Chapter 3 Ethics and Social Responsibility

Introduction
As we transition from the environments of international business to operations, let’s look at how globalization affects society
and managers’ judgments as they interact with different laws and cultures. As we learned in Chapter 1, the globalization of
business has not been only positive, but has also resulted in three major criticisms: threats to national sovereignty, growth and
environmental stress, and rising income inequality and personal stress. Doing business abroad is not easy. The greater the
“distance” from one’s home country, the more complicated it is to do business. Distance can be described in many different
ways, but one way to identify it is the acronym CAGE: cultural (also known as psychic distance), administrative (such as political
and institutional policies), geographic, and economic. Given the criticisms of globalization and the challenge of companies and
individuals doing business in areas of the world that are quite distant, as defined above, how can companies and individuals
be successful, or at least not create serious mistakes?

This chapter examines globalization and society from the standpoint of ethics and social responsibility. Initially, we’ll examine
ethics in a global context, especially in issues surrounding bribery and corruption, the environment, and corporate codes of
conduct. Then we’ll look at corporate social responsibility more broadly and examine how individuals as well as companies are
trying to improve the human condition.

What is ethics?

Principles which govern what is right and what is wrong regarding the conduct of a person, the members of a profession and
the actions of an organization.

Business ethics: right or wrong business decisions, strategy, conduct and behavior

Ethical Strategy: action or strategy which does not violate any ethical standards or principles

Stakeholder Trade-Offs
To prosper—indeed, to survive—a company must satisfy different groups of stakeholders, including shareholders, employees,
customers, suppliers, and society at large. Obviously, this juggling act can be quite tricky. The shareholder (or stockholder)-
versus-stakeholder dilemma pits the demands of one stakeholder against all the others. The basic idea of focusing on
stakeholders more broadly is that companies can consider various socially important groups when making decisions.3 In the
short term, for example, group aims often conflict. Shareholders want additional sales and increased productivity (which result
in higher profits and returns). Employees want safer workplaces and higher compensation. Customers want higher-quality
products at lower prices. Society would like to see more jobs, increased corporate taxes, more corporate support for social
services, and more trustworthy behavior on the part of corporate executives.

In the long term, all of these aims must be adequately met. If they aren’t, there’s a good chance that none of them will be,
especially if each stakeholder group is powerful enough to bring operations to a standstill. In addition, pressure groups—which
may reflect the interests of any stakeholder group—lobby governments to regulate MNE activities both at home and abroad.

As we noted in our opening case, for example, GE’s Ecomagination initiative has generated pressure from various
constituencies, including clients and shareholders concerned about profitability, various governments concerned with drafting
regulations, employees wondering about changes in the company’s strategies and goals, and environmental lobbyists, NGOs,
and fellow businesses trying to preserve the environment. Each group has a powerful influence on how GE does business and
on how successful it is in the marketplace.

The Foundations of Ethical Behavior

Companies and those who work for them must act responsibly wherever they go. However, a look at ethical behavior tends to
focus on individuals—those who finally make the decision of how to behave. Top management can determine the values a
company espouses and to which employees must adhere. Such values are generally included in a Code of Conduct (discussed
at the end of the chapter) and in the behavior of other individuals in the organization, especially peers and superiors. In order
to ensure adherence to those values, management will try to hire individuals who are willing to work in the type of ethical
environment it is trying to create. However, people still must make the decision about how they are going to act in any given
situation.

The sections below will examine the cultural and legal dimensions of ethical behavior in a global context. First, though, let’s
briefly examine the broad foundations of ethical behavior. There are three levels of moral development:
• Level 1, the preconventional level, where children learn what is right and wrong but don’t necessarily understand why their
behavior is right or wrong.
• Level 2, the conventional level, where we learn role conformity, first from our peers (including parents), then from societal
laws. One could argue that company codes of conduct are also part of the conventional level of behavior in the narrow context
of a company rather than a society. However, it is likely that these codes also reflect the values of the company’s home
country.
• Level 3, the postconventional, autonomous, or principled level, where individuals internalize moral behavior, not because they
are afraid of sanctions, but because they truly believe such behavior is right.

