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When Is "Doing Good" Good Enough Internationally?

May 2004

STANFORD GRADUATE SCHOOL OF BUSINESS—If you're a transnational company today, how do you decide what it means to be a good corporate citizen abroad? When are your wages high enough, your factories safe enough, and your emissions clean enough? In the absence of international bodies governing such issues, these are the kinds of questions that plague even the most well-meaning global corporations, said David Brady, the Bowen H. and Janice Arthur McCoy Professor of Political Science and Leadership Values at the Stanford Graduate School of Business.

Speaking at the School's May 19 conference on Global Business and Global Poverty, Brady argued that ethical corporate issues rarely come down to matters of "good" versus "bad" managers. "I've met very few business executives whom I would say were, in any sense, unethical," he said. Most are governed "by a sense of fairness" but have little to guide them in their efforts to do the right thing apart from utilitarian directives that they "maximize profit subject to laws and ethical custom."

The problem, said Brady, arises swiftly enough. "If you're operating in a developing country, does this mean abiding by the laws of the home office, the corporate headquarters, or the country you're in?" he asked.

Some corporations therefore turn from the consequentiality reasoning of Milton Friedman to more expansive notions that "managers must consider and balance legitimate interests of shareholders," Brady said. Again, however, policy statements rarely specify exactly what it is that a company should do or not do for its constituents.

Brady used Nike to illustrate his talk. When the successful American basketball shoe manufacturer decided to go global, he reported, they chose to contract with previously existing overseas factories and to keep moving their operations to the cheapest countries. This successful business strategy resulted in Nike becoming an aggressive and competitive world player with some 500,000 employees. Then trouble hit. The loss of American jobs in footwear and apparel during the recession of 1990-92 prompted activists and the media to lambaste the company for widespread worker abuse, oppressive working conditions, child labor, and poor wages in its overseas factories.

Would doubling workers' salaries from $2 a day to $4 a day really kill the company when a pair of its shoes retailed for a whopping $140, critics asked. Although the answer seemed obvious to human rights activists, economists argued that such a simple reform could, in fact, have dire consequences in an overseas culture. "You don't want to distort a local economy as happened in Cuba," Brady explained, "where doctors could make more money in a weekend working in a Western hotel than they could all year by treating patients." So serious was the issue that the company hired a team of professionals, among them former Business School Dean Michael Spence, to spend 18 months studying the matter.

Brady reported that although Nike initially tried to disavow any responsibility for the situation by chalking it up to little more than a "public relations problem," pressure by activists and the media eventually forced the company to address the situation directly. Ultimately, Nike took steps to ensure that human rights conditions were improved significantly and that wages were raised in its contracted factories. Nike also adopted a policy of contributing to the educational infrastructure of many of the countries in which it operated.

"It took about two years before they finally got serious, and they're still working on it," Brady said. "Not everybody thinks they're great, but in my opinion they're much better."

He expressed concerns about how companies should institutionalize notions of corporate citizenship so that high ethical standards are maintained even when corporate leadership undergoes a personnel change. "Stanford's new Center for Global Business and the Economy will be a big help in exploring that issue," he said.

Brady was among the speakers from four continents who addressed the conference sponsored by the new Center for Global Business and the Economy at the Stanford Graduate School of Business. The Center hopes to open new areas of research into issues faced by business, governments, and nonprofit organizations operating around the world. It is co directed by Business School professors John McMillan and John Roberts.

Stanford GSB News

When Is "Doing Good" Good Enough Internationally?

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