6-5c Copyrights

The final major category of intellectual property protection is copyright. A copyright is the exclusive legal right of authors, playwrights, publishers, artists, composers, performers, photographers, and other creators to publish and disseminate their work as they see fit. This textbook and other textbooks you’re using in your college classes are copyrighted, and these copyrights generally prevent people making copies of material from these books without the consent of the authors.

Copyright law in the United States generally gives the originator of a creative work the exclusive right to sell, exhibit, and publish it for her or his lifetime plus 70 years. The duration of copyright in many, if not most, other developed countries is similar. One hundred and sixty-two of the 190 countries throughout the world have signed a document called the Berne Convention that provides for international copyright protections.

It is fair to say, however, that despite the Berne Convention, copyright infringement is a major problem in the world today. The problem is particularly extreme with respect to computer software technology. Indeed, in a number of countries today, the majority of software installed on computers was “pirated” or illegally acquired.

Reality Che C k lO-5

Next time you go to the supermarket, look for some famous trademarked brands (think, “Green Giant”). Consider the confidence consumers have in various brands, and how this confidence would be affected if intellectual property protections did not exist.

copyright

the exclusive legal right of authors, playwrights, publishers, artists, and composers have to publish and disseminate their work as they see fit

Summary

The legal and political environments global businesses face play a major role in how they conduct business. On the political spectrum, countries with democratic systems of government pose different challenges and offer different advantages than do countries with totalitarian or semi-totalitarian systems.

Different economic ideologies, for example, communism, socialism, and capitalism, also impact how business is conducted in different locales around the world. Moreover, political risks, economic risks, and corruption are important factors to evaluate in conducting business in foreign locations. Some countries (e.g., Myanmar, Somalia, Iraq, and Afghanistan) may literally be dangerous places to conduct business operations, and corporations need to evaluate the relevant risks and rewards before opening plants and other facilities in these locations. The standards for what represents “corruption” also vary widely in different countries.

Rules of law, such as the ability to enter into a binding and enforceable contract, also represent a key global business consideration. Legal considerations include whether the country uses civil law or common law. Global businesses need to make sure they are aware of the legal structures in all places they operate, such as the relevant tax and antitrust laws.

Finally, in today’s knowledge economy, the role of intellectual property protection is becoming increasingly important, with intellectual property protection infringement and piracy clearly on the rise throughout the world. Thus, global businesses need to be very familiar with patent, trademark, and copyright regulations in the countries where they operate.

Key TermS

democracy, p. 144 Athenian democracy, p. 144 representative democracy, p. 144 totalitarian government, p. 144 communism, p. 146 socialism, p. 146 capitalism, p. 147 economic risks, p. 148 political risks, p. 149 micropolitical risk, p. 149 macropolitical risk, p. 149 terrorism, p. 150 terrorism Risk Insurance Act of 2002, p. 150 Overseas Private Investment Corporation (OPIC), p. 151 corruption, p. 151 private corruption, p. 151 public corruption, p. 152 Foreign Corrupt Practices Act, p. 153 civil law legal system, p. 153 common law legal system, p. 154 theocratic law legal system, p. 155 criminal law, p. 155 contract law, p. 155 tax law, p. 156 tax haven countries, p. 156 antitrust laws, p. 157 collusion, p. 157 monopoly, p. 157 product safety law, p. 157 caveat emptor, p. 158 caveat venditor, p. 158 dispute settlement law, p. 158 litigation, p. 158 arbitration, p. 159 intellectual property, p. 159 intellectual property protections, p. 159 patent, p. 160 trademark, p. 160 genericized trademark, p. 160 copyright, p. 162

M ini C ase : BECOMING A KING?

The country of Ghana in western Africa is a representative democracy. Nevertheless, many of its towns and regions continue to be allowed to have tribal chiefs, known as kings and queens, that actually have considerable power in those given locales. One such town is that of Otaum, Ghana, which is on the southern tip of the country about an hour from the capital of Ghana, Accra. In 2008 the 90-year-old King of Otaum died, and town elders performed a traditional ritual involving considerable prayer and liquor, by which they decided which of the deceased king’s 25 living relatives would become the new king.

They reached a decision, and at 4 a.m. in the morning, Eastern Standard Time in the United States, they called Peggielene Bartels, a 55-year-old single secretary living in Silver Spring, Maryland with the news. Bartels, a distant relative of the deceased king, had been chosen as the new King of Otaum! Bartels would have the power to resolve disputes in the town, appoint elders, and manage more than 1,000 acres of royal land.

