© 2006 prentice hall2-1 chapter 2 managing interdependence – social responsibility and ethics

© 2006 Prentice Hall 2-1

Chapter 2 Managing Interdependence –

Social Responsibility and Ethics


Social Responsibility

Includes the expectation that corporations concern themselves with the social and economic effects of their decisions

The only responsibility of a business is to make a profit

Business should anticipate and try to solve problems in society

The two extreme opinions related to social responsibility – Domestic firms


Social Responsibility of Multinational Corporations

More complex than domestic firms due to the complex issues related to global business– Economic development– Cultural issues– Additional stakeholders– Legal issues


Social Responsibility – Integrated Approach

Organizations agree what should constitute moral and ethical behavior

Emerging because of the development of a global corporate culture– Result of socioeconomic interdependence


Social Responsibility – Integrated Approach

Provide a basis of judgment regarding decisions and situations– Moral Universalism

Unlikely to become a reality– Ethnocentric

– Relativism


Human Rights

What constitutes ‘human rights’?– Perceptions of people

– Priorities of people

US may say wages, education, freedom

Other countries may say safety and shelter


Codes of Conduct

SA 8000’s Proposed Global Standards– Do not use child or forced labor– Provide a safe working environment– Respect workers’ rights to unionize– Do not regularly require more than 48-hour

work weeks– Pay wages sufficient to meet worker’s basic

needs


Ethics in Global Management

Globalization has multiplied the ethical problems facing organizations

Business ethics have not yet globalized

Difficult to reconcile consistent and acceptable behavior around the world



The term international business ethics refers to the business conduct or morals of MNCs in their relationships with individuals and entities– Based on the cultural value system– Based on generally accepted ways of doing

business in each country or society

Exhibit 2-3



Approaching ethical dilemmas varies among MNC’s– American approach is based

upon general rules

– Japan and Europe make decisions on shared values, social ties, and perception of their obligation

2002 Corruption Perceptions Index


Limits of Ethical Standards for International Activities

“The laws of economically developed countries generally define the lowest common denominator of acceptable behavior for operations in those domestic markets. In an underdeveloped country or a developing country, it would be the actual degree of enforcement of the law that would, in practice, determine the lower limits of permissible behavior.”

Laczniak and Naor


Questionable payments

This is a specific ethical issue for managers in the international arena

payments in question are political payments, extortion, bribes, sales commissions, or “grease money” – payments to expedite routine transactions

Also called: tokens of appreciation, ‘la mordida’, ‘bastarella’, and ‘pot-de-vin’


The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA), enacted in 1977, prohibits U.S. companies from making illegal payments or other gifts or political contributions to foreign government officials for the purposes of influencing them in business transactions.


Three Tests of Ethical Corporate Actions

Is it legal?

Does it work (in the long run)?

Can it be talked about?


Ethical Behavior and Social Responsibility Guidelines Developed by MNCs

Develop worldwide codes of ethics

Consider ethical issues in strategy development

Given major, unsolvable, ethical problems, consider withdrawal from the problem market

Develop periodic “ethical impact” statements


Making the Right Decision

How is a manager operating abroad to know what is the “right” decision when faced with questionable or unfamiliar circumstances of doing business? Here is a suggested sequence:– Consult the laws of both the home and the host countries

– Consult the International Codes of Conduct for MNEs (as shown in text Exhibit 2-2)

– Consult the company’s code of ethics

– Consult your superiors

– Use your own moral code of ethics

– Follow your own conscience


Managing Interdependence

Because multinational firms represent global interdependency managers must recognize that what they do has long-term implications for the socioeconomic interdependence of nations


Foreign Subsidiaries in the US

Number of foreign subsidiaries in the US has grown dramatically

FDI in the US is in many cases far more than US investment outward

One different aspect of management in the US is corporate social responsibility


Host-Country Interdependence

International managers must go beyond general issues of social responsibility and deal with specific concerns of the MNC subsidiary Focus should be interdependence rather than independenceFocus should be cooperation rather than confrontationBenefits and costs to host countries


Criticisms of MNC Subsidiary Activities

MNCs raise their needed capital locally, contributing to a rise in interest rates in host countries.

The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host-country people do not have much control over the operations of corporations within their borders.


Criticisms of MNC Subsidiary Activities (contd.)

MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel.

MNCs do not adapt their technology to the conditions that exist in host countries.

MNCs concentrate their R&D activities at home, restricting the transfer of modern technology and know-how to host countries.


Criticisms of MNC Subsidiary Activities (contd.)

MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods.MNCs start their foreign operations by purchasing existing firms rather than developing new productive facilities in host countries.MNCs dominate major industrial sectors, thus contributing to inflation by stimulating demand for scarce resources and earning excessively high profits and fees.MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development.


Recommendations for MNCs Operating in Developing Countries(Suggested by De George)

Do no international harm. This includes respect for the integrity of the ecosystem and consumer safety.Produce more good than harm for the host country.Contribute by their activity to the host country’s development.Respect the human rights of their employees.To the extent that local culture does not violate ethical norms, MNCs should respect the local culture and work with and not against it.Pay their fair share of taxes.Cooperate with the local government in developing and enforcing just background (infrastructure) institutions (i.e. laws, governmental regulations, unions, consumer groups) which serve as a means of social control.


Comparative Management in Focus

NAFTA– Brought together three largely different

economies– Promised that it would create millions of jobs– Promised that it would curb illegal immigration– Promised that it would raise living standards



NAFTA – United States– Overall has enjoyed a

growth in exports

– Companies have moved to Mexico for cheaper labor

– Increased unemployment in many areas

NAFTA – Mexico– Promised to close

wage gaps and lower illegal immigration

– Gap in wages has increased

– Companies are moving to China for lower wages



NAFTA – Canada– Has had mixed results– Businesses are more export-oriented– Created 500,000 new jobs last year

We went from a Canadian company with a 30 million population market to a 300 million

market. We do not treat the boarder as a boarder.- John Scarsella President and CEO Durham

Furniture


Managing Environmental Interdependence

“Now that mankind is in the process of completing the colonization of the planet, learning to manage it intelligently is an urgent imperative. [People] must accept responsibility for the stewardship of the earth. The word stewardship implies, of course, management for the sake of someone else…As we enter the global phase of human evolution, it becomes obvious that each [person] has two countries, his [or her] own and the planet earth.” – Ward and Dubois


Managing Environmental Interdependence

Handling exporting of hazardous waste

Exporting pesticides

Looking for alternative raw materials

Developing new methods of recycling

Expanding the use of byproducts


Looking Ahead

Chapter 3 Understanding the Role of Culture– Culture and Its Effects on Organizations– Cultural Variables– Cultural Value Dimensions– Developing Cultural Profiles– Culture and Management Styles


MNC Stake Holders

Return


Socioeconomic Interdependence

The world is linked through– Securities markets

– Communication Networks

– Subsidiaries

Return


Ethnocentric vs. Relativism

Ethnocentric – Company applies the

morality used in its home country – regardless of the host country’s system of ethics

Relativism– Company adopts the

local moral code in whatever country it is operating – companies run into value conflicts with this approach

Return


A Moral Philosophy Model of Cross-Cultural Societal Ethics

Return


2002 Corruption Perceptions Index

Return


MNC Benefits and Costs to Host Countries

Return

© 2006 prentice hall2-1 chapter 2 managing interdependence – social responsibility and ethics

Documents

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