Social Responsibilities of Multinational Corporations - Essay Example

? Social Responsibilities of Multinational Corporations A multinational corporation or MNC is an enterprise which exists in more than one country with registration and it also operates in many countries. It is usually large in size and does production and selling of goods and services in many countries. It is sometimes also called an international corporation. MNCs play a major role in the rapid globalization of the world today. The first of their kind was British East India Company, which came about in 1600. The second one followed two years later called the Dutch East India Company. Over the years, MNCs have been criticized for various reasons despite their many advantages. It is believed that they pay less regard to human rights and the environment. Criticisms also include the fact that MNCs have resulted in huge conglomerates in different countries, which overall reduces competition and violates the concept of free market economy. They are believed to raise money in the host countries of the MNC and then ship the profits back to that country, but at the same time using the other country’s labor, resources, cultures etc. In short, MNCs are believed to exploit human beings from all over the world apart from the host country. However MNCs also have certain advantages both for the host and the home country. The standard of living of the countries will increase regardless because investment and employment increase and people have greater purchasing power parity. The host country usually gets free flow of information and technology through this institution as well as expertise which may not be available in their own country. Domestic business also gets greater competition and business due to functioning of MNCs. Those who support MNCs believe it doesn’t reduce competitiveness but actually increases it, due to the breaking of local monopolies. Host country can also reduce their imports and export the goods produced by MNCs to improve their balance of payment accounts. Lastly, home countries can also benefit from the cultural diversity in the formation of MNCs worldwide. Under the topic of MNCs, there has been a great deal of debate among professionals about the social responsibilities of an MNC in operating globally. Some believe that MNCs have limited responsibility, usually depending on the laws of the host country. Others believe that they have the duty to fulfill the negative rights of human beings, and some believe that MNCs have a duty to fulfill both positive and negative rights of individuals. MNCs have always assumed to be self-interested organizations, with the only aim to make profit and pay no regard to the people of developing economies or the environment. They seem to take on social responsibility, only if need be, and because recent studies show that ethical practices and social justice leads to profits in the long run. They seem to follow the principle-agent assumptions and MNCs are the agent because they seem to have no moral obligations to carry out honest behavior for socially responsible outcomes. Also, they seem to exploit host nations and their people because it is easier to do so; in developed countries there are several laws and institutions are tighter thus protecting people and firms from harm, however developing economies don’t have such laws so companies operating in them need to be even more socially responsible for the outcomes. Certain conditions prevail in a developing economy that makes MNCs more accountable with regards to social responsibility: Cultural practices in developing countries may allow for practices which violate human rights basic or advanced, and in accordance with gender, or politics etc. Most of these cultural practices have been eliminated in advanced countries but seem to be a problem in developing countries. The legal framework in developing economies may not insulate the country and its people from harm which is why MNCs have to be responsible. Corruption reigns supreme, therefore even in places where a democratic government seems to have a hold, the power and importance may be in the hands of officials and government and not the people. In order to attract foreign resources, technology and many other resources, poor countries may agree to allow MNCs despite their terms, which may be unreasonable, in which case MNCs must practice their own social justice. Firms can take advantage of lower developing countries (LDCs) because of these laws and regulations as well. This makes LDCs vulnerable and there is less chance for paying back for exploitation. MNCs can hire for below average wages, over work employees, employ young children, impose harmful toxins to the environment and have unsafe working conditions. Generally the approach used is either the utilitarianism approach or ethical egoism which measures the relevant costs and benefits associated with a particular course of action. This was also one of the reason that Ford decided not to install a particular device in Ford Pinto which would protect it and the users from the vehicle bursting into flames. The formula to be used was: The cost of the new part x the vehicle sold as compared to the cost per accident x the number of accidents. The cost of installing the new part as per these calculations was more than the cost of accidents, however the long-term effects weren’t calculated and when this information went public, there was a great deal of discontent and this was damaging for Ford. And this happened because a great deal of NGOs exists in the developing world and they increase the cost of unethical practices. But this doesn’t happen in developing countries. And do if MNCs are forced to carry out ethical business practices and care for the negative and positive rights of individuals, then this should be extended globally. This means that MNCs not only have to carry out ethics and social responsibilities, and change their formula for