Ethical Issues Facing Multinational Corporations example essay topic

Table Of Contents 1 Introduction 1 2 Ethical Difficulties Facing Multinational Corporations 2 3 General Principles For Ethical Dilemmas 8 4 The Problem of Questionable Payments 13 5 Conclusion 19 References 21 1 Introduction The continuing process of globalization and the liberalization of world trade has resulted in many companies expanding overseas in order to move into new markets and increase their profits. In the process, this has created huge multinational corporations, with the capabilities noted in the above quote, which operate in multiple host countries. At the same time, the governments of these host countries are independent and set their own laws, rules and regulations to regulate, and sometimes to direct, how businesses are conducted in that country which may be different from that set by the home countries of such multinational corporations. Conflicts in ethics can arise if the norms and practices of the cultures in the host countries are vastly different from that accepted in the home country. This paper discusses the ethical issues that can be faced by multinational corporations operating in multiple countries, and the general principles that may be applied to resolve such ethical problems In addition, this paper shall examine the problems relating to questionable payments faced by multinational corporations, and discuss the various appropriate solutions towards resolving it.

2 Ethical Difficulties Facing Multinational Corporations Domestic corporations operate solely in the home country where there is only one set of legal requirements to meet, and even in a multicultural and multiethnic country, there is a single set of acceptable standards for social and ethical behavior, along with a reasonably homogenous, or at least reasonably integrated, cultural composition. On the other hand, multinational corporations must operate across many countries where each country can have its own culture and laws, and their own diverse social norms and ethical practices. As such, "multinational corporations may find themselves perplexed by these laws, rules, and customs of the host nation in which they conduct business or have subsidiaries" (Beauchamp, 1998). They often wonder if they should do as the locals do or conform to the different and even conflicting cultural and ethical guidelines of their home countries. What could be viewed as ethically right in the home country may be absolutely wrong in the host county, and vice versa. In this sense, what constitute an ethical act depends on where the multinational corporation is operating.

The Stakeholder Model (Donaldson & Preston, 1995) shown in figure 1 below provides a clear idea of the parties that have a stake in the firm. The stakeholders of the multinational corporation are now also expanded to include the host country counterparts, along with various considerations such as local environmental issues and others. These factors vastly increases the complexity of the ethical issues faced by these multinational corporations. Hence, "since multinational corporations operate across products, markets, nations and cultures, they face problems and situations that are often far more diverse and complex than those faced by even the largest domestic firms, and ethics certainly becomes a major issue" (Phu kan & Dhillon, 2001). Conflicts between home country requirements and host country requirements are a common occurrence. Very often, such multinational corporations are criticized or accused of exploiting the host countries in which they operate; yet such claims and accusations are too vague to determine their accuracy.

For example, "many American critics argue that America multinational corporations should live up to and implement the same standards abroad that they do in the United States and that the United States mandated norms should be followed" (DeGeorge, 1995). Yet these same high standards and norms, if applied, are not necessarily morally or legally required in the host countries. In reality, perceptions of what is ethical and what is not, vary widely all over the world and it is safe to assume that multinational corporations as well as governments of host countries rely heavily on their respective personal values when deciding on what is ethical or unethical behaviors. Such diversity in various dimensions - culturally, economically, and linguistically, just to name a few - often lead to an increasing rise in the ethical difficulties faced by multinational corporations operating in several countries.

Boatright (2000) discusses many of these ethical issues noted in figure 2 below. Amongst the most common of these ethical difficulties is the issue of fairness in employee remuneration as implemented by multinational corporations across the countries that they operate in, in particular the differences that arises between remuneration of employees in their home country and that practiced in the host country. Multinational corporations tend to remunerate their expatriate employees based on the wage scale of their country of origin (which are often higher) while paying those that are employed from the host country (usually a less-developed country) at a lower rate that is commensurate with local conditions. This is seen as unfair and unethical especially when the quantity or quality of work is similar in both cases.

The example of difference in employee remuneration is also apparent between male and female employees in the situation of gender bias. Gender bias or discrimination against women is another area of difficulty faced by multinational corporations. In many countries that multinational corporations operate in, they still refuse to accept that an employee's economic worth is determined by his or her salary, resulting in incomparable wage systems for male and female employees (Pincus, 2002). As employers know that the women have no bargaining power because they have no other jobs to go to that will pay more, they do not have to pay women as much as they would have to pay men to lure them to the same positions.

For example, in Japan, women employees are often looked down upon by the males and this cultural norm creates an incomparable value system of employment that is biased towards male employees. As can be appreciated, all businesses must uphold the law of the country and the law must be fair and equal to all, regardless of nationality. However, when a multinational corporation decides to conduct its businesses in a particular host nation, it usually attempts to influence the government of the country to its favor. As far as ethics is concerned, whether such business practice is viewed as right or wrong is arguable. On the one hand, multinational corporations bring along with them large foreign direct investments (FDI) in addition to new technology that are necessary for the host nation's development and growth.

