CONSTITUENTS OF THE BUSINESS ETHIC SCENARIO

BUSINESS MORALRESPONSIBILITY

1. Owners: Generally are persons who own the meansof production, resources, and capital that allow abusiness to function. Owners are at times placed ina precarious ethical position when their obligationsto their employees and/or shareholders conflict withgreater societal/environmental obligations.

2. Employees: Employees may also be placed into aprecarious ethical position when, even with limiteddecision-making power, they are expected to carryout work which is unethical in a societal dimension,but may be profitable for the company. In suchcases, it is problematic to make a determination as tothe exact extent of the employee’s culpability in thewrong-doing.

3. Management: Managers generally have moral andlegal duties to manage a company to promote theinterests of the owners/stockholders. Concurrently,managers have obligations toward the security andwell-being of employees. This dual-responsibilitycan often lead to conflicts and tensions in the owner-manager-employee triad. This situation iscompounded by collateral ethical responsibilities tothe public and its safety.

4. Consumers: Although ordinarily the consumersneeds are paramount and may well dictate over-allpolicy, this should be counter-balanced with long-term societal/environmental responsibilities. Forinstance, cheap lumber resulting from deforestationwill benefit the consumer, but its overall long-termimpact to the environment and society can bedevastating.

5. Marketing: Dubious marketing tactics can give riseto a myriad of ethical problems, including false,misleading, or deceptive advertising. Moresignificantly, pricing strategies may amount to pricegouging in cases where a product is critically neededand a company has a monopoly on it – e.g., certaindrugs that are produced by only one pharmaceuticalcompany that holds patent rights. Lastly, omissionof product information can lead to serious breachesof ethics where serious safety issues aredownplayed, minimized, suppressed or distorted bythe manufacturer.

6. Accounting: A company's accounting staff may beplaced in a compromised ethical stance in caseswhere short-term accounting “irregularities,” thoughbeneficial to the profit margin – or the job securityof certain executives – may be unfair tostockholders, or even illegal. In such instances, theaccountant may be in the unenviable position oftolerating a cover-up (and possibly being heldcriminally liable if discovered) or disclosing theproblem and likely losing their job.

1. The Economic Dimension: Large businesses canaffect the economy in a variety of ways; each affectcarries with it a social responsibility of the businessfor the overall economy. Business may have politicalpower due to its economic power; also, issuespertaining to monopolies, down-sizing, equal jobopportunity, unfair pricing practices, andenvironmental impact all pertain to a business’economic responsibility.

2. Competition and Responsibility: The greater thecompetition between rival business factions, and thegreater the perceived risks associated with failure(including the possible liquidation of the company),the greater the likelihood that ethically questionablebusiness practices will be used. These includesustained price cuts, discriminatory pricing to drivesmall businesses out of business, and price wars. Inthe case of pricing irregularities, it is often difficultto initially discern whether a tactic is legitimatecompetition that will enhance consumer welfare, orwill ultimately be detrimental to consumer welfare. Cases of corporate espionage, insider trading, andleveraged buy-outs provide somewhat more clear-cut cases of unfair competition.

The legal arena of business social responsibility exists toregulate business behavior. The prevailing overall viewis due to the severe potential of conflict of interests;businesses cannot generally be trusted to be self-regulating. Some have argued that over-regulation ofbusiness stifles competition, research and development,and ultimately is a disservice to the consumer.Nonetheless, it is still necessary to regulate business onseveral legal dimensions. These include:1. Regulating Competition: The essence of these laws

is to promote procompetitive practices in order toprovide the consumer with the lowest possible pricefor the best possible product. Contained in this intentare anti-trust laws designed to prevent businessesfrom holding monopolies in the market for theirparticular product.

