International Business

11e

By Charles W.L. Hill

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 Chapter 5

Ethics, Corporate Social

Responsibility,
and Sustainability

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 What Is Ethics?
 Ethics - accepted principles of right or wrong that
govern
 the conduct of a person
 the members of a profession
 the actions of an organization
 Business ethics - accepted principles of right or
wrong governing the conduct of business people
 Ethical strategy - a strategy, or course of action,
that does not violate these accepted principles

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 Which Ethical Issues Are Most
Relevant To International Firms?
 The most common ethical issues in
business involve
1. employment practices
2. human rights
3. environmental pollution
4. corruption
5. moral obligations of multinational
companies

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 How Are Ethics Relevant
To Employment Practices?
 Suppose work conditions in a host nation
are clearly inferior to those in the
multinational’s home nation
 Which standards should apply?
 home country standards
 host country standards
 something in between

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 How Are Ethics Relevant
To Employment Practices?
 Firms should
 establish minimal acceptable standards that
safeguard the basic rights and dignity of
employees
 audit foreign subsidiaries and subcontractors
regularly to ensure they are meeting the
standards
 take corrective action as necessary

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 How Are Ethics Relevant
To Human Rights?
 Basic human rights are taken for granted
in developed countries
 freedom of association
 freedom of speech
 freedom of assembly
 freedom of movement
 Question: What are the responsibilities of
firms in countries where basic human
rights are not respected?

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 How Are Ethics Relevant
To Human Rights?
 Question: Is it ethical for companies to do
business with countries with repressive
regimes?
 Myanmar
 Nigeria
 Question: Does multinational investment actually
help bring change to these countries and
ultimately improve the rights of citizens?
 China

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 How Are Ethics Relevant
To Environmental Pollution?
 Some parts of the environment are a public good that no
one owns, but anyone can despoil
 What happens when environmental regulations in host
nations are far inferior to those in the home nation?
 Is it permissible for multinationals to pollute in
developing countries simply because there are no
regulations against it?
 legal versus ethical behavior
 The tragedy of the commons occurs when a resource
held in common by all, but owned by no one, is overused
by individuals, resulting in its degradation

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 How Are Ethics Relevant
To Corruption?
 The U.S. Foreign Corrupt Practices Act outlawed
the practice of paying bribes to foreign
government officials in order to gain business
 amended to allow for facilitating payments
 The Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions was adopted by the Organization
for Economic Cooperation and Development
(OECD)
 obliges member states to make the bribery of
foreign public officials a criminal offense

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 How Are Ethics Relevant
To Corruption?
 But, is it permissible for multinationals to
pay government officials facilitating
payments if doing so creates local income
and jobs?
 is it ok to do a little evil in order to do a greater
good?
 does grease money actually improve
efficiency and help growth?

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 How Are Ethics Relevant
To Moral Obligations?
 Social responsibility refers to the idea that
managers should consider the social
consequences of economic actions when
making business decisions
 there should be a presumption in favor of
decisions that have both good economic and
good social consequences
 it is the right way for a business to behave

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 How Are Ethics Relevant
To Moral Obligations?
 Advocates argue that businesses need to
recognize their noblesse oblige -
honorable and benevolent behavior that is
the responsibility of successful
companies
 give something back to the societies that have
made their success possible
 But, are multinationals morally required to
use their power to enhance local
welfare?
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Mini-Case
Imagine that 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. Appalled
to find that the subsidiary is using child labor in direct violation of the
company’s own ethical code, the American instructs the local manager
to replace the child with an adult. The local manager dutifully complies. The
girl, an orphan, who is the only breadwinner for herself and her six-year-old
brother, is unable to find another job, so in desperation she turns to prostitution.
Two years later, she dies of AIDS.

