Chapter 4 Ethics in International Business

4 - 3 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. OPENING CASE: Nike Nike designs and markets its products itself, but contracts with various factories for their production. For more than a decade, rumors and allegations have abounded that Nike’s products are made in sweatshops where child laborers earn wages below subsistence level. After several negative reports and exposes the company was forced to reexamine its policies. Nike established a code of conduct for its sub contractors, and set up a monitoring system.

4 - 4 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Ethics in International Business Objectives -Source of ethical challenges in IB -Effect of ethical challenges on decisions in IB -Causes of poor ethical decisions in IB -Different conceptual underpinnings for ethical decisions in IB -What managers can do to Promote an awareness of ethical issues throughout the organization Ensure that ethical considerations enter into decision making

4 - 5 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Ethical Issues in International Business Arise when a manager makes decisions consistent with differing national environments -Political systems -Legal systems -Economic development levels -Culture What is ethical and “normal” in one environment may not be so in another

4 - 6 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Ethical Issues in International Business Arise most often in the context of: -Employment practices -Human rights -Environmental policy -Corruption -An MNC’s perceived moral obligations to society

4 - 7 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Employment Practices What standards should be applied? -Home nation’s -Host nation’s -Other/ Best practices? Hiring practices, labor relations, diversity issues, employment conditions are some specific issues that require careful thought

4 - 8 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Human Rights A manager can assume as universal her/his views on freedom of: -Association -Speech -Assembly -Movement -Political repression What is the responsibility of an MNC to uphold different standards of human rights?

4 - 9 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Repressive Regimes Is it ethical for MNCs to operate in countries with repressive regimes? -Is inward investment an agent for change? -What is the limit beyond which inward investment would not be justified under all circumstances? -What if competitors from other nations invest and you don’t? - Yahoo, Microsoft, Google..policing net activities in China

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Environmental Policies Locally mandated environmental standards may be inferior to those an MNC knows it can achieve Tragedy of the commons: a resource held in common by all, but owned by no one, is overused by some, resulting in degradation. If a decision is legal but unethical, should it be taken?

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Corruption Government officials may ask for bribes for an MNC to “get things done” -Is an MNC’s manager who agrees a corrupt manager? -Should an MNC ever accede to bribery demands? Foreign corrupt practices act (USA) Convention on Combating Bribery of Foreign Officials in International Business Transactions (OECD)

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. MNC Power and Moral Decisions MNCs have power over a host country -They can move production away -Along with power arise obligations (?) Power is morally neutral -How it is used is what matters -Perceptions of how it should be used and of its impact vary Company view Host country view

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. MNC and Social Responsibility Social responsibility: business decisions should be made after consideration of social consequences of economic actions -Noblesse oblige: honorable and benevolent behavior is the responsibility of those in power -Benevolent behavior responsibility of only successful business?

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Determinants of Ethical Behavior Organization culture Personal ethics Decision making processes Leadership Unrealistic / realistic performance goals

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Philosophical Approaches to Ethics Straw men: often adopted, offer inappropriate guidelines for MNC behavior -Friedman doctrine -Righteous moralist -Naïve immoralist Utilitarian and Kantian Ethics Rights theories Justice theories

McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Ethical Decision Making Hiring and promotion Organization culture and leadership Decision-making processes -Stakeholder perspectives Ethics officers -Codes of ethics Moral courage: walk away from profitable and unethical decision