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0. Ethical Issues in the Global Arena. Chapter 10. Professor Craig Diamond BA 385 October 28, 2009. 0. Outline of Topics. The New World of International Business - Globalization Multinational Corporations (MNCs) and the Global Environment Ethical Issues in the Global Environment

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Ethical Issues in the Global Arena


Professor Craig Diamond

BA 385

October 28, 2009

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Outline of Topics

  • The New World of International Business - Globalization

  • Multinational Corporations (MNCs) and the Global Environment

  • Ethical Issues in the Global Environment

    • Marketing practices

    • Plant safety

    • Sweatshops, labor and human rights

    • Corruption and bribery

  • Improving Global Business Ethics

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The Post-World War II Decade

The New International Order



The Growth Years

The New, New World


The Troubled Years


Eras of Internationalization

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A process by which firms increasetheir awareness of the influence ofinternational activities on their futureand conduct transactions with firmsfrom other countries

The global economic integration of manyformerly national economies into oneglobal economy




Concepts of Global Business

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Backlash Against Globalization

  • Protests at WTO, G8

  • Outsourcing of jobs to less-developed nations

    • Manufacturing

    • White collar jobs (e.g., IT and high tech jobs)

  • Tenth anniversary of NAFTA in 2004

  • Public opinion in developed countries holds negative view of globalization

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Pros and Cons of Globalization

Figure 10-1

From: Center for the Study of American Business, 2001.

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MNCs and the Global Environment

  • Changed scope and nature of U.S.-based multinationals

    • 1962: 60% of largest MNCs were U.S.-based

    • 2007: less than 40% U.S.-based

  • Underlying challenges of operating in new world of business

    • Corporate legitimacy

    • Differing philosophies between MNCs and host countries

    • MNC and host country challenges

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Other MNC-Host Country Challenges

  • Cultural differences

  • Business / government differences

  • Management and control of global operations

    • Organizational structure

    • Human resource management

  • Exploration of global markets

    • Modify or redesign products appropriate for the intended market

    • Be sensitive to the impacts of products

    • Be sensitive to politically-vulnerable products

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Home CountryStakeholder Pressures

Host CountryStakeholder Pressures







System ofGovernment

Socioeconomic System







System ofGovernment


The Multinational Corporation


The Dilemma of the Multinational Corporation

Figure 10-2

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Ethical Issues in Global Business

  • Ethical issues tend to be worse in less developed countries (LDCs)

    • Legal/ethical structure less developed

    • Temptation to apply lower standards

  • Will now focus on:

    • Marketing practices

    • Plant safety

    • Sweatshops and human rights

    • Corruption and bribery

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Marketing Practices

  • Infant Formula Controversy

    • Companies actively marketing baby formula to mothers in LDCs (“milk nurses” in maternity wards)

    • It was well known that breast feeding much safer and more nutritious.

    • Nestle focus of criticism

    • Boycott in U.S. 1977-1984

    • 1991 – Nestle finally stopped providing formula inappropriately

    • Current controversy – formula marketed to low-income Hispanic immigrants

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Plant Safety

  • Bhopal Tragedy (1984)

    • Poisonous gas leak at Union Carbide plant killed at least 2,000 people and injured about 200,000

    • Up to 150,000 people still suffering mental /physical problems

    • Main issue: low standards in host country and Union Carbide did not enforce appropriate standards

      • $460 M settlement, but payments slow due to corruption

    • Note: this led to “Responsible Care” program in the chemical industry

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  • Wide-spread criticism of unfair/unsafe labor practices

    • Focus on textiles (e.g., Nike, Wal-Mart, Gap, Reebok)

    • Nike case

      • More than 530,000 people employed in factories that make Nike products

      • In 1996, Michael Jordon under $20 M endorsement contract

  • Questions on Nike case

    • Why should Nike be held responsible for what happens in factories that it does not own?

    • Does Nike have a responsibility to ensure workers receive a “living wage”?

