Chapter 12

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Chapter 12
Globalization and
Business Ethics
Business Ethics and Corporate Governance, 2e A. C. Fernando

Growth of Global Corporations
1. International business has become an important

economic force during the second half of the
20th century.
2. With more countries reducing trade barriers, the
number of firms affected by international
competition is increasing every day.
3. Many MNCs have subsidiaries, affiliates and joint
venture partners in most of the developing
countries.

Factors Facilitating
Globalization
Many factors have come to play a facilitating role in recent

times to promote and foster international trade.
These are:
1. Falling trade barriers

2. Political reforms have opened-up new frontiers
3. More developing nations joining the bandwagon of global
business
4. Emergence of new technologies and businesses spanning
continents

Doing Business in a Diverse World
The two perspectives of corporations doing business are:
• Ethnocentric perspective, where in corporations doing

business considered the country of their origin as the
major source of their capital, revenues and personnel
and the home country’s laws as dominant.
• Geocentric perspective, where in firms develop
managers at all levels from a worldwide pool of talent
and seek to use the best people for all jobs regardless
of where they come from.

Role of Multinational Corporations
“Multinational corporations” are business entities that

operate in more than one country. While still maintaining a
domestic identity and a central office in the country where it
was incorporated, a multinational corporation now aims to
maximize its profits on a worldwide basis. The corporation
is so large and extended that it may be outside the control
of a single government. Besides subsidiaries, a
multinational corporation may have joint ventures with
individual companies, either in its home country or foreign
countries.

Excessive Economic Clout
Global business operates within the context of international

and where necessary, regional rules and regulations setup
by appropriate governmental agents. Global business is
dominated by multinational corporations that have their
businesses spread across continents.

Excessive Economic Clout
(contd.)
Anderson and Cavanagh study for Corporate Watch 2000,

found that the combined sales of the world’s top 2000
corporations is greater than a quarter of the world’s
economic activity and are bigger than the combined
economies of all countries minus the biggest nine.
The Institute for Policy Studies (IPS) study indicates that

200 giant corporations control over a quarter of the world’s
economic activity.

Multinational Corporations — Current Issues
Issues faced by multinational corporations:

•Maximize profits
•Meet customer demands
•Adapt to technological change
•Be aware of trends and events in various countries where
they operate.
•Be accountable

Benefits of MNCs to the Host Nation
• Better access to world-wide markets

• Best access to capital investment
• Transfer of advanced technology
• Benefit of large-scale operations in R&D.
• Encouragement of local supplier development.
• New jobs for labour

Benefits of MNCs to the Host Nation
(contd.)
• Advanced training for labour

• Better access to managerial talent
• New products for consumers
• Lower cost products and/or better products
• Exports contribution to the host nation

Disadvantages to the Host Country
Because of MNCs
• Loss of national sovereignty, as the host nation cannot

control what an MNC does in other nations.
• Political interest of the home nations of MNCs could be
served.
• Host country may lose some control over its own
economy.
• Negative impact on the host’s own balance of payments.

Disadvantages to the Host Country
Because of MNCs (Contd.)
• Exploitation of hosts’ national resources, causing them to

dwindle.
• Exploitation of labour of the host-nation.
• Indulging in harmful acts vis-à-vis environments.
• Host nations’ feelings regarding unfair competition by
MNCs.

Evolution of INTERNATIONAL CODES OF
CONDUCT
• 1970s: ILO developed covenants on better labour

practices and canvassed member nations to put these
into effective practice.
• 1974: The United Nations established the UN
Commission on Transnational Corporations (UNCTC), at
the instance of 77 developing countries which sought the
creation of a New International Economic Order.
• 1976: The UNCTC called for the creation of a code of
conduct for transnational enterprises that would have a
legal sanction.

CONDUCT (Contd.)
• 1977: The Global Reporting Initiative (GRI) was founded

to lay stress on auditing practices focussed on public
disclosure of relevant information
• 1985: The Caux Round Table (CRT) and Social
Accountability International (SAI) established.
• 1994: Montreal Protocol on chemical processes that
endangered the ozone strata of the atmosphere and the
Kyoto treaty on global warming.

CONDUCT (Contd.)
• 1995: The Institute for Social and Ethical Accountability

developed the AA 1000, an independent index to grade
business practices and to evaluate firms on the basis of
their learning process and commitment to the social and
ethical cause.
• 1997: OECD statute prohibiting the bribing of foreign
officials.

CAUX Round Table: Principles for Business
• Founded in 1986 by Frederick Phillips, former President

of Phillips Electronics and Oliver Giscard d’Estaing,
former Vice-Chairman of INSEAD.
• The CRT advocates implementation of the CRT Principles
for Business.
• The principles apply fundamental ethical norms to
business decision making.

CAUX Principles or the CAUX Roundtable in
Business
• World standard expressed for measuring business

behaviour.
• Drawn form Minnesota Principles – developed by
Minnesota Centre for Corporate Responsibility, included
views of US, Japan and European countries.
General Principles: TOWARDS WORLDWIDE BUSINESS
1. The responsibilities of business are beyond shareholders
and towards stakeholders.
2. Economic and social impact of business to world
commission

CRT – General Principles
TOWARDS WORLDWIDE BUSINESS (contd.)
3. Beyond the chapter of law and towards a spirit of trust.

