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Chapter 4

Ethics in International Business

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Introduction

Ethicsrefers to accepted principles of right or wrong thatgovern the conduct of a person, the members of aprofession, or the actions of an organization

Business ethics are the accepted principles of right orwrong governing the conduct of business people

Ethical strategy is a strategy, or course of action, thatdoes not violate these accepted principles

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Ethical Issues InInternational Business

The most common ethical issues in business involve:

employment practices

human rights

environmental regulationscorruption

the moral obligation of multinational companies

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Employment Practices

If work conditions in a host nation are clearly inferior tothose in a multinationals home nation, should companies

apply:

home country standards

host country standards

something in between

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Human Rights

In developed countries, basic human rights such asfreedom of association, freedom of speech, freedom ofassembly, and freedom of movement, are taken for granted

In other countries, these rights may not exist

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Environmental Pollution

Ethical issues arise when environmental regulations inhost nations are far inferior to those in the home nation

Environmental questions take on added importancebecause some parts of the environment are a public goodthat no one owns, but anyone can despoil

The tragedy of the commons occurs when a resourceheld in common by all, but owned by no one, is overusedby individuals, resulting in its degradation

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Corruption

The U.S. Foreign Corrupt Practices Act outlawed thepractice of paying bribes to foreign government officials inorder to gain business

The Convention on Combating Bribery of Foreign PublicOfficials in International Business Transactions adopted bythe Organization for Economic Cooperation andDevelopment (OECD), obliges member states to make thebribery of foreign public officials a criminal offense

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Corruption

Some economists believe that in a country wherepreexisting political structures distort or limit the workings ofthe market mechanism, corruption in the form of black-marketeering, smuggling, and side payments to

government bureaucrats to speed up approval forbusiness investments may actually enhance welfare

Other economists have argued that corruption reducesthe returns on business investment and leads to low

economic growth

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Moral Obligations

Social responsibility refers to the idea that businesspeople should take the social consequences of economicactions into account when making business decisions, andthat there should be a presumption in favor of decisions

that have both good economic and good socialconsequences

Social responsibility can be supported for its own sakesimply because it is the right way for a business to behave

Advocates argue that businesses need to recognize their

noblesse oblige (honorable and benevolent behavior that isthe responsibility of successful companies) and givesomething back to the societies that have made theirsuccess possible

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Classroom Performance System

Which is notan area where multinational firms areconcerned about ethics?

a) Human rightsb) Trade regulations

c) Environmental regulations

d) Corruption

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Ethical Dilemmas

Ethical dilemmas are situations in which none of theavailable alternatives seems ethically acceptable

The ethical obligations of a multinational corporationtoward employment conditions, human rights, corruption,environmental pollution, and the use of power are notalways clear cut

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The Roots Of Unethical Behavior

There is no clear cut reason why managers behaveunethically

The causes of unethical behavior are complex and reflect:Personal ethics

Decision-making processes

Leadership

Unrealistic performance expectationsOrganizational culture

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The Roots Of Unethical Behavior

Figure 4.1: Determinants of Ethical Behavior

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All of the following except ____ contribute to unethicalbehavior by international managers.

a) Decision-making processesb) Leadership

c) Personal ethics

d) National culture

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Personal Ethics

Personal ethics (the generally accepted principles of rightand wrong governing the conduct of individuals) influencebusiness ethics

Expatriates may face pressure to violate their personalethics because they are away from their ordinary socialcontext and supporting culture, and they arepsychologically and geographically distant from the parentcompany

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Decision Making Processes

People may behave unethically because they rely oneconomic analysis when making decisions and fail to askthe relevant question:

Is this decision or action ethical?

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Organizational Culture

Organization culture refers tothe values and norms thatare shared among employees of an organization

In firms with an organization culturethat does notemphasize business culture, unethical behavior may exist

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Unrealistic Performance Expectations

When the parent company sets unrealistic performancegoals, managers may cut corners or act in an unethicalmanner

Organizational culture can legitimize unethical behavioror reinforce the need for ethical behavior

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Leadership

Leaders help to establish the culture of an organization,and set the example that others follow

When leaders act unethically, subordinates may actunethically, too

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Philosophical Approaches To Ethics

There are several different approaches to business ethics

Some approaches deny the value of business ethics orapply the concept in an unsatisfactory way

Others are favored by moral philosophers and are thebasis for current models of ethical behavior

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According to ________, a companys home-countrystandards of ethics are the appropriate ones to follow inforeign countries.

a) the righteous moralist

b) the nave immoralist

c) the Friedman doctrine

d) cultural relativism

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Utilitarian And Kantian Ethics

Utilitarian approaches to ethics hold that the moral worthof actions or practices is determined by their consequences

Actions are desirable if they lead to the best possiblebalance of good consequences over bad consequences

Problems with utilitarianism include measuring thebenefits, costs, and risks of an action, and the fact that theapproach fails to consider justice

