term paper on globalization trends

7/31/2019 Term Paper on Globalization Trends

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Global Business Culture: Diversity and Convergence

MLMLA 6393

Partha P. Choudhury

Dr. Ring

October 25, 2010


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Abstract

Within the confines of codes of ethics, there are rules in which businesses, non-profit

organizations, governmental bodies, nongovernmental organizations, courts with the rule of law

such as the International Court of Justice, the United Nations, religions, and even commerce

when it comes to religion, are bound and contracted to certain laws. In the Mission Statement

of certain corporations and non-profits, there is conspicuous language which tells of the aims of

the entity in question. Interests, aspirations, and rules of conduct are often open to scrutiny in

the corporate world as well as within the public purview; specifically shareholders. Just as laws

are codified for all to see, hear and interpret, so to are the aforementioned entities bound to the

confines of laws.

A legal framework and its structure is meant to be interpreted by those who not only

have knowledge in the legal world, but have the insight and foresight to see the ramifications of

these codes and dispense them accordingly. Not only is this not exclusive to the legal world, but

in terms of commerce and various entities governed by set procedures, there are rules where

these exchanges are beholden to laws, charters and decorum. One can see from a working body

such as the UN, which can facilitate comity and yet at the same time behave in dissonance and

make anathema of certain members, that there are obligations for nations to follow. Laws can be

punitive as well. As there is a social contract among people in a nation and in principalities,

which is both implied and understood, individuals have to be made aware that they are residing

in a nation of laws. Given the nature of how pervasive laws can be in a society, this obviously

does apply to the business world as well.

The company known as Enron, which was headquartered here in Houston, had the

dubious distinction of collapsing in a completely disgraceful manner. Emerging from it came

legislation that would make sure that fraud on that huge of a scale would never materialize again.

In the American legal world, a sweeping piece of legislation called the Sarbanes-Oxley Act,

made it a point to end corporate malfeasance. The Sarbanes-Oxley Act of 2002 which was


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signed into law by President Bush on 30th of July, 2002, represents what is undoubtedly the most

significant US legislation in the areas of financial disclosure and corporate governance The

stated purpose of the Act, which followed on the heels of some of the most devastating and

notorious corporate scandals in American history, is to protect investors by improving the

accuracy and reliability of corporate disclosures made pursuant to the securities laws (Walker,

138, 2003). In the provisions of the legislation are 11 titles that indicate the requirements with

which new standards for companies are implemented.

I. Public Company Accounting Oversight BoardIt has 9 sections, which establishes the Public Company Accounting Oversight Board

(PCAOB). It manages oversight over auditors, creates a board that would register

auditors, setting procedures for auditing and quality control, all of which must be

compliant with Sarbanes-Oxley.

II. Auditor IndependenceIt consists of 9 sections and establishes the desire for external auditing, quite possibly

to limit any sort of nepotism. When it comes to new auditors, approval must be met.

III. Corporate ResponsibilityIt consists of 8 sections and endears senior executives of the corporation to attest to

the genuine nature of corporate financial reports. It establishes punitive measures for

not complying. Also therein requires principle officers to certify financial reports.

IV. Enhanced Financial DisclosuresIt consists of 9 sections, which require financial transactions to be reported, including

transactions that are on off-balance sheets. It requires pro-forma figures and all

stock transfers belonging to corporate officers to be authenticated. It also requires


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solid proof of the veracity of all reports and disclosures and requires audits and

reports of these disclosures. It has a length of time under which changes can be made

financially and requires SEC and its auxiliaries to review the information.

V. Analyst Conflicts of InterestIt is one section which requires measures for security analysts to placate investors.

Codes of conduct are established and foreseeable conflicts of interest should be

disclosed before moving forward.

VI. Commission Resources and AuthorityIt consists of 4 sections and requires security analysts to again placate investors.

Companies can be held responsible to the SEC for censure and it can withhold

securities professionals from their practice, and describes in length what the grounds

for censure are.

VII. Studies and ReportsIt consists of 5 sections and subjects the Comptroller General and the SEC to conduct

studies and disclose findings. The consolidation of chartered accounting firms are

studied, credit rating agencies in the securities market are evaluated, and punitive

measures are taken to investment banks that assisted companies such as Enron in

breach of securities violations.

