Globalisation of Ethical Decision Making PDF

Critical Approach & Business Ethics Globalisation of ethical decision making Hein Schellekens www.fhnw.ch Introduction: the end of globalisation? “The end of history”: growing economic interdependence creates global convergence around a set of unive...

Critical Approach & Business Ethics Globalisation of ethical decision making Hein Schellekens www.fhnw.ch Introduction: the end of globalisation? “The end of history”: growing economic interdependence creates global convergence around a set of universal values — freedom, equality, personal dignity, pluralism, human rights. > Globalisation is about the integration of worldviews, products, ideas and culture. However, the last two decades were different: Decrease in world trade, relative to global GDP, mainly due to newly introduced barriers to trade. The result of a geopolitical trend moving against globalisation - toward a world dominated by two or three great trading blocs. Slowdown in immigration flows due to growing nationalistic sentiments and antiglobalisation movements (Brexit, xenophobia, nationalism) Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 2 Globalisation is not over, it is changing Long-term trends suggest a stabilization or slow- down, rather than a collapse. Exports and foreign direct investments are fluctuating but remain at high overall levels. Developments such as on-shoring and the energy transition create new types of interdependencies. Rather than a disintegration, current developments suggest a trend towards diversification and regionalisation > shift from global supply chains to webs. Competing policy frameworks: productivism vs. geo-political realism. Productivism reasserts domestic political priorities without being inimical to an open world economy. Sources: Worldbank, CPB Netherlands Bureau for Economic Policy Analysis Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 3 Ethical considerations in a globalised world We can identify two thematic areas of ethical considerations in the context of globalization: Cross-cultural considerations Ethical issues which arise on the level of businesses and business managers who must decide on the applicability of their own ethical standards in foreign lands, raising questions of ethical relativism and cross-cultural ethical values. Social and political considerations Ethical issues which arise, deliberately or unintentional, through the economic, political and cultural influences that a business (can) have on a culture or country in which it operates. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 4 The end of history? A changing landscape Underlying assumption of globalization: “the universalization of Western liberal democracy as the final form of human government.“ (Fukuyama – The end of history?) Human behavior is (often) driven by forces much deeper than economic and political self-interest: > Thymotic desires; the needs to be seen, respected, appreciated. > A need for a sense of belonging, loyalty to a place and nation. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 5 The ethics of cross-cultural differences Different cultures prioritize different ethical values and principles, on issues ranging from equality for women to the acceptability of bribes or environmental standards. Businesses must understand these cultural differences to develop ethical frameworks that respect and accommodate diverse values and principles, while simultaneously staying committed to its own values. Cross-cultural ethical questions often arise in complex environments where multiple stakeholders, interests, and values are involved. Cross-cultural ethical questions often involve debates between cultural relativism, which holds that ethical standards vary across cultures, and universalism, which posits that certain ethical principles are universally applicable. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 6 Ethics of rights Human beings are entitled to a set of rights, such as the right to life, freedom and property. Builds on a certain notion of individual human life, with accompanying religious and/or political assumptions. The notion of rights implies a duty of others to respect them. Rights theories laid the foundation for constitutional rights and treaties such as the Universal Declaration of Human Rights. Human rights: basic, inalienable, and unconditional entitlements that are inherent to all human beings, regardless of "nationality, place of residence, sex, national Eleanor Roosevelt holding poster of the Universal or ethnic origin, colour, religion, language, or any other Declaration of Human Rights - New York. November 1949. status“ (UDHR Booklet) Critical Approach & Business Ethics - Ethical Theories and Decision-Making www.fhnw.ch 7 Human rights: universalism vs. relativism Cultural relativism Universalism Western bias: the concept of universal human Human Dignity: all humans have inherent rights is biased towards Western values dignity that should be recognized and respected (overemphasizing individual rights). regardless of their culture or geographical location. State Sovereignty: the concept of universal human rights undermines the sovereignty of Protection Against Abuse: universal human states by interfering in their internal affairs and rights are necessary to protect individuals from allowing international organizations or other abuse and oppression that may exist in certain countries to enforce these rights. cultural practices. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 8 Against cultural relativism: some considerations Many moral values and norms are shared by most, if not all, human cultures and societies. These moral values and norms reflect some basic human needs and interests that are common to all people, regardless of their cultural or social background. Human beings share common traits in perception and cognition, which shape our moral judgments and enable us to recognize and respond to moral situations in similar ways, regardless of our cultural or personal differences. The fact that unethical practices exist does not imply that they are ethically accepted within a country or region. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 9 Cultural dimensions Critical Approach & Business Ethics - Globalisation of ethical decision making Source: Hofstede’s Cultural Dimensions Theory www.fhnw.ch 10 Cultural dimensions: comparing India and Switzerland Critical Approach & Business Ethics - Globalisation of ethical decision making Source: Hofstede’s Cultural Dimensions Theory www.fhnw.ch 11 Gift-giving: local custom or bribery? Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 12 Child labour: local norm or abuse of power? Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 13 Marketing: adapting to local norms? Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 14 Responsibilities: Negative and positive duties If ethical relativism is not a coherent and/or desirable position, the question remains: Are there any values that can reasonably be applied across cultures? In what way? A minimalist approach holds that business is free to pursue its economic interests as long as certain minimal moral rights are not violated in the process. > NEGATIVE DUTY NOT TO CAUSE HARM A maximalist approach believes that, given the influence, power, and resources that multinational corporations enjoy, they have a responsibility to provide positive benefits and support for the communities in which they operate. > POSITIVE DUTY TO PROTECT AND SECURE RIGHTS Both views agree that there are ethical standards that can be applied cross-culturally. