Chapter Copyright© 2007 Thomson Learning All rights reserved 4 Managing Ethical and Social Responsibility Challenges in Multinational Companies

Copyright© 2007 South-Western/Thomson Learning All rights reserved Learning Objectives Know the definitions of international business ethics and social responsibility Understand some basic principles of ethical philosophy relevant to business ethics Understand how social institutions and national culture affect ethical decision making and management Know the definitions of international business ethics and social responsibility Understand some basic principles of ethical philosophy relevant to business ethics Understand how social institutions and national culture affect ethical decision making and management

Copyright© 2007 South-Western/Thomson Learning All rights reserved Learning Objectives Understand the implications of using ethical relativism and ethical universalism Identify the basic principles and consequences of the U.S. Foreign Corrupt Practices Act Understand how international agreements affect international business ethics Understand the implications of using ethical relativism and ethical universalism Identify the basic principles and consequences of the U.S. Foreign Corrupt Practices Act Understand how international agreements affect international business ethics

Copyright© 2007 South-Western/Thomson Learning All rights reserved Learning Objectives Understand the differences among economic, legal, and ethical analyses of business problems Develop skills in international decision making with ethical consequences Understand the differences among economic, legal, and ethical analyses of business problems Develop skills in international decision making with ethical consequences

Copyright© 2007 South-Western/Thomson Learning All rights reserved International Business Ethics Ethics deal with the “oughts” of life Although economics dominate business decision- making, business decisions also have consequences for people International business ethics: unique ethical problems faced by managers operating across national boundaries More complex as different cultures do not agree on what one “ought” to do Ethics deal with the “oughts” of life Although economics dominate business decision- making, business decisions also have consequences for people International business ethics: unique ethical problems faced by managers operating across national boundaries More complex as different cultures do not agree on what one “ought” to do

Copyright© 2007 South-Western/Thomson Learning All rights reserved Corporate Social Responsibility Idea that businesses have a responsibility to society beyond making profits Closely related to business ethics Must take into account the welfare of other constituents in addition to stockholders Idea that businesses have a responsibility to society beyond making profits Closely related to business ethics Must take into account the welfare of other constituents in addition to stockholders

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.1: Areas of Ethical and Social Responsibility Concerns for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.1: Areas of Ethical and Social Responsibility Concerns for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Primary and Secondary Stakeholders Primary Stakeholders: directly linked to a company’s survival and include customers, suppliers, employees, and shareholders Secondary Stakeholders: less directly linked to the company’s survival and include the media, trade associations, and special-interest groups Primary Stakeholders: directly linked to a company’s survival and include customers, suppliers, employees, and shareholders Secondary Stakeholders: less directly linked to the company’s survival and include the media, trade associations, and special-interest groups

Copyright© 2007 South-Western/Thomson Learning All rights reserved Ethical Philosophy Two ways to consider ethical decision making Traditional ethical philosophy Contemporary philosophy Two ways to consider ethical decision making Traditional ethical philosophy Contemporary philosophy

Copyright© 2007 South-Western/Thomson Learning All rights reserved Basic Systems of Ethical Reasoning Teleological ethical theory Morality of an act or practice comes from its consequences Utilitarianism: what is good and moral comes from acts that produce the greatest good for the greatest number of people Teleological ethical theory Morality of an act or practice comes from its consequences Utilitarianism: what is good and moral comes from acts that produce the greatest good for the greatest number of people

Copyright© 2007 South-Western/Thomson Learning All rights reserved Deontological Ethical Theory Actions have a good or bad morality regardless of the outcomes they produce

Copyright© 2007 South-Western/Thomson Learning All rights reserved Moral Languages Basic ways that people use to make ethical decisions and to explain their ethical choices Six basic ethical languages Virtue and vice Self-control Maximizing human welfare Avoiding harm Rights/duties Social contract Basic ways that people use to make ethical decisions and to explain their ethical choices Six basic ethical languages Virtue and vice Self-control Maximizing human welfare Avoiding harm Rights/duties Social contract

Copyright© 2007 South-Western/Thomson Learning All rights reserved National Differences in Business Ethics and Social Responsibility National culture and social institutions affect ethical behavior and social responsibility

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.2: A Model of Institutional and Cultural Effects on Business Ethics Issues and Management

Copyright© 2007 South-Western/Thomson Learning All rights reserved Messner and Rosenfeld Anomie Theory Argue that specific national culture and social institutions affect ethics National cultures: high achievement, high individualism, high universalism, high materialism are all related to higher deviance Social institutions: high industrialization, capitalist systems, lower family breakdown and highly accessible educational systems should all encourage deviance Argue that specific national culture and social institutions affect ethics National cultures: high achievement, high individualism, high universalism, high materialism are all related to higher deviance Social institutions: high industrialization, capitalist systems, lower family breakdown and highly accessible educational systems should all encourage deviance

