing industries. Additionally, deriving from the categorization of the ethical scandals, a minor ethical risk assessment is made, where industries and business models with particular ethical risks are indicated. Also, impact of the ethical scandals and the probability of their occurrence are given (in ordinal terms).

KEY WORDS

Ethics, Ethical scandal, Ethical crisis, sub-‐contracting, outsourcing, Nike, child labor, BP, oil spill, categorization of scandals

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DEDICATION AND ACKNOWLEDGEMENT

I want to dedicate this Master’s thesis to my family, especially my parents, and my sister, who always believe in me. I also want to thank my close friends, for always reinsuring and motivating me, and for consoling me in need.

I also want to thank my professors for giving me constructive feedback during this process, and assisting me.

At points, I was not sure if I could handle the stress. Surely, it was not an easy journey. Now, I am incredibly proud of myself, and glad and happy about my accomplishment.

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TABLE OF CONTENT

List of tables and figures ... 7

List of abbreviations ... 8

I. Introduction ... 9

Introduction, background, and context ... 9

Problem Statement ... 13 Research Questions ... 14 II. Literature ... 15 Literature Review ... 15 Literature Gap ... 17 III. Methodology ... 18

IV. Ethical Framework ... 19

1. Definitions and explanations of important terms ... 21

1.1 Crisis, Ethical crisis ... 21

Crisis. ... 21 Crisis management. ... 21 Ethical problems. ... 22 Ethical crisis. ... 22 1.2 Ethical standards ... 22 Ethical standards. ... 22

Differences in ethical standards due to nationality and culture. ... 23

Doing business abroad – the clash of two differing sets of standards. ... 24

Grade of enforcement. ... 24

Ethical standards at the workplace. ... 25

Mission statements and its effect of increasing a firm’s vulnerability. ... 26

1.3 Actors and their characteristics ... 27

Ethical standards of decision makers. ... 27

Attitudes characterizing actors of ethical misconduct and modest evaluation of degree of ethical misconduct of an individual actor. ... 28

Typical reactions of firms after ethical misconduct gets public. ... 30

1.4 Audience of firms ... 30

Reference groups of companies. ... 30

1.5 Why unethical behavior occurs ... 30

1.6 The question of responsibility ... 31

Accountability of responsibility. ... 31

2. Categories distinguishing ethical crises ... 33

2.1 The misconduct ... 33

2.1.1 Kind of misconduct ... 33

Product. ... 33

Industry. ... 33

Department/Part of business. ... 34

2.1.2 Scope of scandal ... 35

Range of scandal/Timeframe. ... 35

Degree of misconduct. ... 35

2.2 Victims ... 35

Humans or environment... 35

Type of injury. ... 36

Degree of injury. ... 36

2.3 Ethics and other influential factors ... 36

2.3.1 Ethics and ethical characteristics of the firm ... 36

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Was firm known for ethical/unethical behavior? ... 37

Country-‐originated variance of ethical standards. ... 37

2.3.2 Other influential factors ... 38

Factors leading to ethical misconduct, or: Why unethical behavior occurs. ... 38

Additional external factors and influences. ... 38

2.4 The firm ... 40

General characteristics of the firm. ... 40

The firm and its misconduct: direct or indirect involvement. ... 40

The firm in response to its misconduct. ... 41

Level of intent and accountability of actors. ... 41

Responsibility. ... 42

2.5 Impact on others, their responses, and the public opinion ... 43

Other reference groups. ... 43

Tone. ... 43

2.6 Outcomes of crisis ... 44

Outcomes for the firm. ... 44

Outcomes for the country. ... 44

V. Cases ... 47

1. Nike, Inc. ... 47

Product. ... 47

Industry. ... 47

1.2 Victims ... 50

Ethical standards implemented at the firm. ... 51

Factors leading to unethical misconduct, or: Why unethical behavior occurs. ... 52

