1afc7Module v-Ethics and Globalization

8/9/2019 1afc7Module v-Ethics and Globalization

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Amity Business School

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MBA Class of 2011, Semester II

Business Environment and Strategic Analysis

Dr. Himani Sharma


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Amity Business SchoolEthics

Discipline of dealing

with what is good

and bad, or rightand wrong, or with

moral duty and

obligation


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Amity Business SchoolEthical IssuesEthical Issues

Around the WorldAround the World JapanPayments to politicians for favorable treatment

Concealing customer complaints

Unequal status of women in the workplace Europe

Widespread acceptance of side payments (bribes)as a business cost

Discriminatory workplaces China

Lack of workers rights

Weak IP protections/enforcement


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Many Examples of Unethical

Corporate Behavior

Headlines have exposed the far-from-ethical

exploits of Enron, Arthur Andersen, WorldCom,

Global Crossing, Adelphia Communications,

Tyco International, and others

Enrons stated values, respect, integrity,

communication, and excellence, were once

proudly etched on Enrons paperweights

Ruthless self-interest that motivated the leaders

of some large corporations has been revealed


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Amity Business SchoolNot Just

Corporations Virtually no occupation has not had its own

painful ethical crises in recent years

Even so, business ethics scandals continue to

be headline news stories today. Lying on

resumes, obstruction of justice, destruction of

records, stock price manipulation, cutting

corners to meet Wall Streets expectations,

fraud, waste, and abuse, unfortunately, areoccurring all too often when those in business

go ethically wrong


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Globalization, Business Ethics &Competitive Advantage

Globalization has brought about greater

involvement with ethical considerations and mostimportantly achieving competitive advantage

through business ethics.

Globalization and business ethics are linked as

they affect a companys ability to commit to itsshareholders, in particular to external investors,

and preserve the trust needed for further

investment and growth.


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Ethics of Scandal Versus

Ethics of Strategy

It is increasingly important for companies to deal

with ethics as a corporate strategy that, if

uniquely implemented, could achieve competitive

advantage for the company rather than waiting to

react to possible ethical issues of importance to

the targeted stakeholders. It is the necessity of being ethically proactive

company rather than being ethically reactive

company.


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Business Ethics as

Competitive Advantage

As the speed of comparable tangible assetsacquisition accelerates and the pace of imitation

quickens, firms that want to sustain distinctive

global competitive advantages need to protect,

exploit and enhance their unique intangible

assets, particularly integrity (building firms of

integrity is the hidden logic of business ethics).


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Business Ethics asCompetitive Advantage

(Cont.) behavior that is trusting, trustworthy, and

cooperative, not opportunistic, will give the firm a

competitive advantage.

Sustainable global competitive advantage occurs

when a company implements a value-creating

strategy which other companies are unable to imitate.

For example, a company with superior businessleadership skills in enhancing integrity capacity

increases its reputation capital with multiple

stakeholders and positions itself for competitive

advantage


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Amity Business SchoolA MODEL OF ETHICS

Type I Ethics Type II Ethics

Sources of

ethicalguidance

Our beliefs

about what isright or wrong

Our actionsLead to Determine


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Amity Business SchoolCode of Ethics

Statement of values adopted by company,

its employees and directors and sets

official tone of top management regardingexpected behavior

Code of ethics establishes rules by which

organization lives and becomes part of

organizations corporate culture


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Amity Business SchoolSources of Ethical Guidance

Number of sources to determine what is right or

wrong, good or bad, moral or immoral

Bible and other holy books

Conscience

Significant others

Codes of Ethics

Sources of ethical guidance should lead to ourbeliefs or convictions about what is right or

wrong


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Amity Business SchoolCorporate and Auditing Accountability,

Responsibility and Transparency Act of2002

Known as Sarbanes Oxley Act, primary

focus to redress accounting and financialreporting abuses in light of recent

corporate scandals

Criminalized many corporate acts

Whistle-blower protections

Prohibits loans to executives and directors


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Amity Business SchoolSarbanesSarbanes--Oxley Act (2002)Oxley Act (2002)

In US, for example, firms now operate

under Sarbanes-Oxley Act (2002)

CEO and CFO required to approve and declareaccurate all financial statements provided to

SEC for publication

Ensure transparency of all disclosures

Make content appropriately accessible for auditand verification


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Amity Business SchoolOrganizational Ethics:

4 bottom lines


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Example of Enron

The scandalous nature of the Enron scandal:

the financial fraud gets most of the publicsattention!

