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Electropic LLC
Notice: Contains Confidential Information
Electropic LLC is a respected and profitable website design and hosting company in Colossal Corporation's technology group. Melissa Aldredge has been a project manager at Electropic LLC for several years and was recently considered for promotion to a senior project manager position. Ultimately, the promotion was awarded to another long-term employee, June Pyle. June and Melissa have a history of one-upping each other and sharing an internal rivalry within the company.
Melissa recently reported internally that she had learned that June, who was given the promotion over her, had never finished her MBA degree. All of June's business cards have "MBA" after her name, and the signature line of her email reads "June Pyle, MBA."
Electropic LLC's policy manual states that potential employees must submit transcripts for all degrees listed on their resumes. However, this requirement was not in place 10 years ago when June Pyle was hired. June has a history of stellar performance and was promoted not because of her MBA, but because of her consistently exemplary work. June has received excellent performance evaluations during her time at Electropic LLC, and her leadership has led to increased revenue as well as positive press for the company. Her record of success is what led to her promotion.
As a result of Melissa's report, the director of human resources sent an email to all employees who were hired prior to the policy change requiring transcript validation, asking that they provide transcripts to validate their credentials. June did not respond to the director's request for transcripts and was called into the director's office. In a very tense and tearful interview, June confessed to the director that she does not have an MBA. She admitted that she was 12 credits away from completing her degree, but when her dad got sick, she had to drop out. She said that she really needed a job to support her family and she put the MBA on her resume hoping it would help her find a job. She shared that she always intended to go back to school but became so busy with work that she didn’t have time. Once she was hired, she felt that there was no turning back and she had to keep the lie going by placing "MBA" in her email signature line and on her business cards.
An MBA was not a requirement for the assistant project specialist job June was hired for 10 years ago, but four years ago, it was made a requirement for the senior project manager position she holds now. Two of the current senior project managers do not have MBA degrees because they were promoted before this requirement was in place.
Vice President Dodger has asked you to write a memo with your recommendations on how human resources should handle this issue. June has a record of excellence with Electropic LLC, and her superiors would be unhappy to lose her; however, ethical practice and the law must be considered here as well.
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Badaracco’s Right vs Right Framework
There are a variety of ethical frameworks that may be used instrumentally to analyze those difficult questions that businesspersons must regularly address. Some ethical issues present clear yes or no answers, a clear right and wrong, but other ethical issues are much more difficult to address.
Professor Joseph Badaracco developed a framework for addressing those more difficult questions, and particularly those questions of "right versus right"; that is, when an ethical dilemma could result in multiple "right" responses, based in attempted adherence to multiple, conflicting ethical values that cannot simultaneously be fulfilled. Badaracco's framework aims to resolve ethical dilemmas involving conflicting yet legitimate moral values.
Resources
· Harvard FSS: Defining Moments: A Framework for Moral Decisions
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Learning Topic
Résumé Fraud
Fraud, often called misrepresentation, is a very broad legal concept that incorporates a variety of types of fraud and misrepresentation, both civil and criminal. There are considerable variations across the states as to the specific categorization of types of fraud as either civil or criminal law violations, or both. The federal government criminalizes a variety of types of fraud including mail and wire fraud, bankruptcy fraud, and securities fraud. These federal laws apply to everyone in the United States, regardless of the state in which the fraud occurs. Although there is variation as to which explicit types of fraud are criminalized within each state, in all states, some types of fraud unquestionably carry both civil and criminal penalties.
Résumé fraud is a specific type of fraud that may result in civil or criminal penalties, or both, depending on which state the fraud occurs in. In its most primal form, résumé fraud is a type of common law, civil fraud wherein the intentional misrepresentations of material facts are made in a résumé, and justifiably relied upon in the hiring of an individual for employment. In the absence of any statutory provision specifically addressing résumé fraud in a given state, the common law provides the remedy for résumé fraud typically in the form of damages (monetary compensation). However, many states have statutorily imposed sanctions specifically for committing résumé fraud. For example, in New Jersey, both persons and legal entities are prohibited from intending to deceive by falsely representing the receipt of a degree, credential, or certification, which one has not actually acquired "in connection with any business, trade, profession or occupation" (N.J.S.A. 18A:3-15.2). A violation of this provision is treated as a civil law violation, and each instance of résumé fraud carries with it a $1000.00 civil fine (N.J.S.A. 18A:3-15.5). On the other hand, in the state of Kentucky, "fraudulent use of an educational record" is considered a Class A misdemeanor, which is punishable by up to 12 months in jail and fines (KY Rev. Stat. Ann. 434.442). The Kentucky statute explicitly includes making false written representations for certain educational achievements, such as a degree, in employment applications. The states do differ as to how they treat résumé fraud, but whether it is treated as a civil violation or as a criminal violation, résumé fraud is a dishonest practice that should be avoided.
At-will employees should be particularly aware that résumé fraud provides a justifiable basis for termination that may undermine otherwise legitimate arguments for wrongful discharge (or other exceptions to the employment at will doctrine). For contract employees, résumé fraud is often considered "just cause" for termination of an employee who would otherwise be protected from termination by contractual "just cause" provisions. Finally, in addition to the legal consequences of résumé fraud, the reputational damage of lying on a résumé could undermine one’s career prospects as it did for former Yahoo CEO, Scott Thompson, whose résumé represented that he had a double major, including a degree in computer science, from Stonehill College, a degree that was not awarded from until several years after he graduated. After being exposed by a Yahoo shareholder, Thompson stepped down from his position in disgrace (Mackay, 2012).
References
Mackey, M. (2012, May 15). Ex-Yahoo CEO Scott Thompson and seven other cases of resume fraud. The Huffington Post. Retrieved from http://www.huffingtonpost.com/2012/05/15/yahoo-ceo-scott-thompsons-resume-fraud_n_1516061.html
Resources
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Learning Topic
Employment at Will
Transcript
Employment at will is a doctrine of common law that allows either the employee or the employer to terminate an employment relationship at any time, for any reason, with or without notice, and even for a morally reprehensible reason, so long as the ending of the relationship does not fall into an exception to the employment-at-will doctrine.
Employment at will is the prevailing legal doctrine concerning employment relationship termination in 49 US states (not Montana). In the overwhelming majority of the United States, employment at will and its exceptions govern the rules by which one may legally terminate an employee.
The generally accepted exceptions to employment at will include
· express contract,
· implied contract,
· promissory estoppel,
· public policy violations, and
· good faith and fair dealing.
We discuss these five exceptions below.
Express Contract Exception
If an employer terminates an employee in violation of the terms of an express contract between the employer and employee, then the employee can sue the employer for breach of contract (and, in some states, wrongful termination).
For example, an employment contract guarantees that the employee will be employed by the employer for a definite duration of time, with cognizable boundaries, such as a "one-year period" or "for six months." The employer terminates the employee before the stated period has expired, and that termination is not otherwise permitted by the contract.
Likewise, consider a case where an employment contract states that an employee can be terminated only "for cause" or "for just cause," and the employee is terminated without cause.
Implied Contract Exception
Implied contracts are contracts created by the conduct of the parties, which include any representations or assurances made by the employer prior to or during the term of employment. In some states, an implied contract is an exception to the employment-at-will doctrine.
For example, if an employer provides an employee handbook to a new employee, the provisions in the handbook may be considered part of the contractual relationship. Often, such handbooks outline a procedure for performance review, discipline, and discharge of the employee. An employer who fails to live up to procedural obligations prior to discharging an employee could be liable.
Promissory Estoppel Exception
In many states, promissory estoppel acts as an exception to the employment-at-will doctrine. That is, when an employer makes a promise to an employee of employment or a period of employment, and the employee relies on that promise to his detriment, and it leads to injustice, then an employee may be able to have that promise enforced regardless of employment at will.
For example, John is offered a job with Widget Co. He discusses with Widget's manager that, to take the job, he needs to move from California to New Jersey and give up an already lucrative position with benefits. The manager assures John that he will have gainful employment and a substantially larger income with Widget Co. for at least a year if he makes the move. In reliance on this promise, John quits his job and moves to New Jersey to begin work at Widget Co. After one week, John is laid off. Despite being an employee at will, John may be able to recover under the theory of promissory estoppel.
Public Policy Violations Exception
Most states in the United States prohibit an employer from firing an employee if the reason for the action violates some readily accepted public policy. This prohibition prevents an employer from terminating an employee for exercising a legal right, including a right contained in state and federal laws; or for failing to perform an illegal act for the employer.
Firing an employee for performing some public duty (showing up to jury duty), for exposing illegal conduct (such as reporting violation of some law to the employer or a government agency), or for exercising her rights as a US or state citizen (such as voting) are all against public policy.
This exception to employment at will encompasses the inability to terminate an employee if doing so would violate her state or federal statutory rights. If an employee is terminated because of her race, this may be a violation of Title VII of the Civil Rights Act of 1964, and so an otherwise at-will employee would have a claim against the employer for violating a federal statute.
Moreover, it is against public policy to terminate an employee for refusing to commit an illegal act, such as a crime.
Good Faith and Fair Dealing Exception
A minority of states impose upon the employer a duty to exercise good faith and fair dealing in regard to all employees. This doctrine, to varying degrees, means that an employer must treat an employee fairly in the decision to fire her. This generally means that an employer would violate these duties in firing an employee without due cause or justification.
The preceding five generally accepted exceptions to employment at will allow injured parties to seek recovery even in the face of the employment-at-will doctrine. As such, they limit the circumstances by which an employer can terminate an employee.
Licenses and Attributions
Business Law: An Introduction, by TheBusinessProfessor.com, Jason M. Gordon & Colleagues has been adapted with permission from Jason M. Gordon. © Business Professor, LLC.
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Learning Topic
References and Citations
In your papers, you should provide sufficient, correctly cited support that substantiates your ideas.
Even research papers only use sources as support, not in lieu of original thought from you, the essay's author. Use sources that enhance your ideas, but don't let other people's work stand in for your own. If you're writing or presenting a research assignment, don't just assemble other people's ideas. Think of your sources as your big brothers backing you up in a fight, but not going in the melee instead of you. You should connect what you're writing to the source material, and then explain the source material's relevance. Don't let a quote just hang there unexplained, and never end a paragraph on someone else's words. Always, always tie up a quote with your own words.
You need to be fair and accurate: don't take quotes out of context or spin summaries to suit your own purposes. If the material you want to use doesn't really support your point, find other material that does.
