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2.231 Topic 10

Ethics inInternational Business

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Introduction

Ethics refers to accepted principles ofright or wrong that govern the conduct ofa person, the members of a profession,

or the actions of an organizationBusiness ethics are the accepted

principles of right or wrong governing theconduct of business people

Ethical strategy is a strategy, or courseof action, that does not violate theseaccepted principles

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Ethical Issues inInternational Business

The most common ethical issues in

business involve

employment practices

human rights

environmental regulations

corruption

the moral obligation of multinational

companies

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Employment Practices

Question: When work conditions in a host

nations are clearly inferior to those in a

multinationals home nation, what

standards should be applied?

The standards of the home nation?

The standards of the host nation?

Something in between?

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Human Rights

Question: What is the responsibility of aforeign multinational when operating in acountry where basic human rights are

not respected?

Basic human rights taken for granted inthe developed world such as freedom of

association, freedom of speech, freedomof assembly, freedom of movement, andso on, are by no means universallyaccepted

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Environmental Pollution

Question: Should a multinational feel freeto pollute in a developing nation if doingso does not violate laws?

When environmental regulations in hostnations are far inferior to those in thehome nation, ethical issues arise

The tragedy of the commons occurswhen a resource held in common by all,but owned by no one, is overused byindividuals resulting in its degradation

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Corruption

Question: Is it ethical to make payments togovernment officials to secure business?

In the United States, the Foreign CorruptPractices Act outlawed the practice of payingbribes to foreign government officials in order togain business

The Convention on Combating Bribery ofForeign Public Officials in International

Business Transactions adopted by theOrganization for Economic Cooperation andDevelopment (OECD) obliges member states tomake the bribery of foreign public officials acriminal offense

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Corruption

Some economists suggest that the practice ofgiving bribes might be the price that must bepaid to do a greater good

In countries where preexisting politicalstructures distort or limit the workings of themarket mechanism, corruption in the form ofblack-marketeering, smuggling, and sidepayments to government bureaucrats to

speed up approval for businessinvestments may actually enhance welfare

However, other economists have argued thatcorruption reduces the returns on businessinvestment and leads to low economic growth

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Moral Obligations

Question: Do multinationals have a

responsibility to give back to the societies that

enable them to grow and prosper?

The concept ofsocial responsibility refers to the

idea that business people should take the social

consequences of economic actions into account

when making business decisions, and that thereshould be a presumption in favor of decisions

that have both good economic and good social

consequences

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Ethical Dilemmas

Managers often face situations wherethe appropriate course of action is notclear

Ethical dilemmas are situations in whichnone of the available alternatives seemsethically acceptable

They exist because real world decisions

are complex, difficult to frame, andinvolve various consequences that aredifficult to quantify

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The Roots of Unethical Behavior

Question: Why do managers behave inan unethical manner?

Managerial behavior is influenced by

Personal ethics

Decision making processes

Organizational cultureUnrealistic performance expectations

Leadership

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The Roots of Unethical Behavior

Determinants of Ethical Behavior

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Personal Ethics

Business ethics reflect personal ethics

(the generally accepted principles of right

and wrong governing the conduct of

individuals)

Expatriates may face pressure to violate

their personal ethics because they are

away from their ordinary social contextand supporting culture, and they are

psychologically and geographically

distant from the parent company

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Decision Making Processes

Studies show that business people may

behave unethically because they fail to

ask the relevant questionis this

decision or action ethical?

