1 INTERNATIONAL MANAGEMENT Chapter 3 Ethics & International Management

2 Ethics ???  Study of decision making within a framework of a system of moral standards. Study of morality and standards of conduct.

3 Managerial Ethics-Issues 1.Can there be one fixed moral framework that can provide standards to guide managers every time they face ethical decisions? 2.If a single set of standard is to guide managerial behavior, which is the right set among the conflicting definitions of good and bad behavior?

4 Ethical Issues Ethical Dilemmas (ED)Ethical Lapses (EL)  Managers facing ethical issues fall into two broad categories-ED and EL. The issue has two conflicting but arguably valid sides. Ethical Dilemmas

5 Ethical Dilemma Permitting or not tobacco companies to advertise. Not Allowing to advertise Restricts their freedom of speech Obstructs their ability to do business

6 Ethical Lapse Occurs when a manager makes an unethical decision Unresolved interpretations of ethical issues lead to- ethical dilemmas. Ethical lapse is associated with cases of unethical behavior. Desire of a tobacco company to advertise is an ethical dilemma. Decision of a top manager to earn profit from inside information is an act of ethical lapse. Example

7 Ethical management practices Must be a proactive stance Must be pursued with diligence Must be pursued with persistence > For achieving the aim, the need is to recognize various ethical pressures on managers lead to ethical dilemmas Approaches to Ethical Management

8 Ethical Pressure on Managers Organizational Goals Competition Fear Personal Goals Ethical Pressure

9 Organization GoalsTarget sale Pressure Adopting less ethical course of action Benefit Better short-term performance

10 Ethical organization recognize 1.Managers should ask ethical questions while taking decisions. 2.Decision making should consider factors beyond immediate goals.

11 Personal GoalsCompensation & Promotion PressureUnethical behavior (overstate a products benefit to increase the sales volume) Pressure(Other employees work as his own) Pressure(Other employees to lower their performance)

12 Competition Market Success PressureUnethical Practices (To announce product well before they exist) Benefit To beat the competitors Danger Mislead customers Cause financial damages to firms Late or no arrival of products

13 Fear To loose job PressureUnethical decisions (Using of sub-standard material on the instruction of boss) Cheating Customers

14 MNCs Marketing Practices –Issues of Ethical Nature Selling products in LDC, less in demand in Home countries- (Tobacco) Selling prohibited products in LDC markets-(DDT) Selling products likely to be misused-(Milk Power) Restrictive trade policies of the governments Dumping Counterfeiting-violating patent & copyright Grey marketing

15 Pressures of Stakeholders on MNCs To meet demands of consumers of their products To meet expectations of shareholders about ROI To effectively handle various risks To do effective financial management To avail all legally permissible tax benefits To compete effectively in the markets

16 Code of Ethics Need to respect laws & regulations of the host countries Do nothing to compromise with the health & safety of consumers Should not exploit the weakness in legislation in host countries Be proactive & assist the government in preventing marketing of unsafe products Should not misuse the close relationship developed by firm & government.

17 Resolving Ethical Dilemmas Normative Framework (Study of proper thought & conduct) How people should behave? A decision is judged to be ethical on the basis of its perceived outcomes Decision is based on whether it is right. Greatest good for greatest number of people (Retrenching some employees to make the company cost-effective) Established through understanding Utilitarianism Formalism

18 Utilitarianism Formalism Forward looking in perspective (Decisions are made looking into future) Backward looking in perspective (Decisions are based on historically formulated principles)

19 Problems > Question of justice (How far it is justifiable to prosecute a minority in the interest of majority?) > Question of subjective benefits( People could be persuaded to believe that they enjoy more benefit from a decision then is actually the reality). Utilitarianism Formalism > Bureaucratic practice (Rules for decision and actions) > Ignore individualism

20 Business Executive’s Action Utilitarianism Formalism Looks it from the side of being right or wrong Based on Executive's conscience. Looks it from the side of being good or bad. Based on Executive’s needs, wants and desire.

21 Ethical Analysis of Management Decisions Moral Standard of Behavior Cultural experiences Ethical belief systems Social Instructions Content of Managerial Dilemma Financial Legal Organizational Social Personal

22 Employee drug testing of a company Low productivity and low quality < 20 percent of the workforce uses drugs & alcohol Other 80 percent also have to undergo test Whether to go for drug test or not? Issue Problem Information Requirement Managerial Dilemma Situation Analysis

23 Content of Managerial Dilemma Financial benefits & costs in solving the drug problem Any legislation, which permits or prevents the type of drug testing proposal Positive Negative  Better working environment  Improved efficiency in production  More job security  Low morale as a result of the action Financial Legal Organizational

24 Content of Managerial Dilemma Possibility of loosing the jobs of the managers if something goes wrong Social Approach: Utilitarian as the action is judged in the light of its outcome

25 Judge the behavior of all Tends to be => Subjective => Imprecise => Varies between individuals and situations  Influenced by Ethical systems of belief Moral Standards of Behavior

26 Guiding principles of Decision Making) Eternal Law Distributive justice Personal liberty Religious teachings reveal moral standards which one should adhere Equitable distribution of benefits Greater freedom of choice, promoting social productivity Ethical Systems of Belief

27 Global Managers-Confrontation? Different national cultures Different belief systems Belief system of home country incompatible with host country Which approach is more useful to deal ethical issues? Issues => Corporate Bribery => Pollution Issues Utilitarian approach is useful to deal ethical issues