Todays businesses are entrenched in a great conflict. The interests of the stockholders and the interests of the populace at large seem to be in constant turmoil. On one hand, stockholders desire profit for themselves, and on the other, the general population does not care to be exploited by those whose sole motive is profit. This is a conflict because those who buy a businesss products tend to be in the general public, and they have the ability to make or break a companys profit margin, but many stockholders are less interested in serving any sort of public good than making money.
However, in order to maintain economic stasis in the world, and to maintain market share and customers, business needs to evolve to become more socially responsible in both the environment and in labor practices. Current business theory holds that business has operated and is operating in five different generations. This theory is that as the world becomes more aware of business practices, there is more of a need for business to operate in an ethical or responsible manner. With each progressive generation of business issues, the company becomes more socially aware and responsible.
Growing from economist Milton Friedmans idea that the only obligation a company has is to its shareholders to the belief that the corporation has an obligation to help improve the world, the generation theory in business has gone the furthest in explaining the role of the public in business (Mendes 1). First-generation businesses believe, like Friedman, that their only obligation is to themselves and their shareholders. The best examples of first-generation businesses existed in the American Gilded Age (1875 1900). In these corporations, the labor was treated as expendable and was prevented from asserting their human status by unionizing.
Strikes for better conditions, wages, and hours were often ended with violence, almost always instigated by the wealthy business owners (Zinn 239). Fortunately, businesses of the first generation have essentially ceased to exist with the rise of public interest in the dealings of companies, especially after several different scandals in the 1970s (Mendes 1). Codes of conduct for ethical behavior are the written policies of second-generation businesses. These codes pertain to the employees interaction as a representative of the company at large.
Primarily, they relate to bribing or accepting bribes from government officials, which could cast an unfavorable smear on the companys image. The other main function is to deter corporate espionage, either for or against the company, by giving no incentive and, indeed, offering strict prohibition and retribution. The vast majority of todays companies are of the second generation. This is because extensive research has demonstrated time and again the enhanced profitability of these businesses, proving that ethics and profit can and do go hand in hand.
This profitability is also a key contributor to the death of first-generation businesses, as both consumers and stockholders enjoy a company with a good reputation and ethical employees (Mendes 1). Third-generation businesses include in their codes of conduct the rights of all those who are tied to the company, including employees and customers. This means that products are reliable and safe, and that employees receive fair wages and safe working conditions. There is a growing number of third-generation businesses in the industrial world.
The reasons for implementing third-generation policies are increased employee motivation and productivity, customer satisfaction and improved relations within the corporate world. All of these factors lead to an increase in profit. Indeed, many businesses of the third-generation have begun to include foreign workers in their codes of conduct, providing them with safer and less hostile work areas. This last innovation was, again, due to public outcry over the conditions of those working in the Third World (Mendes 1, 2).
There is a fear, real or imagined, that the so-called ethical consumerism of third-generation businesses will push jobs and capital away from the host countries of corporations to a country of lower standards than the host country. As of now, there are not enough third-generation businesses to prove or disprove this argument with any degree of certainty. To put it another way, the profitability of these companies cannot be evaluated. However, there are two examples of companies operating at or above the third-generation that are very successful: Levi-Strauss, and Sara Lee (Mendes 2)
Businesses of the fourth-generation take a further degree of social responsibility in acknowledging the potential impact of company dealings on the community in which it resides and the environment around it. Disasters, such as the Exxon Valdez tanker spill of 1989, have opened many eyes to the fact that not only stockholders, consumers and employees are affected by the actions that businesses might take. Companies of this generation take into consideration the possible consequences of their conduct, and often have written policies on behaviors that are considered permissible and impermissible in an environmental sense.
In one case, in drafting The Final Report Whitehorse Mining Initiative, in which the Mining Association of Canada and several individual mining companies participated, the rights of the indigenous people of Canada are recognized as having constitutional rights to the land, being constitutionally protected, and it also states that aboriginal peoples are qualified for opportunities to work in mineral development at all stages of mining and related industries at all levels. The ability of these companies to produce profit is based upon a reduction of legal liabilities and further bettering the corporate image (Mendes 2).
Finally, fifth-generation businesses address concerns that foreign investments might aid in propping up an oppressive system of government. The fifth-generation of issues came to the surface in the 1980s with the American business interaction in South Africa, which implemented Apartheid, or strict racially based segregation. The American public believed that these investments in South Africa was essentially lining the pockets of the oppressors, and harming the oppressed.
