Mba1034 cg law ethics week 14 ethics international business 072013


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

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  • National laws include laws pertaining to international trade, official boycotts such as that against Cuba, the Foreign Corrupt Practices Act (FCPA), and required government approval for the acquisition by a foreign firm of a U.S. firm essential to national defense.Treaties and agreements include the North American Free Trade Agreement, the International Monetary Fund, the treaties of the European Union, the Geneva Convention, the Kyoto Protocol on global climate change, reciprocal tax agreements, and accords on technical standards.International court rulings include those of the International Court of Justice, the International Criminal Court, the World Court, the European Court of Justice, and the World Trade Organization’s dispute resolution mechanism.Actions of international bodies include the United Nations’ (UN) response to Iraq’s invasion of Kuwait, the Law of the Sea, and the UN Convention on Contracts for the International Sale of Goods.
  • In the case of countries that are not democracies, ethics concerns pertaining to human rights and justice can arise.Several firms formulated human rights statements pertaining to their business partners.
  • Issues are more complex when people do not have the means to protect their rights and advance their interests.Poverty, lack of education, and inadequate health care create situations in which individuals cannot be expected to make the same decisions that would be made in a developed country.Governments may not have the means to provide the needed information, guidance, or regulation found in developed countries.
  • The task force was charged with producing a code and an enforcement mechanism to achieve standards, including a 60-hour workweek, a minimum employment age of 14, and wage guidelines. The task force became embroiled in strong disagreements about implementation details.
  • As international trade and foreign direct investment expanded, the opportunities for corruption increased and more firms were exposed to demands for payments or temptations to offer payments when they believed competitors were likely to be offering payments.When corruption is pervasive, a company may go further and decide to withdraw from a country.
  • Ethics is considered first, and then the law is presented and interpreted. Corporate codes of conduct are then considered. The ethics analysis focuses on bribery and the question of when, if ever, a firm is morally justified in paying a bribe.
  • The law prohibits “grease payments,” or facilitating payments, even if they do not affect decision making by government employees such as those that provide routine services. Under the law an employee can be guilty of bribery even if the person was unaware of it. The effects of the law will depend on its enforcement, and the U.S. Chamber of Commerce said making these payments a criminal act was “troubling.”
  • AIDS has led to sharp declines in life expectancy and negative economic growth, since AIDS strikes the most productive age group. This has worsened impoverishment and countries’ abilities to address the pandemic.The treatment of AIDS victims was impeded by the high cost of AIDS drugs, all of which were under patent. With many countries unable to prevent the spread of AIDS and provide care for victims, developed countries belatedly began to fund treatment and prevention programs.A number of companies participate through Product (RED) under which they contribute a portion of their revenue to the Global Fund.
  • Mba1034 cg law ethics week 14 ethics international business 072013

    1. 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. 2. • International law and institutions1 • Human rights and justice • Working conditions • Corruption 2 • Case Discussion : GSK and AIDS3 Today’s Overview
    4. 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. 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. 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. 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. 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. 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. 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. 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. 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. 13. UN Declaration on Human Rights 1947
    14. 14. UN Millenium Development Goals 2015 and Human Rights
    15. 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. 16. Operating in Developing Countries • In developing countries, institutions are not always present to provide guidance to firms and their managers
    17. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 27. Cummins, Inc.: Questionable Foreign Payments and the Relationship of Trust
    28. 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. 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. 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. 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
    32. 32. 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
    33. 33. Case - Siemens: Anatomy of Bribery
    34. 34. 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. 36. 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
    37. 37. Core Readings • Baron, David P.(2013) Business and its environment, 7th Edition, Pearson, Ch.24
    38. 38. QUESTIONS?