Chapter 9 Ethics and Globalization Chapter Summary Ethical issues have been raising problems in the global business. This caused the United Nations to take action in 2000 by presenting the UN Global Impact. The chapter presents the issue of ethical relativism in a global environment. Next, the ethical challenges in doing business in developing and developed economies are compared. The author argues that even though it is hard for organizations to make a global code of conduct these are the best solutions. The final part of the chapter explains the OECD Guidelines for Multinational Enterprises. Learning Outcomes After studying this chapter, you should be able to: 1. Understand the ethical issues arising in global business. 2. Explain the issue of ethical relativism in a global environment. 3. Explain the challenges in developing a global code of ethics. 4. Analyze the ramifications of the UN Global Compact. 5. Explain the OECD Guidelines for Multinational Enterprises. Extended Chapter Outline Frontline Focus “A Matter of Definition” Questions 1. Ten guidelines for organizations doing business with developing nations are listed on page 183. Do you think Smith’s is following any of these? Students’ answers will vary. Considering the information in the case, it does not seem as though Smith’s is following any of these guidelines, especially the guideline to respect the human rights of its employees. 2. Review the UN Global Compact on page 185. How many violations has Smith’s incurred by doing business with Jakarta Enterprises? Students’ answers will vary. Smith’s is violating both of the human rights of the UN Global Compact principles. Smith’s is also violating numerous labor standards of the UN Global Compact, such as upholding the abolition of child labor. 3. What are Tom’s options here? Students’ answers will vary. The ad agency that Tom is employed with is known for working only with clients whose corporate values match their own. Tom should bring the information of Smith’s relationship with Jakarta Enterprises and the businesses practices of Jakarta Enterprises to the attention of his boss. The options are to continue fulfilling the obligations of the contract with Smith or bringing the information to the attention of his company. Learning Outcome 1: Understand the Ethical Issues Arising in Global Business. • When doing business on an international scale, the concept of business ethics changes dramatically. o A less-developed nation is a country that lacks the economic, social, and technological infrastructure of a developed nation. o A developed nation is a country that enjoys a high standard of living as measured by economic, social and technological criteria. • Both—less-developed and developed—nations are busy playing the game of globalization. o Everyone is pursuing the same goal of maximum profits with minimum costs, and if individual cultures present some challenges, those can be overcome with translations and cultural adaptations. • International markets represent growth, and with profitable growth come happy shareholders and rising stock prices. o In addition, international markets represent new customers as well as sources of cheaper materials and cheap labor. • From a business ethics perspective, the constant hunger for growth at any cost presents some challenges. o Utilitarianism refers to ethical choices that offer the greatest good for the greatest number of people. o Globalization is the expansion of international trade to a point where national markets have been overtaken by regional trade blocs (Latin America, Europe, Africa), leading eventually to a global marketplace. o A multinational corporation (MNC) is a company that provides and sells products and services across multiple national borders. Also known as transnational corporations. ➢ Most MNCs have chosen to ignore all ethical standards in the pursuit of the almighty dollar on the basis of two arguments: ✓ If they didn’t pursue the business, somebody else would. ✓ They are operating in full compliance with local laws and regulations, which conveniently happen to be far less restrictive than those they would face in their own country. Learning Outcome 2: Explain the Issue of Ethical Relativism in a Global Environment. • Ethical Relativism is a gray area in which your ethical principles are defined by the traditions of your society, your personal opinions, and the circumstances of the present moment. o Policies and procedures are hard to follow when the customers don’t have comparable policies in their own organizations. ➢ In addition, policies that have been outlawed in an attempt to legally enforce ethical corporate behavior may be standard operating procedure in less- developed nations. o Social and political chaos can generate a bureaucracy that bears no relation to a logical reality, leaving companies with the tough decision whether to stand by their Western principles of ethical conduct or submit to the practical reality of the local market and “grease the appropriate palms” to get things done. Learning Outcome 3: Explain the Challenges in Developing a Global Code of Ethics. • Globalization can be seen to have both an upside and a downside. o Supporters of the upside argue that globalization brings unprecedented improvements in the wealth and standards of living of citizens in developing nations as they leverage their natural resources or low costs of living to attract foreign investors ➢ For the more economically advanced nations, access to these resources enables lower production costs that equate to lower prices and higher income standards for their customers. o Advocates for the downside of globalization argue that it is merely promoting the dark side of capitalism onto the global stage: ➢ Developing countries are ravaged for their raw materials with no concern for the longer-term economic viability of their national economies. ➢ Workers are exploited. ➢ Corporations are free to take full advantage of less restrictive legal environments. • Companies find themselves tempted to take advantage of the less stringent laws and regulations of local markets and to operate in the absence of any standards rather than reverting to their own domestic ethical policies as they are faced with constant pressure to: o Increase revenue o Cut costs o Maximize profitability o Grow market share • A global code of conduct is a general standard of business practice that can