Abstract
An analysis of the current
status of ethical business practice is provided. The ethics emanating from the Fair Trade
movement is given by way of summarizing the story of the experiences of Frans
van der Hoff in Southern Mexico. The
leadership he provided led to the development of the Union of Indian Villages
in the Isthmus Region (UCIRI) coffee growers cooperative (Audebrand & Pauchant,
2009). As a result of the development of the UCIRI, the
lives and status of the surrounding community improved. The ethics of Corporate Social Responsibility
(CSR) is exemplified by a discussion of the Global Corporate Ethic Manifesto
which promotes an ethic based on acknowledging the humanity of all involved (Hemphill
& Lillevik, 2011). These ideas are
then applied to the development of a plan for Global Leadership that would
reverse trends in the Haitian textile industry where current conditions are
inhumane and directly and indirectly supported by major retailers of the
U.S. This seemingly impossible task is
broken down into a vision and 5 Steps that are consistent with the ethical
principles that have emerged from the Fair Trade movement and the Global
Corporate Ethic Manifesto.
The history of the Americas
could be described as turbulent and even chaotic at times. Skidmore, Smith & Green (2010) describe
Latin America as the most socially and economically stratified region of the
world. Most of the countries of the Americas have seen repeated sudden and
often violent regime change. Such
turbulence and chaos has undoubtedly contributed to the uneven economic
development between North and South America.
Romero (2004) has described the dominant leadership style in Latin
America as el Patron, which can be
characterized as autocratic and directive, rarely uses delegation or teamwork,
and communication is top-down. The el
Patron leader is expected to be assertive and aggressive but avoids conflict
and is relationship oriented. Such a
leadership style is consistent with descriptions of transactional leadership
where relationships are well defined and the focus is more on task management
and reciprocal agreement (Kunungo, 2001).
On the other hand Romero (2004) describes el Lider Moderno as supportive
and participative, delegation and the use of teams is common, and the leader values
cooperation and collaboration. This
description is consistent the transformational leadership style which is more
oriented toward collective work and responsibility. The transformational leader encourages
creativity and is comfortable with ambiguity.
Creativity, ambiguity and even dissent are viewed as characteristics
that could lead to innovation and a higher level problem solving. In fashioning a global leadership plan for a
country in the Americas, when the leader is confronted with uncertainty,
turbulence and even chaos, the characteristics of the transformational style
are likely to be more effective. The el
Patron or transactional style is likely to have more difficulty making the
necessary adjustments to change in the global market place.
A second major issue in the
global market place is ethics. The
leader of a global business must be directly involved in the development of
both the ethics of governance and the governance of ethics. Rossouw (2009a) defines the ethics of
governance as the values and assumptions that serve as the foundation for
guiding a corporation’s ethical behavior.
The governance of ethics relates to the methods employed to assure that
such ethics are adhered to. Rossouw, in
discussing ethics, also describes internal and external corporate
governance. Internal corporate
governance refers to aspects of defining ethical behavior that are within the
control of the corporation such as its mission and values statement or internal
ethical review boards. External
corporate governance refers to guidelines or regulations that govern corporate
ethical behavior that come from outside sources such as national, international
laws or treaties, and industry standards.
Rossouw (2009b) raises the question of whether there is a convergence or
divergence in the development of a global ethics of governance. He concludes that for the most part the
evolution of the ethics of corporate governance represents a divergence as
opposed to a convergence. He leaves
unresolved the question of whether a global standard for ethical corporate
practice should be or could be established.
The issue of a global or universal ethical business practice is one of
the focuses of this paper. In discussing
the issue of establishing a universal ethical business practice Fair Trade and
Corporate Social Responsibility are discussed.
Globally there has been an increasing presence of the establishment of
such approaches.
Another
question that must be addressed in the process of developing a global
leadership plan is how would the plan interface with the realities of
neoliberalism. Are such practices as
Fair Trade in conflict with neoliberalism?
Additionally, such a plan must be developed within a realistic context
of how much support is needed and/or available from regulatory authorities at
both a national and global level. Armed
with a thorough analysis of the aforementioned factors a leadership plan is
presented.
