De La Salle University

COBIBAC – INTERNATIONAL BUSINESS AND OPERATIONS

INTERNATIONAL
BUSINESS
1.2. Factors Impacting International Business

• Political, economic, and legal systems

• Culture
• Ethics and corporate social responsibility
1.2. Learning Objectives
Chapter 5: Ethics, Corporate Social Responsibility, and
Sustainability
• Understand the ethical, corporate social responsibility, and
sustainability issues faced by international businesses.
• Recognize an ethical, corporate social responsibility, and/or
sustainability dilemma.
• Identify the causes of unethical behavior by managers as they
relate to business, corporate social responsibility, or sustainability.
• Describe the different philosophical approaches to business ethics
that apply globally.
• Explain how global managers can incorporate ethical
considerations into their decision making in general, as well as
corporate social responsibility and sustainability initiatives.
Introduction
 Ethics, corporate social responsibility, and sustainability
are “social” issues that arise frequently in international
business.
 Ethics are the core starting point.
 Business ethics are the accepted principles of right or wrong that
govern the conduct of businesspeople.
 Ethical strategy refers to a strategy, or course of action, that does
not violate a company’s business ethics.
Ethics and International Business
 Many ethical issues in international business are rooted in differences in political systems,
laws, economic development, and culture of one nation to another.
 What might be normal in one country may be illegal or unethical in another.
 Incredibly difficult to come up with global standards.
 Most common ethical issues involve:
 Employment practices
 Human rights
 Environmental regulations
 Corruption
 Moral obligations of multinational corporations
Employment Practices
 When work conditions in a host nation are inferior to those
in a multinational’s home nation, which standards should
apply?
 Home nation? Host nation? Something in between?
 Without taking into account the potential financial implications, it
would be easy to simply say that every company should be as
ethical, socially responsible, and sustainable as its home-country
environment dictates but it is not really that simple.
Employment Practices

Nike case:
 Nike did not break the law, but the case raised
questions regarding the ethics of using sweatshop
labor.
 It is not appropriate for a multinational firm to tolerate
poor working conditions in its foreign operations or
those of subcontractors.
Employment Practices

To guard against ethical abuses, firms should:

Establish minimal acceptable standards that
safeguard the basic rights and dignity of employees.
Audit foreign subsidies and contractors regularly to
ensure standards are being met.
Take corrective action as necessary.
Human Rights

Basic human rights, such as the following, found in

developed nations are not universally accepted worldwide.
 Freedom of association.
 Freedom of speech.
 Freedom of assembly.
 Freedom of movement.
 Freedom from political repression.
Human Rights
Apartheid system in South Africa:
 Denied basic political rights to the majority nonwhite population
of South Africa.
 Mandated segregation and prohibited blacks from managing
whites.
 Businesses from developed countries questioned the ethics of
doing business in South Africa.
 United Nation’s Sustainable Development Goals 2030.
Human Rights
General Motors, which had significant activities in South
Africa, adopted the Sullivan principles, named after Leon
Sullivan, a Black Baptist minister and a member of GM’s
board of directors. This principle argued that:
 Company should not obey the apartheid rules in its
operation in South Africa.
 Company should promote abolition of apartheid laws.
 After 10 years, Sullivan concluded that simply
following the two principles was not sufficient to
break down the apartheid regime
Human Rights
Repressive regimes still exist in the world, which begs the
following questions:
 Is it ethical for multinational corporations to do business with
repressive regimes?
 Does multinational investment bring change to these regimes and
foster economic growth and raise living standards?
 Are some regimes so repressive that investment cannot be
justified on ethical grounds?
Environmental Pollution
Problems occur when environmental regulations differ between host and
home nations.
What is the right and moral thing to do in such circumstances: pollute to
gain an economic advantage of make sure that foreign subsidiaries
adhere to common standards regarding pollution controls?
 Many companies still answer illogically and say that some degree of
pollution is acceptable, the problem is everyone will start arguing about the
degree that is acceptable instead of what to do to prevent pollution in the
first place.
Environmental Pollution
 Tragedy of the commons, named by Garett Hardin, occurs when a
resource held in common by all but owned by no one is overused by
individuals, resulting in its degradation.
 Global tragedy of the commons is enhanced by corporations that move
production locations where they are free to pump pollutants into the
atmosphere or dump them in oceans or rivers, thereby harming these
valuable global commons.
 Is it ethical for a company to escape regulations by moving production to a
nation with lax regulations, when doing so will contribute to global warming?
Corruption
Corruption has been a problem in almost every society in history and
continues today.
 U.S. Foreign Corrupt Practices Act (F C P A):
 Regulates conduct of international business in the taking of bribes and
other unethical actions.
 Amended to allow for “facilitating payments” sometimes known as speed
money or grease payments, they are payments to ensure receiving the
standard treatment that a business ought to receive from a foreign
government but might not be due to the obstruction of a foreign official.
Corruption

