Faculty of Business Management & Globalisation

BBI3363 International Management

Lecture 8: Corporate Social Responsibility and

Ethics

1. Learning Objectives1. Learning Objectives

1. Appreciate the complexities involved in the corporation’s obligations toward its various constituencies around the world.

2. Understand the changing perceptions and demands of corporations doing business in other countries, in particular the responsibilities toward human rights.

3. Acknowledge the strategic role that CSR and codes of ethics must play in global management.

1. Appreciate the complexities involved in the corporation’s obligations toward its various constituencies around the world.

2. Understand the changing perceptions and demands of corporations doing business in other countries, in particular the responsibilities toward human rights.

3. Acknowledge the strategic role that CSR and codes of ethics must play in global management.

2-2

1. Learning Objectives1. Learning Objectives

5. Recognize that companies must provide benefits to the host country in which they operate in order to maintain cooperation.

6. Discuss the need for corporations to consider sustainability in their long-term plans in order to manage environmental impacts on host locations.

7. Identify the challenges involved in human rights issues when operating in around the world.

5. Recognize that companies must provide benefits to the host country in which they operate in order to maintain cooperation.

6. Discuss the need for corporations to consider sustainability in their long-term plans in order to manage environmental impacts on host locations.

7. Identify the challenges involved in human rights issues when operating in around the world.

2-3

Appreciate the complexities involved in the corporation’s obligations toward its various constituencies around the world.

Appreciate the complexities involved in the corporation’s obligations toward its various constituencies around the world.

Part 1: CSR

4

2. 3 Ps of CSR2. 3 Ps of CSR

• People, planet and profit (the so-called ‘3Ps’)

• Also known as the triple-bottom line.

• The perspective taken is that for an organisation (or a community) to be sustainable (a long run perspective) it must be financially secure (as evidenced through such measures as profit);

• it must minimise (or ideally eliminate) its negative environmental impacts (planet);

• it must act in conformity with societal expectations (people).

• These three factors are obviously highly inter-related.

• Many companies now report regularly on the subject producing Sustainability and/or CSR (Corporate Social Responsibility) reports whose content is increasingly scrutinised by investors and financial institutions.

• People, planet and profit (the so-called ‘3Ps’)

• Also known as the triple-bottom line.

• The perspective taken is that for an organisation (or a community) to be sustainable (a long run perspective) it must be financially secure (as evidenced through such measures as profit);

• it must minimise (or ideally eliminate) its negative environmental impacts (planet);

• it must act in conformity with societal expectations (people).

• These three factors are obviously highly inter-related.

• Many companies now report regularly on the subject producing Sustainability and/or CSR (Corporate Social Responsibility) reports whose content is increasingly scrutinised by investors and financial institutions.

2-3

2. 3Ps and CSR2. 3Ps and CSR

• The CSR concept has pushed further and further up the corporate agenda as business strives to act responsibly towards people, planet and profit (the ‘3Ps’). Some driving forces pushing CSR up the corporate agenda (including OSH {occuptatonal safety and health} are:

• Informed investors recognise that the business risk (both internal and external) for companies that successfully manage their social and environmental impact is lower than the business average

• Consumers prefer products that are produced in a socially responsible way

• Increased concern about the damage caused by economic activity to the environment

• Transparency of business activities brought about by the media and modern information and communication technologies

• Search for new forms of global governance

• Measurement of progress toward sustainable development:

• The CSR concept has pushed further and further up the corporate agenda as business strives to act responsibly towards people, planet and profit (the ‘3Ps’). Some driving forces pushing CSR up the corporate agenda (including OSH {occuptatonal safety and health} are:

• Informed investors recognise that the business risk (both internal and external) for companies that successfully manage their social and environmental impact is lower than the business average

• Consumers prefer products that are produced in a socially responsible way

• Increased concern about the damage caused by economic activity to the environment

• Transparency of business activities brought about by the media and modern information and communication technologies

• Search for new forms of global governance

• Measurement of progress toward sustainable development:

2-3

3. The Social Responsibility of MNC’s

2-7

CSR Dilemma

4. MNC Stakeholders

MNC Stakeholders

Home Country Host

Society in General

MNC Stakeholders

Home Country Host

Society in General

2-8

OwnersCustomersEmployeesUnionsSuppliersDistributorsStrategic

AlliesCommunityEconomyGovernment

MNCMNCEconomyEmployeesCommunityHost GovernmentConsumersStrategic AlliesSuppliersDistributors

Global interdependence/standard of livingGlobal environment and ecologySustainable resourcesPopulation’s standard of living

Part 2: Ethics

9

2-8

5. Benefits from CSR5. Benefits from CSR

Improved access to capital

Secured license to operate

Revenue increase and cost and risk reduction

Better brand value and reputation with customer attraction

and retention

Improved employee recruitment, motivation, and retention

Improved access to capital

Secured license to operate

Revenue increase and cost and risk reduction

Better brand value and reputation with customer attraction

and retention

Improved employee recruitment, motivation, and retention

6. Ethics in Global Management6. Ethics in Global Management

2-11

International Business Ethics

The business conduct or morals of MNCs in their relationship with individuals and entities

