Case Analysis
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Globalization, Ethics, and Society Learning Objectives • Examine the broad foundations of ethical behavior • Understand cultural differences in morality • Understand cultural differences in perceptions of justice • Demonstrate the cultural and legal foundations of ethical
behavior • Discuss key ethical issues for international business Ethics Defined • People have a responsibility to do what is right and to avoid
doing what is wrong
• Ethics are complicated in the international sphere, because definitions of what is right and wrong as well as people’s modes of moral reasoning and judgment vary across cultures
Foundations of Ethical Behavior • Kohlberg’s model of moral development
– Moral development progresses as cognitive reasoning develops
– Three levels of moral development 1. Preconventional 2. Conventional 3. Postconventional
Foundations of Ethical Behavior Across Cultures • Review of 45 studies examining 27 different cultural areas • Some universality
– Many children reasoned at the preconventional level – In no cultural group did the average adult reason at the
preconventional level – Can explain reasoning at the preconventional vs.
conventional level • However, cultural differences exist at the postconventional
level – Common in Western, industrialized cultures – Not found in tribal communities
• Risk of ethnocentrism Foundations of Ethical Behavior • People’s moral judgments are guided by three codes of ethics
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Foundations of Ethical Behavior • People’s moral judgments are guided by three codes of ethics
1. Ethic of Autonomy • Based on individual rights and freedoms, personal choice,
and the right to engage in free contracts • Violations are those that infringe on individual liberties
and/or directly hurt another person 2. Ethic of Community
• Based on duties to conform to one’s role in a community and/or the social hierarchy
• Violations are those in which people fail to uphold their interpersonal and social duties and obligations
3. Ethic of Divinity • Based on sanctity and the standards set by a
transcendent authority • Violations are those that cause impurity or degradation of
the self or others and/or disrespect God or God’s creations
Foundations of Ethical Behavior • Examples of ethics violations Foundations of Ethical Behavior • Cultures differ in the extent to which each of the three codes
of ethics is emphasized – E.g., controversies over depiction and caricatures of the
prophet Mohammed
Culture and Distributive Justice • People can decide to allocate resources based on three
principles 1. Principle of need
• Resources are directed towards those who need them the most
• Often institutionalized (e.g., welfare) 2. Principle of equality
• Resources are shared equally • One form is seniority systems (i.e., time with the company
or age are rewarded) 3. Principle of equity
• Resources are distributed based on an individual’s
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3. Principle of equity • Resources are distributed based on an individual’s
contributions • Social systems built on the principle of equity are called
meritocracies Culture and Distributive Justice • Cultural differences in distributive justice • The case of seniority systems in Japan
Culture and Distributive Justice • Benefits of meritocracies
– High motivation – High performance
• Costs of meritocracies – Finite resources create winners and losers – Breeds competition
• Benefits of seniority systems – Harmony and low conflict
• Costs of seniority systems – Lower motivation – However, Japanese workers are some of the most hard-
working (e.g., voluntary overtime, not taking vacations) Culture and Distributive Justice • Westerners are more likely than those from other cultures to
view the equity principle as most fair – Meritocracies are most common in individualistic cultures
• Other cultures, like India, tend to favor the need principle Why Do Companies Care? • Understand social responsibilities, obligations, and norms
across cultures • Ethical behavior can help a company
– develop a competitive advantage – avoid being perceived as irresponsible
• NGOs becoming more active in monitoring companies Relativism versus Normativism • Relativism
– ethical truths depend on the groups holding them • E.g., “If it’s OK to bribe in Country X, I guess I need to bribe when I’m in Country X”
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• E.g., “If it’s OK to bribe in Country X, I guess I need to bribe when I’m in Country X”
• Normativism – there are universal standards of behavior that all cultures
should follow • Companies may face both pressures
– Governments can reinforce these Legal Justification: Pro and Con • Legal justification is appropriate because
– The law embodies many of a country’s moral principles – The law provides a clearly defined set of rules – The law contains enforceable rules that apply to everyone – The law reflects careful and wide-ranging discussions based
on consensus Legal Justification: Pro and Con • The law is inadequate because
– Some things that are unethical are not illegal – Laws are slow to develop in emerging areas of concern and
develop in response to events that have happened (can’t anticipate)
– Laws may be based on imprecisely defined moral concepts – The law often needs to undergo scrutiny by the courts – The law is not very efficient (i.e., achieving ethical behavior
at low cost) Extraterritoriality • Basic problem with using the law: laws differ from one country
to another • Home-country governments may practice extraterritoriality
– imposing domestic legal and ethical practices on the foreign subsidiaries of companies headquartered in their jurisdictions
• Challenge for MNEs – Cumbersome and costly to monitor and follow various laws
and regulations – Counter to globalization
Legal Justification • The law remains a good starting point • Countries looking for solutions to common problems take
similar legal steps
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• Countries looking for solutions to common problems take similar legal steps
Corruption and Bribery • Corruption
– the misuse of entrusted power for private gain • Bribes
– payments or promises to pay cash or anything of value – Occurs
• to obtain government contracts • to get public officials to do what they should be doing anyway
• to gain a competitive advantage – E.g., Ralph Lauren
Corruption and Bribery • Problems with corruption
– Related to lower levels of national growth and per capita income
– Can erode the authority and legitimacy of the governments that condone it
– Downfall of heads of state and business executives • Imprisoned, fined, forced to resign, even executed
– Compromise the legitimacy and reputation of MNEs for both local and global communities
– It is costly Corruption and Bribery • “When in Rome, do as the Romans do” (relativism) is a
