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Ethics, Corporate Social

Responsibility, Sustainability, and


Governance in International Business

Copyright 2017 Pearson Education, Ltd.

Quick Reflects

Falsify or
misrepresent
contracts of official
documents

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Quick Reflects
Pay or accept bribes, kickbacks, or
inappropriate gifts

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Quick Reflects

Tolerate
sweatshop
conditions or
abuse employees

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Quick Reflects

Do falsify
advertising or
other deceptive
marketing

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Quick Reflects
Undertake activities that harm the natural environment.

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Quick Reflects
Engage in deceptive or discriminatory pricing.

Copyright 2017 Pearson Education, Ltd.

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Corruption Perceptions Index

Note: Countries with the highest scores have the lowest levels of corruption.
Sources: Adapted from Corruption Perceptions Index 2014. Transparency International: The Global Coalition Against
Corruption (2015), www.transparency.org. Copyright 2017 Pearson Education, Ltd.

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MISCONDUCTS IN
INTERNATIONAL BUSINESS

Corruption is the abuse of power to achieve


illegitimate personal gain gaining the attentions
in global activities
Bribery - common and may take the form of
grease payments, small inducements intended to
expedite decisions and transactions, or gain
favors.
Harmful global sourcing need to guarantee
on human rights and protecting the environment
Illicit products and marketing selling and
marketing of defective goods or engage in
unethical marketing practices
Intellectual property infringement illegal use
of ideas or works that individuals or firms create
(proprietary, intangible assets, discoveries and
inventions, artistic, musical, literary work, etc 4-4

Organizing Framework

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Organizing Framework Corporate


Governance

Corporate
governance:
A system of procedures and
processes for corporations to
manage, direct and control provides the means through
which firms undertake ethical
behaviors, CSR, and
sustainability.

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Organizing Framework Corporate


Governance
CORPORATE
GOVERNANCE

CODES OF
ETHICS
Describes the values and
expectations that guide
decision making by all
employees in the firm

CODES OF
CONDUCTS
Translates the code of ethics
into specific rules regarding
behaviors and practices
(prohibited vs required)

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Organizing Framework Corporate


Governance
Ethics Moral principles and
values that govern the behavior,
firms, and governments regarding
right and wrong
CSR A manner of operating a
business that meets or exceeds
the ethical, legal, commercial,
and public expectations of
customers, shareholders,
employees, and communities
Sustainability meeting
humanitys needs without
harming future generations
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The Value of Ethical Behavior


Ethical behavior is simply the right thing to do.
Often prescribed within laws and regulations.

Demanded by customers, governments, and the news media.


Unethical firms risk attracting unwanted attention.
Ethical behavior is good business, leading to enhanced
corporate image and selling prospects. The firm with a strong
reputation is advantaged in hiring and motivating employees,
partnering, and dealing with foreign governments.
Copyright 2017 Pearson Education, Ltd.

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Variation in Ethical Standards


Ethical standards vary from
country to country

Realitivism
The belief that ethical
truth are not absolute
may differ from group to
group

Normativism
The belief that ethical behavior
standards are universal need to
uphold them consistently across
the world
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Variation in Ethical Standards Scenarios


In China, counterfeiters may publish translated
versions of imported books without compensating
the original publisher or authors.
In parts of Africa, accepting expensive gifts from
suppliers is acceptable.
In the United States, CEO compensation is often
100 times greater than that of low-ranking
subordinates.
Finland and Sweden ban advertising aimed at
children, but the practice is accepted in other parts
of Europe.
Copyright 2017 Pearson Education, Ltd.

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The Pyramid of Ethical Behavior

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Ethical Conduct - Intellectual Property


Intellectual property refers to ideas or works
created by individuals or firms and includes a variety
of proprietary, intangible assets: discoveries and
inventions; artistic, musical, and literary works; and
words, phrases, symbols, and designs.
Intellectual property rights are the legal claim
through which proprietary assets are protected from
unauthorized use by other parties, via trademarks,
copyrights, and patents.
Copyright 2017 Pearson Education, Ltd.

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Counterfeit Commodities infringement


of intellectual property

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Top Counterfeit Commodities


Seized, United States Borders, 2014

Source: Intellectual Property Rights Seizure Statistics Fiscal Year 2014, Washington, DC: Homeland Security, U.S. Customs
and Border Protection and U.S. Immigration and Customs Enforcement (2015), at www.cbp.gov/sites/default/
files/documents/2014%20IPR%20Stats.pdf.
Copyright 2017 Pearson Education, Ltd.
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Piracy and Counterfeiting Affect:


International trade exports of legitimate products
must compete with trade in counterfeit goods.
Direct investment firms avoid countries known for
widespread intellectual property violations.
Company performance sales, profits, and strategies
are harmed.

Innovation companies avoid doing research and


development where piracy is common.
Tax revenues pirates usually dont pay taxes.
Copyright 2017 Pearson Education, Ltd.

