Business Ethics Chapter 11 Global Ethics Copyright 2018

Discussion Questions • Read Preview Business Ethics Insight on Nike (Multinational Ethical Scandals) and Global Business Ethics Insight on Toyota in Chapter 12 • Briefly discuss the ethical challenges facing both companies. • Why did Nike have problems related to its workforce although it faced similar issues in the 1980 s? • Why did the Toyota problem become a much bigger scandal? • Why should companies be more worried about their global ethics today? © 2019 Taylor & Francis

What is Global Business Ethics? • Business ethics: the principles and standards that guide business • Global business ethics apply to the myriad of ethical issues any company faces when operating in the global environment • Multinationals face serious reputational issues because of their size © 2019 Taylor & Francis

Exhibit 11. 1 Largest Multinational Revenue vs. Country Gross Domestic Product Revenue (for companies) versus GDP (countries) Vietnam BP Bangladesh Apple Chile Toyota Volkswagen Finland Exxon Mobil Royal Dutch Shell Sinopec Group Singapore China National Petroleum Hong Kong State Grid Nigeria Begium Wal. Mart 100 Revenue (for companies) versus GDP (countries) 200 300 400 US$ (million) - 2016 500 © 2019 Taylor & Francis

What is the Nature of Differences in Global Ethics? • National cultural differences: differences in what people think is the right way to do things • Social institutions: differences in educational systems, religion, etc. • There are differences in terms of how different societies view ethics © 2019 Taylor & Francis

Exhibit 11. 3 Justification of Ethically Suspect Behaviors for Selected Countries 2. 5 2 1. 5 1 0. 5 . . A . . K U . S U Al ba ni Ar ge a nt in Be a la ru Ca s na da Ch ile Ch in a Fi nl an d Fr an ce In di a M ex ic o M ol do va Pe ru Ru ss ia Vi et na m 0 © 2019 Taylor & Francis

What is the Nature of Differences in Ethics? National Culture Dimensions • Value of high achievement • i. e. , people value achievement—higher justification of unethical behavior • High individualism • i. e. , people value their own personal freedom— more unethical behavior • High universalism • i. e. , people are more ambitious because they expect to be treated fairly • High pecuniary materialism • i. e. , people have high materialist tendencies © 2019 Taylor & Francis

Corruption and Culture • Specific cultural dimensions are associated with more corruption • Uncertainty avoidance: the degree to which people prefer certainty and order in their lives • Individualism: the degree to which people are focused on themselves • Future orientation: the degree to which people are focused on the future © 2019 Taylor & Francis

What is the Nature of Differences in Ethics? Higher Corruption • High masculinity: people are more focused on work than quality of life • Achievement and performance orientation: degree to which people are focused on achievement and performance in a society © 2019 Taylor & Francis

Less Corruption and Culture • Gender egalitarianism: degree to which people promote gender equality

What is the Nature of Differences in Ethics? • Both cultural and social institutions such as industrialization, economic development, degree of wealth, and religion have important influences on how people perceive ethics © 2019 Taylor & Francis

Discussion Questions • Is corruption and unethical behavior high in your country? • Where does your country stand on the many cultural dimensions discussed in the chapter such as uncertainty avoidance, individualism, masculinity, etc. ? • Is the level of unethical behavior consistent with the levels discussed in the chapter? Why or why not? © 2019 Taylor & Francis

Key Global Ethical Issues • Two of the most important global ethical issues: •

Exhibit 11. 4 Global Ethical Issues • Employees • Government • • • Discrimination, diversity and sexual harassment Working conditions Gender equality Compensation • Respecting rules and regulations Practices in foreign nations with weak governments Lobbying • Country • Shareholders • • • Shareholder interests Transparency in accounting Transparency in shareholder communications Executive salaries and compensation Corporate governance • • Respecting local laws Influence on political climate Bribery and corruption Lobbying and other influence

Key Global Ethical Issues • Labor issues: women workers and their rights • Usually paid very low wages • Poor working conditions • Can easily be fired • Usually juggle both unpaid domestic work with paid work © 2019 Taylor & Francis

