mgmt 630 business enterprise environment · wk 4 ecommerce wk 5 canadian, chinese, and other...

MGMT 630

BUSINESS ENTERPRISE ENVIRONMENT

• Government regulation on industries (GRI)

• The role of ecommerce in the global business environment

• Global, ethical, political, physical, societal (GEPPS) elements in a nation’s business environment

The Study of Business, Government,

and Society

Chapte

r

Chapte

r 1

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

This chapter:

� Introduces four basic models of the business-government-society relationship.

� Defines basic terms and explains the authors’ approach to the subject matter.

Course Overview

Week Topic Readings

Wk 1 The Business in Society TBA

Wk 2 The Business in Socety TBA

Wk 3 Canada’s Regulatory Framework Laudon, Chapter 1

Wk 4 Ecommerce

Wk 5 Canadian, Chinese, and other Economies

– challenges in a global environment

Chinese Barriers To Trade Does China

Play Fair?

Wk 6 Canadian, Chinese, and other Economies

– challenges in a global environment

Bergsten, C. Fred, et. al., China’s Rise

Challenges and Opportunities.

Wk 7 Group Presentations A1 Group

Presentations, A2 written reports

collected.

Wk 8 Final Examination

•8 Week Topical Class Schedule

What is the Business–Government–

Society Field?

• Business – broad term encompassing a range of

actions and institutions.

• Government – refers to structures and

processes in society that authoritatively make

and apply policies and rules.

• Society – a network of human relations that

includes three interacting elements:

– Ideas

– Institutions

– Material things1-4McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

How Institutions Support Markets

1-5McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Figure 1-1 How Institutions Support Markets

Why is the BGS Field Important to Managers?

• To succeed in meetings its objectives a business

must be responsive to both its economic and its

noneconomic environment.

• Recognizing that a company operates not only

within markets but within a society is critical.

• A basic agreement or social contract exists

between the business institution and society.

– Managers must respect and adhere to society’s

expectations.


The Countervailing Forces Model


The Countervailing Forces Model (continued)

• Countervailing forces model conclusions:

– Business is deeply integrated into an open society and must

respond to many forces, both economic and noneconomic.

– Business is a major initiator of change in society through its

interaction with government, its production and marketing

activities, and its use of new technologies.

– Broad public support of business depends on its adjustment to

multiple social, political, and economic forces.

– BGS relationships continuously evolve as changes take place in

the main ideas, institutions, and processes of society.


The Stakeholder Model

1-9McGraw-Hill/Irwin

The Stakeholder Model

• Stakeholders are those whom the corporation

benefits or burdens by its actions and those

who benefit or burden the firm with their

actions.

– Primary stakeholders

– Secondary stakeholders

• Debate about how to identify who or what is a

stakeholder.

• Stakeholder model is an ethical theory of

management in which the welfare of each

stakeholder must be considered as an end.1-10McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Activity

• In groups of 4-5, identify the stakeholders in

NYIT Vancouver.

• Who are the primary stakeholders?

Secondary?

• What are the main motivators of the primary

stakeholders?

Four Models of the BGS Relationship

The Stakeholder Model (continued)

• Criticism of the stakeholder model:– It is not a realistic assessment of the power

relationships between the corporation and other entities.

– There is no single, clear, and objective measure to evaluate the combined ethical/economic performance of a firm.

• Advocacy for the stakeholder model:– A corporation that embraces stakeholders performs

better.

– It is the ethical way to manage because stakeholders have moral rights that grow from the way powerful corporations affect them.


Volatility in the Business Environment

• From ancient to modern times, environments have been volatile and generally unpredictable.

– Black Death

– Industrial Revolution

– Baldwin Locomotive blindsided by the diesel engine

• Today:

– Worldwide markets exist for the first time in many markets

– Product innovations quickly copied making competitive advantage difficult

– Societal ethical expectations dictating new, elevated performance standards2-13McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

The Industrial Revolution

• Requirements for industrial growth:

– Sufficiency of capital, labor, natural resources and fuels

– Transportation

– Strong markets

– Ideas and institutions to effectively combine all of these requirements

• Industrialization generates huge strains in the social fabric.

• The total amount of goods and services produced in the twentieth century exceeds all that produced in recorded human history.2-14McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Inequality

• The basic political conflict in every nation, and

often between nations, is the antagonism

between rich and poor.

