ETHICAL ISSUES IN INTERNATIONAL BUSINESS

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CHAPTER 9

• ETHICAL ISSUES IN INTERNATIONAL BUSINESS

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Norman E. Bowie

• Relativism and the Moral Obligations of
  Multinational Corporations
• Bowie distinguishes between descriptive and
  normative ethical relativism and criticizes both
  sets of views.
• He goes on to defend a basic morality necessary
  for market transactions.

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Cultural Relativism

• Cultural relativism is the descriptive claim that
  ethical practices differ among cultures.
• Moral (ethical) relativism is the normative claim
  that what is really right or wrong is what a
  culture says is right or wrong.

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Arguments against cultural relativism

• Different practices do not necessarily imply
  different underlying moral principles.
• There are universal principles accepted by all
  cultures such as prohibitions against torture
  and genocide.
• There are international treaties and conventions
  that codify basic moral norms.

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Arguments against moral (ethical) relativism

• The mere fact that a culture believes a practice
  is correct does not make it correct.
• It is inconsistent with the concept of a moral
  reformer someone who argues against the views of
  the majority based on ethical principles.
• The strongest argument against ethical relativism
  would be to defend universal moral norms (see
  next essay by Arnold).
• There is no clearly agreed upon understanding of
  cultural.
• There seem to be basic moral norms that every
  society must adapt such as dont kill or steal.

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Morality the Market

• There is an implicit morality of the marketplace
  that is often ignored.
• There are Kantian foundations for moral
  prohibitions against lying and cheating.
• Multinationals are obligated to follow these
  minimum ethical norms.

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Denis G. Arnold

• The Human Rights Obligations of Multinational
  Corporations
• Arnold defends a Kantian view of human rights
  obligations of corporations and defends that view
  against criticism.
• He also criticizes one recent effort by the
  United Nations to identify the human rights
  obligations of corporations.

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Human Rights

• Human rights are different from legal rights in
  that they do not depend upon state sanction for
  their legitimacy.

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The United Nations human rights

• The Universal Declaration of Human Rights (1948)
  is aimed at states not corporations
• Draft Norms on the Responsibilities of
  Corporations and Other Business Enterprises with
  Respect to Human Rights (2003)
• is aimed at corporations.
• They are too wide and imprecise
• They fail to distinguish between basic
  obligations and those actions that are good to
  perform but not mandatory.

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Basic Rights

• Are inalienable
• Are attributable to persons

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A Kantian basis for rights

• Always treat others as an end and never as a
  means only.
• Entails negative duties such as avoiding physical
  force or coercion
• Entails positive obligations like ensuring
  positive well-being
• Freedom Individuals should be free to as much
  freedom as is compatible with a like freedom for
  all.
• Human capabilities necessary to function well
  life physical health freedom of thought and
  expression and the ability to pursue ones
  conception of the good.
• The right to physical security and freedom of
  movement.
• The right to non-discrimination on the basis of
  arbitrary characteristics such as race sex
  religion ethnicity and sexual orientation.
• The right to freedom of association and
  collective bargaining.
• The right to fair treatment.
• The right to subsistence
• The right to develop basic human capabilities.

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Are Human Rights Western

• Human rights are not merely a Western concept.
• There are diverse Asian societies many like
  India embrace human rights language and
  arguments.
• Even if all Asian nations denied the validity of
  human rights arguments this would not entail
  that they were correct.

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Patricia H. Werhane

• Exporting Mental Models Global Capitalism in
  the 21st Century
• Werhane argues for caution in extending Western
  style capitalism abroad.
• She provides several examples whereby the
  unreflective extension of Western style
  capitalism led to bad outcomes.

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Not All Ideas can be Exported

• The mental model of private property minimal
  regulations and free trade is being exported by
  the U.S. as if it will always be of benefit. But
  this is not so.
• Example of Luzon rice farmers.
• Example of Mexican farmers
• Example of W.R. Graces development of Neemix
• Example of Solar Electric Light Fund in China and
  South Africa
• The lesson here is that American mental models of
  property and free enterprise cannot be uniformly
  and unreflectively exported without producing
  negative consequences.

