I NEED URGENT HELP

Mixing It Up!
Culture, Ethics, Corporate Social Responsibility, Corruption, Environmental and Economic Sustainability:
Myths & Realities Away From Home

Daniel F. Duran

Spring 2017

BSAD 350: IB

5-*

So, What Do You Know?

What constitutes ethics and which aspects most impact IB?

What constitutes an ethical dilemma in the IB arena?

How does the US Govt. ensure/mandate ethical compliance of IB firms operating overseas?

What constitutes sustainable development and who does it well?

What are some current examples of firms that have implemented transparent ethical programs?

Patagonia

Everlane

5-*

*

What is Culture?

Culture is a system of

Values and norms

Shared among a group

Of people and, when

taken together,

constitute a design

for living. It’s what

we grow up in and

shapes our behavior

and lives

5-*

*

Determinants of Culture

Culture:

Norms and

Value

Systems

Education

Economic

Philosophy

Political

Philosophy

Religion

Language

Social

Structure

5-*

*

Social Structure

Mobile

Managers

Hard to

Build

Teams

Lack

of

Loyalty

Entrepreneurship

Individual

Western

Lack of

Entrepreneurship

Lifetime

Employment

Identity

Group

Eastern

Nonmobile

Managers

Group

two or more individuals

with a shared sense

of identity

5-*

So, What Constitutes Ethics?

• Ethics - accepted principles of right or wrong that govern
• the conduct of a person
• the members of a profession
• the actions of an organization
• Business ethics - accepted principles of right or wrong governing the conduct of business people
• Ethical strategy - a strategy, or course of action, that does not violate these accepted principles

5-*

Which Ethical Issues Are Most Relevant To International Firms?

• The most common ethical issues in business involve

employment practices

human rights

environmental pollution

corruption

moral obligations of multinational companies

5-*

What Are Ethical Dilemmas?

• Ethical dilemmas - situations in which none of the available alternatives seems ethically acceptable
• real-world decisions are complex, difficult to frame, and involve consequences that are difficult to quantify
• the ethical obligations of an MNE toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut
• the right course of action is not always clear

5-*

*

Business Meets Culture When Transacting

• Research has shown that failures in an overseas business setting most frequently result from an inability to understand and adapt to foreign ways of thinking and acting, rather than from technical or professional incompetence

• Some multinational firms think that the cultural context defines what is considered corruption and that our values and/or scale need to reflect local conditions

• Others firms unequivocally believe that there is no room for special practices that are wrong and generally illegal

5-*

*

What is Corruption?

• Corruption is the abuse of institutional power to achieve business and/or personal benefits
• The World Bank estimates that bribery exceeds

$1000 billion Thats a TRILLION US dollars/year!!!

• And the Global Corruption Champions are:
• Check out Transparency International

• What are the major effects of corruption?
• Undermines democracy and trust
• Generally keeps the poor poorer and the rich richer
• Distorts free markets
• Makes business vulnerable and risky

5-*

*

What Do You Think

• Context: You are the EVP of international cable programming firm and have hired Bob, a successful and notorious video production crew chief, to get you into the heart of the action whenever there is a flare-up
• Coups de etat; Genocide; terrorist scenes
• Bob’s last big scoops were in Syria and Turkey Chechnya where his driver/translator was killed

5-*

*

Guesswork # 1

• You sent Bob to Turkey to investigate the conflict along the Turkish and Syrian borders and the role and impact of the Kurds. Bob needs to cross the border into Syria where the Kurds are fighting with US support and the Russians are attacking them on behalf of the Turks who are irritated with the US policy.
• Bob gives a Turkish Border Guard two 100 lira notes (worth about $65 US) to let his crew get their equipment through customs. Later, Bob records the payment in his expense report as an USD$195.00 late night dinner for the crew.

5-*

*

What happens to Bob?

A. Bob is given a large bonus for avoiding BIG customs costs (time and money)

B. Bob should be put in a Turkish prison.

C. Bob goes to a U.S. prison.

D. Bob gets the Company in trouble.

E. Bob gets fired and rehired as a consultant.

F. None of the above.

G. All of the above.

5-*

*

Guesswork # 2

• Bob informally engages as a consultant the brother-in-law of the finance minister of Ghana. His goal is to get quick permission from the government to sign a deal with one of the two current television network providers to use our content. It’s well known that the consultant’s “local knowledge” is necessary in order to obtain a fast and positive review by the government ministry of communications.
• The consultant asks for, and is given, a $50, 000 cash (US) retainer against expenses. Bob does not ask what these expenses are going to be nor does he ask for detailed billing.