2. Consumer Protection: These laws function to fosterthe safety and well being of the consumer by twoprimary means: First, insuring that the productmanufactured is safe and complies with safetyregulations; second, providing consumers accurateand understandable information so they can makeinformed decisions in purchasing the product. Thislast could include truth in advertising, properlabeling of the contents and ingredients contained inthe product, and the clear disclosure of the terms andconditions of contracts.

3. Environmental Protection: Given that a short-termbusiness profit can often be produced at a devastatinglong-term environmental cost, laws preventing theirresponsible use of natural resources have beenenacted. Such phenomenon as strip-mining, toxicwaste dumping, indiscriminate logging anddeforestation all cause tremendous long-termenvironmental damage while netting the businessresponsible a greater short-term profit than moreecologically conscientious methods.

4. Workplace Safety: A business can often turn agreater profit by keeping production costs to anabsolute minimum. This will often result incompromising worker safety. The protection ofworker safety then becomes the paramount concernfor regulations designed to hold businessesaccountable for the safety of employees, and theircompensation in case of injury.

THE LEGAL DIMENSION

SOME MORAL THEORIES RELEVANT TO BUSINESS ETHICS1. Teleology: An act is judged to be right based upon

its propensity to produce certain kinds ofconsequences. These consequences are oftenjudged, predicted, or estimated using empiricallygathered evidence.

2. Deontology: An act is judged to be right based uponthe subjective intentions of the agent committing theact, independently of the prospective consequences– good or bad – of the act. The intentions of theagent are often motivated by some perceiveduniversal moral standard (e.g., the “Golden Rule”).

3. Relativism: All moral standards are relative toperson, place, time and/or culture. There is noobjective, immutable, universal moral standard.

4. Virtue Ethics: The view that the primary andfundamental moral foundation is to be found in aperson’s character. Rather than rules of conduct towhich persons must adhere, an individual'spersonality is cultivated so that by nature and habitthey will have a predisposition to behave in amorally righteous way.

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PRIMARY ETHICAL CONSTRUCTS

ETHICAL CONCEPTS IN BUSINESS

The study of the nature, purpose, function andjustification of rules of right conduct within the contextof commerce; broadly conceived to include thetransaction of goods and services at the individual,corporate, and international level of exchange.

1.The Question of Generality: Can the rules of rightconduct that apply to individuals be generalized tocollective entities, such as corporations?

2. The Question of Responsibility: Can a corporationhave moral responsibility? If so, how isresponsibility to be diffused and distributedthroughout the corporate hierarchical structure?

3. The Question of Liability: Provided thatcorporations can be meaningfully said to be morallyresponsible, must their liability necessarily beproportional to their responsibility?

4. The Question of Allegiance: Do the commonlyaccepted personal virtues of loyalty, commitment,and devotion have a place in the employer/employee dichotomy? Does a corporation have anobligation to provide for a worker based purely uponthat worker’s loyalty to the corporation over manyyears – even if the continued employment of theworker is counter-productive?

1. Conflict of Interest: A state of affairs is said toconstitute a conflict of interests – or potentialthereof – in a set of circumstances where the

individual has the capacity to influence decisionsthat promote their self-interest but may have adetrimental impact upon the organization theybelong to, or the well-being of some other group.Crucial to a charge of a conflict of interest is thereasonable expectation that some individuals insimilar circumstances may unfairly favor their ownself-interest at the expense of others (e.g., the group,organization, or agency).

2. Honesty and Fairness: Honesty is a predispositionto generally tell the truth and inspire trust. Fairnessis the ability to be objective relative to one’s ownself-interest and to treat the self-interest of othersjustly and equitably. Impartiality to one’s own needsis the hallmark of fairness.

3. Private and Public Morality: Private moralitypertains to actions encompassing an individual’s lifeinsofar as others are not significantly impacted.Public morality (of which business morality is asub-category) pertains to actions encompassing agroup and its members as to how this significantlyaffects others (i.e., other groups or individuals).

