1 Ethics in International Business King's University College

2 Ethics in International Business Premise for why Ethics in International Business are so complicated: 1. Ethics are culturally and socially based 2. Cultures and societies differ 3. Ethics differ between cultures and societies

King's University College3 Ethics in International Business Good ethics systems: 1. Define company rights that transcend borders and extend them to all stakeholders that are narrow but consistent with company strategy 2. Embrace moral absolutes developed by the organizational culture, which are independent of country norms and are applied to everyone equally and therefore may be at times, higher than what are embraced in a given country

King's University College4 Ethics in International Business Integrity:  Having and demonstrating a strong commitment to personal morals and company standards  Reflects the need for absolute standards (separate from the company) and relative standards (reflecting what the company does).

King's University College5 Ethics in International Business Integrity is demonstrated at two levels:  External interactions Activities through which the company is represented to the outside world  Internal interactions Activities involving groups or individuals within the company

King's University College6 External Interactions Big challenge when there are large differences between the dominant local behaviours in a situation and what the manger’s judgement of what the behaviours should be given her/his ethics. To avoid problems, managers must understand the ethics of the country in which they are operating and those of their company and how they differ

King's University College7 External Interactions Cultural relativism: You do what is appropriate in a given culture. If it is ok for members of a given society to do something, it is ok for you to do it. Often used as an excuse but is it ethical?

External Interactions – Cultural Relativism King's University College8 Operating Standards Country Ethical Unethical

King's University College9 External Interactions If firm ethics are well defined, understood and strictly adhered to (i.e. go beyond values and norms – which differ between cultures) then cultural relativism is not an ethical perspective What to do if acting ethically puts the firm at a competitive disadvantage?

King's University College10 External Interactions Three common areas of focus for setting ethical standards in external interactions:  Ecological environmental impact Pollution havens and toxic facilities Race to the bottom  Gifts and gratuities Bribes and facilitation payments  Worker’s rights Sweat shops, living/working conditions, fair wages

King's University College11 External Interactions Strategies that use the firm’s good reputation can be compromised by even the appearance of unethical practices:  The Body Shop  Nike  Kathy Lee  The Gap

King's University College12 Internal Interactions Since these actions are internal to the firm, external stakeholders are less likely to know about unethical practices and firms face less scrutiny and pressure to act ethically However, companies still should have ethical standards that govern internal interactions

King's University College13 Internal Interactions Common internal ethical situations:  Worker safety – less is cheaper  Equity in hiring – hire the cheapest  Equality of opportunity – only some get promoted  Comparable compensation – sweat shops and disproportionate pay  Freedom of expression – why is it needed?

King's University College14 Ethical Decision-making Ethical decision-making depends upon three competencies: 1. Good observations skills – internally and externally 2. Asking tough questions 3. Understanding what standards are core to the company – knowing what NOT to compromise

King's University College15 Ethical Decision-making Determining what are core standards:  Is it strategic – can we survive without it?  Is the standard as high as possible?  Are people (animals, the environment) being put before the company?

King's University College16 Ethical Decision-making Non-core to competitiveness Core to competitiveness Global Standards Local Standards Morrison, 2001 For activities that are non- core to the success of the firm and do not go against the core standards – use local standards, otherwise, use global standards.

King's University College17 Why Ethics are Important to International Business? When facing an ethical problem in a country, there are three basic choices: 1. Avoid doing business in the country 2. Maintain standards and risk putting the firm at a competitive disadvantage 3. Change standards

King's University College18 Why Ethics Are Important to International Business? From an ethics perspective only options 1 & 2 are ethical Option 3 is risky:  Reputation effects  Stakeholder perceptions  Impression management problems  Boycotts etc. etc. …

King's University College19 Ethics in International Business Integrity:  Having and demonstrating a strong commitment to personal morals and company standards  Reflects the need for absolute standards (separate from the company) and relative standards (reflecting what the company does).

Ethics in International Business The firm develops ethical standards that are “absolute” by evaluating all the perspectives of stakeholders around the world to find the “highest” standard. Members are then socialized to that standard (affects hiring and filtering mechanisms. Standards are communicated and incentives are created. King's University College20

Ethics in International Business King's University College 21 Ethical Standard Country World Average Firm global Standard: based on “highest” levels within the firm’s locations Ethical Unethical Highest in Firm Lowest in Firm

King's University College22 Why Ethics Are Important to International Business? Short-term gains not worth the long term pain (losses)  Information travels fast and it is difficult to hide  Stakeholders have long memories – so do the press  Public perception is important (avoid, change values, change perception, confront)