Ethics Defined
The word ethic is
actually a neutral word. By itself it
does not point to a particular set of practices or definitions regarding good
or bad; right or wrong. According to the
Merriam-Webster (2014) online dictionary, the word ethic is defined as meaning “rules of behavior based on ideas about
what is morally good and bad.” Ethics is defined as meaning “an area of
study that deals with ideas about what is good and bad behavior: a branch of
philosophy dealing with what is morally right or wrong.” To refer to ethical behavior is simply to suggest that the behavior is guided
by some established guidelines that define good or bad; right or wrong. What is actually good or bad; right or wrong
is actually a matter of perspective or choice.
In Rossouw’s
(2009a) discussion of the ethics of corporate governance, the source of ethical
guidelines depends on whose interests are being served. In the case of many U. S. corporations the
shareholders’ interests are paramount.
Thus, ethical standards are established from the perspective of the
shareholder. In Europe, the perspective
is widened to include other stakeholders such as employees or customers. In Africa and China the perspective for input
into ethical guidelines often extends to the entire community. Rossouw (2009a; 2009b) does not attempt to
resolve the question of whether there is or can be a universal ethical practice
for business. The fact that this
question is left unresolved within the global market is very problematic. Corporations that have established ethical
practice standards from the perspective of the shareholders can easily find
ways to have high sounding ethical guidelines and values that are not applied
universally within their supply chains. A
prime example is Walmart. In its
published Statement of Ethics (Walmart, 2008) it is indicated that third
parties such as suppliers are included.
The section referring to third parties states “Walmart expects its
suppliers, consultants, law firms, public relations firms, contractors, and
other service providers to act ethically and in a manner consistent with this
Statement of Ethics. If you hire a service provider, you should take reasonable
steps to make sure the service provider is aware of our Statement of Ethics,
has a reputation for integrity, and acts in a responsible manner consistent
with our standards”(Walmart, 2008, p. 6).
However, a recent report by the Worker
Rights Consortium (2013) provides detailed data that tells a different story. The Worker Rights
Consortium is a 12-year-old independent labor rights group financed by 180
American colleges and universities, including Harvard, Stanford and the
University of Michigan. In
the report Walmart is identified as one among many U. S. retailers that
receives clothing from Haitian clothing factories that fail to pay the Haitian
minimum wage to its employees. Additionally,
a recent report published by the International Labour Organization (ILO) and
International Finance Corporation (IFC) found that 23 out of 23 clothing
factories that supply garments to Walmart and other retailers failed to pay its
workers the legal minimum wage (Better Work, 2013). The ILO and IFC are funded by the governments
of the United States and Canada. The
intention, since they began their involvement in monitoring labor force
standards around the world was to be a catalyst for the improvement of conditions
for workers and the reduction of exploitation and unethical practices. With ample evidence of worker mistreatment, Walmart and other U. S.
retailers continue to do business with the offending suppliers in spite of the
violation of their stated ethical guidelines.
The situation in Haiti is particularly
egregious because the $6.90 per day minimum wage for piece work in clothing
factories takes place in a country where the actual cost of living is the same
(or in some cases higher) as the cost of living in the U. S. Wal-Mart, Target, Kohl’s, or any of the other
U. S. retailers that are supplied by the Haitian factories would consider an
attempt to pay employees at a rate of $6.90 per day a gross ethical
violation. It would simply be
unthinkable. Somehow the ethical
standards related to reasonable pay are completely compromised when the worker
lives in Haiti.
One of the first tasks in developing a
global leadership plan in the Americas is to establish a minimum ethical
standard that will not evaporate over time and distance. However, this first task is also the first
and biggest challenge. If, for example,
I am a clothing manufacturer in Haiti and paid my workers enough to actually
lift them out of poverty, I would not stay in business very long if all of my
competitors are experiencing labor costs that are a fraction of what I would be
budgeting. Nevertheless, if a plan is to
be truly meaningful it must incorporate a strategy that raises the standards
for everyone. The establishment of a
truly universal ethical minimum standard for business practices must not be
viewed as an impossibility or as an expendable item in comprehensive plan, but
as a necessity. Ethical business
practice must be informed by basic minimums in the rights and conditions of
human beings. For example, anyone who
works 40 or more hours per week must earn a minimum wage above the poverty
level. That is, such an individual should be able to attain the basic
necessities of food, clothing and shelter from the fruits of their labor.