On the other, the multinational corporations require a favorable local business environment for them to thrive and reap profits. To do so, they may influence the government of the host nation to provide them with tax-free status or tax shelters, flexibility in employment regulations, relaxation in environmental regulations, unlimited access to local markets, preferential treatments on business and legal matters and such likes that are not enjoyed by local domestic firms. DeGeorge (1995) raised the issue of whether it is immoral to hire anyone to do work or to work in a workplace that is in some way dangerous to his life or health. "Any job or workplace might be dangerous in some way; therefore, if it were immoral to hire someone to do work that was in any way dangerous, no one could be hired to do many jobs that seem perfectly acceptable" (DeGeorge, 1995). For example - a chemist in a chemical laboratory is paid to handle and analyze dangerous chemicals, but he knows that his live is subjected to certain risks in doing so, regardless of in which country the chemical laboratory may be.

Ideally, there should be international agreements on minimal acceptable standards of safety in the workplace. Lastly, questionable-payment is another ethical difficulty faced by multinational corporations. In many countries, bribes and gift giving are a social norm for expeditious business dealings and favorable business terms. Does that mean that when a multinational corporation operates in such a host country, it is expected of them to partake in such business practices even if these practices are viewed as wrong and unethical in their home country? For example, businesses in China thrive on the notion of "quan-xi" which means that businesses are conducted based on relationship or connections, where such relationship or connections can more often than not be bought through bribes and gifts giving. In India, corruptions among businesses and government officials are widespread to the extent that it is a norm for businesses to pay bribes or gifts to government officials for the safety, security and continued survival of their business.

There are indeed many more ethical difficulties that are constantly faced by multinational corporations when operating in several countries and those discussed above represents some of the more common ones faced in today's international business environment. 3 General Principles For Ethical Dilemmas Not every host country has the same ethical standards, and unfortunately, it is difficult to provide hard-and-fast rules for every possible dilemma or problem, because countries and situations differ from one to another. While a single universally agreed set of principles or guidelines to address the ethical dilemmas faced in conducting international business has not been established and agreed to by all, if not the majority of, both the multinational corporations and the governments of the world, many suggestions and ideas have been put forward by thinkers in business ethics. The seven moral principles or guidelines advocated by De George (1995) should be considered by multinational corporations as the general moral norms that could be respected and practiced to escape the legitimate criticism contained in the dilemmas they are said to face. These principles are as follows: 1. Multinationals should do no intentional direct harm.

Any company, whether they are multinational corporations or not, that does produce intentional direct harm clearly violates a basic moral norm. 2. Multinationals should produce more good than bad for the host country. Essentially a general utilitarian approach, this principle suggest that multinational corporations will do more good only if they help the host country more than they harm it. 3.

Multinationals should contribute by their activities to the host country's development. If the presence of the multinational corporation does not help the host country's development, the multinational corporation can be correctly charged with exploitation, or using the host country for its own purposes at the expense of the host country. 4. Multinationals should respect the human rights of their employees. All multinational corporations should do so whether or not local companies respect those rights as this principle will preclude gross exploitation of workers, set minimal standards for pay, and prescribe minimum standard for health and safety measures. 5.

Multinationals should always pay their fair share of taxes. Multinational corporations should not take pure advantage of transfer pricing aimed at benefiting from the different tax laws of the different countries that they operate in. To the extent that it is engaged in to avoid legitimate taxes, it exploits the host country, and the multinational corporation does not bear the fair share of the burden of operating in that country. 6. To the extent that local culture does not violate normal norms, multinationals should respect the local culture and work with it, not against it.

Rather than simply transferring their home country's ways into the host country, multinational corporations should consider changes in operating procedures, plant planning, and such likes, which take into account local needs and customs. 7. Multinationals should cooperate with the local government in the development and enforcement of just background institutions. Instead of fighting a tax system that aims at appropriate redistribution of incomes, instead of preventing the organization of labor, and instead of resisting attempts at improving the health and safety standards of the host country, multinational corporations should be supportive of such measures. Donaldson (1989) has also proposed that corporations must respect the 10 fundamental human rights listed in figure 3 below, in their international business dealings. Despite the difficulty of outlining specific ethical standards, there has to be a few commonsense guidelines or principles, no matter how general, that multinational corporations can find helpful when considering the possible courses of actions or their decisions in the face of ethical dilemmas mentioned in the earlier section of this paper.

Towards this end, and in addition to Donaldson's 10 fundamental rights and DeGeorge's seven moral guidelines for multinational corporations noted above, the following general principles below can be seen to be both appealing as well as practical to managers of multinational corporations... Multinationals should always obey the laws of the host country. A basic tenet of social responsibility and business ethics is obedience to the law, preferably both the letter and the spirit of the law. By understanding and obeying the laws, rules and regulations of the host country, managers of multinational corporations could possibly resolve most of the ethical dilemmas faced... Always tell the truth. Telling the truth is important in building trust with the various stakeholders of the host country.

