Ethics - accepted principles of right or wrong that govern the
conduct of a person, the members of a profession, or the
actions of an organization
Business ethics are the accepted principles of right or
wrong governing the conduct of business people
Ethical strategy is a strategy, or course of action, that does
not violate these accepted principles
Importance of ethics in
First of all,
Ethical behavior combined with skills and professionalism is
able to ensure sustainable development, rather than a short-
term profit, which brings disastrous results after a certain period
of time. Ethical behavior ensures awareness and concern for
the future and for the right way of action in each particular
Ethical behavior establishes a healthy and pleasant cooperation
climate for all the parties involved in a deal, making them feel
comfortable with each other.
Acting in accordance with moral values is crucial for deserving
clients' attention and support and achieving a significant
competitive advantage in a particular market segment.
Ethical Issues in International
The most common ethical issues in business involve
the moral obligation of multinational companies
• Employment Practices:
If work conditions in a host nation are
clearly inferior to those in a multinational’s
home nation, should companies apply:
- Home country standards
- Host country standards
- Something in between
In developed countries, basic human
rights such as freedom of association,
freedom of speech, freedom of assembly,
and freedom of movement, are taken for
In other countries, these rights may not
Ethical issues arise when environmental regulations in
host nations are far inferior to those in the home nation.
Environmental questions take on added importance
because some parts of the environment are a public
good that no one owns, but anyone can despoil.
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.
In the United States, the Foreign Corrupt
Practices Act outlawed the practice of paying
bribes to foreign government officials in
order to gain business.
The Convention on Combating Bribery of
Foreign Public Officials in International
Business Transactions adopted by the
Organization for Economic Cooperation and
Development (OECD) obliges member
states to make the bribery of foreign public
officials a criminal offense
Social responsibility refers to the idea that business people should
take the social consequences of economic actions into account
when making business decisions, and that there should be a
presumption in favor of decisions that have both good economic
and good social consequences .
People argue that businesses need to recognize their noblesse
oblige and give something back to the societies that have made
their success possible.
BP supports this notion, and has made it company policy to give back
to the community. For example, in Algeria the company built two
desalination plants to provide drinking water to residents in Salah.
Managers often face situations where the appropriate course of
action is not clear
Situations in which none of the available alternatives seems
They exist because real world decisions are complex, difficult to
frame, and involve various consequences that are difficult to
The Roots of Ethical/ Unethical
Philosophical Approaches to
Straw men approaches
There are four common straw men approaches:
The Friedman doctrine suggests that the only social responsibility of
business is to increase profits, so long as the company stays within the
rules of law.
Cultural relativism argues that ethics are culturally determined and that
firms should adopt the ethics of the cultures in which they operate, or in
other words, “when in Rome, do as the Romans do”.
The righteous moralist approach claims that a multinational’s home
country standards of ethics should be followed in foreign countries.
The naïve immoralist asserts that 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 .
Utilitarian and Kantian Ethics
approaches to ethics hold that 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
Problems with utilitarianism include measuring the benefits, costs, and
risks of an action, and the fact that the approach fails to consider
ethics are based on the philosophy of Immanuel Kant who argued that
people should be treated as ends and never purely as means to the
ends of others. People have dignity and need to be respected, they are
Rights theories recognize that human beings have fundamental
rights and privileges which transcend national boundaries and
Rights theories establish a minimum level of morally acceptable
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.
The Universal Declaration of Human Rights specifies the basic
principles that should always be adhered to irrespective of the
culture in which one is doing business.
The declaration was prompted by the idea that some fundamental
rights transcend national borders and cultures.
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.
One theory of justice that is particularly important was proposed
by John Rawls who argued that all economic goods and services
should be distributed equally except when an unequal distribution
would work to everyone’s advantage.
Legal foundations of ethical
Laws varies from country to country as moral values varies from
country to country.
Home country governments may impose domestic legal and
ethical practices on the foreign subsidiaries of companies
headquartered in their jurisdictions.
LEGAL JUSTIFICATION THEORY:
An individual or a company can do anything that isn't illegal.
Pro: The law is a good basis for ethical behavior as it embodies
Con: legal justification for behavior may not be sufficient
because not everything that is unethical is illegal.
