Ethics and Social

Responsibility

K. Praveen Parboteeah

Objectives

� What is ethics and social responsibility?

� How does national culture and social institutions affect ethics?

� Bribery and Foreign Corrupt Practices Act

� What can be done about it?

� When in Rome, do as the Romans?

� Universal values

� Ethics in Japan

Tobacco’s Industry Ethics

� Few developing countries require health warning on cigarette packages compared to 95% of developed nations� Should tobacco company put warnings? Should they advertise in LDC?

� Cigarette consumption and production is increasing at an alarming rate in LDC � Targeted at young people and women

� Cigarettes in LDC contain more tar and harmful chemicals

� Should tobacco be cultivated?

Tobacco’s Industry Position

� Tobacco cultivation in LDC grants higher returns than alternative crops

� More than 100 million people depend on tobacco for survival

� People in LDC have been cultivating and smoking tobacco for centuries

� Dilemma:

� What weight should be given to human freedom (freedom of farmers and smokers) versus weight of human welfare?

Introduction

� Multinational managers face complex ethical issues all the time

� With an understanding of key ethical problems in multinational management, managers can make more informed ethical judgments

Ethics & Multinational Ethics

� Ethics - the rules and values that determine what goals and actions people follow when dealing with other human beings

� Business ethics: all business decisions with ethical consequences

� The unique ethical problems faced by managers conducting business operations across national boundaries

Social Responsibility

� The responsibility businesses have to society beyond making profits

� Often reflects the ethical values and decisions of the top management team

� Ethics and social responsibility- not easily distinguished in practice

Research Evidence

� Cullen, Parboteeah & Hoegl (2004) shows that specific cultural/institutional variables are associated with justification of unethical behaviors

� Universalism, Pecuniary Materialism lead to more unethical behavior

� Industrialization, Family Weakness and Education

Is American Capitalism Moral?

� Marxist Critic

� Exploitation of workers

� Alienation of human beings

� Protects the vested interest of few

� Non-Marxist Critic

� False needs and overproduction –wasteful nature of the system

� The Military-Industrial complex

� Inequalities inherent in the system

In Defense of Capitalism

� Great emphasis on the importance and value of human freedom

� Political freedom is only possible with economic freedom

� Enormous stride in the ability to produce goods and services – very efficient

� Redistribution of wealth

� Although Bill Gates has become the richest man in around 15-20 years, large number of other people have benefited from the Microsoft wealth

� No system is perfect

Approaches to Deal With International Ethical Dilemmas

� When in Rome do as the Romans do?

� Only guide is what is legal and appropriate in that country

� Justification: � In some instances, laws and regulations may be stricter (e.g., Europe have stricter environmental laws)

� If things are sufficiently different, then it is (maybe) necessary to apply different standards (e.g., US companies complied with Arab firms not to post women and Jews for fear of losing lucrative contracts)

Is the adage wholly justified?

� No – because a country permits bribery, unsafe working conditions, and violation of human rights does not mean that these practices are acceptable

� Key issues

� Questionable payments/Bribery

� Employment

� Environmental issues

� Product safety

Bribery

� Making a payment to a foreign official for the purpose of “influencing any act or decisions of such foreign official in his in his official capacity or of inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official”

� A bribe is made with the intention to corrupt

� Classic case of Lockheed Corporation – paid Japanese officials $25million to win an aircraft contract

What’s wrong with bribery?

� Systematic and widespread corruption inhibits the development of fair and efficient markets

� Does not provide open market access to all competitors/individuals

� Is not an efficient allocation of resources – higher prices

� Results in poverty and underdevelopment

� Violation of duty or trust by an official

Foreign Corrupt Practices Act

� Forbids U.S. companies to make or offer payments or gifts to foreign government officials to get or retain business

� “Reason to know" provision

� Exceptions: � Grease payments – facilitating payments to expedite routine governmental action

� Reasonable expenditures to entertain a foreign official in the course of doing business

� Any laws that permits or requires payments in the country – even if it is bribe

� payments made under duress to avoid injury or violence are acceptable

Key Issues

� Some evidence that discontinuing bribes does not reduce sales of the firm’s products or services in that country

� Some evidence that firms from other countries continue to win business through corrupt practices such as bribery

� Recent formal agreement by many industrialized nations to outlaw the practice of bribing foreign government officials

Criticisms of Multinationals

� Multinationals operate in LDC to seek cheap labor, available resources, tax shelters and relief and new markets

� Unfair competition of MNCS

� Can borrow at great rates from local lenders and do not carry fair share of social development

� Increase in tax rate

� MNCs and impoverishment of LDCs

� Take away scarce resource from locals

Other Criticisms of MNCs

� Majority of stock owned by parent company

� MNCs reserve key managerial and technical positions for expatriates

� MNCs concentrate R&D activities at home – limiting transfer of technology

� Rise in demand for luxury goods at expense of essential goods

What can be done? Apply Universal Codes

� Countries and companies should abide by suggested guidelines for ethical behaviors

� There is pressure now across the world for ethical convergence

DeGeorge’s 7 principles

� Multinationals (MNCs) should do no harm

� MNCs should produce more good than bad for the host country

� MNCs should contribute by their activities to the host country’s development

� MNCs should respect the right of their employees

� MNCs should pay their fair share of taxes

� To the extent that the local culture does not violate moral norms, MNCs should respect these norms

� MNCs should cooperate with the local governments in the development and enforcement of background institutions

Best Practices for Enforcement of Code of Ethics

� Lead by example – international executives should also adhere to the code of ethics

� Make ethics part of the corporate culture

� Involve employees at all levels

� Set and monitor goals

� Effective integration in business processes

� Open forum to discuss ethical issues

Ethics in Japan

� Japanese cabinet member forced to resign for receiving over $2 million from Japanese corporations

� Failure of banking system to take corrective action regarding Japan’s recession

� Concealing customer complaints

� Failure to inform car owners about possible auto defects and maintenance of two sets of customer complaint records

Ethics in Japan

� Hostile work environment� Cultural expectations

� Traditional role of females and female employees

� Sexual harassment may not be considered a moral issue

� Equal opportunity issues� Refusal to hire women or promote them into management positions

� Mitsubishi sued by U.S. EEOC

Conclusions

� Multinational managers face ethical challenges magnified by the international context

� Need to understand home ethical codes and impact on ethics of foreign culture/social institutions