RECOGNIZING POTENTIALETHICAL ISSUES

Corporate organizations are especially vulnerable to thephenomenon of “group-think”–a group dysfunctionwherein the preservation of harmony becomes moreimportant than the critical evaluation of ideas. Corporate

groups are especially susceptible to this when thedrive to produce profits may overshadow andminimize the possible ethical drawbacks of themeans to produce the profits. This can prompt a

situation where safety concerns may be overlooked ordismissed in an effort to produce the greatest profit at theleast possible cost. To avoid this, a critical dialogue betweenin-group and out-group members is often necessary. Theopinions of external observers, if taken seriously, maysuffice to overcome the myopia of group-think.

DEFINITION:

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1. Identifying The Ethical Issue: The first step in anyethical decision is to identify the problematic issue.Two factors in this process are the perceivedrelevance of the issue to overall corporate strategyand the perceived intensity or need for theresolution of the issue at hand. Many obstacles canimpede this process, such as group-think, whichcould distort perceptions so that the relevance of theissue is minimized or entirely dismissed, andinsensitivity of the group to the general nuances ofthe issue. This last in turn can be a function of themoral development of group members.

2. Stages of Moral Development: Kohlberg identifiessix stages of cognitive moral development of theindividual, ideally maturing to the final stage duringtheir lifetime; the stages may be summarized asfollows:A. Primitivism: Individual views right conduct

simplistically in terms of negative consequencesfor bad conduct. The likelihood of gettingcaught for transgressions, and ensuingpunishment for disobedience, dictates thedegree of obedience, making this a veryunreliable and inefficient system.

B. Reciprocity: Right behavior is determined by areciprocal and mutually beneficial arrangementwhere each party's self-interests have beenequitably satisfied. Fairness becomes ofparamount importance in this stage.

C. Empathy: There is a vicarious identificationwith the needs and interests of others in thisstage, such that the perception of right behaviorreflects their needs and interests.

D. Social Conscience: The scope of empathy isexpanded to include not only specific others, butthe society or community as a whole. Apreliminary rudiment of conscience begins to beformed at this stage.

E. Social Contract and Rights: A tacit, or perhapsexplicit, recognition of the utility andadvantage of rights and contractscharacterize this stage. Rights, values, andlegal contracts to society are recognized asworthy of respect and preservation.

F. Universal Ethical Principles: The scope ofindividual rights and duties to others is expandedto become the notion of universal inalienablerights and ethical principles. These are held to betrue regardless of any particular society’s orlegislative body’s recognition.

3. The Role of Corporate Culture:The prevailing corporate moral milieu cansignificantly affect the moral decision-making of themembers of the organization. For instance, anemployee of a camping gear manufacturer maybecome more environmentally conscientious as aresult of company campaigns that raise “ecologicalawareness.” Conversely, the corporate culture oforganized crime may foster and cultivate an ethic ofcallous disregard for law and law enforcement.A. Significant Others: This group includes an

employee’s peers, managers and subordinates.Of all the people in an organizational hierarchy,significant others within the work group have thegreatest impact upon an employee’s decisions.In the ethical arena, this is especially pertinentsince directives, memos, and seminars fromhigher management may have little impact if thesignificant others disagree with suchinformation.

B. Absolute of Responsibility: Employeesmay feel exempt from responsibility forunethical behavior in cases where theywere following directives from bosses andmanagers. The degree to which subordinatesbear moral responsibility for the consequences ofunethical actions undertaken at the expresseddirection of their superiors is a difficult andcomplex issue.

C. Incentives and Disincentives: Unethicalbehavior may be fostered or discouraged withinthe corporate culture by the system of positiveand negative reinforcement functioning withinthe culture. For instance, if a large sale is madeusing a system of bribes and kick-backs, and thesalesperson responsible for the unethicalbusiness practice is not reprimanded, but mayindeed be commended, then the message isimplicit but clear: Unethical practices will betolerated (even rewarded), provided that theyincrease sales.