be applied equally to all countries over and above their local customs and social norms. • Richard DeGeorge developed the following guidelines for organizations doing business in less developed countries: o Do no intentional harm. o Produce more good than harm for the host country. o Contribute to the host country’s development. o Respect the human rights of their employees. o Respect the local culture; work with it, not against it. o Pay their fair share of taxes. o Cooperate with the local government to develop and enforce just background institutions. o Majority control of a firm includes the ethical responsibility of attending to the actions and failures of the firm. o Multinationals that build hazardous plants are obliged to ensure that the plants are safe and operated safely. o Multinationals are responsible for redesigning the transfer of hazardous technologies so that such technologies can be safely administered in host countries. Learning Outcome 4: Analyze the Ramifications of the UN Global Compact. • The UN Global Compact is a voluntary corporate citizenship initiative endorsing 10 key principles that focus on four key areas of concern—the environment, anticorruption, the welfare of workers around the world, and global human rights. o It was launched in a speech to the World Economic Forum on January 31, 1999, by UN Secretary-General Kofi Annan. o It relies on public accountability, transparency, and the enlightened self-interest of companies, labor, and civil society to initiate and share substantive action in pursuing the principles on which the Global Compact is based. o With over 2000 companies and more than 80 countries making a voluntary commitment to this corporate citizenship initiative, the Global Compact is widely recognized as the world’s largest initiative of its kind. • By endorsing and actively promoting the message of the Global Compact, companies make public commitments to a set of core values that are captured in 10 key principles that address the four areas of concern—human rights, labor standards, environment, and anticorruption. o Human Rights ➢ Businesses should support and respect the protection of internationally proclaimed human rights. ➢ Businesses should make sure they are not complicit in human rights abuses. o Labor Standards ➢ Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining. ➢ Businesses should uphold the elimination of all forms of forced and compulsory labor. ➢ Businesses should uphold the effective abolition of child labor. ➢ Businesses should uphold the elimination of discrimination in employment and occupation. o Environment ➢ Businesses should support a precautionary approach to environmental challenges. ➢ Businesses should undertake initiatives to promote greater environmental responsibility. ➢ Businesses should encourage the development and diffusion of environmentally friendly technologies. o Anticorruption ➢ Businesses should work against all forms of corruption, including extortion and bribery. Learning Outcome 5: Explain the OECD Guidelines for Multinational Enterprises. • The OECD Guidelines for Multinational Enterprises are guidelines that promote principles and standards of behavior in the following areas—human rights, information disclosure, anticorruption, taxation, labor relations, environment, competition, and consumer protection; endorsed by 30 members of the Organization for Economic Cooperation and Development and 9 nonmembers (Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, Romania, and Slovenia). o Supporters argue that the government backing adds credibility to the issues being promoted, but the guidelines carry no criminal or civil enforcement and are not regarded as legally binding. What they do offer are principles and standards of behavior that draw on the same core values as the UN Global Compact across a broader series of issues captured in 10 “chapters”: ➢ Concepts and Principles—sets out the principles which underlie the guidelines, such as their voluntary character, their application worldwide, and the fact that they reflect good practice for all enterprises. ➢ General Policies—contains the first specific recommendations, including provisions on human rights, sustainable development, supply chain responsibility, and local capacity building; and, more generally, calls on enterprises to take full account of established policies in the countries in which they operate. ➢ Disclosure—recommends disclosure on all material matters regarding the enterprise such as its performance and ownership, and encourages communication in areas where reporting standards are still emerging such as social, environmental, and risk reporting. ➢ Employment and Industrial Relations—addresses major aspects of corporate behavior in this area including child and forced labor, nondiscrimination and the right to bona fide employee representation, and constructive negotiations. ➢ Environment—encourages enterprises to raise their performance in protecting the environment, including performance with respect to health and safety impacts. ➢ Combating Bribery—covers both public and private bribery and ad dresses passive and active corruption. ➢ Consumer Interests—recommends that enterprises, when dealing with consumers, act in accordance with fair business, marketing, and advertising practices; respect consumer privacy; and take all reasonable steps to ensure the safety and quality of goods or services provided. ➢ Science and Technology—aims to promote the diffusion by multinational enterprises of the fruits of research and development activities among the countries where they operate, thereby contributing to the innovative capacities of host countries. ➢ Competition—emphasizes the importance of an open and competitive business climate. ➢ Taxation—calls on enterprises to respect both the letter and spirit of tax laws and to cooperate with tax authorities. Life Skills A Subtle Influence Due to globalization, the ethical standards that we once followed can now be sheltered by the ethical standards from different cultural influences. If you have an open mind cultural impacts are able to change individual daily behavior. This would help an individual to adapt to different cultures or employees from different countries to better relate to globalized organizations. Progress ✓ Questions 1. Explain the term globalization. Globalization refers to the expansion of international trade to a point where national markets have been overtaken by regional trade blocs (Latin America, Europe, Africa), leading eventually to a global marketplace. 