babu banarasi das university

2019-20
CORPORATE governance, values & ethics

“famous ethical issues in mncs across

the globe”
Submitted To: Submitted By:
Mr. Saiyid Saif Abbas Abidi Shivani Rai
MBA 22
1180672130

Introduction
As businesses expand internationally, they must not only understand an
organization’s mission, vision, goals, policies and strategies but also must take into
account the legal and ethical issues in international business. When companies plan
their long-term expansion into a foreign environment, they must tackle serious
moral and ethical challenges and decision-making in order to make their expansion
a success.

Some of the most common ethical issues in international business include

outsourcing, working standards and conditions, workplace diversity and equal
opportunity, child labor, trust and integrity, supervisory oversight, human rights,
religion, the political arena, the environment, bribery and corruption. Businesses
trading internationally are expected to fully comply with federal and state safety
regulations, environmental laws, fiscal and monetary reporting statutes and civil
rights laws.

Some of ethical issues are:

Employment Practices And Ethics
Ethical issues may be related to employment practices in many nations. The
conditions in a host country may be much inferior to those in a multinational’s
home nation. Many may suggest that pay and work conditions need to be similar
across nations, but no one actually cares about the quantum of this divergence.

12-hour workdays, minimal pay, and indifference in protecting workers from toxic
chemicals are common in some developing nations. Is it fine for a multinational to
fall prey to the same practice when they chose such developing nations as their
host countries? The answers to these questions may seem to be easy, but in
practice, they really create huge dilemmas.

Human Rights

Basic human rights are still denied in many nations. Freedom of speech,
association, assembly, movement, freedom from political repression, etc. are not
universally accepted.

South Africa during the days of white rule and apartheid is an example. It lasted till
1994. The system practiced denial of basic political rights to the majority non-
white population of South Africa, segregation between whites and nonwhites was
prevalent, some occupations were exclusively reserved for whites, etc. Despite the
odious nature of this system, Western businesses operated in South Africa. This
unequal consideration depending on ethnicity was questioned right from 1980s. It
is still a major ethical issue in international business.

Environmental Pollution

When environmental regulation in the host nation is much inferior to those in the
home nation, ethical issues may arise. Many nations have firm regulations
regarding the emission of pollutants, the dumping and use of toxic materials, and
so on. Developing nations may not be so strict, and according to critics, it results in
much increased levels of pollution from the operations of multinationals in host
nations.
Is it fine for multinational firms to pollute the developing host nations? It does not
seem to be ethical. What is the appropriate and morally correct thing to do in such
circumstances? Should MNCs be allowed to pollute the host countries for their
economic advantage, or the MNCs should make sure that foreign subsidiaries
follow the same standards as set in their home countries? These issues are not old;
they are still very much contemporary.

Corruption

Corruption is an issue in every society in history, and it continues to be so even

today. Corrupt government officials are everywhere. International businesses often
seem to gain and have gained financial and business advantages by bribing those
officials, which is clearly unethical.

Moral Obligations

Some of the modern philosophers argue that the power of MNCs brings with it the
social responsibility to give resources back to the societies. The idea of Social
Responsibility arises due to the philosophy that business people should consider
the social consequences of their actions.

They should also care that decisions should have both meaningful and ethical
economic and social consequences. Social responsibility can be supported because
it is the correct and appropriate way for a business to behave. Businesses,
particularly the large and very successful ones, need to recognize their social and
moral obligations and give resources and donations back to the societies.

Instance 1
A Case Of Ethical Issue At Gucci In Shenzhen,
China:
Gucci is a multinational company with over 270 directly operated stores
worldwide, serving customers of elite goods, and generating billions of dollars
revenue per year. It has an iconic, even noble, luxury brand image in the Greater
China region, where its revenue increased by 35.6% in the first half of year 2011.
Gucci has expressed its intention to accelerate the process of opening stores on the
Chinese mainland. Recently, however, the company came under fire after five
former employees from its flagship store in Shenzhen revealed information online
about inhumane working conditions and labor mistreatment in the company.

On 8 October 2011, an open letter (A Public Letter to the Top Management of

Gucci from Former Employees who resigned collectively) was spread on the
Internet. This letter was written by five former employees of the Gucci Shenzhen
Flagship Store. In the letter, they alleged that employees caught an occupational
disease, that there was one miscarriage attributable to excessive working hours and
that there was no compensation for these hardships. Moreover, they stated that
there were excessive restrictions on employees’ behavior, including the need to
obtain permission before getting a drink or a snack, and strict limitations on toilet
time. They stated that, while the restrictions were applied strictly to all frontline
employees, including one who was pregnant, they were not applied to the
managers. The letter also claimed that the employees had to pay compensation for
any product that was stolen or went missing, even though these luxury products
had already been insured. They also criticized Gucci’s goods exchange policies
which appeared to be arbitrary and dependent on the manager’s mood. All in all,
they accused Gucci of lacking systematic and humane management and
complained that their rights and dignity were being violated.