D. Extraneous Factors Influencing EthicalDecision-Making: Even in cases where anemployee may initially feel that they are beingrequired to carry out unethical directives,compliance can be rationalized due to theinfluence of extraneous factors, including lowself-esteem and the need to fit in, the need foracceptance, the fear of losing their job, or thefear of being demoted or not being promoted.

4. Interpersonal Influences on Ethical DecisionMaking: The psychological aggregates ofinterpersonal behavior and interaction at thecorporate level play a key role in determiningthe capacity of the individual to make ethicaldecisions. These factors can be organized via thedynamics of group interaction, as well as analyzed atthe level of individual dominating personalitieswithin the group.

THE DECISION-MAKINGSCENARIO

THE ETHICAL DIMENSION

This pertains to areas of conduct within the corporation,the community, or the society which, though notregulated by law, are nonetheless governed by implicitexpectations and prohibitions regarding acceptablebehavior.

THE MAIN PROBLEMPerhaps more crucial in business than any other area:How is that which is beneficial at the societal level to bemade morally obligatory at the individual corporatelevel, assuring that such compliance still allows theprimary goals of business (to wit, to make a profit) to besought, relatively unimpeded?1. Are Ethics Adequate For Instilling Social

Responsibility? There is a divergence of opinionwhether ethical requirements that have no legalramifications are adequate for assuring compliancewith standards of social responsibility. Virtue theorywould hold that if the individuals that constitute acorporation are of good character, then theorganization as a whole will be responsible, andoutside intervention and regulation would be anunnecessary and superfluous intrusion. This leaves itunresolved as to whether a corporation couldreasonably be expected to foster the virtues of socialresponsibility, if this would significantly undercuttheir profit margin.

2. To What Extent Should The Corporate EthicalDirection Reflect Social Responsibility? Abusiness ordinarily gauges its responsibility primarilyin terms of maximizing the profit for investors andshareholders; how can a business effectively replacethis focus with a paradigm where ethical decisionmaking, as this reflects the requirements of socialresponsibility, becomes the core of business strategy?

3. Can Public Relations Promoting A PositiveCorporate Image Foster Social Responsibility? Apositive corporate image portraying the corporationas socially responsible (e.g., by manufacturing“environmentally friendly” products), can make thecorporation more profitable, if consumers favor thevalues the corporation is promoting. Otherwise, witha lack of profitability, the impetus for corporatesocial responsibility would be lost.

This arena encompasses business’ role as acommunity member with commensurate obligationsto improve the well-being of the community. There isan expectation that business should contribute toimproving the community. This may be realized bysubsidizing, promoting cultural events, fosteringeducational programs or charitable donations.1. The Compatibility Paradox: Oftentimes, the very

services and products consumers demand andbusinesses attempt to supply, in their mostdesirable form, may lead in the production processto a decrease in the consumers' overall quality oflife. The methods of manufacturing that will bringconsumers the best possible product at the leastpossible price may require manufacturingtechniques that have a negative impact upon theconsumer’s quality of life in the long run. E.g.,ever faster and more ubiquitous informationtechnology gives rise to ever-increasing risks ofinvasion of privacy and its attendant ethicaldilemmas. Frequently, the most consumer-friendly production methods have the mostenvironmentally unfriendly impact. Balancing theshort-term convenience of the products’advantages for the consumer with long-termquality of life repercussions is a major challengefor business and society.

2. Philanthropic Incentives: In many instances,charitable donations produce indirect positivedividends for a business. For example,contributions for improving the educationalstandards within a business’ community can bebeneficial because they increase the educationallevel of the local workforce, thus saving thecompany great expense in recruiting non-localizedlabor.

