Business & Society Ethics, Sustainability, and Stakeholder Management Eighth Edition Archie B. Carroll Ann K. Buchholtz © 2012 South-Western, a part of Cengage Learning 1 Chapter 10 Ethical Issues in the Global Arena © 2012 South-Western, a part of Cengage Learning 2 Learning Outcomes 1. 2. 3. 4. 5. 6. 7. Differentiate between the concepts of internationalization and globalization of business. Summarize arguments for and against globalization. Explain the ethical challenges of multinational corporations (MNCs) in the global environment. Summarize the key implications of the following ethical issues: infant formula controversy, Bhopal tragedy, sweatshops and human rights abuses, and the Alien Tort Claims Act. Define corruption and differentiate between bribes and grease payments. Outline the major features of the Foreign Corrupt Practices Act. Discuss the growing anticorruption movement and the key players in this movement. Identify and discuss strategies for improving global ethics. © 2012 South-Western, a part of Cengage Learning 3 Chapter Outline • The New, New World of Global Business • MNCs and the Global Business Environment • Ethical Issues in the Global Business Environment • Improving Global Business Ethics • Summary • Key Terms © 2012 South-Western, a part of Cengage Learning 4 The Rise of Global Business • The rise of global business is one of the most critical developments of the past half century. • Characterized by a rapid growth of foreign direct investment in developing nations like China, India, and Russia.  There is a growing backlash against global business. • • • Terrorism Stock market instability Global recession © 2012 South-Western, a part of Cengage Learning 5 Transnational Economy Transnational economy • A term for the new expanded marketplace. • Trade in goods, a much smaller trade in services, the international movement of labor, and international flows of capital and information.  Business must strive to be a leader in all developed markets. © 2012 South-Western, a part of Cengage Learning 6 Eras of Internationalization 1945-55 The Post-World War II Decade 1955-70 The Growth Years 1970-80 The Troubled Years 1980-now The New International Order 1999-now The New, New World of Global Business © 2012 South-Western, a part of Cengage Learning 7 Friedman’s Eras of Globalization Globalization 1.0 1492--1800 Globalization 2.0 1800--2000 Globalization 3.0 2000-- © 2012 South-Western, a part of Cengage Learning 8 Expanding Concepts of Global Business Internationalization • A process by which firms increase their awareness of the influence of international activities on their future and conduct transactions with firms from other countries. Globalization/ Globalism • The global economic integration of many formerly national economies into one global economy. • Has spurred backlash. © 2012 South-Western, a part of Cengage Learning 9 Backlash Against Globalization  Outsourcing/Offshoring of jobs to lessdeveloped nations  Tenth anniversary of NAFTA in 2004 © 2012 South-Western, a part of Cengage Learning 10 Globalists and Antiglobalists Pros Open markets across the globe Investors, consumers, employees, and environmentalists are better off Beneficial to poor and rich nations alike © 2012 South-Western, a part of Cengage Learning Cons Expansion and greed of corporate enterprises Globalization is responsible for destruction of environments and emerging economies, abuses of human rights, undermining of local cultures, and the sovereignty of nationstates Power of international bodies 11 Pros and Cons of Globalization Globalists Antiglobalists I M Consumers P A Employees C T Free trade promotes lower costs, etc. Faster economic growth Higher wages Improved working conditions Benefits the wealth at the expense of the poor Places profits above people O N Environment Creates resources needed to address environmental issues Exploits and destroys ecosystems More pollution Developing Nations Promotes national economic World financial institutions development, higher standard of conspire to keep poor nations in living, better working conditions, debt cleaner environments. 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. © 2012 South-Western, a part of Cengage Learning 12 MNCs and the Global Business Environment Multinational Corporations (MNCs) • Corporations operating with offices, factories, and headquarters in more than one country. • Most major U.S. corporations are MNCs. • Underlying challenges of operating in the new world of business  Corporate legitimacy  Differing philosophies between MNCs and host countries  MNC and host country challenges © 2012 South-Western, a part of Cengage Learning 13 Underlying Challenges in a Multinational Environment Two major challenges 1. Achieving corporate legitimacy in an unfamiliar society. 2. Differing philosophies between MNCs and host countries. © 2012 South-Western, a part of Cengage Learning 14 The Dilemma of the Multinational Corporation Home Country Stakeholder Pressures Standards Practices Host Country Stakeholder Pressures The Multinational Corporation Standards Practices Ethics Ethics Laws Laws Culture Culture Customs Customs System of Government System of Government Socioeconomic System Socioeconomic System © 2012 South-Western, a part of Cengage Learning 15 Other MNC-Host Country Challenges  Cultural differences  Business and government differences  Management and control of global operations • Organizational structure and design • 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 © 2012 South-Western, a part of Cengage Learning 16 Ethical Issues in the Global Business Environment Product safety Plant safety Advertising practices Human resource management Environmental problems Business practices © 2012 South-Western, a part of Cengage Learning 17 The Infant Formula Controversy • Classic illustration of ethical questions that arise when conducting business abroad. Health risks from using formula:     No refrigeration Unsanitary conditions Unclean water Using diluted concentration • Bottle feeding led to increases in malnourished babies. Nestlé marketed formula to mothers who did not know how to use it properly. Protestors caused Nestlé to change its marketing practices. • • © 2012 South-Western, a part of Cengage Learning 18 Plant Safety and the Bhopal Tragedy • A leak of methyl isocyanate gas at a Union Carbide Plan in Bhopal, India killed over 2,000 and injured 200,000. Raised many ethical questions:     Should MNCs have the same standards at home and abroad? Is it acceptable to locate a dangerous plant where the workforce is unskilled and uneducated, and where the populace is unaware of the risks? How wise are laws that require plants to be staffed entirely by local employees? What is the responsibility of corporations and governments in allowing the use of safe products that become dangerous because of local conditions? © 2012 South-Western, a part of Cengage Learning 19 Sweatshops, Human Rights, and Labor Abuses • • MNC’s use of women and children to cheaply staff factories. Many major corporations and many countries have been involved. Sweatshops • Characterized by child labor, low pay, poor working conditions, worker exploitation, and health and safety violations.  