Swapping Business Skills for Oil

For transnational corporations, meeting social responsibilities is an indispensable part of doing business in the developing world. This may seem a surprising statement to come from a former oil company executive. Everyone knows, after all, that oil companies don’t give, they take—especially in poor countries like Indonesia that have a great deal of mineral wealth but little economic or political power. It is perfectly true that an oil company’s principal purpose is to extract oil from the ground and sell it at a profit. I make no apologies for that. Profits must be made, dividends must be paid, the world’s insatiable appetite for energy must somehow be met. But if the day ever existed when a minerals company could ignore the social needs of the countries where it operates, that day is now long past. Today transnationals need far more than a developing nation’s mineral resources. They need skilled labor, consumer markets, financial and commercial partners, and continuing business opportunities into the near and distant future. In other words, they need development. And their need is urgent, whether they acknowledge it or not. Meanwhile, the definition of development is itself changing. Until the 1970s, development was a homogeneous notion whose main goals were universal literacy and inoculation, technological muscle building, and rapid, government-led industrialization. It usually included the formation of cartels and the protection of local industry from foreign competition by measures such as import restrictions. We now know that central planning often breaks down, and that, to grow, a nation needs to do more than accumulate capital, defeat disease, and learn to read and write. It needs incentives; it needs institutions that make investment possible; and it needs wise investment decisions by an experienced and expansive private sector. Today economic development means the development of broad-based economic and physical infrastructure: jobs, small and mid-size businesses, worker training, transport and telecommunications, environmental sensitivity, a dependable system of business ethics, improved education, better health care, and a more equitable distribution of income to promote social and political stability. In short, a developing nation needs all the social and economic competencies that are so plentiful in the developed world. And although these are the very competencies that the governments of developing societies are ill equipped to disseminate—even with international aid—they are precisely the competencies that transnationals possess in abundance and can provide, teach, and encourage with relatively little extra effort or expense simply by paying greater attention to the way they conduct business. Moreover, the benefits of competency transfer are not entirely long-term and conceptual. Among other advantages, there may be immediate dividends in terms of goodwill. A company with a reputation as a decent neighbor, fair employer, and developmental benefactor—in other words, a company that purveys skills and community improvement—will attract the best workers and earn their loyalty. It will also enjoy government support at the national, regional, and local levels extending far beyond the letter of contractual obligations. Indeed, more and more governments are letting transnationals know that if they want to stay, they had better give back some of what they take out. Visibility and Image Transnationals are highly visible in developing countries. The educated elite in a developing nation, especially government officials, have a good idea how much a foreign corporation makes, what risks it takes, and what priorities it sets. Local people form similar impressions of their own. Imagine yourself a farmer in Indonesia’s Riau province in Sumatra. You and your family live in a one-room house made of palm leaves with a dirt floor. Your children have little hope of finishing high school. There is not always enough food. You often lie awake at night wondering if things will ever change. Across the river is an American oil camp, where people live in stone houses with well-stocked kitchens, air-conditioning, and swimming pools. You accept their success, partly because you are impressed by their technology, partly because you’re accustomed to authority: first the sultans, then the Dutch and Japanese, now the Indonesian central government and this transnational. Yet you know they are taking wealth out of the land—Indonesian land, your land—and you do not want to be excluded. You don’t care what taxes the company pays to the central and regional governments. You care about what the company can do for you. Business managers often tell me that transnational corporations should not have to think about social responsibility in the developing countries in which they work. “We pay high enough taxes,” they say. “It’s the government’s job to solve social problems.” But few governments in developing countries have the resources to provide basic services, let alone safety-net social programs. And the farmer who lives near your oil camp doesn’t care how much money you send to a government hundreds of miles away. If your company buys his crops or, better yet, teaches him and other local farmers how to increase their yields, he has tangible evidence that you care about his community. What does this have to do with business? Everything. To have prosperous corporate operations side by side with shantytowns fosters envy, resentment, and eventually resistance. People will not tolerate forever what they perceive to be an unjust distribution of