📠Multinational Management Unit 15 – Legal and Ethical Issues in Global Business

Key Legal Concepts in Global Business

• Jurisdiction refers to the authority of a court to hear and decide a case based on geographic location, subject matter, or parties involved
  • Determines which country's laws apply and where disputes can be resolved
  • Includes personal jurisdiction over individuals and businesses, subject matter jurisdiction over types of cases, and territorial jurisdiction within geographic boundaries
• Choice of law provisions in contracts specify which country's laws will govern the agreement and any disputes that arise
  • Allows parties to select a neutral jurisdiction or one with favorable laws
  • Without a choice of law clause, courts apply complex rules to determine applicable law (conflict of laws)
• Enforcement of foreign judgments enables a court decision from one country to be recognized and enforced in another
  • Requires reciprocity or treaties between countries to honor each other's judgments
  • Challenges arise when judgments conflict with public policy or due process standards in the enforcing country
• Extraterritorial application of laws extends a country's legal reach beyond its borders to regulate conduct or parties abroad
  • Common in areas like antitrust, securities regulation, and anti-corruption laws (Foreign Corrupt Practices Act)
  • Can create compliance challenges for multinational companies subject to multiple jurisdictions
• International treaties and conventions harmonize legal standards across countries and facilitate cross-border transactions
  • Examples include the United Nations Convention on Contracts for the International Sale of Goods (CISG) and bilateral investment treaties (BITs)
  • Provide default rules and protections for international business dealings
• Dispute resolution mechanisms offer alternatives to litigation for resolving cross-border conflicts
  • Arbitration allows parties to submit disputes to neutral decision-makers (arbitrators) for binding resolution
  • Mediation involves a neutral third party facilitating settlement negotiations between disputing parties
  • Choice of forum clauses in contracts designate exclusive jurisdiction for resolving disputes

Ethical Frameworks for International Operations

• Utilitarianism focuses on maximizing overall welfare and minimizing harm for all stakeholders affected by business decisions
  • Considers aggregate costs and benefits across different countries and cultures
  • Challenges arise in defining and measuring utility, as well as balancing competing interests
• Deontology emphasizes adherence to moral duties and rules, such as honesty, fairness, and respect for human rights
  • Applies universal principles consistently across global operations
  • Tensions can emerge between deontological commitments and local norms or laws
• Virtue ethics stresses moral character development and decision-making based on virtues like integrity, courage, and compassion
  • Encourages cultivating a global mindset and cross-cultural understanding
  • Requires adapting virtues to diverse cultural contexts and stakeholder expectations
• Ethical relativism holds that moral standards are culturally determined and vary across societies
  • Respects local customs and values in business practices and decision-making
  • Risks condoning unethical behavior justified by cultural differences
• Rights-based approaches prioritize protecting and promoting fundamental human rights in all business activities
  • Includes labor rights, privacy rights, and rights to health and safety
  • Challenges companies to uphold rights standards even in countries with weak legal protections
• Stakeholder theory considers the interests and well-being of all parties impacted by business operations
  • Encompasses shareholders, employees, customers, suppliers, communities, and the environment
  • Requires balancing and integrating diverse stakeholder needs across global contexts
• Global codes of conduct provide ethical guidelines and standards for responsible business practices worldwide
  • Examples include the United Nations Global Compact and the OECD Guidelines for Multinational Enterprises
  • Promote consistency and accountability in global business ethics, but lack enforcement mechanisms

Cultural Influences on Business Ethics

• Power distance refers to the extent to which people accept unequal power distribution in a society
  • High power distance cultures (Malaysia) tend to have hierarchical organizations and deference to authority
  • Low power distance cultures (Denmark) value equality and participative decision-making
• Individualism versus collectivism describes the degree to which people prioritize individual goals over group interests
  • Individualistic cultures (United States) emphasize personal autonomy, achievement, and responsibility
  • Collectivistic cultures (Japan) stress group harmony, loyalty, and consensus-building
• Uncertainty avoidance reflects a society's tolerance for ambiguity and comfort with unstructured situations
  • High uncertainty avoidance cultures (Greece) prefer clear rules, procedures, and stability
  • Low uncertainty avoidance cultures (Singapore) are more adaptable and open to change
• Masculinity versus femininity captures the extent to which a culture values assertiveness, competition, and material success versus cooperation, modesty, and quality of life
  • Masculine cultures (Italy) prioritize achievement, heroism, and rewards for success
  • Feminine cultures (Sweden) focus on relationships, compromise, and work-life balance
• Long-term versus short-term orientation relates to a society's time horizon and emphasis on tradition versus pragmatism
  • Long-term oriented cultures (China) value perseverance, thrift, and adapting traditions to changing circumstances
  • Short-term oriented cultures (Nigeria) respect time-honored customs and prioritize quick results
• Indulgence versus restraint measures the degree to which a culture allows relatively free gratification of desires versus strict social norms
  • Indulgent cultures (Mexico) encourage enjoying life, leisure, and individual happiness
  • Restrained cultures (Egypt) regulate gratification through strict social norms
• Ethical decision-making in global business requires understanding and adapting to cultural differences while upholding core ethical principles
  • Involves developing cultural intelligence, engaging in cross-cultural dialogue, and finding common ground
  • Requires balancing respect for local norms with commitment to universal values and standards

