1. LECTURE 8: Ethics in International Business

3. Introduction
Ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization
Business ethics are the accepted principles of right or wrong governing the conduct of business people
Ethical strategy is a strategy, or course of action, that does not violate these accepted principles
Internet Extra: Consumers International { an organization dedicated to protecting the rights of consumers worldwide. In doing so, it promotes ethical behavior on the part of companies.
Go to the site and click on one of the organization’s current efforts. What are the issues that are being raised?
How do they affect companies? Do you agree with the organization’s position? Why or why not?

4. Ethical Issues in International Business
The most common ethical issues in business involve
employment practices
human rights
environmental regulations
corruption
the moral obligation of multinational companies

5. Employment Practices
Question: When work conditions in a host nations are clearly inferior to those in a multinational’s home nation, what standards should be applied?
The standards of the home nation?
The standards of the host nation?
Something in between?
Examples: Apple iPhone in China; Nike in Vietnam; Levi Strauss and Tan family China
Management Focus: Making Apple’s iPOD
Summary
This feature explores Apple’s experiences with employment practices at the Chinese factory that produces its iPOD. In 2006, two Chinese journalists reported that the working conditions at Hongfujin Precision Industries where Apple’s iPODs are produced, were substandard. According to the report, not only were workers at the plant poorly paid, but they were also forced to work overtime. Apple immediately responded to the allegations and audited the factory in question. However, managers at the factory filed a defamation lawsuit against the two journalists. Despite the fact that Apple’s audit did indeed show substandard working conditions at the factory, Hongfujin did not withdraw the lawsuit. Eventually the Reporters Without Borders group took up the case for the two reporters and the lawsuit was dropped.
Suggested Discussion Questions
1. Should Apple be responsible for ensuring that its suppliers are safeguarding the basic rights and dignity of their employees? How can Apple be sure that its suppliers do not employ sweatshop labor?
Discussion Points: Many students will probably agree that Apple should be responsible at least to some degree for ensuring that the factories where it sources its products are safe. Some students may suggest that to knowingly buy products from a company with substandard working conditions is a violation of basic human ethics. Other students however, may argue that Nike cannot force suppliers to adopt specific practices and policies toward labor. Students taking this perspective might further suggest that pushing American practices on Chinese companies is ethnocentric, and that for many Chinese the prospect of having a job, even in poor working conditions, is better than having no job at all. Many students may be surprised that Apple did not already have an audit policy in place prior to the accusations by the Chinese reporters, but will probably agree that the company handled the situation appropriately.
2. The allegations against Hongfujin Precision Industries were made by two Chinese reporters. Discuss the implications of this for other Chinese companies.
Discussion Points: Most students will probably agree that the fact that the allegations against Hongfujin Precision Industries were made by Chinese reporters who work for China Business News, a state run newspaper, could have interesting implications for other companies. Some students will probably suggest that it should serve as a signal to other companies that poor working conditions are unacceptable, and that while in the past, it may have been possible to hide them, it is no longer the case. Other students may suggest that the allegations may force companies to rethink their production and look for new ways to increase productivity. Some students may note that the very fact that the report was published is startling in some regards, and that companies should anticipate further scrutiny.
Lecture Note: Apple maintains that it requires its suppliers to practice responsible manufacturing. To learn more about Apple’s policies go to {

7. Employment Practices
International business implications: Establish minimal acceptable working standards and audit foreign subsidiaries and subcontractors on a regular basis
Management Focus: Making Apple’s iPOD
Summary
This feature explores Apple’s experiences with employment practices at the Chinese factory that produces its iPOD. In 2006, two Chinese journalists reported that the working conditions at Hongfujin Precision Industries where Apple’s iPODs are produced, were substandard. According to the report, not only were workers at the plant poorly paid, but they were also forced to work overtime. Apple immediately responded to the allegations and audited the factory in question. However, managers at the factory filed a defamation lawsuit against the two journalists. Despite the fact that Apple’s audit did indeed show substandard working conditions at the factory, Hongfujin did not withdraw the lawsuit. Eventually the Reporters Without Borders group took up the case for the two reporters and the lawsuit was dropped.
Suggested Discussion Questions
1. Should Apple be responsible for ensuring that its suppliers are safeguarding the basic rights and dignity of their employees? How can Apple be sure that its suppliers do not employ sweatshop labor?
Discussion Points: Many students will probably agree that Apple should be responsible at least to some degree for ensuring that the factories where it sources its products are safe. Some students may suggest that to knowingly buy products from a company with substandard working conditions is a violation of basic human ethics. Other students however, may argue that Nike cannot force suppliers to adopt specific practices and policies toward labor. Students taking this perspective might further suggest that pushing American practices on Chinese companies is ethnocentric, and that for many Chinese the prospect of having a job, even in poor working conditions, is better than having no job at all. Many students may be surprised that Apple did not already have an audit policy in place prior to the accusations by the Chinese reporters, but will probably agree that the company handled the situation appropriately.
2. The allegations against Hongfujin Precision Industries were made by two Chinese reporters. Discuss the implications of this for other Chinese companies.
Discussion Points: Most students will probably agree that the fact that the allegations against Hongfujin Precision Industries were made by Chinese reporters who work for China Business News, a state run newspaper, could have interesting implications for other companies. Some students will probably suggest that it should serve as a signal to other companies that poor working conditions are unacceptable, and that while in the past, it may have been possible to hide them, it is no longer the case. Other students may suggest that the allegations may force companies to rethink their production and look for new ways to increase productivity. Some students may note that the very fact that the report was published is startling in some regards, and that companies should anticipate further scrutiny.
Lecture Note: Apple maintains that it requires its suppliers to practice responsible manufacturing. To learn more about Apple’s policies go to {

