0 Ethical Issues in the Global Arena Chapter10 Professor Craig Diamond BA 385 October 28, 2009
0 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
1945-55 1980-now The Post-World War II Decade The New International Order 1955-70 1999-now The Growth Years The New, New World 1970-80 The Troubled Years 0 Eras of Internationalization
A process by which firms increasetheir awareness of the influence ofinternational activities on their futureand conduct transactions with firmsfrom other countries The global economic integration of manyformerly national economies into oneglobal economy Internationalization Globalization 0 Concepts of Global Business
0 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
0 Pros and Cons of Globalization Figure 10-1 From: Center for the Study of American Business, 2001.
0 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
0 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
Home 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 0 The Dilemma of the Multinational Corporation Figure 10-2
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
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
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
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?
0 Social Accountability 8000 Standard • Child Labor (min age 14 or 15) • Forced Labor • Health and Safety • Freedom of Association and Right to Collective Bargaining • Discrimination • Discipline (no physical/mental abuse) • Working Hours (48 hr/wk, min one day off) • Compensation • Management Systems As of 2007: 1,315 facilities certified to 8000 standard world-wide
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.
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 costscustomers Economic harm to host country For Bribery Against Bribery 0 Arguments For and Against Bribery
Grease Payments 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 Bribes Relatively large amounts of money given for the purpose of influencing officials to make decisions or take actions that they otherwise might nottake. 0 Bribes vs. Grease Payments Figure 10-4
Foreign Corrupt Practices Act (1977) Transparency International (1993) OECD Antibribery Initiatives UN Conv. Against Corruption (2005) Individual Country Initiatives 0 Initiatives Against Bribery Growing anticorruption movement...
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
0 Other Global Ethics Issues • Acts of terrorism • Kidnappings, murder, and violence against businesspeople • Rogue nations (e.g., Iran, Syria, Libya)
0 Balancing and Reconciling Ethics Traditions The Challenge of the Multinational Corporation Home CountryEthical Standards Host CountryEthical Standards OR Ethics in the international environment is more complex than national. Firms have great power in LDCs, and thus great responsibility.
International LawGlobal Codes of Conduct ETHICAL IMPERIALISM CULTURAL RELATIVISM BROAD MIDDLE GROUND HomeCountry HostCountry • Ethical/moral standards of home country • Ethical/moral standards of host country Mix of Home and Host Country Standards Application of Ethical Principles 0 Ethical Choices in Home Versus Host Country Situations Figure 10-5
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? 0 Ethical Choices in Home Versus Host Country Situations Figure 10-5
Hypernorms Consistentnorms Moral freespace norms Illegitimatenorms consist of transcultural values including fundamental human rights consist of norms that are culturally specific, but consistent with hypernorms consist of strongly held cultural beliefs in particular countries that are in tension with hypernorms consist of norms that are incompatible with hypernorms 0 Integrative Social Contract Theory
0 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
0 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