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Are multinationals free from moral obligations?

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Are Multinational Corporations Free From Moral Obligation


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In the current era, organizations are changing their methodology of working and they are expanding their vision. There operations are enlarging and they are leaving methods that are conventional. Newer methods like offshore outsourcing, globalization, internet advertising are changing the methodology of working. Business practices in the entire world are changing and moral values are depleting because organizations are focusing towards making more profits. Business ethics formally originated from 1980’s and it has transformed the methods of working.

Corporations are usually stressed to focus on ethical issues because the customers are suffering from it and that is the reason why legal organizations are imposing obligations on multinationals. As far as the history of ethical issues is concerned business ethics is both of normative and descriptive nature. But as far as corporate practice is concerned this field is more of normative nature. Business ethics are very important for corporations and in order to be successful in the corporate world they have to comply with the ethical obligations.

Multinationals are usually considered as the power house in the corporate world and in certain countries they have their monopoly in certain aspects. But an area of concern arises that are these multinationals practicing their undue rights? Are they free from all the moral obligations? Can they practice whatever they want?

In this paper we would highlight they facts related to business ethics, accounting scandals, advertising scams etc. By discussing all these aspects we would come to a conclusion that are multinationals free from all the moral obligations and can they do anything they want because they possess the power to do so. The general approaches to moral decision making and the legal implications on this issue are discussed and the paper concludes on the note are these multinationals free from moral implications or not?

Historical Perspective

Elements like accounting frauds, advertising swindles, corporate social responsibility are all considered as an area of concern for the multinationals. These issues are addressed by multinationals and they are questioned by the law and by the general public. The history of multinationals immoral activities is quite rich and people have suffered a lot from it.

Enron was an energy-oriented company that experienced bankruptcy in late 2001. It was the leading company in the energy sector and fortune named the company as the most innovative company for a consecutive six years. After investigation it was discovered that Enron’s performance was fake and the excellent financial condition financial condition was created by a planned accounting fraud known as Enron scandal (McLean, 2004). Similarly, companies that practice animal testing are considered as immoral and in the era there are number of companies that still practice this activity. However, there are certain companies like “The body shop” that are totally against animal testing. Thus, we can say that moral obligations are fulfilled by certain organization and some organizations do not fulfill it (The Body Shop, 2009).

Pros and Cons

Business ethics and moral obligations are quite important for all the companies and especially for multinationals because they have to perform their operations in other countries and they have to comply with global rules and regulations. Certain organizations believe that moral obligations are necessary and they have to comply with all the aspects that are related to business ethics however, certain organizations believe that these ethical obligations are not necessary.

Business ethics can be beneficial in a number of ways and it can be provide a sustainable competitive advantage for the company. Multinational organizations can expand its customer base; they can attract more customers and enter into more countries because they fulfill all ethical and moral responsibilities. The slogan of “No animal testing” by “The Body Shop” (The Body Shop, 2009) was considered to be an integral part in pursuing the international strategy of the organization because customers were attracted by this approach. However, certain companies believe that if they fulfill moral and ethical responsibilities then their profits might decrease and it might be considered as an extra cost that they might incur.

Therefore, multinationals all around the world has to fulfill moral obligations in order to be successful in both the short and the long run. Through fulfilling their moral responsibilities they can enhance their operations and they win more customers that are the reason why customers around the world prefer only those organizations that comply with issues like corporate social responsibility, accounting standards, disclosure requirements, etc.