1.4 The firm ... 54

Tone. ... 59

BP p.l.c. ... 61

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Industry. ... 61

2.2 Victims ... 63

Ethical standards implemented at the firm. ... 65

Factors leading to ethical misconduct, or: Why unethical behavior occurs. ... 67

2.4 The firm ... 69

Tone. ... 74

VI. Have the categories been validated? ... 77

VII. Ethical risk assessment ... 82

VIII. Discussion, conclusion, recommendations ... 85

IX. Epilogue ... 86

Appendix ... 87

Detailed information on search terms and databases used ... 87

References ... 89

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LIST OF TABLES AND FIGURES

Figure 1: Model of the next steps 19 Table 1: Attitudes of actors of ethical misconduct 29 Table 2: Categories of differentiation of ethical scandals 45 Figure 2: Nike and the five forces 48 Figure 3: BP and the five forces 62 Table 3: Validation of sub-‐categories 80 Figure 4: Ethical risk matrix 83

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LIST OF ABBREVIATIONS

CEO: Corporate Executive Officer CSR: Corporate Social Responsibility ILO: International Labour Organization NGO: Non-‐governmental organization PR: Public Relations

SME: Small and medium-‐sized enterprises

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I. INTRODUCTION

Introduction, background, and context

Businesses, according to the famous view of Milton Friedman only have one role: acting according to the shareholders’ expectations, which is usually to produce the maximum amount of profits possible (Friedman, 1970).

This view of businesses has been, and still is changing. Stakeholder theory for example states that “any […] group or individual who […] affect[s] […] or […] is affected by” a particular firm should have a stake, thus a say, in its operations and/or behavior (Velasquez, 2013: 24). The general public, experts, and politics increasingly urge firms to also fulfill their role as a ‘social citizen’, realize other stakeholders, and include them in their operations. This especially tends to happen in post-‐crisis phases, for example after BP’s oil spill in the Gulf of Mexico (O’Brien, 2010).

Corporate Social Responsibility (CSR) has become a popular topic amongst

corporations. CSR has been defined as “corporation’s responsibilities or obligations towards society” (Velasquez, 2013: 24) and as “economic, legal, ethical, and

discretionary expectations that society has of organizations” (Carroll, 1979: 500). Graafland found that CSR is popular amid companies since they discovered that CSR “pays off” (Graafland, 2002b: 129), meaning that it is also used as marketing to attract and retain customers.

Graafland gives five trends that may help explaining the rise in CSR: Governments wish to get corporations more involved in the self-‐control process. Globalization pushes businesses towards certain responsibilities, for example in countries where human rights are not respected. New technologies emerge; not only the Internet but also technologies like biogenetics. The economic gap is increasing evermore, which needs to be addressed. Also, environmental concerns get stronger since law does not always punish pollution, and firms should thus set limits to their environmental pollution themselves (Graafland, 2002b).

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Besides globalization, which will be discussed later, increased attention has been given to questions of environmental damages, and sustainability (Crane, & Matten, 2010). In 1968, the Club of Rome was founded. In the beginning it focused on “limits to growth” (Club of Rome, 2014: 1). It was concerned with questions regarding the rights of

workers, the rights of customers, and immediate consequences for nature. Increasingly, issues concerning long-‐term consequences for nature and the environment as a whole arise, as well as questions regarding living conditions and economic conditions (Club of Rome, 2014; Meadows, Meadows, Randers, & Behrens, 1972).

Historically, societies needed norms and standards for stability, to live together peacefully. Societies used different tools in order to establish adherence to these standards. These vary from grim looks of neighbors, which is the tool ‘control by other people, and the prospect of disrespect’, to a very sophisticated system of punishments in case of breach of norms. In modern society norms were increasingly coded into laws, making sure that citizens of the country behave in a desired way. This codification has also been used in business. In 1802 the first labor legislation was passed in the UK, which was the first intervention of a government in firms’ treatment of labor (Oliver, 1905).

However, business did not stay on a national level. When national competition increased, firms looked beyond their own borders for new business opportunities. Globalization made a division of the chain of production possible. Dividing the line of production was cheaper than producing only in one country (also due to more relaxed laws), and logistics were available. Suddenly a firm found itself in a situation of two clashing sets of laws, and norms: the ones from its home country, and the ones from the host country. This paper does not argue that firms go abroad and produce there only due to less and more relaxed laws, but firms certainly consider it a cost factor. In Germany for example firms have to spend a considerable amount of money on safety standards, whereas in Bangladesh these standards are lower and therefore costs for the company are lower as well (Crane, & Matten, 2010).

