Combo with "Ethics in Business: Ch.14" and 1 other
welfare (DeGeorge)
multinationals should: 1) do no intentional direct harm 2) produce more good than harm for the host country 3) contribute by their activity to the host country's development
criticism of guanxi
must form relationship (which may involve payments that appear to be bribes) before doing business
apparel industry partnership (AIP)
nike joined this convened by the White House, a group of industry, labor, consumer, and human rights leaders committed themselves to develop a strong workplace code of ethics with internal monitoring and an independent, external monitoring system
unrestricted engagement
no attempt is made to be constructive, company chooses not to enter a certain country (to protect brand image, intellectual property, exposure of employees to risks of health and safety or human rights violations, and subjection of the company to risks from corruption and social and political instability that would impede normal operations) may also choose not to enter because it goes against company's culture/mission
problems with fundamental rights
not a complete guide for mangers 1) the bearing of these rights on controversial questions is not wholly clear 2) many of the most difficult moral questions in international business do not involve rights at all
when a bribe occurs
once an offered payment has been accepted, regardless of whether the bribes acts as the briber intends
bribee
one who willingly accepts a payment
fair labor association (FLA)
succeeded after the AIP, preserves same goals of developing a strong workplace code of ethics with internal monitoring and an independent, external monitoring system
equality
supports nondiscriminatory treatment on the basis of race, sex, and nationality
relativism
the only guide for business conduct abroad is what is legally and morally accepted in any given country where a company operates
equal information
the parties to a trade actually possess the same information or have equal access to information
justification for a legal prohibition on foreign bribery
a double standard is employed if a country permits its companies to do abroad what they are forbidden to do at home
how to prevent churning
- ending the practice of higher commission for a company's products (SEC deemed to rooted in, so recommended better training and oversight by brokerage firms) - prohibiting sales contests for specific products - stop tying a portion of compensation to the size of a client's account, regardless of the number of transactions
where unequal bargaining power can result from
- resources (typically, wealth advantage) - processing ability (how fast one can filter through information) - vulnerabilities (consumers can be exploited, impulse buys)
problems when market sets standards
1) developed countries do not rely solely on the market but set certain minimum conditions by law and even that only allows people to live a basic life, if that 2) possibility that the conditions for a free market are lacking (desperation)
codes that derive moral authority (Frederick)
1) national sovereignty 2) equality 3) market integrity 4) human rights
securities exchange act of 1934
mandate to ensure "fair and orderly" markets
problems with absolutism
1) different places have very different environments/economies/morals 2) assumes one country's standards are correct and should be imposed on people elsewhere and could conflict with other countries own moral values and principles ignores the wide variety of ethical outlooks in the world may affect the meaning of acts performed (gift giving vs bribery) 3) denies the right of the people who are affected to decide on important matters of business conduct (govern own affairs) 4) some practices may be justified where local conditions require that corporations engage in them as a condition of doing business ("our way or the highway")
problems with DeGeorge
1) do no intentional direct harm--> meaningless if it excludes all actions with a legitimate business 2) produce more good than harm for the host country--> how much more good than harm should MNC's bring and does it matter benefits aren't normally shared fairly? fails to take seriously the importance of justice in evaluating the activities of MNC's
ethical questions in hostile questions
1) should hostile takeovers be permitted at all/should there be a market for corporate control? 2) tactics used are criticized on the grounds that they unfairly favor the raiders or incumbent management, often at the expense of the shareholders 3) raise important issues about the fiduciary duties of officers and directors in their responses to takeover bids --> what should directors do when an offer that shareholders want to accept is not in the best interests of the corporation itself? and, do they have a right, indeed a responsibility, to prevent a change of control?