When multinational corporations undertake to tell the truth to its stakeholders, they are able to build considerable trusts and reputation, and escape the many complexities of ethical dilemmas faced. The avoidance of such moral actions more often than not leads them into more dire situations and difficulties... Stick to the Golden Rule. The Golden Rule principle, "do unto others as you would have others do unto you", provides a benchmark for evaluating the ethical dimensions of business decisions. Translated into business terms, it means treating individuals fairly, just as the managers would want the business treated if it were an individual... Showing respect for the people of the host country.

The notion of treating people with respect has deep roots in the study of ethics. Respect for the individual is also an important aspect of the recent emphasis on valuing diversity. By showing respect for the people of the host country, and therefore their local culture, customs and social norms, multinational corporations would be better positioned to avoid facing ethical dilemmas in their operations... Practice participation, not paternalism. This principle is aimed at learning about the needs of the stakeholders, rather than deciding what is best for them. When efforts are made to understand the differing or varying needs and requirements of the stakeholders in which a multinational corporation operates within, ethical dilemmas can be more easily resolved, or even avoided...

Above all, do no harm. This negative harm principle, can be considered to be the bottom-line ethical consideration and one easily adaptable to all businesses, not necessarily just the multinational corporation. By harm, it refers to direct and indirect harm or harmful actions that may result from decisions made by businesses. In sum, ethical difficulties or problems faced by multinational corporations operating in several countries can be resolved, or at the very least minimized, if some general principles are adopted. The principles that one can appeal to in order to resolve such ethical dilemmas are the seven moral principles advocated by DeGeorge, in addition to some seemingly fundamental moral principles like obeying the laws of the country, always telling the truth, sticking to the Golden Rule, treating individuals with respect, participation and not paternalism, and above all doing no harm.

4 The Problem of Questionable Payments One of the most pervasive of the ethical issues facing multinational corporations involve "questionable payments". Mahoney (1995) defines questionable payments as "business payments that raise ethical questions of right or wrong in either the host country or in other nations". Difficulties arise because of differences in the customs, ethics, and laws of various countries regarding different types of payments. Some of the most common forms of questionable payments are noted in Figure 4 below. Regardless of the varied forms taken, questionable payments are viewed as unethical and illegal in the United States. Unfortunately, many of these so-called unethical practices are considered to be legal, acceptable or even customary in many parts of the world.

Consider what multinational corporations would do if the only way to obtain certain permits or contracts is to offer a bribe and that "everyone does it". Bribery and corruption would become rampant. In addition, a multinational corporation may contend that if it does not act in ways similar to firms native to the country, it may lose business or be unable to do business there. The question then arises whether this make bribes acceptable. While a questionable payment may in truth be a bribe that constitutes remuneration for the performance of an act that is inconsistent with the work contract or the nature of the work one has been hired to perform (Shaw & Barry, 2001) and can be in the form of money, gifts, entertainment, or preferential treatment; in reality, it is difficult to distinguish between such questionable payments and payments that are required or necessary for business dealings in a particular country. Consider the following three examples illustrated by Fadiman (2001): Ghana: You enter customs to clear a consignment of goods.

You note that high stacks of forms, strewn loosely on a single table. The clerk admits your paper will be "difficult" to find, raises his eyebrows, and awaits your reply. Peru: To establish an office, you require a license. A government official informs you that the process has encountered "unanticipated difficulty" that may cause "indefinite delay". He awaits our reply. China: Your firm, a major U.S. department store, has ordered high-quality Chinese-made garments for the fall fashion season.

A provincial official explains that their trucks have encountered "unexpected problems" in moving the shipment to port; thus he cannot predict the arrival date. Your season is at risk. He awaits your reply. In each of the above examples, clearly there seems to be an indirect or "veiled" prompting for questionable-payments to be made by the government officials concerned. Yet, should such payments be offered and made, the question then arises as to whether they constitute a bribe and is therefore questionable and unethical.

Some situations seem ambiguous and fall into gray areas. For example, at what point does a "token gift" from a supplier constitute a bribe? Many solutions have been implemented to address this issue both at the corporate level and at the governmental level. To help employees grapple with this sticky issue, General Motors recently issued a new policy on "gifts, entertainment, and other gratuities", which was outlined in a 12-page document including instructional scenarios involving fictional characters (Bartol & Martin, 1998).

