05 Globalization and Society
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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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05 Globalization and Society
- 1. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-1 Chapter 5 Globalization and Society
- 2. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-2 Learning Objectives 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
- 3. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-3 Introduction Companies must satisfy stakeholders Shareholders Employees Customers Society
- 4. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-4 Foundations of Ethical Behavior Learning Objective 1: To examine the broad foundation of ethical behavior.
- 5. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-5 Foundations of Ethical Behavior Three levels of moral development 1. Preconventional 2. Conventional 3. Postconventional, autonomous, principled
- 6. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-6 Foundations of Ethical Behavior Teleological approach decisions are based on the consequences of the action Utilitarianism an action is right if it produces the greatest amount of good Deontological approach moral judgments are made and moral reasoning occurs independently of consequences
- 7. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-7 Why Do Companies Care? Ethical behavior can help a company develop a competitive advantage avoid being perceived as irresponsible
- 8. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-8 The Cultural and Legal Foundations of Ethical Behavior Learning Objective 2: To demonstrate the cultural and legal foundations of ethical behavior
- 9. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-9 Relativism versus Normativism Relativism ethical truths depend on the groups holding them Normativism there are universal standards of behavior that all cultures should follow
- 10. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-10 Legal Justification: Pro and Con The law is inadequate because Some things that are unethical are not illegal Laws are slow to develop in emerging areas of concern Laws may be based on imprecisely defined moral concepts The law often needs to undergo scrutiny by the courts The law is not very efficient
- 11. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-11 Legal Justification: Pro and Con Legal justification is appropriate because The law embodies many of a country’s moral principles The law provides a clearly defined set of rules The law contains enforceable rules that apply to everyone The law reflects careful and wide-ranging discussions
- 12. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-12 Extraterritoriality Extraterritoriality imposing domestic legal and ethical practices on the foreign subsidiaries of companies headquartered in their jurisdictions
- 13. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-13 Ethics and Corporate Bribery Regardless of the reasons for not using the law as a starting point for ethical behavior, it remains a good starting point Countries looking for solutions to common problems take similar legal steps Consider activities that affect the well-being of people activities that affect the environment
- 14. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-14 Corruption and Bribery Corruption the misuse of entrusted power for private gain Bribes payments or promises to pay cash or anything of value Occurs to obtain government contracts to get public officials to do what they should be doing anyway
- 15. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-15 Corruption and Bribery Where Bribes Are Business As Usual
- 16. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-16 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
- 17. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-17 Ethics and the Environment Learning Objective 3: To discuss the importance of social responsibility when operating internationally, especially in the areas of sustainability
- 18. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-18 Ethics and the 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
- 19. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-19 What is Sustainability? Sustainability meeting the needs of the present without compromising the ability of future generations to meet their own needs Is sustainability good business practice? yes
- 20. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-20 Global Warming, Kyoto Protocol Kyoto Protocol (1997) 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
- 21. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-21 Ethical Dilemmas and Other Business Practices Learning Objective 4: To discuss some key issues in the social activities and consequences of globalized business
- 22. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-22 Ethical Dilemmas in the Pharmaceutical Industry Tiered pricing and other price-related issues reverse engineering WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) generic drugs R&D and the Bottom Line India
- 23. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-23 Ethical Dimensions of Labor Conditions Labor issues include Wages Child labor Working conditions Working hours Freedom of association
- 24. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-24 Ethical Dimensions of Labor Conditions Sources of Worker-Related Pressures in the Global Supply Chain
- 25. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-25 Ethical Dimensions of Labor Conditions Child labor – ILO estimates 250 million children aged 5–17 years work Some companies avoid operating in countries where child labor is common or establish responsible policies in those countries - IKEA Some companies refuse to hire individuals who want to work long hours concerned about exploitation
- 26. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-26 Corporate Codes of Ethics Learning Objective 5: To examine corporate responses to globalization in the form of codes of conduct, among other things
- 27. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-27 Corporate Codes of Ethics How should companies behave? The UN Global Compact establishes guidelines for appropriate behavior in human rights labor the environment anti-corruption
- 28. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-28 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
- 29. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-29 Corporate Ethics in The Future Two trends: There will be greater convergence of proper ethical conduct Individuals will develop skills to address ethical issues Impact of social media Impact of future business and government leaders
- 30. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 5-30 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Notas del editor
- Chapter 5: Globalization and Society
- 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
- It is important to consider international business from the perspective of ethics and social responsibility. Companies must consider the various and often conflicting needs of each of its stakeholders. Shareholders want additional sales and increased productivity. Employees want safer work places and higher compensation. Customers want higher-quality products at lower prices. Society wants more jobs, increased corporate taxes, more corporate support for social services, and more trustworthy behavior by company executives.
