1. Ethics in International Business 4 International Business

2. Learning Objectives Ethics Issues in International Ethics Inappropriate Doctrine Ethics

3. Ethics Ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization Often a function of differences in economic development, politics, legal systems, and culture Certain practices in one country may be unethical when judged by other countries (Western) standards Business Ethics are the accepted principles of right or wrong governing the conduct of businesspeople, and an ethical strategy is one that does not violate these accepted principles.

4. Ethics in International Business International business ethics is a particularly complex issue as ethical standards are different depending on where you are. Corporate governance, bribery, corruption, working conditions and targeted marketing are all issues that require organizations to establish an ethical standpoint from which they can work on. For example, the poor working conditions suffered in the third world were commonplace during the industrialization of many western economies.

5. 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 regulations 4. Corruption 5. The moral obligation of multinational companies

6. Sources & Nature of Ethical issues in IB Employment Practices: When pay and work conditions in a host nation are clearly inferior to those in a multinational’s home nation, what standards should be applied- those of home or host nation, or something in between? Examples: Nike in Vietnam (1990): 20 cents/ hour International business implications: Establish minimal acceptable working standards and audit foreign subsidiaries and subcontractors on a regular basis

7. Sources & Nature of Ethical issues in IB Human Rights: Rights are taken for granted in developed nations, such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, freedom from political repression, and so on, are by no means universally accepted. Example: Myanmar ruled by military dictatorship: Unocal employees suffered human rights abuses such as forced labor, murder, rape and torture at the hands of the Myanmar military during construction of a gas pipeline What is the responsibility of an MNC when operating in a country where basic human rights are violated? Should the company be there at all?

8. Sources & Nature of Ethical issues in IB Environmental Pollution: Ethical issues arise when environmental regulations in host nations are inferior to those in the home nation. Should a multinational feel free to pollute in a developing nation? ‘Tragedy of the commons’ occur when individuals overuse a resource held in common by all (Garrett Hardin) Examples: Shell Nigeria (2009): allowed oil spill, did not prevent or limit it, and did not adequately clear the oil. Examples: Coca Cola plant in Kerala (1999): Coca Cola drew around 510,000 litres of water. For every 3.75 litres of water used by the plant, it produced one litre of product and a large amount of waste water.

9. Sources & Nature of Ethical issues in IB Corruption: Corruption may harm a country’s economic development, but there are also cases where payments to government officials can remove the bureaucratic barriers to investments that create jobs Example- Lockheed case: paid $12.6m to Japanese agents & Govt officials to secure large orders (1976) The US Foreign Corrupt Practices Act of 1977 outlaws paying bribes to Govt officials. A facilitating payment or "grease payment“ is a payment to a foreign officials for "routine governmental action", such as processing papers, issuing permits, and other actions of an official. It is not intended to influence the outcome of the official's action, only its timing which they are already bound to perform. It is an exception from anti-bribery prohibitions of the law.bribery

10. Sources & Nature of Ethical issues in IB Moral Obligation: Social Responsibility for MNCs to give something back to the societies that enable them to prosper and grow. Nobless oblige (French term) in business setting refers to benevolent behavior by successful enterprise Example: BP, company policy to undertake “social investments” in the countries where it does business: Desalination plant near their gas field. Never engaging in corruption.

11. What Are The Philosophical Approaches To Ethics? There are several different approaches to business ethics, which either deny business ethics or apply the concept in a very unsatisfactory way: 1. Straw men approaches deny the value of business ethics or apply the concept in an unsatisfactory way Friedman doctrine Cultural relativism Righteous moralist Naïve immoralist 2. Utilitarian and Kantian Ethics 3. Rights Theories 4. Justice Theories

12. Straw Men Straw men approaches offer inappropriate guidelines for ethical decision making in a multinational enterprise. The straw men approaches: (i) The Friedman Doctrine -By the Nobel laurite Milton Friedman in 1970 - suggests that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law -He rejects the idea that business should undertake social expenditures beyond those mandated by the law and required for the efficient running of a business -But, is it social responsibility a synonym for business ethics? eg- Child labor may not be against the law in developing nation and maximizing productivity may not require a MNC stop using it in that country, but it is immoral. eg- There might be no rules against pollution in a particular country, but unethical to dump pollutants There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say that it engages in open and free competition without deception or fraud.

