Ethical Issues in the Global Arena by S7C1tD29

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									Ethical Issues in the Global Arena




                   Chapter       10
                 Professor Craig Diamond
                         BA 385
                     October 28, 2009




                                           1
                                       Outline of Topics

 The New World of International Business -
    Globalization
   Multinational Corporations (MNCs) and the Global
    Environment
   Ethical Issues in the Global Environment
    •   Marketing practices
    •   Plant safety
    •   Sweatshops, labor and human rights
    •   Corruption and bribery
 Improving Global Business Ethics

                                                       2
            Eras of Internationalization

1945-55    The Post-World War II Decade


1955-70         The Growth Years


1970-80        The Troubled Years


1980-now   The New International Order


1999-now       The New, New World
                                          3
                       Concepts of Global Business

                        A process by which firms increase
                        their awareness of the influence of
Internationalization    international activities on their future
                        and conduct transactions with firms
                        from other countries


                        The global economic integration of many
   Globalization        formerly national economies into one
                        global economy



                                                                   4
                  Backlash Against Globalization


 Protests at WTO, G8
 Outsourcing of jobs to less-developed nations
   • Manufacturing
   • White collar jobs (e.g., IT and high tech jobs)
 Tenth anniversary of NAFTA in 2004
 Public opinion in developed countries holds negative
  view of globalization




                                                         5
                        Pros and Cons of Globalization
                                  Globalists                         Antiglobalists
I Consumers            Free trade promotes lower costs,     Benefits the wealth at the expense
                       etc.                                 of the poor
M
                       Faster economic growth               Places profits above people
P Employees
                       Higher wages
A                      Improved working conditions
C Environment          Creates resources needed to          Exploits and destroys ecosystems
                       address environmental issues         More pollution
T
  Developing           Promotes national economic           World financial institutions conspire
O Nations              development, higher standard of      to keep poor nations in debt
                       living, better working conditions,
N                      cleaner environments.

    Human Rights       Creates cultures that support law    Corporations pursing profits ignore
                       and free expression.                 human rights violations, abuse of
                       Spreads economic / political         workers, free speech, etc.
                       freedom to far corners
                                                                                          6
Figure 10-1   From: Center for the Study of American Business, 2001.
        MNCs and the Global Environment

 Changed scope and nature of U.S.-based
  multinationals
   • 1962: 60% of largest MNCs were U.S.-based
   • 2007: less than 40% U.S.-based

 Underlying challenges of operating in new world
  of business
   • Corporate legitimacy
   • Differing philosophies between MNCs and host
     countries
   • MNC and host country challenges
                                                    7
      Other MNC-Host Country Challenges

 Cultural differences
 Business / government differences
 Management and control of global operations
   • Organizational structure
   • Human resource management

 Exploration of global markets
   • Modify or redesign products appropriate for the intended
     market
   • Be sensitive to the impacts of products
   • Be sensitive to politically-vulnerable products
                                                                8
                                     The Dilemma of the
                               Multinational Corporation
     Home Country                                Host Country
 Stakeholder Pressures                       Stakeholder Pressures

Standards                The Multinational                 Standards
Practices                  Corporation                      Practices
Ethics                                                        Ethics
Laws                                                           Laws
Culture                                                       Culture
Customs                                                     Customs
System of                                                  System of
Government                                               Government
Socioeconomic                                          Socioeconomic
System                                                        System

       Figure 10-2                                                9
           Ethical Issues in Global Business

 Ethical issues tend to be worse in less
  developed countries (LDCs)
  • Legal/ethical structure less developed
  • Temptation to apply lower standards

 Will now focus on:
  •   Marketing practices
  •   Plant safety
  •   Sweatshops and human rights
  •   Corruption and bribery
                                             10
                              Marketing Practices

 Infant Formula Controversy
  • Companies actively marketing baby formula to
    mothers in LDCs (“milk nurses” in maternity wards)
  • It was well known that breast feeding much safer and
    more nutritious.
  • Nestle focus of criticism
  • Boycott in U.S. 1977-1984
  • 1991 – Nestle finally stopped providing formula
    inappropriately
  • Current controversy – formula marketed to low-
    income Hispanic immigrants

                                                       11
                                                Plant Safety

 Bhopal Tragedy (1984)
  • Poisonous gas leak at Union Carbide plant killed at
    least 2,000 people and injured about 200,000
  • Up to 150,000 people still suffering mental /physical
    problems
  • Main issue: low standards in host country and Union
    Carbide did not enforce appropriate standards
     • $460 M settlement, but payments slow due to corruption
  • Note: this led to “Responsible Care” program in the
    chemical industry