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.3: Comparison of Key Ethical Issues Identified by Senior U.S. and EU Managers

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.4: National Differences Regarding Ethical Codes

Copyright© 2007 South-Western/Thomson Learning All rights reserved Questionable Payments Questionable payments Bribes or gifts to expedite government actions or to gain advantage in business deals In many countries, people routinely offer gifts of bribes Questionable payments Bribes or gifts to expedite government actions or to gain advantage in business deals In many countries, people routinely offer gifts of bribes

Copyright© 2007 South-Western/Thomson Learning All rights reserved Questionable Payments Corruption and bribery can have devastating effects on societies Companies routinely use poorer-quality products or materials to cover for the bribe, thus resulting in inferior products Corruption can also result in collusion among firms, resulting in even higher prices Corruption and bribery can have devastating effects on societies Companies routinely use poorer-quality products or materials to cover for the bribe, thus resulting in inferior products Corruption can also result in collusion among firms, resulting in even higher prices

Copyright© 2007 South-Western/Thomson Learning All rights reserved Questionable Payments To understand the level of corruption in countries, multinational companies can rely on the Corruption Perception Index (CPI) CPI developed by Transparency International, gives an idea of the levels of perception of corruption within countries To understand the level of corruption in countries, multinational companies can rely on the Corruption Perception Index (CPI) CPI developed by Transparency International, gives an idea of the levels of perception of corruption within countries

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.5: The CPI for Selected Countries

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.6: Bribe Payers Index

Copyright© 2007 South-Western/Thomson Learning All rights reserved U.S. Foreign Corrupt Practices Act (FCPA) Forbids illegal payments or gifts to officials of foreign governments for the sake of getting or retaining business

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.7: Excerpts from the Foreign Corrupt Practices Act and Fines

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.7: Excerpts from the Foreign Corrupt Practices Act and Fines

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.7: Excerpts from the Foreign Corrupt Practices Act and Fines

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.7: Excerpts from the Foreign Corrupt Practices Act and Fines

Copyright© 2007 South-Western/Thomson Learning All rights reserved U.S. Foreign Corrupt Practices Act (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 Tricky component is the reason-to-know component Firms are liable for bribes even if bribes are made by agents of company Does not prohibit some forms of payments that may occur in international business Payments made under duress to avoid injury or violence are acceptable Tricky component is the reason-to-know component Firms are liable for bribes even if bribes are made by agents of company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Ethics Gap More coercive and normative pressure for U.S. businesses to follow ethical standards Recent evidence suggests that FCPA has not necessarily caused U.S. business to fall behind. More coercive and normative pressure for U.S. businesses to follow ethical standards Recent evidence suggests that FCPA has not necessarily caused U.S. business to fall behind.

Copyright© 2007 South-Western/Thomson Learning All rights reserved Toward Transnational Ethics Ethical convergence: growing pressure to follow the same rules in managing ethical behavior and social responsibility

Copyright© 2007 South-Western/Thomson Learning All rights reserved Four Basic Reasons for Ethical Convergence 1.The growth of international trade and trading blocks 2.Increased pressures to imitate business practices 3.Varied cultural background employees require common standards 4.An increasing number of business watchdogs 1.The growth of international trade and trading blocks 2.Increased pressures to imitate business practices 3.Varied cultural background employees require common standards 4.An increasing number of business watchdogs

Copyright© 2007 South-Western/Thomson Learning All rights reserved Prescriptive Ethics Suggested guidelines for the ethical behavior of multinational companies Three moral languages Avoiding harm Rights/duties Social contract Three languages work irrespective of national backgrounds Suggested guidelines for the ethical behavior of multinational companies Three moral languages Avoiding harm Rights/duties Social contract Three languages work irrespective of national backgrounds

Copyright© 2007 South-Western/Thomson Learning All rights reserved International Ethics Guideline Sources The United Nations Universal Declaration of Human Rights The United Nations Code of Conduct on Transnational Corporations The European Convention on Human Rights The International Chamber of Commerce Guidelines for International Investment The United Nations Universal Declaration of Human Rights The United Nations Code of Conduct on Transnational Corporations The European Convention on Human Rights The International Chamber of Commerce Guidelines for International Investment

