Global Business Perspectives
Durga93
GBE4lecture11.pptxThe Global Business Environment
LeCTURE 11
Challenges and responsibilities
Ethics and social responsibility
Businesses in the global economy: who are they serving?
Summary of contents
Ethics: principles and practices
Foundations of ethics
Ethics in business
Human rights
Social responsibility of the firm
Theories of corporate social responsibility
CSR in practice
CSR and corporate governance
The social enterprise
Challenges and responsibilities
Conclusions
Ethics: concepts and principles
Ethics focuses on systems of values by which judgments of right and wrong behaviour are made
Morality – standards of behaviour dictated by value systems
National cultures have differing value systems and norms of behaviour
Local law and values can conflict with ethical principles
A company can act within national law, and yet be accused of unethical behaviour
Foundations of ethics
Utilitarianism - focuses on the aggregate of individual goods
Individual pursuit of self-interest, with a minimum of government interference
Ethical relativism – holds that ethical principles are not absolute, but depend on the particular culture
Related to contextualism, which sees ideas of right and wrong in the context of a particular belief system
Are there universal ethical principles?
The categorical imperative (Kant) rests on the view that acting only for oneself is unethical, and the needs and wants of others should be taken into account
The individual and society
Utilitarian thinking underpins capitalist assumptions of the self-interested individual
Freedom in the negative sense – the absence of external constraints
Each person desires the maximum amount of freedom to act
Morality associated with membership of a society and its culture
Freedom in the positive sense – the importance of community and society as part of a person’s values
Lies behind the categorical imperative
Human rights
Human rights – basic universal rights that transcend social and cultural differences
Foundations in natural rights theories that emphasized the individual and negative freedom
Universal Declaration of Human Rights (UNDHR) encompassed both basic freedoms in the negative sense and social and economic rights, in the vein of positive liberty
Social and economic rights include right to a livelihood
UNDHR was followed up by two covenants that are part of international law, ratified by most countries
UDHR
How are human rights enforced?
Ratifying countries are obliged to incorporate the treaties into national law, but enforcement is often weak, e.g. child labour
How are MNEs affected?
Duty to abide by national law
MNEs should adhere to international law even where national authorities are lax
New UN protocol gives individuals redress for breaches of human rights
Individuals can take legal action in the European Court of Human Rights (ECHR) under the European Convention on Human Rights (ECHR)
Ethics in business
Arises in what the firm does, and how it does it
Many businesses are in sectors with a strong ethical dimension: gambling, alcoholic drinks, weapons
They are subject to strict laws in most countries
Law and ethics overlap – Legal regulation applies in many areas, such as health and safety, but this differs from country to country. Grey areas arise:
Outsourced production in developing countries
What is meant by legal compliance? Many companies use offshore and other devices to reduce tax liabilities which would arise where they operate
The duty of reasonable care is interpreted differently in different countries
Human rights and the workplace
Include terms of employment, decent treatment of employees, health and safety, and right to organize independent trade unions in the workplace
Many workers are at risk of human rights abuse:
Workers in outsourced manufacturing
Migrant workers in foreign countries, e.g. in the construction industry in Middle Eastern states
Also right to a fair wage and decent living
The zero-hours contract – one-sided in favour of the employer
Social responsibility of the firm
Corporate social responsibility (CSR) rests on the role of the firm in society, involving obligations to all stakeholders
Individualist countries have tended to focus on the economic role of the firm, but this is a narrow view
Markets underestimate human, community and environmental values
Global companies so large as to dwarf national economies; do firms use this power in socially responsible ways?
Perspective of shareholder value contrasted with a broader view of stakeholder concerns
Theories of CSR
A weak theory of CSR focuses on philanthropic contributions as an add-on to business activities
Associated with the concept of corporate citizenship, which emphasizes minimal legal obligations - obey the law and pay taxes
Stakeholder theory
Focuses on the many groups and interests that affect the company
Carroll’s model of CSR – recognizes four levels of CSR:
Economic, legal, ethical and philanthropic
The multinational enterprise
CSR in practice
The business case for CSR – business goals will be met more successfully in the long term through CSR approach rather than a narrow view of economic goals (short-termism)
The sustainable business model – taking into account climate change and environmental impacts
Voluntary codes of practice – relating to CSR, ethical and environmental practices the firm aspires to
Third-party verification – a stronger approach to back up the voluntary code
ESG reporting – takes in environmental, social and governance reporting
International standards
OECD Guidelines for MNEs – latest revision 2010
Highlights MNE role in supply chains
Addresses human rights
Environmental issues, such as ‘green growth’, sustainability
ILO Principles – in the following areas:
Employment practices, training, work conditions, industrial relations
Recognize the right of workers to join an independent trade union, and the role of collective bargaining
The UN Global Compact – Between governments, corporations and NGOs
CSR and corporate governance
A company’s corporate governance reflects its corporate culture and its assumptions about the role of the firm in society
Company directors owe fiduciary duty to act in the best interests of the company as a whole
Where ownership is concentrated in a few individuals, they dominate decision-making, and ordinary shareholders have little say
Excessive remuneration of executives: board oversight and also legislation in some countries
How accountable are directors?
Although most boards have independent (non-executive) directors, their monitoring role tends to be weak
The posts of chairman of the board and CEO are commonly combined, giving the CEO greater control over the board
Board committees, such as the remuneration committee, are dominated by insiders
Spiralling executive remuneration has occurred in the last decade, far outstripping pay of ordinary workers
Ordinary shareholders typically have little say in choosing candidates for directors or voting on them
The social enterprise
The social enterprise lies between a for-profits business and a not-for-profits organization
It makes profits, but uses them for social causes
Some operate in areas similar to government services, and are active in social-service sectors
Can be a registered charity or a community interest company (CIC)
In the UK, the CIC is a limited company which must adhere to social purposes
Social enterprise offers opportunities for the innovative entrepreneur, and many have sprung up in emerging economies
Challenges and responsibilities
Despite the existence of international law and ethical obligations, millions of workers worldwide endure working conditions that violate human rights
In many cases, well-known global companies are complicit in these violations
Governments are also to blame in many cases, for allowing poor conditions to continue, e.g. in textile factories
The narrow business-oriented view of CSR, based on voluntary initiatives, falls short of acceptance of social responsibility
Conclusions
The company’s role in society under the spotlight: positive obligations rather than economically self-interested behaviour
The stakeholder view of the company takes in workers in outsourced factories and in communities
The view of the company as maximizing shareholder value has dominated business and management thinking, but…
This view has failed at the level of social responsibility and ethics
A shift in corporate culture is needed to place societal goals at the heart of the business
