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8 BUSINESS ETHICS AND STAKEHOLDER

MANAGEMENT IN THE GLOBAL ENVIRONMENT

8.1 The Connected Global Economy and Globalization Ethical Insight 8.1

8.2 Managing and Working in a “Flat World”: Professional Competencies and Ethical Issues Ethical Insight 8.2

8.3 Societal Issues and Globalization: The Dark Side

8.4 Multinational Enterprises as Stakeholders

8.5 Triple Bottom Line, Social Entrepreneurship, and Microfinancing

8.6 MNEs: Stakeholder Values, Guidelines, and Codes for Managing Ethically 8.7 Cross-Cultural Ethical Decision Making and Negotiation Methods

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemmas

Cases 21. Google in China: Still “Doing No Evil”? 22. Sweatshops: Not Only a Global Issue 23. The U.S. Industrial Food System

Notes

OPENING CASE

The new global economy is no longer comprised of separate economies per country or region; instead, it has become a complex grid of interconnected networks of resources. Advances in technology have made it possible for “money, goods, data, and people to cross borders in huge volumes and at unprecedented speed. Since 1990, trade flows have grown 1.5 times faster than global GDP. Cross-border capital flows have expanded at three times the rate of GDP growth.”1 Consider that now “only one in ten US dollars in circulation today is a physical note

Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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– the kind you can hold in your hand or put in your wallet. The other nine are virtual. Estimates by Cisco Systems suggest that in 2009, global data flows expanded by nearly 50 percent. In China alone, more than 150 million new people connected to the Internet in 2009, giving that country a digital population almost as large as the world’s biggest socialnetworking site, Facebook.” Emerging markets—like Brazil, China, and India—are strongly impacted by this new global grid. “The explosion of mobile networks is giving billions of people their first real entry point into the global economy, helping them become more informed consumers, connecting them with jobs, and providing much better access to credit and finance.”2

Consider also the impact globalization has on the business community. A growing global information grid directs companies toward new innovations and connections to the Internet. John Deere tractors, for example, are equipped with GPS guidance systems “to apply fertilizers to cropland precisely. TomTom has created systems of ‘smart’ traffic lights that improve traffic flows. Nortura, Norway’s largest food supplier, uses radio-frequency identification (RFID) technology to trace chickens from the farm to the store shelf.”3 Borders have been blurred with the increase in connectivity, and companies can operate in multiple countries. Decisions made and actions taken can now affect a much broader base of stakeholders. New cultural challenges and growth opportunities are facing globalized businesses.

If you are a new or an experienced hire in a global company, or in a firm facing these challenges, you may have “your work cut out for you.” You may also want to “globalize” your own thinking and skills—if you haven’t already—and gain awareness of the wider ethical impacts of your work, your company, and your stakeholders—in international settings. Your ethics may be challenged as well in the old but newly developing world.

8.1 The Connected Global Economy and Globalization The global environment consists of a dynamic set of relationships among financial markets, cultures, politics, laws, technologies, government policies, and numerous stakeholders and stakeholder interests. The new “flat world” consists of hypercompetition from different regional players across the globe. This global environment also involves individual citizens, families, and communities that are—and many that are not—served by multinational enterprises (MNEs). This chapter presents different dimensions of globalization that affect new and experienced managers and professionals, and people in every nation. Ethical Insight 8.1 defines and describes globalization in this broader context.

Ethical Insight 8.1

What Do We Mean by Globalization?

“The Earth’s current population of some 6.5 billion is expected to rise to 8.0 billion by 2030, an average increase of 60 million annually. More than 97 percent of this growth will take place

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in developing countries. The output of the global economy will rise from $35 trillion in 2005 to $72 trillion in 2030. Though the incomes of developing countries will still be less than one- quarter of those in rich countries in 2030, they will continue to converge with those of wealthy countries. Developing countries’ share in global output will increase from about one-fifth of the global economy to nearly one-third.” As this new “global middle class” emerges, many are left behind. Inequalities are faced, in particular, by unskilled workers. “While developing countries are closing the income gap with rich countries, as many as two-thirds—more than 80 percent of the developing world outside China—may experience a worsening of within- country inequality.”

What do we mean by globalization? Globalization is about an increasingly interconnected and interdependent world; it is about international trade, investment, and finance that have been growing far faster than national incomes. It is about technologies that have already transformed our abilities to communicate in ways that would have been unimaginable a few years ago. It is about our global environment, communicable diseases, crime, violence, and terrorism. It is about new opportunities for workers in all countries to develop their potential and to support their families through jobs created by greater economic integration.

But globalization is also about international financial crises, about workers in developed countries who fear losing their jobs to lower-cost countries with limited labor rights. And it is about workers in developing countries who worry about decisions affecting their lives that are made in far-away head offices of international corporations. Globalization is therefore about risks as well as opportunities. We must deal with these risks at the national level by managing adjustment processes and by strengthening social, structural, and financial systems. And at the global level, we must establish a stronger international financial architecture and work to fight deadly diseases, to turn back environmental degradation, and to use communications to give voice to the voiceless.

We cannot turn back globalization. Our challenge is to make globalization an instrument of opportunity and inclusion—not of fear and insecurity. Globalization must work for all. There are more challenges ahead, and bigger ones. As we go forward, the voices of the poor must be our guide.

Time is short. We must be the first generation to think both as nationals of our countries and as global citizens in an ever-shrinking and more connected planet. Unless we hit hard at poverty, we will not have a stable and peaceful world, shaped by the decisions we make, and the courage and leadership we show today.

Sources: Wolfensohn, J. D. (April 2, 2001). The challenges of globalization: The role of the World Bank. WorldBank.org. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20025027~pagePK:34370~piPK:42770~theSitePK:4607,00.html accessed January 8, 2014; Wolfensohn, J. D. (February 16, 2004). Financing the Monterrey Consensus—Remarks at the conference: Making globalization work for all. WorldBank.org. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20169719~pagePK:34370~piPK:42770~theSitePK:4607,00.html accessed January 8, 2014; World Bank. (2007). Global economic prospects: Overview and global outlook. http://www- wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/09/18/000020439_20070918154547/Rendered/PDF/381380REPLACEM1nomic1Prospects12007.pdf accessed February 28, 2012.

We begin by identifying the forces underlying the globalization process in general, and then

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http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20025027~pagePK:34370~piPK:42770~theSitePK:4607,00.html

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20169719~pagePK:34370~piPK:42770~theSitePK:4607,00.html

http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2007/09/18/000020439_20070918154547/Rendered/PDF/381380REPLACEM1nomic1Prospects12007.pdf

present ethical issues which companies in the global environment face. Business and ethical competencies that managers and professionals need to compete when doing business internationally are presented. We then discuss the societal “dark side” of ethical issues and globalization, followed by a presentation of MNEs as stakeholders and their host-country relationships. We conclude by identifying negotiation methods for making ethical decisions, taking cross-cultural contexts into consideration.

Globalization and the Forces of Change Because globalization involves the integration of technology, markets, politics, cultures, labor, production, and commerce, it encompasses the processes and results of this integration. The economic benefits of globalization are both large and measurable. Globalization “expands trade flows and allows consumers to enjoy a range of goods and services vastly larger than that produced by their domestic economy. International financial flows enhance the efficiency with which capital and know-how are allocated.”4 The global economy has been estimated at $33 trillion. Although globalization has facilitated economic growth over several decades, this process is also vulnerable to forces in the environment, as discussed in this chapter. The most recent threats to economic stability and growth are the national bankruptcies and debt crises across the globe (like Greece, Italy, and the United States), subprime lending crisis, out-of- control investment practices, dysfunctional governmental regulation, rising oil and energy prices, environmental catastrophes (like the 2011 earthquake in Japan), and global terrorism, all of which continue to generate costs to businesses and the public. Nevertheless, technological emerging markets and innovation continue to support the globalization process. Some of the forces fueling this include the following:

• The end of communism and the rise of the so-called EMEs (emerging market economies) in Asia, Latin America, Europe, Russia, Africa, and the Middle East. Both of these developments have added to the growth of the global economy, as discussed in the opening case. Although this growth is cyclical, countries in these regions show continuing strength in their economic development.5 As noted above, the rise of EMEs means greater business competition. An Ernst & Young report noted the increasing global power of emerging markets as one of the six global trends shaping the business world. “Rapid population growth, sustained economic development and a growing middle class are making many companies look at emerging markets in a whole new way. Many companies that had previously posed no competitive threat to MNEs now do so. Working to serve customers of limited means, the emerging market leaders often produce innovative designs that reduce manufacturing costs and sometimes disrupt entire industries. A case in point: India’s Tata Motors’ US$2,900 Nano, priced at less than half the cost of any other car of the market worldwide.”6

• Global corporations invested more in emerging markets than the core economies of the United States, Europe, and Japan for the first time, according to the United Nations Conference on Trade and Development (UNCTAD) in their 2013 World Investment

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Report. Developing economies also absorbed more foreign direct investment (FDI) than did the developed ones; and four developing economies ranked among the five largest recipients in the world. China ranked first in this category. Developing countries generated nearly one-third of global FDI outflows, which continued the trend of cash-rich corporations in foreign countries investing in the advanced economies. The European Union (EU) accounted for nearly two-thirds of the global FDI decline.7

• The emergence of China as a global manufacturer and U.S. trading partner (now the second largest world economy), and India as a source of world-class offshore technology services. The U.S. goods deficit with China increased from $273.1 billion in 2010 to $295.5 billion in 2011.8 China and India’s growth rates may experience a slowdown because of the subprime and other financial crises, but the prominence of these two countries in the global economy continues to grow.

• Information technologies and the Internet also accelerate communication and productivity within and across companies globally. Today it is fairly easy for any company to globalize using the Internet. Japanese companies seem to have mastered the strategy of using globalized supply chains, controlling 70% of the global market share of 30 different technology sectors with $1 billion or more in revenues. Technological innovations have helped spur this globalization. Superconductors, for example, will be economically ready for many daily applications and will advance to commercial use after 2015. Tools like the Internet as a sales platform and virtual sourcing are transforming the way global businesses operate. New technologies should continue to improve the efficiency of many industries while lowering costs.

• Free trade and trading agreements continue among nations with open borders, among which are the EU free trade agreements (see Figure 8.1 for a list of these countries); the North American Free Trade Agreement (NAFTA), which encourages large and small businesses to operate in Canada and Mexico; the Association of Southeast Asian Nations (ASEAN), which helps emerging companies to compete with European and U.S. firms; and the World Trade Organization (WTO), which accepted China starting in 2002 and which provides a framework that “creates stability and predictability so that investors can, with more security, plan their activity.”9 Global trade has tripled over the past 25 years, and trading relationships are changing. Asia, for example, has surpassed both the United States and Europe to become the largest trading partner of the Middle East. New relationships, like that of China and Africa, are emerging. The trading partnership between China and Africa has been growing annually by 30%.10

• In the longer term, China could well seek to import much more food from Africa, which, by World Bank estimates, has 60% of the world’s uncultivated land. “Given Africa’s potential, China is likely to turn towards it.”11 The China—Africa

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relationship will get stronger. The editors of China Returns to Africa sum it up: So long as Africa’s development requires huge foreign investments, so long will China continue to be relevant. “Irrespective of the concerns being voiced in some circles in Africa, Chinese involvement is widely considered to be a positive-sum game.”12

• The National Intelligence Council recently commissioned a report on global trends extending to the year 2030. Over the next two decades, the report notes, the relative power of major international actors will shift markedly. Around 2030, China is predicted to be the largest world economy. In 2030, India will become the third largest economy and the world’s most populous country. Brazil’s economy will rank fourth. India, Brazil, and China will, as superpowers, be making international political decisions alongside the United States, even as the relative weight of Russia and Japan diminishes. “The European economy will remain in the top tier, but it is not clear whether Europe will be able to act with common purpose to leverage this source of strength.”13

• The World Bank and the International Monetary Fund (IMF) offer a conduit for needed capital flows to countries participating in building the global economy—as China, India and emerging economies continue to gain wealth and influence. The euro and other Asian currencies will slowly but steadily compete to replace the U.S. dollar as the global basis of exchange rates. China currently holds over $3.18 trillion in U.S. foreign reserves.14

• “Global terrorism” and counter-responses since September 11, 2001, continue to present regions, countries, and businesses with sizable risks and costs. A 2011 Congressional Research Service report calculated that, following September 11, the United States has spent a cumulative total of $806 billion on the war with Iraq, $444 billion on the war with Afghanistan, $29 billion for enhanced homeland security, and $6 billion of unallocated funds. It is projected that war costs could require an additional $496 billion over the next 10 years. For the fiscal year 2010, the U.S. Administration noted a cost of $1 million per troop per year in Afghanistan alone, and monthly war obligations in 2010 cost an average of $11.1 billion.15 The continuing costs of preventing and managing terrorist risks in the United States and other countries is substantial to the global economy and to affected industries, such as the U.S. airlines.

• Multinational enterprises (MNEs) continue to grow, open new markets, and create jobs across the globe. Of the world’s top 100 economies in 2009, only 53 were countries; 34 were cities and the remaining 13 were corporations. The top countries are still the United States and China, with India now at number four; and the top corporations are Royal Dutch Shell and ExxonMobil.16 Examples of such transnational giants include WalMart, BP, Toyota Motor, General Electric, Texaco, British Petroleum Amoco, Ford, Procter & Gamble, Coca-Cola, and Heinz. An

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estimated 40,000 to 100,000 multinational companies continue to do business across national boundaries and contribute to the global economy. It is likely these numbers will increase. Where there are new markets, companies will move and be created. At the same time, MNEs will spend more on risk management, which in turn will encourage outsourcing, rather than investing in offshore facilities that are vulnerable to political instability.

• Global poverty and income disparity are also major factors. “Half the world—over three billion people—live on less than $2.50 a day. At least 80% of humanity lives on less than $10 a day. More than 80 percent of the world’s population lives in countries where income differentials are widening. The poorest 40 percent of the world’s population accounts for 5 percent of global income. The richest 20 percent accounts for three-quarters of world income.”17 However, the global poverty rate was cut in half between 1990 and 2010.18

Growth also decreases poverty: growth has frequently been much more effective at reducing poverty in countries with low-income inequality than in countries with high-income inequality. Promoting equality, particularly among different religious, ethnic or racial groups, also helps reduce social conflict.19

But as countries continue to grow, possibilities for positive change can occur. If poverty falls at its current rate, the number of people living at $1.20–1.25 a day will also fall: to 56 million in 2020 and 28 million in 2030. However, unless growth trends dramatically upward, “it is not possible to maintain the trend rate of poverty reduction with so many fewer individuals ready to cross the line.” The geography of poverty will be transformed. China passed the point years ago where it had more citizens above the poverty line than below it. By 2020, there will be hardly any Chinese left consuming less than $1.25 a day; everyone will have escaped poverty. But there is still a long way to go. According to UNICEF, “22,000 children die each day due to poverty. . . . Nearly a billion people entered the 21st century unable to read a book or sign their names.” There are 2.2 billion children in the world; 1 billion live in poverty.20 These conditions create and add to the instability of governments, the rule of law, and political regimes; and to the influence of global terrorism.

Figure 8.1 European Union Country Members

Austria Italy Belgium Latvia Bulgaria Lithuania Croatia Luxembourg

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Cyprus Malta Czech Republic Netherlands Denmark Poland Estonia Portugal Finland Romania France Slovakia Germany Slovenia Greece Spain Hungary Sweden Ireland United Kingdom

• Consumers are demanding social responsibility from corporations. “Over 88% of consumers think companies should try to achieve their business goals while improving society and the environment and 83% of consumers think companies should support charities and nonprofits with financial donations.” Furthermore, “the average American consumer will drive nearly 11 minutes out of their way to buy a cause- marketing product and nearly two-thirds of employees would seriously consider leaving their job if their employer used child labor in sweatshop factories.” Certain programs and initiatives are now expected of companies by consumers, for example, recycling programs and the prevention of child labor.21

• A shift to service economies and knowledge workers using technologies has also propelled innovation and productivity worldwide. The rise of the service economy has been clearly driven by high-skill industries. The importance of low-skill service industries in value-added has actually declined. Knowledge workers will work in flatter, more networked, geographically dispersed organizations. Leadership will be shared and individual professionals will be required to work in virtual as well as land-based teams as electronic communications accelerate. “When agents can only home produce for themselves, two additional forces contribute to the rise of the service economy: (1) as the wage increases, high-skilled individuals demand more market services as the opportunity cost of home producing services increases; (2) as the quantity of high-skilled individuals increases, the demand for market services increase as high-skilled individuals consume more market services relative to low- skilled individuals.”22

8.2 Managing and Working in a “Flat World”: Professional Competencies and Ethical Issues

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As the forces driving globalization indicate, this process is complex with results that differ in benefits and burdens depending on who the stakeholders are. We identify and discuss major effects of globalization on these different stakeholders in this chapter. We continue with the professional entering the global workforce. As the opening case indicated, globalization brings hyper-competition and challenges to new and continuing leaders and professionals in corporations. This section begins with three questions: (1) Is there an ideal profile of competencies for global managers and professionals who will work in different countries? (2) Is there a global set of values and ethics that benefits transnational companies, their managers, and professionals? (3) What are ethical issues these professionals might expect to find? The following quote by David Tai, director of Human Resource (HR) Learning at IBM India/South Asia, who prepares employees for global leadership, is relevant here: “Today’s global economy is a knowledge economy, which requires fresh thinking and innovative approaches to workforce management. In fact, IBM’s latest human capital management study reveals that 75 percent of global business leaders are worried about the ability to build globally aware leaders; 88 percent of those respondents are from Asia.”23

There is a demand for “a new type of cosmopolitan, multinational, multifaceted executive who is operational across national borders.”24 Brian Hum, an HR specialist in globalizing workforces, noted that there are two preconditions that must be met for international business managers to adapt successfully: “They must want to operate effectively in another culture and they must be excited by the challenges ahead. Attempting to learn a foreign language to a reasonable standard is another favorable indicator. International business managers need to be sensitive to foreign cultures with no sign of prejudice. Their ability to cope with ambiguity, particularly when dealing with different business cultures and ethical dilemmas is an essential competence. . . . Previous overseas experience . . . is not necessarily an indicator of future successful performance.”25

Global leadership requires a different set of attributes. At a Servant Leadership Research Roundtable, several scholars noted that global leaders now need several key attributes. They must be:

1. Open to other cultures and flexible. 2. Aware of verbal and nonverbal differences in communication with a person from another culture.

3. Aware that management practices developed in one culture may not be easily transferred to another.

4. Aware of the cultural influences on behavior. 5. Adaptive. 6. Loyal, honest, and ethical. 7. Have multidisciplinary perspectives, which are needed for problem solving.26

Although there are no definitive empirical or longitudinal studies that confirm skills of an ideal global manager or professional, research offers expertise areas for succeeding in international and global careers.27 Figure 8.2 illustrates one such example. You will notice certain reoccurring competencies as you review these lists. Figure 8.3 extends the managerial

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competencies in Figure 8.2 with ethical dimensions of those skills. For example, having a managerial “multidimensional perspective” (i.e., “Extensive multifunctional, multicountry and multienvironment experience”) would be complemented by having a “multidimensional ethical perspective,” which would in turn, as shown in Figure 8.2, require experience in managing cross-cultural country values and ethical orientations.

Figure 8.2 Global Leadership Skills

Source: Based on Rainer Busch. (April 24, 2008). Global leadership skills. RainerBusch.de. http://www.rainerbusch.de/GLS- 24-04-2008-Busch.pdf, accessed March 2, 2012.

