International Business Chapter 4

Alcoa pay $384 Million to resolve bribery

Alcoa Inc. (AA), the largest U.S. aluminum producer, agreed to pay $384 million to resolve U.S. criminal and civil probes, after a unit admitted paying tens of millions of dollars in bribes to members of Bahrain's royal family and officials at a state-owned company to win business.

Justice theory

Justice theories focus on the attainment of a just distribution of economic goods and services a just distribution is one that is considered fair and equitable John Rawls argued that all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage impartiality is guaranteed by the veil of ignorance - everyone is imagined to be ignorant of all his or her particular characteristics [For example, in the imaginary society, one might or might not be intelligent, rich, or born into a preferred class. Since one may occupy any position in the society once the veil is lifted, the device forces the parties to consider society from the perspective of the worst-off members. ] One can argue that a well-regulated, market-based economy and free trade, by promoting economic growth, benefits the least-advantaged members of society. In principle at least, the inequalities inherent in such systems are therefore just (in other words, the rising tide of wealth created by a market-based economy and free trade lifts all boats, even those of the most disadvantaged).

JP Morgan Hiring practice

Last month (8/2013) the New York Times (NYT) reported that JP Morgan Chase is under Foreign Corrupt Practices Act (FCPA) scrutiny in China for its hiring practices. In an article, entitled "Hiring in China By JPMorgan Under Scrutiny", reporters broke the story that the Securities and Exchange Commission (SEC) is investigating JP Morgan Chase to determine "whether JPMorgan Chase hired the children* of powerful Chinese officials to help the bank win lucrative business in the booming nation." The article is based upon "a confidential United States government document"

Right Theories

Rights theories - human beings have fundamental rights and privileges which transcend national boundaries and cultures establish a minimum level of morally acceptable behavior the (U.N.'s) Universal Declaration of Human Rights (1948) specifies the basic principles that should always be adhered to irrespective of the culture in which one is doing business Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions which have an ethical component

Business Ethics

are the accepted principles of right or wrong governing the conduct of business people

Ethical Strategy

is a strategy, or course of action, that does not violate these accepted principles

Ethical Dilemmas

Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut

What does ethics offer?

Ethics officers ensure all employees are trained in ethics ethics is considered in the decision-making process the company's code of conduct is followed In the end, there are clearly things that an international business should do, and there are things that an international business should not do But, not all ethical dilemmas have a clean and obvious solution

Mortgage back securities

35.24 million fine for JP Morgan in a 3 1/2 year mostly because of mortgage-backed securities

Conscious capitalism by John Mackey

"With few exceptions," the authors write, "entrepreneurs who start successful businesses don't do so to maximize profits. Of course they want to make money, but that is not what drives most of them. They are inspired to do something that they believe needs doing. The heroic story of free-enterprise capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary value for customers, team members, suppliers, society, and investors." "Business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it lifts people out of poverty and creates prosperity." The challenge, they say, is to make capitalism more "conscious" of its heroic nature.

Ethical Issues Most relevant to firm

1. employment practices 2. human rights 3. environmental regulations 4. corruption 5. the moral obligation of multinational companies

Facilitating payment

A financial payment that may constitute a bribe and that is made with the intention of expediting an administrative process. A facilitating payment is a payment made to a public or government official that acts as incentive for the official to complete some action or process expeditiously, to the benefit of the party making the payment. In general, a facilitating payment is made to smooth the progress of a service to which the payer is legally entitled, without making such a payment. In some countries, these payments are considered normal, whereas in other countries, facilitating payments are prohibited by law and considered bribes. Also called facilitation payments.

How Are Ethics Relevant To Human Rights?

Basic human rights are taken for granted in developed countries: freedom of association freedom of speech freedom of assembly freedom of movement

Straw Men Approaches to business ethics

Friedman doctrine - the only social responsibility of business is to increase profits, so long as the company stays within the rules of law are multinationals morally required to use their power to enhance local welfare? Stockholder theory Cultural relativism - ethics are culturally determined and firms should adopt the ethics of the cultures in which they operate "when in Rome, do as the Romans do" Righteous moralist - a multinational's home country standards of ethics should be followed in foreign countries Naïve immoralist - if a manager of a multinational sees that firms from other nations are not following ethical norms in a host nation, that manager should not either

Why do managers behave unethically?

