Corporate Citizenship, Ethics and

Social Responsibility

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Rese

Ethics and Social Responsibility

Chapter Objectives:
1. EXAMINE ethics in international management
and some of the major ethical issues and
problems confronting MNCs in selected countries.
2. DISCUSS some of the pressures on and action
being taken by selected industrialized countries
and companies to be more socially and
environmentally responsive to world problems.
3. EXPLAIN some of the initiatives to bring greater
accountability to corporate conduct and limit the
impacts of corruption around the world.
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Ethics and Social Responsibility

Ethics:
Study of morality and standards of conduct
Dilemmas arising from conflicts between
ethical standards between countries most
evident in employment practices
Inferring right vs. wrong in legal sense

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Ethics and Social Responsibility

Corporate Social Responsibility
(CSR):

Closely related to ethics

Actions of a firm to benefit society
beyond requirements of law and
direct interests of firm
CSR involves taking voluntary
action
CSR concerns include working
conditions in factories and service
centers as well as environmental
impacts of corporate activities
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Ethics and Social Responsibility

Employment and business practices
Difficult to establish a universal foundation
of employment practices
Difficult dilemmas in deciding working
conditions, expected consecutive work
hours, and labor regulations.
Offshoring due to differences in labor costs

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Ethics and Social Responsibility

Human Rights
Currently no universally adopted standard
A great deal of subjectivity and culturally
biased viewpoints exist
Some basic rights: life, freedom from
slavery or torture, freedom of opinion and
expression, general ambiance of
nondiscriminatory practices
Human rights violations still rampant
globally
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Ethics and Social Responsibility

Corruption
Government corruption pervasive element
in international business environment
Scandals in Russia, China, Pakistan,
Lesotho, South Africa, Costa Rica, Egypt
and elsewhere

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The 12 most corrupt countries in the

world

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RUSSIA
Here are just a few recent examples of
shady Russian practices:
1.
imprisonment of politician Alexei Navaln
y
, a Moscow mayoral candidate and one
of Vladimir Putin's biggest critics.
2. Winning the 2018 FIFA World Cup bid
by allegedly buying votes from FIFA
delegates.
3. The alleged close relationship
between the Russian government and
the construction companies involved in
the 2014 Sochi Winter Olympics.

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MYANMAR

A May 2015 profile on the

southeast
Asian
country
by the BBC reported that
the
Burmese economy is "one of the
least developed in the world and
is suffering the effects of decades
of stagnation, mismanagement,
and isolation. Key industries have
long been controlled by the
military, and corruption is rife."

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SOUTH SUDAN

South Sudan's President Salva

Kiir attends the signing of the
Standard Gauge Railway
agreement with China at the
State House in Nairobi, May 11,
2014.
"Despite its oil wealth, extensive
corruption plagued the fledgling
democracy," Al Jazeera reported.
"Less than three years after
gaining independence, the new
country descended into civil war,
leading to the deaths of tens of
thousands of its people and the
displacement of almost two
million."
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LIBYA

According to an April report

by the Financial Times
, administrators
who
are
overseeing Libya's vast oil
wealth, which accounts for 90%
of Libya's revenues, have been
accused of gross economic
mismanagement.
Other allegations include officials
being pressured to appoint
certain people to key positions of
power.
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IRAQ

Al Monitor talked to an anonymous

source who works in Iraq as a civil
engineer. The source described a
culture of corruption that has prevailed
since the end of the US war in Iraq
"It's not just about financial corruption,
but administrative corruption and
circumvention of the law as well," the
source told Al Monitor. "Officials are
resorting to their relatives and friends by
registering companies in their names for
forms sake when these companies do
not have skilled technicians or
mechanisms. With the help of officials,
[the companies] sign a contract to
rebuild a school, for example, and they
carry out the projects either by selling it
to another contractor or by recruiting
workers and developing mechanisms.
This ultimately leads to failed projects.

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Equatorial Guinea

Vast oil revenues fund lavish

lifestyles for the small elite
surrounding the president, while a
large proportion of the population
continues to live in poverty,"
according to Human Rights
Watch. "Mismanagement of
public funds and credible
allegations of high-level
corruption persist, as do other
serious abuses, including
arbitrary detention, secret
detention, and unfair trials.