Another complementary list of global skills that are based on research and HR experience includes the following:28

• Strategic awareness • Adaptability to new situations • Sensitivity to different cultures • Ability to work in international teams • Language skills • Understanding international marketing

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http://www.rainerbusch.de/GLS-24-04-2008-Busch.pdf

• Relationship skills • Family support • International negotiating skills

Figure 8.3 Complementary, Managerial Ethical, and Social Responsibility Competencies

• Multidimensional perspective Extensive multifunctional, multicountry, and multienvironment experience

• Multidimensional / ethical perspective Multifunctional and multicountry business experience in leading with ethical values

• Line-management proficiency Successful track record in overseas projects and assignments

• Line-management social responsibility Socially responsible capacity in cross- cultural projects and assignments

• Good decision making Successful in making tactical and strategic decisions

• Ethical decision making Ability to negotiate ethically cross-culturally

• Resourcefulness Skilled in getting known and accepted by host country’s stakeholders

• Ethical resourcefulness Skilled in getting known and accepted by host country’s stakeholders for ethical reputation

• Culturally sensitive Can effectively deal with people from a variety of cultures

• Cross-cultural ethics awareness Can effectively communicate with others’ cross-cultural values

• Culturally adaptive Quick and easy to adapt to foreign culture; cross-cultural experiences

• Cross-cultural values adaptation Quick and easy to adapt to different values while maintaining core ethical principles

• Team-building skills Able to create culturally diverse working groups

• Team-building and social responsibility skills Able to adapt to ethical differences of diverse working groups and relationships

• Mental maturity Endurance for the rigors of foreign posts (culture shock)

• Moral maturity Ability to work with rigors of different professionals’ moral

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maturity

• Negotiating skills Track record of conducting successful (international) business negotiation

• Negotiating skills across country cultures Track record in successfully negotiating conflicting country norms and outcomes

• Change-agent skills Track record of successfully initiating and implementing organizational changes

• Change-agent ethical skills Track record of acting ethically in leading organizational change

• Visionary ability Quick to spot and respond to political and economic threats and opportunities

• Stakeholder management skills Quick to spot and respond to ethical issues in political and economic situations

Source: Based on Rainer Busch. (April 24, 2008). Global leadership skills. RainerBusch.de. http://www.rainerbusch.de/GLS- 24-04-2008-Busch.pdf, accessed March 2, 2012. Adapted by Joseph W. Weiss, 2014. All rights reserved.

• Self-reliance • Open, non-judgmental personality • Flexibility of thinking • Sensitivity to others • Ability to see the “big picture” • Leadership skills • Drive and determination • Intellectual capability

Many large companies outsource the assessment process for selecting managers and professionals to work abroad. Other firms have in-house assessment centers to evaluate, select, and train professionals for international and global work.

Shared Leadership in Teams’ Competency Recent research on workplace attitudes and values across 53 nations and regional groupings by professors at the Graduate School of Management in Claremont found that “teams that perform poorly tend to be dominated by the team leader, while high-performing teams have a shared-leadership structure. But beware: There are some risks executives run by sharing the reins. And our research suggests also that success may depend on the particular country where a business is operating.”29

The researchers noted that it is more difficult to share leadership if members share values from a society that is based on unequal distribution of power. Those who occupy leadership positions are less likely to share their authority, since they likely believe it is something they

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http://www.rainerbusch.de/GLS-24-04-2008-Busch.pdf

have earned. Likewise, followers may be reluctant to share leadership because they view control as the sole prerogative of the appointed leader. Followers may also judge a leader to be weak if he or she attempts to hand over the reins. Countries, according to these researchers, where there is an unequal distribution of power include Arab countries, Belgium, Brazil, Chile, Colombia, Costa Rica, East Africa, Ecuador, France, Greece, Guatemala, Hong Kong, Indonesia, Iran, Korea, Malaysia, Mexico, Pakistan, the Philippines, Panama, Peru, Portugal, El Salvador, Singapore, Spain, Taiwan, Thailand, Turkey, Uruguay, West Africa, Venezuela, and Yugoslavia. Countries where power is more decentralized and that are more egalitarian include Argentina, Australia, Austria, Canada, Denmark, Finland, Germany, Britain, India, Ireland, Israel, Italy, Jamaica, Japan, the Netherlands, New Zealand, Norway, South Africa, Sweden, Switzerland, and the United States. Of course not every professional from a country in either of these two groupings shares that country’s value system; this research is only an indicator. Use Ethical Insight 8.2 to find how you identify your preferences for team leadership, based on your country of origin as well as your beliefs about effective teams and leadership.

Ethical Insight 8.2

Country Culture Counts: Potential for Shared Leadership

Countries that accept unequal power distribution in organizations and institutions; centralized decision-making; inegalitarian: Arab countries, Belgium, Brazil, Chile, Colombia, Costa Rica, East Africa, Ecuador, France, Greece, Guatemala, Hong Kong, Indonesia, Iran, Korea, Malaysia, Mexico, Pakistan, the Philippines, Panama, Peru, Portugal, El Salvador, Singapore, Spain, Taiwan, Thailand, Turkey, Uruguay, West Africa, Venezuela, and Yugoslavia

Countries that do not accept unequal power distribution; decentralized decision making; egalitarian: Argentina, Australia, Austria, Canada, Denmark, Finland, Germany, Britain, India, Ireland, Israel, Italy, Jamaica, Japan, the Netherlands, New Zealand, Norway, South Africa, Sweden, Switzerland, and the United States

Questions

1. What is your country of origin? In which country have you lived, studied or worked the longest?

2. Which decision-making style do you prefer in a team: centralized or decentralized? Explain. 3. Which leadership decision-making style do you believe would allow for more ethical decisions: (a) centralized (single leader) or (b) decentralized (shared leadership)? Explain.

4. What has been your experience in observing how more ethically oriented teams have Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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performed: those teams with centralized, authoritarian or decentralized, egalitarian leadership decisionmaking? Explain.

Source: Pearce, Craig. (July 7, 2008). Follow the leaders. WSJ.com. http://online.wsj.com/article/SB121441363110903891.html?mod=djem_jiewr_HR, accessed January 8, 2014.

Under the heading “Passing the Mantle,” the Claremont researchers provide the following leadership insights:

• The Mistake: When companies put together teams of employees, they usually hamstring the group right from the start by appointing one team member to lead the crew.

• The Alternative: Leadership should be shared among team members, passing to whoever has the most expertise for the job at hand. Our research shows that when teams share leadership, their companies usually see big benefits.

• The Caveat: Shared leadership doesn’t work in all situations—for instance, if the teammates haven’t had time to learn each other’s strengths and gauge who should be in charge at any given time. Shared leadership also faces big hurdles in some cultures, such as those that generally favor strong central authority.30

To summarize, an individual’s cultural background, based on country differences, can affect his/her effectiveness as a global team leader and member. Of course this type of difference is not the only factor determining team effectiveness, but being aware of the effects of others’ and one’s cultural background is important—not only for team membership but also for ethical decision-making differences, as we discussed earlier and will address again later in the chapter.

The final observation in this section is that HR experience indicates that “Fewer young people are willing to accept assignments overseas for fear their experience will not be recognized and they will encounter difficulties when coming back. It is therefore becoming critical for companies to select with precision and recruit the right personnel.”31 Other reasons new professionals hesitate to take overseas positions or long-term assignments include the following preconceptions about working away from the base of their company’s operations: “nomadic and transient lifestyle; loss of ties to home and close friendships; [not knowing] how to integrate with local people; loss of usual support systems and people to turn to in an emergency; danger of terrorist activities and anti-western attitudes in some areas; and children’s education and spouses’ careers.”32 Companies must stress the positive opportunities for overseas careers, such as: “wider responsibility, often with greater freedom of action, enhanced quality of life, greater job satisfaction and, if successful, future career advancement, as well as opportunities to travel, to broaden horizons and possibly learn other languages.”33 We turn next to ethics from a global perspective.

Global Ethical Values and Principles Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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Because unethical practices cross geographic boundaries and affect nation-states as well as corporations doing business in different countries, there is a need for both legal regulation and ethical motivation. An example of a blatant illegal and unethical practice that has affected global business is South Africa’s previous apartheid system that was supported by several local laws from 1948–1986. These laws condoned and even enforced racial segregation that protected white supremacy and domination. “Firms with subsidiaries operating in SA were bound by the apartheid legislation even though each of the laws could be ethically faulted.”34 Within that system, MNEs had to decide whether to continue supporting a system of racial discrimination and slavery by doing business in South Africa during that time, or leave. Other forms of questionable ethical behavior by different countries will be discussed later in this chapter, including: child labor, intolerable working conditions for employees, foreign firms paying below living wages for cheap labor, exporting proven hazardous products to different countries, and MNEs’ usurping poorer countries’ environmental and natural resources to gain profit. For these reasons, global values and principles were developed by international agencies and institutions to inform and constrain all corporations doing business across national borders from illegal and unethical acts such as apartheid.

Examples of Global Principles and Values There are different universal sets of values and ethical standards that are shared by MNEs. The Global Sullivan Principles are one such source. “These principles were developed by Leon Sullivan (the first African-American to be appointed to the board of a major corporation— General Motors) in 1977. General Motors was the largest American employer of black South Africans at the time.”35 Over 30 prestigious firms have agreed to these principles, which are shown in Table 8.1. Other such global codes, principles, and statements of universal rights include the Caux Round Table Principles for Business, the Amnesty International Human Rights Principles for Business, the Asian Pacific Economic Cooperation Forum Business Code of Conduct, the Ceres Principles, the Clarkson Principles of Stakeholder Management, the International Labour Organization (ILO) Declaration of Fundamental Principles and Rights at Work, the Organisation for Economic Cooperation and Development (OECD) Guidelines for Corporate Governance, the OECD Guidelines for Multinational Enterprises, and the United Nations (UN) Declaration of Human Rights.

Table 8.1 Global Sullivan Principles of Social Responsibility

The Principles

As a company which endorses the Global Sullivan Principles we will respect the law, and as a responsible member of society we will apply these Principles with integrity consistent with the legitimate role of business. We will develop and implement company policies, procedures, training and internal reporting structures to ensure commitment to these Principles throughout our organization. We believe the application of these Principles will achieve greater tolerance

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and better understanding among peoples, and advance the culture of peace. Accordingly, we will:

• Express our support for universal human rights and, particularly, those of our employees, the communities within which we operate, and parties with whom we do business.

• Promote equal opportunity for our employees at all levels of the company with respect to issues such as color, race, gender, age, ethnicity or religious beliefs, and operate without unacceptable worker treatment such as the exploitation of children, physical punishment, female abuse, involuntary servitude or other forms of abuse.

• Respect our employees’ voluntary freedom of association. • Compensate our employees to enable them to meet at least their basic needs and provide the opportunity to improve their skill and capability in order to raise their social and economic opportunities.

• Provide a safe and healthy workplace; protect human health and the environment; and promote sustainable development.

• Promote fair competition including respect for intellectual and other property rights, and not offer, pay or accept bribes.

• Work with governments and communities in which we do business to improve the quality of life in those communities—their educational, cultural, economic and social well-being—and seek to provide training and opportunities for workers from disadvantaged backgrounds.

• Promote the application of these Principles by those with whom we do business.

Source: Sullivan, The Rev. Leon H. The global Sullivan principles. Mallenbaker.net. http://www.mallenbaker.net/csr/CSRfiles/gsprinciples.html, accessed March 1, 2012.

Guy’s (1991) 10 core values also serve as a practical set of universal principles:36

1. Caring 2. Honesty 3. Accountability 4. Promise keeping 5. Pursuit of excellence 6. Loyalty 7. Fairness 8. Integrity 9. Respect for others 10. Responsible citizenship

Does One Set of Values “Fit” All?

Can one set of values apply to different cultures? Gilman and Lewis argued that universal Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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“principles and common values are often—and wrongly—dismissed because actual behavior does not appear to coincide. . . . The apparent incoherence between expressed values and observed behavior does not make values irrelevant to cross-cultural comparisons.”37 The same authors cited empirical data from a study that included France, Germany, the United States, Japan, Mexico, South Africa, Argentina, Chile, Russia, Nigeria, and India to argue that although culture is a carrier of values, “values are not solely derived from one’s culture.”38 In other words, there are universal principles and values that are not, nor should they be, culturally derived; rather, these principles should transcend cultures for the greater good of all. As we discuss in the last section of this chapter, issues emerge not only from the problem of identifying or agreeing on a set of universal ethical principles, but also when there is a clash between individuals, groups, and/or organizational interests that are constrained or denied by one or more of these principles. Doing the right thing may violate cultural norms in several cultures; some universal principles may take precedence over some cultural values for the common good, as well as for certain individual’s and group’s rights.

Know Your Own Cultural and Core Values, Your Organization’s, and Those with Whom You Are Working Corporate leaders and professionals working in different countries and globally need to know (1) their own cultural and ethical values and principles; (2) those of their organization or company; and (3) those of the individuals, team, and organization in whose culture they are working. Without this knowledge, two particular “ethical traps” may face individual professionals, teams, and companies:

1. Acting ethnocentrically is demonstrating “the belief in the inherent superiority of one’s own ethnic group or culture; a tendency to view alien groups or cultures from the perspective of one’s own.”39 Acting from one’s own cultural preferences without awareness of or concern for others’ cultural values also has ethical consequences that can result in negative reactions from others and your failure to achieve business goals. Critics have accused the U.S. government of acting ethnocentrically in some of its policies and preemptive approaches to imposing democracy on some Middle Eastern countries. Some North American and European corporations in previous decades and empires have also acted ethnocentrically in their use and destruction of poorer countries’ resources for competitive gain.

2. Moral (and cultural) relativism is based on “the view that no culture is superior to any other culture when comparing systems of morality, law, politics, etc. It’s the philosophical notion that all cultural beliefs are equally valid and that truth itself is relative, depending on the cultural environment.”40 At a cultural level, acting from this theory involves “When in Rome, do as the Romans do”; or, do what your company believes is right at the time and in the immediate circumstance. If you had been working with an American company in South Africa in the 1970s, you may very well have been acting from this principle. You would have been, as noted earlier, accepting the practice of state-condoned racial discrimination. Some of the larger petroleum companies working in conjunction with other cohorts have been described as acting from a relativistic ethic to satisfy their own profits at the expense of the environment and

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poorer working peoples, who are barely surviving with increased energy and fuel prices.

A method you can use to understand your own cultural values and ethical principles—and those of your team and even organization—in an international setting is based on Harvard University’s Joseph Badaracco’s three key questions to consider before acting or taking a position in a “defining moment.” His method is presented in Chapter 2; the following is an extension of that method.41 We have added a cross-cultural dimension to the probes. For individuals, the key question is “Who am I?” First, ask and discern “What cultural

values, attitudes, and habits might influence my decision?” Second, what are my ethical principles-in-action (i.e., principles practiced): Do I generally rely on a utilitarian ethic? Do I rely on justice, fairness, and duty principles? Am I an altruist, pragmatist? Do I respect the rights of others? Or, do I make decisions based on relativism; that is, act from my own self- interest and cultural values only? Do I demonstrate virtues in my character and toward others? Also, am I flexible in my ethical thinking when dealing with others, or am I rigid and demanding? Third, with whom am I making this decision? Do I understand their basic cultural values? Do I know some of their ethical principles-in-action? With this understanding, you may then:

1. Identify your feelings and intuitions that are emphasized in the situation. 2. Identify your deepest values that are in conflict in the situation. 3. Consider the feeling and intuitions of the other(s) in the situation. 4. Identify what their values and ethics are and how these might affect the conflict in the situation.

5. Identify the best course of action to understand the right thing to do for you and the others.

In work groups, managers can ask, “Who are we?” (Again, consider each team member’s cultural values as well as your own, and ask how the team reflects any particular set of values. Identify the ethical principles-in-action of the team). You can then address these three questions as a team in this situation:

1. What strong views and understanding of the situation do team members have—cross- culturally and within your own team?

2. Which position or view would most likely win over others in a way that would be least harmful culturally and organizationally to all affected?

3. Can we respond in this situation in a way that reveals the values we care about in this organization?

Company executives can ask, “Who is the company?” (What are its core values and ethical principles-in-action in this international context and global setting?) Three questions you can consider are:

1. Have I strengthened my position and the organization to the best of my ability, relying on my values and ethics?

2. Have I considered my organization’s values and role vis-à-vis the society’s (both my Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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society’s, and another’s, if abroad) cultural values and interests in a bold and creative way? 3. How can I transform my vision based on these reflections into action that combines creativity, ethical responsibility, courage, and shrewdness?

As discussed in Chapter 2, these ways of reflecting on the contextual values and facts in a situation when a difficult decision must be made is not always easy, especially in a cross- national setting. Deciding between two or more positions that are culturally and even morally “right” for parties in conflict also requires moral courage, common sense, and shrewdness. Section 8.6 offers specific methods of negotiating conflicting values cross-culturally. Next, we discuss some ethical issues in business that professionals may encounter when working across national boundaries.

Cross-Cultural Business Ethical Issues Professionals May Experience Some of the more predominant ethical issues that managers and professionals in international settings have experienced include (1) bribery and gifts, (2) sexual and racial discrimination, and (3) piracy and intellectual property protection. These are a sample of such issues. The cases in this book present additional issues.

Bribery: A Form of Corruption A former senior manager at Siemens yesterday [May 26, 2008] admitted building up an elaborate system of slush funds and shell firms at the request of his superiors to help Europe’s biggest technology group win overseas contracts through bribes. Reinhard Siekaczek told a Munich court that he had informed his entire divisional board about the system and assumed that the whole group executive board knew about it from at least 2004. On the opening day of Germany’s biggest post-war corporate corruption trial, Siekaczek described how managers signed off “commissions” on yellow Post-It notes which could be easily removed in case of raids or investigations. His damning testimony included allegations that his efforts to stop the widespread bribery at Siemens’ fixed-line telecommunications equipment division (Com), where he was a sales manager, had fallen foul of his superiors who “didn’t want to hear.” Siekaczek, aged 57, is the first of up to 300 accused among Siemens’ current and former staff to stand trial in a corruption scandal that the group itself admits involves at least €1.3bn (£1bn) in siphoned-off money. Six of its divisions are involved in a bribery system spanning the globe that has so far cost it €1.8bn to clear up, including a €201m fine from another Munich court. It could result in a multibillion-dollar penalty from the U.S. Securities and Exchange Commission as well as the loss of lucrative contracts.42

Bribery can be a serious matter as the excerpt above shows. Bribery payments are estimated at $1 trillion worldwide.43 Leaders’ and professionals’ careers can be lost, settlements and court costs can be substantial to companies, and reputations tarnished. Bribery is part of the definition of corruption (“Corruption: moral perversion, depravity, perversion of integrity, bribery, corrupt or dishonest proceedings, any corrupting influence or agency. Bribery: money or other valuable consideration given or promised with a view to corrupting the behavior of a person, a public official crime in some countries and not others”).44 Bribery is a global problem: “Bribery in developing countries often stems from multinationals based in the richest countries. Global financial centers play a role in allowing officials to move, hide and invest illicitly gained wealth. Principles and ethics vary between countries. Interestingly, the U.S. accepts domestic political or legislative influencing practices such as lobbying and campaign funding, while considering the same underlying activities corrupt in other countries. The responsibility to combat corruption is global and no country can hold itself above the

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solution.”45 The organization Transparency International publishes a Buyers Payers Bribery Index,

where a high average score indicates low bribery. The report shows a ranked list of the top 30 countries on bribery (note: China and India ranked last and are not shown on this short list). The top 15 in this Index are shown in Table 8.2.

Table 8.2 Rank / Country / Average Score (0–10)

1. Netherlands 8.8 2. Switzerland 8.8 3. Belgium 8.7 4. Germany 8.6 5. Japan 8.6 6. Australia 8.5 7. Canada 8.5 8. Singapore 8.3 9. United Kingdom 8.3

10. United States 8.1 11. France 8.0 12. Spain 8.0 13. South Korea 7.9 14. Brazil 7.7 15. Hong Kong 7.6

Source: Transparency International. (2011). Buyers payers index. http://www.scribd.com/idunt/d/71267831-BPI-Report- Embargo-for-Viewing, accessed January 8, 2014.

International organizations that have addressed and ratified bribery in different countries’ legislation include the OECD, the Organization of American States (OAS), and the Council of Europe (CoE).

