Ethical Issues

in the Global
Arena
Group 1
Chapter 7
08 March 2023
 Chapter learning outcomes
• Explain the ethical and social challenges faced by multinational corporations
(MNCs) operating in the global environment.
• Summarize the major implications for managers with ethical issues such as: infant
formula controversy, human rights abused and more.
• Be able to define corruption and differentiate between bribes and grease payments,
as well as outline the key features of the Foreign Corrupt Practice Act.
• Identify and discuss strategies companies can use to improve global business ethics.
 7.1 Business challenges in Global
Environment
Challenges firms are facing as they operate in a multinational global environment:
1. Achieving corporate legitimacy, as MNCs/MNEs aim to be recognized and accepted in a
society that is unfamiliar.
2. Differing philosophies between the firm’s home country and host country.

To achieve the goal of being perceived as legitimate firms need to:

- Fulfill their social responsibilities
- Be good corporate citizens
 7.1 Business challenges in Global
Environment cont.
3. Dilemma of MNCs that have noticeable difference in culture or philosophy perspective.
E.g., Western Vs Developing countries
Western industrialized nation's philosophy:
• Economic growth
• Efficiency
• Competitive advantage.

Developing countries/ emerging economies philosophy:

• More equitable income distribution
• Increased economic self-determination.
 7.1 Business challenges in Global
Environment cont.
4. Too much power and undue political influence.
5. CSR relative to business – government relationships.
7.1 Business challenges in Global
Environment cont.
 7.2a Questionable marketing and plant
safety practices.
Process of marketing
- Creating numerous ethical and legal challenges for businesses.
- The prominent issues are those embedded in the product itself as
well as the promotion of it.
E.g. Infant formula controversy, 1970s- till this date.
E.g. Plant safety issue, 1984- till this date.
7.2a Questionable marketing and plant
safety practices cont.
The infant formula controversy
For decades physicians working in the tropical land have come to the realization of the health risk that
occurred from bottle feeding compared to breast-feeding.
• Water supply not being pure
• Due to people in such areas being poor and uneducated, mothers would dilute the formula to last longer.
• Increase of bottle feeding and decrease of feeding = increase malnourished and sick babies.
• Problem started when companies promoting their products and intensified bottle feeding.
• Part of the marketing, the babies using the products were portrayed to be healthy.
 7.2a Questionable marketing and plant
safety practices cont.
Plant safety and the Bhopal tragedy
• The Union Carbide Bhopal tragedy put a spotlight into the challenges of
multinationals manufacturing in foreign, most specifically less-developed,
business environment.
• ‘The worst industrial accident in history’ 3 December 1984. leaking of methyl
isocyanate gas.
• Important questions that have been raised after the incident:
7.2a Questionable marketing and plant
safety practices cont.
7.2b Human Rights, sweatshops and labour
abuses
• Sweatshops are factories which produce goods of the abuse of children
and women, paying extremely low wages, poor working conditions etc.
• Situated in developing countries: like China, Vietnam, Bangladesh,
Honduras etc.
• Large companies from developed world set up factories there, E.g. Nike
7.2b Human Rights, sweatshops and labour
abuses cont.
• As labour in developing South East Asian and South American countries becomes
costlier, eyes are turning to Africa as a source of cheap labour.
• There are many oppositions to sweatshops who abuse human rights such:
• Activist groups
• Labour unions
• NGOS

