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International Business

notes unethical business behaviour, while the metropolitan areas are developing, the rural areas
have fallen by the wayside. In order to remedy this, India has undertaken a program in
which ethical standards will be at the forefront of the business community. By helping
out rural areas, it will eventually help out the entire country by making both rural and
commercial areas modernized.

l z Implementation: When a company puts ethics into part of its global management plan,
it acts to improve public perception of the company and also works to have present and
future business partners cast in a favourable light. Starbucks, for example, works diligently
to keep its ethical standards at the forefront of public awareness, whether it is its “fair
trade” coffee policy or by appointing an executive to head the Ethics and Compliance
Office. The latter ensures that any business practices that Starbucks engages in on any level
from globally to locally are ethical.
l z Importance: The importance of ethics when looking at global management can’t be
underestimated. Living in a world that is interconnected means that unethical business
decisions in one company might have implications that are felt world wide. This was
witnessed during the Enron scandal. A single company that behaved unethically shook
financial markets around the globe.

15.6.1 Global Business ethical issues

Large multinational companies affect a variety of stakeholders such as customers, creditors,
investors, employees and the communities in which they operate. Responsibility to their
stakeholders is demonstrated through strong environmental, social and governance (ESG)
performance, sometimes described as corporate social responsibility. This can have positive
impacts on profitability, by making the business sustainable and improving its reputation, but it
can also increase costs. Cost cutting can lead to poor ESG performance.
l z Environmental Protection: Companies have a range of impacts on ecosystems through
mining and extraction, the use of water supplies, waste disposal and pollution. Companies
often operate in developing countries where regulations are weak. As a solution to this,
attempts have been made to put in place market-based transparency mechanisms to
encourage companies to report on their environmental impact. The Carbon Disclosure
Project has encouraged companies to report on greenhouse gas emissions as well as
water use and impacts. Strong environmental performance is often essential to having a
sustainable business model, especially where companies risk degrading inputs, such as
fishing stocks.

l z Corporate Social Responsibility: The activities of multinationals impact the communities
where they operate, especially employees of the company and its suppliers. Problems can
arise from an unequal distribution of power between employers and workers, especially in
poor areas with high unemployment. This may result in unfair wages and poor working
conditions, for example in sweatshops. Initiatives such as Fair Trade accreditation have
arisen in response to these problems.

l z Governance Issues: Suppliers, customers, creditors, investors and employees have an
interest in a company being governed responsibly, so that it is profitable and does not go
bankrupt. Scandals such as the collapse of Enron demonstrate the problems that can arise
where companies are not governed responsibly.
l z Responsible Investment: Responsible investment is a rapidly growing trend. Its core
values are laid out in the UN Principles for Responsible Investment, and its essence is
investment in companies with strong ESG performance. Investors are interested in this not
only for ethical reasons, but because it can lead to increased returns through reputational
and sustainability factors.

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