In the United States, the Foreign Corrupt Practices Act (FCPA) was enacted in 1977 and substantially revised in 1988. The provisions of the FCPA prohibit the bribery of foreign government officials by U.S. persons and prescribe accounting and record-keeping practices that prohibit American companies from offering payments to foreign government officials for the purpose of obtaining or retaining business. “The fact that the FCPA deals only with bribes

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made to foreign government officials acts to exclude from the FCPA . . . payments to foreign persons who are not governmental officials. Additionally, the fact that the FCPA deals only with bribes that are intended for the purpose of obtaining or retaining business acts excludes grease or facilitating payments from the scope of the FCPA. A grease or facilitating payment is a payment made to expedite or secure the performance of a routine government action. Routine government actions include obtaining permits or licenses, processing official papers, clearing goods through Customs, loading and unloading cargo and providing police protection.”46 U.S. individuals who cannot defend their actions with regards to the FCPA’s antibribery provisions can face harsh penalties. “U.S. companies can be fined up to $2 million while U.S. individuals (including officers and directors of companies that have willfully violated the FCPA) can be fined up to $100,000 and imprisoned for up to five years, or both. In addition, civil penalties may be imposed.”47

Recently, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have been more aggressive in enforcing and prosecuting the bribery section of the FCPA. Note the following example:

In December 2007, Lucent agreed to settle parallel DOJ and SEC FCPA enforcement actions by paying $2.5 million in combined fines and penalties for improperly recording travel expenses and other things of value to employees of Chinese companies that were owned or controlled by the state (SOEs). Such individuals are deemed to be “foreign officials” under the FCPA’s anti-bribery provisions.

Pursuant to a DOJ non-prosecution agreement, Lucent acknowledged that from at least 2000 to 2003, it spent over $10 million on approximately 315 trips involving over 1,000 employees of Chinese SOEs that had a disproportionate amount of sightseeing, entertainment, and leisure. According to the government, while the trips Lucent paid for were “ostensibly designed to allow the Chinese foreign officials to inspect Lucent’s factories and to train the officials in using Lucent’s equipment . . . the officials spent little or no time in the United States visiting Lucent’s facilities [but instead] visited tourist destinations throughout the United States, such as Hawaii, Las Vegas, the Grand Canyon, Niagara Falls, Disney World, Universal Studios, and New York.”48

Also, the FCPA’s penalties and levied fines have significantly grown in size. In December 2008, “the U.S. Department of Justice announced that the German conglomerate Siemens AG, along with its subsidiaries in Argentina, Bangladesh, and Venezuela, agreed to plead guilty to conspiring to commit violations of the U.S. Foreign Corrupt Practices Act (FCPA). The criminal fines imposed, totaling more than $450 million, are by far the largest in the history of the FCPA, and are supplemented by more than $350 million in ill-gotten profits.”49

When doing business in developing countries where corruption, and particularly bribery, is prevalent, it is worth taking the following precautions:

• Read and understand the legislation and its enforcement on corruption and bribery in that country.

• Read and understand the FCPA and the OECD guidelines on corruption. • Know your business associates and partners where you do business. • Take an active role in education, compliance and due diligence.50

Gifts versus Bribery A key question for new and even seasoned international business professionals is: When is a gift really a bribe? Peter Madsen, executive director of the Center for the Advancement of

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Applied Ethics and Political Philosophy at Carnegie Mellon University in Pittsburgh stated that “Hard and fast rules, however, tend to get blurry in international business settings. Even Fortune 500 companies with laudably firm policies have trouble in this area. . . . Relativism is rampant . . . and when you’re talking business, cultural relativism becomes a really big problem.”51

In most parts of the world, especially some less-developed nations, Asia, the Middle East, parts of Europe and the United States, business professionals are expected to “pay to play.” Narayan Manandhar, former president of Transparency International in Nigeria, offered a distinction: “Personally, I like to see the bribe located at an intermediate position in a continuum where at one extreme you can put extortion and at the other, a gift. A bribe becomes extortion when it is demand-driven. If a medical doctor asks for a bribe inside an operation theater or an emergency room, it is clearly a matter of extortion. You have been blackmailed to pay the bribe. A bribe could turn into a gift, if it is supply-driven. People have asked me whether tips paid to a waiter in a restaurant are a bribe or a gift. Normally, it is not a bribe. It is a gift as there is an element of voluntariness or the absence of a quid pro quo situation.”52

The OECD uses the acronym GIFT, which expands as “(1) Genuine, (2) Independent, (3) Free, and (4) Transparent. First, the gift must be genuine, that is, offered in appreciation for something which you have done well, in accordance with your functions as a public official, without any encouragement. Second, the gift must be independent in a sense that it does not affect your functioning in the future. Third, it must be free from any obligations to the donor, or for his/her family or affiliates. Fourth, it must be transparent. You must be able to declare the gift in a completely transparent way, to your organization and its clients, to your professional colleagues, and to the media and the public in general.”53

Racial and Sexual Discrimination in the Global Context Two other areas in which professionals working globally are likely to experience ethical issues are racial and sexual discrimination. Although these issues and sexual harassment were discussed in Chapter 7, here we expand these topics to cross-cultural settings. “Discrimination is an assault on the very notion of human rights. Discrimination is the systematic denial of certain peoples’ or groups’ full human rights because of who they are or what they believe. International law guarantees human rights to all without distinction based on race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. Governments are obliged to take essential measures to ensure the right of all to be free from discrimination,” according to Amnesty International.54 Globalization, the widening gap between income groups, the “global war on terror,” and the post-9/11 environment have created opportunities and problems with regard to unintended consequences regarding racial discrimination. A brief sample of countries that have immigrant populations illustrates the potential for and experience with racial discrimination. The United States continues to deal with the need for labor while wrestling with “illegal immigration” from Mexico; England has one of the most diverse working populations in the world, with East Indian immigrants representing a large segment of that population; Germany must deal with integrating Turkish workers and immigrants; Dubai, the United Arab Emirates, and Saudi Arabia all import labor —of the 1.5 million residents of Dubai, 1 million are immigrants; “Argentina’s population is

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97 percent white (mostly of Spanish and Italian descent) and three percent mestizo (Amerindian and European). One of the difficulties in assessing and addressing persistent forms of racial discrimination in Argentina is the lack of adequate information about the population, particularly the indigenous and immigrant communities.”55 Racial discrimination doesn’t only occur between native residents and immigrants of host countries. As noted above, discrimination is practiced in different forms including in MNEs as well as with an international labor force. Racial discrimination here refers to the workplace and generally involves acts relating to hiring, wage inequalities, treatment of employees, working conditions, and promotions.

A world survey on workplace discrimination shows the disparity in opinions about racial discrimination and also calls on governments to act to prevent such acts:56

• Majorities in 15 out of 16 nations [polled] agree that employers do not have the right to discriminate. Asked whether employers should be allowed to “refuse to hire a qualified person because of the person’s race or ethnicity,” on average three out of four (75%) say employers should not be able to base hiring decisions on race, while just 19% believe they should.

• Majorities against workplace discrimination are largest in France (94%), China (88%), the United States (86%), Indonesia (84%), Britain (83%), and Azerbaijan (82%).

• Again, India stands apart from the other countries polled. Although a plurality opposed such discrimination, an unusually high 30% says that employers should be allowed to reject jobseekers because of race or ethnicity. Relatively large minorities also agree that employers should be free to hire whom they choose in Nigeria (34%) and South Korea (41%), though in both cases, majorities are opposed (64% and 58%, respectively).

• Indonesians (80%) and the Chinese (77%) believe overwhelmingly that the government should try to prevent discriminatory hiring practices, followed by Azerbaijanis (72%), the French (69%), Americans (69%), Britons (69%), Ukrainians (65%), Mexicans (64%), and Iranians (61%). More modest majorities agree in Russia (58%), Egypt (56%), Nigeria (56%), the Palestinian territories (53%), and South Korea (53%).

• Two countries differ: Turkey and India. Only 23% of Turks say that the government has the responsibility to take measures against workplace discrimination and 43% say it does not. Among Indians, just 27% say that government has this responsibility, while 20% say it does not.

Companies hiring and integrating employees into their firms benefit from having corporate leaders and cultures that do not tolerate racial discrimination. Lack of respect and fairness from employers in their hiring, promotion, and reward practices leads to employee turnover,

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absenteeism, and lower performance. Employees usually turn first to their supervisors in the chain of command to report or discuss discrimination problems. If the company has no formal or written policy, the employee must decide whether or not to pursue the issue to others in the organization or go outside. Corporations can benefit from establishing such policies and procedures along with training to support their workforce.

The UN Human Rights Council moved to establish a new subsidiary body, the Expert Mechanism on the Rights of Indigenous Peoples, on December 13, 2007. Other UN agencies, nongovernmental organizations (NGOs), and different countries’ human rights groups, such as the European Commission against Racism and Intolerance (ECRI), which was established by the first Summit of Heads of State and Government of the Council of Europe Member States, all continue to implement policies, help create laws, and monitor racial discrimination not only in workplaces but also in different societies. Companies moving to different countries and those already serving different countries need to familiarize their officers and professionals with the work of these UN bodies and NGOs. Many large, established MNEs have partnered and worked with such bodies for decades.

Sexual Discrimination Sexual discrimination is generally part of laws dealing with other types of discrimination and rights, such as race, age, national origin, gender, religion, and language. Not all countries have laws or even policies dealing with sexual harassment and/or discrimination specifically against women, or men. In a cross-national survey published in 2000, France, Germany, Mexico, the Philippines, Switzerland, Taiwan, and Venezuela had no “prohibitions on employment discrimination.” Several countries also had no “prohibitions on sexual harassment” in the workplace—Ukraine, Singapore, Russia, Republic of South Africa, Poland, China, Hungary, Czech Republic, Colombia, and Brazil. Note that “In Europe, there is an increasing focus on behaviors described as ‘moral harassment,’ ‘mobbing,’ or ‘workplace bullying,’ all of which subordinate concern about the integration of women in the workforce to concern about the rights of all workers.”57

Companies working globally that follow universal principles and values will adopt sexual harassment and discrimination policies and be clear that women are included in such policies. Since leadership and professional talent in many regions of the world is at record shortages, companies cannot afford to exclude the protection of competent women leaders and professionals from these policies: “Laws that protect workers from sexual harassment conceive of sexual harassment in a number of different ways: as discrimination based on sex, as an offense against dignity, or as an issue of health and safety in the workplace. The discrimination conception of sexual harassment law reflects an understanding that such law is designed to protect a vulnerable group—in this case mainly women—that is the target of inappropriate sexual behavior in the workplace. From this viewpoint, laws prohibiting sexual harassment must be implemented so as to remove an obstacle to the integration of women in the workforce. . . . Many countries have adopted the anti-discrimination model of sexual harassment law in an attempt to protect the rights of women in the workplace.”58

Piracy and Intellectual Property Protection Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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Intellectual property (IP) is best defined in the context of a quote from a U.S. Trade Representative: “Innovation is the lifeblood of a dynamic economy here in the United States, and around the world. We must defend ideas, inventions and creativity from rip off artists and thieves.”59 When any materials or products are patented, trademarked, and copyrighted in the United States or other countries, these items are assumed to be protected under law. Brands are valuable commodities. When imitated, copied, and abused, the owners and originators of the brand are harmed.

IP theft is estimated at $250 billion annually, according to the U.S. Commerce Department. The Internet Crime Complaint Center recorded 303,809 complaints in 2010 alone.60

Illegal file-sharing of music has been facilitated by the Internet and has become a practice of global piracy. That debate is ongoing. However, when countries protect or do not punish piracy of IP, the issue moves to a different level and can involve government-to-government and global issues. For example: “The threat to IP from backroom thieves who produce counterfeit and pirated products is absolutely the most pervasive threat to the global economy as a whole. The U.S. Chamber of Commerce estimates that counterfeiting and pirated products account for 5 to 7 percent of the global economy, costing the United States alone over 750,000 jobs, and socks U.S. industry for a loss of sales in the area of $250 billion. The Chamber has directed its efforts, via trade missions and educational programs, toward China, Brazil, South Korea, and Russia with the goal of encouraging enhanced enforcement of IP protection laws within.”61

China, Russia, Argentina, Chile, Egypt, India, Israel, Lebanon, Thailand, Turkey, Ukraine, and Venezuela are countries on the priority list that is monitored by the United States for intellectual piracy. The Bahamas, Bulgaria, Croatia, the EU, and Latvia have been removed from the watch list. Intellectual piracy between countries is also viewed in the context of trading agreements and how countries adopt stricter laws to prevent, decrease, and stop observed violations.

Gupta and Wang take a more entrepreneurial view of IP piracy. They state that even if over 80% of the software and music consumed in China and India is pirated, the estimated piracy rates in the United States are at about 30%. Also the governments of China and India are becoming serious about laws enforcing IP; their motivation is to accelerate their country’s science and technology base. The authors note that “Instead of obsessing about these issues, companies should aim for a rapid rate of innovation that makes life difficult for imitators and pirates in developed and developing countries alike. Rapid innovation may not reduce piracy, but it will help ensure that pirates’ products are viewed as consistently inferior, and thus less desirable.” They continue: “Companies can also reduce piracy by making their products or services more affordable. This is what Microsoft is now attempting with the introduction of Windows XP Starter Edition, a no-frills and low-priced version of its operating system for India, Brazil and many other emerging markets.” U.S. and international firms could reduce IP leakage “by dispersing R&D and production across China, India and other locations.”62

Companies operating in other countries where IP violations are prevalent need to have clearly stated policies and procedures that are communicated and supported with training to those employees who are responsible for handling these issues with the firm’s stakeholders.

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8.3 Societal Issues and Globalization: The Dark Side At a larger societal level, it is difficult to determine whether the process of globalization is the cause or effect of the forces driving this phenomenon. Certainly governments, MNEs, and transnational corporations (TNCs) affect this process, but they too are influenced by the forces driving the changes. In this section, we discuss some of the broader “dark side” issues of globalization before discussing the role of MNEs. The process of globalization may be producing “losers”; that is, countries that cannot share in the wealth- and health-generating processes, activities, and outcomes of globalization because they are either excluded from or ignored with respect to the positive side of globalization, including technology development and use, education, and economic development. However, many of the issues discussed here are being addressed by UN agencies, NGOs, and country governments. Corporations and strategic alliances are attacking problems with the natural environment, as discussed in previous chapters.

Critics generally argue that globalization has caused, or at least enhanced, the following problems: crime and corruption; drug consumption; pollution of the environment; massive layoffs that occur when companies move to regions that offer cheaper labor; decreases in wages; the erosion of individual nations’ sovereignty; and the Westernization (led by Americanization) of culture, standards, and trends in entertainment, fashion, food, technology, ways of living, and values. These are not all of the issues related and attributed to globalization, but they are substantial ones that also affect the economies and populations that comprise the environments in which businesses operate.

International Crime and Corruption “In Eastern Europe, traffickers ship girls through the Balkans and into sex slavery. Russians launder money through tiny Pacific islands that have hundreds of banks but scarcely any roads. Colombian drug barons accumulate such vast resources that they can acquire a Soviet submarine to ship cocaine to the United States. . . . It is clear that the globalization of crime is a logical outcome of the fall of Communism. Capitalism and Communism, ideologies that served as intellectual straitjackets for Americans and Soviets, allowed them to feel justified in unsavory proxies to fight their cold war.”63 The Global Trends 2015 report estimates that corruption costs $500 billion annually, equivalent to 1% of the global economy. The report also stated that in the illegitimate economy, narcotics trafficking has projected annual revenues of $100—$300 billion. Auto theft in Europe and the United States is estimated to net $9 billion, and the sex slave business projects $7 billion. Every third cigarette exported is sold on the black market.64 The Corruption Perception Index (CPI)—based on the perceptions of ordinary citizens, business leaders, and experts and developed by the nonprofit group Transparency International—shows that the most corrupt countries in 2012 were Somalia, North Korea, Afghanistan, Sudan, Myanmar, Uzbekistan, Turkmenistan, Iraq, Venezuela, and Haiti. The United States ranked as the 19th least corrupt country. See Figure 8.4 for recent survey results of the global CPI. It is interesting to note that some of the industrialist leading nations did not rank at the top for noncorrupt activities.

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Figure 8.4 Ranking of Countries’ Public Sector Corruption According to the 2013 Corruption Perceptions Index

Economic Poverty and Child Slave Labor Child labor rates are slowing down. Since 2000, the number of children working as child laborers has declined from 246 million to 168 million, 85 million of whom still work in hazardous conditions (ILO-IPEC, 2013).65 An exception is in Sub-Saharan Africa, where child labor is increasing. Most child laborers continue to work in agriculture. Only one in five are paid. The overwhelming majority are unpaid family workers.66 Child labor among girls has fallen by 40% since 2000, compared to 25% for boys. Child labor exists in both developing and industrialized countries, but mostly in South and Southeast Asia, South America, Africa, and increasingly in Eastern Europe, where there is an economic transition from a command economy to a market economy.67

Globalization has bypassed Africa; in Sub-Saharan Africa illiteracy is high and modern infrastructure (telecommunications, reliable electrical power) do not exist.68 The gap in per capita gross domestic product (GDP) between the richest and poorest countries in the world is about 140:1. This gap will increase as the shift from industrial- to knowledge-based economies continues to occur. Third World countries must modernize around new technologies in order to gain the benefits of globalization.69

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Some regions of the Ivory Coast continue to attract child-labor traffickers (those who buy, enslave, and sell children to work on industrial projects and plantations, like cocoa and chocolate production). Annual wages paid for children under the age of 14 are about U.S. $135 to U.S. $165.70

The Third World includes not only all of Sub-Saharan Africa, but also large parts of the Middle East and much of South Asia and Central and South America. “Hunger is common; disease is rampant; infant mortality is high; life expectancy is short.”71 Notable economists from the Group of Eight (leading industrial countries) conclude that solutions to Third World poverty must include “systematic attempts to change incentives at every level in the global system—from the gangsterish Third World governments that exploit their citizens to the international institutions that prop them up through continued lending.”72

The Global Digital Divide Article 19 of the International Covenant on Civil and Political Rights (1966) states that “Everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information.”73 “The term Digital Divide refers to the gap between individuals, households, businesses and geographic areas at different socio-economic levels with regard to both their opportunities to access information and communication technologies (ICTs) and their use of the Internet for a wide variety of activities.” Currently, “70% of the world population is still excluded from the use of information technologies.”74

As of 2011, “the digital divide is growing wider across the world as broadband access becomes out of reach for many in emerging markets.” Research by analysts Richard Hurst and those at Ovum showed that broadband costs are significantly greater for those in emerging countries. “According to a survey of 19 emerging markets, it was found that some countries are charging over triple what developed nations have to shell out for what is increasingly seen as a basic human right. In South Africa, for instance, entry level services went as high as $1,443 per year, with high end services reaching an enormous $6,000.”75

Ventures are under way to provide poorer children with computers. Nicholas Negoponte at MIT started the nonprofit One Laptop Per Child (OLPC) organization that was set up to develop and market a low-cost (under $100) education-focused laptop for the poorest children across the globe. Another venture is Bill Gates’ Microsoft research lab in India, where he is focusing on projects that provide “low-cost wireless to new computing interfaces that will allow semi-literate and illiterate people to use computers effectively.”76 Still, one-third of the world’s population is disconnected from and has no access to the Internet. This fact continues to broaden the divide between the haves and the have-nots and between the First and Third World countries. Less than 1% of online users live in Africa. Less than 5% of computers are connected to the Internet in developing countries. The developed world has almost 50 phone lines for every 100 people, compared to 1.4 phones per 100 people in low-income countries. Countries excluded from the global economy are those that cannot and do not build access to the Internet. Wireless technologies offer encouraging signs for Third World country access to First World technologies.77 The EU has committed to concentrate its efforts on formulating

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information on society policies, focusing on EU coordination, Internet governance, and financing.78 The United States, technology MNEs, and other regional alliances are also working to fund and supply less-advantaged countries with Internet capabilities.79

Westernization (Americanization) of Cultures Globalization has brought “Americanization” (some critics say American imperialism) to other cultures through fast-food commerce (McDonald’s, the Fast Food Nation, and Food, Inc. phenomenon discussed in Chapter 5). The “McDonaldization of Society,”80 as noted in Chapter 5, is “the process by which the principles of the fast-food restaurant are coming to dominate more and more sectors of American society as well as the rest of the world.”81 George Ritzer, the author of the book The McDonaldization of Society, argues that “McDonaldization affects not only the restaurant business but also education, work, the criminal justice system, health care, travel, leisure, dieting, politics, the family, religion, and virtually every other aspect of society.”82 (Ritzer states toward the end of his book that “McDonaldization will someday pass on when the nature of society has changed so dramatically that they can no longer adapt to it.”83)

In addition to fast food, the Internet has brought instant exposure to all forms of American culture: entertainment, films, news, music, and art. Values and ways of living underlie these influences and are not always welcome in many countries—France, China, Singapore, and countries in the Middle East to name a few. Serious ethical questions are asked that are related to problems and threats of globalization through Westernization: “Does globalization result in cultural and economic homogenization through a heightened emphasis on consumerism? Do local and global values change as a result of international integration that promotes the conversion of national economies into environmentally and socially harmful export-oriented systems for competition in geographically and culturally transcendent ‘world markets’?”84

American-based advertising to children, in particular, also has come under criticism in the United States. Juliet Schor’s book, Born to Buy (2004), examines American contemporary culture, in which advertising significantly affects children aged 18 months through 13 years. Schor’s research shows that children shopped “50% more than the preceding generation, both with their parents and on their own. The supermarket was the predominant consumer arena. . . . Commodities have become increasingly influential especially in social dynamics within schools.”85

Children’s advertising also affects foods children eat, clothes they buy, product brands they know and select when shopping, advice on relationships with parents and friends, and what they watch on TV and in the cinema. According to Schor, one remedy of this process would be the “decommercialization of food, media space, and the outdoors.” She advocates for a “national comprehensive curriculum in gardening, menu planning, eco-literacy, and science and nutrition.”86 The point here is that American advertising—like entertainment, media, and films —is becoming another export that carries habits and a way of life that other cultures may find unacceptable.

