Business ethics in the age of Trump

The campaign against unethical corporate behavior has had a positive impact on the international business community in recent decades. Although corruption and self-dealing remain endemic, slowly but surely, executives have internalized stronger commitments to more ethical behavior.

U.S. multinationals have been central to establishing a global business commitment to responsible behavior. Many try to limit corruption, treat employees well, sell safe products, and limit environmental harms. The law on the books is not the firms’ only guide. Even if a country is riddled with corruption and does little to enforce its laws, such firms, nevertheless, conform to regulatory requirements.

Many businesses have taken real steps to embed corporate social responsibility into their firms’ culture. Progress in corporate social responsibility depends on mutual trust, where firms believe in the moral commitments of other firms to behave responsibly, and not to seek quick, short-term advantage.

But mutual trust can be fragile, and Donald Trump places this progress in danger. As the world’s most visible businessman, his example risks creating a negative dynamic: “If Trump can do it, and get away with it, then why isn’t it OK for me to do the same?”

Of course, the behavior of U.S. firms does not depend mostly on moral rectitude. The law matters. The United States has been a leader in raising business standards under the Foreign Corrupt Practices Act (FCPA). It played a critical role in promulgation of the OECD Anti-Bribery Convention that extended the principles of the FCPA to most major trading and investing countries.

The FCPA makes it illegal for U.S. firms and others subject to U.S. law to pay bribes to obtain business abroad. Both firms and their managers can be held criminally liable, and the United States has been the leader in enforcing the OECD Convention. But Trump may have found a way around its requirements that sets a cynical example.

His companies have business interests in at least 20 countries. Most are licensing arrangements in which the Trump name appears on various projects in return for a share of the profits or a fixed fee. The international deals are not only in relatively clean countries but also in countries that do not rank highly on the Transparency International Corruption Perceptions Index. Furthermore, Trump’s business deals are in the real estate sector, one that has long been a locus of corruption worldwide.

The licensing strategy used by the Trump organization may, in part, limit liability under both domestic bribery statutes and the Foreign Corrupt Practices Act because licenses do not involve operational responsibility. For example, in Brazil prosecutors are investigating the scale of investments by two pension funds in Trump Hotel Rio, owned by a Brazilian company. Before withdrawing from the hotel project, a lawyer for the Trump Organization stated that Trump and his organization have “no knowledge whatsoever regarding any government inquiry,” even though it was public knowledge in Brazil.

In Indonesia, licensing and management agreements support two luxury hotel projects that were aided by the political connections of local investors. In India, the managing partner of a Trump-branded project states that: “The Trump Organization does not get involved in the regulatory aspects and/or interacting with government officials related to its projects in India.” However, that may be an overly complacent conclusion.

If contracts with Trump’s organization facilitated corruption or were known to his organization’s executives, it is at least arguable that the FCPA—as well as Indian anti-bribery statutes—would apply. Trump’s contracts are not conventional agency relationships, but the names and photos of the Trump family are a prominent part of advertising for these projects. If that connection gives local developers the impunity to ignore the rules and to make payoffs, which go beyond the FCPA’s exception for “facilitating payments,” the chain of responsibility could go back to the Trump Organization.

{mosads}Going forward, association with a U.S. president could means that fewer bribes are needed because the Trump connection leads officials to grant waivers and expedited services. There might be fewer outright payoffs but more distortion of the free market and higher costs for taxpayers and citizens, that is, more conflicts of interest between Trump’s business and political activities.

Indian and Philippine investors in Trump-branded projects have happily met with the president-elect. One Indian developer was “ecstatic” over Trump’s victory and expected increased profits and government support for new projects. However, a few weeks later that project was canceled perhaps in response to his enthusiasm.

Nevertheless, politically connected developers remain. Trump’s partner in a Mumbai project is the vice president of the Bharatiya Janata Party (BJP) in Maharashtra State, which is currently the governing party at the national level. In Turkey, where a developer paid $10 million to name its luxury project the Trump Towers Istanbul, the owner of the project is “one of Turkey’s biggest oil and media conglomerates” and a regime supporter.

Will the Trump presidency take actions that increase his brand’s value internationally or in particular countries such as India, the Philippines and Turkey? Will his administration support politicians who are associated with those who finance Trump-branded projects, as could be the case in Turkey, Indonesia and India? Although the impact on the U.S. economy is likely to be small, the impact on U.S. foreign policy in selected countries could be significant.

Some marginal efforts could help reduce Trump’s conflicts of interest and attenuate the risk of a general unraveling of ethical business norms. The first choice is to cancel all remaining branding and licensing contracts. Short of that, as president, Trump should never meet or communicate with investors who are in joint ventures with his organization or who have purchased the right to use the Trump name.

He should immediately remove Trump family-based promotional material connected with such projects, and require his partners to remove the Trump name. Turning his businesses over to his children is not an answer. They are his close advisors, and in any case, he knows the industries and the countries where his companies have financial interests.

Such fixes are not, however, a response to the deeper underlying problem of having a president with little commitment to responsible business behavior who sets a troubling ethical example for other U.S. investors who are not entangled in conflicts of interest, but who face ethical dilemmas as they seek to invest and trade worldwide.

Ongoing attempts to set strong standards of good business behavior risk being denigrated and undermined by the new administration to the detriment of the United States standing in the world and to the public acceptability of global trade and investment.

Susan Rose-Ackerman is the Henry R. Luce Professor of Law and Political Science at Yale University. She has been published widely in the fields of law, economics and public policy, and has edited nine books on aspects of corruption and administrative law.

The views of Contributors are their own and are not the views of The Hill.