It is possible that behaviors under Level 2 and Level 3 are the same as long as individuals accept the laws where they live, or
the codes of conduct of the companies they work for, as consistent with what they believe is correct. When individuals
confronted with ethical decisions enter the realm of moral reasoning, they examine their moral values, especially as related to
levels 2 and 3 above, and decide what to do. One method of doing so, the teleological approach, holds to the idea that
decisions are based on the consequences of the action. Utilitarianism, a consequences-based theory of moral reasoning,
means that “an action is right if it produces, or if it tends to produce, the greatest amount of good for the greatest number of
people affected by the action. Otherwise, the action is wrong.”6 A second method, the deontological approach, asserts that
we make moral judgments or engage in moral reasoning independent of consequences.

It implies that actions are right or wrong per se.7 In other words, ethics teaches that “people have a responsibility to do what is
right and to avoid doing what is wrong.” When individuals engage in moral reasoning, they use one or the other of these
methods, or possibly some mixture of the two.

When an individual move abroad, moral reasoning becomes very complicated. Consequences may vary due to legal
differences, and what is right or wrong may depend to an extent on local values. People need to figure out how make moral
decisions—and so do the companies they work for. Two questions arise here: Why should companies and individuals care
about ethical behavior? And what are the cultural and legal foundations of ethical behavior when it comes to adapting to a
foreign environment?

Why Do Companies Care About Ethical Behavior?

First, let’s take a brief look at a preliminary but fairly important question: Why should companies worry about ethical behavior
at all? As we discuss later, there are cultural and legal reasons to behave ethically. Also, individuals may have high standards
of ethical behavior that can be translated into company policy and often company policy is influenced by a leader, often the
founder of a company or a new CEO. From a business standpoint, ethical behavior can be instrumental in achieving one or
both of two possible objectives:

1. To develop competitive advantage

2. To avoid being perceived as irresponsible

As for the first objective, some analysts argue that responsible behavior contributes to strategic and financial success because
it fosters trust, which in turn encourages commitment.

For instance, GE’s Ecomagination program reflects top managers’ belief that by actively responding to social concerns about
global warming, GE can gain a strategic advantage over competitors, perhaps developing an edge in emerging markets that
are facing severe environmental problems.

As for the second objective, companies are aware that more and more NGOs are becoming active in monitoring—and
publicizing—international corporate practices. The Interfaith Center on Corporate Responsibility (ICCR), for example, is an
NGO that represents nearly 300 faith-based institutional investors, including national denominations, religious communities,
pension funds, foundations, hospital corporations, economic development funds, asset management companies, colleges, and
unions.10 Initially organized to protest the policies of apartheid in South Africa, ICCR has become involved in a number of
different projects, such as ranking companies in different industry sectors according to their carbon emissions, or introducing a
resolution at the annual shareholders’ meeting to adopt principles for healthcare reform. This is just one of many examples of
NGOs that focus on country and industry issues. NGOs are not the only institutions that monitor the behavior of companies and
their employees. Governments want to ensure that individual and corporate behavior is consistent with the best interests of the
broader community and that laws are being duly followed.

The Cultural Foundations Of Ethical Behavior

In the early 2000s, many companies around the world faced severe financial problems and even went out of business because
of their managers’ unethical or illegal actions. Enron, a U.S.-based energy company with operations worldwide, was one of the
first MNEs forced into bankruptcy because of illegal employee acts. Other U.S. companies followed suit, while similar problems
occurred outside the United States; one example, Parmalat, will be discussed in greater detail in Chapter 19. Some of these
companies had hidden their actions for a number of years through their international operations.

The results of these revelations included public outrage, investor anxiety, and a generally heightened interest in the activities
of companies and those who run them. Thus a big question arose: Is this type of behavior universal, or is it more likely to occur
in some countries or cultures than others?

Relativism versus Normativism

Despite the cultural differences found among countries, as discussed in Chapter 2, it is tempting to assume that there is almost
universal agreement on what’s right and what’s wrong when it comes to ethical and socially responsible behavior in business—
especially for those who follow the deontological approach described above.11 In the real world, however, managers face
situations in which the whys and hows of applying cultural values are less than crystal clear. For example, people’s differing
ideas about right and wrong are influenced by family and religious values, laws and social pressures, their own observations
and experiences, and even economic circumstances. Because ethical convictions tend to be deep-seated, people can be avid
in defending their views.