wealth. Moreover, companies that dismiss the native residents as backward may be in for a shock. Rural people in particular are deeply concerned about issues of pollution and land use and are often politically astute. I remember one group of disgruntled farmers planting rubber trees along a stretch of land where we had announced plans to build a road. When the road crew arrived, the farmers threatened to complain to the government if the men cut down their trees. These poor farmers turned away a team of foreign experts armed with bulldozers. And we owned the land. Business Development Promoting goodwill in a host country is critical to a transnational’s survival. But for corporate development programs to be more than stopgap measures, transnational managers must make a serious commitment to the more ambitious long-term goal of transferring business, technical, and social competencies to people in the developing world. Of all the contributions a company can make to a developing country, this is the most significant. The humanitarian reasons for competency transfer are obvious and compelling: highly profitable corporations have a moral responsibility to act as social institutions in countries that cannot provide adequate services. The economic rationale is equally convincing: good behavior is good for business. Broadly defined, the transfer of competence falls into five categories: business development, infrastructure improvement, environmental protection, human resource development, and the promotion of an ethical business culture. Fostering local businesses stimulates growth and creates jobs, two critical components of an economic development program. The core of such programs is education: teaching people how to handle cash flow, collect due bills, maintain equipment, and master new technologies and agricultural techniques. As chief executive officer of Caltex Pacific Indonesia, I always made a point of buying honey on visits to our field operations in Sumatra’s Riau province. Caltex had trained local farmers to raise bees and had helped them with business plans and accounting procedures. Now these beekeepers supplied Caltex mess halls and a range of other customers, and everyone knew that I would stop and buy a pail of honey as a gesture. It was a gesture, nothing more, but it sent a message to middle management: development means using local people as contractors, consultants, and suppliers, even when taking the business elsewhere seems easier and less expensive. In the long run, the company will benefit as much as the community from its commitment to local business. Development means using local suppliers, even when taking your business elsewhere seems easier. In the 1950s, when I first went to work for Caltex, Sumatra’s Riau province was so swampy that farmers could not cultivate rice, which needs controlled flooding to grow successfully. We had to import rice from other areas. To reduce our dependence on these expensive imports, the company built drainage canals, brought in agricultural experts from the Philippines, and sent a group of Indonesians to agricultural school in Manila. A few years later, many of those farmers were not only selling rice to Caltex but also exporting it to other regions. We also worked with local craftsmen. Caltex used to import European-style couches and chairs from Singapore, but then we decided to contract with local carpenters. Used to making backless stools and beds without mattresses, their early attempts were rough—after all, most had never seen a couch or an easy chair—but today they produce exportable furniture upholstered with fabrics made by indigenous artisans. I realize that these examples may seem trivial given the magnitude of the problems in Sumatra, but systemic underdevelopment cannot be alleviated overnight. Even relatively small projects ripple through the community. The furniture builders buy tools from a local storekeeper, who in turn buys shoes for his children. Business competence grows like a sound economy: by steps and by inches, not by leaps and bounds. Because the goal is to build competence, not just pump in money, transnationals cannot promote local business by accepting poor quality or service. To expect less from local people than from international suppliers is patronizing and gives the providers an unrealistic sense of acceptable business practices. The company must insist on high-quality products delivered in a timely fashion. When bidding is called for, it should be competitive. Noncompetitive bidding gives the transnational little control over price and quality and permits local companies to prosper artificially. The transnational must also allow people to take risks, to fail as well as to succeed. The transnational itself must take risks, as joint ventures can be an especially effective means of transferring business competencies. I recall some years ago trying to launch a chicken industry to supply poultry for our mess halls. We gave local breeders feed imported from the United States so they could raise better chickens, but the breeders gave the chickens only a portion of the feed and sold the rest in town. We had to threaten to shut down the venture before the selling stopped. But failures are never an excuse for diminished commitment. Transnationals need to listen. They need to learn from local people and work with them. In the final analysis, patience can be more difficult to offer, but more valuable, than money or technological know-how. Infrastructure Development The construction of roads, harbors, and power lines is usually a business as opposed to a social obligation. Yet the impact of