Chapter 10

Global Business Ethics Issues

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Learning Objectives
By the end of this chapter, you should be able to:
• Discuss global values, goals, and business practices within ethics
• Understand the role of economics as a factor in business ethics
• Assess the role of multinational corporations in business ethics
• Assess the roles of different global organizations in support of business
responsibility
• Gain awareness of global ethical business issues

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 10-1
Global Culture, Values, and Practices

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Culture, Values, and Practices 1 of 2
• National culture – A much broader concept than organizational culture and
includes everything in our surroundings made by people—both tangible
items, such as artifacts, and intangible entities, such as concepts and values
• Frameworks for classifying behavior patterns can help businesspeople who
work in different countries.
– Individualism/collectivism dimension – Refers to how self-oriented members of a
culture are in their behavior
– Power distance dimension – The power inequality between superiors and
subordinates
– Uncertainty avoidance – How members of a society respond to uncertainty or
ambiguity

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Culture, Values, and Practices 2 of 2
• Self-reference criterion – In business, the idea that “we” differ from “them”
and an unconscious reference to one’s own cultural values, experiences, and
knowledge
• When conducting business internationally, there is a question of whose
values and ethical standards take precedence during negotiations and
business transactions.
– Cultural relativism – The concept that morality varies from one culture to another and
that “right” and “wrong” are defined differently
• Global common values – Certain values broadly accepted worldwide
– Most laws are directly or indirectly the result of values derived from the major religions of
Hinduism, Buddhism, Confucianism, Judaism, Islam, and Christianity.
– These core virtues include assurance, fairness, integrity, charity/compassion,
environment, tolerance, and sacrifice.
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 10-2
Economic Foundations of Business Ethics

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Economic Foundations of Business Ethics 1 of 4
• Our financial system is complex.
– Provides opportunity to take excessive risks, manipulate stakeholders

• Risk compartmentalization – When profit centers within corporations are

unaware of the overall consequences of their actions on the firm as a whole
• Economic and social disasters as well as country conflicts have intensified
the risks and challenges.
• The world continues to cope with disruptions of the global economy.
– The Great Recession
– COVID-19 Pandemic

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Economic Foundations of Business Ethics 2 of 4
Economic Systems
• Adam Smith – A professor of logic and moral philosophy during the late
eighteenth century who developed critical economic ideas still considered
important today
– Laissez-faire – Adam Smith’s idea of the “invisible hand,” which is critical to
capitalism because it assumes the market, through its own inherent mechanisms,
keeps commerce in equilibrium.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Economic Foundations of Business Ethics 3 of 4
Economic Systems (continued)
• John Maynard Keynes – An economist who argued that the state could
stimulate economic growth and improve stability in the private sector
through, for example, controlling interest rates, taxation, and public projects
during the 1930s
• Milton Friedman – An economist who rejected the Keynesian conclusion
that markets sometimes need intervention to function efficiently and
believed deregulation could reach equilibrium without government
intervention

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Economic Foundations of Business Ethics 4 of 4
Economic Systems (continued)
• Socialism – Refers to economic theories advocating the creation of a society when
wealth and power are shared and distributed evenly based on the amount of work
expended in production
• Social democracy – Allows private ownership of property and also features a large
government equipped to offer such services as education and healthcare to its citizens
• Bimodal wealth distribution – Occurs when the middle class shrinks, resulting in
highly concentrated wealth among the rich and increased numbers of poor people with
few resources
• Rational economics – Based on the assumption that people are predictable and will
maximize the utility of their choices relative to their needs and wants
– Also assumes people act independently on the basis of full and relevant information
• Behavioral economics – Assumes humans act irrationally because of genetics,
emotions, learned behavior, and heuristics, or rules of thumb

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 10-3
Multinational Corporations

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Multinational Corporations 1 of 2
• Multinational corporations (MNCs) – Public companies that operate on a
global scale without significant ties to any one nation or region
– Some firms are so large they generate higher revenues than the gross domestic
product (GDP) of some of the countries where they do business.
• Because of size, financial power, MNCs are subject of much ethical debate.
– Transfer jobs overseas where wage rates are lower.
– Labor-saving devices increase unemployment.
– Increase gap between rich and poor nations.
– Exploit natural and human resources.
– Exploit labor markets of host countries.
– Create unfair competition.
• Some nations outright refuse to allow MNCs into their countries.
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Multinational Corporations 2 of 2
• Business for Social Responsibility (BSR) – A globally based resource
system that endorses following responsible business practices abroad
– BSR addresses issues such as community investment, corporate social responsibility,
the environment, governance, and accountability.

• MNCs are not inherently unethical, but their size and power often seem
threatening to people and businesses in less-developed countries.
– Differences in cultural perspectives may be as important as differences in economic
interests.

