2231 lecture topic 10
TRANSCRIPT
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2.231 Topic 10
Ethics inInternational Business
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Introduction
Ethics refers to accepted principles ofright or wrong that govern the conduct ofa person, the members of a profession,
or the actions of an organizationBusiness ethics are the accepted
principles of right or wrong governing theconduct of business people
Ethical strategy is a strategy, or courseof action, that does not violate theseaccepted principles
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Ethical Issues inInternational 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
multinationals 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 aforeign multinational when operating in acountry where basic human rights are
not respected?
Basic human rights taken for granted inthe developed world such as freedom of
association, freedom of speech, freedomof assembly, freedom of movement, andso on, are by no means universallyaccepted
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Environmental Pollution
Question: Should a multinational feel freeto pollute in a developing nation if doingso does not violate laws?
When environmental regulations in hostnations are far inferior to those in thehome nation, ethical issues arise
The tragedy of the commons occurswhen a resource held in common by all,but owned by no one, is overused byindividuals resulting in its degradation
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Corruption
Question: Is it ethical to make payments togovernment officials to secure business?
In the United States, the Foreign CorruptPractices Act outlawed the practice of payingbribes to foreign government officials in order togain business
The Convention on Combating Bribery ofForeign Public Officials in International
Business Transactions adopted by theOrganization for Economic Cooperation andDevelopment (OECD) obliges member states tomake the bribery of foreign public officials acriminal offense
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Corruption
Some economists suggest that the practice ofgiving bribes might be the price that must bepaid to do a greater good
In countries where preexisting politicalstructures distort or limit the workings of themarket mechanism, corruption in the form ofblack-marketeering, smuggling, and sidepayments to government bureaucrats to
speed up approval for businessinvestments may actually enhance welfare
However, other economists have argued thatcorruption reduces the returns on businessinvestment 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 ofsocial responsibility refers to the
idea that business people should take the social
consequences of economic actions into account
when making business decisions, and that thereshould be a presumption in favor of decisions
that have both good economic and good social
consequences
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Ethical Dilemmas
Managers often face situations wherethe appropriate course of action is notclear
Ethical dilemmas are situations in whichnone of the available alternatives seemsethically acceptable
They exist because real world decisions
are complex, difficult to frame, andinvolve various consequences that aredifficult to quantify
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The Roots of Unethical Behavior
Question: Why do managers behave inan unethical manner?
Managerial behavior is influenced by
Personal ethics
Decision making processes
Organizational cultureUnrealistic performance expectations
Leadership
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The Roots of Unethical Behavior
Determinants of Ethical Behavior
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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 contextand 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 questionis 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 firmswith an organization culture(the valuesand norms that are shared among
employees of an organization) that doesnot emphasize business ethics
Values and norms shape the cultureof a firm, and that culture influences
decision making
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Unrealistic PerformanceExpectations
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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Philosophical Approaches to Ethics
There are several approaches to business
ethics including
Straw men
The Friedman doctrineCultural relativism
The righteous moralist
The nave 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 decisionmaking in a multinational enterprise
Four such approaches are
the Friedman doctrine
cultural relativismthe righteous moralist
the nave immoralist
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Straw Men
The Friedman Doctrine
Economists Milton Friedmans suggeststhat the only social responsibility of
business is to increase profits, so long asthe company stays within the rules of law
Friedman does not believe thatcompanies should undertakeexpenditures beyond those mandated
by law and those required for theefficient running of a business
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Straw Men
Cultural Relativism
Cultural relativismis the belief that ethicsare culturally determined and that firms
should adopt the ethics of the cultures inwhich they operate
when in Rome, do as the Romansdo
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Straw Men
The Righteous Moralist
The righteous moralist claims that a
multinationals 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 Nave Immoralist
The nave 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 ifeveryone else is doing the same thing
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Utilitarian and Kantian Ethics
Utilitarian approaches to ethics hold that themoral worth of actions or practices isdetermined by their consequences
Actions have multiple consequences, somegood, some not
Actions are desirable if they leads to thebest possible balance of good consequencesover bad consequences
Problems with this approach include measuringthe benefits, costs, and risks of a course ofaction, and the fact that the philosophy fails toconsider 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 theends 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 beingshave fundamental rights and privileges thattranscend national boundaries and culture
Moral theorists argue that fundamental human
rights form the basis for the moral compass thatmanagers should navigate by when makingdecisions that have an ethical component
The idea that some fundamental rightstranscend national borders and cultures was the
underlying motivation for the UNs UniversalDeclaration of Human Rights (specifies thebasic principles that should always be adheredto irrespective of the culture in which one isdoing business)
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Justice Theories
Justice theories focus on the attainment of ajust distribution (one that is considered fair andequitable) of economic goods and services
John Rawls argued that all economic goods and
services should be distributed equally exceptwhen an unequal distribution would work toeveryones advantage
Impartiality is guaranteed by the veil ofignorance (everyone is imagined to be
ignorant of all his or her particularcharacteristics)
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Justice Theories
Question: What system would people designunder a veil of ignorance?
