SPG Blog

Controversial US oil and military logistics company Halliburton announced on March 11, 2007 that it was moving its corporate headquarters to Dubai. Halliburton, long under scrutiny for ties to Dick Cheney and alleged mismanagement of billions of dollars worth of federal contracts in Iraq, has once again brought the ethics of offshore business practices into the
mainstream media.

According to a news release from Halliburton Watch, an offshoot of the Center for Corporate Policy, “moving its corporate headquarters to UAE will make it easier [for Halliburton] to avoid accountability from federal investigators. The company has proven adept at using offshore subsidiaries to circumvent restrictions on doing business in Iran and to elude responsibility for paying benefits to former employees.”

Halliburton is a big fish in the offshore ethical pond. But Sage Portfolio Group recently had its own, albeit less splashy, encounter with the muddy waters of offshore HR issues. We were recently presented with an exciting multi-million dollar international leadership development opportunity, but were eliminated from the bidding process because of our unwillingness to hire male-only coaches. Such hiring practices, illegal in the US and Canada, are permitted in other countries. Our experience prompted us to dive into the issue of offshoring and the ethical implications of doing business in developing countries.

In general, offshoring (or ‘business process outsourcing’, as it is sometimes called) is motivated by the business bottom line. To save money, businesses relocate aspects of their operations-be they product-oriented or knowledge-based-to countries like India and China where there is an eager pool of skilled and inexpensive labour.

The Conference Board released a study in December 2005 that clearly demonstrates the disparity between US and Indian wages and benefits. “Payroll clerks in the U.S. earn $15 an hour but only $2 in India,”  notes a Newswise release on the Conference Board report. “While call center employees in America have an average annual salary of $28,000, it is $2,000 in India. The average programmer in San Jose, California, earns $78,000, but the salary for the same job in India is $11,000. Employers don’t have to worry about overtime pay in India because employees are paid a flat monthly wage”. The report authors predict offshoring will result in weaker unions, more flexible labour rules, longer working hours, greater competition and rising social tensions in Europe, and depressed wages in the US.

Consumers have become highly sensitized to the ethical issues of offshore practices. North American companies that have received bad press due to allegations that their offshore suppliers use child labour or have discriminatory hiring practices are compelled to change their operations as a form of damage control. According to Trudy Heller of Executive Education for the Environment, “Consumers can easily become a ’stakeholder swarm’ in the Internet age.”

Unfortunately, savvy consumers may have to look harder to find evidence of human rights abuses and unethical hiring practices. Anthony Mitchell reported in the E-commerce Times in October 2004 that a “swarm of bulletin board attention” followed IBM’s agreement to purchase 100% of an Indian company that openly declared on its web site that it would not hire any call centre employees over 27 years old. The result of the swarm? Mitchell states that while the company’s web site no onger openly advertised age discrimination practices, it continued to collect the ages of all job applicants.

A number of writers on the subject of offshore business practices identified a similar lack of transparency and public debate about ethical issues as an emerging problem. Rather than adhere to employment standards-either in their own offshore operations or those of offshore suppliers- that the North American public has come to expect, companies have chosen to stifle discussion and sanitize HR communications. This strategy protects the company’s reputation at the cost of accurate formation upon which consumers can base their purchasing decisions. It also means that open dialogue between companies, which could result in widespread adoption of best practices, is much less likely to occur.

Fortunately, we can finish this article on a positive note. BT Group (British Telecommunications) commissioned an independent assessment of the corporate social responsibility of its offshore operations, finalized in February 2004. The report, called Good Migrations, applauded a number of BT’s policies and actions, including its purchasing code, called ‘Sourcing With Human Dignity”, its commitment to onshore staff retention and retraining, and relations with the main union. But the report noted BTs offshore operations happened gradually, without an explicit strategy, which meant corporate social responsibility considerations were more difficult to incorporate.

The good news in Good Migrations is a 12 step process that companies can utilize to maximize the social responsibility of offshore operations, both at home and in the recipient country. The full report, containing the 12-step program, can be found at http://www.btplc.com/Societyandenvironment/Hottopics/Geographyofjobs/Goodmigrations.pdf. Kudos to BT for offering a bit of clarity on an otherwise rather muddy topic.