International Legal and Ethical Issues in Business

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Topic: Business & Economics
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Abstract

Political, economic, environmental, cultural, and social factors are some of the factors that can affect business operations and in effect influence decision-making processes in an organization.

This paper examines some of these factors, and the effects they have had in the operations of two international companies dealing in petroleum and related products. The article starts with an introduction followed by a brief description of the two companies.

It then proceeds to examine how legal and political issues can come off the exit the decision-making process in an organization with a reference to the two companies.

The ethical issues and their influence on business operation are then discussed, as well as the incidences that have occurred in the two companies. Finally, the effect of economic factors on decision-making process concerning the companies is given. This is followed by a brief conclusion.

Introduction

There are varieties of issues that influence the decision-making process, which will affect the achievement of the goals of organized nations. These issues include political factors, ethical factors, economic factors, as well as the legal provisions that prevail in a business environment.

Depending on the nature of the factors, they could promote business development or hinder the development.

Both Shell and BP are international companies that deal in petroleum and other related products. They supply fuel and lubricants that are used in the transport industry, aviation industry, construction industry, as well as domestic usage.

The products and services provided by the companies may differ depending on social, economic, and political factors that influence management in the companies.

Shell is a collection of companies that deal with energy petrochemical products. The parent company was a German company known as the Dutch Shell Plc. The company, often referred to as The Shell Group is currently headquartered at The Hague in the Netherlands.

Shell is one of the leading energy companies in the world and does its operations in a manner that promote all aspects of development.

The group operates in about 90 countries in the world and has over 100 thousand employees in serving at those subsidiary levels. Moreover, the company largely operates in the EU Member States like the U.K, Germany, and other countries like the United States, Canada, and countries in Africa.

Shell Company provides various products and services that are used by road users as well as providing fuel at home.

There are also activities that are organized by a company that helps in promoting economic growth globally. The products offered include transport fuels, oils, and fuel for home usage.

BP is also an international oil and gas company with its headquarter in London, United Kingdom. Just like Shell, BP also includes several companies and currently operates in several countries in the world.

Issues that affect the decision-making process

Legal and Political issues and their effects in the decision-making process

Various levels of government exist that can influence the operations of businesses. These are the local government, the central government, and in some case a multi-national government.

The latter refers to countries that have a union that controls economic and social programmes within the member states like the European Union. At whatever level of government, the aim is to ensure social and economic development.

The operations should be such that they promote education, health, access to social amenities, and eliminating cases of crime that often demoralize investors.

The governments often intend to control the inflation rates and improve the living standards of the citizens through increased employment rates among the citizens. To achieve this, the governments will resort to policies that every business organization within their jurisdiction must follow.

Businesses need to abide by the provisions of government policies; otherwise, they will constantly be involved in fraud cases that will lead to several losses (Gordon-Davis & Cumberlege, p4).

The governments impose monetary policies, fiscal policies, and legislation that control the business operations concerning the achievement of the above objectives. The monetary policies include the rates of interest issued by the Central bank and the general control of money flow in an economy.

If the rates were high, few investors would wish to borrow from the Central Bank resulting in low investment. Individuals would also not want to borrow from the bank and expenditure will be little to the disadvantage of business growth.

The fiscal policies include a range of taxes imposed on the individuals or businesses in an economy. The fees include direct charges levied on individuals or company and paid directly to the government.

There is also indirect taxation like Value Added Tax, which is first paid to a business dealer then transferred to the government.

The decisions made by governing bodies at the international level also affect trade. For instance, the World Bank is charged the responsibility of handling fraud cases that emerge especially in the projects that have been funded by the bank.

So far, it has managed to investigate thousands of cases since 1999, and several companies have been shut down following the investigations (Robinson 2007, p150

The political environment prevailing in a region or state will influence business in that area. An area that is known to be frequently war-torn due to the political rivalry does not often attract investors.

On the other hand, countries that have been politically stable for a long period have attracted both domestic and foreign investment thereby promoting business operations.

The political stability of a state or group of states will influence the enactment of the policies by a government that control business operations.

If a country is politically stable, then such policy-making procedures shall be easily concluded. However, a politically divided economy will never come to an agreement on the right policies to be applied.