The three other fields of ethics areovershadowed : equity, dignity, viability

Whereas the activities of Enron areproblematic in the 4 fields


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Enron in India: an Isolated Case ?

Other countries affected by Enron : Argentina,Brazil, Mozambique, Poland California

Other companies :Shell (Nigeria), BP

(Colombia), Mobil (Indonesia), Total (Burma);Oracle, Merck, Qwest, Xerox, Vivendi, Worldcom

Characteristics of international finance

LBOs

acceleration of IPOs

stock options (700% increase in 10 years)

institutional investors (50%+)

short term value of stock as only performancecriteria virtual assets


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Characteristics ofNew Economy management:

value associated to idealized top executives; CEOs =500 times average employee salary; bonus gone from

3$ to 64$ per 1000$ of value in 10 years; aggressivePR; image ofresponsibility ; only 1.5% of stockoptions paid to employees; etc.

Complicity or cooptation of social actors:

governments (Enron financed by 7M$ public

investments : USA, Germany, UK, France, Italy,Japan); financial analysts; accounting andconsultation firms; business schools; business press;host governments; etc

Enron in India: an Isolated Case ?


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1992: rumors that the Dabohl contract signed in India wascorrupted (level of investment = 50% of the provinceseducation budget)

1993: the World Bank refuses to finance the project (cost

of energy 4 times higher than locally-produced energy) 1995-96: the Indian government attempts to withdraw

from the project; beginning of physical violence withassistance of police

1997: Amnesty International report

1997-2001: abnormal stock price growth

1999: Human Rights Watch report

2000: note 16 in Enrons financial report

1992 2002: Enron : 29 allegations of corruption

2001: resignation of VPs and CEO

2002: report of the US House of Representatives

Precursory Signs (Prodomes)


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Enron : denial; legal attack for breach of contract;lobbying; corruption; intimidation; etc.

Financial analysts: no investigation of allegations, norof note 16

Accounting firms and internal audit: complicity andcooptation

Monitoring bodies ineffectual: SEC, FERC, board

Media: a few articles on tensions in India; no fieldinvestigations, no images

Still today: the Enron scandal: a financial scandal formost people

Response of Social Actors

to Ethical Issues


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Cleansing of financial markets

Some companies enter stocks options into theirbooks as expenses : Boeing, G.E., G.M., Citigroup

Some Enron top executives cooperate with justice

Proliferation of new approaches and tools: ex: U.N.Global Compact; CSR; social and environmentalaccounting; OECD principles, Caux Table; etc.

36% of CEOs more aware of integralresponsibilities (but only 10% invest in CSR)

19% of transnational companies have disinvestedfrom countries where Human Rights are violated

Present-day Positive Signs


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How to bring accounting firms and financial analysts tointegrate CSR norms ?

guarantee that these norms represent reality ?

ensure company governance ?

make companies responsible not only towardsshareholders ?

de-co-opt media and other organizations ?

increase the integrity of business students andmanagers ?

diminish the phenomenon ofethical leveling,denounced by Kierkegaard in 1850 !?

Many Questions Still Remain


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Amity Business SchoolEthics and Social Responsibility

Around the World

Ethical issues

Workers not well paid (often work 12 hours aday, 7 days a week)

Piracy of intellectual property, counterfeiting,

and industrial spying

Human rights violations Use of prisoner and child labor

Ethical Problems and

ConcernsChina


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Amity Business SchoolEthics and Social Responsibility