infrastructure is so great, and the company’s opportunity to affect development so far-reaching, that it would be foolhardy not to accommodate local people while building facilities necessary for business. Building infrastructure is also a way of encouraging local economic activity. In the early 1950s, many towns in the Riau province were accessible only by footpath or river. Even between the larger communities, travel was primitive. People who had to travel from Pekanbaru to Padang on Caltex business rode the public bus, which always carried food, water, and firewood. When the bus or the highway needed repairs—a regular occurrence—passengers slept by the side of the road and built fires to keep tigers away. Gradually, Caltex constructed a network of roads as part of its infrastructure for moving oil. This included the eastern half of a cross-island highway connecting western and eastern Sumatra for the first time in history. The company built the road for its own business reasons, but of course everyone uses it: small commercial truckers transporting fruit and vegetables as well as health care workers bringing medicine to isolated villages. Roads did not solve a major transportation problem in Pekanbaru, where travelers must cross the Siak River. People relied on a ferry until 1955, when Caltex built a pontoon bridge. By the mid-1970s, increased traffic made the bridge a constant bottleneck. Vehicles sometimes lost an entire day in traffic backups. Since virtually none of the small vehicles was refrigerated, and since large refrigerated trucks were too heavy for the bridge, the movement of perishable goods became a near impossibility. In 1977, the company built a $ 3 million, two-lane bridge. Motorized traffic, including large trucks, could now go from Dumai to Padang and beyond without delays. Areas to the south and west of Pekanbaru began to export goods through Dumai, and thousands of people found new employment opportunities. Caltex built the first bridge across the Siak River, and the Indonesian government is building a second. Today, standing on the bridge at noon, I see an endless stream of people in cars, trucks, and buses, on bicycles, walking, or wheeling carts. Traffic has become so heavy that one bridge is no longer enough. But infrastructure competency is now in the hands of others. We built the first bridge; the government is building a second. Environmental Protection Although more and more corporations are taking environmental issues seriously, there is still no shortage of transnational executives who believe that concern for the environment is a business luxury. They insist it’s enough to comply with a host country’s regulations, knowing fully well that the legal standards in some developing nations are lower than they should be and that enforcement is often arbitrary. This least-we-can-get-away-with attitude exposes companies to the sometimes justified charge that they are exporting pollution to the developing world. It also exposes them to environmental protests, contract difficulties with host governments, and vastly increased difficulties with their long-term planning. One important aspect of the problem is that neither business nor government professionals possess a commonly accepted conceptual framework for factoring environmental issues into traditional financial and economic data. Host governments, for their part, will take environmental issues into account when evaluating a transnational’s role and impact, but without any clear means of assessing trade-offs. A mineral extraction company adds to the national wealth by purchasing mineral concessions, paying taxes, and providing jobs. But what if it also causes health problems among the local population? What if it needlessly damages local resources, making future use of the land for, say, farming difficult or impossible? On their side, some transnationals tend to dismiss the economic value of goodwill, of a decent environmental record, of avoiding protests and international environmental actions, of easing relations with host bureaucracies and gun-shy governmental leaders, to say nothing of the value of a clean environment in areas where they mean to continue doing business of one kind or another for decades to come. Some of these companies also tend to forget that thanks to improved international communications, transnationals can no longer behave one way in industrialized nations and another way in the developing world. Whenever a company or a government makes an either-or choice between the environment and progress or between the environment and profits, the environment will lose. Everyone from local villagers to corporate executives must see that a transnational can protect the environment and its profits, that safeguarding the environment can be a way of protecting profits. It is now conventional wisdom, for example, that cleaning up old environmental problems can cost a great deal more than avoiding them in the first place. I’m glad to say that we learned this lesson early. In a choice between the environment and profits, the environment will lose. When a drilling rig strikes oil, the first thing the new well produces is usually several hundred barrels of drilling fluid, oil, and water. Over the course of a few hours or days, the well cleans up and begins producing 100 % petroleum, but, in the meantime, something must be done with this waste. Today we collect it in earth or steel containment pits, burn the oil that can’t be saved, and bury what’s left. But when Caltex first began developing the Minas oil field in Sumatra, this fluid waste was often “jungled,” allowed to flow