L2 Refined International Management – Ethics and CSR

The Social Responsibility of Business:

According to Friedman's View (1970) there is only one social responsibility of business which is using its resources to engage in activities to increase profits as long as it stays within the rules of the game (legal and ethical norms) with open and free competition without deception and fraud.

Corporate Social Responsibility (CSR)

Actions that appear to further some social good beyond the interests of the firm and that which is required by law. It is voluntary where companies engage in activities to promote social good e.g. by reducing carbon emissions.

Ethical behaviors:

Decisions and interactions on an individual level while CSR is broader in scope, affecting more people.

Creating shared value (CSV):

companies generating economic value in a way that product value for society as well. Sustainability under the umbrella of corporate social responsibility.

Profit is necessary for organization's survival, but is probably not the main thing? What tradeoffs?

- Ignoring/bending the rules of the game: Break/twist legal/ethical rules for profit.

- Overlooking the ecosystem: High focus on profit and harm nature.

- The presence of other stakeholders: Not only care for owner/shareholders e.g. employee benefit cuts.

- Managerial myopia (short-sighted thinking): Quick wins than long term success.

- Divergent interests of the owner: Different wants, some care socially some don't.

CSR are actions that benefit society beyond legal and profit-driven motives by:

- Integrating social, environmental, ethical, consumer, and human rights concerns into business strategy.

- and following the law.

CSR framework: Total social responsibilities a business has to society, aligning a business strategy with society's expectations. 4 types of responsibilities that a company has:

- Economics: Be profitable - while considering social and environmental impact. Run business that benefit society and economy e.g. fostering innovation and creating jobs.

- legal: Follow laws and regulations that govern a company's operations. E.g. local, national, and international laws related to labor, environmental protection, and consumer rights.

- ethical: involves acting in a fair and ethical manner e.g. treating all stakeholders with respect.

- Discretionary: - Responsibility to be a good corporate citizen and contribute resources to the community e.g. making donations, supporting local initiatives and charitable activities.

Before Friedman said focus on maximizing profits and shareholders but Freeman argued that stakeholders also must be considered.

Stakeholder theory (R. Edward Freeman):

That businesses should create value not just for shareholders (owners), but for all stakeholders including employees, customers, suppliers, communities, and the environment.

Stakeholder theory focus on:

- Opposes Shareholder Value Maximization: Freeman challenge Friedman's view and says focusing on only shareholders lead to unethical or short sighted decisions.

- Responsible capitalism: Business decisions should consider social and ethical impacts.

- Creation of value for all: Success means benefiting everyone involved, not just maximizing profits for shareholders by creating value.

Challenges and limitations of stakeholder theory:

- Pluralistic "win-win" dilemma: Difficult to satisfy all stakeholders simultaneously (e.g., fair wages vs. low prices). Raise wages for employees then must increase price, affecting customers.

- Changing stakeholder demographics: Stakeholder identities and priorities evolve over time.

Multinational stakeholders:

Located in all these three and says that all must be considered if a home country wants to invest in a host country. The Stakeholders are groups and individuals who can affect or are affected by the company's objectives.

Multinational stakeholders: Home country, host country and society:

- Home country (country where MNC is headquartered) stakeholders: Owners, customers, employees, unions and suppliers.

- Host country (where MNC operates but is not headquartered: Economy, employees, community, host government and consumers.

- Society in general: Global interpendence/standard of living, global environment and ecology.

When CSR backfires: Cause harm rather than good.

- Greenwashing - exaggerated or false claims on social performance, pretends to be eco-friendly

- CSR as a PR tool- focusing on improving/fixing company's reputation rather than creating real impact.

- Misallocation of Resources - investing in peripheral issues, unimportant things and ignoring the main business/stakeholder groups (employees, suppliers, customers) issues that are more important.

- Fragmented or Token Efforts- CSR as an isolated project (good to have), but not a systemic change. Should be integrated into the company strategy and operations and not a single project that should be checked of

Creating shared value (CSV) meaning:

Business idea saying companies should do good for society in ways that also help their business grow by integrating social and environmental concerns in the business model, creating both economic and social value. Connects the social efforts to business success and solves problem while also making money. It leverages the unique resources and expertise of the company to create economic value by creating social value.

Main differences between CSR and CSV

- For CSR they focus on discretionary or in response to external pressure while CSV focus on "integral to competing". They aim to make the integral movement part of their journey.

- For CSR they aim to separate from profit maximization but CSV integrate it to profit maximization. They solve problem by making profit that is needed for the society.

