ACC 704 TOPIC 6 ETHICS PROGRAMS AND BUSINESS

ACC 704 TOPIC 6: ETHICS PROGRAMS AND BUSINESS ETHICS IN A GLOBAL ECONOMY

Business Ethics in a Global Economy Overview: Øthe field of ethics a major point of consideration in all circles of society, on a domestic level as well as globally. Øclear that policies that do not take into account individual and social differences will not stand the test of time. Øthe impact of the primary forces of culture and history in the development

Business Ethics in a Global Economy Overview: ØEthical complexities and challenges facing businesses that operate internationally ØDifferent perceptions worldwide of corporate ethics, cultural differences and cultural relativism ØGlobal framework for ethical principles ØMultinational corporations and ethical problems they face Some major global ethical issues

Ethical Perceptions and International Business ØCultures vary across the world ØThe idea that “we” differ from “them” is called the self-reference criterion (SRC) ØSRC is the unconscious reference to one’s own cultural values, experiences and knowledge

Culture as a Factor in Business ØOne of the most difficult concepts to understand apply to the global business environment is culture. ØCulture consists of everything in our surroundings that is made by people – both tangible items and intangible things like concepts, values, language, religion, law, politics, technology, education, clothing and general way of life. ØBecause of cultural differences across nations, many ethical issues arise from international business.

Culture as a Factor in Business ØLanguage – words in one language can mean something very different in another language. Example – “Jugo de China” meaning orange juice in Spanish translates to “Chinese juice” in Cuban. ØBody language – for some up and down nod means “yes” but in Albania it means “no” and in Britain it indicates that it has only been heard. ØPointing an index finger can be considered rude in some cultures. Personal space – in some cultures people don’t like to get too close to others. ØPerceptions of time – punctuality - being prompt or being relaxed.

Culture as a Factor in Business ØSeemingly innocuous customs of one country can be offensive and even dangerous to others. For example, a Californian construction company presented green baseball caps to top executives of a Taiwanese company. To traditional Taiwanese, green caps symbolize adultery. Unwittingly, the Americans accused their associates of having unfaithful wives. ØDivergent religious values – British firm operating in India did not use beef hamburgers because Hindus don’t eat beef. Many supermarkets in Fiji don’t sell beef or pork because Hindus don’t eat beef and Muslims don’t eat pork. ØCritical ethical issue – whose values and ethical standards take precedence?

Adapting Ethical Systems to Global Framework ØWhen in Rome, do as the Romans do – adapt to the cultural practices of the country you are in. ØCultural relativism – that morality varies from one culture to another and that business practices are differentially defined as right or wrong by particular cultures. ØWhistle-blower hotlines installed by SEC in US as required by Sarbanes-Oxley Act – but rulings in France and Germany are challenging their legality.

Adapting Ethical Systems to Global Framework ØIn France hot lines violate privacy law – accusations can be anonymous and persons named don’t have chance to prove their innocence. ØIn every country that Xerox operates it has “help line” not “hot line”. ØWriting a code of conduct for a global workforce can be challenging. ØWith globalization of business and proliferation of multinational corporations chances of ethical conflict increase.

Global Values q. Are there a set of global or universal ethical standards? q. Pattern of shared values – truthfulness, integrity, fairness and equality. q. Shared values assume that we all have basic rights and responsibilities that must be adhered to when doing business. q. There is variation between cultures and values but there is also consensus on sets of core values like integrity, altruism, collective motivation and encouragement. q. When someone from another culture mentions words such as integrity or democracy, most listeners feel assured because these are familiar concepts.

Global Values v. Honesty is valued in many countries. Part of honesty is operationalized by trust. Although honesty, charity, virtue and beneficence may be universally desirable qualities, differences in implementing them can raise ethical issues. v. Fifty of world’s largest corporations have signed the UN Global Compact, the purpose of which is to support free trade unions, abolish child labour and protect the natural environment. v. Concern is to develop not only legal limitations for behaviour but also incentives for self-regulation and ethical conduct that are acceptable in a global business environment.