SA U ia on en ed ed ac M Sw ai n Sp Pe ru Si ng ap or e ic o ex M an Ja p a di In a in Ch h da na Ca es in a nt ad gl Ba n Ar ge Exhibit 11. 5 Traditional Gender Roles 3 2. 5 2 1. 5 1 0. 5 0 © 2019 Taylor & Francis

Women Workers and their Rights: Benefits from Working • Have access to other female companions • The opportunity to be financially independent • The ability to achieve greater equality in the household • More personal freedom • Employment allows women to organize collectively to better their working conditions © 2019 Taylor & Francis

Key Global Ethical Issues: Child Labor • Child labor • Work in very poor

Child Labor • Necessary evil in societies with high levels of poverty • Not working doesn’t necessarily provide access to education • Child labor can provide children with psycho-social benefits and provide some education that a formal education system can’t provide © 2019 Taylor & Francis

Child Labor • Many organizations and child advocates are working hard to convince governments

Labor Issues: Safety at Work • Safety at work • Safety of workers in foreign plants • Safety issues faced by expatriates • Key aspect of multinational operation • Expatriates are expensive and their safety is crucial to multinationals © 2019 Taylor & Francis

Bribery • Refers to gifts or payments to someone to expedite a government action

Discussion Questions • Consult the Transparency International Corruption Index. Where does your country stand? • Do you feel that bribery is very widespread? • Have you ever been bribed? What form did it take? • Is bribery bad for society? Why or why not? • If the level of bribery is high in your country, do you feel it has many disadvantages? Why or why not? © 2019 Taylor & Francis

Corruption • The misuse of entrusted power for private gain • Corruption occurs when

Devastating Effects of Bribery on Companies • Lower annual growth rates • Diverts resources away from critical growth areas • Increases the potential of fines that can bankrupt a company © 2019 Taylor & Francis

Bribery: Effects on Societies • Often creates obstacles to doing business • Causes misallocation of public expenditures • Higher prices for products to make up for bribery • Lower-quality products • Undermined competition • Inefficient allocation of resources © 2019 Taylor & Francis

Exhibit 11. 6 Fines Paid by Multinationals Year Company 2017 Telia Nationality Company Sweden 2017 Halliburton U. S. A. 2017 SQM Chile 2017 2016 Biomet Braskem S. A. Poland Brazil 2016 Las Vegas Sands U. S. A. 2016 JP Morgan U. S. A. 2016 Glaxo. Smith. Kline U. K. 2016 Astra. Zeneca U. K. 2016 Vimpel. Com Holland of Type of Infraction Violation of FCPA to win business in Uzbekistan Payment to company in Angola to win oilrelated services contract Improper payment to Chilean political figures Bribery violations in Mexico and Brazil Illicit payment to Brazilian government officials to get business Millions of dollars of payment to consultant facilitating business in China and Macao Bribed government officials by offering jobs and internships to family and friends of these officials Pay-to-prescribe schemes in China to increase sales Improper payments to officials in China and Russia Violation of FCPA to win business in Uzbekistan Fine (US$million) $965 $29. 2 $30 $957 $9 $264 $20 $5 $795 © 2019 Taylor & Francis

Key Global Issues • Organization for Economic Cooperation and Development (OECD): an association of

OECD Guidelines • Members agree to take measures to make bribery a criminal offense • Members are expected to provide legal assistance to each other to prosecute nationals who are engaged in bribery • Members expected to collaborate to prevent or tackle money laundering related to bribery • Members have to provide mutual legal assistance and can be asked to extradite foreign officials for prosecution © 2019 Taylor & Francis

Exhibit 11. 7 OECD Bribery Guidelines for Multinationals (Selected Parts) • Enterprises should not, directly or indirectly, offer, promise, or demand a briber or other undue advantage to obtain or retain business or other improper advantage. Nor should enterprises be solicited or expected to render a bribe or other under advantage. In particular, enterprises should: • Not offer, nor give in to demands, to pay public officials or the employees of business partners any portion of a contract payment. They should not use subcontracts, purchase orders or consulting agreements as means of channeling payments to public officials, to employees of business partners or their relatives or business associates • Ensure that remuneration of agents is appropriate and for legitimate services only. Where relevant, a list of agents employed in connection with transaction with public bodies and state-owned enterprises should be kept and made available to competent authorities • © 2019 Taylor & Francis