Politicians and large businesses also engage in some sort of relationship. The companies would rely on the politicians since the latter are directly involved in the policy-making processes by the government. They would seek to have policies in favor of their companies.

On the other hand, politicians rely on such companies to fund their campaign programmes. However, the mutual relationship can at times be regarded as a drawback on the company, which ultimately receives poor reputations.

A common scenario where large companies are known to support the major political parties is in the United Kingdom. BP had been known to support politicians in several countries where the company is established. The move led to its bad reputation among the stakeholders and consumers who felt that this was not a good form of governance (Robinson 2007, p150).

The company has, however, taken a step towards detaching itself from politics and in 2002, the company initiated a move that would saw it relinquish political participation. It did not fund any politician or political party in any country, not even in the UK in 2005.

This has gained the company more strength as the investors now feel that the undue influence the company had, and which hindered its smooth operations, is now overcome.

A provision of the international bodies has not had serious impacts on the operations at BP. The company mainly adopted the policies that apply in the United Kingdom to its many branches across the world.

In the United States, the company is not subject to all the New York Stock Exchange (NYSE) policies like the domestic companies; the company has corporate governance practices that differ significantly from those provided for by NYSE concerning the US companies (Board performance report 2009).

On the other hand, Shell Company seems to have been rooted in national and international governance practices. ). In 2004, Shell Company lied to the public concerning the capacity of its oil in the reservoir.

This was contrary to the provisions provided by the UK’s Financial Services Authority and the United States SEC. The company was heavily fined and is still faced with other criminal charges (Mallin 2006, p29).

The company ventured mainly between countries that had a different form of governance, i.e., the UK and Germany among the EU Member States (Mallin 2006, p30).

Ethical issues and their effects in the decision-making process

Ethical factors will greatly influence the performance of an organization since the issues directly affect the human resource that is available in the organization.

Right from the selection of new employees of an organization to the issuance of incentives that will boost their spirits of hard work, the officer will need to apply the morally accepted codes of conduct to ensure that no biases are involved.

An organization that has recruited all its employees from a particular group or community, beyond which it operates, will receive a poor reputation. Moreover, an employee who has served the company with a lot of diligence should receive an appraisal in return for the good services offered.

There are several bodies across the world are created to deal with issues related to codes of conduct (Minus & Bassiouni p2).

The code of conduct among the employees themselves is also essential. The management is often faced with some ethical dilemmas, which emerge from the unethical behaviors by the employees.

It is through following the ethical procedures stipulated for a business that the management would manage these cases. Every company needs to outline the code of ethics and codes of conduct required of every employee in the organization.

The employees should then be sensitized on these codes of conduct. This will prevent the occurrence of such ethical dilemmas facing the management. Ethics has thus been described as ‘an engine of change whose time has come’ (Minus & Bassiouni p14).

Operations at BP plc has had a threat in the recent past following what could be attributed to a lack of an ethical code of conduct among the management.

The oil spill that was witnessed on April 20, 2010, was because of the management’s negligence of the pleas from the employees and the investors in the company.

The explosion of the Deepwater Horizon drilling rig that occurred in the Gulf of Mexico could be prevented had the management taken heed of the signs of the possibility of such an incidence that was evident before (Fisk and Calkins 2011).

The top management at the company embarked on cutting the budget, and no proper maintenance was carried out to ensure the safety of employees. There cases of employee deaths and injuries while executing the company duties due to faulty implements.

There were even criminal penalties imposed on the top officials by business and employment regulators concerning the mismanagement.

All this yielded no fruit (Fisk and Calkins 2011). Cutting of operation cost characterized by a reduction in the budget and workforce has been persistent in the company.

It is even believed to be the cause of the explosion that occurred in 2005 at Texas City refineries. The company has had a great loss following the incidence.

Firstly, it led to the loss of many lives. Secondly, the company was to lose tens of billions of dollars resulting from the damages and the bad reputation that it would now have among the consumers (Fisk and Calkins 2011).

The management of the company has started initiatives that are geared towards restructuring the organization as was suggested by the investors.

The current boss at BP has created a safety division that is charged with the responsibility of checking and stopping any operation that can pose problems to the company (Gebler 2011).

However, if the suggestions from such a division will not be listened to, then there was no reason for creating it. Good organizational management listens to the ideas that are brought forward by the implementers at the lowest level (Gebler 2011).