Convention on Combating Bribery of Foreign

Public Official in International Business
Transactions:
Makes the bribery of foreign officials a
criminal offense.
Corruption
Ethical implications of corruption:
 Are bribes the price to pay to do a greater good?
 May improve efficiency and help growth.
 Do bribes reduce businesses’ incentive to invest?
 Reduces the returns on business investment and leads to low
economic growth.
 Some multinationals adopting a zero-tolerance policy.
 BP (British Petroleum) and Dow Corning.
Ethical Dilemmas
Ethical obligations of multinational corporations are not always clear-cut.
 What is ethical depends on one’s cultural perspective
Ethical dilemmas are situations in which no alternatives seem ethically acceptable.
How should corporations handle ethical dilemmas regarding employment, human
rights, corruption, and environmental pollution?
 Pressure from customers and stakeholders to be transparent in ethical decision
making.
 No universal worldwide agreement about what constitutes accepted ethical
principles.
Roots of Unethical Behavior

Figure 5.1
Determinants of
ethical behavior

Why do managers
behave in an
ethical manner?
Personal Ethics
 This is generally accepted principles of right and wrong governing the conduct
of individuals.
 One’s personal ethical code exerts a profound influence on the way they behave as
businesspeople.
 Formation of ethics is guided by our parents, our schools, our religion, and the media.
 Expatriate managers may face pressure to violate their personal ethics because they are
away from their ordinary social context and culture.
 Parent company may pressure managers to meet unrealistic goals that can only be
fulfilled by acting unethically.
Decision-Making Processes
 Businesspeople may act unethically when they fail to ask, “Is this decision or action
ethical?”
 Problems arise in processes that do not incorporate ethical considerations into business
decision making.
 Need to better understand how individuals make decisions that are ethical or unethical
in an organizational environment. Two assumptions must be made:
 Individuals in the workplace make ethical decisions in the same way they would if
they were home
 While the process for making an ethical decision may largely be the same in many
countries, the relative emphasis on certain issues is unlikely to be the same.
Organizational Culture

These are values and norms shared among an

organization’s employees
Some organizational culture may not
encourage people to think through ethical
consequences of decisions.
Unrealistic Performance Goals

Pressure from parent company to meet unrealistic

performance goals by cutting corners or acting
unethically.
 The combination of an organizational culture that legitimizes
unethical behavior, or at least turns a blind eye to such
behavior, and unrealistic performance goals may be
particularly toxic.
Leadership

Helps to establish the culture of an organization

and set the examples that others follow.
Employees often take cues from a mindset very
similar to the culture of the business leaders
that employs them.
Societal Culture

One study of 2,700 firms in 24 countries found that there

were significant differences among the ethical policies of
firms headquartered in different countries.
Cultures that emphasize individualism and uncertainty
avoidance are more likely to stress ethical behavior than
cultures where masculinity and power distance are
emphasized.
Philosophical Approaches to Ethics
Straw Men – offer inappropriate guidelines for ethical decision
making. These are approaches that either deny the value of
business ethics or apply the concept in a very unsatisfactory way.
The following are its four approaches:
 The Friedman Doctrine
 Cultural Relativism
 The Righteous Moralist
 The Naïve Moralist
The Friedman Doctrine
 Nobel Prize–winning economist Milton Friedman said “the social
responsibility of business is to increase profits,” so long as the company
stays within the rules of law.
 Working conditions beyond the level required by the law and necessary to
maximize employee productivity will reduce profits and therefore not
appropriate
 However, he also argue that businesses should behave in a socially
responsible manner, according to ethical custom and without deception and
fraud.
Cultural Relativism