Key Global Issues • Foreign Corrupt Practices Act (FCPA): the FCPA forbids U. S. companies from making or offering payments or gifts to foreign government officials for the sake of gaining or retaining business © 2019 Taylor & Francis

FCPA • Reason-to-know provision: a firm is liable for bribes or questionable payments made by agents hired by the firm, even if members of the firm did not actually make the payments or see them being made © 2019 Taylor & Francis

Multinational Ethics: Going Local or Global? • Ethical universalism—follow similar principles worldwide • Three moral languages: • Avoiding harm • Rights and duties • The social contract © 2019 Taylor & Francis

Ethical Universalism • Fundamental international rights: • Multinational companies should engage in business practices that avoid negative consequences to their stakeholders (e. g. , employees, the local environment) © 2019 Taylor & Francis

Integrated Social Contracts Theory • Multinationals are expected to make decisions that recognize universally binding ethical practices known as “hypernorms” • Hypernorms: norms that are accepted by most cultures and organizations irrespective of local cultures • E. g. , the freedom of speech or freedom of association © 2019 Taylor & Francis

Exhibit 11. 8 United Nations Global Compact • Human Rights • Environment • • • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses. • Labor Standards • • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labor; Principle 5: the effective abolition of child labor; and Principle 6: the elimination of discrimination in respect of employment and occupation. • • Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies. • Anti-Corruption • Principle 10: Businesses should work against corruption in all its forms including extortion and bribery.

Discussion Questions • Read Business Ethics Insights on Google in China • Why did Google decide to enter China? • What are some of the factors that are motivating Google to leave China? • Do you think Google is justified in its decision to leave China? • Should multinationals comply with local norms or should they pursue their own global policies? © 2019 Taylor & Francis

Multinational Ethics: Determining the Ethics of Practice • Steps of the decision-making process in the HKH model • Step 1: Is the decision being pondered actually a questionable practice? • Is there any conflict between company values and host country norms? • Step 2: The multinational needs to ask whether the questionable practice breaks any laws or regulations • Does the decision break any laws? © 2019 Taylor & Francis

Steps of the Decision-making Process in the HKH Model • Step 3: The multinational needs to consider whether the questionable practice is simply a cultural difference or could represent a potential ethics problem • • • E. g. , Does the outcome violate hypernorms? Step 4: The multinational needs to determine whether the practice violates any of its core values or an industry code of conduct Step 5: Does company have leverage to do business its own way? © 2019 Taylor & Francis

What can Multinationals Do to Become more Ethical? • Code of Ethics • A formalized public statement that articulates the rules and regulations that will guide organizational practices with ethical consequences • A guide that governs both present and future employee behaviors as these employees interact with each other and with their stakeholders © 2019 Taylor & Francis

Nature of Global Code of Ethics • First generation: focus on the legal responsibility of the company • Second generation: focus on the responsibility to stakeholders • Third generation: focus on responsibilities grounded in wider interconnected environment © 2019 Taylor & Francis

What Can Multinationals Do to Become more Ethical? Whistle-blowing • Whistle-blowing: providing employees with the means to report unethical violation • Whistle-blowing program: based on the assumption that employees know the most about unethical behavior and should therefore be involved in any ethics program © 2019 Taylor & Francis

Reasons for Multinationals to Adopt Ethics Hotlines • Because of their size, multinationals find it difficult to use only internal controls to control ethical behavior • There have been many new legal developments that now require companies to have ethics hot lines • It can determine the potential to encounter conflicts in implementing its own corporate values with respect to local cultural norms © 2019 Taylor & Francis

Exhibit 11. 9 Ethics Hotlines Implementation Mechanism Hierarchy as first step None North America Both Europe Only New Technologies (email/web) Only Traditional (mail and phone) 0 10 20 30 40 50 60 70 80 © 2019 Taylor & Francis

Conclusion • As more attention is paid to companies and companies go global, global ethics will become more critical • Chapter 11 discussed the ways cultural and social institutions affect ethics • Chapter 11 also presented two of the key aspects of global ethics—labor and bribery • Efforts to build ethical multinational companies also presented © 2019 Taylor & Francis