The Multinational Corporation v. Some multinationals generate revenues higher than GDPs of many countries. Wal-Mart $473 billion, British Petroleum $359 billion, Exxon Mobil $408 billion – South Africa $351 billion, New Zealand $183 billion, Malaysia $313 billion. Fiji 2015 4. 39 b. v. Because of their size and financial power, MNCs have been subject of much ethical criticism. v. They control money supply, employment and even economic well-being of many (less developed) countries. Getting government to sanction the use of forced labour. In Myanmar (formerly known as Burma) workers’ refusal to work for Unocol (MNC) (around 2005) resulted in their imprisonment and/or execution at the hands of the Myanmar army.

The Multinational Corporation q. MNC’s size and power create ethical issues involving exploitation of both natural and human resources. Low wages and low price for natural resources. Only small fraction of ultimate sale price comes back to benefit the country of origin. q. Sometimes MNCs pay higher wages than local employers can afford to match. q. MNCs can borrow money from local resources in such volume that little is left for local firms. q. Local firms cannot compete with advanced technologies of MNCs. Some nations such as India, therefore believe that it is better in the long run to hire labourers to do construction work than to buy a piece of heavy machinery. q. All MNCs are not inherently unethical. They recall unsafe products and increase testing.

Bribery q. In many countries, giving bribes – also known as facilitating payments – is acceptable business practice. In Mexico, a bribe is called la mordida, and South Africans call it dash. In Middle East, India and Pakistan it is called baksheesh, in Germany it is schmiergeld (grease money) and Italians call it bustrella. q. Bribery is an ethical issue and the practice is more prevalent in some countries than in others. q. Bribery is becoming more expensive around the world because of business transparency and government crack down.

Bribery v. Consumers are becoming more aware of the costs of corruption. v. The Foreign Corrupt Practices Act prohibits US companies from bribing officials of foreign governments. v. The Fiji Independent Commission Against Corruption (FICAC Promulgation 2007) was established on 4 April 2007 to investigate acts of corruption such as bribery in Fiji. Dept of Roads – 4 former government employees charged with Firoz Mohammed - $3, 132, 773. 77.

Harmful Products v. Genetically engineered products GMOs (or “genetically modified organisms”) are organisms whose genetic material has been artificially manipulated in a laboratory through genetic engineering, or GE. Ø new science creates unstable combinations of plant, animal, bacteria and viral genes that do not occur in nature or through traditional crossbreeding methods.

Harmful Products v. For consumers, it can be difficult to stay up-to-date on food ingredients that are atrisk of being genetically modified, as the list of at-risk agricultural ingredients is frequently changing. v. Agricultural products are segmented into two groups: (1) high-risk of being GMO because they are currently in commercial production, (2) those that have a monitored risk because suspected or known incidents of contamination have occurred.

Harmful Products Some High-Risk Crops Verified products(Dec, 2011): v Papaya (most of Hawaiian crop; approximately 988 acres) v Canola (approx. 90% of U. S. crop) v Zucchini and Yellow Summer Squash (approx. 25, 000 acres) v. Tobacco products ØMarijuana - Fiji

World Trade Organization (WTO) q. Established in 1995 at Uruguay, replace General Agreement of Tariffs and Trade (GATT) provided rules for international commerce and trade policy. q WTO deals with the rules of trade between nations at a global or near-global level q. Attempts to reduce barriers to trade between and within nations and settle trade disputes. Øcase brought against the EU sugar regime by Brazil, Australia and Thailand could require the EU to cut the intervention price for sugar by up to 40%. A final external factor to take into account is competition from Brazil.

World Trade Organization q. The world trade organisation is established to promote trade liberalisation, the purpose of this assignment is to evaluate whether this principle is appropriate for developing countries. q. Critics of the WTO, counting many opponent of economic globalization, have charged that it 1. undermines national sovereignty by promote the security of large multinational corporations 2. trade liberalization encourage and leads to ecological damage and deteriorating living standards for lowskilled workers in developing countries.

