Ethics and Social Responsibility

1
Ethics and Social Responsibility

• The specific objectives of this chapter are to
  examine
• major ethical issues and problems confronting
  MNCs
• pressures on governments and companies to be more
  socially responsive to world problems.
• initiatives to bring greater accountability to
  corporate conduct

2
Questions

• Why are MNCs getting involved in corporate social
  responsibility?
• Out of the goodness of their hearts?
• Pressured by activists?
• Good for business?
• Is there a trade-off between financial
  performance and social responsibility?

3
Ethics and Social Responsibility Around the World

• Ethics
• Definition
• the study of morality and standards of conduct
• Vital role of ethics in conduct of business
• Many MNCs have formulated codes of ethics
• Failure to adhere to these codes has had damaging
  effects on workers, managers, investors.
• Cross-national challenge
• MNCs face difficulty because of differing
  standards between countries where they operate

4
Ethics and Social Responsibility Around the World
Ethical Problems and Concerns
Japan

• Political and business scandals
• Japanese cabinet member forced to resign for
  receiving over 2 million from Japanese
  corporations
• Failure of banking system to take corrective
  action regarding Japans recession
• Concealing customer complaints
• Failure to inform car owners about possible auto
  defects and maintenance of two sets of customer
  complaint records
• Encouraging employees to mislead government
  inspectors

5
Ethics and Social Responsibility Around the World
Ethical Problems and Concerns
China

• Ethical issues
• Workers not well paid (often work 12 hours a day,
  7 days a week)
• Piracy of intellectual property, counterfeiting,
  and industrial spying
• Human rights violations
• Use of prisoner and child labor

6
Corporate Social Responsibility

• Corporate social responsibility (CSR)
• Actions of a firm to benefit society beyond the
  requirements of the law and the direct interests
  of the firm
• Pressure for greater attention to CSR
• Civil society
• Nongovernmental organizations (private,
  not-for-profits that focus on social, political
  and economic issues)
• CSR concerns
• Working conditions in factories and service
  centers
• Environmental impacts of corporate activities

7
Rise of Civil Society and NGOs

• Emergence of organized civil society and NGOs
  altered
• Business environment globally
• Role of MNC within global business environment
• NGOs in the U.S. and globally
• Save the Children
• Oxfam
• CARE
• World Wildlife Fund
• Conservation International

8
Rise of Civil Society and NGOs

• Corporations receiving heavy criticism
• Nike
• Levis
• Chiquita
• Major criticisms
• Exploitation of low-wage workers
• Environmental abuses
• Intolerable workplace standards
• Response to social obligations
• Agreements and codes of conduct
• Maintenance of standards in domestic and global
  operations
• Cooperation with NGOs regarding certain social
  issues

9
Response to Social Obligations
Table 3-1 Principles of the Global Compact

• Human Rights
• Principle 1 Support and respect the protection
  of international human rights within their sphere
  of influence.
• Principle 2 Make sure their own corporations are
  not complicit in human rights abuses.

Adapted from Table 3-1 Principles of the Global
Compact
10
Response to Social Obligations
Table 3-1 Principles of the Global Compact

• Labor
• Principle 3 Freedom of association and the
  effective recognition of the right to collective
  bargaining.
• Principle 4 The elimination of all forms of
  forced and compulsory labor.
• Principle 5 The effective abolition of child
  labor.
• Principle 6 The elimination of discrimination
  with respect to employment and occupation.

Adapted from Table 3-1 Principles of the Global
Compact
11
Response to Social Obligations
Table 3-1 Principles of the Global Compact

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

Adapted from Table 3-1 Principles of the Global
Compact
12
Millennium Development Goals
Table 3-3 The U.N. Millennium Development Goals
Goal 1 Eradicate extreme poverty and
hunger. Goal 2 Achieve universal primary
education. Goal 3 Promote gender equality and
empower women. Goal 4 Reduce child
mortality. Goal 5 Improve maternal health. Goal
6 Combat HIV/AIDS, malaria, and other
diseases. Goal 7 Ensure environmental
sustainability. Goal 8 Develop a Global
Partnership for Development.
Source www.unmillenniumproject.org
Adapted from Table 3-3 The U.N. Millennium
Development Goals
13
International Assistance

• Governments and corporations increase
  collaboration to provide assistance to
  communities and locales through global
  partnerships
• Best investments
• Controlling and preventing AIDS
• Fighting malnutrition
• Reducing subsidies and trade restrictions
• Controlling malaria

14
Corruption and Foreign Corrupt Practices Act

• Foreign Corrupt Practices Act (FCPA)
• Illegal for U.S. firms and their managers to
  attempt to influence foreign officials through
  personal payments of political contributions,
  including such tactics as
• Entertainment expenses
• Consulting fees
• Some evidence that discontinuing bribes does not
  reduce sales of the firms products or services
  in that country
• Some evidence that firms from other countries
  continue to win business through corrupt
  practices such as bribery
• Recent formal agreement by many industrialized
  nations to outlaw the practice of bribing foreign
  government officials

15
Corruption and Foreign Corrupt Practices Act

• Recent formal agreement by many industrialized
  nations to outlaw the practice of bribing foreign
  government officials
• Organization for Economic Cooperation and
  Development
• 29 members plus several other countries have
  signed on
• Fails to outlaw most payments to political party
  leaders.
• Does indicate growing support for anti-bribery
  initiatives

16
Corruption Index
Corruption Index
Italy
India
Chile
Brazil
China
Japan
Russia
Taiwan
Mexico
Nigeria
Finland
Thailand
Indonesia
Singapore
Philippines
Hong Kong
South Africa
South Korea
United States
Adapted from Figure 32 Corruption Index
Ranking of Least Corrupt to Most
17
Corporate Governance

• Stakeholders
• Board
• Managers
• shareholders

Distribution of rights and responsibilities
Corporate Governance Structure
The system by which business corporations are
directed and controlled
Spells out the rules and procedures

• Setting objectives
• Means of attaining objectives
• Monitoring performance

Making decisions
18
Corporate Governance

• Rules and regulations differ among countries and
  regions
• U.K. and U. S. systems are outsider systems
• Dispersed ownership of equity
• Large number of outside investors
• Many continental European countries are insider
  systems
• Ownership more concentrates
• Shares owned by holding companies, families or
  banks
• Other effects on corporate governance include
• Differences in legal systems
• Responsiveness and accountability of corporate
  managers to stakeholders

19
Sarbanes-Oxley Act (2002)

• In US, for example, firms now operate under
  Sarbanes-Oxley Act (2002)
• CEO and CFO required to approve and declare
  accurate all financial statements provided to SEC
  for publication
• Ensure transparency of all disclosures
• Make content appropriately accessible for audit
  and verification

20
Questions

• Why are MNCs getting involved in corporate social
  responsibility?
• Out of the goodness of their hearts?
• Pressured by activists?
• Good for business?
• Is there a trade-off between financial
  performance and social responsibility?

21
Consider

• Now that we can do anything, what do we want to
  do?
• Bruce Mau
• Bruce Mau Design Inc.

22
Concluding thought
Let us choose to unite the power of markets with
the strength of universal ideals United Nations
Secretary General Kofi Annan