a person who is engaging in insider trading
1) the trader has violated some legal duty to a corporation and its shareholders OR 2) the source of the information has such a legal duty and the trader knows that the source is violating that duty
objections to control repurchases
1) they are negotiated with one set of shareholders, who receive an offer that is not extended to everyone else (violation, some say, of the principle that all shareholders should be treated equally, to buy back the stock of raiders for a premium is unfair to other shareholders) --> easily dismissed because managers only have to give all shareholders an equal vote, no other obligation to treat them equally in other ways 2) they are criticized as a breach of the fiduciary duty of management to serve the shareholders' interest (if managers pay raiders to go away to save their jobs, violated fiduciary duty) --> not always their intent 3) the payments invite pseudobidders who have no intention of taking control and mount a raid merely for the profit (extorting corporations by threatening some harm unless payment is made) --> unsuccessful raiders who accept payment may still provide a service for everyone
arguments against golden parachutes
1) they merely entrench incumbent managers by raising the price that raiders would have to pay create costly new obligations in the event of a change of control (added expenses) 2) providing incentives to managers to do what they are being paid to do anyway
ways to combat bribery
1) to alter the role of government in the economy (reforms that promote healthy competition and proper regulation, well designed roles) openness and accountability by government officials 2) civil service reform (pay is increased to reduce the temptation among low-paid officials to demand or accept bribes) more selective recruitment and better training 3) more careful selection of government projects, eliminating those that are most vulnerable to bribery and closely monitoring the ones that go forward (funding agencies and investment banks, who provide expertise and training) 4) not just limiting opportunities for bribery but also more vigorous enforcement of anti bribery laws and the activity of international organizations
justice
1) unbalanced benefits from foreign investment (through globalization) 2) violation of the rules of the marketplace (unfair competition/advantage) --> transfer pricing allows MNC's to disclose financial information so host countries often have little knowledge of the company's true financial situation and tax avoidance
common causes of unsuitability
1) unsuitable types of securities (recommending stocks when bonds would better fit the investor's objectives) 2) unsuitable grades of securities (selecting lower-rated bonds when higher-rated ones are more appropriate) 3) unsuitable diversification (leaves the portfolio vulnerable to changes in the markets) 4) unsuitable trading techniques (including the use of margin or options, which can leverage an account and create greater volatility and risk) 5) unsuitable liquidity (limited partnership are not very marketable and are thus unsuitable for customers who may need to liquidate the investment)
2006, Google charged with violating human rights in China Google corporate philosophy, "don't do evil" cooperated with China's censorship policies In 2002, because Google's servers were located outside China, the website was not subject to any Chinese legal restrictions However, the Internet entered China through fiber optic cables that ran through nine licensed international Internet service providers so control of pathways enabled the Chinese government to filter signal transmissions in an out of the country In September of 2002, Google vanished entirely in China Chinese government blocked all access Service restored two weeks later, but Google realized company could not fulfill its mission without a presence in China Was loosing market share to local Chinese competitors so in 2006, Google launched Google.cn, a China-based website In order to operate in China, they had to obtain a license that committed it to observe Chinese laws and regulations Google developed way to tell users when searches were being filtered, to make it transparent, private information not collected so government could not obtain it, and Chinese version of Google.com still available so that Google.cn would only expand info to Chinese users Some critics complained not enough
oracle
Oracle wanted to buy all of PeopleSoft's stock in a deal worth $5.1 billion. PeopleSoft executives who sat on board had a vested interest in rejecting offer, so board's independent director (no stake in the outcome) had to decide whether to accept/decline. Their fiduciary duty was to act solely in the interest of PeopleSoft's shareholders. Oracle offer of $16 per share represented a mere 6 percent premium over the current stock price (usually 20 percent or more premium). Oracle seemed interest only in PeopleSoft's customers and not its software or employees.PeopleSoft CEO, Conway, saw bid as a ploy for preventing the company's acquisition of J.D. Edwards, and, at the same time, damaging PeopleSoft's business (JD deal dependent on PeopleSoft maintaining stock price, but Oracle wanted to detract people from using it) Conway against bid. Independent board members recognized that there were conditions under which it would be in the shareholders' interest to sell the company (selling price, intentions, impact, JD). Directors rejected offer. PeopleSoft completed acquisition of JD Edwards. Oracle would eventually raise price up to $26.50 per share and board accepted offer. PeopleSoft was acquired by Oracle for $10.3 billion.
