1. International Business Environments & Operations
Daniels ● Radebaugh ● Sullivan
International Business Environments and Operations 15e by Daniels, Radebaugh, and Sullivan
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2. Globalization and Society
Chapter 11
Globalization
and Society
Chapter 11: Globalization and Society
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Learning Objectives
Examine the broad foundations of ethical behavior
Demonstrate the cultural and legal foundations of ethical behavior
Discuss the importance of social responsibility when operating internationally, especially in the areas of sustainability
Discuss key issues in the social activities and consequences of globalized business
Examine corporate responses to globalization in the form of codes of conduct, among other things
The Learning Objectives for this chapter are
To examine the broad foundation of ethical behavior
To demonstrate the cultural and legal foundations of ethical behavior
To discuss the importance of social responsibility when operating internationally, especially in the areas of sustainability
To discuss some key issues in the social activities and consequences of globalized business
To examine corporate responses to globalization in the form of codes of conduct, among other things
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4. Foundations of Ethical Behavior
Individuals and companies must behave responsibly, based on certain ethical codes of conduct (what is right or wrong)
Our moral reasoning guiding our decisions and actions can be….
Teleological-decisions are based on the consequences of the action
Utilitarianism-an action is right if produces greatest amount of good
Deontological-moral reasoning occurs per se, independently, consequence is not an issue
Individuals facing ethical situations examine their moral values to decide what to do. Three approaches that can be used are: the teleological approach, utilitarianism, and the deontological approach.
Keep in mind that what constitutes ethical behavior in one country does not necessarily constitute ethical behavior in another country.
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5. Cultural Foundations of Ethical Behavior
Cultural relativism holds that ethical truths depend upon the groups subscribing to them; thus, intervention by outsiders is unethical.
Cultural normativism holds that there are universal standards of behavior that all cultures should follow
Values differ across countries and also between employees and companies. According to the relativism perspective there are significant differences from country to country that can affect behavior. In contrast, normativism supports the idea that there are universal standards of behavior.
This would suggest that managers should exhibit ordinary decency – principles of honesty and fairness.
Companies doing business abroad must decide whether and how to implement their own ethical principles. Companies may face considerable pressure to either comply with local norms or to avoid doing so.
In some cases, managers must choose between the lesser of two evils. Keep in mind that social responsibility requires human judgment, but that such judgment is subjective and ambiguous.
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6. Legal Foundations of Ethical Behavior
Law is a good basis for ethical behavior. It is an embodiment of local cultural values. But everything that is legal is not necessarily ethical.
Why and when the laws of the land can be perceived as inadequate? Arguments for and against.
Definition-moral concepts may not defined properly
Time-it takes time to develop a law
Application-how court interprets law
Bias-could be majority biased
Is it ok for companies to do anything they want as long as it isn’t illegal? Some people think so, but others argue that not everything that’s unethical is illegal, and so companies should not be given free rein to do what they want.
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Extraterritoriality
Extraterritoriality
imposing domestic legal and ethical practices on the foreign subsidiaries of companies headquartered in their jurisdictions
Foreign Corrupt Practices Act 1977
Companies that try to use the law to govern their behavior will quickly find out that laws vary from country to country.
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8. Corruption and Bribery
the misuse of entrusted power for private gain
Bribes
payments or promises to pay cash or anything of value. Occurs to obtain government contracts or to get public officials to do what they should be doing anyway
Impact of corruption on economic development, wellbeing of the people, business performance
Corruption – which is defined by Transparency International to be the misuse of entrusted power for private gain - involves multiple issues, one of which is the issue of bribery. Bribery is the main form of corrupt behavior by multinational companies. In fact, while it is impossible to assess the true value of bribery, it’s huge.
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9. Corruption and Bribery
Where Bribes Are (and Are Not) Business As Usual
This Figure shows how likely companies are to offer bribes in certain countries. Research shows that people from Belgium and Canada are least likely to pay bribes, while people from Russia, China, and Mexico are most likely to pay bribes.
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10. Corruption and Bribery
International accords to stop bribery
OECD Anti-Bribery Convention
ICC code of rules
UN Convention against Corruption
Regional initiatives include
EU efforts
U.S. Foreign Corrupt Practices Act and Sarbanes-Oxley legislation
Industry initiatives include
2005 World Economic Forum zero tolerance pact
What’s wrong with bribery? Well, when a country has a high level of corruption, national growth rates and per capita income tend to be lower. In addition, corrupt governments are usually unstable.
For the multinational, corruption is not only expensive, but it can ruin the firm’s reputation.
Various efforts to limit corruption and the use of bribes have been made at the international level, the regional level, and even at the industry level.