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 15 The Ruggie principles The ‘United Nations Guiding Principles on Business and Human Rights’ (UNGPs) or “Ruggie Principles” are a set of global standards for preventing and addressing the risk of adverse impacts on human rights linked to business activity. Business are expected to carry out human rights due diligence to identify, prevent, mitigate and account for how they address their actual and potential adverse impacts. The UNGPs are build on three main pillars: > The state duty to protect human rights > The corporate responsibility to respect human rights > Access to remedy for victims of business-related abuses The UNGPs have been criticized for their lack of enforcing mechanisms (voluntary soft-law) and the language in which the principles are described («responsibilities» rather then «obligations»). Critical Approach & Business Ethics - Ethical Theories and Decision-Making www.fhnw.ch 16 The Ruggie Principles: a minimalist approach According to the Ruggie Principles, a positive duty to protect and secure rights is assigned to governments. Business institutions are assigned only the negative duty to respect rights and cause no harm. On this view, businesses have no responsibilities for securing rights, nor do they have any positive duties to do good or to ameliorate harms caused by others. The minimalist interpretation has (at least) two main limitations: The line between negative duties to cause no harm and the positive duty to provide goods is often not as clear as the framework suggests. The framework downplays the role that business can play in determining what governments do to protect and secure rights. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 17 Human rights due diligence in (in)action Nestlé USA, Inc. v. Doe: Supreme Court case in the United States > Six men from Mali sued Nestle and Cargill in the U.S.. The men claim they were forced to harvest cocoa pods on cacao plantations in Ivory Coast when they were children. The plantations supplied to international chocolate giants and the men claim that Nestle should have known about the human rights abuses in its suppliers' operations. The Supreme Court ruled the claim could not be brought under the Alien Tort Statute, which lets non- U.S. citizens seek damages in American courts in certain instances. BOTTOM LINE: Lack of international legislative power! Critical Approach & Business Ethics - Ethical Theories and Decision-Making www.fhnw.ch 18 The UN Global Compact The UN Global Compact is built around ten principles in the areas of human rights, labor, environment, and anti- corruption. The UN Global Compact is a voluntary initiative, meaning that companies can choose to participate and commit to implementing the ten principles. Participating companies are expected to report annually on their progress in implementing the ten principles. Criticism has been pointing at a lack of enforcement mechanisms, the limited scope and a focus on corporate, rather than societal interests. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 19 Globalisation: a shifting power balance Globalisation – combined with privatisation and deregulation - encourage(d) a shift in power from national governments to multi-national corporations. Driving force behind this trend is the “corporate power of transnational withdrawal” National governments unwillingly create a race to the bottom by competing with each other to create favourable business conditions – often at the expense regulatory requirements or by reducing corporate tax rates. Two extreme outcomes of the race to the bottom are tax havens and special economic zones. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch Special economic zones A special economic zone (SEZ) is an area in which the business and trade laws are different from the rest of the country. Typically includes preferential tax rates (“tax holidays”) and more relaxed regulations. SEZs have spread rapidly over the past 20 years, including in many low- and middle-income countries. Proponents argue that SEZs is an effective policy tool to promote economic development. SEZs are critisised for facilitating land expropriations, poor labour conditions and loss of public revenues. Source: UNCTAD World Investment Report 2019 Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 21 Case: Investments at the expense of labour rights? Suppose you work as a government official. Your goal is to increase foreign direct investments (FDI) to your country. Several Asian electronics companies show interest in opening production facilities in your country – under the condition they can operate within a yet to be established SEZ. The SEZ would offer tax breaks, cheap land, and direct grants. It would also involve precarious labor conditions and limited governmental oversight. > Would you compromise on labour standards to attract foreign investment? Use the different ethical theories to argue why (not). Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 22 Tax havens Tax havens are places with very low tax rates for non-domiciled investors. Tax havens offer minimal tax rates on income, attracting businesses seeking to reduce tax liabilities > offshoring through shell companies Tax haven jurisdictions have strict confidentiality laws that protect the identities of account holders and beneficial owners. Use of tax havens results in a loss of tax revenues to countries which are not tax havens. Estimated to be US$100–250 billion per annum. Thin line between tax avoidance and tax evasion. Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 23 The corporation as a geopolitical actor Geopolitical rivalry is leading to the politicisation and securitisation of many aspects of the global economy. Corporations are under increasing scrutiny of how they act and react to geopolitical developments. Corporations face increasing pressure to choose sides in political or military crises, trade disputes or raw material conflicts. The role of corporations as geopolitical actors demands of them to assess their role in either increasing or mitigating (national) security risks. Most notably in the case of dual-use goods and services — items and services with both military and civilian purposes. In addition, political movements in recent times have argued for the corporation’s duty to one’s home country (national loyalty). Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch Reality check: doing business in Russia In the face of widespread governmental sanctions applied to Russia after the invasion of Ukraine, foreign companies had to decide whether they would continue their business activities in Russia. > What would your reasoning be if you were in a position to advise senior executives about continuing to do business in Russia following the invasion? > Would your advice depend on the nature of the business? Why? > Would a minimalist or a maximalist approach come to different answers? Critical Approach & Business Ethics - Globalisation of ethical decision making www.fhnw.ch 25  18 U N D E R S TA N D I N G B U S I N E S S E T H I C S of the book in particular we will discuss in much fuller detail business ethics issues in CSOs (Chapter 10) and government (Chapter 11). Before we move on though, we need to consider another important context—namely the global nature of business ethics today. Globalization: a key context for business ethics? Globalization has become one of the most prominent buzzwords of recent times. Whether in newspaper articles, politicians’ speeches, or business leaders’ press confer- ences, the ‘G-word’ is frequently identified as one of the most important issues in con- temporary society. In the business community, in particular, there has been considerable enthusiasm about globalization. Businesses search for new employees worldwide, sup- ply chains span multiple continents, and global brands such as Coca-Cola, Adidas and Toyota are now an everyday feature even in the remotest African village. But as much as many businesses (as well as many consumers and employees) have enjoyed the fruits of globalization, they have also experienced a downside. As William Parrett, the former Chief Executive Officer of Deloitte Touche Tohmatsu (one of the ‘Big Four’ accounting firms), commented at the World Economic Forum (WEF) in Davos: One effect of globalization has been that risk of all kinds—not just fiscal, but also physical—have increased for businesses, no matter where they operate. Information travels