• The U.S. model of the MNC is fading as developing countries form MNCs as
alliances, joint ventures, and wholly owned subsidiaries.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 10-4
Global Organizations to Support
Responsible Business

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Organizations to Support
Responsible Business 1 of 3
United Nations Global Compact
• United Nations Global Compact – A set of 10 principles that promote human
rights, sustainability, and the eradication of corruption
– A collaborative arrangement among businesses, governments, nongovernmental
organizations, and societies
– Initiated to overcome challenges, advocate positive economic, social, and political change

• Voluntary for organizations

– Members held accountable
– Organizations required to post progress toward Global Compact goals
– Companies expected to cooperate with the U.N. on social projects within developing
nations where they do business
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Organizations to Support
Responsible Business 2 of 3
Global Business Organizations that Affect Ethical Behavior
• Accounting codes
– U.S. Generally Accepted Accounting Principles (US GAAP) and American Institute of
Certified Public Accountants (AICPA)—rules-based standards (comprehensive, precise)
– International Financial Reporting Standards (IFRS) and International Ethics Standards
Board for Accountants (IESBA)—principles-based codes (simple, more flexible)

• Financial codes
– Chartered Financial Institute/Analyst Association (CFAI/CFA)
o Engage with the core investment management industry to advance ethics, market integrity,
and professional standards of practice

o Several codes of conduct provide guidance

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Organizations to Support
Responsible Business 3 of 3
Global Business Organizations that Affect Ethical Behavior (continued)
• Management codes
– Academy of Management Code of Ethics (AOM) is the only general code for
managers.
o Members seek to help managers, employers, and public officials develop informed
judgments, choices concerning the impact on stakeholders.

• Marketing codes
– American Marketing Association’s (AMA) ethics code is to do no harm, foster trust in
the marketing system, and embrace ethical values.
– Association of National Advertisers (ANA) works with companies to address, resolve
consumer inquiries, bring companies into compliance.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 10-5
Global Ethics Issues

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 1 of 9
Bribery
• The acceptance and legal definition of bribery vary from country to country.
– BRIC countries (Brazil, Russia, India, and China) offer/accept favors
• The U.S. Foreign Corrupt Practices Act (FCPA) prohibits American
companies from making payments to foreign officials for the purpose of
obtaining or retaining business.
– Exception for facilitation or “grease” payments
– Violations can result in individual fines of $100,000 and jail time
• The U.K. Bribery Act holds businesses/individuals liable for bribery, no
matter where the offense is committed or who in the company commits the
act, even if the bribe itself has no connection with the United Kingdom.
– Grease payments are illegal.
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 2 of 9
Antitrust Activity
• Fair competition is viewed favorably in many countries.
– Belief that competition yields the best products at the best prices
• Anticompetitive practices create high barriers of entry for competitors.
– Create higher prices, fewer options for consumers
• Issues of competition become more complicated in global business.
– EU has stricter antitrust laws than the United States
• Vertical system – A channel member (manufacturer, wholesaler, distributor, or
retailer) has control of the entire business system, via ownership or contract,
or through its purchasing ability
– Creates inertia, causing channel members to stay with their various retailers and
distributors even though competitors may have better products and prices
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 3 of 9
Internet Security and Privacy
• The internet is used for corporate espionage, cyber-attacks, and stealing
confidential information.
• The nature of the internet has given cybercriminals access to all
institutions globally.
• Some internet privacy violations are clearly unethical; many other
situations present more challenging ethical issues.
• The use of personal information by companies is an ethical dilemma.
– European Union passed laws such as the right to be forgotten and General Data
Protection Regulation (GDPR).

• Some countries censor its citizen’s use of the internet.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 4 of 9
Human Rights
• Human rights – Defined by the United Nations as an inherent dignity
with equal and inalienable rights and the foundation of freedom, justice,
and peace in the world
• Many large corporations have basic human rights policies but some
issues—such as right to privacy, right to work, and equal pay—are not
mentioned frequently.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 5 of 9
Healthcare
• Access
– Global concern, as a billion people lack access to healthcare systems
• Patents
– Give pharmaceutical companies exclusive rights to their products for a certain period
– Companies can charge higher prices
• Affordability
– When too costly, businesses drop healthcare packages or downgrade packages
• Global healthcare fraud
– Providing less medicine in packages for the same price, filing false Medicare claims,
and providing kickbacks for referrals
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 6 of 9
Supply Chain
• Disrupting the global supply chain can create ethical, social, and economic
issues.
• Just-in-time inventory systems allow companies to hold minimal stock and
increase return on assets (ROA), but it can be easily disrupted.
• There can be a ripple effect when disruptions occur.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 7 of 9
Labor and Right to Work
• Gender pay inequality
• Right to work
• Right to join trade unions
– Generally accepted in European Union, United States
– Trade unionists risk imprisonment in many countries (North Korea, Cuba, Iran).

• Standard of living
• Special rights related to pregnancy
– U.S. lags behind other countries.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 8 of 9
Compensation
• Living wage
– Minimum wage laws
– Some MNCs outsource labor to countries where low/no minimum wage exists.
o A significant ethical dilemma when the public perceives the organization as paying foreign
laborers unfair wages

• Executive compensation
– Demand for better alignment between managerial performance and compensation

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Global Ethics Issues 9 of 9
Consumerism
• Consumerism – The belief that the interests of consumers, rather than
those of producers, should dictate the economic structure of a society
– Refers to the theory that consumption of goods at an ever-increasing rate is
economically desirable
– Equates personal happiness with the purchase and consumption of material
possessions

• Consumption places significant strains on the environment.

• Made-to-break – Also known as planned obsolescence, products repeat
the consumption process and consumers return to buy more.
– Steady profits are assured—as well as waste.

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 10-6
The Importance of Ethical Decision
Making in Global Business

O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 The Importance of Ethical Decision
Making in Global Business 1 of 1
• Ethical decision making is essential if a company is to operate successfully
within a global business context.
– Companies can face legal/political issues.

• Many companies choose to adopt global business codes of ethics to provide

guidelines for international operations.
• Risk management and global ethics are integral to the stability of MNCs.
– Many create special officers or committees to oversee global compliance issues.

• The successful implementation of a global ethics program requires extensive

training for employees.
• Global firms cannot succeed simply by applying domestic ethical programs
to other global environments.
O.C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 13th Edition. ©2022 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.