Kantian ethics are based on the philosophy of ImmanuelKant who argued that people should be treated as endsand never purely as means to the ends of others

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Rights Theories

Rights theoriesrecognize that human beings havefundamental rights and privileges which transcend nationalboundaries and cultures

Rights theories establish a minimum level of morallyacceptable behavior

Moral theorists argue that fundamental human rights formthe basis for the moral compassthat managers shouldnavigate by when making decisions which have an ethical

component

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Rights Theories

TheUniversal Declaration of Human Rightsspecifies thebasic principles that should always be adhered toirrespective of the culture in which one is doing business

The declaration was prompted by the idea that some

fundamental rights transcend national borders and cultures

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________ recognize that human beings have fundamentalrights and privileges which transcend national boundariesand cultures.

a) Kantian ethics

b) Utilitarian approaches

c) Straw men

d) Rights theories

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Justice Theories

Justice theories focus on the attainment of a justdistribution of economic goods and services

Ajust distributionis one that is considered fair andequitable

One theory of justice that is particularly important wasproposed by John Rawls who argued that all economicgoods and services should be distributed equally exceptwhen an unequal distribution would work to everyones

advantage

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Justice Theories

According to Rawls, impartiality is guaranteed by the veilof ignorance (everyone is imagined to be ignorant of all hisor her particular characteristics)

When these conditions exist:

each person is permitted the maximum amount of basicliberty compatible with a similar liberty for others

once equal basic liberty is assured, inequality in basicgoods social goods are to be allowed only if they benefiteveryone

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The _____ suggests that everyone is imagined to beignorant of all his or her particular characteristics.

a) tragedy of the commons

b) veil of ignorance

c) code of ethics

d) the Universal Declaration of Human Rights

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Ethical Decision Making

To ensure ethical issues are considered in business decisions, firmsshould:

favor hiring and promoting people with a well grounded sense ofpersonal ethics

build an organizational culture that places a high value on ethicalbehavior

makes sure that leaders within the business not only articulate therhetoric of ethical behavior, but also act in manner that is consistentwith that rhetoric

put decision making processes in place that require people toconsider the ethical dimension of business decisions

develop moral courage

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Hiring And Promotion

Businesses should strive to identify and hire people witha strong sense of personal ethics

Companies should refrain from promoting individuals whohave acted unethically

Prospective employees should find out as much as theycan about the ethical climate in an organization prior totaking a position

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Organization Culture And Leadership

To foster ethical behavior, businesses need to build anorganization culture where:

the business explicitly articulates values that place astrong emphasis on ethical behavior, perhaps using a code

of ethics (a formal statement of the ethical priorities abusiness adheres to)

leaders in the business give life and meaning to the codeof ethics by repeatedly emphasizing their importance, andthen acting on them

the business puts in place a system of incentives andrewards that recognize people who engage in ethicalbehavior and sanction those who do not

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What is a companys formal statement of ethical priorities

called?

a) Mission statement

b) Code of ethics

c) Code of values

d) Organizational culture

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Decision-Making Process

To determine if a decision is ethical, managers can ask:

Does my decision fall within the accepted values ofstandards that typically apply in the organizationalenvironment?

Am I willing to see the decision communicated to allstakeholders affected by it?

Would the people with whom I have significant personalrelationships approve of the decision?

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Managers can also use a five step process to think through ethicalproblems:

Step1: Managers identify which stakeholders (the individuals or groupswho have an interest, stake, or claim in the actions and overallperformance of a company) a decision would affect and in what ways

Internal stakeholders are people who work for or who own thebusiness such as employees, the board of directors, and stockholders

External stakeholders are the individuals or groups who have someclaim on a firm such as customers, suppliers, and unions

Step 2: Managers determine whether a proposed decision wouldviolate the fundamental rights of any stakeholders

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Step 3: Managers establish moral intent (the business mustresolves to place moral concerns ahead of other concernsin cases where either the fundamental rights ofstakeholders or key moral principles have been violated)

Step 4: The company engages in ethical behavior

Step 5: The business audits its decisions, reviewing themto make sure that they were consistent with ethicalprinciples

E hi Offi

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Ethics Officers

To ensure ethical behavior in a business, a number offirms now have ethics officers

Ethics officers ensure:

all employees are trained in ethics

ethics is considered in the decision-making process

the companys code of conduct is followed

M l C

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Moral Courage

Moral courage:

enables managers to walk away from a decision that isprofitable, but unethical

gives an employee the strength to say no to a superiorwho instructs her to pursue actions that are unethical

gives employees the integrity to go public to the mediaand blow the whistle on persistent unethical behavior in acompany

does not come easily and employees have lost their jobswhen acting on this courage

S f D i i M ki S

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Summary of Decision-Making Steps

In the end, there are clearly things that an internationalbusiness should do, and there are things that aninternational business should not do

But, not all ethical dilemmas have a clean and obvious

solution

Documents

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