Levi Strauss: Global Sourcing Case

 

Levi Strauss - Background

Founded in the 1850's, Levi Strauss and Company (LS&CO.) has been exclusively a family owned and operated venture except for a period of time in the 1970-80's when the company went public, only to be taken back private by the family in 1985. From the beginning, LS&CO. has maintained a commitment to its employees and communities. During the Great Depression, LS&CO. installed hard wood floors in the plant in order to keep its employees on the payroll. The company donated money to various local causes in the countries where it had a presence. They desegregated their plants in the southern United States before laws mandated desegregation. Their mission statement, aspiration statement, code of ethics, guidelines for country selection, and business partner terms of engagement all reflect the company's policy and commitment to the employees, community and environment, wherever the company may operate.

The Issue

LS&CO. found itself in a dilemma in 1992, thanks to communist China. LS&CO. was already doing a limited amount of business in China, primarily sourcing and purchasing fabric. Additionally, LS&CO. was considering opening marketing and manufacturing facilities on the mainland. Although the potential payoff for getting into this untapped market of over a billion people was huge, the risks were equally as large. Human rights, the legal system, infrastructure, copyright and patent protection, the ongoing MFN debate and the Chinese government's hardline stance were only a few of the issues that had to be addressed.

Deontology

These issues will be evaluated from the context of deontological theory, which essentially means: theory of duty. Immanueal Kant (1724-1824) is considered the father of deontological ethics, which is why it is sometimes called Kantian ethics. Duty-based ethical theories stress that each of us has certain duties (actions that we ought or ought not perform) and that acting morally amounts to doing our duty, regardless of consequences. It is this theory, that some actions are absolutely right or wrong regardless of the results which follow from them, which distinguishes duty-based (deontological) ethical theories from consequentialist ethical theories.1 The underlying question of deontological decision-making is: "What is the moral thing to do?" According to Kant, a moral action is one performed out of a sense of duty, rather than simply out of inclination or feeling or the possibility of some kind of gain for the person performing it.2 For example, if money is given to charity because of compassion for the needy, this is not necessarily moral; actions resulting from compassionate intentions rather than a sense of duty are not moral from a Kantian viewpoint

The motive for an action is far more important than the action itself and its consequences. Kant theorized that intentions outweighed the ensuing actions. It was not enough to know whether or not the Good Samaritan helped the man in need. The Samaritan may have been acting out of self-interest, expecting a reward for his troubles, or because of compassion, not duty.

One reason that Kant focused on motives for actions rather than their consequences was that he believed all rational people could be moral. Since we can only reasonably be held morally responsible for things over which we have some control-or as he put it, since 'ought implies can'-and because the consequences of actions are often outside our control, these consequences cannot be crucial to morality.3 For instance, if acting from a sense of duty, one attempts to save a drowning child, but accidentally drowns the child, the action can still be moral since the motive stemmed from a duty to help the child. The consequences of the action would be tragic, but irrelevant to the moral worth of the action.

Considerations

In an era when the economy is necessarily a global one, it is impossible for consumers to avoid products made under less than ideal labor conditions. "Moreover, what appears to be horrific working environments to most citizens in the world’s richest nation are not just acceptable but actually attractive to others who live overseas or even in ‘Third World pockets’ of the United States. Anyone even casually familiar with how some Americans recompense their (usually immigrant) housekeepers or nannies is well aware of the vast potential for hypocrisy when those same Americans then decide to sit in judgment of corporations."4

"Still a growing number of manufacturers and retailers are coming under fire for how the goods they make and sell are produced. It started in earnest with the discovery of indentured Asian workers in a California garment factory in 1995."5 Then came reports about conditions in factories in Indonesia that made products for Nike. Plants in Central America and New York City that were producing clothing, branded under the label of personality Kathie Lee Gifford for sale at Wal-Mart, were next in a long list of such purported human rights violations.

