Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CHAPTER 10
Globalization of Ethical Decision Making
SUMMARY
Advances in communication, technology, and transportation have further minimized the world’s
borders, creating an ever more interconnected global economy. This chapter discusses how transactions
across international boundaries define global business, and how the variety of cultures and expectations
around the globe complicates the topic of business ethics. International businesspeople must understand
the values, cultures, and ethical standards of his or her home country, as well as every country in which
his or her firm conducts business. Formal codes of conduct are less common internationally, and the
topics of principle concern shift between countries and across time. Major concerns today involve
global risks, legal approaches to business ethics, and compliance measures. Insufficient understanding
of the complexity of global business can destroy trust and do lasting damage to a firm. This chapter
examines these topics, as well as the role of international organizations like the IMF, the UN, and the
WTO in shaping international business. It will help students to learn about the cultural differences
between nations and how they can affect common business practices, as well as to gain a general
awareness of global ethical issues. This chapter aims to help students understand, and possibly avoid,
the ethical quagmires that exist in the global business environment.
INSTRUCTOR NOTES FOR “AN ETHICAL DILEMMA”
This case examines Dun & Ready (D&R) Company, a U.K. retail store, and its employee Raul. D&R
identifies a growing Latin American market and sends Raul to Mexico City where he must negotiate
contracts for obtaining building permits. The permit process takes a very long time in Mexico, but
D&R management has not been patient. Raul’s manager approved bribery in order to get the permits in
quick fashion. Raul paid more bribes as each new store opened. Raul’s ‘success’ in Mexico led to a
promotion, and the company was very pleased with his job performance. However, soon after, Raul
learned about an investigation into the manner used to obtain the building permits in Mexico.
Students may wish to discuss issues surrounding business practices in other cultures and the
justification, using cultural relativism, of ‘when in Rome, do as the Romans do.’ Bribery is both an
ethical and a legal issue. The bribes did get the permits approved quickly—just what the company
wanted—but did Raul make the right choice? If the company hired Raul for his expertise in the culture,
then the ethical thing for Raul would have been to make the company wait through the long approval
process. After the first bribe, Raul was stuck because the company now expected quick approval for
subsequent building requests.
Professors may wish to induce discussion by citing how the U.S. Foreign Corrupt Practices Act (FCPA)
allows for ‘grease payments’—small payments used to speed up services. The U.K. Bribery Act
however, does not allow for such facilitation payments. Does the U.K. Bribery Act put D&R at a
competitive disadvantage? Under the same act, also in contradiction to the FCPA, the company is still
56 Chapter 10: Globalization of Ethical Decision Making
liable even if they did not have explicit knowledge of the bribes. The act does allow a bit of relief by
reducing fines for those companies having effective compliance programs supported by management.
Did D&R have the correct tone at the top?
The second ethical, and legal, issue is the cover up. Raul’s manager instructs him to destroy
incriminating evidence, deny the bribes, and ‘do whatever it takes’ to make sure his government contact
denies all payments from the company. While highly unethical, these acts could deepen Raul’s legal
problems. Should Raul follow his manager’s instructions, or refuse? If Raul cooperates and destroys
evidence, his fines and jail time could reach the maximum limits. If Raul refuses to destroy evidence
and cooperates with the investigation, he could repair and ultimately improve his reputation.
LECTURE OUTLINE
I. Global Culture, Values, and Practices
A. Global business is a practice that brings together people from countries that have different
cultures, values, laws, and ethical standards.
B. Country cultural values are specific to groups, sects, regions, or countries that express
actions, behavior, and intent.
C. National culture consists of everything in our surroundings that is made by people—both
tangible items and intangible things such as concepts and values.
1. Each nation has a distinctive culture and distinctive beliefs about what business
activities are acceptable or unethical. Many nations also have distinct subcultures.
