Ethics and Social Responsibility Chapter 3

Chapter Outline Theories of ethics The nature of ethical decisions Pragmatism vs. social responsibility Stakeholder analysis Culture-based theories of ethics Moral languages What ethical principles do managers use?

Chapter Outline (2) Bribery and anti-corruption law Where bribery occurs most often The Foreign Corrupt Practices Act The OECD Anti-Corruption Convention

Ethics Ethics Study of morality and standards of conduct MNCs face difficulty because of differing standards between countries where they operate – different cultures do not agree on what managers or companies “should” do

The Nature of Ethical Decisions The hardest ethical decisions Do not involve "right" vs. "wrong" Involve "right" vs. "right" (tradeoffs) Who would benefit from a decision? Who would be hurt by it?

Pragmatism The idea that managers should make decisions that have the greatest benefit to the company and its shareholders.

Social Responsibility The idea that businesses have a responsibility to society beyond making profits Closely related to business ethics Must take into account the welfare of other groups in addition to stockholders

Stakeholder Analysis The stake of an individual or group includes its rights, obligations, incentives, and motivations Decision makers should consider the stake of each individual or group that Will be affected by the decision or Will affect the outcome of the decision

MNC Stakeholders MNC Home Country Owners Customers Employees Unions Suppliers Distributors Strategic allies Community Economy Government Host Country Co-owners Customers Employees Unions Suppliers Distributors Strategic allies Community Economy Government MNC Global Society Population Standard of living Natural environment Sustainable resources Interdependence

Culture-based Theories of Ethics Ethnocentrism: base the decision on the values and practices of the home country. Ethical relativism: make the decision in accordance with host country practices. Moral universalism: there should be a code of corporate conduct that is expected and acceptable in all countries

Moral Languages Basic ideas that people use to make ethical decisions and to explain their ethical choices 1. Virtue and vice Actions are either good (virtuous) or bad (vices) the consequences of an action are less important than virtuous intent

Moral Languages (2) 2. Self-control: control of thoughts and actions Plato advocated controlling "appetites" Important idea in Buddhism and Hinduism 3. Maximizing human welfare – the basic principle behind utilitarianism (the greatest good for the greatest number) 4. Avoiding harm – the action should not produce unpleasant consequences for people or the environment. Actions are ethical if they do no harm.

Moral Languages (3) 5. Rights and duties of people or companies Do not infringe on the rights of others. Duties are things that one should or must do. Laws and regulations often deal with rights and duties. 6. Social contract – explicit or implicit agreement in a society or a company about what is right Western Europeans often believe that a country should ensure that all its residents get adequate health care.

Moral Languages (4) Moral languages that are often useful in international business Avoid harm Rights and duties Social contract These 3 moral languages are acceptable in many countries.

What ethical principles do managers use? Personal beliefs and values Corporate code of conduct or management guidance Laws of home country and host country International law and international agreements Several codes of conduct have been suggested by various international organizations (UN, International Labor Organization, International Chamber of Commerce, etc.)

Bribes are least expected in Finland Iceland New Zealand Denmark Country Comparisons of Government Corruption (2006) Based on 160 Countries Bribes are least expected in Finland Iceland New Zealand Denmark Singapore Sweden Officials are most likely to demand bribes in Haiti Myanmar (Burma) Iraq Guinea Sudan Congo

Government Officials' Perceptions of Bribe Paying Behavior by Companies from 30 Countries Least likely to pay bribes – firms from Switzerland Sweden Australia Austria Canada United States is tied for ninth. Most likely to pay bribes – firms from India China Russia Turkey Taiwan

Where Bribes are Paid Bribes are more likely to be paid in less developed countries. It may be hard to get or keep government business without bribery Bribery may be culturally acceptable. Low-level officials may demand payment for minor tasks. Punishment is less likely. Bribery is more common in certain industries Construction Weapons and defense contracts Oil and gas

Foreign Corrupt Practices Act The Foreign Corrupt Practices Act prohibits U. S. firms from paying bribes to foreign governments. Both the company and its employees are subject to criminal penalties under this law. Under this law A small fee or gift given to a low-ranking employee for performing normal duties ("grease money") is not considered a bribe. A payment made under duress to avoid injury or violence is not a bribe. A large amount of money or an expensive gift paid to a high-ranking government employee is a bribe.

Foreign Corrupt Practices Act (2) Under the Foreign Corrupt Practices Act (continued) A political contribution is a bribe if the purpose of the contribution is to influence government decisions that affect the firm’s business. An agent fee is a bribe if the amount of money is large and if the company knows, or should have known, that a portion of the money will be used as a bribe. If a company disguises a bribe as a consulting fee, entertainment expense, etc., the company has violated federal tax laws.

OECD Anti-Corruption Convention The Anti-Corruption Convention of the Organization for Economic Cooperation and Development (OECD) has been ratified by 36 countries. These countries have agreed that: If a firm bribes a foreign official, or condones such a bribe, both the firm and employees who were involved in the bribe will be subject to criminal penalties. These countries will share information about bribery and corruption and will cooperate in prosecuting them.

OECD Anti-Corruption Convention (2) Who has signed? 25 EU members, plus Norway & Turkey NAFTA countries, plus Argentina, Brazil, Chile Japan, South Korea, Australia Enforcement will be hard