One such scenario, along with an explanation of the proper application of General Motors policy, is shown in Figure 5 below. The effects of questionable payments made by multinational corporations can sometimes result in dire consequences for both the giver and receiver. A case in example was the US$22 million in secret payoffs made by Lockheed Aircraft Corporation to foreign politicians to get aircraft contracts. The revelation of Lockheed bribes in Japan caused a government crisis there, and in Holland Prince Bernhardt was forced to resign his government duties after admitting to taking a $1 million payoff from Lockheed (Shaw & Barry, 2001). As a rule, the U.S. Foreign Corrupt Practices Act (FCPA), passed in 1977 and recently amended, prohibits most of the questionable payments when made by U.S. companies doing business in other nations. The FCPA provides stiff fines and prison sentences for corporate officials engaging in questionable payments overseas and requires corporations to establish strict accounting and auditing controls to guard against the creation of slush funds from which questionable payments can be paid (Shaw & Barry, 2001).

The FCPA does not, however, prohibit "grease payments" to the employees of foreign governments who have primarily clerical or ministerial responsibilities. These payments are sometimes necessary to ensure that the recipients carry out their normal job duties. In 1997, the 29 members of the Organization for Economic Cooperation and Development (OECD) formally agreed to a treaty that outlaws the bribing of foreign officials. This agreement makes it less likely that the FCPA will put American multinational corporations at a competitive disadvantage in the future. Despite the prevailing laws that exist in the U.S. and in other countries that are similar to the FCPA, questionable payments are still prevalent and widespread in less developed countries. However, prevalence of such acts does not imply that it is a legal or a morally acceptable business practice.

Multinational corporations can however try to be ethical and more responsible when operating in these (somewhat corrupt) countries by considering the following questions before making questionable payments, as suggested by Shaw and Barry (2001): 1. What is the value of the payment? Is the payment or gift of nominal value, or is it substantial enough to influence a business decision? 2. What is the purpose of the payment? 3.

What are the circumstances under which the payment or gift was given and received? 4. What is the position and sensitivity to influence of the person receiving the payment or gift? 5. What is the acceptable business practice in the industry or country?

Is this the customary way of conducting this kind of business? 6. What is the company's policy? 7. What is the law?

When questionable payments violate the law, they are clearly illegal and unacceptable. In each case, the ultimate moral judgment hinges largely on whether an objective party could reasonably suspect that the payment or gift might lead to the recipient to sacrifice the interest of the firm for his or her personal gain. Hence, the proper solution to ethical issues such as questionable payments need to involve both legislation at the government level, as well as policy and guidelines at the corporate level to guide employees on the ethical issues. Of course, such laws and guidelines will also have to be backed by proper enforcement, and prosecutions any of violations.

5 Conclusion From the above discussions, it can be seen that many ethical issues relating to business are compounded when an organization engages in a substantial amount of international business, and this is largely due to the great increase in the number of stakeholders involved, particularly when business is conducted through subsidiaries in multiple countries. Differing laws, rules and regulations dictate that there will be many ethical difficulties arising from such operations. This is especially true when subsidiaries operate in Third World nations that are desperate for investment and employment. While there is no single solution to all the ethical difficulties faced by a multinational corporation, there are indeed several principles that one may adopt to resolve, or at the very least minimize, some of these problems.

Among the ethical difficulties faced by multinational corporations is the issue of questionable payments. Questionable payments can take many forms and are sometimes viewed as a norm or an acceptable business practice in many parts of the world. In the attempt to resolve the issue of questionable payments, the following considerations are relevant in determining the moral acceptability of questionable payments: the value of the payment, its purposes, the circumstances under which it is given, the position and sensitivity to influence of the person receiving the payment, accepted business practices, company policy, as well as what the law says. 1. Bartol, K.M. and Martin, D.C. (1998). Social Responsibility and Ethics in Management, Management, 3rd Edition, Irwin McGraw-Hill, Boston, pp. 100-134.2.

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The Ethics of International Business, Oxford University Press, NY, p. 81 7. Donaldson, T. and Preston, L.E. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, Academy of Management Review, 20 (1995), p. 69 8. Fadiman, J. (2001).

"Foreign Corrupt Practices: How To Deal With Foreign Forms of Bribery", in Shaw, W.H. and Barry, V. (2001), Moral Issues in Business, Eighth Edition, Wadsworth, Australia. 9. Mahoney, Jack (1995). "Gifts, Grease and Graft - Business Ethics", Financial Times, December 8, 1995.10.

Pincus, L.B. (2002). "A Free Market Approach to Comparable Worth", in Hartman, L.P. (2002), Perspectives in Business Ethics, Second Edition, McGraw-Hill Irwin, Boston, pp. 453-456.11. Pu khan, S. and Dhillon, G. (2001). "Ethical and Intellectual Property Concerns in A Multicultural Global Economy", presented at BIT WORLD 2001, Cairo, Egypt, June 2001.12. Shaw, W.H. and Barry, V. (2001). Moral Issues in Business, Eighth Edition, Wadsworth, Australia.

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