Ethics in Global Business.•Ethical Principles Governing Global Business•Business Principles by US department of

Commerce•Ethics in relation to adapting host countries

culture and norms•Issues relating negotiators and gift giving

Introduction• Although many firms engage in business abroad,

most of the ethical issues, which arises for transnational corporation, or TNC.

• TNCs are firms having direct investment in various forms in two or more countries.

• The owners and managers may be from home country exclusively, or may include people of many nationalities.

• The wealth and power gives rise to concern to impact on local economies in both home and host countries and the capacity of the governments.

Developing an Ethical Framework.• The charge against the transnational

corporations is that they develop double standards- doing less in the under-developed countries than what they would do in their own.

• Moral failure lies in settling for much lower standards than at home.

• Should MNCs be bound by home standards or do “ In Rome as Romans Do”? Any answers to this question?

WHAT TO DO IN ROME?

Answer lies between two extremes;1.Conduct business in the same way the world over with

no double standards.2.Do what is legally and morally accepted in any given

country where a TNC operates.• Neither of the above propositions can be adopted

without exceptions: Morally Relevant? -Paying different wages in less

developed countries-vast difference in wages in the US and India.

Are Home Country Standards Universal?-(In US racial and sexual discrimination-Japan has discrimination against races and women- a Japanese manager can not follow whilst working for Honda plant in Tennessee)

• The right of Affected People to Decide- People in the host country have a right to decide. What is acceptable to host country may not be morally right, but people have a right to govern their own affairs. They cannot be morally asked to adopt different standards.

• Required Conditions for Doing Business. “We do not agree with the Romans, but find it necessary to do things their way”. If Arabs have boycotted the Israelites(began with Arab League in !945), many American transnationals cooperated by avoiding investment in Israel; while others refused to cooperate with the boycott for ethical reasons. Another argument-There is no other sway of doing business.

• TNCs abide by minimal rather than maximal duties of coperations.

Fundamental International Rights1. The right to freedom of physical movement.2. The right of ownership to property3. The right of freedom from torture4. The right to fair trail5. The right to nondiscriminatory treatment.6. The right to fair trial.7. The right to freedom of speech and association8. The right to minimal education9. The right to political participation10. The right to subsistence.11. Sample Examples: Failure to provide safety

equipments, using coercive tactics, employing child labor, bribing government officials.

NEGATIVE HARM PRINCIPLE• While dealing abroad, corporations have an

obligation not to add substantially to deprivation and suffering of people.

• Utilitarian injunction to produce the greatest possible benefits to people creates a maximal obligations of TNCs, but a concern with consequences can take progressively a weaker forms, including prevention of harms and avoiding infliction of harm (a moral obligation).

• The final means for determining the morally acceptable standard for operating in less developed countries with very different conditions is to consider sympathetically how people affected evaluate benefits and harms. This is called rational empathy- considering ourselves and our own culture at a level of economic development relevantly similar to that of the other country.

• Problems arises because we do not have enough knowledge of other cultures.s

Bhopal Gas Tragedy• The Gas Tragedy at the Union Carbide plant was

caused by the leaking of poisonous methyl iso-cyanate(MIC) gas which killed three thousand five hundred or more poor people in the early hours on December 3, 1984. Hundreds of thousand of these people lived in shanties around the plant.

• Shortly after midnight on the fateful day, Suman Dey, an engineer on duty found that the temperature of tank E610, which stored 40 tons of MIC had shot up to the maximum limit. Though workers were trying to find out the source of reported leak, high temperature indicated normally refrigerated liquid was turning into hot gas and may rupture the tank. Soon a vent shaft gave away and the gas leaked.

• It was normal for Bhopal plant people to mistrust the instruments in the panel and abandon caution to the wind.

• Moreover, three safety systems were simultaneously out of order and refrigeration unit for cooling the tanks in an emergency had been shut down

• Founded by a private company in 1934 for the manufacture of batteries, Union Carbide India Limited, became a publicly owned corporation in 1955 with the parent company holding 50.8% of the stock

• UCIL was the twenty first largest corporation, autonomously staffed by Indian managers with about $170 million in revenues, at the overall direction of Union Carbide, located at Danbury, Connecticut.

• UCIL entered the pesticide market in 1960, at the urging of the Indian government, who also insisted that UCIL build the plant at Bhopal, most populous and impoverished state. This was necessary for ‘Green Revolution’; to modernize agriculture. Land was offered at a very low rental which UCIL accepted and started the Agricultural Product Division in 1968.

• At first Bhopal plant produced fertilizers and pesticides using chemicals from other countries, but the Indian government prodded UCIL to manufacture finished products from scratch to create more employment and stop outgo of foreign exchange. This suited The parent company, Union Carbide Corporation.

• This suited the parent company and UCIL decided to manufacture its major pesticide Sevin, using toxic ingredients , specially MIC.

• The objection by local officials to store such hazardous chemicals was overruled by the central government.

• Indian managers, faced with down turn of demand and competition from other manufacturers as well as high cost of investment for the new plant,made the company lose money and the plant was performing at 40% of its capacity.

• Lack of profitability led to low levels of safety. Although Sevin could be manufactured without producing MIC in an intermediate step, for reasons of cost.

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• Bhopal plant was built with manual safety system and not an automatic safety system at the instance of the Indian government for creating more employment.

• Cutbacks also resulted in job cuts which also resulted in decline in maintenance. In fact, at the time of the tragedy Union Carbide was trying to sell the plant.