2. What is an MNC? An MNC or multinational corporations is a company that provides and sells products and services across multiple national borders. MNCs are also known as transnational corporations. 3. When is “operating in full compliance with local laws and regulations” unethical? It is unethical when local laws and regulations are far less restrictive than those MNCs would face in their own country. An example would be an MNC that operates in a country only because it has cheaper labor costs. 4. Explain the term utilitarianism. Utilitarianism refers to ethical choices that offer the greatest good for the greatest number of people. 5. Why would a global code of conduct be unrealistic? Even though countries are working together to leverage their size and geographic advantage, it is still unrealistic for a global code of conduct because customs and norms of the individual societies are likely to prevail. 6. Select your top five from DeGeorge’s guidelines for organizations doing business in less- developed countries, and defend your selections. Students’ answers may vary. These are the possible choices for guidelines for organization doing business in less-developed countries: • Do no intentional harm. • Produce more good than harm for the host country. • Contribute to the host country’s development. • Respect the human rights of their employees. • Respect the local culture; work with it, not against it. • Pay their fair share of taxes. • Cooperate with the local government to develop and enforce just background institutions. • Majority control of a firm includes the ethical responsibility of attending to the actions and failures of the firm. • Multinationals that build hazardous plants are obliged to ensure that the plants are safe and operated safely. • Multinationals are responsible for redesigning the transfer of hazardous technologies so that such technologies can be safely administered in host countries. 7. Can you think of any reasons why international organizations wouldn’t follow these guidelines? Provide three examples. Students’ answers may vary. MNCs are faced with constant pressure to increase revenue, cut costs, maximize profitability, and grow market share. In such situations, companies find themselves tempted to take maximum advantage of the less stringent laws and regulations of local markets. If there are no clear local ethical standards, companies are tempted to operate in the absence of any standards rather than reverting to their own domestic ethical policies. 8. Do you think DeGeorge’s guidelines represent a sufficiently “flexible” solution? Why or why not? Students’ answers may vary. Some of the students may find that DeGeorge’s guidelines do represent a “flexible” solution because it provides standards of practice to guide managers as they conduct business across national borders. As they are only guidelines, the organization can still respect the individual customs of the country in which they operate. 9. What is the UN Global Compact? The UN Global Compact is a voluntary corporate citizenship initiative endorsing 10 key principles that focus on four key areas of concern: the environment, anticorruption, the welfare of workers around the world, and global human rights. 10. When and why was it created? It became operational in July 2000. It represents a commitment on the part of its members to promote good corporate citizenship with the focus on four key areas of concern—the environment, anticorruption, the welfare of workers around the world, and global human rights. 11. Explain the 10 key principles of the Global Compact. The 10 key principles of the Global Compact are: • Businesses should support and respect the protection of internationally proclaimed. • Businesses should make sure they are not complicit in human right abuses. • Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining. • Businesses should uphold the elimination of all forms of forced and compulsory labor. • Businesses should uphold the effective abolition of child labor. • Businesses should uphold the elimination of discrimination in employment and occupation. • Businesses should support a precautionary approach to environment challenges. • Businesses should undertake initiatives to promote greater environmental responsibility. • Businesses should encourage the development and diffusion of environmentally friendly technologies. • Businesses should work against all forms of corruption, including extortion and bribery. 12. What would a multinational corporation gain from signing the Global Compact? By signing the Global Compact, an MNC would be a part of the world’s largest initiative of its kind. Following these guidelines gives MNCs an opportunity to publicly support and endorse a strong message to their stakeholders that they are committed to ethical corporate conduct wherever they do business in the world. 13. What is the OECD Guidelines for Multinational Enterprises? The OECD Guidelines for Multinational Enterprises are guidelines that promote principles and standards of behavior in the following areas—human rights, information disclosure, anticorruption, taxation, labor relations, environment, competition, and consumer protection. It is a governmental initiative endorsed by 30 members of the Organization for Economic Cooperation and Development and 9 nonmembers (Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, Romania, and Slovenia). 14. How do they differ from the UN Global Compact? The UN Global Compact is voluntary corporate initiative, while the OECD takes a more governmental approach. Also, the OECD covers a broader series of issues. 15. How are they similar to the UN Global Compact? Both promote principles and standards of behavior that draw on the same core values. Both the guidelines carry no criminal or civil enforcement and are not regarded as legally binding. 