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Loss of Nation-State Sovereignty Critics also protest that globalization erodes the ability of governments to protect the interests of their citizens against more powerful MNEs. At conflict are the benefits of economic globalization and the laws and institutions within these nations’ own boundaries. Part of the debate centers on the argument that market forces are global and must be dealt with by global businesses.

There is also tension over sovereignty between nations and MNEs regarding power and influence. An example was the rejection of the proposed merger between General Electric (GE) and Honeywell by the European Commission’s antitrust authorities. That merger, it was argued, would have left public interest behind, because these companies bring different legal and regulatory traditions across the Atlantic. Opinions differed among American and European antitrust officials as to GE’s dominant market position. Other mergers blocked by the EU include: Deutsche Telekom and Beta Research; Volvo and Scania; and MCI WorldCom and Sprint.87 On the other hand, Microsoft’s fine by the EU on monopoly charges indicates that the global environment is a playing level where international law applies.88

Loss of nation-state arguments diminish when evidence is provided that MNEs cannot, and do not claim to, protect citizens during wars and regional conflicts; collect taxes; distribute benefits; build roads and infrastructure; care for the environment; or protect the rights of individuals, groups, and the elderly. In fact, governments subsidize and support companies when needed. In the immediate aftermath of the terrorist attack on the World Trade Center, the U.S. airlines suffered sizable financial losses. It is estimated that 2007–2008 losses in the industry were $6.1 billion.89

Other industries (e.g., railroad, automobile, agribusiness, aerospace) have also been subsidized by government funds. Still, it is argued that “globalization will continue to chip away at the power of the nation state. As the Europeans know from their experience over the last 50 years, surrendering some degree of national autonomy is a natural and inevitable concomitant of growing economic interdependence.”90 The degree to which nation-states share and/or give up power, influence, and sovereignty to global companies—and the types of power, influence, and sovereignty they do give up or share—is and will be a continuing subject of debate.

8.4 Multinational Enterprises as Stakeholders An MNE or TNC is generally regarded as “an enterprise comprising entities in more than one country which operate under a system of decision-making that permits coherent policies and a common strategy. The entities are so linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the others and, in particular, to share knowledge, resources and responsibilities with the others.”91 MNEs and TNCs are corporations that “own or control production or service facilities outside the country in which they are based.”92 Companies go global to enhance profit by creating value, building and increasing markets, and reducing costs. Costs are reduced by locating and using raw materials,

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skilled labor, land, and taxes at lower costs. Value can also be added by joint-venturing with other national and regional partners who have market reach, global skills, experience, and resources.

A 2012 Harvard Business Review article notes an interesting trend: the role of MNEs in the U.S. economy has been declining. Most U.S. MNEs have been expanded faster overseas; however, MNEs still accounted for 75% of the labor productivity growth in the United States from 1977 to 2000. About half of the new job growth of MNEs came from Brazil, Russia, India, and China (or the “BRICs”). “Leaders of global corporations are voicing concerns about a deep set of U.S. challenges—complex taxation, inadequate worker skills, crumbling infrastructure—that inhibit hiring and investment in America. In contrast, corporate leaders see dynamic opportunities in countries like China and India.”93

Power of MNEs Although MNEs often reflect and extend their home nation’s culture and resources, many are powerful enough to act as independent nations. This section focuses on MNEs as independent, powerful stakeholders, using their power across national boundaries to gain comparative advantages, with or without the support of their home country. The following facts indicate the power of MNEs:94

• Worldwide employment by U.S. MNEs decreased to 33.4 million workers in 2008. Employment in the United States by U.S. parent companies decreased to 22.9 million workers. The employment by U.S. parents accounted for almost one-fifth of total U.S. employment in private industries. Employment abroad by the majority-owned foreign affiliates of U.S. MNEs increased 1.7%, to 10.5 million workers.

• Worldwide capital expenditures by U.S. MNEs increased 4.1% in 2008, to $708.2 billion. Capital expenditures in the United States by U.S. parents increased 2.3%, to $519.7 billion. Capital expenditures abroad by majority-owned foreign affiliates increased 9.1%, to $188.5 billion.

• Sales by U.S. parent companies increased 3.2% in 2008, to $9,509.0 billion. Sales by majority-owned foreign affiliates increased 10.9%, to $5,520.2 billion.

The world’s largest companies are shown in Figure 8.5. They include WalMart, Royal Dutch Shell, ExxonMobil, BP, Sinopec Group, China National Petroleum, State Grid, Toyota Motor, Japan Post Holdings, and Chevron. Of the 500 largest corporations, 133 are U.S. firms, 68 are Japanese, and 35 are French.

The dominant goal of MNEs is, as noted earlier, to make a profit and take comparative advantage of marketing, trade, cost, investment, labor, and other factors. At the same time, MNEs assist local economies in many ways, as is explained below. The ethical questions critics of MNEs have raised are partly reflected in the following statement by the late Raymond Vernon, noted Harvard professor and international business expert: “Is the multinational enterprise undermining the capacity of nations to work for the welfare of their people? Is the multinational enterprise being used by a dominant power as a means of

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penetrating and controlling the economies of other countries?”95 The next subsection addresses these questions in a discussion of the mutual responsibilities and expectations of MNEs and their host countries.

Misuses of MNE Power Corporations cannot act as if they operate in a social vacuum. Society’s values changed after September 11, 2001, and in order to maintain legitimacy, organizations are now expected to take into consideration a new social framework where society expects them to go beyond mere financial decisions and do “the right thing.” This change is evident from the hundreds of shareholder resolutions, lodged in recent years, relating to social issues. It is also reflected in the new environment of corporate social responsibility and increased disclosure. The stream of corporate failures, the subprime lending crisis, and the fragility of the U.S., European, and global financial systems have led to critics questioning more closely the motives and many practices of MNEs and large corporations’ management in general.96 From an ethical perspective, we ask: Why are some MNEs not paying their fair share of taxes in countries where they are located? Why are MNEs pushing their costs of doing business on to taxpayers and the public? Why are MNEs not treating the environment as a public good instead of as a “negative externality”; that is, as a “spillover” cost from businesses to third parties? Why are MNEs not treating and paying local labor better in less developing—and even some developed —countries? Why are some markets treated less equally and equitably—for example, why do some pharmaceuticals not put the same warning labels on drugs in poorer, less regulated markets as they do in more developed, richer countries? Why are children and women in some developing countries discriminated against in labor practices by some MNEs? Of course, not all MNEs violate international law or take advantage of less-developed countries’ markets and peoples; however, our interest here is discussing ways in which MNEs operate (and have operated) in host countries, in order to explore more socially responsible practices.

Figure 8.5 World’s Largest Companies

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Crises since the birth of the MNE after World War II have raised international concern over the ethical conduct of MNEs in host and other countries. Not long ago, the Ford- Bridgestone/Firestone tire crisis was international in nature. These companies were not forthright early on with their consumers about defects known by the companies. Union Carbide’s historic chemical spill disaster in Bhopal, India, resulted in thousands of deaths and injuries and alarmed other nations over the questionable safety standards and controls of MNE foreign operations. Nestlé’s marketing of its powdered infant milk formula that resulted in the illness and death of a large number of infants in less developed countries raised questions about the lack of proper product instructions issued to indigent, less-educated consumers. (Nestlé’s practice resulted in a boycott of the company from 1976 to 1984.)

The presence of MNEs in apartheid-era South Africa raised criticisms over the role of large corporations in actively supporting apartheid or government-supported racism. Because MNEs had to pay taxes to the South African government and because apartheid was a government-supported policy, MNEs—it is argued—supported racism. Several U.S.-based MNEs that operated in South Africa witnessed boycotts and disinvestments by many shareholders. Many MNEs, including IBM and Polaroid, later withdrew. Post-apartheid South Africa has seen the reentry of companies from all countries. Another long-standing moral issue is the practice of MNEs of not paying their fair share of taxes in countries where they do business and in their home countries. Through transfer pricing and other creative accounting techniques, many MNEs have shown paper losses, thereby enabling them to avoid paying any taxes.

Critics claim that many MNEs are not fulfilling their part of the implicit social contract discussed in Chapters 4 and 5. Some of these critics include Richard Barnet and John

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Cavanagh in their book Global Dreams, David Korten in When Corporations Rule the World, Tom Athanasiou in Divided Planet: The Ecology of Rich and Poor, Paul Hawken in The Ecology of Commerce, and William Greider in One World, Ready or Not.97 MNEs’ practices subject to criticism include committing corporate crimes, exerting undue political influence and control, determining and controlling plant closings and layoffs, and damaging the physical environment and human health. Evidence regarding these claims showed, for example, that 11% of 1,043 MNEs studied were involved in one or more major crimes over a 10-year period. The crimes included foreign bribery, kickbacks, and improper payments. A small sample of those firms included Enron, WorldCom, Adelphia, American Cyanamid, Anheuser- Busch, Bethlehem Steel, Allied Chemical, Ashland Oil, and Beatrice Foods.98

Large corporations (along with trial lawyers and labor unions) also have immense influence through political action committees (PACs). The organization Common Cause noted that the majority of soft money contributions to both American parties in 1999 came from corporate business interests. With regard to plant closings and “downsizings,” critics are concerned that some MNEs are more concerned with a particular profit margin than with their share of responsibility to community and society. After all, taxpayers support roads and other external conditions that allow corporations to operate in a country. Although corporations are not expected to be a welfare system for employees, critics note that large companies are expected to share in the social consequences of their actions, especially when, for example, plant- closing decisions are made to reap the benefits of cheaper labor in another country.

Finally, there is historical evidence that several large corporations have harmed the physical environment and the health of their employees and local communities. Classic crises cases discussed in Chapter 5 regarding asbestos manufacturing, oil spills, chemical plant explosions, toxic dumping, and industrial air pollution demonstrate corporate misuses of the environment in recent history. The external and human costs that communities, governments, the environment, and taxpayers have had to pay for these misuses of power have been documented.

In the following sections, two perspectives regarding global corporations’ responsibilities —that of the MNE and that of the host country—are discussed.

MNE Perspective “A rising tide lifts all ships.” MNEs enter foreign countries primarily to make profit, but they also create opportunities host countries would not have access to without these companies. Although MNEs benefit from international currency fluctuations, available labor at cheaper costs, tax and trade incentives, the use of natural resources, and gain access to more foreign markets, these companies benefit their host countries through foreign direct investment and in these ways:

• Hire local labor. • Create new jobs. • Co-venture with local entrepreneurs and companies. • Attract local capital to projects. • Provide for and enhance technology transfer.

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• Develop particular industry sectors. • Provide business learning and skills. • Increase industrial output and productivity. • Help decrease the country’s debt and improve its balance of payments and standard of living.

Moreover, MNEs open less-developed countries (LDCs) to international markets, thereby helping the local economy attract greatly desired hard currencies. Also, new technical and managerial skills are brought in, and local workers receive training and knowledge. Job and social-class mobility is provided to inhabitants.99 Some MNEs also establish schools, colleges, and hospitals in their host countries. For example, although Nike has been criticized for its international child labor practices, it is also true that by contracting with factories abroad, it has helped employ more than half a million workers in 55 countries. Eighty-three percent of Nike’s workforce in Indonesia are women who would not otherwise be employed.100 Another company, Patagonia, Inc., has given 1% of its annual sales to environmental groups and gives employees up to two paid months off to work for nonprofit environmental groups. The company also routinely permits independent human rights organizations to audit any of its facilities and participates in the Apparel Industry Partnership (AIP) to set standards to expose and monitor inhumane business practices in their industry. Cadbury is another example of a company that has practiced highly ethical standards abroad. In India, the company hired local workers and instilled new work-related ethical values in its plant.101

The MNE must manage overlapping and often conflicting multiple constituencies in its home- and host-country operations. Figure 8.6 illustrates some of the major environmental and stakeholder issues the MNE must technically and ethically balance and manage in its foreign location. From the MNE’s perspective, managing these stakeholder issues is difficult and challenging, especially as the global economy presents new problems.

Figure 8.6 MNE Global Stakeholder Management Issues and Ethical Concerns

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MNE executives and other managers also complain of what they consider unethical practices and arbitrary control by host-country governments. For example, local governments can and sometimes do the following:

• Limit repatriation of MNE assets and earnings. • Pressure and require MNEs to buy component parts and other materials from local suppliers.

• Require MNEs to use local nationals in upper-level management positions. • Require MNEs to produce and sell selected products in order to enter the country. • Limit imports and pressure exports. • Require a certain amount or percentage of profit to remain in or be invested in the country.

Finally, MNEs can face the threat of expropriation or nationalization of their operations by the host government. More recently, MNEs must assume high-stakes risks, liabilities, and responsibilities in the area of safety, especially since September 11. The airline industry in particular, has been hit very hard by this unpredictable crisis. The crisis itself, along with the “fallout” over laxness in safety standards and enforcement, has taken a heavy toll on all U.S. and most international carriers. The price of doing business safely has escalated.

Host-Country Perspective Six criticisms of the presence and practices of MNEs in host and other foreign locations are discussed here.

1. MNEs can dominate and protect their core technology and research and development (R&D), thus keeping the host country a consumer, not a partner or producer. The Brazilian

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government, for example, has counteracted this by having entry barriers and laws that, since the 1970s, have protected against the complete control of its own electronics industries by foreign manufacturers. It is also argued (or feared) that Japan’s MNEs could in the long term dominate certain critical industries (such as the electronics industry and perhaps the automobile industry) in the United States and use American labor more as assemblers than as technology R&D partners.

2. MNEs can destabilize national sovereignty by limiting a country’s access to critical capital and resources, thereby creating a host-country dependency on the MNE’s governments and politics.

3. MNEs can create a “brain drain” by attracting scientists, expertise, and talent from the host country.

4. MNEs can create an imbalance of capital outflows over inflows. They produce but emphasize exports over imports in the host country, thereby leaving local economies dependent on foreign control.

5. MNEs can disturb local government economic planning and business practices by exerting control over the development and capitalization of a country’s infrastructure. Also, by providing higher wages and better working conditions, MNEs influence and change a country’s traditions, values, and customs. “Cultural imperialism” is imported through business practices.

6. MNEs can destroy, pollute, and endanger host-country and LDC environments and the health of local populations. For example, the mining of and dangerous exposure to asbestos continue in some LDCs and in Canada.

Obviously, these criticisms do not apply to all MNEs. These criticisms represent the concerns of host-country and LDC governments that have suffered abuses from MNEs over the decades. Tensions in the relationships between MNEs and host countries and other foreign governments will continue, especially in the least-developed settings. Whenever the stakes for both parties are high, so will be the pressures to negotiate the most profitable and equitable benefits for each stakeholder. Often, it is the less-educated, indigent inhabitants of LDCs who suffer the most from the operations of MNEs.

More global companies are beginning to self-monitor and contribute to host-country education, consumer awareness, and community programs (e.g., Shell has written a primer on human rights with Amnesty International; Hewlett-Packard offers consumer education programs and computer training in host countries).

8.5 Triple Bottom Line, Social Entrepreneurship, and Microfinancing Positive trends in large and small businesses (globally and locally) include the “triple bottom line” philosophy and practices, social entrepreneurship, and microfinancing. These movements and practices are based on related premises and have in common a theme that serving society and the environment is also profitable. These are not new trends, but they are becoming more

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popular and acceptable ways of doing business, given the social, environmental, and moral problems businesses have and are experiencing at the expense of societies worldwide.

The Triple Bottom Line The triple bottom line is “a kind of balanced scorecard that captures in numbers and words the degree to which any company is or is not creating value for its shareholders and for society.”102 This philosophy is based on “the sustainability imperative”; that is, the realization that in order for the environment to be preserved and society to benefit from business, corporations must respect the “interdependence of various elements in society on one another on the social fabric. Sustainability means operating a business in a way that acknowledges the needs and interests of other parties . . . and that does not fray but rather reinforces the network of relationships that ties them together.”103 The triple elements of this scorecard argue that business activity should be measured in economic, environmental, and social costs and benefits. The economic dimension includes: sales, profits, return on investment (ROI), taxes paid, monetary flows, and jobs created; the environmental dimension includes air and water quality, energy usage, and waste produced; and the social dimension includes labor practices, community impacts, human rights, and product responsibility. “The sustainability sweet spot” where “increase profits and market share” and “address climate change and public health” intersect, indicates where a corporation’s profits can be made. This has been demonstrated in several companies such as Tropicana’s and Quaker Oats’ healthy products, PepsiCo’s environmental policy and procedures changes, Toyota’s hybrid cars, and GE’s clean technology (“ecomagination”) products.

Social Entrepreneurs and Social Enterprises A social enterprise is “an organization or venture that advances its social mission through entrepreneurial, earned income strategies.”104 Social entrepreneurs “are individuals with innovative solutions to society’s most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change. Rather than leaving societal needs to the government or business sectors, social entrepreneurs find what is not working and solve the problem by changing the system, spreading the solution, and persuading entire societies to take new leaps.”105 Social entrepreneurship and enterprises date back to the 1960s and 1970s and include nonprofits, community groups, youth social entrepreneurial groups, as well as the private and governmental sectors.106 Some NGOs are also related to social enterprises. In 2008, Fast Company magazine’s Social Capitalist Awards honored 45 social entrepreneurs “who are changing the world.”107

Microfinancing This related movement is making a difference for the poor globally.108 Micro-financing involves “very small loans, typically less than $100 . . . made to the rural poor in developing countries who normally do not qualify for traditional banking credit. This is often the only way

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they can establish a business and lift themselves out of poverty.”109 Microfinancing is the idea of Professor Yunus, who in 1976 founded the Grameen Bank after a famine in Bangladesh. In 2008, the bank had 6.6 million borrowers, of whom 97% were women. The Nobel Peace Prize was awarded to Yunus and his Grameen bank in 2006 for this practice. “Grameen, which means village, is an idea that has spread to more than 40 countries including Sri Lanka where women’s banks were already a familiar concept.”110

8.6 MNEs: Stakeholder Values, Guidelines, and Codes for Managing Ethically Guidelines for managing international ethical conduct have received detailed attention and effort over the past four decades in the areas of consumer protection, employment, environmental pollution, human rights, and political conduct.111 Figure 8.6 illustrates issues and ethical concerns that MNEs must manage. The driving institutional forces behind the development of global ethical values, published guidelines, and universal rights include the UN, the ILO, the OECD, the Ceres Principles, the Conference Board, and the Caux Round Table Principles for Business.

The underlying normative sources of the guidelines that these global organizations have developed include beliefs in (1) national sovereignty, (2) social equity, (3) market integrity, and (4) human rights and fundamental freedoms.112 Richard DeGeorge specifically offers the following guidelines that MNEs can use in dealing with LDCs:

1. Do no intentional harm. 2. Produce more good than harm for the host country. 3. Contribute to the host country’s development. 4. Respect the human rights of their employees. 5. Respect the local culture; work with, not against, it. 6. Pay their fair share of taxes. 7. Cooperate with the local government to develop and enforce just background institutions. 8. Majority control of a firm includes the ethical responsibility of attending to the actions and failures of the firm.