• The industrial revolution accelerated the

accumulation of wealth without solving the

persistent problem of its uneven distribution.

• Global income inequality is measured by the

Gini index.

– 66% in 2000, an extreme level of inequality, caused

by the diverging economic fortune of nations.2-15McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Inequality (continued)

• Economic growth does not itself increase income inequity within modernizing nations.

• Today about 2.8 billion people live in poverty (< $2.00 a day income).

• If world distribution of income had not become more unequal after 1820, economic growth would have reduced the number of people living in poverty today by 80%.

– As the wealth divide among nations increased, the distribution of income grew even more unequal.

• If corporations are harnessed to create economic growth, the poor will benefit.


World Poverty and Income Inequality

Since 1820


Population Growth

• The basic population trend throughout human history is upward.

• Accelerated growth after 1825 due to:

– Advances in water sanitation and medicine, reduced the number of deaths from infectious disease

– Mechanized farming, expanded the food supply

• Rapid growth now declining due to declining fertility.

• Implications of current population trends:

– The wealth gap between high- and low-income countries will widen

– Growth will continue to strain the earth’s ecosystems

– The West is in demographic decline compared with other peoples


Technology

• Throughout history new technologies and

devices have fueled commerce and reshaped

societies.

– Printing press

– Steam engine

• New technologies:

– Foster the productivity gains that sustain long-term

economic progress

– Promote human welfare

– Can agitate societies2-19McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Globalization

• In the economic realm, globalization refers to

the development of an increasingly integrated

system based on free markets in which nations

are open to foreign trade and investment.

• Consequences of globalization:

– Increased economic activity

– Changed cultures

• Globalization has been accelerated by new

technologies, and sometimes slowed by

national rivalries and wars.2-20McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Nation-States

• Arose out of the wreckage of the

Roman Empire

• In the past, nations increased

their power by seizing territory

from other nations

• Today, nations use trade


Nation-states

The unit of human

organization in

which individuals

and cultural

groups can

influence their

circumstances and

future.

Dominant Ideologies

• An ideology is a set of reinforcing beliefs and values that

constructs a world view.

– Darwinism – constant improvement characterized the

biological world.

– Social Darwinism – evolutionary competition in human society

weeds out the unfit and advances humanity.

– Protestant ethic – hard work, saving, thrift and honesty lead to

salvation.

• Many doctrines have perished as a result of globalization.

• Accelerated in the 20th century by rising literacy and

innovations that spread information.


Great Leadership and Chance

• Leaders have brought both beneficial and disastrous changes to societies and businesses.

• Two views of historic leaders:

– Leaders simply ride the wave of history

– Leaders themselves change history

• Some changes in the business environment may be best explained as the product of unknownand unpredictable causes.

• Machiavelli observed that fortune determines about half the course of human events and human beings the other half.


Seven Key Environments of Business


The Economic Environment

• The economic environment consists of forces that influence

market operations, including:

• Two basic subtrends underlying economic growth:

– Rising trade

– Major expansion of foreign direct investment by

transnational corporations


� Overall economic activity �Wages

� Commodity prices � Competitor’s actions

� Interest rates � Technology change

� Currency fluctuations � Government policies

The Technological Environment

• New technologies create both threats and

opportunities.

• New technologies have unforeseen

consequences for society when they are put

into widespread use for commercial gain.

• Businesses must carefully weigh not only the

strategic impact of technologies on their

business models, but also the stresses and

strains they may impose on people.


The Government Environment

• There are currently two long-term global trends

in the government environment of major

importance to business:

– Government activity has greatly expanded

• Larger social welfare roles

• Expanded regulation of domestic industries

– More governments are becoming open and

democratic

• Governments increasingly respond to public demands for

corporate social performance


The Cultural Environment

• The environment of a transnational corporation includes a variety of cultures.

– This variation causes conflicts of business customs.

• There is a fundamental divide between the culture of Western economic development and the rest of the world’s cultural groupings.

• The rise of postmodern values has uniformly shifted the social, political, economic, and sexual norms of wealthy countries.

• Postmodern norms are a strong influence in the operating environments of multinational corporations.


The Natural Environment

• Economic activity is a geophysical force with power to change the natural environment.

• Economic productivity in the 20th century has:

– Depleted mineral resources

– Reduced forest cover

– Killed species

– Released molecules not found in nature

– Unbalanced the nitrogen cycle

– Possibly triggered climate change

• Managers must adapt to changed thinking, toward preservation of nature.