martha stewart
Stewarts broker, Bacanovic, believed ImClone's stock was going to go down Stewart spoke to the brokers assistant, Faneuil. He allegedly told her that he had no info on company but Waksal family was going to sell their shares (Stewart refuses this claim) She instructed Faneuil to sell al of her ImClone stock. Stewart then called Wassail's office, asking to have information on ImClone, told her friend "Isn't it nice to have brokers who tell you those things?" When Waksal told Bacanovic to sell his shares, ImClone declined, citing concern about insider trading. SEC opened investigation. Faneuil told Bacanovic that selling Stewarts stock was part of tax-loss selling plan. After being informed by Faneuil that Stewart had made a profit, Bacanovic changed the story, explaining that Stewart had placed stop-loss order to sell the stock if it dropped below $60 share. Stewart changed phone entry to "Peter Bacanovic re imclone" but later changed it to the original. Waksal pleaded guilty to charges of securities fraud for insider trading, obstruction of justice, and perjury. Jail sentence, substantial fine. Department of Justice accepted a proposal from Stewarts Jury that she plead guilty to a single felony counting of making a false statement to investigators and probably would avoid prison time (Stewart later took her chances and took case to court). Stewart and Bacanovic were charged with conspiracy, obstruction of justice, and perjury (but not insider trading). Stewart and Bacanovic sentenced to five months in prison, five months of home confinement, and two years probation. Stewart fined $30,000 (but because she sold her stock, avoided a loss of approximately $46,000). But legal troubles and drop of MSLO stock/missed business opportunities cost millions. Since the information that the Waksals were selling obtained by Bacanovic in his role as their broker, he breached his duty to Merrill Lynch. However, Stewart denied that she was aware that Bacanovic was their broker. But could she trade on information provided by Bacanovic, even if he was violating a fiduciary duty to Merrill Lynch?
hostile takeovers
acquisitions opposed by the management of the target corporation
bribe
a payment made with an intention to corrupt and accepted in a way that is corrupting makes a payment with the intention of inducing an official to violate their duty to the company, country, etc.
golden parachutes
a provision in a manager's employment contract for compensation, usually, a cash settlement equal to several years' salary- for the loss of a job following a takeover reduce a potential conflict of interest (between manager losing job and objectively evaluating bid)
efficiency
achieving the maximum output with the minimum output
constructive engagement
although human rights abuses do occur, the company, on the whole, is making a positive contribution that would not occur in its absence rests on utilitarian sounds of benefit or welfare working with host country to improve human rights in the workplace (dependent on the receptiveness of the government in a country to change and on the commitment and effectiveness of a company with regard to such change)
foreign corrupt practices act (FCPA)
anti bribery initiative adopted by the US in 1977 enacted by Congress in part to protect American interests applies not only to American citizens and companies but also to certain foreign entities that conduct business in the US act contains an accounting section that requires companies to maintain financial records that accurately and fairly represent transactions in reasonable detail, including the amount and the purpose of all payments, and to develop a system of internal accounting controls sufficient to ensure that these records are accurately and fairly states prohibits payments through intermediaries or third-parties while knowing or having reason to know that any portion will be used to bribe foreign officials "facilitating payments" which are made to expedite the performance of "routine governmental action" is allowed however (aka "grease payments," small sums paid to lower-level officials to lubricate the rusty machinery that provides government services) - legal because they do not induce anyone to violate their duty reasonable expenditures for legitimate expenses, such as entertaining a foreign official in the course of doing payments are allowed any payments that are permitted or required by the written laws of the country in question are legal
arguments against insider trading
based on property rights and holds that those who trade on material, nonpublic information are essentially stealing property that belongs to the corporation based on fairness and holds that traders who use inside information have an unfair advantage over other investors and that, as a result, the stock market is not a level playing field
absolutism
business ought to be conducted in the same way the world over with no double standards (single code of conduct)
for hostile takeover
corporations become takeover targets when incumbent management is unable or unwilling to take steps that increase shareholder value (raiders pay premium because believe company not performing to the best of tis ability) just a threat of a takeover serves as an important check on management
international labour organization
dates from 1919 a specialized agency of the UN sets many international standards
property rights/misappropriation argument problem
difficult to determine who owns the information in question if companies own certain information, they could then give their own employees permission to use it, or they could sell the information to favored investors or even trade on it themselves to buy back stock
