Treat Overseas Workers Fairly--by Law, Not Whim

There will be a number of questions asked about Nike Chairman Philip Knight’s recent announcement that his much-maligned giant will begin to follow domestic health and safety standards in its overseas operations. There will be questions about his motivation and about how this will affect Nike’s earnings. But the one question that will not be asked is why all American corporations are not forced to follow domestic standards in their overseas operations.

This question, at least on first glance, will seem preposterous. We somehow seem to believe that the U.S. government has no business concerning itself with how American corporations operate in other countries. This, we insist, is an issue that only host countries need address.

This ignores a number of things. The first is that the U.S. government already does regulate certain overseas practices of American corporations. The Foreign Corrupt Practices Act made it an offense under U.S. law for a U.S.-based multinational to engage in bribery in another country. When this became law two decades ago, there were wild claims that it would place U.S. multinationals at a competitive disadvantage. Eventually, however, many countries were won over, and this law now serves as a model for the European Union.

And Congress’ regulation of American multinational corporations goes beyond the corrupt practices act. In reaction to a 1991 U.S. Supreme Court opinion that held that an American corporation was not bound by the provisions of the 1964 Civil Rights Act in its overseas operations, Congress overturned the decision and simply gave the law an extraterritorial application. What this means is that U.S-based multinational corporations are prohibited--under U.S. laws--from discriminating no matter where in the world these operations take place.

Unfortunately, Congress limited the extended law to only cover employees who are U.S. citizens. Thus, while a McDonald’s operation in, say, Zimbabwe, cannot discriminate against employees who are U.S. citizens, there is nothing (at least according to U.S. law) to prohibit the franchise from discriminating against its foreign workers. This leads to inconsistent results, but what is more important is the unquestioned power of the United States to regulate the overseas operations of its corporations.

Doesn’t this infringe on the sovereign rights of host countries? In the best of all worlds, this would be true. In an ideal world, host governments would have the power and interest to protect the health, safety and well-being of their citizens from the exploitative practices of foreign corporations. This, however, is not the reality. The reason why corporations like Nike hopscotch around the globe is to locate places where host governments have little intention of regulating their activities. All too often the result of this, as everyone from Kathie Lee Gifford on down now knows, is that many corporations try to get away with as much as they can. And multinationals have found that they can get away with a lot.

The problems and criticisms that Nike faced were always from the domestic front. Few, if any, governments dared even think of reining it in. And if they were foolish enough to try, Nike would simply have packed up and gone somewhere else.

So Nike has decided to take the moral path. Will other American corporations follow? A few will, but most will not. Most other corporations are not as visible as Nike and thus not anywhere near the kind of target that Nike was. This also means that there is far less likelihood that public sentiment will be able to change exploitative practices.

The preference of the business community, of course, is for voluntary acts of compliance--if and when compliance suits its purposes. Case in point being Nike. The Clinton administration has complied with these wishes by adopting the “Model Business Principles,” which exhort U.S. multinationals to do the right thing in other parts of the world but have no force of law.

There is, however, one entity that could eliminate the exploitative practices of American corporations and it could do so overnight: Congress could extend the provisions of federal safety and health laws extraterritorially, just as it has done with the Civil Rights Act. U.S. multinational corporations then would pretty much have to carry out business as they do here at home: the same kinds of pollution standards, the same concern for worker safety and so forth. While this might seem like a radical idea to some, to echo the sentiment behind the Foreign Corrupt Practices Act, it is, quite simply, the right thing to do. It also should be the legal thing to do.