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Unit 12
Unit 12
Structure:
12.1 Introduction
Objectives
12.2 Business Ethics Factors
Importance of business ethics
12.3 International Business and Ethics
Managing ethics
Free market ethics
12.4 National Differences in Ethics
Negotiating across cultures
Ethical issues
12.5 Corporate Governance
Code of conduct for MNCs
Corporate ethical programmes
Social responsibility and ethics
12.6 Summary
12.7 Glossary
12.8 Terminal Questions
12.9 Answers
12.10 Caselet
12.1 Introduction
In the previous unit, you studied about the various aspects of human
resource management in an international organisation. You also came to
know about the organisational structure and managing expatriate. While
managing resources and earning profit is necessary for an organisation, we
should not forget that any business cannot run for long without following
ethical practices.
In this unit, we will discuss about ethics which is an important part of
managing an organisation. Ethics can be defined as the evaluation of moral
values, principles, and standards of human conduct and its application in
daily life to determine acceptable human behaviour.
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play a key role in building trust and understanding with potential customers,
suppliers, and government officials.
While there will always be issues about moral and ethical appropriateness,
the boundary between ethical and unethical business practices is
reasonably clear in most societies. If the boundary is not clear, the law is
vague on a certain point, or firms act in an unacceptable manner, then
governments may have to take relevant actions against the erring parties.
Businesses must refrain from engaging in illegal activities, but the legislature
in some countries is not very clear and causes ambiguity. International
business managers find it difficult because legally and culturally acceptable
activities in the home country may be illegal and culturally unacceptable in
the foreign country. The international manager has to make prudent
decisions on such occasions.
MNCs deal with issues related to ethics in foreign country. Some of the
issues are the following:
Conduct business in a country where the government violates human
rights.
Market a product in a country that lacks adequate consumer protection
and product liability laws.
Sell products with harmful side effects, where there is a high level of
illiteracy that prevents the customers from following the directions for
safe usage of a product.
Be responsible for the end-user behaviour that may not be legal.
Bribe officials in a country where corruption is widespread.
Follow local laws in areas such as employee safety and environmental
protection that are not as strict as in the home country.
Change attitude towards female employees in a country where women
do not enjoy the same rights as men.
Use tax avoidance strategies.
Accomplish business goals with a firm engaged in practices that are
illegal in the home country.
Multinational firms should have a moral and ethical responsibility to ensure
safe, fair, environmentally sustainable, and legal work environment in
emerging markets irrespective of the local laws.
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These are the issues that international businesses face when they conduct
business in other parts of the world, where the laws are different from their
home countries.
Ethical decision making
In the previous section, you learned about the various ethical issues to be
considered in an international scenario, let us discuss the process of ethical
decision making.
The competitive nature of business and the emphasis on profit causes
managers to violate business ethics. For example, employing workers in a
foreign country, where wages are low and working conditions are substandard. Ideally, a manager must consider all the choices available to him
and make a decision that does not violate the ethics of business.
There are many differences in opinion concerning business ethics. The
following are four approaches that help managers make the right decision.
Universalism There are two steps in this approach. Firstly, one needs
to decide if the action being considered has to apply to everyone under
all situations. Secondly, the same action must be applied to the
manager.
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Britain
Germany
Italy
Japan
USA
Yes
No
Yes
Yes
Yes
Every 57
years
No
Every 9
years
Every 7
years
Every 5
years
Advisory
No
Yes
Yes
No
No
No
Yes
Yes
No
Majority of
independent
directors on the
Board
Recommended
Recommended
No
No
Yes
Separate
Chairman and
CEO
Recommended
Yes
Voluntary
Voluntary
Voluntary
Independent
auditors
Rotation of
auditors
Executive pay on
shareholders
approval
Nomination of
independent
directors by
shareholders
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Given the broad range of potential ethical issues a multinational firm may
encounter, the code of conduct must meet the expectations of various
parties involved. The code of conduct must fulfil the following requirements:
Be economically viable.
Address major issues that are important to the companys stakeholders.
Engage important stakeholders in formulation and implementation.
Specify performance standards that can be measured.
12.5.3 Social responsibility and ethics
International businesses face many challenges while undertaking social
actions as part of their corporate strategy. Corporate social strategy helps
overcome such challenges. Starting a corporate social strategy includes the
following:
Be socially responsible.
Be responsive to stakeholders in each country.
Be able to treat employees, customers, suppliers. and the local
community in a fair and just way.
Abide by the host governments regulations and policies.
Ensure that the employees and personnel of the company follow
corporate policies.
Recognise emerging issues in the host countries and communities.
Conduct business in accordance with the values, customs, and moral
principles of society.
Organisations that adhere to these strategies are better equipped to react to
global challenges and corporate responsibilities. They are better prepared to
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12.6 Summary
Now let us summarise the salient features in this unit on ethics in
international business:
Ethics is significant in all areas of business and plays an important role
in ensuring a successful business. People tend to favour the products
and services of a company that is ethically and socially responsible. The
different factors that influence the ethics of a business and its
management are religion, culture, and law.
With rise in global firms, issues related to ethical values and traditions
have become more common. Bribery, corruption, and worker
compensation related issues are the most common ethical issues that
MNCs face.
Negotiations across countries include the linear model where the
principles are first agreed upon, then the various positions are
negotiated and details of the agreement are finalised, followed by the
process of implementation. The other model for negotiations is the
encompassing model, which is more descriptive and includes the same
stages as the linear model, but focuses on the extent to which each
stage is presented.
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12.7 Glossary
Bribery: The financial inducement offered to persuade someone to act
improperly in favour of the person offering the bribe.
Whistle-blowing: The act of reporting a wrongdoing by a current or former
employee of a company.
12.9 Answers
Self Assessment Questions 1
1. Law, religion, and culture
2. Civilisation
3. True
Self Assessment Questions 2
4. Xerox
5. Bribery and corruption and worker compensation
6. Competition
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12.10 Caselet
Satyam Computer Services Ltd.
In December 2008, Satyam announced acquisition of two companies
Maytas Properties and Maytas Infrastructure owned by the family
members of Satyam's founder and Chairman Ramalinga Raju. Within a
day of the announcement, the deal was withdrawn because of the
adverse reaction from institutional investors and stock markets. Issues
were raised on corporate governance practices of Satyam, with investors
seeking answers from the Board about the acquisition because the
transaction was evidently made within the promoters family.
After the deal was aborted, four of the prominent independent directors
resigned from the board of the company. In early January 2009,
Ramalinga Raju confessed that the revenue and profit figures of Satyam
had been inflated for the past several years. The revelation further
deepened the concerns about poor corporate governance practices in the
company.
After this debacle, questions were raised about the corporate governance
structure in Satyam, its code of conduct, roles and responsibilities of
different committees under the Board, whistle-blower policy and so on.
Several industry bodies questioned the role played by the independent
directors of Satyam in approving the Maytas deal.
The events that unfolded after Mr. Rajus confessions to his illegal
activities placed the future of thousands of employees and the well-being
of their dependents at risk, jeopardised projects worth millions of dollars,
and portrayed Indian companies inherently corrupted. Regulators and
several Indian corporate companies acted quickly to persuade clients and
the business community to prove that Satyams case was an isolated
event. People with vast experience and knowledge of Indian business
processes were brought in to assist in preventing a total collapse of
Satyam Computers, which was later bought by Tech Mahindra.
Discussion Questions
1. Analyse the instances where the ethics system failed in preventing
the fraud. (Hint: Auditing)
2. Formulate a sample code of conduct for Satyam Computers.
(Hint: Refer discussions in Section 12.4 of this unit)
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