We need to address transparency, accountability and institutional capacity. And let's not mince words: we need to deal with the cancer of corruption. James Wolfensohn, President of the World Bank, Annual Meeting 1996 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

16-2  The Cost of Doing Bad Business  Ethics and the Law Three Ethics Philosophies  The MNC as Good Corporate Citizen Corporate Social Responsibility  Can a Company Afford Not to be Ethical?  The Fight against Corruption and Bribery  Government Ant-Corruption and Bribery Enforcement  Anti-Corruption /Ethics Policies of Firms  Global Corporate Citizenship  Summary

16-3  The cost of doing ‘bad business’ accrues not only to the firm responsible, but affects the society and stakeholders with which the firm is involved: Government-imposed fines Negative impacts on international contracts Reduced tax revenues Diversion of funds intended for development Discouraged foreign investment The costs of employee fraud Bribery and corruption hurt the poor disproportionately by diverting funds intended for development

16-4

16-5  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?

16-6  Ethics are the behavioral standards determined by society that stipulate how its members should act in a moral manner Disregarding an ethical code may result in sanctions  Laws are codes of conduct stipulating how members of a society are required to act and are enforced by relevant Breaking the law carries penalties, governance agencies

16-7  What is perceived as unethical may also be illegal  What is perceived as unethical may still be legal  What is in fact illegal may still be perceived as ethical When the legal system does not cover all situations regarding corporate ‘rights’ and ‘wrongs,’ an ethical code must be referenced.

16-8 In global business, the questions arise: Whose law? Whose ethics? Figure 16-1

16-9  Ethical relativists ‘plan globally but act locally’ when it comes to ethics. “When in Rome, do as the Romans do.”  Ethical absolutists import their ethical norms to the countries in which they operate. They believe their norms superior and should be adopted by host nations  Ethical universalists believe there is common ground among ethical standards globally.

16-10

16-11  The multinational corporation has economic, ethical, legal and social responsibility to its stakeholders.  MNCs must integrate ethical and social responsibility values and goals into its management process.

16-12  CSR assumes that businesses should contribute to the welfare of all stakeholders beyond providing employment and making a profit And, profits should be shared by the community in which the firm operates  CSR is practiced globally, but less so in developed nations Some adoption of CSR activities in less developed countries is attributed to NGOs such as the Global Reporting Initiative

16-13  Brazil Two-thirds of the 445,000 firms surveyed had invested in social programs, while half intended to increase their involvement, fueled by  A desire to gain legitimacy and customer loyalty  The rise of global codes  Russia Businesses realize that CSR is crucial to their sustainability, but most efforts are by large companies. Adoption of CSR is constrained by:  Lack of transparency  Misunderstanding of the nature of CSR

16-14  China CSR is a new concept in China, not actively promoted by the government  Large government bureaucracy hinders efforts  Intellectual property issues abound  Recent improvements to laws and supervision  Guidelines that address social and environmental issues are not common  India CSR is linked to Indian culture and religion  Corporate philanthropy is part of normal business operations (See Table 16-3 following)

16-15

16-16  The answer would seem to be ‘no.’  Several studies affirm that: In the UK, firms with an ethics code financially outperformed those without There is a correlation between a reputation for integrity and the growth of long term shareholder value as noted by a U.S. study  Some research indicates that CSR’s impact on performance is long term rather than short term

16-17

16-18  Two instigators of corruption and bribery: monetary gain weak governance  NGOs monitor this activity Transparency International publishes surveys that rank corruption and bribery The OECD Bribery Convention sets legally binding standards that criminalize bribery of public officials in global business transactions The UN Convention Against Corruption prohibits corruption in both the public and private sectors

16-19 Figure 16-3

16-20  U.S. Foreign Corrupt Practices Act Two provisions  Bribery of foreign officials is illegal  Companies must maintain accurate and fair financial and transaction records  Sarbanes-Oxley Act of 2002 mandates greater control and management accountability  The UK Bribery Bill Bribery, and failure to prevent it, is illegal

16-21  An ethics code is a set of guidelines that stipulates a set of acceptable behaviors. A written code is not sufficient unless it includes a mechanism for enforcement. An ombudsman must have the responsibility for coordinating ethics policy and advocating for employees who are involved in an ethics issue  Attempts have also been made to motivate ethical behavior in a company’s supply chain

16-22  Firms can promote basic, universal human principles Physical security Education Decent working conditions and wages by practicing them in the workplace  This task can be supported by adhering to universal codes of behavior  Ethical and social responsibility must both be encompassed

The responsibilities of businesses: Beyond shareholders toward stakeholders 2. The economic and social impact of business: Toward innovation, justice and world community 3. Business behavior: Beyond the letter of the law toward a spirit of trust’ 4. Respect for rules 5. Support for multilateral trade 6. Respect for the ebvir9onment 7. ‘Avoidance of illicit operations

16-24  The dilemma: how to act in a situation where what you consider being unethical at home is acceptable elsewhere “Moral free space” in which there are no right or wrong answers and core moral values must be recognized Conflict of relative development  What would you do if your country were in a similar stage of development (or lack of development)? Conflict of tradition  Gift-giving in Asia: bribe, or common courtesy?

16-25

16-26  For global firms, ethical conduct assumes added importance  Poor ethics are bad for a firm’s performance  Three theories of ethical behavior include Ethical Relativism, Ethical Absolutism and Ethical Universalism  Corporate social responsibility (CSR) in global business is challenging due to multiple cultures and stakeholders  Organizations such as Transparency International have led to strengthened anti-corruption domestic legislation  Application of CSR in the BRIC countries varies