Global Marketing Contemporary Theory Practice and Cases By
Global Marketing Contemporary Theory, Practice, and Cases By Ilan Alon, Eugene Jaffe, Christiane Prange, and Donata Vianelli © Taylor & Francis 2016
Chapter 16 Defining Ethics and Corporate Social Responsibility in the International Marketplace © Taylor & Francis 2016
Learning Objectives After reading this chapter you should be able to: • Understand the ethics of doing business abroad. • Differentiate between the law and ethics. • Determine whethere are universal ethical standards. • Argue whether an MNC can be an ethical citizen. • Determine what is the social responsibility of an MNC. • Argue whether a company can afford not to be ethical. © Taylor & Francis 2016
The Cost of Doing Bad Business • Bribery and corruption on a global scale are activities that cannot be ignored • Companies and individuals risk the chance of being caught and subjected to investigation, bad public relations, and if convicted, fines and even imprisonment. • There are many examples… • of firms and individuals being fined for illegal payments • of fines being levied for lacking proper safeguards against such practices • Regulatory agencies at the country level monitor bribery and corruption behavior on the part of companies and individuals • Governments and multinational organizations (United Nations, the International Monetary Fund, etc. ) monitor such activities. • Companies have to monitor themselves © Taylor & Francis 2016
Countries and the Prevalence of Bribery percent of respondents who 60 percent report having paid bribes in the past Sierra Leone, Uganda, Zimbabwe, Yemen 46— 60 percent year to any one of eight services Cameroon, Kenya, Liberia, Libya, Mozambique, Afghanistan, Cambodia, Ghana, India, Senegal, South Africa 31 - 45 percent Algeria, Bangladesh, Bolivia, Egypt, Ethiopia, Mexico, Mongolia, Nigeria, Taiwan 11— 30 percent Colombia, Cyprus, Czech Republic, Greece, Kosovo, Latvia, Turkey 5— 10 percent Bulgaria, Chile, El Salvador, Estonia, Hungary, Israel, Italy, US <5 percent Australia, Belgium, Canada, Croatia, Denmark, Finland, Georgia, Japan, New Zealand, Norway, Slovenia, South Korea, Spain, Switzerland, UK Source: Adapted from the Transparency International, Global Corruption Barometer, 2013. © Taylor & Francis 2016
Main Reasons for Bribery: Why and Who • “to speed things up” • “it was the only way to obtain a service” • “as a gift, or to express gratitude” • “to get a cheaper service” • Political parties are considered the most corrupt institution, followed by the police and the judiciary. • Globally, religious institutions are seen as least corrupt. © Taylor & Francis 2016
The Cost of Corruption • The cost of corruption equals more than five percent of global GDP ($2. 6 trillion) according to the World Economic Forum and the World Bank • Costs may include: • • paying fines and penalties lost business reputational damage organizational turmoil • Some of these costs may be offset by the creation of firm value through corruption: it was found that a $1 bribe payment creates $11 firm value © Taylor & Francis 2016
Bribery and Corruption Are Not the Only Problems That Managers Face in a Global World • Dishonesty • Fraud • Occupational health • Safety • Environmental concerns • Industrial espionage © Taylor & Francis 2016
Managers of Global Corporations Must Have Answers to Questions Like These • If ethical mores differ from society to society, what rules do you follow? • How do we do business with integrity in countries where bribery and corruption are widespread? • How can we develop ethical norms that can guide global marketers and business people to act with integrity and accountability? © Taylor & Francis 2016
Ethics and the Law • Ethics are behavioral standards determined by society that stipulate how its members should act in a moral manner. • Ethical standards vary from society to society, but individuals within the society are expected to maintain these standards. • Laws are codes of conduct stipulating how members of a society are required to act and are enforced by relevant governance agencies such as the police and courts. • Breaking the law carries penalties (fines, prison terms), while disregarding an ethical code may result in sanctions (losing one’s job) that are short of criminal proceedings. © Taylor & Francis 2016
Law and Ethics Overlap © Taylor & Francis 2016
Ethical Philosophies for Making Ethical Decisions ETHICAL RELATIVISM No universal set of ethical standards ETHICAL ABSOLUTISM ETHICAL UNIVERSALISM Giving preference to one’s own A set of universally ethical values accepted and valid ethical standards The ethical nature of an action “When in Rome, do what one can only be determined would do at home. ” relative to the moral norms of the particular culture where the action takes place. “When in Rome, do as the Romans d. o” The ethical nature of an action is independent of cultural settings. © Taylor & Francis 2016
