© Copyright 2010 Daniel E. Eaton

INTEGRATIVE SOCIAL CONTRACTS THEORY In this segment, I address a theory called by its creators Integrative Social Contracts Theory, or ISCT for short. The theory was developed by Professors Donaldson and Dunfee at the Wharton School of the University of Pennsylvania. The theory is addressed in the text by way of the text’s reference to a classic 1996 Harvard Business Review article written by Professor Donaldson called “Values in Tension: Ethics Away from Home.” I will refer to this article throughout this segment and again in the segment on global ethics. For reasons that will become clear, we will be confining our analysis of ISCT to the context of multinational business operations, even though its authors have demonstrated that ISCT may be applied in domestic contexts. Before we get into ISCT, let’s define what is meant by a social contract. A social contract is the concept that members of society or a particular community agree among themselves on certain standards of acceptable behavior, even without a formal agreement among the members of society.

The Decision Rule has a few more components than the other theories addressed so far. According to ISCT, a decision is ethical if it is compatible with the ethical rules of the community in which I am doing business, meaning those ethical rules or norms that a community develops within its broad moral free space that are: (1) authentic, in that they are supported by the attitudes and behavior of a substantial majority of the members of that community; (2) permit members to exit when they are distressed about a particular community norm; and (3) allow community members a voice in influencing the development and evolution of the norms; and are (4) legitimate, in that the rules do not conflict with any hypernorm, a norm sufficiently fundamental that it serves as a guide for evaluating authentic but less fundamental norms. Hypernorms are generally reflected in broadly shared religious, philosophical, and cultural beliefs.

The biggest advantage to ISCT is that it acknowledges the legitimacy of different cultures having

different standards for approaching ethical dilemmas that come up in business. That respects the autonomy, or freedom, of other cultures to adopt ethical values different from our own.

The biggest disadvantage to ISCT is that the very concept of a hypernorm is vague. It is thus hard

to pin down exactly when a hypernorm requires that a local norm be disregarded. Just how broadly, for example, must a norm be shared to be sufficiently fundamental? ISCT also may not be practical. Just what is a businessperson supposed to do when a norm in country with which he is doing business conflicts with a hypernorm? Not do business there? Try to change a potentially longstanding cultural norm? Impose the norms of the businessperson’s own culture on the community in which he is doing business? That can be a tough call, especially given that Professor Donaldson acknowledges that context matters in making these decisions. Professor Donaldson tries to overcome this potential problem by use of test for resolving ethical dilemmas, at least where a foreign country’s practices cannot be explained by its underdeveloped economic condition. According to Professor Donaldson: “Managers should deem a practice permissible only if they can answer no to both of the following questions: Is it possible to conduct business successfully in the host country without undertaking the practice? And is the practice a violation of a core human value” or what we have been calling a hypernorm?” According to Professor Donaldson, the widely accepted practice of gift-giving in Japan as part of doing business satisfies this test.

An example of a company doing business according to ISCT is the Levi Strauss example provided

in your text. Levi Strauss had adopted global guidelines that banned the use of child labor by its suppliers, specifically children under 14. When the company learned that two of its contractors in Bangladesh were using workers who appeared to be under the age of 14, but for whom there was no proof of age, Levi’s had a choice to make. To fire the young workers would have hurt their families, who

© Copyright 2010 Daniel E. Eaton

depended on the children’s income as an important source of income. The children might be forced into prostitution and other unsavory ways of making money for their families. Ultimately, those children determined to be under the age of 14 were removed from the factory, the contractors continued to pay the children’s wages, and the company paid the children’s schooling expenses. The children would be rehired at age 14. Now that we have a basic framework for ISCT, it is useful to look behind the doctrine to deepen our understanding. First, consider the theory in terms of ethical decision rules also used in global business that reflect very different value judgments. First, it is not ethical relativism. Have you ever heard the expression “When in Rome, do as the Romans do?” For purposes of business ethics, it means that when you are dealing with a foreign culture, you should adopt their ethical norms lock, stock, and barrel and not impose your norms on them. ISCT is not guided by ethical relativism because it accepts a community’s ethical norms as legitimate only to the extent they do not conflict with a hypernorm, or fundamental, broadly shared norm. As your text points out, followers of ISCT reject unqualified ethical relativism because, in extreme cases, it could justify murder. ISCT also rejects ethical imperialism, the idea that absolute truths require adherence to a single ethical standard wherever one does business. It would impose the company’s ethical standard, generally reflecting the ethical standard of its home country, on other communities.

We now know what ISCT and what it is not, but what about some of the unusual terms it uses, such as hypernorms? In their book “Ties that Bind”, Donaldson and Dunfee give 11 categories of evidence used to identify whether something is a hypernorm, including whether it is broadly shared across cultures. Another indication that a particular standard is a hypernorm is that it is “supported by the laws of many different countries.” (TTB, p. 60.)

Can you think of a “hypernorm” as the authors have defined it? What about the Golden Rule discussed in your text? (Text, p. 412.) Again, though, how easy is it to apply that rule in close cases? In his classic Harvard Business Review article, Professor Donaldson identifies three hypernorms, or core human values, that satisfy the overlapping ethical norms of Western and non-Western culture. They are: (1) respect for human dignity, (2) respect for basic rights, and (3) good citizenship. According to Professor Donaldson, respect for human dignity means not treating people as simply tools, but instead recognizing their value as a human being such as by providing employees a safe workplace. Respect for basic rights means, for example, “avoiding relationships that violate human beings’ rights to health, education, safety, and an adequate standard of living.” Third, good citizenship means business working with communities in which they operate “to support and improve the institutions on which the community depends.”

You no doubt have noticed that those three core values are very general. In their book Ties That Bind, Professors Donaldson and Dunfee attempt to provide some more specific examples of hypernorms, even while declining to provide anything approaching a comprehensive list. Those the authors list include international bribery, prohibiting women from doing certain kinds of jobs, and “feasible workplace safety practices essential to protect against serious physical injury.” What about conducting telephone market research, but saying you are conducting an independent survey rather than disclosing that you are working for a particular client because of evidence that would bias the result? Does that offend a hypernorm? This is what Donaldson and Dunfee say: “Although truth telling in general is supported by many religions, philosophies, and laws . . . none of these are specific enough to apply to the question of whether one need volunteer information in this type of interaction.” The short answer, then, is no, the practice of shading the truth of why you are conducting the survey would not offend a hypernorm.

© Copyright 2010 Daniel E. Eaton

Integrative Social Contracts Theory provides a useful analytical framework for doing business abroad, but it is not the only ethical rule. It lies somewhere between ethical relativism – “when in Rome, do as the Romans do” – and ethical imperialism – “when in Rome, they’ll do as I do.” The application of ISCT also reminds one of the discussion we had in the first block of videos about the relationship between ethics and the law. Do you see how? When we turn to the segment on global ethics, we will consider concepts the text addresses that apply in doing business abroad as well as a useful framework that Professor Donaldson has devised in working through ethical decisions that arise.