Business and

Economics
Ethics

Session 7

Prof. Marek Hudon

Academic Year 2016-2017

1
 Avoidance practices

De Colle & Bennet (2012) suggest three different

forms of avoidance practices:
1) State-induced (legal & welcome)
Schemes that have been explicitly introduced
by the government to achieve a socially
desirable end.

1) Strategic (transparent, legal but not always in

accordance with legislators intentions)
Practices that reduce tax liabilities as part of a
commercially sound business strategy
3
 3) Toxic (strictly legal but contradict the intent
of the law (EC 2012, 2)).

Practices designed with the exclusive intention of

reducing tax that have the following characteristics: (a)
lack of transparency: (b) contradict the intention of the
legislator, and (c) create artificial structures, valuations or
transactions that have no specific business purpose.

4
Concretely?

7
 Why tax avoidance is problematic?
Social
inequality
Some arguments

Weaken
compliance
culture

Unfair
competition

Eroding
tax
revenue
(impact on
poverty)
8
Based on De Colle & Bennet (2012)
 Discussion

Nave (hypocrisy?) because it is related to economic

agents functioning inside market economy?
Consider companies as economic agents with rationale, if
not a soul/ consciousness
Some of these new expectations coming from public
bodies (UN, EC), but also from civil society/ NGOs, some
directly from companies or groups of companies, markets
intermediaries etc.
Is it a sign that states/ public bodies transfer
responsibility/ control or role of guarantor of human rights
to companies?

Source: Frydman, 2007

 The globalisation story
Try to impose universal rules
& values transposed in laws

Civil
Society

- Benefit from globalisation

Companies
- Pressure from States
stakeholders

- Either accept globalisation

outcome
OR try to influence global legislation
- Put more burden on other actors
Source: Frydman, 2007
 Milanovic, B. (2012),
Back to distributive justice? Global Income Inequality
by the Numbers: in
History and Now, World
Bank Policy Research
Working Paper 6259

Mega-rich: up by 60% over

200 million Chinese, 90
this period. (about 60 million
million Indians, and 30
people, the richest 12% of
million each from
Americans, the richest 3% of
Indonesia, Brazil and
Brits, Japanese, Germans,
Egypt fastest rise in
and French, and the richest
incomes: an 80% real
1% of Brazilians, Russians,
terms
and South Africans)

Change in real incomes over the period of

1988 to 2008 at different percentiles of Squeezed middle in
global income distribution (in 2005 dollars, developed countries
adjusted for PPP).
11
 Why did it happen?

Multinationals grow and are getting bigger

But similar to world GDP growth during last decades
Put countries in competition (relocation) forum
shopping where actors decide the legal regime of their
operations ;
Opting out where escape unfavorable legislation;
Social/ regulatory dumping

Source: Frydman, 2007

 Historically, WTO (Urugay Round) late
discussion on social clause proposal of EU/ US
criticised by developing countries
Trilateral Core Labour Standards of ILO in 1998
without legal obligation, later integrated in UN
Global Compact.

Over 8700 corporate participants and other stakeholders

from over 130 countries (UN Global Compact website, April 2011)
 A global shift!

"What we have to do is find a way of embedding the

global market in a network of shared values,"
Kofi Annan, 1999, Speech at at the World Economic Forum
"A fundamental shift has occurred in recent years in
the attitude of the United Nations towards the private
sector. Confrontation has taken a back seat to
cooperation. Polemics have given way to
partnerships."
Kofi Annan, 1999, Speech at U.S. Chamber of Commerce
 Ethical guidelines

Code of conducts started in 70s by ILO and

OECD with guidelines for MNC active in foreign
countries
Business circles also started their codes, such
as Global Sullivan Principles in South Africa
Levi Strauss & co adopted its own code of
conduct in 1984
Codes have then rapidly spread

Source: Frydman, 2007

Verizon Code of Conduct
 How to classify these codes?
First zone Second zone Third zone
Its direct Its political
Internal space
environment environment (local,
(internal
impacted by its international public
stakeholders?)
activities actors)

Environmental
Related to working impact, health of Relationship with
conditions, social population, rights abusive local
rights etc. of local population,
governments
relationship with
outsourcing etc.

Source: Frydman, 2007

From codes to oaths

19
 1 Codes 2
PREVALENCE
EFFECTIVENESS
Today all sorts of
organizations have codes Divergent and conflicting
results from significant
Worldwide: 58 of 100 largest
positive relationship to
companies (2004)
counterproductive
Belgium: 53 of 100 largest
companies (2002) DIRECTIONAL
PART OF THE CODE
ASPIRATIONAL
PART OF THE CODE Rules of conduct

Institutional mission Code violations reporting

Stakeholder principles Sanctions for code violations

Corporate values Code update

20
Source: Kleynjans, 2013 Engagement letter
 Recent insight on codes of conduct
See readings Foster et al. (2010)
US congress passed the Sarbanes-Oxley act
2002: public firms have to disclose whether they
have adopted a code of ethics
497 out of S&P500 have one!
64 have no sentence overlap with other
companies; 5% have more than 50% overlap!
Codes as legal document or value statements?

Copy could be best Unique, copy is

practice Unethical!
 Why codes of conduct?

Self-interest Marketing

Vacuum created by
globalisation Politics of
Need to fill the gap consumption

Forced
(e.g. Greenpeace
shares of Shell)

Source: Frydman, 2007

 Where do we find codes?

Not only (anymore) in for-profit companies!

--> Social entreprises or other hybrid organisation
Example of Mexican microfinance institutions
(MFIs):
Same principles related to stakeholders
BUT MFIs put greater emphasis on socially-
oriented principles or on terms such as
people and common good.
Towards a global code? One size fits all?
(Kleynjans 2013)
23
 What can they achieve?
http://www.youtube.com/watch?v=okQXrB7y_Aw

Summary:
755 to 12

Mixed results on effectiveness in the literature

 What if we could penalise greenwashing?

EC 2005 Directive 25/29: practice is unfair (disloyal) &

misleading if does not respect the code of conduct if
content is not only aspirations but also commitment
Word for word!

CSR which was conceived out of legislation, is caught up

by new legislation

Co-regulation since various norms or mechanisms,

public and private, complement each other (or compete),
concerted or un-concerted

Source: Frydman, 2007

 Holy Grail?

Signatories were required to make technically equal

(Fifth Report, 198 1) health care benefits available to
black workers masked the fact that apartheid health care
systems were unequal.
Socially responsible corporations did not serve as an
instrument for social change in South Africa. To the
contrary, the accounting system devised to monitor
Sullivan signatories merely provided a moral
rationalization for continuing business in South Africa in
the face of a growing movement for divestment. 26
Do we care if they care?

Is the intent important?

Should we look at the

consequences?

OR

Take what they wanted to

achieve into consideration
(virtues)