Referring to material from the unit, critically evaluate how the passage relates to issues concerning the business activities of MNCs and the concept of ethical leadership. Having examined Machiavelli’s passage from the ‘prince’ I believe it may be applied within the field of change management. It is important that the ‘prince’ may be used as a metaphor for an individual or an organisation. The passage focuses on the effective management of change when merging into a new global market.
Drawing attention to the importance of support held by the stakeholders in regards to organisational success. Further emphasis is placed on the effects negative support can potentially have. With organisations struggling to survive in a challenging global market, change management is at the forefront of organisational strategy. Organisations and individuals that are failing to adapt and change to the climate are the ones now struggling to survive.
Throughout this essay, Machiavelli’s passage will be interpreted into relevant issues in contemporary management allowing a theoretical approach to assess the phenomenon of globalisation. To further interpret the passage this essay will draw upon corporate social responsibility (CSR), offering explanation for the growth of MNC and the effect this has had on business ethics. During the first sentence of Machiavelli’s passage reference is made to ‘entering a new province’.
With an increasing number of markets being internationalised, the world is being transformed into a global marketplace (Bishp et al. 2009). By ‘entering a new province’ MNC are contributing to what is now known as globalisation. By pursuing globalisation organisations may move into new markets often pushing for higher profits and greater market share. Founded in 1919 Tesco began as a group of market stalls and opened its first store in Middlesex, 1929 (wiki). Having established itself as the market leader in the U.
K grocery industry it began to expand into Europe beginning with Poland in 1992. The company now has over 5,300 stores operating in 14 countries within Asia, Europe, America and the U. K. This is a perfect example of how a company can, as Machiavelli put it ‘speedily’ gain possession over a global market. This raises the question, how do corporations come to grow so big, and with estimations showing that their rate of growth is to continue, why are MNC so eager to expand into these new markets?
Since the early 90’s, control on foreign investment has been slowly removed due to countries becoming increasingly worried about missing out on the potential profitability of foreign trade. This is done by removing potential barriers to trade within a countries market through actions such as the removal of foreign investment tax. Economists welcome this free flow of capital over borders as it allows capital to seek the highest rates of return (Loungani & Razin, 2001). This free flow of capital also offers many other advantages as noted by Feldstein (2000).
In turn a free market has geographically mapped out a clear path for MNC to follow leading them around the globe starting with the developed wealthier towns and cities, lead by the developing countries, having a profound effects on our lives (Popkin, 2006). Developing countries often see attracting foreign direct investment (FDI) as their opportunity to lead their country out of poverty and into development, and so when investment is achieved it is often a dream come true. With the prospect of bringing employment, countries often offer financial concessions to the MNC.
Not only does this employment have a direct effect on the country but also an indirect impact on the local economy. With an increase in domestic income, greater expenditure creates stimulus from greater foreign investors, drawing greater numbers of MNC to the country (Baafi, 2009). Workers may also gain from technology transfer as the MNC import their technology giving the developing countries greater competitive advances (Mayer, 2000). Corporations are also called to pay taxes within domestic countries and so contribute to the public finances.
These reasons may be seen as a countries ‘expectations’ when attracting the MNC’s foreign investment and over the last 30 years have proved to be a dominant contributor to the growth of developing countries (Jajri, 2009). Zekos (2004) believes there are three main factors that push global economic growth. These are an improvement in technology regarding communication and transportation, individual taste has favoured taking advantage of declining costs and increasing economic integration and public policies influencing the pace of economic integration.
With a global market, cultural homogenisation is free to happen whereby popular brands are made universally desired (Hollensen, 2010). Machiavelli’s passage suggests change as being fast, one possible reason for this is the development of a global telecommunications infrastructure, allowing organisations to do business from all over the globe, quickly opening up new markets and allowing growth that wouldn’t have previously been possible. As well as an advance in communication, the transportation sector is continuously improving to keep up with increasing pressure.
Often referred to as an enabling factor but not the cause of international trade, transportation is a mean which globalization could not happen without (Rodrigue, 2007). International trade is reframed by cargo space; however with the speed and size of cargo ships improving and the development and increased use of cargo only flights, organisations are seeing great benefits from their advances. However, as organisations continue to increase the amount of goods shipped around the globe, greater impact is being placed on the environment.
Robbins (1996) found that MNC are one of the major contributors to global emissions of greenhouse gases. This may be referred to later as an issue of corporate responsibility. With regard to the technology sector there is a single high tier that drives technological development which operates in technology centres around the globe. These centres demand highly skilled workers that are sent to work all over the world to pursue further research (Castells, 1999). This shows that it’s not only goods that are being globally exchanged but also labour.