2. Geert Hofstede identified four cultural dimensions that can have a profound impact on
the business environment.
a. The individualism/collectivism dimension refers to how self-oriented cultural
members are in their behavior.
b. The power distance dimension refers to the “power inequality” between
superiors and subordinates.
c. Uncertainty avoidance refers to how members of a society respond to uncertainty
or ambiguity.
d. Masculinity/femininity
3. The self-reference criterion (SRC) is the unconscious reference to one’s own cultural
values, experiences, and knowledge.
4. Businesspeople tend to fall into the thinking of cultural relativism, the concept that
morality varies from one culture to another and that “right” and “wrong” are defined
differently. In other words: “When in Rome, do what the Romans do.”
5. Global common values are shared across most cultures.
a. Although divergent religious values and other aspects of culture can create ethical
issues in international business, many cultures share desirable and undesirable
common values such as
i) Desirable common values: Integrity, family and community unity, equality,
honesty, fidelity, sharing, and unselfishness
ii) Undesirable common values: Ignorance, pride, egoism, selfish desires, lust,
greed, adultery, theft, deceit, lying, murder, hypocrisy, slander, and addiction
II. Economic Foundations of Business Ethics
Chapter 10: Globalization of Ethical Decision Making 57
A. The last economic recession highlighted the fact that firms were taking extreme risks,
bending rules, and engaging in unethical activity. A major part of the problem was an
excessive focus on rewards and the bottom line that pervaded the global financial industry.
1. Risk compartmentalization occurs when various profit centers within corporations
are unaware of the consequences of their decisions on the organization as a whole. No
one person can be blamed, as problems were systemic.
2. Economic and social disasters intensify the risks and challenges global businesses will
encounter.
3. National disasters can also destabilize economies and affect the economic system.
4. The world is still coping with the after effects of the last global recession, which
caused massive distrust in the stability of governmental institutions as well as the
responsibility of those who manage the money of individuals, corporations, and
countries.
B. Economic Systems. To understand capitalism and what people are beginning to perceive as
its shortcomings, one needs a historical review of key figures and concepts.
1. Adam Smith was a 19th century professor of logic and moral philosophy and is
considered the father of modern free market (laissez-faire) capitalism and economics.
a. Smith believed that the market has its own internal set of checks and balances
that help the system to self-regulate.
b. Smith believed that, in order for the market to work properly, ethical people must
guide businesses.
2. John Maynard Keynes is the father of the second incarnation of capitalism that
gained traction in the 1930s.
a. Keynes believed that the private sector, in order to stimulate growth and improve
stability, occasionally needs help from government intervention.
b. Keynesian economic policies were widely employed during the 1930s and into
the 1940s.
3. Milton Friedman represents the most recent form of capitalism, which represented a
swing to the right politically.
a. Friedman stood for a return to the self-regulating free-market capitalism
espoused by Smith. Friedman called for widespread deregulation.
b. Both Keynes and Friedman believed that
i) People have rational preferences among outcomes that can be identified and
associated with value
ii) Individuals seek to maximize utility, and firms seek to maximize profits
iii) People act independently on the basis of full and relevant information
C. Socialism refers to economic theories advocating the creation of a society in which wealth
and power are shared and distributed evenly based on the amount of work expended in
production.
1. Modern socialism was a working-class political movement that emerged in the 19th
century
2. Karl Marx was one of socialism’s most famous advocates
58 Chapter 10: Globalization of Ethical Decision Making
3. Social democracy formed in the 1940s as an offshoot of socialism. It allows for
private ownership of property, but also has a large government that provides a wide
range of services to citizens.
D. Large multinational corporations have created unprecedented concentrations of wealth and
power that lie, not with states, but with private corporations.
1. This has led to bimodal wealth distribution, which occurs when the middle class
shrinks, resulting in highly concentrated wealth amongst the rich and large numbers of
poor people with very few resources.
E. There are two main schools of economic thought
1. Rational economics is based on the idea that people are rational and will base their
decisions on maximizing their utility based on the amount of resources available to
them. It also assumes that people act independently on the basis of full and relevant
information.
2. Behavioral economics assumes that humans may not act rationally because of a
variety of influences such as genetics, learned behaviors, and heuristics (rules of
thumb).
