CHAPTER 4

MANAGING ETHICAL

AND

SOCIAL RESPONSIBILITY

CHANGES

IN

MULTINATIONAL COMPANIES

INTRODUCTIONINTRODUCTION

• Multinational managers face complex ethical issues

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

BUSINESS ETHICSBUSINESS 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

INTERNATIONAL INTERNATIONAL BUSINESS ETHICSBUSINESS ETHICS

SOCIAL SOCIAL RESPONSIBILITYRESPONSIBILITY

• 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

Excepts from Exhibit 4.1 Excepts from Exhibit 4.1 show examples of show examples of

ethical/social ethical/social responsibility issues responsibility issues

faced by MNCsfaced by MNCs

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IIssssuuee

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CCuussttoommeerr PPrroodduucctt ssaaffeettyy

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SSttoocckkhhoollddeerrss FFaaiirr rreettuurrnn oonn iinnvveessttmmeenntt

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IIss aann MMNNCC oobblliiggaatteedd ttoo ccoonnttrrooll iittss hhaazzaarrddoouuss wwaassttee ttoo aa ddeeggrreeee hhiigghheerr tthhaann llooccaall llaawwss rreeqquuiirree??

ETHICAL PHILOSOPHYETHICAL PHILOSOPHY

TRADITIONAL TRADITIONAL VIEWSVIEWS

• Two basic systems of ethical reasoning– DeontologicalDeontological– TeleologicalTeleological

DEONTOLOGICAL DEONTOLOGICAL THEORIESTHEORIES

• Actions have a good or bad morality regardless of the outcomes they produce

TELEOLOCIALTELEOLOCIAL

• Morality from the consequences of an act–utilitarianism

MORAL MORAL LANGUAGESLANGUAGES

• Basic ways that people use to make ethical decisions and explain ethical choices –a contemporary view

• Virtue and vice• Self control• Maximize human welfare• Avoiding harm• Rights/duties• Social contract

SIX BASIC ETHICAL SIX BASIC ETHICAL LANGUAGESLANGUAGES

NATIONAL NATIONAL DIFFERENCESDIFFERENCES

• National culture and social institutions affect ethical behavior/social responsibility

MANAGEMENTPRACTICES TOMONITOR AND

CONTROL ETHICALBEHAVIOR IN

ORGANIZATIONS(e.g., codes of ethics)

KEY SOCIALINSTITUTIONS

ReligionLaws and Legal

System

IMPORTANT ETHICALISSUES FORBUSINESS

(e.g., equal rights forwomen)

CULTURALNORMS AND

VALUES(e.g., norms for

gift giving)

EX 4.2 INSTITUTIONAL AND CULTURALEFFECTS ON BUSINESS ETHICS ISSUES AND

MANAGEMENT

EX 4.3 ETHICAL EX 4.3 ETHICAL ISSUES IDENTIFIED BY ISSUES IDENTIFIED BY

SENIOR U.S. AND SENIOR U.S. AND EUROPEAN EUROPEAN MANAGERSMANAGERS

-100 -50 0 50

Relative Frequency of Concern0 = mean

Political andLocalInvolvement

PersonnelIssues

Use ofInformation

EX 4.4 THE EX 4.4 THE MANAGEMENT OF MANAGEMENT OF

KEY ETHICAL KEY ETHICAL ISSUESISSUES

-15 -10 -5 0 50 = Mean

Ethical Issues Addressed in Training

Ethical Issues Addressed in Written Policies

EX 4.5 BELIEFS EX 4.5 BELIEFS REGARDING REGARDING

ETHICAL CODESETHICAL CODES

0 1 2 3 45=Agree

3=Neutral1=Disagree

Raise Ethical Level

Aid to Refuse

Define Limits

Violate if not Detected

French German U.S.

FOREIGN CORRUPT FOREIGN CORRUPT PRACTICES ACTPRACTICES 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

• See Exhibit 4.7

• FCPA does not prohibit some forms of payments that may occur in international business–payments made under duress to avoid injury or violence are acceptable

EFFECTS OF THE EFFECTS OF THE “ETHICS GAP”“ETHICS GAP”

• FCPA and proliferation of ethical codes in US are creating and ethics gap

• FCPA blocked some gains in export market share and FDI

• Pressure on other countries to follow US rules

TOWARD TOWARD TRANSNATIONAL TRANSNATIONAL

ETHICSETHICS

ETHICAL ETHICAL CONVERGENCECONVERGENCE

• In spite of wide differences in cultures and social institutions, growing pressures for multinationals to follow same rules

PRESSURES FOR PRESSURES FOR ETHICAL ETHICAL

CONVERGENCECONVERGENCE

• Growth of international trade–creates pressures for uniformity

• Increased cross national imitation

• Mixed cultural background employees

PRESCRIPTIVE PRESCRIPTIVE ETHICS FOR THE ETHICS FOR THE MULTINATIONALMULTINATIONAL

• Donaldson suggests–guides based on the moral languages of avoiding harm, right/duties, and the social contract

–specified in contracts and international laws

INTERNATIONAL INTERNATIONAL CODES OF CODES OF CONDUCTCONDUCT

• For moral language to work, there must be codes of conduct

• Current codes exist based on codes from international governing bodies (UN, ILO) and international agreements (Exhibit 4.8)

MULTINATIONALS MULTINATIONALS DO NOT ALWAYS DO NOT ALWAYS FOLLOW ETHICAL FOLLOW ETHICAL

AGREEMENTSAGREEMENTS

• Governments make agreements• Compliance voluntary• Not all governments subscribe• Each guide is an incomplete

moral guide

HOW SHOULD THE HOW SHOULD THE MANAGER MANAGER

DECIDE?DECIDE?

ETHICAL ETHICAL RELATIVISM VS RELATIVISM VS

ETHICAL ETHICAL UNIVERSALISMUNIVERSALISM

• Ethical relativism - each society's view of ethics considered legitimate and ethical

• Ethical universalism - basic moral principles transcend cultural/national boundaries

PRACTICAL PRACTICAL PROBLEMS OF PROBLEMS OF

FOLLOWING FOLLOWING EITHEREITHER

• Convenient relativism - companies use ethical relativism to behave any way they please

• Cultural imperialism with ethical universalism

BALANCING THE BALANCING THE NEEDS OF THE NEEDS OF THE

COMPANY WITH COMPANY WITH ETHICAL ETHICAL

CONSEQUENCESCONSEQUENCES

• Managers must weigh and balance the economic, legal, and ethical consequences of their decisions

• Economic• Legal• Ethical

FORMS OF FORMS OF ANALYSESANALYSES

IS THE BEHAVIOR OR ITS CONSEQUENCE:

No

No

No

No

Yes

Yes

Yes

Yes

Yes

No

Do It!

LegalAnalysis

OrganizationalEthical

Analysis

Cultural SensitivityEthical Analysis

Personal Ethical Analysis

No

Violates Hostor HomeCountryLaws?

Violates MNC's Codeof Conduct?

InViolation of

the Company'sEthical Code?

Consistentwith Company

Culture?

Consistentwith Local

CulturalNorms?

Consistentwith PersonalMoral Beliefs?

STOP!

STOP!

STOP!

STOP!

STOP!

STOP!

Yes

CONCLUSIONSCONCLUSIONS

• 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