Legal And Ethical Issues In Comporate Social Responsibilty Commerce Essay

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In todays competitive world, Corporate Social Responsibility is one of the critical success factors for any business enterprise wishing to maintain- or better still - expands its market share with a good reputation of being a "socially responsible entrepreneurship" while ensuring maximum profitability and enhancing corporate growth. The socially responsible chief executive is the one who turns a profit without lying, cheating, robbing or defrauding anyone. "Responsible entrepreneurship", as described by the European Commission Directorate-General for Enterprise (2006), refers as to ensuring the economic success of a

business by the inclusion of social and environmental considerations into a company's operations.

While, CSR is not a certifiable management system standard as yet but it is a form of corporate self-regulation policy that integrated into a business model.

In recent years, there has been an increasing interest in CSR as it is an ongoing commitment by business to behave ethically and to contribute to economic development when demonstrating respect for people, communities, society at large, and the environment as explained by Schultz that: "an exceptional customer experience while conducting our business in ways that produce social, environmental and economic benefits for the communities in which we do business.''

Until recently, researchers have shown an increased interest in CSR and the need for organizations in both public and private sectors to behave in a socially responsible way which is becoming a generalized requirement of the society.

And it is apparent that the International Organization for Standardization

(ISO) has decided to launch the development of an International Standard providing guidelines for social responsibility (SR) named ISO 26000 which will be published in September 2010 (ISO 2009d, e). Since January 2005, a Working Group has been established within ISO, to develop an International Standard providing guidelines for social responsibility (SR).

The objective is to produce a guidance document, written in plain language that is understandable and usable by non-specialists, and not a specification document intended for third party certification (ISO 2009d). Indeed, there will be no third-party certification for ISO 26000 but most countries and stakeholders agree that it will be a critical factor in transactions and contracts between companies and nations (Lee, 2008).

This "ISO 26000 - Guidance on Social Responsibility" is intended for use by all types of organizations towards addressing social responsibilities. The need for organizations in both public and private sectors to behave in a socially responsible manner is becoming a generalized requirement of our society.


A- What is international business?

1) IB field is concerned with the issues facing international companies and governments in dealing with all types of cross-border transactions.

2) IB involves all business transactions that involve two or more countries.

3) IB consists of transactions that are devised and carried out across borders to satisfy the objectives of individuals and organizations.

4) IB consists of those activities private and public enterprises that involve the movement across national boundaries of goods and services, resources, knowledge or skills.

B-International business ethics responsibility

Importance of ethics in the business world is superlative and global. New trends and issues arise on a daily basis which may create an important burden to organizations and end consumers.

Nowadays, the need for proper ethical behavior within organizations has become crucial to avoid possible lawsuits. The public scandals of corporate malfeasance and misleading.

C-Multinational Enterprises: (MNE) A corporation that has production operations in more than one country for various reasons, including securing supplies of raw materials, utilizing cheap labor sources, servicing local markets taking advantage of tax differences, and bypassing protectionist barriers.

D-Corporate Social Responsibility: is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large

E-Guidelines for multinational enterprises: The Guidelines are recommendations addressed by governments to multinational enterprises operating in or from adhering countries. They provide voluntary principles and standards for responsible business conduct in areas such as employment and industrial relations, human rights, environment, information disclosure, combating.

03-International codes

A-Why an International Code of Business Ethics Would Be Good for Business:

Many international business training programs present a viewpoint of cultural relativism that encourages business people to adapt to the host country's culture. An argument that cultural relativism is not always appropriate for business ethics; rather, a code of conduct must be adapted which presents guidelines for core ethical business conduct across cultures. Both moral and economic evidence is provided to support the argument for a universal code of ethics. Also, will help and ensure that company ethical standards are followed internationally.

*Implementing an international ethical code

For those firms struggling with international markets, cultures, and competition, certain basic steps should be taken to ensure that company standards are followed internationally:

01- Train managers on the relationship between capitalism and excessive payments for services.

02-Develop a code of universal values.

03-Conduct cultural, political, economic, and financial evaluations prior to commencing operations in any country.

04-Use internal auditors extensively in foreign operations and allow foreign operations as a priority item in the internal audit schedule.