Even within a given country there are starkly contrasting views on ethical matters. To complicate things even more, our own
personal values may differ from our employers’ policies, prevalent social norms, or both. Finally, everything that complicates
dilemmas in the domestic business environment tends to complicate them even further in the international arena. So, does
ethical behavior vary by country, or are there uniform values that everyone should share?

Relativism One point of view is to accept that there are significant differences from country to country that might affect our
behavior. “When in Rome, do as the Romans do” is an oft-quoted expression that dates to the fourth century AD in a letter to
St. Augustine from St. Ambrose, the bishop of Milan. It really had nothing to do with ethical behavior; in fact, it meant, “When I
go to Rome, I fast on Sunday, but here in Milan I do not” 12—in other words, adjust to what makes sense in different
environments, adapt to local customs out of respect for them. A more aggressive application of the phrase is, “If it’s okay to
bribe in country X, I guess I need to bribe when I’m in country X.” But the phrase need not be an excuse for
ethical lapses.

Applying this expression in an international environment may depend on whether we assume that decisions are based on the
consequences of our actions or on a strongly held view of right and wrong. Relativism holds that ethical truths depend on the
values of a particular society and may vary from one society or country to another. 13 The implication is that it would not be
appropriate to inject or enforce one’s ethical values on another, or that a foreigner must adopt local values or morals whether
or not they are consistent with the foreigner’s own home values and beliefs.

Normativism In contrast, normativism holds that there are indeed universal standards of behavior that, although influenced by
different cultural values, should be accepted by people everywhere. Even a pluralistic society such as the United States has a
large core of commonly held values and norms.14 However, people do tend to adopt other values and norms as their own. The
key is to distinguish between what is common to all and what is unique to the individual.
The Legal Foundations Of Ethical Behavior
Dealing with ethical dilemmas is often a balancing act between means (the actions we take, which may be right or wrong) and
ends (the consequences of our actions, which may also be right or wrong). Legal foundations for ethical behavior can provide
guidance here, but legal justification is more rooted in the teleological approach to moral reasoning and moral behavior
(consequences) than in the deontological approach (right vs. wrong behavior). However, there are good reasons to consider
the law as a foundation of ethical behavior, just as there are limitations to using the law.

Indeed, some experts suggest that legal justification for ethical behavior is the only important standard. According to this theory,
an individual or company can do anything that isn’t illegal.

Some things that are unethical are not illegal, so the law is not an appropriate standard for regulating all business activity. Some
forms of interpersonal behavior, for example, can clearly be wrong even if they’re not against the law.

Extraterritoriality
When trying to use the law to govern behavior in different countries, we soon run into a very basic problem—laws can vary
from country to country. Recall the challenges GE faces in its efforts to deal with international variations in environmental laws.
GE has actually lobbied the U.S. government to enact legislation more closely aligned to Europe’s, reasoning that having to
deal with a shifting array of regulations and limitations will not only impede its strategy but also become unnecessarily costly.

In addition, strong home-country governments may adopt a practice known as extraterritoriality: imposing domestic legal and
ethical practices on the foreign subsidiaries of companies headquartered in their jurisdictions. This has become very
controversial and, as argued by some, inconsistent with increased globalization and the need to collaborate across national
boundaries. A perfect example of extraterritoriality involves the requirement by the U.S. government that foreign companies
that list on U.S. stock exchanges, sell securities in the U.S., or do business in the U.S. must follow the Foreign Corrupt Practices
Act wherever they do business, not just in the U.S.

Corruption And Bribery

The first issue is bribery, which is actually one facet of the much bigger issue of corruption. The multifaceted determinants of
corruption include cultural, legal, and political forces. As defined by Transparency International, corruption is “the abuse of
entrusted power for private gain.” There are some variations on this basic definition, but it is as good as any. Here we’ll
focus more on bribery because it is at the heart of corrupt behavior.