General approaches to moral decision making

Multinationals face different ethical dilemmas and they have to deal with it in order to progress in the corporate world. Certain ethical dilemmas might be that they have to lay-off employee for the betterment of the company and to enhance profits, they have to dump the waste in the river because by keeping the waste they can incur more cost. These ethical implications are quite difficult to deal and organizations at times have to face these difficult situations. These complex situations can be handled through the moral approaches of decision-making. These approaches are discussed below:

Utilitarian approach

The utilitarian approach focuses on the idea that greatest good for greatest number of people. This approach can be applied to the issue in such a way that if the multinational has decided to hire low wage workers from foreign underdeveloped countries than they must determine that using the low wage worker would result in the greatest good or not (Barry & Shaw, 2009). This issue can be elaborated by considering an example that if a multinational has decided to lay off US oriented employees and they are hiring foreign workers because of their low-wage rates then there for the greatest good they can claim that because of this we can compete in the global arena and our position is stable because of this factor. However, if the multinational refuse to hire low wageworkers then because of stiffer price competition they might lose the market share and this would result is laying of more US based employees. Therefore, according to this approach they must lay off certain US employees and might hire them again if the situation gets better.

Moral rights

The Moral Rights approach focuses on the principles of morality and consequences are not considered. In this approach certain actions are considered to be right or wrong. If a multinational organization considers this approach than according to this paying low wages is considered to be an immoral act because the company’s desire for profit isn’t an appropriate justification according to this theory (Barry & Shaw, 2009). This theory stresses on the point that a company should close down its business if the company is unable to pay appropriate wages to its employees.


This approach to moral decision making is exactly similar to the Golden Rule. This approach is comprised of two steps. The first step is to consider that a particular idea should be applied to all people under all circumstances (Barry & Shaw, 2009). The second step revolves around the idea that you would be wiling for someone else to apple the rule to you. In Universalism, the organization should evaluate itself that paying low wages would be beneficial for you under the competition and for everyone else. If it is the case then the decision maker should put himself in the condition that if his company would pay him such low wages then would he/she be working for the company or not.

Virtue approach

The virtue approach to ethics revolves around the idea of “community” (Barry & Shaw, 2009). This approach says that the traits are not developed in an isolated situation. The virtue approach stresses on community building and it encourages the characters and habits these communities built in. Multinationals must be ethically aware of their responsibilities and they must work for the betterment of communities they are working with (Barry & Shaw, 2009).

The common good approach

The common good approach says that what is good and ethical for an individual is also beneficial and ethical for the entire community (Barry & Shaw, 2009). Since multinationals work in different countries that is the reason why if they are ethical and fulfill moral values then their good actions would influence and affect the entire community.

The fairness/justice approach

This approach describes that how fairly and unfairly our actions describe certain benefits to the members of the groups. Multinationals use this approach when they face ethical dilemmas like bribing etc. In certain countries multinationals face the dilemma that they have to bribe custom officers and it’s necessary to attain competitive advantage (Barry & Shaw, 2009). However, in certain countries bribing is prohibited that is the reason why multinationals use this approach.

Legal implications in this scenario

Organizations have hefty amount of power to influence communities and social organizations with their decisions. In certain cases organizations can influence the governments of third world countries. Since, multinationals contribute in the betterment of the economy that is the reason why they possess such an influencing behavior. But their immoral acts are always reported by communities and they can face legal implications in this aspect. International rules are so stiff in today’s world that even individuals can establish a case against multinationals but that case must be a valid one. Organizations on the other hand have developed ethical codes of conducts to restrict their employees and the entire organization to follow the ethical code of conduct. There are number of moral and ethical issues that are directly related to multinationals. These issues include environmental hazards created by the organization, lack of financial transparency, disclosure requirements, misrepresentation of facts in advertisement etc. Certain issues have legal implications and certain issues only possess ethical implications.

For example, Sarbanes was created in 2002 and SOX hold the utmost significance than any other law in organizational ethics for many obvious reasons. It has revolutionized the old systems and set new standards when it comes to corporate accountability. Adding to its benefits, it also provides a strong firm handhold grip for many wrongful acts and charge penalties for it. It has changed the method and mechanism of interaction between different corporate boards and executives, and the corporate auditors. It keeps the corporate heads updated with what is going on down the hierarchy; it encircles everyone and makes them accountable for their wrongdoings. The act has particularized the responsibilities of every individual pertaining to corporate culture, mechanism of reporting these responsibilities, systems that develop and maintain internal controls, and the methods that assure 100% reliability and validity of their financial registers and records (SOX, 2006).

