Presentation is loading. Please wait.

Presentation is loading. Please wait.

Ethics in International Business

Similar presentations

Presentation on theme: "Ethics in International Business"— Presentation transcript:

1 Ethics in International Business
Chapter 3 Ethics in International Business

2 Introduction International business ethics attempts to deal with questions of what to do in situations where ethical morals come into conflict as a result of the differing cultural practices. Example : Should an international business pay bribes to corrupt government officials to gain market access to a foreign country?

3 How and whether it is possible to act ethically at international level?
International business ethics has a number of open questions and dilemmas. Today it is characterized by the following elements: • Every culture and nation has its own values, history, customs and traditions, thus it has developed own ethical values and understanding of ethical principles; There is no international ethical code of conduct, accepted and followed by all the countries;

4 How and whether it is possible to act ethically at international level?
There is a lack of governments’ initiative to create ethical cooperation framework and thus to enhance ethical behavior in international business;

5 What is ethics? Question: What is ethics?
Ethics are accepted principles of right or wrong that direct the behavior of a person, the members of a profession, or the actions of an organization.

6 How do ethics apply to business?
Question: How do ethics apply to business? Business ethics are the accepted principles of right or wrong leading the behavior of business people. Ethical strategy is a strategy, or course of action, that does not break up these accepted principles.

7 Ethical Issues in International Business
The most common ethical issues in business involve : Employment practices. Environmental regulations. Corruption. The moral obligation of multinational companies.

8 1. Ethics and Employment Practices
Question: When work conditions in a host nations are clearly poorer to those in a multinational’s home nation, what standards should be applied? 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 {

9 2. Ethics and Environmental Pollution
Question: Should a multinational feel free to pollute in a developing nation if doing so does not break up laws? When environmental regulations in host nations are far inferior to those in the home nation, ethical issues arise. 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 {

10 3. Ethics and Corruption Question: Is it ethical to make payments to government officials to secure business? In the United States, the Foreign Corrupt Practices Act forbid the practice of paying bribes to foreign government officials in order to gain business.

11 4. Ethics and Moral Obligations
Question: Do multinationals have a responsibility to give back to the societies that enable them to grow and succeed? The concept of social responsibility refers to the idea that business people should take the social benefits into account when making business decisions, and that there should be a belief in decisions that have both good economic and good social benefits. 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 {

12 The Roots of Unethical Behavior
Question: Why do managers behave in an unethical manner? Managerial behavior is influenced by: Personal ethics Decision making processes Organizational culture Leadership Unrealistic Performance Expectations.

13 The Roots of Unethical Behavior

14 1. Personal Ethics Business ethics reflect personal ethics (the generally accepted principles of right and wrong leading the conduct of individuals). Managers may face pressure to violate their personal ethics because they are away from their ordinary social context and supporting culture, and they are psychologically and geographically distant from the parent company .

15 2. 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.

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

17 4. Leadership If a firms leaders fail to act in an ethical manner, other employees may not act ethically Actions speak louder than words. Management Focus: Pfizer’s Drug Testing Strategy in Nigeria Summary This feature raises questions as to whether pharmaceutical giant, Pfizer, acted ethically when testing a new drug. In 1996, Pfizer was seeking FDA approval for a new antibiotic. The company lacked the necessary test results to have the drug approved for children. The company saw an opportunity to quickly test the drug when an outbreak of bacterial meningitis hit a town in Nigeria. In 2003, two dozen Nigerian families sued Pfizer arguing that their children either died or were injured as a result of the drug testing. They allege that Pfizer did not take the appropriate steps to properly test the drug, and that the company acted in an unethical manner. Suggested Discussion Questions 1. Was Pfizer irresponsible when it tested its experimental drug in Nigeria? How could the company have acted more ethically? Discussion Points: This is a difficult issue with no clear answers. While Pfizer may have cut some corners in Nigeria in its haste to test the drug, some children who might have died without the drug, are alive today. Some students will probably suggest that Pfizer should have been more responsible with how it set up its trials. The company should have made the effort to clearly communicate the risks involved to parents. Other students however, may argue that many people have been saved by participating in experimental treatments. Students might add that the Nigerian government was desperate to halt the epidemic, and that in situations where time is critical, the benefits of overlooking some normal procedures may be worthwhile. 2. Pfizer saw the bacterial meningitis outbreak in Nigeria as a means of quickly getting a large pool of sick children on which to test its new antibiotic. Consider the dilemma facing pharmaceutical companies. In order to get FDA approval to introduce their new drugs, numerous studies must demonstrate the efficacy of the drugs, studies that, as the Pfizer example demonstrates, can be difficult to complete. Would you have been tempted to follow Pfizer’s strategy? If you waited, and completed the testing in the United States, what might be the effect on your company’s bottom line? Would you be acting in the best interests of your stakeholders by waiting, or by testing in Nigeria? Discussion Points: Students may start by saying that hindsight is 20/20. In this case, perhaps Pfizer should have moved more slowly. With strong pressure to always develop new, profitable drugs, the company clearly thought the opportunity in Nigeria would be beneficial. Pfizer needed a large sample of sick children, something it was unlikely to find in the United States. Some students may raise the question that if Pfizer had waited, people who took the drug after it was approved would not have had that treatment option—and could be dead today. Teaching Tip: Students can learn more about Pfizer by going to the corporate web site at { Video Note: The iGlobe Experimental Malaria Vaccine Shows Promise in Africa is directly related to this case.

