Chapter 7 Corruption and Ethics in Global

Business

https://businessfirstfamily.com/business-ethics-topics-write-management / https://sevenpillarsinstitute.org/ethics-analysis-foreign-br
ibery/
 Business Ethics: Meaning
Business ethics is the study of appropriate
business policies and practices regarding
potentially controversial subjects including
corporate governance, insider trading, bribery,
discrimination, corporate social responsibility, and
fiduciary responsibilities.

The law often guides business ethics, but at other

times business ethics provide a basic guideline that
businesses can choose to follow to gain public
approval.
https://www.investopedia.com/terms/b/business-ethics.asp
Importance of Business Ethics
• Control Business Malpractices
• Better Relation with Employees
• Improves Customer Satisfaction
• Increase Profitability
• Improves Business Goodwill
• Better Decision Making
• Protection of Society
Philosophies of Business Ethics and Social
Responsibility
- The Friedman View

- The Cultural Relativist View

- The Righteous Moralist View

- The Utilitarian View

 The Friedman View
The Friedman view – named for its main
supporter, the late economist Milton
Friedman – says a company’s sole
responsibility is to maximize profits for its
owners (shareholders) while operating within
the law.
 The Cultural Relativist View
The cultural relativist view says that a
company should adopt local ethics wherever it
operates because all belief systems are
determined within a cultural context.
Cultural relativism sees truth, itself, as
relative and argues that right or wrong are
determine with a specific situation.
 The Righteous Moralist View
The righteous moralist view says that a
company should maintain its home-country
ethics wherever it operates because the
home-country’s view of ethics and
responsibility is superior to other’s view.
 The Utilitarian View
The utilitarian view says that a company should
behave in a way that maximizes “good”
outcomes and minimizes “bad” outcomes
wherever it operates.
The Utilitarian manager asks the question.
“What outcome should I aim for?” and answers.
“That produces the best outcome for all affected
parties.” In other words, utilitarian thinkers says
the right behaviour is that which produce the
greatest good for the greatest number.
The Root causes of Unethical Behaviour

The causes of unethical behaviour are

complex and reflect:

- Personal Ethics
- Decision-making processes
- Leadership
- Unrealistic performance expectations
- Organized culture
Ethical Issues in International Business

The most common ethical issues in business

involved:
– employment practices
– human rights
– environmental regulations
– corruption
– The moral obligation of multinational
companies
https://www.slideshare.net/ayanawithyou/ethics-in-international-business-54699908
 What is Corruption ?

Corruption is dishonest behavior by those in

positions of power, such as managers or
government officials. Corruption can include
giving or accepting bribes or inappropriate gifts,
double-dealing, under-the-table transactions,
manipulating elections, diverting funds,
laundering money and defrauding investors.
One example of corruption in the world of
finance would be an investment manager who
is actually running a Ponzi scheme.
https://www.investopedia.com/terms/c/corruption.asp
 Ponzi Scheme: Meaning
A Ponzi Scheme is a fraudulent investing scam promising high 
rates of return with little risk to investors. The Ponzi scheme
generates returns for early investors by acquiring new
investors. This is similar to a pyramid scheme in that both are
based on using new investors' funds to pay the earlier
backers.

Both Ponzi schemes and pyramid schemes eventually bottom

out when the flood of new investors dries up and there isn't
enough money to go around. At that point, the schemes
unravel.

https://www.investopedia.com/terms/p/ponzischeme.asp
 What is Bribery ?

Bribery is defined by Black's Law Dictionary as

the offering, giving, receiving, or soliciting of any
item of value to influence the actions of an
official, or other person, in charge of a public or 
legal duty. With regard to governmental
operations, essentially, bribery is "Corrupt
solicitation, acceptance, or transfer of value in
exchange for official action."

https://en.wikipedia.org/wiki/Bribery
 Forms of Bribery

Many types of payments or favors may be fairly or

unfairly labeled as bribes: tip, gift, sop, perk, skim,
favor, discount, waived fee/ticket, free food, free
ad, free trip, free tickets, sweetheart deal, 
kickback/payback, funding, inflated sale of an
object or property, lucrative contract, donation, 
campaign contribution, fundraiser, sponsorship
/backing, higher paying job, stock options, 
secret commission, or promotion (rise of
position/rank).
https://en.wikipedia.org/wiki/Bribery
 What is Extortion ?
Extortion is the wrongful use of actual or threatened
force, violence, or intimidation to gain money or
property from an individual or entity. Extortion
generally involves a threat being made to the victim’s
person or property, or to their family or friends.

