11/2/2010

The Global Environment Global Environmental Forces (1)

The International Environment and
Ethics and Social Responsibility
Hodgetts, Luthans and Doh, International Management: Culture, Strategy
and Behavior , 6th edition (New York: McGraw-Hill Irwin, 2006)

Economic Environment
◦ Global and regional integration

Political Environment
◦ Uncertain responses to democratization
◦ Less stable governments increase risk

Legal/Regulatory Environment
◦ Differences in regulatory regimes increase transaction
costs, restrict and distort trade, and can result in
retaliatory actions or sanctions
◦ Four main legal traditions: common law, civil/code
law, Islamic/theocratic law, and socialist law

The Impact of Globalization on Ethics

Global Environmental Forces (2)

Technological Environment
◦ The commodification of information
◦ Reduced costs of entry/leapfrogging
◦ Mass customization

Socio-Cultural Environment
◦ Increased tensions around differences in
business practices, labor standards, corporate
governance, and protection of intellectual
property
◦ Cultures differ in their responses to authority,
need for individual vs. group recognition, how
they balance work and family obligations, and in
approaches to managing and resolving conflict
and Social Responsibility
“In this era of a global economy, MNCs
must be concerned with how they carry
out their business and their social role
in host countries” (HLD, p. 54)

Why might this be true?
◦ Rapid movement of Information across boarders
◦ Public sensitive to the negative impacts of
globalization
◦ Weak governments in emerging markets require
greater internal controls

Ethics and International Some Major Ethical Issues

Management
Corporate behavior

What is ethics? ◦ Corruption and lobbying
◦ Ethics is “the study of morality and standards of ◦ Fraud and misrepresentation
conduct” (HLD, p. 57) ◦ Conflicts of interest

How is ethical behavior defined?
Hostile or discriminatory workplaces
◦ Regulations and accounting standards ◦ Unsafe workplaces
◦ Codes of conduct ◦ Lack of respect for individual rights
◦ Social norms ◦ Discriminatory practices

The challenge for international managers
The social impact of corporate behavior
◦ Standards vary from country to country ◦ Market-distorting practices
◦ Coordinating compliance can be burdensome ◦ Social inequality
◦ Adverse environmental impacts

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Corporate Social Responsibility Ethics and CSR

• Definition • Are ethical issues and CSR the same?
– Corporate Social Responsibility (CSR) refers • MNCs are becoming more concerned
to those actions taken by a firm that are
intended “to benefit society beyond the
about ethics and CSR. Why?
requirements of the law and the direct • Is there a trade-off between financial
interests of the firm” (HLD, p. 65) performance and social responsibility?
• CSR is generally concerned with
– Working conditions with the firm
– The social and environmental impacts of
corporate activities (externalities)

The Triple Bottom Line Why are MNCs Concerned?

• CSR and responsiveness to ethical
“The truly sustainable company would
concerns has become vital for business
have no need to write checks or
– Increased media and public attention
‘give back’ to the local community,
– Ethical failures can have damaging effects on
because the company’s daily workers, managers, investors
operations would not deprive the community, – An ounce of prevention….
but would enrich it.”
- Andrew Savitz
The Triple Bottom Line (2006)

The Role of Non-Governmental

Trust in Leaders
Organizations (NGOs)

Emergence of a global civil society NGO leaders 52

Leaders at the U.N. 42

◦ NGOs have altered the global business
environment Spiritual/religious leaders 41

◦ NGO activism has lead to important changes Leaders of Western Europe 36

in corporate behavior and governance Managers of the global economy 36

Major criticisms of MNCs by NGOs Managers of the national economy 35

◦ Exploitation of low-wage workers Executives of MNCs 33

◦ Environmental abuses Leaders of the U.S.A. 27

◦ Intolerable workplace standards

0 10 20 30 40 50 60
Average Across All 15 Countries Surveyed
Adapted from Figure 3-1: Trust in Leaders: Percentage Saying “A Lot” and “Some Trust”

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Perceptions of MNCs MNC Responses

TI’s 2006 Global Corruption Barometer • Adopting internal codes of conduct to
◦ Most corrupt: Political parties/legislatures establish minimal social and
◦ In the middle: the business sector environmental standards
◦ Most trusted: religious bodies and non- • Building alliances with NGOs
governmental organizations (NGOs) • Citigroup and the Rainforest Action Network
(RAN)