*Definition and types of codes

International responsibility codes encompass guidelines, recommendations or rules issued by entities within society (adopting

body or actor) with the intent to affect the behavior of (international) business entities (target) within society in order to enhance corporate responsibility. In this definition, the adopting body can be any societal actor, whereas companies are always the target. It should be noted that companies might design codes for other purposes than for the sake of their own ethical behavior and corporate responsibility. It is highly conceivable that codes adopted by companies are in essence meant to influence other societal actors: regulators, customers, communities, suppliers and contractors, competitors or shareholders. The possibility that codes may serve other purposes than social responsibility as such is relevant when analyzing their properties and substance.

Hence, two types of codes exist. On the one hand, societal, non-profit actors may use codes of conduct to guide and/or restrict companies' behavior, thus trying to improve corporate social responsibility. Adopting bodies are either governments or international organizations (at the macro level) or social interest groups such as consumer, environmental and minority organizations, trade unions and churches, at the meso level. On the other hand, codes can be drawn up by companies (micro level) or business support groups (meso level) such as industry and trade associations, chambers of commerce, think tanks and business leader's forums. In these cases, codes serve to influence other actors and/or to carry out voluntary or anticipatory self regulation. With regard to the effect on other actors, one might think of new market opportunities, risk reduction, increased control over business partners or improvement of the corporate image. Except for control over business partners, whereby codes can potentially become strategic instruments, the other aspects are

related to public relations. This could be seen with suspicion, as mere

rhetoric (e.g. environmentalists who accuse TNCs of "green washing"), but also in a more straightforward, almost existential way, in that companies need a societal license to operate.

Codes can also play a role in the relationship between the public and private sectors. Companies generally resist excessive government laws and regulations that are seen to restrict their freedom of action. The chances of successfully preventing such a command and control approach increase if companies can convincingly show that they can regulate themselves. Self regulation encompasses voluntary standards adopted by companies or their business support groups in the absence of

regulatory requirements, or those that are taken to help compliance or exceed pre-existing regulations (Hemphill, 1992). Thus, codes of conduct are drawn up to anticipate or prevent mandatory regulation.

Waves of codes since the 1970s

The first attempts to regulate TNCs' behavior originate:

in the 1970s, when international organizations such as the International Labor Organization (ILO, in 1977), the United Nations Commission on Transnational Corporations (UNCTC, in 1978) and the Organization for Economic Co-operation and Development (OECD, in 1976) almost simultaneously tried to design codes of conduct. Governments of both developed and developing countries that faced major inroads of TNCs in their economies showed interest in the debate. Critical social interest groups also pushed the discussion further. But the lack of international consensus about the function, wording and potential sanctions against non-compliant companies in particular, moderated the original intention

to make the codes mandatory. Instead voluntary codes were agreed, which had only limited effects. The ILO code, for example, was adopted voluntarily by one company, but after trade unions used this code in an industrial dispute with the company's managers, no other company dared to do the same.

In the 1980s, codes of conduct received rather scant attention. The 1970s' draft codes of the ILO (the Tripartite Declaration of Principles concerning Multinational Enterprises) and the OECD (the Guidelines for Multinational Enterprises) performed an exemplary function (Getz, 1990). The boldest initiative to develop a code that stimulated TNCs to maximize their contribution to economic development was the United Nation's draft code. It never was finalized and adopted, however, and was finally abandoned altogether in 1992, due to differences of interest between developed and developing countries (vanEyk, 1995; WEDO, 1995). In the 1980s, the discussion on corporate codes of conduct was largely confined to business ethics, and was carried on primarily in the United States. A growing number of university centers and specialized journals focused on the study of business ethics. United States companies had traditionally been interested in business ethics for a number of national reasons, particularly related to practices of litigation. The international dimension of the debate, however, remained limited, and attention to business ethics in other than United States companies was rather modest (Langlois and Schlegelmilch, 1990).

