Ethics, International Business, Human Rights, Working conditions, Corruption

1. ETHICS
IN
INTERNATIONAL BUSINESS
Stephen Ong,
BSc(Hons) Econs (LSE),
MBA International Business(Bradford)
Visiting Fellow, Birmingham City University
Visiting Professor, Shenzhen University
MBA1034 GOVERNANCE, LAW & ETHICS

2. • International law and institutions1
• Human rights and justice
• Working conditions
• Corruption
2
• Case Discussion : GSK and AIDS3
Today’s Overview

3. 2.
ETHICS
AND
INTERNATIONAL BUSINESS

4. Topics Covered
• Introduction
• International law and institutions
• Cultural relativism
• Human rights and justice
• Operating in developing countries
• AIDS and developing countries
• Responsibility for working conditions in
suppliers’ factories
• Questionable foreign payments and
corruption

5. Introduction
• Ethics issues abound within a
country
–They take on added dimensions when
a firm operates across national and
cultural borders
• In contrast to the differences among
countries, ethics principles are
intended to be universal

6. International Law and Institutions
• Interactions between nations and foreign firms
are governed by the laws of the host nation and
by international law
• International law consists of:
– National laws that pertain to foreign persons,
entities, and other nations
– Intergovernmental treaties and agreements
– Rulings by international courts
– Actions of international bodies such as the United
Nations and the Organization of American States

7. Cultural Relativism
• Sen (1997) advocated the simultaneous
recognition of:
–The significance of cultural variation
–The need to avoid cultural stereotypes and
sweeping generalizations
–The importance of taking a dynamic rather
than a static view of cultures
–The necessity of recognizing heterogeneity
within given communities

8. Cultural Relativism
•Appropriate behaviour in a
country or culture is determined
by its laws and customs
Cultural Imperialism
•In operating internationally a
firm maintains the standards of
its home country and judges
others by those standards

9. Cultural Relativism
• Donaldson identifies two
fundamental conflicts between
universal principles and local
customs and practices:
–“Conflict of relative development”
–“Conflict of cultural tradition”

10. Cultural Relativism
• Suggested general principles by
Donaldson
–Respect for core human values (human
dignity, respect for basic rights, and good
citizenship):
• Which determine the absolute moral threshold
for all business activities
–Respect for local traditions
–The belief that context matters when
deciding what is right and wrong

11. Guidelines for Ethical Leadership
• Treat corporate values and formal standards
of conduct as absolutes
• Design and implement conditions of
engagement for suppliers and customers
• Allow foreign business units to help
formulate ethics standards and interpret
ethics issues
• In host countries, support efforts to decrease
institutional corruption
• Exercise moral imagination

12. Universal Rights
• Freedom of physical movement
• Ownership of property
• Freedom from torture
• Fair trial
• Nondiscriminatory treatment
• Physical security
• Speech and association
• Minimal education
• Political participation
• Subsistence

13. UN Declaration on Human Rights
1947

14. UN Millenium Development Goals
2015 and Human Rights

15. Human Rights and Justice
• Some ethics issues arise
not from the actions of
individuals and firms:
–But instead from the
policies of governments

16. Operating in Developing Countries
• In developing countries,
institutions are not always
present to provide guidance
to firms and their managers

17. Responsibility for Working
Conditions in Suppliers’ Factories
• In the 1990s concern developed about
“sweatshops” in Asia and Latin America that
supplied U.S. footwear and apparel companies
• To improve practices in suppliers’ factories,
President Clinton appointed an 18-member
White House Apparel Industry Partnership,
which included:
– Nike, Reebok, L.L. Bean, Liz Claiborne, unions,
human rights groups, and activist and advocacy
representatives

18. Private Governance and Self-regulation:
The Fair Labour Association
• The FLA has many of the characteristics of a
government institution:
– Specified representation, decision rights,
standards, monitoring, certification, public
reporting, and amendment procedures
– Selected and certified independent third-party
monitors to inspect a specified percentage of the
factories each year, and the companies chose from
the set for the inspections
– Specified detailed procedures (Monitoring
Guidance and Compliance Benchmarks) for the
inspections

19. Questionable Foreign Payments
and Corruption
• Corruption is costly both
tangibly and intangibly
–Distorts economic activity,
resulting in a substantial cost
to an economy
–Undermines trust and
confidence in government

20. Questionable Payments and
Ethics Principles
• In a situation in which payments are either
demanded or likely to be required to obtain a
sale, firms and their managers have two sources
of guidance:
– Ethics
– The law
• Bribe - A payment to an individual in an
organization intended to influence that person’s
exercise of his or her responsibilities
– A bribe is intended to corrupt the behaviour of the