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How to Handle Poverty

• Everyone can agree that abolishing poverty is a
  good thing but we need to be cautious regarding
  our assumptions about how to do so.
• We need to keep in mind that what matters most to
  many people are social relationships family
  religious and community traditions and local
  values regarding social goods.
• Economic development schemes that fail to
  recognize this will often fail.
• It is in the best interest of corporations to
  tread lightly as developing countries represent
  80 of the worlds population.

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Unilever

• Unilever is an example of a company that has
  adapted its mental models to meet the diverse
  needs of communities throughout the developing
  world.

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Ian Maitland

• The Great Non-Debate Over International
  Sweatshops
• Maitland defends the use of sweatshops arguing
  that on the whole they are better for the
  worlds poor than the available alternatives.

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Sweatshop Problems

• There has been widespread criticism of corporate
  labor practices especially in the apparel and
  footwear industry.
• Students lead protests on U.S. college campuses
• Anti-sweat campaigns led by NGOs against well
  known companies
• Maitland argues that these critics dont
  understand or ignore basic economics.
• IF they did they would see that sweatshops are
  good for third-world workers.

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Markets should determine wages

• Workers in the urban formal sector of developing
  nations earn better wages than do workers in the
  rural informal sector.
• The imposition of wages or labor standards
  greater than that demanded by the market
  increases costs.
• Increased costs result in layoffs and slow
  investment in the formal sector.
• Formal sector layoffs result in a surplus supply
  of labor in the informal sector.
• A surplus of informal sector workers depresses
  income in the informal sector.
• Conclusion Higher wages or labor standards
  increase poverty and limit economic growth in
  developing nations.

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Sweatshops are Good!

• What are needed are more not fewer sweatshops.
• Therefore MNEs should stop appeasing their
  critics and provide a serious defense of their
  global labor practices.

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Denis G. Arnoldand Norman E. Bowie

• Sweatshops and Respect for Persons
• Arnold and Bowie criticize the use of sweatshops
  by corporations and argue that workers should be
  treated with basic respect.
• They provide examples of corporations that do so
  and criticize Maitlands defense of sweatshops.

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Kant on sweatshops

• Kantian respect for persons requires that one
  always act so that you treat others as an end and
  never as a means only.
• Entails both positive and negative freedom.
• Both the United Nations and the World Bank holds
  that MNCs have an obligation to respect workers
  and treat them with dignity.

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Respecting workers means

• Adhering to local labor laws
• MNE factories frequently permit violations of
  local labor laws.
• Such violations of the law are permitted by local
  government authorities in order to prevent the
  MNE factory from shutting down and moving
  elsewhere.
• The violation of host nation labor laws by MNEs
  should be condemned because it is hypocritical.
• Respect for the autonomy of host nation
  governments especially those that are freely
  elected demands that MNEs not use economic
  coercion to undermine the rule of law.
• Refraining from coercion

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Respecting workers means

• Providing decent working conditions
• Sweatshop workers are frequently exposed to
  repetitive motion injuries exposure to toxic
  chemicals exposure to airborne pollutants such
  as fabric particles exposure to excessive noise
  pollution malfunctioning machinery and
  work-place fires.
• The cost of improving these conditions varies
  significantly depending upon such factors as the
  problem being addressed and the size of the
  factory. Some of these problems can be addressed
  with little cost.
• Maitland ignores safety issues.

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Respecting workers means

• An obligation to ensure that employees do not
  live under conditions of overall poverty
• by providing adequate wages for a 48-hour work
  week to satisfy both basic food needs and basic
  non-food needs.
• In economies where the minimum wage for a 48-hour
  work week allows workers to avoid overall
  poverty employers will have no obvious moral
  obligation to pay their lowest paid workers more
  than the minimum wage.