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states sign. The norms are for example about abolition of forced labor, abolition of child labor, and prohibition of discrimination (International Labour Organization, 2014). In addition to varying laws, regulations, norms, and standards, ethical standards also vary by country. In developing countries ethical standards tend to be different than in the Western world, especially concerning work and labor. Moreover, enforcement of such standards is lower, usually due to lack of resources, and thus adherence to ethical standards is very limited. This poses a dilemma for a company since firms produce with ethical standards that are not tolerated in their home country (Crane, & Matten, 2010). Since, customers reside (at least partially) in the home country of the company, they will expect a firm to adhere to ethical standards somehow similar to theirs. They will expect a decent salary to the employees or producers; they will expect good work conditions. Thus, if a company only complies with host country standards, it will make them more sensitive towards criticism of consumers, of the wider public, and of non-‐ governmental organizations (NGOs).

It has to be noted that foreign firms do have more potential to break the laws of the host country. This is either due to the firm’s size and power in the market, due to corruption in the country, or due to a much lower law enforcement rate than in for example

Western countries. Hence, due to the environmental circumstances in developing countries, firms tend to not adhere to laws a lot more (Gantz, 1997).

Many NGOs evolved from the fact that firms produce with standards not accepted in the respective home country, or not comply with established international norms like the ones of the ILO. The tactic of NGOs was (and still is) to bring the conditions of

production to the attention of the Western consumers (International Institute for Sustainable Development, 2013). NGOs try to paint a rich picture of all the wrongdoings from a home perspective. With that they also try to turn the attention of the consumers of the Western world to the fact that there is a certain responsibility along the entire chain of production for a firm.

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concerning ethical standards and firm values on their website. The author

acknowledges here that the terms ‘mission statement’, ‘codes of conduct’, and ‘ethical standards’ are used interchangeably, as it is also a common practice among firms; firms use different terms for the ‘paper’ in which they publish their ethical standards.

Starbucks for example promises to source coffee beans ethically, to minimize its

environmental footprint, to help communities, and to report its goals and performance in CSR (Starbucks, 2013). H&M claims to run its operation “economically, socially and environmentally sustainable” (H&M, 2013), claims in its codes of conduct that it is adhering to laws and does not use child labor (H&M, 2010), and states anti-‐bribery and anti-‐corruption policies in its codes of ethics (H&M, 2012). Apple claims to use an environmentally responsible approach not only forcing itself to reduce emission, waste, and energy use but also making sure that its suppliers adhere to these environmental goals (Apple, 2013b). Furthermore Apple stresses its supplier responsibility approach advertising workers’ right to “safe and ethical working conditions” while making sure that its suppliers comply with these standards as well (Apple, 2013a). In its codes of conduct Apple states law adherence and anti-‐bribery (Apple, 2012).

Posting these ethical standards and firm values is a very relevant issue today. Especially since the occurrence of several ethical scandals, customers want to see that companies commit to certain standards and comply with them. Also, engagement in the

environmental area, overall involvement with society, plus good treatment of

employees are topics that the customers are concerned about; however, even more so the NGOs and the broader public (Crane, & Matten, 2010).

Posting these statements on the other hand makes an organization prone to attacks by NGOs, especially if misconduct occurs. Then, these statements can be used against the organization, which will also be developed further in the cases of Nike and BP.

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Hence, a crisis for a company arises due to public criticism. The firm is being held

responsible for a certain issue, and the public perception of the business changes, image and/or brand problems arise, sales numbers decrease. In some cases businesses are prepared for such crises due to a proper crisis management implemented a priori, providing the company with helpful tools. However, not all companies have such a system implemented, neither is it certain that having such a system will help a company at a certain point of crisis. A company’s mistakes tend to ‘speak louder’ than any

possible crisis management. One severe violation of morals or ethical rules may

demolish a firm’s reputation for at least several years. A famous example is Ford’s Pinto model: Ford consciously chose to locate the gas tank in a sensitive spot of the car and was thus responsible for the death of many car drivers. American consumers were furious and reputational damage was done to Ford (Graafland, 2002b).