The Internal Environment

• In a corporation, the internal environment

consists of four groups:

– Objectives

– Beliefs

– Needs

– Functions

• Forces in external environments have recently

reduced the power of these internal groups.


The Legal Environment

• The legal environment consists of:

– Legislation

– Regulation

– Litigation

• Five enduring trends:

– Laws and regulations have steadily grown in number and complexity

– Corporations have expanding duties to protect rights of stakeholders

– Globalization has increased the complexity of the legal environment

– Laws are now enacted to guide ethical behavior and corporate social responsibility

– The law is constantly evolving


Wall Street (1987)

• http://youtu.be/ufNMfPwcZi8

A Focus on the Priorities for

the Canadian Securities Regulatory System

A Presentation by Pierre Lortie

to the Montreal Economic Institute

Note: The opinions expressed herein are solely those of the author and do not purport to represent those of the firm.

.

March 20th, 2008

The Scope of Securities Regulation

• Worldwide, the dual purpose of securities

legislation is:

– “to provide protection to investors from unfair,

improper or fraudulent practices; and

– to foster fair and efficient capital markets and

confidence in capital markets” (1)

1. Ontario Securities Act, R.S.O. 1990, i.S.5


• Securities regulation is multifaceted. It comprises the regulation of: – Public issuers based on the principle of full, timely and accurate

disclosure of relevant information both at the issuance of securities and on a continuous basis. It also covers corporate governance to ensure effective accountability of management and Board members to shareholders

– Market intermediaries to ensure that they conduct their business with their clients with due care and trade fairly in the market and have adequate capital so that they may enter and exit the market without disruption

– Secondary markets to ensure fair access and adequate price formation in order to promote the market’s efficiency and reputation. It also covers the regulation of clearing and settlement and the setting of standards for risk management

– Asset management to ensure professional management and adequate disclosure of investments to the investors

The Performance of Canadian

Securities Regulation

• Canada obtained the second best score out of 40 countries in a comprehensive study of the efficiency of securities regulation: (4)

– United States 97%

– Canada 91%

– Australia 77%

– United Kingdom 73%

• In a recent study of the economic consequences of increased disclosure, the authors conclude:

– "We find no significant post-listing change for Canadian firms….Canada is a particularly interesting case for study as its disclosure environment is very similar to that in the U.S., which implies that the factors involved in the cross-listing decisions of Canadian firms differ from those of firms in other countries.“ (5)

4. Hail and Levy, “What Works in Securities Law”, Journal of Finance (2006)

5. Warren Bailey, G. Andrew Carolyi and Carolina Salva, “The Economic Consequences of Increased Disclosure: Evidence from

International Cross-Listings”, (2006) 81 Journal of Financial Economics 175



• Protection of minority shareholders from controlling

shareholders extracting benefits from the Company

ranks amongst the best, at par with the United States

6. Randall Morck, Daniel Wolfenzon and Bernard Yeung, “Corporate Governance, Economic Entrenchment and

Growth”, (2005) 43 Journal of Economic Literature 655

Country Block Premium

(%)

Voting Premium

(%)

Australia 2 23

France 2 28

Germany 10 10

Switzerland 6 5

United Kingdom 2 10

United States 2 2

Canada 1 3

Estimated private Benefits of Control in Different Countries (6)



• The average cost of undertaking a small-sized issue is

less than that of a comparably sized issue in the USA,

while the cost for undertaking a large-scale issue is

similar in both countries (9)

• The cost of capital in the United States and in Canada is

similar for comparable companies once you take into

account the differences between the risk premium in

the two countries, as reflected in government bond

yields in the two countries (10)

9. J.-M. Suret and C. Carpentier, Réglementation des valeurs mobilières au Canada, Montréal, CIRANO (2003), note 23, pp.

35-36

10.Lorie Zorn, “Estimating and Comparing the Implied Cost of Equity for Canadian and U.S. Firms”, Bank of Canada

Review, Autumn 2007, p 29

The Acid Test of a Regulatory

System Design

• Any system of regulation must be flexible since markets change over time.