4. Respect for rules
5. Support multinational trade (GATT/World Trade Orgn.)
6. Respect for environment
7. Avoidance of illicit operations eg. bribery, money
laundering, support for terrorists., gun running, drug
trafficking

Towards Stakeholders
8. Provide highest quality of product services etc. at a

reasonable price.
9. Remedy their dissatisfaction
10. Health and safety of the customer and quality of his or
her life not impaired by the work
11. Ensure human dignity in goods or service offered.
12. Respect the integrity and culture of customers

Towards Employees
13.Work conditions to be fair and improved consistently.

14.Health and dignity of worker to be borne in mind.
15.Open in dealings, share all but classified information
16.Listen and act when grievances are received
17.In conflicts – “good faith” negotiation and not legal tangle

Towards Employees (Contd.)
18.No discrimination on any ground

19.Ergonomics – in practice
20.Update their skills and knowledge
21.Sensitive problems to be tackled amicably

Towards Owners / Investors
22.Fair and competitive return on capital by efficient

management.
23.Disclose relevant information except “classified”
24.Conserve, protect and increase owners’ assets
25.Respect their complaints for solutions.

Towards Suppliers
26.Pricing to be fair
27.No coercion or litigation
28.Long-term stability

Towards Community
29.Respect and maintain human rights

30.Good corporate citizenship through charitable donations
to educational, cultural and civic needs of society

Key Global Issues
for Business
The key global issues for business are:

•Employment dilemma
•Sustainable practices and values
•Trust, honesty and transparency
•Collaboration and partnerships for action

Global Compact
July 26, 2000: Release of Global Compact

Worldwide initiative under the aegis of the UNO to make
corporate social responsibility an area of paramount
importance to business
It consists of ten principles concerning issues of human
rights, labour standards, environment and anti-
corruption.

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Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.

Business Ethics and Corporate Governance, 2e A. C. Fernando

1. International business has become an important

Business Ethics and Corporate Governance, 2e A. C. Fernando

Many factors have come to play a facilitating role in recent

1. Falling trade barriers

Business Ethics and Corporate Governance, 2e A. C. Fernando

The two perspectives of corporations doing business are:

• Ethnocentric perspective, where in corporations doing

Business Ethics and Corporate Governance, 2e A. C. Fernando

“Multinational corporations” are business entities that

Business Ethics and Corporate Governance, 2e A. C. Fernando

Global business operates within the context of international

Business Ethics and Corporate Governance, 2e A. C. Fernando

Anderson and Cavanagh study for Corporate Watch 2000,

The Institute for Policy Studies (IPS) study indicates that

Business Ethics and Corporate Governance, 2e A. C. Fernando

Issues faced by multinational corporations:

Business Ethics and Corporate Governance, 2e A. C. Fernando

• Better access to world-wide markets

Business Ethics and Corporate Governance, 2e A. C. Fernando

• Advanced training for labour

Business Ethics and Corporate Governance, 2e A. C. Fernando

• Loss of national sovereignty, as the host nation cannot

Business Ethics and Corporate Governance, 2e A. C. Fernando

• Exploitation of hosts’ national resources, causing them to

Business Ethics and Corporate Governance, 2e A. C. Fernando

• 1970s: ILO developed covenants on better labour

Business Ethics and Corporate Governance, 2e A. C. Fernando

• 1977: The Global Reporting Initiative (GRI) was founded

Business Ethics and Corporate Governance, 2e A. C. Fernando

• 1995: The Institute for Social and Ethical Accountability

Business Ethics and Corporate Governance, 2e A. C. Fernando

• Founded in 1986 by Frederick Phillips, former President

Business Ethics and Corporate Governance, 2e A. C. Fernando

• World standard expressed for measuring business

Business Ethics and Corporate Governance, 2e A. C. Fernando

TOWARDS WORLDWIDE BUSINESS (contd.)

3. Beyond the chapter of law and towards a spirit of trust.

Business Ethics and Corporate Governance, 2e A. C. Fernando

8. Provide highest quality of product services etc. at a

Business Ethics and Corporate Governance, 2e A. C. Fernando

13.Work conditions to be fair and improved consistently.

Business Ethics and Corporate Governance, 2e A. C. Fernando

18.No discrimination on any ground

Business Ethics and Corporate Governance, 2e A. C. Fernando

22.Fair and competitive return on capital by efficient

Business Ethics and Corporate Governance, 2e A. C. Fernando

Business Ethics and Corporate Governance, 2e A. C. Fernando

29.Respect and maintain human rights

Business Ethics and Corporate Governance, 2e A. C. Fernando

The key global issues for business are:

Business Ethics and Corporate Governance, 2e A. C. Fernando

July 26, 2000: Release of Global Compact

Business Ethics and Corporate Governance, 2e A. C. Fernando

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