In the 1990s, the efforts to formulate (global) standards for corporate conduct re-emerged. Besides international organizations, governments and NGOs, companies and their business associations (business support groups) started to draw up codes in which they voluntarily committed

themselves to a particular set of norms and values TNCs, in particular, felt pressured by increasing societal concerns about the negative implications of international production and investment. Leading NGOs, trade unions and churches came up with concrete suggestions for company codes. The challenge for codification was first met by business associations such as the International Chamber of Commerce (ICC) or the Japanese employers' association Keidanren. A growing number of individual companies, such as Nike, Levi Strauss and Shell, also responded by introducing responsibility codes. For Shell, it meant an update of its company code that had already been introduced in the 1970s. For most other companies, the code was their first statement on their (perceived) social responsibility and approach.

As a result of these tendencies, at the end of the twentieth century, a plethora of codes and statements of corporate responsibility existed, as shown by different inventories (CEP, 1998; Cragg, 2003; ILO, 1998; Kolk, van Tulder and Welters, 1999; Leipziger, 2003; Nash and Ehrenfeld, 1997; OECD, 1999; UNCTAD, 1996; UNEP, 1998). Particularly the number of private company codes exploded in the past decade of the twentieth century. Measured by sheer numbers, companies have now taken the lead in the voluntary introduction and implementation of codes of conduct. The corporate governance and accounting scandals in the past few years have been a further incentive for the adoption of codes. Although primarily oriented at more internal ethical codes, increased attention to norms and values certainly has an effect in strengthening the code wave as a whole.


Some companies may have viewed the adoption of higher standards as necessary but an expense without any rewards. However, companies that have adopted codes of conduct have reaped several benefits, such as compliance with local and international law, promotion of rule of law, protection of brand image, avoidance of trade sanctions, management of suppliers, increased worker productivity, alleviate shareholder and consumer concerns, maintain community goodwill

*Codes of conduct and labor right:

Codes of conduct have privatized the implementation of national labor legislation and international labor standards. Their proliferation is a reflection of the failure of the governments to implement effective labor legislation and of the ILO to enforce internationally agreed basic minimum labor standards despite pressure from unions and NGOs that codes of conduct contain, at the minimum, the core ILO standards, most codes are often less than what is demanded by national law and international labor standards but typically will include references to the non-use of forced labor and child labor and the implementation of reasonable health and safety standards. Some include a reference to the payment of minimum wage levels, but to date, very few have included a commitment to recognizing the right of workers to organize and to bargain collectively. Until recently, no company code had made commitments to the payment of a living wage

04- Guidelines for multinational operations

A-What is ISO 26000?

ISO 26000 is an ISO International Standard giving guidance on SR. It is intended for use by organizations of all types, in both public and private sectors, in developed and developing countries, as well as in economies in transition. It will assist them in their efforts to operate in the socially responsible manner that society increasingly demands.

B-Why is ISO 26000 Important?

Sustainable business for organizations means not only providing products and services that satisfy the customer, and doing so without jeopardizing the environment, but also operating in a socially responsible manner.

Pressure to do so comes from customers, consumers, governments, associations and the public at large. At the same time, far-sighted organizational leaders recognize that lasting success must be built on credible business practices and the prevention of such activities as fraudulent accounting and labor exploitation.

*Principles of Social Responsibility

(a) Accountability; (b) Transparency; (c) Ethical behavior; (d) Respect for stakeholder; (e) Respect for the rule of law; (f) Respect for international norms of behavior; and (g) Respect for human rights.

*The twenty-two (22) identified Social Responsibility initiatives and tools are as follows:

(1) Accountability 1000 Assurance Standard

(2) Bursa Malaysia CSR Framework

(3) Coalition of Environmentally Responsible Economies (Ceres) Principles

(4) Equator Principles

(5) Extractive Industries Transparency Initiative

(6) Greenhouse Gas Protocol (GHG Protocol)

(7) International Labor Organization Declaration on Fundamental Principles and Rights at Work (ILO Declaration)

(8) ISO 14001 - Environmental Management System

(9) ISO 26000 - Social Responsibility

(10) OHSAS 18001 - Occupational Health and Safety

(11) Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises (OECD Guidelines)

(11) Social Accountability 8000 (SA8000)

(12) United Nations Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights (UN Norms)

C-Ethical Issues in International Business


Work conditions: hot weather - around toxic chemicals - # of hours and pay salaries in developing countries.