Ethics are nothing more than the reflection

of culture.
When in Rome, do as the Romans do.
Rejects the idea that universal notions of
morality transcend different cultures
The Righteous Moralist
 Multinational’s home-country standards of ethics should be
followed in foreign countries.
 Typically associated with managers from developed nations.
 Criticized for its proponents going too far.
 While there are some universal moral principles that should
not be violated, it does not always follow that the appropriate
thing to do is adopt home-country standards.
The 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.
The objection is twofold
 To say than an action is ethically justified if everyone is doing it is not
sufficient
 The multinational must recognize that it does have the ability to
change the prevailing practice in a country.
Utilitarian and Kantian Ethics
 Dates to philosophers David Hume, Jeremy Bentham, and John Stuart Mill.
 The Utilitarian Approach to Ethics holds that moral worth of actions or practices is determined
by their consequences.
 Actions are desirable if they lead to the best possible balance of good consequences over
bad consequences.
 Committed to maximization of good and the minimization of harm.
 Best decisions are those that produce the greatest good for the greatest number of people.
 Drawbacks:
 Difficult to measure benefits, costs, and risks of the action.
 Fails to consider justice.
Utilitarian and Kantian Ethics
Kantian ethics
 Based on the philosophy of Immanuel Kant.
 People should be treated as ends and never purely as means to
the ends of others.
 People have dignity and need to be respected.
 Contemporary moral philosophers view Kantian ethics as
incomplete.
 System has no place for moral sentiments such as sympathy or caring.
Rights Theories
 Human beings have fundamental rights and privileges that
transcend national borders and cultures.
 Rights establish a minimum level of morally acceptable behavior.
 Fundamental Right construes it as something that takes
precedence over or “trumps” a collective good.
 Moral theorists argue that fundamental human rights form the basis for a
moral compass that managers should use in ethical decision making.
Right Theories: Universal Declaration of
Human Rights
 Adopted in 1948 by the United Nations and ratified by almost every country.
 Lays down principles that should be adhered to irrespective of the culture.
 Article 23 of this declaration, which relates directly to employment states:
 Everyone has the right to work, to free choice of employment, to just and favorable
conditions of work, and to protection against unemployment
 Everyone, without any discrimination, has the right to equal pay for equal work
 Everyone who works has the right to just and favorable remuneration ensuring himself and
his family an existence worthy of human dignity, and supplemented, if necessary, by other
means of social protection
 Everyone has the right to form and join trade unions for the protection of his interests.
Right Theories
Along with rights come obligations.
We have the right to free speech and must respect the free
speech of others.
Certain people or institutions are obligated to provide
benefits or services that secure the rights of others. Such
obligations also fall on more than one class of moral agent.
 Includes governments and corporations.
Justice Theories

Focus on the attainment of a just distribution of

economic goods and services.
A just distribution is a distribution of goods and
services that is considered fair and equitable
Justice Theories
John Rawls argued that all economic goods and services should be distributed
equally except when an unequal distribution would work to everyone’s advantage.

 Impartiality is guaranteed by veil of ignorance.

 Under veil of ignorance, everyone is imagined to be ignorant of all their
particular characteristics. Under these conditions, people would unanimously
agree on two fundamental principles of justice:
 Each person is permitted the maximum amount of basic liberty compatible with a similar
liberty for others.
 Once equal basic liberty is ensured, inequality in basic social goods is to be allowed only if
such inequalities benefit everyone.
Justice Theories

John Rawls formulates what he calls the difference

principle.
States that inequalities are justified if they benefit
the position of the least-advantaged members of
society.
360° View: Managerial Implications
Making Ethical Decisions Internationally
Seven actions that an international business and its managers can take to make
sure ethical issues are considered in business decisions:
 Favor hiring and promoting people with a well-grounded sense of personal
ethics
 Build an organizational culture and exemplify leadership behaviors that place a
high value on ethical behavior
 Out decision-making processes in place that require people to consider the
ethical dimension of business decisions
360° View: Managerial Implications