Fair Trade as a Model of
Ethical Business Practice
Fair Trade in the contemporary retail market is a term that is applied
to products that have been certified by the Fairtrade Labelling Organizations
International (FLO) as meeting certain minimum standards in how the product was
produced. Typically, the certification
indicates that the product was a result of fair treatment of producers and
workers and that the processes used to produce the product were environmentally
friendly (Arnould,
Plastina & Ball, 2009). While Fair
Trade is often traced back to the years shortly after World War II, it reached
its maturity in development in the free market with the establishment of a
coffee cooperative in Southern Mexico (Audebrand & Pauchant, 2009).
The story begins with a Dutch priest, Frans van der Hoff, who arrived in the slums of Mexico City in 1973. Although he was a priest, he often publically
expressed dissatisfaction with the Church’s support of dictator’s such as Pinochet,
in Chile, or the fact that Catholic Bishops visited the slums in luxury cars (Audebrand
& Pauchant, 2009). To ensure his
independence and to more closely link himself with disadvantaged workers, he
became a worker- priest and worked a number of jobs, such as travelling shoe salesman, jam maker, axle producer at Ford and
farmer. In 1980 he moved to Ixtepec in
the southern state of Oaxaca, where 80% of the population is native. Death threats from the secret police in
Mexico City prompted his move. In
Ixtepec he worked for two years as a day laborer on the coffee farms. In 1982 he became more involved with the
plight of the coffee growers, not by proposing a solution but by facilitating a
collective assessment of the problem.
Coffee growers in Mexico, not unlike growers throughout Latin America,
were at the mercy of the international coffee market prices and the
intermediaries known as “coyotes.” The
coyotes bought the coffee from the growers at prices far below the market value
and then sold it on the international market for the prevailing price. The result was that when the price dropped
the growers could not make enough money to pay their expenses. Having no mechanism for credit to tide them
over, many growers would have to temporarily leave their farms and head to the
city to search for employment. Even when
prices were better the growers could only manage a meager existence. For the farm workers it meant living in
perpetual poverty whether prices were up or down (Audebrand & Pauchant, 2009).
The local community accepted von der Hoff’s
proposal to complete an analysis of their situation. Among the results of the analysis was the recognition
that the community could benefit from being organized into a cooperative and
the Union of Indian Villages in the Isthmus Region
(UCIRI) was created in 1983. The
first priority for UCIRI was to purchase a truck so that they could bypass the
coyotes and go directly to the international market. The next priority was to work out arrangements
with the local banks to obtain credit, so that they would be protected against
the ups and downs of the coffee market prices.
Needless to say the coyotes did not take kindly to the growers asserting
themselves in the coffee market. For the
next ten years there were many acts of sabotage and violence against the
community resulting in the death of 37 villagers. With the support of the UCIRI, the community
persevered and used their additional profits to improve the infrastructure of
the community. Roads were constructed,
clean water and electricity became more available and dwellings grew to sizes
that were more appropriate for the number of people housed in them (Audebrand & Pauchant, 2009).
Van der Hoff utilized connections he had in
the Netherlands to partner with a coffee retailer and establish what has become
known as the first Fair Trade coffee brand, Max Havelaar. In addition to the financial benefits for the
producers, workers and community there were also environmental benefits. The traditional values of the native people
called for a respect for the land as well as the people. The number one objective was replenishment
and sustainability. Typically, coffee
growers, in order to maximize output would cut down all trees on a plantation
and grow as many coffee plants as possible per hectare. The result would be that after about seven
years the soil would become barren and unable to produce almost anything for
many years. Following the traditions of
the native people, many trees were left in place. The number of coffee plants per hectare was
far less than a “conventional” coffee farm, yet the net income for the growers
was far more, not to mention that after seven years there were no worries about
the soil becoming barren.
Thus the basic ethical principles and guidelines
for what has become known as Fair Trade were established. They are as follows:
• Direct Trade - limit
the number of intermediaries between the producer and the consumer.
• Fair Prices and Wages
- slightly higher than the market price, which covers not only the economic
costs related to production of a good or service but also the social and
environmental costs.
• Long-term Orientation
- commitment to sustainable and transparent relations between economic partners.
• Technical and Financial
Support - this support can take
the form of pre-financing that allows
producers to live comfortably between crops, guarantees a minimum purchase
price despite stock market fluctuations, and provides technical aid to improve
work and management methods.
