© 2013 Cengage Learning. All Rights Reserved. 1 Part Four: Implementing Business Ethics in a Global Economy Chapter 10: Globalization of Ethical Decision Making Chapter 10: Globalization of Ethical Decision Making

Global Business Brings together people from different cultures, values, laws, and ethical standards  International businesspeople must understand the values, culture, and ethical standards of their own country  Must be sensitive to values and culture of other countries The global business environment, if not understood, can destroy the trust needed to be successful © 2013 Cengage Learning. All Rights Reserved. 2

Global Cultures, Values, and Practices  Country cultural values: Are subjective, based on the social environment, and used to develop norms  National culture: Everything in our surroundings that is made by people  Tangible or intangible  Each nation has a cultural belief about acceptable business activities  Subcultures can be found within many nations © 2013 Cengage Learning. All Rights Reserved. 3

Classifying Cultural Differences Geert Hofstede identified four cultural dimensions  Individualism/collectivism  Power distance  Uncertainty avoidance  Masculinity/femininity Can profoundly impact the business environment © 2013 Cengage Learning. All Rights Reserved. 4

Self-Reference Criterion (SRC) An unconscious reference to one’s own cultural values, experiences, and knowledge  The idea that “we” differ from “them”  Is common in international business  We react based on our knowledge  Accumulated over a lifetime  Grounded in culture of origin © 2013 Cengage Learning. All Rights Reserved. 5

Cultural Relativism The concept that morality varies from one culture to another  Can be a rationalization for straying from one’s cultural values  Involves an idea that business practices are differentially defined as right or wrong by cultures © 2013 Cengage Learning. All Rights Reserved. 6

Global Common Values Shared across most cultures  Reflected in laws  Desirable common values  Integrity, family and community unity, equality, honesty, fidelity, sharing, and unselfishness  Undesirable common values  Ignorance, pride and egoism, selfish desires, lust greed, adultery, theft, deceit, lying, murder, hypocrisy, slander, and addiction © 2013 Cengage Learning. All Rights Reserved. 7

Economic Foundations of Business Ethics Economic and political events and natural disasters can affect the global ethical decision making environment  Financial firms have taken risks and engaged in unethical activity  Displayed in the recent global financial meltdown  Global disasters and upheaval continue to created challenges for international businesses  New opportunities for misconduct © 2013 Cengage Learning. All Rights Reserved. 8

Risk Compartmentalization Occurs when profit centers within an organization are unaware of the consequences of their decisions on the overall organization  No single person can be blamed for negative outcomes that occur because of systemic problems © 2013 Cengage Learning. All Rights Reserved. 9

Key Figures in Modern Economics  Adam Smith  Laissez-faire capitalism  John Maynard Keynes  Government can stimulate the private sector  Milton Friedman  Return to self-regulating free market system © 2013 Cengage Learning. All Rights Reserved. 10

Keynes and Friedman Agreed That: 1.People have rational preferences among outcomes that can be identified and associated with value 2.Individuals seek to maximize utility; firms seek to maximize profits 3.People act independently on the basis of full and relevant information © 2013 Cengage Learning. All Rights Reserved. 11

Economic Systems  Socialism: Advocates that wealth and power be shared across society, based on the amount of work expended in production  Karl Marx  Social democracy: Private ownership of property, but a large government  Formed in the 1940s as an offshoot of socialism Bimodal wealth distribution: Many poor and a few very wealthy with a small middle class Some argue it is a result of the global economic system © 203 Cengage Learning. All Rights Reserved. 12

Two Schools of Economic Thought  Rational economics: Assumes that people are predictable and base their decisions on maximizing utility based on resources available  Behavioral economics: Assumes that humans do not always act rationally © 2013 Cengage Learning. All Rights Reserved. 13

© Cengage Learning. All Rights Reserved. 14 Economic Capitalism Country Differential

The Multinational Corporation Public companies that operate on a global scale, without significant ties to any one nation or region  The highest level of international business commitment  Are subject to ethical criticism over their impact on the countries in which they do business © 2013 Cengage Learning. All Rights Reserved. 15

Business for Social Responsibility  Many MNCs have joined because of stakeholder scrutiny  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 © 2013 Cengage Learning. All Rights Reserved. 16

© 2013 Cengage Learning. All Rights Reserved. 17 A Comparison Between Countries and Corporations CountryGDP (millions $ U.S.) CompanyRevenues (millions $ U.S.) United States14,720,000Walmart Stores421,849 China9,872,000Royal Dutch Shell378,152 Japan4,338,000Exxon Mobil354,674 India4,046,000BP308,928 Germany2,960,000Sinopec Group273,422 Iran863,500China National Petroleum 240,192 Taiwan823,600State Grid226,294 Argentina596,000Toyota Motor221,760 Greece321,700Japan Post Holdings203,958 Denmark201,400Chevron196,337 Source: Adapted from "Global 500: Fortune's Annual Ranking of the World's Largest Corporations," CNNMoney, (accessed July 7, 2011).

