BSB119 – GLOBAL BUSINESS
LECTURE 8: ETHICAL AND LEGAL REQUIREMENT
What is Ethics?
Ethics is defined as an individual's personal beliefs about right and wrong behaviour. Ethics is not
just the practice of individuals; it is a value shared by society as a whole.
Applied to business, ethics attempts to describe how people should act within given business
o The accepted principles of right or wrong governing the conduct of business people
o Ethical strategy: course of action that does not violate ethical principals
The profit motive was once considered to be the only guiding principle of international business.
The interest in business ethics has largely come about because of the corporate scandals of the
1980s in many countries.
o It is now more widely recognised that pure greed is no longer good for business.
o In a world where rapid communications and enquiring journalists are quick to expose and
publicise unethical business practices, a disregard for business ethics in simply bad business.
Ethical Issues in International Business
Arise when a manager makes decisions consistent with differing national environments
o Political systems
o Legal systems
o Economic development levels
What is ethical and “normal” in one environment may not be so in another
Situations arise when managers deal with the following factors in an environment. These
environments are different in different countries.
o AWB corrupting government officials for wheat contracts.
o Using the loop holes in legal systems – union carbide not adhering to the Indian legal
o Selling inferior products in countries such as Nestle milk powder as substitute for mother
o Offending other culture – be ethnocentric or stereotyping.
Arise most often in the context of:
o Employment practices
What happens when working conditions and pay rates differ? What standards
should be applied – the host nation or the home nation?
Hiring practices, labor relations, diversity issues, employment conditions are some
specific issues that require careful thought
Example: Nike and sweatshop labour
Suggested safeguards include establishing minimal acceptable standards that project
basic rights and dignity of employees, auditing foreign subsidiaries and
subcontractors on a regular basis to make sure those standards and met and taking
corrective action if they are not
o Human rights
Basic human rights are not respected in many developing nations
Rights such as freedom of speech, assembly, association, movement and political
choice are not universally available It is argued that inward investment by MNC can be a force for economic, political
and social progress which ultimately improves the rights of people in repressive
Suggests that it is ethical for a MNC to do business nations which lack the
democratic structures and human rights records of developed nations
China: inward investment will help boost living standards, economic growth
and human rights
o Environmental policy
Many developing nations have less regulation over pollution. Does this mean it’s
acceptable for Western MNC’s to go in and pollute?
OCED suggests it isn’t.
Locally mandated environmental standards may be inferior to those an MNC knows
it can achieve
Tragedy of the commons: a resource held in common by all, but owned by no one, is
overused by some, resulting in degradation.
If a decision is legal but unethical, should it be taken?
Bribery is universally shameful. …In no country do bribe takers speak publicly of
their bribes, nor do bribe givers announce the bribes they pay. No newspaper lists
them. No one advertises that he can arrange a bribe. No one is honored precisely
because he is a big briber or bribee. …Not merely the criminal law – for the
transaction could have happened long ago and prosecution be barred by time – but
an innate fear of being considered disgusting restrains briber and bribee from
parading their exchange
Government officials may ask for bribes for an MNC to “get things done”
Is an MNC’s manager who agrees a corrupt manager?
Should an MNC ever accede to bribery demands?
Long historical problem
Facilitating payments: payments made to foreign officials to ensure there is no
obstruction to a transaction
Ensure officials perform duties they are obliged to perform.
US government allows this type of payment under foreign corrupt practices
In Australia, bribery is outlawed under the Bribery Act which prohibits bribes to
foreign governments in return for business
o Repressive regimes
Is inward investment an agent for change?
What is the limit beyond which inward investment would not be justified under all
What if competitors from other nations invest and you don’t?
o An MNC’s perceived moral obligations to society
MNC have power which comes from their control over resources and their ability to
move production from country to country. Power is constrained by law, discipline of
market and competitive process
Perceived power over host country
Along with power arise obligations (?)
Power is morally neutral
How it is used is what matters Perceptions of how it should be used and of its impact vary
o Company view
o Host country view
o Social Responsibility
Social responsibility: idea that business should consider the social consequences of
economic actions and given preference to outcomes with positive social and
economic consequences when making business decisions.
Noblesse oblige: honorable and benevolent behavior is the responsibility of those in
Benevolent behavior responsibility of only successful business?
The Boards of AWB Limited and AWB (International) Limited are committed to clearly promoting
and demonstrating that their business affairs and operations are at all times being conducted
legally, ethically and in accordance with the highest standards of integrity and propriety.
The AWB Code of Conduct policy is based on this principle and its observance provides the
foundation on which the Company's reputation with growers, customers, suppliers
and stakeholders is based.
The Code of Conduct policy sets out the values, responsibilities and obligations of all Board
members and all people employed, contracted by, associated with or acting on behalf of the AWB
Agency and facilitation payments
In some countries it is accepted practice for agency payments to be required if a service or contract
is to be effected. In such circumstances payments may only be made within the defined policy
arrangements as approved by the Board and Executive and are within the law. Local laws as well as
Australian laws will apply to all such payments.
Agency payments must be made strictly in accordance with the policy guidelines and have the prior
approval of the member of the Executive Leadership Group of the appropriate Division. All
payments must be recorded and reported to the Managing Director within one month of payment.
The record must show the value of the benefit or payment, the date it was made, the identity of all
people involved, why the benefit was given, your name and signature and the date the record was
Payments or benefits can only be given in accordance with the Commonwealth Criminal Code as
amended or replaced. The Commonwealth Criminal Code provides that it is a criminal offence to
bribe a foreign pub