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MBA 611
CORPORATE SOCIAL RESPONSIBILTY/ BUSINESS ETHICS
Assignment - 2017
DIGITAL ANSWER SCRIPT

(PLEASE PRINT YOUR DETAILS IN CAPITAL LETTERS)

Course Code:
MBA 611
Course Title:
Corporate Social Responsibility / Business Ethics
Student ID: 745

Name: MOHAMMAD ADNAN ISHAQ ALHAMAMSHEH

Batch:
One day MBA ( Sharjah)

GENERAL INSTRUCTIONS

This project must be done individually

Assignment must be submitted in softcopy only on or before the assigned due date to
mba@gbsge.com
Failure of submission / late submissions of the assignment would lead to a penalty of AED 1000.
This exam carries 45% of your total grade.
Class Activities carries 55%
If you have missed the class activity, contact : studentsupportuae@gbsge.com
Answer all the questions below the cases.
Length of each answer must be at least 300 words per question.
The last date of submission for your assignment is 7 JUNE 2017
Please rename your DIGITAL ANSWER SCRIPT with your name.

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Case 1: The Volkswagen emissions scandal: A case study in corporate misbehavior

Q1. Discuss the main issues that Volkswagen has been involved in. Be specific in your discussion. (5 marks)

VW has developed new software to change the performance and improve the results, in 2013 EPA (the environment
protection agency) in USA found out that many VW cars being sold in USA had devices in diesel engine, these cars
have been tested by putting them in on a stationary test rig , and the result was the engines emitted nitrogen oxide
pollutants up to 40 times above what is allowed in the US.

The software was evil ingenuity incarnate. It adjusted the engine’s output in order to reduce emissions when a car
was hooked up to testing equipment, then increased the emissions above legal levels when the car was on the road,
giving the engine more power to go along with the extra smog (The Globe and Mail, 2015).

America boss Michael Horn, VW had broken the trust of their customers and public, the direct result of this scandal
was Mr. Winterkorn has left the company and has been replaced by Matthias Mueller, the former boss of Porsche.
The scandal did not stop here, it has spread out to The UK, France, South Korea, Canada, and Germany,
investigations started throughout the world which led to 30% down carmaker’s shares.

This is a disaster for Volkswagen. The company struggled after the U.S. brought in new emissions standards in
2007 that forced it to stop selling its diesel models. It has made a comeback since 2009, when it introduced
bestselling “clean diesel” models that we now know were not especially clean at all (The Globe and Mail, 2015).

The most unsavoury part of this business is that Volkswagen deliberately deceived consumers, who were told they
were buying one thing but were sold another. There was no way for the consumer to beware, because the treachery
was hidden deep in the computer chips that operate modern vehicles, and the cars had the EPA’s stamp of approval
(The Globe and Mail, 2015).

VW has responded directly to this issue, as we mentioned the CEO has left and replaced, they started to work on
winning back their customer trust again by leaving no stone unturned. VW has also launched an internal inquiry,
with VW recalling almost 500,000 cars in the US alone, it has set aside 6.5bn Euro to cover costs, and this recalling
will start in January. Another financial problem will face VW that EPA has the power to fine VW up to 37,500
Dollar to each failed car a maximum fine about 18bn Dollar, analysts said legal actions from consumers and
shareholders will be taken in regard to this problem.

In general, Volkswagen played its customers for fools. Its slogan is “Das Auto,” but it will be a long time before
anyone associates Volkswagen with something so straightforward again (The Globe and Mail, 2015).

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Q2. Explain why the case can be appropriate as a CSR-related topic. Give details to support your answer. (5
marks)

The Triple bottom line (TBL) is the key component of corporate citizenship, which link to sustainability. Triple
bottom line is a phrase introduced in 1994 by John Elkington and later used in his 1997 book "Cannibals with Forks:
The Triple Bottom Line Of 21st Century Business," which seeks to broaden the focus on the financial bottom line
by businesses to include social and environmental responsibilities. A triple bottom line measures a company's
degree of social responsibility, its economic value and its environmental impact. A key challenge with the triple
bottom line, according to Elkington, is the difficulty of measuring the social and environmental bottom lines, which
necessitates the three separate accounts being evaluated on their own merits (Investopedia.com, 2017)