Copyright© 2007 South-Western/Thomson Learning All rights reserved International Ethics Guideline Sources The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises The Helsinki Final Act The International Labor Office Tripartite Declarations of Principles Concerning Multinational Enterprises and Social Policy The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises The Helsinki Final Act The International Labor Office Tripartite Declarations of Principles Concerning Multinational Enterprises and Social Policy

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.8: A Code of Conduct for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.8: A Code of Conduct for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.8: A Code of Conduct for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.8: A Code of Conduct for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.8: A Code of Conduct for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.8: A Code of Conduct for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.8: A Code of Conduct for the Multinational Company

Copyright© 2007 South-Western/Thomson Learning All rights reserved Two Basic Rationales for the Code of Conduct for the Multinational Basic deontological principles dealing with human rights History of experiences in international business interactions However, despite the existence of extensive agreements, multinationals may not always follow ethical principles. Basic deontological principles dealing with human rights History of experiences in international business interactions However, despite the existence of extensive agreements, multinationals may not always follow ethical principles.

Copyright© 2007 South-Western/Thomson Learning All rights reserved Why Multinationals Might Not Follow Ethical Principles Governments make agreements The agreements have only voluntary compliance Not all governments subscribe to the agreements Each agreement is an incomplete moral guide to the company Governments make agreements The agreements have only voluntary compliance Not all governments subscribe to the agreements Each agreement is an incomplete moral guide to the company

Copyright© 2007 South-Western/Thomson Learning All rights reserved “Best Practices” Steps Leading by example Making ethics part of the corporate culture Involving employees at all levels Setting and monitoring goals Effective integration in business processes Open discussion of ethics and other ethical issues Governments make agreements Leading by example Making ethics part of the corporate culture Involving employees at all levels Setting and monitoring goals Effective integration in business processes Open discussion of ethics and other ethical issues Governments make agreements

Copyright© 2007 South-Western/Thomson Learning All rights reserved The Ethical Dilemma in Multinational Management: How Will You Decide? Ethical relativism vs. Ethical universalism Ethical relativism: each society’s view of ethics must be considered legitimate and ethical Ethical universalism: basic moral principles that transcend cultural and national boundaries Difficulty in following either ethical relativism or universalism Ethical relativism vs. Ethical universalism Ethical relativism: each society’s view of ethics must be considered legitimate and ethical Ethical universalism: basic moral principles that transcend cultural and national boundaries Difficulty in following either ethical relativism or universalism

Copyright© 2007 South-Western/Thomson Learning All rights reserved Convenient Relativism Companies have a higher responsibility than ethical relativism However, some companies use the logic of ethical relativism to behave any way they please Use the excuse of differences in cultures Companies have a higher responsibility than ethical relativism However, some companies use the logic of ethical relativism to behave any way they please Use the excuse of differences in cultures

Copyright© 2007 South-Western/Thomson Learning All rights reserved Individual Ethical Decision Making for the Multinational Manager Forms of analyses Economic analysis: focuses on what is the best decision for a company’s profits Legal analysis: focuses on only meeting legal requirements of host and parent countries Ethical analysis: goes beyond focusing on profit goals and legal regulations Forms of analyses Economic analysis: focuses on what is the best decision for a company’s profits Legal analysis: focuses on only meeting legal requirements of host and parent countries Ethical analysis: goes beyond focusing on profit goals and legal regulations

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.9: Decision Points of Ethical Decision Making in Multinational Management

Copyright© 2007 South-Western/Thomson Learning All rights reserved Exhibit 4.9: Decision Points of Ethical Decision Making in Multinational Management

Copyright© 2007 South-Western/Thomson Learning All rights reserved Individual Ethical Decision Making Purely ethical issues must be weighed against economic and legal analyses. However, multinational managers are guests in other nations. Ethical decision making must go beyond legal constraints. Purely ethical issues must be weighed against economic and legal analyses. However, multinational managers are guests in other nations. Ethical decision making must go beyond legal constraints.

Copyright© 2007 South-Western/Thomson Learning All rights reserved Individual Ethical Decision Making There is no single accepted ethical theory that managers can use. There are generally accepted theories that can be used as guides, however. Such ethical analyses can help raise managers’ awareness of ethical issues. There is no single accepted ethical theory that managers can use. There are generally accepted theories that can be used as guides, however. Such ethical analyses can help raise managers’ awareness of ethical issues.

Copyright© 2007 South-Western/Thomson Learning All rights reserved Conclusion Multinational managers face ethical dilemmas similar to their domestic counterparts Chapter provides background on business ethics Challenges are magnified by the complexity of working across different countries and cultures Multinational managers face ethical dilemmas similar to their domestic counterparts Chapter provides background on business ethics Challenges are magnified by the complexity of working across different countries and cultures