The International Monetary Fund Emerged from the Bretton Woods agreement, 1944  Makes short-term loans to member countries with deficits  Provides foreign currencies for its members  Promotes responsible business conduct  Recommended new rules for large firms that represent a systemic risk © 2013 Cengage Learning. All Rights Reserved. 18

The United Nations  Founded in 1945; 192 member nations  Goal to promote world peace, improve inter- country relations, and support better standards and human rights  Focuses on environmental and human rights issues © 2013 Cengage Learning. All Rights Reserved. 19

The United Nations Global Compact for Businesses  10 principles that promote human rights, sustainability, and the eradication of corruption  Collaborative arrangement between businesses, governments, NGOs, societies, and the UN  Voluntary membership  Members report on progress toward goals © 2013 Cengage Learning. All Rights Reserved. 20

© 2013 Cengage Learning. All Rights Reserved. 21 Ten Principles of the UN Global Compact

The World Trade Organization Established at the Uruguay round of the General Agreement on Tariffs and Trade (GATT) in 1995  Administers trade negotiations, settles trade disputes, and monitors trade policies of member nations Addresses economic and social issues in many industries © 2013 Cengage Learning. All Rights Reserved. 22

Dumping The practice of charging high prices for products in domestic markets, while selling the same products in foreign markets at low prices  Places local firms at a disadvantage  The U.S. has anti-dumping laws in place © 2013 Cengage Learning. All Rights Reserved. 23

Global Ethical Risks Key risk areas  The “G-Zero” risk  Internet security and privacy  Relations with China  Political unrest, imbalances in power, nationalism, and faltering economies in emerging markets Laws differ between countries © 2013 Cengage Learning. All Rights Reserved. 24

© 2013 Cengage Learning. All Rights Reserved. 25 Global Business Ethics and Legal Issues

Bribery  Acceptance of bribes varies by country  Can be a challenge to determine what is a bribe  The U.S. Foreign Corrupt Practices Act (FCPA) prohibits companies from paying foreign officials to keep/obtain business  The U.K. Anti-Bribery act goes even further Many major corporations have had issues with bribery © 2013 Cengage Learning. All Rights Reserved. 26

Antitrust Activity Antitrust laws are meant to encourage fair competition  Countries have differing levels of protections  Can create difficulties in international business  Vertical system: A channel member controls the entire business system  Can occur when MNCs are allowed to grow unchecked  Reduces competition and can put small competitors out of business © 2013 Cengage Learning. All Rights Reserved. 27

Internet Security and Privacy Internet security is considered a top global risk to business  Laws and regulations have lagged behind technological change Is a fairly recent business ethics issue © 2013 Cengage Learning. All Rights Reserved. 28

Human Rights An inherent dignity that should be afforded all people with equal and inalienable rights  The foundation of freedom, justice, and peace in the world  Codified in the UN Human Rights Declaration  Is becoming a serious issue for companies © 2013 Cengage Learning. All Rights Reserved. 29

Health Care A major global human rights issue  Over a billion people lack access to health care globally  Is becoming a major business concern Question remains whether access to health care is a right or a privilege © 2013 Cengage Learning. All Rights Reserved. 30

Labor and the Right to Work Many people work outside their homeland  International firms today have many ethical concerns related to labor  Gender pay equality  Right to join unions  Standards of living Corporations must take labor issues seriously to avoid legal and ethical trouble © 2013 Cengage Learning. All Rights Reserved. 31

Compensation  Living wage: The minimum wage that workers require to meet basic needs  Executive compensation  A major topic during the recent recession  Global demand for alignment between performance and compensation © 2013 Cengage Learning. All Rights Reserved. 32

Consumerism The belief that consumers should dictate the economic structure of society  States that consuming goods at an increasing rate is desirable  Equates personal happiness with purchasing and consuming products  Made-to-break (Planned obsolescence): Encourages consumers to buy more items Meeting with backlash from stakeholders who do not believe that consumerism leads to happiness Not sustainable as resources diminish © 2013 Cengage Learning. All Rights Reserved. 33

The Importance of Ethical Decision Making in Global Business Ethical decision making is essential to successfully operating in global business  Potential legal and political snares without a knowledge of global ethics issues  Some large firms created officers/committees to oversee global compliance issues  Successful ethics program implementation requires employee training  Global firms must tailor programs to international markets  Ethics is not “one size fits all” © 2013 Cengage Learning. All Rights Reserved. 34