The Global Environment

Ethics and Social Responsibility

Chapters 3, Hodgetts, Luthans and Doh, International Management: Culture, Strategy and Behavior , 6th edition (New York: McGraw-Hill Irwin, 2006)

OVERVIEW
1. 2.

Ethics in a Global Environment Corporate Social Responsibility

3.

MNC Responses and Global Initiatives

BREAK Case Presentations
Team 1: Colgate Team 2: Nike

4.

Introduction
The impact of globalization In this era of a global economy, MNCs must be concerned with how they carry out their business and their social role in host countries (HLD, p. 54) Why might this be true? Information moves across boarders The negative impacts of globalization Competing in emerging markets

ETHICS IN A GLOBAL ENVIRONMENT

1.

Ethics and international management Major ethical issues and problems confronting MNCs

2.

4.
5.

Why should MNCs care?

How have MNCs responded?

Ethics and International Management

What is ethics?
Ethics is the study of morality and standards of conduct (HLD, p. 57)

How is ethical behavior defined?

Regulations and accounting standards Codes of conduct Social norms

The challenge for international managers

Standards vary from country to country Coordinating compliance can be burdensome

Major Ethical Issues

Corporate behavior
Corruption and lobbying Fraud and misrepresentation Conflicts of interest

Hostile or discriminatory workplaces

Unsafe workplaces Lack of respect for individual rights Discriminatory practices

The social impact of corporate behavior

Market-distorting practices Social inequality Adverse environmental impacts

Ethical Issues Around the World

Japan

Payments to politicians for favorable treatment Concealing customer complaints Unequal status of women in the workplace

Europe
Widespread acceptance of side payments (bribes) as a business cost Discriminatory workplaces

China
Lack of workers rights Weak IP protections/enforcement

TI Corruption Index (2003)

140 120 100 80 60 40 20 0 Corruption Index

Adapted from Figure 32: Corruption Index: Ranking of Least Corrupt to Most

MNC Concerns and Response

Why ethics is vital for business

Increased media and public attention Ethical failures can have damaging effects on workers, managers, investors An ounce of prevention.

MNC responses
Adoption of internal codes of conduct Working through business alliance Supporting the adoption of global standards

CORPORATE SOCIAL RESPONSIBILITY

1.

Definition

2.
3. 4.

Why is CSR Important?

CSR and Sustainability The Importance of Trust and Perception The Role of Nongovernmental Organizations (NGOs)

5.

Definition

Corporate social responsibility (CSR) refers to

Those actions taken by a firm that are intended to benefit society beyond the requirements of the law and the direct interests of the firm (HLD, p. 65)

CSR is generally concerned with

Working conditions The social and environmental impacts of corporate activities (externalities)

Why is CSR Important?

MNCs

are becoming more concerned about CSR. Why?

Is it from the goodness of their hearts? Is it due to external pressure? Is it good for business?

Is

there a trade-off between financial performance and social responsibility?

CSR and Sustainability

In The Triple Bottom Line (2006), Andrew Savitz wrote,

The truly sustainable company would have no need to write checks or give back to the local community, because the companys daily operations would not deprive the community, but would enrich it.

Trust in Leaders
NGO leaders Leaders at the U.N.
Spiritual/religious leaders Leaders of Western Europe Managers of the global economy Managers of the national economy 42 41 52

36
36 35 33 27

Executives of MNCs
Leaders of the U.S.A.

10

20

30

40

50

60

Average Across All 15 Countries Surveyed

Adapted from Figure 3-1: Trust in Leaders: Percentage Saying A Lot and Some Trust

Perceptions of MNCs

TIs 2006 Global Corruption Barometer

Most corrupt: Political parties and legislatures In the middle: the business sector Most trusted: religious bodies and nongovernmental organizations (NGOs)

MNCs face pressure to pay greater attention to CSR

NGOs mobilize public support and opposition MNCs expected to adhere to higher

The Role of NGOs

Emergence of organized civil society

NOGs have altered the global business environment NGO activism has lead to important changes in corporate behavior and governance

Major criticisms of MNCs by NGOs

Exploitation of low-wage workers Environmental abuses Intolerable workplace standards

MNC RESPONSES AND GLOBAL INITIATIVES

1.