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Afghanistan

Earlier this year, the Fiscal Times

reported that Afghanistan would
not be able to meet its budgetary
obligations for 2016 due to
plummeting domestic revenue.
The reason? Half of its revenue
generated by customs, which
accounts for one-third of
Afghanistan's domestic revenue,
had been stolen.
The Fiscal Times added that
Afghanistan has one of the lowest
rates of revenue collection in the
world.

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NORTH KOREA

If you needed any more examples to

convince you that North Korea is a
corrupt, totalitarian state, here are a few
from the 2015 Economic Index of
Freedom:
1. Bribery is pervasive at every level of
the state and economy.
2. The Workers Party, the Korean
Peoples Army, and cabinet officials run
companies that compete to earn foreign
exchange.
3. Almost all property belongs to the
state.
4. The government controls exports and
imports as well as domestically
produced goods.
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CORRUPTION AND INTERNATIONAL

BUSINESS
In the context of business transaction,
domestic or international, the issue of
corruption occupies a prominent place.
Actually not all corruption may be
regarded as illegal. The literature offers
various definition of corruption. The
definition in our reference/book( Ehud
Menipaz and Amit Menipaz) is an
exchange between two parties which
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Corruption cont.
a. Has an influence on the allocation of
business resources either immediately
or in the future.
b. Involves the use or abuse of public or
collective responsibility for private
needs and wants. Although measuring
corruption is difficult it has been
estimated that in developed economies
the underground economy.
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Causes of Corruption
Corruption may be found anywhere, as it
is related to transactions of any kind,
including business transaction.
Transparency International annually
publishes it Corruption Perception Index.
It includes a range of countries, from the
least corrupt to those with the most
widespread corruption. There are too
many countries with a low grade.
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Causes of Corruption
1. Personal greed that leads to an unfettered desire for
money or power, with no regard whatsoever to moral
boundaries.
The underlying anthropological cause is the innate
human impulse to own external goods, when it is not
subject to personal integrity. Is personal integrity less
valued than it used to be? Is there a need for religious
or other types of motivation that were once stronger?

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 2. Decline of personal ethical sensitivity, either due to

lack of education or negative learning experiences,
developed by downplaying perverse conduct in the
past. Should ethical education be put under review? Is
it time for a personal reassessment with sincerity and
repentance, to learn more about its influence in
promoting positive learning?

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 3. No sense of service when working in public

or private institutions. This is seen, for
instance, in those who use politics for their
selfish interests, instead of serving the
common good through politics. How can we
promote politicians and leaders with a true
service-oriented spirit?

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 4. Low awareness or lack of courage to denounce

corrupt behavior and situations conducive to
corruption. That is the case of someone who is aware
of corruption and stays quiet. They simply cover for
the corrupt individuals, perhaps thinking that it is not
their problem, or perhaps out of cowardice, so as not
to make their lives more complicated. Would it help to
promote a culture of denouncing corruption?

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 5. Cultural environments that

condone corruption. Such as defending or
even admiring crooks (you have to be pretty
smart to evade taxes). Or rationalizing false
arguments with no moral basis(everyone
does it; take advantage while you can; life
is short). Who ought to promote that culture?
Social leaders? Everyone?

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 6. Lack of transparency, especially at the

institutional level, but also in less formal
organizations. Knowing that what you do is
seen by everyone, wouldnt that deter acts of
corruption?

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 7. Regulations and inefficient controls. Increased

regulations and control mechanisms are probably not
the answer. They are costly and tend to stifle initiatives
and administrative dynamics. But why not have better
regulation and more effective control in areas prone to
corruption. Is that so difficult?

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 7. Slow judicial processes. In some other countries,

we would have to add and unreliable to that
statement. Swift processes can have a greater
exemplifying effect than those that, by the time the
sentence comes, the crime already is nearly forgotten.
Justice requires appealing processes and warranties,
but not if it means slowing down the administration of
justice. Do we need more judges, but also better
processes?

