1 Ethical Issues in the Global Arena Professor Craig Diamond BA 385 October 28, 2009 Chapter 10

2 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

3 Eras of Internationalization The Post-World War II Decade The Growth Years The Troubled Years 1980-now The New International Order 1999-now The New, New World

4 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 Globalization The global economic integration of many formerly national economies into oneglobal economy

5 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

6 IMPACTONIMPACTON GlobalistsAntiglobalists Consumers Free trade promotes lower costs, etc. Benefits the wealth at the expense of the poor Employees Faster economic growth Higher wages Improved 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.

7 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

8 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

9 The Dilemma of the Multinational Corporation Home Country Stakeholder Pressures Host Country Stakeholder Pressures Standards Practices Ethics Laws Culture Customs System of Government Socioeconomic System Standards Practices Ethics Laws Culture Customs System of Government Socioeconomic System The Multinational Corporation Figure 10-2

10 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

11 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 – Nestle finally stopped providing formula inappropriately Current controversy – formula marketed to low- income Hispanic immigrants

12 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

13 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?

14 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

15 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.

16 Arguments For and Against Bribery For BriberyAgainst 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

17 Bribes vs. Grease Payments Bribes Relatively large amounts of money given for the purpose of influencing officials to make decisions or take actions that they otherwise might not take. 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 Figure 10-4

18 Initiatives Against Bribery Foreign Corrupt Practices Act (1977) OECD Antibribery Initiatives Transparency International (1993) UN Conv. Against Corruption (2005) Individual Country Initiatives Growing anticorruption movement...

19 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

20 Other Global Ethics Issues  Acts of terrorism  Kidnappings, murder, and violence against businesspeople  Rogue nations (e.g., Iran, Syria, Libya)

21 The Challenge of the Multinational Corporation Balancing and Reconciling Ethics Traditions Home Country Ethical Standards Host Country Ethical Standards OR Ethics in the international environment is more complex than national. Firms have great power in LDCs, and thus great responsibility.

22 Ethical Choices in Home Versus Host Country Situations International Law Global Codes of Conduct BROAD MIDDLE GROUND Mix of Home and Host Country Standards CULTURAL RELATIVISM ETHICAL IMPERIALISM Ethical/moral standards of home country Home Country Host Country Ethical/moral standards of host country Application of Ethical Principles Figure 10-5

23 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

24 Integrative Social Contract Theory Hypernorms consist of transcultural values including fundamental human rights Consistent norms consist of norms that are culturally specific, but consistent with hypernorms Moral free space norms consist of strongly held cultural beliefs in particular countries that are in tension with hypernorms Illegitimate norms consist of norms that are incompatible with hypernorms

25  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

26 Principles and Codes for Socially 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