Can multinationals operate ethically in emerging markets?

Andrew Feinstein, an elected member of the first ANC parliament, introduced GoodCorporation’s debate on the problems facing multinationals operating in emerging markets.

He began by reminding delegates that South Africa has only been a democracy for 15 years.  During that time it has made remarkable progress and is a fundamentally better country.  However, as an emerging nation, it faces real challenges that it must confront.  To illustrate the type of problems developing countries face, Feinstein spoke in some detail of the controversial multi-billion Rand arms deal over which he resigned when his call for an investigation was refused.

He spoke of bribes paid to government officials, of these bribes being considered an effective way of ‘funding the ANC’, of paying over the odds for the goods received and of black economic empowerment becoming inextricably linked to political power.

He concluded that emerging markets are difficult places to do business in, but suggested five crucial steps to conducting business ethically in such countries.

  • Use clear and explicit codes of conduct that are precise and practical.
  • Conduct regular audits against the code of conduct, ideally using independent external auditors.
  • Ensure unequivocal ethical leadership from the top and throughout the leadership team.
  • Ensure that the consequences of transgression are both acute and widely known throughout the organisation
  • Have the humility to seek assistance and acquire an understanding of each different local market.

He concluded that it is possible to do business ethically, but it does require clarity, guidance and co-operation.

It was generally agreed that multi-nationals can be a force for good, that they can start the debate on good business behaviour and lead by example. Transparency was felt to be crucial to this success and that to achieve transparency whistleblowing should be encouraged and irregularities ruthlessly investigated.  Whistleblowing should be encouraged not just in businesses but in governments as well.

This moved the debate onto the area of responsibility.  Is it fair to expect business to pay the price, in terms of fines and prosecution when governments preside over institutionalised corruption?  It was also suggested that if competitors do not operate to the same ethical standards then the business playing field is far from level.

Legislation, such as the Bribery Bill currently being debated in the UK parliament was felt to be critical to this problem.  An international commitment to tackling corruption is key.  It was also argued that keeping transactions in the public domain can have a positive impact on corruption by making life difficult for those who prefer not to play by the rules.

There must also be the ultimate sanction of withdrawing from certain countries. It was argued that corporations must contribute to the common good and be prepared to sacrifice profit if they cannot do business ethically.

Some felt that change was best affected by working with these countries to change them.  Businesses should seek to demonstrate that individual projects have real returns for the public good.  By showing real benefit that reaches beyond officials who may be seeking private payments, business can gain the support of local people who in turn put pressure on governments to tackle corruption.  Once an empowered population has the choice, it can demand change.  Where corruption is institutionalised in certain dysfunctional states, multinationals should be prepared to pull out.

Co-operation was felt to be essential.  Businesses need to be confident that they and their competitors are working to the same high ethical standards.  They must know and understand the people they are doing business with and undertake the necessary due diligence to find out what is really going on.  Businesses should share information when working in emerging markets and feel confident that all countries operating in a particular developing market will enforce rigorous anti-corruption legislation. Then, and only then, can corruption truly be tackled.

GoodCorporation Business Ethics Debate December 2009