Decisions are made based on

economic logic, without consideration

for ethics

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Organizational Culture

Unethical behavior may exist in firmswith an organization culture(the valuesand norms that are shared among

employees of an organization) that doesnot emphasize business ethics

Values and norms shape the cultureof a firm, and that culture influences

decision making

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Unrealistic PerformanceExpectations

Pressure from the parent company to

meet performance goals that are

unrealistic, and can only be attained by

cutting corners or acting in an unethical

manner can cause unethical behavior

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Leadership

If a firms leaders fail to act in an ethical

manner, other employees may not act

ethically

Actions speak louder than words

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Philosophical Approaches to Ethics

There are several approaches to business

ethics including

Straw men

The Friedman doctrineCultural relativism

The righteous moralist

The nave immoralist

Utilitarian and Kantian

Rights theories

Justice Theories

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Straw Men

Straw men approaches to business ethics are

raised by business ethics scholars primarily for

the purpose of demonstrating that they offer

inappropriate guidelines for ethical decisionmaking in a multinational enterprise

Four such approaches are

the Friedman doctrine

cultural relativismthe righteous moralist

the nave immoralist

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Straw Men

The Friedman Doctrine

Economists Milton Friedmans suggeststhat the only social responsibility of

business is to increase profits, so long asthe company stays within the rules of law

Friedman does not believe thatcompanies should undertakeexpenditures beyond those mandated

by law and those required for theefficient running of a business

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Straw Men

Cultural Relativism

Cultural relativismis the belief that ethicsare culturally determined and that firms

should adopt the ethics of the cultures inwhich they operate

when in Rome, do as the Romansdo

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Straw Men

The Righteous Moralist

The righteous moralist claims that a

multinationals home country standards

of ethics are the appropriate ones for

companies to follow in foreign countries

This approach is common among

managers from developed countries

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Straw Men

The Nave Immoralist

The nave immoralist asserts that if a

manager of a multinational sees that

firms from other nations are not following

ethical norms in a host nation, that

manager should not either

Actions are ethically justified ifeveryone else is doing the same thing

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Utilitarian and Kantian Ethics

Utilitarian approaches to ethics hold that themoral worth of actions or practices isdetermined by their consequences

Actions have multiple consequences, somegood, some not

Actions are desirable if they leads to thebest possible balance of good consequencesover bad consequences

Problems with this approach include measuringthe benefits, costs, and risks of a course ofaction, and the fact that the philosophy fails toconsider justice

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Utilitarian and Kantian Ethics

Kantian ethics are based on the

philosophy of Immanuel Kant who

argued that people should be treated as

ends and never purely as means to theends of others

People have dignity and need to be

respected, they are not machines

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Rights Theories

Rights theories recognize that human beingshave fundamental rights and privileges thattranscend national boundaries and culture

Moral theorists argue that fundamental human

rights form the basis for the moral compass thatmanagers should navigate by when makingdecisions that have an ethical component

The idea that some fundamental rightstranscend national borders and cultures was the

underlying motivation for the UNs UniversalDeclaration of Human Rights (specifies thebasic principles that should always be adheredto irrespective of the culture in which one isdoing business)

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Justice Theories

Justice theories focus on the attainment of ajust distribution (one that is considered fair andequitable) of economic goods and services

John Rawls argued that all economic goods and

services should be distributed equally exceptwhen an unequal distribution would work toeveryones advantage

Impartiality is guaranteed by the veil ofignorance (everyone is imagined to be

ignorant of all his or her particularcharacteristics)

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Justice Theories

Question: What system would people designunder a veil of ignorance?

A system where people would agree that each

person is permitted the maximum amount ofbasic liberty compatible with a similar liberty forothers

Once equal basic liberty is assured, inequalityin basic goods social goods are to be allowed

only if they benefit everyonethe difference principle suggests that

inequalities are justified if they benefit theposition of the least advantaged person

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Implications for Managers

Question: How can managers ensure that ethical issuesare considered in business decisions?