Ethics vary based on the cultural value system in each country or society

7. Global Corruption Barometer:2010 Corruption Perception Index (CPI)—Selected

RanksSource: Selected data from the TI Corruption Perception index, 2010

7. Global Corruption Barometer:2010 Corruption Perception Index (CPI)—Selected

RanksSource: Selected data from the TI Corruption Perception index, 2010

Top 20—Least CorruptTop 20—Least Corrupt

2-12

8. Three Tests of Ethical Corporate Actions

8. Three Tests of Ethical Corporate Actions

2-13

• Yes/No

• Yes/No

9. The Process for Companies to Combat Corruption and to Minimize the Risk of Prosecution

9. The Process for Companies to Combat Corruption and to Minimize the Risk of Prosecution

1. Having a global compliance system which shows that employees have understood, and signed off on, the legal obligations regarding bribery and corruption in the countries where they do business

2. Making employees aware of the penalties and ramifications for lone actions, such as criminal sanctions

3. Having a system in place to investigate any foreign agents and overseas partners who will be negotiating contracts

4. Keeping an effective whistle-blowing system in place

1. Having a global compliance system which shows that employees have understood, and signed off on, the legal obligations regarding bribery and corruption in the countries where they do business

2. Making employees aware of the penalties and ramifications for lone actions, such as criminal sanctions

3. Having a system in place to investigate any foreign agents and overseas partners who will be negotiating contracts

4. Keeping an effective whistle-blowing system in place

2-14

10. Policies to Help MNCs to Confront Concerns About Ethical Behavior and Social Responsibility 10. Policies to Help MNCs to Confront Concerns

About Ethical Behavior and Social Responsibility

• Develop worldwide code of ethics.

• Build ethical policies into strategy development.

• Plan regular assessment of the company’s ethical posture.

• If ethical problems cannot be resolved, withdraw from that market.

• Develop worldwide code of ethics.

• Build ethical policies into strategy development.

• Plan regular assessment of the company’s ethical posture.

• If ethical problems cannot be resolved, withdraw from that market.

2-15

2-16

Providing Benefits to the Host CountryProviding Benefits to the Host Country

Recognize that companies must provide benefits to the host country in which they operate in order to maintain cooperation.

Recognize that companies must provide benefits to the host country in which they operate in order to maintain cooperation.

11. Common Criticism of MNC Subsidiary Activities11. Common Criticism of MNC Subsidiary Activities

1. MNCs locally raise their needed capital, contributing to a rise in interest rates in host countries.

2. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host-country people do not have much control over the operations of corporations within their borders.

3. MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel.

4. MNCs do not adapt their technology to the conditions that exist in host countries.

5. MNCs concentrate their research and development activities at home, restricting the transfer of modern technology and know-how to host countries.

1. MNCs locally raise their needed capital, contributing to a rise in interest rates in host countries.

2. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host-country people do not have much control over the operations of corporations within their borders.

3. MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel.

4. MNCs do not adapt their technology to the conditions that exist in host countries.

5. MNCs concentrate their research and development activities at home, restricting the transfer of modern technology and know-how to host countries.

2-17

11. Common Criticism of MNC Subsidiary Activities Cont.

11. Common Criticism of MNC Subsidiary Activities Cont.

6. MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods.

7. MNCs start their foreign operations by purchasing existing firms rather than by developing new productive facilities in host countries.

8. MNCs dominate major industrial sectors, thus contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees.

9. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development.

6. MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods.

7. MNCs start their foreign operations by purchasing existing firms rather than by developing new productive facilities in host countries.

8. MNCs dominate major industrial sectors, thus contributing to inflation, by stimulating demand for scarce resources and earning excessively high profits and fees.

9. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development.

2-18

12. Managing Subsidiary—Host-Country Interdependence

12. Managing Subsidiary—Host-Country Interdependence

2-19

13. MNCs Benefits and Costs to Host Countries13. MNCs Benefits and Costs to Host Countries

Benefits CostsAccess to outside capital Competition for capital

Foreign-exchange earnings

Increased interest rates

Access to technology Inappropriate technology

Infrastructure development

Development investment exceeds benefits

Creation of new jobs Limited skills development

More humane employment standards

Few managerial jobs for locals

2-20

14. Managing the Interdependence14. Managing the Interdependence

The Risks of InterdependenceThe Risks of InterdependenceIssues in Managing Environmental

Interdependence

2-21

• Nationalism

• Protectionism

• Governmentalism

• Nationalism

• Protectionism

• Governmentalism

• Coca-Cola in Rajasthan

• BP in the Gulf of Mexico

• Export of pesticides

• Integrating goals of sustainability into strategic planning

• Coca-Cola in Rajasthan

• BP in the Gulf of Mexico

• Export of pesticides

• Integrating goals of sustainability into strategic planning

15. Recommendations for MNCs Operating in and Doing Business with Developing Countries

15. Recommendations for MNCs Operating in and Doing Business with Developing Countries

1. Do no intentional harm. This includes respect for the integrity of the ecosystem and consumer safety.

2. Produce more good than harm for the host country.3. Contribute by their activity to the host country’s

development.4. Respect the human rights of their employees.5. To the extent that local culture does not violate ethical

norms, respect the local culture and work with and not against it.

6. Pay their fare share of taxes.7. Cooperate with the local government in developing and

enforcing just background institutions.

1. Do no intentional harm. This includes respect for the integrity of the ecosystem and consumer safety.

2. Produce more good than harm for the host country.3. Contribute by their activity to the host country’s

development.4. Respect the human rights of their employees.5. To the extent that local culture does not violate ethical

norms, respect the local culture and work with and not against it.

6. Pay their fare share of taxes.7. Cooperate with the local government in developing and

enforcing just background institutions.

2-22

=====END=====

23