1. 4
Managing Ethical and Social Responsibility Challenges in Multinational Companies

2. Learning Objectives
Know the definitions of international business ethics and social responsibility
Understand some basic principles of ethical philosophy relevant to business ethics
Understand how social institutions and national culture affect ethical decision making and management

3. Learning Objectives
Understand the implications of using ethical relativism and ethical universalism
Identify the basic principles and consequences of the U.S. Foreign Corrupt Practices Act
Understand how international agreements affect international business ethics

4. Learning Objectives
Understand the differences among economic, legal, and ethical analyses of business problems
Develop skills in international decision making with ethical consequences

5. International Business Ethics
Ethics deal with the “oughts” of life
Although business decision making is dominated by economics, they also have consequences for people
International business ethics: unique ethical problems faced by managers operating across national boundaries
International business ethics is concerned with ethical dilemmas in international contexts

6. International Business Ethics
More complex as different cultures do not agree on what one “ought” to do
Ethical dilemmas seldom have clear/unambiguous answers
MNCs often have power and assets that are equal to foreign governments, raising more ethical concerns over the use of such power

7. Corporate Social Responsibility
Idea that businesses have a responsibility to society beyond making profits
Concerned with ethical consequences of company policies and procedures
Must take into account the welfare of other constituents in addition to stockholders

8. Exhibit 4.1a: Areas of Ethical and Social Responsibility Concerns for the Multinational Company

9. Exhibit 4.1b: Areas of Ethical and Social Responsibility Concerns for the Multinational Company

10. Primary and Secondary Stakeholders
Primary Stakeholders: directly linked to a company’s survival and include customers, suppliers, employees, and shareholders
Secondary Stakeholders: less directly linked to the company’s survival and include the media, trade associations, and special-interest groups

11. Ethical Philosophy Two ways to consider ethical decision making
Traditional ethical philosophy
Contemporary philosophy

12. Basic Systems of Ethical Reasoning
Teleological ethical theory
Morality of an act or practice comes from its consequences
Utilitarianism: what is good and moral comes from acts that produce the greatest good for the greatest number of people

13. Deontological Ethical Theory
Actions have a good or bad morality regardless of the outcomes they produce

14. Moral Languages
Basic ways that people use to make ethical decisions and to explain their ethical choices
Six basic ethical languages:
Virtue and vice
Self-control
Maximizing human welfare
Avoiding harm
Rights and duties
Social contract

15. National Differences in Business Ethics and Social Responsibility
National culture and social institutions affect ethical behavior and social responsibility

16. Exhibit 4.2: A Model of Institutional and Cultural Effects on Business Ethics Issues and Management

17. Messner and Rosenfeld Anomie Theory
Argue that specific national culture and social institutions affect ethics
National cultures: high achievement, high individualism, high universalism, high materialism are all related to higher deviance
Social institutions: high industrialization, capitalist systems, lower family breakdown, and highly accessible educational systems should all encourage deviance

18. Exhibit 4.3: Cultural Variations in Acceptance of Ethically Suspect Behaviors: Some Examples

19. Questionable Payments and Bribery
Bribes or gifts to expedite government actions or to gain advantage in business deals
In many countries, people routinely offer gifts of bribes
US is unique in the world in its extensive legal control over the management of ethical behavior

20. Questionable Payments: Implications
Corruption and bribery can have devastating effects on societies
Companies routinely use poorer-quality products or materials to cover for the bribe, thus resulting in inferior products with poor quality
Corruption can also result in collusion among firms, resulting in even higher prices

21. Questionable Payments: Implications
Charge higher prices to cover for price of bribes
Result in higher public spending
Undermines competition
Inefficient allocation of resources
Discourage entrepreneurship
Affects economic development

22. Questionable Payments
To understand the level of corruption in countries, multinational companies can rely on the Corruption Perception Index (CPI)
CPI developed by Transparency International, gives an idea of the perceived levels of corruption within countries
Bribe Payers Index developed by Transparency International, estimates extent of bribes accepted by public officials from companies

