Business and People Management INTERNATIONAL MANAGEMENT GLOBAL Business and People Management Professor H. Michael Boyd, Ph.D.

Ethics, Social Responsibility, and Sustainability Chapter 3 Ethics, Social Responsibility, and Sustainability

Ethics, Social Responsibility, and Sustainability The specific objectives of this chapter are to EXAMINE ethics in international management and some of the major ethical issues and problems confronting MNCs. DISCUSS some of the pressures on and action being taken by selected industrialized countries and companies to be more socially and environmentally responsive to world problems. EXPLAIN some of the initiatives to bring greater accountability to corporate conduct and limit the impacts of corruption around the world.

Ethics, Social Responsibility, and Sustainability in International Management Study of morality and standards of conduct. Dilemmas arising from conflicts between ethical standards of a country and business ethics are most evident in employment and business practices, recognition of human rights, including women in the workplace, and corruption Inferring right vs. wrong in legal sense

Ethics, and Social Responsibility, and Sustainability in International Management Corporate Social Responsibility (CSR) Involves the actions of a firm to benefit society beyond requirements of the law and the direct interests of the firm Closely related to ethics CSR concerns include working conditions in factories and service centers as well as environmental impacts of corporate activities

Ethics Theories and Philosophy Kantian philosophical traditions Individuals (and organizations) have responsibilities based on a core set of moral principles that go beyond those of narrow self-interest. Aristotelian virtue ethics Focus on core, individual behaviors and actions and how they express and form individual character. Utilitarianism Favors the greatest good for the greatest number of people under a given set of constraints. Eastern philosophy Views the individual as part of, rather than separate from, nature.

Human Rights Human rights issues challenge MNCs Currently no universally adopted standards of what constitutes acceptable behavior A great deal of subjectivity and culturally biased viewpoints exist Some basic rights: life, freedom from slavery or torture, freedom of opinion and expression, general ambiance of nondiscriminatory practices Human rights violations still rampant globally China (Tiananmen Square) and Russia Women’s rights

Equal opportunity issues Ethics, Social Responsibility, and Sustainability Around the World: JAPAN Equal opportunity issues Gender-gap hiring: refusal to hire women for more than low-level jobs Glass ceiling: lack of promotion to management positions Sexual harassment: hostile work environment

Equal employment opportunity Ethics, Social Responsibility, and Sustainability Around the World: EUROPE Equal employment opportunity Glass ceiling pervasive throughout the world France, Germany, and Great Britain have seen an increase in the number of women in management, but the increases tend to be only at lower levels

Labor, Employment, and Business Practices Difficult to establish a universal foundation of employment practices Difficult dilemmas in deciding working conditions, expected consecutive work hours, and labor regulations Frequent offshoring due to differences in labor costs

Human rights violations Ethics, Social Responsibility, and Sustainability Around the World: CHINA Workers not well paid Often forced to work 12 hours a day, 7 days a week 2010: Foxconn factory worker suicides 2012: Over 43% of Foxconn workers had seen or been part of a workplace accident. Human rights violations Use of child labor

Environmental Protection and Development Countries approach the issue of conservation of natural resources differently Poor countries are more focused on improving the welfare of their citizens rather than improving the environment Environmental Kuznets Curve Many companies violate laws and jeopardize the environment 2010 BP Gulf of Mexico oil rig explosion

The Environmental Kuznets Curve

Globalization and Ethical Obligations of MNCs Should the MNC adopt the regulations in the country of origin or those in the country of operation? “Doing the right thing” is not always easy Levi Strauss in Bangladesh

Reconciling Ethical Differences across Cultures Integrative Social Contracts Theory Helps companies avoid relativism versus absolutism Gives managers a framework to use when they face a gap between the moral and ethical values in the home country and in the host country Corporate Social Responsibility Sustainability Development that meets humanity’s needs without harming future generations

Corporate Social Responsibility and Sustainability Nongovernmental organization (NGO) Private, not-for-profit organization that seeks to serve society’s interests by focusing on social, political, and economic issues such as poverty, social justice, education, health, and the environment. NGOs have grown in number, power, and influence NGOs have urged MNCs to be more responsive to a range of social needs in developing countries NGO activism has caused major changes in corporate behavior NGOs have been active in promoting fair trade products

Corporate Social Responsibility and Sustainability Examples of NGOs in the U.S. and globally Save the Children Oxfam CARE Amnesty International World Wildlife Fund Conservation International

Corporate Response to Social and Organizational Obligations Agreements and codes of conduct committing MNCs to maintain certain standards U.N. Global Compact Codes help offset real or perceived concern that companies move jobs to avoid higher labor or environmental standards in their home markets Contribute to raising of standards in developing world by “exporting” higher standard to local firms in these countries

Principles of the Global Compact Human Rights Labor Environment Anticorruption

Principles of the Global Compact

Corporate Governance Corporate governance The system by which business corporations are directed and controlled. Distribution of rights and responsibilities Stakeholder management Spells out rules and procedures Makes decisions Becoming more important after numerous scandals Arthur Anderson, Enron, Lehman Brothers

Corporate Governance Many continental European countries are “insider” systems Ownership more concentrated Shares owned by holding companies, families, or banks Rules and regulations differ among countries and regions U.K. and U.S. systems are “outsider” systems Dispersed ownership of equity Large number of outside investors

Corruption Corruption Government corruption is a pervasive element in international business environment Scandals in Russia, China, Brazil, Pakistan, Lesotho, South Africa, Costa Rica, Egypt, and elsewhere Some evidence that discontinuing bribes does not reduce sales of the firm’s products or services in that country

Transparency International Corruption Perceptions Index Ratings

Global Initiatives to Increase Accountability and Limit Corruption Foreign Corrupt Practices Act Makes it illegal for U.S. companies and their managers to attempt to influence foreign officials through personal payments or political contributions “Entertainment” expenses “Consulting” fees Organization of American States Inter-American Convention Against Corruption, Foreign Corrupt Practices Act, Transparent Agents Against Contracting Entities

Corruption and Foreign Corrupt Practices Act Recent formal agreement by many industrialized nations to outlaw the practice of bribing foreign government officials Organization for Economic Cooperation and Development 29 member nations; now 34 Fails to outlaw most payments to political party leaders Does indicate growing support for anti-bribery initiatives

International Assistance Governments and corporations are collaborating to provide assistance to communities and locales through global partnerships Best “investments” Controlling and preventing AIDS Fighting malnutrition Reducing subsidies and trade restrictions Controlling malaria

Copenhagen Consensus Development Priorities

The U.N. Millennium Development Goals

Review and Discuss How might different ethical philosophies influence how managers make decisions when it comes to offshoring of jobs? What lessons can U.S. multinationals learn from the political and bribery scandals in recent years, such as those affecting contractors doing business in Iraq (Halliburton) as well as large MNCs such as Siemens, HP, and others? Discuss two. In recent years, rules have tightened such that those who work for the U.S. government in trade negotiations are now restricted from working for lobbyists for foreign firms. Is this a good idea? Why or why not?

Review and Discuss What are some strategies for overcoming the impact of counterfeiting? Which strategies work best for discretionary (for instance, movies) versus nondiscretionary (pharmaceutical) goods? Why are MNCs getting involved in corporate social responsibility? Are they displaying a sense of social responsibility, or is this merely a matter of good business? Defend your answer.