far and fast, confidentiality is difficult to maintain, markets are interdependent and events in far-flung places can have immense impact virtually anywhere in the world. So, globalization clearly has some negative effects, even for the business community. But beyond this, it is significant that over the past two decades a significant ‘anti-glo- balization’ protest movement has also emerged. Some meetings of global organizations such as the WEF, the World Trade Organization (WTO), or the G8, for example, have been accompanied by criticism and occasionally even violent protest. Hackers have tar- geted global companies such as Amazon and Sony, while successive battles over fair trade, poverty, food prices, water access, and financial stability have kept the ethical spotlight on the process of globalization. The ‘Occupy’ movement, which itself morphed into a global phenomenon within just a few weeks in 2011, also revitalized a strident critique of ‘corporate globalization’.6 Race to the In the context of business ethics, this controversy over globalization plays a crucial bottom role. After all, corporations—most notably multinational corporations (MNCs)—are at A process whereby the centre of the public’s criticism on globalization. They are accused of exploiting work- multinationals ers in developing countries, destroying the environment, and, by abusing their economic pitch developing countries against power, engaging developing countries in a so-called ‘race to the bottom’. However each other by allocating foreign true these accusations are in practice, there is no doubt that globalization is the most direct investment current and demanding arena in which corporations have to define and legitimatize the to countries that can offer ‘rights and wrongs’ of their behaviour. them the most favourable conditions in terms of low tax What is globalization? rates, low levels of environmental Globalization is not only a very controversial topic in the public debate; it is also a very regulation, contested term in academic discourse.7 This is partly due to controversy about its merits and restricted workers’ rights. and downsides, as we have just alluded to. Moreover, it often gets mixed up with similar  I ntr o ducing B usiness E thics 19 ideas such as ‘internationalization’, ‘Westernization’, or ‘homogenisation’ (Scholte 2005). While we can say that globalization has many facets, it is useful to understand why it is new and—in the context of this book—what its influence is on the role of business. Let us first consider some recent examples that get to heart of what globalization is. The countries of the European Union have been in various states of financial cri- sis since 2008. In particular, the fiscal problems of Greece, Ireland, Spain, and Italy have at different times had a substantial effect not only on the wider system of state finances in the countries of the eurozone, but far beyond in global financial markets. Globalization entails that events, which have local roots, have knock-on effects far beyond in seemingly disconnected places. Global climate change has gradually been acknowledged as a critical problem to address across the world. While some companies have taken steps to reduce their emissions and a number of countries have issued regulations limiting greenhouse gas emissions, it is clear that solutions to this global problem can only be achieved if we develop global agreements. The Kyoto Protocol was a first step, but the spate of intergovern- mental conferences in Cancun, Copenhagen, Durban, Doha, and Warsaw over recent years make it very clear that global problems need global solutions—and finding these solutions has become one of the big unresolved challenges in managing global issues. Luckily, most of us have not been personally affected by acts of terror. But we all are affected by terrorism as we have to go through enhanced security checks in airports, public buildings or mass events, or have encountered difficulties in getting a foreign visa—just to name some examples. Globalization has led to a situation where events, people or ideas from faraway places can have a very palpable effect on people in otherwise unconnected locations and situations. The new and game-changing feature ‘globalization’ is that it makes real-time social, political, economic, and cultural exchanges possible between people or organizations without any need for direct physical contact. Globalization makes these interactions Globalization The ongoing possible regardless of how close or how far away the different partners are actually lo- integration of cated from each other. political, social, and economic To get a good grasp on what globalization means, two main developments in the last interactions at few decades are particularly important. the transnational level, regardless The first development is technological in nature. Modern communications technology, of physical from the telephone through to the internet, open up the possibility of connecting and proximity or distance. interacting with people despite the fact that there are large geographical distances between them. Furthermore, the rapid development of global transportation technologies allows people to easily meet with other people all over the globe. While Marco Polo had to travel for many months before he finally arrived in China, people today can step on a plane and, after a passable meal and a short sleep, arrive some time later on the other side of the globe. Territorial distances play a less and less important role today. The people we do business with, or that we make friends with, no longer necessarily have to be in the same place as us. The second development is political in nature. Territorial borders have been the main ob- stacles to worldwide connections between people. Only 25 years ago it was still largely im- possible to enter the countries in the Eastern bloc without lengthy visa procedures, and even then, interactions between people from the two sides were very limited. With the fall of the iron curtain and substantial liberalization efforts elsewhere (for instance within the EU), 20 U N D E R S TA N D I N G B U S I N E S S E T H I C S national borders have been eroded and, in many cases, have even been abolished. In Europe, you can drive from Lapland to Sicily without stopping at a single national border. These two developments mainly account for the massive proliferation and spread in supra-territorial connections. These connections may not always necessarily have a global spread in the literal sense of worldwide coverage. The new thing about these con- nections is that they no longer need a geographical territory to take place, and territorial distances and borders no longer restrict them (Scholte 2005). We all enjoy various elements of globalization already. For instance, due to the modern communication infrastructure, many of us could closely follow the 2014 FIFA World Cup or the 2016 Olympics in Brazil live on TV—regardless of our actual location at the time. Such events are global not in the sense that they actually happen all over the world, but in the sense that billions of people follow them, and to some extent take part in them, regardless of the fact that they are in Milan, Manchester, or Manila. Or think of many of our consumption decisions: we can potentially drink the same Heineken beer, drive the same model of Toyota car, or buy the same expensive Rolex watch almost wherever we are in the world—we do not have to be in Amsterdam, Tokyo, or Geneva. Certain global products are available all over the world and if we go out to eat ‘Chinese’, ‘Mexican’, or ‘French’ we normally do not have to travel to a certain geographical territory. Or think of the way we do our personal banking: our banks no longer store or provide access to our money in a single, geographic location. Most people have a credit card that allows them to withdraw money all over the world, or we can pay our bills via internet banking at home in Istanbul or while sitting in a cafe in India. Global communications, global