Unethical Practices of Five Multinational Corporations - Essay Example

Unethical Practices of Five Multinational Corporations Although the business worldhas been shocked by high-profile cases of unethical practices like WorldCom, Enron, and others, wrong or irresponsible practices continue to take place on a regular basis across the globe. This unethical behavior is often adverse to these multinational companies (MNCs) and to the communities they operate in. MNCs getting involved in unethical practices obtain negative publicity and reputation. In other instances, MNCs can be put on trial or prosecuted and incur substantial losses while they pay huge penalties. Ultimately, unethical multinationals can lose their customer base as their customers lose confidence in them. Hence, global ethics are expected to continue to be a very crucial concern for almost all MNCs. Woods claims that roughly 60,000 MNCs are doing business all over the world at present but that most of them are operating in developing countries (Cullen & Parboteeah 126). MNCs have access to massive human, capital, and economic resources, and this access endows influence and authority that restricts the capacity of the governments of developing countries to control these multinationals. In certain instances, these governments are not eager to control because they are taking into consideration the value of foreign investment for their countries (Cullen & Parboteeah 126-7). MNCs are thus being investigated for their capacity to carry out ethical practices when confronted with this kind of power. Besides the possibility of being condemned for unethical practices and sustaining damage in reputation and loss of public support, new studies confirm that doing business in an ethical way has numerous advantages for multinationals. An evaluation of different studies by researchers reveals that responsible and ethical multinationals have greater advantages in numerous parts, including predicted future financial outcome; stock market returns; stock market value; firm market value; and overall financial performance. Ethical MNCs hence experience more favorable financial outcomes (Kaptein 982). Corporate social responsibility (CSR) is a concept that is largely related to corporate/organizational ethics. CSR is defined by Trudel and Cotte (2009) as “a decision by the company’s management to consider the impact their decisions will have on their customers, employees, suppliers and communities, as well as their shareholders” (as cited in Babetti 4). Cedillo-Torres and colleagues (2012) argued that CSR involves several interrelated aspects rooted in societal, ethical, legal, and economic duties. CSR generally begins as corporate codes of conduct, guiding principle, or procedures, and in numerous instances, are normally implemented once the company is investigated for unethical or unlawful business practices. It is reasonable that numerous big and major companies usually have greater CSR objectives than smaller companies do, for they have bigger public visibility or reputation and have more resources. Inherent in the strategic management practice is the need for a huge dedication to these social responsibility ideals due to the demand for established primary ideals of ethical behavior and also the demand for greater social responsibility awareness (Godiwalla 1387). Several scholars stress the importance of a basic ethical code and a commitment to ethical guidelines in a company’s strategic management practice as requirements to really successful social responsibility activities. Discussion and Analysis Although almost all societies today demand greater ethical responsibilities from multinational companies, current evidence shows that unethical practices are still widespread across the globe. Five cases of unethical behavior from different MNCs substantiate this claim. The first is Alibaba.com, which is the top e-commerce venture in China. The same as Amazon, the company serves as an intermediary between buyers and sellers who make business transactions online (Cullen & Parboteeah 126-7). The company is profitable and fast growing and has roughly 56 million individuals making use of its business-to-business (B2B) website and roughly 370 million people making use of its online mailing system (Cullen & Parboteeah 127). The company often advertises its solid dedication to integrity and reliability and its commitment to ethical principles. Yet, it was found out that roughly a hundred of its staffs were taking part in fraudulent activities. Not like other Internet ventures, Alibaba.com does not generate profit by requiring commissions on sales. Instead, it obtains its profits from additional charges like payments for gold status (Godiwalla 1384). In order to acquire the gold status, merchants or sellers on the website have to undergo a comprehensive verification procedure. By 2009, it was reported that roughly 2,300 merchants had made use of fraudulent identifications, at times with the assistance of the company (Godiwalla 1384). In numerous instances, purchasers paid for products they did not get. At present, the company is trying to recover its reliability and integrity among customers in the flourishing e-commerce market of China (Cullen & Parboteeah 127). The second case involves the major German multinational company and one of the biggest engineering firms in Europe, Siemens. The company had to deal with a serious bribery controversy. For many years, the company held three “cash desks,” where workers could carry bags to be stuffed with money, which was afterward spent to bribe people to obtain contracts (Babetti 7). According to reports, roughly $850 million was given to authorities overseas to help the company obtain contracts across the globe. Recently, Siemens surrendered to the Brazilian police. It revealed its participation in a price-fixing group, and confessed bribing individuals so as to get contracts to construct the Sao Paolo Metro (Cullen & Parboteeah 127). Involved in the controversy was Adilson Primo, the previous senior representative of Siemens in Brazil and who was dismissed in 2011 when proofs of his unethical practices in the country surfaced (Cedillo-Torres et al. 63). The third case involves one of the largest software and service companies in India, Satyam. The company is currently known as the Enron of India. For some time, Mr. Raju, the founder and head of Satyam, engaged in numerous activities that led to fraud totaling to roughly $1.7 million. Mr. Raju, for instance, pumped up profits while claiming earning interest and cash that did not exist (Cullen & Parboteeah 127). Moreover, Satyam exaggerated the sum of cash it was owed. These fraudulent and deceptive practices finally stopped