Business and Society Chapter Notes
Chapter 10
Ethical Issues in the Global Arena
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1. Identify and describe the concepts of internationalization and globalization of business.
2. Summarize the arguments for and against globalization.
3. Explain the evolving role of and problems with multinational corporations in the global environment.
4. Recognize the major ethical challenges of operating in the multinational environment.
5. Describe ISCT and the concepts of hypernorms and moral free space.
6. Discuss strategies for improving global ethics.
7. Enumerate international rights and moral guidelines for improving business operations in the global sphere.
TEACHING SUGGESTIONS
INTRODUCTION – This chapter serves dual purposes. First, it introduces the students to ethical issues in the global marketplace, including two infamous examples that demonstrate some of the difficulties encountered by operating in multiple nations. Second, it offers several takes on ways to improve ethical performance in the global economy, using four different popular strategies.
KEY TALKING POINTS – Students will likely have a vague notion of multinational corporations (MNCs) and the difficulties of operating in widely divergent nations and cultures. However, they are unlikely to know any of the details about cases like Nestlé and infant formula, or the Union Carbide Bhopal incident. The textbook offers concise synopses of both cases, which should be eye-opening revelations for most students. After spending a sizeable portion of the chapter identifying and discussing the ethical problems inherent in global operations, the authors then provide four strategies of improving ethical performance in multinational markets.
Some of the most intractable ethical issues arise in developing countries, due to the vast differences in the level (or stage) of economic development in the home and host countries. For example, a company based in the United States is more likely to encounter difficult ethical issues by operating in Sudan than if it opened a branch in Germany. Part of this difference in ethical standards is due to culture (northern European countries are more culturally similar to the United States than is Sudan), but a significant portion can also be traced to historic and continuing discrepancies in the position of countries in the world economy.
Immanuel Wallerstein proposed a world-system theory, in which he identified core regions that benefited most from the capitalist world economy, and peripheral zones, such as Africa and Latin America. His book, The Modern World-System: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century (New York: Academic Press, 1976) provides a compelling case for how theses differences developed and how the core regions continue to profit from exploitation of the peripheral regions. While Wallerstein offers a historical account of how the world economic system developed, David Korten writes about the current effects of the world system. His books When Corporations Rule the World (San Francisco: Berrett-Koehler Publishers, 1995) and The Post-Corporate World: Life after Capitalism (San Francisco: Berrett-Koehler Publishers, 1999) both explore and denounce the effects that corporations from developed countries have on the economies and social lives of underdeveloped nations. Touching on these ideas may help the students see the problems of operating a global business in a larger context than simply trying to match ethical systems (as difficult as that is in itself).
PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:
Cases:
Should Business Hire Illegal Aliens?
Something’s Rotten in Hondo
Sweetener Gets Bitter Reaction
Nike, Inc. and Sweatshops
Coke and Pepsi in India: Issues, Ethics, and Crisis Management
Chiquita: An Excruciating Dilemma Between Life and Law
Big Pharma’s Marketing Tactics
Ethics in Practice Cases:
An Innocent Revelation?
I Love My Job – Just Don’t Ask How I Got It!
Search the Web:
United Students Against Sweatshops - http://www.studentsagainstsweatshops.org
Sweatshop Watch - http://www.sweatshopwatch.org
BRIBEline - http://www.traceinternational.org/
Principles & Codes for Socially Responsible Business Practices” –
http://www.goodmoney.com/directry_codes.htm.
Video clips:
Halliburton CEO Shipping Out
Protesting Nike Sweatshops
Internet Pharmacies
Power Point slides:
Visit http://academic.cengage.com/management/carroll for slides related to this and other chapters.
LECTURE OUTLINE
I. THE NEW, NEW WORLD OF INTERNATIONAL BUSINESS
A. Concepts of Global Business
B. Continuing Backlash Against Globalization
1. Globalists and Antiglobalists
II. MNCS AND THE GLOBAL ENVIRONMENT
A. Changed Scope and Nature of MNCs
B. Underlying Challenges in a Multinational Environment
1. Corporate Legitimacy
2. Differing Philosophies Between MNCs and Host Countries
C. Other MNC-Host Country Challenges
1. Facing Cultural Differences
2. Business and Government Differences
3. Management and Control of Global Operations
4. Exploration of Global Markets
III. ETHICAL ISSUES IN THE GLOBAL BUSINESS ENVIRONMENT
A. Questionable Marketing and Plant Safety Practices
1. Questionable Marketing and Plant Safety Practices
a. Questionable Marketing: The Infant Formula Controversy
b. Plant Safety and the Bhopal Tragedy
B. Sweatshops, Human Rights, and Labor Abuses
1. Alien Tort Claims Act and Human Rights Violations
C. Corruption, Bribery, and Questionable Payments
1. Arguments For and Against Bribery
2. The Foreign Corrupt Practices Act
3. The Growing Anticorruption Movement
a. Transparency International
b. OECD Antibribery Initiatives
c. UN Convention Against Corruption
d. Individual Country Initiatives
D. Other Global Ethics Issues
IV. IMPROVING GLOBAL BUSINESS ETHICS
A. Balancing and Reconciling the Ethics Traditions of Home and Host Countries
1. Ethical Imperialism
2. Cultural Relativism
3. A Typology of Global Types
a. Foreign Country Type
b. Empire Type
c. Interconnection Type
d. Global Type
4. Integrative Social Contract Theory (ISCT)
B. Strategies for Improving Global Business Ethics
1. Global Codes of Conduct
a. Corporate Global Codes
b. The GBS Codex
c. Global Codes/Standards Set by International Organizations
2. Ethics and Global Strategy
3. Suspension of Activities
4. Ethical Impact Statements and Audits
C. Companies Act Against Corruption
V. SUMMARY
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers.
