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Ethical Issues in the Global Arena

Professor Craig Diamond

BA 385

October 28, 2009

Chapter 10

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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

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Eras of Internationalization

1945-551945-55 The Post-World War II DecadeThe Post-World War II Decade

1955-701955-70 The Growth YearsThe Growth Years

1970-801970-80 The Troubled YearsThe Troubled Years

1980-now1980-now The New International OrderThe New International Order

1999-now1999-now The New, New WorldThe New, New World

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Concepts of Global Business

Internationalization

A process by which firms increasetheir awareness of the influence ofinternational activities on their futureand conduct transactions with firmsfrom other countries

GlobalizationThe global economic integration of manyformerly national economies into oneglobal economy

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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

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I

M

P

A

C

T

O

N

Globalists Antiglobalists

Consumers Free trade promotes lower costs, etc.

Benefits the wealth at the expense of the poor

Employees Faster economic growth

Higher wagesImproved working conditions

Places profits above people

Environment Creates resources needed to address environmental issues

Exploits and destroys ecosystems

More pollution

Developing

Nations

Promotes national economic development, higher standard of living, better working conditions,cleaner environments.

World financial institutions conspire to keep poor nations in debt

Human Rights Creates cultures that support law and free expression.Spreads economic / political freedom to far corners

Corporations pursing profits ignore human rights violations, abuse of workers, free speech, etc.

Pros and Cons of Globalization

Figure 10-1 From: Center for the Study of American Business, 2001.

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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

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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

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The Dilemma of the Multinational Corporation

Home CountryStakeholder Pressures

Home CountryStakeholder Pressures

Host CountryStakeholder Pressures

Host CountryStakeholder Pressures

Standards

Practices

Ethics

Laws

Culture

Customs

System ofGovernment

Socioeconomic System

Standards

Practices

Ethics

Laws

Culture

Customs

System ofGovernment

SocioeconomicSystem

The Multinational Corporation

Figure 10-2

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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

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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

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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

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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?

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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

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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.

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Arguments For and Against Bribery

For Bribery Against Bribery

Necessary for profits in order to do business

Common practice Accepted practice Form of commission, tax,

or compensation

Wrong and illegal in most developed nations

Managers should not deal with corrupt governments

Benefits recipient only Creates dependence on

corruption Deceives stockholders and costs

customers Economic harm to host country

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Bribes vs. Grease Payments

BribesBribesRelatively large amounts of money given for the purpose of influencing officials to make decisions or take actions that they otherwise might nottake.

Relatively large amounts of money given for the purpose of influencing officials to make decisions or take actions that they otherwise might nottake.

Grease Payments

Grease Payments

Relatively small sums of money given for the purpose of getting minor officials to:

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

Figure 10-4

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Initiatives Against Bribery

Foreign Corrupt Practices Act (1977)Foreign Corrupt Practices Act (1977)

OECD Antibribery InitiativesOECD Antibribery Initiatives

Transparency International (1993)Transparency International (1993)

UN Conv. Against Corruption (2005)UN Conv. Against Corruption (2005)

Individual Country InitiativesIndividual Country Initiatives

Growing anticorruption movement...

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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

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Other Global Ethics Issues

Acts of terrorism

Kidnappings, murder, and violence against businesspeople

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

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The Challenge of the Multinational Corporation

Balancing and Reconciling Ethics Traditions

Home CountryEthical Standards

Home CountryEthical Standards

Host CountryEthical Standards

Host CountryEthical StandardsOR

Ethics in the international environment is more complex than national. Firms have

great power in LDCs, and thus great responsibility.

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Ethical Choices in Home Versus Host Country Situations

International LawGlobal Codes of Conduct

International LawGlobal Codes of Conduct

BROAD BROAD MIDDLE MIDDLE GROUNDGROUND

Mix of Home and Host Country Standards

CULTURAL RELATIVISM

ETHICAL IMPERIALISM

• Ethical/moral standards of home country

HomeCountry

HomeCountry

HostCountry

HostCountry

• Ethical/moral standards of host country

Application of Ethical Principles

Figure 10-5

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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

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Integrative Social Contract Theory

HypernormsHypernorms consist of transcultural values including fundamental human rightsconsist of transcultural values including fundamental human rights

Consistentnorms

Consistentnorms

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

Moral freespace norms

Moral freespace norms

consist of strongly held cultural beliefs in particular countries that are in tension with hypernorms

consist of strongly held cultural beliefs in particular countries that are in tension with hypernorms

Illegitimatenorms

Illegitimatenorms

consist of norms that are incompatible with hypernorms

consist of norms that are incompatible with hypernorms

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Create corporate global codes of conduct

Integrate ethics into a global strategy

Suspend activities in host country

Create ethical impact statements and audits

Strategies for Improving Global Business Ethics

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Principles and Codes forSocially 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