MNC face increased pressure
• Pharmaceutical companies , Oxfam and
◦ NGOs effective at mobilizing public Doctors Without Borders
awareness of perceived ethical lapses • Committing to international standards
◦ MNCs are expected to adhere to higher • UN Global Compact, SA8000, ISO14000
standards

Corporate Governance International Assistance

• Corporate governance practices reflect • Governments and corporations increase
– Differences in legal systems collaboration to provide assistance to
– Responsiveness and accountability of
corporate managers to stakeholders communities and locales through global
• Rules and regulations differ among partnerships
countries and regions • Best “investments”
– U.K. and U. S. are “outsider” systems – Controlling and preventing AIDS
• Dispersed ownership of equity; outside investors
– Fighting malnutrition
– European countries mainly “insider”
systems – Reducing subsidies and trade restrictions
• Ownership more concentrated in holding – Controlling malaria
companies, families or banks

The UN Global Compact (1) The UN Global Compact (2)

Table 3-1 Table 3-1
Principles of the Global Compact Principles of the Global Compact
Human Rights Labor
Principle 1: Support and respect the Principle 3: Freedom of association and the
effective recognition of the right to
protection of international human rights collective bargaining.
within their sphere of influence. Principle 4: The elimination of all forms of
Principle 2: Make sure their own forced and compulsory labor.
corporations are not complicit in human Principle 5: The effective abolition of child
rights abuses. labor.
Principle 6: The elimination of
discrimination with respect to employment
and occupation.
Adapted from Table 3-1: Principles of the Global Compact Adapted from Table 3-1: Principles of the Global Compact

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The UN Global Compact (3) The UN Global Compact (4)

Table 3-1 Table 3-1
Principles of the Global Compact Principles of the Global Compact
Environment Anti-Corruption
Principle 7: Support a precautionary Principle 10: Business should work against
approach to environmental challenges. all forms of corruption, including extortion
Principle 8: Undertake initiatives to promote and bribery.
greater environmental responsibility.
Principle 9: Encourage the development and
diffusion of environmentally friendly
technologies.

Adapted from Table 3-1: Principles of the Global Compact Adapted from Table 3-1: Principles of the Global Compact

TI Corruption Index (2003) TI Global Corruption Barometer (2007)

140
120
Corruption Index

100
80
60
40
20
0

Adapted from Figure 3–2: Corruption Index: Ranking of Least Corrupt to Most

TI Global Corruption Barometer (2007) TI Bribe Payers Index (2006)

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Countering Corruption (1) Countering Corruption (2)

Foreign Corrupt Practices Act (1977)
◦ Illegal for U.S. firms and their managers to
attempt to influence foreign officials through
personal payments or political contributions

OECD Anti-Bribery Convention (1997)
◦ Commits signatories to passing domestic laws
against international corruption
◦ Establishes a monitoring mechanism
◦ 37 signatories; laws adopted in 20 countries

UN Convention Against Corruption (2003)
◦ Came into force in December 2005
◦ 140 signatories; 95 ratifications/accessions

Impact of these initiatives
◦ The FCPA has, overall, been more positive
than negative for US MNCs
◦ International agreements, however, require
implementation through national laws

Corruption and culture
◦ Corruption is linked to poverty and weak
governance institutions are the key problem
◦ Corruption = Monopoly + Discretion –
Accountability (Thomas Klitgard, Controlling
Corruption, 1988)
◦ The vast majority of people in such countries
are victims of corruption

Implications for Managers

Consider…
• Need for lifelong learning
◦ The “most valuable asset is the ability to learn how to learn”
(Thomas Friedman, The World is Flat)
• Responsiveness
◦ be alert for changes and quick to respond “Now that we can do anything, what
• Adaptability
◦ know how to work with others
do we want to do?”
◦ be comfortable with uncertainty and ambiguity
• Having a global perspective
◦ see the big picture (global economy/whole organization) Bruce Mau
• Having a local perspective Bruce Mau Design Inc.
◦ understand the details of operating at the local level

A Final Thought…

“Let us choose to unite the

power of markets with the
strength of universal
ideals”
Kofi Annan
former UN Secretary General