Increased scrutiny of sweatshop practices in recent years. © 2012 South-Western, a part of Cengage Learning 20 Social Accountability 8000 An effort to improve sweatshop conditions created by Social Accountability International (SAI) 1. 2. 3. 4. 5. 6. 7. 8. 9. Child Labor Forced Labor Health and Safety Freedom of Association and Right to Collective Bargaining Discrimination Discipline Working Hours Compensation Management Systems © 2012 South-Western, a part of Cengage Learning 21 Alien Tort Claims Act and Human Rights Violations Alien Tort Claims Act (ATCA) • Allows foreign individuals to sue U.S. firms in U.S. courts for companies’ actions abroad.  May become a powerful tool to increase corporate accountability abroad. © 2012 South-Western, a part of Cengage Learning 22 Corruption, Bribery, and Questionable Payments The most frequent and severe ethical problems in global business are  Corruption  Bribes  Questionable payments © 2012 South-Western, a part of Cengage Learning 23 Corruption • Attempts to influence the outcomes of decisions wherein the nature and extent of the influence are not made public. Instances of corruption  Bribery of government officials  Giving of questionable political contributions  Misuse of company assets for political favors  Kickbacks and protection money for police  Free junkets for government officials  Secret price-fixing agreements  Insider dealing © 2012 South-Western, a part of Cengage Learning 24 Arguments For and Against Bribery For Bribery Necessary for profits Common practice Accepted practice Form of commission, tax, or compensation © 2012 South-Western, a part of Cengage Learning Against Bribery Wrong and illegal in most developed nations Compromises personal beliefs Managers should not deal with corrupt governments Once started, it never stops One should take a stand for honesty, morality, and ethics Creates a dependence on corruption Deceives stockholders and costs customers 25 Bribes versus Grease Payments Grease Payments • • Money given to minor officials to expedite processes. 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 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. Money given, often to high-ranking officials, to get them to purchase goods or services. © 2012 South-Western, a part of Cengage Learning 26 Initiatives Against Bribery Foreign Corrupt Practices Act Transparency International OECD Antibribery Initiatives UN Convention Against Corruption Individual Country Initiatives © 2012 South-Western, a part of Cengage Learning 27 Improving Global Business Ethics 1. Develop worldwide codes of conduct. 2. Factor ethics into global strategy. 3. Suspend activities when faced with unbridgeable ethical gaps. 4. Develop periodic ethical impact statements that assess the underlying moral justifications for corporate actions and their results. © 2012 South-Western, a part of Cengage Learning 28 Balancing and Reconciling Ethics Traditions The Challenge of the Multinational Corporation Home Country Ethical Standards © 2012 South-Western, a part of Cengage Learning OR Host Country Ethical Standards 29 Ethical Choices in Home versus Host Country Situations International Law Global Codes of Conduct ETHICAL IMPERIALISM Home Country • Cultural standards • Ethical/moral standards of home country BROAD MIDDLE GROUND Mix of Home and Host Country Standards CULTURAL RELATIVISM Host Country • Cultural standards • Ethical/moral standards of host country Application of Ethical Principles © 2012 South-Western, a part of Cengage Learning 30 Ethical Choices in Home versus Host Country Situations (continued) 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? © 2012 South-Western, a part of Cengage Learning 31 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 © 2012 South-Western, a part of Cengage Learning 32 Strategies for Improving Global Business Ethics • Create global codes of conduct. • Integrate ethics into a global strategy. • Suspend activities in host country. • Create ethical impact statements and audits. © 2012 South-Western, a part of Cengage Learning 33 Taking Action Against Corruption Five steps to a successful anticorruption program: 1. High-level commitment by top management 2. Detailed statements of policies and operating procedures 3. Training and discussion of policies and procedures 4. Hotlines and help lines for all organizational members 5. Investigative follow-up, reporting, and Disclosure © 2012 South-Western, a part of Cengage Learning 34 Key Terms • Alien Tort Claims Act (ATCA) • Anticorruption movement • Antiglobalists • Bhopal tragedy • Bribe Payers’ Index (BPI) • Bribes • Caux Roundtable Principles • Corruption • Corruption Perception Index (CPI) • Council on Economic Priorities (CEP) • Cultural relativism • Ethical impact statements • Ethical imperialism • Fair Labor Association (FLA) • Foreign Corrupt Practices Act (FCPA) • GBS Codex • Globalism, globalization • Globalists • Grease payments • Hypernorms • Infant formula controversy © 2012 South-Western, a part of Cengage Learning 35 Key Terms (continued) • Internationalization • Less-developed countries (LDCs) • Multinational corporations (MNCs) • North American Free Trade Agreement (NAFTA) • Offshoring • Outsourcing • Public Integrity Index • Social Accountability International • Sweatshops • Transparency International • UN Convention Against Corruption (UNCAC) • UN Global Compact © 2012 South-Western, a part of Cengage Learning 36