Paper presented as a 90 min. workshop at the SIETAR Europa Congress Tallinn, Sept.

20, 2013

Connecting Global Reach and Local Touch, or How to Reconcile Universal Ethics with Local Profits
By Vincent Merk, TU/e

1. Introduction As globalisation develops more and more nowadays many companies involved in mergers and acquisitions (M&A) or other types of alliances or cooperation schemes need to reconcile various business dilemmas they are confronted with and shape common professional and corporate cultures. One of them is finding the right balance between apparently conflicting interests such as profits (the raison dtre of a company) and ethical issues (diversity, child labour, environmental matters, etc.) in order to create a sound and sustainable corporate social responsibility (CSR) policy. The ability to reconcile both opposites will eventually determine the level of social responsibility the company will implement. As a result, HR departments involved in M&A often need to find new definitions and innovative applications for their global reach policies involving (new) universal values and codes of conducts in accordance with a local touch approach i.e. respect for local practices and traditions. Consequently, success or failure to create and manage a high standard and sustainable CSR-policy will play an increasing role in determining the overall image of the company on the global scene. This image can develop into a strong PR message that shareholders, suppliers, clients and customers, in short all stakeholders, are increasingly sensitive to assess. The following real life case features such a dilemma. We will reconcile it by using the dilemma reconciliation theory as proposed by Trompenaars and Hampden-Turner. We will then evaluate the degree of CSR this new situation has created and propose recommendations. 2. Case description You are the Human Resource Director (HRD) of a Dutch multinational company in the textile industry that is about to take over a Brazilian company with small but profitable local factories. The minimum commitment would be for 10 years, engaged in a new production plant supplying special textile garments, according to European specifications. The investment of the Dutch company would be around 25 million. You have sent two experts to Brazil to analyse the project and produce a final report to the board of directors, in order to support and guide their final decision. During the assessment of the project the two experts have soon discovered that the local factories employ children as workers, but the local managers have told them that they do not need to worry as in Brazil this is quite common (lower labour costs). After discussing various issues in Brazil, the 2 experts have come back to Holland to inform you and produce a final report for the board of directors.

You are shocked by the revelation about child labour, and now need to find a way to solve this issue. 3. Methodology and Theoretical background - The concept of Corporate Social Responsibility (CSR) First, let us start by suggesting a (short) definition of Corporate Social Responsibility (CSR): The social and environmental responsibility of companies is a voluntary practice above and beyond the law. It is a non-restrictive practice that not only encompasses, but also goes beyond existing laws. Clearly, legal aspects play an important role and can operate as constraints, but also as landmarks to indeed go beyond and trespass them. This practice can be found in 6 areas (F. Medina, Portuguese State Secretary, Brussels 7/12/07): Human rights and ethics Fight against poverty, for social cohesion Training and employability Innovation targeted on company issues Public health, environmental issues and safety Maximise corporate image - The concept of dilemma reconciliation (DR) DR is the proposed methodology to solve this case as a win-win final result. First, what is a dilemma? Taking the original Greek meaning, it is a double (di) proposition (lemma) in apparent conflict. For example: profit opposed to ethics. How do you define best a dilemma? By defining the issue at stake in terms of opposites, as follows: On the one hand we need/want to While on the other hand we also want/need to. Here are some illustrations of dilemmas that are relevant for this case study. Using the model above, we can describe them in the following terms: On the one hand we need to reach global consistency that leads to unity, while on the other hand we also want to be able to be flexible locally and thrive on our diversity. On the one hand we need to develop a "One company" culture implying treating employees the same in all locations, while on the other hand we also want to recognise differences arising from history in each local or original organisation, which means that people are treated differently. On the one hand we need to standardise our systems and procedures, while on the other hand we also want to maintain local systems and procedures that have been developed, understood and implemented throughout the organisation. On the one hand we need to respond to the particular needs of some individuals, while on the other hand we also want to maintain equity of opportunity and treatment for all. These dilemmas are encountered on a daily basis by operations or HR managers, the main protagonists in this case. Second, what is reconciliation? In dealing with different cultures, you have several options:

1. Ignore other cultures: Ignore the other orientation. You stick to your own cultural standpoint. Your general attitude or decision making style is to impose your own way of doing things, or to reject other ways of thinking or doing things, because you have either not recognised them or have no respect for them. In short: you think my way is the best way, it has indeed proved so in the past. 2. Abandon your standpoint: Abandon your own orientation and go the other way (go native). Here you adopt a When in Rome, do as the Romans do' approach. Acting or keeping up such pretences will not go unseen. You will often adopt a learned behaviour, which is not yours. People from other cultures may eventually mistrust you for trying to go local. 3. Compromise: Sometimes do it your way (point 1). Sometimes give in to the other way (point 2). But this is a win-lose solution or even lose-lose solution, because by compromising you also lose some of your identity, values, etc. Compromise cannot lead to a solution in which both parties are satisfied, a real win-win situation. 4. Reconcile: What is needed is an approach where the two opposing views, values or practices in question can come to fuse or blend - where the strength of one extreme is extended by considering and accommodating the other. It is not about an exclusive either/ or approach (which is inherent to traditional Western/ Greek philosophy), but about an inclusive and/and or rather through/through model. Symbiosis of both opposites needs to be realised. To further work out the reconciliation process properly, one must also use the cultural dimensions as proposed by Trompenaars and Hampden-Turner. All seven of them feature opposites in values, concepts and the practices that stem from them. 1) Universalism vs. Particularism: what is more important, following universal rules, procedures and protocols, meeting (technical) standards, or on the contrary focusing more on particular circumstances and (local) situations involving a lot more relationships with the people present? 2) Individualism vs. Communitarianism: do we act in society in general and function at work in particular as an individual or rather in a group (I vs. we). How much is teamwork involved? 3) Affective vs. Neutral cultures: how do we show our emotions? To what extend a show of emotions can be a professionally accepted behaviour? 4) Specific vs. Diffuse cultures: The peach & the coconut metaphor. How far do we get involved, do we segment reality or on the contrary do we have a holistic approach to it? 5) Achievement vs. Ascription: do we have to prove ourselves to receive status by realising things in our (professional) lives, or is status given to us by for ex. birth, family background or gender? 6) Time perception how important are past, present and future and the relations with one another? Sequential vs. Synchronic cultures: do we usually do one thing at a time or rather several things at once? Is time a friend or the enemy? 7) Relation to nature - Internal vs. External control: do we want to control our natural, social or professional environment and hence master all kinds of processes in our lives or at work or on the contrary act and work in harmony with it and let things happen by themselves? For a further description of these cultural dimensions, see the bibliography.

4. Case resolution: As a start, we define profit and ethics as opposites using the DR approach (see above): A possible and simple phrasing is the following: On the one hand we need to make profit which is the raison dtre of a business company, while on the other hand we also want to have an ethical production process to meet international standards. One can deliver more sophisticated definitions, but as a rule keep phrasing short and simple, so that opposites are clearly stated and understood by participants with various business and technical backgrounds. A possible objection is from a production manager who may find this definition too vague and not focussed enough on the production process issues. It will in fact depend on who is the dilemma holder and what is his/her profession or role within the (Dutch) company. We now proceed further using the 6 Steps To Reconciliation and the traditional double axis to feature opposites. Step 1: Eliciting the dilemma - Specify who is the dilemma holder: in this case it is the HR Director of the Dutch company taking over the Brazilian smaller factories. No doubt that other key players as well as some stakeholders in the case also share the dilemma, but the HRD is on the front line here. - Which of the 7 dimensions are involved here? A quick review of the 7 dimensions shows that Universalism vs. Particularism, is the best fit for the issues at stake here. Here is a more detailed description of this dimension. Step 2: Charting the dilemma - Label both axis on the grid with the dimension you chose. - Follow the standard vertical/horizontal convention. Universalism and Ethics that correlate with it as a universal value come on the vertical axis and Particularism and Profit that correlate with it here in the local situation come on the horizontal axis. Step 3: Stretching the dilemma - Think of the Positives of Position 1(Universalism and Ethics). Possible advantages of choosing a universalistic attitude respecting ethics are: Positive overall ethical image, a key issue towards world media Standardised (production) processes, a cost-cutting approach Equal treatment of everyone everywhere, simplicity of procedures Global consistency in all areas, incl. ethical matters

- Think of the Positives of Position 2 (Particularism and Profit). Possible advantages of choosing a particularistic approach towards local profit are:: Cheaper labour, hence cheaper production process Short term profit Continuous production process/ no break in it Support for local employment