• There have been increased steps taken to counter the issues such as powerful legislation
and worldwide programs
7.2b Human Rights, sweatshops and labour
abuses cont.
Fair Labour Association
• Operating for over 20 years
• Reform sweatshops and improve working conditions
• Protect worker rights
• 3 Factor framework: Implement code of conduct, monitor & report actions and
support compliance
• Difficulty lies in monitoring regulations implemented.
7.2b Human Rights, sweatshops and labour
abuses cont.
SA8000
• Social accountability 8000
• Created by social accountability international
• Encompass tackling issues like Child labour, forced labour, health and
safety etc.
• Organisations receive SA8000 certification after successful auditing
7.2b Human Rights, sweatshops and labour
abuses cont.
Individual Initiatives
• Some companies develop own guidelines to self-manage
• E.g. Nike and Gap
• However, with a lack of governance there is abuse of power and illegal
actions taking place
7.2b Human Rights, sweatshops and labour
abuses cont.
ALIEN TORT ACT
• American law allowing foreign nationals to act on human rights
violations
• Tool in charging transnational companies
• Leads to accountability
• However, the law has been reformed
7.2c Corruption, Bribery and Questionable
Payments
Corruption:
• Outright bribery of government officials
• Misuse of company assets for political favors
• Protection money for police, etc..
Corruption affects mainly developing countries such as China, India, Pakistan, etc..
• Corruption is the result of economic and political institutions that give power to others and others are shut out.
• The absence of accountability, recognizing the law and media freedom are the core roots
• Corruption destroys the legitimacy of the government and slows down the economic growth of a country.
• It is the biggest problem for developing countries, where those who benefit from it will resist to curb it, mainly politicians
who make decisions.
7.2c Corruption, Bribery and Questionable
Payments cont.
Bribery
Practice of offering something in order to gain an advantage.
Debates about Bribery
Those in favor:Those against:
1. Necessary for profits in order to do business1. They are wrong and can't be accepted
2. ‘Everybody is doing it’ 2. Such demands, once started, they never stop
3. They are a form of tax or compensation 3. Those receiving bribes are the only ones who benefit
7.2c Corruption, Bribery and Questionable
Payments cont.
Foreign Corrupt Practices Act (FCSA)
• FCSA differentiates between bribes and facilitating payments, i.e. grease payments.
• The law does not prohibit grease payments for the primary purpose of getting officials to do
what they are already supposed to do.
• The real problem is questionable payments which are prohibited such as bribes
The Growing Anticorruption Movement
• Several powerful developments have contributed to what is now called a growing
anticorruption movement
7.2c Corruption, Bribery and Questionable
Payments cont.
Corruption Perception Index (CPI)
Ranks over 175 countries by their levels of corruption from
‘highly clean’ to ‘highly corrupt’
Highly Clean – Denmark, Finland, Sweden and New Zealand
Highly Corrupt – Somalia, Afghanistan and North Korea

Bribe Payers Index(BPI)

This measures the supply side of bribery in the countries where the bribes are paid.
Least Likely to Bribe- Netherlands, Switzerland, Germany
Most Likely to Bribe- Russia, China, Mexico
7.2c Corruption, Bribery and Questionable
Payments cont.
OECD Anti-bribery Initiatives
Criminalizing offering bribes to foreign officials who have power over everything from government
contracts to tenders.

UN CONVENTION AGAINST CORRUPTION (UNCAC)

• Gives the opportunity to address both weaknesses and establish an effective set of benchmarks for
effective anticorruption strategies
• The central objective is to bring a higher degree of uniformity in the formulation and application of
anticorruption rules across the world
7.2c Corruption, Bribery and Questionable
Payments cont.
Individual Country Initiatives
Many of these countries are those typically do not score highly on business ethics surveys.
Example: China and Mexico.
• All of these are valuable in making the issue public
• Bribes debase economic systems while corrupting business relationships
• OECD treaty and Individual Country Efforts suggest that countries now understand this
important point.
 7.3a Improving global business ethics
• Taking business globally is not as easy as one may think.

• Business ethics is more complex at global level than domestic.

• There is a wide variety of values systems, stakeholders, culture, forms of

government and standards of ethical behaviour exist throughout the world.
 7.3a Improving global business ethics
• Taking business globally is not as easy as one may think.

• Business ethics is more complex at global level than domestic.

• There is a wide variety of values systems, stakeholders, culture, forms of

government and standards of ethical behaviour exist throughout the world.
7.3a Improving global business ethics cont.

Home vs host
• Business face challenges while
operating globally.
• They need some kind of reconciliation
and balance in honouring both culture
and moral standards of their home and
host countries
7.3a Improving global business ethics cont.
Ethical imperialism
• It is the act of enforcing and imposing a specific set of behavior code of conduct onto a nation
or group.

• A company that decides to expand internationally may find it necessary to revisit its ethics to
cover unexpected situations that may occur.

• The business need to follow its own home ethical standards

7.3a Improving global business ethics cont.
Cultural relativism
• Its position is characterized by foreign direct investors such as multinational
corporation(MNC)

• It requires managers to rise above everyday stress and carefully identify the issues, value
conflicts in the organization.

• Managers need to determine what mix of ethical standards may be used.