problems with greasing the wheels
does not give sufficient weight to the full costs of bribery in a less-developed country 1) bribery reduces the resources available in the economy when elites transfer money out of the country into secret foreign bank accounts 2) money for bribes need not come from the greater efficiency of the bribe payer but from overcharging or delivering substandard products or services 3) the spending priorities of a country may be distorted when government officials choose large, complex projects form which bribes can be extracted instead of more urgently needed goods and services that do not offer the same opportunities for demanding bribes 4) the sheer amount of time that business people in corrupt countries must spend dealing with government officials and complying with needles regulation detracts from productive activity 5) the potential for demanding bribes leads government officials to create even more efficiency-impeding laws and regulations that confer ever more discretion on them
living wage
enables a worker to live with dignity and support a family
alien tort claims act (ATCA)
enacted by Congress in 1789 "the district courts shall have original jurisdiction of any civil action by an alien for a tort (wrongful act or infringement of right) only, committed in violation of the law of nations or a treaty of the United States" liability of abuses- should foreign nationals have the right to bring suit against US companies in American courts for rights violations? --> this act says yes, they can
main aim of financial market regulation
ensure efficiency (only can happen when people have confidence in their fairness or equity)
organization for economic cooperation and development (OECD)
established in 1997 convention that commits each member country to change its laws to accord roughly with the FCPA country's have agreed to prohibit bribery of foreign officials, impose criminal penalties on those found guilty, and allow for the seizure of profits gained by bribery
churning
excessive or inappropriate trading for a client's account by a broker who has control over the account with the intent to generate commissions rather than to benefit the client
legal definition of churning
excessive trading by a broker disproportionate to the size of the account involved, in order to generate commissions in situations in which a broker, exercising control over the frequency and volume of trading in the customer's account, initiates transactions that are excessive in view of the character of the account three elements: 1) the broker controls the account 2) the trading is excessive for the character of the amount 3) the broker acted with intent
manipulation
generally involves the buying or selling of securities for the purpose of creating a false or misleading impression about the direction of their price so as to induce other investors to buy or sell the securities designed to deceive others, but the effect is achieved by the creation of false or misleading appearances rather than by false or misleading representatives
argument against insider trading
holds that an insider has not acquired the information legitimately but has stolen (or "misappropriated") information that rightly belongs to the firm --> the wrongfulness of insider trading consists not in the possession of unequal information but in violating a moral obligation not to steal or a fiduciary duty to serve others
ethical imperialism
imposing standards of a developed country on less developed country (LDC)
siemens
in 1999, bribery became illegal in Germany Siemens made little effort to combat bribery bribery was deliberately chosen mode of operation, which was widely acknowledged and condoned among certain employees and also encouraged or, at least, tolerated by their superiors Siekaczek, former manager in the fixed-line telephone division told workers to disguise payments between 2002-2006 40-50 million dollars annually were diverted bribes were paid by consultant who had close contacts with local elites 2,700 consultant were used for the payment of bribes Siekaczek said he never benefited personally, but did it to keep business unit alive and keep people in work said, only alternative would be turn down project in the end, company paid 1.6 billion in fines and forfeited profits to authorities in Europe and US total cost 2.6 billion CEO, Kleinfeld, claimed to have no knowledge first action was to engage on American accounting firm, Debevoise & Plimpton, to conduct a thorough investigation of bribery activities and to hire a prominent consultant on corruption difficult to cease bribery immediately because many bribes were scheduled in advance KPMG Germany faulted in report by D&P essential to reform culture 2007, board of directors chose not to renew Kleinfeld's contract (later became CEO of US-based Alcoa
suitability
in recommending to a customer the purchase, sale, or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holding and as to his financial situation needs
guanxi
in which business depends on a web of long-term reciprocal relationships--> trust is important/needed
globalization
increase foreign investment and export production in an increasingly integrated world economy
problems with bribery
it enriches elites in a country, which leads to greater inequality and also to loss of public confidence in government may lead to greater political instability, which, in turn, discourages foreign direct investment the most unscrupulous prosper, and others must emulate them if they are to succeed
ethical objections to churning