- Think of the Negatives of Position 1 (Universalism and Ethics). Possible disadvantages of choosing a universalistic attitude respecting ethics are:

Break in production process Higher (production) costs Uncertainty about further industrial developments Loss of local focus and local employees

- Think of the Negatives of Position 2 (Particularism and Profit). Possible disadvantages of choosing a particularistic approach towards local profit are: Bad overall image of company (press campaign against it) Short term profit, but on longer term social and ethical troubles No local sustainable development, social status quo Possible boycott of company products by world consumers

Step 4: Finding epithets - Find descriptive, funny, stigmatising, labels for the 2 positions and the intermediate one (compromise). - As a reference use the positive and negative aspects listed in Step 3. Suggestions for graphic or symbolic illustrations: money vs ethics, global vs local, universal values vs local values, etc. Suggestions for text: sweetshop vs sweatshop or any slogan featuring global vs local or for ex. money vs ethics, etc.

Step 5: Reconciling the dilemma - Combine the strengths of Position 1 with those of Position 2 and vice versa - Think of a solid reconciliation going further than the mere compromise - Suggest actions to be taken in view of the proposed reconciliation Suggestions for compromises: balance between work and education for the children, only improving (some) work conditions, increase of salary for the older ones, acting within existing local laws, etc. Suggestions for reconciliation of the dilemma profit vs ethics: while you need to comply with International labour and environmental laws and observe fundamental rights (child and compulsory labour, etc.), you also need to go beyond the compromise and look for the limits of what is locally (il)legal, take a positive approach in meeting assessment and conformity requests. Offer not only a balance between work and education but also a guarantee for financial development through saving schemes, salaries for younger workers not being paid to their parents, but put aside for later education. Other suggestions for reconciliation: participate in local economic and educational sustainable development. Buy local fair trade products or services. Invest in HR management and select and educate the best among the young workers who will be your new managers later. More suggestions for reconciliation in relation to the local community: develop relations with citizens (associations, consumer committees, etc.), monitor the economic, technical and environmental impact on local development, set up good relations with the local and international media and provide open Information to neighbouring communities. While developing CSR schemes, keep one thought in mind : the moment your (Western) company is involved with the local factories, you as the dilemma holder cannot pull out anymore. You have a duty to help develop local

sustainable change. For example, if you do not keep the younger workers on board and improve their life conditions, they will quickly leave you (because they need to work for their survival) and work for your competitors locally, who maybe will not improve their conditions. The least you want to see happen, a clear lose-lose situation. Instead, go with your local partners for a win-win action in terms of sustainable business development, as illustrated by this statement: Were not educating our workers and people around our areas of operation out of charity. It means we have better-educated workers and access to a better labor pool. (Ricardo Menezes - Director of Corporate Relations Banco Itau, Brazil).

5. Conclusion: To fully reach a solid reconciliation of the dilemma universal ethics vs local profit, one needs to possess a few skills like open-mindedness, flexibility, empathy, patience, risk-taking, long term sustainable vision, etc. One also needs to show global and local (glocal) attitudes as a mindful manager, and finally display servant leadership in taking positive actions. As a whole, Corporate Social Responsibility (CSR) in Mergers and Acquisitions (M&A) is characterised by: a growing awareness about the many issues at stake, but still depending on various economic and cultural variables an attitude of growing accountability, but also often still only wishful thinking and no action a trend to become the ethical due diligence during M&A-processes a trend to become the (new) competitive edge 6. Sources and suggestions for further reading: Hampden-Turner &Trompenaars: Building Cross-Cultural Competence, Wiley, 2000 Trompenaars & Wooliams: Business Across Cultures, Capstone 2003 Trompenaars & Voerman: Servant-Leadership Across Cultures, Infinite Ideas, 2009

7. Contributors biodata Vincent Merk, a French and Dutch national, is a senior lecturer in intercultural management at Eindhoven University of Technology (TU/e) and former associate staff at Lille School of Management (Groupe Skema).He also works as an independent trainer & consultant in intercultural management and professional mobility. He has written on these topics and presented at various SIETAR and other conferences. He has also worked on the dilemma reconciliation theory applied to various business situations with Fons Trompenaars and his staff, including corporate cultures and M&A. He is a former member and president of the Board of directors of SIETAR Europa.