EBFV212 SU 9 PDF

 Learning objectives: After completing this study unit, you should be able to: 1. Understand the ethical issues arising in global business 2. Compare the ethical challenges of doing business in developing and developed nations 3. Explain the issue of ethical relativism...

 Learning objectives: After completing this study unit, you should be able to: 1. Understand the ethical issues arising in global business 2. Compare the ethical challenges of doing business in developing and developed nations 3. Explain the issue of ethical relativism in a global environment 4. Explain the challenges in developing a global code of ethics (including DeGeorge guidelines) 5. Analyse the ramifications of the UN Global Compact 6. Explain the OECD Guidelines for multinational enterprises  Introduction When expanding, firms will be faced with doing business with customers or firms in other countries. In some cases, when they are expanding, they will open up offices in other countries While firms may prefer to adopt their own policies as a universal standard of ethics, in reality firms and customers from other countries with whom they conduct business will bring their own moral standards and ethical principles into the relationship. This brings differences in culture, languages and moral standards when conducting business with firms/customers in other countries. What happens when there is a conflict in those ethical standards?  Ethics and Globalisation What lies ahead for businesses when they grow bigger and expand beyond the boundaries of their own countries? While a business is familiar with its own culture and ‘way of doing things’, will the ‘same recipe’ work in another country? What is Globalisation??? Globalisation is the expansion of international trade to a point where national markets have been overtaken by regional trade blocs, eventually leading to a global market place (textbook definition)  Ethics and Globalisation The challenge of globalisation Enforcing a company’s culture as the universal standard of ethics vs Firms and customers in other countries bring their own moral standards and ethical principles to the global relationship  Ethics and Globalisation  The practice of business ethics is generally well understood when conducting business in the domestic environment  It is less complicated for a firm and its stakeholders to understand and relate to a clearly-defined local code of ethics But what happens when going across local borders?  Ethics and Globalisation  When conducting business on an international/global level, the practice of business ethics changes substantially  Firms are expected to recognise and incorporate the ethical principles and policies related to business transactions in the client/host country  Redefine the code of ethics As the world increasingly becomes a global community, multinational corporations (MNCs) are expected to assume a global set of ethics and responsibility towards the host country  Ethics and Globalisation The business ethics and globalisation debate must distinguish between the developed and less- developed nations of the world Business transactions in different countries in different languages and different cultures Assumption that “what works here works there” is unfounded Questions arise over the ethical behaviour of economically advanced nations toward developing nations  Expanding into new markets What is a Multinational corporation??? Company that provides and sells products and services across national borders Company that provides and sells products and services across national borders  Headquarters located in one country  Productive activities in two or more countries  Examples: Nike, Reebok, VW  Enjoy large pool of shared resources  Ethical relativism Recap on ethical relativism: Ethical relativism is where the traditions of your society, your personal opinions and the circumstances of the present moment define your ethical principles This model offers a greater degree of flexibility than rigid black-and-white rules Safety in numbers approach to decision making: Offers one the comfort of being part of the ethical majority in their community Instead of standing by one’s individual beliefs as an outsider from the group However, choosing the ethical majority also puts one at risk of bowing to peer pressure Driven by local circumstances  Ethical relativism But, in less developed nations Policies & procedures hard to follow when global firm’s (new) customers do not have comparable policies in their own (local) firms The MNC is faced with a tough decision:  Stand by Western principles of ethical conduct or  Submit to the practical reality of a local market and “grease the appropriate palms” to get things done (i.e., submit to bribery and corruption) Can be driven by “whatever it takes”  Ethics and globalisation Argument FOR globalisation Argument AGAINST globalisation Improve wealth and standards of living Promotes ‘dark side’ of capitalism on of people in less developed countries global level Access to natural resources, low costs Developing countries are exploited for of living to attract foreign investors the resources, cheap labour Lower production costs, lower prices Only concern is MNC success and not economic viability of developing countries economy.  Ethics and globalisation ‘Two side of the same coin?’ Argument FOR globalisation Argument AGAINST globalisation Improve wealth and standards of living Promotes ‘dark side’ of capitalism on of people in less developed countries global level Access to natural resources, low costs Developing countries are exploited for of living to attract foreign investors the resources, cheap labour Lower production costs, lower prices Only concern is MNC success and not economic viability of developing countries economy. Possible solution? Flexibility Develop a global code of conduct Richard DeGeorge – guidelines for MNCs  Enforcing global ethics Progress has been made in the last decade to standardise global ethical conduct Two world organisations at the forefront  United Nations (UN) (Kofi Annan)  Organisation for Economic Cooperation and Development (OECD) UN Global Compact OECD Guidelines for Multinational Enterprises Voluntary Corporate Citizenship initiative that Guidelines that promote principles and standards of endorses 10 key principles that focus on four behaviour in a number of key areas. It is a principles of concern governmental initiative endorsed by 30 members of the Organisation for Economic Co-operation and Development (OECD) and 9 other non member countries.  