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Ethics in International Business
CHAPTER 2 4/25/2017 CHAPTER 4 Ethics in International Business INTERNATIONAL BUSINESS
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4 What would you do? Would you buy a product if you knew it was made by a 10-year old girl in Africa who was only paid $0.27/day for her work? What if that girls parents were killed and she was the primary bread winner for her younger siblings? Would it bother you that she dropped out of school after 5th grade to help support her family? What if the product normally sold for $150, but you could get it for $20 because of this? What if one of your parents worked in the US for this company and was earning $100,000+ per year, but had nothing to do with this product, would you be OK with it?
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Introduction 4 Ethics Business Ethics
Moral guidelines which govern good behavior Not the same thing as behaving lawfully Business Ethics The principles and standards that determine acceptable conduct in business organizations Accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization
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Ethical Issues in International Business
4 Arise when a manager makes decisions consistent with differing national environments Political Systems Legal Systems Economic Development Levels Culture What is ethical and “normal” in one environment many not be so in another Who’s guidelines do you follow? Home Country Host Country
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Ethical Issues in International Business
4 The most common ethical issues in business involve Employment Practices Human Rights Environmental Regulations Corruption The Moral Obligation Of Multinational Companies
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Employment Practices 4 Child Labor
the employment of children in any work that deprives them of their childhood interferes with their ability to attend regular school mentally, physically, socially or morally dangerous and harmful Before 1940, numerous children aged 5–14 worked in Europe, the United States and various colonies of European powers In 2010, sub-Saharan Africa had the highest incidence rates of child labor, with several African nations witnessing over 50 percent of children aged 5–14 working Primary cause of child labor – poverty Income from working children may be 25% - 40% of household revenue
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Incidence Rates for Child Labor Ages 10-14
2 Yellow < 10% Green 10% - 20% Orange 20% - 30% Red 30% - 40% Black > 40%
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Employment Practices 4 Sweat Shops
Term for any working environment considered to be unacceptably difficult or dangerous Work long hours for very low pay Between 1850 and 1900, sweatshops attracted the rural poor to rapidly-growing cities, and attracted immigrants to places such as London and New York City's garment district Triangle Shirtwaist Factory Fire Led to workplace safety and labor laws
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Human Rights What are human rights?
4 Human Rights What are human rights? Universal Declaration of Human Rights Created by United Nations Established in 1948 30 basic Human Rights We are all free & equal We all have the same right to use the law Innocent until proven guilty Don’t discriminate We are all protected by the law The right to privacy The right to life Fair treatment by fair courts Freedom to move No slavery No unfair detainment The right to asylum No torture The right to trial The right to a nationality
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Human Rights Universal Declaration of Human Rights (continued) 4
Do human rights violations still exist? Amnesty International findings: Torture or abuse in at least 81 countries Unfair trials in at least 54 countries Restricted freedom of expression in at least 77 countries Marriage & family The right to democracy The right to education Your own things The right to social security Culture and copyright Freedom of thought Workers’ rights A free and fair world Free to say what you want The right to play Our responsibilities Meet where you like A bed and some food Nobody can take away these rights and freedoms from us
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Environmental Regulations
4 Environmental Regulations Environmental Pollution Illegal Dumping Deforestation Stripping of Natural Resources
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4 Toxic Waste
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4 Deforestation
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4 Corruption International businesses can, and have, gained economic advantages by making payments to government officials US passed the Foreign Corrupt Practices Act Organization for Economic Cooperation and Development (OECD) adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions World’s most corrupt nations, 2014 #1 Somalia, North Korea #3 Sudan #4 Afghanistan #5 South Sudan #6 Iraq Power itself is morally neutral. It is how power is used that matters. It can be used in a positive way to increase social welfare, which is ethical, or it can be used in a manner that is ethically and morally suspect. Consider the case of News Corporation, one of the largest media conglomerates in the world, which is profiled in the accompanying Management Focus. The power of media companies derives from their ability to shape public perceptions by the material they choose to publish. News Corporation founder and CEO Rupert Murdoch has long considered China to be one of the most promising media markets in the world and has sought permission to expand News Corporation’s operations in China, particularly the satellite broadcasting operations of Star TV. Some critics believe that Murdoch used the power of News Corporation in an unethical way to attain this objective. Some multinationals have acknowledged a moral obligation to use their power to enhance social welfare in the communities where they do business. BP, one of the world’s largest oil companies, has made it part of the company policy to undertake “social investments” in the countries where it does business.