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Problems with Maitlands position

• He contradicts himself
• He argues against improving market outcomes by
  paying above market wages because it will benefit
  more workers
• He argues in favor of improving market outcomes
  by fighting consumer pressure to improve wages
  because it will benefit workers
• He assumes that productivity is independent of
  wages but this assumption is dubious.
• Critics are not calling for an increase in
  minimum wages but for voluntary increases in
  expenditures by MNCs.
• Many companies such as Adidas Nike and Gap are
  working to eliminate abusive working conditions.

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David Hess and Thomas Dunfee

• Taking Responsibility for Bribery The
  Multinational Corporations Role in Combating
  Corruption
• Hess and Dunfee describe the harm cause to local
  communities by corruption
• Discuss international treaties banning bribery
• And they highlight the efforts of Shell to
  abolish slavery.

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Corruption

• Corruption inhibits economic development and
  undermines human rights
• OECD Convention on Combating Bribery of Foreign
  Public Officials 1997 (1999)
• Ratified by 34 countries
• Makes it illegal to bribe abroad
• Transparency International Reports that only 19
  of executives knew about the convention
• Just 27 reported reduced corruption after the
  convention

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Corruption

• Foreign Corrupt Practices Act
• U.S. law that went into effect in the U.S. in
  1977
• Currently U.S. corporations are the 9th most
  likely to bribe foreign officials (out of 21)
• C2 Principles
• Adapted by the Caux Roundtable
• Three themes
• Policies
• Procedures
• Pulication

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Shells Anti-Corruption Policies

• Studied best practices at 15 companies
• Put in place a no bribes policy
• Promulgates and educates within the organization
• Defines bribery
• Terminates and prosecutes employees that pay
  bribes

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Legal Perspectives

• Supreme Court of Texas Dow Chemical Company and
  Shell Oil Company v. Domingo Castro Alfaro et al.
• This case concerns the question of whether or not
  a Texas based corporation can be held accountable
  in Texas courts for harmful actions conducted
  abroad or whether this is inconvenient for such
  corporations and thus should not be allowed. The
  majority of the court found that corporations
  should be held accountable for overseas
  activities in Texas courts.
• United States Court of Appeals for the Ninth
  CircuitDoe 1 vs. Unocal
• This case concerns Unocals involvement with
  forced labor and human rights abuses in Myanmar
  (Burma). The court found that Unocal could be
  held liable for complicity with such practices in
  U.S. courts.

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Legal Perspectives

• United Nations Draft Norms on the
  Responsibilities of Transnational Corporations
  and Other Business Enterprises with Regard to
  Human Rights (2003)
• The United Nations Global Compact
• This is a non-binding compact regarding ethical
  conduct in the global economy that corporations
  may endorse. The Global Compact is not a part
  of the Draft Norms on the Responsibilities of
  Transnational Corporations as its heading in the
  textbook implies. This will be corrected in
  future printings.
• This is a non-binding draft document attempting
  to articulate the human rights obligations of
  businesses in the global economy.

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Cases

• Foreign Assignment
• This case describes possible sexual
  discrimination against a young women employee of
  a U.S. bank operating in Mexico. It is useful for
  discussions of relativism and human rights.
• Facilitation or Bribery Cultural and Ethical
  Disparities
• This case considers whether facilitation payments
  constitute bribery.
• Chrysler and Gao Feng Corporate Responsibility
  for Religious and Political Freedom in China
• An employee of a Chrysler joint venture in China
  who is also a devout Christian is arrested by
  the Chinese government for illegal religious
  practices. Chryslers partner in the joint
  venture pressures Chrysler to fire him. What
  should Chrysler do

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Cases

• Should Wal-Mart Do More A Case Study in Global
  Supply Chain Ethics
• Wal-Mart inspects its factories for compliance
  with labor standards. A major news magazine
  reports that Wal-Marts Chinese supplier
  factories routinely submit false information to
  satisfy these reports. Factory managers report
  that Wal-Marts efforts to maintain costs and
  improve quality make it impossible for them to
  comply with labor standards.
• adidas Application of Standards of Engagement to
  Child Labor Dilemma
• Adidass proactive solution to child labor is
  described.
• Tackling HIV/AIDS Unilever Tea Kenya
• Unilevers proactive efforts to help reduce the
  HIV infection in Africa are discussed.