13. Straw Men Common straw men approaches: (ii) Cultural Relativism is the belief that ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate “when in Rome, do as the Romans” Eg- If a culture supports slavery or speed money payment, is it okay to use those? (iii) Righteous Moralist - a multinational’s home country standards of ethics are the appropriate ones for companies to follow in foreign countries - Approach is common among managers from developed countries, not always follow the prevailing cultural norms. - Adopting home-country standards are not always appropriate. Eg-Min wage in USA to be given to a foreign country worker? This nullify the reason for IB. 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. Eg- Drug-Lord problem/ Child labor. Two-fold objections: - Actions are ethically justified if everyone else is doing- is not sufficient. - MNC can use power for positive moral purpose. Eg-BP for facilitating payment.

14. Utilitarian and Kantian Ethics Utilitarian approaches to ethics Developed in 18 th and 19 th centuries They hold that the moral worth of actions or practices is determined by their consequences actions have multiple consequences, some good, some not. actions are desirable if they lead to the best possible balance of good consequences over bad consequences. Eg-Oil drill in Alaskan Wildlife preserve Problems with this approach measuring the benefits, costs, and risks of a course of action Fails to consider justice. It does not consider justice, so the minority will always be at a disadvantage. Govt subsidizing non-HIV patients. Kantian ethics - based on the philosophy of Immanuel Kant, German philopher who argued that people should be treated as ends and never purely as means to the ends of others people have dignity and need to be respected, they are not machines Kantian ethics are viewed as incomplete

15. Implications for Managers Question: How can managers ensure that ethical issues are considered in business decisions? Answer: Managers should favor hiring and promoting people with a well grounded sense of personal ethics build an organizational culture that places a high value on ethical behavior make sure that leaders within the business not only articulate the rhetoric of ethical behavior, but also act in manner that is consistent with that rhetoric put decision making processes in place that require people to consider the ethical dimension of business decisions develop moral courage

16. Hiring and Promotion Businesses should strive to identify and hire people with a strong sense of personal ethics - psychological tests & reference letter Prospective employees should find out as much as they can about the ethical climate in an organization

17. Organization Culture and Leadership Businesses need to build an organization culture that places a high value on ethical behavior the business must explicitly articulate values that place a strong emphasis on ethical behavior code of ethics - a formal statement of the ethical priorities a business adheres to leaders in the business should give life and meaning to the code of ethics by repeatedly emphasizing their importance, and then acting on them the business should put in place a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not

18. Decision-Making Processes A moral compass can help determine whether a decision is ethical. If a manager can answer “yes” to the following questions, the decision is ethically acceptable does my decision fall within the accepted values of standards that typically apply in the organizational environment? am I willing to see the decision communicated to all stakeholders affected by it? would the people with whom I have significant personal relationships approve of the decision?

19. Decision-Making Processes A five-step process can also help managers think through ethical issues 1. How would a decision affect stakeholders - the individuals or groups who have an interest, stake, or claim in the actions and overall performance of a company Internal stakeholders - people who work for or who own the business such as employees, the board of directors, and stockholders. External stakeholders - the individuals or groups who have some claim on a firm such as customers, suppliers, and unions

20. Decision-Making Processes 2. Managers need to determine whether a proposed decision would violate the fundamental rights of any stakeholders 3. Managers need to establish moral intent - the business must resolve to place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated 4. The company should then engage in ethical behavior 5. The business must audit its decisions, reviewing them to make sure that they were consistent with ethical principles

21. Ethics Officers To encourage ethical behavior in a business, a number of firms now have ethics officers Ethics officers ensure that employees are trained to be ethically aware ethical considerations enter decision-making the company’s code of ethics is followed

22. Moral Courage Employees in an international business may need significant moral courage managers need to be able too walk away from decisions that are profitable, but unethical employees need to be able to say no to actions that are unethical