Global Marketing Contemporary theory, practice and cases By Ilan Alon, Eugene Jaffe, Christiane Prange & Donata Vianelli

Chapter 8 Defining ethics and corporate social responsibility in the global marketplace

Learning objectives

After reading this chapter you should be able to:

• Understand what are the ethics of doing business abroad.

• Differentiate between the law and ethics.

• Determine whether there are universal ethical standards.

• Argue whether an MNC can be an ethical citizen.

• Determine what is the social responsibility of an MNC.

• Argue whether a company can afford not to be ethical.

The cost of doing bad business

• Bribery and corruption on a global scale are activities that cannot be ignored

• Companies and individuals risk the chance of being caught and subjected to investigation, bad public relations, and if convicted, fines and even imprisonment.

• There are many examples… • of firms and individuals being fined for illegal payments

• of fines being levied for lacking proper safeguards against such practices

• Regulatory agencies at the country level monitor bribery and corruption behavior on the part of companies and individuals

• Governments and multinational organizations (United Nations, the International Monetary Fund, etc.) monitor such activities.

• Companies have to monitor themselves

Countries and the Prevalence of Bribery

Source: Adapted from the Transparency International, Global Corruption Barometer, 2013.

Cameroon, Kenya, Liberia, Libya, Mozambique,

Sierra Leone, Uganda, Zimbabwe, Yemen

60%

% of respondents

who report having

paid bribes in the

past year to any one

of eight services

Afghanistan, Cambodia, Ghana, India, Senegal,

South Africa

46 – 60%

Algeria, Bangladesh, Bolivia, Egypt, Ethiopia,

Mexico, Mongolia, Nigeria, Taiwan

31 - 45%

Colombia, Cyprus, Czech Republic, Greece,

Kosovo, Latvia, Turkey

11 – 30%

Bulgaria, Chile, El Salvador, Estonia, Hungary,

Israel, Italy, USA

5 – 10%

Australia, Belgium, Canada, Croatia, Denmark,

Finland, Georgia, Japan, New Zealand, Norway,

Slovenia, South Korea, Spain, Switzerland, UK

<5%

Main reasons for bribery: why and who

• "to speed things up“

• "it was the only way to obtain a service“

• "as a gift, or to express gratitude“

• "to get a cheaper service“

• Political parties are considered the most corrupt institution, followed

by the police and the judiciary.

• Globally, religious institutions are seen as least corrupt.

The cost of corruption

• The cost of corruption equals more than five percent of global GDP ($2.6 trillion) according to the World Economic Forum and the World Bank

• Costs may include: • paying fines and penalties

• lost business

• reputational damage

• Organizational turmoil

• Some of these costs may be offset by the creation of firm value through corruption: it was found that a $1 bribe payment creates $11 firm value

Bribery and corruption are not the only problems

that managers face in a global world

• Dishonesty

• Fraud

• Occupational health

• Safety

• Environmental concerns

• Industrial espionage

Managers of global corporations must have answers to questions like these:

• If ethical mores differ from society to society what rules do you follow?

• How do we do business with integrity in countries where bribery and

corruption are widespread?

• How can we develop ethical norms that can guide global marketers

and business people to act with integrity and accountability?

Ethics and the Law

• Ethics are behavioral standards determined by society that stipulate how its

members should act in a moral manner.

• Ethical standards vary from society to society, but individuals within the society are

expected to maintain these standards.

• Laws are codes of conduct stipulating how members of a society are required to

act and are enforced by relevant governance agencies such as the police and courts.

• Breaking the law carries penalties (fines, prison terms) while disregarding an

ethical code may result in sanctions (losing one’s job) that are short of criminal

proceedings.

Law and ethics overlap

Ethical Philosophies for Making Ethical Decisions

ETHICAL RELATIVISM ETHICAL ABSOLUTISM ETHICAL

UNIVERSALISM

No universal set of ethical standards

The ethical nature of an action

can only be determined

relative to the moral norms of

the particular culture where

the action takes place. “When

in Rome do as the Romans

do”.

Giving preference to one’s own

ethical values

“When in Rome, do what one

would do at home”

A set of universally

accepted and valid

ethical standards

The ethical nature of an

action is independent of

cultural settings

Corporate Social Responsibility (CSR) and Ethics

• Social responsibility is a concept of ethics that businesses should act in the

interests of society at large, taking into consideration all of its stakeholders and

not only stock holders.

• MNC have economic, ethical, legal and social responsibility to its stakeholders.

• MNC should integrate core ethical and social responsibility values and goals into

its strategic management process.

Different definitions of CSR

• “Whereby companies integrate social and environmental concerns in their business

operations and their interactions with their stakeholders on a voluntary basis” – EU

• A contribution by business to “sustainable economic development working with employees,

their families, the local community, and society at large to improve their quality of life, in

ways that are both good for business and good for development” - World Bank

• A way in which enterprises give consideration to the impact of their operations on society

and affirm their principles and values both in their own internal methods and processes and

in their interaction with other actors - International Labor Organization

Adoption of CSR activities

• CSR activities and reporting are more extensive in developed countries

than in developing and emerging countries

• The Role of NGO organizations such as the Global Reporting Initiative

(GRI) and the International Labor Organization are significant monitors

of CSR activities

• CSR is developing in the BRIC countries: Brazil, Russia, India and China

CSR in China: yesterday

• CSR was viewed by government as a foreign-imposed requirement with protectionist

aims.