                                                                12
                                                 Sweatshops

 Wide-spread criticism of unfair/unsafe labor
  practices
  • Focus on textiles (e.g., Nike, Wal-Mart, Gap, Reebok)
  • Nike case
     • More than 530,000 people employed in factories that make
       Nike products
     • In 1996, Michael Jordon under $20 M endorsement contract
 Questions on Nike case
  • Why should Nike be held responsible for what happens in
    factories that it does not own?
  • Does Nike have a responsibility to ensure workers receive a
    “living wage”?
  • Are contracts with MJ (and others such as Tiger Woods)
    unethical?
                                                                  13
         Social Accountability 8000 Standard

1.   Child Labor (min age 14 or 15)
2.   Forced Labor
3.   Health and Safety
4.   Freedom of Association and Right to Collective Bargaining
5.   Discrimination
6.   Discipline (no physical/mental abuse)
7.   Working Hours (48 hr/wk, min one day off)
8.   Compensation
9.   Management Systems

      As of 2007: 1,315 facilities certified to 8000 standard world-wide

                                                                           14
                           Bribery and Corruption

 Corruption:
  • Involves behavior on the part of officials, in the public
    and private sectors, in which they improperly and
    unlawfully enrich themselves and/or those close to
    them.
 Bribery:
  • Offering something (usually $) in exchange for
    gaining an illicit advantage
  • Example: Lockheed Martin bribe to Japanese firm led
    to resignation of Japanese Prime-Minister.

                                                            15
            Arguments For and Against Bribery
           For Bribery                Against Bribery

 Necessary for profits in    Wrong and illegal in most
  order to do business           developed nations
 Common practice               Managers should not deal with
                                 corrupt governments
 Accepted practice
 Form of commission, tax,      Benefits recipient only
  or compensation               Creates dependence on
                                 corruption
                                Deceives stockholders and costs
                                 customers
                                Economic harm to host country


                                                           16
                  Bribes vs. Grease Payments

               Relatively small sums of money given
 Grease        for the purpose of getting minor officials to:
               • Do what they are supposed to be doing
Payments       • Do what they are supposed to be doing faster
               • Do what they are supposed to be doing better




               Relatively large amounts of money given for the
               purpose of influencing officials to make decisions
 Bribes        or take actions that they otherwise might not
               take.




 Figure 10-4                                                        17
                        Initiatives Against Bribery

Growing anticorruption movement...


           Foreign Corrupt Practices Act (1977)

            Transparency International (1993)

               OECD Antibribery Initiatives

           UN Conv. Against Corruption (2005)

               Individual Country Initiatives
                                                  18
                             Alien Tort Claims Act

 Obscure law passed in 1789
  • Allows foreign individuals to sue U.S. firms operating
    abroad.
  • Applies to cases in which companies are accused of
    human rights abuses or abetting corrupt
    governments.
  • Companies that have been sued (examples):
     • Occidental Petroleum
     • Del Monte
     • Chevron

                                                             19
                      Other Global Ethics Issues

 Acts of terrorism

 Kidnappings, murder, and violence
  against businesspeople

 Rogue nations (e.g., Iran, Syria, Libya)




                                             20
                         Balancing and Reconciling
                                  Ethics Traditions

                 The Challenge
         of the Multinational Corporation

 Home Country                               Host Country
                            OR
Ethical Standards                         Ethical Standards




          Ethics in the international environment is
          more complex than national. Firms have
            great power in LDCs, and thus great
                         responsibility.

                                                              21
                      Ethical Choices in Home Versus
                              Host Country Situations
                         International Law
                      Global Codes of Conduct


   ETHICAL                                       CULTURAL
 IMPERIALISM                                     RELATIVISM
                            BROAD
     Home                   MIDDLE                  Host
    Country                 GROUND                 Country

• Ethical/moral                                 • Ethical/moral
  standards of home     Mix of Home and Host
                                                  standards of host
  country                Country Standards        country



                          Application of
                         Ethical Principles
    Figure 10-5                                                       22
                      Ethical Choices in Home Versus
                              Host Country Situations

         Questions to be Resolved by Management:

                Which ethical standards will be used?
Which ethical standards will transcend national boundaries?
           Worker and product safety? Fair treatment?
     Health? Discrimination? Freedom? Minimum pay?
          Consumer rights? Environmental Protection?


 What constitutes moral minimums in each category?


  Figure 10-5                                           23
           Integrative Social Contract Theory

               consist of transcultural values including
Hypernorms     fundamental human rights


Consistent     consist of norms that are culturally
  norms        specific, but consistent with hypernorms

               consist of strongly held cultural beliefs
 Moral free
               in particular countries that are in tension
space norms    with hypernorms

Illegitimate   consist of norms that are incompatible
   norms       with hypernorms
                                                             24
                          Strategies for Improving
                           Global Business Ethics

   Create corporate global codes of conduct
   Integrate ethics into a global strategy
   Suspend activities in host country
   Create ethical impact statements and audits




                                                  25
                     Principles and Codes for
      Socially Responsible Business Practices

   Caux Round Table: Principles for Business
   CERES Principles
   Universal Declaration of a Global Ethic
   The MacBride Principles
   The Maquiladoras Standards of Conduct
   Principles for Global Corporate Responsibility




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