Crossnational Ethics And

1
Chapter 2

• Cross-national Ethics And
• Social Responsibility

2
Learning Objectives

• Concept of ethics
• Relationship with legality
• Relationship with social acceptance
• Issues and complications in complying with
  foreign ethical practices

3
Learning Objectives

• History behind FCPA
• The impact of the FCPA on MNCs
• Social responsibility in a cross-national context

4
Ethical Behavior

• Determining the difference between right and
  wrong.
• Is the action legal?
• Is the action socially acceptable?
• Home country and host country rights and
  wrongs may lead to a conflict.
• Consider bribery as an example.

5
Payoffs

• Bribery.
• Whitemail bribes.
• This refers to payments made to induce an
  official in a position of power to give favorable
  treatment.
• Lubrication bribes.
• This type of bribe is typically described as a
  payment to facilitate, expedite, or speed routine
  government approvals.

6
Payoffs

• Extortion.
• Extortion is a force exerted by an official
  seeking payment from an individual or corporation
  for an action to which the individual or
  corporation may lawfully be entitled.

7
To Bribe Or Not To Bribe? Four Basic Questions

• Legal questions
• What are the legal consequences in the parent
  (home) country?
• How comprehensive is the law of the local (host)
  country? How is the law enforced?
• Will the corporation be liable to its competitors
  for financial damages (such as unfair practice or
  restraint of trade)?
• Will the company be held liable by stockholders
  in the host or parent country?

8
To Bribe Or Not To Bribe? Four Basic Questions

• Moral questions
• What is the companys policy regarding payoffs?
  Will it cause any deviation from standard
  practice?
• What is the custom in the host country?

9
To Bribe Or Not To Bribe? FOUR BASIC QUESTIONS
(Continued)

• Economic questions
• How does the expected gain compare with the
  companys total earnings?
• Will the payoff trigger other host countries to
  make the same demand?
• Will the payoff action cause retaliation from
  competitors?

10
To Bribe Or Not To Bribe? FOUR BASIC QUESTIONS
(Continued)

• Personal questions
• Am I likely to be held personally for such
  action?
• Does the company carry insurance to pay my legal
  fees if I am found guilty of violating a law?
• How would my family and friends react to
  disclosure of such activity?

11
The U.S. FOREIGN CORRUPT PRACTICES ACT (FCPA) of
1977

• Purpose of FCPA
• To establish a worldwide code of conduct for any
  kind of payment by united states businesses to
  foreign government officials, official, political
  parties, and political candidates.
• To require appropriate accounting controls for
  full disclosure of a firms transactions.

12
The U.S. FOREIGN CORRUPT PRACTICES ACT (FCPA) of
1977

• Basic provisions
• It is a criminal offense for a firm to make
  payments to a foreign government officials,
  political party, party official in order to
  secure or retain business in another nation.

13
The U.S. FOREIGN CORRUPT PRACTICES ACT (FCPA) of
1977

• Sales commissions to independent agents are
  illegal if the business has knowledge that any
  party of the commission is being passed to a
  foreign official.

14
The U.S. FOREIGN CORRUPT PRACTICES ACT (FCPA) of
1977

• Government employees whose duties are essentially
  ministerial or clerical are excluded, so
  expediting payments to persons such as customs
  agents and bureaucrats are permitted. (Thus, the
  FCPA does not apply to small lubrication
  bribes).

15
The U.S. FOREIGN CORRUPT PRACTICES ACT (FCPA) of
1977

• In addition to the antibribery provisions that
  apply to all businesses, all publicly held
  corporations that are subject to the SEC are
  required to establish internal accounting
  controls to ensure that all payments abroad are
  authorized and properly recorded.

16
Complaints From MNCS Over The FCPA

• Competitive disadvantage.
• The accounting burden of internal controls.
• FCPA forces them to become political tools of the
  U.S. Government.
• Not clear enough with respect to the use of
  foreign subsidiaries to transact business.

17
An Alternative APRROACH To Payoffs

• Many MNCs focus on enhancing their
  competitiveness by improving
• Technical expertise
• Custom service
• Provision of quality

18
Cross-national Social Responsibility

• Social responsibility is a notion that
  corporations have an obligation to constituent
  groups in society other than stock-holders and
  beyond that areprescribed by law or union
  contracts.

19
Cross-national Social Responsibility

• Corporate social responsibility therefore means
  that a firms actions must take into account not
  only the well-being of the stockholders but also
  the well-being of the community, the employees,
  and the customers.

20
Challenge Of Ethics And Social RESPONSIBLITY

• Cultural relativism.
• Cultural relativism holds that no cultures
  ethics are any better than any others. There are
  no international rights or wrongs.
• Problems example piracy of patents.

21
Challenge Of Ethics And Social RESPONSIBLITY

• Universalism.
• The concept of universalism, is a rigid global
  yardstick which measures all moral issues ( for
  example, the FCPA).
• Problems example of union carbide.

22
Challenge Of Ethics And Social RESPONSIBLITY

• What applies in the world?
• As the integration of the global economy
  increases, effective international managers
  develop a better appreciation of the differences
  in the legal and cultural context of business
  ethics between the united states and other
  nations because the managers realize that
  universal application of ethics is not prevalent.