Ethics and globalisation Richard DeGeorge – guidelines for MNCs 1. Do no intentional harm 2. Produce more good than harm for host country 3. Contribute to host countries development 4. Respect human rights of their employees 5. Respect local culture, work with it – not against it 6. Pay their fair share of taxes 7. Cooperate with the local government to develop and enforce just background institutions 8. Majority control of a firm includes the ethical responsibility of attending to actions and failures of firm 9. MNC’s that build hazardous plants are obliged to ensure that plants are safe and operated safely 10. MNC’s are responsible for redesigning the transfer of hazardous technologies so that technologies can be safely administered by host countries  Ethics and globalisation Richard DeGeorge – guidelines for MNCs The guidelines presented by DeGeorge aim to provide some guidance for the ethical behaviour of MNC’s in other countries. However, many MNC’s do not follow these guidelines as they are driven to increase profits and expansion at any cost. Often this makes them guilty of:  Bribery  Pollution  False advertising  Poor product quality  Abuse of human rights Sweatshops – Poor health and safety standards – Child labour – Low wages – https://www.youtube.com/watch?v=3tf6qc51Kbw  Enforcing global ethics THE UN GLOBAL COMPACT  Launched January 1999 by then General Secretary, Kofi Annan  Became operational in July 2000  Promotes good corporate citizenship Human rights Labour standards UN Global compact main areas of concern Environment Anticorruption  Enforcing global ethics THE UN GLOBAL COMPACT: MAIN AREAS OF CONCERN Human rights 1. Businesses should support and respect the protection of internationally proclaimed human rights 2. Businesses should make sure they are not complicit in human rights abuses Labour standards 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining 4. Businesses should uphold the elimination of all forms of forced and compulsory labour 5. Businesses should uphold the effective abolition of child labour 6. Businesses should uphold the elimination of discrimination in employment and occupation  Enforcing global ethics THE UN GLOBAL COMPACT: MAIN AREAS OF CONCERN Environment 7. Businesses should support a precautionary approach to environmental changes 8. Businesses should undertake initiatives to promote greater environmental responsibility 9. Businesses should encourage the development and diffusion of environmentally friendly technologies Anticorruption 10. Businesses should work against all forms of corruption, including extortion and bribery https://www.unglobalcompact.org/what-is-gc/mission/principles  Enforcing global ethics THE UN GLOBAL COMPACT: RAMIFICATIONS  Presently, over 2 000 companies and more than 80 countries have made voluntary commitments to the Global Compact initiative  MNCs have made a public commitment to the core ethical values contained in the 10 key principles  Sends a strong message to the MNC’s stakeholders that it is committed to ethical conduct wherever it does business in the world  Enforcing global ethics OECD  More governmental approach to same issues addressed by UN’s Global Compact  Governmental support provides more credibility  Guidelines carry no criminal or civil enforcement, not legally binding  Provide principles and standards of behavior based on UN Global Compact  Ten chapters Source: https://mne guidelines.o ecd.org/abo ut/  Enforcing global ethics OECD  More governmental approach to same issues addressed by UN’s Global Compact  Governmental support provides more credibility  Guidelines carry no criminal or civil enforcement, not legally binding  Provide principles and standards of behavior based on UN Global Compact  Ten chapters  Enforcing global ethics OECD: SUMMARY OF 10 CHAPTERS I. Concepts and principles II. General policies III. Disclosure IV. Employment and industrial relations V. Environment VI. Combating bribery VII. Consumer interests VIII. Science and technology IX. Competition X. Taxation  Enforcing global ethics OECD: SUMMARY OF 10 CHAPTERS I. Concepts and principles Outlines principles that underlie the guidelines – Voluntary character – Worldwide application – Reflect good practice for all enterprises II. General policies Provides specific recommendations – Provision on human rights – Sustainable development – Supply chain responsibility – Local capacity building Calls on enterprises to take full account of established policies in countries in which they operate  Enforcing global ethics OECD: SUMMARY OF 10 CHAPTERS III. Disclosure Recommends disclosure on all material matters pertaining to enterprise – Performance and ownership – Reporting on TBL IV. Employment and industrial relations Addresses major issues in employment and industrial relations – Child and forced labour – Non-discrimination – Employee representation – Constructive negotiations  Enforcing global ethics OECD: SUMMARY OF 10 CHAPTERS V. Environment Encourages protection of environment Includes impact of operations on health and safety VI. Combating bribery Covers public and private bribery VII. Consumer interests Recommends businesses act accordingly when doing business with customers – Fair business practices – Fair marketing/advertising – Respect customer privacy – Ensure safe and quality products are provided  Enforcing global ethics OECD: SUMMARY OF 10 CHAPTERS VIII. Science and technology MNC’s must share research findings with countries in which they operate IX. Competition Promotes open and competitive business environment X. Taxation Enterprises urged to respect tax laws and co-operate with tax authorities.  OECD  Ten chapters of OECD  Available: http://www.oecd.org/corporate/mne/1922428.pdf