Multinationals have responded to exposure under the ethical spotlight by doing good works in developing countries. Yet PR disasters show that some have not fully acknowledged the link between public image and profits.

Gone are the days when FDI was considered a capitalist evil and an exploiter of natural resources and people. Today countries, regions and cities compete fiercely for a slice of the FDI action. Visiting business executives receive red carpet treatment and investing companies get every kind of assistance.

But such popularity with the authorities does not mean that foreign investors can act abroad in the same way as they do at home and stay free from criticism. They are still perceived as foreign guests to the locals.

In poor countries, the effect is magnified so that everything a multinational does is held up in an ethical spotlight by international charities and pressure groups.

Multinationals have responded to this exposure by creating social and educational programmes so that they can be seen putting something back into the community.

It beggars belief, therefore, that Nestlé, with its long experience of foreign investment, could get things quite so wrong as it did with its recent compensation claim against the Ethiopian government. Its original $6m claim in respect of a livestock company – nationalised by a former communist regime in 1975 – in a country with a GDP per capita of $100 and standing on the verge of yet another famine, is a dreadful PR blunder, made worse by the slowness with which it retreated.

Nestlé was still on the defensive when fDI magazine telephoned to discuss the issue for a story on how companies can avoid PR disasters (see page 18). Rule number one is: responsibility, regret and reform. Initially, Nestlé stuck to its line that Ethiopia would not attract further FDI if it did not respect property rights; it forgot that in such a case moral arguments far outweigh legal ones.

Even now it is unclear whether Nestlé has fully taken the lessons to heart and reformed its internal machinery.

The costs of getting it wrong are enormous. All companies make mistakes but knowing how to handle them should be core knowledge. The link between PR and profits has still not sunk in.