    • Are contracts with MJ (and others such as Tiger Woods) unethical?

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Social Accountability 8000 Standard

  • Child Labor (min age 14 or 15)

  • Forced Labor

  • Health and Safety

  • Freedom of Association and Right to Collective Bargaining

  • Discrimination

  • Discipline (no physical/mental abuse)

  • Working Hours (48 hr/wk, min one day off)

  • Compensation

  • Management Systems

As of 2007: 1,315 facilities certified to 8000 standard world-wide

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Bribery and Corruption

  • Corruption:

    • Involves behavior on the part of officials, in the public and private sectors, in which they improperly and unlawfully enrich themselves and/or those close to them.

  • Bribery:

    • Offering something (usually $) in exchange for gaining an illicit advantage

    • Example: Lockheed Martin bribe to Japanese firm led to resignation of Japanese Prime-Minister.

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Necessary for profits in order to do business

Common practice

Accepted practice

Form of commission, tax, or compensation

Wrong and illegal in most developed nations

Managers should not deal with corrupt governments

Benefits recipient only

Creates dependence on corruption

Deceives stockholders and costscustomers

Economic harm to host country

For Bribery

Against Bribery


Arguments For and Against Bribery

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Grease Payments

Relatively small sums of money given for the purpose of getting minor officials to:

  • Do what they are supposed to be doing

  • Do what they are supposed to be doing faster

  • Do what they are supposed to be doing better


Relatively large amounts of money given for the purpose of influencing officials to make decisions or take actions that they otherwise might nottake.


Bribes vs. Grease Payments

Figure 10-4

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Foreign Corrupt Practices Act (1977)

Transparency International (1993)

OECD Antibribery Initiatives

UN Conv. Against Corruption (2005)

Individual Country Initiatives


Initiatives Against Bribery

Growing anticorruption movement...

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Alien Tort Claims Act

  • Obscure law passed in 1789

    • Allows foreign individuals to sue U.S. firms operating abroad.

    • Applies to cases in which companies are accused of human rights abuses or abetting corrupt governments.

    • Companies that have been sued (examples):

      • Occidental Petroleum

      • Del Monte

      • Chevron

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Other Global Ethics Issues

  • Acts of terrorism

  • Kidnappings, murder, and violence against businesspeople

  • Rogue nations (e.g., Iran, Syria, Libya)

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Balancing and Reconciling Ethics Traditions

The Challenge

of the Multinational Corporation

Home CountryEthical Standards

Host CountryEthical Standards


Ethics in the international environment is more complex than national. Firms have great power in LDCs, and thus great responsibility.

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International LawGlobal Codes of Conduct






  • Ethical/moral standards of home country

  • Ethical/moral standards of host country

Mix of Home and Host Country Standards

Application of Ethical Principles


Ethical Choices in Home Versus Host Country Situations

Figure 10-5

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Questions to be Resolved by Management:

Which ethical standards will be used?

Which ethical standards will transcend national boundaries?

Worker and product safety? Fair treatment?

Health? Discrimination? Freedom? Minimum pay?

Consumer rights? Environmental Protection?

What constitutes moral minimums in each category?


Ethical Choices in Home Versus Host Country Situations

Figure 10-5

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Moral freespace norms


consist of transcultural values including fundamental human rights

consist of norms that are culturally specific, but consistent with hypernorms

consist of strongly held cultural beliefs in particular countries that are in tension with hypernorms

consist of norms that are incompatible with hypernorms


Integrative Social Contract Theory

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Strategies for Improving Global Business Ethics

  • Create corporate global codes of conduct

  • Integrate ethics into a global strategy

  • Suspend activities in host country

  • Create ethical impact statements and audits

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Principles and Codes forSocially Responsible Business Practices

  • Caux Round Table: Principles for Business

  • CERES Principles

  • Universal Declaration of a Global Ethic

  • The MacBride Principles

  • The Maquiladoras Standards of Conduct

  • Principles for Global Corporate Responsibility