The Graduate School standard is APA documentation. Reference your sources appropriately and accurately (not by the source's first name, for instance, and not by only one name if it was a group project). If you don't know APA documentation, check your APA guide, or go to the UMGC library, or search online for the example you need. Many people find the idea of citing or of using a particular format stressful, but it needn't be. It's finicky, and it's nitpicky, but it's really just following a template. If you can follow a recipe, you can follow these guidelines.
Resources
· Use Credible Sources to Support, Extend, and Inform an Original Thesis or Idea
· Clear Communication: Using Citations
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Course Resource
Global Shippers, Inc.
Notice: Contains Confidential Information
One of Colossal Corporation's import-export companies, Global Shippers, Inc., a New York–based company with facilities in over 37 countries including the United Kingdom, recently submitted a bid for an exclusive contract with the government of the small country Neristan. The contract would provide Global Shippers with the exclusive right to export goods from Neristan's government-owned factories to the United States for distribution and sale. It is projected that this contract would provide over $20 million in revenue to Global Shippers per year, increase its stock value, and allow the company to expand its international operations and employee base.
Shortly after Global Shippers submitted the bid, Neristan's prime minister invited the CEO of Global Shippers, Robert Manning, to dine with him at the most luxurious restaurant in Neristan.
After Roger arrived to the dinner, the prime minister ordered the most expensive bottle of wine on the menu, and as they drank, he made a proposal to Manning. The prime minister said, "Here in Neristan we value relationships above all else, and we have a great opportunity to help each other." He went on to say that he was recently tasked with "selecting the best company for Neristan's contract," and he thought that "Global Shippers has what it takes."
Manning was excited by the prime minister's comments. He agreed, "There is the potential here for a great relationship." Manning gratefully accepted the prime minister's offer of another glass of wine and listened intently. The prime minister then went on to say, "It is customary in Neristan for business associates to help each other prosper, and if you ensure a payment of $100,000 is wired to my personal account in the next week, I will make sure that Global Shippers gets the contract."
Manning, who had dealt with similar requests from other foreign diplomats in the past, responded, "I'm afraid that such payments are prohibited in my country, but why don't I fly you to New York tomorrow so we can discuss business further?" Manning went on to say, "The trip will be all expenses paid, and you will stay in the penthouse at the finest New York hotel. If, after we are done conducting business, you want to see the sites, I can show you around the city, and you can stay on us for a while."
The prime minister gratefully accepted Manning's offer, and Manning paid the $3,500 bill for the dinner and wine on his corporate account. The next day the two flew first-class back to New York. After conducting business in New York for a day, the prime minister and Manning traveled around the city, went to the theatre on Broadway, and dined in the finest restaurants. Everything was paid for by Manning's corporate accounts. After several luxurious days in New York, the two of them then flew first-class to Los Angeles, where, after several days of "living it up on the town," they met with Global Shippers Inc.'s board of directors, and the prime minister announced that Global Shippers had been awarded the contract. The prime minister stayed in Los Angeles, all expenses paid, for two weeks after this meeting, and then flew back to Neristan.
In the meantime, upon the announcement of the contract acquisition, Global Shippers Inc.'s stock skyrocketed, and the company began hiring more warehouse employees in Neristan and the United States to manage its new lucrative contract. Manning received a substantial bonus from Global Shippers Inc.'s board of directors for his excellent work related to acquiring the Neristan contract.
Six months later, the first shipment of goods was ready to leave Neristan and go to the United States, but the customs officials on the Neristan border refused to allow the goods to leave the dock. The customs officials stated that they needed time to inspect the goods for illegal contraband and that it could be weeks before they were cleared for shipment. Manning, who was visiting the prime minister at the time, was called to the customs office by his head warehouse employee. Manning slipped the customs officials $100 each and asked if they could expedite the shipment. The goods were cleared the next day, and the first shipment left for the United States.
A few weeks later the prime minister of Neristan was arrested by Neristan authorities for embezzling government funds. Manning began to worry that some of his actions may have crossed the lines into illegal or unethical activity and (given his close relationship with the prime minister) that he may soon also become the subject of investigation. He called the vice president at Colossal Corporation, told him the whole story, and asked him if he could help defend the legality and ethics of his actions.
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Learning Topic
International Business Laws, Ethics, and Regulations
The arena of international business law is highly complex and largely polycentric in nature. Its major components are international treaties, regulations and principles of international organizations (both soft and hard laws), customary international law, and domestic laws with extraterritorial reach. The laws of other nations also come into play when one is conducting business on an international or even global scale.
Given the complexity and variety of sources of international business law, it is of particular importance for you to seek expert assistance when dealing with problems or other matters in an international context. Companies often choose to partner with local constituents when expanding internationally to gain localized knowledge and market share.
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Learning Resource
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. (FCPA), was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the antibribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.
Since 1977, the antibribery provisions of the FCPA have applied to all US persons and certain foreign issuers of securities. With the enactment of certain amendments in 1998, the antibribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.
The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions. See 15 U.S.C. § 78m. These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to (1) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (2) devise and maintain an adequate system of internal accounting controls.
Licenses and Attributions
Foreign Corrupt Practices Act comprises public domain material from the U.S. Department of Justice. UMGC has modified this work.
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Learning Resource
Global Bribery
Comparing the US Foreign Corrupt Practices Act and the UK Bribery Act of 2010
The United States goes to great lengths to prevent bribery both within and outside its borders. Bribery originated as a common law criminal offense, although today many states have legislated bribery and commercial bribery statutes, so that bribing a public official is illegal as well as using a bribe to gain a commercial or business advantage. The federal government has also taken steps to prevent bribery through legislating statutes prohibiting bribery of US public officials, legislating statutes prohibiting bribery of foreign public officials, and by entering international treaties aimed at curbing corruption and bribery.
The US Foreign Corrupt Practices Act of 1977 (FCPA) is a US federal statute aimed at preventing bribery of foreign public officials, political candidates, and political parties. For more than 30 years, the FCPA was the most forceful extraterritorial bribery statute in the world. However, in 2010 the United Kingdom promulgated its new Bribery Act, thereby creating an even stricter and more comprehensive extraterritorial bribery statute. Global businesses now have an entangled web of compliance issues arising from both US and UK laws. Although the two laws share many commonalities, differences do exist between them. The overarching commonality between the FCPA and the Bribery Act is the shared aim of preventing global corruption by extending bribery laws beyond national borders.
The FCPA prohibits certain payments or otherwise providing or promising to provide anything of value to foreign officials, a legal term broadly defined to include officers and employees of foreign governments, officers and employees of public international organizations, and anyone acting on behalf of foreign governments or public international organizations. The FCPA also prohibits such payments and promises to pay to political parties, political candidates, and anyone else when the payment or promise to pay is intended to directly or indirectly benefit foreign officials, political parties, or political candidates.
The FCPA prohibits these payments or promises to provide anything of value when they are made for the purpose of: (1) "influencing any act or decision of such party, official, or candidate in its or his official capacity"; (2) "inducing such party, official, or candidate to do or omit to do an act in violation of the lawful duty of such party, official, or candidate"; (3) "securing any improper advantage"; or (4) "inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist...in obtaining or retaining business for or with, or directing business to, any person" (FCPA, 15 U.S.C. 78dd-2). The violation of these FCPA provisions can result in both civil and criminal penalties.
The FCPA does have a very narrow exception for "grease" or "facilitation" payments, when the payment is made "to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official" (FCPA, 15 U.S.C. 78dd-2). Thus, although paying for an expensive vacation for a foreign official is prohibited under the FCPA, making a minor payment to a customs official in order to expedite entry of legal goods through customs may be permitted. However, under the Bribery Act, facilitation payments are not permitted and are considered to be illegal bribes. The Bribery Act does, however, allow payment of required administrative fees and fast-track fees that may be available from some government agencies. The Bribery Act changes the traditional wisdom regarding permissible payments in the international arena. That is, if a global company is familiar with FCPA requirements, but not the Bribery Act requirements, it may proceed to pay facilitation payments, but may then be prosecuted in the United Kingdom despite compliance with US laws.
The differences between the FCPA and the Bribery Act go far beyond facilitation payments. The United Kingdom's definition of "foreign public official" is a bit narrower than the FCPA definition, but the Bribery Act prohibits private-to-private bribery. In other words, the Bribery Act prohibits bribes to or from private persons as well as public officials. Moreover, the Bribery Act prohibits both the offering and accepting of a bribe, whereas the FCPA just prohibits the offering of a bribe. Sometimes the offering of a bribe is called "active bribery" and the taking of a bribe called "passive bribery." Under the Bribery Act, certain companies may also be held strictly liable for failing to prevent bribes by anyone who performs services for it, whereas the FCPA imposes vicarious liability for the acts of certain agents or employees. Finally, violations of the Bribery Act may result in longer prison sentences for individuals and larger fines for individuals and companies than under the FCPA. In addition to these key differences between the US and UK laws, other nuances regarding their differing application and scope also exist. A global manager must continuously keep abreast of changes to international bribery regimes.
Defenses Under the Foreign Corrupt Practices Act
Several defenses are available to defendants that are prosecuted for violating the bribery provisions of the FCPA. These defenses include the local law defense, the promotional expense defense, the facilitation payment defense, and the statute of limitations.
The FCPA was amended in 1988 to add the local law defense and the promotional expense defense. Both are affirmative defenses, meaning that, if the facts underlying their allegation are proven by the defendant, then either defense could exculpate a defendant from liability. The local law defense requires the defendant to prove that the payment or promise to pay was permitted by the local laws where the the purported violation occurred, at the time of the purported violation. This defense requires not just an absence of laws prohibiting such payments, but actual affirmative and written laws that permit such payments. As such, it rarely is available because most countries do not have laws allowing corrupt payments. The promotional expense defense allows companies to provide reasonable and bona fide travel and lodging expenses for foreign officials. The defendant must prove that such travel and lodging were directly related to demonstration, promotion, or explanation of services or product or a legitimate contract with a foreign government. The inaccurate reporting of such expenses could be used as evidence of corrupt intent and could violate certain accounting requirements of the FCPA.