Besides SOX there are certain acts that are related to environmental hazards and misrepresentation on information. Environmental acts include the clean water act, the toxic substances control act etc. Similarly, certain disclosure requirements must be fulfilled by multinationals for advertising their products and services.

As far as developing a case is concerned members of the affected societies, communities and social organizations can file a case against multinationals and if multinationals are affecting their lives in a negative manner then they are not free from moral and even legal obligations. In order to develop a case the affected parties must reach the legal bodies and file a case. In order to prove the case is valid the affected parties must prove that the organization’s actions are affecting them adversely and they are experiencing negative circumstances because of their actions. For e.g. an organization “XYZ” is dumping its waste in a river and it is located in a third world country. Local people of that country uses that water and they are facing issues like allergies, diseases etc. In this scenario the affected party can raise their voice against the company that is doing it and can file a case. They can present samples of water with a laboratory report that can prove that the water is not safe for usage.

Examples of ethical misconducts by organizations

Coca Cola has been criticized a number of times by the Indians because the company is unethically managing the water resources. The company takes hefty amount of water for its soft drinks and as a result of this the villagers are suffering. People are not getting their due share of water and they are experiencing a number of problems because of that. Although it is a moral obligation of Coca Cola to take care of the community in which they are operating and they must not do such unethical acts. The affected parties are raising their voice and Coke is responding to the situation by starting CSR (Corporate Social Responsibility) programs in India (Srivastava, 2008). The outcomes would be disastrous for the affected parties and for Coca Cola if these actions are beneficial in the short term then in the long term it would affect the company’s image. The response of these actions would be mixed because the affected society would definitely respond in a negative way and Coca cola on the other hand would fight on their stance. When the case was filed in the court the court responded positively and ultimately the factory was closed because the residents were affected by this.

Another company that was facing a moral dilemma was GAP belonging to fashion industry. GAP is a leading brand in the apparel industry and a British newspaper reports that gap in India are using child laborers. The local manufacturer used even young children that are at the age of 10 in sewing clothes. A lawyer of India Bhuwan Ribhu claimed that multinationals hired subcontractors and they forget about that. GAP responded positively to this situation and said that the factory was managed by the subcontractor and those clothes would not be sold in the market (CBS News, 2007).  This action might affect the society but GAP has stopped this practice that is why it will not affect the society. The law might sue the company but since it is operated in the subcontinent that is why law has a leveraged approach in this aspect.

The law in both the cases have different stances and the situation and changing as the law has enlarged their span of control in cases that are related to moral and ethical obligations.

Ethical schools of thought

Businesses for the past few years have been under pressure to adopt ethical and moral standards in their practices. Since the major business scandals of major corporations such as Enron and World Com, major corporations and other businesses have been under severe scrutiny from the media and the government (Wygal, 2004). The government brought forward the Sarbanes-Oxley Act to prevent major ethical and legal breaches from happening again in the future (Wygal, 2004).

Ethical schools of thought such as the utilitarian approach, the rights approach, the common goals approach and the virtue approach have been applied by businesses in their activities when dealing with various stakeholders such as customers, employees, management and managers.

For instance, pharmaceutical companies such as Pfizer, Novartis and Merck are facing a problematic scenario in India and China related to counterfeit drugs (Einhorn, 2007). These companies have applied time and again for patents for their products but have been refused. They are using the rights approach in applying for these legal shields for their products to protect themselves from financial injury. However, considering the prices of their products and the average incomes of the lower classes in developing nations such as China and India, and applying ethical thinking to the issue, the reasoning of these companies might be ethically wrong.

