1. Chapter Copyright© 2004 Thomson Learning All rights reserved 15 Managing Ethical and Social Responsibility Challenges in Multinational Companies

2. Copyright© 2005 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

3. Copyright© 2005 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

4. Copyright© 2005 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

5. Copyright© 2005 South-Western/Thomson Learning All rights reserved International Business Ethics Ethics deal with the “oughts” of life 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 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

6. Copyright© 2005 South-Western/Thomson Learning All rights reserved 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

7. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.1: Areas of Ethical and Social Responsibility Concerns for the Multinational Company

8. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.1: Areas of Ethical and Social Responsibility Concerns for the Multinational Company

9. Copyright© 2005 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

10. Copyright© 2005 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

11. Copyright© 2005 South-Western/Thomson Learning All rights reserved Deontological Ethical Theory Actions have a good or bad morality regardless of the outcomes they produce

12. Copyright© 2005 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

13. Copyright© 2005 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

14. Copyright© 2005 South-Western/Thomson Learning All rights reserved Messner and Rosenfeld 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

15. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.2: A Model of Institutional and Cultural Effects on Business Ethics Issues and Management

16. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.3: Comparison of Key Ethical Issues Identified by Senior U.S. and EU Managers

17. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.4: Management of Key Ethical Issues in U.S. and European Companies

18. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.5: National Differences in Beliefs Regarding Ethical Codes

19. Copyright© 2005 South-Western/Thomson Learning All rights reserved Questionable Payments and U.S. Foreign Practices Act 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.

20. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.6: Bribe Payers Index

21. Copyright© 2005 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

22. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.7: Excerpts from the Foreign Corrupt Practices Act and Fines

23. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.7: Excerpts from the Foreign Corrupt Practices Act and Fines

24. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.7: Excerpts from the Foreign Corrupt Practices Act and Fines

25. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.7: Excerpts from the Foreign Corrupt Practices Act and Fines

26. Copyright© 2005 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

27. Copyright© 2005 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.

28. Copyright© 2005 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

29. Copyright© 2005 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

30. Copyright© 2005 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

31. Copyright© 2005 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

32. Copyright© 2005 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

33. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.8: A Code of Conduct for the Multinational Company

34. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.8: A Code of Conduct for the Multinational Company

35. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.8: A Code of Conduct for the Multinational Company

36. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.8: A Code of Conduct for the Multinational Company

37. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.8: A Code of Conduct for the Multinational Company

38. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.8: A Code of Conduct for the Multinational Company

39. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.8: A Code of Conduct for the Multinational Company

40. Copyright© 2005 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.

41. Copyright© 2005 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

42. Copyright© 2005 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 Leading by example Making ethics part of the corporate culture Involving employees at all levels Setting and monitoring goals

43. Copyright© 2005 South-Western/Thomson Learning All rights reserved “Best Practices” Steps Effective integration in business processes Open discussion of ethics and other ethical issues Governments make agreements Effective integration in business processes Open discussion of ethics and other ethical issues Governments make agreements

44. Copyright© 2005 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

45. Copyright© 2005 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

46. Copyright© 2005 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

47. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.9: Decision Points of Ethical Decision Making in Multinational Management

48. Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 15.9: Decision Points of Ethical Decision Making in Multinational Management

49. Copyright© 2005 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.

50. Copyright© 2005 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.