At the international level, the 1997 OECD Anti-Bribery Convention establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides recommendations to the signatory countries. The ICC established a code of rules against corrupt practices in 1999 and has also been active in supporting other multilateral approaches to combating bribery. The United Nations’ Convention against Corruption covers a broad range of issues related to corruption.
The United States passed the Foreign Corrupt Practices Act which makes bribery illegal. It applies to domestic or foreign operations and to company employees as well as their agents overseas. In addition, the Sarbanes-Oxley legislation combats corruption through more effective corporate governance, financial disclosure, and public accounting oversight.
Finally, various industries have recently stepped up their own efforts against bribery and corruption. One effort is the zero-tolerance pact against bribery which was established at the 2005 World Economic Forum.
Keep in mind that while it might be easier to fall back on the standard of cultural relativism and simply pay bribes where they’re accepted and/or expected, these efforts have had some success.
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11. Ethics and Environment
Companies compromise the environment
contamination of air, soil, or water during manufacturing
producing products that emit fossil-fuel contaminants
Effect of natural resource extraction
renewable versus non-renewable
Sustainability-meeting the needs of the present without compromising the ability of future generations to meet their own needs
Companies can damage the environment both in the manufacturing process and also as a result of the products they produce.
The impact of companies that extract natural resources is especially complicated. What happens when those resources are nonrenewable? Well, some argue that there is no such thing as a nonrenewable resource because as supplies drop, prices will rise and substitutes will emerge to protect the resource that is less available.
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12. Global Warming, Kyoto Protocol
signed to require countries to cut greenhouse gas emissions to 5.2% below 1990 levels between 2008 and 2012
Some countries have adopted stricter requirements
others have not ratified the agreement including
the U.S., China, India
What is global warming? It results from the release of greenhouse gases that trap heat in the atmosphere rather than allowing it to escape. This of course could have catastrophic effects on the environment. While the Kyoto Protocol was designed to correct the problem, some countries have yet to ratify the agreement. The United States which generated 19 percent of the world’s greenhouses gases in 2008, for example, is worried that doing so would slow economic growth so it’s hoping that low-carbon technologies will be developed and resolve the greenhouse gas problem. In fact, President Obama is working on a new framework to replace the Kyoto Protocol. He also supports investment in alternative and renewable energy.
There have been some national and regional efforts to address the problem. The European Union, for example, has set targets below the Kyoto Protocol. In addition, some companies that believe requirements on greenhouse gases are inevitable, are changing their business models regardless of the standards they currently face.
Keep in mind that the legal approach to the issue is to simply comply with local standards, while the ethical approach would suggest that companies need to go further.
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13. Ethical Dimensions of Labor Conditions
Labor issues include: Wages, Child labor, Working conditions, Working hours, Freedom of association
Child labor – ILO estimates 250 million children aged 5–17 years work
Some companies avoid operating in countries where child labor is common. IKEA has responsible policies.
Some companies refuse to hire individuals who want to work long hours.
Today’s multinationals rely on global supply chains. This reality adds another level of concern for them – namely the working conditions of foreign labor forces. Companies doing business in other countries either through FDI or purchasing from independent suppliers deal with a host of issues including ensuring that fair wages are paid and working conditions are safe, meeting the ethical and legal challenges of child labor, and making sure that freedom of association is permitted.
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14. Corporate Codes of Ethics
How should a company behave?
The UN Global Compact establishes guidelines for appropriate behavior in human rights
labor
the environment
anti-corruption
Social Media is playing a constructive role in guiding the corporations
How should companies behave? The United Nations has developed a Global Compact that recommends broad principles for companies to follow in the areas of human rights, labor, the environment, and anti-corruption.
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15. The Pyramid of Corporate Social Responsibility
Source: Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” adaptation of Figure 3, p. 42. Reprinted from Business Horizons, July/Aug Copyright © 1991 by the Foundation for the School of Business at Indiana University. Reprinted with permission. 15

16. Motivations for Corporate Responsibility
Unethical and irresponsible behavior could
result in legal sanctions
result in consumer boycotts
lower employee morale
cost sales because of bad publicity
A code of conduct
sets global policy that must be complied with
communicates the code to employees, suppliers, and subcontractors
ensures that policies are carried out
reports results to external stakeholders
So, you know it’s important for companies to act responsibly because unethical and irresponsible behavior could result in legal sanctions, consumer boycotts, lower employee moral, or lost sales.
To encourage ethical and responsible behavior, firms can establish a code of conduct.
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17. Chapter 11: Discussion Questions
Discuss the three approaches in moral reasoning. Which appeals to you most and why?
Define cultural relativism and normativism. Explain how the concept can be used by the multinationals in a foreign country.
What is corruption? What can we do to combat corruption? Explain.
Discuss the legal and ethical dimension of Corporate Social Responsibility in a globalized world.

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