F. Capitalism is one of the United States’ many cultural exports.
1. The United States practices one kind of capitalism, but there are many forms.
2. The last recession, combined with the collapse of some of the world’s largest financial
firms, has dampened global enthusiasm for capitalism in general.
3. There is a general consensus that corporations should practice corporate social
responsibility as a means of improving performance and reputation along with
avoiding some of the pitfalls of capitalism.
III. Multinational Corporations (MNCs)
A. Multinational corporations (MNCs) are public companies that operate on a global scale
without significant ties to any one nation or region.
B. They represent the highest level of international business commitment and are characterized
by a global strategy of focusing on opportunities throughout the world.
C. Because of their size and financial power, MNCs have been the subject of much ethical
criticism, and their impact on the countries in which they do business is controversial.
1. Critics believe that the size and power of MNCs create ethical issues related to the
exploitation of both natural and human resources. Critics also accuse MNCs of
exploiting the labor markets of host countries.
2. The activities of MNCs may also raise issues of unfair competition.
3. Sometimes, countries refuse outright to allow MNCs into the country.
4. Some MNCs strive to be good global citizens with strong ethical values.
5. Because of increased stakeholder scrutiny and growing pressures to be sustainable and
socially responsible, many corporations belong to Business for Social Responsibility,
which is a globally based research system that tracks trends and issues and provides
resources for corporations.
6. Although MNCs are not inherently unethical, their size and power often seem
threatening to less-developed countries.
Chapter 10: Globalization of Ethical Decision Making 59
7. The U.S. model of the MNC is fading over time as countries such as China, India,
Brazil, and South Korea continue to grow and form MNCs as alliances, joint ventures,
and wholly owned subsidiaries.
8. Regardless of the MNC model, ethics and social responsibility are always important—
particularly in MNCs because of their strong international presence.
IV. Global Cooperation to Support Responsible Business
A. International Monetary Fund
1. The IMF emerged from the Bretton Woods agreement of 1944, where a group of
leaders decided that the responsibilities for the regulation of monetary relationships
among nations should be carried out by an extra-national body. Member states provide
funds for IMF through quotas that are proportional to the size of their economies.
a. The IMF makes short-term loans to member countries that have deficits and
provides foreign currencies for its members.
b. Its main function is to regulate monetary relationships between national
economies. The organization has also taken steps to promote responsible global
business conduct.
i) The concept of risk and IMF bailouts took on significant importance during
the last global recession. Because of a massive amount of debt, the
European countries of Greece, Ireland, Portugal and Spain required major
bailout packages from the IMF.
B. United Nations Global Compact
1. It is a set of 10 principles that promote human rights, sustainability, and the eradication
of corruption.
2. The purpose is to create a collaborative arrangement between businesses, governments,
nongovernmental organizations, societies, and the United Nations to overcome
challenges and advocate for positive economic, social, and political change.
3. Businesses that make a commitment to the UN Global Compact are required to
annually post the organization’s progress toward Global Compact goals, show
commitment to UN guiding principles, and cooperate with the UN on social projects
within developing nations in which they do business
C. The Association to Advance Collegiate Schools of Business (AACSB) joined with groups
such as the UN Global Compact to inspire a set of principles for business schools.
D. The World Trade Organization (WTO)
1. The WTO was established in 1995 at the Uruguay round of negotiations of the General
Agreement on Tariffs and Trade (GATT).
a. It has 161 member and observer nations.
2. The WTO administers its own trade agreements, facilitates future trade negotiations,
settles trade disputes, and monitors the trade policies of member nations.
3. It addresses economic and social issues involving agriculture, textiles and clothing,
banking, telecommunications, government purchases, industrial standards, food
sanitation regulations, services, and intellectual property.
4. It provides legally binding ground rules for international commerce and trade policy.
The organization attempts to reduce barriers to trade between and within nations, and
settle trade disputes.