Acts of extortion can range from “protection money”

paid by small businesses to local mobsters, to
sophisticated cyber extortion schemes targeted at
hundreds of companies.
https://www.investopedia.com/terms/e/extortion.asp
Sample case
Walmart in Mexico
According to a report issued by the Mexican Employers
Association in 2011, companies operating in Mexico
spend more than 10 percent of their revenue on
corrupt acts. One of the most well-known cases was the
Walmart scandal that was brought to light in September
2005 and resulted in the company’s stock value
dropping by as much as $4.5 billion. Evidence
unearthed by internal and external investigations
revealed a widespread use of bribes, alleged to total
over $24 million. The bribes were paid to facilitate the
construction of Walmart stores throughout Mexico.
https://milnepublishing.geneseo.edu/good-corporation-bad-corporation/chapter/10-corruption-in-international-busine
ss/
Sample case
The country is a huge market for Walmart—
one in every five Walmart stores is in Mexico. As
of October 2014, the investigation continued,
having implicated Walmart management at the
most senior levels of complicity or awareness.

https://milnepublishing.geneseo.edu/good-corporation-bad-corporation/chapter/10-corruption-in-international-busine
ss/
Sample case

GlaxoSmithKline in China
In September 2013, China’s Xinhua news agency
reported that a police investigation into bribes paid
by drug manufacturer GlaxoSmithKline (GSK)
indicated that the bribes were organized and paid by
GSK China and not by individuals operating on their
own prerogative as had been reported by the
company initially. Police also alleged that the
corporate parent merely went through the motions
of an internal audit process, indicating a knowledge
and acceptance of the bribery.
https://milnepublishing.geneseo.edu/good-corporation-bad-corporation/chapter/10-corruption-in-international-business /
Sample case

This very recent case suggests that the Chinese

government’s widely publicized arrests and
convictions for bribery have not yet served as a
sufficient deterrent to corrupt practices by foreign
corporations.

https://milnepublishing.geneseo.edu/good-corporation-bad-corporation/chapter/10-corruption-in-international-business /
Sample case
Alcatel in Costa Rica
In January 2010 Alcatel agreed to pay Costa
Rica US $10 million in reparations for social
damage caused by Alcatel’s payment of US$2.5
million in bribes to get a contract to provide
mobile phone services in that country. This case
is notable for its application of the concept
of social damage and the resulting order of
compensation to the citizens of Costa Rica.

https://milnepublishing.geneseo.edu/good-corporation-bad-corporation/chapter/10-corruption-in-international-business /
Corporate Social Responsibility

sean-csr-network.org/c/responsible-business-forum-newsroom/infographics/358-promoting-csr-in-asean
 Pros to CSR
• Profitability and Value
A CSR policy improves company profitability and value.
The introduction of energy efficiencies and waste
recycling cuts operational costs and benefits the
environment. CSR also increases company accountability
and its transparency with investment analysts and the
media, shareholders and local communities.
This in turn enhances its reputation among investors
such as mutual funds that integrate CSR into their stock
selection. The result is a virtuous circle where the
company's stock value increases and its access to
investment capital is eased.
 Pros to CSR
• Better Customer Relations
A majority of consumers – 77 percent according to a
survey by branding company Landor Associates cited
by the University of Pennsylvania's Wharton School –
think that companies should be socially responsible.
Consumers are drawn to those companies that have a
reputation of being a good corporate citizen. Research
at Tilburg University in the Netherlands showed that
consumers are prepared to pay a 10 percent higher
price for products they deem to be socially
responsible.
https://smallbusiness.chron.com/pros-cons-corporate-social-responsibility-56247.html
 Cons to CSR
• CSR Costs Money to Implement
The main disadvantage of CSR is that its costs fall
disproportionally on small businesses. Major
corporations can afford to allocate a budget to CSR
reporting, but this is not always open to smaller
businesses with between 10 and 200 employees.
A small business can use social media to
communicate its CSR policy to customers and the
local community. But it takes time to monitor
exchanges and could involve hiring extra personnel
that the business may not be able to afford.
 Cons to CSR
• Conflicts with the Profit Motive
Even for larger companies, the cost of CSR can be
an obstacle. Some critics believe that corporate
social responsibility can be an exercise in futility. A
company's management has a fiduciary duty to its
shareholders, and CSR directly opposes this, since
the responsibility of executives to shareholders is
to maximize profits. A manager who forsakes
profits in favor of some benefits to society may
expect to lose his job and be replaced by
someone for whom profits are a priority.
 Cons to CSR
This view led Nobel-Prize winning economist
Milton Friedman to write a classic article with the
title: "The Social Responsibility Of Business Is to
Increase Its Profits."
 Cons to CSR
• Consumers are Wise to Greenwashing
Greenwashing is term used to describe corporate
practices that appear to be environmentally
responsible without actually representing a change in
how a company conducts its business. For example, a
product may be labelled as "All Natural", even though
it is being manufactured just as it always has. Some
dry cleaning services label their operations as
"Organic" which sounds similar to "organic food" but
really carries no specific meaning. Some customers
may react positively to these types of claims, but
others are wary of corporate greenwashing.
https://smallbusiness.chron.com/pros-cons-corporate-social-responsibility-56247.html
https://www.emaze.com/@AOCWTQTZI
https://www.slideshare.net/anushkagupta58958/enron-scandal-73583725
 Morality VS. Legality

“ what is legal may not

necessarily moral,
what is moral is worth
legalizing”

https://www.intheblack.com/articles/2015/04/01/why-ethics-and-law-are-n
ot-the-same-thing