16. Can you think of a situation in which a multinational corporation would endorse one or the other? Or should they both be endorsed? Explain your answer. Students’ answers may vary. Some corporations may be more responsive to a more nongovernmental approach rather than a governmental approach and vice versa. It would be beneficial to endorse both because both have different strengths and weaknesses, benefits and drawbacks. Ethical Dilemma 9.1 – For Services Rendered 1. Was this an ethical transaction? Explain why or why not. Students’ answers will vary. There have been three accidents at the mine in the past three years. In addition to the miners’ injuries, there was also an environmental issue when a wall at the facility was damaged and thousands of gallons of chemical pollutants leaked out into the local river. Galaxy Mining made a public commitment to fresh clean water that it later quickly abandoned. Montgomery should have included more explanation or documentation for the amount of money he charged for services rendered. 2. Montgomery “managed” the incident as requested. Is there any evidence to suggest that he did anything unethical? Students’ answers will vary. Montgomery is a self-proclaimed specialist and Galaxy Mining did not question his credentials. The fact that he charged $1 million for his services with little explanation or documentation for his invoice is a questionable billing practice. 3. Should the auditors accept his explanation of “services rendered”? Why or why not? Students’ answers will vary. The board did not receive any copies of documents representing the work performed on the project. The only thing the company received was a statement from Montgomery via an e-mail explaining his fees as services rendered in the management of the incident. Considering the amount of $1 million, auditors should not accept Montgomery’s simple explanation of “services rendered”. They should demand a detailed, itemized invoice that illustrates the specific charges associated with the incident. 4. What kind of policies should Galaxy Mining put in place to make sure these kinds of “services” aren’t utilized again? Students’ answers will vary. Galaxy Mining needs to put policies in place that require documentation of the work performed from outside contractors on the projects. In addition, the company should request specific licenses or degrees for specialists in the field. 9.2 – Lenovo: A Global Business? 1. Given Lenovo’s broad geographic dispersal, which culture do you think provides the greatest influence in the company’s code of ethics? Explain your answer. Students’ answers will vary. With a Chinese Chairman, an American CEO, an American COO, and a Chinese CFO, a variety of U.S. regulations or Chinese regulations could influence Lenovo’s code of ethics. Also, the Chinese regulations will have to be met, given Lenovo’s base. 2. Do you think Lenovo should have one code of ethics for the whole company or separate codes to reflect its different cultures? Explain your answer. Students’ answers will vary. Lenovo may opt to have one code of ethics for the whole company that incorporates all the different cultures. The issue of a global code of conduct may be very appropriate in this case. This would show the company’s commitment to its stakeholders. 3. If Lenovo is committed to global “centers of excellence” rather than a central corporate headquarters, why would it commit to such a huge project in Beijing? Students’ answers will vary. Some of them may say that committing to a huge project in Beijing represents a dramatic cultural shift for the company. 4. Do you think the issue of managing business ethics on a global scale was considered in this transaction? Students’ answers will vary. With an increase in globalization, business ethics had to be considered in this transaction. If not, the company will face many struggles and possibly taint its reputation by failing to respect various global cultures. Frontline Focus “A Matter of Definition–Tom Makes a Decision” Questions 1. What do you think Charles Cooper will say to his counterpart at Smith’s? Students’ answers will vary. Charles Cooper will most likely explain to his counterpart at Smith’s that the original billing paperwork was left with prep kit and he noticed that they were doing business with Jakarta Enterprises, a corporation with unethical business practices. If Smith’s says they are doing business with them, it seems as though Mr. Cooper will tell them to find a new agency. 2. What do you think Smith’s reaction will be? Students’ answers will vary. Smith’s will probably be upset, but cannot get mad at the agency when it was Smith’s fault for leaving the billing paperwork behind. It is possible that Smith’s will attempt to hurt Mr. Cooper’s agency out of revenge or anger. 3. Is there a chance that Tom’s company could save its relationship with Smith’s? Students’ answers will vary. It would be in the best interest of Mr. Cooper and the agency to inquire with Smith’s about their relationship with Jakarta Enterprises to find the truth. If it is true, then the relationship will become non-existent. If Smith’s can explain, then it is possible that the relationship could be saved. Key Terms Developed Nation: A country that enjoys a high standard of living as measured by economic, social and technological criteria. Ethical Relativism: Gray area in which your ethical principles are defined by the traditions of your society, your personal opinions, and the circumstances of the present moment. Global Code of Conduct: A general standard of business practice that can be applied equally to all countries over and above their local customs and social norms. Globalization: The expansion of international trade to a point where national markets have been overtaken by regional trade blocs (Latin America, Europe, Africa), leading eventually to a global market. Less-Developed Nation: A country that lacks the economic, social, and technological infrastructure of a developed nation. Multinational Corporation (MNC): A company that provides and sells products and services across multiple national borders. Also known as transnational corporations. OECD Guidelines for Multinational Enterprises: Guidelines that promote principles and standards of behavior in the following areas—human rights, information disclosure, anticorruption, taxation, labor relations, environment, competition and consumer protection; a governmental initiative endorsed by 30 members of the Organization for Economic Cooperation and Development and 9 nonmembers (Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, Romania, and Slovenia). UN Global Compact: A voluntary corporate citizenship initiative endorsing 10 key principles that focus on four key areas of concern—the environment, anticorruption, the welfare of workers around the world, and global human rights. Utilitarianism: Ethical choices that offer the greatest good for the greatest number of people. Review Questions NOTE: Some questions allow for a number of different answers. Below are some suggestions. 