Around the World

Political campaign contributions & lobbyists

Fraud in mortgage sectorAttitude ofcaveat emptor

Rising wage inequality

middle class wages stagnant for a decade Lack of health benefits for workers

Loss of promised retirement benefits

Ethical Problems and

ConcernsUnited States


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Globalization

Criticisms of globalization

Offshoring of business services jobs to lower-

wage countries

Growing trade deficits

Slow wage growth

Environmental and social impacts


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Amity Business SchoolPrinciples of the Global

Compact

http://www.unglobalcompact.org/AboutTheGC/faq.html


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Amity Business SchoolCorruption Index:

Least and Most Corrupt Countries


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Amity Business SchoolDefinitionDefinition

Corporate social responsibility (CSR)

refers to

Those actions taken by a firm that are

intended to benefit society beyond therequirements of the law and the direct

interests of the firm (HLD, p. 65)

CSR is generally concerned with

Working conditions

The social and environmental impacts of

corporate activities (externalities)


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Amity Business SchoolWhy is CSR Important?Why is CSR Important?

MNCs are becoming more concerned

about CSR. Why?

Is it from the goodness of their hearts?

Is it due to external pressure?

Is it good for business?

Is there a trade-off between financial

performance and social responsibility?


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Amity Business SchoolMNC Concerns andMNC Concerns and

ResponseResponse Why ethics is vital for business

Increased media and public attention

Ethical failures can have damaging effects onworkers, managers, investors

An ounce of prevention.

MNC responses

Adoption of internal codes of conduct

Working through business alliance

Supporting the adoption of global standards


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Amity Business SchoolCSR and SustainabilityCSR and Sustainability

In The Triple Bottom Line (2006),

Andrew Savitz wrote,

The truly sustainable company would

have no need to write checks or giveback to the local community, because

the companys daily operations would not

deprive the community, but would enrich

it.


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Amity Business SchoolTrust in LeadersTrust in Leaders

0 10 20 30 40 50 60

Average Across All 15 Countries Surveyed

NGO leaders

Leaders at the U.N.

Spiritual/religious leaders

Leaders of Western Europe

Managers of the global economy

Managers of the national economy

Executives of MNCs

Leaders of the U.S.A.

52

42

41

36

36

35

33

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Adapted from Figure 3-1: Trust in Leaders: Percentage Saying A Lot and Some Trust


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Amity Business SchoolPerceptions of MNCsPerceptions of MNCs

TIs 2006 Global Corruption BarometerMost corrupt: Political parties and

legislatures

In the middle: the business sectorMost trusted: religious bodies and non-governmental organizations (NGOs)

MNCs face pressure to pay greater

attention to CSRNGOs mobilize public support andopposition

MNCs expected to adhere to higherstandards


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Amity Business SchoolThe Role ofNGOsThe Role ofNGOs

Emergence of organized civil society

NGOs have altered the global business

environment

NGO activism has lead to importantchanges in corporate behavior and

governance

Major criticisms of MNCs by NGOs

Exploitation of low-wage workersEnvironmental abuses

Intolerable workplace standards


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Amity Business SchoolLegal and

Regulatory Issues

Foreign Corrupt Practices Act

(http://www.usdoj.gov/criminal/fraud/docs/dojdocb.html)

Illegal to influence foreign officials through

Personal payment

Political contributions

When bribes removed, MNCs more willing to do business in

that country

Restrictive bureaucratization

Government controls often inefficient and uncorrected Local politics often prevail over national concerns

Privatization


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Amity Business SchoolCorporate GovernanceCorporate Governance

Corporate

Governance

Structure

Distribution of

rights and

responsibilities

Stakeholders

Board

Managers

Shareholders

Spells out the

rules and

procedures

Making

decisions

Setting objectives

Means of attaining objectives

Monitoring performance

The system by which business

corporations are directed and

controlled


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Amity Business SchoolInternational AssistanceInternational 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


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Amity Business SchoolRegulation of Trade

and Investment

Individual countries use legal and regulatory policies to

affect the international management environment

If a country is perceived to engage in unfair trade

practices (WTO and similar agreements) Government support (subsidies)

Require MNCs to accept local partners

Response may be

Retaliatory tariffs Restrictive trade regulations


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Amity Business SchoolMillennium Development Goals

Documents

1afc7Module v-Ethics and Globalization