MNC Responses to Social Obligations The UN Global Compact Countering Corruption

2. 3.

4.
5.

Corporate Governance
International Assistance

MNC Responses
Internal codes of conduct establish minimal social and environmental standards for global operations Building alliances with NGOs

Citigroup and the Rainforest Action Network (RAN) Pharmaceutical companies , Oxfam and Doctors Without Borders

Committing to international standards

UN Global Compact, SA8000, ISO14000

The UN Global Compact (1)

Table 3-1 Principles of the Global Compact

Human Rights
Principle 1: Support and respect the protection of international human rights within their sphere of influence. Principle 2: Make sure their own corporations are not complicit in human rights abuses.

Adapted from Table 3-1: Principles of the Global Compact

The UN Global Compact (2)

Table 3-1 Principles of the Global Compact

Labor
Principle 3: Freedom of association and the effective recognition of the right to collective bargaining. Principle 4: The elimination of all forms of forced and compulsory labor. Principle 5: The effective abolition of child labor. Principle 6: The elimination of discrimination with respect to employment and occupation.
Adapted from Table 3-1: Principles of the Global Compact

The UN Global Compact (3)

Table 3-1 Principles of the Global Compact

Environment
Principle 7: Support a precautionary approach to environmental challenges. Principle 8: Undertake initiatives to promote greater environmental responsibility. Principle 9: Encourage the development and diffusion of environmentally friendly technologies.
Adapted from Table 3-1: Principles of the Global Compact

The UN Global Compact (4)

Table 3-1 Principles of the Global Compact

Anti-Corruption
Principle 10: Business should work against all forms of corruption, including extortion and bribery.

Adapted from Table 3-1: Principles of the Global Compact

Countering Corruption (1)

Foreign Corrupt Practices Act (1977)

Made it illegal for U.S. firms and their managers to attempt to influence foreign officials through personal payments or political contributions Commits signatories to passing domestic laws against international corruption Establishes a monitoring mechanism 37 signatories; laws adopted in 20 countries

OECD Anti-Bribery Convention (1997)

UN Convention Against Corruption (2003)

Came into force in December 2005 140 signatories; 95 ratifications/accessions

Countering Corruption (2)

Impact of these initiatives

Impact for of FCPA for US MNCs has, overall, been more positive than negative Corruption and bribery continues to be a problem International agreements are a step forward, but need to be implemented through national laws Corruption is linked to poverty In countries that suffer from corruption, the problem is weak institutions The vast majority of people in such countries are only victims of corruption

Corruption and culture

Corporate Governance
Corporate Governance Structure
Distribution of rights and responsibilities Stakeholders Board Managers Shareholders

Spells out the rules and procedures

The system by which business corporations are directed and controlled

Setting objectives Means of attaining objectives Monitoring performance

Making decisions

Corporate Governance
Rules

and regulations differ among countries and regions

U.K. and U. S. are outsider systems
Dispersed ownership of equity; outside investors

European countries mainly insider systems

Ownership more concentrated in holding companies, families or banks

Corporate

governance practices

reflect
Differences in legal systems

Sarbanes-Oxley Act (2002)

In US, for example, firms now operate under Sarbanes-Oxley Act (2002)
CEO and CFO required to approve and declare accurate all financial statements provided to SEC for publication Ensure transparency of all disclosures Make content appropriately accessible for audit and verification

International Assistance
Governments and corporations increase collaboration to provide assistance to communities and locales through global partnerships Best investments

Controlling and preventing AIDS Fighting malnutrition Reducing subsidies and trade restrictions Controlling malaria

Millennium Development Goals

Table 3-3 The U.N. Millennium Development Goals

Goal 1: Eradicate extreme poverty and hunger. Goal 2: Achieve universal primary education. Goal 3: Promote gender equality and empower women. Goal 4: Reduce child mortality. Goal 5: Improve maternal health. Goal 6: Combat HIV/AIDS, malaria, and other diseases. Goal 7: Ensure environmental sustainability. Goal 8: Develop a Global Partnership for Development.
Source: www.unmillenniumproject.org

Adapted from: Table 3-3: The U.N. Millennium Development Goals

A Final Thought
Let us choose to unite the power of markets with the strength of universal ideals
Kofi Annan former UN Secretary General