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Piracy and Counterfeiting Affect: (contd)


Criminal activity often linked to organized crime.

The natural environment intellectual property


violators disregard environmental standards
National prosperity and wellbeing ultimately, job
prospects, prosperity, and moral standards in
affected nations are harmed.

Copyright 2017 Pearson Education, Ltd.

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Varies in ethical perceptions


across the world
When we cross our nations boundaries,
moral clarity often blurs - Without a
backdrop of shared attitudes, and without
familiar laws and judicial procedures that
define standards of ethical conduct,
certainty is elusive.

How can managers


resolve the problems?

cultural relativism, no
cultures ethics are
better than any others;
therefore there are no
international rights and
wrongs (i.e Bribery)

BENEFITS
VS
DAMAGES

What works in a companys


home country can fail in a
country with different
standards of ethical conduct
from the implications of
CULTURAL DIFFERENCES

cultural normativism directs people to do


everywhere exactly as
they do at home.
(i.e sexual harassment)
GLOBAL
CONSISTENCY
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Varies in ethical perceptions


across the world
Respect for core human values, which
determine the absolute moral threshold for
all business activities.

Shaping
ethical
behavior
when
involving in
international
context

Respect for local traditions

The belief that context matters when


deciding what is right and what is wrong.

Embracing Ethical Behavior


Build internal and external capabilities to enhance the firms
contributions to the local community and global environment
Ensure the diverse voices are heard employ managers from all
around the world
Develop global ethical standards and objectives communicate
across the workplace.

Train the managers with the global ethical principles and


integrate into responsibilities
Develop closer relation with foreign stakeholders to understand their
needs better and work for solutions together

Corporate Social Responsibility

Operating a business to meet or


exceed the ethical, legal, commercial,
and public expectations of customers,
shareholders, employees, and
communities.
Helps recruit and keep good
employees.
Can help differentiate the firm and
i.e: Cuts costs, as
enhance its brands.
when the firm reduces
Helps the firm avoid increased
packaging, recycles,
taxation, regulation, or other legal
cuts energy usage,
actions by local government
and minimizes waste
authorities.
in operations.
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Settings for CSR

Copyright 2017 Pearson Education, Ltd.

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The Pyramid of CSR

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A Sampling of MNE Accomplishments

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CISCO CSR CONNECTING SICHUAN

Cisco focused on
creating a networked
medical delivery
system that would
bridge the gap
between urban and
rural healthcare.

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MICROSOFT CSR EMPOWERING EMPLOYEES

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MICROSOFT CSR EMPOWERING EMPLOYEES

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GOOGLE CSR

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STARBUCKS CSR

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BENEFITS OF A CSR TO BUSINESS

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A Sampling of MNE Accomplishments

Sources: Pete Engardio, Beyond the Green Corporation, Business Week, January 29, 2007, pp. 5064; Fisk Johnson, How I Did It: SC Johnsons
CEO on Doing the Right Thing, Even When It Hurts Business, Harvard Business Review, April, 2015, pp. 3336; Kasturi Rangan, Lisa Chase, and
Sohel Karim, The Truth about CSR, Harvard Business Review, January/February, 2015, pp. 4049.

Copyright 2017 Pearson Education, Ltd.

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Sustainability
ENVIRONMENTAL INTEREST - to
the extent of the firms impact and
harm to the natural environment

ECONOMIC INTERESTS the firms economic impact


on the localities where it
does business, such as
regarding job creation,
wages, and public works

SOCIAL INTERESTS how the firm performs


relative to social justice,
such as avoiding the
use of child labor,
sweatshops, as well as
providing employee
benefits.

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Apple and Foxconn The Social Interests

Source: epa european pressphoto agency b.v./Alamy

Workers at a Foxconn factory in China, a leading supplier to Apple. Following charges about
poor working conditions at Foxconn plants, Apple and Foxconn took steps to improve the
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work environment.
Copyright 2017 Pearson Education, Ltd.

Examples of Sustainable Practices


Beneficial agricultural practices that do no harm.
Water conservation. Clean water is scarce
worldwide.
Air quality protection.
Reduced energy and fuel consumption.
Increased use of solar and wind energy.
Improved work processes that improve
sustainability reduce costs and support the natural
environment.
Copyright 2017 Pearson Education, Ltd.

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Coca-Cola The environment and social interests

Source: Tim Gainey/Alamy

As water grows scarce in much the world, some multinational firms are conserving their use of this
critical resource. Coca-Cola, a major water consumer, conducts a water sustainability program to
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address shortages in India.
Copyright 2017 Pearson Education, Ltd.

The Environment - Air Pollution in Selected


Cities

Source: World Bank, World Bank Development Indicators 2014, Washington DC: World Bank; World Bank, Clean Air and
Healthy Lungs: Enhancing the World Banks Approach to Air Quality Management (Washington DC: World Bank, February
2015).
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Copyright 2017 Pearson Education, Ltd.