- - Compared to CSR that is separate, philanthropic effort to do and look good e.g. donations enhance reputation, response to give back and are disconnected from the core business.

Ethical behavior

"Behavior that is consistent with the principles, norms, and standards of business practice that have been agreed upon by society". That goes beyond the law where not all legal actions are ethical. Shaped by individual values and organizational culture.

Characteristics of individuals affect the individual ethical decision making and behavior

o Individual Differences: Personality, values, upbringing, and moral development.

o Cognitive Biases: Mental shortcuts or errors in thinking that can distort judgment (e.g. self-interest, overconfidence).

Characteristics of organizations that affect the individual ethical decision making and behavior

o Group & Organizational Pressures: Peer influence, leadership expectations, and pressure to conform.

o Organizational Culture: The company's values, norms, and ethical climate — whether ethical behavior is encouraged or ignored.

Ethical behavior - should they be controlled?

- Yes, a little is needed or else without guidance lead to unethical behaviors.

- Ethics and laws are not the same: Law sets rules but not all are ethical.

Ethical behavior in the MNC context:

- Moral universalism: Belief that moral rules apply everywhere.

- Ethnocentric view: Prioritizing home country's ethics over host country norms.

- Ethical relativism: Recognizing that standards vary across cultures. - prioritizes the host country's ethical standards.

- People may change behavior abroad, sometimes without realizing it.

Ethical behavior in MNC context - human rights:

- Human rights: Often overlooked, especially in global supply chains.

o Problems are most visible in manufacturing, where labor conditions may be poor.

o Hard to define clearly due to:

§ Cultural differences and social norms

§ Lack of awareness

§ Power imbalance between companies and workers

§ Weak law enforcement in some countries

Ethical behavior in MNC context - bribery

- Bribery: Illegal everywhere but happens.

o Different from gifts or donations, though the line can be blurry.

o Influenced by local culture — what's seen as normal in one country may be unethical in another.

o U.S. companies must follow the Foreign Corrupt Practices Act (FCPA), which bans bribery abroad.

Corporate Sustainability Made: How businesses can build sustainability into their operations as part of core strategy.

1. Inputs - What the company starts with (e.g. resources, market conditions, company values)

2. Processes - What the company does (e.g. leadership, strategy, programs for sustainability)

3. Outputs - What happens right after (e.g. performance results, stakeholder reactions)

4. Outcomes - Long-term effects (e.g. financial success, social and environmental impact)

Social Impact Logic Model - Step by Step:

Helps organizations track progress from resources to real-world impact creating long term change.

1. Inputs - What you use (e.g. money, tools, knowledge)

2. Activities - What you do (e.g. provide food, job training, build roads)

3. Outputs - Immediate results (e.g. people fed, trained, roads built)

4. Outcomes - Medium/long-term changes (e.g. better health, higher income, improved education)

5. Impacts - Big, lasting effects (e.g. reduced poverty, better living conditions for communities)

ISO 26000 - Holistic Social Responsibility

The picture shows a circle with seven key areas that every responsible organization should care about. At the center is the organization, and around it is the areas that guide ethical and sustainable behavior:

1. Organizational Governance - How the company is led and makes decisions.

2. Human Rights - Respecting people's basic rights.

3. Labour Practices - Fair treatment of workers.

4. The Environment - Protecting nature and using resources wisely.

5. Fair Operating Practices - Acting honestly and fairly in business.

6. Consumer Issues - Being safe and transparent with customers.

7. Community Involvement & Development - Helping local communities grow.

Firm negotiations - Important to balance power between home and host country

- Firms must have a strategic "power game" when investing in the foreign countries. Even if the company has high power e.g. high investment, the locals may not accept that therefore it's important that both align visions and respect each other through trust or else can damage relationships. E.g. for mining operations, their thresholds should be met even though government might push for more.

Negotiation process

1. Before the Negotiation

o Who are you? (both parties): Understand the composition of the team, countries involved, and cultural contexts.

o Who are the stakeholders?: Consider perspectives from the home and host country, and the global context.

o Negotiation purpose and approach: Define whether the approach is competitive or problem-solving; short or long-term; holistic or niche. Clarify time commitment, scope of the agreement, and strategic intent.

2. During the Negotiation

o Lead the discussion: Use persuasion, pause, reflect, act, and take notes to guide the process effectively.

3. After the Negotiation

o Document the agreement: Ensure all terms are recorded and follow up with both parties to maintain alignment