Organisations seek out these high skilled workers, attempting to draw them from all over the globe in an attempt to gain an advantage over competitors (Horwitz, 2003). With these individuals, organisations benefit from new perspectives and insights resulting in more effective decisions, solutions and processes (Kinnear, Sutherland, 2000). This transfer of labour has also lead organisations to move production centres away from their home countries and into developing countries where production costs are much lower, often leading to workers being exploited (Daniels et al. 2009).
In an attempt to cut cost, MNC’s run the risk of operating unethically through the use of sweatshops and child labour, potentially leading ‘the nobles despair’. Machiavelli’s passage may be interpreted to suggest that MNC should do everything in their power to prevent any ‘despair’. This requires the MNC’s to function with CSR and if not potentially face strikes, negative press and government intervention. On numerous occasions Tesco have been found, using suppliers that use child labour as a way of cutting production costs (Simms, 2006). Proving that globalisation may be having a negative effect of countries (Stiglitz, 2006).
Multinational organisations operate to increase turnover and to please their shareholders by generating long term returns on investments. This eagerness to please the shareholders can lead to unethical activities that often ignore the lives and opinions of the effected people (Goyal, 2006). This coincides with Machiavelli’s passage that suggests that the ‘good will’ of the people is required to successfully enter a new market. This also coincides with Freeman’s stakeholder theory which asserts that managers should please a variety of constituents that influence the organisations outcomes (Freeman, 1994).
This theory supports Machiavelli’s passage suggesting that mangers should not focus all their efforts on the demands of the stockholders and may see long term benefits from engaging in corporate social responsibility activities (Freeman et al. , 2004). Brown et. al (2001) support this, stressing that a competitive advantage may be gained from meeting stakeholder demands and avoiding confrontation costs. This is displayed by companies such as Mosaic who were listed in the top 50 of the CR magazine’s best corporate citizens (CR, 2010).
The MNC is lead by James Prokopanko, who defines success by conducting business ethically and by closely following their code of ethics (Mosaic), still allowing them to generate sales of close to $1 billion in 2011. However often when it comes to MNC, complete disregard may be shown for the people, where cost and turnover are the sole drivers of decisions made by managers. These financially driven motives are supported by Sundaram and Inkpen (2004) who believe that management only have one responsibility and that is to make profit for the shareholders.
This idea proves extremely convenient for managers as it allows them to distort reality and adopt a global view where they have no moral responsibility allowing them to rationalise their global practices. This may be reflected through Tesco’s actions whilst expanding into new markets where pressure is placed on farmers to supply the store before using its market domination to weaken the bargaining power of the farmers (Stichele, 2005). This leaves the farmers with no other option but to supply the store with food at a lower price, often leaving suppliers with little profit at all.
That is just one example of an organisation using its corporate power to manipulate markets to favour its turnover. Globalisation and economic liberalisation has allowed companies to grow bigger than ever before often enabling them to achieve greater earnings, comparative to the income of a country. In 2009 Tesco generated a revenue of over ? 59. 4bn (Guardian), when compared with the World Bank rankings of nations, these figures places them above countries such as Bangladesh and oil rich Kuwait, this reiterates their power.
This corporate power that overwhelms that of developing countries suggests the importance of CSR and as Machiavelli’s passage suggests; regardless of size the organisation must achieve good rapport with its inhabitants when entering a new market. Over the years CSR has been conceptualised in many different ways, often impeding manager’s understandings (Lindgreen & Swaen, 2010). However, consistent with McWilliams et al. (2006) it describes the situations whereby organisations go beyond compliance, engaging in acts that enhance social good.
One of the most prestigious scholars in this discipline, Carroll, developed the Pyramid of Corporate Social Responsibility which suggests four types of social responsibilities: economical, legal, ethical and philanthropic (Carroll, 1991), all of which can be related to Machiavelli’s passage. The basis of Carroll’s theory may be extracted from a statement he made, stating that a “CSR firm should strive to make a profit, obey the law, be ethical, and be a good corporate citizen” (Carroll, 1991:43).
The pyramid depicts economical responsibility as the foundation of an organisation as its principal role is to supply people’s demands for goods and services. As earlier mentioned, this responsibility has lead many organisations to maximise profits and discard social consequences. Garriga & Mele’s (2004) regard this type of level as instrumental, were CSR is simply a strategic tool to achieve profits (Aras and Crowther, 2010). Friedman was of the view that maximising the shareholders value was the supreme reason to participate in CS activities.