tempting approach to IB • International initiatives have made headway in introducing the
rule of law into more and more IB activities • More international integration in laws and practices helps
MNEs implement ethical behavior Siemens and Bribery • In 2006, police raided the offices of Siemens AG
– Found tens of thousands of documents to support that the company diverted funds into a network of “black accounts”
– Funds were used for bribing officials in countries like Italy,
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– Funds were used for bribing officials in countries like Italy, Greece, Argentina, and Saudi Arabia for lucrative public- sector contracts
– Suspicious payments went back as far as the early 1990s and totaled $570 million USD
Siemens and Bribery • Siemens was fined $1.6 billion USD, the largest fine for
bribery in modern corporate history • Managers caught up in the scandal claimed that knowledge
and approval of bribery went as far up the ranks as the CEO Klaus Kleinfeld and board chief Heinrich von Pierer
Siemens and Bribery • Are top managers responsible for corruption? • What is the role of law? • How could corruption and bribery at Siemens have been
reduced? Ethics and the Environment • Companies compromise the environment
– contamination of air, soil, or water during manufacturing – producing products that emit fossil-fuel contaminants
• Effect of natural resource extraction – renewable versus non-renewable
What is Sustainability? • Sustainability
– meeting the needs of the present without compromising the ability of future generations to meet their own needs
• Regardless of how businesses feel about the principle of sustainability, they should set policies for reasonable behavior toward the earth
• Is sustainability good business practice? – yes
Global Warming, Kyoto Protocol • Kyoto Protocol (1997)
– signed to require countries to cut greenhouse gas emissions to 5.2% below 1990 levels between 2008 and 2012
• Some countries have adopted stricter requirements
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• Some countries have adopted stricter requirements – others have not ratified the agreement including
• the U.S., China, India Implications for Business • Companies operating in countries that have adopted the
Kyoto Protocol must do one of the following: – Reduce emissions to target levels – Buy credits from companies that have reduced emissions
below target levels • Many MNEs have to reconsider their global strategies
– If country’s standards are more aggressive than those set forth in the Protocol, MNEs must adhere to these stricter standards • E.g., Germany’s target is 21% below 1990s levels
Implications for Business • Even if MNEs are not bound by the Protocol at home (e.g.,
U.S.), they face the same standards as foreign companies when operating in the foreign country (e.g., EU)
• Many MNEs therefore engage in voluntary emissions reductions at home – E.g., Between 2000-2005, GM achieved a 10% reduction in
its emissions from North American plants Implications for Business • Two approaches to responsible corporate behavior
– Legal approach • Comply with local laws and standards
– Ethical approach • Go beyond the law to do whatever is necessary and economically feasible to reduce emissions
Ecomagination at GE • Strategy developed by CEO Jeffrey Immelt in 2005
– “Green is Green” – demonstrate that an ecologically conscious conglomerate can grow its bottom line while doing something for the environment
– Goals include: • Reduce emissions and improve energy efficiency of operations
• Double investment in R&D of “clean” technologies
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• Double investment in R&D of “clean” technologies • Increase revenues from those technologies • Reduce its global water use by 20% • Keep the public informed
• Immelt assembled a cross-business, cross-functional team to oversee planning and monitoring of the goals
Ecomagination Success • In 2005, GE marketed only 17 products that met its
Ecomagination criteria • By 2011
– there were 140 products and solutions generating $105 billion in revenues
– Emissions were reduced by 29% from 2004 levels – Website keeps the public informed
Ecomagination as a Response to Globalization • A response to political environments
– GE actively participates in shaping international political debate over global warming and lobbies American lawmakers on mandatory emissions reductions
– Half of GE’s markets are outside the U.S. • Under stricter regulations (e.g., Kyoto Protocol)
• Being ecologically proactive is a forward-looking approach to create a strategic advantage – One step ahead of where environmental standards are
going • E.g., Climate deal signed Saturday, Oct 15, 2016 in Kigali, Rwanda by 150 nations (incl. U.S. and EU) to reduce emissions of HFCs (hydrofluorocarbons), used in refrigerators and air conditioners
Ecomagination as a Response to Globalization • A response to consumer demand
– Markets for green products and services are growing and profitable
– Especially growing economies like those of China and India are in great need of cleaner technologies • E.g., China has set aside $85 billion for environmental spending
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spending • A response to competitors
– Many of GE’s competitors (e.g., in Europe) had already been investing in clean technologies
Ethical Dimensions of Labor Conditions • Labor issues include
– Wages – Child labor – Working conditions – Working hours – Freedom of association
Ethical Dimensions of Labor Conditions • Labor conditions are particularly critical for retail, clothing,
footwear, and agriculture industries
Ethical Dimensions of Labor Conditions • Child labor – ILO estimates 250 million children aged 5–17
years work • Some companies avoid operating in countries where child
labor is common • Others establish responsible policies in those countries
• E.g., IKEA Corporate Codes of Ethics • How should a company behave?
– Fine line between relativism and normativism • Managers need to exhibit ordinary decency—principles of honesty and fairness
• The UN Global Compact is a good place to start – Establishes ten broad principles for appropriate behavior in
the areas of human rights, labor, the environment, and anti- corruption
– Not legally binding, but a useful guide for companies to establish a code of conduct
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Motivations for Corporate Responsibility • Unethical and irresponsible behavior could
– result in legal sanctions – result in consumer boycotts – lower employee morale – cost sales because of bad publicity
• A code of conduct – sets global policy that must be complied with – communicates the code to employees, suppliers, and
subcontractors – ensures that policies are carried out – reports results to external stakeholders
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