According to the Department of Justice's FCPA Guidance (2012), the facilitation payment defense is a narrow defense that "applies only when a payment is made to further 'routine governmental action' that involves non discretionary acts. Examples of 'routine governmental action' include processing visas, providing police protection or mail service, and supplying utilities like phone service, power, and water. Routine governmental action does not include a decision to award new business or to continue business with a particular party. Nor does it include acts that are within an official's discretion or that would constitute misuse of an official's office. Thus, paying an official a small amount to have the power turned on at a factory might be a facilitating payment; paying an inspector to ignore the fact that the company does not have a valid permit to operate the factory would not be a facilitating payment." Defining facilitation payments leaves a lot of gray area, so global managers should always err on the side of caution, keeping in mind the intended narrow construal of this defense.
Finally, the FCPA generally limits both civil and criminal violations of the bribery prohibitions by a five-year statute of limitations. In other words, in most cases, proceedings seeking civil penalties or criminal sanctions for violating the bribery provisions of the FCPA cannot be initiated more than five years after the act occurred. However, certain equitable remedies still may be sought for violations of the act beyond five years, such as injunctions or disgorgement of ill-gotten profits, and certain exceptions (e.g., an ongoing criminal conspiracy) may allow cases to be initiated more than five years after the initial prohibited act.
Penalties Under the Foreign Corrupt Practices Act
Violations of the FCPA bribery provisions may result in both civil and criminal penalties for both individuals and companies. For individuals, the criminal penalties may include up to 250,000��������������������������5������������������������������������16,000 per violation. For companies, the criminal penalties may include a fine up to 2����������������������������������������16,000 per violation. Moreover, employers are not permitted to pay the fines of their employees or agents. Although these are the baseline fines, the Alternative Fines Act allows for fines up to twice the amount of any benefit obtained by a defendant by making a corrupt payment, and the Federal Sentencing Guidelines are utilized to decipher appropriate fine amounts. Companies found liable under the FCPA may also be suspended or permanently prevented from contracting with the federal government and, in certain qualifying cases, could lose their export privileges. Although the FCPA provides for severe penalties, the UK Bribery Act is even more severe. It allows an individual to be imprisoned for 10 years for a violation and does not cap fines, thus permitting both companies and individuals the possibility of facing unlimited fines for violating its provisions. A global manager should be aware of the risks and potential consequences of bribery.
References
U.S. Department of Justice, Criminal Division, and U.S. Securities and Exchange Commission, Enforcement Division. (2012). A resource guide to the FCPA U.S. Foreign Corrupt Practices Act, Retrieved from: https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf
Foreign Corrupt Practices Act of 1977, Pub. L. 95-213, 91 Stat. 1494, codified as amended at 15 U.S.C. §§78dd-1 et seq. Retrieved from: https://www.gpo.gov/fdsys/pkg/STATUTE-91/pdf/STATUTE-91-Pg1494.pdf
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Learning Topic
Cross-Cultural Ethical Business Decision Making
Management in the global arena involves addressing unique and difficult issues of culture and morality. Although general ethical frameworks may help you to assess management decisions in a cross-cultural context, there are unique questions that arise in global settings. The resources below provide guidance for situations involving conflicting ethical norms and customs of different cultures within the business context.
How an organization addresses unique situations involving ethics and customs will impact its success in the global arena. The first subtopic examines the role of ethical theory in global business. The second subtopic examines the role of cultural theory in global business.
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Learning Resource
Global Business Ethics
The field of ethics is a branch of philosophy that seeks to address questions about morality—that is, about concepts such as good and bad, right and wrong, justice, and virtue. Ethics impacts many fields—not just business—including medicine, government, and science. We must first try to understand the "origins of ethics—whether they come from religion, philosophy, the laws of nature, scientific study, study of political theory relating to ethical norms created in society or other fields of knowledge" (Baker, 2007). The description below on the field of ethics shows how people think about ethics in stages, from the origin of ethical principles to the ways people apply them to specific tasks and issues.
The field of ethics (or moral philosophy) involves systematizing, defending, and recommending concepts of right and wrong behavior. Philosophers today usually divide ethical theories into three general subject areas: metaethics, normative ethics, and applied ethics. Metaethics investigates where our ethical principles come from, and what they mean. Are they merely social inventions? Do they involve more than expressions of our individual emotions? Metaethical answers to these questions focus on the issues of universal truths, the will of God, the role of reason in ethical judgments, and the meaning of ethical terms themselves. Normative ethics takes on a more practical task, which is to arrive at moral standards that regulate right and wrong conduct. This may involve articulating the good habits that we should acquire, the duties that we should follow, or the consequences of our behavior on others. Finally, applied ethics involves examining specific controversial issues, such as animal rights, environmental concerns, capital punishment, and nuclear war (Fieser, 2009).
This approach will be used to help you understand global business ethics in a modern and current sense.
Where Do Our Values Come From?
Just as people look to history to understand political, technical, and social changes, so too do they look for changes in thinking and philosophy. There's a history to how thinking has evolved over time. What may or may not have been acceptable just a hundred years ago may be very different today—how people present themselves, how they act and interact, and their customs, values, and beliefs.
Ethics can be defined as a system of moral standards or values. A sense of ethics is determined by a number of social, cultural, and religious factor, and this sense influences us beginning early in childhood. People are taught how to behave by their families, exposure to education, and the society in which they live. Ethical behavior also refers to behavior that is generally accepted within a specific culture. Some behaviors are universally accepted—for example, people shouldn't physically hurt other people. Other actions are less clear, such as discrimination based on age, race, gender, or ethnicity.
Culture impacts how local values influence global business ethics. There are differences in how much importance cultures place on specific ethical behaviors. For example, bribery remains widespread in many countries, and while people may not approve of it, they accept it as a necessity of a business environment. Each professional is influenced by the values, social programming, and experiences encountered from childhood on. These collective factors impact how a person perceives an issue and related behaviors. Even within a specific culture, individuals have different ideas of what constitutes ethical or unethical behavior. Judgments may differ greatly depending on an individual's social or economic standing, education, and experiences with other cultures and beliefs. Just as in the example of bribery, it should be noted that there is a difference between ethical behavior and normal practice. It may be acceptable to discriminate in certain cultures, even if the people in that society know that it is not right or fair. In global business ethics, people try to understand what the ethical action is and what the normal practice might be. If these are not consistent, the focus is placed on how to encourage ethical actions.
While it's clear that ethics is different from religion, values based on religious teachings have influenced our understanding of ethical behavior. Given the influence of Western thought and philosophy over the world in the last few centuries, many would say that global business has been heavily impacted by the mode of thinking that began with the Reformation and post-Enlightenment values, which placed a focus on equality and individual rights. In this mode of thinking, it has become accepted that all people in any country and of any background are equal and should have equal opportunity. Companies incorporate this principle in their employment, management, and operational guidelines; yet enforcing it in global operations can be tricky and invite inconsistency.
Impact of Ethics on Global Business
At first, it may seem relatively easy to identify unethical behavior. When the topic of business ethics is raised, most people immediately focus on corruption and bribery. However, the concept of business ethics and global business ethics is much broader. It impacts human resources, social responsibility, and the environment. The areas of business impacted by global perceptions of ethical, moral, and socially responsible behavior include the following:
· ethics and management
· ethics and corruption
· corporate social responsibility
Ethics and Management Practices
Ethics impacts various aspects of management and operations, including human resources, marketing, research and development, and even the corporate mission.
The role of ethics in management practices, particularly those practices involving human resources and employment, differs from culture to culture. Local culture impacts the way people view the employee-employer relationship. In many cultures, there are no clear social rules preventing discrimination against people based on age, race, gender, sexual preference, handicap, and so on. Even when there are formal rules or laws against discrimination, they may not be enforced, as normal practice may allow people and companies to act in accordance with local cultural and social practices.
Culture can impact how people see the role of one another in the workplace. For example, gender issues are at times impacted by local perceptions of women in the workplace. So how do companies handle local customs and values for the treatment of women in the workplace? If you're a senior officer of an American company, do you send a woman to Saudi Arabia or Afghanistan to negotiate with government officials or manage the local office? Does it matter what your industry is or if your firm is the seller or buyer? In theory, most global firms have clear guidelines articulating antidiscrimination policies. In reality, global businesses routinely self-censor. Companies often determine whether a person—based on their gender, ethnicity, or race—can be effective in a specific culture based on the prevailing values in that culture. The largest and most respected global companies, typically the Fortune Global 500, can often make management and employment decisions regardless of local practices. Most people in each country will want to deal with these large and well-respected companies. The person representing the larger company brings the clout of their company to any business interaction. In contrast, lesser-known, midsize, and smaller companies may find that who their representative is will be more important. Often lacking business recognition in the marketplace, these smaller and midsize companies have to rely on their corporate representatives to create the professional image and bond with their in-country counterparts.
Cultural norms may make life difficult for the company as well as the employee. In some cultures, companies are seen as guardians or paternal figures. Any efforts to lay off or fire employees may be perceived as culturally unethical. In Japan, where lifelong loyalty to the company was expected in return for lifelong employment, the decade-long recession beginning in the 1990s triggered a change in attitude. Japanese companies finally began to alter this ethical perception and lay off workers without being perceived as unethical.
Global corporations are increasingly trying to market their products based not only on the desirability of the goods but also on their social and environmental merits. Companies whose practices are considered unethical may find their global performance impacted when people boycott their products. Most corporations understand this risk. However, ethical questions have grown increasingly complicated, and the "correct" or ethical choice has, in some cases, become difficult to define.
For example, the pharmaceutical industry is involved in a number of issues that have medical ethicists squirming. First, there’s the well-publicized issue of cloning. No matter what choice the companies make about cloning, they are sure to offend a great many consumers. At the same time, pharmaceutical companies must decide whether to forfeit profits and give away free drugs or cheaper medicines to impoverished African nations. Pharmaceutical companies that donate medicines often promote this practice in their corporate marketing campaigns in hopes that consumers see the companies in a favorable light.
Tobacco companies are similarly embroiled in a long-term ethical debate. Health advocates around the world agree that smoking is bad for a person's long-term health. Yet in many countries, smoking is not only acceptable but can even confer social status. The United States has banned tobacco companies from adopting marketing practices that target young consumers by exploiting tobacco's social cache. However, many other countries don't have such regulations. Should tobacco companies be held responsible for knowingly marketing harmful products to younger audiences in other countries?
Ethics and Corruption
To begin our discussion of corruption, let's first define it in a business context. Corruption is "giving or obtaining advantage through means which are illegitimate, immoral, and/or inconsistent with one's duty or the rights of others. Corruption often results from patronage" (Corruption, n.d.).