products, and global financial systems and capital markets are only the most striking examples of globalization in the world economy. There are many other areas where globalization in this sense is a significant social, eco- nomic, and political process. As we shall now see, globalization also has significant im- plications for business ethics. Globalization and business ethics: a new global space to manage Globalization as defined in terms of the closer integration of economic activities is par- ticularly relevant for business ethics, and this is evident in three main areas—culture, law, and accountability. Cultural issues As business becomes less fixed territorially, so corporations increasingly engage in overseas markets, suddenly finding themselves confronted with new and diverse, sometimes even contradictory ethical demands. Moral values that were taken for granted in the home mar- ket may get questioned as soon as corporations enter foreign markets (Donaldson 1996). For example, attitudes to racial and gender diversity in North America may differ significantly to those in Middle Eastern countries. Similarly, Chinese people might regard it as more un- ethical to sack employees in times of economic downturn than would be typical in Europe. Again, while Scandinavians tend to regard child labour as strictly unethical, some South Asian countries might have a different approach. Or consider the case of IKEA, which in 2012 was found to have edited out pictures of women in the Saudi Arabian edition of their otherwise globally homogeneous catalogue.8 Was IKEA right to adapt to local standards or was it wrong to compromise its own standards of anti-discrimination and human rights?  I ntr o ducing B usiness E thics 21 The reason why there is a potential for such problems is that while globalization re- sults in the ‘deterritorialization’ (Scholte 2005) of some processes and activities, in many cases there is still a close connection between the local culture, including moral values, and a certain geographical region. For example, Europeans largely disapprove of capital punishment, while many Americans appear to regard it as morally acceptable. Women can freely sunbathe topless on most European beaches, yet in some states of America they can be fined for doing so—and in Pakistan they would be expected to cover up much more. This is one of the contradictions of globalization. On the one hand, glo- balization makes regional difference less important since it brings regions together and encourages a more uniform ‘global culture’. On the other hand, in eroding the divisions of geographical distances, globalization reveals economic, political, and cultural differ- ences and confronts people with them. This dialectical effect has been a growing subject for research over the past decade (see, for instance, Boli and Lechner 2000). ? THINK THEORY Capital punishment and topless sunbathing are interesting issues to think about when VISIT THE considering globalization theory and cultural dimensions of ethics, but they have little ONLINE to do with business responsibility as such. Can you think of some similar examples that RESOURCE CENTRE a business might have to deal with? for a short response to this feature Legal issues A second aspect is closely linked to what we said previously about the relationship be- tween ethics and law. The more economic transactions lose their connection to a certain territorial entity, the more they escape the control of the respective national govern- ments. The power of a government has traditionally been confined to a certain territory; for example, French laws are only binding on French territory, UK laws on UK territory, and so on. As soon as a company leaves its home territory and moves part of its produc- tion chain to, for example, an emerging economy, the legal framework becomes very different. Consequently, managers can no longer simply rely on the legal framework when deciding on the right or wrong of certain business practices. If, as we said earlier (see Business ethics and the law, pp. 5–8), business ethics largely begins where the law ends, then globalization increases the demand for business ethics because globalized economic activities are beyond the control of national (territorial) governments. One striking example of how companies might skilfully benefit from these confines of the law are the tax avoidance strategies of Apple, Google, Starbucks, and Amazon, who were all criticised in the 2010s for paying only marginal amounts of tax. Through a complex system of transfer pricing between subsidiaries and by exploiting differences in tax legis- lation in various countries of operation these companies were able to minimize their tax payment without breaking the letter of the law in any particular jurisdiction.9 Accountability issues Taking a closer look at global activities, it is easy to identify corporations as a domi- nant actor on the global stage: multinationals own the mass media that influence much of the information and entertainment we are exposed to, they supply global products, 22 U N D E R S TA N D I N G B U S I N E S S E T H I C S they pay our salaries, and they pay (directly or indirectly) much of the taxes that keep governments running. Furthermore, one could argue that MNCs are economically as powerful as many governments. For example, in 2012 the gross domestic product (GDP) of Poland, South Africa, and Finland was about the same as the revenue of Shell, BP, and Chevron (respectively) (Steger 2013). However, whereas the Polish government has to be accountable to the Polish people and must face elections on a regular basis, the manag- ers of Shell are formally accountable only to the relatively small group of people who own shares in the company. The communities in the Netherlands, the UK or Nigeria that depend directly on those companies’ investment decisions, however, have next to no influence on them and, unlike a regional or national government, Shell, BP and Chevron are, at least in principle, not legally accountable to these constituencies. What this means is that the more economic activities become global, the less govern- ments can control them, and the less they are open to democratic control by the people affected by them. Consequently, the call for direct (democratic) accountability of MNCs has become louder in recent years, as evidenced, for example, by the Occupy move- ment that we mentioned above. Put simply, globalization leads to a growing demand for corporate accountability. We shall examine this argument fully in Chapter 2, but this is a clear example of why business ethics is in demand since it offers the potential for corporations to examine and respond to the claims made on them by various stakehold- ers. Indeed, globalization can be seen to affect all stakeholders of the corporation, as we shall discuss in Part B of this book. Some examples of these impacts are presented in Figure 1.5. Globalization and business ethics: new local challenges to address So far in this section we have accentuated the homogenizing effects of globaliza- tion: it creates a new space where business faces similar ethical questions worldwide. Paradoxically though, globalization also has an opposite effect on business: the more business becomes global, the more it gets exposed to regions and countries where ethi- cal values and practices are still vastly different. From this perspective it is important to note that the formal academic subject of business ethics is largely a North American invention and has most of its roots and a large part of its traditions in the US, while, for instance in Europe, it only became visible from the beginning of the 1980s (van Luijk 2001). In presenting a text from an international perspective, we believe that although many of the original ideas in business ethics have been, and still are, very useful in, say, the African, Latin American, or Asian context, there are definite limits to the transfer of North American approaches into the rest of the world. For instance, the European con- text poses some distinctly different questions, which are not necessarily on the agenda from an American perspective (Spence 2002). Likewise, Asia has quite a distinct histori- cal, philosophical, and religious legacy, giving rise to a different approach to the study, as well as the practice, of business ethics in Asia (Romar 2004; Elankumaran, Seal, and Hashmi 2005; Ip 2009). At another level, it is also critical to think beyond developed countries in shaping our knowledge and understanding of business ethics. After all, it is in emerging economies and the developing world where many ethical issues in business are most pressing (Visser 2008), and insights from Asian, African, and Latin American ethical perspectives are therefore essential for situating business ethics in a truly global context.  