9. Multinationals that build hazardous plants are obliged to ensure that the plants are safe and operated safely.

10. Multinationals are responsible for redesigning the transfer of hazardous technologies so that such technologies can be safely administered in host countries.113

Other developments involving global companies and business ethics include the following: (1) global companies are, as discussed earlier, developing and using core principles relevant to their business practices; (2) codes of ethics with minimum social responsibility standards (e.g., gender discrimination and environmental responsibility) are being adopted and employees are being trained on them; and (3) a broad consensus for ethical requirements is being articulated. The Conference Board, a global network of businesses, academic

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institutions, governments, and NGOs in more than 60 countries, is working to define global business practice standards, core principles for doing business across cultures, and the requirements for the support of and cooperation between business and nonbusiness institutions.114

Some classic guidelines that continue to influence policies and practices of global companies are presented next. The following MNE guidelines are summarized under the categories of employment practices and policies, consumer protection, environmental protection, political payments and involvement, and basic human rights and fundamental freedoms.115

Employment Practices and Policies • MNEs should not contravene the workforce policies of host nations. • MNEs should respect the right of employees to join trade unions and to bargain collectively.

• MNEs should develop nondiscriminatory employment policies and promote equal job opportunities.

• MNEs should provide equal pay for equal work. • MNEs should give advance notice of changes in operations, especially plant closings, and mitigate the adverse effects of these changes.

• MNEs should provide favorable work conditions, limited working hours, holidays with pay, and protection against unemployment.

• MNEs should promote job stability and job security, avoiding arbitrary dismissals and providing severance pay for those unemployed.

• MNEs should respect local host-country job standards and upgrade the local labor force through training.

• MNEs should adopt adequate health and safety standards for employees and grant them the right to know about job-related health hazards.

• MNEs should, minimally, pay basic living wages to employees. • MNEs’ operations should benefit the low-income groups of the host nation. • MNEs should balance job opportunities, work conditions, job training, and living conditions among migrant workers and host-country nationals.

Consumer Protection The following two items summarize best ethical and socially responsible practices for protecting consumers in a host country:

• MNEs should respect host-country laws and policies regarding the protection of consumers.

• MNEs should safeguard the health and safety of consumers by various disclosures, safe packaging, proper labeling, and accurate advertising.

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Environmental Protection The following items summarize best ethical and socially responsible practices for protecting a host country’s environment:

• MNEs should respect host-country laws, goals, and priorities concerning protection of the environment.

• MNEs should preserve ecological balance, protect the environment, adopt preventive measures to avoid environmental harm, and rehabilitate environments damaged by operations.

• MNEs should disclose likely environmental harms and minimize the risks of accidents that could cause environmental damage.

• MNEs should promote the development of international environmental standards. • MNEs should control specific operations that contribute to the pollution of air, water, and soils.

• MNEs should develop and use technology that can monitor, protect, and enhance the environment.

Political Payments and Involvement Two basic, foundational cautions that argue against MNE’s taking, giving, or being involved in any way with bribes and illegal payments and related politics with host country representatives:

• MNEs should not pay bribes or make improper payments to public officials. • MNEs should avoid improper or illegal involvement or interference in the internal politics of host countries.

Basic Human Rights and Fundamental Freedoms The following items broadly summarize the general principles underlying universal human rights and fundamental freedoms of all people that should be observed by MNEs:

• MNEs should respect the rights of all persons to life, liberty, security of person, and privacy.

• MNEs should respect the rights of all persons to equal protection of the law, to work, to choice of job, to just and favorable work conditions, and to protection against unemployment and discrimination.

• MNEs should respect each person’s freedom of thought, conscience, religion, opinion and expression, communication, peaceful assembly and association, and movement and residence within each state.

• MNEs should promote a standard of living to support the health and well-being of workers and their families.

• MNEs should promote special care and assistance to motherhood and childhood. Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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William Frederick states that these guidelines should be viewed as a “collective phenomenon,” because all do not appear in each of the five international pacts they originated from: the 1948 UN Universal Declaration of Human Rights, the 1975 Helsinki Final Act, the 1976 OECD Guidelines for Multinational Enterprises, the 1977 ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, and the 1972 UN Code of Conduct on Transnational Corporations.116 The guidelines serve as broad bases that all international corporations use to design specific policies and procedures; these corporations can then apply their own policies and procedures to such areas as “child care, minimum wages, hours of work, employee training and education, adequate housing and health care, pollution control efforts, advertising and marketing activities, severance pay, privacy of employees and consumers, and information concerning on-the-job hazards.”117

8.7 Cross-Cultural Ethical Decision Making and Negotiation Methods “You are a manager of Ben & Jerry’s in Russia. One day you discover that the most senior officer of your company’s Russian venture has been ‘borrowing’ equipment from the company and using it in his other business ventures. When you confront him, the Russian partner defends his actions. After all, as a part owner of both companies, isn’t he entitled to share in the equipment?”118 These and so many other international business situations confront managers and professionals with dilemmas and gray areas in their decision making. As one author noted, “Global business ethics has now become the ultimate dilemma for many U.S. businesses.”119

“Transnationals operate in what may be called the margins of morality because the historical, cultural, and governmental mores of the world’s nation-states are not uniform. There is a gray area of ethical judgment where standards of the transnational’s home country differ substantially from those of the host country. . . . There is yet no fixed, institutionalized policing agency to regularly constrain morally questionable practices of transnational commerce. Moreover, there is no true global consensus on what is morally questionable.”120 Scholars and business leaders agree that solving ethical dilemmas that involve global, cross-cultural dimensions is not easy. Often there are no “quick fixes.” Where other laws, business practices, and local norms conflict, the decision makers must decide, using their own business and value judgments. Ethics codes help, but decision makers must also take local and their own company’s interests into consideration. In short, there is no one best method to solve international business ethical dilemmas. From a larger perspective, external human rights and corporate monitoring groups are also needed to inform and advise corporations before dilemmas occur about human rights and methods that can prevent abuses of local workers and private citizens.

External Corporate Monitoring Groups Corporations and their leaders are ultimately responsible for articulating, modeling, and working with international stakeholders to enforce legal and ethical standards in their firms as

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they do business around the world. Many do. However, as noted earlier, gray areas and lack of universal laws and norms leave loopholes that companies and local groups might use as competitive, but harmful, cost-saving advantages (e.g., not providing even “living wages” to the poor women and children they employ, polluting the environment, and using undue political influence to beat out competition). Numerous international groups that work with and monitor MNEs regarding human rights include—but are not limited to—Amnesty International (promotes and advocates human rights), OECD (developed guidelines for MNEs), ILO (publishes and works in the area of human rights), NGOs (combat corruption, assure adequate labor conditions, and establish standards for economic responsibility), Transparency International (monitors and publishes the international Corruption Perception Index), Apparel Industry Partnership (which develops codes of conduct regarding child labor practices and working conditions related to “sweat shops” and subcontractors), and the Caux Round Table (an executive group formed in Switzerland that published the noted Caux Principles and works with other international business professionals on developing and implementing universal ethics codes).121 These groups work with, and some are composed of, MNE executives, governments, legislators, local citizenry, and other stakeholders worldwide to inform, monitor, and assist MNEs with ethical global business practices. Sandra Waddock states that

Demands for greater corporate transparency and accountability, as well as anti-corruption measures are fostering significant new accountability, reporting, and transparency initiatives among coalitions of business, labor, human rights, investor, and governmental bodies. . . . A database created by the International Labor Organization and available over the Internet lists nearly 450 web sites of industry and business associations, corporate, NGO and activist groups, and consulting organizations that have developed and are promulgating a wide range of relevant policy initiatives. These initiatives include a mix of transparency and reporting initiatives, codes of conduct, principles, and fair trade agreements. Responses to these demands are varied. Many companies, particularly those under NGO and social activist pressures to reform labor and human rights abuses in their supply chains, have formulated their own codes of conduct. Notable among these companies are Levi- Strauss, Nike, and Reebok, all significant targets of activism.122

In the following section, several guidelines are discussed to complement principles and “quick tests” presented in Chapter 2.

Individual Stakeholder Methods for Ethical Decision Making In an international environment, the temptations can be strong, and the laws looser, or less obvious. Pressure from headquarters to make the bottom line can also weigh heavily. “Sometimes people confuse norms with ethics—exploitation of child labour, bribery and kickbacks may be the norm, but that doesn’t mean they’re right—and that’s what companies need to deal with,” says Joseph Reitz, who is co-director of the International Center for Ethics in Business at the University of Kansas. “There’s lots of evidence that companies insisting on doing business in the right way may suffer in the short term, but in the long run they do well.”123

Or do they? When confronted with cross-cultural ethical dilemmas, conflicting norms, and potentially illegal acts in international situations, individual employee and professional stakeholders need guidelines. Professionals and executives preparing to work abroad should ask for country-specific training on regional and local laws, customs, and business practices. As noted earlier, these professionals need to know their own firm’s acceptable and unacceptable policies and procedures regarding negotiations and business dealings. This section introduces some—but obviously not all—guidelines that are a beginning step to

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becoming aware of the cultural differences and potential ethical consequences of doing business in other regions and countries.

DeGeorge offers the following general tactics that serve as a basic start for preventing, as well as solving, ethical dilemmas internationally:124

1. Do not violate the very norms and values that you want to preserve and that you use to evaluate your adversary’s actions as being unethical. Seek to pursue with integrity economic survival and self-defense tactics. Winning a tactical battle unethically or illegally is not the goal.

2. Use your moral imagination, because there are no specific rules for responding to an ethical opponent. Stakeholder analysis can help. Explore different options. Use literature, stories, and lives of heroes and saints for creative responses instead of rules.

3. Use restraint and rely on those to whom the use of force is legitimately allocated when your response to immorality involves justifiable force or retaliation. Use minimal force that is justified as the ultimate solution, realizing that force is a reaction to unethical acts and practices.

4. Apply the principle of proportionality when measuring your response to an unethical opponent. The force you use should be commensurate with the offense, the harm suffered, and the good to be gained.

5. Use the technique of ethical displacement when responding to unethical forces. This principle consists of searching for clarification and a solution to a dilemma on different, higher levels than the personal (e.g., as discussed in Chapter 1, look at the problems from these levels: international, industry, organizational, structural, and national or legislative policy).

6. Use publicity to respond to an unethical practice, adversary, or system. Corruption, unethical and illegal practices and actions, operates best in the dark. Using publicity judiciously can mobilize pressures against the perpetrators.

7. Work jointly with others to create new social, legal, or popular structures and institutions to respond to immoral opponents.

8. Act with moral courage and from your values, personally and corporately. 9. Be prepared to pay a price, even a high one. Innocent people sometimes must pay costs

that others impose on them by their unethical and illegal activities. 10. Use the principle of accountability when responding to an unethical activity. Those who

harm others must be held accountable for their acts.

Getting to Yes Solving a moral dilemma in an international context is not easy. Roger Fisher, Bruce Patton, and William Ury’s Getting to Yes: Negotiating Agreement Without Giving In (alluded to earlier in this text) remains a classic primer for negotiating. Their four-step approach includes:

1. Separate the people from the problem. 2. Focus on interests, not on positions. 3. Insist on objective criteria, never yield to pressure. 4. Invent options for mutual gain.

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The authors note that it is always necessary to determine your best alternative to a negotiated solution before starting a negotiation.125

Building on Fisher, Patton, and Ury’s method, Nancy Adler states that formal negotiations, especially in an international or cross-cultural context, proceed through four stages after preparing for a negotiation:

1. Build interpersonal relationships (learn about the people)—separate people from the problem.

2. Exchange task-related information—focus on interests, not positions. 3. Persuade—invent options for mutual gain, instead of relying on preconceived positions, high pressure, or “dirty tricks.”

4. Make concessions and agreements—use objective decision criteria.126

Understand the Local Culture First Is local culture important or are people across cultures becoming more alike, especially with globalization and for those working in MNEs? Studies show that although organizations are becoming more alike in their structures and technologies, individuals maintain and even emphasize their cultural behaviors even more. National culture explains more about employees’ attitudes and behaviors than does age, gender, role, or race.127 When communicating and negotiating in different cultural contexts, gaining an understanding of the local culture in preparing for the negotiation is recommended before using any specific negotiation technique. Cultural miscues and disconnects are grounds for creating and exacerbating ethical problems and dilemmas. Consider, then, these cultural differences before problem solving or negotiating with counterparts:

• What are the dominant, underlying values of the culture? (Are groups, families, and collectives and their decisions valued over individuals and individual decisions, or vice versa?)

• How formally or informally are relationships viewed? (Is it necessary to get to know someone before negotiating, or is jumping to the facts first acceptable?)

• How do people understand and value rules versus spontaneity and bending rules? (Do friendships come before rules or are rules seen as unbreakable and applicable to all?)

• How are authority and power viewed? (Is position and status valued more than experience? Is the boss more often seen as being right regardless of “the facts”?)

• Is age respected as indicating wisdom and authority? • To what extent does the culture avoid or embrace uncertainty and risk? (Are people threatened by ambiguity and therefore avoiding unpredictability?)

Sources that address these and other comparative cultural differences are readily available.128 Figure 8.7 illustrates different negotiating strategies among North Americans, Japanese,

Chinese, and Latin Americans, based on cultural values and characteristics. Can you see how ethical problems and dilemmas could arise from communication miscues among professionals

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from these countries negotiating a complex transaction?

Figure 8.7 Four Typical Styles of International Ethical Decision-Making Negotiating Strategies with American, Japanese, Chinese, and Brazilian Cultures

It is helpful to understand how other cultures perceive, understand, and perhaps even stereotype American cultural characteristics. (Obviously, not everyone from every culture reflects all of his/her national culture’s characteristics.) For example, characteristics most commonly associated with Americans from the different nationals reveal interesting patterns (e.g., although Americans were largely seen as industrious, inventive, intelligent, decisive, and friendly by an interview sample of French, Japanese, Western Germans, British, Brazilians, and Mexicans, Americans were also seen as nationalistic, rude, and self-indulgent by Japanese; sophisticated by western Germans; nationalistic by Brazilians; and greedy by Mexicans).129 Becoming self-aware of one’s cultural characteristics (attitudes, values, behaviors, and others’ perceptions of us) is an important step toward business transactions in order to prevent and negotiate ethical dilemmas.

Four Typical Styles of International Ethical Decision Making At a more macro level, George Enderle identified four distinctive international ethical decision-making styles that companies often use when making decisions abroad: (1) Foreign Country style: a company applies the values and norms of its local host—“When in Rome, do

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as the Romans do”; (2) Empire style: a company applies its own domestic values and rules; this can be an imperialistic practice; (3) Interconnection style: a company applies shared norms with other companies and groups; national identities and interests are transcended and blurred, as when states make commercial decisions and rely on North American Free Trade Agreement (NAFTA) or the EU members to offer agreed-on processes and solutions; and (4) Global style: a company abstracts all local and regional differences and norms, coming up with a more cosmopolitan set of standards and solutions for its actions in the host country.130

The Foreign Country and Empire styles have obvious drawbacks in reaching ethical decisions. The Foreign Country style may result in gross injustices and inequities that are inherent in the norms adopted. Some local country norms and business practices, for example, do not prohibit child labor. The Empire style is a form of imperialism that disregards local norms and practices. The Global style, seemingly the “right answer,” also presents problems. This style imposes its own interpretation of a “global morality and truth” on a host culture and norms. The Global style can also suffer from shortcomings shared by the Foreign Country and Empire styles. The Interconnection style “acknowledges both universal moral limits and the ability of communities to set moral standards of their own. It balances better than the other types a need to retain local identity with the acknowledgment of values that transcend individual communities. The drawbacks of this style are practical rather than moral.” Companies and individual employees usually do not have quick or direct access to a commonly shared local, national, and international source to advise on a particular issue. Of the four styles, the Interconnection style appears to be less arbitrary and absolutist.131 Another option is creative ethical navigation (which Thomas Donaldson and Thomas Dunfee term “integrative social contracts theory” [ISCT]). This is not really a “style” of decision making; rather, it is the process of a decision maker navigating among “hypernorms,” company interests, and local norms, as explained in the following section.

Hypernorms, Local Norms, and Creative Ethical Navigation It would be helpful to have a set of norms that everyone agreed on. Hypernorms represent such an ideal. “Hypernorms are principles so fundamental that, by definition, they serve to evaluate lower-order norms, reaching to the root of what is ethical for humanity. They represent norms by which all others are to be judged.”132 Hypernorms relate to universal rights: for example, the right not to be enslaved, the right to have physical security, the right not to be tortured, and the right not to be discriminated against.133 However, the problem even with hypernorms is that when “rights,” local traditions, country economic systems, or business practices conflict, decisions have to be made; in such cases, it is necessary for a manager or professional to use his or her hypernorms as a starting principle, but then to be creative in considering the local context and competing norms. Reaching a win—win situation without violating anyone’s norms is an ideal goal. An example of such a troublesome gray area, along with a suitable solution, is offered by Donaldson and Dunfee:

Consider another situation confronted by Levi-Strauss, this time involving hypernorms connected with child labor. The company discovered in the early 1990s that two of its suppliers in Bangladesh were employing children under the age of fourteen—a practice that violated the company’s principles but was tolerated in Bangladesh. Forcing the suppliers to fire the

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children would not have insured that the children received an education, and it would have caused serious hardship for the families depending on the children’s wages. In a creative arrangement, the suppliers agreed to pay the children’s regular wages while they attended school and to offer each child a job at age fifteen. Levi-Strauss, in turn, agreed to pay the children’s tuition and provide books and uniforms. This approach allowed Levi-Strauss to uphold its principles and provide long-term benefits to the host country.134

Donaldson and Dunfee’s “Global Values Map” illustrates conflicting local-country versus foreign-company norms and values that can clash when negotiating business contracts across cultures. The challenge for both local-country business professionals and foreign-country- company business professionals is to creatively navigate among value and norm differences to reach agreement on acceptable business practices.135 Donaldson and Dunfee introduce “hypernorms,” which are universal values acceptable to all cultures and organizations. “Consistent norms” are culture-specific values but are still consistent with both hypernorms and other legitimate norms. Ethical codes of companies, such as Johnson & Johnson’s Credo (see Chapter 6), are examples of consistent norms. When a “foreign-company” representative’s norms clash with a host-country business individual’s local norms, each must seek “moral free space” to negotiate value and norm differences. Both parties can encounter inconsistent norms when each holds to their own values and preferences, which may conflict with hypernorms and/or local business practices. Either party can experience illegitimate norms—values or practices that transgress hypernorms (e.g., exposing workers to asbestos or other carcinogens) —when negotiating individual business interests. In the “moral free space,” a company and host-country professional can explore how to reach a negotiated deal that satisfies both their values and norms, while each gives up certain practices to do so. The above example of Levi Strauss illustrates such a negotiating process when Levi Strauss had to decide among a “hypernorm” (child labor is wrong), while embracing its own company norms (“consistent norms”—children cannot be hired or used by company suppliers). At the same time, Bangladesh suppliers’ endorsed child-labor practices (“illegitimate norms” from Levi Strauss’ perspective). An agreement had to be reached that would benefit the children and their families and the Bangladesh suppliers. The company and the Bangladesh suppliers, each desiring and needing the benefits of a negotiated contract, entered the “moral free space” and worked out what seems to have been a win—win situation for all parties involved—and an arrangement that brought no harm to any party.

Finding such creative solutions to international moral dilemmas involves balancing and combining business pressures, legal enforcement, and political will. A company attempting to make tough decisions with local groups could also seek to do so with the cooperation of other companies, local government officials, or even an external human rights group, as the Interconnectedness style of decision making would suggest. The ultimate decision may very well entail no compromise after reflecting on the situation, the hypernorm, and a company norm. Still, the methods discussed here can enable a decision maker—individual or global or company team—to look for options without getting trapped into blind absolutes, amoral gray zones, or relativism. Entering “moral free space” requires flexibility and negotiating.