It should be noted here that a crisis – for this research – is determined as a crisis on ethical grounds, immorality, and not adhering to ethical standards, for example the labor standards of the ILO. Inhuman working conditions, child labor, and serious intentional environmental pollution are some examples for such immorality. Also, it should be noted that the terms crisis and scandal are used interchangeably.

Furthermore, the terms ‘conducting business ethically’ or ‘working ethically’ are used in this paper as a short form for conducting business in an ethically correct and ethically positive way. Likewise, the terms ‘unethical behavior’ and ‘immorality’ are used for the opposite.

Problem Statement

Increasingly, companies are dealing with issues like ethical standards, and standards of sustainability. At the same time, more and more NGOs are founded. These newly

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vast difference of positive feelings for the shoes on the one side, and incredibly negative feelings about child labor on the other. The heavy reliance on image makes ethical misconduct even worse for such companies.

Through research about the topic of ethical crises and ethical scandals the author found that the terms are used interchangeably and that the terms are used quite broadly for all sorts of scandals, environmental scandals, financial scandals, cases of outsourcing or sub-‐contracting where people either work under poor conditions, child labor is used, or where people even die from or at work. Ethical misconducts and – in most cases – resulting ethical scandals are simply put in one category.

At the same time young people in general, but especially many students of business have no idea about business ethics and especially not about ethical scandals. Ethics is hard to grasp compared to other business theories where one can draw graphs and measure values.

Then, there are also firms who see ethical scandals happen, who get nervous about whether such scandals could happen to them as well, start to wonder which parts of their business are at risk, and think about prevention of an ethical scandal. Thus, there is a broad audience at hand for this topic.

First some basic definitions and explanations of important terms are needed that define the grounds of ethical misconduct and the resulting ethical scandals. Furthermore, a way of categorizing ethical scandals is necessary in order to differentiate the scandals. Additionally, critical parts of business need to be pointed out in order to give companies an indication of ethical risks.

Research Questions

Considering the problem statement, this paper asks:

How can ethical crises be categorized?

Sub-‐questions will be:

Which categories seem to be the most significant, or most important ones? Can the differences in probability and impact of ethical crises be defined, and/or visualized?

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II. LITERATURE

Literature Review

Crises and corporate crises have been researched from various angles. Much academic literature can be found about the financial and the economic crisis, how financial markets responded to it, and how companies responded to it. Additionally, there are several studies about product-‐harm crises and consumer responses (Vassilikopoulou, Siomkos, Chatzipanagiotou, & Pantouvakis, 2009).

Research on corporate crises has been conducted focusing for example on the

antecedents of scandals (Zona, Minoja, & Coda, 2013). Also, crisis communication has been researched extensively concerning its message options and its connection with image restoration (Benoit, & Czerwinski, 1997), as well as its communication strategies in combination with legitimacy theory – “a ‘social contract’ between organizations and society” to legitimate the organization’s actions (Cho, 2009: 33).

Furthermore, Tyler (2005) researched crisis communication through a postmodernist approach, which is an approach where one looks at a topic from different perspectives, allows different and various definitions and interpretations, and understands and accepts that this variety exists (Zeeman, Poggenpoel, Myburgh, & Van der Linde, 2002). In her paper Tyler (2005) tries to find contradicting rationalities and opposing stories during a crisis, and urges researchers to listen to the suppressed group of people in the organization during a crisis, the ones who tell a ‘different truth’ than the power elite of the organization. Other authors focused on managerial communication and senior management’s communication obligations (Seeger, & Ulmer, 2003). Grebe even warned that corporate scandals could simply turn into a “double crisis” if not managed correctly and pointed out crisis response strategies that make a corporate crisis worse (2013: 70). One paper – a Bachelor’s thesis – focused on the topic of reputation crisis, and tried to detect how an organization should react in such a reputation crisis (Van Vloten Dissevelt, 2010).