Had the visiting American understood the gravity of the girl’s situation, would
he still have requested her replacement? Perhaps not!
Would it have been better, therefore, to stick with the status quo and
allow the girl to continue working? Probably not, because that would
have violated the reasonable prohibition against child labor found in
the company’s own ethical code. What then would have been the right thing to
do? What was the obligation of the executive given this ethical dilemma?
 What Are Ethical Dilemmas?
 Ethical dilemmas - situations in which none of
the available alternatives seems ethically
acceptable
 real-world decisions are complex, difficult to frame,
and involve consequences that are difficult to quantify
 the ethical obligations of an MNE toward employment
conditions, human rights, corruption, environmental
pollution, and the use of power are not always clear
cut
 the right course of action is not always clear

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 Why Do Managers
Behave Unethically?
 Several factors contribute to unethical behavior
including
1. Personal ethics - the generally
accepted principles of right and wrong
governing the conduct of individuals
 expatriates may face pressure to violate their
personal ethics because they are away from their
ordinary social context and supporting culture
 managers fail to question whether a decision or
action is ethical, and instead rely on economic
analysis when making decisions

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 Why Do Managers
Behave Unethically?
2. Decision-making processes - the values and
norms that are shared among employees of an
organization
 organization culture that does not
emphasize business culture encourages
unethical behavior
3. Organization culture - organization culture can
legitimize unethical behavior or reinforce the
need for ethical behavior
4. Unrealistic performance expectations -
encourage managers to cut corners or act in
an unethical manner

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 Why Do Managers
Behave Unethically?
5. Leadership - helps establish the culture of an
organization, and set the examples that others
follow
 when leaders act unethically, subordinates may act
unethically, too
6. Societal culture – firms headquartered in
cultures where individualism and uncertainty
avoidance are strong are more likely to stress
ethical behavior than firms headquartered in
cultures where masculinity and power distance
rank high

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 Why Do Managers
Behave Unethically?
Determinants of Ethical Behavior

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 What Are The Philosophical
Approaches To Ethics?
 There are several different approaches to
business ethics
 Straw men approaches deny the value of
business ethics or apply the concept in an
unsatisfactory way
 Other approaches are favored by moral
philosophers and are the basis for current
models of ethical behavior

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 What Are The Straw Men
Approaches To Business Ethics?
 There are four common straw men approaches
1. Friedman doctrine - the only social
responsibility of business is to increase
profits, so long as the company stays within
the rules of law
2. Cultural relativism - ethics are culturally
determined and firms should adopt the
ethics of the cultures in which they operate
 “when in Rome, do as the Romans do”

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 What Are The Straw Men
Approaches To Business Ethics?
3. Righteous moralist - a multinational’s home
country standards of ethics should be followed
in foreign countries
4. Naïve immoralist - if a manager of a
multinational sees that firms from other nations
are not following ethical norms in a host
nation, that manager should not either
 All approaches offer inappropriate guidelines
for ethical decision making

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 What Are Utilitarian And
Kantian Approaches To Ethics?
 Utilitarian ethics - (David Hume, Jeremy
Bentham, John Stuart Mill) - the moral worth of
actions or practices is determined by their
consequences
 actions are desirable if they lead to the best possible
balance of good consequences over bad
consequences
 but, it is difficult to measure the benefits, costs, and
risks of an action
 the approach fails to consider justice

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 What Are Utilitarian And
Kantian Approaches To Ethics?
 Kantian ethics - (Immanuel Kant) - people
should be treated as ends and never
purely as means to the ends of others
 people have dignity and need to be
respected
 people are not machines

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 What Are Rights Theories?
 Rights theories - human beings have
fundamental rights and privileges which
transcend national boundaries and cultures
 establish a minimum level of morally
acceptable
behavior
 the Universal Declaration of Human Rights - basic
principles that should always be adhered to
irrespective of the culture in which one is doing
business
 Moral theorists argue that fundamental human
rights form the basis for the moral compass that
managers should navigate by when making
decisions which have an ethical component
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 What Are Justice Theories?
 Justice theories focus on the attainment of a just
distribution of economic goods and services
 a just distribution is one that is considered fair and
equitable
 John Rawls argued that all economic goods and
services should be distributed equally except
when an unequal distribution would work to
everyone’s advantage
 impartiality is guaranteed by the veil of ignorance -
everyone is imagined to be ignorant of all his or her
particular characteristics

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The job market of the 21st century is often referred to as the “gig
economy.” Employers such as Uber, Amazon, Airbnb, and others are
increasingly relying on short-term freelance employees who work on a
piecemeal basis.

