1. Global Business Today 8e
by Charles W.L. Hill

2. Ethics in International Business
Chapter 5
Ethics in
International Business

3. Introduction
Ethics - accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or 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
Internet Extra: Consumers International { an organization dedicated to protecting the rights of consumers worldwide. In doing so, it promotes ethical behavior on the part of companies.
Go to the site and click on one of the organization’s current efforts. What are the issues that are being raised?
How do they affect companies? Do you agree with the organization’s position? Why or why not?

4. Ethical Issues in International Business
The most common ethical issues in business involve:
Employment practices
Human rights
Environmental pollution
Corruption
Moral obligations

5. Employment Practices Question: When work conditions in a host
nations are clearly inferior to those in a multinational’s home nation, what standards should be applied?
Answer:
The standards of the home nation?
The standards of the host nation?
Something in between?
Management Focus: Making Apple’s iPOD
Summary
This feature explores Apple’s experiences with employment practices at the Chinese factory that produces its iPOD. In 2006, two Chinese journalists reported that the working conditions at Hongfujin Precision Industries where Apple’s iPODs are produced, were substandard. According to the report, not only were workers at the plant poorly paid, but they were also forced to work overtime. Apple immediately responded to the allegations and audited the factory in question. However, managers at the factory filed a defamation lawsuit against the two journalists. Despite the fact that Apple’s audit did indeed show substandard working conditions at the factory, Hongfujin did not withdraw the lawsuit. Eventually the Reporters Without Borders group took up the case for the two reporters and the lawsuit was dropped.
Suggested Discussion Questions
1. Should Apple be responsible for ensuring that its suppliers are safeguarding the basic rights and dignity of their employees? How can Apple be sure that its suppliers do not employ sweatshop labor?
Discussion Points: Many students will probably agree that Apple should be responsible at least to some degree for ensuring that the factories where it sources its products are safe. Some students may suggest that to knowingly buy products from a company with substandard working conditions is a violation of basic human ethics. Other students however, may argue that Nike cannot force suppliers to adopt specific practices and policies toward labor. Students taking this perspective might further suggest that pushing American practices on Chinese companies is ethnocentric, and that for many Chinese the prospect of having a job, even in poor working conditions, is better than having no job at all. Many students may be surprised that Apple did not already have an audit policy in place prior to the accusations by the Chinese reporters, but will probably agree that the company handled the situation appropriately.
2. The allegations against Hongfujin Precision Industries were made by two Chinese reporters. Discuss the implications of this for other Chinese companies.
Discussion Points: Most students will probably agree that the fact that the allegations against Hongfujin Precision Industries were made by Chinese reporters who work for China Business News, a state run newspaper, could have interesting implications for other companies. Some students will probably suggest that it should serve as a signal to other companies that poor working conditions are unacceptable, and that while in the past, it may have been possible to hide them, it is no longer the case. Other students may suggest that the allegations may force companies to rethink their production and look for new ways to increase productivity. Some students may note that the very fact that the report was published is startling in some regards, and that companies should anticipate further scrutiny.
Lecture Note: Apple maintains that it requires its suppliers to practice responsible manufacturing. To learn more about Apple’s policies go to {
Lecture Note: To extend this case, consider exploring Apple’s recent troubles with allegations of sweatshop conditions in supplier factories that have prompted worker suicide. Go to { and { for more details.

6. Human Rights Question: What is the responsibility of a foreign
multinational when operating in a country where basic human rights are not respected?
Basic human rights taken for granted in the developed world such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and so on, are not universally accepted