On the most basic level, a fifth-generation business must comply with local law, because international law clearly states that every nation has a right to develop its resources as it best sees fit, and business must comply with that nations ideas and laws. However, it is argued that in some cases the company has a further obligation to the citizens of nations with oppressive governments, and that responsibility is to no support the government with the capital it would have produced (Mendes 2, 3).
Since most businesses operate with either second- or third- generation standards, it is necessary to examine both empirical data and the belief system of business in order to understand why these businesses are not making the move to become more socially responsible. Since the level of profitability appears to increase with each generation of business, one would think that businesses would realize this.
The question of the corporate world is, how much responsibility should these U. S. mpanies bear toward researching their suppliers (Eisele, 4)? A major issue that exists in the business world is the exploitation of cheap, foreign labor, and the use of both domestic and foreign sweatshops. In a recent poll, 78% of those consumers surveyed said that they would avoid stores known for selling articles made in sweatshops. At the same time, in August of 1995, a federal raid uncovered 72 Thai immigrants working for seventy cents an hour in conditions comparable to those seen one hundred years prior, during the Gilded Age.
Then-United States Secretary of Labor, Robert Reich, estimated in 1996 that there were over 13,000 sweatshops nationwide (Marino 2). Companies are slowly beginning to employ ethicists on their staffs in order to protect their image. For example, after a very public affiliation with sweatshops, Wal-Mart stepped up penalties for those suppliers who use sweatshop labor by immediately discontinuing business with those who do use it (Eisele 3). Indeed, over 2/3 of those companies who are looking for ethics consultants have recently come from ethics violations (Gilbert 2).
Over 90% of Americas largest corporations have formal written ethics codes (Gilbert 3). However, there are still those in the business world who operate under first-generation issues, and are now armed with clever justifications for their social irresponsibility. Comer Industries Vice-President, James Field, states that these companies are not trying to be moralists for the world. He continues, saying, If we dont hire child labor, the child starves (Eisele 5). He is not alone in his beliefs, as many conservative businessmen adhere to those beliefs.
Another common argument is that in the not-so-distant American past, its industrial practices were essentially on an equal scale to those of the developing nations of today (Eisele 4). Profit has proven to be the motive for this social irresponsibility. Few companies, for example, address child labor in their codes of conduct. Few address wages and benefits, working hours and safety. It is the common belief of businesses that increasing wage and health standards internationally will directly cause the company to increase prices, and thus lose market share.
What seems obvious to them the correlation between increasing wages, increasing price and diminishing demand for products is essentially a bastardization of the Law of Supply and Demand. With more people able to purchase products due to increased wages, the theoretically constant supply would be met by an increased demand, which would both increase sales, and the price at which those goods would be sold, thus increasing profit for the business. Indeed, American industrialists used an argument similar to the current one during the Gilded Age.
In fact, should the companys assumption even be correct, there is evidence that it would still do little to harm their profit margin. A recent survey suggests that the vast majority (84%) of consumers would be willing to pay 5% more on clothing, should that clothing be guaranteed to be no sweat, meaning not made in sweatshops (Marino 2). Well-publicized boycotts against Wal-Mart and other retailers who carry sweatshop garments demonstrate that price is not the only factor shoppers consider when buying clothes (Eisele 2).
In an analogous sense, America from 1870 to 1940 existed in the same condition as many of these so-called developing nations and the progress of these nations should be viewed as comparable to Americas. America during the Industrial Revolution was essentially a developing nation, with tenements and slums full of the unemployed and marginally employed. Comparable to Third World countries, such as Zaire and India, within the most poverty-stricken areas of America during this period, there were epidemics of violence, addiction and disease.
During this time, America was considered to be the manufacturer to the world, similar to how China and Taiwan are viewed today (Zinn, 224-241). Indeed, America only progressed as an economic power when workers began receiving pay that not only provided sustenance, but allowed workers to save money and make luxury purchases. For example, Henry Ford increased wages of his workers on the assembly line, which enabled them to buy an automobile. This money went back to the Ford Company, which allowed him to produce more automobiles more cheaply.
Because of wage increases, Ford was able to rapidly assimilate automobiles into everyday life for many Americans. Other industries began to flourish on the strength of the automobile industry, and America began to establish itself as an economic force (Zinn 317). It becomes evident that in the long term, the worldwide economy will eventually be hurt by labors low wages and businesses inattentiveness to the environment and its effect on communities, unless, of course, business, especially American-based business, progresses to the next generation.