People in the Bottom Line

Adding the "people" element of social responsibility to corporate bottom lines shifts the focus to the fair treatment
of employees and off-site labor, as well as enacting favorable practices in the communities where companies
conduct business. For example, Mars Chocolate North America’s Sustainable Cocoa Initiative requires its cocoa
farmers to be certified by fair trade organizations to ensure they follow a code of conduct that includes fair
treatment to those providing labor. In exchange for certification, Mars provides productivity technology and buys
cocoa at premium prices (Investopedia.com, 2017)

Environmental Responsibility

The bottom line referred to as the "planet" represents the implementation of sustainable practices and the reduction
of environmental impact. These measures range in scope from green initiatives such as recycling programs within
corporations to companies dedicated to manufacturing products using only sustainable materials. For example,
Axion Structural Innovations builds railroad ties and pilings using recycled plastic bottles and industrial waste
instead of using standard materials such as wood, steel and cement (Investopedia.com, 2017)

The Financial Bottom Line

The addition of social and environmental responsibilities can have a positive effect on a company's financial bottom
line. A Nielsen report released in October 2015 found 73% of millennials, which represent the largest consumer
demographic in U.S. history, were willing to pay more for sustainable goods, an increase of 46% from 2014. The
study found 56% of consumers were willing to pay more for products offered by companies committed to social
values.(Investopedia.com,2017)

In addition to growing revenues, companies are integrating social and environmental standards with corporate
governance policies, which can reduce the chances of brand-damaging events and missteps. In addition to
governance benefits, the transformation to a triple bottom line is increasingly seen as a vital factor in building
corporate brands and goodwill, which represent 30% of the value of public companies, on average
(Investopedia.com,2017)

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As a CSR topic many countries and institutions started doing programs to avoid these levels of carbon dioxide
emissions and try to find out new methods to reduce this emissions and one of them is EPA (the environment
protection agency) which is taking common sense regulatory actions to reduce carbon dioxide emissions from
nation’s largest sources such as power plants and motor vehicles.

Q3. If you were a decision maker at Volkswagen, what will you do to remedy the situation? Give at least two
recommendations to support your answer. (10 marks)

It is unlikely that VWs become a fraudulent company because of their engines as it would be easily
fixed. Not only it will require a huge logistics efforts to recall and to reshape the software, the company
would also have to improve an engine that is actually compatible with the environmental standards.
Building an engine balancing 4 factors, performance, emissions, durability and fuel economy,
Volkswagen has sacrificed the emissions of that balance.

To therapy the issue, VWs have to do below plan:

i) Fixing the defeated cars & restitution the customer who is affected from this issue:

There could be more than one fix, some models maybe it needs only to update the
software and they have to check if this issue will affect more or not, in addition they
have to check the performance & fuel economy and this is what is important to
customer also they have to investigate more to customers regarding to same issue and
maybe it needs to re-buy the car from VWs owner itself if it is affected more & customer
is not desire to keep it.

ii) Rebuilding the brand respect and reputation and respecting the people & the customers:

VW has a very good history but with this failed test, VW has been fallen down from
public eyes and they have to re-build a good relation & respecting with customer to be
trusted for the customer.

iii) Focusing on the Research & Development activates and invests in eco-friendly technologies,
such as hybrid cars and electrical cars:

Green solutions is the right thing to do. Green-technology investments positively affect
the bottom lines of the companies that make them. After all, the very purpose of such
projects is to reduce energy consumption and other costly wastes worldwide. This step
then result in environmentally friendly benefits, such as a smaller carbon footprint and
fewer squandered natural resources.

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Case 2: British pharmaceutical

Q1. Using two of the CSR Approaches discussed in the course, explain how ethics has to persist in the
pharmaceuticals industry. Be sure to give examples from the case to illustrate your point. (10 marks)

Corporate Social Responsibility (CSR) involves different approaches to include economic

responsibility, legal responsibility, ethical responsibility and philanthropic responsibility, in the GSK
case, the most appropriate approaches that fit with bribery scandal are the legal and ethical
approaches.

1.1. Legal Approach:

“The only way to properly control promotion is strong and enforced regulation by the state.”