7. Putting it into Practice
Did Apple do anything wrong?

8. Environmental Pollution
Question: Should a multinational feel free to pollute in a developing nation if doing so does
not violate laws?
Answer:
When environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise
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
Management Focus: Unocal in Myanmar
Summary
This feature explores Unocal’s actions in Myanmar. Unocal, an American, oil and gas enterprise, formed a joint venture with a French company to build a pipeline from Myanmar to Thailand. Unocal made that investment at a time when many other American companies were exiting the country in protest of the local government’s policy of brutally suppressing internal dissent.
Suggested Discussion Questions
1. Why did Unocal’s investment become so controversial? Did Unocal behave in an ethical manner?
Discussion Points: Unocal made its investment in Myanmar just as many other companies were leaving the country in protest of the nation’s brutal military dictatorship. The company had formed an agreement with the government that involved clearing a path for a new pipeline. The investment became controversial when, in order to fulfill the agreement, Myanmar’s army forcibly moved villagers and then forced them to work under slave-like conditions. Unocal claims it had no knowledge of what was occurring, but this claim was rejected by a judge who heard the case that was filed against Unocal on behalf of Myanmar villagers. Students will probably agree that the company failed to act in an ethical manner, and that while it may not have directly participated in the brutality, Unocal did have a responsibility to oversee what was going on and ensure that people were treated fairly.
2. A 1996 law suit against Unocal was dismissed on the grounds that the Unocal could not be held liable for the actions of a foreign government against its own people, although the judge noted that the company was aware of what was going on in the country. Discuss the difference between acting in an ethical manner and acting according to the law.
Discussion Points: Students will probably be familiar with the notion that even if something is not explicitly forbidden, it does not mean it is right. This concept would certainly seem to apply in this case. Ethical responsibility goes beyond the letter of the law to encompass the idea of behaving in a certain way simply because it is the right thing to do. It is worth noting that an appeal by the plaintiffs resulted in an out-of-court settlement in 2005, which would imply that Unocal was guilty at least to some extent.
Teaching Tip: Unocal is now part of Chevron. The company’s web page is {

9. Corruption
Question: Is it ethical to make payments to government officials to secure business?
Answer:
The Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes to foreign government officials in order to gain business
The OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions obliges member states to make the bribery of foreign public officials a criminal offense

10. Corruption
Some argue that paying bribes might be the price of doing a greater good
Where preexisting political structures distort or limit the workings of the market mechanism, corruption -marketeering, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments - may actually enhance welfare
Others argue that corruption reduces the returns on business investment and leads to low economic growth

11. Putting it into Practice
Did Wal-Mart Mexico do the right thing?
Reports that Wal-Mart executives in Wal-Mart routinely paid bribes to Mexican government officials generated outrage in the United States, but seemingly caused less distress in Mexico, where bribes are frequently considered a routine part of business. To learn more, go to {

12. Moral Obligations
Question: Do MNEs have a responsibility to give back to societies that enable them to grow and prosper?
Answer:
Social responsibility - the idea that business people should take the social consequences of economic actions into account when making business decisions
There should be a presumption in favor of decisions that have both good economic and good social consequences
Management Focus: News Corporation in China
Summary
This feature explores the entry of News Corp’s, one of the largest media conglomerates in the world, entry into the Chinese market. According to critics, Robert Murdoch, head of News Corporation, gained preferential access to the Chinese media market by systematically suppressing media content that was critical of China, and publishing material designed to ingratiate the company with China’s leaders.
Suggested Discussion Questions
1. Consider the allegations against Robert Murdoch. Did he behave in an ethical manner if he suppressed media content that was critical of China?
Discussion Points: Students will probably have different views on this subject. Some will probably argue that new companies have an ethical responsibility to provide an unbiased, full report of events regardless of whether they represent values the firm endorses, or whether such a point could negatively affect the bottom line. Other students however, might suggest that News Corporation had no such responsibility, that it is a company out to make a profit, just like any other company. If this means omitting certain stories from its coverage, then so be it. Students taking this perspective might also add that in this day and age of 24/7 global communication, some burden for getting an accurate interpretation of events has shifted to the consumer.
2. Newspapers and news programs are frequently criticized for giving biased reports of events. What standards should these organizations hold to? Did News Corporation hold to these standards?
Discussion Points: Most students will probably agree that it would be difficult to set explicit standards for periodicals. They will probably suggest that companies must take the lead in establishing themselves as certain types of companies. So, if a newspaper wants to establish itself as a hardcore reporter of newsworthy events, it should be held to different standards than a gossip magazine.
Teaching Tip: To explore the company in more depth go to {

13. Putting it into Practice
Social responsibility

14. Ethical Dilemmas
Managers often face situations where the appropriate course of action is not clear
Ethical dilemmas - situations in which none of the available alternatives seems ethically acceptable
Exist because real world decisions are complex, difficult to frame, and involve various consequences that are difficult to quantify

15. The Roots of Unethical Behavior
Question: Why do managers behave in an unethical manner?
Answer:
Managerial behavior is influenced by:
Personal ethics
Decision making processes
Organizational culture
Unrealistic performance expectations
Leadership
Societal culture

16. The Roots of Unethical Behavior
Determinants of Ethical Behavior

17. Business ethics reflect personal ethics
Expatriates may face pressure to violate their personal ethics because
They are away from their ordinary social context and supporting culture
They are psychologically and geographically distant from the parent company
Personal ethics refer to the generally accepted principles of right and wrong governing the conduct of individuals.