7.3a Improving global business ethics cont.
Cultural relativism
• Managers need to decide which ethical standards should transcend
national boundaries and represent hyper norms
• Hyper norms are standards that are so basic, and they are universally
accepted e.g. health, safety, human rights
7.3b Strategies for Improving Global Ethics
• This section focuses the key strategies Multi-National organizations can
use to ground their operations on good ethical standing as global
businesses.
• Besides global social responsibility programs, MNCs can implement 4
key strategies that help guide the business conduct global operations
ethically.
7.3b Strategies for Improving Global Ethics
cont.
1. Global codes of conduct
• These are principles/guidelines (developed by a specific MNC or by international organizations) that should be followed when conducting global business
operations.
• The codes of conduct developed by MNCs are called Corporate Global codes of conduct.
• Some examples of organizations that have developed a Global code of conduct are Chiquita Banana, Coca-Cola and Caterpillar Tractors. The Global
business codex (developed by researchers…) categorizes the 8 commonalities of Corporate codes of conducts as: dignity, fairness, citizenship,
responsiveness, transparency, property, reliability and fiduciary.
• There are also global codes of conduct created by International Organizations like the international Standards Organization, the United Nations, the
IFRS etc.
• These organizations are well recognized globally and they act a regulators to otherwise very powerful organizations all over the world. These organizations
set out standards in the form of guidelines that they expect MNCs to follow in their operations should they want to be seen as ethical organizations.
• The codes of conduct created by these international organizations are there to protect the “little guy” from the giants, and they usually aim to address
specific or broader global ethical concerns.
7.3b Strategies for Improving Global Ethics
cont.
2. Ethics & Global Strategy
• This strategy recommends that, when MNCs formulate & implement corporate strategies at the top-
level of the organization, they should include the ethics of multinational operations in their strategy.
• Organizations implement ethical & global strategies in the form of global business citizenship and
corporate social responsibility.
• Some key ethical considerations companies look at when formulating global ethical strategy are:
product/service decisions, plant location, operations policy, supply chain, marketing policy and
practices, and human resource management policies.
7.3b Strategies for Improving Global Ethics
cont.
3. Suspension of Corporate Activity
• This refers to a decision a MNC make to suspend activity in a country when
in a position where a particular corporate activity is ethical in that
organization’s home country, but unethical in the host country.
• Suspension of activity in a country is a difficult & extreme decision for an
organization to take, but preferable if the organization wishes to take a moral
high ground in the situation.
7.3b Strategies for Improving Global Ethics
cont.
4. Ethical Impact statements & Audits
• Ethical impact statements are an attempt to assess the underlying moral justifications for
corporate actions and the consequent results of those actions.
• Ethical impact audits are organizational ethical assessments that attempt to monitor is the
organization followed its codes of conduct and/or standardized codes of conduct as it was
expected to; in a set period of time (usually a year).
• Information from the actions is then used to determine if any of the business practices
need to be corrected if deemed questionable.
 7.3c Corporate Action agains Corruption
What was the single most important factor in a organisations decision to
develop a anticorruption programme?
• Senior Management leadership
• Personal convictions/beliefs
E.g. South Africa’s National Anti-corruption strategy
International Anti-Corruption Day - 9 December 2022
 7.3c Corporate Action agains Corruption
cont.
Five vital steps among anti-corruption programmes that work best for
companies:
• High-level commitment by top management
• Detailed statements of policies and operating procedures
• Training and discussion of policies and procedures
• Hotlines and help lines for all organizational members
• Investigative follow-up, reporting, and disclosure
 7.3c Corporate Action agains Corruption
cont.
1. High-level commitment by top management
• Senior management to establishing a culture of compliance
• Compliance begins with the board of directors and senior executives
• A well-designed compliance program that is not enforced in good faith will be in
2. Detailed statements of policies and operating procedures
• Effective standards and controls, including policies and procedures which have been designed to
address the risks that the company is facing 
• E.g. Gift policy in organisations
 7.3c Corporate Action agains Corruption
cont.
3. Training and discussion of policies and procedures
• Regular anti-corruption compliance training
• Review and update policies and procedures
• Awareness among employees
• Regular discussions (formal & informal)
4. Hotlines and help lines for all organizational members
• Whistleblowing
• Fraud or integrity hotline
• E.g. Wits Integrity hotline
 7.3c Corporate Action agains Corruption
cont.
5. Investigative follow-up, reporting, and disclosure
• Ongoing monitoring and auditing of anti-corruption compliance
• Investigative follow-ups
• Identify corruption trends and hotspots.