Our modern understanding of business ethics notes that following culturally accepted norms is not always the ethical choice. What may be acceptable at certain points in history, such as racism or sexism, became unacceptable with the further development of society's mind-set. What happens when cultures change but business practices don't? Does that behavior become unethical, and is the person engaged in the behavior unethical? In some cultures, there may be conflicts with global business practices, such as in the area of gift giving, which has evolved into bribery—a form of corruption.
Paying bribes is relatively common in many countries, and bribes often take the form of grease payments, which are small inducements intended to expedite decisions and transactions. In India and Mexico, for example, a grease payment may help get your phones installed faster—at home or at work. Transparency International tracks illicit behavior, such as bribery and embezzlement, in the public sector in 180 countries by surveying international business executives. It assigns a Corruption Perceptions Index (CPI) rating to each country. In 2010, New Zealand, Denmark, Singapore, and Sweden had the lowest levels of corruption, while the highest levels of corruption were seen in most African nations, Russia, Myanmar, and Afghanistan (Transparency International, 2010a).
Even the most respected of global companies has found itself on the wrong side of the ethics issue and the law. In 2008, after years of investigation, Siemens agreed to pay more than 1.34 billion euros in fines to American and European authorities to settle charges that it routinely used bribes and slush funds to secure huge public-works contracts around the world. "Officials said that Siemens, beginning in the mid-1990s, used bribes and kickbacks to foreign officials to secure government contracts for projects like a national identity card project in Argentina, mass transit work in Venezuela, a nationwide cell phone network in Bangladesh and a United Nations oil-for-food program in Iraq under Saddam Hussein. 'Their actions were not an anomaly,' said Joseph Persichini Jr., the head of the Washington office of the Federal Bureau of Investigation. 'They were standard operating procedures for corporate executives who viewed bribery as a business strategy'" (Lichtblau & Dougherty, 2008).
Ethics in Action
Each year Transparency International analyzes trends in global corruption. The following is an excerpt from their 2010 Global Corruption Barometer report (Transparency International, 2010b).
“Corruption has increased over the last three years, say six out of 10 people around the world. One in four people report paying bribes in the last year. These are the findings of the 2010 Global Corruption Barometer.
The 2010 barometer captures the experiences and views of more than 91,500 people in 86 countries and territories, making it the only world-wide public opinion survey on corruption.
Views on corruption were most negative in Western Europe and North America, where 73 percent and 67 percent of people respectively thought corruption had increased over the last three years.
“The fall-out of the financial crisis continues to affect people’s opinions of corruption, particular in North America and Western Europe. Institutions everywhere must be resolute in their efforts to restore good governance and trust,” said Huguette Labelle, chair of Transparency International.
In the past 12 months one in four people reported paying a bribe to one of nine institutions and services, from health to education to tax authorities. The police are cited as being the most frequent recipient of bribes, according to those surveyed. About 30 percent of those who had contact with the police reported having paid a bribe.
More than 20 countries have reported significant increases in petty bribery since 2006. The biggest increases were in Chile, Colombia, Kenya, FYR Macedonia, Nigeria, Poland, Russia, Senegal and Thailand. More than one in two people in Sub-Saharan Africa reported paying a bribe—more than anywhere else in the world.
Poorer people are twice as likely to pay bribes for basic services, such as education, than wealthier people. A third of all people under the age of 30 reported paying a bribe in the past 12 months, compared to less than one in five people aged 51 years and over.
Most worrying is the fact that bribes to the police have almost doubled since 2006, and more people report paying bribes to the judiciary and for registry and permit services than five years ago.
Sadly, few people trust their governments or politicians. Eight out of 10 say political parties are corrupt or extremely corrupt, while half the people questioned say their government’s action to stop corruption is ineffective.
“The message from the 2010 Barometer is that corruption is insidious. It makes people lose faith. The good news is that people are ready to act,” said Labelle. “Public engagement in the fight against corruption will force those in authority to act—and will give people further courage to speak out and stand up for a cleaner, more transparent world.”
Gift giving in the global business world is used to establish or pay respects to a relationship. Bribery, on the other hand, is more commonly considered the practice in which an individual would benefit with little or no benefit to the company. It’s usually paid in relation to winning a business deal, whereas gift giving is more likely to be ingrained in the culture and not associated with winning a specific piece of business. Bribery, usually in the form of a cash payment, has reached such high proportions in some countries that even locals express disgust with the corruption and its impact on daily life for businesses and consumers.
The practice of using connections to advance business interests exists in just about every country in the world. However, the extent and manner in which it is institutionalized differs from culture to culture.
In Western countries, connections are viewed informally and sometimes even with a negative connotation. In the United States and other similar countries, professionals prefer to imply that they have achieved success on their own merits and without any connections. Gift giving is not routine in the United States except during the winter holidays, and even then gift giving involves a modest expression. Businesses operating in the United States send modest gifts or cards to their customers to thank them for business loyalty in the previous year. Certain industries, such as finance, even set clear legal guidelines restricting the value of gifts, typically a maximum of $100.
In contrast, Asian, Latin American, and Middle Eastern cultures are quick to value connections and relationships and view them quite positively. Connections are considered essential for success. In Asia, gift giving is so ingrained in the culture, particularly in Japan and China, that it is formalized and structured.
For example, gift giving in Japan was for centuries an established practice in society and is still taken seriously. There are specific guidelines for gift giving depending on the identity of the giver or recipient, the length of the business relationship, and the number of gifts exchanged. The Japanese may give gifts out of a sense of obligation and duty as well as to convey feelings such as gratitude and regret. Therefore, much care is given to the appropriateness of the gift as well as to its aesthetic beauty. Gift giving has always been widespread in Japan.
Today there are still business gift-giving occasions in Japan, specifically oseibo (year’s end) and ochugen (midsummer). These are must-give occasions for Japanese businesses. Oseibo gifts are presented in the first half of December as a token of gratitude for earlier favors and loyalty. This is a good opportunity to thank clients for their business. Ochugen usually occurs in mid-July in Tokyo and mid-August in some other regions. Originally an occasion to provide consolation to the families of those who had died in the first half of the year, ochugen falls two weeks before obon, a holiday honoring the dead.
Businesses operating in Japan at these times routinely exchange oseibo and ochugen gifts. While a professional is not obligated to participate, it clearly earns goodwill. At the most senior levels, it is not uncommon for people to exchange gifts worth 300��400. There is an established price level that one should pay for each corporate level.
Despite these guidelines, gift giving in Japan has occasionally crossed over into bribery. This level of corruption became more apparent in the 1980s as transparency in global business gained media attention. Asians tend to take a very different view of accountability than most Westerners. In the 1980s and 1990s, several Japanese CEOs resigned in order to apologize and take responsibility for their companies' practices, even when they did not personally engage in the offending practices. This has become an accepted managerial practice in an effort to preserve the honor of the company. While Japanese CEOs may not step down as quickly as in the past, the notion of honor remains an important business characteristic.
Long an established form of relationship development in all business conducted in Asia, the Arab world, and Africa, gift giving was clearly tipping into outright bribery. In the past two decades, many countries have placed limits on the types and value of gifts while simultaneously banning bribery in any form. In the United States, companies must adhere to the Foreign Corrupt Practices Act (FCPA), a federal law that specifically bans any form of bribery. Even foreign companies that are either listed on an American stock exchange or conduct business with the US government come under the purview of this law.
There are still global firms that engage in questionable business gift giving; when caught, they face fines and sanctions. But for the most part, firms continue with business as usual. Changing the cultural practices of gift giving is an evolving process that will take time, government attention, and more transparency in the awarding of global business contracts.
Companies and their employees routinely try to balance ethical behavior with business interests. While corruption is now widely viewed as unethical, firms still lose business to companies that may be less diligent in adhering to this principle. While the media covers stories of firms that have breached this ethical conduct, the misconduct of many more companies goes undetected. Businesses, business schools, and governments are increasingly making efforts to deter firms and professionals from making and taking bribes. There are still countless less visible gestures that some would argue are also unethical. For example, imagine that an employee works at a firm that wants to land a contract in China. A key government official in China finds out that you went to the business school that his daughter really wants to attend. He asks you to help her in the admission process. Do you? Should you? Is this just a nice thing to do, or is it a potential conflict of interest if you think the official will view your company more favorably? This is a gray area of global business ethics. Interestingly, a professional's answer to this situation may depend on his or her culture. Cultures that have clear guidelines for right and wrong behavior may see this situation differently than a culture in which doing favors is part of the normal practice. A company may declare this inappropriate behavior, but employees may still do what they think is best for their jobs. Cultures that have a higher tolerance for ambiguity, as this chapter discusses, may find it easier to navigate the gray areas of ethics—when it is not so clear.
Most people agree that bribery in any form only increases the cost of doing business—a cost that is either absorbed by the company or eventually passed on to the buyer or consumer in some form. While businesses agree that corruption is costly and undesirable, losing profitable business opportunities to firms that are less ethically motivated can be just as devastating to the bottom line. Until governments in every country consistently monitor and enforce anticorruption laws, bribery will remain a real and very challenging issue for global businesses.
Corporate Social Responsibility
Corporate social responsibility (CSR) is the corporate conscience, citizenship, social performance, or sustainable responsible business, and is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms.
CSR emerged more than three decades ago and has gained increasing strength over time as companies seek to generate goodwill with their employees, customers, and stakeholders. "Corporate social responsibility encompasses not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm" (Defining Corporate Social Responsibility, 2008). Companies may support nonprofit causes and organizations, global initiatives, and prevailing themes. Promoting environmentally friendly and green initiatives is an example of a current prevailing theme.
Coca-Cola is an example of global corporation with a long-term commitment to CSR. In many developing countries, Coca-Cola promotes local economic development through a combination of philanthropy and social and economic development. Whether by using environmentally friendly containers or supporting local education initiatives through its foundation, Coca-Cola is only one of many global companies that seek to increase their commitment to local markets while enhancing their brand, corporate image, and reputation by engaging in socially responsible business practices ("Sustainability," n.d.).
Companies use a wide range of strategies to communicate their socially responsible strategies and programs. Under the auspices of the United Nations, the Global Compact (n.d.) "is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption."