VIII. Corporate and Criminal Fraud AccountabilityIt consists of 7 sections and is also known as the Corporate and Criminal Fraud

Accountability Act of 2002. It describes legal action for cooking the books or of

altering financial records, obstructing an investigation and gives rights to potential

whistleblowers.


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IX. White Collar Crime Penalty EnhancementIt consists of 9 sections and is also known as the White Collar Crime Penalty

Enhancement Act of 2002. White collar crime or commiserations are subject to

enhanced penalties. Any failure to disclose financial reports are penalized.

X. Corporate Tax ReurnIt consists of 1 section which requires Chief Executive Officer to sign his/her

companys tax return.

XI. Corporate Fraud AccountabilityIt consists of 7 sections. It is also known as the Corporate Fraud Accountability Act

of 2002. It defines what corporate fraud is and places record tampering as joining

previous penalties. Sentencing guidelines are revised and is more punitive. All of

this allows SEC to freeze transactions that are large or unusual.

As in any corporation, aside from corporate Chief Executives, financiers and other

officers, corporate lawyers are more scrutinized for potential breaches of ethics. As Sarbanes-

Oxley has the rule of law and the mandate from the SEC, rules have changed this state of affairs

for lawyers appearing and practicing before the SEC (Lawry, 23-24, 2003). Given the reach

of the SEC, those in corporate law are obligated to comply with the spirit of the laws. The very

nature of this legislation is to instill these sorts of ethics to all those who would seek to practice

law on the behalf of a corporation. Failure to comply would result in disbarment from the

American Bar Association (ABA). Legal counsel to hush a potential SEC violation is subject to

censure. Ultimately those in corporate law should render their services to possibly stop a debacle

from occurring, without violating the rule of confidentiality according to Lawry. Those who

have voted to exalt confidentiality over disclosure in these cases believe that the lawyers


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primary obligation is to his/[her] client, even in matters of great public harm. In the wake of

Enron, is that narrow position any longer tenable? (Lawry, 27, 2003). In an environment where

pleasing shareholders and being a lucrative company can lead to moral lapses in terms of ethics,

the Sarbanes-Oxley Act specifically puts into focus within the public purview, that the paper

chase comes its catches, and corporate accountability is no exception to any corporation. And

the ramifications of being compliant is incredibly easy. According to the FEI (Finance

Executives International) survey, for 200 corporations holding an average revenue of $6.8

billion, the cost for yearly compliance was about $2.9 million in the year of 2006. The prospect

of a corporation folding is ruinous not only to the economy as a whole and to prospective

shareholders, but if one were to imagine a massive conglomerate, possibly a multinational, being

subject to reprimand, it would have ramifications on a global scale. And as globalization implies

convergence, if one person were to sneeze, the whole world can catch a cold.

As the concept of convergence gains traction, laws having a reach globally are

becoming codified. With globalization engendering whole new brands of politics, theorists are

propositioning a sort oflex mercatoria, which according to Gunther Teubner in Global

Bukowina: Legal Pluralism in the World Society, is the transnational law of economic

transactions (Teubner, 1, 1997). With multinationals having such a far reach when it comes to

influencing local politics in relative insulation from the state, they are using their clout to use

resources to their disposal at the highest capacity. A lot of economists are attached to the idea

that globalization has the power to not only engage nations into a supranational condition, but

that it has the power to impugn the sovereignty of nation-states. As there is no law implied in

almost any nation to render unfettered globalization as being not justified, Teubner proposes

global law having these implications:


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1) Boundaries: The boundaries of global law, are formed not by maintaining a coreterritory and expanding on a federal basis as Kant perceived in terms of nation-states,

but rather, the boundaries of global law are formed by invisible colleges, invisible

markets and branches that transcend territorial boundaries but nevertheless press for

the emergence of genuinely legal forms (Teubner, 5, 1997).

2) Sources of Law: General legislative bodies will become less important with thedevelopment of globalization.

3) Independence: Teubner postulates in this field that there is an implied exposure oftheoretical global law hinging upon local politics and thus influencing the laws of the

respective nation. With the advent of laws that have a global reach, lawmakers (in a

traditional sense) just might feel the pull to alter laws that facilitate in a higher degree.

4) Unity of the Law: For nation-building in the past, unity of the law was one of the mainpolitical assetsa symbol of national identity and simultaneously a symbol of (almost)

universal justice. A worldwide unity of the law, however, would become a threat to legal

culture. A sense of pride a nation has in instilling the rule of law among its citizenry, is

precisely its maintenance of the law. With the advocacy of brand new legal codes being

imposed upon a nation by an outside group that very well might have jurisdiction legally

but is not beholden to the central authority of any state, a states national character might

be compromised and legally speaking, the state might be privy to laws that actually run

counter to the national interest.