Metaphorically speaking, the structure of the global economy currently forming is that of a pyramid whose base is made of sand and whose top is made of pure diamond. The base, which represents the working majority, needs to the much stronger than the top in order for the pyramid to continue standing. This, obviously, is not the case. Renowned political critic, Noam Chomsky, remarks, Never have so few taken so much from so many with so little resistance (Chomsky, 18).
In addition to the foreseeable economic problems, the practice of overwhelming natural resources and removing indigenous cultures will cause irreparable damage to the global ecology, which would impact humanity for generations to come. The Exxon Valdez disaster, for example, was one of many environmental travesties committed by first- and second-generation businesses. They have also been responsible for massive deforestation, abuse of fossil fuel resources and strip mining. In many European countries, the languages of the people have almost forcibly been assimilated into English, French or some other major language.
Businesses continue conducting their affairs in China, despite Chinas terrible human rights record. These issues are merely the beginnings of events that will stretch over time and change the human fabric. At this pace, there will be no forest, no oil, and no arable soil. There will be no Welsh, no Bretons, and no Hutus. In China, there will be no justice. However, companies that have implemented ethical policies, and have begun operating on third- or fourth-generation levels have not only maintained their level of profitability, but in many cases have increased their profits in the past few years.
One great example of this is Levi-Strauss, who addresses both third- and fifth-generation concerns in its policies. After having received many ethics violations in the late 1980s for labor related atrocities, such as overcrowding, overheating and overworking its laborers, Levi-Strauss has since made some of the most far-reaching improvements in human relations and social responsibility (Eisele 5) For example, it has convinced its contractors to pay children under the age of 14 to go to school. Once the children turn 14, they are guaranteed jobs in the Levi-Strauss factory.
The general manager of the Wranglers factory in Honduras pays the import tax on bicycles, the primary mode of transportation. Upon reviewing the operations of 600 of its foreign suppliers, Levi-Strauss has permanently severed business ties with thirty, and has told 25% to improve at the risk of losing its business. Levi-Strauss also pulled $40 million in business from China in protest of its human rights offenses (Eisele 5). Another fine example of a company operating with four-generation issues is Sara Lee, the parent company of Hanes.
Sara Lee feeds its employees in Honduras breakfast every morning. This actually saves money by making employees more productive and reducing the turnover rate of new employees. Sara Lee officials noticed that the elementary schools in Honduras were in terrible condition, with leaking roofs, playgrounds covered in raw sewage and a profound lack of supplies. Juan Ruiz, a Vice-President within the company, thought up the Adopt-A-School program, which sent proceeds of Sara Lee sales to different elementary schools in Honduras.
After the program, the schools had chalkboards, libraries, and plans have been made to repair the roofs (Eisele 4) In performing these acts of social responsibility, these two exemplary companies have improved their image to the public. This has helped them to maintain or increase sales in a time when the garment industry is slumping. Building and maintaining a good public image is vital to survival in todays information-heavy world. The only way to do that is to become more socially responsible.
In addition to building a good image, a well-written code of conduct can spare a company legal liabilities and much embarrassment. In a simple comparison-contrast, Wal-Mart, now a second-generation company, and Levi-Strauss, a fifth-generation company, have experienced very different levels of success. Wal-Mart, as of late, has lost an estimated 4-6% of it market share, due to boycott levied against for issues as varied as gun control and fish abuse (Ray 1). Levi-Strauss remains a company of great viability and of great profitability (Eisele 4).
In addition to the evident profitability of socially conscious businesses, many business ethicists offer businesses simple standards by which to write their codes of conduct. Says the director of the Interfaith Center on Corporate Responsibility, Valerie Heinonen: We dont expect that they will pay the same wages in another country, but we also dont expect that the workers are going to be exploited (Eisele 1). The main reason a company should employ ethics standards is to maintain a corporate image that is positive, because image sells and sales equal profit (Eisele 1).
Another major consideration for corporations should be that what is considered unethical today could very well be illegal tomorrow, like the act of strikebreaking through the use of violence. Criminal intent is no longer a major consideration in persecuting human rights offenders, and companies should have some sort of protection against that (Gilbert 3). Though there is an apparent conflict of interest between profit and social conscience, it becomes evident that ethics frequently equal profit in this era.
Perhaps in a less well-informed time there was no need for ethical behavior, but todays public demands more of its companies than simple profit margins. In order for the worlds economy to develop and grow, the degree of social responsibility in American-based corporations must likewise grow. It is in the best interests of the company, the consumer, the employee and the environment in general. In short, a socially responsible company is a company that will profit in the long term, which is what really matters in business.