Enforcement of Ethical Guidelines and Standards
The concept of culture impacting the perception of ethics is one that many businesspeople debate. While culture does impact business ethics, international companies operate in multiple countries and need a standard set of global operating guidelines. Professionals engage in unethical behavior primarily as a result of their own personal ethical values, the corporate culture within a company, or from unrealistic performance expectations
In the interest of expediency, many governments—the US government included—may not strictly enforce the rules governing corporate ethics. The practice of gift giving is one aspect of business that many governments don't examine too closely. Many companies have routinely used gifts to win favor from their customers, without engaging in direct bribery. American companies frequently invite prospective buyers to visit their US facilities or attend company conferences in exotic locales with all expenses paid. These trips often have perks included. Should such spending be considered sales and marketing expenses, as they are often booked, or are these companies engaging in questionable behavior? It's much harder to answer this question when you consider that most of the company's global competitors are likely to engage in similarly aggressive marketing and sales behavior.
Governments often do not enforce laws until it's politically expedient to do so. Take child labor, for example. Technically, companies operating in India or Pakistan are not permitted to use child labor in factories, mines, and other areas of hazardous employment. However, child labor is widespread in these countries due to deep-rooted social and economic challenges. Local governments are often unable and unwilling to enforce national rules and regulations. Companies and consumers who purchase goods made by children are often unaware that these practices remain unchecked.
The Evolution of Ethics
Ethics evolves over time. It is difficult for both companies and professionals to operate within one set of accepted standards or guidelines only to see them gradually evolve or change. For example, bribery has been an accepted business practice for centuries in Japan and Korea. When these nations adjusted their practices in order to enter the global system, the questionable practices became illegal. Hence a Korean businessman who engaged in bribery ten or twenty years ago may not do so today without finding himself on the other side of the law. Even in the United States, discrimination and business-regulation laws have changed tremendously over the last several decades. And who can know what the future holds? Some of the business practices that are commonly accepted today may be frowned on tomorrow.
It's clear that changing values, as influenced by global media, and changing perceptions and cultures will impact global ethics. The most challenging aspect is that global business does not have a single definition of fair or ethical. While culture influences the definitions of those ideas, many companies are forced to navigate this sensitive area very carefully, as it impacts both their bottom line and their reputations.
References
Baker, W. R. (2007, April). A reflection on business ethics: Implications for the United Nations Global Compact and social engagement and for academic research. UNESCO. Retrieved from http://portal.unesco.org/education/en/files/53748/11840802765Baker.pdf/Baker.pdf
Corruption. (n.d.). BusinessDictionary.com. Retrieved from http://www.businessdictionary.com/definition/corruption.html
Defining corporate social responsibility. (2008). Corporate social responsibility initiative. Harvard Kennedy School. Retrieved from http://www.hks.harvard.edu/m-rcbg/CSRI/init_define.html
Fieser, J. (2009, May 10). Ethics. Internet Encyclopedia of Philosophy. Retrieved from http://www.iep.utm.edu/ethics
Lichtblau, E., & Dougherty, C. (2008, December 15). Siemens to pay $1.34 billion in fines. New York Times. Retrieved from http://www.nytimes.com/2008/12/16/business/worldbusiness/16siemens.html
Sustainability. (n.d.). The Coca-Cola Company. Retrieved from http://www.thecoca-colacompany.com/citizenship/index.html
Transparency International. (2010a). Corruption perceptions index 2010. Retrieved from http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results
Transparency International. (2010b). Global corruption barometer 2010. Retrieved from http://www.transparency.org/policy_research/surveys_indices/gcb/2010
United Nations Global Compact. (n.d.). Who we are. Retrieved from http://www.unglobalcompact.org
Licenses and Attributions
3.4 Global Business Ethics from Challenges and Opportunities in International Business is available under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the site's original creator or licensee. UMGC has modified this work and it is available under the original license.
© 2024 University of Maryland Global Campus
All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity of information located at external sites.
Learning Resource
Ethical and Cross-Cultural Negotiations
Are hardball tactics OK to use? Sometimes a course of action is legal but is ethically questionable. A good rule of thumb is that hardball tactics should not be used because the negotiation is likely not to be the last time you will interact with the other party. Therefore, finding a way to make a deal that works for both sides is preferable. Otherwise, if you have the complete upper hand and use it to dominate negotiations, it's likely that at a future date the other party will have the upper hand and will use it to retaliate against you. What's more, your reputation as a negotiator will suffer. As the famed industrialist J. Paul Getty said, quoting his father, "You must never try to make all the money that's in a deal. Let the other fellow make some money too, because if you have a reputation for always making all the money, you won't have many deals."
Ethics establish a way of doing what is right, fair, and honest. If your counterpart feels you are being unfair or dishonest, he or she is less likely to make any concessions or even to negotiate with you in the first place.
Here are some tips for ethical negotiations (Stark & Flaherty, 2003):
· Be honest.
· Keep your promises.
· Follow the platinum rule. The golden rule tells us to treat others the way we want to be treated. Author Tony Alessandra goes a step further with the platinum rule: "Treat people the way they want to be treated." Caring about others enough to treat them the way they want to be treated helps build long-term relationships based on ethics and trust.
Negotiation around the Globe
Not understanding cultural differences is another common mistake. Some cultures have a higher or lower threshold for conflict. For example, in countries such as Japan or Korea, the preference is for harmony (called wa in Japan) rather than overt conflict (Lebra, 1976). Americans and Germans have a much higher tolerance for conflict as a way of working through issues. In a study of Japanese, German, and American cultures, it was found that almost half of the preference for different conflict management styles was related to the country in which participants were raised (Tinsley, 1998).
In Japan, much like Pakistan, the tendency is not to trust what is heard from the other party until a strong relationship is formed. Similarly, in China, conversations start out with innocuous topics to set a mood of friendliness. This differs a great deal from American negotiators who tend to like to "get down to business" and heavily weigh first offers as reference points that anchor the process as both sides make demands and later offers.
Nemawashi
Another example of how decision-making styles may differ across cultures is the style used in Japan, called nemawashi. Nemawashi refers to building consensus within a group before a decision is made. Japanese decision makers talk to parties whose support is needed beforehand, explain the subject, address their concerns, and build their support. Using this method clearly takes time and may lead to slower decision making. However, because all parties important to the decision will give their stamp of approval before the decision is made, this technique leads to a quicker implementation of the final decision once it is decided.
References
There are also differences in how individuals from different cultures use information and offers during the negotiation process. Observations show that Japanese negotiators tend to use offers as an information exchange process (Adair, Weingart, & Brett, 2007). Research has found that American negotiators tend to reveal more information than their Japanese counterparts (Adair, Okumua, & Brett, 2001). Japanese negotiators might learn little from a single offer, but patterns of offers over time are interpreted and factored into their negotiations. Since Japan is a high-context culture, information is learned from what is not said as well as from what is said.
Even the way that negotiations are viewed can differ across cultures. For example, Western cultures tend to think of negotiations as a business activity rather than a social activity, but in other cultures, the first step in negotiations is to develop a trusting relationship. Negotiators in Brazil, for example, seriously damaged relationships when they tried to push negotiations to continue during the Carnival festival. "The local guys took that as a disrespectful action," said Oscar Lopez, commercial director for Hexaprint, SA De CV in Mexico. "It took several weeks to restore confidence and move on" (Teague, 2006).
Also keep in mind what agreement means in different cultures. For example, in China, nodding of the head does not mean that the Chinese counterpart is agreeing to what you are proposing, merely that they are listening and following what you are saying. "Culturally, Chinese companies and workers do not like to say no," said a buyer at a manufacturer based in the United States. Here's how to overcome the problem. Instead of phrasing a question as, "Can you do this for us?" which would put the Chinese official in an uncomfortable position of saying no (which they likely would not do), rephrase the question as, "How will you do this for us and when will it be done?" (Hannon, 2006).
Each country has its own rules in negotiation. Before negotiation overseas, you will want to consider the norms of that culture.
References
Adair, W. L., Okumua, T., & Brett, J. M. (2001). Negotiation behavior when cultures collide: The United States and Japan. Journal of Applied Psychology, 86, 371–85.
Adair, W. L., Weingart, L., & Brett, J. (2007). The timing and function of offers in the US and Japanese negotiations. Journal of Applied Psychology, 92, 1056–68.
Hannon, D. (2006, May 18). DO's and DON'Ts of doing business in China. Purchasing, 135(8), 52.
Lebra, T. S. (1976). Japanese patterns of behavior. Honolulu, HI: University Press of Hawaii.
Stark, P. B., & Flaherty, J. (2003). Ethical negotiations: 10 tips to ensure win–win outcomes. Negotiator Magazine. Retrieved from http://www.negotiatormagazine.com/showarticle.php?file=article106&page=1.
Teague, P. E. (2006, August 17). Collaboration trumps negotiations. Purchasing, 135(11), 58.
Tinsley, C. (1998). Models of conflict resolution in Japanese, German, and American cultures. Journal of Applied Psychology, 83, 316–23.
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Ethical and Cross-Cultural Negotiations from Beginning Human Relations is available under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the site's original creator or licensee. UMGC has modified this work and it is available under the original license.
11.5 The Role of Ethics and National Culture from Organizational Behavior by the University of Minnesota Libraries Publishing is an adaptation of a work whose original author and publisher request anonymity and is available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International license. © 2017, University of Minnesota. UMGC has modified this work and it is available under the original license.
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All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity of information located at external sites.
Learning Resource
Corruption in International Business
Corruption: Cash for Favors
A common practice worldwide is for government favors to be sought in exchange for surreptitious payments in cash. Corruption is not merely a problem in developing countries. In recent years, American, German and Italian companies have been implicated in corruption scandals, both domestic and international.
Source: Stockmonkeys.com
The Problem of Corruption
When a large corporation decides to enter a foreign market, it must usually secure a number of licenses, permits, registrations, or other government approvals. Certain types of business may be even be illegal unless the corporation is first able to obtain a change or adjustment to the nation’s laws or regulations. Since the power to authorize the foreign corporation’s activities is vested in the hands of local politicians and officials, and since corporations have access to large financial resources, it should not be surprising that some corporate executives resort to financial incentives to influence foreign officials. While certain financial incentives, such as promises to invest in local infrastructure, may be legitimate, any form of direct payment to the foreign official that is intended to influence that official’s public decisions will cross the line into illegal subornation, also commonly referred to as bribery.
Bribery is one of the archetypal examples of a corporation engaged in unethical behavior. A number of problems can be attributed to business bribery. First, it is obviously illegal—all countries have laws that prohibit the bribery of government officials—so the foreign company engaging in bribery exposes its directors, executives, and employees to grave legal risks. Second, the rules and regulations that are circumvented by bribery often have a legitimate public purpose, so the corporation may be subverting local social interests or harming local competitors. Third, the giving of bribes may foment a culture of corruption in the foreign country, which can prove difficult to eradicate. Fourth, in light of laws such as the US Foreign Corrupt Practices Act (FCPA) and the Organization of Economic Cooperation and Development (OECD) Convention on Anti-Bribery (discussed in greater detail below), bribery is illegal not only in the target country, but also in the corporation’s home country. Fifth, a corporation that is formally accused or convicted of illicit behavior may suffer a serious public relations backlash.