ETHICS DECISION TREE There are seven steps to ethical decision making STEP 1 What are the factors of the case? Ø Determine cause of dilemma Ø How & why it occurred Ø Need to inquire into history of dilemma Ø Reliability of the facts and impartiality crucial Ø Collection of data should be neutral

ETHICS DECISION TREE STEP 2 What are the ethical issues in the case? There are two components a. Primary stake holder identified b. Ethical issues must be clearly defined. STEP 3 What are the norms, principles and values related to the case? v Norma, principles, values are not defined

ETHICS DECISION TREE v Generally they represent – standards, rules and beliefs v Decision makers must consider and identify the values associated with the ethical issue and explain their effect on company, individual, society and the profession. STEP 4 What are the alternative course of action? q List major alternative course of action that will resolve the problem

ETHICS DECISION TREE STEP 5 What is the best course of action that is consistent with the norms, principles and values in Step 3? ü All alternatives are considered in light of values identified in step 3 ü One problem is that values conflict ü List in importance of values and weigh probable impact and choose alternative that maximise the essential values needed. ü NOTE no objective measure for ranking values – practice may help generate pattern.

ETHICS DECISION TREE STEP 6 What are the consequences of each possible course of action? Ø Alternatives from step 4 should be valued in terms of short & long term positive and negative consequences Ø Consequences seen from two points i. They uphold or violate values from step 3 ii. Decision likely to affect the major stakeholders iii. ü Criticised for its lack of measurability

ETHICS DECISION TREE STEP 7 What is the decision? Ø Balance the consequences for each course of action and select appropriate alternative Ø Alternative that produce the highest overall gain in terms of its consequences should be the choice.

Business practices of International Organizations are they ethical? Ø Many of the ethical issues and dilemmas in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation Ø In the international business setting, the most common ethical issues involve - Employment practices - Human rights - Environmental regulations - Corruption - Moral obligation of multinational corporations

Business practices of International Organizations are they ethical? Ethical issues associated with employment practices abroad include q When work conditions in a host nation are clearly inferior to those in a multinational’s home nation, what standards should be applied? q While few would suggest that pay and work conditions should be the same across nations, how much divergence is acceptable? Fiji have expats on different salary to that of Fijian counterpart

Business practices of International Organizations are they ethical? Questions of human rights can arise in international business because basic human rights still are not respected in many nations v Rights that are taken for granted in developed nations, such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and freedom from political repression are by no means universally accepted Fiji – Decree regarding assembly – Permit v The question that must be asked of firms operating internationally is: ‘What is the responsibility of a foreign multinational when operating in a country where basic human rights are trampled on? ’

Business practices of International Organizations are they ethical? Ethical issues arise when environmental regulations in host nations are far inferior to those in the home nation Ø Developing nations often lack environmental regulations, and according to critics, the result can be higher levels of pollution from the operations of multinationals than would be allowed at home PNG their OK TEDI Mines Ø Environmental questions take on added importance because some parts of the environment are a public good that no one owns, but anyone can despoil Ø The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation Litter Decree – no one taking responsibility

Business practices of International Organizations are they ethical? Corruption has been a problem in almost every society in history, and it continues to be one today q International businesses can, and have, gained economic advantages by making payments to government officials q Fiji passed a Decree for FICAC to fight Corruption q Outlawed the paying of bribes to foreign government officials to gain business q In 1997, the trade and finance ministers from the member states of the Organization for Economic Cooperation and Development (OECD) adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions q Obliges member states to make the bribery of foreign public officials a criminal offense