Bartels initially thought the call was a joke, and then said, if anything, she should be named “Queen”! The response was “times are changing” and that women in Ghana can now be “kings.” Bartels pondered the situation for three months and then decided to accept the job offer but, at least initially, on her own terms. After flying to Ghana for her coronation ceremony, she returned back to the United States to her job as a secretary. For the next five or six years until she retires she plans to be a “commuting King,” using her vacation time to spend a number of weeks per year in Otaum fulfilling her royal duties. Once she retires from her secretary job, she then plans to move to Ghana and become king full time. When interviewed recently by a major U.S. newspaper, she stated “[n]ot everyone gets to become King . . . [p]erhaps it is my destiny.”

Questi O ns:

1) Why do you think the democracy of Ghana continues to permit local towns/regions to have tribal chiefs, kings, and the like? Do you think this tradition will continue on into the future? 2) Would you have made the same decision as King

Peggielene Bartels to accept the royal position?

Would you have waited five or six years until retiring as a secretary in the United States to move to Ghana and become king full time?

(Mini Case based on Paul Schwartzman, “Secretary by Day, Royalty by Night,” Washington Post, September 16, 2009, www.washingtonpost .com)

Should the United States Outlaw Offshore Relocations for Tax Purposes?

PoInT CounTeRPoInT

As noted in the chapter, a number of major corporations are reincorporating and moving their corporate headquarters to countries like Switzerland, for tax purposes. The question is: Should the U.S. Congress step in and pass a law strictly limiting the ability of U.S. corporations to reincorporate elsewhere if they want to continue significantly operating in the United States?

Point Moves of this kind by major U.S. corporations costs U.S. workers jobs and the U.S. government considerable amounts of taxes. Some of these transactions are structured as “sales of stock,” which also means that the companies’ shareholders are faced with unexpected taxes. If these companies want to continue to significantly operate in the United States, they need to remain headquartered and incorporated in the United States. CounTeRPoInT The United States’ corporate tax rate of 30 percent plus is much higher than that in many other developed countries like Switzerland and puts U.S. incorporated businesses at a competitive disadvantage in today’s global economy. The companies’ primary duty is to their shareholders, and these lower tax rates will help increase corporate earnings and thus work to the benefit of shareholders over the long-run, even if shareholders face some short-term tax liabilities related to the move. A law of this kind may face challenges under the U.S. Constitution.

InTerpreTIng global buSIneSS newS

1) While the U.S. government rails against Switzerland and other places providing U.S. corporations with tax advantages or benefits, the Mexican government has similar complaints about the U.S. government. It appears that the U.S. government permits U.S. banks to take deposits and pay interest to nonresident foreign nationals from Mexico without reporting the interest paid to either the Mexican government or the U.S. Internal

Revenue Service. Mexico wants an income and tax information exchange program with the United States, in part to help fight drug lords who tend not to report taxable income.

Do you agree with the Mexican government’s position on this matter? 2) Luxembourg, the European nation wedged between the borders of Belgium, France, and

Germany, is the only country in the world that continues to have a “Grand Duke.” The

Grand Duke of Luxembourg has continued to have far more power than most other

European monarchs, including the power to approve or disapprove the bills passed by

Parliament. He serves as Commander in Chief of the Luxembourg army. There have, however, been recent calls in Luxembourg to considerably cut back the Grand Duke’s power. What do you think might be some pros and cons in this regard? 3) Counterfeit goods continue to enter the United States in massive numbers. Indeed, in recent years the U.S. Customs and Border Protection Service has seized over 15,000 different shipments of counterfeit goods per year, including clothing, watches, and handbags. What are some ways the U.S. government can make its anticounterfeiting actions more effective?

4) In 1985 China had only 5,000 lawyers serving a population of more than 1 billion. Today

China has more than 150,000 lawyers and that number is growing exponentially. What are some of the benefits and costs of this dramatic increase in the number of lawyers in the country of China?

porTfolIo projecTS

Explore your own Case in Point: Legal and Political Factors affecting your Company After reading this chapter, you should be prepared to answer some basic questions about your favorite company. 1) Does your company operate in any countries that are considered very politically or economically risky? 2) Does your company operate primarily in civil law or common law countries, and what are some of the implications of this? 3) Has your company purchased any insurance from the U.S. Overseas Private Investment

Corporation (OPIC)? 4) What are some key intellectual property protections, if any, that your company possesses?

When do any of these protections (e.g., patents) expire? How does your company intend to make up lost revenues due to any patent or other intellectual property protection expirations?

