ETHICSIN

INTERNATIONAL BUSINESS

Stephen Ong, BSc(Hons) Econs (LSE),

MBA International Business(Bradford)

Visiting Fellow, Birmingham City UniversityVisiting Professor, Shenzhen University

MBA1034 GOVERNANCE, LAW & ETHICS

• International law and institutions1

• Human rights and justice• Working conditions• Corruption

2

• Case Discussion : GSK and AIDS3

Today’s Overview

2. ETHICS

ANDINTERNATIONAL BUSINESS

Topics Covered• Introduction• International law and institutions• Cultural relativism• Human rights and justice• Operating in developing countries• AIDS and developing countries• Responsibility for working conditions in

suppliers’ factories• Questionable foreign payments and

corruption

Introduction• Ethics issues abound within a

country–They take on added dimensions when

a firm operates across national and cultural borders

• In contrast to the differences among countries, ethics principles are intended to be universal

International Law and Institutions• Interactions between nations and foreign firms

are governed by the laws of the host nation and by international law

• International law consists of:– National laws that pertain to foreign persons,

entities, and other nations– Intergovernmental treaties and agreements– Rulings by international courts– Actions of international bodies such as the United

Nations and the Organization of American States

Cultural Relativism• Sen (1997) advocated the simultaneous

recognition of:– The significance of cultural variation– The need to avoid cultural stereotypes and

sweeping generalizations– The importance of taking a dynamic rather

than a static view of cultures– The necessity of recognizing heterogeneity

within given communities

Cultural Relativism•Appropriate behaviour in a country or culture is determined by its laws and customs

Cultural Imperialism •In operating internationally a firm maintains the standards of its home country and judges others by those standards

Cultural Relativism

• Donaldson identifies two fundamental conflicts between universal principles and local customs and practices:–“Conflict of relative development”–“Conflict of cultural tradition”

Cultural Relativism• Suggested general principles by

Donaldson–Respect for core human values (human

dignity, respect for basic rights, and good citizenship):• Which determine the absolute moral threshold

for all business activities–Respect for local traditions– The belief that context matters when

deciding what is right and wrong

Guidelines for Ethical Leadership• Treat corporate values and formal standards

of conduct as absolutes• Design and implement conditions of

engagement for suppliers and customers• Allow foreign business units to help

formulate ethics standards and interpret ethics issues

• In host countries, support efforts to decrease institutional corruption

• Exercise moral imagination

Universal Rights• Freedom of physical movement• Ownership of property• Freedom from torture• Fair trial• Nondiscriminatory treatment• Physical security• Speech and association• Minimal education• Political participation• Subsistence

UN Declaration on Human Rights 1947

UN Millenium Development Goals 2015 and Human Rights

Human Rights and Justice

• Some ethics issues arise not from the actions of individuals and firms:–But instead from the

policies of governments

Operating in Developing Countries

• In developing countries, institutions are not always present to provide guidance to firms and their managers

Responsibility for Working Conditions in Suppliers’ Factories• In the 1990s concern developed about

“sweatshops” in Asia and Latin America that supplied U.S. footwear and apparel companies

• To improve practices in suppliers’ factories, President Clinton appointed an 18-member White House Apparel Industry Partnership, which included:– Nike, Reebok, L.L. Bean, Liz Claiborne, unions,

human rights groups, and activist and advocacy representatives

Private Governance and Self-regulation: The Fair Labour Association• The FLA has many of the characteristics of a

government institution:– Specified representation, decision rights,

standards, monitoring, certification, public reporting, and amendment procedures

– Selected and certified independent third-party monitors to inspect a specified percentage of the factories each year, and the companies chose from the set for the inspections

– Specified detailed procedures (Monitoring Guidance and Compliance Benchmarks) for the inspections

Questionable Foreign Payments and Corruption• Corruption is costly both

tangibly and intangibly–Distorts economic activity,

resulting in a substantial cost to an economy–Undermines trust and

confidence in government

Questionable Payments and Ethics Principles

• In a situation in which payments are either demanded or likely to be required to obtain a sale, firms and their managers have two sources of guidance:– Ethics– The law

