Question

Consider the role of legal precedents such as the Foreign Corrupt Practices Act (FCPA) in limiting unethical and illegal business practices.

Consider also other ethical matters about which a company might develop policies and practices.

Consider global legislative or regulative input on ethical matters about which a company might develop policies and practices (e.g., SOX, King IV, etc.).

How are practices and policies related to corporate social responsibility and positive social change a reflection of a business’s ethics?

What are the potential benefits and risks of having CSR and/or positive social change as part of a business strategy?

Answer 1

The legislation FCPA plays important in controlling the unethical and illegal activities. Foreign Corrupt Practices Act is a piece of American legislation aimed at outlawing bribery of foreign officials. The Act applies to those with formal ties to the US, such as US nationals or businesses incorporated in the US, as well as foreign nationals and entities who are in the US at the time of the improper conduct.

The FCPA does not prohibit facilitation payments made to foreign officials for the purpose of causing them to perform routine governmental actions, such as issuing licenses or performing shipping inspections. The FCPA also does not prohibit reasonable, bona fide expenditures associated with a product or contract, or payments expressly permitted under the written laws of the foreign country.

The FCPA only criminalises the act of giving or offering a bribe.

Under the FCPA, a company can be held vicariously liable for the actions of its employees and agents, whereas UK legislation extends to all ‘associated persons’.

The FCPA requires a proof of corrupt intent to bribe a foreign official.

Facilitation payments

Under the FCPA, there is an exception for facilitation payments to foreign officials.

Expenses.

A person or entity is guilty of violating the FCPA if the government can prove the following five points:

A payment, offer, authorisation, or promise to pay money or anything of value .To a foreign government official or to any other person knowing that the payment will be passed to an officialWith a corrupt motiveFor the purpose of (a) influencing any act or decision of that person, (b) inducing the person to do or omit any action in violation of their lawful duty, (c) securing an improper advantage, or (d) inducing the person to use their influence to affect an official act or decision. toIn order assist in obtaining or retaining business for or with, or directing any business to, any person.

The biggest enforcement actions under the FCPA

2009 – Former Louisiana Congressman William J. Jefferson charged with violating the FCPA by bribing various African government officials.

2010 – The DOJ investigated News Corp for corrupt payments to UK police officers following a joint investigation with the UK’s Serious Fraud Office (SFO) in relation to the phone-hacking scandal.

The other ethical matters on which company might develop policies and practices can be protection of employees from workplace harassment and also development of responsible strategies towards employees development and establishing good customer relations.

The other global legislations like Sox can also play important role in the development of policies and practices regarding ethical practices. According to the provisions of the Act business can also develop ethical strategies.It can develop strategies for protection of shareholders.

The CSR and social change policies are the reflection of companies strategies. A responsible company always try to render its services towards society. A business does not work in isolation it has some responsibility towards the society in which it operates. The company which renders its CSR shows that it is a responsible company.

Advantages and risks of Corporate Social Responsibility

The concept of "corporate social responsibility" has become pervasive enough that it has earned its own acronym in business circles: CSR. The term means that a corporation should be accountable to a community, as well as to shareholders, for its actions and operations. When a corporation adopts a CSR policy, it aims to demonstrate a goal of upholding ethical values, as well as respecting people, communities and the environment. The corporation undertakes to monitor its compliance with its stated CSR policy and report this with the same frequency that it reports its financial results.

Advantage:

Profitability

A CSR policy improves company profitability and value. The introduction of energy efficiencies and waste recycling cuts operational costs and benefits the environment. CSR also increases company accountability and its transparency with investment analysts and the media, shareholders and local communities. This in turn enhances its reputation among investors such as mutual funds that integrate CSR into their stock selection. The result is a virtuous circle where the company's stock value increases and its access to investment capital is eased.

Better Customer Relations

A majority of consumers – 77 percent according to a survey by branding company Landor Associates cited by the University of Pennsylvania's Wharton School – think that companies should be socially responsible. Consumers are drawn to those companies that have a reputation of being a good corporate citizen. Research at Tilburg University in the Netherlands showed that consumers are prepared to pay a 10 percent higher price for products they deem to be socially responsible.

Disadvantage:

Costs Money to Implement

The main disadvantage of CSR is that its costs fall disproportionally on small businesses. Major corporations can afford to allocate a budget to CSR reporting, but this is not always open to smaller businesses with between 10 and 200 employees. A small business can use social media to communicate its CSR policy to customers and the local community. But it takes time to monitor exchanges and could involve hiring extra personnel that the business may not be able to afford.

Conflicts with the Profit Motive

Even for larger companies, the cost of CSR can be an obstacle. Some critics believe that corporate social responsibility can be an exercise in futility. A company's management has a fiduciary duty to its shareholders, and CSR directly opposes this, since the responsibility of executives to shareholders is to maximize profits. A manager who forsakes profits in favor of some benefits to society may expect to lose his job and be replaced by someone for whom profits are a priority. This view led Nobel-Prize winning economist Milton Friedman to write a classic article with the title: "The Social Responsibility Of Business Is to Increase Its Profits."

Consumers are Wise to Greenwashing

Greenwashing is term used to describe corporate practices that appear to be environmentally responsible without actually representing a change in how a company conducts its business. For example, a product may be labelled as "All Natural", even though it is being manufactured just as it always has. Some dry cleaning services label their operations as "Organic" which sounds similar to "organic food" but really carries no specific meaning. Some customers may react positively to these types of claims, but others are wary of corporate greenwashing.