Corporate Social Responsibility (CSR) and Ethics • Social responsibility is a concept of ethics that businesses should act in the interests of society at large, taking into consideration all of its stakeholders and not only stock holders. • MNC have economic, ethical, legal, and social responsibility to its stakeholders. • MNC should integrate core ethical and social responsibility values and goals into its strategic management process. © Taylor & Francis 2016
Different Definitions of CSR • “Whereby companies integrate social and environmental concerns in their business operations and their interactions with their stakeholders on a voluntary basis”—EU • A contribution by business to “sustainable economic development working with employees, their families, the local community, and society at large to improve their quality of life, in ways that are both good for business and good for development” - World Bank • A way in which enterprises give consideration to the impact of their operations on society and affirm their principles and values both in their own internal methods and processes and in their interaction with other actors - International Labor Organization © Taylor & Francis 2016
Adoption of CSR Activities • CSR activities and reporting are more extensive in developed countries than in developing and emerging countries • The role of NGO organizations such as the Global Reporting Initiative (GRI) and the International Labor Organization are significant monitors of CSR activities • CSR is developing in the BRIC countries: Brazil, Russia, India, and China © Taylor & Francis 2016
CSR in China: Yesterday • CSR was viewed by government as a foreign-imposed requirement with protectionist aims. • Focused on ensuring supply chain labor and environmental standards through codes of conduct and audit. • Concerned that many international standards initiatives represent trade and investment barriers, intentionally or otherwise. • Multinationals tended to roll out global CSR practices and signature programs, while state-owned enterprises have viewed CSR as a matter of accountability to government. © Taylor & Francis 2016
CSR in China: What Is Changing • Government is using CSR to encourage businesses to contribute to “scientific development” and a “harmonious society. ” • Tightening domestic labor and environmental laws and maturing of enforcement. • Partnership and capacity building for labor and environmental compliance. • Cautious endorsement and adoption of international standards. Learning and referencing international standards to construct China’s CSR framework. • Growing and confident consumers, nongovernmental organizations, media, and other local stakeholder groups are making stronger demands on business responsibility. © Taylor & Francis 2016
CSR in China: Tomorrow • CSR is becoming a key factor in determining competitive advantage for companies in China and for China in the global economy. • CSR in the area of manufacturing is more focused on building capacity for environment health and safety (EHS) and HR management, as well as local enforcement of environmental and labor laws. • Development of national standards that are increasingly harmonized with international standards. • More active and demanding consumers and civil society will contribute to the development of bottom-up grievance and redress mechanisms. © Taylor & Francis 2016
The Impact of Ethics on Companies’ Performance • There is a correlation between companies with a reputation for integrity and the growth of long-term shareholder value. • Ethical behavior has less impact on corporate performance in the short run than in the long run. • A code in itself is not sufficient: it has to have monitoring features and someone who is responsible for overseeing that the code is implemented. • The long-term survival of many firms depends on its contribution to society beyond the economic welfare of its stakeholders: if society collapses, so does the firm. © Taylor & Francis 2016
The Impact of CSR on Companies and Societies • Social and environmental challenges can be addressed and solved with business solutions • The reputation of the firm can be enhanced by being socially conscious. • More and more consumers make their purchasing decisions partly on the basis of the social reputation of the firm. • Internally, a firm's good reputation will have an impact on its organizational culture and ethics. © Taylor & Francis 2016
CSR and Consumers’ Willingness to Pay • There is considerable willingness by consumers around the world to pay extra for products and services from environmentally-friendly firms. • From the results of recent research, respondents from Latin America, Asia-Pacific and the Middle East-Africa had a higher rate of willingness to pay than the global average of respondents from North America and Europe. • CSR is becoming more and more important in emerging economies as well as in developed countries. © Taylor & Francis 2016