18. Decision Making Processes
Studies show that business people may behave unethically because they fail to ask the relevant question—is this decision or action ethical?
Decisions are made based on economic logic, without consideration for ethics

19. Organizational Culture
Unethical behavior may exist in firms with an organization culture (the values and norms that are shared among employees of an organization) that does not emphasize business ethics
Values and norms shape the culture of a firm, and that culture influences decision making

20. Putting it into Practice
An unethical organizational culture?
Allegations of years of phone hacking by News of the World generated outrage in Great Britain and beyond.

21. Unrealistic Performance Expectations
Pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner can cause unethical behavior

22. Leadership
If a firms leaders fail to act in an ethical manner, other employees may not act ethically
Actions speak louder than words

23. Putting it into Practice
Fallout from Barclay’s LIBOR scandal
Barclay’s chairman resigned after his firm was accused of rigging interest rates. For more details, go to { and {

24. Ethical policies differ by country
Societal Culture
Ethical policies differ by country
MNEs located in countries where individualism and uncertainty avoidance are strong are more likely to emphasize ethical behavior
MNEs located in countries with high masculinity and high power distance are less likely to promote ethical behavior

25. Philosophical Approaches to Ethics
Approaches to business ethics include:
Straw men
The Friedman doctrine
Cultural relativism
The righteous moralist
The naïve immoralist
Utilitarian and Kantian
Rights theories
Justice Theories

26. Straw Men
Friedman doctrine - the only social responsibility of business is to increase profits, so long as the company stays within the rules of law
Companies should do only what is mandated by law and what is required to run a business efficiently
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”
Straw men approaches are raised by business ethics scholars primarily for the purpose of demonstrating that they offer inappropriate guidelines for ethical decision making in a multinational enterprise.

27. Straw Men
Naïve Immoralist - if a manager of an MNE sees that firms from other nations are not following ethical norms in a host nation, that manager should not either
Actions are ethically justified if everyone else is doing the same thing
Righteous Moralist – an MNE’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

28. Utilitarian and Kantian Ethics
Utilitarian approach - 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
Problems with this approach:
Measuring the benefits, costs, and risks of a course of action
Fails to consider justice

29. Utilitarian and Kantian Ethics
Kantian ethics - based on the philosophy of Immanuel Kant 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

30. Rights Theories
Rights theories - human beings have fundamental rights and privileges that transcend national boundaries and culture
Form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component
The idea that some fundamental rights transcend national borders and cultures was the underlying motivation for the UN’s Universal Declaration of Human Rights
The UN’s Universal Declaration of Human Rights specifies the basic principles that should always be adhered to irrespective of the culture in which one is doing business.

31. Justice Theories
Justice theories focus on the attainment of a just distribution (one that is considered fair and equitable) of economic goods and services
John Rawls - 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

32. Justice Theories
Question: What system would people design under a veil of ignorance?
Answer:
A system where people would agree that each person is permitted the maximum amount of basic liberty compatible with a similar liberty for others
Once equal basic liberty is assured, inequality in basic social goods are to be allowed only if they benefit everyone
The difference principle suggests that inequalities are justified if they benefit the position of the least advantaged person

33. 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

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

35. 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.

36. Decision-Making Processes
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?
A moral compass can help determine whether a decision is ethical.

37. Decision-Making Processes
A five-step process can also help managers think through ethical issues
1. How would a decision affect stakeholders
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
Stakeholders refer to the individuals or groups who have an interest, stake, or claim in the actions and overall performance of a company.

38. Decision-Making Processes
2. Determine if a proposed decision violates the fundamental rights of any stakeholders 3. Establish moral intent 4. Engage in ethical behavior 5. Audit decisions - reviewing them to make sure that they were consistent with ethical principles
Moral intent refers to 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.

39. Ethics officers ensure that:
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

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

41. Summary of Decision-Making Steps
International businesses should:
Strive to hire and promote people based on ethical considerations as well as other metrics of performance
Establish an ethical organizational culture
Appoint ethics officers
Create an environment that facilitates moral courage
It is important to recognize that not all ethical dilemmas have a clear and obvious solution