• The Canadian securities regulatory system architecture is demonstratively characterised by:– Greater flexibility

– A better capacity to adapt to changing circumstances

– A greater responsiveness to particular industry or regional needs

– Better assurances against the hasty adoption of disruptive and costly regulations (“monopoly”) (Sarbanes-Oxley)

– Better shield from the imposition of politically expedient or faddish requirements (“centralization”)

Dynamic efficiency is the acid test of a regulatory system design


System Design

• A Pattern of Continuous Evolution and Adaptation to Changing Circumstances

– The judicious application of information technologies has created systems and practices which are truly national in scope:

• System for Electronic Document Analysis and Retrieval (SEDAR)

• System for Electronic Disclosure by Insider (SRDI)

• National Registration System (NRS) and the National Registration Database (NRD)

• Mutual Reliance Review System (MRRS)

• Development and implementation of 25 National Instruments and 24 national policies covering key areas such as prospectus requirements, mutual fund regulation, rights of offering, take-over bids, prospectus and registration exemptions, continuous disclosure contents and market place operations

– The implementation of the Principal Regulator System (MI11-101) on September 19th, 2005, extended exemptions to participants when they deal with different securities jurisdictions (except Ontario)

– The implementation of the “passport system” on March 17th, 2008 allows participants to access capital markets across Canada by dealing only with the regulator in one jurisdiction (except Ontario)


System Design

• A Record of Responsiveness to the needs of

the Canadian Capital Markets:

– Multi-jurisdictions did not prevent harmonization

of regulatory requirements…

• In 2001, the Canadian Government eliminated the

provisions of the Canada Business Corporations Act

concerning going private transactions, take-over bids

and insider reporting in order to avoid “the futility of

maintaining a regulatory overlap” with Canadian

securities regulations pertaining to these same matters (11)

11. Industry Canada, “Analysis of the Changes to the Canada Business Corporation Act”


System Design

• In June 1991, the SEC and Canadian Securities Commissions adopted the Canada/US Multijurisdictional Disclosure System (MJDS). The MJDS:– Permits eligible issuers in Canada to effect offerings of securities in

the United States based on disclosure documents prepared in accordance with Canadian requirements, and vice versa

– Permits issuers to use Canadian continuous disclosure documentation and file Canadian-style insider reports in satisfaction of U.S. requirements and, conversely, allows U.S. issues to file their continuous disclosure and insider reports in satisfaction of the equivalent Canadian requirements

– The MJDS extend to specific transactions such as cross-border rights offerings, takeover bids, and business combinations

• No other country benefits from such a mutual recognition and harmonization agreement with the SEC

The Achilles Heel of Canadian

Capital Markets

• The structure of the Canadian financial sector has a profound influence

on the workings of capital markets. Its evolution towards a very

concentrated industry has few parallels in industrialized countries

– The six largest investment dealers account for over 70% of the activities of

the industry

• Despite all the efforts that can and should be done at the regulatory

level, their positive impact will be easily smothered if the Canadian

securities industry is not competitive and cost efficient. This should be

the main focus of policies

Canada has: The US has:

> Only one stock exchange organization > Nine stock exchanges

> 3 alternate trading systems > More than 70 alternate trading systems

> One clearing house > 12 clearing houses


Capital Markets

• The eroding competitiveness of the Canadian secondary

market for equities should be a serious concern. The

evidence indicates that:

– one-way equity trading costs stand at 52.4 basis points in Canada

compared to 38.1 in the USA. (14)

– since 1990, the proportion of transactions on Canadian interlisted

stocks for which more than 50% of the volume is done in the USA has

increased from 28% to 53%.

14. Domowitz J. et all., "Liquidity Volatility and Equity Trading Costs Across Countries and over Time". International Finance,

4 (2), 221-255


Capital Markets

• The Dynamic Efficiency of the Canadian Securities System at Work– The proportion of small-cap issuers is significantly larger in Canada

than in the USA and other industrialized countries

– This avenue was facilitated by the focus of the Vancouver and Alberta stock exchanges and the responsiveness of the BC and Alberta Securities Commissions to the characteristics and specific needs of small-cap equity markets

– To ensure the traditional tendency of the senior market to regulate-out small-cap markets, the acquisition of the Vancouver and Alberta Stock Exchanges by the TSX Group (TSE Venture) was accompanied by strong undertakings and guarantees to the Alberta Securities Commission aimed at ensuring that the development of this market will continue

Setting our priorities to deal with emerging challenges

• The Federal Government has a legitimate claim with respect

to prudential supervision, competition policy and Criminal Law

(an enforcement):

– It already supervises the financial position of:

• the Canadian banks (70% of the securities industry activity)

• CDS and the Canadian Derivatives Clearing Corporation (“CDDC”)

• This, however, is not the case with respect to the regulation of

the securities markets which pertains primarily to the

protection of investors and the rules of conduct and business

practices of the participants in the sector.


