Chapter 4 Ethics in International Business

4 - 3 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Ethics in International Business Objectives -Source of ethical challenges in IB -Effect of ethical challenges on decisions in IB -Causes of poor ethical decisions in IB -Different conceptual underpinnings for ethical decisions in IB -What managers can do to Promote an awareness of ethical issues throughout the organization Ensure that ethical considerations enter into decision making

4 - 4 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Ethical Issues in International Business Arise when a manager makes decisions consistent with differing national environments -Political systems -Legal systems -Economic development levels -Culture What is ethical and “normal” in one environment may not be so in another

4 - 5 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Ethical Issues in International Business Arise most often in the context of: -Employment practices -Human rights -Environmental policy -Corruption -An MNC’s perceived moral obligations to society

4 - 6 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Employment Practices What standards should be applied? -Home nation’s -Host nation’s -Other Should the MNC adapt its policies? Standardize? Hiring practices, labor relations, diversity issues, employment conditions are some specific issues that require careful thought

4 - 7 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Human Rights A manager can assume as universal her/his views on freedom of: -Association -Speech -Assembly -Movement -Political repression What is the responsibility of an MNC to uphold different standards of human rights?

4 - 8 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Repressive Regimes Is it ethical for MNCs to operate in countries with repressive regimes? -Is inward investment an agent for change? -What is the limit beyond which inward investment would not be justified under all circumstances? -What if competitors from other nations invest and you don’t?

4 - 9 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Environmental Policies Locally mandated environmental standards may be inferior to those an MNC knows it can achieve Tragedy of the commons: a resource held in common by all, but owned by no one, is overused by some, resulting in degradation. If a decision is legal but unethical, should it be taken?

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Corruption Government officials may ask for bribes for an MNC to “get things done” -Is an MNC’s manager who agrees a corrupt manager? -Should an MNC ever accede to bribery demands? Foreign corrupt practices act (USA) Convention on Combating Bribery of Foreign Officials in International Business Transactions (OECD)

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. MNC Power and Moral Decisions MNCs have power over a host country -They can move production away -Along with power arise obligations (?) Power is morally neutral -How it is used is what matters -Perceptions of how it should be used and of its impact vary Company view Host country view

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. MNC and Social Responsibility Social responsibility: business decisions should be made after consideration of social consequences of economic actions -Noblesse oblige: honorable and benevolent behavior is the responsibility of those in power -Benevolent behavior responsibility of only successful business?

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Determinants of Ethical Behavior Organization culture Personal ethics Decision making processes Leadership Unrealistic / realistic performance goals

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior -Friedman doctrine: only responsibility is to max. profits within the rules and regulations. However, he does not say whose laws should be abided with, home or host? Child labor and pollution laws are not the same across the borders.

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior -Righteous moralist: Home country’s laws must be followed everywhere. How far do we need to follow home country’s standards? Pay workers (wages and benefits) according to American standards? If so, what happens to the incentives to go abroad?

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior -Naïve immoralist: “In Rome do what Romans do.” Again, is child labor, bribery, and pollution acceptable?

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior Utilitarian Ethics: moral worth of actions or practices is determined by their consequences as measured by social cost- social benefit analysis. One problem is how to measure cost and benefits, e.g., cost of a person’s life, consequences of genetically altered food, harm to ecosystem from an oil spill. Would you want to reduce your health insurance cost by denying health insurance to inflicted by HIV?

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior: Kantian Ethics: people should be treated as ends and never purely as means to the ends of others. People have dignity and must be treated as such in all aspects of life.

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior Rights theories: Individuals have fundamental rights and privileges that transcend national boundaries and cultures.

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior Justice theories: A just distribution of economic goods and services. John Rawls argues that all goods and services must be distributed equally except when it would work to everyone’s advantage.

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior Rawls Justice theory is based on: Veil of ignorance: If everyone ignores his/her distinguishing characteristics, race, gender, etc., what system of would they design? Under the veil of ignorance, he argues, everyone would choose: -Maximum individual liberties (speech, assembly, conscience, though, property, and freedom from arbitrary arrest and seizure) similar to others.

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior Veil of ignorance: If everyone ignores his/her distinguishing characteristics, race, gender, etc., what system of would they design? Under the veil of ignorance, he argues, everyone would choose: -Maximum individual liberties (speech, assembly, conscience, though, property, and freedom from arbitrary arrest and seizure) similar to others. -Once liberty is established, inequality in basic social goods (income and wealth) is to be allowed if the system that produced inequality is to the advantages of everyone (the difference principle: inequality is to be allowed if it is to the benefit of the least advantaged in the society). Well regulated market system can help the disadvantaged under equal conditions (high tide lifts all boats), i.e., international trade and growth benefits everyone, therefore, this inequality is just.