THE PHILANTHROPIC ARENA5. Workplace Equity: Laws enacted to insure equalemployment opportunity for previously marginalizedgroups seek to enforce compliance to affirmativeaction guidelines. These tactics are designed to fosterand cultivate a workplace demographic thataccurately reflects the racial, age, gender, and othertypes of diversity found in the overall population.Controversy arises when businesses protest that theyshould have the right to hire the most qualifiedperson for the job. This sometimes means thatcertain types of individuals must be excluded fromconsideration, resulting in the employee populationnot reflecting the diversity of the overall society. Forinstance, a religious educational institution maydemand the right to hire only staff of a particularreligious denomination.

6. The Problem of Sentencing Irregularities:Sentencing of persons convicted of so-called “white-collar crimes”—the typical domain of breaches inbusiness ethics—is often along more lenientguidelines than those for criminal convictions such asrobbery. This disparity in the application of the lawhas been brought into serious question. Why shoulda banking industry executive who embezzles afortune be given a lesser punishment than a bankrobber – provided neither incident resulted inphysical harm to persons or property?

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A. Employee Conduct: Generally, employees willtransgress company policy in proportion to thelikelihood of getting caught. The extent andseverity of such transgressions can besignificantly amplified if the employee feelsmistreated, exploited, or treated unfairly by thecorporation. For instance, an employee whofeels exploited by a company will be more likelyto make unauthorized personal long-distancecalls.

B. Socialization: Socialization involves the processof assimilation and adoption of the views,attitudes, and values of a group to which theindividual becomes a part. As a result of thisprocess the individual may significantly altertheir ethical outlook in an effort to “fit in.”

C. Role-Functionality: The role a person adoptswithin an organization may also significantlyimpact their ethical stance and decisions. Forinstance, being in a supervisory position canmake the individual less likely to behaveunethically because they are more accountablefor their behavior and know they are expected toprovide an inspiring and professional role model.The role-functionality of the individual thenbecomes the efficiency with which they functionin their assigned role and fulfill the requirementsof the role.

D. Process of Ethical Decision-Making: In atypical situation, the flow of the decision-making process is as follows:

i. Personal Ethics:The individual brings with them certain pre-existing ethical presuppositionsabout what is morally permissible.

ii. Challenge: A situation may be confronted thatchallenges the individual's convictions when anopportunity is presented for them to transgress, andthere is an incentive to do so.

iii. Significant Others: The influence exerted bysignificant others seems to be the greatestdeterminant in the individual's decision.

iv. Ethical Decision: As a result of the interactionbetween personal beliefs, the challenge to abide bythem, and the input of significant others, a decisionto act is made.

v. Action: Precipitated by the previous factors, theindividual acts either ethically or unethically.

E. Differential Association: This is the process ofacquiring ethical or unethical behavior patternsdue to the interaction with close co-workers,including peers, subordinates and superiors.Employees are more likely to behave unethicallyand rationalize it as acceptable when close co-workers do so. For instance, a business personwho regularly observes a co-worker chargingpersonal expenses to their corporate accountwith the rationalization that the company “owesthem” for all their overtime, may similarly justifytheir own unethical behavior. The differentialassociation theory holds that had the person notobserved such behavior in a co-worker, theywould have been much less likely to transgresscompany policy.

A. Leadership: The ability to assert positiveleadership is a vital part of inspiring subordinatesto ethical behavior. There are four factors whichplay key roles in a leader’s effectiveness:i. Explicit Positive Reinforcement/Reward:

Can take the form of praise from the leader inprivate or public commendation andrecognition.

ii.Explicit Negative Reinforcement/Punishment:May include reprimands, poor performancereviews, demotions, or loss of pay.

iii.Implicit Positive Reinforcement/Reward:Occurs when a leader will tacitly tolerate and ignore the unethical behavior of subordinates. By failing to take appropriate action, the leader indirectly encourages the unethical behavior.

iv.Implicit Negative Reinforcement/Punishment:By displaying hostility, scorn, ridicule, orharassment toward “whistle blowers” or employeesattempting to behave appropriately, a leaderindirectly punishes them.

