Ethics and Social Responsibility chapter three McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

3-3 Ethics and Social Responsibility Chapter Objectives: 1.EXAMINE ethics in international management and some of the major ethical issues and problems confronting MNCs in selected countries. 2.DISCUSS some of the pressures on and action being taken by selected industrialized countries and companies to be more socially and environmentally responsive to world problems. 3.EXPLAIN some of the initiatives to bring greater accountability to corporate conduct and limit the impacts of corruption around the world.

3-4 Chapter Outline Ethics and corporate social responsibility –Definitions –Culture-based theories of ethics –Ethics and international legal jurisdiction –Commercial bribes and U. S. law

3-5 Chapter Outline (2) Ethics and corporate social responsibility (CSR) –Human rights –Corruption –Sustainability –Non-governmental organizations and their impact on companies Corporate codes of conduct

3-6 Chapter Outline (3) Ethics and CSR around the world –China –Japan –Western Europe The UN Global Compact, the Millennium Development Goals, and International Assistance

3-7 Chapter Outline (4) Efforts to fight corruption –The Foreign Corrupt Practices Act –The OECD Anti-Corruption Convention –The Inter-American Anti-Corruption Convention

3-8 Ethics and Social Responsibility Ethics: –Study of morality and standards of conduct –Dilemmas arising from conflicts between: ethical standards in different countries different laws in different countries

3-9 Ethics and Social Responsibility –Corporate Social Responsibility (CSR): »Closely related to ethics »Actions of a firm to benefit society beyond requirements of law and direct interests of firm »CSR involves taking voluntary action »CSR concerns include working conditions in factories and service centers as well as environmental impacts of corporate activities

3-10 Culture-based Theories of Ethics Ethnocentrism: base the decision on the values and practices of the home country. Ethical relativism: make the decision in accordance with host country practices. Moral universalism: there should be a code of corporate conduct that is expected and acceptable in all countries

3-11 International Legal Jurisdiction and Ethics A company and its employees are subject to home country laws. A company and its employees are subject to host country laws.

3-12 Commercial Bribes and the Law Bribery example: Company A sells goods or services to Company B. An employee of company A gives money or a gift to an employee of company B in order to make a sale. Commercial bribes are illegal in many countries. A U. S. company and its employees can be prosecuted for violating anti-bribery laws in a host country.

3-13 Commercial Bribes and the Law (2) In the United States, it is a violation of federal tax law to disguise any bribe as a legitimate business expense, such as a consulting fee or entertainment expense. –For U. S. companies, this law applies to bribing employees of other companies, government employees, political parties, or politicians in any country. –Any company that does business in the United States is subject to the same law in its U. S. operations.

3-14 Commercial Bribes (3) The Sarbanes – Oxley Act requires publicly held companies to maintain adequate financial controls. Companies have been prosecuted under this law for not having financial controls that prevent bribes in the U.S. and in foreign countries.

3-15 Ethics and Social Responsibility Employment and business practices –Difficult to establish a universal foundation for employment practices –Difficult dilemmas in deciding working conditions, expected consecutive work hours, and labor regulations. –Offshoring due to differences in labor costs

3-16 Ethics and Social Responsibility Human Rights –Currently no universally adopted standard –Some basic rights: life, freedom from slavery or torture, freedom of opinion and expression, general ambiance of nondiscriminatory practices –Human rights violations still rampant globally

3-17 Ethics and Social Responsibility Corruption –Government corruption is pervasive in the international business environment –Scandals in Russia, China, Pakistan, Lesotho, South Africa, Costa Rica, Egypt and elsewhere

3-18 Corruption Index: Least and Most Corrupt Countries

3-19 Corporate Social Responsibility (CSR) and Sustainability CSR: Action of a firm to benefit society beyond the requirements of the law and direct interests of the firm Sustainability: Development that meets humanity’s needs without harming future generations

3-20 Non-governmental Organizations NGO: Non-governmental organization; private, not-for- profit organization that seeks to serve society’s interests by focusing on social, political, and economic issues such as poverty, social justice, education, health and the environment. NGOs have urged MNCs to be more responsive to range of social needs in developing countries NGOs have grown in number, power, influence NGO activism has caused major changes in corporate behavior NGO leaders are the most trusted of eight leadership categories (see slide to follow)

3-21 NGOs NGOs in U.S. and globally –Save the Children –Oxfam –CARE –World Wildlife Fund –Conservation International –Fair Labor –Fair Trade Alliance

3-22 Trust in Leaders

3-23 NGO’s and Companies Major criticisms of companies –Labor practices, particularly in contract manufacturing –Employee health and safety –Environmental abuses Response to social obligations: –Corporate codes of conduct that are enforced within the company –Codes of conduct for suppliers, enforced by monitoring of suppliers –Cooperation with NGOs regarding social issues

3-24 Corporate Response to Social Obligations Codes of conduct committing MNCs to maintain certain standards Codes help offset real or perceived concern that companies move jobs to avoid higher labor or environmental standards in their home markets Contribute to raising of standard in developing world by exporting higher standard to local firms in these countries

3-25 Ethics and Social Responsibility Around the World: CHINA Workers not well paid Often forced to work 12 hours a day, 7 days a week Piracy, counterfeiting, industrial spying Human rights violations –Use of prisoner and child labor Unsafe products

3-26 Ethics and Social Responsibility Around the World: JAPAN Political and business scandals: –Japanese cabinet members have accepted questionable payments and favors –Japanese banking system made questionable loans –Some Japanese firms systematically concealed customer complaints

3-27 Ethics and Social Responsibility Around the World: JAPAN Equal opportunity issues –Refusal to hire women or promote them into management positions –Hostile work environment –Traditional role of females and female employees –Sexual harassment may not be considered a moral issue

3-28 Ethics and Social Responsibility Around the World: EUROPE Equal employment opportunity –Glass ceiling pervasive throughout the world –France, Germany, Great Britain have seen increase in number of women in management, but tend to represent only lower levels

3-29 Principles of the UN Global Compact Human Rights Labor Environment Anti-Corruption What should companies do to avoid harming people, the environment, or the countries where they do business?

3-30 Principles of Global Compact

3-31 Millennium Development Goals What should be done for the poorest countries and people on earth?

3-32 International Assistance Governments and corporations work with governments and NGO’s to provide assistance to communities and regions through global partnerships Best “investments” –Controlling and preventing AIDS –Fighting malnutrition –Controlling malaria –Reducing subsidies and trade restrictions

3-33 Global Initiatives to Fight Corruption Foreign Corrupt Practices Act Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention Inter-American Convention Against Corruption

3-34 Corruption and Foreign Corrupt Practices Act (FCPA) Illegal for U.S. firms and their employees to attempt to influence foreign officials through personal payments or political contributions, including such tactics as –“ Entertainment” expenses –“Consulting” fees Some evidence that discontinuing bribes does not reduce sales of the firm’s products or services in that country

3-35 OECD Anti-Bribery Convention Recent formal agreement by many industrialized nations to outlaw the practice of bribing foreign government officials –Organization for Economic Cooperation and Development –37 countries have signed this agreement –These countries have agreed to cooperate in enforcing this agreement –Outlaws bribery of foreign government officials –Fails to outlaw most payments to political party leaders

3-36 Inter-American Convention Against Corruption Originated by the Organization of American States (OAS) and monitored by them Ratified by 25 countries in the Americas and the Caribbean Similar to the OECD Anti-Corruption Convention