21. A Utilitarian Analysis of Bribery
• From a utilitarian perspective
bribery is bad because:
–It distorts economic activity
away from producing the
greatest well-being

22. The Foreign Corrupt Practices Act
(FCPA)
• Makes bribery of foreign officials, political
parties, candidates for office, and public
international organizations a criminal offense
• Provides for a fine of up to $1 million for the
company and up to $10,000 and imprisonment
for not more than 5 years:
– For an individual making a payment or offer covered
by the act
• Assigns the burden of knowing whether illegal
payments are being made to the company
– Imposes detailed record-keeping requirements

23. The Foreign Corrupt Practices Act
(FCPA)
• Allows small “facilitating payments” to low-level
government employees such as customs
inspectors, if the payments do not influence a
decision
• Covers the use of agents, intermediaries, or
third parties
– They are subject to both criminal and civil penalties
• Does not prohibit payments to private
businesses

24. The UK Bribery Act
• Took effect in July 2011
• In addition to prohibiting
bribery of government officials,
it prohibits bribes paid to
private companies

25. Company Codes
• Most firms have codes to:
– Ensure compliance with the FCPA and international
conventions
– Clarify when foreign payments can be made and
how they are to be accounted for
• Three principal purposes of codes:
– Provide guidance to employees
– Make it easier for them to say no to demands for
payment
– Ultimately discourage demands for payments

26. Cummin’s Practice
• Payments are allowable only if three
conditions are met:
–The payment is required to induce the
official to perform a routine act which he is
already under a duty to perform
–The payment is consistent with local
practice
–There is no reasonable alternative available
for obtaining the official act or service at
issue

27. Cummins, Inc.: Questionable Foreign
Payments and the Relationship of Trust

28. The OECD Anti-Bribery
Convention
• Signed by the 34 OECD member countries plus
Argentina, Brazil, Bulgaria, and South Africa
• Requires signatories to make the act of bribery
and the making of other forms of illicit payments
to foreign public officials a criminal offence
–Whether paid directly or indirectly
“in order to obtain or retain business
or other improper advantage in the
conduct of international business”

29. Case - Google Out of China
• Google detected an extensive and
sophisticated cyber attack that targeted
companies and specific employees within the
companies
– Although Google traced the attacks to China, it did
not allege that they were conducted by the
government
• Google hoped to negotiate with the Chinese
government to allow it to remain in China
without self-censoring

30. Case - De Beers and Conflict
Diamonds
• Most diamond mining involved capital
intensive shaft mining, but alluvial
diamonds were found near the surface
–Resulted in civil wars, killings, torture, and
mutilations in Africa where diamonds were
mined
• De Beers was forced to end its control of
the diamond supply, focusing instead on
the orderly distribution of diamonds

31. Case - De Beers and Conflict
Diamonds
• The Kimberly Process was successful in
stopping the use of conflict diamonds to
fund rebel groups
• Zimbabwe and some other African countries
argued that because the Marange diamond
mines were owned by the government,
diamond exports would not fund violence
against the government and hence were not
covered by the Kimberly Process

33. Case - Siemens: Anatomy of Bribery
• In fiscal 2007 Siemens’ auditor identified €100
million in questionable payments to more than a
dozen consulting firms
• In January 2007 Siemens was fined €400 million
by the European Union for price fixing on electric
power switching equipment
• At the end of 2007 Siemens began a worldwide
advertising campaign with planned expenditures
– The “Siemens answers” campaign emphasized the
company’s technological prowess

34. Case - Siemens: Anatomy of Bribery

35. AIDS and Developing Countries
• Many developing countries
lack the means to provide
basic services for their people
–Many of these countries have
also been devastated by the
AIDS pandemic

36. CASE DISCUSSION :
GSK AND AIDS

37. Case - GlaxoSmithKline and AIDS
Drugs Policy
• GSK and the other pharmaceutical companies
believed their pricing policies were justified by the
high costs of research and development
• GSK feared that many countries might follow the
examples of Thailand and Brazil and use the
opportunity to import or make cheap imitation
drugs at the expense of patent holders
• In response to the pressure GSK established a
corporate social responsibility committee
– GSK participated along with other pharmaceutical
companies in TRIPS negotiations regarding compulsory
licensing and parallel imports

40. Core Readings
• Baron, David P.(2013) Business and its
environment, 7th Edition, Pearson,
Ch.24

41. QUESTIONS?