Develop an international strategy for your own small Business: using “oPiC” Small businesses can sometimes be nimble and take risks that larger businesses are afraid to take. In terms of venturing overseas and doing business in countries where there’s “political risk,” the U.S. overseas private investment corporation (OPIC) sells reasonably priced insurance to companies to protect them in this regard. Identify business ventures in politically risky countries, and then analyze the cost of OPIC insurance to protect against these risks. Develop a plan to purchase OPIC insurance that offsets the given risks.

chapTer noTeS

1 Steve Stecklow, “Finnish Drivers Don’t Mind Sliding Scale, But Instant Calculation Gets Low Marks,” Wall Street Journal, January 2, 2001, online.wsj .com. 2 “Corruption Getting Worse, says Poll,” BBC News Business, July 9, 2013, www.BBC.com. 3 “SEC charges Weatherford International with FCPA violations,” November 26, 2013, www.sec.gov. 4 Cassell Bryan-Low, “Despite Taxes, London Still a Fun Home,” Wall Street Journal, September 8, 2009, p. C1. 5 Cynthia Koons and Makiko Kitamura, “Walgreens Stays in U.S. as It Buys Rest of Alliance Boots,” Bloomberg, www.bloomberg.com, August 6, 2014. 6 Tucker Carlson, “Artful Dogers,” Reader’s Digest, September, 2002, pp. 47–48. 7 Brian X. Chen and Nicole Perlroth, “Settlement in Apple Case over E-Books in Approved,” New York Times, November 21, 2014, www.nytimes.com. 8 Patricia Laya, “Carlos Slim to Dismantle Mexican Empire,” Bloomberg, July 9, 2014, www.bloomberg.com. 9 Chris Neumeyer, “China’s Great Leap Forward in Patents,” IPwatchdog, April 4, 2013, www.ipwatchdog.com. 10 Peggy Chaudbry et al., “Preserving Intellectual Property Rights: Managerial Insight into the Escalating Counterfeit Market Quandary,”

Business Horizons, vol. 52, pp. 57–66. 11 James Hookway, “McCurry Wins Big McAttach in Malaysia,” Wall Street Journal, September 9, 2009, p.6.

Ch 7

Corruption and Ethics in Global Business

Hand-out/ROYAL LEPAGE SHELTER FOUNDATION/Newscom © C Miller Design/Getty Images

After studying this chapter, you should be able to:

LO-1 Explain briefly the meaning of ethics.

LO-2 Describe how ethics and economic progress are connected.

LO-3 Describe briefly the function of corporate social responsibility (CSR).

LO-4 Recount the events in some of the more famous corporate financial scandals.

LO-5 Explain how ethics can be taught.

LO-6 Explain how internal controls can facilitate ethical behavior and help prevent financial impropriety.

Cultural Perspective

Reminding People About What Is Right Leads to Positive Outcomes

As an economics professor at Duke University, Dan Ariely studies human behavior. As part of his research, he set up an experiment in which participants would receive cash for correct answers on a test. At the same time, the participants were given the impression that it would be possible to cheat without getting caught. Participants were unaware that Ariely was trying to determine whether they would choose to cheat—not trying to assess their knowledge.1

Before taking the test, one group of participants was asked to write down as many of the Ten Commandments as they could recall. Remarkably, not one person from this group cheated. All other groups had some cheaters. Ariely’s experiment demonstrates that being reminded of a moral benchmark can have a profound impact on people’s behavior; people need ethical guidance to make the right choice.

In business, employees derive their ethical perspective from their company’s top management. For example, the Institute of Internal Auditors publishes a newsletter for senior management and boards of directors titled “Tone at the Top.” One of its goals is to provide cutting-edge information on ethics. “Tone at the Top” will significantly affect the ethical perspectives of all persons in organizations that subscribe to it. If a company’s leadership establishes and adheres to a well-designed ethics code, then this will have a positive impact upon the behavior of people in the company. If, on the other hand, a company’s leadership sends the message to employees that making money is the only thing that matters, then employees will be tempted to sacrifice their personal integrity and the company’s integrity for the purpose of making a profit.

While making a profit is an appropriate and worthy goal, companies must simultaneously fulfill their ethical responsibilities: making quality products and services, treating people within and outside the company with respect and dignity, taking care of the environment, and being good corporate citizens in the communities and nations where the company operates. Reminding people in a company to do what’s right is a good way to keep a company on track, profit-wise and otherwise.

LO-1

Explain briefly the meaning of ethics.

ethics

the branch of philosophy that addresses the values pertaining to human behavior, with regard to the “rightness” and “wrongness” of actions and to the “goodness” and “badness” of the intent and results of such actions

integrity

adherence to moral and ethical principles; soundness of moral character; honesty. As a practical matter, a person of integrity knows what is right and holds the courage to do it

Introduction

Ethics refer to the guidelines by which people relate to the world, including how they conduct business, how they treat other people, and how they care for the environment. People develop their ethical perspectives from a study of history and literature, from religious principles, and from personal experiences and observations. Ethics define how people view the world. Three philosophical principles regarding ethics include the imperative principle, the utilitarian principle, and the generalization argument.2 These can be summarized as follows:

• Imperative Principle: Do what is right. Act according to absolute moral rules, such as