B. Motivation: The ability to provide incentive foremployees to do a good job and workproductively toward company goals which areimportant from both a leadership andorganizational perspective. The motivatingfactors can change depending upon anindividual’s place in the corporate hierarchy. Atthe rudimentary level, the worker may only needjob security and a steady paycheck; in middlemanagement, bonuses, recognition, and possiblepromotion become motivating factors; at theexecutive level, power, prestige, and recognitionbecome important.

C. Power: The power and influence of leaders andsignificant others has a direct correlation withtheir effectiveness and motivational ability. JohnR. P. French and Bertram Ravin have identifiedfive sources of power that motivate people withinan organizational hierarchy:i. Reward Power: A person’s or organization’s

ability to regulate behavior by the incentive ofdesirable outcomes. These may includebonuses, recognition, pay raises, or promotion.

ii. Coercive Power: The operative mechanismhere is fear and intimidation for failure tocomply or conform. The measures employedcould include coercion, harassment, threatenedor actual loss of job, and demotions. Coercionalmost always leads to resentment, conflict,low employee morale, and is best avoided.

iii. Legitimate Power: When a leader hasinspired strong loyalty and is a recognizedauthority with legitimate power, they will havea great influence on subordinates. Thisinfluence could extend to an enhanced abilityto motivate employees to unethical behavior.

iv. Expert Power: Can yield an extremelypowerful influence upon subordinates and their willingness to abide by the expert’s recommendations. Expertise may berecognized due to experience and seniority onthe job, education, and general credibility.

v. Referent Power: When one individual perceives another as having like goals and aspirations, and has some degree of empathyfor the other, then a base of referent power canbe established. Thus, the two view theircooperation as mutually beneficial.

INTRA-ORGANIZATIONALINFLUENCES ON ETHICALDECISION-MAKING:

Identifying the Ethical

Issue

Stages of MoralDevelopment

The Role of Corporate

Culture

InterpersonalInfluences on Ethical Decision- Making

DECISION-MAKING SCENARIO

1.Conflict: Conflict is the result of discord between anindividual’s values and those of the corporateculture, significant others, or society, and it isambiguous as to which values should prevail.Conflict can occur between two equally desirablealternatives, as well as two undesirable alternatives.Conflict can also span several dimensions of thecorporate structure.A. Personal-Corporate Conflict: When there is

discord between an individual’s personal valuesand corporate policy, there is the potential forconflict. For instance, an advertising agencymay land an account for a lucrative campaignadvertising cigarettes. A top executive is put incharge of the campaign, but may experienceconflict due to disapproval of the product,because a parent recently died from lung cancercaused by smoking.

B. Social-Personal Conflict: Disparity betweenan individual’s values and the established socialnorms can cause potential for conflict. Forinstance, an individual with strong convictionsabout the acceptability of alcohol consumptionmay be in conflict with a society’s lawsrestricting Sunday liquor sales.

C. Corporate-Social Conflict: When a corporation'svalues, or products, are in discord with societalnorms, there is potential for conflict. For example, avideogame manufacturer might want to market anespecially violent video game at local arcades; thesocietal norms might disapprove of this in the wakeof increased gang violence. Sometimes, dilemmasmay arise in such conflicts when the production ofa product may not conform to societal values, but itscontinued production may greatly help the localeconomy.

2. Guidelines for Conflict Management andResolution: Although conflict resolution, especiallyunder conditions of great ambiguity, is complex anddifficult, there are general guidelines in suchcircumstances:A. Personal Accountability: Individuals working

within the coporate environment can never befully absolved of personal responsibility fortheir unethical actions. Excuses to the effect thatthey were “just doing their job” or “followingorders” can only have limited validity. Forinstance, a trucker who illegally dumps toxicwaste on the directive of upper-management isstill partly responsible for his actions – even ifhe does need the bonus, the job, and has a largefamily to support.

