ARC MGMT 374 Week 15 Presentation

Chapter 10:
Globalization of Ethical
Decision Making

Part Four:
Implementing Business Ethics in
a Global Economy

© 2013 Cengage Learning. All Rights Reserved. 1

Global Business
Brings together people from different
cultures, values, laws, and ethical standards
 International businesspeople must understand
the values, culture, and ethical standards of
their own country
 Must be sensitive to values and culture of
other countries
The global business environment, if not
understood, can destroy the trust needed to
be successful

Global Cultures, Values, and
Practices

 Country cultural values: Are subjective, based
on the social environment, and used to
develop norms
 National culture: Everything in our
surroundings that is made by people
 Tangible or intangible
 Each nation has a cultural belief about acceptable
business activities
 Subcultures can be found within many nations


Classifying Cultural Differences
Geert Hofstede identified four cultural
dimensions
 Individualism/collectivism
 Power distance
 Uncertainty avoidance
 Masculinity/femininity

Can profoundly impact the business
environment

Self-Reference Criterion (SRC)

An unconscious reference to one’s own
cultural values, experiences, and knowledge
 The idea that “we” differ from “them”
 Is common in international business
 We react based on our knowledge
 Accumulated over a lifetime
 Grounded in culture of origin


Cultural Relativism

The concept that morality varies from one
culture to another
 Can be a rationalization for straying from one’s
cultural values
 Involves an idea that business practices are
differentially defined as right or wrong by
cultures


Global Common Values

Shared across most cultures
 Reflected in laws
 Desirable common values
 Integrity, family and community unity, equality,
honesty, fidelity, sharing, and unselfishness
 Undesirable common values
 Ignorance, pride and egoism, selfish desires, lust
greed, adultery, theft, deceit, lying, murder,
hypocrisy, slander, and addiction


Economic Foundations of Business
Ethics

Economic and political events and natural
disasters can affect the global ethical
decision making environment
 Financial firms have taken risks and engaged in
unethical activity
 Displayed in the recent global financial meltdown
 Global disasters and upheaval continue to
created challenges for international businesses
 New opportunities for misconduct


Risk Compartmentalization

Occurs when profit centers within an
organization are unaware of the
consequences of their decisions on the
overall organization
 No single person can be blamed for negative
outcomes that occur because of systemic
problems


Key Figures in Modern Economics

 Adam Smith
 Laissez-faire capitalism
 John Maynard Keynes
 Government can stimulate the private sector
 Milton Friedman
 Return to self-regulating free market system


Keynes and Friedman Agreed That:

1. People have rational preferences among
outcomes that can be identified and
associated with value
2. Individuals seek to maximize utility; firms seek
to maximize profits
3. People act independently on the basis of full
and relevant information


Economic Systems

 Socialism: Advocates that wealth and power
be shared across society, based on the amount
of work expended in production
 Karl Marx
 Social democracy: Private ownership of
property, but a large government
 Formed in the 1940s as an offshoot of socialism
Bimodal wealth distribution: Many poor and a
few very wealthy with a small middle class
• Some argue it is a result of the global economic
system

Two Schools of Economic Thought

 Rational economics: Assumes that people are
predictable and base their decisions on
maximizing utility based on resources available
 Behavioral economics: Assumes that humans
do not always act rationally


Economic Capitalism Country Differential


The Multinational Corporation

Public companies that operate on a global
scale, without significant ties to any one
nation or region
 The highest level of international business
commitment
 Are subject to ethical criticism over their
impact on the countries in which they do
business


Business for Social Responsibility

 Many MNCs have joined because of
stakeholder scrutiny
 Tracks emerging issues and trends
 Provides information on corporate leadership
and best practices
 Conducts educational workshops and training
 Assists organizations in developing practical
business ethics tools


A Comparison Between Countries and
Corporations
Country GDP (millions $ Company Revenues (millions
U.S.) $ U.S.)
United States 14,720,000 Walmart Stores 421,849
China 9,872,000 Royal Dutch Shell 378,152
Japan 4,338,000 Exxon Mobil 354,674
India 4,046,000 BP 308,928
Germany 2,960,000 Sinopec Group 273,422
Iran 863,500 China National 240,192
Petroleum
Taiwan 823,600 State Grid 226,294
Argentina 596,000 Toyota Motor 221,760
Greece 321,700 Japan Post Holdings 203,958
Denmark 201,400 Chevron 196,337

Source: Adapted from "Global 500: Fortune's Annual Ranking of the World's Largest Corporations," CNNMoney,
http://money.cnn.com/magazines/fortune/global500/2011/index.html (accessed July 7, 2011).