down the hillsides into the rain forest until it cooled and solidified. For several years in the early 1950s, scores of new wells produced dozens of these dry-land oil spills, which can contaminate water runoff and can also constitute a fire hazard in areas where slash-and-burn agriculture is still practiced. For nearly 30 years, Caltex has spent huge sums removing the material for use as roadbed, trucking in clean soil, planting, landscaping, repairing the damage caused by carelessness. How much less costly to us and the environment to have done things right in the first place. In another case, we have done just that, with results that we look on with enormous pride. In the mid-1970s, when Caltex began to explore the northeastern portion of its concession area called Zamrud, our geologists discovered a huge oil reservoir beneath two large and utterly unspoiled rain-forest lakes. The only people living in Zamrud belonged to a small tribe that lived on one of the lakes. They had little contact with the outside world, spoke no Indonesian, and subsisted on fish and forest foods. Our environmentalists could not determine how deep the lakes were and reported finding species of plants and fish previously unknown to science. Under the circumstances, we invited Indonesia’s minister of the environment to tour the area by helicopter and suggested that he declare the area a nature park. He consulted his own experts and established a reserve in which only local people can fish, hunt, cut trees, or build structures near the water’s edge. That left us with the problem of reaching the oil without damaging the area. Our engineering solution was to place oil rigs at a distance from the lakes and drill directionally. The additional expense was $ 8 million, but the profits covered the cost, and the local population continues to enjoy its traditional home. In my opinion, saving the lakes was economically intelligent as well as environmentally responsible. Among other things, it has done a great deal for Caltex’s image both at home and abroad. The Zamrud model has become a practical example of how engineering solutions can protect the environment and still permit economic growth, an example that other corporations and the government have applied in other parts of Indonesia. In much of the developing world, transnational corporations are the best if not the only source of modern environmental technology and expertise. There is irony here, but there is also opportunity. Human Resource Development A transnational must have skilled and well-trained people. They can be either expatriates or locals. In the search for a balance, the company and the country must understand each other’s needs. The country wants its citizens to rise into positions of authority as fast as possible. The transnational wants to utilize the latest technology and make productive investments in training programs. The key to meeting both sets of needs without conflict is the transfer of human skills and capacities. Importing a truck or computer transfers technology, but training a local person to operate and maintain it and to use it efficiently and innovatively transfers the company’s competency. Indonesianization of jobs means new ways of thinking and new ways to change thinking. In the early 1950s, even Caltex truck drivers and bulldozer operators were Americans. No Indonesians in our area of operations had these skills; most had never seen earth-moving equipment. The principle impediment to training Indonesians was a colonial mentality. Colonial-era executives often warned other Westerners that Indonesians could not be trusted with anything mechanical. I told Caltex executives that I did not want to see any more expatriates with a colonial mentality. I told them I would rather have Americans who spoke only English than bilingual Dutchmen who looked down on Indonesians. The biggest impediment to training Indonesians was the colonial mentality of many executives. I knew this from experience. When I started at Caltex in 1951, I was the most senior Indonesian, handling industrial government and public relations. To be useful, I needed to learn more about oil exploration, so I asked if someone could give me a course in geology, petroleum engineering, and drilling. Caltex put me with a Dutchman the Americans trusted as their expert on Indonesians. He never took the time to train me, and when he ran out of excuses, he was honest. “You know, Julius,” he said, “there is an old saying, ‘When you know how to make shoes, you ought to stick to making shoes.’ Get out of Caltex.” I asked for another teacher, this time an American. The difference was dramatic. Teaching me to handle oil rigs seemed to make him happy. As it happened, the work required great strength, and while his huge hands turned the valves easily, I could hardly move them. One day he laughed as I struggled with a valve. “I have the muscle and you have the brains,” he said. He never knew how much that meant to me. In the 1950s, we replaced Americans with Indonesians whenever we could find qualified people. We told the Americans their job was to train Indonesians to replace them. We began by Indonesianizing exploration, which involved the most difficult outdoor work, and then gradually introduced it in every company division. All training, including English lessons, took place during business hours on the principle that people should be paid to learn. Training often has a 10- or 15-year payback, so investments in human infrastructure require management to think long-term. Caltex tries to retain employees by making salaries, work conditions, and opportunities