1 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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