What are the ethical and legal issues in global business

The rise of globalization since World War II has created moral dilemmas for businesses in five specific areas: labor standards, environmental standards, human rights, cultural diversity, and corruption.

The Rise of Globalization

Globalization, deregulation, and technological change supported the rapid expansion of multinational corporations (MNCs), which took advantage of regulatory arbitrage and relocated to low-tax jurisdictions and areas with loose labor and environment regulations. Overseas operations commonly meant the MNCs would operate in regions with subpar regulatory frameworks and lax enforcement mechanisms, creating opportunities for engaging in unethical behavior. Additionally, global value chains were structured in a way that made purchasing, sales, support, and product development more efficient.

The Moral Dilemmas of Globalization

A big moral dilemma concerns labor standards, something that cropped up due to overseas sweatshop outsourcing and concerns over poor overseas working conditions and child labor. Countries with poor environmental regulations may also have such conditions exacerbated by MNCs. Additionally, MNCs may face pressure to stop doing business with countries whose governments violate human rights. Another concern is a lack of respect for cultural diversity, despite international laws requiring respect be given to a country’s culture and customs. Finally, some countries allow bribery in foreign operations, creating another moral stress.

The Three Types of Ethics Codes

To govern their actions, companies may create ethics codes in various forms. In addition, they may choose to follow regulations set forth by industry organizations.

The Various Forms of Ethics Codes

Ethics codes manifest in various forms. There’s compliance certificates, which are documents requiring contractors, agents, or suppliers to agree with to comply with a company’s stated standards. Another form is purchase orders or letters of credit, which are written documents requiring compliance with a company’s policy on the part of the suppliers or other contractors. A third form, special documents, are written codes of conduct summarizing company guidelines, principles, or standards. Finally, companies can produce circulated letters, which are letters addressed to stakeholders stating company policies on a specific issue.

The Three Types of Global Corporate Codes of Conduct

The first type of global corporate code of conduct is the corporate-based code of conduct, which typically feature ethics training, whistle-blowing channels, and ethics reviews along with codes of conduct. These function by guiding corporate actions and helping the company differentiate itself from the competition. An example of this in action is Mattel, who allows a third party to post independent reviews of its practices on a public website.

A second type, industry-based corporate codes, includes codes of conduct, ethics programs, ethics offers, and ethics training. This type functions as a regulatory group that may offer independent monitoring and verification to ensure industry-wide compliance. An example of this is the Defense Industry Initiative on Business Ethics and Conduct, created by the U.S. defense industry to promote common interests through self-regulation.

The third type is global codes of international organizations, which typically include guidelines for multinational organizations like faith-based groups and nongovernmental organizations. The functionality varies depending on the issuing organization and if the code is created on a singular, industry, or global basis.

How and Why Leaders Should Model Ethical Behavior

Employees look to their leaders to model ethical behavior and provide guidance in areas of uncertainty. To serve that need, leaders must understand their responsibilities and have impeccable character.

The Seven Habits and Characteristics of Ethical Leaders

It’s important for an ethical leader to have a strong personal character, as a leader’s failure to earn their employees’ respect will create the perception that they don’t care about company ethics or ethics requirements. They must also act as role models for an organization’s value and act with transparency. It’s also important for ethical leaders to be proactive to prevent ethical problems. Additionally, ethical leaders must exhibit a passion for acting in the company’s best interest without bending the rules and considering all stakeholders’ interests. Finally, they need to view their firm’s ethical culture holistically.

The Duties of Every Ethical Leader

All ethical leaders must create a review process to identify ethical issues. They must also detect ethical risk areas by analyzing the company’s weakness. Additionally, they must be able to answer stakeholder concerns as soon as an ethical issue is revealed. Fourthly, they must avoid misconduct by ensuring all employees are trained to follow ethics guidelines. Finally, ethical leaders must recover from a misconduct disaster by addressing weaknesses in the company’s ethics program.

There are several potential benefits to deploying ethical leadership. These include building stronger company relationships with external stakeholders, building higher employee satisfaction and employee commitment, and seeing higher firm valuation on the stock market.