The European Union is a prime example of being a supranational entity that specifies that in

order for a nation to enjoy its services, theirown constitutions cannot go against EU law and

provisions set by treaties among the Commission and the EU Parliament. If a judiciary has it in


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their mind to exercise that sort of law, whos to stop them, when said court can practice its

extraterritoriality?

Commerce when it comes to religion has got its own edicts. When God gave Moses the

Law, the concept of charging interest when it came to loaning money was strictly forbidden. It

would make one anathema and would forfeit their place among the people. However as any

economist can tell someone, the charging of interest is probably one of the chief backbones of

Western finance. When capital accumulates, this leads the way to credit and the charging of

interest is specifically the way to yield a generous profit. The forerunner of modern banking is

almost exclusively an Austrian concept, and this phenomenon had even a royal family known as

the Hapsburgs. When it comes to Islam, riba, which translates into usury, is expressly forbidden

and is a grave sin. According to M.M Metwally, Islam prohibits the payment of interest on all

types of loans (personal, commercial, agricultural, industrial, etc) (Metwally, 945, 1997). From

the Quran, and from Islamic trade and commerce, money was used specifically for trade, which

is obviously permitted, and interest prohibited, which is haram or sin. According to Islam, the

faithful are inspired to engage in commerce and be fruitful. The concept of free enterprise is

seen as a virtue, but is not unconditional. First, private ownership in Islam is subject to the

interest of the community. If the state considers that it should reserve for itself the ownership of

some specific property, then the ownership of such property cannot be acquired by the

individual. This is one of the guiding principles of the sharia (Islamic laws) which decrees that

the private interest of the individual should be secondary and subsidiary to that of the community

as a whole (Metwally, 942, 1997). For a devout Muslim, his/her commerce is an activity that is

obligated to certain standards and must conform to the teachings of the Quran. A Muslim is

expected to payzakat, or alms to the poor, relatively about 2% of gross yearly income. In


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Islamic countries, an economic transaction is done on the value of trust, that both parties abide

by good character and that the transaction is done in an Islamic manner.

When it comes to interest-free Islamic banking, Metwally specifies 7 tools that are used that

conform to Islamic teachings.

1. Musharakah: (Partnership) Under this system, a bank and a prospective client wouldagree in a partnership for a set period of time. Both parties contribute to the capital

of the project and agree to divide the net profits in proportions determined in advance.

There is no fixed formula for profit-sharing and each case is dealt with on its own

merit (Metwally 955, 1997).

2. Mudarabah: (Lending with no participation in management) The bank provides thecapital and the client is held responsible for the funds. The bank would get a

proportionate sum of the profits from the exchange.

3. Mrabaha: (Resale contract) Client requests the bank to buy a specific commodity.The bank resells the commodity at a price which covers the purchase price plus the

profit margin agreed on by both parties, which transforms traditional lending into a

sale and purchase agreement.

4. Quard hassan: (Good loan) A loan without interest.5. Leasing or renting the physical capital/equipment6. TakafolMutual support which is the basis of the concept of solidarity among

Muslims as an alternative to Western insurance (Metwally, 956, 1997).

7. Bai Salam: (Post-delivery) The bank purchases certain goods after delivery and payscost up front and receives its commission immediately. The cost of goods is fixed

and paid in advance but the delivery of the sold item is postponed or delayed up to a


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certain period. Where the item is delivered to and its expenditures are also

predetermined from a set period of time.

In Social Responsibilty and Corruption in the Global Marketplace, the reader is given

several examples of multinationals being beholden to the social mores and expectations in the

countries where they conduct business. In many instances, these companies had to yield to

pressure to be more socially responsible and be stewards when it came to both the economy

and the environment. Globalization has increased calls for MNEs to use their resources to

alleviate a wide variety of social problems (Shenkar and Luo, 514, 2008). In an environment

where maximizing profits can lead to a variety of problems, MNEs are exceptionally careful

when it comes to how they conduct business. Conforming to child labor laws is something that

is derived from a Western standpoint and MNEs are mindful that even though they are in a locale

where business can be conducted under lax standards, they are held to a certain standard and

must exercise all precautions. That is one of the reasons why a MNE faces more socially

responsible issues than a domestic firm. In terms of the main elements of a MNEs code of

conduct, Shenkar and Luo list several. MNEs have to meet with lawmakers, employers and

labor unions to make sure that they conform to the requirements of the host country. They are

entrusted not to have hegemony over the local industries, provide adequate taxes in proportion to

their profits, and they are expected to share and invest in local development. MNEs are not privy

to the concept of extraterritoriality and must adhere to the laws and customs of their host nation.

