1 Ethics and Social Responsibility Chapter 3

Chapter Outline Theories and principles of ethics Moral languages Cultural theories of ethics International legal jurisdiction and ethics Bribery and corporate customers Corporate tax law The Sarbanes - Oxley Act Gift-giving in an international context: custom or bribe?

Chapter Outline (2) Laws and treaties that attempt to prevent corruption Foreign Corrupt Practices Act OECD Anti-Bribery Convention Inter-American Convention against Corruption A process for making ethical decisions

Chapter Outline (3) Social responsibility and environmental sustainability Stakeholder analysis Non-governmental organizations and major issues Voluntary Social Responsibility standards Managing employee behavior

Ethics Ethics is the study of morality and standards of conduct Different cultures have different standards of conduct and different expectations about what managers should do

Moral Languages Basic ideas that people use to make ethical decisions and to explain their ethical choices 1. Virtue and vice Actions are either good (virtuous) or bad (vices) the consequences of an action are less important than virtuous intent

Moral Languages (2) 2. Self-control: control of thoughts and actions Plato advocated controlling "appetites" Important idea in Buddhism and Hinduism 3. Maximizing human welfare – the basic principle behind utilitarianism (the greatest good for the greatest number) 4. Avoiding harm – the action should not produce unpleasant consequences for people or the environment. Actions are ethical if they do no harm.

Moral Languages (3) 5. Rights and duties of people or companies Do not infringe on the rights of others. Duties are things that one should or must do. Laws and regulations often deal with rights and duties. 6. Social contract – explicit or implicit agreement in a society or a company about what is right Western Europeans often believe that a country should ensure that all its residents get adequate health care.

Culture-based Theories of Ethics Ethnocentrism: base the decision on the values and practices of the home country. Ethical relativism: make the decision in accordance with host country practices. Moral universalism: there should be a code of corporate conduct that is expected and acceptable in all countries

International Legal Jurisdiction and Ethics A company and its employees are subject to home country laws. A company and its employees are subject to host country laws.

Commercial Bribes Bribery example: Company A sells goods or services to Company B. An employee of company A gives money or a gift to an employee of company B in order to make a sale.

Commercial Bribes (2) In the United States, it is a violation of federal tax law to disguise any bribe as a legitimate business expense, such as a consulting fee or entertainment expense. For U. S. companies, this law applies to bribing employees of other companies, government employees, political parties, or politicians in any country. Any company that does business in the United States is subject to the same law.

Commercial Bribes (3) The Sarbanes – Oxley Act requires publicly held companies to maintain adequate financial controls. Companies have been prosecuted under this law for not having financial controls that prevent bribes in the U.S. and in foreign countries.

Ethical Dilemma Gift Giving in Japan In Japan, it is customary for businesses to give gifts to employees of business customers, suppliers, and other business partners twice a year. Appropriate gifts depend on the amount of business done and the length of the business relationship.

Foreign Corrupt Practices Act The Foreign Corrupt Practices Act prohibits U. S. firms from paying bribes to foreign governments. Both the company and its employees are subject to criminal penalties under this law. Under this law Bribing a high-ranking government official is a violation of this law. Companies cannot get around this law by giving the bribe to a political party or party official, or to an agent Both fines and prison terms can be imposed for violations

Foreign Corrupt Practices Act (2) Exemptions in the Foreign Corrupt Practices Act: A company will not be prosecuted for A small fee or gift given to a low-ranking employee for performing normal duties ("grease money") A payment made under duress to avoid injury or violence

OECD Anti-Corruption Convention The Anti-Corruption Convention of the Organization for Economic Cooperation and Development (OECD) has been ratified by 37 countries. These countries have agreed that: If a firm bribes a foreign official, or condones such a bribe, both the firm and employees who were involved in the bribe will be subject to criminal penalties. These countries will share information about bribery and corruption and will cooperate in prosecuting them.

OECD Anti-Corruption Convention (2) Does not ban bribes given through political parties or party officials Who has signed? 25 EU members, plus Norway Israel and Turkey NAFTA countries, plus Argentina, Brazil, Chile Japan, South Korea, Australia

Inter-American Convention Against Corruption Originated by the Organization of American States (OAS) and monitored by them Ratified by 20 countries in the Americas and the Caribbean Similar to the OECD Anti-Corruption Convention

A Process for Making Ethical Decisions

A Process for Making Ethical Decisions (2)

Social Responsibility The idea that businesses have a responsibility to society beyond making profits Closely related to business ethics Must take into account the welfare of other groups in addition to stockholders Environmental sustainability means providing goods and services that meets humanity’s needs without harming future generations.

Stakeholder Analysis The stake of an individual or group includes its rights, obligations, incentives, and motivations Decision makers should consider the stake of each individual or group that Will be affected by the decision or Will affect the outcome of the decision Competitors are not considered to be stakeholders.

MNC Stakeholders Home Country Owners Customers Employees Unions Suppliers Distributors Strategic allies Community Economy Government Host Country Co-owners Customers Employees Unions Suppliers Distributors Strategic allies Community Economy Government MNC Global Society Population Standard of living Natural environment Sustainable resources Interdependence

Non-Governmental Organizations and Issues A non-governmental organization (NGO) is a private, not-for-profit organization that seeks to serve society’s interests by focusing on social, political, and economic issues such as poverty, social justice, worker’s rights, education, health, and the environment.

Voluntary Social Responsibility Standards United Nations Global Compact SA-8000 Standards from Social Accountability International – focuses on worker’s rights. Companies are encouraged to require factories that make goods for them to have SA8000 certification. ISO Environmental Responsibility Standard of the International Standards Organization. Companies that meet these standards can be certified

SA 8000 Standards No child labor No forced labor Healthy and safe workplace Freedom of association and the right to collective bargaining No discrimination No coercion, corporal punishment, or abusive discipline

SA8000 Standards (2) Work week limited to 48 hours. No more than 12 hours of overtime. Working hours comply with host country laws. Compensation meets basic needs of workers and their families, and complies with host country laws. Adequate management systems to enforce these requirements

Managing Employee Behavior Corporate codes of ethics and social responsibility Should the same code apply in all countries where the firm operates? Ethics and social responsibility training Organizational practices and leadership that create an ethically conscious corporate culture 5-30

Making Codes of Ethics and Social Responsibility Work A code is most likely to work if all of the following are true: It is clear and straightforward. It addresses problems of conduct that are relevant to the business environment. It is adhered to when problems arise. It addresses elements of the national culture that are relevant to business operations. 5-31