23. Exhibit 4.4: The CPI for Selected Countries

24. Exhibit 4.5: Bribe Payers Index

25. U.S. Foreign Corrupt Practices Act (FCPA)
Forbids US companies from illegal payments or gifts to officials of foreign governments for the sake of getting or retaining business

26. U.S. Foreign Corrupt Practices Act (FCPA)
Does not prohibit some forms of payments that may occur in international business
Payments made under duress to avoid injury or violence are acceptable
Small payments to encourage officials to do legitimate and routine jobs
If payments are lawful in a country
“Grease” payments do not seek illegal ends, but used to speed up normal business

27. U.S. Foreign Corrupt Practices Act (FCPA)
Tricky component is the reason-to-know component
Firms are liable for bribes even if bribes are made by agents of company
Companies use local agents, as have “local know how” in conducting business
Liable if common knowledge that agents use part of their fees to bribe officials to commit illegal acts
If no knowledge, no reason to expect illegal agent behavior, then company is not held liable

28. Toward Transnational Ethics
Ethical convergence: growing pressure to follow the same rules in managing ethical behavior and social responsibility
Globalization dramatically increases contact among people from different ethical and cultural systems

29. Four Basic Reasons for Ethical Convergence
The growth of international trade and trading blocks
Interaction between trading partners increases pressures to imitate business practices
Varied cultural background employees require common standards
An increasing number of business watchdogs

30. Prescriptive Ethics
Suggested guidelines for the ethical behavior of MNCs
Three moral languages should guide MNCs
Avoiding harm
Rights and duties
Social contract
These three are the easiest to specify in written codes
Also most appropriate in heterogeneous cultures
And work irrespective of national backgrounds

31. International Ethics Guideline Sources
The United Nations Universal Declaration of Human Rights
The United Nations Code of Conduct on Transnational Corporations
The European Convention on Human Rights
The International Chamber of Commerce Guidelines for International Investment

32. International Ethics Guideline Sources
The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises
The Helsinki Final Act
The International Labor Office Tripartite Declarations of Principles Concerning Multinational Enterprises and Social Policy

33. Exhibit 4.7: A Code of Conduct for the Multinational Company (sample)

34. Two Basic Rationales for the Code of Conduct for the Multinational
Basic deontological principles dealing with human rights
History of experiences in international business interactions
However, despite the existence of extensive agreements, multinationals may not always follow ethical principles.
Codes may not be easily enforceable
Safe guides to ethical management in foreign countries

35. The Ethical Dilemma in Multinational Management: How Will You Decide?
Ethical relativism vs. Ethical universalism
Ethical relativism: each society’s view of ethics must be considered legitimate and ethical
Ethical universalism: basic moral principles that transcend cultural and national boundaries
Difficulty in following either ethical relativism or universalism

36. Convenient Relativism
Companies have a higher responsibility than ethical relativism
However, some companies use the logic of ethical relativism to behave any way they please
Use the excuse of differences in cultures, or convenient relativism
Similarly, moral universalism can lead to problems of cultural imperialism

37. Individual Ethical Decision Making for the Multinational Manager
Forms of analyses
Economic analysis: focuses on what is the best decision for a company’s profits
Legal analysis: focuses on only meeting legal requirements of host and parent countries
Ethical analysis: goes beyond focusing on profit goals and legal regulations

38. Exhibit 4.8: Decision Points of Ethical Decision Making in Multinational Management

39. Exhibit 4.8 (continued): Decision Points of Ethical Decision Making in Multinational Management

40. Individual Ethical Decision Making
Purely ethical issues must be weighed against economic and legal analyses
May begin analysis at different points
However, multinational managers are guests in other nations
Ethical decision making must go beyond legal constraints

41. Individual Ethical Decision Making
There is no single accepted ethical theory that managers can use to resolve all ethical dilemmas
Generally accepted philosophical theories can be used as guides, however
Such ethical analyses can help raise managers’ awareness of ethical issues
Helps clarify reasons behind ethical choices

42. Conclusion Chapter provides background on business ethics
Multinational managers face ethical dilemmas similar to their domestic counterparts
Challenges are magnified by the complexity of working across different countries and cultures
National contexts influence ethics in organizations
Decision models sensitizes awareness of ethics issues
Despite some convergence, ethical differences exist