1. Do you think global businesses would be willing to subscribe to a global code of conduct? Explain your answer. Students’ answers will vary. Subscribing to a global code of conduct will be easier than global businesses creating a code of conduct for each geographic location. However, it can be be difficult to create a global code of conduct that satisfies all the different regions of the world. 2. Would it be easier to just follow the business practices and customs of the country in which you’re doing business? Why or why not? Students’ answers will vary. Following the business practices and customs of the country in which you’re doing business would not be easier because of the numerous different countries these businesses have operations. 3. Are there more stakeholders for an international or global company than a domestic one? Explain your answer. Students’ answers will vary. In an international or global company, the number of stakeholders greatly increases. The population of each country the company is operating in is now considered a stakeholder. Also, the numerous employees in each geographic location and the suppliers all over the world are all stakeholders of multinational corporations. 4. How would the Foreign Corrupt Practices Act (FCPA) that we reviewed in Chapter 6 come into play here? Students should recall that the Foreign Corrupt Practices Act (FCPA) is a U.S. law that applies to accounting methodologies through the SEC and it prohibits the bribery of foreign officials. 5. Which offers greater guidance to international businesses, the UN Global Compact or the OECD guidelines? Explain your answer. Students’ answers will vary. Students should mention that the Organization for Economic Cooperation and Development (OECD) promotes guidelines that enhance the standardization of global ethical conduct by promoting behavior guidelines that MNCs can publically support. The UN Global Compact is the voluntary corporate citizen group that focuses on and endorses key principles on the environment, anticorruption, the welfare of workers, and global human rights. Thus, the OECD provides greater guidance to international organizations. 6. What is the most ethical way to do business internationally? Students’ answers will vary. The most ethical way to do business internationally may be to develop and implement a global code of conduct, such as DeGeorge’s suggested guidelines. However, the customs and norms of individual societies are likely to prevail. Another way to justify global companies’ actions is by following the utilitarianism philosophy. Review Exercises 1. What is the right thing to do here? Students’ answers will vary. With an opportunity to lead the training for Universal’s new South African client, Kathy does not want to commit a social blunder. It is important that she recognizes each language and nationality, even if it means changing the American three-day program to accommodate these differences. 2. Why shouldn’t National just deliver the American version of CFS? If it works here, it should work there. Students’ answers will vary. National should not deliver the American version of CFS to their South African division because the norms, customs, and cultures are vastly different. Just because the program works in the U.S. does not mean that it will work in South Africa. The program needs to be modified to accommodate the differences in languages, traditions, customs, and norms. 3. Which stakeholders will be affected by Kathy’s decision? Students’ answers will vary. The stakeholders that will be impacted by Kathy’s decision include all of the people at the National Bank of SA and the employees and investors of Universal Training Solutions. 4. What are her options here? Students’ answers will vary. Kathy can choose to not modify the program to accommodate and recognize the 11 different languages and nationalities, or she can use the information that the translator relayed and create a new program for her South African clients that is respectful. Internet Exercises 1. Visit the website for the Institute for Global Ethics (IGE) at www.globalethics.org. a. What is IGE’s stated purpose? IGE’s stated purpose is to promote ethical behavior in individuals and cultures of integrity in institutions and nations through research, public disclosure, and practical action. b. Select one of the IGE’s business dilemmas and propose a resolution. Students’ responses will vary based on the business dilemma selected. c. How could a corporation benefit from the services of the Institute for Global Ethics? Students’ answers will vary. The services of the Institute for Global Ethics (IGE) strengthen the ethical culture of corporations and they integrate ethics into everyday cultures. Their goal is to help build an organization that employees and stakeholders are proud to describe and quick to defend. A corporation can benefit from a variety of services at the IGE. For example, they offer fitness training, ethical fitness training, train the trainer workshops, communication and maintenance, ethical cultural training needs in the businesses in the United States and abroad. 2. Visit the website for Walmart’s Global Ethics Office at http://corporate.walmart.com/our- story/. a. Why did Walmart create the Global Ethics Office? Students’ answers will vary. Suggested answers include that the Global Ethics Office (GEO) promotes Walmart’s culture of integrity. The GEO develops and upholds Walmart’s policies for ethical behavior for all Walmart’s stakeholders everywhere Walmart operates. b. Summarize Walmart’s commitment to being anticorruption. Students’ answers will vary. Many of them may mention that fact that Walmart’s Standards for Suppliers Manual states that suppliers must not tolerate, permit, or engage in bribery, corruption, or unethical practices whether in dealings with public officials or individuals in private sector. The students may also visit the following link: • http://corporate.walmart.com/search/?q=anti%20corruption c. Download Walmart’s most recent “Global Sustainability Report,” and provide three examples of projects that the company has undertaken that demonstrate its commitment to global ethics. Students’ answers will vary. On April 22, 2013, Walmart released its sixth annual Global Responsibility Report (GRR) titled “The Responsibility to Lead.” Among the accomplishments reported in the GRR are the following: • Focus on renewable energy and energy efficiency o Recognized as largest on-site green power generator in the U.S. o Accelerated global transition to renewable energy and improved energy efficiency o Took on, and beat, GHG emissions o Drove fewer miles while delivering more product o Met goals to source seafood sustainability in the U.S. • Moving forward in our zero waste effort o Reduced global plastic shopping bag waste o Optimizing packaging to meet our goals The students may also visit the following links: • http://news.walmart.com/news-archive/2013/04/22/walmart-highlights-sustainability-progress- in-its-2013-global-responsibility-report • http://corporate.walmart.com/microsites/global-responsibility-report-2013/ Team Exercises 1. Global or local? Divide into two teams. One team must prepare a presentation advocating for the development of a standardized global code of conduct. The other team must prepare a presentation arguing for the development of a more flexible local code of conduct that takes into account the cultural norms of individual nations. Students’ answers will vary. A global code of conduct creates a flexible solution that provides standards of practice to guide managers as they conduct business across national boundaries in the name of global commerce, while at the same time respecting the individual customs of the countries in which they are operating. Arguments for a development of a more flexible local code of conduct include the fact that individual countries within trading blocs are not disappearing and that the customs and norms of those individual societies are likely to prevail. 2. Restoring a reputation. Divide into groups of three or four. Each group must map out its proposal for restoring the ethical reputation of a multinational corporation that has been fined for one of the following transgressions: bribery, pollution, operating sweatshops, or employing child labor. Prepare a presentation outlining your plan for restoring the reputation of the company with its stakeholders. Students’ answers will vary. Reputations are crucial to uphold, but once a company is found guilty and fined for any unethical transgression it is difficult to restore and regain its positive image. In order to combat these transgressions (such as bribery, pollution, operating sweatshops, and employing child labor), the MNC must emphasize its new standards. The OECD guidelines represent a governmental approach and should be followed to incorporate new ethical practices, as well as the nongovernmental UN Global Compact. 3. Tamiflu. Divide into two groups and prepare arguments for and against the following behavior: Your American company operates manufacturing plants throughout Asia, with a combined staff of 20,000 employees. In 2003, after Asia was hit with the severe acute respiratory syndrome (SARS) epidemic, your company introduced a policy to stockpile drugs in locations where employees don’t have access to high-quality health care. In 2005, SARS was replaced by avian influenza—bird flu—as the primary risk for the next pandemic. Your company responded by stockpiling quantities of the drug Tamiflu, the antiviral drug that is regarded as the best treatment for bird f u in humans. There has been a reported outbreak of bird flu in a remote region of Vietnam, about 100 miles from where you have a manufacturing plant. The government clinic has a small supply of Tamiflu, but aware of your company’s stockpile, the clinic has approached your local plant manager to share some of your supply. The plant manager contacted you for help in responding to the request. Your company policy on this is to make sure employees are taken care of first, and so you decline the request for assistance, claiming that you have insufficient quantities of Tamiflu to meet your immediate needs. Students’ answers will vary. Arguments for this behavior include respect and concern for the employees’ health, and maintenance of the productivity of healthy employees. Also, the government clinic has a small supply and until more is absolutely necessary, the company can remain in control of their stockpile. Arguments against denying assistance include the fact that the company lied about having insufficient quantities. Also the company is unwilling to share its supply that, at that point, was not needed for the employees. Therefore, the stockpile is not being used or benefiting anyone. 4. Looking the other way. Divide into two groups and prepare arguments for and against the following behavior: You have been sent to investigate a fraud claim made against your company by the Customs [department] in one of the countries where you do business. On arrival, an officer explains that your company is being fined for underdeclaring the number of safety boots imported into the country. You notice he is wearing a pair of the “missing” boots. In preparation for your trip you verified that all the shipment and customs paperwork was in order, and you are certain that the number of safety boots has not been underdeclared. Since your company’s strategic plan features high growth expectations from this region, you are tempted to simply pay the fi ne and get the officer’s name and address so you can send him some other samples of your company’s products. However, your company’s senior management team recently returned from a strategic planning retreat in which they made a clear commitment to enforce the organization’s code of ethics in all business transactions, here and abroad, even at the risk of losing short-term business. Your CEO was quoted in the company newsletter as saying: “We should use our higher moral standards as an opportunity to win customers who want to do business with a reputable organization.” So you reach into your briefcase for your copies of the customs paperwork and begin to challenge the officer’s accusation of underdeclaring. Students’ answers will vary. An argument for this behavior is to uphold your company’s commitment to ethics. The investigation must be thoroughly analyzed, especially since the accusing officer is wearing a pair of the missing boots and you verified that all the shipment and customs paperwork was in order and was not underdeclared. Arguments against this behavior would include ruining a business transaction, as well as possible future transactions. It would be easier to simply pay the fine and get the officer’s name and address to send him some other samples of your company’s products, plus it may increase the amount of business with the company. Thinking Critically 9.1 – TOMS Shoes: Ethically Global? 