A system where people would agree that each
person is permitted the maximum amount ofbasic liberty compatible with a similar liberty forothers
Once equal basic liberty is assured, inequalityin basic goods social goods are to be allowed
only if they benefit everyonethe difference principle suggests that
inequalities are justified if they benefit theposition of the least advantaged person
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Implications for Managers
Question: How can managers ensure that ethical issuesare considered in business decisions?
Managers should
favor hiring and promoting people with a well groundedsense of personal ethics
build an organizational culture that places a high value onethical behavior
makes sure that leaders within the business not onlyarticulate the rhetoric of ethical behavior, but also act inmanner that is consistent with that rhetoric
put decision making processes in place that requirepeople to consider the ethical dimension of businessdecisions
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 Cultureand Leadership
Businesses need to build an organization culture thatplaces a high value on ethical behavior
the business must explicitly articulate values thatplace a strong emphasis on ethical behavior, perhaps
using a code of ethics (a formal statement of theethical priorities a business adheres to)
leaders in the business should give life and meaningto the code of ethics by repeatedly emphasizing theirimportance, and then acting on them
the business should put in place a system of
incentives and rewards that recognize people whoengage in ethical behavior and sanction those who donot
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Decision-Making Processes
A moral compass can help determine whether adecision is ethical. If a manager can answeryes to the following questions, the decision isethically acceptable.
does my decision fall within the acceptedvalues of standards that typically apply in theorganizational environment?
am I willing to see the decision
communicated to all stakeholders affected byit?
would the people with whom I havesignificant personal relationships approve ofthe decision?
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Decision-Making Processes
A five-step process can also help managersthink through ethical issues
1. How would a decision affect stakeholders (theindividuals or groups who have an interest,stake, or claim in the actions and overallperformance of a company)
Internal stakeholders are people who workfor or who own the business such as
employees, the board of directors, andstockholders.
External stakeholders are the individualsor groups who have some claim on a firmsuch as customers, suppliers, and unions
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Decision-Making Processes
2. Managers need to determine whether aproposed decision would violate thefundamental rights of any stakeholders
3. Managers need to establish moral intent (thebusiness must resolve to place moral concernsahead of other concerns in cases where eitherthe fundamental rights of stakeholders or keymoral principles have been violated)
4. The company should then engage in ethicalbehavior
5. The business must audit its decisions,reviewing them to make sure that they wereconsistent with ethical principles
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Ethics Officers
To encourage ethical behavior in abusiness, a number of firms now haveethics officers
Ethics officers ensure thatemployees are trained to be ethically
aware
ethical considerations enter decision-
making
the companys code of ethics isfollowed
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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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Summary ofDecision-Making Steps
International businesses should
strive to hire and promote people based onethical considerations as well as othermetrics of performance
establish an ethical culture within theorganization
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 obvioussolution
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Critical Discussion Question
1. A visiting American executive finds that aforeign subsidiary in a poor nation has hired a12-year old girl to work on a factory floor, inviolation of the companys prohibition on child
labor. He tells the local manager to replace thechild and tell her to go back to school. Thelocal manager tells the American executive thatthe child is an orphan with no other means ofsupport, and she will probably become a street
child if she is denied work. What should theAmerican executive do?
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Critical Discussion Question
2. Drawing upon John Rawls concept, theveil of ignorance, develop an ethicalcode that will
(a) guide the decisions of a large oilmultinational towards environmentalprotection, and
(b) influence the policies of a clothing
company to outsource its manufacturingprocess.
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Critical Discussion Question
3. Under what conditions is it ethically
defensible to outsource production to the
developing world where labor costs are
lower when such actions also involvelaying off long-term employees in the
firms home country?
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Critical Discussion Question
4. Are facilitating payments ethical?
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Critical Discussion Question
5. A manager from a developing country is overseeing amultinationals operations in a country where drugtrafficking and lawlessness are rife. One day, arepresentative of a local big man approaches themanager and asks for a donation to help the big man
provide housing for the poor. The representative tells themanager that in return for the donation, the big man willmake sure that the manager has a productive stay in hiscountry. No threats are made, but the manager is wellaware that the big man heads a criminal organizationthat is engaged in drug trafficking. He also knows thatthe big man does indeed help the poor in the run down
neighborhood of the city where he was born. Whatshould the manager do?
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Critical Discussion Question
6. Reread the Management focus featureon Unocal and answer the followingquestions:
a) Was it ethical for Unocal to enter into apartnership with a brutal militarydictatorship for financial gain?
b) What actions could Unocal have taken,
short of not investing at all, to safeguardthe human rights of people impacted bythe gas pipeline project?