Reputation and image restoration have also been examined extensively, specifically the act of rebuilding an organization’s reputation following an ethical scandal (Sims, 2009), image restoration strategies (Benoit, & Brinson, 1999), also in combination with

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(Dardis, & Haigh, 2009), as well as brand crises and reputational trouble (Greyser, 2009). Closely connected are studies about consumer buying behavior due to crises since reputation influences consumers’ decision-‐making; an example is the study of McDonald and Hartel (2000) about the concept of involvement. Involvement, according to the authors, determines a ‘level of processing’ the crisis, company and media

responses, and consumer anger intensity, which subsequently influences consumers’ buying behavior. Also noticeable is a study by Creyer and Ross (1997) on consumer response to crises, which focused on unethical firm behavior and its influence on consumers’ purchase decisions.

Financial outcomes of corporate crises have also been investigated, for example the influence on the stock market: Marcus and Goodman (1991) assessed the

announcements that managers made during crises and its impact on the stock market, whereas Tibbs, Harrell, and Shrieves (2011) investigated whether shareholders benefited from corporate misconduct.

Yu, Sengul, and Lester (2008) were convinced that a corporate crisis could influence an entire industry and attempted to measure intra-‐industry effects of corporate scandals. Several other authors focused on corporate governance (Wieland, 2005) and its

importance in corporate crises (Mitton, 2002); one study even established a framework that captured the link between corporate and global governance and identified good governance (Lin-‐Hi, & Blumberg, 2011).

Business ethics and codes of ethics have been among the prominent topics of research, understandably considering the recent trend. Schwartz (2013) for instance focused on minimizing unethical activity through (developing and sustaining) an ethical corporate culture. O’Connell and Bligh (2009) studied a firm’s development from a scandal

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neither with its original purpose (Sandin, 2009). Ethical theories, like ethics of care are – instead – supposed to be implemented on a long-‐time basis and be used as an overall approach for example for the entire organization.

It needs to be noted that there is much additional literature that has not been

mentioned here. This literature will be used in the following chapters about definitions and explanations of terms, the establishment of categories used to classify the scandals, and the cases.

Literature Gap

The literature researched different kinds of crises: financial crises, economic crises, and product harm crises. The literature focused on antecedents of corporate scandals (in this case illegal behavior of the Corporate Executive Officer (CEO)), crisis

communication, image and reputation of firms, especially strategies to restore it, consumer behavior, and influence on the stock market. Also researched was corporate governance, how to develop an ethical organization, and possible ethical responses after a crisis occurred. One paper even discussed ethical theories and asked whether they could be used during a crisis.

However, no paper ever tried to differentiate between ethical scandals. In each

academic paper there seems to be the focus on one specific kind of ethical scandal at a time. Research has not established categories so far, which can be used to classify ethical scandals. Also, no literature defines as many important terms, or explains them. Additionally, no article tried to visualize the probability of ethical risks yet. This paper wishes to close the gap concerning all these issues.

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III. METHODOLOGY

In this paper a theoretical study will be conducted concerning the development of a framework for ethical scandals. The research question will be investigated through literature research and argumentation. The paper will also use cases in order to identify whether the developed categories are practical. The cases will also prove that the most important categories have been included.

This paper can be categorized as a theoretical study, or literature study. Authors like Pautasso (2013) suggest that when conducting this kind of research or study, one should state a variety of his or her search terms, which were used for the literature research, and also provide the names of the databases used. This detailed information can be found in the appendix.

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IV. ETHICAL FRAMEWORK

In the following chapter, an ethical framework will be developed. The ethical framework will be divided into two parts: First, six main categories will be formed: “Crisis, Ethical crisis”, “Ethical standards”, “Actors and their characteristics”, “Audience of firms”, “Why unethical behavior occurs”, and “The question of responsibility”. Most of these categories have sub-‐terms. All the sub-‐terms, or in case of 1.5 the category will be defined and/or explained. Occasionally views about the terms, sometimes also

drawbacks will be given. This is necessary in order to understand the issue of ethical crises and scandals thoroughly. The second part will describe categories and sub-‐ categories that will be used to distinguish cases of ethical crises from each other. The categories and sub-‐categories are for the most part derived from part 1, the definitions and explanations. Figure 1 depicts a model, which shows the next steps of this paper.