Anti-Bribery Agreements and Legislation • Three main organizations have the resources to monitor and prevent corruption and bribery: • governments, • nongovernmental organizations, • business firms. • Before the 1990 s there were few nongovernmental agencies that dealt with these problems; • After the 1990 s: 1993 Transparency International Established 1995 Transparency International Corruption Perception Index 1997 OECD Bribery Convention 1999 Transparency International Bribe Payers Survey 2001 Transparency International Global Corruption Report 2003 UN Convention Against Corruption © Taylor & Francis 2016
Corruption Perceptions Index © Taylor & Francis 2016
Anti-Bribery Agreements and Legislation 1. The OECD Bribery Convention, adopted by the 34 OECD member countries and seven non -member countries (Argentina, Brazil, Bulgaria, Columbia, Latvia, Russia and South Africa) establishes legally binding standards to make bribery of foreign public officials in international business transactions a criminal offense and provides for a host of related measures that make this effective. 2. The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment, and anti-corruption. © Taylor & Francis 2016
UN Global Compact: Call to Action Companies signing the Call to Action are expected, but not obligated to: • Integrate anti-corruption efforts into their business and operational strategies and organizational culture; • Adopt zero tolerance of bribery and corruption; • Share good practices in the fight against corruption; • Engage with other businesses and stakeholders through the UN Global Compact; • Engage in policy dialogue to encourage more robust disclosure, transparency, and enforcement mechanisms. © Taylor & Francis 2016
Anti-Bribery Agreements and Legislation (cont'd) 3. The UN Convention against Corruption, signed by 140 countries, was adopted by the General Assembly of the United Nations on October 2003 and prohibits corruption (including money laundering and embezzlement) in both the public and private sectors, although the prohibition concerning the private sector is not mandatory. The convention covers prevention, criminalization, anti-corruption policies, and coordination for implementation. 4. Government Anti-Corruption and Bribery Enforcement—some examples: - US Foreign Corrupt Practices Act of 1977: the United States was the first country to enact antcorruption legislation - UK Bribery Act - Legislation in emerging countries / BRIC countries © Taylor & Francis 2016
Anti-Corruption and Ethics Policy by Business Firms • An ethics code is a set of guidelines that stipulates a set of acceptable behaviors. • An ethics code needs the support of all top executives of the firm. • In order to implement an ethics code, it is necessary to appoint an ombudsman, a manager who has the responsibility for coordinating ethical policy throughout the organization and who serves as an advocate for employees and board members who report, or are involved in an ethical dilemma. • If employees are expected to report what they observe as unethical behavior by their peers (“whistle blowing”), they must be protected by the organization (and perhaps rewarded for their actions). © Taylor & Francis 2016
Sedex: How to Motivate Ethical Behavior in a Company’s Supply Chain • Sedex is a non-profit organization based in London, UK, open for membership to any company anywhere in the world. • It is a knowledge management provider for measuring and improving ethical and responsible business practices in global supply chains. © Taylor & Francis 2016
Principles of Global Corporate Citizenship • The responsibilities of businesses: beyond shareholders towards stakeholders; • The economic and social impact of business: toward innovation, justice, and world community; • Business behavior: beyond the letter of the law towards a spirit of trust; • Respect for rules; • Support for multilateral trade; • Respect for the environment; • Avoidance of illicit operations. © Taylor & Francis 2016
Discussion Questions 1. In doing business in a foreign country, whose ethics should you follow, the norms of the foreign country or those of your country? Discuss. 2. Give three examples of corporate social responsibility in your state or city. 3. What can multinational corporations do to encourage corporate social responsibility among the companies with which they do business abroad? 4. Does a potential whistle blower have a greater responsibility to the public, to the organization, to himself/herself? 5. How can American companies function in a country like India without having to resort to bribe payments? © Taylor & Francis 2016
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