Chapter 10 Globalization of Ethical Decision-Making

Learning Objectives Discuss global values, goals, and business practices within ethics Understand the role of capitalism and economics as factors in business ethics Assess the role of multinational corporations in business ethics Assess the role of the International Monetary Fund in business ethics

Learning Objectives (continued) Assess the role of the United Nations Global Compact in business ethics Assess the role of the World Trade Organization in business ethics Explore and discuss common global business practices Gain awareness of global ethical issues

Global Culture, Values, and Practices Individuals encounter cultures that may diverge from their own national culture when they engage in international business Hofstede’s cultural dimensions that impact business environment Individualism/collectivism Power distance Uncertainty avoidance Masculinity/femininity

Global Culture, Values, and Practices (continued) Self-reference criterion: Unconscious reference to one’s own cultural values, experiences, and knowledge Cultural relativism: Idea that morality varies from one culture to another Global common values are shared across most cultures Help form better relationships with individuals and organizations

Takeaways from the Previous Economic Recession Firms were taking extreme risks, bending rules, and engaging in unethical activity The global financial market lacked transparency in decision making, accountability, and accounting methods Risk compartmentalization: Occurs when profit centers within corporations are unaware of the consequences of their actions on the firm as a whole

Economic Systems Capitalist views Adam Smith provided the idea of laissez-faire John Maynard Keynes believed that the state can stimulate economic growth and improve stability in the private sector through government policies Milton Friedman believed that deregulation could reach equilibrium without government intervention

Economic Systems (continued) Socialism: Economic system where wealth and power are shared and distributed evenly based on the amount of work expended in production Social democracy: Allows private ownership of property Features a large government that offers education and health care services to its citizens Bimodal wealth distribution is prevalent in most economies

Rational versus Behavioral Economics Rational economics: Assumes that people are predictable and maximize the utility of their choices based on their needs and wants Act independently on the basis of full and relevant information Behavioral economics: Assumes that economic decisions are influenced by human behaviour Humans are assumed to act irrationally due to genetics, emotions, learned behavior, and heuristics

Figure 10.3 - The Economic Capitalism Country Differential

Multinational Corporations Public companies that operate on a global scale and are not limited to any one nation or region Criticisms Misusing and misallocating scarce resources Exploiting labor markets of the host country Issues of unfair competition Failing to carry an appropriate share of the cost of social development

Multinational Corporations (continued) Companies now support Business for Social Responsibility (BSR), which: Tracks emerging issues and trends Provides information on corporate leadership and best practices Conducts educational workshops and training Assists organizations in developing practical business ethics tools

International Monetary Fund and World Trade Organization International Monetary Fund (IMF) Regulates monetary relationships between national economies Promotes responsible global business conduct World Trade Organization (WTO) Provides legally binding ground rules for international commerce and trade policy Facilitates trade negotiations and settles trade disputes

Table 10.2 - United Nations Global Compact Source: “The Ten Principles,” United Nations Global Compact, http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html (accessed March 31, 2015).

Global Ethics Issues Global ethical risks Bribery Antitrust activity Corruption, variations in international regulations, and supply chain issues Bribery Antitrust activity Vertical system: System where a business channel member has control of the entire business system, via ownership or contract, or through its purchasing ability

Global Ethics Issues (continued 1) Internet security and privacy Human rights Health care Labor and the right to work Gender pay inequality Right to work and join trade unions

Global Ethics Issues (continued 2) Compensation Living wage Executive compensation Consumerism Consumer choices are straining the environment Made-to-break or planned obsolescence

Importance of Ethical Decision Making in Global Business Companies should: Incorporate global and domestic ethical issues in their risk management strategies Formulate their own global ethical codes Appoint ethics officers or committees to oversee and handle global compliance issues Provide extensive training to its employees