Proponents of the gig economy suggest it offers workers the freedom

to work where and when they want, while employers can reduce
labor costs by avoiding health insurance and payroll taxes. Others
suggest that businesses are simply taking advantage of a tough
economy to cut benefits and offer lower wages to people desperate
for work.

If you were the head of a large corporation, would you consider it

ethical to profit from the gig economy?
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 How Can Managers
Make Ethical Decisions?
1. Hire and promote people with a well-
grounded sense of personal ethics
 refrain from promoting individuals who have
acted unethically
 try to hire only people with strong ethics
 prospective employees should find out as
much as they can about the ethical climate in
an organization prior to taking a position

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 How Can Managers
Make Ethical Decisions?
2. Build an organizational culture that places a
high value on ethical behavior
 articulate values that place a strong
emphasis on ethical behavior
 emphasize the importance of a code of
ethics - formal statement of the ethical
priorities a business adheres to
 implement a system of incentives and
rewards that recognize people who engage
in ethical behavior and sanction those who
do not

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 How Can Managers
Make Ethical Decisions?
3. Make sure that leaders within the
business articulate the rhetoric of ethical
behavior and act in a manner that is
consistent with that rhetoric
 give life and meaning to words
 make sure that leaders emphasize the
importance of ethics verbally and through
their actions

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 How Can Managers
Make Ethical Decisions?
4. Put decision-making processes in place that
require people to consider the ethical
dimensions of business decisions
 Ask whether
 decisions fall within the accepted values of
standards that typically apply in the
organizational environment
 decisions can be communicated to all
stakeholders affected by it
 if colleagues would approve of
decisions

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 How Can Managers
Make Ethical Decisions?
 Managers can also use a five-step process to
think through ethical problems:
Step1: Identify which stakeholders (the individuals
or groups who have an interest, stake, or
claim in the actions and overall
performance of a company) a decision
would affect and in what ways
 internal stakeholders are people who work for or who
own the business such as employees, the board of
directors, and stockholders
 external stakeholders are the individuals or groups who
have some claim on a firm such as customers,
suppliers, and unions

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 How Can Managers
Make Ethical Decisions?
Step 2: Determine whether a proposed decision
would violate the fundamental rights of any
stakeholders
Step 3: Establish moral intent - place moral
concerns ahead of other concerns in
cases where either the fundamental rights
of stakeholders or key moral principles
have been violated

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 How Can Managers
Make Ethical Decisions?
Step 4: Engage in ethical behavior
Step 5: Audit decisions and review them to
make sure that they are
consistent with ethical principles
 this step is often overlooked even
though it is critical to finding out
whether a decision process is working

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 What Is An Ethics Officer?
 Many firms now have ethics officers to
ensure
 all employees are trained in ethics
 ethics is considered in the decision-making
process
 the company’s code of conduct is followed

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 How Can Managers
Make Ethical Decisions?
5. Develop moral courage
 enables managers to walk away from a decision
that is profitable, but unethical
 gives an employee the strength to say no to a
superior who instructs her to pursue actions that are
unethical
 gives employees the integrity to go public to the
media and blow the whistle on persistent unethical
behavior in a company

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 How Can Managers
Make Ethical Decisions?
 In the end, there are clearly things that an
international business should do, and
there are things that an international
business should not do
 But, it is important to remember that not all
ethical dilemmas have a clean and
obvious solution
 in these situations, firms must rely on the
decision-making ability of its managers

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