1 Ethics and Social Responsibility Chapter 3, Part 1

Ethics and Social Responsibility Ethics Study of morality and standards of conduct MNCs face difficulty because of differing standards between countries where they operate

The Nature of Ethical Decisions The hardest ethical decisions Do not involve "right" vs. "wrong" Involve "right" vs. "right" (tradeoffs) Who would benefit from a decision? Who would be hurt by it?

How should managers make ethical decisions in international business? (1) Instrumental theories of ethics: what will be the long- term and short-term effects of this decision? Pragmatism: what decision will benefit the company and its stakeholders? Stakeholder analysis These approaches may lead to the same decision or to different decisions.

Stakeholder Analysis The stake of an individual or group includes its rights, obligations, incentives, and motivations Decision makers should consider the stake of each individual or group that Will be affected by the decision or Will affect the outcome of the decision An instrumental theory of ethics

MNC Stakeholders Home Country Owners Customers Employees Unions Suppliers Distributors Strategic allies Community Economy Government Host Country Co-owners Customers Employees Unions Suppliers Distributors Strategic allies Community Economy Government MNC Global Society Population Standard of living Natural environment Sustainable resources Interdependence

How should managers make ethical decisions in international business? Culture-based theories of ethics Ethnocentrism: base the decision on the values and practices of the home country. Ethical relativism: make the decision in accordance with host country practices. Moral universalism: there should be a code of corporate conduct that is expected and acceptable in all countries

What ethical principles do managers use? Personal beliefs and values Corporate code of conduct or management guidance Laws of home country and host country International law and international agreements Several codes of conduct have been suggested by various international organizations (UN, International Labor Organization, International Chamber of Commerce, etc.)

Ethics and Social Responsibility - Japan Political and business scandals Japanese cabinet member forced to resign for receiving over $2 million from Japanese corporations Failure of banking system to take corrective action regarding Japan’s recession

Ethics & Social Responsibility – Japan (2) Political and business scandals (2) Concealing customer complaints Failure to inform car owners about possible auto defects and keeping two sets of customer complaint records Encouraging employees to mislead government inspectors

Ethics & Social Responsibility – Japan (3) Hostile work environment Cultural expectations Traditional role of females and female employees Sexual harassment may not be considered a moral issue Equal opportunity issues Refusal to hire women or promote them into management positions Spending large sums of money to lobby Congress

Corporate Governance Rules and regulations differ among countries and regions U.K. and U. S. systems are “outsider” systems Dispersed ownership of equity Large number of outside investors Many continental European countries are “insider” systems Ownership more concentrates Shares owned by holding companies, families or banks

Corporate Governance (2) Other effects on corporate governance include Differences in legal systems Responsiveness and accountability of corporate managers to stakeholders

Foreign Corrupt Practices Act The Foreign Corrupt Practices Act prohibits U. S. firms from paying bribes to foreign governments. Both the company and its employees are subject to criminal penalties under this law. Under this law A small fee or gift given to a low-ranking employee for performing normal duties ("grease money") is not considered a bribe.

Foreign Corrupt Practices Act (2) A large amount of money or an expensive gift paid to a high-ranking government employee is a bribe. A political contribution is a bribe if the purpose of the contribution is to influence government decisions that affect the firms business. An agent fee is a bribe if the amount of money is large and if the company knows, or should have known, that a portion of the money will be used as a bribe.

OECD Anti-Corruption Convention The Anti-Corruption Convention of the Organization for Economic Cooperation and Development (OECD) has been ratified by 35 countries. These countries have agreed that: If a firm bribes a foreign official, or condones such a bribe, both the firm and employees who were involved in the bribe will be subject to criminal penalties. These countries will share information about bribery and corruption and will cooperate in prosecuting them.

OECD Anti-Corruption Convention (2) Who has signed? EU-15 and 6 new EU members 5 other European countries & Turkey NAFTA countries Japan & South Korea Argentina, Brazil, Chile Enforcement will be hard