8. Human Rights
Question: What is the responsibility of a foreign multinational when operating in a country where basic human rights are not respected?
Basic human rights taken for granted in the developing world such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and so on, are by no means universally accepted
Examples: South Africa until 1994; China’s human rights record; Myanmar (formally known as Burma); Royal Dutch Shell in Nigeria

13. Environmental Pollution
Question: Should a multinational feel free to pollute in a developing nation if doing so does not violate laws?
When environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise
‘tragedy of the commons’ occurs when individuals overuse a resource held in common by all (Garrett Hardin)
Management Focus: Unocal in Myanmar
Summary
This feature explores Unocal’s actions in Myanmar. Unocal, an American, oil and gas enterprise, formed a joint venture with a French company to build a pipeline from Myanmar to Thailand. Unocal made that investment at a time when many other American companies were exiting the country in protest of the local government’s policy of brutally suppressing internal dissent.
Suggested Discussion Questions
1. Why did Unocal’s investment become so controversial? Did Unocal behave in an ethical manner?
Discussion Points: Unocal made its investment in Myanmar just as many other companies were leaving the country in protest of the nation’s brutal military dictatorship. The company had formed an agreement with the government that involved clearing a path for a new pipeline. The investment became controversial when, in order to fulfill the agreement, Myanmar’s army forcibly moved villagers and then forced them to work under slave-like conditions. Unocal claims it had no knowledge of what was occurring, but this claim was rejected by a judge who heard the case that was filed against Unocal on behalf of Myanmar villagers. Students will probably agree that the company failed to act in an ethical manner, and that while it may not have directly participated in the brutality, Unocal did have a responsibility to oversee what was going on and ensure that people were treated fairly.
2. A 1996 law suit against Unocal was dismissed on the grounds that the Unocal could not be held liable for the actions of a foreign government against its own people, although the judge noted that the company was aware of what was going on in the country. Discuss the difference between acting in an ethical manner and acting according to the law.
Discussion Points: Students will probably be familiar with the notion that even if something is not explicitly forbidden, it does not mean it is right. This concept would certainly seem to apply in this case. Ethical responsibility goes beyond the letter of the law to encompass the idea of behaving in a certain way simply because it is the right thing to do. It is worth noting that an appeal by the plaintiffs resulted in an out-of-court settlement in 2005, which would imply that Unocal was guilty at least to some extent.
Teaching Tip: Unocal is now part of Chevron. The company’s web page is {

15. Corruption
Question: Is it ethical to make payments to government officials to secure business?
“corruption has been a problem in almost every society in history, and it continues to be one today.”
Corruption is bad, and it may harm a country’s economic development, but there are also cases where payments to government officials can remove the bureaucratic barriers to investments that create jobs
Examples: Bofors case; Enron; Lockheed case in US

16. Corruption
In the United States, the Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business
The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions adopted by the Organization for Economic Cooperation and Development (OECD) obliges member states to make the bribery of foreign public officials a criminal offense

18. Corruption
Some economists suggest that the practice of giving bribes might be the price that must be paid to do a greater good
In countries where pre-existing political structures distort or limit the workings of the market mechanism, corruption in the form of black-marketeering, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments may actually enhance welfare
However, other economists have argued that corruption reduces the returns on business investment and leads to low economic growth