Chapter Summary Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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The global environment consists of MNEs managing a dynamic set of relationships among country governments, international organizations, and each other. Elements of those relationships consist of financial markets, cultures, political ideologies, government policies, technologies, and laws. There are estimates of between 40,000 to 100,000 MNEs doing business across national boundaries and contributing to the global economy. It is likely these numbers will increase. Also, emerging markets in countries referred to as the BRICs (Brazil, Russia, India, and China) have and are helping to reshape the global landscape. New and competitive opportunities created by information technologies and the “flattening” of boundaries through the emergence of global supply chains, outsourcing, and China’s “cost innovation” business model abound through mass production.

Globalization is the integration of technology, markets, politics, cultures, labor, production, and commerce. Globalization is both the process and the result of this integration. The global economy is estimated at $33 trillion. As the complexity and volatility of the global environment increases, the probability of ethical dilemmas and conflicts is also enhanced. The post-9/11 world has also created different constraints and costs on business and nations: the economic, legal, moral, and social pressures businesses face have several industries continuing to struggle for survival and profitability.

Forces that have accelerated globalization include the end of communism and the opening of closed economies; information technologies and the Internet, which accelerate communication and productivity within and across companies globally; entrepreneurship and entrepreneurs who are more mobile, skilled, intelligent, and thriving worldwide; free trade and trading agreements among nations; the flow of money through the World Bank and the IMF, which offers a conduit to bring needed capital to countries participating in building the global economy; the growth and the spread of transnational firms, which open new markets and create local employment; and a shift to service economies and educating workers using technologies, which has also propelled innovation and productivity worldwide. A question commonly asked is: Will globalization and accelerated business integration across national borders be slowed or rejuvenated through new and changing business, governmental, and entrepreneurial alliances, including ongoing corruption and “bubbles” bursting in different national economies felt around the world?

The “dark side” of globalization includes such issues as corporate crime and corruption, child slave labor, Westernization (Americanization) of values, the global digital divide, and loss of nation-state sovereignty. Also, critics argue that the “McDonaldization of Society” delivers cultural values as well as fast food. This is a debatable issue and was discussed in the chapter.

The power of MNEs, or global companies, lies in their size, economic prowess, and ability to locate and operate across national borders. MNEs offer benefits to their host countries by employing local populations, investing capital, co-venturing with local entrepreneurs and companies, providing enhanced technology, developing particular industry sectors, providing business learning and skills, and increasing industrial output and productivity.

MNEs also abuse their power by committing corporate crimes, exerting undue political influence and control, determining and controlling plant closings and layoffs, and damaging the physical environment and human health. Guidelines drawn from more than four decades of

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international agreements and charters were summarized to illustrate a consensus of host- country rights that have been used to help MNEs to design equity into their policies and procedures.

Finally, principles from Getting to Yes: Negotiating Agreement Without Giving In were extended to include understanding cross-cultural characteristics of decision makers to prevent ethical dilemmas and negotiate complex business transactions. A creative model was summarized enabling companies to reach agreements among conflicting hypernorms (universal rights), consistent norms (company ethics and values codes), and illegitimate norms. Being able to balance local cultural norms, a company’s norms, and competing business practices involves creative and responsible navigation and decision-making skills based on personal, professional, company, and universal values.

Questions 1. Briefly characterize the emerging competitive global business environment and identify some of the forces that define it.

2. What is “globalization”? What are some of the forces driving this process? 3. What competencies do you (a) have, and (b) need if you were to join—or are already working for—a global company in which you would spend time in different countries?

4. What differences, if any, in your ethical principles and morals do you believe you would have to adjust to in negotiating with other cultures (see Figure 8.7)?

5. What adjustments to your values and ethical decision-making style have you had to make in teams in your own culture, and with others from different cultures in your studies and/or work? Explain.

6. What is the difference between a gift and a bribe? How would you, as a representative of your company, respond to the offer of a questionable bribe from an international government or business professional? Explain.

7. Does globalization result in cultural and economic homogenization (alikeness) through a heightened emphasis on consumerism, or is this an exaggeration? Explain and defend your position.

8. Do local and global values change as a result of international integration? Why or why not? If so, in what ways? Offer a few examples.

9. Do you believe that globalization “promotes the conversion of national economies into environmentally and socially harmful export-oriented systems for business competition” that is not in the best interests of consumers? Why or why not? Defend your position.

10. Select two global companies mentioned in this chapter and locate their corporate web sites. Find their codes of conduct or ethics statements. Download these and evaluate whether or not they serve any practical purposes or help meet the companies’ social responsibility goals and why.

11. Explain what the “dark side” of globalization means to you. Offer some examples. Offer an additional issue that could be considered a dark side of globalization. After doing so, offer a realistic solution that could either eliminate, change, or transform the dark side of your

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issue. 12. Do you believe Facebook, MySpace, and other such socialnetworking sites are, will, or

can promote more commonly shared values of people across cultures—knowing that some countries have their own such web sites in their language? Explain.

13. Are you or have you thought about becoming a “social entrepreneur”? Do you believe this practice and movement can help make a difference in the world? Explain.

14. Explain the differences in perception and experience with regard to moral issues for (a) a host country viewing an MNE and (b) an MNE viewing a host country. Which perspective are you more inclined to support or sympathize with? Why?

15. In a paragraph or list, describe dominant cultural characteristics of yourself as could be seen from another country or regional perspective. Include some of your core values. Then proceed to the next question.

Using your description from question 15, what difficulties or misunderstandings, based only on your answer, would you predict that you might encounter when negotiating an ethical dilemma with someone who had opposite cultural characteristics? Explain.

Exercises 1. Argue and defend your positions on the following statements:

(a) The United States is already and will continue to lose its status as a central, pivotal global superpower, including its cultural and values influence, in the world in the next 10 to 20 years, if not sooner.

(b) Censorship restrictions in other countries on such information technology as Google and other web sites are justifiable; the United States and other Western nations should not try to impose their values and norms on censoring practices.

(c) A “global set of ethics” is impossible. Each culture and region of the world should have its own ethics as well as values and cultural differences.

(d) To succeed, globalization must involve justice and fairness practices from First World countries toward Third World nations and peoples.

(e) Although it is preferable that transnational and multinational companies act ethically, it is really not practical in every region of the world, including the United States.

(f) MNEs cannot financially afford to follow the guidelines in Section 8.5; it would be too costly for them.

(g) When two MNEs are both right on a controversial issue—for example, violation of patent or intellectual property rights—ethics should be avoided, and other, more concrete issues should be used to resolve the dispute.

(h) Without transnational companies and MNEs doing business in poorer countries, peoples of those countries who are striving to survive would suffer even more.

2. Offer an example of and explain why one of your own values or an ethical standard you deeply believe in and follow might conflict with a different cultural or regional ethic in, for example, China, Russia, the Middle East, or the United States (if you are from a different

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culture). How flexible would you be, or not be, in negotiating one of your core beliefs in another culture? What would be your constraints on being flexible and changing your value- based position? Explain.

3. Evaluate and argue different sides of this statement: “McDonaldization is not a ‘bad’ thing. Everyone has a choice of what and how much to buy and consume. People are lucky to have a low-cost food option like McDonald’s.”

Real-Time Ethical Dilemma You (Jane) are a 29-year-old single woman who has an MBA and has been working in your current marketing position for a year. Your firm recently opened a new pilot branch in a somewhat remote Russian location. The CEO of your company believes there are real growth opportunities for your firm’s products in that region and also wants visibility there. The company has decided to launch a small office there for visibility as well as to introduce the product. You are one of the most outgoing and talented marketing professionals in your firm. It is believed that you’ll make a positive impression and represent the company well. There is a small community of American business professionals there who will assist you.

Country values there are very different from what you are accustomed to. You overhear a discussion between two of your male colleagues who were recently in that country completing arrangements for the office. One says, “Jane’s going to have some interesting challenges with the men she has to do business with. . . . It’s like the Wild West.” The other answered, “Yeah, she’s got some real surprises coming.” Your research suggests that country laws and norms on issues you take for granted (like women’s rights and sexual harassment) are not well defined.

You have a conflict over wanting to advance with your company but not wanting to take this assignment. You are aware that the CEO has his mind set. In fact, you’ve already had a discussion expressing your concerns and fears. He brushed your issues aside when he told you earlier, “Jane, try it. You need the international exposure and experience.” The second time you approached him with your concerns, he blurted out, “Look, Jane. I understand your concerns, but this is important to me and our company. There are some people there who can help you. I know it’s going to be a challenge. But after a couple of years, you’ll thank me.” You still don’t feel right.

Questions 1. What do you do, and why? 2. If you do decide to go, what specific preparations should you make? 3. If you decide not to go, draft out the dialogue you would have with your CEO.

Real-Time Ethical Dilemma Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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You are attending a sexual-harassment training seminar for local managers in your company’s branch office in a Middle Eastern, predominantely Muslim, country. You were flown over with the trainers to observe their techniques and become familiar with the training materials because you, as a new human resource staff member, would be expected to give this course. The course has been a success for managers in the United States. The same materials have been perfected and are being used in the United States. The instructors call on local Muslim managers (men and women) to role-play and openly share stories about sexual harassment that involved them or that they had heard about. Near the end of the half-day session, several of the host country employees uncharacteristically walk out. The trainers are dazed and become upset.

Questions 1. What do you think went wrong? 2. What would you do in this case if you were one of the trainers? 3. Read the epilogue following, then return and answer this question: Assume the trainers have been briefed on the research you just read. Who should do what, if anything, with the Muslim managers after this cultural mishap? Why?

Epilogue “In 1993, a large U.S. computer-products company insisted on using exactly the same sexual- harassment exercises and lessons with Muslim managers halfway around the globe that they used with American employees in California. It did so in the name of ‘ethical consistency.’ The result was ludicrous. The managers were baffled by the instructors’ presentation, and the instructors were oblivious of the intricate connections between Muslim religion and sexual manners.

The U.S. trainers needed to know that Muslim ethics are especially strict about male/female social interaction. By explaining sexual harassment in the same way to Muslims as to Westerners, the trainers offended the Muslim managers. To the Muslim managers, their remarks seemed odd and disrespectful. In turn, the underlying ethical message about avoiding coercion and sexual discrimination was lost. Clearly sexual discrimination does occur in Muslim countries. But helping to eliminate it there means respecting—and understanding Muslim differences.”

Source Donaldson, T., and Dunfee, T. (Summer 1999). When ethics travel: The promise and peril of global business ethics. California Management Review, 41(4), 60.

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Cases

Case 21 Google in China: Still “Doing No Evil”?

In 2010, “Google Inc. co-founder Sergey Brin pushed the Internet giant to take the risky step of abandoning its China-based search engine as that country’s efforts to censor the Web and suppress dissidents smacked of the ‘totalitarianism’ of his youth in the Soviet Union.” Although that decision took Google in a different direction, the company’s 2006 decision to conduct business in China was based on an agreement that the company would offer a self-censored version (“Google.cn”) of its search engine as required by the government in Beijing. The main issue critics had and have with Google’s decision is that the company violated its own values and original philosophy, indicated in the statement “You Can Make Money without Doing Evil.” For example, Beijing prohibits users from bringing up any results about “the Tiananmen Square protests of 1989, sites supporting the independence movements of Tibet and Taiwan or the Falun Gong movement and other information perceived to be harmful to the People’s Republic of China.”

The Chinese government’s strict Internet censorship policy screens what users can access. A user of Google.cn who tries, for example, to access “the Falun Gong spiritual movement” is denied access and is directed to a string of condemnatory articles of that movement. A Google spokesperson said that its e-mail, chat room, and blogging services would also not be made available, since the Chinese government could demand users’ personal information. A Google spokesperson did say that the company planned to notify users when access had been restricted on particular search terms.

Google’s Response Google offered an explanation of their position to operate in China on the Chinese version of Google News China on September 28, 2004. The following is an excerpt:

“There has been controversy about our new Google News China edition, specifically regarding which news sources we include. For users inside the People’s Republic of China, we have chosen not to include sources that are inaccessible from within that country. This was a difficult decision for Google, and we would like to share the factors we considered before taking this course of action. For Internet users in China, Google remains the only major search engine that does not censor any Web pages. However, it’s clear that search results deemed to be sensitive for political or other reasons are inaccessible within China. For last week’s launch of the Chinese-language edition of Google News, we had to decide whether sources that cannot be viewed in China should be included for Google News users inside the PRC. Naturally, we want to present as broad a range of news sources as possible. For every edition of Google News, in every language, we attempt to select news sources without regard to political viewpoint or ideology. For Internet users in China, we had to consider the fact that some sources are entirely blocked. Leaving aside the politics, that presents us with a serious user experience problem. Google News does not show news stories, but rather links to news stories. So links to stories published by blocked news sources would not work for users inside the PRC—if they clicked on a headline from a blocked source, they would get an error page.”

A Google spokesperson stated in another interview that the company can play a more helpful role in China by being there than by boycotting the invitation, even with the concessions. “While removing search results is inconsistent with Google’s mission, providing

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no information (or a heavily degraded user experience that amounts to no information) is more inconsistent with our mission,” a statement said.

Business Incentives Why do business in China? China is the world’s largest online Internet market, when projected through the year 2008, according to the China Internet Network Information Center (CNNIC). The total number of users in China was estimated at 210 million at the end of 2007. The Nielsen/NetRatings estimated the U.S. Internet population at 216 million during that same period. Statistics from the CNNIC show that there are 107 million Internet users in China below age 25; that is almost half of the online population. “These users are ahead of the curve when it comes to social media and new technology take-up. About 33% of young Web users said they had updated their blogs within the previous six months, higher than the average of 23.5% across all users. Similarly, more than 30% said they had used mobile phones to surf the Internet, again higher than the national average.”

Although Google was a late entrant to the China market (behind Yahoo, AOL, and Microsoft), it accounted for 26% of that country’s Internet-search revenue in the fourth quarter of 2007, up from 17% in 2006, according to Beijing research firm Analysis International. Baidu.com’s (China’s online search leader) share of the market climbed from 58% to 60% during the same period.

Other Internet Companies Enter China Google followed some of its competitors and related technology firms into China. Yahoo!, AOL, Microsoft, MySpace, and Skype also agreed with China’s censorship requirements. Yahoo first purchased a $1 billion, 40% stake in Alibaba.com, which owned China’s largest auction site. Following this transaction, eBay, Amazon, and InterActiveCorp—owner of online travel firm Expedia—purchased Chinese firms outright during 2004–2005. Google—before negotiating for direct access in China—acquired a small strategic stake in the online retailer Baidu.com (it has since sold that 5% stake). MySpace, owned by Rupert Murdoch’s News Corp., used a strategy that Yahoo and eBay adopted—to operate as locally owned and managed businesses. MySpace is run by IDG, MySpace Inc., and China Broadband Capital Partners LP.

Google’s competitiveness ranked first followed by Yahoo! for the sites that captured the majority of the search share in the region. Interestingly, “five of the top ten search properties are local country companies, including China’s Baidu.com (16.7 percent) and Korea’s NHN Corporation (5.3 percent), which owns search engine Naver.com. Chinese properties Alibaba.com Corporation, Tencent Inc., and Sohu.com Inc., which host Internet-search functionality although they are not strictly search engines, rounded out the list of key local players.”

Controversies within the Great Wall Google and its Western counterpart companies have faced controversies in the China relationship. For example:

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• Yahoo was accused in 2005 of supplying data to China that was used as evidence to jail a Chinese journalist for 10 years;

• Microsoft agreed to censor content from its blog service, Windows Live Spaces, stating that providing Internet services is more helpful to the Chinese than not having a presence in that country;

• MySpace’s Chinese version, which was launched in April of 2007, omitted and filtered certain discussion forum topics such as religion and politics.

Other topics such as the Dalai Lama and Taiwan independence were also blocked. Users on the web site were also able to report “misconduct” of other users for offenses including “endangering national security, leaking state secrets, subverting the government, undermining national unity, spreading rumors or disturbing the social order.” Guo Quan’s quarrel with Google is more recent: “Guo Quan, an expert on classical Chinese literature and the 1937 Nanjing massacre of Chinese civilians by Japanese troops . . . issued [in March 2008] an open letter pledging to bring a lawsuit against Google after he discovered that his name had been excised in searches of its Google.cn portal in China.” Quan, in the open letter stated, “To make money, Google has become a servile Pekinese dog wagging its tail at the heels of the Chinese communists.” Again, just beneath the impressive business competitiveness and strategic prowess of the Western search companies in China lies moral issues that will not be silenced.

Google in China: Face of the Future? Or Derailed from Its Values? At a University of California, Berkeley gathering in February 2006, just after Google signed on with China, students chanted “Shame on Google” and “Google, don’t be evil,” before the then Google China president Kai-Fu Lee spoke. “Students for a Free Tibet,” a group that was critical of Google’s action in China, held signs at the meeting, one stated “Kaifu Leevil.” Alma David, a member of this group and a University of San Francisco law school student, said, “We hope to get the message to Kai-Fu Lee that we won’t stand for censorship. We see a company selling out its values for a profit. Its ‘don’t be evil’ just seems like a bad joke.” Orville Schell, dean of the journalism school of the University of California at Berkeley said, “We are now witnessing the price that companies are willing to pay in order to buy in to China. The business side of the world we’re meeting here simply feels that China cannot be ignored.”

Cheng Siwei, vice chairman of the National People’s Congress of China, said in a 2006 interview in response to Google’s agreement with China that democracy was his country’s final goal. “But we must go step by step. We were a backwater country. To speak frankly, there are still anti-Chinese groups spreading rumors about our policies in order to raise suspicion among our people. We need to have some control.” Victor Chu of First Eastern Investment Group commented that “foreign criticism had failed to recognize that change enters China slowly. The trade-off of Google’s decision to set up even a censored search engine can help that process along. The commentaries are wrong that Google’s entry into China is a sad day for free expression. We should be glad that Google has started a process that is good for free expression. Ideally, of course, China would open up to Google and all foreign media entirely. But that will not happen overnight, and meanwhile, Google has positioned itself very well indeed as a business.”

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Frida Ghitis, a writer on world affairs, expressed another view in the Boston Globe: Now Google has become a company like all others, one with an eye on the bottom line before anything else. The company has decided to help China’s censors even as it fights a request for records from the U.S. Justice Department’s investigation of online child pornography. Skeptics had claimed Google was resisting the request in order to protect its technology, rather than to protect users’ privacy. That explanation now sounds more plausible than ever.

We’ve long known about China’s disdain for individual freedoms. But Google, we hardly knew you. It’s definitely time to rethink that Gmail account and demand some safeguards from a potentially dangerous company. Perhaps here, too, we will need to heed the Tibetan cybercafé warning, “Do not use Internet for any political or unintelligent purposes.”

Google’s Push and Pull Google has reluctantly conceded defeat in its latest effort to combat online censorship in China, after a year of behind-the-scenes brinkmanship over sensitive search terms banned by authorities. In May 2012, the search company has quietly dropped a warning message shown to Chinese users when they search for politically sensitive phrases, after Beijing found new ways to cut them off from the web. Within 24 hours of the feature being launched, it was disabled by Chinese authorities. Days later, in June 2012, Google modified how the notification would appear for users—but that too resulted in another block. In November 2012, Google’s English- language and Chinese-language services were blocked for 24 hours as tensions stepped up. Google resolved to drop the notification features in early December after users continued to report problems for certain searches. Google continues to battle the Chinese government on this issue.

Questions for Discussion 1. What is at issue from your reading of this case? 2. Do you agree or disagree with Google in this case? Explain. 3. What is your reaction or response now to this statement made by a Google spokesperson in 2006? “While removing search results is inconsistent with Google’s mission, providing no information (or a heavily degraded user experience that amounts to no information) is more inconsistent with our mission.” Is this still Google’s position?

4. (a) Defend Google’s argument(s) in accepting to do business in China. (b) Defend the critics who argue that Google betrayed its values when entering China.

5. (a) What ethical principle(s) did Google use (and is now using) to do business in China with its censorship policy? Has anything changed on Google’s part? Explain. (b) What ethical principle(s) are Google’s critics in the case using in not accepting Google’s presence in China?