United National Global Compact, or the older UN Universal
Declaration of Human Rights, would be put forward as an
appropriate conduct guide for international business ethics. The
United Nations Global Compact encourages business
everywhere to advance and honor the internationally accepted
human rights, to uphold the right of collective bargaining, to avoid
being involved with human rights' abuses, to have no part in
compulsory human labor, to do away with child labor, to support
a caring and cautious approach to the environment, to reduce
any kind of employment discrimination, to encourage the creation
of technologies that are friendly to the environment, to encourage
more significant personal environmental responsibility, and to
work to stamp out corruption in all of its many ugly guises, such
as bribery and extortion.
Corruption & bribery
Corruption is defined by the World Bank (2005) as ‘the extent to
which public power is exercised for private gain, including petty
and grand forms of corruption, as well as “capture” of the state
by elites and private interests.’
Corporate corruption generally takes two forms: engaging in
bribe-making, usually as a supplier of bribes, and violations of
ethical and professional standards with the intent to deceive or
defraud investors. With respect to bribes, corporate corruption
could consist of a representative of the firm receiving bribes in
order to make a decision advantageous to the bribe-maker, or
as a bribe-giver, either to another private party or to a
representative of a domestic or foreign government.
Causes of corruption
Decline of personal ethical sensitivity,
No sense of service when working in
public or private institutions
Low awareness or lack of courage to
denounce corrupt behavior
Cultural environments that
Lack of transparency, especially at
the institutional level
Regulations and inefficient controls.
Slow judicial processes.
Lack of moral criteria in promotions
Downplaying or reacting mildly to
1. Hofstede scale : Low masculinity – less corruption.
Cultures that are high on masculinity ( assertiveness,
ambition, power etc) tends to be more competitive and
2. High economic development- less corruption
3. High political and economic freedom- less corruption
4. Corruption tends to decline when information including
internet communication becomes more accessible.
Transparency International- ‘Corruption is the abuse of
entrusted power for private gain. It hurts everyone whose
life, livelihood or happiness depends on the integrity of
people in a position of authority’ - Business principles for
Organization for Economic Cooperation and Development-
Initially signed in 1977- In 2007 SA became the 37th signatory
and the first African member to enact anti bribery laws based
on this convention.
It targets the supply side of corruption(activities of bribe
seekers) in cross border deals.
Eg: Suppose a European supplier of pharmaceuticals does a
deal with a minister of health from a developing country that
has received emergency funds from an aid agency to
purchase urgently required medicines. Instead of agreeing on
a purchase of new drugs, the minister and the supplier
conspire to use the aid funds to purchase out-of-date drugs,
which are far cheaper. The supplier consequently makes a
handsome profit and places a portion of it in an offshore bank
account set up by the minister. Many of those in the minister's
country who are sick receive the old, less effective drugs and
Countries that have signed the convention are required to put in
place legislation that criminalizes the act of bribing a foreign public
The OECD has no authority to implement the convention, but
instead monitors implementation by participating countries.
Countries are responsible for implementing laws and regulations
that conform to the convention and therefore provide for
The OECD performs its monitoring function in a two-phased
Phase I consists of a review of legislation implementing the
conventions in the member country with the goal of
evaluating the adequacy of the laws.
Phase 2 assesses the effectiveness with which the
legislation is applied.
International Chamber of
Private sector and demand side of cross border economics, where
extortion by public officials is a favorite criminal practice
ICC Ethics and Compliance Training Handbook
ICC Rules on Combating Corruption : The Rules assist enterprises to
comply with their legal obligations and with the numerous anti-
corruption initiatives at the international level.
ICC Guidelines on Gifts and Hospitality : The ICC Guidelines on Gifts
and Hospitality provide guidance for companies on how to establish
and maintain a policy relating to Gifts and Hospitality, based on the
most recent international, regional and national rules, as well as on
commercial best practice.
ICC Third Party Guidelines : ICC Guidelines on Agents, Intermediaries and
Other Third Parties voluntary guidelines provide companies with advice on
how to choose and manage third parties.
Whistle blowing guidelines : ICC established a task force on this issue in
order to prepare ICC guidelines in addition to the Whistle blowing chapter of
the ICC Handbook
ICC Fighting Corruption Handbook : Fighting Corruption lays out the
problems and offers practical solutions on how to attack commercial
dishonesty at its source
ICC Anti-corruption Clause : The Anti-corruption Clause is a tool which will
preserve trust between parties, deter corruption in the negotiation and
performance of a contract, and preserve the sanctity of contracts.
