Chapter 2 Managing Interdependence: Social Responsibility and Ethics Power Point by Kristopher Blanchard North Central University

Social Responsibility Includes the expectation that corporations concern themselves with the social and economic effects of their decisions The two extreme opinions related to social responsibility – Domestic firms The only responsibility of a business is to make a profit Business should anticipate and try to solve problems in society

Social Responsibility of Multinational Corporations More complex than domestic firms due to the complex issues related to global business Economic development Cultural issues Additional stakeholders Legal issues

Social Responsibility – Integrated Approach Organizations agree what should constitute moral and ethical behavior Emerging because of the development of a global corporate culture Result of socioeconomic interdependence

Social Responsibility – Integrated Approach Provide a basis of judgment regarding decisions and situations Moral Universalism Unlikely to become a reality Ethnocentric Relativism

Human Rights What constitutes ‘human rights’? Perceptions of people Priorities of people US may say wages, education, freedom Other countries may say safety and shelter

Codes of Conduct SA 8000’s Proposed Global Standards Do not use child or forced labor Provide a safe working environment Respect workers’ rights to unionize Do not regularly require more than 48-hour work weeks Pay wages sufficient to meet worker’s basic needs

Ethics in Global Management Globalization has multiplied the ethical problems facing organizations Business ethics have not yet globalized Difficult to reconcile consistent and acceptable behavior around the world

Ethics in Global Management The term international business ethics refers to the business conduct or morals of MNCs in their relationships with individuals and entities Based on the cultural value system Based on generally accepted ways of doing business in each country or society

Ethics in Global Management Approaching ethical dilemmas varies among MNC’s American approach is based upon general rules Japan and Europe make decisions on shared values, social ties, and perception of their obligation

Limits of Ethical Standards for International Activities “The laws of economically developed countries generally define the lowest common denominator of acceptable behavior for operations in those domestic markets. In an underdeveloped country or a developing country, it would be the actual degree of enforcement of the law that would, in practice, determine the lower limits of permissible behavior.” Laczniak and Naor

Questionable payments This is a specific ethical issue for managers in the international arena payments in question are political payments, extortion, bribes, sales commissions, or “grease money” – payments to expedite routine transactions Also called: tokens of appreciation, ‘la mordida’, ‘bastarella’, and ‘pot-de-vin’

The Foreign Corrupt Practices Act The Foreign Corrupt Practices Act (FCPA), enacted in 1977, prohibits U.S. companies from making illegal payments or other gifts or political contributions to foreign government officials for the purposes of influencing them in business transactions.

Three Tests of Ethical Corporate Actions Is it legal? Does it work (in the long run)? Can it be talked about?

Ethical Behavior and Social Responsibility Guidelines Developed by MNCs Develop worldwide codes of ethics Consider ethical issues in strategy development Given major, unsolvable, ethical problems, consider withdrawal from the problem market Develop periodic “ethical impact” statements

Making the Right Decision How is a manager operating abroad to know what is the “right” decision when faced with questionable or unfamiliar circumstances of doing business? Here is a suggested sequence: Consult the laws of both the home and the host countries Consult the International Codes of Conduct for MNEs (as shown in text Exhibit 2-2) Consult the company’s code of ethics Consult your superiors Use your own moral code of ethics Follow your own conscience

Managing Interdependence Because multinational firms represent global interdependency managers must recognize that what they do has long-term implications for the socioeconomic interdependence of nations

Foreign Subsidiaries in the US Number of foreign subsidiaries in the US has grown dramatically FDI in the US is in many cases far more than US investment outward One different aspect of management in the US is corporate social responsibility

Host-Country Interdependence International managers must go beyond general issues of social responsibility and deal with specific concerns of the MNC subsidiary Focus should be interdependence rather than independence Focus should be cooperation rather than confrontation Benefits and costs to host countries

Criticisms of MNC Subsidiary Activities MNCs raise their needed capital locally, contributing to a rise in interest rates in host countries. The majority (sometimes even 100 percent) of the stock of most subsidiaries is owned by the parent company. Consequently, host-country people do not have much control over the operations of corporations within their borders.

Criticisms of MNC Subsidiary Activities (contd.) MNCs usually reserve the key managerial and technical positions for expatriates. As a result, they do not contribute to the development of host-country personnel. MNCs do not adapt their technology to the conditions that exist in host countries. MNCs concentrate their R&D activities at home, restricting the transfer of modern technology and know-how to host countries.

Criticisms of MNC Subsidiary Activities (contd.) MNCs give rise to the demand for luxury goods in host countries at the expense of essential consumer goods. MNCs start their foreign operations by purchasing existing firms rather than developing new productive facilities in host countries. MNCs dominate major industrial sectors, thus contributing to inflation by stimulating demand for scarce resources and earning excessively high profits and fees. MNCs are not accountable to their host nations but only respond to home-country governments; they are not concerned with host-country plans for development.

Recommendations for MNCs Operating in Developing Countries (Suggested by De George) Do no international harm. This includes respect for the integrity of the ecosystem and consumer safety. Produce more good than harm for the host country. Contribute by their activity to the host country’s development. Respect the human rights of their employees. To the extent that local culture does not violate ethical norms, MNCs should respect the local culture and work with and not against it. Pay their fair share of taxes. Cooperate with the local government in developing and enforcing just background (infrastructure) institutions (i.e. laws, governmental regulations, unions, consumer groups) which serve as a means of social control.

Comparative Management in Focus NAFTA Brought together three largely different economies Promised that it would create millions of jobs Promised that it would curb illegal immigration Promised that it would raise living standards

Comparative Management in Focus NAFTA – United States Overall has enjoyed a growth in exports Companies have moved to Mexico for cheaper labor Increased unemployment in many areas NAFTA – Mexico Promised to close wage gaps and lower illegal immigration Gap in wages has increased Companies are moving to China for lower wages

Comparative Management in Focus NAFTA – Canada Has had mixed results Businesses are more export-oriented Created 500,000 new jobs last year We went from a Canadian company with a 30 million population market to a 300 million market. We do not treat the boarder as a boarder. - John Scarsella President and CEO Durham Furniture

Managing Environmental Interdependence “Now that mankind is in the process of completing the colonization of the planet, learning to manage it intelligently is an urgent imperative. [People] must accept responsibility for the stewardship of the earth. The word stewardship implies, of course, management for the sake of someone else…As we enter the global phase of human evolution, it becomes obvious that each [person] has two countries, his [or her] own and the planet earth.” – Ward and Dubois

Managing Environmental Interdependence Handling exporting of hazardous waste Exporting pesticides Looking for alternative raw materials Developing new methods of recycling Expanding the use of byproducts

Looking Ahead Chapter 3 Understanding the Role of Culture Culture and Its Effects on Organizations Cultural Variables Cultural Value Dimensions Developing Cultural Profiles Culture and Management Styles