In fact, while Mrs. Gifford has seemingly freed herself of the negative publicity associated with the scandalous event, Wal-Mart has not. Mrs. Gifford turned the media away from criticism of herself by using her celebrity to draw attention to the problems associated with such labor issues. Meanwhile Wal-Mart "missed an opportunity to appear as a benevolent example of capitalism at its best."6 Because Wal-Mart exectutives somewhat skirted the issue, by not acting as forthcoming as Mrs. Gifford, they left many consumers wondering about the integrity of the company. Some even wonder if perhaps Wal-Mart does not consider "sweatshops and child labor as some of the costs of [conducting their] business."7

While LS&CO. may face similar human rights issues, the problems of conducting business in China are more complex, due to China’s one-child-per-family policy, the imposition of ideological controls on the population, the detainment or imprisonment of those outspokenly critical of the government and the potential of political instability. Currently, China is being run by a government that obtained its power and authority via a "Cultural Revolution." This is a revolution which saw the systematic murder and/or imprisonment of individuals that had not conformed with their "reeducation." Thus, it is doubtful that China will be very empathetic to LS&CO.’s concern for its employees, the environment or the community.

Ultimately, the aforementioned issues are a source of concern for the executives of LS&CO. The company has a long history of exhibiting strong commitments to its employees. It does not want to get itself in a situation, similar toWal-Mart, where the public percieves the company as having no regard for production methods, in relationship to its’ employees. Thus, it does not seem plausible that the company would engage in any business venture where the employees were not properly treated.

Formal Codes of Conduct

LS&CO. had formalized several documents describing how employees should be treated. The most significant of these was the "Business Partners Terms of Engagement" (BPTE). This document outlined a framework for which LS&CO. would accept business relationships and partnerships partially based on that entity’s activities with regards to its employees. Essentially, LS&CO. used the BPTE to dictate how a business needed to treat its employees if that entity desired a business relationship with LS&CO. The executives of LS&CO. do not specify by what means compliance may be reached with any company. Are verbal assurances acceptable or are plant investigations conducted on a regular basis? The cynic could say that the BPTE and other such codes "are mainly window dressing, self-serving public relations."8

LS&CO. has shown that it will go above and beyond what is normally required, in order to maintain its relationship with those that make up its workforce. Thus, the BPTE is in the very least, an indication that LS&CO. wants to treat its employees, be they direct or indirect, with a consistent and high level of respect. It could even be argued that perhaps the executives of LS&CO. recognize some sense of loyalty or duty to those men and women the company employs.

Application of Deontology to the Case

I. Universal Principle of Justice

In China’s case, Kant’s principles may be applied in the following manner: he regarded the fundamental task of government as negative, imposing constraints necessary to protect and promote each person's freedom.9 The legal system of the state must constrain both the power of the sovereign and the citizens' unregenerate desires in order to establish the conditions under which people can live together in peace as a community.10 According to Kant's "Universal Principle of Justice," only those civil arrangements that are just (or right) allow the most freedom for everyone, and the entire formal legal structure of society should be regulated from this principle. Stated as an imperative, "Behave in such a way that your choices are compatible with the greatest amount of external freedom for everyone."11 Communism, by its nature, does not allow such freedoms for its citizens. However, the rulers or government have the freedom to do as they please but there is no system of checks and balances to assure freedom for everyone. In LS&CO.’s Business Partners Terms of Engagement, the employment standards call for workers to be present voluntarily, fairly compensated, allowed the right of free association and not be exploited in any way. China's communist government is incompatible with these requirements, thus, LS&CO. should not conduct business there.

Since the Universal Principle of Justice underlies all the laws of the state, it requires that the essential legal structure protect the maximum freedom of all citizens to pursue their own happiness by limiting lawful actions to those to which all members of a state can consent. It is therefore the antithesis of tyranny, in which the "rightness" of civil laws is dictated by sheer power and the people are subject to the arbitrary whims of whoever happens to possess the power.12

China does not embrace a Universal Principle of Justice as reflected in their present inconsistent legal system. Trials are often held in secret, with the judges, police and prosecution working together and defendants having limited access to legal counsel. The weak enforcement of various U.S. trademarks is of particular concern for LS&CO, as they have developed one of the strongest trademarks in the world, a mark which has allowed them to experience vast brand equity. How can a legal system of this nature be fair and protect the freedoms of all individuals if laws are enforced arbitrarily, according to the whims of the presiding judge? How would an individual (or company) know how to act? As a result, protection of LS&CO. patents or intellectual property may be randomly enforced or not enforced at all. This could be very risky and from this perspective, it would not be in LS&CO.’s interest to operate in China.