1. Does TOMS buy-one-give-one-away model make it a more ethical company than a traditional manufacturer donating money to a charity? Why? Students’ answers will vary. Most of the students may state that the TOMS model is more ethical than the traditional manufacturer because the company was set up to give the shoes away when Mycoskie started the company. 2. Why would customers pay such a high price for a simple linen shoe or pair of sunglasses? Students’ answers will vary. Students should note that individuals and groups might be more willing to pay an additional fee for the shoes because they know it’s supporting a good cause. 3. Mycoskie designed the TOMS model from the ground up. Could an established company improve its ethical standards by launching a model like TOMS? How? Students’ answers will vary. TOMS is a for-profit company. An established company could improve ethical standards if they launched a model like TOMS, but as a non-profit organization. In addition, an established company could use its brand image and reputation to launch the model. 4. How would you advise TOMS to respond to the criticism outlined in the case? Students’ answers will vary. TOMS should acknowledge the criticism and focus on improving transparency and sustainability in its business practices. Enhancing long-term partnerships with local communities and ensuring a more holistic approach to social impact would strengthen its brand and credibility 9.2 – Suicides at Foxconn 1. Will Foxconn’s response be sufficient to stop any future suicide attempts? Why or why not? Students’ answers will vary. Students should note that Foxconn’s response to surround the buildings with nets would stop the workers from jumping; however, there are other ways to initiate a suicide. 2. If the company has operated on “wafer-thin margins,” how should it deal with the increased labor cost? Students’ answers will vary. The company needs to provide better working conditions. In the long run, it will lower the training costs associated with new employees. Although the supplier market is slim, they can continue to seek suppliers that charge lower prices. 3. Would you describe Foxconn’s response as an example of proactive or reactive ethics? Why? Students’ answers will vary. Foxconn’s response is an example of both proactive and reactive ethics. For example, it is an example of proactive ethics in that they save lives of individuals. It is an example of reactive ethics because they are responding to events and measures to prevent suicide. 4. If Apple is making a public commitment to addressing working conditions at Foxconn factories, should “no worse than any other factory in China” be an acceptable benchmark? Why or why not? Students’ answers will vary. The audit report released by Fair Labor Association (FLA) found that during the preceding 12 months, workers typically exceeded the 60 hours of work per week stipulated in Apple’s agreement with Foxconn. In addition, the report found that many workers also exceeded China’s legal limit of 36 hours of overtime per month. The conclusion of the report stated that conditions were “no worse than any other factory in China.” This cannot be an acceptable benchmark as the report clearly shows that the condition of workers in Foxconn factories is not satisfactory. 9.3 – The Ethics of Offshoring Clinical Trials 1. Identify three factors that are driving pharmaceutical companies to host clinical drug trials overseas. Students’ answers will vary. Some factors that are driving pharmaceutical companies to host clinical drug trials overseas include a decreasing number of patients in North America, an increasing number of willing patients in developing countries, a greater population in developing countries, and cheaper costs to conduct the trials in developing countries. 2. What regulations are in place to oversee the professional and ethical management of these trials? Students’ answers will vary. Many developing countries have laws against “first in man” trials to prevent the treatment of their citizens as guinea pigs in highly experimental drug trials. Russia and China have both limited the export of blood and patient tissue samples in recent years, partly out of concern over illegal trafficking in human organs. The FDA recently set up an office in China to increase inspections of the rapidly growing number of clinical trials. The World Medical Association’s 2004 Helsinki declaration called for stringent ethical practices in drug trials, but these remain voluntary practices. 3. If patients lack the language skills or education to understand the significance of informed consent or the use of a placebo, is it ethical to allow them to participate in the drug trial? Why or why not? Students’ answers will vary. If patients lack the language skills or education to understand the significance of informed consent or the use of a placebo, it is not ethical to allow them to participate in the drug trial. Patients should be allowed to participate only if they fully understand the procedure, the consequences of participating, and the liability. 4. What proposals would you offer to make the offshoring of clinical drug trials a more ethical process for all the stakeholders involved? Students’ answers will vary. To make the offshoring of clinical drug trials a more ethical process for stakeholders, it may be beneficial to interview each willing patient and have an educational and literacy requirement that patients must meet. It is important that these patients have a full understanding of what they are offering to participate in and the potential outcomes. Chapter 9 Ethics and Globalization 9-2 Ethics and Globalization • Business transactions in different countries, in different languages, and different cultures force companies to revisit ethical principles • Less-developed nation: Lacks the economic, social, and technological infrastructure of a developed nation 9-3 Ethics and Globalization • Developed nation: Enjoys a high standard of living as measured by economic, social, and technological