FIGURE 1:

Model of the next steps

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It is important that the reader understands that the definitions and explanations, as well as the categories given are not meant to be exhaustive. The author used mind-‐mapping methods to identify the most important terms, as well as the most important, and in her view most significant categories. Later, two cases will determine if the categories do in fact classify the ethical scandals, and if they classify them well. Since the categories are (for the most part) derived from the definitions and explanations, this will also show whether the definitions and explanations given are indeed important.

Ultimately, the author wishes to develop an ethical risk matrix where probability and impact of the respective ethical scandals are shown. This ethical risk management tool could be useful for companies, as they would benefit from ethical consulting, and would have a reference point when analyzing their own firm’s ethical risks. Identifying ethical issues that are at hand, and realizing them being present before they are at a critical stage, is important. As this paper shows, these issues can quickly turn into misconduct, or even a crisis. Hence, analyzing a firm’s ethical risks should be in any firm’s best interest.

Optimistically, this paper might make firms analyze their own firm ethics as well. Do they have ethical standards, codes of ethics implemented? Does the firm provide an ethical leadership figure? Are ethical trainings in place? Are there ethical reporting mechanisms in place? Optimally, a firm considering its ethics lacking would try to improve it; it would try to do business more ethically because it is the just and moral thing to do. However, the reason for improving its own ‘system’ of ethics is principally unimportant. While some authors, including the author of this paper criticize firms for using CSR and other sorts of business ethics as a marketing tool to attract and retain customers, other authors point out very adequately that as long as firms behave more ethically it does not matter why they do it. Improved ethical behavior of firms due to some sort of marketing or customer attraction is better than none (Husted, & Allen, 2000).

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1. Definitions and explanations of important terms 1.1 Crisis, Ethical crisis

Crisis. A crisis is usually defined as a “sudden, abrupt event[] that make[s]

headlines” (Ethics Resource Center, 2011: 6) and creates sudden chaos in an

organization. It is characterized as a “low-‐probability, high-‐impact event” (Pearson, & Clair, 1998: 60), as a threat towards the organization, and as an event that one has limited time available to respond to (Stern, 2003). A crisis can also be defined as a “disruption in the dominant narrative that members of an organization’s power elite wish to perpetuate” (Tyler, 2005: 566). Crises can also be seen as a “test of character” where “people will want to know if [the organization] lived up to [its] values” (Ethics Resource Center, 2011: 7). Crises happen due to unforeseeable, external events, or due to a long-‐time ignorance of rules and problems, procrastination, or simply naïve

optimism. While some authors tend to argue that crises are not necessarily something ‘bad’ (Sandin, 2009), this paper argues that a crisis as such is inherently bad for the entire organization based on its threatening nature. However, a crisis can lead to some positive outcomes and improvements as well.

Crisis management. Crisis management can be defined as the process of dealing

with a crisis at this very moment. Experts advise a tactic called ‘three A’s’: acknowledge, apologize, act” (Ethics Resource Center, 2011: 23). Most important is for the firm to take responsibility for the issue at hand, and fix it.

Crisis management has also been defined as a response of the organization showing (to the wider public and all other stakeholders involved) whether it is using and adhering to ethical values.

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firm’s efforts to overcome the crisis, and hence increase the chances of success (Ethics Resource Center, 2011).

Ethical problems. An ethical problem for a company arises when there is an

issue at hand that the public and/or the customers start to perceive as an ethical issue. Public opinion, consumer opinion, and in turn consumer behavior can lead to economic consequences, for example a decrease in sales numbers. These economic consequences, or even only the possibility of economic consequences occurring create the real threat to a company. NGOs usually identify the ethical issue and start the entire process. Later, they also act as amplifiers, intensifying the public opinion.