 

II. The Concept of Perpetual Peace

The second preliminary article of Kant's "Perpetual Peace" states "No state shall interfere by force with the constitution and government of another state." That is to say, when a state is rent by internal dissension, this is the struggle of an independent people with its inner disease. As long as this strife is not settled, outside intervention by force would violate the autonomy of this people and state, thus jeopardizing the autonomy of all states.13 The ongoing debate about renewing China's MFN status is an example of the US attempting to force China into our way of thinking about human rights and business practices. We hold the MFN carrot in front of China, pledging that if human rights are recognized as we do, MFN status will be renewed. In 1993, President Clinton was considering supporting the renewal of China's MFN status conditionally, if China changed their family-planning program. If LS&CO. supports such policy, they are supporting the use of outside force to change China into what the US wants China to be. This is in direct opposition of what Kant believes.

Some people believe that U.S. companies such as LS&CO. should maintain a presence in China to help instigate changes that will make China a better place to live, work and conduct business (according to U.S. standards). Perhaps the U.S. and others have a duty to the people of China, to somehow rescue them from their perilous blight. Perhaps this is the moral and right thing to do. "Those arguing for China say that it will mend its ways only if it develops a prosperous, well-informed citizenry. And that won’t happen, they say, unless foreign investment---especially U.S. investment---helps create a market economy that will nurture an open society."14 Even President Clinton seems to be buying this argument. In a recent speech by Clinton’s top national-security advisor, Samuel Berger, he stated, "If we fail to engage China, we will fuel the very inward-looking forces that trample human rights"15

The situation is identical in Burma, where LS&CO. has already withdrawn operations. PepsiCo and Unocal Corp. say that their investments are good for the people of Burma. "We certainly do not support dictatorships or tyranny in Burma or anywhere else. Over the long term, trade and investment help promote democracy," says a Pepsi spokewoman in Purchase, N.Y. "Unocal says that its $280 million share in a natural gas partnership is helping improve Burma’s infrastructure and living standards."16 On the other hand, Burmese dissident leader and Nobel peace prize winner, Aung San Suu Kyi, urges companies to refrain from investing until the repressive political climate improves: "Only an open and secure political system can support an open, stable economy."17 Several U.S. companies have withdrawn to await a more favorable climate, both in Burma and with U.S. consumers. Doing business with dictators, they say, is bad business at home.

Addressing this issue from a true deontological perspective, LS&CO. must answer the question, "What is the right/ moral thing for us to do in this situation?" A deontological view specifies what it is right to do independently (at least partially) of the notion of the good. "Thus, it places restrictions on what actions may be done (even to advance the good), and so it would classify as morally impermissible some acts that might, in the circumstances, best advance the world’s goodness score."18 Indeed, LS&CO.’s presence in Burma or China could possibly increase the world’s goodness score, but this would come at the expense of them selling out to ideas which they are inherently opposed: forced labor, child labor, unsafe work environments, prohibition of free speech, assembly and association. By operating in Burma and/or China, then, LS&CO. would be using their presence and workers as a means to an end, which is unacceptable to the deontological position. The "end" would ultimately be the promotion of democracy and free markets which would ultimately benefit the employees by means of better wages, working conditions and a higher standard of living. Furthermore, this desirable "end" result will not occur overnight.

III. The Categorical Imperative

Another aspect of deontology as established by Kant is the "categorical imperative." "Among the various formulations of the categorical imperative, two are particularly worth noting:

‘Always act in such a way that you can also will that the maxim of your action should become a universal law.’

AND

‘Act so that you treat humanity, both in your own person and in that of another, always as an end and never merely as a means.’"19

"The first illustrates the need for moral principles to be universalizable [and] the second points to [a] distinction to be made between things and persons, and emphasizes the necessity of respect for persons."20 Ultimately, these are equivalent in that both will result in the same behavior, for fundamentally the same reasons. One will not act in such a manner that one would find unacceptable if someone were to subject them to the same behavior

Another way to describe the first formulation of the categorical imperative is that one ought to never act in such a manner unless they are willing to accept that everyone can act in the same manner, universally. Upon considering China as a source of future business relationships, LS&CO. faces several issues that seem to indicate that, if strictly following deontolgy, the notion of aligning oneself with Chinese businesses should be rejected. One such issue is China’s one-child-per-family policy. We know that such a policy was not uncommonly enforced by the employer, especially in parts of the country where "the work group was the central organizing fact of life." Thus, LS&CO. could reasonably expect to be placed in a situation where they would be required to punish their employees for having numerous children. At the very least, the company may be responsible to report violators to the central government, with abortion or sterilization possibly resulting.