Pharmaceuticals involve many parties, including patients, doctors, other health workers,
salespeople, and manufacturers. Laws today are usually written in fairly general terms to
meet present and possibly future needs, so regulations can founded and passed more
rapidly and simply than laws, this makes the pharmaceutical companies to regulate
themselves as it is stated clearly in the case: “I think other companies will follow suit, but
one of the biggest problems is that the industry persists in regulating itself,”

And since that the pharmaceutical is a global industry that has always relied heavily on
the influence of experts in promoting products, and due to the absence of proper
regulations, the payments to doctors for speaking about medicines during meetings
promoting drugs have been revived.

1.2. Ethical Approach:

The ethics involved within pharmaceutical sales is built from the organizational ethics,
which is a matter of system compliance, accountability and culture (Grace & Cohen, 2005).
Organizational ethics are used when developing the marketing and sales strategy to both
the public and the healthcare profession of the strategy. (Wikipedia.org, 2015)

The pharmaceutical industry is a highly competitive business and its success is dependent
on the sales and marketing of each drug. GSK bribery scandal showed sales staff bribing
doctors with speaking fees and lavish gifts like Rolex watches if they prescribed GSK’s
products, and GSK is even accused of organizing fake conferences to account for the
money, which lately addressed by GSK as conflicts of interest that could put commercial
interests ahead of the best outcome for patients. The other example for unethical
behaviours, GSK runs into conflicts over improper sales tactics by provided misleading
information on certain drugs.

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Q2. Discuss at least two important concerns related to unethical practices in GSK. If you were to apply the
Principles of CSR, what could be the most appropriate principle that can be discussed? (10 marks)

The bribery is “The act of taking or receiving something with the intention of influencing the
recipient in some way favourable to the party providing the bribe. Bribery is typically considered
illegal and can be punishable by jail time or stiff fines if authorities find out about the bribe.”
(BusinessDictionary.com, 2017).

Corruption is dishonest behaviour by those in positions of power, such as managers or government

officials. Corruption can include giving or accepting bribes or inappropriate gifts, double dealing,
under-the-table transactions, manipulating elections, diverting funds, laundering money and
defrauding investors. One example of corruption in the world of finance would be an investment
manager who is actually running a Ponzi scheme (Investopedia.com, 2017)

Corruption and bribery distort the marketplace so that the most deserving actors don’t gain what they
deserve. This is unfair and unethical, and it results in suboptimal outcomes in the aggregate. However, we must
remember that business ethics is a practical endeavor, and cannot solely rest on lofty principles that deny the
realities of the world in which we behave. For instance, there are societies where bribery is part of the game, so to
speak. In other words, if you don’t bribe, then you can’t participate, and everyone knows that and everyone accepts
that. This would be like bluffing in poker. It may not seem very honest, but everyone understands that it is part
of the game. However, business should not simply accept the status quo, it must also be an ethical leader in trying
to change the status quo. So honest businesses should participate in such an economy, but they should also take
the lead in trying to change these economies into more honest and fair economies. They should not use the excuse
that “everyone does it” to free themselves of all their ethical obligations. So, like so many cases of business ethics,
the answer is to be practical and principled at the same time (Centers.scb.rit.edu, 2012)

One more word about bribery. Some societies use gifts to reinforce cooperation and loyalty; two values that lead
to higher ethical behaviors. Without a certain level of cooperation and loyalty, it is hard for businesses in some
societies to arrive at optimal levels of productivity. Although these gifts may seem like bribes that have the goal of
corrupting, they can actually be seen as gifts with the goal of enhancing trust and cooperation. Once again, business
must be both ethical and practical in situation like these (Centers.scb.rit.edu, 2012)

The decision to stop payments to doctors for speaking about medicines during meetings with other prescribers
marks a big shift for a global industry that has always relied heavily on the influence of experts in promoting
products.

The most appropriate CSR principles that can be discussed are “Accountability & Transparency”.