Business practices of International Organizations are they ethical? Multinational corporations have power that comes from their control over resources and their ability to move production from country to country Ø Moral philosophers argue that with power comes the social responsibility for corporations to give something back to the societies that enable them to prosper and grow Ø Social responsibility refers to the idea that business people should consider the social consequences of economic actions when making business decisions Ø Advocates of this approach argue that businesses need to recognize their noblesse oblige (benevolent behavior that is the responsibility of successful enterprises) TC Winston rehabilitation – we expect businesses to lend a hand

Business practices of International Organizations are they ethical? Managers must confront very real ethical dilemmas q The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut q Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable

Business practices of International Organizations are they ethical? Why do managers behave in a manner that is unethical? v Business ethics are not divorced from personal ethics v Business people sometimes do not realize they are behaving unethical because they fail to ask if the decision is ethical v The climate in some businesses does not encourage people to think through the ethical consequences of business decisions v Pressure from the parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting in an unethical manner v Leaders help to establish the culture of an organization and they set the example that others follow

Business practices of International Organizations are they ethical? Five things that an international business and its managers can do to make sure ethical issues are considered Ø Favour hiring and promoting people with a well-grounded sense of personal ethics Ø Build an organizational culture that places a high value on ethical behavior Ø Make sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in a manner that is consistent with that rhetoric Ø Implement decision-making processes that require people to consider the ethical dimension of business decisions Ø Develop moral courage

Business practices of International Organizations are they ethical? v Moral courage enables managers to walk away from a decision that is profitable, but unethical v Moral courage gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical v Moral courage gives employees the integrity to go public to the media and blow the whistle on persistent unethical behaviour in a company v Moral courage does not come easy and employees have lost their jobs when acting on this courage

SWOT on Business Ethics The continued need for business ethics visionaries and leaders within the changing world of business remains constant. With no agreement yet on how to approach the ethical dilemmas that incorporate different religions and cultural background, means globalisation of economic activity remains difficult.

SWOT on Business Ethics Business behaviour clearly linked to the general standards in society. Ø Inevitable difficulty of formulating effective cross culture corporate values and standards are formidable. Ø We will look at the SWOT of business ethics

SWOT on Business Ethics STRENGHTS Business ethics constantly gaining strength as governments, corporations and citizens beginning to understand importance of morally respectable business practice within society. Ø Bribery, insider trading and money laundering represent significant concern and result in strict law enforcement and the adoption of ethics programmes in well over half of Western corporations.

SWOT on Business Ethics An awareness of ‘stakeholder relations’ promotes the practice of good business ethics as companies realize impact of decision outside their control and how these decisions could hurt the reputation of the company in the public eye. Ø Number of ethical issues have multiplied and multinationals trying hard to avoid moral confrontation that might result in stakeholder disapproval.

SWOT on Business Ethics WEAKNESS Ø There are inevitable weak components: 1. Too many business leaders cannot see the point in having an ethical policy or code of conduct in their organisation 2. Lack of attention for ethical concerns by small and medium sized businesses another area of concern.

SWOT on Business Ethics Example: Lautoka trader fined by Commerce Commission for not displaying price of goods and also overcharging goods after TC Winston. (Fiji Sun 8/3/2016) 3. Weakness in the value basis of most corporate ethics programmes. Ø Research shows terms of value like: integrity, trust and fairness in massive mission statements – not universally accepted

SWOT on Business Ethics OPPORTUNITIES Ø Opportunity for business ethics to show itself as useful is slim. Ø Governments and stakeholders are demanding transparency and accountability on the part of multinational corporations due to potential high profile incidents that poor corporate behaviour has led to. Ø Calls for accountability that are not financial is met by implementation of CSR that urge companies to be more proactive on issues like human rights and the environment.

SWOT on Business Ethics THREATS Ø Lack of integration of ethics with corporate training programs poses threat to sustaining high moral business standards Ø Training employees to fully understand business ethics relies on competent and qualified instructors. Ø Lack of instructors and continuing competition between philosophy and management teachers concerned with business ethics another threat to a long term sustainability of reponsible business.

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