B. Long and Short-Term Corporate Interest:Though unethical actions taken on a short-termbasis may be very profitable, on a long-termbasis they may lead to financial ruin. In conflictresolution, it is important to be objective andlook at the big picture. For instance, a cardealership may offer sub-standard, defective carsat a very low price using deceptive advertisingtactics. Though sales may soar initially, once thedealer acquires a bad reputation, it may losecredibility and go bankrupt.

C. The Scope of Responsibility: The repercussionsof ethical decision-making are far ranging intheir impact. This may reverberate not only tothe immediate corporation and itsinvestors/shareholders, but also the surroundingcommunity, the environment, and the well-beingof future generations. In managing andresolving conflict, it is important to be objectiveand consider the overall situation.

CONFLICT & CONFLICT RESOLUTION

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a “traditional custom.” In such circumstances, it canbe a problematic decision for the corporation. Theymust determine how far they will go toaccommodate the traditions and culture of theforeign host. Ethical conflict is likely in suchsituations.

3. Multinational Corporations and Ethical Conflict:Multinational corporations (MNCs) are corporateentities that operate internationally without anysignificant ties to any one country or region. Themethod of operation of MNCs has raised manyquestions about ethically dubious and controversialpractices undertaken by such corporations. Problemareas include:

A. Transfer of Jobs: MNCs will sometimestransfer jobs to overseas locations in an effort toavoid local laws governing workman’scompensation, worker’s rights to unionize, andminimum wage. This often results in risingunemployment at the local level. MNCs arguethat this practice raises the standard of living forthe labor hired overseas, and overall benefits theconsumer when the savings on labor result in aless expensive product.

B. Resource Exploitation: Some MNCs havebeen criticized for plundering local naturalresources by purchasing them at a very lowprice, producing products from these resourcesthat are sold at a very high price, and returningonly a very small percentage of the profit to thelocal economy.

4. Areas of Ethical Conflict: Both MNCs andcorporations doing international business can runinto ethical problems in the course of conductingbusiness on foreign soil. These areas include:A. Discrimination: Racial, sexual, religious, or

ethnic discrimination may not only be toleratedin certain cultures, but may be an expected partof traditional customs and behaviors. If suchdiscrimination is not acceptable to a corporationdoing business abroad, this could easily mean thefailure of its enterprise. For instance, MiddleEastern culture may exclude women fromparticipating in business transactions; anAmerican corporation that insisted on sending afemale executive to negotiate with a MiddleEastern business interest could offend theforeign parties and seriously jeopardize – orcompletely destroy – its chances for finalizing acontract.

B. Price Discrimination: This practice can takeone of two forms:i. Price Gouging: Products sold abroad often

cost more than the same product sold locallydue to the added cost of tariffs, taxes,transportation, and storage fees. Sometimes,however, exorbitantly higher prices arecharged abroad – far higher than theseadditional costs can justify. This is calledprice gouging. Such practices are especiallycontroversial when the product is criticallyneeded, or essential; e.g., pharmaceuticals.

ii. Dumping: Occurs when a corporation willsell its product abroad at a substantially lowerprice than the cost of production. This mayoccur as a tactic to drive competitors out ofbusiness, and to create a monopoly in themarket for the product.

C. Bribery: In many cultures, bribery, euphemizedas “facilitating payments,” is standard businesspractice. Oftentimes, there is a specific percentof the total sale that is the understood rate of thebribe, for expediting a specific transaction.

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D. Dumping Hazardous Products: In someinstances, a corporation’s home country mayban, severely restrict, or regulate its product. Thecorporation may then try to sell the product in aforeign market with much less stringent laws, orwhere local officials are amenable to bribes and“looking the other way.” For instance,certain pesticides that have been banned inthe U.S. market because they are hazardousto humans are marketed to foreign agriculturalconcerns.