5-*

*

Guesswork # 2

• We then gain access to one of the two national cable television systems. The connected brother-in-law submits his final bill and offers no accounting of how the “expense money” was spent other than to say it “found its way into the right pockets.” Bob is so happy to have cable access that he asks no further questions.

5-*

*

How Bad Was Bob?

. Not bad at all

• The Company has no responsibility for the actions of non-employees.

. Not too bad

• Bob had no idea how the money was used.

. Real bad

• The Company is liable for the actions of the brother-in-law undertaken on the Company’s behalf because Bob deliberately avoided knowing the truth.

5-*

*

Guesswork #3

• Bob is sent to make preparations for an adventure movie starring big name starts in the middle of a desert in Morocco. Bob hires a local Moroccan logistics firm to oversee the set and coordinate logistics.
• You learn that Bob is making significant payments to reimburse the local logistics coordinator for “transportation services” provided by the Moroccan military.

5-*

*

Guesswork #3

• The auditor tells Bob to confront the Moroccan logistics coordinator who readily admits that he has been paying the military to transport the movie stars, crew and equipment to the set in this remote desert location.

5-*

*

So, What’s the Legal Story?

• The Foreign Corrupt Practices Act would allow the reimbursement if:
• the hiring was legal under Moroccan law;
• the use was officially sanctioned by the Govt;
• the payment was for fair value;
• the payment was properly recorded; and
• the service is available to anyone with the money to pay for it.

5-*

*

Hypothetical

• The payment would be illegal if:
• the operation was unauthorized;
• the money paid was much more than the going rate for mere helicopter service;
• the producer paid-off an officer to agree to rent the aircraft and provide the pilots;
• and was a special favor to us

5-*

*

Your Thoughts?

• It’s all part of the price of doing business in other countries with different values

• Corruption is relative and if it is the “norm” then it is OK as long as there is no high cost or trail
• Bribery and other practices can’t be tolerated under any circumstances and everyone who knows about it should be fired and/or prosecuted

5-*

*

The Ethical Firm’s Stand

• The firm is committed to an ethical business environment and compliance with all applicable laws, both within the U.S. and abroad, including:
• The Foreign Corrupt Practices Act and similar international antibribery laws
• U.S. Antiboycott laws
• U.S. Trade Sanctions and Export Control laws

5-*

*

The Compliance Program

• Most MNEs have Compliance Officers
• Oversee all our compliance programs.
• Enforcement, reporting and guidance.
• International Compliance Officers coordinate international compliance efforts:
• Receive reports of violations;
• Provide advice and guidance;
• Process approvals;
• Retain records;
• Maintain oversight.
• All employees are responsible for following compliance procedures.

5-*

*

International Business Policies

What This Means To You!

• Firm requires compliance with all anti-bribery and record-keeping policies from:
• All employees, representatives, and agents;
• All affiliated or related entities including joint venture partners.

5-*

*

Corruption and Bribery

• Corrupt payments to foreign government officials are illegal under both U.S. and foreign law.
• The U.S. Foreign Corrupt Practices Act
• OECD Convention and related foreign antibribery laws
• Fines
• Penalties
• Imprisonment

5-*

*

The FCPA -- Antibribery

• The FCPA makes it a crime to offer, pay, give, promise, authorize or aid the giving of anything of value, directly or indirectly, to a foreign government official in order to:
• influence any official act or decision; or
• induce official action or inaction;
• to obtain or retain business; or
• to secure any improper advantage
• Walmart, Mexico, and the Morida

5-*

*

Who is a Foreign Government Official?

• Officers and employees of foreign governments, departments and agencies.
• Political party officials and candidates for political office.
• Officers and employees of government majority owned enterprises.
• Officers and employees of public international orgs.
• Agents or representatives of foreign governments.
• Family members of foreign officials and ruling royalty.

5-*

How Are Ethics Relevant To Corruption?

• The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business
• amended to allow for facilitating payments
• The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was adopted by the Organization for Economic Cooperation and Development (OECD)
• obliges member states to make the bribery of foreign public officials a criminal offense

5-*

*

FCPA Prohibited Conduct

• Any action (or attempt) to influence a government official by providing, directly or indirectly, a payment, benefit or anything of value, including :
• cash;
• loans;
• gifts/entertainment;
• employment.

5-*

*

Prohibited Conduct

• Any action taken to obtain an improper advantage, successful or not, could be a crime.
• Causing a payment to be made in order to:
• Get a contract
• Avoid a tariff or tax
• Obtain a business license or permit
• Adversely affect a competitor
• Get confidential information

5-*

*

Indirect Payments

• Even payments made on our behalf can create criminal liability for us if we have “knowledge,” which includes:
• Deliberate ignorance;
• Conscious efforts to avoid discovery of the truth.
• If we may not legally do something, our agents or partners can’t do it for us.