1. One of the things that students must keep in mind is that they have the benefit of hindsight, and that case writers have analyzed the events to point out the errors that occurred in both of these cases. This question requires that we approach the situations as if we were in the time period before these events took place, without knowledge of what is about to happen. In the Nestlé case, managers probably thought they were doing something not only ethical, but also extremely beneficial to inhabitants of the tropical locales. The company was providing powdered infant formula that was easily transported and that provided the necessary nutrients for the healthy development of small children. It is quite possible that the problems of impure water supplies never entered their minds, and consequently the problems with the mothers’ breast milk drying up would not have been an issue either. The main ethical issue emerges when Nestlé managers did find out about the problems. At that point, I would have to say that they became immoral managers—they knew a problem existed, and rather than correct the situation, they elected to deny it and continued to actively market their product. In the Union Carbide incident, it is a fine line between amoral and immoral management. The key to this issue is the fact that the plant was constructed to lower standards than those required in the United States. Presuming that the U.S. standards were in place in order to assure safety, it seems that the Union Carbide managers made a conscious decision to place a higher risk of accident on the employees and citizens of India than it imposed on its American workers. This is a direct violation of Kant’s categorical imperative, “treat people only as ends, never as means.” If Union Carbide had followed this maxim, it would have decided to adhere to the higher standards, simply to ensure the safety of its Indian stakeholders.
2. To me, the answer to this question seems quite simple and straightforward—use the “higher” ethical standard, regardless of whose it is or how much it costs. One would find it difficult to encounter trouble for using a higher ethical standard. If adhering to the higher standard is cost prohibitive, then the decision would simply be to forego that particular opportunity. If the only way to make a profit is to lower one’s ethical standards, then one should find another way to make money.
3. ISCT seeks to find a way to balance universal moral standards (hypernorms) and the ethical limits unique to a specific locale (moral free space). A hypernorm might be to allow for free association among people, while in a particular country unionization of workers might be outlawed. A manager of an MNC operating in that country would have a difficult time reconciling these two standards. On the one hand, the manager should allow workers to meet together to discuss organizing a union, but local ethical norms do not allow this. Although these two norms seem to directly contradict each other, the manager could alleviate the difficulty by providing working conditions that obviate the need for a union, and also allow workers time at work to discuss grievances among themselves and with managers.
4. A grease payment is an expected, small, customary payment to an official in order to get him or her to do whatever s/he was supposed to do in the first place. We often think of grease payments as existing only in foreign countries (e.g., paying a customs officer to approve the delivery of personal luggage), but in some sense, paying a bellhop to carry your bags into a hotel, or giving a waiter a tip to deliver your meal could also be viewed in this manner. On the other hand, a bribe is a larger sum that is provided in order to get the recipient to make a choice that favors the briber or to do something that he is not required to do. Paying a government official to select your firm’s contract to provide a service, rather than your competitor’s, would be considered a bribe.
5. This question is left to the class instructor as time and events will have altered the information available at the time this is being written. While China and India are both countries with emerging economies, the textbook notes that these countries could do more do deter bribery and corruption. China has started making strides by developing an independent anticorruption agency and appointing an anticorruption commissioner. However, if China and India want to improve their TI rankings, they not only need to pass more stringent anti-bribery and anticorruption laws, they also need to make sure that the laws are enforced. The best way to accomplish this objective is for each country to make sure that all actions covered by the laws are subject to public scrutiny and that the officials in charge of implementing and following the laws are held accountable.
6. As noted in the text, companies can improve global ethics by (1) developing worldwide codes of conduct, (2) factoring ethics into global strategy, (3) suspending activities when faced with unbridgeable ethical gaps, and (4) developing periodic “ethical impact statements.”
According to a report issued by The Conference Board and the Ethics and
Compliance Officers Association (ECOA), the following are five key steps that companies can take to fight bribery and corruption:
1. High-level Commitment by Top Management
2. Detailed Statements of Policies and Operating Procedures
3. Training and Discussion of Policies and Procedures
4. Hotlines and Helplines for All Organizational Members
5. Investigative Follow-Up, Reporting, and Disclosure
GROUP PROJECT
Divide students into groups of four to five students. Ask each group to draft a general global code of conduct that could be used by any multi-national corporation. Students should explore which issues might be difficult to implement on a global scale (i.e., issues related to gifts/bribes, discrimination concerns, sexual harassment, etc.). Students should reach a resolution on how to implement global standards in their respective codes regarding these issues. Students also should contemplate the steps that they would need to take to make their code accessible to employees (posting it on the internet, translating it into various languages, etc.).