ETHICS & SOCIAL RESPONSIBILITY

23/1/2007

TODAYS PLAN

TOPIC: Ethics & Social Responsibility Social Responsibility & the Corporation
Cultural relativism & ethical imperialism? CORRUPTION

Caselets Discussion

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WHEN IS DIFFERENT JUST DIFFERENT, & WHEN IS DIFFERENT WRONG?

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GUIDELINES THAT HAVE BEEN USED

Cultural relativism

No cultures ethics are better than any others (no international rights & wrongs) Do everywhere exactly as they do at home Theory behind cultural imperialism: absolutism

Ethical imperialism

Single list of truths Can only be expressed with one set of concepts Call for the same behavior around the world.

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BALANCING THE EXTREMES: THREE GUIDING PRINCIPLES

Respect for core human values, which determine the absolute moral threshold for all business activities Respect for local traditions The belief that context matters when deciding what is right & what is wrong

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GUIDELINES FOR ETHICAL LEADERSHIP

Treat corporate values & formal standards of conduct as absolutes Design & implement conditions of engagement for suppliers & customers Allow foreign business units to help formulate ethical standards & interpret ethical issues In host countries, support efforts to decrease institutional corruption Exercise moral imagination
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ADVERTISING & FREE SPEECH? THE CASE OF NIKE & HUMAN RIGHTS

Identify the ethical issues faced by MNCs in their treatment of foreign workers that could bring allegations of misconduct in their operations? Would the use of third party independent contractors alleviate or insulate MNCs from being attached, and would such use be a good defensive shield against charges of abuse of their employees? Are statements by companies that show good social and moral conduct in the treatment of their workers part of the image they create therefore part of their advertising message?

Are statements by companies that show good social and moral conduct in the treatment of their workers part of the image they create therefore part of their advertising message? Do consumers judge companies and make their buying decision based on their perceptions of corporate behavior and values they exhibit? Is the historic made in question (e.g. Made in the USA) now being replaced by the made by inquiry (e.g. Made by Company X or for Company X by Company Y)? Given the principles noted in the case, how can companies comment on their positive actions to promote human rights so consumers will think well of them? What would propose a company do (a) nothing? (b) construct a corporate code of ethics? (c) align with some of the universal covenants or compacts prepared by international agencies?

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CASELETS ON CORRUPTION

Divide into groups Decide what you should do in each case if you were the decision-maker Class discussion

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BRIBERY & CORRUPTION

Corruption: abuse of public office for private gain Corruption is both an ethical matter & an economic matter (large costs Considered by many to be the key reason for the lack of progress in economic reform in non-Western countries.
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CORRUPTION

Causal factors

Interdependence of the economic & political spheres Petty Grand How do you draw the line between legitimate & illegitimate interactions between the private sector & politicians is more difficult to draw

Types of corruption

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WHERE DOES CORRUPTION OCCUR?

Most of the corrupt countries are developing countries Corruption also varies across sectors and activities

Highest in the public works, construction, & defense sectors Lowest in banking & agriculture In terms of government activities, most prone are: tax departments, police departments, customs agencies, procurement & distribution of international aid
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THE COSTS OF CORRUPTION

Corruption is associated with a range of negative macroeconomic effects

Reduced investment & GDP growth, reductions in the flow of foreign direct investment, income inequality, & misallocation of government resources

For managers engaged in international business, corruption has become a major concern

Prediction that half of the worlds GDP growth will occur in non-OECD countries & those countries rank high in corruption 12

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ECONOMIC COST OF CORRUPTION

CORRUPT ACTIVITY
Government bureaucrat accepts speed money to issue licenses Organized crime, with sanction of local officials, controls & sets prices in the markets Tax collectors permit under-reporting of income in exchange for a bribe Government officials order expensive capital goods, or overpay or overinvoice for public works, in exchange for kickbacks.
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ECONOMIC COST
3% to 10% premium above licensing fee Goods sell at 15% to 20% premium

Income tax revenues reduced by up to 50% Goods & services priced 20% to 100% higher than necessary.

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THE CANADIAN SITUATION

BUSINESS ACTIVITY: International Code of Ethics for Canadian Business (1997) GOVERNMENT ACTIVITIES:

OECD Guidelines for Multinational Enterprises (

Canada obliged to established a National Contact Point to promote the guidelines

OECD Analytical Work on Corporate Codes Corruption Convention of the OECED

Corruption of Foreign Public Officials Act passed by Parliament in 2/1999

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EFFORTS BY INTERNATIONAL DEVELOPMENT ORGANIZATIONS: THE WORLD BANK

World Bank

Since 1996, Bank launched more than 600 anticorruption programs in nearly 100 countries (including loans) Institutionalized efforts: Department of Institutional Integrity to investigate claims of fraud & corruption & a Sanctions Committee to adjudicate cases & assess penalties More than 180 companies & individuals debarred from doing business with the Bank 15

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EFFORTS BY INTERNATIONAL DEVELOPMENT ORGANIZATIONS: REGIONAL DEVELOPMENT ORGANIZATIONS

The Inter-American, European, & Asian Development Banks followed World Banks lead IMF has suspended aid to some countries because they did not combat corruption Suggestion that anti-corruption requirements be placed in the conditionality agreements
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PRIVATE EFFORTS: TRANSPARENCY INTERNATIONAL

Founded in 1994 in Berlin active in more than 70 countries 72 national chapters, source book of best practices & started several innovative pilot projects. Lobby governments, inform media & bring together people concerned with corruption Annual corruption Perception Index (measures perception of corruption in 85 countries)
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2006 BRIBE PAYERS INDEX

HIGHEST LEVEL
India China Russia Turkey Taiwan

LOWEST LEVEL
Switzerland Sweden Australia Austria Canada

Malaysia South Africa

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UK Germany
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2006 CORRUPTION PERCEPTIONS INDEX

MOST CORRUPT
Haiti Myanmar, Iraq, Guinea Sudan, Congo, Chad, Bangladesh

MOST HONEST
Finland, Iceland, New Zealand

Uzbekistan, Guinea, Ivory Coast, Cambodia, Belarus

Turkmenistan, Tajikistan, Sierra Leone, Pakistan, Nigeria, Kyrgyzstan, Kenya, Rep. Congo, Angola
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Denmark Singapore Sweden Switzerland

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CORPORATE TRANSPARENCY

Role of codes of conduct Large accounting firms have forensic accounting experts Collective action several industry groups developed sector-specific guidelines on tackling corruption & promoting access to information. Whistleblowers importance of giving these individuals protection Importance of tightening up financial reporting & maintaining the independence of auditors
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BRIBERY IN BUSINESS SECTORS

Public works/construction Arms & defense Oil & gas Real estate/property Power generation/transmission & telecommunications Mining Pharmaceuticals/medical care & transportation & storage Heavy manufacturing Banking & finance Civilian aerospace IT & forestry Agriculture, light manufacturing, fishery

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RELATIONSHIP BETWEEN GNP & PROPENSITY FOR BRIBERY

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ASSIGNMENT FOR 25/1/2007

CASE: Conocos Green Oil Strategy Division of the class into four groups:

Read both the main case & your case First part of class: work in groups: Ecuadorian government, indigenous peoples, environmental groups, management Second part: negotiation (2 representatives per side)

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