The International Monetary Fund

Emerged from the Bretton Woods
agreement, 1944
 Makes short-term loans to member countries
with deficits
 Provides foreign currencies for its members
 Promotes responsible business conduct
 Recommended new rules for large firms that
represent a systemic risk


The United Nations

 Founded in 1945; 192 member nations
 Goal to promote world peace, improve inter-
country relations, and support better
standards and human rights
 Focuses on environmental and human rights
issues


The United Nations Global
Compact for Businesses

 10 principles that promote human rights,
sustainability, and the eradication of
corruption
 Collaborative arrangement between businesses,
governments, NGOs, societies, and the UN
 Voluntary membership
 Members report on progress toward goals


Ten Principles of the UN Global Compact


The World Trade Organization

Established at the Uruguay round of the
General Agreement on Tariffs and Trade
(GATT) in 1995
 Administers trade negotiations, settles trade
disputes, and monitors trade policies of
member nations

Addresses economic and social issues in
many industries

Dumping

The practice of charging high prices for
products in domestic markets, while selling
the same products in foreign markets at low
prices
 Places local firms at a disadvantage
 The U.S. has anti-dumping laws in place


Global Ethical Risks

Key risk areas
 The “G-Zero” risk
 Internet security and privacy
 Relations with China
 Political unrest, imbalances in power,
nationalism, and faltering economies in
emerging markets

Laws differ between countries

Global Business Ethics and Legal Issues


Bribery

 Acceptance of bribes varies by country
 Can be a challenge to determine what is a bribe
 The U.S. Foreign Corrupt Practices Act (FCPA)
prohibits companies from paying foreign
officials to keep/obtain business
 The U.K. Anti-Bribery act goes even further

Many major corporations have had issues
with bribery


Antitrust Activity

Antitrust laws are meant to encourage fair
competition
 Countries have differing levels of protections
 Can create difficulties in international business
 Vertical system: A channel member controls
the entire business system
 Can occur when MNCs are allowed to grow
unchecked
 Reduces competition and can put small
competitors out of business


Internet Security and Privacy

Internet security is considered a top global
risk to business
 Laws and regulations have lagged behind
technological change

Is a fairly recent business ethics issue


Human Rights

An inherent dignity that should be afforded
all people with equal and inalienable rights
 The foundation of freedom, justice, and peace in
the world
 Codified in the UN Human Rights Declaration
 Is becoming a serious issue for companies

© 2013 Cengage Learning. All Rights Reserved . 29

Health Care

A major global human rights issue
 Over a billion people lack access to health care
globally
 Is becoming a major business concern

Question remains whether access to health
care is a right or a privilege


Labor and the Right to Work

Many people work outside their homeland
 International firms today have many ethical
concerns related to labor
 Gender pay equality
 Right to join unions
 Standards of living

Corporations must take labor issues
seriously to avoid legal and ethical trouble


Compensation

 Living wage: The minimum wage that
workers require to meet basic needs
 Executive compensation
 A major topic during the recent recession
 Global demand for alignment between
performance and compensation


Consumerism
The belief that consumers should dictate the
economic structure of society
 States that consuming goods at an increasing rate
is desirable
 Equates personal happiness with purchasing and
consuming products
 Made-to-break (Planned obsolescence):
Encourages consumers to buy more items

Meeting with backlash from stakeholders who do
not believe that consumerism leads to happiness
• Not sustainable as resources diminish

The Importance of Ethical Decision
Making in Global Business
Ethical decision making is essential to
successfully operating in global business
 Potential legal and political snares without a
knowledge of global ethics issues
 Some large firms created officers/committees
to oversee global compliance issues
 Successful ethics program implementation
requires employee training
 Global firms must tailor programs to
international markets
 Ethics is not “one size fits all”


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ARC MGMT 374 Week 15 Presentation