L10 - Business Ethics for International Business

Define ethics and ethical strategy

Accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organisation

- A strategy, or course of action, that does not violate these accepted principles

What are some ethical issues in international business?

• Employment practices and harmful work environment

• Harmful global sourcing

• Environmental pollution

• Corruption & bribery

• Illicit products and marketing

• Intellectual property infringement

What is relativism and normativism?

• Relativism: Ethical trusts are not absoulte but differ from group-to-group perspective

• Normativism: A belief that ethical behavioural standards are universal, firms and individuals should seek to uphold them consistently around the world

What are the limits of ‘Legal Compliance’ in Global Markets?

• Governance voids: Many host countries have weak or under-resourced regulators, corrupt courts, or no laws on issues like supply-chain labour or emissions

• Uneven standards: Illegal activities at home may be tolerated abroad

• Race to the bottom: If firms treat the lowest legal standards as acceptable, they can shift harm to places with the least protection

• Power asymmetry: Large MNEs can be more powerful than the states hosting them and may even shape the laws they are supposed to follow

What is the value of ethical behaviour?

• It is the right thing to do

• Avoids legal consequences

• Pressure from customers, governments, and media

• Reputation and corporate image

What are the roots of unethical behaviour?

• Personal ethics: Values and moral standards guide our behaviours

  • Managers working abroad in MNEs may experience a greater-than-usual degree of pressure to violate their personal ethics due to performance pressure, weak institutions

• Societal context and culture

  • National culture (E.g. Power distance): Decision-making by the powerful parties, supplier exploitation

  • E.g. Social power: Buyers exploiting suppliers who fail to conform to their expectations

What is Neoliberalism?

Individuals and businesses motivated by the pursuit of maximising profit will contribute to the well-being of society. (“Greed is Good” by Milton Friedman)

Explain the ‘Greed is good’ view, what is the underlying logic?

• Reflects Milton Friedman’s shareholder theory of business ethics

  • Managers are agents of the company’s owner and should therefore use corporate resources to increase shareholder returns

• Underlying logic: Firms pursuing own ecnomic interests can generate wider social benefits through:

  • Efficient allocation of scarce resources

  • Innovation and R&D of new products

  • Employment and income generation

  • Lower price and greater consumer choices

  • Tax revenues and economic growth

What are some ethical assumptions behind ‘Greed is good’?

• Shareholders are the owners of the firm (Managers therefore have a fiduciary responsibility to protect and increase shareholder wealth)

• Managers should not spend shareholders’ money on social causes without authorisation

• Governemnt, rather than business managers, should determine social policy

• Competition constraints harmful behaviour

What are some limitiations of the 'Greed is good’ view?

• Profit maximisation does not automatically equal social welfare maximisation

• Profit results from satisfying customers and improving productivity

• Profit results from transferring costs/risks to stakeholders

What is the stakeholder theory (Edward Freeman)?

Businesses should consider the impacts of their actions on the other groups or individuals who have a stake in their activities

- Emphasises long-term value for both shareholders and stakeholders

- A framework that helps businesses identify and balance the interests and expectations of their diverse stakeholders

What are the 3 core pillars of ethics in IB?

• Green environment

• Ethics & Human rights

• Rethinking MNE impact