There are many examples of corruption and bribery that could be described in detail, but let’s just mention a few. The clothing
retailer Ralph Lauren agreed to pay about $1.6 million in fines for making nearly $600,000 in illegal payments to foreign
government officials in Argentina from 2005–2009 to allow them to avoid customs inspections and related paperwork. They
have since closed operations in Argentina. There are other high-profile cases involving well-known companies, such as Walmart
in Mexico, Microsoft in China, and Panasonic in a variety of countries, allegedly bribing foreign government officials. However,
allegations often hit the press without ever leading to prosecution, but it is obvious that no company is immune from being
tainted by bribery and corruption. Even Greek politicians make the news. In April 2013, a former Greek defense minister was
put on trial for collaborating with his wife, daughter and 16 associates to launder money offshore that came from receiving
bribes and kickbacks for defense contracts, including the purchase of a Russian missile-defense system and German
submarines.

Congressional investigations of U.S. MNEs in the 1970s yielded anecdotal information that questionable payments to foreign
government officials had long been business as usual in both industrial and developing countries. The reports indicated that
400 corporations had admitted making questionable or illegal payments in excess of $300 million. In comparison with the large
amounts of bribes paid today, this seems like a small sum of money. However, it was the beginning of collecting and reporting
the extent of bribes being paid.26 Figure 11.2 provides information on the Corruption Perceptions Index for 2012 by identifying
the perceived levels of public-sector corruption for a small sample of countries.
What’s Being Done about Corruption?
Many efforts are underway to slow the pace of bribery as an international business practice at global, regional, and national
levels. International multilateral accords for combating bribery at the global rather than regional level include those established
by the OECD (Organization for Economic Cooperation and Development), the ICC (International Chamber of Commerce), and
the United Nations through UNCAC (United Nations Convention against Corruption).

The OECD comprises 34 mostly high-income countries from around the world. Its Anti- Bribery Convention, signed in 1997 by
the 34 member countries plus six non-member countries (Argentina, Brazil, Bulgaria, Colombia, Russia, and South Africa),
establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and
provides recommendations to the 40 signatory countries, which adopted the 2009 Anti-Bribery Recommendation. Prior to the
signing of the convention, only one country had made foreign bribery a crime, and most others treated foreign bribe payments
as legitimate tax-deductible expenses. Of course, the member countries have to implement the recommendations into national
law in order for them to have any weight. In addition, the countries have to do a better job of enforcement, which appears to be
uneven at best.32 For example, a 2010 study by Transparency International found that member countries’ enforcement of the
recommendations was uneven at best. In fact, they found active enforcement in only seven countries, moderate enforcement
in nine, and little or no enforcement in 20 countries.

The International Chamber of Commerce issued a code of rules against corrupt practices in 1999 and has since been active in
supporting other multilateral approaches to combating bribery, including codes of conduct issued by the OECD and the United
Nations. Whereas the OECD Convention targets the supply side of companies’ bribing officials in the public sector, the ICC is
particularly interested in the private sector and the demand side of cross- border economics, where extortion of companies by
public officials is a favorite criminal practice.

Ethics and the Environment

If for no other reason, environmental problems are important because they’re a matter of life or death, either now or in the
future. As we saw in our opening case, GE has come to see Eco responsibility as a matter of protecting not only the future of
the environment but also its own future. Like GE, companies contribute to environmental damage in a variety of ways. Some,
for example, contaminate the air, soil, or water during manufacturing, or make products such as automobiles or electricity that
release fossil-fuel contaminants into the atmosphere.

In extracting natural resources, other companies also have a direct and unmistakable effect on the environment. But even in
these cases the issue isn’t necessarily clear-cut. Granted, although some resources (such as minerals, gas, and oil) may not
be renewable, others (such as timber) are, and some observers even suggest that resources can never really become scarce.
Why? Because as they become less available, prices go up and technology or substitutes compensate.

What is “sustainability”?