competitive, but most skills are highly marketable. People who speak English, say, or operate a computer can always find work, so it’s inevitable that a transnational will lose trained personnel to other employers. The people who choose to work elsewhere are part of the transnational’s contribution. Transnationals need to remember that they benefit from the transfer of competency in ways that are impossible to measure. A country with skills is no longer a passive recipient of technology. It can now refine and improve the technology and ship it on to another country, which further refines and improves it. To obtain work permits for expatriates in Indonesia, a company must demonstrate to the government that no local citizen yet has the requisite skills. This “yet” is crucial. The company must also show plans to make the expatriate unnecessary. Transferring human competencies is a tricky undertaking. My own 40 years of experience have taught me a number of lessons: The transnational must send the most appropriate people overseas. Assignment of experts to overseas positions is sometimes made by mid-level managers who do not consider such assignments important. They may send people who lack the necessary temperament or, worse yet, people they want to get out of the way. Successful transfer of competency requires more than people with good technical skills. It requires talented individuals with an interest in teaching, a willingness to let people make mistakes, and a sensitivity to cultural differences. Expatriates, no matter how skilled, need special training. Most foreigners in the developing world know nothing about their host country’s history, culture, and government. If expatriates are to participate in the transfer of competency, they must learn. In Indonesia, Americans frequently misread signals. For example, when Javanese listen, nod, and say nothing, it means they hear you, not that they agree. When they say “y-e-e-s-s-s,” it means they question what you are saying and may already have decided it is not acceptable. If you ask Indonesians to do something and they reply with a “perhaps” or “maybe,” they are not being tentative. Answering a question with a direct yes or no is considered immodest. Expatriates told to Indonesianize themselves out of a job need adequate incentives. No one should expect expatriates to be enthusiastic about training nationals to take their jobs. All too often, expatriates are rotated home to discover that their careers have stalled. The solution is incentives. Transnationals must be able to assure expatriates that the company values their overseas work experience and that “working themselves out of a job” will lead to bonuses and career advancement. Nevertheless, it is also a mistake to rush expatriates home too quickly. Expatriates must spend time working side by side with their local replacements. Transfer of competency must take place on the job as well as in the classroom. Some portion of the work force should always be expatriates. No fixed percentage covers all industries or situations, but I would suggest that about 5 % of the technological and managerial work force be made up of expatriates. For that matter, jobs can occasionally be de-Indonesianized. The usual assumption is that once a position has been transferred to a national, no expatriate will ever again hold that job. Technological advances, however, may require that an expatriate temporarily return to a position to bring in new equipment and teach local people how to use it. Companies often send employees abroad so that they can learn new technical skills, but sometimes it may be more efficient to bring in one expatriate to teach an entire group. Remember that expatriates are living links to new technologies and outside research laboratories. Foreigners can also help generate the excitement that comes when people from different cultures discuss new ideas. Two Indonesians talking to each other about a technical question is not the same as an Indonesian having that conversation with a European, Japanese, or American. When a major Indonesian company ran its operations without expatriates, the flow of new ideas and the sense of excitement dried up. Exposure to foreigners also forces Indonesians to polish professional, technical, and language skills. Incompetence in an expatriate is unacceptable. Expatriates are in the developing country for a purpose. If they fail to perform their duties well, they should be asked to leave so that qualified expatriates can get work visas and replace them. Such firings send an important message to the expatriate community and to local employees, not to mention corporate headquarters. It is always a mistake to promote nationals simply because they are not expatriates. To promote people because they are Indonesian, or to be biased in their favor, is to lower standards. Once word gets out, expatriates and the local people they are training will take the transfer of competence less seriously. If anything, local workers should be better qualified than the expatriates they replace. I am harder on Indonesians than I am on Americans because Indonesians are the ones who will be around when the Americans go home. Local employees need to be provided with the same amenities as expatriates. A difference in income between expatriates and nationals is often unavoidable because expatriates’ salaries reflect the rates in their home country. Both groups, however, should enjoy the same accommodations. In the 1950s, Caltex began to provide electric ovens, refrigerators, hot and cold running water, and other amenities to lower level Indonesian