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Social Responsibility
4 Social Responsibility Multinational firms have power, wealth from control over resources and ability to move production Moral philosophers argue that with power comes the responsibility to give something back to the societies that enable them to prosper Noblesse Oblige - benevolent behavior that is the responsibility of successful people and enterprises Power itself is morally neutral. It is how power is used that matters. It can be used in a positive way to increase social welfare, which is ethical, or it can be used in a manner that is ethically and morally suspect. Consider the case of News Corporation, one of the largest media conglomerates in the world, which is profiled in the accompanying Management Focus. The power of media companies derives from their ability to shape public perceptions by the material they choose to publish. News Corporation founder and CEO Rupert Murdoch has long considered China to be one of the most promising media markets in the world and has sought permission to expand News Corporation’s operations in China, particularly the satellite broadcasting operations of Star TV. Some critics believe that Murdoch used the power of News Corporation in an unethical way to attain this objective. Some multinationals have acknowledged a moral obligation to use their power to enhance social welfare in the communities where they do business. BP, one of the world’s largest oil companies, has made it part of the company policy to undertake “social investments” in the countries where it does business.
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Social Responsibility
4 Social Responsibility Most Admired Companies Rank Company 1 GDF Suez 2 Marquard & Bahls 3 RWE 4 Altria Group 5 Starbucks 6 Walt Disney 7 United Natural Foods 8 Sealed Air 9 Chevron Whole Foods Market Examples of Social Responsibility Using only fair trade ingredients/ materials Establishing sustainability programs Donating to less developed countries Steps to reduce companies carbon footprint Power itself is morally neutral. It is how power is used that matters. It can be used in a positive way to increase social welfare, which is ethical, or it can be used in a manner that is ethically and morally suspect. Consider the case of News Corporation, one of the largest media conglomerates in the world, which is profiled in the accompanying Management Focus. The power of media companies derives from their ability to shape public perceptions by the material they choose to publish. News Corporation founder and CEO Rupert Murdoch has long considered China to be one of the most promising media markets in the world and has sought permission to expand News Corporation’s operations in China, particularly the satellite broadcasting operations of Star TV. Some critics believe that Murdoch used the power of News Corporation in an unethical way to attain this objective. Some multinationals have acknowledged a moral obligation to use their power to enhance social welfare in the communities where they do business. BP, one of the world’s largest oil companies, has made it part of the company policy to undertake “social investments” in the countries where it does business.
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Ethical Dilemmas Question: What are ethical dilemmas? 4
Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable they exist because real world decisions are complex, difficult to frame, and involve various consequences that are difficult to quantify Managers often face situations where the appropriate course of action is not clear
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The Roots of Unethical Behavior
4 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 Unrealistic performance expectations Leadership
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Philosophical Approaches to Ethics
4 Philosophical Approaches to Ethics There are several approaches to business ethics including Straw Men Friedman Doctrine Cultural Relativism Righteous Moralist Naïve Immoralist Utilitarian and Kantian Rights theories Justice Theories
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What’s a Straw Man? 4 Wrong ways to approach ethics
For combat training, people used to create dummies out of straw and then practice attacking them Today when a thinker seeks to develop good ideas, they try to increase understanding by proposing weak ideas and showing why they’re weak Scholars raise straw-man approaches to ethics to demonstrate that they offer inappropriate guidelines for decision-making in a multinational firm
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4 Friedman Doctrine States that the only social responsibility of business is to increase profits, staying within the law May be defensible in developed countries What if you’re in systems that let you destroy a country’s environment or keep people poor?