Despite confusion and disagreement over the term, we assume here that sustainability means meeting the needs of the
present without compromising the ability of future generations to meet their own needs. In this respect, we are using
sustainability from the perspective of environmental sustainability. Proponents of the concept argue that sustainability considers
what’s best for both people and the environment. Nevertheless, it remains a controversial concept—one whose definition is
subject to different interpretations, from environmentalists to businesspeople.52 It is important that, regardless of how they feel
about the principle of sustainability, businesses that affect the environment establish policies for responsible behavior toward
the earth—a responsibility that has both cultural and legal ramifications.

But is it possible that sustainability is not only a good business practice, but also good business? GE has demonstrated that it
makes good business sense to adopt a strong policy of sustainability, but it also has vast resources at its disposal. However,
even born-global companies can adopt a sustainable strategy and generate export revenues at the same time.

One such company, based in Shepherd, Montana, is called Floating Island International (FII), which was founded by Bruce
Kania in 2000 when a combined concern for the environment and a clever concept formed the opportunity for a valuable
business venture. After several years of R&D, Kania and a team of engineers and scientists created their primary product,
BioHaven Islands, made from post-consumer recycled materials and native plants and soils. The islands have more than 30
identified applications for use—including wetland treatment and preservation, erosion control, and habitat creation—and are
designed to mimic natural biological processes that encourage the restoration of food chains and maintain a clean
environment.53 Within the first five years of operation, FII produced and sold over 4,000 of its floating islands around the world,
including the United States, Canada, Australia, United Kingdom, Korea, Singapore, and New Zealand. The company licenses
its products to regional dealers across the U.S., but also has licensees in China, New Zealand, and South Africa. Clearly, this
is an example of a firm making its mark internationally by focusing exclusively on filling the demand for environmentally oriented
products that are profitable as well.54

Global Warming And The Kyoto Protocol

In illustrating some of the challenges faced by these companies, we start by examining the issue of global warming, including
the role of the Kyoto Protocol and its potential impact on corporate behavior.

The Kyoto Protocol At the core of the international treaty known as the Kyoto Protocol is the theory that global climate change
results from an increase in carbon dioxide and other gases that act like the roof of a greenhouse, trapping heat that would
normally radiate into space, and thereby warming the planet. If carbon dioxide emissions aren’t reduced and controlled, rising
temperatures could have catastrophic consequences, including melting the polar ice cap, flooding coastal regions, shifting
storm patterns, reducing farm output, causing drought, and even killing off plant and animal species. 55 Most observers agree
that the world is warming; however, there’s no clear consensus on the cause or scope of the problem, much less the solution.56

The Kyoto Protocol, an extension of the UN Framework Convention on Climate Change of 1994, was born of the need to reduce
greenhouse gas (GHG) emissions from burning fossil fuels and methane. Signed in 1997, the Protocol committed signatory
countries to reducing the emissions to 5.2 percent below 1990 levels between 2008 and 2012. As of March 2013, the Protocol
had been ratified by 192 nations and regional economic organizations.57

The United States, which generated 19 percent of the world’s greenhouse gases in 2008, initially signed the agreement in 1998
but withdrew in 2001, citing concerns about domestic economic growth and exemptions for rapidly growing developing countries
like China and India. Canada announced at the end of 2011 that it was going to withdraw from the Kyoto Protocol, largely
because the Conservative Party in Canada had never been in favor of joining Kyoto, which had been pushed by the Liberal
Party when it was in power. Another contributing factor was that talks to extend the Protocol at the end of 2011 didn’t come to
anything conclusive.

The United States’ reluctance to continue with Kyoto stems from a desire to develop low- carbon technologies to solve the
problem, rather than attempt to meet mandatory reductions, for fear that reduced economic growth would create domestic
employment problems.