I ntr o ducing B usiness E thics 23 Stakeholders Ethical impacts of globalization Shareholders Globalization provides potential for greater profitability, but also greater risks. Lack of regulation of global financial markets, leading to additional financial risks and instability. Employees Corporations outsource production to developing countries in order to reduce costs in global marketplace—this provides jobs but also raises the potential for exploitation of employees through poor working conditions. Consumers Global products provide social benefits to consumers across the globe but may also meet protests about cultural imperialism and Westernization. Globalization can bring cheaper prices to customers, but vulnerable consumers in developing countries may also face the possibility of exploitation by MNCs. Suppliers and Suppliers in developing countries face regulation from MNCs through competitors supply chain management. Small scale indigenous competitors are exposed to powerful global players. Civil society Global business activity brings the company in direct interaction with (pressure groups, local communities thereby raising the possibility for erosion of traditional NGOs, local community life. Globally active pressure groups emerge with aim to communities) ‘police’ the corporation in countries where governments are weak and corrupt. Government and Globalization weakens governments and increases the corporate regulation responsibility for jobs, welfare, maintenance of ethical standards, etc. Globalization also confronts governments with corporations from regions with different cultural expectations about issues such as bribery, corruption, taxation, and philanthropy. Figure 1.5 Examples of the ethical impacts of globalization on different stakeholder groups International variety in approaches to business ethics Various authors have claimed that there are certain fundamental differences in the way in which business ethics is practised and studied in different parts of the world. Much of this work initially focused on Europe and North America (e.g. van Luijk 1990; Vogel 1992, 1998; Koehn 1999), but there have also been studies emerging since then on Africa (Rossouw 2005; Visser et al. 2006), Australasia (Moon 1995; Kimber and Lipton 2005), Latin America (Haslam 2007; Puppim de Oliveira and Vargas 2006), and Asia (Kimber and Lipton 2005; Donleavy et al. 2008; Ip 2009). In this section, we shall look at these differences in relation to six key questions and discuss some of the specifics of business ethics in various regions or countries globally. An example of this discussion with regard to three key regions is summarized in Figure 1.6. In so doing, we recognize that, given their cultural diversity and geographical spread, some regions such as Africa or Asia are perhaps harder to generalize about than Europe or North America. Ethics in Action 1.2 provides a flavour of the differences and commonalities of business eth- ics in East Asia. However, the point is not to make an absolutely definitive statement about business ethics in different regions of the world, but to show that any approach to business ethics is likely to be driven by the cultural and historical context of the region or country.  24 U N D E R S TA N D I N G B U S I N E S S E T H I C S Europe North America Asia Who is responsible Social control by the The individual Top management for ethical conduct in collective business? Who is the key actor in Government, trade The corporation Government, business ethics? unions, corporate corporations associations What are the key Negotiated legal Corporate codes of Managerial guidelines for ethical framework of business ethics discretion behaviour? What are the key issues Social issues in Misconduct and Corporate in business ethics? organizing the immorality in single governance and framework of business decisions situations accountability What is the dominant Formalized multiple Focus on shareholder Implicit multiple stakeholder stakeholder approach value stakeholder management approach, benign approach? managerialism Figure 1.6 Regional differences from a business ethics perspective: the example of Europe, North America, and Asia ETHICS IN ACTION 1.2 http://www.ethicalcorp.com Local rules in east Asia VISIT THE ONLINE Paul French, 2 May 2013 RESOURCE CENTRE for links to While China seems to be the centre of attention of many debates on business ethics, useful sources of further it is instructive to look beyond to east Asia in general, as these countries are facing information many of the same corporate responsibility problems as China. In most places, however, local issues take precedence. Malaysia’s Astro, the coun- try’s largest Pay TV service, has been behind a major deep-sea cleaning process in Sabah on the Borneo coast involving 139 divers cleaning the seabed and relocating precious coral. Astro has of course televised much of the underwater action, raising awareness of seabed conservation. Corporate responsibility has been promoted in Malaysia in recent years through the actions of the Kuala Lumpur stock exchange, pushing companies to include corporate responsibility statements in their filings. Con- sequently, many Malaysian main board-listed companies have a prominent corporate responsibility policy. However, James Pereira, a local reputation and marketing con- sultant, believes many companies have a way to go yet, saying that a lot use corporate responsibility activities as a tax write-off and have a ‘been there, done that’ attitude. Singapore has an advanced corporate responsibility sector, as might be expected of a modern service-oriented economy. Certainly the rush of new global companies, especially in the finance sector, that have expanded their operations there in recent years has boosted this responsibility trend.  I ntr o ducing B usiness E thics 25 Many have been seeking to be good community citizens. For instance, the local DBS Bank has undertaken a programme to open up the Marina Bay harbour to the public. The company has sponsored the DBS Marina Regatta and a DBS Social Enter- prise event, working with the government and community organisations, including the Urban Redevelopment Authority, the Singapore Dragon Boat Association and the Singapore Sailing Federation. Across in Indonesia corporate responsibility is at a slightly earlier stage than in Malaysia or Singapore, and still more focused on philanthropy. One interesting initia- tive is from the country’s largest pawnshop operator, Pegadaian, a state-run com- pany. Aware of the fact that pawnshops don’t always have the best reputation among many consumers, being seen by some as part of the problem of poverty rather than a solution, Pegadaian (which is highly profitable) recently donated an ambulance to a charity for the poor and announced the provision of free health services in central Jakarta. The company also sponsors three orphanages. Other firms operating in Indonesia also suffer from poor PR and have been ramp- ing up their efforts to counter the negative publicity their operations attract. The oil and gas industry is one such sector, with land acquisitions a particularly contentious issue. Pertamina EP, part of the state energy firm, is one company that has run into local community