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4 Cultural Relativism Suggests that ethics are nothing more than the reflection of a culture When in Rome, do as the Romans If a culture supports slavery, is it OK to use slaves?
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Philosophical Straw Men
4 Philosophical Straw Men Righteous Moralist claims that his or her own standards of ethics are the appropriate ones in all countries Naïve Immoralist asserts that if a manager sees that firms from other nations are not following ethical norms in a host country then they should not either If everybody is making payments to a local drug lord, do you do it too? Where righteous moralist doesn’t work – we had a good example when we studied the Bombay Tyre case in the ‘culture’ chapter. Local manager was giving a job to his father’s cousin. You may still think that’s immoral if you are Indian. But the nature of the immorality will certainly be different.
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A Few Defensible Philosophical Approaches
4 A Few Defensible Philosophical Approaches Utilitarian Kantian Rights Principles Justice Theory Most moral philosophers see value in utilitarian and Kantian approaches to business ethics Utilitarianism – David Hume, Jeremy Bentham You may have others. Phil 186
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4 Utilitarian Moral worth of actions or practices is determined by their consequences An action is judged to be desirable if it leads to the best possible balance of good consequences over bad consequences One problem with utilitarianism is in measuring the benefits, costs, and risks of an action The second problem related to utilitarianism is that it does not explicitly consider justice, so the minority will always be at a disadvantage
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4 Kantian The philosopher Immanuel Kant ( ) introduced the principle that people should be treated as ends and never purely as means to the ends of others People are not instruments like a machine People have dignity and need to be respected
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4 Rights Principles Rights theories recognize that human beings have fundamental rights and privileges, which transcend national boundaries and cultures Rights establish a minimum level of morally acceptable behavior Moral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when making decisions which have an ethical component United Nations Universal Declaration of Human Rights Most religions support the concept of rights somehow, but there are big differences Rights Pursuit of Justice
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4 Justice Theories Justice theories focus on the attainment of a just distribution of economic goods and services A just distribution is one that is considered fair and equitable There is no one theory of justice Several theories of justice conflict with each other in important ways Valid principles of justice are those with which all persons would agree if they could freely and impartially consider the situation
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Why so many Ethical Approaches?
4 Why so many Ethical Approaches? Accountants and medical doctors have organizations that try to establish agreement in the profession And still there are major disagreements No one tries to establish agreement among general managers, marketers The situations a general manager faces are so diverse, no central organization could create agreement
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Why so many Ethical Approaches?
4 Why so many Ethical Approaches? The world has many different ethical systems derived from different religions rooted in differences in political systems, law, economic development, and culture Different systems can lead to different opinions about what is ethical
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Ethical Decision Making
4 Ethical Decision Making Five things that an international business and its managers can do to make sure ethical issues are considered 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 a manner that is consistent with that rhetoric Implement decision-making processes that require people to consider the ethical dimension of business decisions Develop moral courage
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4 Moral Courage Moral courage enables managers to walk away from a decision that is profitable, but unethical Moral courage gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical Moral courage does not come easy and employees have lost their jobs when acting on this 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.
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Decision-Making Process
4 Decision-Making Process According to experts, a decision is acceptable on ethical grounds if a businessperson can answer yes to each of these questions: Does my decision fall within the accepted values or standards that typically apply in the organizational environment (as articulated in a code of ethics or some other corporate statement)? Am I willing to see the decision communicated to all stakeholders affected by it — for example, by having it reported in newspapers or on television? Would the people with whom I have a significant personal relationship, such as family members, friends, or even managers in other businesses, approve of the decision?
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Ethics in International Business
4 Ethics in International Business What is seen as unethical in one country may be seen differently in another
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