Managers should

favor hiring and promoting people with a well groundedsense of personal ethics

build an organizational culture that places a high value onethical behavior

makes sure that leaders within the business not onlyarticulate the rhetoric of ethical behavior, but also act inmanner that is consistent with that rhetoric

put decision making processes in place that requirepeople to consider the ethical dimension of businessdecisions

develop moral courage

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Hiring and Promotion

Businesses should strive to identify and

hire people with a strong sense of

personal ethics

Prospective employees should find out

as much as they can about the ethical

climate in an organization

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Organization Cultureand Leadership

Businesses need to build an organization culture thatplaces a high value on ethical behavior

the business must explicitly articulate values thatplace a strong emphasis on ethical behavior, perhaps

using a code of ethics (a formal statement of theethical priorities a business adheres to)

leaders in the business should give life and meaningto the code of ethics by repeatedly emphasizing theirimportance, and then acting on them

the business should put in place a system of

incentives and rewards that recognize people whoengage in ethical behavior and sanction those who donot

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Decision-Making Processes

A moral compass can help determine whether adecision is ethical. If a manager can answeryes to the following questions, the decision isethically acceptable.

does my decision fall within the acceptedvalues of standards that typically apply in theorganizational environment?

am I willing to see the decision

communicated to all stakeholders affected byit?

would the people with whom I havesignificant personal relationships approve ofthe decision?

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A five-step process can also help managersthink through ethical issues

1. How would a decision affect stakeholders (theindividuals or groups who have an interest,stake, or claim in the actions and overallperformance of a company)

Internal stakeholders are people who workfor or who own the business such as

employees, the board of directors, andstockholders.

External stakeholders are the individualsor groups who have some claim on a firmsuch as customers, suppliers, and unions

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2. Managers need to determine whether aproposed decision would violate thefundamental rights of any stakeholders

3. Managers need to establish moral intent (thebusiness must resolve to place moral concernsahead of other concerns in cases where eitherthe fundamental rights of stakeholders or keymoral principles have been violated)

4. The company should then engage in ethicalbehavior

5. The business must audit its decisions,reviewing them to make sure that they wereconsistent with ethical principles

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Ethics Officers

To encourage ethical behavior in abusiness, a number of firms now haveethics officers

Ethics officers ensure thatemployees are trained to be ethically

aware

ethical considerations enter decision-

making

the companys code of ethics isfollowed

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Moral Courage

Employees in an international business

may need significant moral courage

Managers need to be able too walk

away from decisions that are

profitable, but unethical

Employees need to be able to say no

to actions that are unethical

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Summary ofDecision-Making Steps

International businesses should

strive to hire and promote people based onethical considerations as well as othermetrics of performance

establish an ethical culture within theorganization

appoint ethics officers

create an environment that facilitates moral

courage Even so, it is important to recognize that not all

ethical dilemmas have a clear and obvioussolution

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Critical Discussion Question

1. A visiting American executive finds that aforeign subsidiary in a poor nation has hired a12-year old girl to work on a factory floor, inviolation of the companys prohibition on child

labor. He tells the local manager to replace thechild and tell her to go back to school. Thelocal manager tells the American executive thatthe child is an orphan with no other means ofsupport, and she will probably become a street

child if she is denied work. What should theAmerican executive do?

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2. Drawing upon John Rawls concept, theveil of ignorance, develop an ethicalcode that will

(a) guide the decisions of a large oilmultinational towards environmentalprotection, and

(b) influence the policies of a clothing

company to outsource its manufacturingprocess.

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3. Under what conditions is it ethically

defensible to outsource production to the

developing world where labor costs are

lower when such actions also involvelaying off long-term employees in the

firms home country?

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4. Are facilitating payments ethical?

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5. A manager from a developing country is overseeing amultinationals operations in a country where drugtrafficking and lawlessness are rife. One day, arepresentative of a local big man approaches themanager and asks for a donation to help the big man

provide housing for the poor. The representative tells themanager that in return for the donation, the big man willmake sure that the manager has a productive stay in hiscountry. No threats are made, but the manager is wellaware that the big man heads a criminal organizationthat is engaged in drug trafficking. He also knows thatthe big man does indeed help the poor in the run down

neighborhood of the city where he was born. Whatshould the manager do?

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6. Reread the Management focus featureon Unocal and answer the followingquestions:

a) Was it ethical for Unocal to enter into apartnership with a brutal militarydictatorship for financial gain?

b) What actions could Unocal have taken,

short of not investing at all, to safeguardthe human rights of people impacted bythe gas pipeline project?

2231 lecture topic 10

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