Ethical Dilemmas and the Pharmaceutical Industry

In addition to the ethical challenges of bribery and reactions to global warming, we examine two other examples of ethical
dilemmas and socially responsible behavior. Sometimes these dilemmas are industry-specific, such as pharmaceuticals; other
times they deal with cross-industry issues, such as labor conditions in developing countries. We have chosen these two
examples to demonstrate how companies must examine their ethical conduct as they spread internationally. Because the
pharmaceutical industry and developing country labor conditions are prominent in the news, they should give you an idea of
what you might face and how you can resolve the conflicts satisfactorily. We then finish this section and the chapter by
discussing the importance of corporate codes of conduct. GlaxoSmithKline (GSK), one of the largest research-based
pharmaceutical companies in the world, focuses on two lines of business: pharmaceuticals (prescription drugs and vaccines)
and consumer healthcare products. With annual revenues in 2012 of GBP 26.4 billion, the U.K.-based company operates in
over 100 countries, and employs nearly 100,000 people working at 87 manufacturing sites worldwide and significant R&D
facilities in the UK, U.S., Spain, Belgium, and China.
To continue developing new products, GSK spent 15.2 percent of its revenues (also called group turnover) on R&D.74 And like
most research-based pharmaceutical firms, it is involved in the R&D, manufacturing, and sales ends of the patented-
pharmaceuticals industry. In order to fund their large R&D budgets, and because so many of the drugs they try to develop take
so long to get to market (or never make it there), these companies sell their successful drugs at high prices as long as the drugs
are covered by patents. After a patent expires (after 17 years, in the U.S.), the proven drug becomes generic and is
manufactured at lower costs and sold at a much lower price.

Ethical Dilemmas of Labor Conditions

A major challenge facing MNEs today is the twofold problem of globalized supply chains and the labor conditions of foreign
workers. Labor issues—which involve companies, governments, trade unions, and NGOs alike—include wages, child labor,
working conditions, working hours, and freedom of association. They’re especially critical in retail, clothing, footwear, and
agriculture—industries in which MNEs typically outsource huge portions of production to independent companies abroad. There
have always been concerns about offshoring production or supply chaining (utilizing third parties to manufacture products such
as clothing), but in 2013 a factory collapsed in Bangladesh and over 1,000 workers died. Although we’ll discuss that case in
more detail in Chapter 18, we mention it here due to the ethical issues surrounding the provision of safe and hygienic working
conditions.

Stakeholders will certainly question the care in which

companies work with their supply chain: for instance, was
the accident the fault of the companies that subcontracted
manufacturing to the company in Bangladesh, or was it the
fault of the government agencies that did not implement the
law on occupational safety and health and the building
code? Figure 11.3 highlights the multiple pressures external
stakeholders place on companies to force them to adopt
responsible employment practices in their overseas
operations. A more specific listing of worker issues was
developed by the Ethical Trading Initiative (ETI),

a British-based organization that focuses on MNEs’

employment practices. Its members include representatives from Gap Inc., Levi Strauss & Co., Marks & Spencer, The Body
Shop International, and other companies, as well as from trade union organizations, NGOs, and governments. The objective
of ETI is to get companies to adopt ethical employment policies and then monitor compliance with their overseas suppliers.
ETI’s trading initiative base code identifies the following issues:

1. Employment is freely chosen.

2. Freedom of association and the right to collective bargaining are respected.
3. Working conditions are safe and hygienic.
4. Child labor shall not be used.
5. Living wages are paid.
6. Working hours are not excessive.
7. No discrimination is practiced.
8. Regular employment is provided.
9. No harsh or inhumane treatment is allowed.80
Although all issues identified by ETI are important, we focus on the one that, for a variety of good reasons, receives significant
attention: child labor.

The Problem of Child Labor

Let’s start by considering a couple of very brief cases:

• There are two arguments for the use of children in the Indian carpet industry: (1) they’re better suited than adults to perform
certain tasks, and (2) if they weren’t employed, they’d be even worse off. In fact, children in India are often put to work because
parents don’t earn enough to support families; if parents can’t pay off debts, their children are often indentured to creditors.

• In the 1990s, the impoverished Asian nation of Bangladesh was pressured to stop employing thousands of child workers or
face U.S. trade sanctions. In this case, the plight of the children did in fact go from bad to worse. Between 5,000 and 7,000
young girls, for example, went from factory work to prostitution. According to the International Labor Organization (ILO), a UN
institution, 215 million children between the ages of 5 and 17 are working worldwide, many of them full-time. The challenge is
 that much of this data is not current or is difficult to get. However, the ILO has very specific guidelines over what it considers
child labor to be and what the worst forms of child labor are. In particular, the worst forms involve slavery and prostitution,
illicit activities that are a danger to the health, safety and morals of a child.82 ILO guidelines state that children who are at least
13–15 years old (12–14 as possible exceptions for developing countries) may be employed in “light” work that’s not harmful to
their health and doesn’t interfere with school. All children under the age of 18 (16 under strict guidelines) should be protected
against the most abusive labor conditions. For MNEs, the basic challenge is negotiating a global labyrinth of business
environments with different cultural, legal, and political rules than those they’re used to at home.

