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 texts 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, lets 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 businesspersons 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 countrys 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, Levis had a choice to make. To fire the young workers would have hurt their families, who
Copyright 2010 Daniel E. Eaton
depended on the childrens 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
childrens wages, and the company paid the childrens 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
communitys 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 companys 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, theyll 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.