objections over land acquisitions. After some demonstrations and problems between guards and local communities in Palembang, Pertamina has sig- nificantly increased its stakeholder engagement activities, liaising with local groups. Critics say it is just trying to buy off local objectors, but others see this as the start of a possibly more progressive outreach programme by the energy giant. Cambodia, Laos, and Vietnam are attracting attention as alternative sourcing points for China. However, issues as diverse as workers’ rights and preservation of heritage are all appearing. For instance, the Angkor Gold Corporation, an American publicly traded gold explorer operating in Cambodia, has launched a corporate responsibility programme after locals voiced concerns about its activities. Angkor Gold is sponsoring elected village development committees as well as plant- ing fruit trees, digging wells and running family planning and health educations sessions. In communist Vietnam, corporate responsibility faces many of the challenges seen in China. But that doesn’t mean that nothing is happening. The Hanoi-based Viet- nam Chamber of Commerce and Industry has started monitoring the local corpo- rate responsibility situation and instituted an annual awards scheme. It seems foreign companies will lead the way—for instance, HSBC recently partnered with the Dariu Foundation and Maison Chance to work with disadvantaged Vietnamese children through projects worth $500,000. This is a pattern becoming more common across southeast Asia—initiatives are popping up in response to local issues, both in developed economies and, perhaps more importantly, in those emerging markets where corporate responsibility has pre- viously been a very secondary consideration. Sources Ethical Corporation, Paul French, 2 May 2013, http://www.ethicalcorp.com. Reproduced with the kind permission of Ethical Corporation.  26 U N D E R S TA N D I N G B U S I N E S S E T H I C S ? THINK THEORY Looking at different east Asian countries, what are common themes in responsible VISIT THE ONLINE business practices? Also, reflect on the differences between these countries. Discuss RESOURCE potential reasons for both the commonalities and differences. CENTRE for a short response to this feature Who is responsible for ethical conduct in business? North America is typically said to exhibit a strong culture of individualism, suggest- ing that individuals are responsible for their own success. Hence, if there are demands for solving ethical questions, it would be the individual who is usually expected to be responsible for making the right choices. There is some impressive literature dealing with individual ethical decision-making emanating from the US (as we shall discuss in Chapter 4), and many US textbooks focus on decision-making at this level (Ferrell et al. 2012; Treviño and Nelson 2014). In Asia, however, hierarchy is much more im- portant, and so top management is typically seen as responsible for ethical conduct. Similar perspectives can be found in Africa or India, where long-standing tribal and close-knit family-based communities tend to embed the individual in a broader social context in which responsibility for decisions is more a collective than an individual matter. Somewhat similarly, in Europe it has traditionally been thought that it is not the individual business person, nor even the single company, that is primarily ex- pected to be responsible for solving ethical dilemmas in business. Rather, it is a col- lective and overarching institution, usually the state. European business ethics has therefore tended to focus more on the choice of constraints compared with the North American approach of focusing on choice within constraints (Enderle 1996). A specific flavour of this approach can then be found in Central Europe and post-communist countries where individuals tend to assign responsibility for ethical behaviour primar- ily to the larger collective or bureaucratic entities that govern economic or social life (Lewicka-Strzalecka 2006). Skill check Comparative analysis of business ethics. Understanding the differences in cultural norms and moral values between different countries and regions is an im- portant skill in business ethics. Comparative analysis helps you to understand that key issues, actors and guidelines for ethical conduct always need to be understood in the specific geographic context where a business operates. Who is the key actor in business ethics? In North America, in most (but not all) areas, the institutional framework of business ethics has traditionally been fairly loose so that the key actor has tended to be the cor- poration. This, at least partly, explains the rather practical approach to business ethics evident in the North American approach (Enderle 1996). Similarly, given that business ethics is particularly important when the law has not yet codified the ‘right’ or ‘wrong’  I ntr o ducing B usiness E thics 27 of a certain action, this would also seem to partially explain the longer legacy of business ethics as an academic subject in North America. However, the identification of the cor- poration as the key actor in North America also means that corporate misconduct tends to face greater enforcement and harsher penalties (Vogel 1992). Conversely, in most European countries there is quite a dense network of regulation on most of the ethically important issues for business. Workers’ rights, social and medi- cal care, and environmental issues are only a few examples where it could be said that European companies have not traditionally had to give much consideration to the moral values that should guide their decisions. These questions have, at least in principle, been tackled by the government in setting up a tight institutional framework for businesses. Examples range from the Scandinavian welfare state to the German codetermination system and the strong position of trade unions and workers’ rights in France (Matten and Moon 2008). In Europe, governments, trade unions, and corporate associations have therefore been key actors in business ethics. A similar focus on government tends to be evident in the Asian perspective, although it is corporations rather than trade unions that have typi- cally been involved with governments in this activity. For example, in Japan, firms are interconnected with one another and with the government through keiretsu arrange- ments, while South Korea exhibits a similar chaebol structure. In China, many large cor- porations are still state owned. Hence, engagements with business ethics in Asia often look to both governments and corporations as key actors. Moving to developing countries in Africa or Latin America, however, the so-called ‘third sector’, i.e. non-governmental organizations (NGOs), is often a key player within the arena of business ethics. One of the reasons for this lies in the fact that governments in these regions often are underfunded or even corrupt, and therefore provide limited guidance or legal frameworks for ethical decision-making. In Latin America, for instance, NGOs are the key players in organizing, incentivizing, or co- ordinating ethical initiatives by business (Haslam 2007). NGOs also partner with business (and governments) in public-private partnerships to address urgent ethical issues, such as poverty, disease, or lack of education—as we will discuss in more detail in Chapter 10. What are the key ethical guidelines for ethical behaviour? The differing character and extent of the legal frameworks globally to some degree ne- cessitates different approaches to business ethics. Similarly, it also suggests that whereas the key practical guidelines for ethical behaviour in some regions, such as in Europe, tend to be codified in the negotiated legal framework of business, in Asia there is greater managerial discretion, giving rise to a more organic and flexible approach to ethical decision-making that places considerable emphasis on personal virtues and collective responsibility and relationships (Koehn 1999). Notably, personal and professional life are not seen to be distinct, as is typically the case in North America and Europe (Parker 1998a: 128). Indeed, in North America, there is a strong reliance on rules and guidelines for business conduct, but rather than coming from government (as in Europe), these tend to come from businesses themselves in the form of corporate codes of ethics and in- ternal compliance programmes (Enderle 1996). Nonetheless, these are often put in place to avoid the potentially hefty fines that accompany breaches of the US federal sentenc- ing guidelines (Vogel 1992). 