Global profits, ethical perils: the old adage, "when in Rome do as the Romans do," made decisions easy. The new one, yet to be written, will make life hard - Global - AES Corp.'s Dennis Bakke - Company Profile

Chief Executive, The, June, 2002 by Bill Birchard

Dennis Bakke CEO of AES Corp., the world's largest independent power producer, based in Arlington, Va., is a self-proclaimed "cultural imperialist." His $9.3 billion corporation, he says, doesn't lower its ethical standards in any of the 31 nations in which it owns or invests in 184 power plants.

That includes countries like corruption-plagued December 2001, AES gained final approval to build a 250-megawatt hydroelectric dam on Uganda's upper Nile River. Bakke says that in a decade of project development so far, he has forbidden the paying of bribes. One of AES's own Ugandan employees landed in jail for stealing from the company. But that's the exception.

Outsiders hearing about the $550 million project say that resisting corruption must have been impossible. But Bakke maintains otherwise. He says he wouldn't even approve of paying Ugandan reporters fees for writing positive stories -- a routine Ugandan practice -- despite withering criticism leveled at AES for destroying the Bujagali rapids, for displacing poor farmers and for backroom political dealing.

Bakke deals regularly with an issue facing all firms that do business globally -- deciding what's ethically acceptable when home and host country practices conflict. But the dilemmas he and other CEOs handle have become much more complex and more quickly attract the media spotlight.

Note the 1990s travails of footwear and apparel manufacturers, from Nike to Levi Strauss. Accusations of sweatshop and child labor tarred their reputations. In view of those experiences, CEOs everywhere have learned that they have to nurture a culture of ethical decision-making. They also have to implement review systems that reward ethical behavior and set a more visible example of good corporate practices.

Government hand-off to corporations

Society's increasing focus on corporate ethics stems from corporations' ongoing displacement of governments as the most powerful agents of social change. From the United Kingdom to Thailand, governments are pulling back. They are handing over control of a range of services -- from water and power to health care, telecommunications and transportation -- to the private sector. The U.K. recently proposed to bid out the operation of the London Underground subway system. Italy proposes contracting out operation of its art museums. The world's citizens, in turn, insist that executives make decisions based on more than maximizing shareholder value.

"If we believe that the nation-state has some moral responsibility," says Rushwood Kidder, president of the Institute for Global Ethics in Camden, Maine, "then we have to extend [the same thinking] to the multinational corporation," the entity that's taking the nation-state's place in more and more parts of society.

John Browne, CEO of BP, feels similarly. "If globalization marks the end of sovereignty for national governments," he said in a speech at Cambridge University last year, "it should equally end any sense of splendid isolation that exists in the corporate world."

The dictum once embraced in some quarters -- "When in Rome, do as the Romans do" -- has become ever more unacceptable. Anti-globalization protesters have taken to the streets to remind CEOs of that, giving many of them a flogging in the court of public opinion.

The new CEO challenge is to act like an ethical leader for society as a whole, to act before crises demand it, to engage outsiders in decision-making and to adhere to standards of behavior that locals embrace. This complex job, demanded by figures with the moral authority of U.N. Secretary-General Kofi Annan, can cause executives a lot of discomfort.

Among the most difficult questions are those arising in emerging markets. Ronald Berenbeim, an ethics expert at The Conference Board in New York, says that the toughest issues come up either in zones of conflict -- Sudan, for example -- or in what he calls "failed states," such as China, Nigeria and Myanmar. By "failed," he means nations without independent judiciaries, with malfunctioning health services, corrupt election processes and so on.

In such spots, CEOs face hard questions: Do you support a repressive country's national interests? Do you counter environmental degradation? Do you take a role in alleviating poverty?

Even if CEOs can easily answer "yes," the question arises, "To what extent?" And, "To what global standard do we defer?"

Often there are no correct answers. The challenge has shifted from choosing between right and wrong to choosing between right and right, says the Institute for Global Ethics' Kidder. Well-meaning, thoughtful people can have different views and both can be correct.

Georges Enderle, business ethics professor at the University of Notre Dame, goes even further. He notes that decisions may offer only several lousy alternatives -- choices between wrong and wrong.

Johnson & Johnson CEO Ralph Larsen recalls his decision in 1998 to close about 50 small plants around the world, each with 50 to 100 employees. The fall of trade barriers made them uncompetitive. Keeping them running with hundreds of employees was wrong because the short-term expense could later trigger big layoffs firm-wide. But laying off local staff seemed wrong, too.