Freedom is not universally accepted. South Africa white rule until 1994 - investment in China - Nigeria and Shell


The emission of pollutants, the dumping of toxic chemicals. Amoral management might move production to a developing nation precisely

because costly pollution controls are not required.


Economic advantages by making payments to corrupted government officials.

$12.5 million payment to Japanese agents and government officials


BP One of oil companies has made "social investments" in Algeria, the desert town of Ain Salah. It built two desalination plants to provide drinking water for the local

*Ethical Dilemmas: In a poor nation, a 12-years old girl works in a factory.

D-OECD Guidelines for Multinational Enterprises:

Multinational enterprises now play an important part in the economies of Member countries and in international economic relations, which is of increasing interest to governments. Through international direct investment, such enterprises can bring substantial benefits to home and host countries by contributing to the efficient utilization of capital, technology and human resources between countries and can thus fulfill an important role in the promotion of economic and social welfare. But the advances made by multinational enterprises in organizing their operations beyond the national framework may lead to abuse of concentrations of economic power and to conflicts with national policy objectives. In addition, the complexity of these multinational enterprises and the

difficulty of clearly perceiving their diverse structures, operations and

policies sometimes give rise to concern.

The common aim of the Member countries is to encourage the positive contributions which multinational enterprises can make to economic and social progress and to minimize and resolve the difficulties to which their various operations may give rise. In view of the transnational structure of such enterprises, this aim will be furthered by co-operation among the OECD countries where the headquarters of most of the multinational enterprises are established and which are the location of a substantial part of their operations. The Guidelines set out hereafter are designed to assist in the achievement of this common aim and to contribute to improving the foreign investment climate. Since the operations of multinational enterprises extend throughout the world, including countries that are not Members of the Organization, international co-operation in this field should extend to all States. Member countries will give their full support to efforts undertaken in co-operation with non-member countries, and in particular with developing countries, with a view to improving the Welfare and living standards of all people both by encouraging the positive contributions which multinational enterprises can make and by minimizing and resolving the problems which may arise in connection with their activities. Within the Organization, the program of co-operation to attain these ends will be a Continuing, pragmatic and balanced one. It comes within the general aims of the Convention on the Organization for Economic Co-operation and Development (OECD) and

makes full use of the various specialized bodies of the Organization, whose terms of reference already cover many aspects of the role of multinational enterprises, notably in matters of international trade and payments, competition, taxation, manpower, industrial development, science and technology. In these bodies, work is being carried out on the identification of issues, the improvement of relevant qualitative and statistical information and the elaboration of proposals for action designed to strengthen inter-governmental cooperation.

In some of these areas procedures already exist through which issues related to the operations of multinational enterprises can be taken up. This work could result in the conclusion of further and complementary agreements and arrangements between governments.


All 30 OECD members: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, South Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

Plus 12 non-member countries: Argentina, Brazil, Chile, Egypt, Estonia, Israel, Latvia, Lithuania, Morocco, Peru, Romania and Slovenia.


The Guidelines provide standards in the following areas:


Employment and industrial relations


Combating bribery

Consumer interests

Science and Competition


They also encourage enterprises to respect the human rights of those affected by their activities.


- Current version of Guidelines adopted in June 2000 by OECD Council meeting at Ministerial level.

- Proposed update - announced June 2009

- UK published own consultation document - Oct 2009

- UK NCP stakeholder event - Nov 2009

- OECD consulted stakeholders - Dec 2009

- OECD proposed launch of the update - June 2010


- Investment Committee / Working Party of the Investment Committee.

- Liaison with stakeholders - Business and Industry Advisory

Committees (BIAC), Trade Unions Advisory Committee (TUAC), & OECD Watch

- Annual meeting of National Contact Points in June.

- Other OECD Tools -Risk Awareness Tool

The nature of the OECD Guidelines:

Guidelines for enterprises, as an instrument to monitor corporate conduct, are growing in importance. There is a broad consensus that the OECD Guidelines should be voluntary or better non-legally binding. They do represent Member countries' firm expectations for MNE behavior. As such, they are morally binding, as they translate the "mores" of the international community. The same can be said of the Tripartite Declaration of the ILO (1977), of the ILO Declaration on Fundamental Principles and Rights at Work (1998) and the NAFTA Labor Side Agreement.