Despite these considerable disincentives, experts report that worldwide business corruption shows little signs of abating. Transparency International (TI), a leading anticorruption organization based in Berlin, estimates that one in four people worldwide paid a bribe in 2009. It appears that the total number of bribes continues to increase annually. The World Economic Forum calculated the cost of corruption in 2011 at more than five percent of global GDP (US2.6��������)���ℎ����1 trillion paid in bribes each year (ICC, 2011).
Governments and intergovernmental organizations have redoubled their efforts to combat the perceived increase in international business corruption. Globalization, which accelerated in the final decades of the twentieth century, is often cited by specialists as contributing to the spread of corruption. Corporations and businesses in every nation have become increasingly dependent on global networks of suppliers, partners, customers, and governments. The increased interaction between parties in different countries has multiplied the opportunities for parties to seek advantage from illicit incentives and payoffs. Although outright bribery is clearly unethical and illegal, there is great deal of behavior that falls into a gray zone that can be difficult to analyze according to a single global standard. When does a business gift become a bribe? What level of business entertainment is right or wrong? Over the past two decades, governments and regulators have sought to clearly define the types of behavior that are considered unethical and illegal.
Another factor that has heightened the sense of urgency among regulators is the magnitude of recent cases of corruption (several of which are described in greater detail below). The cost to shareholders as well as stakeholders and society has proven enormous. Governments and international organizations have ramped up their enforcement of anticorruption laws and sought increasingly severe penalties, sometimes imposing fines amounting to hundreds of millions of dollars. Largely as a result of these efforts, most multinational corporations have developed internal policies to ensure compliance with anticorruption legislation. However, as we will see in the case study featured in this chapter, such compliance also raises complex ethical dilemmas for corporations. It remains difficult to regulate ethical behavior when social and cultural norms vary significantly from country to country. Acts that are considered unethical in one country may represent a traditional way of doing business in another. One legal scholar explains the difference as follows: “A common misconception, held in both Western and developing countries, and even among many researchers on corruption, is to confuse what is corrupt with what is legal. Laws are defined by values, as are ethical norms, but the two are not equivalent” (Eiher, 2009).
This resource will explore the impact, reasonableness, and the effectiveness of anticorruption laws and corporate compliance rules. Finally, we will discuss a case in which the line between corruption and traditional business practices remains difficult to ascertain.
The Scope of the Problem
Recent cases of corruption in international business have attracted considerable media attention. Paying a traffic officer to ignore a minor traffic violation is unremarkable; paying a senior government official a secret bribe of millions of dollars to get a large contract signed is a different matter.
While virtually all multinational companies have adopted anticorruption policies, it is not clear how often these policies are fully implemented and internalized as part of the corporate culture. The emphasis on anticorruption policies is relatively recent and, even in the most responsible organizations, such policies are still works in progress. However, there is some evidence that the implementation is not always as effective as might be hoped.
For example, a study by Control Risks (2013) and the Economist magazine’s Intelligence Unit showed that while most companies acknowledge the need to combat bribery and corruption, many are complacent and unprepared to deal with scandals inside their own organizations. The review of global attitudes on corruption surveyed more than 300 senior lawyers and compliance heads in April 2013. It painted a disturbing picture. The authors concluded that “too many companies still fall short of best practices in their anticorruption compliance programs.” Despite ranking anticorruption high on most corporate agendas, the report noted a “danger of complacency” among companies, and as a result, “the risk of a company finding itself in the middle of a corruption-based investigation remains real” (Tedesco, 2013).
Transparency International’s Corruption Perceptions Index (CPI) ranks countries and territories according to their perceived levels of public sector corruption. It is an aggregate indicator that combines different sources of information about corruption, making it possible to compare countries. Perceptions are used because corruption is generally a hidden activity that is difficult to measure. The CPI confirms that corruption remains a problem worldwide and takes place even in the wealthiest countries (Transparency International, 2013). Research in 2012 by the Austrian economist Friedrich Schneider placed the annual loss to the German economy alone at €250 billion (“Corruption Will Cost Germany,” 2012).
The Dow Jones State of Anti-Corruption Survey in 2011, which surveyed more than 300 companies worldwide, found that more than 55 percent of companies have found cause to reconsider working with certain global business partners due to concerns about possible violation of anticorruption regulations. Additionally, the biannual survey indicated than more than 40 percent of companies believe they have lost business to competitors who won contracts unethically, an increase from only 10 percent in the 2009 study. “Strict liability provisions in legislation like the UK Bribery Act make businesses responsible for the activities of their agents and partners overseas, and this is having a direct impact on the occurrence of new business partnerships between firms,” said Rupert de Ruig, managing director of Risk and Compliance, Dow Jones (Dow Jones Risk and Compliance, 2011).
Global social costs from corruption include the reluctance of investors to commit to projects in developing economies, inhibited growth of businesses due to syphoning off of revenues for bribes, and diversion of funds from food, medical, and educational aid programs. In addition, it seems likely that corruption hampers the development of executive talent in developing nations, given that frustrated local executives may seek to emigrate to countries where corruption is less prevalent. Consider for example, the long term impact of the necessity of paying a bribe to get running water in a household in rural India (Campion, 2011). This type of corruption can effectively exclude the poor from access to vital public services. Economist Daniel Kaufmann (1997) of the Harvard Institute of International Development cites public sector corruption as the most severe obstacle to development in developing and post-communist countries.
Notable Examples of Corruption
The number and magnitude of recent corruption cases prosecuted by government authorities is disconcerting. Moreover, these widely-publicized cases may represent only the tip of the iceberg: regulatory bodies focus principally on the bribery of public officials so that other forms of business corruption are under-reported. As of 2013, the ten largest cases successfully tried pursuant to the FCPA are listed below (in order of magnitude of fines) (Cassin, 2013):
1. Siemens (Germany)—$800 million in 2008
2. KBR/Halliburton (USA)—$579 million in 2009
3. BAE (UK)—$400 million in 2010
4. Total SA (France)—$398 million in 2013
5. Snamprogetti Netherlands BV/ENI SpA (Holland/Italy)—$365 million in 2010
6. Technip SA (France)—$338 million in 2010
7. JGC Corporation (Japan)—$218.8 million in 2011
8. Daimler AG (Germany)—$185 million in 2010
9. Alcatel-Lucent (France)—$137 million in 2010
10. Magyar Telekom/Deutsche Telekom (Hungary/Germany)—$95 million in 2011
There are other recent examples of large-scale corruption in international business, described in greater depth in the sections below.
Walmart in Mexico
According to a report issued by the Mexican Employers Association in 2011, companies operating in Mexico spend more than 10 percent of their revenue on corrupt acts. One of the most well-known cases was the Walmart scandal that was brought to light in September 2005 and resulted in the company’s stock value dropping by as much as 4.5�������.��������������ℎ�������������������������������������������������������������������,������������������24 million. The bribes were paid to facilitate the construction of Walmart stores throughout Mexico. The country is a huge market for Walmart—one in every five Walmart stores is in Mexico. As of October 2014, the investigation continued, having implicated Walmart management at the most senior levels of complicity or awareness.
GlaxoSmithKline in China
In September 2013, China’s Xinhua news agency reported that a police investigation into bribes paid by drug manufacturer GlaxoSmithKline (GSK) indicated that the bribes were organized and paid by GSK China and not by individuals operating on their own prerogative as had been reported by the company initially. Police also alleged that the corporate parent merely went through the motions of an internal audit process, indicating a knowledge and acceptance of the bribery. This very recent case suggests that the Chinese government’s widely publicized arrests and convictions for bribery have not yet served as a sufficient deterrent to corrupt practices by foreign corporations.
Alcatel in Costa Rica
In January 2010 Alcatel agreed to pay Costa Rica US 10��������������������������������������������������′������������2.5 million in bribes to get a contract to provide mobile phone services in that country. This case is notable for its application of the concept of social damage and the resulting order of compensation to the citizens of Costa Rica.
Anticorruption Laws and Regulations
The first major international anticorruption law was the United States’ Foreign Corrupt Practices Act , adopted in 1977 (DOJ, 2015). The FCPA criminalized bribery of foreign public officials by American business enterprises. Initially, the FCPA was not well received. Few other countries followed suit, and US companies complained that the FCPA shut them out of the competition for billions of dollars’ worth of overseas business contracts. Slowly, however, the push for concerted anticorruption measures gathered momentum, and intergovernmental institutions such as the OECD, the African Union, and the United Nations eventually adopted anticorruption conventions. Further support for a global anticorruption agenda was provided by the lending institutions such as the World Bank, by NGOs such as Transparency International, and by the rapidly evolving CSR movement. Notable among these efforts was the Communist Party of China’s promulgation of a code of ethics to fight the widespread corruption within the Communist Party of China (Sommerville, 2010).
The FCPA applies only to bribes paid (or offered) to foreign government officials to obtain or retain business or to develop an unfair competitive advantage. The concepts of bribe and foreign government official can be interpreted broadly. While companies and executives charged with FCPA violations have often sought to characterize their payments as business “gifts,” this has not shielded them from liability when there was evidence that the payments were intended as a means of obtaining illicit objectives. However, where payments have been characterized as “facilitation” or “lubrication” payments, meaning that they merely created an incentive for an official to promptly execute legal actions, such as mandatory customs inspections, the payments have been allowed. In numerous countries, the state owns all or part of commercial enterprises so that a great number of business executives could be classified as foreign government officials.
In 1997, the OECD established legally binding standards for defining bribery in international business transactions. Similar to the FCPA, the OECD Anti-Bribery Convention focuses on the bribery of public officials. Like the FCPA, the OECD also potentially creates the opportunity for companies to circumvent the regulations by hiring consultants or agents. Notably excluded from the scope of the OECD Convention is a prohibition against bribing private parties. Despite such loopholes, the OECD Convention was an important step in the right direction. By 2012, forty-three countries had ratified the agreement and begun its implementation.