employees—mechanics, plumbers, electricians, junior accountants—as well as to those with some college education. At the time, these were great luxuries even in Jakarta, where they were found mostly in the homes of senior government and corporate officials. But we wanted to ensure that local workers would mix comfortably with Americans, and that meant providing them with a comparable lifestyle. Much competency transfer is invisible. Anyone can learn to use a computer, but assertiveness is also a key technology. In addition to learning how to use appliances, Indonesians interacting with Westerners need to understand their customs. Much transfer of competency is invisible. Anyone can learn to operate a computer. It is much more difficult to acquire versatility in English or the courage to confront your boss with new ideas. Many Asians, by virtue of their upbringing and culture, will not ask questions or argue in favor of their point of view. They need to learn that self-confidence, curiosity, and assertiveness are essential competencies in a progressive, entrepreneurial culture. Social skills are themselves a key technology. Business Ethics The last of my five competencies is the promotion of an ethical business culture. Such cultures enjoy a more or less dependable existence in the developed world. Long-standing legal and behavioral norms produce a playing field where companies thrive or perish on the basis of their business perspicacity alone. And exceptions are normally punished. The developing world is less fortunate, not in its social or ethical ideals, but commonly in its day-today practices. Yet corruption is always and everywhere an impediment to business as well as to morality. Corruption wastes resources, discourages investment, cuts productivity, and nurtures enterprises whose success can only be temporary—exactly what a developing country can least afford. Transnationals can—and, I would argue, must—play a central role in transferring sound commercial ethics to the developing countries where they work and trade. When I joined Caltex, many Westerners assumed that all business in Asia was corrupt. More than a few embraced dishonesty because they seemed to think it was expected. My first test came shortly after the company placed me in a senior management position. An official of one foreign company that contracted with Caltex said he was ready to pay me the usual “commission”—in other words, a kickback. “Don’t you think a ‘commission’ for me would be a conflict of interest?” I said. He stammered something I did not understand. At that time, Caltex had no training or written rules on ethics. Employees approached as I was, and I assume many were, relied on their own standards and assessments of what was necessary to get the job done. Looking back, I should have reported the incident and made a written record. I should also have warned contractors not to make such offers to anyone else within Caltex. But I just pretended the conversation never took place. Many people mistakenly believe, or convince themselves, that honesty and dishonesty translate differently in different parts of the world. This is self-deception. To be honest is to be honest. Honesty and dishonesty do not mean different things in different countries. Confusingly, however, ethical behavior does have cultural components. The main source of difficulty in Indonesia derives from strong family ties. Indonesians feel compelled to help family members. Caltex once had a department head who demonstrated great skill, showed initiative, and worked whatever hours the job required. But then I discovered that he was giving jobs and contracts to his brothers, sisters, and cousins. When I called him in, the man argued that he was doing nothing wrong. He understood my concern, he said, but it was impossible to say no to a family member even though it meant losing his job. Family loyalty meant more to him than abstract notions of ethics or the welfare of the company. If culture pressures people toward a certain type of business duplicity, then the transnational must counteract these pressures. Ethics classes should be integrated into training programs to strengthen each employee’s personal sense of ethics and to clarify what the company expects. But denial can be powerful. Some years ago, Caltex executives began hearing stories from outside the company that something was wrong in our purchasing department, that people there were accepting gifts from customers. An internal management audit revealed that virtually everyone in purchasing was corrupt. When we confronted people one by one with the evidence, they had no explanations. They did not even claim that accepting “commissions” was “necessary” or a means of helping family. They had simply grown accustomed to receiving extra money. Many had stopped believing it was wrong. Top executives must not indulge in their own form of denial and close their minds to disturbing news. A stranger once approached me at Jakarta’s airport, introduced himself as a businessman, and said, “Something is wrong at Caltex. It has an image of honesty that is not true. Your accounting department is delaying payment to people to whom the company owes money. Unless people pay a bribe, they do not get what is due them.” I knew that this kind of extortion happened in some government offices. Even schoolteachers may have to pay bribes in order to get their salaries. But such a thing at Caltex was inconceivable to me. “Has anything like this ever happened to you?” I asked. “I have no dealings with Caltex. It is just something I have heard.” When I returned to the office, I requested an