MNE Roles in Sustainability?


Business are major consumers of all the natural environment
offers, hence must take pains to ensure ecological sustainability
by reversing the environmental damage i.e. find ways to
employ renewable resources and minimize pollutants in
operations

HOW?
1. Skillful use of innovative technologies
2. Improved wafer productivity
3. Management of shortages in vulnerable areas
4. Planning in incorporating sustainability practices
5. Managed the partners/suppliers to use sustainable practices
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Embracing CSR and Sustainability


Develop closer relations with foreign stakeholders to
understand their needs and jointly develop solutions.
Build capabilities to enhance the firms contribution to
the local community and global environment.
Ensure diverse voices by creating organizations that
employ managers and workers from around the world.

Develop global CSR standards and objectives, and that


are communicated and implemented across the firm
worldwide.
Train managers in global CSR principles and integrate
these into managerial responsibilities.
Copyright 2017 Pearson Education, Ltd.

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Corporate Governance
The system of procedures and processes by which
corporations are managed, directed, and controlled.
Provides the means through which firms undertake
ethical behaviors, CSR, and sustainability.

Implementing appropriate conduct is challenging for


MNEs, especially when operating in many countries.
A complicating factor is the use of third-party suppliers
and contractors, some of whom may behave badly.
More firms incorporate ethics and CSR into their
mission, planning, strategy and everyday operations.4-25

Corporate Governance

ETHICS

CSR

SUSTAINABILITY

What is right

To exceed ethical behavior

Business practices that avoid harming the


ability of the future generations to meet
their needs

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Benefits of Corporate Governance


Increased employee commitment.

Increased customer loyalty and sales.


Improved reputation and brand image.
Reduced likelihood of government intervention.

Reduced business costs.


Improved financial performance.
Copyright 2017 Pearson Education, Ltd.

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Ethical Standards for Corporate Governance


Ethical Standards for Corporate Governance
Utilitarian
Approach
This approach
argues the best
ethical action is
the one that
provides the
most good or the
least harm. It
produces the
greatest balance
of good over
harm to
customers,
employees,
shareholders,
the community,
and the natural
environment.

Rights
Approach
This approach
instructs the
decision maker
to choose the
action that best
protects and
respects the
moral rights of
everyone
involved. It is
based on the
belief that,
regardless of
how you deal
with an ethical
dilemma, human
dignity must be
preserved.

Fairness
Approach
This approach
advises that
everyone should
be treated
equally and
fairly. Workers
should be paid a
fair wage that
provides a
decent standard
of living, and
colleagues and
customers
should be
treated as we
would like to be
treated.

Common Good

Approach
This approach
suggests that
actions should
be based on the
welfare of the
entire
community or
nation. It asks
which action
contributes most
to the quality of
life of all affected
people. Respect
and compassion
for all, especially
the vulnerable,
should be the
basis for
decision making.

Copyright 2017 Pearson Education, Ltd.

Virtue
Approach
This approach
advocates that
ethical actions
should be
consistent with
certain ideal
virtues that
provide for the
full development
of our humanity.
The most
important virtues
are truth,
courage,
compassion,
generosity,
tolerance, love,
integrity, and
prudence.
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QUICK REFLECTION THINKING

ISLAM,
ETHICS, CSR
AND SUSTAINABILITY

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QUICK REFLECTION THINKING


According to Islamic law, the
basic elements of nature land,
water, fire, forest, and light
belong to all living things, not just
human beings.

Tawhid (affirmation of the


oneness of Allah as The
Supreme Source of
Knowledge, the
Sustainer and Master of
all the exist, the
Sustainer and Master of
mankind)

Allah (Subhanahu Wa Ta'ala)


commands human beings to
avoid doing mischief and wasting
resources as these acts cause
degradation of the environment.
The privilege to exploit natural
resources was given to the
mankind on a guardianship
basis, which implies the right to
use another persons property on
the promise that it will not be
damaged or destroyed.
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QUICK REFLECTION THINKING

Allah (Subhanahu Wa Ta'ala) says in the Holy Qur'an:

And Allah loveth not those who do mischief (Surat Al Maeda, verse 64)
And do no mischief on the earth after it has been set in order: that will be best for
you, if ye have Faith (Surat Al Araf, the Heights, verse 85)
Eat and drink: But waste not by excess, for Allah loveth not the wasters (Surat AlAraf 7: 21).
And do good as Allah has been good to you. And do not seek to cause corruption in
the earth. Allah does not love the corrupters, (Surat Al Qasas 28:77)
Children of Adam, dress well whenever you are at worship, and eat and drink (as we
have permitted) but do not be extravagant: God does not like extravagant people.
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(Surat Al-Araf 7:31)

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