Chapter 09 – Ethics and Globalization
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CHAPTER 9
Ethics and Globalization
Table of Contents
Chapter Summary 9-2
Learning Outcomes 9-2
Frontline Focus: “A Matter of Definition” Questions 9-2
Learning Outcome 1 9-3
Learning Outcome 2 9-4
Learning Outcome 3 9-4
Learning Outcome 4 9-5
Learning Outcome 5 9-6
Life Skills 9-7
Progress ✓Questions 9-7
Ethical Dilemma 9-11
Frontline Focus: “A Matter of Definition–Tom Makes a Decision” Questions 9-13
Key Terms 9-13
Review Questions 9-14
Review Exercises 9-15
Internet Exercises 9-16
Team Exercises 9-18
Thinking Critically 9-20
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Chapter Summary
Ethical issues have been raising problems in the global business. This caused the United Nations
to take action in 2000 by presenting the UN Global Impact. The chapter presents the issue of
ethical relativism in a global environment. Next, the ethical challenges in doing business in
developing and developed economies are compared. The author argues that even though it is
hard for organizations to make a global code of conduct these are the best solutions. The final
part of the chapter explains the OECD Guidelines for Multinational Enterprises.
Learning Outcomes
After studying this chapter, you should be able to:
1. Understand the ethical issues arising in global business.
2. Explain the issue of ethical relativism in a global environment.
3. Explain the challenges in developing a global code of ethics.
4. Analyze the ramifications of the UN Global Compact.
5. Explain the OECD Guidelines for Multinational Enterprises.
Extended Chapter Outline
Frontline Focus
“A Matter of Definition” Questions
1. Ten guidelines for organizations doing business with developing nations are listed in “The
Pursuit of Global Ethics” section. Do you think Smith’s is following any of these?
2. Review the UN Global Compact in the “Enforcing Global Ethics” section. How many
violations has Smith’s incurred by doing business with Jakarta Enterprises?
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3. What are Tom’s options here?
Learning Outcome 1: Understand the Ethical Issues Arising in Global Business.
• When doing business on an international scale, the concept of business ethics changes
dramatically.
o A less-developed nation is a country that lacks the economic, social, and
technological infrastructure of a developed nation.
o A developed nation is a country that enjoys a high standard of living as measured by
economic, social and technological criteria.
• Both—less-developed and developed—nations are busy playing the game of globalization.
o Everyone is pursuing the same goal of maximum profits with minimum costs, and if
individual cultures present some challenges, those can be overcome with translations
and cultural adaptations.
• International markets represent growth, and with profitable growth come happy
shareholders and rising stock prices.
o In addition, international markets represent new customers as well as sources of
cheaper materials and cheap labor.
Chapter 09 – Ethics and Globalization
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Education.
✓ They are operating in full compliance with local laws and regulations,
which conveniently happen to be far less restrictive than those they
would face in their own country.
Learning Outcome 2: Explain the Issue of Ethical Relativism in a Global Environment.
• Ethical Relativism is a gray area in which your ethical principles are defined by the
traditions of your society, your personal opinions, and the circumstances of the present
moment.
Learning Outcome 3: Explain the Challenges in Developing a Global Code of Ethics.
• Globalization can be seen to have both an upside and a downside.
o Supporters of the upside argue that globalization brings unprecedented improvements
in the wealth and standards of living of citizens in developing nations as they
leverage their natural resources or low costs of living to attract foreign investors
➢ For the more economically advanced nations, access to these resources enables
lower production costs that equate to lower prices and higher income standards
for their customers.
o Advocates for the downside of globalization argue that it is merely promoting the
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o Maximize profitability
o Grow market share
• A global code of conduct is a general standard of business practice that can be applied
equally to all countries over and above their local customs and social norms.
o Pay their fair share of taxes.
o Cooperate with the local government to develop and enforce just background
institutions.
o Majority control of a firm includes the ethical responsibility of attending to the
Learning Outcome 4: Analyze the Ramifications of the UN Global Compact.
• The UN Global Compact is a voluntary corporate citizenship initiative endorsing 10 key
principles that focus on four key areas of concern—the environment, anticorruption, the
welfare of workers around the world, and global human rights.
o It was launched in a speech to the World Economic Forum on January 31, 1999, by
UN Secretary-General Kofi Annan.
o It relies on public accountability, transparency, and the enlightened self-interest of
companies, labor, and civil society to initiate and share substantive action in pursuing
the principles on which the Global Compact is based.
o With over 2000 companies and more than 80 countries making a voluntary
commitment to this corporate citizenship initiative, the Global Compact is widely
Chapter 09 – Ethics and Globalization
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proclaimed human rights.