28 U N D E R S TA N D I N G B U S I N E S S E T H I C S As the Asian context suggests, these differences become even more pronounced once we leave the context of Western and industrialized countries. Deon Rossouw (2005: 98), for instance, argues that business ethics in the African context is predicated on the phi- losophy of Ubuntu, a value system in which the ‘commitment to co-existence, consensus, and consultation’ is prized as the highest value in human interaction. While Rossouw in- fers that Ubuntu explains the absence of shareholder supremacy in African corporate gov- ernance, the somewhat similar Chinese notion of guanxi exposes a general tension with these traditional values: they sometimes fly in the face of certain fundamental Western ethical beliefs. The guanxi idea puts close, reciprocal, trusting interpersonal ties at the core of human interaction, which has led some commentators to mistakenly question whether in Chinese business relations, the guanxi-informed practice of gift-giving in fact amounts to little less than an indifference to bribery (Ho and Redfern 2010). What are the key issues in business ethics? This contrast is often manifested in the types of issues deemed important within busi- ness ethics in different contexts. This becomes evident when looking at contemporary US business ethics textbooks, since they tend to accord a considerable amount of space to issues such as privacy, workers’ rights, salary issues, and whistleblowing, to name just a few. These are deemed to be the responsibility of the individual company, since the state, in principle, does not take full responsibility for regulating these issues. The European approach, in contrast, has tended to focus more on social issues in organizing the framework of business. Hence, European business ethics textbooks have tended to include greater consideration of subjects such as the ethics of capitalism and economic rationality (Enderle 1996). In Asia, concerns about the responsible organi- zation of business have given rise to a focus on ethical issues in relation to corporate governance and the accountability of management for practices such as mismanage- ment and corruption. Specifically in China, the latter issue is high on the agenda of the government, exemplified by the fact that some of the biggest business ethics scandals to hit the country have led to arrests and even the execution of corrupt officials (Ip 2009). In the developing world in general, there seems to be a predominant focus on the ethi- cal obligations of business to provide jobs that pay a living wage, and to provide fairly priced goods and services (Visser 2008). Next to these basic economic functions of busi- ness, ethical considerations in the developing world place a particular expectation on multinationals—particularly foreign ones—to contribute to local development, health care, and education. What is the most dominant stakeholder management approach? Another important aspect that follows from the above is the variety in institutional ar- rangements shaping the form and purpose of corporations in different countries (Morgan et al. 2010). European corporations in general are smaller than their North American counterparts, and may be more likely to see multiple stakeholders (as opposed to simply shareholders) as the focus of corporate activity. European, African, and Asian models of capitalism are not so dominated by the drive for shareholder value maximization com- pared with North American companies. European companies are often managed by large executive and supervisory boards, with a considerable amount of interlocking ownership structures between companies and close bank relations (van Luijk 1990). Asian com- panies also feature a great deal of structural integration, but the interests of employees  I ntr o ducing B usiness E thics 29 and other stakeholders are often promoted through cultural norms of trust and implicit duties, rather than formal governance mechanisms (Johnson, Whittington, and Scholes 2011). This sort of arrangement might be thought of as a form of ‘benign managerial- ism’ (Parkinson 2003: 493), an approach that has a long-standing tradition in countries such as India, where companies like Tata have attempted to honour ethical obligations to multiple stakeholders for decades (Elankumaran et al. 2005). This approach is also visible in Latin America, where much of the economy is dominated by smaller, often family-owned firms and where the key stakeholder from a business ethics perspective is the employee (Vives 2007). Sources of difference between different regions globally From where have such differences emerged? Comparing the US and Europe—two oth- erwise very similar contexts seen from a global perspective—can serve as an instructive backdrop in answering this question. Many of these differences in business ethics are rooted in the differing cultural, economic, and religious histories of the Europe and the US (Palazzo 2002). One argument here is that the influence of the Catholic and Lutheran Protestant religions in Europe led to a collective approach to organizing eco- nomic life, whereas the individual focus of the Calvinist-Protestant religion in the US led to the rise of a distinctly different capitalist economic system (Weber 1905). Even though today we tend to talk about much of Europe and North America as secularized, there are significant differences in the religious legacies of the two regions—which in turn have a significant impact on the different approaches to business ethics in differ- ent regions. This becomes even more pronounced in other parts of the world where the active practice of religion is sometimes still more embedded than in the West. In Asia, the in- fluence of Hinduism, Buddhism, and Confucianism, for example, could be said to have led to a more pragmatic, relational, and flexible approach to ethical decision-making (Koehn 1999). The Muslim world, although diverse in its spread over three continents, is characterized by a number of ethical principles, of which justice/fairness, trusteeship and integrity (‘unity’) can be considered core (Rice 1999). Such religiously informed ethi- cal values sometimes can have far-reaching implications for business, as the example of Islamic financial systems shows (Nomani 2008) (see Chapter 6). Next to religious influence, differences in business ethics can also have other historic roots. Georges Enderle (1996) suggests that the interest in broader macro issues of busi- ness ethics in Europe can also be partly traced to the need to rebuild institutions after the Second World War and in the aftermath of economic and political restructuring in Eastern Europe. Moreover, Vogel (1992) argues further that the focus on individual action and codes of conduct in the US has been substantially driven by the impact of widely publicized corporate scandals that have focused attention on the need to avoid ethical violation at the firm level (see also Verstegen Ryan 2005). In a similar vein, many of the specific challenges for business ethics in the developing world, be it poor governance, ex- treme poverty, or violence, can be understood as a heritage from colonial times (Banerjee 2009), as is particularly visible in countries such as South Africa, Brazil, or Myanmar (Burma). In some countries such as Canada or Australia, it is mining companies—rather than just governments—that are exposed to ethical claims, based, for instance, on past and current discrimination against indigenous groups (Lertzman and Vredenburg 2005). 