• An attempt by the Federal government to adopt a general

securities act which would have paramountcy over provincial

legislation will most likely lead to results contrary to what is

sought. It will:

– Give rise to a protracted constitutional battle the Federal

Government will not win before the Supreme Court. Economic

efficiency, even if proven, is not a sufficient reason to override the

equilibrium and cooperative character of Canadian federalism

– Undermine the efforts to pursue greater harmonization initiatives

since the key resources will be diverted

– In the end, probably result in the creation of a fourteenth Securities

Commission with significant overlaps, redundancies, increased costs

and the unavoidable turf battles


• There exists mounting evidence that the SEC monopoly position has led to a regulatory regime which undermines the competitiveness of US capital markets. It is increasingly being challenged by the growth of financial centers abroad and the increasing mobility of investors, financial services firms and exchanges and alternate trading systems across global capital markets

• The current domestic debate fails to recognize that the main object of the debate over international securities markets has changed:

– The emphasis is no longer on its traditional focus over cross-market listings and foreign issuer regulations but on the oversight of foreign financial service providers that want to establish facilities to provide investors with direct access to their markets

– The paradigm has changed: the main issue is not to regulate the foreign issuer seeking to list on a domestic exchange but how to facilitate direct access to foreign markets by investors while ensuring that they remain adequately protected

End of Week OneLevel

Type of Activity

or QuestionVerbs Used for Objectives

Lowest level Knowledgedefine, memorize, repeat, record, list, recall, name, relate, collect,

label, specify, cite, enumerate, tell, recount

Comprehensionrestate, summarize, discuss, describe, recognize, explain, express,

identify, locate, report, retell, review, translate

Applicationexhibit, solve, interview, simulate, apply, employ, use, demonstrate,

dramatize, practice, illustrate, operate, calculate, show, experiment

Higher levels Analysis

interpret, classify, analyze, arrange, differentiate, group, compare,

organize, contrast, examine, scrutinize, survey, categorize, dissect,

probe, inventory, investigate, question, discover, text, inquire,

distinguish, detect, diagram, inspect

Synthesis

compose, setup, plan, prepare, propose, imagine, produce,

hypothesize, invent, incorporate, develop, generalize, design,

originate, formulate, predict, arrange, contrive, assemble, concoct,

construct, systematize, create

Evaluation

judge, assess, decide, measure, appraise, estimate, evaluate, infer,

rate, deduce, compare, score, value, predict, revise, choose, conclude,

recommend, select, determine, criticize

MGMT 630

BUSINESS ENTERPRISE ENVIRONMENT

• Week 2


• Securities regulation is multifaceted. It comprises the regulation of: – Public issuers based on the principle of full, timely and accurate

disclosure of relevant information both at the issuance of securities and on a continuous basis. It also covers corporate governance to ensure effective accountability of management and Board members to shareholders

– Market intermediaries to ensure that they conduct their business with their clients with due care and trade fairly in the market and have adequate capital so that they may enter and exit the market without disruption

– Secondary markets to ensure fair access and adequate price formation in order to promote the market’s efficiency and reputation. It also covers the regulation of clearing and settlement and the setting of standards for risk management

– Asset management to ensure professional management and adequate disclosure of investments to the investors

Investment Fraud Quiz

• http://www.nasaa.org/3246/

What are Business Ethics?

• Business ethics is the study of good and evil, right and wrong, and just and unjust actions in business.

• Although all managers face difficult ethical conflicts, applying clear guidelines resolves the vast majority of them.

• Ethical traditions that apply to business support truth telling, honesty, protection of life, respect for rights, fairness, and obedience to law.

• Eliminating unethical behavior may be difficult, but knowing the rightness or wrongness of actions is usually easy.

• Some ethical decisions are troublesome because although basic ethical standards apply, conflicts between them defy resolution.

• Some ethical issues are hidden and hard to recognize.

• Some ethical issues are very subtle.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.7-53

Major Sources of Ethical Values in Business


Religion

• The great religions converge in the belief that a

divine will reveals the nature of right and wrong

behavior in all areas of life, including business.

• Christian managers often seek guidance in the

Bible.

• In Islam the Koran is a source of ethical

inspiration.