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 8. Lack of moral criteria in promotions. Corruption is

prevalent when there are no criteria for proven
integrity and responsibility in the promotion.
Such criteria are ignored when someone is promoted
simply because of their loyalty to whoever is in charge
or those in control of the party. Or if it is only their
strategic or organizational skills that are evaluated.
Obviously, someone can be wrong when making a
promoting someone, but there should be no problem
distinguishing between a simple mistake and culpable
ignorance due to negligence or a lack of ethical
assessment. Is it an issue of ethical shortsightedness?
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 10. Downplaying or reacting mildly to

corruption charges. Little power of decision
within organizations to penalize acts of
corruption to set examples creates an
environment conducive to perpetuating
corruption.

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Corruption Practices
1. Smuggling- is an illegal trade
movement of goods across international
boarders, so as to avoid paying custom
duties and tariffs and break quota rules.
Smuggling goods such as: drugs, liquor,
cigarettes, pharmaceuticals and guns.
It common practice in France and UK,
North Africa, European Union, Mexico,
and the USA, Cuba and USA.
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Corruption Practices
2. Money Laundering- involves
concealing the source of Funds by
channeling them into legitimate business
activities and depositing the funds in
banks.

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Corruption Practices
3. Piracy- means using illegal and
unauthorized means to obtain goods,
such as copying of software.
4. Bribery- payment made in the context
of international business to enhance
goodwill by foreign authorities and
personalities.

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National and Global Response

The Global response to corruption is
aided by, among others, initiatives of
governments, the OECD ( Organization
for
Economic
Cooperation
and
Development, the Commonwealth, the
United Nations, The World Bank, The
International Monetary Fund, and the
World Trade Organization.
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Ethics in Japan

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Ethical issues in Japan

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Ethics in China

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Ethics and Social Responsibility

Around the World: CHINA
Workers not well paid
Often forced to work 12 hours a day, 7
days a week
Piracy, counterfeiting, industrial spying
Human rights violations
Use of prisoner and child labor

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Ethics and Social Responsibility

Around the World: JAPAN

Political and business scandals:

Japanese cabinet member have accepted
questionable payments and favors
Japanese banking system has failed to take
corrective actions when dispersing loans
Some Japanese firms systematically
concealed customer complaints

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Ethics and Social Responsibility

Around the World: JAPAN
Equal opportunity issues
Refusal to hire women or promote them into
management positions
Hostile work environment
Traditional role of females and female
employees
Sexual harassment may not be considered
a moral issue

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Ethics and Social Responsibility

Around the World: EUROPE

Equal employment opportunity

Glass ceiling pervasive throughout the world
France, Germany, Great Britain have seen
increase in number of women in
management, but tend to represent only
lower levels

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Corporate Response to
Social Obligations
Agreements and codes of conduct committing
MNCs to maintain certain standards
Codes help offset real or perceived concern
that companies move jobs to avoid higher
labor or environmental standards in their home
markets
Contribute to raising of standard in developing
world by exporting higher standard to local
firms in these countries
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Principles of Global Compact

Human Rights
Labor
Environment
Anti-Corruption

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Principles of Global Compact

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Corporate Governance
The System by which business
corporations are directed and controlled:
Distribution of rights and responsibilities
Stakeholder management
Spells out rules and procedures
Makes decisions
Objective setting
Means of attaining objectives
Monitors performance
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Corporate Governance
Many continental European countries are
insider systems
Ownership more concentrated
Shares owned by holding companies, families or
banks

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
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Global Initiatives to Increase

Accountability and Limit Corruption

Foreign Corrupt Practices Act

International Assistance Partnerships

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Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act of 1977
(FCPA) is a United States federal law known
primarily for two of its main provisions, one
that addresses accounting transparency
requirements under the Securities Exchange
Act of 1934 and another concerning bribery of
foreign officials.
The act was amended in 1988 and in 1998. As
of 2012 there were continued congressional
concerns.

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Corruption and Foreign

Corrupt Practices Act (FCPA)
Some evidence that discontinuing bribes does
not reduce sales of the firms products or
services in that country
Recent formal agreement by
many
industrialized nations to outlaw the practice of
bribing foreign government officials
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

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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
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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
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International Assistance

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Millennium Development Goals

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