• Focused on ensuring supply chain labor and environmental standards through codes

of conduct and audit.

• Concerned that many international standards initiatives represent trade and

investment barriers, intentionally or otherwise.

• Multinationals tended to roll out global CSR practices and signature programs, while

state-owned enterprises have viewed CSR as a matter of accountability to

government.

CSR in China: what is changing

• Government is using CSR to encourage businesses to contribute to “scientific

development” and a “harmonious society”.

• Tightening domestic labor and environmental laws and maturing of enforcement.

• Partnership and capacity building for labor and environmental compliance.

• Cautious endorsement and adoption of international standards. Learning and

referencing international standards to construct China’s CSR framework.

• Growing and confident consumers, nongovernmental organizations, media, and

other local stakeholder groups are making stronger demands on business

responsibility.

CSR in China: tomorrow

• CSR is becoming a key factor to determine competitive advantage for companies in

China and for China in the global economy.

• CSR in the area of manufacturing is more focused on building capacity for

environment health and safety (EHS) and HR management as well as local

enforcement of environmental and labor laws.

• Development of national standards that are increasingly harmonized with

international standards.

• More active and demanding consumers and civil society will contribute to the

development of bottom-up grievance and redress mechanisms.

The impact of ethics on companies’ performance

• There is a correlation between companies with a reputation for integrity and the

growth of long term shareholder value

• Ethical behavior has less impact on corporate performance in the short run than in

the long run

• A code in itself is not sufficient: it has to have monitoring features and someone

who is responsible for overseeing that the code is implemented

• The long-term survival of many firms depends on its contribution to society beyond

the economic welfare of its stakeholders: if society collapses, so does the firm.

The impact of CSR on companies and societies

• Social and environmental challenges can be addressed and solved with

business solutions

• The reputation of the firm can be enhanced by being socially conscious.

• More and more consumers make their purchasing decisions partly on the

basis of the social reputation of the firm.

• Internally, a firm's good reputation will have an impact on its organizational

culture and ethics.

CSR and consumers’ willingness to pay

• There is considerable willingness by consumers around the world to pay extra for

products and services from environmentally-friendly firms.

• From the results of recent research, respondents from Latin America, Asia-Pacific

and the Middle East-Africa had a higher rate of willingness to pay than the global

average of respondents from North America and Europe.

• CSR is becoming more and more important in emerging economies as well as in

developed countries.

Anti—Bribery Agreements and Legislation

• Three main organizations have the resources to monitor and prevent corruption and bribery: • governments,

• non-governmental organizations ,

• business firms.

• Before the 1990’s there were few non-governmental agencies that dealt with these problems;

• After the 1990’s:

1993 Transparency International Established

1995 Transparency International Corruption Perception Index

1997 OECD Bribery Convention

1999 Transparency International Bribe Payers Survey

2001 Transparency International Global Corruption Report

2003 UN Convention Against Corruption

Corruption perceptions index

Anti—Bribery Agreements and Legislation

1. The OECD Bribery Convention, adopted by the 34 OECD member countries and seven

non-member countries (Argentina, Brazil, Bulgaria, Columbia, Latvia, Russia and South

Africa) establishes legally binding standards to make bribery of foreign public officials in

international business transactions a criminal offense and provides for a host of related

measures that make this effective.

2. The UN Global Compact is a strategic policy initiative for businesses that are committed to

aligning their operations and strategies with ten universally accepted principles in the

areas of human rights, labor, environment and anticorruption.

UN Global Compact: Call to Action

Companies signing the Call to Action are expected, but not obligated to:

• Integrate anti-corruption efforts into their business and operational strategies and

organizational culture;

• Adopt zero-tolerance of bribery and corruption;

• Share good practices in the fight against corruption;

• Engage with other businesses and stakeholders through the UN Global Compact;

• Engage in policy dialogue to encourage more robust disclosure, transparency and

enforcement mechanisms

Anti—Bribery Agreements and Legislation (cont'd)

3. The UN Convention against Corruption, signed by one hundred and forty countries, was

adopted by the General Assembly of the United Nations on October 2003 and prohibits

corruption (including money laundering embezzlement) in both the public and private

sectors, although the prohibition concerning the private sector is not mandatory. The

convention covers five areas: prevention, criminalization, anti-corruption policies and

coordination for implementation.

4. Government Anti-Corruption and Bribery Enforcement – some examples:

US Foreign Corrupt Practices Act of 1977: the United States was the first country to enact ant-

corruption legislation

UK Bribery Act

Legislation in emerging countries / BRIC countries

Anti-Corruption and Ethics Policy by Business Firms

• An ethics code is a set of guidelines that stipulates a set of acceptable behaviors.

• An ethics code needs the support of all top executives of the firm.

• In order to implement an ethics code, it is necessary to appoint an ombudsman, a

manager who has the responsibility for coordinating ethical policy throughout the

organization, and who serves as an advocate for employees and board members who

report, or are involved in an ethical dilemma.

• If employees are expected to report what they observe as unethical behavior by their

peers (“whistle blowing”), they must be protected by the organization (and perhaps

rewarded for their actions).

Sedex: how to motivate ethical behavior in a company’s supply chain

• Sedex is a non -profit organization based in London, UK, open for membership to any

company anywhere in the world - http://www.sedexglobal.com/

• It is a knowledge management provider for measuring and improving ethical and

responsible business practices in global supply chains.