• In the Jewish tradition, managers can turn to

rabbinic moral commentary in the Talmud and

the books of Moses in the Torah.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.7-55

Ethical Variation in Cultures

• Ethical values differ among nations as historical experiences

have interacted with philosophies and religions to create

diverging cultural values and laws.

• The school of ethical universalism holds that in terms of

biological and psychological needs, human nature is

everywhere the same.

• The school of ethical relativism holds that although human

biology is everywhere similar, cultural experience creates

widely diverging values, including ethical values.

• Because of globalization, corporations struggle with the

question of how to apply conduct codes across cultures.


Law

• Laws codify, or formalize, ethical expectations.

• Corporations and their managers face a range of

mechanisms set up to:

– Deter illegal acts

– Punish offenses

– Rehabilitate offenders


Damages

• In civil cases courts may assess damages, or

payments for harm done to others by a

corporation.

– Compensatory damages are payments awarded to

redress concrete losses suffered by injured parties.

– Punitive damages are payments in excess of a

wronged party’s actual losses, awarded to deter

similar actions and punish a corporation.

• Since the purpose of punitive damages is to

punish and deter misconduct, they must be

large enough to cause pain, yet they raise many McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.7-58

Criminal Prosecution of Managers and

Corporations

• Managers may be prosecuted for criminal

actions undertaken in the course of their

employment.

• Corporations are criminally liable for corrupt

actions or omissions of managers if those

actions are intended to benefit the corporation.

• Criminal prosecution of corporations and their

executives is exceptionally difficult.


Sentencing, Fines, and Other Penalties

• In 1991 the United States Sentencing

Commission released guidelines for sentencing

both managers and corporations.

• Managers can go to prison, be fined, put on

probation, given community service, make

restitution, or be banned from working in their

occupations.

• Corporations cannot be imprisoned, but they

can be fined and their actions restricted.

• Other methods for penalizing corporate crime

exist, such as having their fines paid to charities.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.7-60

Factors That Influence Managerial Ethics


Leadership

• The example of company leaders is perhaps the

strongest influence on integrity.

• A common failing is for managers to show by

their actions that ethical duties can be

compromised.

• If the leader does something, an opportunistic

employee can rationalize his or her entitlement

to do it also.


Strategies and Policies

• A critical function of managers is to create

strong competitive strategies that enable the

company to meet financial goals without

encouraging ethical compromise.

• Unrealistic performance goals can pressure

those who must make them work.

• Reward and compensation systems can expose

employees to ethical compromises.


Corporate Culture

• Every corporate culture has an ethical

dimension reinforced by daily habit and shared

beliefs about which behaviors are rewarded and

which are penalized.

• A factor that contributes to lowered ethical

climates in corporations is moral muteness.

• The tendency toward moral muteness is

probably present to some degree in every

company.


How Corporations Manage Ethics

1. Establish standards and procedures.

2. Create high-level oversight.

3. Screen out criminals.

4. Communicate standards to employees.

5. Monitor and set up an anonymous hotline.

6. Enforce standards, discipline violators.

7. Assess areas of risk, modify the program.


Ethics Programs: A Strong Future

• Ethics programs are a set of interrelated policies

and methods.

• Many companies have one or more of the

central elements of an ethics program, but only

a small number have strong programs.

• Some companies who engaged in criminal

behavior were forced to adopt strong ethics

programs as part of a settlement.

• Even companies with complete ethics and

compliance efforts are subject to scandals.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.7-66

Readings

• In groups of three-four, answer the following

questions.

Metacognition: Bloom‘s Taxonomy

(Bloom, 1956)

Bloom’s Taxonomy and Career Success

Bloom identified six educational objectives for the cognitive domain.

• Knowledge – is remembering or recalling previously learned material.

• Comprehension – in the lowest level of understanding and interpreting

the material so it can be compared and contrasted with similar material.

• Application – is the practical application of knowledge gained by the

learner.

• Analysis – allows the learners to identify the constituent components of

the topic they are currently engaged in learning.

• Synthesis – involves the learner taking the components or elements of a

topic to build some thing new i.e. using old ideas to create new ones.

• Evaluation – engages the learner’s own judgement on the material.

Pressures for Protectionism

• Most domestic businesses, whether engaged in

foreign trade or not, feel pressures from foreign

competitors with better products and lower

prices.

• Three justifications are often given for

protectionist measures.

– The U.S. has large trade deficits that must be

reduced.