There is an equally broad consensus that the OECD Guidelines should be stable and consistent. This is especially the case for the Employment and Industrial Relations chapter, which continues to be a positive and progressive statement of good practice of industrial relations in OECD countries. Little would be gained from a wholesale redrafting of the text. At the same time, the Guidelines need to credible. In order to realize this aim, they may have to evolve over time, in line with relevant developments in employment practices, as well as new regulatory instruments. This implies that some amendments to the text of the Guidelines may be necessary. Improvements may also be called for as

concerns the Guidelines' promotion and implementation which are generally considered to be as important as their contents.

*Scope of application of the OECD Guidelines:

The Guidelines are recommendation addressed to enterprises operating in OECD countries. However, paragraph 3 of the introduction stipulates that, "since the operations of MNEs extend throughout the world, including countries that are not members of the Organization, international co-operation in this field should extend to all States». Thus, MNEs are encouraged to extend good corporate practice throughout the universe of their operations, and all host governments are invited to co-operate pragmatically if any problems arise.

The review process should consider whether it would be appropriate to extend the applicability of the Guidelines to activities of MNEs beyond OECD territory. The introduction to the Guidelines, as quoted above, seems to be pointing in that direction. Arguably, the Guidelines do represent universally accepted principles and fundamental rights. Indeed, it might be difficult for MNEs to distinguish in their overall corporate conduct between the countries in which subsidiaries or intermediary levels operate. Moreover, the OECD survey of corporate codes of conduct finds that when 28 companies set standards for the direct employees; these usually apply to the global operations of the company. Problems of extraterritoriality do, in principle, not arise, since these are voluntary guidelines addressed to MNEs, not to Governments. Indeed, under the Guidelines, the recommendations are also addressed to parent companies situated outside OECD territory. There is, however, a problem

of implementation, since there are no contacts points in non-OECD countries.

*2 Cases

* Case 1: China, with a vast skilled and low-cost labor force, has transformed itself into a hotbed of automobile manufacturing for both multinational and domestic companies. Chery, a state-owned car-maker, is one of the fastest growing domestic automobile manufacturers. Like a few of its domestic competitors, Chery also plans to export its cars to the developed markets, especially in the US. However, the traditional notion of American customers that 'Made in China' goods are of inferior quality, might affect Chery's prospects in the US.

* To discuss how the 'country as a brand' affects the sales of its products in foreign markets

* Chery's international expansion strategies and how it is making efforts to cope with the regulatory and technological challenges to establish its brand in the US market.

*Case 2: In 2008, Sanlu, a Chinese dairy farm was accused of producing melamine contaminated milk. After drinking this milk formulation, nearly 53,000 infants across the country were affected with 13,000 infants immediately hospitalized. Negligence of the company, lack of proper food safety measures and cut-throat competition within the industry were some of the factors which led to such a scandal. The company was badly affected as a result. Sanlu was driven into a huge financial crisis and ultimately became bankrupt. To save the company, the Chinese

government invited other companies to acquire Sanlu. Finally, Sanyuan

Food Co agreed to acquire it. The Chinese government launched a thorough in-depth investigation to find out the actual cause behind the scandal. Stringent quality check measures were adopted by the government. Investigators were instructed to check each and every batch of milk produced in the dairy farms. These measures finally helped the government to ensure that contamination free milk was produced after 14 September 2008. Although the Chinese government was able to stop the further spread of the contamination, the future of Sanlu remained doubtful. Critics were skeptical about Sanlu's ability to regain its lost status and goodwill in the industry.

-Analyze the factors that led to the milk contamination at Sanlu

-estimate the measures taken by Sanlu to bring things under control.

-and understand the measures adopted by the Chinese government to prevent further occurrence of such a milk scandal.


Corporate social responsibility is the process by which businesses negotiate their role in society a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis European Commission Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large World Business Council for Sustainable Development Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business for Social Responsibility

CSR Making the Business Stronger & Reputable Stronger financial performance and profitability operational efficiency gains Improved relations with investment community better access to capital Enhanced employee relations better recruitment, motivation, retention, learning and innovation, and productivity Stronger relationships with communities