international business and finance
rishabbiyani
WEEK2LECTURESLIDE.pptWeek 2
Ethics/CR in International Business
- Difficult definition of MNE ethics…
- …hence the need for (international) CR
- CR sceptics
Section I. Difficult definition of MNE ‘ethics’…
Concept of ‘ethical confusion’
- When expectations are unclear
- When the individual’s personal code is at odds with the company
- When the company’s internal codes are at odds with the host country
Starting point =
existence of externalities
‘When the effect of an economic action falls upon parties not
directly involved in it. This effect can be positive or negative’
Proposition: CR is necessary because business
can have serious negative externalities
Environmental (pollution resource utilisation)
Social (labour standards, social fabric)
Political (human rights, corruption)
Economic (market shenanigans rest of economy!)
Poignant cross-border situations
Regime shopping: The decision to locate an MNE’s activities based on the relative laxness of a host country’s requirements (taxes, regulations)
Divided societies: Where MNE is viewed as supporting one constituency to detriment of rival
Resentment of foreigners (often shareholder): Need to manifest good faith to local stakeholders
Variability of ethics in time and space:
RELATIVISM AS KEY MNE CONCEPT
a. Acceptable behaviour has often varied over time
- Child labour
- Pollution
b. Culturally-based attitudes towards MNE behaviour
- Attitudes towards wealth/capitalism in general
- Trust (c.f. Fukuyama)
c. Simple asking MNEs to act “legally” too vague a concept
Best international practices even if more stringent than local regs?
Only match local requirements?
Put pressure on host country to be lenient?
Section II. …hence the need for (international) CR
Above and beyond legal compliance, firms must engage in
manifest socially responsible acts.
Stakeholder theory (Freeman 1984)
Shareholder rights do not supersede
those of the firm’s customers, employees or actors in its local
environment (neighbours, government, etc.)
“There are evidently some principles in man’s nature, which interest him in the fortunes of others, and render their happiness necessary to him” Adam Smith
CR enforcement
- International codes – but who has the authority?
- Easier within national framework but problem with regime shopping
- Different CR enforcement traditions
- US: needed explicit CR (at least before Sarbanes Oxley): McDo/FDA
- Europe: explicit legislation (i.e. France’s NRE laws)
- Asia: regulation through social pressures
- Voluntary codes – but is it just greenwash?
- Popular pressure – but do they work?
Examples of international codes
- OECD/IRS anti-tax evasion guidelines
- UN Conventions: mainly guidelines; no policing authority
- 1992 Rio - Environment and Development
- 1997 Kyoto – Climate Change
- 2001 Johannesburg - Sustainable Development
- 2005 Warsaw – Anti-Corruption
- 2011 Copenhagen – Global Green Forum
- 2016 New York – CSW60 60th session Commission on Status of Women
- 2000 UN Global Compact: voluntary network
UN Global Compact
Human rights principles
- support/respect protection of rights
- no complicity in abuses
Labour standards
- freedom of association/collective bargaining
- elimination of forced/compulsory labour
- abolition of child labour
- elimination of discrimination
The environment
- precautionary approach
- promote greater responsibility
- diffusion of env. friendly technologies
- Anti-corruption (bribery, etc.)
Examples of voluntary codes
- Ethical reporting groups (like Global Compact)
- Global Reporting Initiative/ SA 8000
- Specialized branch networks (Toys, Pesticides, etc.)
- Triple bottom line reporting agencies
- Individualised solutions
- Daycare clinics
- Community schemes
- Fair trade
- Certification/labelling initiatives
- Above-market price to get ‘living wage’ for producer
Popular pressure
- NGOs use the media (‘name and shame’) to influence politicians/general public
- Do consumer boycotts work?
- Link between consumer interest on CR and state of the economy
Section III. CR sceptics
In a traditional neo-liberal paradigm
“The social responsibility of business is to maximise
returns to shareholders…making good on contracts,
obeying the law and adhering on moral expectations”
c.f.., Milton Friedman (1970)
Acting legally has always been a part of Business
Ethics, so no need for MNE-external regulation/control
Anti-CR arguments
- Companies’ role is to make profits and comply with the law. If this isn’t enough, it is up to the politicians to change the law, not companies
- CR is not a priority for everyone and use up much needed resources (i.e. in LDCs)
- CR’s costs are an illegitimate tax reducing employees’ wages and shareholders’ profits while increasing consumer prices
“…firms are depicted as free riders, unjustly enriching themselves
to the detriment of communities…[yet] firms pay wages...and taxes.”
c.f. Cato Institute
Problems with anti-CR arguments
- Neglects ‘free riders’ – if companies do not pay for their activities’ externalised costs, they get an unfair advantage
- Given how much wealth companies (MNEs) control, certain public services will never be achieved if they do not contribute
- Why shouldn’t firms try to earn CR image!!
Clear trend = co-optation
- c.f. World Business Council for Sustainable Development (wbcsd.org)
- SustainAbility: Tomorrow’s Values
(sustainability.com)
“Established in 1987, SustainAbility advises clients on the risks and opportunities
associated with corporate responsibility and sustainable development. Working at
the interface between market forces and societal expectations, we seek solutions to
social and environmental challenges that deliver long term value. We understand
business and what society expects of it”