➢ Businesses should make sure they are not complicit in human rights abuses.
occupation.
o Environment
➢ Businesses should support a precautionary approach to environmental
challenges.
Learning Outcome 5: Explain the OECD Guidelines for Multinational Enterprises.
• The OECD Guidelines for Multinational Enterprises are guidelines that promote
principles and standards of behavior in the following areas—human rights, information
disclosure, anticorruption, taxation, labor relations, environment, competition, and
consumer protection; endorsed by 30 members of the Organization for Economic
Cooperation and Development and 9 nonmembers (Argentina, Brazil, Chile, Estonia,
Israel, Latvia, Lithuania, Romania, and Slovenia).
o Supporters argue that the government backing adds credibility to the issues being
promoted, but the guidelines carry no criminal or civil enforcement and are not
regarded as legally binding. What they do offer are principles and standards of
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enterprises to take full account of established policies in the countries in which
they operate.
social, environmental, and risk reporting.
➢ Employment and Industrial Relations—addresses major aspects of corporate
behavior in this area including child and forced labor, nondiscrimination and
the right to bona fide employee representation, and constructive negotiations.
➢ Environment—encourages enterprises to raise their performance in protecting
the environment, including performance with respect to health and safety
impacts.
➢ Combating Bribery—covers both public and private bribery and ad dresses
passive and active corruption.
➢ Consumer Interests—recommends that enterprises, when dealing with
Life Skills
A Subtle Influence
Due to globalization, the ethical standards that we once followed can now be sheltered by the
ethical standards from different cultural influences. If you have an open mind cultural impacts
are able to change individual daily behavior. This would help an individual to adapt to different
cultures or employees from different countries to better relate to globalized organizations.
Progress ✓ Questions
1. Explain the term globalization.
Chapter 09 – Ethics and Globalization
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Education.
have been overtaken by regional trade blocs (Latin America, Europe, Africa), leading
eventually to a global marketplace.
2. What is an MNC?
3. When is “operating in full compliance with local laws and regulations” unethical?
4. Explain the term utilitarianism.
5. Why would a global code of conduct be unrealistic?
6. Select your top five from DeGeorge’s guidelines for organizations doing business in less–
developed countries, and defend your selections.
Students’ answers may vary. These are the possible choices for guidelines for organization
doing business in less-developed countries:
• Do no intentional harm.
Chapter 09 – Ethics and Globalization
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Education.
and failures of the firm.
• Multinationals that build hazardous plants are obliged to ensure that the plants are safe
and operated safely.
• Multinationals are responsible for redesigning the transfer of hazardous technologies
so that such technologies can be safely administered in host countries.
7. Can you think of any reasons why international organizations wouldn’t follow these
guidelines? Provide three examples.
8. Do you think DeGeorge’s guidelines represent a sufficiently “flexible” solution? Why or
why not?
9. What is the UN Global Compact?
10. When and why was it created?
11. Explain the 10 key principles of the Global Compact.
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• Businesses should make sure they are not complicit in human right abuses.
• Businesses should uphold the freedom of association and the effective recognition of
12. What would a multinational corporation gain from signing the Global Compact?
13. What is the OECD Guidelines for Multinational Enterprises?
The OECD Guidelines for Multinational Enterprises are guidelines that promote principles
14. How do they differ from the UN Global Compact?
15. How are they similar to the UN Global Compact?
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16. Can you think of a situation in which a multinational corporation would endorse one or the
other? Or should they both be endorsed? Explain your answer.
Ethical Dilemma
9.1 – For Services Rendered
1. Was this an ethical transaction? Explain why or why not.
Students’ answers will vary. There have been three accidents at the mine in the past three
2. Montgomery “managed” the incident as requested. Is there any evidence to suggest that he
did anything unethical?
3. Should the auditors accept his explanation of “services rendered”? Why or why not?
Students’ answers will vary. The board did not receive any copies of documents representing
4. What kind of policies should Galaxy Mining put in place to make sure these kinds of
“services” aren’t utilized again?
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9.2 – Corporate Inversion: A Questionable Practice?
1. Does the higher U.S. corporate tax rate provide sufficient justification for these inversion
deals? Why or why not?
2. Proponents of such deals claim that they are simply maximizing profits and shareholder
value. Does that make them ethical? Explain your answer.
3. Why did the U.S. Treasury introduce a rule change?
4. Do you think the change will hold, or will lobbyists succeed in getting the rule reversed?
Explain your answer.