Ethical crisis. An ethical crisis occurs if the ethical problems are not dealt with,

and if the problems become threatening towards a firm, in a way that the survival of the entire organization is at risk. Therefore, in this paper an ethical crisis is either an ethical misbehavior that occurred at a certain firm, or an accumulation of different ethical problems. The size of the ethical problem that leads to the ethical crisis can vary per firm. The same applies for the effects of the crisis: the effects always depend on the respective case.

1.2 Ethical standards

Ethical standards. Ethical problems can only occur because there are certain

ethical standards that are being neglected or ignored. Ethical standards define right and wrong, also for the “business world” (Gökmen, & Öztürk, 2012). Usually, standards are (to a certain level) integrated into the body of law. Not hurting another person is one such ethical standard enforced by law. There are also rules and standards promulgated by the United Nations, natural laws, and human rights. Some of these rules are enforced by law, while others are not. These rules and standards represent the basis of human coexistence and are often universal. Hence, citizens adhere to these rules and standards because human coexistence demands it.

Furthermore, there are ethical standards and values that are not implemented into any law. The society one lives in does not approve certain behavior or, to put in into positive terms, expects certain behavior from its citizens. However, the ‘unwritten’ character of these standards and values does not make them less powerful: not adhering will

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onto someone, discrimination, verbal punishment, ignoring, worst even intimidation, or total exclusion from society.

Differences in ethical standards due to nationality and culture. There are

different forms of ethical norms. Worldwide relevant principals exist, like the ones of the International Labour Organization. Husted, Dozier, McMahon, & Kattan (1996) stated that there is a tendency, especially in the business world for an assimilation of business ethics. Buller, Kohls, & Anderson (1991) described that “carriers of ethics”, the ones that shape these global ethical norms, “are foreign visitors, immigrants, employees of multinational corporations, the media, international non-‐profit organizations (for example churches, environmental groups, etc.), and global institutions like the United Nations and the World Court” (770).

However, there are also ethical norms that vary in every country (Gökmen, & Öztürk, 2012). Some work-‐related norms are part of it. Then, there are also ethical norms like religious norms or culture-‐shaped norms. All these norms that are varying in every country are influenced by the overall culture of its society, and by the perspective the society has (Velasquez, 2013). Also, “differing cultural, economic, and religious histories” shaped these norms (Crane, & Matten, 2010: 29). Therefore, these ethical standards are usually relative, and not absolute. Ethical relativism depicts this; it defines ethical standards as something that “depends on […] what a particular culture accepts” (Velasquez, 2013: 33).

As mentioned before, ethical standards sometimes overlap with laws. An example, as used above, is child labor. It is not allowed in the Western world, neither by ethical standards, nor by law. This is due to – from a Western point of view -‐ obvious reasoning that children are considered not fully developed adults, which in turn cannot be treated as such. In other countries child labor is not per sé forbidden. Countries like Bangladesh are in a different state of development than the Western world. Any workforce is

needed, no matter the age, notably within a family who needs to earn enough money to be able to buy food and have shelter. Also, children are considered a country’s

retirement, opposed to Western countries that have (more or less) working

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Furthermore, ethical standards also vary in a country, for example by regions or by cultural sub-‐groups. Moreover, variance of ethical standards does also exist in countries of the Western world, for example about the handling of privacy. Ethical standards, due to their nature of dissimilarity tend to have a problem of legitimation: ethical standards are usually relative and not easily justifiable.

Doing business abroad – the clash of two differing sets of standards. The

relativity and the difficulty of justification make it harder for firms operating abroad. They work with two different sets of standards, the one of the home and the one of the host country (Velasquez, 2013). The firm can either adhere to home or host country standards, or mingle its way through both, halfway. This will leave the firm with the following issue: adhering to the law of, for example the host country might still be ethically unjust or morally wrong from a home country viewpoint. Taking the latter example of child labor, if the practice was accepted in China, and a foreign firm operating there would employ children, Western consumers and other stakeholders would consider it as morally wrong or questionable applying their home standards. When NGOs look at ethical issues they tend to use standards of the Western world, which again is problematic when dealing with countries where standards vary. Hence, NGOs usually pick out issues that are dramatic and distinct and therefore have validity across all nations.