30 U N D E R S TA N D I N G B U S I N E S S E T H I C S Globalization and the assimilation of different global regions As we can see then, there are a number of reasons that can be advanced to explain differences in business ethics across countries and regions of the globe. But does this mean the differences are likely to be sustained given the ongoing processes of globaliza- tion? Certainly, globalization has mitigated some of the peculiarities of business systems globally. Therefore, however important it is to see the differences between different regions, there is a clear tendency towards some degree of assimilation in the different business systems. In Europe, this has been manifested in a decrease in the importance of (especially national) governmental regulation for business. Globalization has resulted in a rapid and comprehensive move towards deregulation of business activities, which increasingly puts businesses in contexts similar to the American version of capitalism (Matten and Moon 2008). This is even more noticeable if we focus on Central Europe and former communist countries: economies in transition are typically characterized by a weak state and a deficit in law enforcement, which together leave a growing number of ethical issues to be tackled by businesses (Lang 2001). This trend towards a greater convergence of business systems and firm characteristics is visible in most parts of the world (Whitley 1999); however, we also see that certain fundamental characteristics and differences remain and will continue to have relevance (Sorge 2005; Yoshikawa and Rasheed 2009). In this book, we therefore provide the following balance between the different positions on the main variations in business ethics evident in different parts of the globe: Rather than selecting either one or the other, we will consider both the individual decision-maker and the corporation itself as responsible for ethical conduct—and consider top managers as well as rank-and-file organization members. Although it is clearly individuals in organizations who ultimately make business ethics decisions, many non-US perspectives suggest that we also have to look at the context that shapes those decisions. Moreover, most of us quite naturally regard corporations as significant actors in business ethics. If there is an incident of industrial pollution or it is revealed that children are being used in an overseas factory, it is usually the company as a whole that we criticize rather than any specific manager(s). We will focus on the corporation in its relations with other key actors such as govern- ment, NGOs, and trade unions. We will provide a critical perspective on both managerial discretion and ethical guide- lines (such as codes of conduct), and broader forces shaping ethical decision-making, such as product and financial markets, supply chains, civil society, and systems of governance. The morality of single business situations will be considered in the context of corpo- rate governance and the broader organizing framework of business. A multiple stakeholder approach that includes shareholders as a particularly important constituency will be taken. As we will outline in Chapter 2, this assumes some intrinsic rights for stakeholders rather than focusing only on their role in affecting shareholder value. 144 UNDERSTANDING BUSINESS ETHICS As we argued previously, people from different cultural backgrounds are still likely to have different beliefs about right and wrong, different values, etc., and this will inevita­ bly lead to variations in ethical decision-making across nations, religions, and cultures. There is again a problem here with assuming that people from particular nations, reli­ gions, or ethnic groups can simply be deemed to be 'more ethical' or 'less ethical' in their decision-making than others. However, research has suggested that nationality can have a significant effect on ethical beliefs as well as views of what is deemed an acceptable approach to certain business issues.2 These differences have been noted not just in the somewhat obvious cases of managers from developed and from less- developed coun­tries, but also between those from different countries within Europe, those from Europe and the US, or even between those from different ethnic groups in the same country. Geert Hofstede's research has been extremely influential in shaping our understand­ ing of these differences (Hofstede 2001; Hofstede et al. 2010). Based initially on surveys completed by IBM employees throughout the world, Hofstede suggests that differences in cultural knowledge and beliefs across countries-our 'mental programming'-can be explained in terms of six dimensions: Individualism/collectivism. This represents the degree to which one is autonomous and driven primarily to act for the benefit of one's self, contrasted with a more social orientation that emphasizes group working and community goals. Power distance. This represents the extent to which the unequal distribution of hier­ archical power and status is accepted and respected. Uncertainty avoidance. This measures the extent of one's preference for certainty, rules, and absolute truths. Masculinity/femininity. The extent to which an emphasis is placed on valuing money and things (masculinity) versus valuing people and relationships (femininity). Long-term/short-term orientation. This addresses differences in attention to future rewards, where long-term-oriented cultures value perseverance and thrift, while short­ term ones emphasize more preservation of 'face', short-term results, and fulfilment of social obligations. Indulgence. This measures the degree to which societies permit or suppress gratification of basic and natural human drives related to enjoying life and having fun. Hofstede's dimensions can be seen to explain certain differences in ethical decision­ making. For example, someone from an individualist culture, such as are found in north­ ern Europe and America, might be more likely to reflect on ethical problems alone in order to make their own independent decision, while someone from a collectivist cul­ ture, such as are found in southern Europe and Latin America, might be more likely to consult with the wider group. Similarly, a high power distance culture (i.e. one that respects and accepts stratification in power and status) like Japan or China might be less willing to question the orders given by their superiors, even if they feit they were being asked to do something ethically questionable. Empirical work has generally tended to  MAKING DECISIONS IN BUSINESS ETHICS 145 support these sorts of relationships (e.g. Jackson 2001; Christie et al. 2003), although Hofstede's framework remains open to criticism (Baskerville-Morley 2005). Clearly though, with the eroding of the territorial basis for business activities-exem­ plified by rising international trade, frequent international business travel, and growth in expatriate employment-the robustness and consistency of beliefs and values inher­ ited simply from our cultural origin is likely to be increasingly weakened. For example, a Greek IT consultant with an MBA from Manchester University and five years' experience working for an American bank in Frankfurt might be expected to differ significantly from a Greek IT manager who has always lived and worked in Athens. This suggests that edu­ cation and employment might also play a significant role in shaping our ethical beliefs and values. THINK THEORY Think about Hofstede's 'mental programming' theory of culture in terms of its relevance VISIT THE for ethical decision-making. In the text, we have explained how the dimensions of ONLINE individualism/collectivism and power distance might influence decision-making. What RESOURCE CENTRE are the likely influences of masculinity/femininity, uncertainty avoidance, long-term for a short orientation, and indulgence? ls this a helpful way of exploring the cultural influences on response to this feature ethical decision-making?