Corruption and Culture
Prior to the expansion of international trade in the nineteenth and twentieth centuries, most commerce was local and followed traditional norms and ethical standards. With the expansion of international trade, however, businesses began to operate across cultural and linguistic boundaries. Misunderstandings and transgressions, both intended and unintended, became commonplace. To some extent, perceptions of corruption may derive from cultural differences, because behavior that is considered corrupt in one society may represent a normal business practice in another.
One example can be found in the Chinese concept of guanxi, which refers to the reciprocal obligations and benefits expected from a network of personal connections. A person with a powerful level of guanxi is considered a preferred business partner because such a person can utilize connections to obtain business or government approvals. Guanxi can derive from extended family, school friends and alumni, work colleagues, members of common clubs or organizations, and business associates. Chinese businesspeople seek to cultivate an intricate and extensive web of lifelong guanxi relationships. The key expectation in guanxi networks is reciprocity in the granting of favors; the failure to reciprocate is considered a breach of trust. The greater the favor asked or granted, the greater the favor owed. Guanxi thus generates a cycle of favors over time. Among the questionable practices facilitated by guanxi are certain types of corrupt favoritism—such as nepotism (favoring family members) and cronyism (favoring friends). In fact, relatively high levels of nepotism or cronyism are accepted and tolerated in many non-Western cultures, not only in China. As applied to business transactions, guanxi opens doors and creates opportunities for business relationships and dealings. In itself, guanxi is not corrupt. However, strong guanxi connections and obligations can serve as an incentive to corruption.
Many traditional business practices around the world are rooted in concepts analogous to guanxi, as in the practice of using business gifts or personal connections to speed up transactions both large and small. Russians use the term blat to refer to the ability to get things done through personal networks or contacts with people of influence. The Japanese have adapted the English word connections to coin a term of their own, konne. In Pakistan, the use of personal sifarish (“recommendation”) refers to the ability to make contact with the right official on the most favorable terms. The French expression for bribe is pot de vin (“jug of wine”), which implies friendly relations. In Urdu and Hindi, petty bribes are known as chai pani (“tea water”). In West Africa the term is dash. The English colloquial term grease and the German schmiergeld (“grease money”) imply a lubrication or easing of resistance to the transaction. In Mozambique, one term for corruption is cabritismo or “goatism,” which is derived from the saying “a goat eats where it is tethered.”
The universality of such terms suggests that various forms of business bribery and graft are prevalent worldwide. However, specific business activities that are considered acceptable in some societies may be considered taboo in others. Thus, the American practice of lobbying legislators and governmental agencies would be considered an illegal form of buying influence in many other countries. In some societies, gift giving to chiefs, elders, or religious leaders is considered not only acceptable and appropriate, but even a mandatory traditional expression of respect and obligation.
A survey conducted by KPMG in the United Kingdom found that while 80 percent of respondents agreed that the UK Anti-Corruption Act was an admirable attempt to address the problem of corruption, 58 percent believed that the act was impractical and ignored the reality that bribery is an accepted way of doing business in many countries. Other similar studies have revealed widespread international criticism of US anticorruption law as hypocritical in light of the American business practice of offering gifts to potential customers or clients (e.g., trips to conferences, golf outings, tickets to entertainment and sporting events, use of luxury facilities such as spas, condos, and country clubs, etc.).
References
Campion, M. J. (2011, June 11). Bribery in India: a website for whistleblowers. BBC News. Retrieved from http://www.bbc.co.uk/news/world-south-asia-13616123
Cassin, R. (2013, May 29). France’s total SA cracks our top 10 list. FCPA Blog. Retrieved from http://www.fcpablog.com/blog/2013/5/29/frances-total-sa-cracks-our-top-10-list.html#
Control Risks. (2013). International Business Attitudes to Corruption: Survey 2013. Retrieved from http://www.controlrisks.com/en/services/integrity-risk/international-business-attitudes-to-coruption.
Corruption ‘will cost Germany €250 billion. (2012, March 16). The Local. Retrieved from http://www.thelocal.de/20120316/41373
DOJ (US Department of Justice). 2015. A Resource Guide to the U.S. Foreign Corrupt Practices Act. Retrieved from http://www.justice.gov/criminal/fraud/fcpa/guide.pdf
Dow Jones Risk and Compliance. (2011, March 31). Dow Jones State of Anti-Corruption Compliance Survey. Retrieved from http://www.dowjones.com/pressroom/SMPRs/DJACCSurvey2011.html
Eiher, S. (2009). Corruption in international business: The challenge of cultural and legal diversity. Abingdon, UK: Routledge.
ICC (International Chamber of Commerce). (2011). Clean business is good business. Paris: ICC, Transparency International, the United Nations Global Compact, and the World Economic Forum Partnering Against Corruption Initiative (PACI).
Kaufmann, D. (1997). Corruption: the facts. Foreign Policy, 114–131. Retrieved from http://info.worldbank.org/etools/docs/library/18143/fp_summer97.pdf.
Sommerville, Q. (2010, February 24). China communists get new anti-corruption ethics code. BBC News. Retrieved from http://news.bbc.co.uk/2/hi/asia-pacific/8533410.stm.
Tedesco, T. (2013, July 15). Anti-corruption high on corporate agenda, low in practise: UK study. Financial Post. Retrieved from http://business.financialpost.com/2013/07/15/anti-corruption-high-on-corporate-agenda-low-in-practise-u-k-study/.
Transparency International. (2013). Corruption Perceptions Index 2013. Retrieved from http://www.transparency.org/cpi2013/results.
Licenses and Attributions
Chapter 10: Corruption in International Business from Good Corporation, Bad Corporation: Corporate Social Responsibility in the Global Economy by Guillermo C. Jimenez and Elizabeth Pulos is available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International license. UMGC has modified this work and it is available under the original license.
Photo by Stockmonkeys.com is licensed under CC-BY 2.0.
© 2024 University of Maryland Global Campus
All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity of information located at external sites.
Learning Resource
Cultural Diversity
Suggestions for Managing Cultural Diversity
Cultural Diversity
Due to increased globalization of businesses, understanding the role of culture for organizational behavior may provide you with a competitive advantage in your career.
Source: მარიამ იაკობაძე
With the increasing importance of international business as well as the culturally diverse domestic workforce, what can organizations do to manage cultural diversity?
Help Employees Build Cultural Intelligence
Cultural intelligence is a person’s capability to understand how a person’s cultural background influences their behavior. Developing cultural intelligence seems important, because the days when organizations could prepare their employees for international work simply by sending them to long seminars on a particular culture are gone. Presently, international business is not necessarily conducted between pairs of countries. A successful domestic manager is not necessarily assigned to work on a long-term assignment in China. Of course such assignments still happen, but it is more likely that the employees will continually work with others from diverse cultural backgrounds. This means employees will not necessarily have to become experts in one culture. Instead, they should have the ability to work with people from many diverse backgrounds all at the same time. For these types of assignments, employees will need to develop an awareness of overall cultural differences and learn how to recognize cultural principles that are operating in different situations. In other words, employees will need to be selected based on cultural sensitivity and understanding and trained to enhance such qualities (Earley & Mosakowski, 2004). For example, GlobeSmart by Aperian Global is an online tool that helps employees learn how to work with people from around the world. The process starts by completing a survey about your cultural values, and then these values are compared to those of different cultures. The tool provides specific advice about interpersonal interactions with these cultures (Hamm, 2008).
Avoid Ethnocentrism
Ethnocentrism is the belief that one’s own culture is superior to other cultures one comes across. Ethnocentrism leads organizations to adopt universal principles when doing business around the globe, which may backfire. Culture affects employee expectations of work life such as work-life balance, job security, or level of empowerment. Ignoring cultural differences, norms, and local habits may be costly for businesses and may lead to unmotivated and dissatisfied employees. Successful global companies modify their management styles, marketing, and communication campaigns to fit with the culture in which they are operating. For example, Apple Inc.’s famous PC versus Mac advertising campaign was reshot in Japan and the United Kingdom using local actors. The American ads were found to be too aggressive for the Japanese culture, where direct product comparisons are rare and tend to make people uncomfortable. The new ads feature friendlier banter and are subtler than the US ads. For the British market, the advertisers localized the humor (Fowler, Steinberg, & Patrick, 2007).
Listen to Locals
When doing cross-cultural business, locals are a key source of information. To get timely and accurate feedback, companies will need to open lines of communication and actively seek feedback. For example, Convergys, a Cincinnati-based call-center company, built a cafeteria for the employees in India. During the planning phase, the Indian vice president pointed out that because Indian food is served hot and employees would expect to receive hot meals for lunch, building a cafeteria that served only sandwiches would create dissatisfied employees. By opening the lines of communication in the planning phase of the project, Convergys was alerted to this important cultural difference in time to change the plans (Fisher, 2005).
Recognize that Culture Changes
Cultures are not static—they evolve over the years. A piece of advice that was true five years ago may no longer hold true. For example, showing sensitivity to the Indian caste system may be outdated advice for those internationals doing business in India today.
Do Not Always Assume that Culture Is the Problem
Attributing all misunderstandings or failures to culture may enlarge the cultural gap and shift the blame to others. In fact, managing people who have diverse personalities or functional backgrounds may create misunderstandings that are not necessarily due to cultural differences. When marketing people from the United States interact with engineers in India, misunderstandings may be caused by the differences in perceptions between marketing and engineering employees. While familiarizing employees about culture, emphasizing the importance of interpersonal skills regardless of cultural background will be important.
References
Earley, P. C., & Mosakowski, E. (2004). Cultural intelligence. Harvard Business Review, 82(10), 139–146.
Fisher, A. (2005, January 24). Offshoring could boost your career. Fortune, 151(2), 36.
Fowler, G. A., Steinberg, B., & Patrick, A. O. (2007, March 1). Mac and PC’s overseas adventures; globalizing Apple’s ads meant tweaking characters, clothing and body language. Wall Street Journal, p. B1.
Hamm, S. (2008, September 8). Aperian: Helping companies bridge cultures. Business Week Online. Retrieved January 29, 2009, from http://www.businessweek.com/technology/content/sep2008/tc2008095_508754.htm
Licenses and Attributions
2.3 Cultural Diversity from Organizational Behavior by the University of Minnesota Libraries Publishing is an adaptation of a work whose original author and publisher request anonymity and is available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International license. © 2017, University of Minnesota. UMGC has modified this work and it is available under the original license.
Cultural Diversity by მარიამ იაკობაძე is licensed under CC BY-SA 4.0.
© 2024 University of Maryland Global Campus
All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity of information located at external sites.