Personal ethics-The generally accepted principles of right and wrong governing the conduct of individuals expatriates may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture managers fail to question whether a decision or action is ethical, and instead rely on economic analysis when making decisions Decision-making processes - the values and norms that are shared among employees of an organization organization culture that does not emphasize business culture encourages unethical behavior Organizational culture - organizational culture can legitimize unethical behavior or reinforce the need for ethical behavior Unrealistic performance expectations - encourage managers to cut corners or act in an unethical manner Leadership - helps establish the culture of an organization, and set the examples that others follow when leaders act unethically, subordinates may act unethically, too

How are ethics relevant to moral obligations?

Social responsibility refers to the idea that managers should consider the social consequences of economic actions when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and good social consequences it is the right way for a business to behave Advocates argue that businesses need to recognize their noblesse oblige - honorable and benevolent behavior that is the responsibility of successful companies give something back to the societies that have made their success possible But, are multinationals morally required to use their power to enhance local welfare?

How are ethics relevant to environmental regulations?

Some parts of the environment are a public good that no one owns, but anyone can despoil The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation

Manager 5 step process

Step1: Identify which stakeholders (the individuals or groups who have an interest, stake, or claim in the actions and overall performance of a company) a decision would affect and in what ways internal stakeholders are people who work for or who own the business such as employees, the board of directors, and stockholders external stakeholders are the individuals or groups who have some claim on a firm such as customers, suppliers, and unions Step 2: Determine whether a proposed decision would violate the fundamental rights of any stakeholders Step 3: Establish moral intent - place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated Step 4: Engage in ethical behavior Step 5: Audit decisions and review them to make sure that they are consistent with ethical principles

How are ethics relevant to employment practices?

Suppose work conditions in a host nation are clearly inferior to those in the multinational's home nation Which standards should apply? home country standards host country standards something in between

How Are Ethics Relevant To Corruption?

The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions adopted by the Organization for Economic Cooperation and Development (OECD), obliges member states to make the bribery of foreign public officials a criminal offense But, is it permissible for multinationals to pay government officials facilitating payments if doing so creates local income and jobs?

Siemens

The opening case explores the bribery scandal involving German electronics firm, Siemens. Siemens recently agree to pay $1.6 billion in fines after charges of paying bribes were brought by the U.S. and German governments. According to the legal suits, since 1999, Siemens has paid out $1.4 billion in bribes to various government officials around the world in an effort to secure contracts it might not otherwise have been awarded. In addition to the fines, Siemens has agreed to invest $1 billion to improve its compliance process, and perhaps in doing so, change its unethical corporate culture. Discussion of the case can revolve around the following questions.

What are the philosophical approached to ethics?

There are several different approaches to business ethics Straw men approaches deny the value of business ethics or apply the concept in an unsatisfactory way Others approaches are favored by moral philosophers and are the basis for current models of ethical behavior

How can managers make ethical divisions?

To encourage ethical decision making, firms should 1. Hire and promote people with a well grounded sense of personal ethics refrain from promoting individuals who have acted unethically prospective employees should find out as much as they can about the ethical climate in an organization prior to taking a position 2.Build an organizational culture that places a high value on ethical behavior articulate values that place a strong emphasis on ethical behavior emphasize importance of code of ethics - formal statement of the ethical priorities a business adheres to implement a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not 3. Make sure that leaders within the business articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric 4. Develop moral courage enables managers to walk away from a decision that is profitable, but unethical gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company 5. Put decision making processes in place that require people to consider the ethical dimension of business decisions ask whether decisions fall within the accepted values of standards that typically apply in the organizational environment decisions can be communicated to all stakeholders affected by it if colleagues would approve of decisions

Ethics

refers to accepted principles of right or wrong that govern the conduct of a person the members of a profession the actions of an organization