• Democratic Management of
Producing Organizations - most often based on the co-operative model. Work
co-operatives offer several advantages, including member participation in
decision making and reinvestment of surpluses in community projects.
• Support Sustainable Development
- preserve biodiversity and renewable natural resources by promoting
poly-culture, avoiding pesticides and chemical fertilizers, and decreasing
pollution and waste.
• Promote Consumer
Education on Responsible Consumption - all FT partners are encouraged to carry
out educational activities to raise awareness among consumers, the general
public, companies and political decision makers.
Support for Fair Trade Principles
The Fair Trade principles and their development, as described
above, established the basis for a universal ethic for business. The Fair Trade movement has sometimes been
referred to as Alternative Trade. The
reality is that it represents not an alternative to neoliberalism but simply a
shift in the power dynamic of the supply chain.
Gendron, Bisaillon &
Rance (2009) argue that while there are debates within factions of the Fair
Trade movement related to the benefits of commercialization, it has
nevertheless been institutionalized on a global level. As a result of the institutionalization of
Fair Trade, the ethical compass of the corporate world has been shifted. Since the
establishment of the UCIRI, many other coffee producers who had previously been
victimized by exploitation have organized into cooperatives. The establishment of the International Labour Organization (ILO), the
International Finance Corporation (IFC) and of course the Fairtrade Labelling
Organizations International (FLO) indicates the institutionalization of Fair
Trade and its principles. The ILO and
the IFC have the support of the United Nations and the World Bank. Support of these well-established and
well-respected international institutions does not mean that Fair Trade
principles will be instantly adopted by everyone. However, even during the recent recession
participation in Fair Trade certification and the associated profits continued
to grow (Hutchens, 2011).
In 2008 the total market grew by 22% to a value of $3.98 billion and by
another 15% in 2009 to ta total value of $4.7 billion.
Research evaluating consumer response to
the Fair Trade movement is likewise favorable.
Bondy
& Talwar (2011) found that an increasing number of consumers are willing to
make purchases that are heavily influenced by their ethical convictions and
thus were more likely to be loyal to Fair Trade products even when times were
tough. Stratton & Werner (2013)
found that simply by using labels promoting Fair Trade products resulted in an
increase in sales of the product. Such
examples suggest that consumers are interested in purchasing products that are
more consistent with their personal ethical standards. The question is; are the global corporations
that make billions in profits from their retail sales, ready to adopt similar
ethical standards?
Corporate Social Responsibility
At the opposite end of the supply chain are the global corporate
manufacturers and retailers. Parallel to
the Fair Trade movement has been the development of Corporate Social
Responsibility (CSR). CSR can be
described as “a firm’s voluntary actions to mitigate and remedy social and
environmental consequences of its operation” (Fransen, 2013, p. 213). It has become increasingly
common for large global corporations to pay more attention to the ethical
practice of one’s own company and of those the company engages in the process
of conducting its business. However, the
pattern for many large global corporations is to implement CSR by supporting
local charities, funding local building projects (hospitals or schools) or contributing
considerable resources to environmental clean-up or repair. It is far less likely that CSR would involve
making adjustments in its supply chain that would have a direct financial
impact on the individuals and families that are exploited as a result of
unethical labor practices. CSR policies
tend to avoid the issue of decommodification of labor (Huo, Nelson & Stephens, 2008).
The UCIRI cooperative established in Southern Mexico is an example of
decommodification of labor. The coffee
growers and their employees found a way to not treat their labor as a commodity
that was separate from the value of the individual. Decommodification allows for individuals to
continue being valued whether there is a demand for their labor or not. Once labor was decommodified the periodic
migrations to the city stopped. Workers
and growers no longer had to rely on selling their labor as a commodity in
order to make ends meet.
In spite of the fact that CSR has not
fully evolved to the point where a corporation like Walmart would refuse to be
supplied by companies that engage in inhumane treatment of their employees, the
pressure is building from both consumers and respected international
organizations for global corporations to implement ethical practice standards
that are sensitive to the needs of all humans involved in their supply chain (Hemphill
& Lillevik, 2011). Nevertheless, the increase
in the presence of CSR and the recent development of a Global Corporate Ethic
Manifesto that parallels the Fair Trade principles tends to suggest that some
level of convergence in relation to ethical governance and principles is in
process.