60 Chapter 10: Globalization of Ethical Decision Making
5. The WTO rules on trade issues, such as dumping, which is the practice of charging
high prices for products in domestic markets while selling the same products in foreign
markets at low prices, often at below cost.
6. Not all countries agree with the WTO’s particular stance on free trade. Protectionism,
or trade restriction, occurs most commonly with shoes, cars, and steel.
V. Global Ethics Issues
A. Global risks are becoming an increasingly important ethics issue. Major risks include
1. Corruption continues to be one of the most visible global and economic risks.
2. Variations in international regulation can create problems for global companies as they
adjust their business strategies to comply with different laws.
3. Supply chain issues involving human rights violations can be hard to detect in global
supply chains encompassing many different nations.
B. Bribery
1. The U.S. Foreign Corrupt Practices Act prohibits American companies from making
payments to foreign officials for the purpose of obtaining or keeping business. Small
facilitation payments are allowed to facilitate or expedite routine governmental
transactions.
a. Violations of the act can result in individual fines of $100,000 and jail time.
Penalties for companies can reach into the millions.
2. The U.K. Bribery Act goes further by holding businesspeople more accountable for
bribery. It does not have provisions for facilitation payments.
a. Unlike the FCPA, this law also classifies bribes between private businesspeople
as illegal, and companies are not required to have explicit knowledge of the
crime to be held liable.
b. Some businesses became concerned that simple acts of hospitality might be
construed as a bribe under this act. However, U.K. officials and legal experts
state that acts of hospitality will not be considered illegal.
c. Managers should set the correct tone at the top along with implementing proper
reporting procedures, periodic reviews of the company’s code of conduct and
compliance programs, risk assessments, and other policies outlined in the U.S.
FSGO.
C. Antitrust Activity
1. In 1890, the United States passed the Sherman Antitrust Act to prohibit antitrust
activities.
2. The European Union has more stringent antitrust laws than many other countries.
3. A vertical system is where a channel member (manufacturer, wholesaler, distributor,
or retailer) has control of the entire business system, via ownership, contract, or
through its purchasing ability.
a. Vertical systems create inertia, which causes channel members to stay with their
various retailers and distributors even though competitors may have better
products and prices.
b. Sometimes MNCs use their size to coerce other companies to do business
exclusively with them.
D. Internet Security and Privacy
Chapter 10: Globalization of Ethical Decision Making 61
1. Today’s computer hackers can use tools like the Internet and computer viruses to
commit corporate espionage, launch cyber terrorism attacks against government
infrastructures, steal confidential information, and more
2. Many companies use questionable Internet practices such as cookies, which may not be
illegal but could be construed as unethical.
3. While some Internet privacy violations, such as hacking, are clearly unethical, other
situations present more challenging issues.
a. Mobile advertising faces privacy issues for the way they display advertisements
to mobile application users (e.g., tracking).
4. Another ethical issue is the personal information collected by companies such as
Facebook. Some countries are debating legislation to limit the amount of information
companies can collect or track.
5. In other countries such as China and Saudi Arabia, Internet privacy is not just a
corporate issue, but governments take an active role in censoring citizens’ use of the
Internet.
a. The has significant implications for companies such as Google for expanding into
these countries.
E. Human rights have been codified in the United Nations Human Rights Declaration. They
are defined as an inherent dignity that should be afforded to all people with equal and
inalienable rights as the foundation of freedom, justice, and peace in the world.
1. While many FTSE 100 firms have basic human rights policies listed in their
documents, other rights in the UN Human Rights Declaration such as right to privacy
and right to work are mentioned far less.
2. Child labor has become a big issue, and many special-interest groups are boycotting
and labeling products found to have used child labor.
F. Health care is a major global human rights issue, with millions of people dying of
preventable diseases each year.
1. Particularly with multinational corporations, the issue of health care availability and
affordability for workers in all nations is becoming a major source of concern.
a. Patents are a challenging issue, because while pharmaceutical firms believe they
should have exclusive rights to their products so they can charge higher prices to
recoup their investment, others believe this is unethical because people in
developing countries cannot get access to them.