6. What effects will Google’s recent lack of censorship have on Chinese relations with the United States?

A Note on Falun Gong Falun Gong or Falun Dafa is a spiritual practice founded in China in 1992; the books based on

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this practice are translated into 40 languages. The practice relates to moral standards, character, salvation, and virtue. One estimate of followers of this practice approximates 70 million. China’s government considers Falun Gong an organized political group that opposes the Communist Party of China and the central government. The group was banned in mainland China in 1999. Since that time, a U.S. State Department report and UN reporter concur that almost 70% of all torture incidents involve those who practice Falun Gong. This description is based on the following sources:

Amnesty International. (March 23, 2000). The crackdown on Falun Gong and other so-called “heretical organizations.” Amnesty.org. http://www.amnesty.org/en/library/info/ASA17/011/2000, accessed February 26, 2014.

Falun Gong. (n.d.). Wikipedia.org. http://en.wikipedia.org/wiki/Falun_Gong#cite_note- isreligion-0, accessed January 7, 2014.

Falun Gong web site: http://www.falundafa.org. Report of the Special Rapporteur on torture and other cruel, inhuman or degrading treatment or punishment: Mission to China, Manfred Nowak, United Nations, Table 1: Victims of alleged torture, p. 13, 2006. http://daccess-ods.un.org/access.nsf/Get? Open&DS=E/CN.4/2006/6/Add.6&Lang=E.

Sources This case was developed from material contained in the following sources: Anexgo. (May 21, 2008). Online youth in China. Online Marketing in China, SEO and Social Media [Blog]. http://www.my-life-in-china.com/online-marketing/online-youth-in-china/, accessed January 7, 2014.

Baker, L. (September 29, 2004). Google responds to Google News China controversy. SearchEngineJournal.com. http://www.searchenginejournal.com/google-responds-to- google-news-china-controversy/910/, accessed January 7, 2014.

Blodget, H. (April 15, 2008). Google: We’re going to crush Baidu in China. We think. BusinessInsider.com.au. http://www.businessinsider.com.au/? s=We%27re+Going+to+Crush+Baidu+in+China, accessed January 7, 2014.

China overtakes U.S. as largest Internet market. (March 17, 2008). EETAsia.com. http://www.eetasia.com/ART_8800510519_590626_NT_a0c77f9d.HTM, accessed January 7, 2014.

comScore releases Asia-Pacific search share rankings for April 2008. comScore.com. http://www.comscore.com/press/release.asp?press=2289, accessed January 7, 2014.

Congressional testimony: “The Internet in China: A tool for freedom or suppression?” (February 15, 2006). Microsoft.com. https://www.microsoft.com/en- us/news/exec/krumholtz/02-15writtentestimony.aspx, accessed January 7, 2014.

Crampton, T. (January 27, 2006). Google in China: Free speech vs. big market, IHT.com. http://www.iht.com/articles/2006/01/27/business/goog.php?rss.

Ghitis, F. (January 26, 2006). Google’s China web. Boston.com. http://www.boston.com/news/world/asia/articles/2006/01/26/googles_china_web/, accessed January 7, 2014.

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http://www.amnesty.org/en/library/info/ASA17/011/2000

http://en.wikipedia.org/wiki/Falun_Gong#cite_note-isreligion-0

http://www.falundafa.org

http://daccess-ods.un.org/access.nsf/Get?Open&DS=E/CN.4/2006/6/Add.6&Lang=E

http://www.my-life-in-china.com/online-marketing/online-youth-in-china/

http://www.searchenginejournal.com/google-responds-to-google-news-china-controversy/910/

http://www.businessinsider.com.au/?s=We%27re+Going+to+Crush+Baidu+in+China

http://www.eetasia.com/ART_8800510519_590626_NT_a0c77f9d.HTM

http://www.comscore.com/press/release.asp?press=2289

https://www.microsoft.com/en-us/news/exec/krumholtz/02-15writtentestimony.aspx

http://www.iht.com/articles/2006/01/27/business/goog.php?rss

http://www.boston.com/news/world/asia/articles/2006/01/26/googles_china_web/

Google and MySpace expanding in China. (April 28, 2007). SFGate.com. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/04/28/BUG8TPH0ME1.DTL, accessed January 7, 2014.

Google censors itself for China. (January 25, 2006). BBCNews.co.uk. http://news.bbc.co.uk/1/hi/technology/4645596.stm, accessed January 7, 2014.

Halliday, J. (January 7, 2013). Google’s dropped anti-censorship warning marks quiet defeat in China. TheGuardian.com. http://www.theguardian.com/technology/2013/jan/04/google- defeat-china-censorship-battle, accessed January 7, 2014.

Lee, E. (February 5, 2006). Google’s China policy protested. SFGate.com. http://www.sfgate.com/bayarea/article/BAY-AREA-Google-s-China-policy-protested- 2542337.php, accessed January 7, 2014.

Macartney, J. (February 6, 2008). Dissident Chinese professor to sue Yahoo! and Google for erasing his name. TimesOnline. http://www.phayul.com/news/article.aspx?id=19194, accessed February 7, 2014.

Markoff, J. (January 27, 2006). Google in China: Free speech vs. big market. IHT.com. http://www.nytimes.com/2006/01/27/business/worldbusiness/27iht-goog.html?_r=0, accessed February 7, 2014.

Ranka, M. (May 17, 2007). Google—Don’t be evil. OSNews.com. http://www.osnews.com/story/17928/Google_-_Dont_Be_Evil, accessed January 7, 2014.

Stamp, G. (August 11, 2005). All roads lead east for Web firms. BBCNews.co.uk. http://news.bbc.co.uk/1/hi/business/4141550.stm, accessed January 7, 2014.

Vascellaro, J. E. (March 24, 2010). Brin drove Google to pull back in China. WSJ.com. http://online.wsj.com/article/SB10001424052748704266504575141064259998090.html, accessed January 7, 2014.

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http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/04/28/BUG8TPH0ME1.DTL

http://news.bbc.co.uk/1/hi/technology/4645596.stm

http://www.theguardian.com/technology/2013/jan/04/google-defeat-china-censorship-battle

http://www.sfgate.com/bayarea/article/BAY-AREA-Google-s-China-policy-protested-2542337.php

http://www.phayul.com/news/article.aspx?id=19194

http://www.nytimes.com/2006/01/27/business/worldbusiness/27iht-goog.html?_r=0

http://www.osnews.com/story/17928/Google_-_Dont_Be_Evil

http://news.bbc.co.uk/1/hi/business/4141550.stm

http://online.wsj.com/article/SB10001424052748704266504575141064259998090.html

Case 22 Sweatshops: Not Only a Global Issue

The Idea Imagine that every day you go to work you are exposed to toxic chemicals without having any protective clothing or safety training, and that the workplace has poor ventilation and poor fire safety. Suppose that you are subject to physical and verbal abuse at the hands of your employer and that there is a lack of drinking water in the workplace. Suppose further that you are paid only a couple of dollars per day and forced to work excessive overtime hours. Would these be satisfactory working conditions—for anyone, anywhere in the world? Conditions such as these are found in businesses commonly known as sweatshops. “Migrants are constantly in a state of danger . . . they are in a constant state of stress. But they are needed and are beneficial to those that keep on exploiting them,” said Svetlana Gannushkina of the human rights group Assistance for Citizens.

The Move Sweatshops exist throughout the world and in a variety of manufacturing industries, including apparel, shoes, toys, and electronics, among others. They have become most notoriously famous within the footwear and apparel (or garment) industries. In these two industries, easy portability of work and technology from one region to another, or one country to another, has facilitated the ongoing presence of and reliance on sweatshop factories. For instance, from a historical perspective, apparel manufacturing has been a very mobile industry. It has migrated from Britain to New England in the United States, to the Southeastern United States, to Mexico and Asia, with companies constantly pursuing less-expensive workers, a practice often referred to as “the race to the bottom.” In this race, clothing wholesalers and retailers have developed a manufacturing supply chain of a large number of contractors and an even larger number of subcontractors, all with the aim of securing the absolutely lowest cost anywhere in the world. Each move in the race to the bottom has been more fleeting than the preceding one, with an excruciating toll being exacted from the workers at the lowest rungs of the “economic food chain” for the predatory benefit of others higher up and at the top.

Of course, this race to the bottom has not been confined to the footwear and apparel businesses. It is occurring in the production of computer motherboards, printers, laptops, and other electronics equipment. It can be found in any type of business that supplies products to large retailers—like WalMart and Target—that operate on the basis of a low-price strategy. “These giants increasingly control the pricing power in overseas manufacturing that in turn dictates how much money factories can spend on improving labor conditions.” Moreover, “Anti-sweatshop efforts are fatally undermined by the schizophrenia of the transnational ‘brands’ themselves. The brands’ sourcing department pays ever-diminishing prices for the products (with ever-shortening delivery times) while the same brand’s CSR [corporate social responsibility] department requires compliance with the minimum wage and hours of work limits in the brand’s code and local laws, often combined with other CSR initiatives to be paid for entirely by the contractors. If the contractor doesn’t like this deal, then the brand will find

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someone else who will meet the order as offered.”

The Problem A Georgetown study showed that people were more likely, for example, to endorse the use of questionable labor practices involved in a Caribbean vacation for themselves, but tend to oppose that use if the vacation in question is for their friends.

“This phenomenon, known as moral hypocrisy, is used by consumers in situations to benefit themselves but not others,” study author Neeru Paharia explains. “They also made economic development justifications, such as convincing themselves that sweatshops are the only realistic source of income for workers in poorer countries, without which they wouldn’t develop, that the labor offers products not otherwise affordable to low-income people and it’s OK because ‘companies must remain competitive.’ ”

“A great sale or exclusive offer can increase the desirability and value of a product, which can further justify the labor practices used to create the product,” Paharia says. “The strength of a brand and consumer loyalty may also influence reasoning—causing consumers to view companies such as Nike and Apple as subsidiaries that are not directly involved with the labor conditions.”

The Fight Unfortunately, most companies that are “benefiting from sweatshop labor around the world are doing nothing about it.” According to the Investor Responsibility Research Center, just 12% of S&P 500 companies have formal requirements that their suppliers address labor issues and only 4% have requirements that address all the issues—including the freedom to organize bans on child labor, forced labor, and discrimination—considered to be important by the International Labor Organization. “The latest corporate social responsibility (CSR) reports from companies like clothier Gap Inc. and toy-maker Mattel and multistakeholder organizations like the Fair Labor Association and Workers Rights Consortium all document that sweatshop conditions in every country (including the U.S.) are alive and well.”

In April 2013, a Bangladeshi factory building collapsed killing more than 1,100 employees. Following this horrific sweatshop-related disaster, opinions from every side of the aisle have been reigning in over how to stop these practices. Yet it is hard to get away from the fact that without the sweatshop the employees would have no job whatsoever.

Given that sweatshop conditions exist around the world, what can be done to counter these assaults upon human dignity and human rights that affect the most vulnerable people in the “economic food chain”? Not surprisingly, in the context of prevailing macroeconomic conditions and pent-up demand for low-cost production, the prospect of black market sweatshops becomes all too real. The problem could be addressed at the other end of the supply chain. Western retailers should be required to display details of their full supply chain to consumers and invest in monitoring conditions at all stages. The “fair trade” concept could then be applied to all types of industries, allowing consumers the choice of paying a small premium on products produced in acceptable working conditions.

During the past several years a number of avenues of activism against sweatshops have Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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emerged. For example, in the United States, student-led anti-sweatshop demonstrations and protests pressured some 200 colleges and universities into adopting “no-sweat” purchasing policies—especially for clothing emblazoned with the schools’ logos. Ten universities in Canada also have “no-sweat” buying policies, as do several U.S. and Canadian cities. The Worker Rights Consortium (WRC) campaigns against sweatshops and helps to police factory compliance with “no-sweat” codes of business conduct. The WRC “does complaint-based and spot monitoring of plants that supply goods to its over 100 member universities.”

In 2003, the Fair Labor Association (FLA), whose members include companies such as Adidas-Salomon, Eddie Bauer, Inc., Levi Strauss & Co., Liz Claiborne Inc., Nike, Inc., the Phillips-Van Heusen Corporation, and Reebok International Ltd., as well as about 175 colleges and universities, began publicizing audits of factories regarding possible sweatshop conditions, including labor and human rights violations. These publicized audits put “pressure on WalMart, Disney, Gap, and every other company that does labor monitoring, to release their audits, too.” In May 2004, Gap, Inc. issued its first social responsibility report in which it acknowledged that “many of the overseas workers making the retailer’s clothes are mistreated and [the company] vowed to improve shoddy factory conditions by cracking down on unrepentant manufacturers.” Gap uncovered “thousands of violations at 3,009 factories scattered across roughly 50 countries,” including unacceptably low pay, psychological coercion and/or verbal abuse, lack of compliance with local laws, workweeks in excess of 60 hours, poor ventilation, and machinery lacking operational safety devices. Gap CEO Paul Presser says, “We feel strongly that commerce and social responsibility don’t have to be at odds.”

These are some of the more notable efforts that have been undertaken to combat sweatshop conditions around the world. They have met with varying degrees of success. Ultimately, however, true success only will be found in putting the brakes on the “race to the bottom,” and in establishing an acceptable minimum level of conditions and compensation for workers on the lowest rungs of the “economic food chain”—acceptable minimums that will ensure them a living wage, protect their rights, and respect their dignity as human beings.

Currently, three major groups oversee factory inspections to monitor sweatshop conditions. These are Social Accountability International (SAI), with members including Toys “R” Us and Otto Versand, the German direct-mail giant; the FLA, which was established by footwear and apparel makers such as Nike, Reebok International, and Liz Claiborne; and the Ethical Trading Initiative (ETI), a London-based organization composed of European unions, companies, and nonprofits. All three groups have codes of conduct that specify standards and also oversee factory monitoring targeted toward enforcing their codes and remedying violations of the standards.

Due to considerable variation in the methodologies used by SAI, FLA, and ETI, many companies have engaged in some form of self-monitoring. For instance, “WalMart says it inspects thousands of supplier factories each year in dozens of countries. But since no outside body such as SAI or the FLA is involved and WalMart won’t release its audits or even its factories’ names, the public is left to take the company’s word for it.” However, the perceived confusion among the methodologies of SAI, FLA, and ETI appears to be on the verge of changing as a consequence of an ambitious 30-month experiment called the Initiative on

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Corporate Accountability and Workers’ Rights, which is being sponsored by six anti- sweatshop activist groups and eight global apparel makers. This initiative seeks “to devise a single set of labor standards with a common factory-inspection system that will ‘replace today’s overlapping hodgepodge of approaches with something that’s easier and cheaper to use —and that might gain traction with more companies.’ If it works, the 30-month experiment would create the first commonly accepted global labor standards—and a way to live up to them.”

“This 30-month experiment is a great first step in bringing order to the piecemeal manner in which even the biggest companies set and monitor workplace conditions across the developing world. But a much broader solution is required to make real progress against sweatshop conditions. There are currently only about 100 large, mostly Western companies actively involved in the anti-sweatshop movement. Their efforts over the past decade are laudable but ultimately insufficient because thousands of other manufacturers don’t participate. Building consensus around basic universal standards for particular industries, say apparel or consumer electronics, is crucial. Otherwise, why should one manufacturer incur the cost of upgrading and continually monitoring its workplace standards if it has to compete with factories without the same obligations?”

Questions for Discussion 1. Why are sweatshops so common around the world? 2. Why are sweatshops viewed with disgust and abhorrence? Does a sweatshop accomplish anything positive?

3. What is a reasonable objective (or set of objectives) for addressing sweatshop conditions throughout the world? Explain your answer.

4. What is your assessment of the potential of the Initiative on Corporate Accountability and Workers’ Rights for making significant progress in alleviating sweatshops around the globe?

5. Do you think “moral hypocrisy” has any effect in the fight to improve working conditions in sweatshops? Explain your reasoning.

Sources This case was developed from material contained in the following sources: Bernstein, A. (May 23, 2005). A major swipe at sweatshops. Business Week, 3934, 98. Bernstein, A. (June 23, 2003). Sweatshops: Finally, airing the dirty linen. Business Week, 3838, 100–101.

Brown, G. (April 8, 2004). Vulnerable workers in the global economy. Occupational Hazards, 66(4), 29–30.

Brown, G. (June 2006). Why sweatshops won’t go away: Nike’s actions are the exception to the rule. Industrial Safety & Hygiene News, 71.

Burrows, P. (June 19, 2006). Stalking high-tech sweatshops. Business Week, 3989, 62. Hammond, K. (November 7, 1997). Leaked audit: Nike factory violated worker laws. MotherJones.com. http://www.motherjones.com/news/feature/1997/11/nike.html, accessed

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http://www.motherjones.com/news/feature/1997/11/nike.html

March 7, 2005. Herskovitz, J. (May 16, 2013). The cost of no sweatshops: South Africa struggles not to be Bangladesh. Reuters.com. http://www.reuters.com/article/2013/05/16/us-safrica-labour- idUSBRE94F08Q20130516, accessed January 7, 2014.

June, A. W. (July 4, 2003). In its first major report, anti-sweatshop group cites violations. Chronicle of Higher Education, 49(43), A23.

Kovalyova, A. (June 5, 2013). Vast underground migrant sweatshop found beneath Moscow street. NBCNews.com. http://worldnews.nbcnews.com/_news/2013/06/05/18778357-vast- underground-migrant-sweatshop-found-beneath-moscow-street?lite, accessed January 7, 2014.

Liedtke, M. (May 13, 2004). Gap acknowledges labor violations. WashingtonPost.com. http://www.washingtonpost.com/wp-dyn/articles/A22681-2004May12.html, accessed January 7, 2014.

Malone, S. (February 8, 2005). Tempest in a t-shirt: Book offers new look at globalization. WWD: Women’s Wear Daily, 189(28), 15.

Mitchell, J. (May 19, 2013). Benjamin Powell: In defense of sweatshops. DallasNews.com. http://www.dallasnews.com/opinion/sunday-commentary/20130517-benjamin-powell-in- defense-of-sweatshops.ece, accessed January 7, 2014.

Neeru, P. (June 28, 2013). Consumers think sweatshops OK if “shoes are cute,” research reveals. Georgetown.edu. http://www.georgetown.edu/news/paharia-sweathshop-products- study.html, accessed January 7, 2014.

Stamping out sweatshops. (May 23, 2005). Business Week, 3934, 136. Wells, D. (September–October 2003). Global sweatshops and ethical buying codes. Canadian Dimension, 37(5), 9–11.

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http://www.reuters.com/article/2013/05/16/us-safrica-labour-idUSBRE94F08Q20130516

http://worldnews.nbcnews.com/_news/2013/06/05/18778357-vast-underground-migrant-sweatshop-found-beneath-moscow-street?lite

http://www.washingtonpost.com/wp-dyn/articles/A22681-2004May12.html

http://www.dallasnews.com/opinion/sunday-commentary/20130517-benjamin-powell-in-defense-of-sweatshops.ece

http://www.georgetown.edu/news/paharia-sweathshop-products-study.html

Case 23 The U.S. Industrial Food System

“The way we eat has changed more in the last 50 years than in the previous 10,000. But the image that’s used to sell the food, it is still the imagery of agrarian America.” In the grocery store we see labels picturing pastures and names of farms on the labels; in reality, however, it is a handful of corporations bringing our food to market, not farmers. Corporations use farm- fresh images to create a specific brand image. The biggest names in the industry are: ADM, Cargill, ConAgra, IBP, Monsanto, Swift, and Tyson. These multinational corporations control our food from seed to supermarket and have different methods of communicating information about that food to consumers. In the 1970s, the top-five beef packers controlled 25% of the market. Today, the top four companies control more than 80% of the market. Meat-packers, slaughterhouses, seed manufacturers, and food processors operate like monopolies in their control of the U.S. food industry.

The corporations running the food supply chain in the United States are constantly enhancing production to create larger quantities of food at lower costs. More efficient production processes allow for the distribution of food products to more parts of the world. Yet, the process is not without concern. Food industry jobs are often endangering to employees. Animals are raised and treated in controversial conditions, and many employees find themselves responsible for treating meat with chemicals like ammonia, which creates health issues like diabetes, obesity, and cancer. This, in turn, increases demand for medical professionals and the need for prescription drugs. The effect on stakeholders may even go as far as increasing American reliance on fossil fuels, aggravating the deportation of illegal farm workers whose labor is essential to this food industry, and further increasing children’s addiction to sugar and sweetening substitutes. Where’s the efficiency in that?