19. Moral Obligations
Question: Do multinationals have a responsibility to give back to the societies that enable them to grow and prosper?
The concept of social responsibility refers to the idea that business people should take the social consequences of economic actions into account when making business decisions, and that there should be a presumption in favor of decisions that have both good economic and good social consequences
Example: BP, company policy to undertake “social investments” in the countries where it does business
Management Focus: News Corporation in China
Summary
This feature explores the entry of News Corp’s, one of the largest media conglomerates in the world, entry into the Chinese market. According to critics, Robert Murdoch, head of News Corporation, gained preferential access to the Chinese media market by systematically suppressing media content that was critical of China, and publishing material designed to ingratiate the company with China’s leaders.
Suggested Discussion Questions
1. Consider the allegations against Robert Murdoch. Did he behave in an ethical manner if he suppressed media content that was critical of China?
Discussion Points: Students will probably have different views on this subject. Some will probably argue that new companies have an ethical responsibility to provide an unbiased, full report of events regardless of whether they represent values the firm endorses, or whether such a point could negatively affect the bottom line. Other students however, might suggest that News Corporation had no such responsibility, that it is a company out to make a profit, just like any other company. If this means omitting certain stories from its coverage, then so be it. Students taking this perspective might also add that in this day and age of 24/7 global communication, some burden for getting an accurate interpretation of events has shifted to the consumer.
2. Newspapers and news programs are frequently criticized for giving biased reports of events. What standards should these organizations hold to? Did News Corporation hold to these standards?
Discussion Points: Most students will probably agree that it would be difficult to set explicit standards for periodicals. They will probably suggest that companies must take the lead in establishing themselves as certain types of companies. So, if a newspaper wants to establish itself as a hardcore reporter of newsworthy events, it should be held to different standards than a gossip magazine.
Teaching Tip: To explore the company in more depth go to {

21. Ethical Dilemmas
What is the accepted ethical principle in international business perspective?
Argument 01: ethical depends upon one’s cultural perspective.
American and European views on capital punishment; Gift giving practices viewed in Asian and Western nations
Ethical dilemmas —they are situations in which none of the available alternatives seems ethically acceptable
Employing child labor was not acceptable, but neither was denying the child his/her only source of income

22. Determinants of Ethical Behavior
Why do managers behave in an unethical manner?

23. Personal Ethics
Personal ethical code exerts a profound influence on business ethics
An individual with a strong sense of personal ethics is less likely to behave in an unethical manner in a business setting.
Personal ethics comes from sources like our parents, our schools, our religion, and the media.

24. Personal Ethics

25. Decision Making Processes
People simply forget that business decisions may also have an important ethical dimension.
Most often ethical considerations are not incorporated into business decision making
Example: Pfizer’s Drug Testing Strategy in Nigeria; Nike’s subcontracting decision

26. Decision Making Processes

27. Organizational Culture
Business climate sometimes do not encourage people to think through the ethical consequences of business decisions
All decisions are purely economic in nature (profit maximization)
Example: Case of former Enron CEO Kenneth Lay
“values” are abstract ideas about what a group believes to be good, right, and desirable, while “norms” are the social rules and guidelines that prescribe appropriate behavior in particular situations

28. Unrealistic Performance Expectations
Pressure from the parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting in an unethical manner
This creates a pressure-cooker culture [video]
Example: Lesson from the Enron debacle
Conversely, an organization culture can do just the opposite and reinforce the need for ethical behavior
Example: Hewlett-Packard (The HP way)