immediate investigation and discovered that the man’s charges were true. After taking severe disciplinary measures, I distributed a notice to our suppliers and contractors that anyone not paid in two weeks should call me directly at home. The problem disappeared. The ethical conduct of its own employees is clearly in a transnational’s best interest. What would happen if government officials, and the public, began to believe that a company such as Caltex made payoffs? Or that Caltex responded favorably to bribes? Or that the company kept two sets of books to hide income from local taxation? The company would become a breeding ground for corruption. Every story of a payoff would stimulate requests for more. No one would believe company statements about its income or its contributions to the nation. The government would continually renegotiate contracts in an attempt to get its share of hidden income. Other transnationals would approach the government and offer to handle Caltex concessions more responsibly. Profitability would drop, and long-term viability would be endangered. Political figures will not solicit from most large transnationals, but subtle requests for contributions occur. Such contributions win only temporary friends. When your payments stop, everyone’s door slams shut. Once you buy a politician, furthermore, the demands only grow. A common rationalization at all levels of corporate responsibility runs like this: it is ethical to pay government officials to do things they would normally do to discharge their duties, but it is unethical to pay someone to break the law. By this standard, paying a customs official to pass illegal goods is unethical, but paying that same official to expedite your shipment is all right. This may seem innocuous, especially when the request for a bribe is cleverly presented. In exchange for performing their duties, civil servants may ask for “services” or drop hints, such as, “If we just had a new short-wave radio, this office would be a much more pleasant place to work.” Such rationalization is tempting. When your request for a building permit is at the bottom of the stack, waiting your turn may be virtuous, but what if other businesses get ahead of you by providing “services?” You can congratulate yourself for good ethics, while your building permit languishes. When you pay people to do their duty, you receive preference over those who will not or cannot pay or who do not know that payment is expected. This undermines the neutrality of government, the assumption vital for business that government officials will treat everyone equally. There is no such thing, moreover, as only a little corruption. Each corrupt act fosters an atmosphere in which corruption is expected. Small favors lead to more dangerous and destructive dishonesty. This raises the threshold of tolerance and means that everyone begins to notice only the most offensive misbehavior. Although corruption does run deep in many developing countries, a transnational’s size and visibility may protect it from corrupt officials. Laws such as the 1977 U.S. Foreign Corrupt Practices Act, which mandates criminal penalties for bribing a foreign official to obtain business, also provide a refuge from corruption. Requests for bribes or favors, however, still arise. “We don’t have your permit yet,” a bureaucrat will say to a company official. “We just can’t understand what happened to your papers.” Such statements may come with requests for favors, even at the ministerial level. A company’s best defense is its reputation in the community. Company officers must be able to call top government officials—a member of the Cabinet, if necessary—and say, “As you know, we contribute substantially to the economic development of the country. But we can only continue to make such contributions if you help ensure that bureaucratic impediments are limited, allowing us to complete projects effectively and on time.” Such statements may be made with varying degrees of directness. If the transnational has taken its social responsibilities seriously, the request for a payment or favor occurs only when someone decides to test its ethical resolve. A company that has met its social obligations is thus least vulnerable to pressure. Legitimate Pressure Historian Eric Hobsbawm notes that the role of the modern nation-state is changing for the first time since the seventeenth century. Nations are losing control over their internal economies as worldwide economic forces show decreasing respect for national borders. A similar truth applies to transnational corporations. They too are changing, enjoying increased influence as developing countries become more dependent on them to bring in technology and knowledge. But they will never return to the status enjoyed by entities such as the supranational Dutch East India Company. Like nation-states, transnationals will have to adjust to a world in which increased competition and visibility define their actions. They and the societies in which they operate will increasingly act as inseparable partners. Social responsibilities lie at the heart of this partnership. While much impetus to meet these responsibilities will come from market forces, the marketplace does not always move institutions fast enough or in the right direction. Communities, governments, and businesses must constantly press one another to move the human agenda forward. It is in every transnational’s best interest to recognize that such pressure is legitimate. This is not idealism. It is practical business.

Swapping Business Skills for Oil

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