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Q3. Draw strategic recommendations on how the two concerns in question 2 can be addressed. (5 marks)

Accountability defined as: The obligation of an individual or organization to account for its activities, accept
responsibility for them and to disclose the results in a transparent manner. It also includes the responsibilities for
money or other entrusted property (Businessdictionary.com, 2017)

Transparency defined as: the extent to which investors have ready access to required financial information about
a company, such as price levels, market depth and audited financial reports. Transparency helps reduce
price volatility, because all the market participants can base decisions of value on the same data. Companies also
have a strong motivation to provide disclosure, as transparency is generally rewarded through the stock's
performance.(Investopedia.com,2017)

British pharmaceutical giant GlaxoSmithKline (GSK) is currently the subject of a major investigation by Chinese
authorities for allegedly paying RMB3 billion (nearly US$500 million) in bribes to doctors and government officials
to boost sales and raise the price of its drugs. It has been reported that 4 detained GSK executives have since
confessed to violating Chinese anti-bribery and tax laws. If substantiated, GSK would join other multinational
companies such as Carrefour, Siemens, Morgan Stanley and IBM which have in the past been implicated for
corruption and bribery in the PRC.

In light of the GSK scandal, this article aims to provide an overview of the anti-bribery legislation in the PRC as
well as Singapore (Morgan, 2013)

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 ANTI-BRIBERY LEGISLATION IN THE PRC

The 2 key anti-bribery laws in the PRC are the Criminal Law of the PRC (Criminal Law) and the Anti-Unfair
Competition Law of the PRC (AUCL) (Morgan, 2013)

 Official Bribery
The Criminal Law defines a bribe as money, property in kind or any economic interest that can be calculated in
monetary value, provided in return for inappropriate interests and illegitimate benefits. An offence of official
bribery is committed where the party paying the bribe has given articles of property to state functionaries in order
to seek illegitimate benefits and where the party receiving the bribe is a public official or entity of the PRC (Official
Bribery). The term "state functionaries" is widely defined in Article 93 of the Criminal Law to include not only
public officials, but also employees in state-owned enterprises and other state institutions and persons who perform
public services authorized by the State. Sanctions imposed for committing the offence of Official Bribery range
from short-term criminal detention up to life imprisonment, depending on the amount of the bribe, as well as the
confiscation of property and levy of fines (Morgan, 2013)

 Commercial Bribery

Private individuals and companies which commit acts of bribery (Commercial Bribery) can face both civil and
criminal sanctions (Morgan, 2013)
Article 8 of the AUCL widely defines Commercial Bribery based on whether the purchase or sale of products is
conducted in a manner which excludes competition. The civil penalty imposed on individuals and companies alike
for committing Commercial Bribery under the AUCL are fines ranging from RMB10,000 to RMB200,000, and the
confiscation of such illicit gains (Morgan, 2013)
Under the Criminal Law, individuals including officers and employees of a company responsible for perpetrating
Commercial Bribery may face penalties of up to 10 years and fined. Such company, being the employer of the
perpetrators, could also be fined (Morgan, 2013)
It is noteworthy that where a crime is committed on behalf of a company resulting in a benefit or gain of illegal
proceeds for such company, the PRC legal framework imposes corporate liability on companies for the acts of their
subsidiaries, employees and third parties. Case in point, the Interim Regulations of the State Administration for Industry
and Commerce (SAIC) on Prohibition of Commercial Bribery issued by the SAIC explicitly provide that the conduct of
Commercial Bribery by the staff of a business operator for the purpose of sale or purchase of commodities shall be
regarded as the conduct of the business operator (Morgan, 2013)

 Thresholds for Criminal Sanctions

Pursuant to the Guidelines for Bribery Prosecution Standards issued by the Supreme People’s Procuratorate on 22
December 2000, the trigger of criminal liability under the Criminal Law is subject to (i) in the case of an individual,
the bribe being at least RMB10,000; or (ii) in the case of a company or entity, the bribe being at least RMB200,000.
The foregoing exceptions however do not apply to Official Bribery where bribes are offered to more than 3
government officials, bribes are paid to public officials in particular members of the judiciary, or the bribes have
caused severe damage to national or social interests (Morgan, 2013)