30. Leadership
Leaders help to establish the culture of an organization, and they set the example that others follow Example: Enron and Hewlett-Packard
Management Focus: Pfizer’s Drug Testing Strategy in Nigeria
Summary
This feature raises questions as to whether pharmaceutical giant, Pfizer, acted ethically when testing a new drug. In 1996, Pfizer was seeking FDA approval for a new antibiotic. The company lacked the necessary test results to have the drug approved for children. The company saw an opportunity to quickly test the drug when an outbreak of bacterial meningitis hit a town in Nigeria. In 2003, two dozen Nigerian families sued Pfizer arguing that their children either died or were injured as a result of the drug testing. They allege that Pfizer did not take the appropriate steps to properly test the drug, and that the company acted in an unethical manner.
Suggested Discussion Questions
1. Was Pfizer irresponsible when it tested its experimental drug in Nigeria? How could the company have acted more ethically?
Discussion Points: This is a difficult issue with no clear answers. While Pfizer may have cut some corners in Nigeria in its haste to test the drug, some children who might have died without the drug, are alive today. Some students will probably suggest that Pfizer should have been more responsible with how it set up its trials. The company should have made the effort to clearly communicate the risks involved to parents. Other students however, may argue that many people have been saved by participating in experimental treatments. Students might add that the Nigerian government was desperate to halt the epidemic, and that in situations where time is critical, the benefits of overlooking some normal procedures may be worthwhile.
2. Pfizer saw the bacterial meningitis outbreak in Nigeria as a means of quickly getting a large pool of sick children on which to test its new antibiotic. Consider the dilemma facing pharmaceutical companies. In order to get FDA approval to introduce their new drugs, numerous studies must demonstrate the efficacy of the drugs, studies that, as the Pfizer example demonstrates, can be difficult to complete. Would you have been tempted to follow Pfizer’s strategy? If you waited, and completed the testing in the United States, what might be the effect on your company’s bottom line? Would you be acting in the best interests of your stakeholders by waiting, or by testing in Nigeria?
Discussion Points: Students may start by saying that hindsight is 20/20. In this case, perhaps Pfizer should have moved more slowly. With strong pressure to always develop new, profitable drugs, the company clearly thought the opportunity in Nigeria would be beneficial. Pfizer needed a large sample of sick children, something it was unlikely to find in the United States. Some students may raise the question that if Pfizer had waited, people who took the drug after it was approved would not have had that treatment option—and could be dead today.
Teaching Tip: Students can learn more about Pfizer by going to the corporate web site at {
Video Note: The iGlobe Experimental Malaria Vaccine Shows Promise in Africa is directly related to this case.

31. Utilitarianism
Utilitarian approaches to ethics hold that the moral worth of actions or practices is determined by their consequences
Actions have multiple consequences, some good, some not
Actions are desirable if they leads to the best possible balance of good consequences over bad consequences
Problems with this approach include measuring the benefits, costs, and risks of a course of action, and the fact that the philosophy fails to consider justice

32. Rights Theories
Rights theories recognize that human beings have fundamental rights and privileges that transcend national boundaries and culture
Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component
The idea that some fundamental rights transcend national borders and cultures was the underlying motivation for the UN’s Universal Declaration of Human Rights (specifies the basic principles that should always be adhered to irrespective of the culture in which one is doing business)

34. Implications for Managers
Question: How can managers ensure that ethical issues are considered in business decisions?
Managers should
favor hiring and promoting people with a well grounded sense of personal ethics
build an organizational culture that places a high value on ethical behavior
makes sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in manner that is consistent with that rhetoric
put decision making processes in place that require people to consider the ethical dimension of business decisions
develop moral courage

35. Summary of Decision-Making Steps
International businesses should
strive to hire and promote people based on ethical considerations as well as other metrics of performance
establish an ethical culture within the organization
appoint ethics officers
create an environment that facilitates moral courage
Even so, it is important to recognize that not all ethical dilemmas have a clear and obvious solution

36. Critical Discussion Question
1. A visiting American executive finds that a foreign subsidiary in a poor nation has hired a 12-year old girl to work on a factory floor, in violation of the company’s prohibition on child labor. He tells the local manager to replace the child and tell her to go back to school. The local manager tells the American executive that the child is an orphan with no other means of support, and she will probably become a street child if she is denied work. What should the American executive do?
Answer: This question, illustrating a potentially very real ethical dilemma facing managers working in subsidiaries located in developing countries, is designed to stimulate class discussion. Students should recognize that neither alternative—violating the company’s position on child labor, nor putting the child out on the streets—seems acceptable. In the end, many students may agree that allowing the child to continue to work in the factory is the lesser of the two evils.

37. Critical Discussion Question
2. A manager from a developing country is overseeing a multinational’s operations in a country where drug trafficking and lawlessness are rife. One day, a representative of a local “big man” approaches the manager and asks for a “donation” to help the “big man” provide housing for the poor. The representative tells the manager that in return for the donation, the “big man” will make sure that the manager has a productive stay in his country. No threats are made, but the manager is well aware that the “big man” heads a criminal organization that is engaged in drug trafficking. He also knows that the big man does indeed help the poor in the run down neighborhood of the city where he was born. What should the manager do?
Answer: Many students will probably suggest that the manager should not accept the assistance of the “big man”, nor make the recommended “donation”. Students taking this perspective are likely to suggest that doing so would be unethical, and that if the manager really wants to help poor people it can give a more legitimate donation. Other students however may point out that the “big man” could make life very difficult for the manager, or he could really help the manager. Some students may argue that, in order to satisfy stakeholders, the managers should meet the demands of the ‘big man”. Still other students will probably point out that if conditions in the country are so poor, the company should simply take its investments elsewhere.
Lecture Note: Mexico’s drug trafficking problem is currently prompting many foreign companies to rethink their investments in the country. To learn more, go to {