Towards a Universal
Business Ethic
The Global Corporate Ethic Manifesto discussed by Hemphill &
Lillevik (2011) lays out very clearly a business practice ethic that is based
on a full acknowledgement of the humanity of every individual involved in the
supply chain as well as members of the community in general. The basic values of the Manifesto are as
follows (extracted from Hemphill & Lillevik, 2011, p. 215-217):
I. The principle of
humanity
The fundamental principle of a desirable global economic ethic is
humanity: Being human must be the ethical yardstick for all economic action.
II. The basic values of
non-violence and respect for life
Every people, every race, every religion must show tolerance and
respect – indeed high appreciation – for every other. Minorities – be they
racial, ethnic, or religious – require protection and support by the majority.
III. Basic values of
justice and solidarity
To be an authentic human being means – in the spirit of the great
religious and ethical traditions – not misusing economic and political power in
a ruthless struggle for domination, but instead using power in the service of
all human beings. Therefore, mutual respect, reasonable coordination of
interests, and the will to conciliate and to show consideration must prevail.
IV. Basic values of honesty
and tolerance
To be authentically human in the spirit of our great religious and
ethical traditions means that we must not confuse freedom with arbitrariness or
pluralism with indifference to truth. We must cultivate integrity and
truthfulness in all our relationships instead of dishonesty, dissembling, and
opportunism.
V. Basic values of mutual
esteem and partnership
We need mutual respect, partnership, and understanding, instead of
patriarchal domination and degradation, which are expressions of violence and
engender counter-violence. Every individual has intrinsic dignity and
inalienable rights, and each has an inescapable responsibility for what she or
he does and does not do.
The above basic values are recommended to global corporations to
serve as guiding principles for ethical practice around the world. The degree to which a particular corporation
embraces such values and strives to have them incorporated into the culture
of the organization is entirely
dependent on the leadership of the organization and the vision the leaders have,
for not only their corporation but for humanity as well.
A Global Leadership Plan
Based on a Universal Business Ethic
Bennis (2009) identifies four essential competencies for all
leaders. The first one is vision.
A leader must have a vision that can be communicated to others in such a
way that others adopt it as their own.
The second competency is a distinctive
voice. A distinctive voice is a
combination of characteristics that include self-confidence, sense of purpose,
and a sense of self. A distinctive voice
is what makes contact with the leader memorable. It includes the leader’s ability to connect
with others. The third competency is integrity.
An effective leader must be trustworthy and demonstrate through
actions that truth, honesty, fair-mindedness and other characteristics are of
the utmost value. The fourth and final
competency is adaptive capability. We live in a world that is changing at an
increasing pace. The ability to adapt
quickly and effectively to change is absolutely essential. Adaptive capability also includes a leader’s
ability to hear and welcome criticism and dissent. When things appear to be going well, we may
have a tendency to overlook vulnerabilities or threats. A leader with good adaptive capability
creates an atmosphere and organizational culture that welcomes criticism and
dissent and then discerns from it prudent adjustments. On the other end, the competency of adaptive
capability also results in the creation of an atmosphere and organizational
culture that welcomes and encourages creativity and innovation in both thoughts
and action. Armed with the knowledge of
these four competencies and the ethical principles derived from the Fair Trade
movement and the Global Corporate Ethic Manifesto a leadership plan involving
the textile industry in Haiti is proposed.
A Global Leadership Plan for the Haitian Textile Industry
If ever there was a need for bold ethical leadership within the
textile industry, such a need exists in Haiti.
The plan being proposed will be centered within the Haitian textile
industry. In 2009, knit and woven
apparel accounted for 92% of Haiti's exports and 9% of its GDP (Better Work, 2013). The workers in the textile industry work for
a minimum wage equivalent to no more than $6.90 per day. That amount does not come close to covering
the most basic living expenses. Once the
cost of getting to work and eating each day while at work is subtracted most
workers are left with less than $2 per day.
As pointed out above, actual prices in Haiti converted to dollars make
the cost of living in Haiti similar to the U.S.
In fact, many items are priced higher in Haiti. For example, gasoline is $1.27 per liter or
$5.08 per gallon. Average rent for a 1
bedroom apartment outside of the city is $562.
