Business Ethics and Corporate Governance Prof. Abhay Singh Borivali March, 2010 No part of this document must be reproduced for distribution without prior

Business Ethics and Corporate GovernanceProf. Abhay Singh

Borivali

March, 2010

No part of this document must be reproduced for distribution without prior consent from Prof. Abhay Singh.

CONFIDENTIAL 1Prof. Abhay Singh

CONFIDENTIAL Prof. Abhay Singh 2

Unit 4: Ethics in International Scenario

(A) Globalization and forces of change:

Globalization involves the integration of technology, markets, politics, cultures, labor,

production, and commerce. Globalization is both the process and the result of this

integration. The global economy is estimated to be around 33 trillion USD.

Some of the forces that have accelerated globalization include the following:

• The end of communism has allowed the opening of closed economies.

• Information technologies and the internet have accelerated communication and productivity

within and across companies globally.

• Entrepreneurship and entrepreneurs are more mobile, skilled, intelligent, and thriving

worldwide.


Unit 4: Contd....

• Free trade and trading agreements among nations open borders such as European Union

(EU), NAFTA-North American Free Trade Agreement, ASEAN-Association of Southeast

Asian Nations etc.

• The World Bank and International Monetary Fund (IMF) offers a conduit for needed capital

to flow to countries participating in building the global economy.

• As they grow and spread, transnational firms also open new markets and create local

employment across globe.

• A shift to service economies and knowledge workers using technologies has also propelled

innovation and productivity worldwide.

An estimated 40,000 to 1,00,000 multinational companies are doing business across national

boundaries and contributing to the global economy and the no. is increasing year on year.


Unit 4: Contd...

(B) World’s most admired companies (Best practices):

The Hay Group annually produces a peer-interviewed and ranked list of the world’s most

admired firms for Fortune Magazine. Overall, the survey results showed that the most

admired companies:

(1) set more challenging goals,

(2) link executive compensation more closely to the completion of the goals, and

(3) are more oriented toward long-term performance.

Companies like: General Electric, Cisco, Microsoft, Intel, Wal-Mart, Johnson & Johnson, Nokia,

Lucent Technologies are regular on Fortune Top 15 list.

The other significant practices of these companies include the following:


Unit 4: Contd...

• While 80% of the companies surveyed use profits as measure of their success, these firms

use broader, return-based methods of measurement-that is, equity, capital, assets, and

shareholder value-more than their peers were likely to use.

• Senior leaders in these firms were more involved in goal-setting activities than their

counterparts in other companies.

• British Oil charts the progress of its “people” in qualitative performance measurements that

include innovation, mutual trust and respect, teamwork, and diversity.

(C) Issues with Globalization: the dark side:

It is difficult to determine whether the process of globalization is the cause or effect of the

forces driving this phenomenon. The process of globalization may be producing “losers”.


Unit 4: Contd.....

Critics generally say that globalization has caused, or atleast enhanced, the following

problems:

• crime & corruption;

• drug consumption;

• massive layoffs that occur when companies move to regions that offer cheaper labor;

Westernization (led by Amercanization) of culture, standards, and trends in entertainment,

fashion, food, technology, movie star role ways of living, and values.


Unit 4: Contd.....

(D) Multinational Enterprises as stakeholders:

MNE Perspective:

Multinational Enterprises (MNEs) are corporations that “own or control production or service

facilities outside the country in which they are based.”

MNEs enter foreign countries primarily to make profit, but also to create opportunities host

countries would not have access to without these companies.

While MNEs benefit from international currency fluctuations, available labor at cheaper

cost, tax and trade incentives, and the use of natural resources, and gain access to more

foreign markets, these companies benefit their host countries through foreign direct

investment and in these ways:

• Hire local labor,

• Create new jobs,


Unit 4: Contd.....

• Co-venture with local entrepreneurs and companies,

• Attract local capital to projects,

• Provide for enhance technology transfer,

• Develop particular industry sectors,

• Provide business learning skills,

• Increase industrial output and productivity,

• Intensify competition in the country by introducing new products, services, and ideas,

• Help decrease the country’s debt and improve its balance of payments and stand of living.

The MNE must manage overlapping and often conflicting multiple constituencies in its home

and host country operations.


Unit 4: Contd..... MNE Stakeholder Management, Environmental Issues, and Ethical Concerns


Unit 4: Contd.....

Host-Country Perspective:

• MNEs can dominate & protect their core technology and research & development, thus

keeping the host country a consumer, not a partner or producer.

• MNEs can destabilise national sovereignty by limiting a country’s access to critical capital &

resources, thereby creating a host-country dependency on the MNE’s government & politics.

• MNEs can create a “brain-drain” by attracting scientists, expertise, and talent from the host

country.

• They can create an imbalance of capital outflows over inflows. They produce, but

emphasize exports over imports in the host country, thereby leaving local economies

dependent on foreign control.


Unit 4: Contd.....

• They can disturb local government economic planning & business practices by exerting

control over the development & capitalization of a country’s infrastructure. Also, by

providing higher wages & better working conditions, MNEs influence and change a

country’s traditions, values, and customs. “Cultural imperialism” is imported through

business practices.

• They can destroy, pollute, and endanger host-country and environments and the health of

local populations.


Unit 4: Contd.....

Case Study 1:

What’s written Versus What’s Reality:

Ethical Dilemmas in a Hi-Tech Pubic Relations Firm

• Seven Common Ethical Dilemmas:

1. Client noncompete agreement

2. Client confidentiality: insider information

Microsoft Office Word 97 - 2003 Document


Unit 4: Contd.....

3. Integrity of client information

4. Employee poaching

5. Friends and family stock gifting

6. Unrealistic financial forecasting

7. Promised versus realized employee benefits


Unit 4: Contd.....

1. Client Noncompete agreements: Contracts between the agency and the client specifically

state the agency will not solicit or accept work from a competitor during the term of the

contract.

2. Client Confidentiality: Insider Information. Highly confidential client information is shared

with PR agencies in an effort to place clients and their products in the best strategic

position. All information of client is returned once the contract is complete/terminated.

3. Integrity of client information: PR professionals rely on client-supplied information. The

information is then passed on to the media for broadcast or publication. It is not the

responsibility of PR agency to research the accuracy. However, the blame can fall on the

agency when things go wrong.


Unit 4: Contd.....

4. Employee poaching: Contracts between the agency and the client specifically state the

clients will not solicit any employees of the agency during the term of this contract.

5. Friends and family stock gifting: Hi-tech companies hiring PRI to assist them in their IPO

launches, the offering of friends and family (F&F) stock to the agency and its employees is

common.

6. Unrealistic financial forecasting: the senior management team is recognized for business

growth. In order to appear heroic, senior managers are overly conservative.


Unit 4: Contd.....

7. Promised versus realized employee benefits: The senior leaders paid their dues by working

long hours and expect their junior staff to do the same. Additionally, there are political

battles among some of the senior leaders. Their conflict filters down to middle management

& below.

Case Study 2:

Fleet Bank/ Bankboston Merger: Culture Clash: Back to the future.


Unit 4: Contd.....

Case Study 3:

Women in Public Accounting: Gender & Workplace Obstacles

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Business Ethics and Corporate Governance Prof. Abhay Singh Borivali March, 2010 No part of this document must be reproduced for distribution without prior