“lying is wrong.” Under the imperative principle, ethics is a function of moral rules and principles and does not involve a situation-specific calculation of consequences. • Utilitarian Principle: Do what produces the greatest good. For example, this is how the government justifies the concept of eminent domain. The government can force an individual to sell his or her land so that a road can be built for the benefit of the public as a whole. Thus, the good of the many outweighs the good of the one. • Generalization Argument: This is a combination of the imperative principle and the utilitarian principle: do what is right, but filter the action by consideration of the consequences. Following the generalization argument, one would make a decision by considering the consequences if everyone made the same choice under similar circumstances. For example, some people consider it ethical to purchase clothing items with the intent to wear them one day and return them the next day for a refund. Yet, would stores be able to provide a return policy if everyone wore clothes one day and then returned them? One would conclude that taking a one-day “free rental” on clothes is unethical.

7-1 What Is Ethics?

Ethics can be defined as the branch of philosophy that addresses the values pertaining to human behavior, with specific regard to the “rightness” and “wrongness” of actions and to the “goodness” and “badness” of the intent and results of such actions. An ethical problem, or dilemma, occurs when one must make a choice among alternative actions and the right choice is not absolutely clear. Often that choice affects the well-being of others.

Closely related to ethics is the concept of integrity. Integrity can be defined as adherence to moral and ethical principles; soundness of moral character; honesty. As a practical matter, a person of integrity has two essential characteristics. First, one must have knowledge about what morally constitutes the right thing to do. Second, one must have the courage to do what is right and carry out the action. Unethical behavior is rarely the result of not knowing the right thing to do, but it is often the result of lacking courage to do what is right. On some occasions, however, a person may be in a situation where the right course of action is not clear, the so-called gray area. If the person has integrity, he or she will seek to find out what to do and not remain in a “gray” area.

Essentially there are only four basic steps in ethical decision making. First: define all the facts and circumstances. Second: identify the people affected. Third: determine the alternative decisions and consequences. And fourth: make the decision, which is comprised of two parts: determine the right action and carry out the right action. The four steps in ethical decision making are summarized in Exhibit 7.1.

When one evaluates goals and objectives, a vital question must be asked: What is one’s highest aspiration? Possible answers include wealth, fame, knowledge, popularity, or integrity. But, if integrity is second to any of these possibilities, then it is subject to sacrifice in

Exhibit 7.1 BasiC stEps in EthiCal DECision MakinG

1. Define all the facts and circumstances, including who, what, where, when, and how. 2. Identify the people affected by the situation and their rights and obligations. 3. Identify the alternative decisions and consequences. 4. Make the decision: determine the right thing to do and then do it.

1. Build Trust: Establish and maintain a positive track record in the marketplace. 2. Advertise Honestly: Adhere to established standards of advertising and selling. 3. Tell the Truth: Honestly represent products and services, including clear and adequate disclosures of all material terms.

4. Be Transparent: Openly identify the nature, location, and ownership of the business, and clearly disclose all policies, guarantees, and procedures that influence a customer’s decision to buy. 5. Honor Promises: Abide by all written agreements and verbal representations. 6. Be Responsive: Address marketplace disputes quickly, professionally, and in good faith. 7. Safeguard Privacy: Protect any data collected against mishandling and fraud, collect personal information only as needed, and respect the preferences of customers regarding the use of their information.

8. Embody Integrity: Approach all business dealings, marketplace transactions, and commitments with integrity.

© Cengage Learning 2014

situations when a choice must be made. Such situations will inevitably occur in every person’s life. When a choice must be made, courage will be required to give up wealth, fame, popularity—or anything else—that is required to maintain integrity.

In the business world, the purpose of ethics is to direct business men and women to abide by a code of conduct that facilitates and encourages public confidence in their products and services. Many companies have an ethics code to guide their employees in how they conduct business. In addition, business and accounting organizations, such as the Better Business Bureau (BBB), American Institute of Certified Public Accountants (AICPA), and Financial Executives International (FEI), recognize their professional responsibilities by providing ethical guidelines to their members.

Key components of the ethics code of the BBB are summarized in Exhibit 7.2. The BBB Code of Business Practices signifies good advertising, selling, and customer service practices that build customer trust and confidence in business. The Code is based upon the BBB Standards for Trust, which includes eight values that summarize the essential elements of creating and maintaining trust in business. Companies based in the United States and Canada that meet these standards and complete the application procedures will be accredited by BBB.

Exhibit 7.2 thE BBB CoDE of BusinEss praCtiCEs

Source: Better Business Bureau, www.bbb.org/us/bbb-accreditation-standards/.

Reality Che C k lO-1

Search the Internet for articles on business ethics. Look for guidance on how to conduct business. Some people cynically say that business ethics is an oxymoron. Why do people make that statement?