Global Business Today 6e

by Charles W.L. Hill

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 4
Ethics in
International Business
 Introduction

 Ethics refers to 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 are the accepted
principles of right or wrong governing the
conduct of business people
 Ethical strategy is a strategy, or course
of action, that does not violate these
accepted principles

4-3
 Ethical Issues in
International Business

 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

Question: When work conditions in a

host nations are clearly inferior 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?

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 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 by no means universally
accepted
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 Environmental Pollution

Question: Should a multinational feel free

to pollute in a developing nation if doing
so does not violate laws?

 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

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Classroom Performance System

Multinational companies are concerned

with ethics is all of the following areas
except
a) Employment practices
b) Human rights
c) Environmental regulations
d) Trade regulations

4-8
 Corruption

Question: Is it ethical to make payments to

government officials to secure business?

 In the United States, the Foreign Corrupt

Practices Act outlawed the practice of paying
bribes to foreign government officials in order to
gain business
 The Convention on Combating Bribery of
Foreign Public Officials in International
Business Transactions adopted by the
Organization for Economic Cooperation and
Development (OECD) obliges member states to
make the bribery of foreign public officials a
criminal offense
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 Corruption

 Some economists suggest that the practice of

giving bribes might be the price that must be
paid to do a greater good
 In countries where preexisting political
structures distort or limit the workings of the
market mechanism, corruption in the form of
black-marketeering, smuggling, and side
payments to government bureaucrats to
“speed up” approval for business
investments may actually enhance welfare
 However, other economists have argued that
corruption reduces the returns on business
investment and leads to low economic growth
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 Moral Obligations

Question: Do multinationals have a

responsibility to give back to the societies that
enable them to grow and prosper?

 The concept of social responsibility refers to the

idea that business people should take the social
consequences of economic actions into account
when making business decisions, and that there
should be a presumption in favor of decisions
that have both good economic and good social
consequences

4-11
 Ethical Dilemmas

 Managers often face situations where

the appropriate course of action is not
clear
 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

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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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The Roots of Unethical Behavior

Determinants of Ethical Behavior

4-14
 Personal Ethics

 Business ethics reflect personal ethics

(the generally accepted principles of right
and wrong governing the conduct of
individuals)
 Expatriates 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
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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

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 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

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 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

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 Leadership

 If a firms leaders fail to act in an ethical

manner, other employees may not act
ethically
Actions speak louder than words

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Classroom Performance System

Which of the following does not contribute

to unethical behavior by managers?
a) Unrealistic performance goals
b) Leadership
c) Organizational culture
d) Restrictions on bribes

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Philosophical Approaches to Ethics

 There are several approaches to business

ethics including
 Straw men
The Friedman doctrine
Cultural relativism
The righteous moralist
The naïve immoralist
 Utilitarian and Kantian
 Rights theories
 Justice Theories
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 Straw Men

 Straw men approaches to business ethics 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
 Four such approaches are
 the Friedman doctrine
 cultural relativism
 the righteous moralist
 the naïve immoralist

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 Straw Men

The Friedman Doctrine

 Economist’s Milton Friedman’s suggests
that the only social responsibility of
business is to increase profits, so long as
the company stays within the rules of law
Friedman does not believe that
companies should undertake
expenditures beyond those mandated
by law and those required for the
efficient running of a business

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 Straw Men

Cultural Relativism
 Cultural relativism is the belief that ethics
are culturally determined and that firms
should adopt the ethics of the cultures in
which they operate
“when in Rome, do as the Romans
do”

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 Straw Men

The Righteous Moralist

 The righteous moralist claims that a
multinational’s home country standards
of ethics are the appropriate ones for
companies to follow in foreign countries
This approach is common among
managers from developed countries

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 Straw Men

The Naïve Immoralist

 The naïve immoralist asserts that 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
Actions are ethically justified if
everyone else is doing the same thing

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Utilitarian and Kantian Ethics

 Utilitarian approaches to ethics hold that 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 leads to the
best possible balance of good consequences
over bad consequences
 Problems with this approach include measuring
the benefits, costs, and risks of a course of
action, and the fact that the philosophy fails to
consider justice

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Utilitarian and Kantian Ethics

 Kantian ethics are 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

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 Rights Theories

 Rights theories recognize that human beings

have fundamental rights and privileges that
transcend national boundaries and culture
 Moral theorists argue that fundamental human
rights 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 (specifies the
basic principles that should always be adhered
to irrespective of the culture in which one is
doing business)
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 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 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 the veil of
ignorance (everyone is imagined to be
ignorant of all his or her particular
characteristics)

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 Justice Theories

Question: What system would people design

under a veil of ignorance?

 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 goods 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

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Classroom Performance System

Which philosophy claims that a company’s

home-country standards of ethics are the
appropriate ones to follow in foreign
countries?
a) Cultural relativism
b) Righteous moralist
c) Friedman doctrine
d) Naïve immoralist

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Implications for Managers

Question: How can managers ensure that ethical issues

are considered in business decisions?

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
 makes 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

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 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

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 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, perhaps
using a 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

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Decision-Making Processes

 A moral compass can help determine whether a

decision is ethical. 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?

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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
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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
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 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
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 Moral Courage

 Employees in an international business

may need significant moral courage
Managers need to be able too walk
away from decisions that are
profitable, but unethical
Employees need to be able to say no
to actions that are unethical

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Classroom Performance System

A company’s formal statement of ethical

priorities is called its
a) Mission statement
b) Code of ethics
c) Code of values
d) Organizational culture

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 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 culture within the
organization
 appoint ethics officers
 create an environment that facilitates moral
courage
 Even so, it is important to recognize that not all
ethical dilemmas have a clear and obvious
solution
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