5-*

*

Some of the Red Flags

• Warning signs include:
• blind retainers;
• payments to third parties;
• deposits to countries where work is not being performed;
• private jets or special travel arrangements;
• cash;
• hints about jobs or perks;
• requests for donations and contributions.

5-*

*

Permissible Payments

• The FCPA does not prohibit reasonable, bona fide, expenses related to promotion, demonstration or explanation of the Company’s products:
• Reasonable travel expenses;
• Promotional gifts;
• Reasonable entertainment expenses.
• As long as there is no intent to obtain an improper advantage.

5-*

*

Permissible Payments

• The FCPA also permits certain payments to be made to foreign officials:
• Travel expenses;
• Promotional gifts and entertainment;
• Facilitating payments
• The FCPA also permits certain payments to be made to foreign officials:
• Travel expenses;
• Promotional gifts and entertainment;
• Facilitating payments

5-*

*

Books and Records

• The FCPA also requires U.S. publicly traded companies
• To keep books and records that are fair and accurate; and
• To devise and maintain internal accounting controls that includes regular compliance audits.

• Prohibited practices:
• Misidentification of parties paid;
• Inaccurate expense reports;
• Unrecorded accounts;
• Unrecorded transactions;
• False invoices;
• Miscellaneous accounts (slush funds);
• Improper recording of revenue.

5-*

*

FCPA Penalties

• Are onerous:
• Individuals:
• Up to 10 years in jail
• Non-indemnifiable fines up to $1 million (or twice the profit)
• Companies:
• Fines up to $2.5 million (or twice the profit)

5-*

*

Similar Antibribery Laws Enacted in Many Countries

• OECD Convention on Combating Bribery of Foreign Public Officials commits 34 signatory countries to enact laws similar to the FCPA
• Ends tax deductibility of bribes to foreign officials

5-*

*

International Initiatives

• Argentina
• Australia
• Austria
• Belgium
• Brazil
• Bulgaria
• Canada
• Czech Republic
• Denmark
• Finland
• France
• Germany
• Greece
• Hungary
• Iceland

• Italy
• Japan
• Korea
• Mexico
• Netherlands
• Norway
• Poland
• Portugal
• Slovak Republic
• Spain
• Sweden
• Switzerland
• Turkey
• United Kingdom
• United States

Many Countries Have Agreed to the OECD Convention

5-*

How Are Ethics Relevant
To Employment Practices?

• Suppose work conditions in a host nation are clearly inferior to those in the multinational’s home nation
• Which standards should apply?
• home country standards
• host country standards
• something in between
• Firms should
• establish minimal acceptable standards that safeguard the basic rights and dignity of employees
• audit foreign subsidiaries and subcontractors regularly to ensure they are meeting the standards
• take corrective action as necessary

5-*

How Are Ethics Relevant
To Human Rights?

• Basic human rights are taken for granted in developed countries
• freedom of association
• freedom of speech
• freedom of assembly
• freedom of movement
• Question: What are the responsibilities of firms in countries where basic human rights are not respected?

5-*

How Are Ethics Relevant
To Human Rights?

• Question: Is it ethical for companies to do business with countries with repressive regimes?
• Myanmar
• Nigeria
• Question: Does multinational investment actually help bring change to these countries and ultimately improve the rights of citizens?
• China

5-*

How Are Ethics Relevant
To Environmental Pollution?

• Some parts of the environment are a public good that no one owns, but anyone can despoil
• What happens when environmental regulations in host nations are far inferior to those in the home nation?
• Is it permissible for multinationals to pollute in developing countries simply because there are no regulations against it?
• legal versus ethical behavior
• The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation

5-*

Why Do Managers
Behave Unethically?

Determinants of Ethical Behavior

5-*

Why Do Managers
Behave Unethically?

• Several factors contribute to unethical behavior including

Personal ethics - the generally accepted principles of right and wrong governing the conduct of individuals

• expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture
• managers fail to question whether a decision or action is ethical, and instead rely on economic analysis when making decisions

5-*

Why Do Managers
Behave Unethically?

Decision-making processes - the values and norms that are shared among employees of an organization

• organization culture that does not emphasize business culture encourages unethical behavior

Organization culture - organization culture can legitimize unethical behavior or reinforce the need for ethical behavior

Unrealistic performance expectations - encourage managers to cut corners or act in an unethical manner

5-*

Why Do Managers
Behave Unethically?