On the other hand, it has to be noted that raising the alarm when something wrong happens is ethical conduct since it will prevent the further occurrence or subsequent negative occurrences if the right action is taken immediately.

Shell Company has strived to create a favorable atmosphere for the whistleblowers in case something is not taking the right course. This is despite the odds that may be associated with whistleblowing.

The whistleblowers often lose their good relations with the top management who feel that they are not accorded due respect. This can always lead to loss of employment and the subsequent effect on the living standard of the family of the employee (Robinson 2007, p153).

There is a need for the management to co-operate with the whistleblowers and strive to correct the situations that have arisen. Such is the environment that has been created at Shell Company, and which has seen the company receive reputation.

The company has embarked on a campaign to ensure honesty by setting up policies that protect and promote whistleblowing. These include setting up a helpline to be used by anybody and the establishment of Shell General Business Principles.

Owing to the elaborate nature of the policies, abiding by them may still be a challenge. The company has also ensured that the principles are followed and that the helpline is not misused (Robinson 2007, p153).

Decision-making process is now easy since that spirit of Corporate Social Responsibility is cultivated among every member of the organization, i.e., the investors, employees, and the management of the organization.

Shell Company had also demonstrated its commitment to ensuring transparency and integrity when it started reporting any malpractice that could have been performed by the organization. This was a move to build on the company’s reputation.

The company reported in 2002 concerning its activities that were believed to have promoted corruption in Nigeria. Part of the staff was found guilty of such offenses and charged in the years that followed (Robinson 2007, p153).

Economic issues and their effects in the decision-making process

An economic system could be viewed as the kind of exchange that occurs among business organizations and society. The study of economics can be broadly categorized as microeconomics and macroeconomics.

It is important to note that in any society, there are various activities taking place. Economics will be concerned with how the activities in one industry affect the activities in other industries (Boone & Kurtz 2010, p102).

The decisions that an individual make in the type of products services to use from a variety of products and services that are available are points of concern in economics.

Microeconomics deals with small units like families and small business whereas macroeconomics covers the economy of a country about the economy of the world (Boone & Kurtz 2010, p102). Macroeconomics examines how the government spends the scarce resources that are available and the effects that the government policies have on the living standards of its people.

Businesses often go beyond the border of a country or union of states. Thus, the economic policies that are adopted by a particular country would greatly influence the businesses that could be established by both domestic and foreign investors.

The competition that occurs among alternative products stems from the economic status of a state, and this affects the investment in a particular product.

For instance, the companies that deal in petroleum products and natural gas currently find stiff competition from other cheaper sources of energy like solar power and bio-diesel (Boone & Kurtz 2010, p104).

One of the economic challenges that had been experienced at BP and all the other companies dealing in energy products is the low consumption of oil globally.

According to a BP Annual Review (2009), the consumption of oil ‘declined for a second successive year during 2009, with growing demand in non-OECD countries once again more than offset by falling consumption in OECD countries’ (p8).

The reduction in fuel consumption was caused by the global financial crisis that was being experienced at the time. Shell, being a dealer in the same products, suffered the name problems. The companies had to lower their prices to meet the standards of low demand that now prevailed.

At BP, the prices of natural gas and crude oil fell considerably compared to the prices that were recorded in the year before. The refining margins also fell abruptly at the beginning of 2009 (BP Annual Review 2009, p8).

All such problems require a fresh management approach and thus affect decision-making procedures in an organization. It would call for the formulation of strategies that can help the company to overcome the problem in the future.

At BP, it has been identified that the decline in fuel consumption was because of a global economic recession.

The necessary measures can now be taken. For instance, the company has foreseen a need for a diverse mix of energy, which would ‘provide enhanced national and global energy security while supporting the transition to a lower-carbon economy’ (BP Annual Review 2009, p8).

Conclusion

The forces that influence the operations of businesses are cyclic with one resulting from or causing a resultant force. To meet the challenges that are frequently, the management of the business organization needs to acknowledge that it is a corporate responsibility.

An integrated system that includes cost-benefit analysis need to be applied to resolve the conflicting forces (University of California n.d., para2).

All the stakeholders in the organization need to be involved and never should any decision be made that impedes the realization of the objectives of every organization, i.e., promoting economic and social development.

References

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