Navigating International Trade Laws

• Tariffs are taxes imposed on imported goods to protect domestic industries or raise revenue
  • Can be ad valorem (percentage of value) or specific (fixed amount per unit)
  • May violate WTO rules if discriminatory or exceed bound rates
• Non-tariff barriers (NTBs) are restrictions other than tariffs that limit or distort trade flows
  • Examples include quotas, licenses, subsidies, and technical regulations
  • Can be challenged under WTO agreements if unjustified or disproportionate
• Rules of origin determine the national source of a product based on where it was wholly obtained or substantially transformed
  • Used to assess duties, apply trade preferences, and enforce trade regulations
  • Preferential rules of origin grant favorable treatment to goods from certain countries (free trade agreements)
• Anti-dumping duties are additional tariffs imposed on imports sold at less than fair value to prevent predatory pricing
  • Requires investigation and determination of dumping margin by importing country authorities
  • Can be challenged at WTO if inconsistent with Anti-Dumping Agreement standards
• Countervailing duties are extra tariffs levied on imports that benefit from certain subsidies in the exporting country
  • Aims to offset the unfair advantage and injury to domestic industry caused by subsidies
  • Subject to WTO rules on specificity, adverse effects, and notification requirements
• Sanitary and phytosanitary (SPS) measures are regulations to protect human, animal, or plant life and health from risks in trade
  • Includes food safety standards, quarantine procedures, and pest control requirements
  • Must be based on scientific principles and not discriminate between WTO members
• Technical barriers to trade (TBT) refer to technical regulations, standards, and conformity assessment procedures that may restrict trade
  • Covers labeling requirements, quality standards, and certification procedures
  • Should not create unnecessary obstacles to trade or discriminate against foreign suppliers

Corporate Social Responsibility Across Borders

• Environmental sustainability involves minimizing the negative impact of business operations on the natural environment
  • Includes reducing carbon emissions, conserving resources, and protecting biodiversity
  • Requires compliance with local environmental laws and international standards (ISO 14001)
• Labor rights and working conditions encompass fair wages, safe workplaces, and freedom from discrimination and exploitation
  • Involves respecting core labor standards of the International Labour Organization (ILO)
  • Challenges companies to ensure decent work practices throughout global supply chains
• Human rights due diligence is the process of identifying, preventing, and mitigating adverse human rights impacts of business activities
  • Guided by the UN Guiding Principles on Business and Human Rights
  • Requires assessing risks, engaging stakeholders, and providing remedies for violations
• Community engagement and development entails contributing to the social and economic well-being of local communities affected by business operations
  • Includes supporting education, healthcare, and infrastructure projects
  • Involves partnering with local organizations and empowering community members
• Ethical sourcing and supply chain management involves ensuring that suppliers and business partners adhere to social and environmental standards
  • Includes conducting audits, providing training, and terminating unethical suppliers
  • Aims to prevent human rights abuses, environmental damage, and corruption in the value chain
• Transparency and accountability require disclosing information about CSR performance and engaging with stakeholders
  • Involves publishing sustainability reports, responding to concerns, and seeking feedback
  • Enables monitoring and improvement of CSR practices across global operations
• Cultural sensitivity and local adaptation are essential for effective CSR in diverse global contexts
  • Requires understanding local needs, norms, and expectations
  • Involves tailoring CSR strategies and communications to specific cultural contexts