UN Convention against Corruption
December 4, 2000 : The General Assembly recognized that an effective
international legal instrument against corruption was desirable. United Nations
Convention against Corruption entered into force on 14 December 2005.
The purposes of this Convention are:
To promote and strengthen measures to prevent and combat corruption more
efficiently and effectively;
To promote, facilitate and support international cooperation and technical
assistance in the prevention of and fight against corruption, including in asset
Develop and implement or maintain effective, coordinated anti-corruption
policies that promote the participation of society and reflect the principles of
the rule of law, proper management of public affairs and public property,
integrity, transparency and accountability
Collaborate with each other and with relevant international and regional
organizations through participation in international programmes and projects
aimed at the prevention of corruption.
US Foreign Corrupt Practices Act
Outlaws bribery payments by US firms to foreign officials,
political parties, party officials and political candidates.
Includes bribery by foreign firms operating in US territory.
Not only companies registered in US but also any foreign
company quoted on any stock exchange in the US.
FACILITATION PAYMENTS/speed money/grease money :
A facilitating payment is a payment made to a public or
government official that acts as incentive for the official to
complete some action or process expeditiously, to the
benefit of the party making the payment.
The FCPA provides a narrow exception for facilitation
payments. The exception applies only to payments made to
foreign officials with the purpose to 'facilitate or expedite
routine governmental action'.
The exception focuses on the purpose of payment rather
than on its value. If not properly documented, it may violate
the FCPA’S accounting provisions.
ENRON & TYCO INTERNATIONAL
Granted government deregulation
(Reduction or elimination of
government power in a particular
industry, usually enacted to create
more competition within the industry).
Losses were not properly illustrated in
the earnings report – prompted more
and more investments.
Embezzlement of funds by Enron
Corporation was reaching bankruptcy.
The loss sustained by investors
exceeded $70 billion.
Top executives were accused of giving
themselves interest-free or very low interest
loans(sometimes disguised as bonuses) that
were never approved by the Tyco board or
They were also accused of selling their
company stock without telling investors.
Essentially, they concealed their illegal
actions by keeping them out of the
accounting books and away from the eyes of
shareholders and board members.
1999- 2000 – accounting practices – “spring-
By September of 2002, all three (Kozlowski,
Swartz, and Belnick) were gone and charges
were filed against them for failure to disclose
information on their multimillion dollar loans to
The SEC asked Kozlowski, Swartz, and
Belnick to restore the funds that they took
from Tyco in the form of undisclosed loans
Sarbanes Oxley Act(SOX)
Enacted as a response to epidemic of well known
corporate scandals involving such companies as
Enron and Tyco International.
Focuses on corporate governance, financial disclosure
and oversight of accounting and auditing practices.
Aims to protect shareholders and the general public
from accounting errors and fraudulent practices in
the enterprise, as well as improve the accuracy of
In 2005, 50 multinational construction and natural
resources companies signed “Zero tolerance pact”
against extortion by bribery- World Economic Forum
Partnering against Corruption Initiative
the Partnering Against Corruption Initiative (PACI) was
established to level the playing field among industry
players and help consolidate industry efforts on the issue.
Today, PACI brings together over 140 companies from
multiple industries and global locations, including industry
leaders from multiple sectors, regardless of their size or
affiliation with the World Economic Forum, to fight bribery
PACI signatory companies include:
Deutsche Post DHL
Ernst & Young
Godrej & Boyce
Kuwait Petroleum Corporation
Are Top Managers Responsible
When Corruption is Afoot? :
In November 2006, police found 36000 documents to support allegations
that Siemens regularly diverted funds filed under bogus consulting
contracts into a network of “black accounts” for bribing officials in
countries like Italy, Greece, Argentina and South Arabia, where Siemens
was seeking lucrative public sector contracts
Later, company itself announced that it had uncovered over $570 million
in suspicious payments since 1990s.
Managers insisted that corruption was endemic to the company’s culture
& that they had acted with knowledge and approval of CEO Klaus
Kleinfield and board chief Heinrich von Pierer.
Germany was slow to enact laws prohibiting bribery. Till 1999, it was allowed to
write off overseas bribes as legitimate business expenses and till 2002, it was
legal to bribe employees of foreign companies if the company was willing to
absorb the cost without the tax break.