- Learning Objective 1: To examine the broad foundation of ethical behavior.
- Individuals have to make decisions about the right way to act in a given situation. In some cases there is universal agreement as to what constitutes right or ethical behavior, but in other situations, it’s much less clear. One way to look at moral development is to examine what happens at three levels. At the preconventional level children learn what’s right and wrong, but may not understand why their behavior is right or wrong. At the conventional level role-conformity is learned from peers and societal laws. Finally, in the post conventional level people internalize moral behavior.
- 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.
- Why do companies care about ethical behavior? Ethical behavior can be important for developing a competitive advantage and to avoid being perceived as irresponsible. Today, many nongovernmental organizations, or NGOs, actively encourage companies to comply with certain standards of ethical behavior.
- Learning Objective 2: To demonstrate the cultural and legal foundations of ethical behavior.
- 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.
- 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.
- Dealing with ethical dilemmas requires managers to balance means and ends. Some argue that the law is a good basis for ethical behavior because it embodies local cultural values.
- Companies that try to use the law to govern their behavior will quickly find out that laws vary from country to country.
- Despite the arguments against using the law as a starting point for ethical behavior, it is the starting point for many companies. Moreover, as countries tackle similar ethical issues, laws will become more similar.
- 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.
- 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.
- 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.
- Learning Objective 3: To discuss the importance of social responsibility when operating internationally, especially in the areas of sustainability.
- 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.
- The idea behind sustainability is to do what’s best for both people and the environment. Today, it’s commonly recognized that sustainability can go hand in hand with good business practice. Moreover it has become an industry in its own right. New companies have emerged that combine the idea of environmental responsibility with profitability to meet the needs of environmentally conscious consumers.
- 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.
- Learning Objective 4: To discuss some key issues in the social activities and consequences of globalized business.
- In addition to the ethical issues related to bribery and global warming, firms also face ethical issues in other parts of their business. Some are industry-specific like the issues that arise in the pharmaceutical industry, others are not industry-specific like labor issues. In the pharmaceutical industry, many firms use tiered pricing whereby they charge a market price for products sold in industrialized countries and a discounted price for products sold in developing countries. Keep in mind though, that drug companies rely on revenue from existing products to fund their R&D. TRIPS allows poor countries to produce generic products for local consumption or import generic products if they themselves don’t have the capacity to produce generics. Pharmaceutical companies worry that the generic products could eventually compromise their sales of real products in developed countries. A third issue for drug companies involves the high cost of developing drugs. The cost of developing drugs is very high in the developed world, but significantly lower in developing countries like India. India has emerged as a major manufacturer of generic drugs and is now moving into developing new drugs.
- 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.
- This Figure shows the multiple pressures external stakeholders place on companies to force them to adopt responsible employment practices in their foreign operations.
- One area that has received special attention is child labor. The International Labor Organization or ILO estimates that some 250 million children work worldwide. Of these, about 5 percent are involved in export industries. Keep in mind when thinking about child labor that some argue that in some cases, children work because their parents don’t earn enough to support their families. Without the additional wages brought home by the child, the family would be worse off. Some companies like IKEA have addressed this dilemma by helping families increase their earning power and establishing bridge schools for children.
- Learning Objective 5: To examine corporate responses to globalization in the form of codes of conduct, among other things.
- 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.
- 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.
- What happens in the future? Well, it’s expected that there will be greater convergence in terms of what constitutes ethical behavior. In addition, as individuals gain more experience in international business they will develop new skills to help them deal with ethical issues. Two other factors that will play into corporate ethics in the future is the role of social media in bring issues into the mainstream and the role of future leaders, who as students today have a greater awareness of social responsibility and ethics than their predecessors.