18 5. Unrealistic Performance Expectations
Pressure from the parent company to meet performance goals that are unrealistic, and can only be achieved by acting in an unethical manner which cause unethical behavior.

19 Ethical Dilemmas Question: What are ethical dilemmas?
An ethical dilemma is a situation with uncertainty about what is right to do from a moral or ethical perspective. Managers often face situations where the appropriate course of action is not clear . For example, the manager of a company may be put in a position in which he must choose between the interests of his employees and his investors. Give more profits or increase the salary?

20 How Can Managers Make Ethical Decisions?
Question: How can managers ensure that ethical issues are considered in business decisions? To encourage ethical decision making, firms should: Hire and promote people with a well grounded sense of personal ethics. refrain from promoting individuals who have acted unethically prospective employees should find out as much as they can about the ethical climate in an organization prior to taking a position How can managers be sure they operating in an appropriate and ethical manner? Sometimes it can be hard to figure out what’s right. However, there are five things that managers can do to be sure that ethical issues are considered when decisions are made. First, firms should favor hiring and promoting people with well grounded personal ethics. While it may seem obvious that you should hire people with a strong sense of business ethics, it can be hard to know whether a person fits this category. So, businesses often require references, or give prospective employees tests as a way of finding out more about individuals. It’s also important for individuals to find out about the ethics of a prospective employer. You might ask, for example, whether a firm has a formal code of ethics, or how senior managers are viewed, and so on. Second, firms should try to build an organizational culture that places a high value on ethical behavior. To develop this, firms need to articulate values that place a strong emphasis on ethical behavior. Some firms do this by establishing a formal code of ethics. Once a code has been developed, leaders need to emphasize it and act on it. Companies can encourage employees to adopt the code by offering incentives and rewards to employees who behave in an ethical manner.

21 How Can Managers Make Ethical decisions?
2. Build an organizational culture that places a high value on ethical behavior articulate values that place a strong emphasis on ethical behavior emphasize importance of code of ethics - formal statement of the ethical priorities a business follows to implement a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not

22 How Can Managers Make Ethical decisions?
Make sure that leaders within the business articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric. Develop moral courage: enables managers to walk away from a decision that is profitable, but unethical gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company. Third, firms should make sure that leaders articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric. The fourth thing managers can do is develop moral courage. Companies can strengthen the moral courage of employees by committing themselves to not retaliate against employees who exercise moral courage, say no to superiors, or otherwise complain about unethical actions. For example, consider the following extract from Unilever’s code of ethics: Any breaches of the Code must be reported in accordance with the procedures specified by the Joint Secretaries. The Board of Unilever will not criticize management for any loss of business resulting from adherence to these principles and other mandatory policies and instructions. The Board of Unilever expects employees to bring to their attention, or to that of senior management, any breach or suspected breach of these principles. Provision has been made for employees to be able to report in confidence and no employee will suffer as a consequence of doing so.

23 How Can Managers Make Ethical decisions?
5. Put decision making processes in place that require people to consider the ethical dimension of business decisions ask whether : decisions fall within the accepted values of standards that typically apply in the organizational environment decisions can be communicated to all stakeholders affected by it if colleagues would approve of decisions Finally, firms should put decision making processes in place that require people to consider the ethical dimension of business decisions. How can ethics be incorporated into decision making processes? One way is to use a moral compass. So, for example, if a manager can answer “yes” to any of the following questions, the decision would be considered ethical. One, does my decision fall within the accepted values of standards that typically apply in the organizational environment? Two, am I willing to see the decision communicated to all stakeholders affected by it? Three, would the people with whom I have significant personal relationships approve of the decision?

24 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 are people who work for or who own the business such as employees, the board of directors, and stockholders. External stakeholders are the individuals or groups who have some claim on a firm such as customers, suppliers, and unions

25 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.

26 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

27 Critical Discussion Question
What should the manager do? A manager from a developing country is overseeing a multinational’s operations in a country where drug trading and lawlessness are common. One day, a representative of a local “big man” approaches the manager and asks for a “donation” to help the “big man” provide housing for the poor. The representative tells the manager that in return for the donation, the “big man” will make sure that the manager has a productive stay in his country. No threats are made, but the manager is well aware that the “big man” heads a criminal organization that is engaged in drug trafficking. He also knows that the big man does indeed help the poor in the run down neighborhood of the city where he was born. Answer: Many students will probably suggest that the manager should not accept the assistance of the “big man”, nor make the recommended “donation”. Students taking this perspective are likely to suggest that doing so would be unethical, and that if the manager really wants to help poor people it can give a more legitimate donation. Other students however may point out that the “big man” could make life very difficult for the manager, or he could really help the manager. Some students may argue that, in order to satisfy stakeholders, the managers should meet the demands of the ‘big man”. Still other students will probably point out that if conditions in the country are so poor, the company should simply take its investments elsewhere. Lecture Note: Mexico’s drug trafficking problem is currently prompting many foreign companies to rethink their investments in the country. To learn more, go to {

Download ppt "Ethics in International Business"

Similar presentations

Ads by Google