Siemens hung on to a corporate culture that was perfectly comfortable with
bribery and other forms of corrupt behavior.
Kleinfield’s management style which boiled down to “fix, sell or close”. So
employees did whatever they had to do to show profits.
Siemens is a highly decentralized conglomeration with 11 business units run
by separate boards as virtually independent operating entities.
When von Pierer was the CEO, he had authorized a strict company wide Code
of Conduct and hired many compliance officers to enforce it.
Kleinfield had instituted a “zero tolerance” policy towards corruption.
Top management function doesn’t involve auditing the books and double-
checking every suspicious double entry.
Neither Kleinfield nor von Pierer has been officially accused of any
Sustainability means meeting the needs of the
present without compromising the ability of
future generations to meet their own needs
while taking into account what’s best for both
people and environment
GLOBAL WARMING AND THE
At the core of the international treaty called
the Kyoto Protocol is the theory that global
warming is a result of an increase in carbon
If carbon dioxide emissions are not reduced
and controlled , rising temperature could
have catastrophic consequences
THE KYOTO PROTOCOL
It was an extension of the UN Framework Convention on
Climate Change of 1994
It was signed in 1997 to require countries to cut their
green house gas emissions to 5.2 percent below 1990
levels between 2008 and 2012
By June 2007, 175 nations and regional economic
organisations had ratified the protocol
The US (25%), initially signed the agreement but
withdrew in 2001
NATIONAL AND REGIONAL
Reduce emissions or buy credits from
companies that have reduced emissions
below target levels
MNE’s were forced to reconsider their global
The EU has set a target of an 8 percent
reduction from 1990 levels
The Germans set a target of 21 percent
The companies need to face the task of adapting to different
standards in different countries
The legal approach to responsible corporate behaviour says
an MNE can settle for operating in accord with local laws
Ethical approach, urges companies to go beyond the law to
do whatever is necessary and economically feasible to
reduce green house gas emissions
ETHICAL DILEMMAS AND
Deal with issues that cross industries-
To demonstrate how companies have
to examine their ethical conduct as
they spread internationally
ETHICAL DILEMMAS AND
14.5% of revenues on R&D
Sell drugs at a high price
Patent expires, the drug becomes generic
Protected by U.S patent
Tiered Pricing and other Price-
Companies charge a market price for products
sold in industrial countries and a discounted
price for products sold in developing country
Drug maker Merck in 2007
Taking TRIPS for What Its Worth
WTO Agreement on Trade Related Aspects of
Intellectual Property Rights
*Producing generic products for local
*Importing generic products from other countries
R&D and the Bottom Line
Developing drugs are lot more expensive in
Unlicensed generic drugs
New patent protection law in 2005 with WTO
ETHICAL DIMENSIONS OF
Individual investors Consumers
with respect to
OBJECTIVES OF ETHICAL
Employment is freely chosen
Freedom of association and the right to
collective bargaining are respected
Working conditions are safe and hygienic
Child labour shall not be used
Living wages are paid
Working hours are not excessive
No discrimination is practiced
Regular employment is provided
No harsh or inhumane treatment is
There are two arguments for use of children in
Indian carpet industry
*There were better suited than adults
*If they weren’t employed, they’d be even
*In 1990s Bangladesh was pressured to stop
employing child workers
What MNEs Can & Can’t Do
Swedish retailer IKEA
*Helped working mothers
In Thailand, the law permits people to work
84 hours a week in seven 12 hour shifts
*Nike instituted a maximum workweek of 60
Improvement in Chinese labour practices
CORPORATE CODE OF
Motivations for Corporate responsibility
Unethical and irresponsible behavior can result in legal
Customer actions such as boycotts
Unethical behavior can affect employee morale
Bad publicity is going to cost the sales
Developing a code of conduct
External code of conduct is a set of
“guidelines, recommendations and rules
issued by entities within society with the
intent of affect the behavior of
international business entities within
society in order to enhance corporate
Internal code of conduct
What Makes a Good Internal
Code of Conduct ?
It sets global policies with which everyone working
anywhere for the company must comply
It communicates company policies not only to all
employees but to all suppliers and sub-contractors as
It ensure that the policies laid out in the code are
It reports the results to external stakeholders