cost benefit analysis, but they should want to because it is the right thing to do, and not just in terms of profits but also in terms of humanity. That is why many MNCs engage in socially active projects and give back to consumer as well as have policies that will protect the environment such as GSK which has over the years reduced its water consumption, energy consumption and carbon footprint. They also have transparent financial statements and returns to their stakeholders to develop goodwill and trust. And consumers are now looking for more in MNCs than just the product itself; they need to trust the product and how it will affect them and the environment because the world is moving towards more concerns for the environment due to globalization and depleting ozone layer, and they have become more worried about what they are sold because they seek value for money due to the rising economic problems an economic depressions in the economy. Kantian rights also speak about these issues and rights of individuals. (Falkenherg) However, since we live in an ‘age of multinationals’ there is also a need to view other perspectives. MNCs have a great deal of power in this day and age. And libertarians believe that the purpose of MNCs is primarily to make profit and follow some moral obligations but that they don’t have the social responsibility, only some moral constraints. Friedman also believes that business don’t have the expertise and skill required to carry out socially responsible activities so all their purpose is to generate profits for themselves and their stakeholders without deception or fraud. Criticism might include that there a great deal of indirect stakeholders that business don’t take into account and also the environment that they harm and which is a public good and doesn’t belong to anybody. However, this is where the purpose of NGOs comes in as the promoters of libertinism would agree. This exonerates the Texaco company from the harm it caused the environment in Ecuador. The Ecuador is a 13 million hectare area which is home to many species plants and animals as well as many cultures. However, Texaco dumped a great deal of untreated waste on this land, as well oil spills and groundwater without being accountable. Let alone accountable, many of the oil spills have not even been recorded. Texaco’s defense is that the government was well aware of all their activities and they complied with the law. Also that they took action to resolve the problem however there are usually many more external costs such as millions of species which would have been harmed or wiped out to extinction due to these harmful pollutants at the Ecuador. These are usually not taken into account in the view of libertarians. Many cows were found with stomach rotten, many deformities which would be found in people and their generations to come wouldn’t be taken into account in Texaco’s ‘remedial action.’ Maybe this sort of system would work in democracies where NGOs exist and every person has a say but not in politically unstable areas like Ecuador, which cannot defend themselves and are subject to such atrocities for which they are not even compensated. (Arnold) There are other views which believe that MNCs may have a responsibility to promote just and social institutions however, this depends on the circumstances and so that they are not perceived as interfering into the affairs of society and in some cases it is not perceived to be their responsibility if they have done nothing to cause the danger that society is in. Rawls has defined two kind of societies; well-ordered societies and those that are not. Well-ordered societies follow the Law of People. This means that they are democratic societies that take into account the interests of people and their rights. And those that aren’t do not take into account the Law of People. Thus Onora O’Neill has put into perspective two kinds of principles; those that are the primary agents of justice and those that are the secondary agents of justice. Primary agents usually set the domains and rules for justice and secondary justice merely follow the rules set by them and support them. When a state itself is stable and thus in an ideal condition, then the primary agents are the government because the state itself can bring about justice, and thus MNCs take a secondary place in this scenario. But in the case where societies are weak and cannot promote justice on their own, the line between those which are primary agents and secondary agents becomes blurry and in this case MNCs is one of the agents that needs to take a primary role in distributing and practicing justice. O Neill also argues that many MNCs get away with profit maximization tactics that violate the rights of human beings, let alone assist them. The dumping of harmful chemical by Texaco in Ecuador infringed the rights of people to life, liberty and property. MNCs don’t owe people positive rights of assistance however they do owe those negative rights. The environmental outcomes far outweighed the costs that Texaco had to suffer by offering compensation. Two ways that MNCs can support justice and contribute to society is by having well versed internal policies and practices such as not dealing with the government in corrupt host countries and secondly to indulge in normal business activities that if not help, then do not harm anyone either. There are many other ways that MNCs can promote just institutions by helping their own organization as well, which show that it may not be their primary responsibility, but in many cases it does become their primary duty and the lines and duties aren’t definite. (Hsieh) Works Cited Arnold, Denis G. Libertarian Theories of the corporation and Global Capitalism. 2003, Journal of Business Ethics. Falkenherg, Andreas Wyller. "When in Rome ... Moral Maturity." Journal of Business Ethics (2004). Hsieh, Nien-he. "Does Global Business Have a Responsibility." Business Ethics Quarterly (2009). Read More