Leadership - helps establish the culture of an organization, and set the examples that others follow

• when leaders act unethically, subordinates may act unethically, too

Societal culture – firms headquartered in cultures where individualism and uncertainty avoidance are strong are more likely to stress ethical behavior than firms headquartered in cultures where masculinity and power distance rank high

5-*

What Are The Philosophical Approaches To Ethics?

• There are several different approaches to business ethics
• Straw men approaches deny the value of business ethics or apply the concept in an unsatisfactory way
• Other approaches are favored by moral philosophers and are the basis for current models of ethical behavior

5-*

What Are The Straw Men Approaches To Business Ethics?

• There are four common straw men approaches

Friedman doctrine - the only social responsibility of business is to increase profits, so long as the company stays within the rules of law

Cultural relativism - ethics are culturally determined and firms should adopt the ethics of the cultures in which they operate

• “when in Rome, do as the Romans do”

5-*

What Are The Straw Men Approaches To Business Ethics?

Righteous moralist - a multinational’s home country standards of ethics should be followed in foreign countries

Naïve immoralist - if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either

• All approaches offer inappropriate guidelines for ethical decision making

5-*

What Are Utilitarian And
Kantian Approaches To Ethics?

• Utilitarian ethics - (David Hume, Jeremy Bentham, John Stuart Mill) - the moral worth of actions or practices is determined by their consequences
• actions are desirable if they lead to the best possible balance of good consequences over bad consequences
• but, it is difficult to measure the benefits, costs, and risks of an action
• the approach fails to consider justice
• Kantian ethics - (Immanuel Kant) - people should be treated as ends and never purely as means to the ends of others
• people have dignity and need to be respected
• people are not machines

5-*

What Are Rights Theories?

• Rights theories - human beings have fundamental rights and privileges which transcend national boundaries and cultures
• establish a minimum level of morally acceptable behavior
• the Universal Declaration of Human Rights - basic principles that should always be adhered to irrespective of the culture in which one is doing business
• Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions which have an ethical component

5-*

What Are Justice Theories?

• Justice theories focus on the attainment of a just distribution of economic goods and services
• a just distribution is one that is considered fair and equitable
• John Rawls argued that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone’s advantage
• impartiality is guaranteed by the veil of ignorance - everyone is imagined to be ignorant of all his or her particular characteristics

5-*

How Can Managers
Make Ethical Decisions?

Hire and promote people with a well- grounded sense of personal ethics

• refrain from promoting individuals who have acted unethically
• try to hire only people with strong ethics
• prospective employees should find out as much as they can about the ethical climate in an organization prior to taking a position

5-*

How Can Managers
Make Ethical Decisions?

Build an organizational culture that places a high value on ethical behavior

• articulate values that place a strong emphasis on ethical behavior
• emphasize the importance of a code of ethics - formal statement of the ethical priorities a business adheres to
• implement a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not

5-*

How Can Managers
Make Ethical Decisions?

Make sure that leaders within the business articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric

• give life and meaning to words
• make sure that leaders emphasize the importance of ethics verbally and through their actions

5-*

How Can Managers
Make Ethical Decisions?

Put decision-making processes in place that require people to consider the ethical dimensions of business decisions

• Ask whether
• decisions fall within the accepted values of standards that typically apply in the organizational environment
• decisions can be communicated to all stakeholders affected by it
• if colleagues would approve of decisions

5-*

How Can Managers
Make Ethical Decisions?

• Managers can also use a five-step process to think through ethical problems:

Step1: Identify which stakeholders (the individuals or groups who have an interest, stake, or claim in the actions and overall performance of a company) a decision would affect and in what ways

• internal stakeholders are people who work for or who own the business such as employees, the board of directors, and stockholders
• external stakeholders are the individuals or groups who have some claim on a firm such as customers, suppliers, and unions

5-*

How Can Managers
Make Ethical Decisions?

Step 2: Determine whether a proposed decision would violate the fundamental rights of any stakeholders

Step 3: Establish moral intent - place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated

Step 4: Engage in ethical behavior

Step 5: Audit decisions and review them to make sure that they are consistent with ethical principles

• this step is often overlooked even though it is critical to finding out whether a decision process is working

5-*

How Can Managers
Make Ethical Decisions?

• In the end, there are clearly things that an international business should do, and there are things that an international business should not do
• But, it is important to remember that not all ethical dilemmas have a clean and obvious solution
• in these situations, firms must rely on the decision-making ability of its managers

5-*

What Is An Ethics Officer?

• Many firms now have ethics officers to ensure
• all employees are trained in ethics
• ethics is considered in the decision-making process
• the company’s code of conduct is followed