In the aforementioned example, the actions of LS&CO. may merely be in compliance with an unjust law. However, by placing themselves in a situation where they must indirectly enforce such a law, deontological reasoning holds that LS&CO. must accept that such unjust laws should be enforced universally. The "idea is very much like the golden rule: ‘Do unto others as you would have them do unto you.’"21 In this instance, LS&CO. would have to accept that the government could enforce the adherence of a strict one-child-per-family policy, including forced abortions, on everyone else. In such a case, we would assume that LS&CO. is unwilling to accept that everyone limit their family to one child, or face fines or forced abortions. While a per family child count of LS&CO. officers is beyond the scope of this paper, it seems reasonable to expect that many executives have more than one child, and thus, disagree with China’s policy.

Another way to restate the second formulation of the categorical imperative, is that people ought never to be merely used as instruments, "they are ends in themselves."22 In this sense, deontology places a strong emphasis on human rights. From the case, we know that "China’s human rights record is among the worst in the world." Thus we would expect that deontologists would strongly disagree with any action that would support their continued abuses. As mentioned earlier, while it could be argued that U. S. involvement in China could potentially help end such abuses, such a position is based on uncertainty at best. In the short run, we expect that increased involvement in China leads to increased revenues, via taxation, for the current government. Providing the communist government any additional power to perpetuate such human rights violations flies in the face of the second formulation of the categorical imperative.

Conclusion

We have utilized some of the concepts developed by Kant to illustrate how the ideas of deontology can be applied to this case. Three fundamental aspects of Kantism (the Universal Principle of Justice, the concept of perpetual peace and the categorical imperative) have been used to show that, following this framework, LS&CO. should sever ties in China. Under the Universal Principle of Justice, the government should behave in such a manner as to allow the greatest amount of freedom for everyone. LS&CO. cannot reasonably align itself with any quasi government entity in China without violating this principle, at least indirectly. The second idea of Kant is the concept of Perpetual Peace. This concept concerns itself with the preservation of the individual state. It essentially claims that outside forces should not be employed to violate the autonomy of a state. Thus, LS&CO. should not involve itself in China because the company cannot bring itself to adhere to a strict policy of nonintervention. The last concept of Kant’s utilized here is the Categorical Imperative. The conclusions of this concept can be achieved via one of two different paths, illustrating the principle that one should not act in a manner unacceptable as treatment to oneself. Thus, LS&CO. should not involve itself in China, especially since such involvement could lead to either direct or indirect human rights violations.

In its present state, China does not embrace the same values in regard to human rights, the environment, the legal system or business practices in general, as does LS&CO. Additionally, China has no intent in the foreseeable future to change over to the Western way of thinking about these issues. China adamantly states that they recognize human rights, but in a different manner than in the U.S. Nevertheless, the U.S. and China are at opposite ends of the spectrum in their interpretation of these issues. From the deontological perspective, LS&CO. should not maintain its business relationship with China. Perhaps later Chinese business practices will come more into line with those of U.S. companies, such as LS&CO., that try to promote its bottom line, but not necessarily at the expense of the environment and human rights.

ENDNOTES

  1. Nigel Warburton, Philosophy: the Basics, Routledge, New York, NY, 1995, p.38.
  2. Ibid, p.41.
  3. Ibid, p.42.
  4. William J. Holstein, "Santa’s Sweatshop." U. S. News and World Report, (December 16, 1996).
  5. Ibid.
  6. Jeffery Arlen, "The Cost of Doing Business?" Discount Store News 35, No. 12 (June 17, 1996): p. A55.
  7. Ibid.
  8. Laurence D. Martel, and Robert M. Colley, "Ethical Issues in Marketing and Continuing Education." New Directions for Continuing Education, No. 31 (Fall 1986): p.93.
  9. Roger J. Sullivan, An Introduction to Kant's Ethics, Cambridge University Press, 1994, p.10.
  10. Ibid.
  11. Ibid. p12.
  12. Ibid.
  13. Karl Jaspers, Philosophy and the World, Regnery Gateway, Washington, D.C., 1989, p.89.
  14. Bruce Einhorn, "Doing Business with Strongmen," Business Week, (April 22, 1996): p. 52.
  15. Kevin Whitelaw, "China Good, Burma Bad," U. S. News and World Report, (June 30, 1997).
  16. Sheri Prasso, "Freezing out the Junta," Business Week, (April 22, 1996): p.53.
  17. Ibid.
  18. Robert Nozick, Philosophical Explanations, Harvard University Press, 1981, p. 494.
  19. Charles D. Kay. "Notes on DEONTOLOGY." (January 20, 1997). http://truth.wofford.edu/~kaycd/deon.htm (13 Feb. 1998).
  20. Ibid.
  21. Ibid.
  22. Ibid.