Intellectual Property Rights in Different Countries

• Patents grant exclusive rights to inventors for novel, useful, and non-obvious inventions for a limited period
  • Protects products, processes, and improvements from unauthorized making, using, or selling
  • Requires filing and examination in each country or region (PCT, EPO) for protection
• Copyrights protect original works of authorship, such as literary, artistic, and musical creations, from unauthorized reproduction and distribution
  • Arises automatically upon creation and fixation of the work
  • Provides economic and moral rights, with duration varying by country (life plus 50-70 years)
• Trademarks are distinctive signs, such as words, logos, or designs, that identify the source of goods or services and distinguish them from competitors
  • Acquired through use in commerce or registration with national trademark offices
  • Protects against confusing similarity and dilution of brand reputation
• Trade secrets are confidential business information that provides a competitive advantage and is subject to reasonable efforts to maintain secrecy
  • Includes formulas, methods, customer lists, and business strategies
  • Protected against misappropriation and unauthorized disclosure, but not independent discovery
• Geographical indications (GIs) are signs used on products that have a specific geographical origin and qualities or reputation due to that origin
  • Examples include Champagne, Parma ham, and Darjeeling tea
  • Protected through sui generis systems, collective or certification marks, or unfair competition laws
• Enforcement of IPRs varies across countries, with differences in legal systems, administrative procedures, and border measures
  • Challenges include counterfeiting, piracy, and trade secret theft
  • Requires monitoring markets, sending cease-and-desist letters, and pursuing legal action
• International treaties and agreements harmonize IPR standards and facilitate cross-border protection
  • Examples include the TRIPS Agreement, Paris Convention, and Berne Convention
  • Provide minimum standards and national treatment for IPRs in WTO member states

Dealing with Corruption and Bribery

• Bribery is the offering, promising, giving, accepting, or soliciting of an undue advantage to influence the actions of a public official or private party
  • Includes cash payments, gifts, hospitality, and political contributions
  • Distorts competition, undermines trust, and impedes economic development
• Facilitation payments are small bribes paid to low-level officials to expedite routine government actions, such as processing permits or releasing goods from customs
  • Prohibited under UK Bribery Act but allowed under limited circumstances in US FCPA
  • Create a culture of corruption and should be avoided or properly recorded
• Corruption perceptions index (CPI) measures the perceived levels of public sector corruption in countries worldwide
  • Published annually by Transparency International based on expert assessments and surveys
  • Higher scores indicate lower levels of perceived corruption (Denmark, New Zealand)
• Anti-corruption laws prohibit bribery and mandate accounting and internal controls to prevent and detect improper payments
  • Examples include the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act
  • Extraterritorial reach and severe penalties make compliance critical for multinational companies
• Due diligence on third parties, such as agents, distributors, and joint venture partners, is essential to mitigate corruption risks
  • Involves screening, monitoring, and auditing third parties for red flags
  • Requires anti-corruption clauses, training, and termination rights in contracts
• Internal controls and compliance programs help prevent, detect, and respond to corruption in global operations
  • Includes clear policies, risk assessments, training, reporting channels, and investigations
  • Requires tone from the top, adequate resources, and continuous improvement
• Collective action initiatives bring together businesses, governments, and civil society to combat corruption and promote transparency
  • Examples include integrity pacts, anti-corruption declarations, and multi-stakeholder dialogues
  • Aim to level the playing field, share best practices, and drive systemic change

Resolving Cross-Border Disputes

• Litigation involves resolving disputes through court proceedings in a particular jurisdiction
  • Requires establishing jurisdiction, applying choice of law, and enforcing judgments across borders
  • Challenges include high costs, long delays, publicity, and uncertainty of outcome
• Arbitration is a private dispute resolution process where parties submit their dispute to one or more neutral arbitrators for a binding decision
  • Conducted under institutional rules (ICC, LCIA, SIAC) or ad hoc procedures
  • Offers confidentiality, flexibility, and global enforceability under the New York Convention
• Mediation is a consensual process where a neutral third party assists disputants in reaching a mutually acceptable settlement
  • Facilitates communication, explores interests, and generates options for resolution
  • Preserves business relationships and allows for creative solutions, but requires willingness to compromise
• Choice of forum clauses in contracts specify the exclusive jurisdiction for resolving disputes between the parties
  • Can select courts or arbitral tribunals in a neutral location with favorable laws and procedures
  • Should consider factors such as expertise, efficiency, costs, and enforceability
• Choice of law clauses designate the substantive law that will govern the contract and any disputes arising from it
  • Can select laws that are well-developed, predictable, and favorable to the transaction
  • Should ensure consistency with mandatory rules and public policy of connected jurisdictions
• Enforcement of arbitral awards is facilitated by the New York Convention, which requires courts in contracting states to recognize and enforce foreign awards
  • Grounds for refusal are limited to procedural defects, invalidity of agreement, or violation of public policy
  • Offers greater certainty and speed compared to enforcing foreign court judgments
• Alternative dispute resolution (ADR) methods, such as expert determination, dispute boards, and mini-trials, provide flexible and cost-effective options for resolving cross-border disputes
  • Can be tailored to the specific needs and circumstances of the parties and the dispute
  • May be used in conjunction with or as a precursor to arbitration or litigation