when the firm attempted to acquire two other companies held by family members. Shareholders protested and the agreement was terminated. Nevertheless, the ploy was found out, resulting in serious issues for India’s companies to resolve (Cullen & Parboteeah 127-8). The fourth case involves the Hanwha Group of South Korea. On the 3rd of February 2012, the company’s head Kim Sueng-yeon was questioned for fraud and embezzlement. The head of the SK group, Chey Tae-won, was also being questioned for the loss of 99 billion won from the firm. It is suspected that Chey collaborated with his brother and exploited the cash to hide a futures trading loss (Babetti 10). These two controversies implicated major firms that belong to the family-owned ‘chaebol’ firms in South Korea. These firms have contributed much to the rise of South Korea as one of the world’s most developed nations. However, regrettably, due to incompetent corporate leadership, numerous of these firms are handled in ways adverse or unfavorable to small investors (Cullen & Parboteeah 127-8). These companies are notorious for practicing tunneling and propping. Tunneling refers to the practice of awarding contracts to other companies owned by members of the family; on the other hand, propping refers to the practice of granting financial assistance to dwindling units by sister companies. These practices undoubtedly benefit members of the family to the detriment of small investors (Cullen & Parboteeah 127). The fifth and last case involves a popular French telecommunications company, Alcatel. Christian Sapsizian, a French national and previous head of Alcatel, was sentenced to 2 years and 6 months imprisonment and had to pay roughly $261,500 (Godiwalla 1384). He confessed of bribing government authorities in Costa Rica in order to obtain a mobile telephone contract with the state-run Costa Rican telecommunications firm. He spent roughly $2.5 million in bribing several Costa Rican authorities. Even though Alcatel is not an American firm and Sapsizian is not an American national, Sapsizian was sentenced in an American court because Alcatel is registered on the New York Stock Exchange and his acts encroached upon the Foreign Corrupt Practices Act (Cedillo-Torres et al. 58). Solutions/Recommendations There are several steps that multinationals can do in order to ensure that they are socially responsible and ethical. First, they should establish ethical and social responsibility priorities, ideals, and objectives. Such technique would discourage deception, bribery, and fraud, and would preclude needless profit losses and damage control expenditures. A code of conduct must be developed and communicated to all employees, and they must be obliged to promote and abide by these guidelines. Second, superiors must co-operate with their employees to precisely and thoroughly examine any possible violations of ethical and socially responsible behavior (Fernando 105). Regular communication which considers errors by other forms could raise these problems and alert all members of the organization about the lures and disadvantages of unethical business practice. Developing an ethical and socially responsible environment in the workplace, as well as implementing measures that would result in the stability of environmentally and socially responsible conduct, is another effective step. These could have huge temporary costs, but could have general lasting advantages, such as better profitability, improvement in reputation, high credibility, greater customer loyalty and retention, and so on. Senior management must thoroughly investigate any recent behavior or practices for any possible errors in ethics and social responsibility (Fernando 105-6). This methodical screening procedure would caution any subordinate employee of discouraging any unethical behavior. It would warn members of multinational corporations. Soon enough, they would develop a tendency to be highly cautious in creating new practices and techniques. They would not submit to greed, temptation, or excessive willingness to display good performance without regard for ethical business practices (Kaptein 994). Senior management must exploit every chance to follow prescribed ethically and socially responsible actions and to clarify the core explanation and purpose clearly and openly to the members of the organization. The company must frequently exhibit and communicate its unyielding dedication and commitment to the core ideals of CSR and business ethics. Senior executives must not reprimand employees who may reduce their performance when they comply with ethical codes, when weighed against their competitors, like losing profits to a rival who engages in unethical business conduct (Trudel & Cotte 66). Ultimately, it is vital for multinationals to recruit executives, managers, and directors who have undeniable ethical integrity, as revealed by their previous performance or track records. Conclusions Unethical business conduct is inherently unfavorable, and in addition, this would lead to numerous problems, expenses, or disadvantages for a multinational. Several of these disadvantages are lost sales, bad reputation, negative public relations, and so on. Ethical behavior and social responsible practices of multinationals are ideal business conduct in the long term. They facilitate positive relations with employees, customers, shareholders, communities, and so on. They enhance the reputation and image of MNCs in the long term. Works Cited Babetti, Houda. “Ethical Responsibilities of Multi-National Corporations: A Critical Analysis of Why Morals Matter,” Sociological Imagination: Western’s Undergraduate Sociology Student Journal 2.2 (2013): 1-17. Print. Cedillo-Torres, Cristina et al. “Four Case Studies on Corporate Social Responsibility: Do conflicts affect a company’s corporate social responsibility policy?” Utrecht Law Review 8.3 (2012): 51-73. Print. Cullen, John & Praveen Parboteeah. Multinational Management. Mason, OH: Cengage Learning, 2013. Print. Fernando, A.C. Corporate Governance: Principles, Policies and Practices. New Delhi, India: Pearson Education India, 2009. Print. Godiwalla, Yezdi. “Business Ethics and Social Responsibility for the Multinational Corporation (MNC),” Journal of Modern Accounting and Auditing 8.9 (2012): 1381-1391. Print. Kaptein, Muel. “Developing a Measure of Unethical Behavior in the Workplace: A Stakeholder Perspective,” Journal of Management 34.5 (2008): 978-1008. Print. Trudel, Remi & June Cotte. “Does it pay to be good?” MIT Sloan Management Review (2009): 62-68. Print. Van den Heuvel, Gijs et al. “Global Business, Global Responsibilities: Corporate Social Responsibility,” Business & Society 53.3 (2014): 378-413. Print. Read More