Families must live in substandard housing or share living quarters with
several families in order to have a roof over their heads. Under no stretch of ethical business practice
would such conditions be acceptable for employees working 40 or more hours per
week. Yet, in Haiti it is the current
situation and continues relatively unquestioned in spite of the presence of
international monitors from at least three foreign governments.
The Vision
Workers in the
Haitian textile industry are treated with dignity and respect and are able to
earn a livable wage.
The Plan Model
The plan for
realizing the vision is modeled after the activities and experiences of Frans
van der Hoff in Southern Mexico. Thus, a
serious attempt to provide leadership that would be accepted and respected
would require that the leader establish credibility by being a part of the
community and speak the languages (French and Creole).
Step 1 – Create an Alternative Model
Unlike Southern
Mexico, the interests of the workers and the factory owners are divergent. The workers’ labor is treated as a commodity
that the factories owners purchase at the lowest possible price. One way of decommodifying the labor of the
workers is to create an alternative supply chain that bypassed the conventional
structures and placed ownership of a textile factory in the hands of the
community. The factory would be run by a
democratically elected board made up of workers and other community members. If necessary, the board could solicit the
assistance of technical advisors and trainers in establishing all of the
necessary factory management protocols.
Step 2 – Education, Marketing, Public Relations
The U.S. is by far
the biggest importer of Haitian textile products. Research has already shown that U. S.
consumers are likely to pay a little more for “Fair Trade” or ethically
produced products when products are labeled as such (Bondy & Talwar, 2011; Stratton &
Werner, 2013). The objective is not to
put the conventional factories out of business but to increase demand for Fair
Trade textiles so that conventional factories would begin to identify the
financial opportunities of converting to Fair Trade textile manufacturing and
duplicate the model of the alternative supply chain. Such a shift would require careful and clever
use of the multimedia platforms available via the internet and other
sources. The education, marketing and
public relations efforts would have to be well organized, highly polished, and
clearly focused.
Step 3 – Demonstrate Clear
Positive Results
The first group of
people that must experience positive results are the workers and their
families. The families in Southern
Mexico experienced an improvement in their standard of living and became
completely committed to the new way of doing things, in spite of a decade of
attacks and even 37 assassinations.
Their commitment stemmed from the fact that they were empowered with the
ability to improve their lives themselves.
They experienced a real change in their reality. The same result would occur when the families
and community of the Haitian textile workers experience such empowerment and
implement changes in their lives and standard of living.
Step 4 – Strengthen and Expand the Supply Chain
Perhaps the most
important activity for any business is the establishment of strong reciprocal
relationships. A supply chain in any
industry exists because of what is exchanged and continues because of
satisfaction with the quality not only of the product, but also satisfaction
with the quality of the relationship. In
this model the primary relationship is with the community. The community is the source of the labor and
commitment that allows the supply chain to exist. Next, the relationship with
buyers and retailers is also paramount.
Maintaining strong relationships with representatives up and down the
supply chain is critical.
Step 5 – Export the Model - “If
you want to keep it, you have to give it away”
Sharing the model
with others in Central and South America (and other parts of the world) would
also be critical to sustainability. Honest
and ethical business practices that actually result in substantial improvement
in the lives of those involved can be catching in the global market that touts
Corporate Social Responsibility and Fair Trade.
Sharing with the world the stories of the lives that are transformed
through ethical standards that put the lives of humans first is like a pool of
fresh water for the thirsty; an increasing number of individuals and companies
will want to take a drink.
Conclusion
Bennis (2009) placed an emphasis on “mastering the content” (p. 1,
p.185). The point is that the successful
leader understands the prevailing culture even when much of the culture is
latent. Currently, as has been discussed
above, there are forces emanating from both ends of the global business supply
chain that are pointing toward a more human oriented basis for ethical
practice. The Fair Trade movement grew
out of the circumstances of those who were exploited and documents such as The
Global Economic Ethic Manifesto originated with those involved in global
corporations who seek to have a positive impact on the lives of the humans that
the global corporations are involved with.
In spite of the fact that Rossouw (2009b) might argue that a convergence of ethical practice is not
taking place, it appears that such a convergence is indeed taking place, only
not in the way Rossouw would have anticipated.
Ultimately, there is a reality that we are all aware of but not always
cognizant of; we are one people living on one planet.
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