These companies are in the market to make a profit but along with that they need to be more socially and ethically conscious and consider the affordability of their products for the impoverished classes in countries such as India and China. The utilitarian approach might be more applicable here, that is the greatest good and the least harm (Velasquez, Andre, Shanks, & Meyer, 2009). Either these companies reduce the prices of their products for these countries or they should not contest for the rights to protect their products. The utilitarian approach applied here would mean that the millions of people living in these overpopulated countries get low priced medicine for their health. These companies can also improve their images by doing so and being perceived as socially responsible organizations.

The common good approach is applied by countries, federal and state governments. This theory postulates that the systems and policies and social circumstances are advantageous to every member of a community (Velasquez, Andre, Shanks, & Meyer, 2009) (CITATION). As the benefits for a single person are not mutually exclusive of the benefits for community and the society, the focus should be on providing these common goods for the benefit of society in general. Examples include equal employment opportunity laws enacted by the US Equal Employment Opportunity Commission (EEOC). The EEOC has various anti-discriminatory laws regarding age, gender, race, religion and other such potential discriminatory issues (Commission, 2009).


Based on the above discussion and my own experiences and observations regarding the issue of morality for Multinational Corporations, the laws in place seem only superficial and barely scratch the surface of the problem at hand. Firstly, in the global environment, many multinational corporations are involved in unethical practices such as bribery, or to apply a more equivocal term – facilitation payments (Ethics Resource Center, 2003). Many laws have been enacted to stop this practice, such as the Foreign Corrupt Practices Act (FCPA) by the US Government (Ethics Resource Center, 2003), and policies enacted by religion-oriented nations such as the MENA (Middle East and North African Countries) have attempted to close down this practice of bribery (Wehrle, 2006) by enacting various policies such as inspection of companies and public officials alike.

Laws are changing to incorporate ethics and moral issues. Anti-discriminatory laws, environmental protection laws, tax laws and others have been created or have evolved to include ethical and moral issues. However, much more needs to be done to check whether these laws are being enforced by officials and followed by corporations. Many people, in good humor, call the term “business ethics” as being horribly oxymoronic (Fieser, 1996). Others have coined the phrase “moral minimum” (Kelsen & Knight, 2002) to describe the law. To make sure that the law expands and covers these issues, special ethical task forces need to be assigned to foreign companies and government officials. Ethical audit is a new concept that is being developed and will include a scrutiny of operations of companies (Carmichael, Hummels, Klooster, & Van Luijk).

In my opinion, there is sufficient development on moral and ethical frontiers and in the years to come this will provide an overall positive to society and clear the tarnished image of the corporation.

Barry, V., & Shaw, W. (2009). Moral Issues in Business. Wadsworth Publishing Co Inc.

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SOX. (2006). The Sarbanes-Oxley Act . Retrieved Feburary 18, 2009, from SARBANES-OXLEY ACT 2002: http://www.soxlaw.com/

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The Body Shop. (2009). Against Animal Testing. Retrieved Feburary 18, 2009, from www.thebodyshop-usa.com: http://www.thebodyshop-usa.com/bodyshop/values/against_animal_testing.jsp

Velasquez, M., Andre, C., Shanks, T., & Meyer, M. (2009, Feburary 2). Thinking Ethically:A Framework for Moral Decision Making. Retrieved February 18, 2009, from Markkula Center for Applied Ethics: http://www.scu.edu/ethics/practicing/decision/thinking.html

Wehrle, F. (2006). Business Ethics and Anti-Bribery Policies in Selected Middle East and north African Countries. MENA-OECD.

Wygal, D. (2004, November 1). Corporate greed vs. IMA’s ethics code: recent corporate financial scandals–Enron, WorldCom,… Retrieved February 17, 2009, from All Business a D&b Company: http://www.allbusiness.com/human-resources/employee-development-employee-ethics/318731-1.html

Cite this Are multinationals free from moral obligations?

Are multinationals free from moral obligations?. (2016, Jul 10). Retrieved from https://graduateway.com/are-multinationals-free-from-moral-obligations/

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