– Protectionists want to shield industries from foreign

competition.

– Trade barriers in foreign countries restrict American McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.12-70

The Politics of Protectionism

• Protectionism is not solely an economic issue.

• Example: President Bush has said often that

expanding free trade is one of his highest

priorities, however he supports substantial

restrictions on imports of steel because:

– The industry today employs one-fifth the number of

steelworkers it did in 1980, production has slumped,

steel mills have closed, and the financial strength of

the industry has weakened.

– The industry and its unions have political strength.


Free Trader Responses to Protectionists

• One main argument is the logic for free trade.

• The cause of the exceptional rise in world trade,

say antiprotectionists, has been in no small

measure the world’s reduction in tariff barriers.

• Protectionists claim that tariffs will save jobs,

but they may also cost jobs.

– Example: When President Bush imposed tariffs to

protect United States steel workers the price

increase in steel resulting from the tariffs cost jobs

in companies using the steel.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.12-72

U.S. Deviation from Free Trade

Policy

• Despite strong free trade rhetoric and the

steady lowering of tariff and other trade

barriers, the United States protects industries

from foreign competition.

– The Federal Buy American Act

– The Merchant Marine Act

– The Passenger Vessel Services Act

• U.S. tariffs have declined significantly in recent

years, but there are many exceptions.


Tariff Barriers in Other Countries

• China still imposes substantial barriers on imports such as watches,

automobiles, steel, textiles, etc.

• Japanese tariffs range from 10 percent to 40 percent for products

such as beef, oranges, apples, ice cream, and tomatoes.

• Various restrictions among European Union countries are applied

to genetically engineered commodities.

• Taiwan restricts imports of rice.

• Brazil still retains high tariffs on technology products.

• Mexico still retains substantial trade restrictions on products such

as meat, poultry, vegetables, and fruit.

• Russian tariff restrictions on imports remain, such as quotas on

meat products.


Classical Free Trade Theory versus Reality

• The reality is that the global economy is a

mixture of free trade and protectionism.

• Classical free trade theory based on

comparative advantage has lost much validity

for a large part of world trade.

– Competitive advantage of nations

• A government can help an industry recover

from predatory foreign trade when it chooses

the appropriate means, on a limited scale, for a

limited period of time, for a few industries, and

for the right reasons.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.12-75

Corruption in Business and

Government Transactions

• Cultural differences, practices, and laws among

the many countries where MNCs do business

create extremely difficult moral, ethical, and

legal problems for MNCs.

• Companies have found in many LDCs, and even

in some highly industrialized countries, that to

do business it is necessary to make a variety of

payments, leading to often intense publicity

given to instances of corruption involving high

government officials.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.12-76

What is Corruption?

• At one end of the spectrum is what might be

called petty corruption or “grease” payments.

• When is the payment “normal,” and when does

it become tainted with bribery?

• A different problem in identification of bribery

is offsets, which have become popular in the

international arms trade.

– Offsets can be part of an agreement to bring

investment to a company.

– Contractors dislike offsets but they are an essential

part of doing business in many countries.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.12-77

Costs and Consequences of Corruption

• The World Bank concludes that worldwide bribes total $1 trillion each year.

• The phenomenon is present in both highly industrialized as well as developing countries.

• Corruption raises the costs of doing business.

– It distorts government allocation of expenditures.

– It can slow the development of a free market.

– It can have a corrosive impact on both government service and business efficiency.

– It distorts competition.

– It can undermine political legitimacy.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.12-78

Law and Codes to Control

Corruption

• After Watergate, the need for new regulations

became obvious and Congress passed the

Foreign Corrupt Practices Act (FCPA) in 1977.

• Congress amended the FCPA in 1988 to clarify

some ambiguities in the original version.

• Eventually the Organization for Economic Co-

operation and Development approved the

Convention Combating Bribery of Foreign Public

Officials in International Business Transactions.

• In 2003, the United Nations approved the UN

Convention Against Corruption.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.12-79

Concluding Observations

• MNCs have major impacts on markets, social

systems, and political institutions.

• Complexities of doing global business raise

serious economic, ethical, political, social, and

moral issues for their management.

• It is believed that more top managers of U.S.

corporations, with help and prodding from

government and strong activist critics, are

exercising power responsibly.


End of Week Two

mgmt 630 business enterprise environment · wk 4 ecommerce wk 5 canadian, chinese, and other...

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