• Bribe - A payment to an individual in an organization intended to influence that person’s exercise of his or her responsibilities– A bribe is intended to corrupt the behaviour of the

recipient

A Utilitarian Analysis of Bribery

• From a utilitarian perspective bribery is bad because:–It distorts economic activity

away from producing the greatest well-being

The Foreign Corrupt Practices Act (FCPA)• Makes bribery of foreign officials, political parties,

candidates for office, and public international organizations a criminal offense

• Provides for a fine of up to $1 million for the company and up to $10,000 and imprisonment for not more than 5 years:– For an individual making a payment or offer covered by

the act• Assigns the burden of knowing whether illegal

payments are being made to the company– Imposes detailed record-keeping requirements

The Foreign Corrupt Practices Act (FCPA)• Allows small “facilitating payments” to low-level

government employees such as customs inspectors, if the payments do not influence a decision

• Covers the use of agents, intermediaries, or third parties– They are subject to both criminal and civil penalties

• Does not prohibit payments to private businesses

The UK Bribery Act

• Took effect in July 2011• In addition to prohibiting

bribery of government officials, it prohibits bribes paid to private companies

Company Codes• Most firms have codes to:– Ensure compliance with the FCPA and international

conventions – Clarify when foreign payments can be made and

how they are to be accounted for• Three principal purposes of codes:– Provide guidance to employees– Make it easier for them to say no to demands for

payment– Ultimately discourage demands for payments

Cummin’s Practice• Payments are allowable only if three

conditions are met:– The payment is required to induce the

official to perform a routine act which he is already under a duty to perform– The payment is consistent with local

practice– There is no reasonable alternative available

for obtaining the official act or service at issue

Cummins, Inc.: Questionable Foreign Payments and the Relationship of Trust

The OECD Anti-Bribery Convention• Signed by the 34 OECD member countries plus

Argentina, Brazil, Bulgaria, and South Africa• Requires signatories to make the act of bribery

and the making of other forms of illicit payments to foreign public officials a criminal offence

–Whether paid directly or indirectly “in order to obtain or retain business or other improper advantage in the conduct of international business”

Case - Google Out of China

• Google detected an extensive and sophisticated cyber attack that targeted companies and specific employees within the companies– Although Google traced the attacks to China, it did

not allege that they were conducted by the government

• Google hoped to negotiate with the Chinese government to allow it to remain in China without self-censoring

Case - De Beers and Conflict Diamonds • Most diamond mining involved capital

intensive shaft mining, but alluvial diamonds were found near the surface–Resulted in civil wars, killings, torture, and

mutilations in Africa where diamonds were mined

• De Beers was forced to end its control of the diamond supply, focusing instead on the orderly distribution of diamonds

Case - De Beers and Conflict Diamonds

• The Kimberly Process was successful in stopping the use of conflict diamonds to fund rebel groups

• Zimbabwe and some other African countries argued that because the Marange diamond mines were owned by the government, diamond exports would not fund violence against the government and hence were not covered by the Kimberly Process

Case - Siemens: Anatomy of Bribery• In fiscal 2007 Siemens’ auditor identified €100

million in questionable payments to more than a dozen consulting firms

• In January 2007 Siemens was fined €400 million by the European Union for price fixing on electric power switching equipment

• At the end of 2007 Siemens began a worldwide advertising campaign with planned expenditures– The “Siemens answers” campaign emphasized the

company’s technological prowess

Case - Siemens: Anatomy of Bribery

AIDS and Developing Countries

•Many developing countries lack the means to provide basic services for their people–Many of these countries have

also been devastated by the AIDS pandemic

CASE DISCUSSION : GSK AND AIDS

Case - GlaxoSmithKline and AIDS Drugs Policy• GSK and the other pharmaceutical companies

believed their pricing policies were justified by the high costs of research and development

• GSK feared that many countries might follow the examples of Thailand and Brazil and use the opportunity to import or make cheap imitation drugs at the expense of patent holders

• In response to the pressure GSK established a corporate social responsibility committee– GSK participated along with other pharmaceutical

companies in TRIPS negotiations regarding compulsory licensing and parallel imports

Core Readings• Baron, David P.(2013) Business and its

environment, 7th Edition, Pearson, Ch.24

QUESTIONS?