Institute ethics officers in the organization

Develop moral courage
Make corporate social responsibility a
cornerstone of enterprise policy
Pursue strategies that are sustainable
360° View: Managerial Implications
1. Hiring and Promotion
Hire and promote people with a strong sense of personal
ethics.
Businesses can give potential employees psychological tests
and check with prior employers regarding ethical behavior.
Prospective employees should investigate the ethical climate
in an organization prior to taking a position.
360° View: Managerial Implications
2. Organizational Culture and Leadership
 Articulate values that place a strong emphasis on ethical behavior.
 Emphasize the importance of a code of ethics.
 Code of Ethics is a formal statement of the ethical priorities a
business adheres to.
 Implement a system of incentives and rewards that recognize
people who engage in ethical behavior and sanction those who
do not.
360° View: Managerial Implications
3. Decision-Making Processes
Put decision-making processes in place that require people to consider the
ethical dimension of business decisions.
Does the decision fall within the accepted values of standards that typically
apply in the organizational environment?
Is there a willingness to see the decision communicated to all stakeholders
affected by it?
Would people close to me (family members, friends, colleagues) approve of
the decision?
360° View: Managerial Implications
3. Decision-Making Processes
 Five-step process to think through ethical problems:
 Step 1: Identify which stakeholders a decision would affect and in what
ways.
 Internal stakeholders.
 External stakeholders.
 Stakeholder analysis involves moral imagination—standing in the shoes of the
stakeholder and asking how a proposed decision might impact that stakeholder.
360° View: Managerial Implications
3. Decision-Making Processes
 Five-step process to think through ethical problems:
 Step 2: Determine whether a proposed decision would violate the fundamental
rights of any stakeholders.
 Step 3: Establish moral intent—place moral concerns ahead of other concerns
in cases where either the fundamental rights of stakeholders or key moral
principles have been violated.
 Step 4: Engage in ethical behavior.
 Step 5: Audit decisions to make sure they are consistent with ethical principles.
360° View: Managerial Implications
4. Ethics Officers
 Responsible for managing their organization’s ethics and legal compliance programs
 Institute ethical officers to:
 Assess the needs and risks that an ethics program must address.
 Develop and distribute a code of ethics.
 Conduct training programs for employees.
 Establish and maintain confidentiality of employees.
 Comply with government laws and regulations.
 Monitor and audit ethical conduct.
 Take action, where appropriate.
 Periodically reviewing and updating the code of ethics.
360° View: Managerial Implications
5. 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 employee 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.
360° View: Managerial Implications
6. Corporate Social Responsibility (CSR)
 This refers to the idea that businesspeople should consider the
social consequences of economic actions when making business
decisions that there should be a presumption in favor of decisions
that have both good economic and social consequences.
 With power comes the social responsibility to give something back
to the societies that enable multinationals to grow and prosper.
360° View: Managerial Implications
6. Corporate Social Responsibility (CSR)
 Advocates argue that businesses need to recognize their noblesse
oblige – a French term that refers to honorable and benevolent
behavior considered the responsibility of people of high (noble) birth.
In a business setting, it is taken to mean benevolent behavior that is
the responsibility of successful enterprises.
 Power can be used in a positive way to increase social welfare, which
is ethical, or used in a manner that is ethically and morally suspect.
360° View: Managerial Implications
7. Sustainability
Sustainable strategies help the firm make good profits without
harming the environment while acting in a socially responsible
manner to stakeholders.
Core idea: Organization’s actions do not exert a negative impact
on the ability of future generations to meet their own economic
needs and actions impart long-run economic and social benefits on
stakeholders.
360° View: Managerial Implications
7. Sustainability
Use precautionary principle when assessing a course of action.
 This principle states that when scientific knowledge regarding the impact of a
course of action is insufficient, inclusive, or uncertain, and preliminary scientific
evaluation indicates there are reasonable grounds for concern that the action may
have potentially dangerous effects on the environment, and on human, animal, or
plant health, then that action should not be pursued or should be postponed until
our knowledge improves.
Do not precipitate or participate in a situation that results in a tragedy of the
commons.
Reference

Hill, C. (2023). International Business:

Competing in the Global Marketplace
14th edition. New York: McGraw Hill LLC