When it comes to conflict resolution, arbitrators and intermediaries should be used when a

problem should arise. The MNE Code of Conduct is a definitive statement when it comes to

international finance and is a code of ethics when it comes to a MNE conducting business in host

countries. Corruption is also an issue MNEs have to deal with. The authors detail that


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corruption is a relative term and many countries take a relaxed attitude when it dealing with it.

In the Corruption Perceptions Index by Transperancy International, much like a Freedom House

rating when it comes to measuring human rights, countries in the developing world are

proportionately more corrupt than their Western counterparts. Bribery is seen as lucrative and is

deemed suitable when it comes to conducting business. Such countries are borderline failed-

states, dont have the state monopoly when it comes to the exercise of violence, cant exercise

the rule of law within its parameters and have vast underground economies. Some of these are

authoritarian regimes and are repressive. Leaders of MNEs are aware of this fact and are

conscious that they are tributaries to despotic regimes in the 3

rd

world. In terms of corruption

having an economic toll, economists say that graft curtails business. Corruption obstructs firm

growth and development through the imposition of risk, the punishment suffered by violator

firms, the damage to a firms reputation, and the financial cost incurred in direct and indirect

payments(Shenkar, Luo, 522, 2008). Types of corrupt practices include smuggling, money

laundering, piracy and counterfeiting and bribery. If one were put in a position of sealing a

business deal with graft being a factor, it depends upon ones situation and motivations. Even if

an executive was virtuous and always insisted upon being lawful, the very nature of doing

business in a foreign country involves being mindful of the way business is conducted and he or

she very well might find themselves practicing deceit in order to finalize a business transaction.

A thorough evaluation must be met and factors such as efficiency, if said transaction would lead

the way to a greater profit, and ultimately both the MNE and the host populace were to benefit in

a beneficial manner must be taken into consideration. When it comes to the personal integrity of

somebody conducting business, he or she must take into account the social mores and customs of

that country and arbitrarily decide for themselves what they would do in that sort of situation.


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As the phenomenon of globalization makes the world within reach of the global

community, divisions such as ethnicity, religion and political ideology are starting to be

ameliorated and tailored specifically to make sense economically. As appetites are being whet

and people are more privy to outside cultures and beliefs, the world is shrinking and accords are

happening as we speak. In a legal point of view, globalization must be gauged and thoroughly

under the lens of lawmakers and citizens. Bill Clinton lauded for a Pax Americana, and to a

degree that is what he did get, even if the term Pax simply does not apply to this turn of the

century. But as global citizens, being subject to a government that will exercise its authority

with complete disregard for the welfare of its own citizenry, let alone the regard for others, is

something that is seemingly untenable and isnt meant to last for such a long duration.

Ultimately people have to be apprized as to what is occurring around them and decipher from the

contexts of what is happening militarily, politically and economically.


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Works Cited

Sarbanes, Paul and Oxley, Michael. Sarbanes-Oxley Act of 2002 (Pub.L. 107-204,116Stat.745, enacted July 30, 2002).

Lawry, Robert P. Lawyers Ethics in a Post-Enron World. Phi Kappa Phi Forum. Volume83, No. 2, Spring 2003.

Metwally, M.M Economic Consequences of Applying Islamic Principles in MuslimSocities. International Journal of Social Economics, Vol. 24, 1997.

Teubner, Gunther. Global Bukowina: Legal Pluralism in the World Society. Appeared inGlobal Law Without a State. Dartmouth Press, 1997, 3-28

Shenkar, Oded and Luo, Yadong. Social Responsibility and Corruption in the GlobalMarketplace. International Business. Sage Publications, Los Angeles, 2008. Pg. 513-532.

Walker, Rebecca S. The Effect of Recent US Legislation and Rule-Making on CorporateCompliance and Ethics Programmes. International Journal of Disclosure andGovernance. Vol. 1, No. 2, October 27, 2003.
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