 Mitigated Sentences and Waivers for Voluntary Confessions

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The Interpretation of the Supreme People’s Court and the Supreme People’s Procutorate of Several Issues Concerning the
Specific Application of the Law in the Handling of Criminal Bribe-Giving Cases (Interpretation) which came into force
on 1 January 2013, introduced the concept of voluntary confession to corporate perpetrators, affording them the
opportunity to confess their criminal conduct in exchange for (i) in the case where the confession is made prior to
prosecution, a mitigated punishment or a waiver of punishments, subject to certain exceptions; and (ii) in the case
where the confession is made post-prosecution, leniency in sentencing (Morgan, 2013)

 ANTI-BRIBERY LEGISLATION IN SINGAPORE

The primary Singapore statutes prohibiting bribery are the Prevention of Corruption Act (PCA) and the Penal Code
(Sections 161 to 165) (Penal Code). The PCA contains provisions which prohibit bribery for both private commercial
activities and public officials, while the provisions in the Penal Code focus on the bribery of public officials of the
Singapore government. The provisions set out in the PCA refer to the offer and receipt of gratification, which
includes money or any gift, loan, fee, reward, commission, valuable security or other property or interest in
property; any office, employment or contract; any part or full payment, release from or discharge of any obligation
or other liability; and any other service, favour or advantage of any description whatsoever. Relative to the
definition of a bribe by the PRC’s anti-bribery regime, Singapore has an unequivocally wider-ranging definition of
the same. It is noteworthy that the PCA has extraterritorial effect, such that a bribery offence committed outside
Singapore by a Singapore citizen will still be caught by the PCA. Additionally, both individuals and companies can
be held liable for bribery pursuant to the PCA or Penal Code (Morgan, 2013)

 CONCLUSION

Companies operating in the PRC have traditionally taken domestic bribery laws of the PRC for granted due to a
common perception that it is part of the PRC’s business culture. They have instead been concerned with taking
necessary compliance measures to avoid the collateral cross border prosecutions which could ensue from
extraterritorial laws such as the Foreign Corrupt Practices Act of the United States of America and the United
Kingdom’s Bribery Act. The GSK scandal, viewed by many as a demonstration of political commitment by the
PRC’s new leadership to crack down on institutionalized corruption, is a timely reminder for companies operating
in the PRC of the need to adhere to the domestic bribery laws of the PRC with the same rigor as the foregoing
extraterritorial laws (Morgan, 2013)

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Reference List

1. Theglobeandmail.com. (2015) Volkswagen has made a fool of its customers with emissions scandal
[Online] Available at https://www.theglobeandmail.com/opinion/editorials/volkswagen-has-made-a-
fool-of-its-customers-with-emissions-scandal/article26463892/ [Accessed: 4th June, 2017].

2. Investopedia.com. (2017) Triple Bottom Line [Online] Available at

http://www.investopedia.com/terms/t/triple-bottom-line.asp [Accessed: 4th June, 2017].

3. Grace, D & Cohen, S. (2005). Business Ethics: Oxford University Press.

4. Wikipedia. Org. (2017). Ethics in pharmaceutical sales [online] Available at

https://en.wikipedia.org/wiki/Ethics_in_pharmaceutical_sales [Accessed: 5th June, 2017].

5. Businessdictionary.com. (2017) Bribery Definition [Online] Available at

http://www.businessdictionary.com/definition/bribery.html [Accessed: 5th June, 2017].

6. Investopedia.com. (2017) Corruption [Online] Available at

http://www.investopedia.com/terms/c/corruption.asp [Accessed: 5th June, 2017].

7. Centers.scb.rit.edu. (2012) Institute for Business Ethics and Social Responsibility» Is bribing always
unethical? [online] Available at http://centers.scb.rit.edu/ethics/2012/05/is-bribing-always-unethical/
Accessed: 6th June, 2017].

8. Businessdictionary.com. (2017) Accountability Definition [Online] Available at

http://www.businessdictionary.com/definition/accountability.html [Accessed: 6th June, 2017].

9. Investopedia.com. (2017) Transparency [Online] Available at

http://www.investopedia.com/terms/t/transparency.asp [Accessed: 6th June, 2017].

10. Morgan & Bockius (2013) GSK: what you need to know about bribery laws in the PRC and Singapore
[Online] available at http://www.lexology.com/library/detail.aspx?g=240c32a2-7a7e-4195-b935-
381040f4df04 [Accessed: 6th June 2017].

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