  BIBLIOGRAPHY

  1. Arlen, Jeffery. "The Cost of Doing Business?" Discount Store News, June 17, 1996, Vol. 35; No. 12; p. 55.
  2. Cavalier, Robert. "Section 9: Deontological Theories." Carnegie Mellon University.

    3. http://caae.phil.cmu.edu/CAAE/80130/part2/sect8.html (13 Feb. 1998).

  3. Einhorn, Bruce"Doing Business with Strongmen," Business Week, April 22, 1996.
  4. Kay, Charles D. "Notes on DEONTOLOGY." January 20, 1997.

    5. http://truth.wofford.edu/~kaycd/deon.htm (13 Feb. 1998).

  5. Holstein, William J. "Santa’s Sweatshop." U. S. News and World Report, December 16, 1996.
  6. Honderich, Ted The Oxford Companion to Philosophy, Oxford University Press, New York, NY 1995.
  7. Jaspers, Karl. Philosophy and the World, Regnery Gateway, Washington, DC 1989.
  8. Macdonald, James E. and Beck-Dudley, Caryn L. "Are Deontology and Teleology Mutually Exclusive?" Journal of Business Ethics, Aug. 1994, Vol. 13; No. 8; p. 615-623.
  9. MacIntyre, Alasdair A Short History of Ethics, Simon and Schuster, New York, NY, 1996.
  10. Martel, Laurence D. and Colley, Robert M. "Ethical Issues in Marketing and Continuing Education." New Directions for Continuing Education, Fall 1986, No. 31; p. 91-101.
  11. Mascarenhas, Oswald A.J. "An Empirical Methodology for the Ethical Assessment of Marketing Phenomena Such as Casino Gambling." Journal of the Academy of Marketing Sciences, Summer 1990, Vol. 18; No. 3; p. 209-220.
  12. Nozick, Robert Philosophical Explanations, Harvard University Press, Cambridge, MA 1981.
  13. Paton, H. J. Immanuel Kant: Groundwork of the Metaphysic of Morals, Harper and Row, Publishers, Incorporated, New York, NY, 1964.
  14. Peachmant, Allan, McNeil, Margaret, Soutar, Geoff and Molster, Caron "Means or Ends? Ethical Decision Framework in the Western Australian Public Service." Journal of Business Ethics, Aug. 1995, Vol. 14; No. 8; p. 629-641.
  15. Reiss, Hans Kant: Political Writings, Cambridge University Press, Cambridge, MA. 1992
  16. Robin, Donald, Giallourakis, Michael, David, Fred R. and Moritz, Thomas E. "A Different Look at Codes of Ethics." Business Horizons, Jan/Feb 1989, Vol. 32; No. 1; p. 66-73.
  17. Singer, A.E. and van der Walt, N.T. "Corporate Conscience and Foreign Divestment Decisions." Journal of Business Ethics, Oct. 1987, Vol. 6; No. 7; p.543-552.
  18. Sullivan, Roger J. An Introduction to Kant's Ethics, Cambridge University Press, Cambridge, ENG 1994.
  19. Takala, Tuomo and Uusitalo, Outi "Retailers’ Professional and Professio-Ethical Dilemmas: The Case of the Finnish Retailing Business." Journal of Business Ethics, Nov. 1995, Vol. 14; No. 11; p. 893-907.
  20. Teichman, Jenny and Evans, Katherine C. Philosophy: A Beginners Guide, Blackwell Publishers Inc., Cambridge, MA, 1995.
  21. Want, Christopher Introducing Kant, Totem Books, New York, NY 1997.
  22. Warburton, Nigel, Philosophy: the Basics, Routledge, New York, NY 1995.
  23. Whitelaw, Kevin "China Good, Burma Bad," U. S. News and World Report, June 30, 1997.
  24. Woodward, Diana "A Framework for Deciding Issues in Ethics." Library Trends, Summer 1990, Vol. 39; No. 1-2; p. 8-17.