Learning Topic
Country Cultural Differences
In workplaces, as in communities and nations, people spending time together are likely to share certain values, attitudes, and beliefs. Because of this established culture, people at work may have developed certain preferences or orientations in the following situations:
· interacting and communicating with others
· working in teams
· making decisions
· responding to and evaluating risks and opportunities
· managing or attempting to resolve disagreements and conflicts
· interacting with those at different levels in the organization
· engaging in numerous other workplace activities
Those who have studied and compared societal cultures and their possible implications for the workplace have identified some differences that can be important for success.
Perhaps the leading expert on cultural differences and their potential implications for business is Geert Hofstede, a Dutch scholar who worked for IBM in the late 1960s. Hofstede's early research (1980) examined, compared, and categorized the culturally derived preferences of IBM employees in many countries. He, and other scholars who have followed in his path, created a classification scheme that differentiates country cultures across what were originally four dimensions, though they have since been expanded to include six.
In what is probably his best-known book, Cultures and Organizations: Software of the Mind (published first in 1991 and revised and republished in 2010 with his son Gert Jan and Michael Minkov), Hofstede presents a careful explanation of his work and its implications. Hofstede reminds his readers that "culture is learned, not innate" (p.6), and introduces the analogy of culture as "software of the mind."
Hofstede uses the layers of an onion to help convey the way culture manifests itself. Values are deep at the core or center of the onion and are very slow to change compared with the other manifestations of culture. Examples of common core values in US businesses include integrity, accountability, fairness, and excellence. Other layers of culture include our rituals (e.g., greeting with a firm handshake and direct eye contact), the heroes we honor (examples include Warren Buffett and Steve Jobs), and on the outside of the onion, the symbols that have special meaning for societal members.
Examples of U.S. Business Cultural Manifestations
Created by Christina Hannah
Using an analogy of culture as mental programming, Hofstede explains that we are each conditioned (or programmed) by multiple societal levels: national, regional, ethnic, religious, linguistic, gender-oriented, generational, socioeconomic, and professional. Values associated with these levels may or may not be in harmony. One consequence of these multiple sources of programming is that it can be difficult to predict what will influence a person's response or behavior in particular situations.
Our present interest is not in delving deeply into the causes and consequences of individual differences in values, attitudes, and beliefs, but rather to learn about those shared at a societal level. Hofstede explains that his extensive research, and that of others who have studied culture, make it possible to differentiate between and among national cultures using a set of dimensions. He originally proposed the first four dimensions in the list below, then added a fifth—long-term orientation (Moskowitz, 2009)—and later added indulgence as a result of further research by and insights from collaborators.
Here is a simple explanation of Hofstede's current six dimensions:
· Power distance (PDI)—In countries with a high power distance dimension score, we can expect those in lower level positions to respect or defer to those who outrank them. In other words, power is thought to come with position. In such cultures, employees may expect managers and leaders to make decisions and might be surprised or uncomfortable when asked for input. In countries with a low power distance score, we are likely to find that employees treat those they report to more as colleagues and hold the view that respect must be earned. There may, of course, be exceptions to this model (for example in military and paramilitary organizations). Not surprisingly, the United States's score on this dimension is relatively low at 40. The score for France is is 69. In comparison, the scores for Malaysia, Slovakia, Guatemala, Panama, the Philippines, and Russia are all above 93 (Hofstede, Hofstede, & Minkov, 2010, pp. 57-58). This means that, in general, we can expect employees in the United States to expect a more egalitarian workplace than may be true in other societies.
· Individualism or collectivism (IDV)—In countries with high scores for individualism (like the United States), you are likely to find a shared belief in developing strong individuals who are comfortable working and making decisions on their own. In such workplaces, you will probably find an emphasis on the importance of developing, recognizing, and rewarding individual contributions. In countries that score low on the individualism dimension, you are likely to find an emphasis on the community, team, group, or department (i.e., the collective). People may be embarrassed if they are singled out publicly for praise or recognition, because they strongly believe their success depends upon the support and work of others. For this dimension, the US score is the highest, at 91. The score for France is 71. The country with the lowest score is Guatemala, with a score of 6 (Hofstede, Hofstede, & Minkov, 2010, pp. 95-97).
· Masculinity and femininity (MAS)—The label used for this dimension may not be the best. The basic idea is that some country cultures place a relatively high value on competitiveness, assertiveness, achievement, etc. Such countries are given a high score for masculinity because these preferences and traits were historically associated with men more than women. Other country cultures place greater value on caring for others, cooperation, quality of life, etc. Such countries are given a high score for femininity on this dimension. Despite the problems with these unfortunate gender-based labels, when you step back and compare countries you will probably recognize that there are some where businesses seem to value competition over cooperation, achievement and success over quality of life, and so on. Japan has a masculinity (MAS) score of 95. The US score is moderate at 62. The score for France is 43. Sweden has the lowest score for this dimension, with a 5 (Hofstede, Hofstede, & Minkov, 20110, pp. 141-143).
· Uncertainty avoidance (UAI)—This dimension recognizes that there are differences among countries, which results in differences among the leaders of businesses that operate therein and the extent to which they are willing to take risks. In countries that are low in the uncertainty avoidance dimension, business leaders might be very comfortable exploring new opportunities and see this as the likely path to success. In other countries, this may not be the case. Sometimes those in country cultures that are highly risk averse (with high uncertainty avoidance scores) have a very good reason for their responses. There may be, for example, significant legal penalties for failure, including the possibility of being sent to jail in the event of bankruptcy or reneging on debts. The country with the highest score for uncertainty avoidance (UAI) is Greece at 112. France is relatively high, with a score of 86, and the US score is 46, indicating a tolerance for uncertainty and acceptance of risk-taking to achieve success (Hofstede, Hofstede, & Minkov, 2010, pp. 192-194).
· Long-term versus short-term orientation (LTO)—In countries with a high long-term orientation score, shared work values emphasize learning, accountability, and self-discipline. Patience and waiting to make a profit are acceptable. Creating and nurturing lifelong networks is valued. In contrast, those favoring a shorter-term orientation tend to focus on "the bottom line" and value achievement, freedom, and independent thinking. Quarterly and annual profitability are important. Korea, Japan, and China have high long-term orientation scores (100, 88, and 87, respectively). France has a moderate score of 63. In contrast, the US LTO score is low, at 26 (Hofstede, Hofstede, & Minkov, 2010, pp. 255-257).
· Indulgence versus restraint (IVR)—In countries with high scores on indulgence, you are likely to find people who value having fun and enjoying life. In the United States, for example, it is common to find that employees emphasize the importance of a good work-life balance and quality of life. The IVR score for the United States is relatively high (68) and for France is moderate (48). Pakistan has the lowest score (0) among the countries studied. Territories with the highest indulgence scores are Venezuela (100), Mexico (97), and Puerto Rico (90) (Hofstede, Hofstede, & Minkov, 2010, pp. 282 - 285).
A very important caveat when reading and thinking about Hofstede's work is to remember that the comparisons are at the societal level, rather than the individual level. In other words, in any country you will find individuals who are different from what you see suggested as the norm for the country culture. In fact, for any given dimension you may find yourself thinking "but this isn't what I'm like" or "this doesn't explain what happens in my organization." Those who have studied and compared country cultures ask you to suspend these responses temporarily and to try instead to look at a country as a whole, and then consider how it compares on these dimensions with other countries. When you adjust your imaginary lens to consider cultural differences from a broader perspective, you are able to discover things that may be helpful when explaining what happens when companies do business abroad, when people work together on country teams, and when they work together in multicultural, multinational organizations.
One challenge is that we are often less knowledgeable about our own shared country culture than we are about the cultures of others (Hofstede, 1980). This is because our culturally derived values and preferences are so deeply embedded that we may not be aware of how they influence our decisions and behaviors. Those who have worked or studied in a country other than their own are likely to have developed higher levels of cultural intelligence than those who have not had this experience.
The United States has traditionally tended to place strong emphasis on equality, individualism, risk-taking, assertiveness, achievement, and the opportunity to enjoy life (pursuit of happiness).
This brief introduction to the comparative work on country cultures and their potential consequences for individuals and their organizations, along with the Resources below, should help you understand the possible sources of confusion or conflict that could, if not anticipated and well-managed, result when multinational and multicultural team members work together. These issues may include training, coaching, mentoring, and effective leadership. Remember to consider as well the possible advantages associated with building and using teams with members who bring different country cultural perspectives to their work (Chakrabarti, Gupta-Mukherjee, & Jayaraman, 2009).
Check Your Knowledge
Question 1
Using Hofstede’s onion metaphor, what are the ways in which country culture manifests itself?
Question 2
What are the six dimensions of national culture identified by Hofstede? Describe each one briefly.
Question 3
Why is the study of Hofstede’s dimensions of national culture important?
Question 4
What is meant by the term Cultural Intelligence (CQ)?
Question 5
What are the four key capabilities held by people who have high CQ?
Question 6
Why is CQ important?
References
Chakrabarti, R., Gupta-Mukherjee, S., & Jayaraman, N. (2009). Mars-Venus marriages: Culture and cross-border M&A. Journal Of International Business Studies, 40(2), 216-236 http://ezproxy.umgc.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=36587323&site=eds-live&scope=site
Hofstede, G., Hofstede, G.J., & Minkov, M. (2010). Cultures and Organizations: Software of the Mind (3rd. ed.). New York: McGraw Hill.
Hofstede, G. (1980). Motivation, leadership, and organization: Do American theories apply abroad?. Organizational Dynamics,9(1), 42-63. Retrieved from http://ezproxy.umgc.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=pbh&AN=5143098&site=ehost-live&scope=site
Resources
Hofstede shares some of his insights in An Interview with Geert Hofstede, while Hofstede's Five Dimensions of Culture covers similar points addressed above. You might also want to read Does Culture Matter? Refresher on Hofstede, Trompenaars, and Gesteland.
Although Hofstede is probably the most frequently cited theorist, there are substantial criticisms of his work such as Mirror, mirror on the wall: Culture's consequences in a value test of its own design. Hofstede responds to criticism in Who is the fairest of them all? Galit Ailon's mirror?
There are also alternative models to Hofstede's; the GLOBE project is one such alternative, explained in GLOBE: A twenty year journey into the intriguing world of culture and leadership.
Cultural Intelligence explains a model for understanding how well individuals might perform in cross-cultural settings. Examples of effective methods of success for cross-cultural teams are covered in Teams, Cross-Cultural.
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