However, standards can also vary by topic due to the changing reference groups involved. With this the author implicates that a case around BP, dealing with pollution of the environment probably involves the entire world as a reference group. Then, ethical standards are used that are valid amongst the majority of the world. In the case of child labor the reference group for ethical standards is probably the Western world and not the world at its entirety as certain developing countries do not see it as a ‘problem’ when children are working but, as established above, as a way of securing income for the family, and some sort of pension for the elderly.

Grade of enforcement. Not only do the standards vary, but the level of

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(Velasquez, 2013).

Ethical standards at the workplace. Ethical standards that are set influence all

parts of the business and concern everything from accounting to how the employers treat their employees, their suppliers, and customers. These standards also influence labor conditions, how the company treats its entire environment (hence, also nature), and its long-‐term sustainability approaches.

The author of this paper differentiates between traditional, local workplace standards, and international workplace standards. Latter are and have been rising in importance due to globalization and its push for firms to do business abroad.

Traditional ethical workplace standards as defined by Velasquez state: firms should not discriminate against their employees (and other stakeholder groups) due to their race, age, gender, or other characteristics. This includes recruitment and promotion methods, as well as wage specifications (id est fair wages), and the process of dismissal. Also, sexual harassment should never occur (Velasquez, 2013). These typical standards for the firm are mainly meant for the higher management. However, there are also

standards for all employees (including the management) such as to not accept bribes, to not steal information, and not to engage in insider trading (Velasquez, 2013). Also, workers have the right to freedom and privacy, as well as the “right to participate in decisions that affect them” (Velasquez, 2013: 431). Third, Velasquez states that there is one basic “employer’s obligation to the employee” which “is to provide them with the compensation they freely and knowingly agreed to receive in exchange for their

services” (Velasquez, 2013: 415). This creates two issues for the employer: the fairness of salary, as well as the fairness of working conditions for the employee.

Turning to the international workplace standards, these two issues pose a particular problem in developing countries where it is hard to judge whether wages are fair since standards of two different countries collide. Furthermore, even though minimum wages are sometimes implemented in developing countries, many employers simply disregard these, or file for exemption (Malik, 2010). Of course a company can look at its

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International workplace standards combine worldwide principles and maxims such as norms of the International Labour Organization, the UN’s Declaration of Human Rights, and the Convention on the Rights of the Child. These standards promote human rights in the workplace, ethical and fair treatment of workers, as well as improvement of working conditions. As mentioned before in the traditional workplace standards, workers should not be discriminated against, labor should not be forced upon

somebody, child labor and discrimination should never occur. Work hours should be fair, wages should be appropriate and cover basic living costs, and workplace safety should be installed so that workers’ health is assured (Di Palma, 2008).

One can see that a difference among local and global work standards only exists in the focus: the issues of child labor, fair working hours & wages, and workplace safety & workers’ health are the main topics globally, and as mentioned before harder to enforce in developing countries.

Mission statements and its effect of increasing a firm’s vulnerability. As

mentioned in the beginning of this paper, firms tend to post mission statements or codes of conduct today, laying out the firm’s values and ethical standards. These codes usually also depict the ethical behavior that is expected from the employees (Crane, & Matten, 2010). However, codes also have a drawback: they make a firm more

vulnerable, in two specific ways:

Firstly, an NGO might learn a firm has posted ethical standards or codes of conduct. The firm might then be monitored more closely if it is significant enough to produce a public outburst in the case of ethical misbehavior, or if the NGO already suspects ethical

transgression. Hence, posting such standards can attract the attention of NGOs who then try to ‘dig up dirt.’

Secondly, if ethical misconduct goes public (this does not necessarily require the help of an NGO) and an ethical crisis arises for a firm, NGOs, investigators, or the public will find the previously published ethical standards ‘post-‐crisis.’ This will either exacerbate the severity of the crisis, or, in case of a crisis being (almost) over, retract the crisis and created a double crisis. In this case, having such codes of conduct or a mission statement shows obvious contradictions, which can easily be used against the firm.

Ethical scandal is not ethical scandal -­‐ The establishment of a framework to categorize ethical scandals, and what firms can learn from it