E. Compromised Worker Safety: Due to less regulation of labor, worker’s rights, unionization,minimum wage, and worker’s safety in manydeveloping nations, MNCs and corporations withforeign interests will favor using such cheap,unregulated labor. Severe ethical issues may beraised when the labor performed is underconditions that the home culture views asabhorrent. For instance, child-labor, “sweat-shops” and virtual “slave labor.” Businessesoften defend these practices with the argumentthat as bad as conditions are, the jobs still affordthe people a significantly higher standard ofliving than alternative employment (or lack of)opportunities.

5. A Global Business Ethic: With the advent of theInternet and ever more integrated internationalbusiness, it is foreseeable that a global businessethic will eventually develop. Such a predictionseems feasible in the face of ever-increasing inter-dependency on international commerce and theever-increasing assimilation, cooperation, andcommunication between previously isolated marketsand cultures.

Note: This Quick Study® guide is an outlineof basic Business Ethics. Due to itscondensed nature, we recommend you to useit as a guide, but not as a replacement for expert, in-depth advice. All rights reserved. No part of this publication may be reproduced or transmitted in anyform, or by any means, electronic or mechanical, including photocopy, recording, or anyinformation storage and retrieval system, without written permission from the publisher.® 2001 BarCharts Inc. 1007

The opportunity for conflict increases at the level ofinternational business interaction due to differentculturally defined standards of appropriate behavior inmatters of ethics, etiquette, and civility. 1. Cultural Factors: The tendency of people to perceive

their social milieu in terms of how their own groupdiffers from another is called the self-referencecriterion, or SRC for short. This criterion developsas a function of an individual’s background and corecultural base of socialization. Culture, broadlyconceived, comprises everything in a person’simmediate surroundings, including shared conceptsand values peculiar to a given group. Culturaldifferentiation may exist when two (or more)cultures interact and experience incongruence anddisparity on many levels. These may include:

A. Language: There may be enormousdiscrepancies in the meaning of words whentranslation is attempted from one language toanother. This is especially the case withadvertising slogans which rely on vernacular,colloquial, or slang expressions which maytranslate awkwardly, or offensively, to anotherlanguage. For instance, to have the ability to flyby “the seat of one’s pants” is a compliment to aU.S. pilot, but the literal translation of thisexpression would be an insult to a Russian.

B. Body Language: Everyday gestures andmannerisms having a clear interpretation in oneculture may be completely misunderstood inanother. To nod one’s head up and down maymean agreement, acknowledgment that thespeaker has been understood, or disagreement –depending upon the culture. The amount ofpersonal space people find comfortable in face-to-face interaction (i.e., the distance they preferto stand from one another) also varies greatlybased upon culture.

C. Punctuality: The acceptable margin oftardiness may vary greatly from culture toculture. Americans traditionally place greatimportance on punctuality, but Greeks and SouthAmericans prefer a more relaxed approach.

D. Conversational Etiquette: The subject matterand the length of time of a discussion can haveextreme cultural variation. For instance,Americans prefer to “get down to business” rightaway and immediately discuss the pertinentissues. In some Middle Eastern cultures,however, the convention is that the party whofirst brings up business matters in a meeting hasthe weaker negotiating posture, and is thusexpected to make more concessions.

E. Ethnocentrism: Is the often implicit,sometimes explicit, notion that one’s own cultureis superior in some respect to another culture.Clearly, such attitudes, if manifest, convey anattitude of disrespect and can be extremelycounter-productive in cross-cultural businessdealings.

2. Cultural Relativism and Ethical Conflict:Cultural relativism is the belief that there is no singlestandard for appropriate behavior that applies to allpeople, everywhere, all the time. Each culture’sstandard is as valid as any other. This stance is a clearcontrast to ethnocentrism. The problem arises whena corporation attempts to conduct business abroad ina culture whose practices are in great discord withthat of the corporation’s home culture. For instance,the host culture may find bribery an acceptablebusiness practice and discrimination against women

INTERNATIONAL BUSINESS ETHICS

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