The Importance of Doing What’s Right

Though ethical behavior is not necessarily a legal requirement, companies and leaders who adhere to a strong code of ethics will not only enjoy better relationships with local communities but also serve as admirable examples.

Sources
Business Ethics, Part Four Implementing Business Ethics in a Global Community, Chapter 11: Ethical Leadership
InTechOpen, The Moral Dilemmas of Global Business
New York Times, Wal-Mart Hushed Up a Vast Mexican Bribery Case
ResearchGate, Global Codes of Conduct
TradeReady, Ethics and Your International Business – Where to Start

As political, legal, economic, and cultural norms vary from nation to nation, various ethical issues rise with them. A normal practice may be ethical in one country but unethical in another. Multinational managers need to be sensitive to these varying differences and able to choose an ethical action accordingly.

In an international business, the most important ethical issues involve employment practices, human rights, environmental norms, corruption, and the moral obligation of international corporations.

Employment Practices and Ethics

Ethical issues may be related to employment practices in many nations. The conditions in a host country may be much inferior to those in a multinational’s home nation. Many may suggest that pay and work conditions need to be similar across nations, but no one actually cares about the quantum of this divergence.

12-hour workdays, minimal pay, and indifference in protecting workers from toxic chemicals are common in some developing nations. Is it fine for a multinational to fall prey to the same practice when they chose such developing nations as their host countries? The answers to these questions may seem to be easy, but in practice, they really create huge dilemmas.

Human Rights

Basic human rights are still denied in many nations. Freedom of speech, association, assembly, movement, freedom from political repression, etc. are not universally accepted.

South Africa during the days of white rule and apartheid is an example. It lasted till 1994. The system practiced denial of basic political rights to the majority non-white population of South Africa, segregation between whites and nonwhites was prevalent, some occupations were exclusively reserved for whites, etc. Despite the odious nature of this system, Western businesses operated in South Africa. This unequal consideration depending on ethnicity was questioned right from 1980s. It is still a major ethical issue in international business.

Environmental Pollution

When environmental regulation in the host nation is much inferior to those in the home nation, ethical issues may arise. Many nations have firm regulations regarding the emission of pollutants, the dumping and use of toxic materials, and so on. Developing nations may not be so strict, and according to critics, it results in much increased levels of pollution from the operations of multinationals in host nations.

Is it fine for multinational firms to pollute the developing host nations? It does not seem to be ethical. What is the appropriate and morally correct thing to do in such circumstances? Should MNCs be allowed to pollute the host countries for their economic advantage, or the MNCs should make sure that foreign subsidiaries follow the same standards as set in their home countries? These issues are not old; they are still very much contemporary.

Corruption

Corruption is an issue in every society in history, and it continues to be so even today. Corrupt government officials are everywhere. International businesses often seem to gain and have gained financial and business advantages by bribing those officials, which is clearly unethical.

Corruption in Japan

In the 1970s, Carl Kotchian, an American business executive who served as the president of Lockheed Corporation, paid $12.5 million to Japanese agents and government officials to sell Lockheed’s TriStar jet to All Nippon Airways. After the case was discovered, U.S. officials charged Lockheed with falsification of its records and tax violations.

The revelations created a scandal in Japan as well. The ministers who took the bribe were charged, and one committed suicide. It even led to the jailing of Japan’s prime minister. The Japanese government fell in disgrace, and the Japanese citizens were outraged. Kotchian had, without doubt, engaged in unethical behavior.

Moral Obligations

Some of the modern philosophers argue that the power of MNCs brings with it the social responsibility to give resources back to the societies. The idea of Social Responsibility arises due to the philosophy that business people should consider the social consequences of their actions.

They should also care that decisions should have both meaningful and ethical economic and social consequences. Social responsibility can be supported because it is the correct and appropriate way for a business to behave. Businesses, particularly the large and very successful ones, need to recognize their social and moral obligations and give resources and donations back to the societies.