Some netizens labeled Gucci as a “sweatshop.” Many opined that the labor
management practices of some multinational companies and brand owners failed to
match their international status. Several days later, the Gucci headquarters in
China issued a statement, saying that “Gucci does not and will not endorse or
tolerate the alleged malpractices.” Gucci also stated that that the company had
conducted thorough investigations and had implemented a series of measures,
including the replacement of the store manager and assistant store manager.
Meanwhile, the Human Resources Bureau within the Legal Department of
Shenzhen’s Luohu District said they would further investigate the case. On 26
October 2011, Gucci and the former employees eventually arrived at a settlement
in conjunction with Shenzhen Federation of Trade Unions.

Instance 2
A Case Of Ethical Issue At Coca – Cola:
Since the 1990s Coca-Cola has been accused of unethical behavior in a number of
areas, including product safety, anti-competitiveness, racial discrimination, channel
stuffing, distributor conflicts, intimidation of union workers, pollution, depletion of
natural resources, and health concerns. The company has dealt with a number of
these issues, some via private settlements and some via court battles, while others
remain unresolved.

ALLEGATIONS OF RACIAL DISCRIMINATION

In 1999 Coca-Cola’s reputation was dealt another blow when 1,500 African
American employees sued for racial discrimination. The lawsuit, which eventually
grew to include 2,000 current and former employees, accused the company of
discriminating in areas of pay, promotion, and performance evaluation. Plaintiffs
charged that the company grouped African American workers at the bottom of the
pay scale and that they earned around $26,000 a year less than Caucasian
employees in comparable jobs. The suit also alleged that top management had
known about companywide discrimination since 1995 but had done nothing about
it. In 1992 Coca-Cola had pledged to spend $1 billion on goods and services from
minority vendors, an action designed to show the public that Coca-Cola did not
discriminate, but the lawsuit from its own employees painted a different picture.
Although Coca-Cola strongly denied the allegations, the lawsuit provoked unrest
within the company. In response, Coca-Cola created a diversity council and the
company paid $193 million to settle the claims.

ISSUES REGARDING WATER USAGE, POLLUTION, AND SUPPLY

CHAIN OVERSIGHT
Coca-Cola has also encountered trouble at its bottling plants in India, fielding
accusations of both groundwater depletion and contamination. In 2003 the Centre
for Science and Environment (CSE) tested soft drinks produced in India by Coca-
Cola and other companies; findings indicated extreme levels of pesticides from
using contaminated groundwater. In 2004 the first set of standards for pesticides in
soft drinks was developed, supported by an Indian parliamentary committee.
Although Coca-Cola denied the allegations, stating that its water is filtered and its
final products are tested before being released, sales dropped temporarily by 15
percent. In the Indian city of Varanasi, Coca-Cola was also accused of
contaminating the groundwater with wastewater. Officials at the company
admitted that the plant did have a wastewater issue but insisted that a new pipeline
had been built to eliminate the problem. However, during the early 2000s a number
of tests were conducted regarding “sludge” produced at Coca-Cola’s Indian plants.
These tests, conducted by the Central Pollution Control Board of India and the
British Broadcasting Corporation, came up with toxic results. The company runs
bottling plants in a handful of drought-plagued areas around India, and groups of
officials blame the plants for a dramatic decline in available water. In 2004 local
officials closed a Coca-Cola plant in the Indian state of Kerala; however, the
closure was overturned by Kerala’s court. Although the court agreed that Coca-
Cola’s presence contributed to water depletion, it stated the company was not
solely to blame. Nonetheless, farmers and local residents, forced to vie with Coca-
Cola for water, have protested Coca-Cola’s presence both there and throughout
India.

COCA-COLA’S IMPACT ON HEALTH

For years Coca-Cola has been battling consumer perceptions that its soft drinks
contribute to obesity. In 2008 Coca-Cola launched a “Motherhood and Myth-
Busting” campaign in Australia, attempting to convince the public that a diet
including soda was healthy for children. The Australian Competition and
Consumer Commission promptly took Coca-Cola to court after the Obesity Policy
Coalition, the Parents’ Jury, and the Australian Dental Association all filed
complaints. As a result, in 2009 the company was forced to release new
advertisements in a number of Australian newspapers correcting information such
as the amount of caffeine found in Diet Coke. Coca-Cola admits that it did not
supply consumers with detailed information during its campaign. Also in 2008 the
FDA declared that the company had violated the Federal Food, Drug, and Cosmetic
Act when naming the Coca-Cola Diet Plus beverage. Using “plus” in the name
indicated an unsubstantiated nutritional claim.