2. Many businesses have run into ethical trouble over the question of whether access to
health care is a right or a privilege.
3. Global health care fraud is another serious issue. It harms people and causes billions in
losses annually.
G. Labor and Right to Work
1. More people than ever work in nations other than their homeland, and multinationals
are larger than ever.
2. One example of a global labor issue involves gender pay inequality. Women worldwide
tend to be paid less than their male counterparts.
3. Many countries outlaw or limit workers’ rights to join trade unions.
4. Rights for pregnant workers vary from country to country.
H. Compensation
62 Chapter 10: Globalization of Ethical Decision Making
1. A living wage refers to the minimum wages that workers require to meet basic needs.
Many countries have passed minimum wage laws to try to provide employees with a
living wage.
a) While many multinationals choose to do business in other countries because of
the low cost of labor, this becomes an ethical issue when workers do not make
enough to support themselves or their families.
2. Recently, many executives of bailed-out financial firms found themselves facing
criticism over their high compensation, which many stakeholders felt was tantamount
to rewarding failure.
I. Consumerism is the belief that consumers, not the interests of corporations, should dictate
the economic structure of society.
1. Part of this theory is that the consumption of goods relates to increased well-being.
However, strains on resources around the world have caused many to begin to question
the idea that greater consumption is always better.
2. Made-to-break or planned obsolescence is part of the consumerist mindset that many
people are finding increasingly difficult to accept. Made-to-break items encourage
consumers to return regularly to buy more items.
3. It is estimated that the richest countries consume 10 times more natural resources than
the world’s poorest countries.
VI. The Importance of Ethical Decision making in Global Business
A. Ethical decision-making is essential to operate successfully within a global business context.
Without a clear comprehension of global ethics issues, companies will face a variety of legal
and political snares that could result in disaster.
B. Many companies choose to adopt global business codes of ethics to provide guidelines for its
international operations. Some organizations create ethics and social responsibility
frameworks that businesses can adopt in formulating their own global ethics codes.
C. For multinational corporations, risk management and global ethics are so integral to the
stability of their overseas operations that they have created special officers or committees to
oversee global compliance issues.
D. The successful implementation of a global ethics program requires extensive training for
employees.
DEBATE ISSUE: TAKE A STAND
Have your students split into two teams. One team will argue for the first point, and the other will
argue for the opposing view. The purpose is to get students to realize that there are no easy answers
to many of these issues. This debate revolves around an increasingly important question: Is
government-provided health care a universal right? Students who argue that health care is a right
could point out the sanctity of human life and the government’s responsibility to protect its
citizens’ rights. Those in opposition could argue that government health care will increase costs and
add inefficiencies to the system.
Chapter 10: Globalization of Ethical Decision Making 63
“RESOLVING ETHICAL BUSINESS CHALLENGES” NOTES
Preet lands a prestigious job in the logistics department at Amex, a seller of high-quality electronic
products. Preet works with a team overseeing Amex’s China contractors, ensuring smooth shipments.
Preet visits one of the factories in China to evaluate their practices and finds many infractions.
However, when Preet writes up her report, the logistics department managers do nothing. Her team
discusses their options, and one member justifies the actions of the Chinese factory using cultural
relativism. The team member explains that long workdays are the norm in China, and the workers
should be content getting the higher wages Amex pays. Making major changes would make the
company less competitive. Preet is not so sure consumers would not be willing to pay slightly higher
prices if it means Chinese workers have improved working conditions.
Students may wish to discuss the company’s options. Should the company acknowledge the infractions
and work with the factory to clean up its operations? Otherwise, the company can ignore the
infractions and maintain the status quo. The advantages to cleaning up the factory are many.
Consumers may support the company’s actions—particularly if Amex makes the reasons behind the
price increases known. Amex might be able to boost its reputation. This could ultimately lead to
increased profits. Students may also discuss Preet’s options. Should she press the issue and take her
case to a higher level of management? If the company has a global ethics policy, do the infractions go
against policy?