it is a breach of a fiduciary duty to trade in ways that are to in a client's best interest occurs only when a client turns over control of an account to a broker, and by taking control, a broker assumes a responsibility to serve the client's interests
fairness argument problems
only when information is unavailable not for lack of effort but for lack of access difficult to determine what information ought to be revealed in a transaction (revealing in some scenarios for more efficiency, in absence, for example, with the housing market, home buyers would pay less because they are not sure what they are getting, or they would invest in costly home inspections) however, trouble with such claim is that some economists argue that the stock market would be more efficient with insider trading (wouldn't have to pay people to do research) other side is that investors may see playing field so un level that they would not want to participate breach in fiduciary duty would happen (duty to serve company and its shareholders)
why unequal information is unfair
only when the information has been illegitimately acquired or when its use violates some obligation to others
workers rights consortium (WRC)
organized to address specifically the conditions under which collegiate apparel with a school's logo is manufactured
efficient pricing
prices that reasonably reflect all available information the price of securities should reflect their underlying value
control repurchase (aka greenmail)
privately negotiated stock repurchase from an outside shareholder, at a premium over the market price, made for the purpose of avoiding a battle for control of the company making the repurchase
why efficiency is an ethical value
provides an abundance of goods and services and thereby promotes the general welfare
market integrity
requires property rights, contracts, fair competition, and the other conditions for free market to operate
securities act of 1933
requires the issuer of a security to disclose all material information, which is defined as information about which average prudent investor ought reasonably to be informed or to which a reasonable person would attach importance in determining a course of action in a transaction
rights (Donaldson)
respect certain rights- those that ought to be recognized as fundamental international rights (roughly the same as natural or human rights) a corporation is morally bound only by those minimal duties such that "the persistent failure to observe [them] would deprive the corporation of its moral right exist" and not by maximal duties whose fulfillment would be "praiseworthy but not absolutely mandatory"
against hostile takeover
targets of successful raids are sometimes broken up and sold off piecemeal or downsized and folding into the acquiring company people lose jobs and communities lose their economic base debt loads that limit their options and expose them to greater risk companies are forced to defend themselves by managing for immediate results and adopting costly defensive measures
deception
the ethical treatment of clients requires salespeople to explain all of the relevant information truthfully in an understandable, non misleading manner when information is not revealed when a person is unable to make a ration choice as a result of holding a false belief that is created by some claim made by another, that claim may be either a case or misleading statement or a statement that is incomplete is some crucial way
transfer pricing
the values assigned to raw materials and unfinished products that one subsidiary of a company sells to another
fraud
the willful misrepresentation of a material fact that causes harm to a person who reasonably relies on the misrepresentation
role of board of directors in takeovers
to consider (and in some states even require) the impact of a takeover on a broad range of non shareholder constituencies (not just current shareholders)
insider trading
trading in the stock of publicly held corporations on the basis of material, nonpublic information
national sovereignty
underlies structures against interfering in the political process of a host county and bring foreign officials
problem with relativism
universal wrong possible when using this practice
greasing the wheels
use bribery to aid development by introducing an element of efficient in an otherwise inefficient economy
standards set by market
wages set primarily from the competition among employers for desirable workers, which compels them to offer high wages and good working conditions nothing unjust about jobs with lower pay and power working conditions as long as workers are willing to accept employment on the terms offered,d then any arrangement is justified no wage can be too low in a free market
objections to legal definition of churning
what is the meaning of "excessive trading" 1) whether training is excessive depends on the character of the account (more speculative client, willing to assume higher risk for greater return--> should expect a higher trading volume) 2) high volume is not the only factor; pointless trades might be considered churning even if the volume is relatively low 3) churning might be indicated by a pattern of trading that consistently favors trades that yield higher commissions
tender offers
when an insurgent company (raider) offers to buy a controlling block of stock in a target corporation from its present shareholders offered price generally involves a premium, which is an amount in excess of the current trading price
rational empathy test
would we, in our home country, regard the practice as morally permissible under conditions of similar economic development? employs home-country standards but asks us to apply them in a hypothetical situation of lower level development, why may have prevailed in the past