Ch. 2 MANAGING INTERDEPENDENCE: SOCIAL RESPONSIBILITY AND ETHICS

1. Ch. 2 MANAGING INTERDEPENDENCE: SOCIAL RESPONSIBILITY AND ETHICS Helen Deresky

2. I. THE SOCIAL RESPONSILITY OF MNCS • A. A QUESTION OF PRIORITY • Where to draw the line between ethics and goals of firm • One extreme: firm should make profit, legally, to serve shareholders • Other extreme: firm should solve problems of society • Middle: socially reactive, try to solve some current problems • Ethical issues compounded with global operations • If outlaw children from factories in Pakistan • Children’s families go hungry • Hire adults, costs go up • Competitors’ products cheaper, firm loses money • If keep factories at home • Foreign labor has no opportunity to earn money • Foreign income stays low and can’t import • US labor costs high, products not competitive • US firm goes out of business, disemploying US workers

3. B. CONFLICTING ETHICS FROM DIFFERENT CULTURES • Moral universalism: universal moral standard • Problem: ethics not universal • Ethnocentric approach: apply morality of home country • Not successful in past; very much resented • Ethical relativism: adopt the local moral code • Continue business with China when they violate human rights? • Export silicone implants when bannedat home? When competitors continue? • Withdraw when confronted with “conversation stoppers” • Negotiate when issues not abhorrent

4. C. MNC RESPONSIBILITY TOWARD HUMAN RIGHTS • MNCs pulled out of South Africa, 1980s, now back • Many firms investing in China • Clinton established Anti-Sweatshop Code of Conduct • Ban on forced labor, abuse, discrimination • Healthy safe work environment • Pay local minimum wage • Group to monitor compliance • Dept. of Labor publishes names of firmswho comply (www.gov./nosweat.htm) • Nike study: 56% of workers abused • LDCs argue that this is process of economic development • 100 years ago, US had child labor, prison labor, forced labor, unsafe working conditions

5. D. CODES OF CONDUCT • Companies have developed own codes of conduct • No child or forced labor • Safe working environment • Right to unionize • Do not regularly require more than 48 hours/week • Wages sufficient to meet basic needs • Other codes • International Chamber of Commerce • Org. for Economic Cooperation • International Labor Organization • UN Commission on TransnationalCorporations • Summarized page 41-42

6. II. ETHICS IN GLOBAL MANAGEMENT • A. BUSINESS HAS GLOBALIZED, ETHICS HAVE NOT • Ethics based on culture, religion, and customs • Dilemma: whose ethics? • Bribery: considered ethical in some countries, unethical in others • B. QUESTIONABLE PAYMENTS • Political payments • Extortion • Bribes • Sales commissions • Grease money • Tokens of appreciation • La mordida • Bastarella • Pot-de-vin

7. C. FOREIGN CORRUPT PRACTICES ACT, 1977 • Illegal to use money to influence business • Dilemma: bribing abroad is like tipping in the US • Pay people extra to do their job • People, like waiters expect to get tips and are low-paid • Can hire local agent to “grease the wheels” • Call it “sales commission” • US is only country in world to pass such a law • Ethnocentric • 3 tests of ethical actions • Is it legal? • Does it work? • Can it be talked about?

8. D. MAKING THE RIGHT DECISION • Many firms seek worldwide practices • Develop worldwide codes of ethics • Consider ethical issues in strategy development • Given major, unsolvable ethicalproblems, withdraw • Periodic “ethical impact”statements • Consult legal opinion • Review company policies • What are rights of stakeholders and how to weight them • Does action harm anyone? • What is impact in short run? – long run? • Use own moral code and draw line in the sand

9. III. MANAGING INTERDEPENDENCE • A. FOREIGN SUBSIDIARIES IN THE US • FDI in US = US FDI abroad • US doesn’t like when foreigners impose their ways • US shouldn’t impose their ways in foreign countries • Need to fit into local community and observe their customs • B. MANAGING SUBSIDIARY AND HOST-COUNTRY INTERDEPENCE • FDI benefits to host country: • More capital and FX earnings • Import substitution, saves FX and Risk sharing • New technology and infrastructure development • Export diversification and income multiplier effect • Creation of jobs and management development • FDI Costs to host country • Competition for local capital, higher interest rates • Technology not always appropriate • Plants can be shut down or moved • Government investment heavier than anticipated • Limited skill development

10. Subsidiary and host government need to negotiate mutually beneficial situation • Firm offers money, jobs, technology or can move • Host government: nationalism: public opinion rallies against foreigners • Protectionism: close borders to foreign goods or firms • Governmentalism: government favors local interests • C. THE NAFTA – PERSPECTIVES FROM THE SOUTH AND THE NORTH • Half of all new jobs in Mexico stem from NAFTA • From the South Looking North • Mexican firms need to learn different way of doing business in US • Small, local Mexican firms being driven out by bignorthern chains (just like in the US) • From the North Looking South • US needs to learn how to do business in Mexico • Need to learn different management style • Less developed infrastructure: phones,transportation, mail, electricity, water • Need local partner

11. Interdependence: South-North Strategic Alliances • Mexican politicians favor their ties to local businesses • Environmental clean-up • Auto industry • South American may want to join • D. MANAGING ENVIRONMENTAL INTERDEPENDENCE • People must assume stewardship of the earth • Need to know impact of industrial activities • Unethical to dump wastes in LDCs • US and Germany should stopexporting banned pesticides • Industrial ecology: firm realizeits impact on environment • MNCs can be leaders inenvironmental citizenship