U.S. companies now operate across borders and vast geography.  In doing so, they encounter local cultural practices — some of which might be questionable or antithetical to organizational standards.  So how should a values-based company respond to local customs and practices?

In Part 3 of our “First Person” series, where leaders give us their firsthand knowledge and experience on various issues, HOW Online’s Dov Seidman asks HOW contributor and former General Electric general counsel Ben W. Heineman Jr. about how the internal values and integrity of GE — a multinational company with more than 300,000 employees — guide its global business and responsibilities in foreign cultures near and far.  Seidman asked Heineman, “Is there a conscious process for making decisions that binds companies beyond the rules, and how do you diffuse values on a global scale?”

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Ben W. Heineman, Jr.: “Although people across the globe may share an innate sense of what’s right or wrong, there are obviously strong cultural forces that shape how people behave.  If you’re in China, Indonesia or Thailand, the cultures are different than the uniform global culture of a transnational company, so you have to train people on the expectations of your global culture.  A huge part of being a transnational company these days is education on integrity that really communicates to people from different cultures and explains why the norms of the company are so important and may be different from local norms.

One of the most important issues is that the core issues of the right numbers, the right rules, the right ethics, the right values have to be uniform global aspects of multinational companies.  You do not bend those concepts in different cultures — and that is often controversial and often hard to do, but it is central.

Corporations will set global standards beyond what formal legal and financial rules require that bind the company and its employees.  At GE, for example, when we did global sourcing, we both off-shored the function and then we often outsourced it to third parties.  But we decided that we were going to adopt ethical sourcing standards for third-party suppliers, even though we were under no legal obligation to do so in most instances — so there would be no child labor, no prison labor, there would be decent working conditions, there would be a decent wage given the culture, and there would be environmental health and safety processes followed.

We didn’t have to do that, but we did it anyway.  It imposed costs on our suppliers — but they wanted us as a client, so they were often willing to adopt our standards.  It also cost us money to set up the systems to review these issues carefully when qualifying and re-qualifying suppliers and in the implementation of contracts.

But at GE, we chose to absorb those costs because we didn’t want supply interrupted by enforcement of local laws, even if that enforcement was erratic and episodic.  Also, GE is an icon of globalization — and at the heart of the globalization debates are issues about labor markets.  We needed to be a responsible global citizen when we off-shored and then outsourced.

We felt the benefits of taking that kind of ethical action far outweighed the costs.

A similar issue is bribery.  I felt that, even beyond the requirement of the Foreign Corrupt Practices Act, bribes should be prohibited anywhere, at anytime, to anyone.  The top leadership of the company agreed, and we were prepared to lose business.  Although GE was not free from mistakes, the company leadership across the world took this injunction seriously.  The reasons for this policy were many, but two important ones were avoidance of catastrophic legal risk and the hypocrisy inside the company of sanctioning bribes when we were trying to promote employee values of honesty, candor, fairness, trustworthiness and reliability.

By contrast, European engineering giant Siemens AG had an anti-bribery policy but didn’t take it seriously at the center and didn’t have a strong, uniform anti-corruption culture.  As a result, it is enmeshed in a major scandal which has led to the departure of its chairman, CEO and division heads and will cost it more than $3 billion when fines, penalties, financial restatements and investigation costs are totaled up.  And this cost doesn’t take into account the enormous disruption, in terms of distracting company time and energy, caused by the problem.

With regard to so-called ‘facilitation payments’ — payments to minor officials to perform ministerial, not discretionary, acts — there should be a very strong presumption against them.  First, they are, in most instances, violations of law in the local country — even though they may be practiced - and one of the principles for multinationals is adherence to local law.. A common example is a payment to Customs officials to speed the movement of goods.  But that will be against the law of India or Indonesia.  Second, the presumption can only be overridden by top management if there is a reason related to health or safety, such as spare parts for medical equipment, for example.

When you look at the corporate role as global citizens in global business and global society, setting global standards beyond what the formal rules require — doing what is right, not just what is mandated — is vital.  And such decisions can emerge from a systematic company process of identifying, analyzing and deciding whether or not to take such actions.

In the end, it is all about culture and creating high performance and high integrity.  Culture is a foundational challenge for management.”

Last 5 posts by Ben W. Heineman Jr.
• The Leadership Failure That Led to Salary Caps - March 4th, 2009
• Engaging Company Leaders - December 8th, 2008
• High Performance, High Integrity - December 2nd, 2008