A Brief History of Food since 1800 In the early 1800s, the independent farmer was considered the bedrock of American democracy. It wasn’t until the 1950s that the McDonald brothers introduced a factory assembly line to a commercial kitchen for the first time. The assembly line process taught workers a single task; significantly increased efficiency; and, in essence, created the fast food industry. Today, “McDonald’s is the nation’s largest purchaser of beef, pork, and potatoes—and the second largest purchaser of chicken.” This strong purchasing power gives fast-food franchise giants, like McDonald’s and Burger King, influence over food supply. This has resulted in diminished need for independent farmers; in fact, prison inmates in the United States now outnumber farmers. Without a network of independent farmers, once the backbone of this country, our food supply must now be controlled by major corporations. Throughout history we have never seen food companies this large and with this much power.

The processing/refining of our foods has also changed significantly in the last century. Americans generally no longer eat “whole” foods like vegetables, fruits, and whole grains; instead, they rely primarily on processed foods. Processing makes more money for corporations, but at what cost to the consumer? “It is a fact that the chronic diseases that now

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kill most Americans can be traced directly to the industrialization of food: the use of chemicals to raise plants and animals in huge monocultures; the superabundance of cheap calories of sugar and fat produced by modern agriculture; and the narrowing of the biological diversity of the human diet to a tiny handful of staple crops, notably wheat, corn, and soy. These changes have given us the Western diet that we take for granted: lots of processed foods and meat, lots of added fat and sugar, lots of everything–except vegetables, fruits, and whole grains.”

The Industrial Food Supply Chain Unethical activity takes place at all steps of the industrial food supply chain: the animals; the growers of our food, the workers in their factories, the influence extended on our legal system, the planet Earth, the health care system, and ultimately the consumer.

The Treatment of Animals Cows, natural-born grazers of grasses, are now raised on feedlots called Concentrated Animal Feedlot Operations (CAFO), created after World War II to make the production of meat more efficient. On CAFOs, cattle’s diet consists mainly of corn, which fattens them quickly, but also animal byproducts including cow’s blood (a substitute to mother’s milk when cows are taken from mothers at less than 24 hours old), out-of-date domestic pet food, antibiotics, and even poultry litter. Until the Food and Drug Administration’s (FDA) ban in 1997 after discovering it led to mad cow disease, cows were even fed broken-down cow parts. Cows are housed in small pens, never allowed to graze in pastures, and stand in pools of their own excrement. What was formerly a well-functioning system—cattle grazing on the waste of crops fertilizing the soil, making it rich to grow more crops—is now a system resulting in two new inefficiencies: a fertility problem on the farm, requiring chemical fertilizers to remedy; and a pollution problem in the feedlot, which is often not remedied at all.

A fatal consequence of cattle’s new diet is the creation of E. coli 015:H7 in the cow’s stomach, which, in turn, lives in the meat purchased and consumed by consumers. The acid in our stomachs cannot destroy E. coli 015:H7. The virus can and has killed humans, including 2- year-old Kevin Kowalcyk of Colorado, an otherwise healthy boy. Without the human intervention of feeding corn to cattle, this virus would never even exist. Studies have shown that if cattle were removed from feedlots and allowed to graze on grass for just a few days before slaughter, 80% of E. coli would be eliminated. Yet the cattle industry and the United States Department of Agriculture (USDA) consider that an impractical solution to the problem.

The 2008 documentary Food, Inc. also reveals the disturbing treatment of chickens in the food industry. Like cattle, chickens are fed corn and antibiotics to fatten them more quickly and efficiently. The time to maturity has been reduced by more than 30% since the 1950s. Chickens are fattened so quickly that their bones, muscles, and internal organs are not strong enough to support them. The disturbing footage in Food, Inc. shows several birds who can take only a few steps before collapsing beneath the weight of their supersized corn-fed breasts. White meat is of the highest demand in the fast-food industry. The chickens live in tight quarters, stepping over each other and in each other’s waste. The animals never see any sunlight, living in a large tunnel-like chicken house required by large corporations like Purdue and Tyson.

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The Treatment of Growers and Factory Workers Chicken growers typically begin the process by building one or more poultry houses and signing a contract with one of the major chicken retailers in the country (i.e., Tyson or Purdue). The building of two poultry houses can land the grower with a mortgage of about $500,000; whereas, the average yearly salary of a grower was only $18,000 in 2009. This grower then must conform to all regulations set by the corporation, including costly equipment purchases and upgrades to the poultry houses. Failure to do so results in a loss of contract. One grower interviewed in Food, Inc. discussed the stench and illness inside the poultry house. She developed an allergy to all antibiotics as a result of growing chickens. Chickens spend their entire lives as corporate property. Why don’t corporations grow their own chickens? They have found that outsourcing to chicken growers produces the same results at a much lower cost. Once the animals are fully grown, catchers are sent in to collect them. The chicken catchers hired by corporations were formerly poor Americans but are now primarily undocumented Latino workers.

Slaughterhouse workers are said to have one of the most dangerous jobs in the country. Both Food, Inc. and Eric Schlosser’s Fast Food Nation discuss the horrific conditions, life- threatening injuries and illnesses, lack of unions, low number of inspections, minimum-wage salaries and nonexistent benefits faced by employees working in meat-processing plants. These conditions are true of employees who either clean the facilities or handle the meat. Most often, it is illegal immigrants performing the most treacherous and lowest-paying jobs.

Poor conditions are also found in the growing process of other foods of popular demand. The profession of potato farmers, for example, has drastically changed. Potatoes, which once thrived on farms in Maine, are now mass-produced in Idaho. It is estimated that about 2 cents of every $1.50 order of fast-food fries makes it back to the farmer. Like the chicken grower, the average potato farmer is more than $500,000 in debt before even earning a penny.

The fast-food service industry itself is also a source of worker exploitation. Fast-food chains rely heavily on unskilled, low-paid workers. “The roughly 3.5 million fast food workers are by far the largest group of minimum wage earners in the United States.”

The grower, farmer, factory or service worker puts himself or herself at risk both financially and physically.

The Legal System Government subsidies make corn a natural choice for animal feed. Corn is now the cheapest food source available and fattens the animals most quickly. This is a result of farm bills passed with pressure from Congressional lobbyists representing the big companies like Cargill, Smithfield, Tyson, and others. The North American Free Trade Agreement (NAFTA) resulted in cheap American corn in Mexico, putting approximately 1.5 million Mexican corn farmers out of business. Large meat processors like IBP actively recruited in Mexico for cheap labor in their slaughterhouses. Food, Inc. shows footage of the government taking illegal immigrant workers into custody at their homes, but never at the slaughterhouses. The film suggests that Smithfield meat processor has an arrangement with the government to provide the whereabouts of 15 illegal aliens each day at their homes in exchange for the government’s avoidance of the

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corporation’s factories. In 1977, Senator McGovern chaired the Senate Select Committee on Nutrition and Human

Needs to probe the link between diet and the increase in chronic diseases like heart disease, cancer, obesity, and diabetes. The committee found that during war time, when U.S. consumption of meat and dairy was down, rates of heart disease similarly dropped. They also noted that in countries where diets are based mostly on plants, rates of chronic diseases were “strikingly low.” The committee went on to publish dietary guidelines suggesting that Americans cut back on red meat and dairy products. The threatened red meat and dairy industries forced the committee to change its recommendation from “reduce consumption of meat” to “choose meats, poultry and fish that will reduce saturated fat intake.” In the next election, three-term senator McGovern was ousted, demonstrating the potential repercussions for politicians who take on the food industry.

In the 1980s, a U.S. law was passed allowing companies to put a patent on life. As a result, the corporation Monsanto owns a genetically modified organism (GMO), a type of soybean, grown in the United States. These specific soybeans were created to withstand the spraying of pesticide on crops (another Monsanto product). The GMO soybean withstands pesticides and herbicides better than any other. Farmers must now purchase fresh seed from Monsanto every year or take the serious and expensive risk of being sued by Monsanto and put out of business. These seeds are proven to grow more efficiently, but no one yet knows the health consequences humans face from eating GMOs. Interestingly, Forbes magazine named Monsanto the “Company of the Year” in 2010. The article explained Monsanto’s plan to reach other nations, such as China, who will need GMO grains to raise enough steak to feed the masses and bring the Western diet to Asia.

“Every day in the United States, roughly 200,000 people are sickened by food borne disease, 900 are hospitalized and fourteen die.” After the 2 year old mentioned above tragically died as a result of eating beef containing E. coli 015:H7, his mother became an advocate fighting for higher safety standards in our food industry. For several years she has been working to have a bill passed into law: the Meat and Poultry Pathogen Reduction and Enforcement Act of 2003, also known as “Kevin’s Law.” This law would give the USDA the power to close down plants that produce contaminated meat. This bill is still not a law. Food, Inc. shows viewers that many politicians and regulatory committee members have

ties to large food industry corporations. For several years the chief of staff to the USDA was a former chief lobbyist to the beef industry, and the head of the FDA was the former executive vice president of the National Food Processors Association. In January 2010, the Supreme Court ruled to “overturn a 20-year-old Supreme Court ruling that barred corporations from spending freely to support or oppose candidates.” Corporations are now able to pour as much money as they want into advertisements for or against a particular candidate. The food industry giants are among the wealthiest corporations in the world.

The Planet The use of fertilizers on crops inhibits the crops’ ability to obtain nutrients from the soil, resulting in a less nutritious fruit or vegetable. Additionally, growing only one crop repeatedly,

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as opposed to varying crops, further depletes the soil of nutrients. We are left with a downward spiral in the nutritional content of our fruits and vegetables. When the vitamin levels found in an apple from 1940 were compared to one grown today, only about one-third of the nutrients were present in today’s apple. In addition to the depletion of nutrients in produce, the relatively new year-round need for out-of-season plants, particularly citrus, around the world requires the use of additional fertilizers, irrigation systems, and fossil fuels to plant, harvest, and transport.

The Fallout of the American Diet Corn, wheat, and soybeans are very highly subsidized commodities in the United States that can be found in nearly every product in the supermarket. High fructose corn syrup, for example, is very common. This translates to a large increase in the sugar and empty calories found in American diets. Government subsidies make bad calories cheaper for consumption. Obesity, cancer, and diabetes are on the rise in every country that adopts the Western, or American, diet of processed and fast food.

As Senator McGovern’s committee discovered in the 1970s, evidence points to the correlation of chronic diseases and industrialization of food in America. Farms today can “produce more calories per acre, but each of those calories may supply less nutrition than it formerly did. Nutritionists have known for years that a diet high in whole grains reduces one’s risk for diabetes, heart disease and cancer,” yet the industry makes more money off refined grains that can be stored and manufactured into a wider variety of packaged foods for purchase. This creates a greater demand on the U.S. health care system and drug industry.

Big Organics As an alternative to conventional food products, organic meat and produce offer several improvements. Companies like Stonyfield Farms are growing over 20% annually. Organics is the fastest-growing segment in the food industry. They are not as sustainable as independent farmers, but big organic corporations are improving the industry by using fewer pesticides and working to educate consumers.

Food Industry Corporations These giant conglomerates make outlandish profits, billions more than their nearest competitors. They run their factories in hiding. None of the top corporations would agree to be interviewed for either of Michael Pollan’s books (In Defense of Food and The Omnivore’s Dilemma) or the documentary Food, Inc.

Ethical Implications The stakeholder victims of the U.S. food industry are many: consumers, growers, farmers, factory workers, and service industry workers. Additional stakeholders include the shareholders of the food companies, professionals in the medical industry, health insurance industry, oil industry, transportation, government, and even foreign nations who are adopting

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the Western diet. Over the last century the marketplace set a demand for larger quantities of cheaper food.

Individuals were suffering from malnutrition, and during the Great Depression people could not afford to eat. The issue was how to make farming more efficient and increase the availability of products. However, in the attempt to make things more efficient, new and larger problems have resulted, changing the issue to one of a food and health crisis.

Stakeholders include the owners, customers, employees, suppliers, competitors, government, unions, customer advocate groups, and illegal immigrants. At first glance, it seems that these stakeholders are working in the best interests of many of the consumers. These stakeholders provide customers with accessible food products, they employee thousands in the United States, and they form relationships with countless suppliers. Upon closer inspection, however, the products created by the food industry that are readily available to customers are, in fact, leading to the increase in chronic diseases and rising health care costs. Employees are working in unsafe and often illegal situations with few or no benefits. Suppliers and farmers are being exploited. Many of these groups do not understand that they are victims. The government appears to be in a collaborative relationship with the industry. Politicians receive money from industry giants. Times are finally beginning to change with the new organic movement, however. Consumers are more educated about what the food system is doing to the health of their families. Stores like Whole Foods are catering to the highly educated consumer. Even WalMart has begun selling organic foods, as it recognizes the shift in consumer demands.

Still, the U.S. food industry is in a crisis. Every time a child dies or an adult becomes sick due to E. coli in their food, the consumers, executives, and government should be outraged. Why hasn’t Kevin’s Law passed? Each year when health care costs rise, rates of cancer and heart disease skyrocket, and nutrients in foods are diminished, alarm bells should be sounding.

Conclusion Consumers are becoming more educated and the food industry is slowly shifting to provide more options. WalMart, for example, has adopted organic products. Farmers markets are seeing a resurgence as consumers demand healthier, greener options. As Food, Inc. pointed out, we don’t buy the cheapest car, so why buy the cheapest food? Quality does matter. As consumers educate themselves and make demands for less processed foods, the industry will have to respond to changing demands.

Questions for Discussion 1. What are the most significant issues in this case and are these really that important to you? 2. Who are a few of the major stakeholders and their stakes in this case? 3. Are the issues in this case national or global in nature? Explain. 4. Who is responsible and why for problems presented and argued in this case? 5. Are there any, and if so please identify, positive steps being taken to rectify the problems this case presents?

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Notes 1. Bisson, P., Stephenson, E., and Viguerie, S. P. (2010). The global grid. McKinsey &

Company. http://www.mckinsey.com/insights/innovation/the_global_grid, accessed February 2, 2014. See also The World Bank. (Oct. 2013, Vol. 8). Africa’s pulse. http://www.worldbank.org/content/dam/Worldbank/document/Africa/Report/Africas-Pulse- brochure_Vol8.pdf.

2. Bisson, et al., op. cit. 3. Ibid. 4. Bank for International Settlements (BIS). (2011). 81st Annual Report (April 1, 2010-

March 31, 2011). http://www.bis.org/publ/arpdf/ar2011e.pdf, accessed February 29, 2012; BIS. (2008). 78th Annual Report (April 1, 2007-March 31, 2008), updated June 10, 2008, ch. 2, p. 13. http://www.bis.org/publ/arpdf/ar2008e.pdf, accessed January 7, 2014; and an overview of the same report BIS. (June 30, 2008). http://www.bis.org/events/agm2008/ar2008o.htm, accessed January 7, 2014; Rother, Larry. (August 3, 2008). Shipping costs start to crimp globalization. NYTimes.com. http://www.nytimes.com/2008/08/03/business/worldbusiness/03global.html, accessed January 7, 2014.

5. BIS. (2011), op. cit. 6. Ernst & Young. (2010). Tracking global trends: How six key developments are

shaping the business world. EY.com. http://www.ey.com/GL/en/Issues/Business- environment/Six-global-trends-shaping-the-business-world---Emerging-markets-increase- their-global-power, accessed February 29, 2012.

7. United Nations. (2013). World Investment Report: New York and Geneva. United Nations conference on trade and development (UNCTAD). http://unctad.org/en/publicationslibrary/wir2013_en.pdf, accessed February 3, 2014.

8. U.S. Census Bureau. (February 10, 2012). Goods and services deficit increases in 2011. Census.gov. http://www.census.gov/indicator/www/ustrade.html, accessed February 29, 2012.

9. Koppel, N. (September 15, 2001). China in accord on entry to WTO. Boston Globe, C1; Bisson, P., Stephenson, E., and Viguerie, P., op cit. https://www.mckinseyquart.erly.com/The_global_grid_2626, accessed February 2, 2014.

10. Koppel, N. (September 15, 2001). China in accord on entry to WTO. Boston Globe, C1; Bisson, P., Stephenson, E., and Viguerie, S. P. (June 2010). The global grid. McKinsey Quarterly. https://www.mckinseyquarterly.com/The_global_grid_2626, accessed February 28, 2012.

11. Kingsley, I. (January, 2013). China in the heart of Africa. AfricaRenewal Online. http://www.un.org/africarenewal/magazine/january-2013/china-heart-africa, accessed February 3, 2014.

12. Kingsley, I., op cit. 13. McCue, T. (March, 2013). Global trends 2013 with America at the center. Forbes.

http://www.forbes.com/sites/tjmccue/2013/01/03/global-trends-2030-with-america-at-the- Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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http://www.mckinsey.com/insights/innovation/the_global_grid

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http://www.nytimes.com/2008/08/03/business/worldbusiness/03global.html

http://www.ey.com/GL/en/Issues/Business-environment/Six-global-trends-shaping-the-business-world---Emerging-markets-increase-their-global-power

http://unctad.org/en/publicationslibrary/wir2013_en.pdf

http://www.census.gov/indicator/www/ustrade.html

https://www.mckinseyquarterly.com/The_global_grid_2626

http://www.un.org/africarenewal/magazine/january-2013/china-heart-africa

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center/, accessed February 3, 2014. 14. Chen, J. (February 25, 2013). Dollar dilemma as greenback value falls. People’s Daily

Online. http://english.people.com.cn/90778/8141104.html; Euro Pacific Capital Inc. (March 18, 2012). U.S. debt holdings advance slightly. http://www.europac.net/news/us_debt_holdings_advance_slightly, accessed February 2, 2014.

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16. The world’s top 100 economies: 53 countries, 34 cities and 13 corporations. (October 19, 2011). Oxfam.org. http://www.oxfamblogs.org/fp2p/?p=7164, accessed February 29, 2012.

17. (June 12, 2013). Poverty: Not always with us. The Economist. http://www.economist.com/news/briefing/21578643-world-has-astonishing-chance-take- billion-people-out-extreme-poverty-2030-not, accessed February 2, 2014.

18. Ibid. 19. Human Development Report 2013. (2013). The rise of the south: Human progress in a

diverse world. http://www.undp.org/content/dam/philippines/docs/HDR/HDR2013%20Report%20English.pdf accessed February 2, 2014.

20. Shah, A. (September 20, 2010). Poverty facts and stats. GlobalIssues.org. http://www.globalissues.org/article/26/poverty-facts-and-stats, accessed February 29, 2012.

21. New study: Consumers demand companies should engage in cause-marketing and corporate social responsibility initiatives. (December 15, 2010). PRNewswire. http://www.prnewswire.com/news-releases/new-study-consumers-demand-companies- should-engage-in-cause-marketing--corporate-social-responsibility-initiatives- 111917114.html, accessed February 29, 2012.

22. Ibid. 23. Shinde, Shivani. (April 2, 2008). IBM prepares employees for global leadership.

Rediff.com. http://in.rediff.com/money/2008/apr/02ibm.htm. 24. Schneider, S., and Barsoux, J-L. (2003). Managing across cultures. Harlow, England:

Prentice Hall/Financial Times. 25. Hurn, Brian. (2006). The selection of international business managers: Part 1.

Industrial and Commercial Training, 38(6), 279–286. 26. Patterson, K., Dennhauser, Z., and Stone, A. G. (July 2007). From noble to global: The

attributes of global leadership. Regent University School of Global Leadership and Entrepreneurship. http://www.regent.edu/acad/global/publications/sl_proceedings/2007/patterson_dannhauser_stone.pdf accessed February 29, 2012.

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history of FCPA. Shearman.com. http://www.shearman.com/files/Publication/85f32356-5656- 4e74-b6d2-abfaaa15888f/Presentation/PublicationAttachment/d0b37370-874c-497d-aafc- 004c4a785503/LIT_121808.pdf, accessed March 1, 2012.

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67. Ibid. 68. Thurow, L. (August 7, 2001). Third World must help itself. Boston Globe, F4. 69. Ibid. 70. Onishi, N. (July 29, 2001). The bondage of poverty that produces chocolate. New York

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79. Ibid. Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-30 14:39:06.

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95. Ibid. 96. Johnson, J., and Holub, M. (October 2003). Questioning organizational legitimacy: The

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