This often sees organisations participating in an adequate level of social activities for the sake of added profit (McWilliams & Siegel, 2001). Worryingly, as Windsor (2001) states, a leitmotiv of profit maximisation is currently dominating managers’ concept of responsibility. However this is encouraging MNC to participate in philanthropic activities which brings them closer to their company mission bringing them greater wealth (Porter & Kramer, 2002). This may be related to Machiavelli’s passage which says that when the ‘prince has the goodwill of the people it must not worry about conspiracies’.
When translated into a MNC scenario it suggests that participating in CSR activities can create a positive outcome for all parties involved, as seen in the example of Mosaic. Whilst operating in an economic way, MNC are still expected to operate under laws and regulations that are issued by governing bodies. These legal requirements make up Carroll’s second tier and create a framework in which businesses must act under social contracts (Carroll, 1991). However, while regulations pressure organisations to respond to issues, it proves difficult to ensure they are followed honestly (Pratima, 2002).
Moreover these regulations are often reactive in nature, preventing firms from taking a proactive approach, meaning on a global scale MNC will comply with rules to gain goodwill, but will scarcely go out of their way to legislate morality. This is supported by Crane and Matten (2010) who believe MNC direct their foreign investment in line with what countries offer the most lucrative conditions in regard to workers rights, environmental law and tax rates. Although MNC create work within a market, the use of superior technology and their sheer scale often causes native competing business to fold elsewhere.
This indicates that although operating in a legal manor, the MNC ignore other social responsibilities and in this case, cause greater unemployment (Eldridge). This may be seen in Poland where Tesco moved in to the country in 1992 and since setting up its hypermarkets and mass farming facilities, the levels of unemployed in regional farmers has reached an alarming level of 40% (Corporate watch). This shows a lack of care from the corporate giant as it drives out competition to make way for greater control.
It is alarming to see this happen in a developed country but now warning is coming that the same may happen in India, putting thousands out of work (Kumar,2012) and showing how MNC can lack ethical leadership. This may be related to Freeman’s stakeholder theory that requires organisations to consider all stakeholders when making decisions. This may be compared with Carroll’s next tier that regards the ethical responsibilities of organisations in regard to their suppliers, customers, employees, stockholders and the local community.
Much ethical guidance has been published by scholars for organisations to follow; Freeman and Philips (2002) issued six principles of stakeholder theory guidance, Donaldson and Dunfee (1999) offered an Integrative Social Contract Theory which offered a justified account of moral rightness within commercial life. Many more theories exist, however as the global market expands, human rights have formed the basis for CSR (Cassel, 2001) with UN Global Compact developing as one of the first human rights based approaches to corporate responsibility (Garriga & Mele, 2004).
Many other approaches based on the Universal Declaration of Human Rights have followed, all supporting Machiavelli’s idea that the peoples ‘goodwill’ must be gained. This has given MNC a framework to operate under as ethical leaders within a global market. However as Machiavelli suggested, keeping the people happy is one of the most important tasks that must be undertaken. To enable this MNC should show philanthropic responsibilities; Carroll’s final tier. This describes the activities that societies ‘desire’ of the MNC, such as contributing various resources (Matten et al. 2003). Carroll (1991,p. 42) believed that philanthropy was "less important than the other three categories", however Matten & Crane (2005) strongly disagree, regarding this type of activity as an act of corporate citizenship, suggests that MNC should act as citizens within their newly founded communities, showing support and care. Secchi (2009) supports this arguing that individual cognition should ethically play more of a role deciding on MNC actions.
Microsoft and its founder Bill Gates are a key example of CC with the organisation donating over $850 million pounds of software to non profit organisation all over the world, supplying developing countries with aid in many different forms (Microsoft, 2011). Microsoft is a strong example of an ethical leader among MNC and is clearly having an effect on other MNC as seen in Nike’s CC statement (see figure 1). This particular example draws on aspects from Machiavelli passage whereby Microsoft may be seen as ‘taking great pain’, through charitable work to support the stakeholders, increasing the success of the organisation.
On the flip side, CC is often simply used as a way of investing socially (Waddock, 2001) to build up ‘social capital’ (Habisch et al. , 2001). Texas Instrumentals give a strong example of this in their CC statement (figure 2). Finally, with an array of different factors contributing to an increase in globalisation, we are seeing greater number or organisations entering global markets. As more corporations engulf continents, a strong lesson must be learnt from Machiavelli’s passage. When entering a global market, its inhabitants must be treated fairly and in a socially responsible way.
This requires an improvement in corporate citizenship and a more moral approach to MNC activities. As seen with Microsoft and Mosaic, MNC are able to benefit from CSR and so it must no longer be conceived in the context of ‘voluntary philanthropi’ (Jamali & Mirshak, 2006). Furthermore until there is concurrence between MNC and social values, globalisation will never exist to benefit all stakeholders.