In addition, they typically rely on local suppliers who are subject to specifically local pressures. Under these conditions, MNEs
clearly can’t solve all the problems revolving around child labor, especially given the fact that only about 5 percent of working
children worldwide are in industries supported by MNEs. Most underage workers can be found in the informal sectors of an
economy—especially agriculture—where it’s difficult to protect them.

What MNEs Can and Can’t Do

This doesn’t mean that MNEs are powerless when it comes to labor-related matters in overseas facilities. When the Swedish
retailer IKEA ran into trouble in India for buying carpets from local companies that relied heavily on extensive child labor, it
identified and tackled two different problems rather than try to force suppliers to stop exploiting the children. First, it helped
working mothers increase family earning power so they could escape the clutches of the loan sharks to whom they were putting
up their children as collateral. Second, it set up “bridge schools” to enable working children to enter mainstream education
channels within a year.

Frequently, MNEs operating in countries with very different labor policies succumb to the pressure to simply leave the market.
Usually, this turns out to be a shortsighted decision. Research shows, for instance, that companies like Nike have substantially
improved the conditions of workers in overseas facilities. Granted, MNEs are in no position to revolutionize the employment
practices of the countries in which they operate, but they can improve conditions at subcontract facilities and even influence
the guidelines set by other foreign investors. In the case of IKEA, carpets make up a small percentage of sales, and it would
have been easy to simply give up the product line and move out of India. But officials at IKEA felt a responsibility to the children
and decided to do as much as possible to make a difference. As the company got more involved in India, it set up the IKEA
Foundation and partnered with UNICEF, contributing over $200 million in cash and in-kind donations to UNICEF programs to
help children and their families. IKEA’s work with UNICEF went beyond the issues of the supply chain and moved more into
the humanitarian aspect of how to help the children. The IKEA Foundation targets South Asia, especially India, because of its
supply chain issues, but it also targets that region because of the tremendous need for child aid.86 By the end of 2012, funding
from the IKEA Foundation will have enabled IKEA to help over 74 million children in India.

Corporate Codes of Ethics: How Should a Company Behave?

After discussing numerous issues related to the impact of globalization on business, the role of businesses in the globalization
process, and the impact of MNEs on society, we now come to a qualitatively different question: How should a company behave?

The United Nations Global Compact is a good start, since it identifies ten broad principles in the areas of human rights, labor,
environment, and anti-corruption—all of which we’ve described in this chapter.
The Global Compact is not legally binding, but it is a helpful guide for companies in establishing a code of conduct. Launched
in 2000, the initiative has more than 10,000 participants, of which more than 7,000 are businesses representing 145 countries.
The UN Global Compact Web site allows you to search participating companies by country. It is interesting to note that on June
20, 2013, there were 824 French companies actively participating in the initiative, compared to 302 from the United States, 211
from the United Kingdom, and 241 from Germany. Brazil leads the BRIC countries with 342 active business participants,
more than the U.S., UK, and Germany, and Russia has the least among the BRICs with only 28 participants.

Motivations for Corporate Responsibility

Companies generally experience four strong motivations for acting responsibly:
1. Unethical and irresponsible behavior can result in legal headaches, especially in such areas as financial mismanagement,
bribery, and product safety.
2. Such behavior could also result in consumer action such as a boycott.
3. Unethical behavior can affect employee morale. Conversely, responsible behavior can have a positive influence on a
workforce, both at corporate headquarters and in overseas facilities.
4. You never know when bad publicity is going to cost you sales. Perhaps this concern is one reason why Nike and other
apparel and clothing companies responded so quickly to criticism about allegedly unfair employment practices in developing
countries.