Learning Objective 1: To examine the broad foundation of ethical behavior.
Learning Objective 1: To examine the broad foundation of ethical behavior.
Why do companies care about ethical behavior? Ethical behavior can be important for developing a competitive advantage and to avoid being perceived as irresponsible.
Today, many nongovernmental organizations, or NGOs, actively encourage companies to comply with certain standards of ethical behavior.
Corruption – which is defined by Transparency International to be the misuse of entrusted power for private gain - involves multiple issues, one of which is the issue of bribery. Bribery is the main form of corrupt behavior by multinational companies. In fact, while it is impossible to assess the true value of bribery, it’s huge.
This Figure shows how likely companies are to offer bribes in certain countries.
Research shows that people from Belgium and Canada are least likely to pay bribes, while people from Russia, China, and Mexico are most likely to pay bribes.
En az Belçika, Kanada
En çok Rusya, Çin, Meksika
Companies can damage the environment both in the manufacturing process and also as a result of the products they produce.
The impact of companies that extract natural resources is especially complicated. What happens when those resources are nonrenewable? Well, some argue that there is no such thing as a nonrenewable resource because as supplies drop, prices will rise and substitutes will emerge to protect the resource that is less available.
The idea behind sustainability is to do what’s best for both people and the environment. Today, it’s commonly recognized that sustainability can go hand in hand with good business practice.
Moreover it has become an industry in its own right. New companies have emerged that combine the idea of environmental responsibility with profitability to meet the needs of environmentally conscious consumers.
In addition to the ethical issues related to bribery and global warming, firms also face ethical issues in other parts of their business. Some are industry-specific like the issues that arise in the pharmaceutical industry, others are not industry-specific like labor issues.
In the pharmaceutical industry, many firms use tiered pricing whereby they charge a market price for products sold in industrialized countries and a discounted price for products sold in developing countries. Keep in mind though, that drug companies rely on revenue from existing products to fund their R&D.
TRIPS allows poor countries to produce generic products for local consumption or import generic products if they themselves don’t have the capacity to produce generics. Pharmaceutical companies worry that the generic products could eventually compromise their sales of real products in developed countries.
A third issue for drug companies involves the high cost of developing drugs. The cost of developing drugs is very high in the developed world, but significantly lower in developing countries like India. India has emerged as a major manufacturer of generic drugs and is now moving into developing new drugs.
Today’s multinationals rely on global supply chains. This reality adds another level of concern for them – namely the working conditions of foreign labor forces. Companies doing business in other countries either through FDI or purchasing from independent suppliers deal with a host of issues including ensuring that fair wages are paid and working conditions are safe, meeting the ethical and legal challenges of child labor, and making sure that freedom of association is permitted.
Sources of Worker-Related Pressures in the Global Supply Chain
This Figure shows the multiple pressures external stakeholders place on companies to force them to adopt responsible employment practices in their foreign operations.
One area that has received special attention is child labor. The International Labor Organization or ILO estimates that some 250 million children work worldwide. Of these, about 5 percent are involved in export industries.
Keep in mind when thinking about child labor that some argue that in some cases, children work because their parents don’t earn enough to support their families. Without the additional wages brought home by the child, the family would be worse off.
Some companies like IKEA have addressed this dilemma by helping families increase their earning power and establishing bridge schools for children.
How should companies behave? The United Nations has developed a Global Compact that recommends broad principles for companies to follow in the areas of human rights, labor, the environment, and anti-corruption.
So, you know it’s important for companies to act responsibly because unethical and irresponsible behavior could result in legal sanctions, consumer boycotts, lower employee moral, or lost sales.
To encourage ethical and responsible behavior, firms can establish a code of conduct.
Code of Conduct : Ethics and Expectations for everyone in the company
So, you know it’s important for companies to act responsibly because unethical and irresponsible behavior could result in legal sanctions, consumer boycotts, lower employee moral, or lost sales.
To encourage ethical and responsible behavior, firms can establish a code of conduct.
Code of Conduct : Ethics and Expectations for everyone in the company
What happens in the future? Well, it’s expected that there will be greater convergence in terms of what constitutes ethical behavior. In addition, as individuals gain more experience in international business they will develop new skills to help them deal with ethical issues.
Two other factors that will play into corporate ethics in the future is the role of social media in bring issues into the mainstream and the role of future leaders, who as students today have a greater awareness of social responsibility and ethics than their predecessors.
What happens in the future? Well, it’s expected that there will be greater convergence in terms of what constitutes ethical behavior. In addition, as individuals gain more experience in international business they will develop new skills to help them deal with ethical issues.
Two other factors that will play into corporate ethics in the future is the role of social media in bring issues into the mainstream and the role of future leaders, who as students today have a greater awareness of social responsibility and ethics than their predecessors.