• Though much of the blame can be put on the Indian government, Union Carbide at their West Virginia, also produced MIC at institute, West Virginia. The fact was that at Bhopal plant was much lower than that at West Virginia.

QUESTIONS

• Is a PNC justified in adopting different standards of safety in a host country?

• Is a HCN justified in allowing a PNC to dilute their business norms?

• Was the government of India justified in overruling local authorities over their concern about storing of MIC in the city of Bhopal?

• Maximum good for the majority in India or in the U.S. justified?

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APPLYING ETHICAL FRAMEWORK TO THE BHOPAL CASE

Determining the acceptable level of risk- Deliberately exposure of any group to death or injury is a failure of human duty?

• can a country with desperate need of food for its growing population accept a ‘trade-off’ that creates a greater risk of an industrial accident?

• Are risks increased by local conditions acceptable to MNCs?

THE ROLE OF LOCAL CONDITIONS• Can Western-style industrialization without

making a commensurate investment in industrial infrastructure or rural development be justified? Industrial development at the cost of agriculture diving people from the land to Bhopal.

• Was Union Carbide morally justified in operating plant at Bhopal and exposing workers/local population to the harm that became a reality?

Weighing cost and benefits ratio• Applying the rational empathy test- Lower safety standards at Bhopal to satisfy

Indian governments desire to become food-wise sufficient.

Creating jobs by not adopting automatic fail-safe method.(Manually activated siren warning system was sounded after 30 minutes)

If the level of safety had to be increased then the plant would uneconomical to operate- causing job loss.

Practical Problems

Pharmaceutical Marketing Practices.• Different instructions in promoting drugs in

the third world with more indications for their use and fewer warnings in developed counties. Example Lomotil- a life threatening drug in the third country(WHO has declared Lomotil of no value and dangerous for children. Another example –chloromphenical [chloromycetin])

• Drug dumping- Selling abroad drugs that have not been approved in the home country.

•Problems of pricing•Free Samples and Bribery

IS THERE A DOUBLE STANDARD?

BRIBERY• Offer or make any payment to a foreign

official for the purpose of influencing a foreign official to act in your favour.

• What is wrong with Bribery?Immorality of demanding or accepting a bribe.Although government officials bear chief

responsibility for economic consequences of bribery, MNCs cannot be held blameless.

CAUX ROUND TABLE PRINCIPLES

• Founded in 1986 by Frederik Philips and Oliver Giscard d’Estaing(Vice-Chairman of INSEAD) to reduce trade tension.

• Concerned with development of constructive economic and social relationship between the participants’ countries, at the urging of Ryuzaburo Kaku, Chairman of Canon Inc. it focused on the importance of global corporate responsibility in reducing social and economic threats to world peace.

Introduction• CRT believes that world business community should

play an important role in improving economic and social conditions.

• It aims to express a world standard of business behaviour. The process involves identifying shared values, reconciling different values in order to develop an acceptable business behaviour.

• The General principles in Section 2 seek to clarify the spirit of kyosei and “human dignity” while the specific Stakeholder Principles in Section 3 are concerned with their practical applications.

• Business behaviour can affect relationships amongst nations and prosperity and well being of all.

Section 2• Principle 1.: The responsibilities of businesses

are beyond shareholders and should be more towards stakeholders.

• Principle 2.: The economic and social impact of business- Business developed in foreign countries to produce or sell should contribute to social advancement of those countries by creating productive employment and helping to raise the purchasing power of their citizens

• Business Behaviour- Beyond the letter of law and toward the spirit of trusts.

• Principle 4.: Respect for Rules-Both international and domestic to promote equitable treatment of all participants….avoid adverse consequences even if it is legal.

• Principle 5.:Support for multilateral trade systems of GATT/World Trade Organizations and similar international agreements

• Principle 6.: Improve environment, promote sustainable development, avoid wasteful usage of natural resources.

• Principle 7.: Avoidance of Illicit Operations- Not t to condone bribery, money laundering, or other corrupt practices.(drug trafficking, terrorist activities,or other organized crime)

SECTION 3; STAKEHOLDERS PRINCIPLESCustomers• Treat all customers with dignity, even if they donot

purchase our product directly from us by providing them with highest quality products and service consistent with their requirements.

• Treat all customers fairly in all business transactions and provide remedies for their dissatisfaction

• Make every effort to ensure health and sfety of our customers and the quality of their environment.

• Offer human dignity in products offered, marketing and advertising and respect the integrity of the culture of our customers.

Employees: We believe in dignity of every employee and

are responsible to:• Provide jobs and compensation to improve

workers’ living conditions• Provide working conditions that respect each

employee’s health and dignity• Be honest in communication• Negotiate in good faith• Avoid discriminatory practice• Protect employees from avoidable injuries.

Owners/investors• Honouring trust of the investors by providing Professional and diligent management Conserve, protect and increase owwer’s/investors’

assets respect their requests and suggestionsSuppliers: Based on mutual respect Seek fairness and truthfulness in all activities Avoid unnecessary litigations Share information with suppliers in return of value,

quality, competitiveness and reliability. Pay on time.

Competitors• Foster open market for trade and investment• Promote competitive behaviour• Refrain from seeking and participating in questionable

payments to secure competitive advantage• Refuse to acquire commercial information by

dishonest means.Communities:• Respect human rights• Raise standard of health• Stimulate sustainable development• Support peace, security, diversity and social

integration• Respect local culture• Be good corporate citizen.