criteria • Utilitarianism: Ethical choices that offer the greatest good for the greatest number of people 9-4 Ethics and Globalization • Globalization: Expansion of international trade to a point where national markets have been overtaken by regional trade blocs • Lead to a global marketplace • Multinational Corporation (MNC): Company that provides and sells products and services across multiple national borders • Pursue revenue on the basis of operating strategies that ignore national boundaries 9-5 Ethics and Globalization • Reasons why MNCs choose to ignore ethical standards • If they didn’t pursue the business, somebody else would • They are operating in full compliance with local laws and regulations, which are far less restrictive than those in their own country 9-6 Ethical Relativism • Gray area in which ethical principles are defined by: • Traditions of one’s society • Personal opinions • Circumstances of the present moment 9-7 Ethical Relativism • In less developed nations, the ideal black and white world of ethics must give way to a gray area of ethical relativism • Policies and procedures can be hard to follow when ones’ customers don’t have comparable policies in their own organizations 9-8 Ethical Relativism • Policies that have been outlawed in developed nations may be standard operating procedure in less-developed nations • Social and political chaos can generate a bureaucracy that bears no relation to a logical reality 9-9 The Pursuit of Global Ethics Advantages of globalization • Bringing unprecedented improvements in the standards of living of citizens in developing nations • Enables lower production costs that equate to lower prices and higher income standards for businesses Disadvantages of globalization • Developing countries are destroyed for their raw materials with no concern for the longer-term economic viability of their national economies • Workers are exploited • Corporations are free to take full advantage of less restrictive legal environments 9-10 Global Code of Conduct • General standard of business practice that can be applied equally to all countries over and above their local customs and social norms • Any organization that commits itself to establishing and sticking with a clearly defined code of ethics will face considerable challenges • Moving that ethical commitment to a global stage requires a great deal more planning than simply increasing the scale of the policies and procedures 9-11 Ethical Guidelines for Organizations • Do no intentional harm • Produce more good than harm for the host country • Contribute to the host country’s development • Respect the human rights of their employees • Respect the local culture • Pay their fair share of taxes • Cooperate with the local government to enforce just background institutions 9-12 Ethical Guidelines for Organizations • Majority control of a firm includes the ethical responsibility of attending to the actions and failures of the firm • Multinationals that build hazardous plants are obliged to ensure these are operated safely • Multinationals are responsible for redesigning the transfer of hazardous technologies so that such technologies can be safely administered in host countries 9-13 Challenges in Developing a Global Code of Ethics • In the pursuit of profit and continued expansion, MNCs have been found guilty of: • Bribery • Pollution • False advertising • Questionable product quality • Abuse of human rights in the utilization of sweatshop production facilities 9-14 Enforcing Global Ethics • Enforcing a global ethical standard would require all parties involved to agree on: • Acceptable standards of behavior • Appropriate consequences for failing to abide by those standards 9-15 Enforcing Global Ethics • United Nations (UN) and the Organization for Economic Cooperation and Development (OECD) promote behavior guidelines that MNCs can publicly support and endorse • Strong message to their stakeholders that they are committed to ethical corporate conduct wherever they do business in the world 9-16 The UN Global Compact • Voluntary corporate citizenship initiative endorsing 10 key principles that focus on: • Environment • Anticorruption • Welfare of workers around the world • Global human rights • Not a regulatory instrument • Does not police, enforce, or measure the behavior or actions of companies 9-17 The UN Global Compact • Relies on: • Public accountability • Transparency • Enlightened self-interest of companies, labor, and civil society • To initiate and share substantive action in pursuing the principles on which the global compact is based 9-18 The UN Global Compact • Businesses should support and respect the protection of internationally proclaimed human rights • Businesses should make sure that they are not complicit in human rights abuses Human rights • Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining • Businesses should uphold the elimination of all forms of forced and compulsory labor • Businesses should uphold the elimination of discrimination in respect of employment and occupation • Businesses should uphold the effective abolition of child labor Labor standards 9-19 The UN Global Compact • Businesses should support a precautionary approach to environmental challenges • Businesses should undertake initiatives to promote greater environmental responsibility • Businesses should encourage the development and diffusion of environmentally friendly technologies Environment • Businesses should work against all forms of corruption, including extortion and bribery Anti-corruption 9-20 Organization for Economic Cooperation and Development (OECD) • OECD guidelines for multinational enterprises • Promote principles and standards of behavior in: • Human rights, information disclosure, anticorruption, taxation, labor relations, environment, competition, and consumer protection • Governmental initiative endorsed by 30 members of the Organization for Economic Cooperation and Development and 9 nonmembers 9-21 OECD Guidelines • Carry no criminal or civil enforcement • Offer standards of behavior across a series of issues covered in ten chapters • Concepts and principles • General policies • Disclosure 9-22 OECD Guidelines • Employment and industrial relations • Environment • Combating bribery • Consumer interests Solution Manual for Business Ethics Now Andrew Ghillyer 9780073524696, 9781260262513
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