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Learning Objectives

  • 5-1: Understand the ethical, corporate social responsibility (CSR), and sustainability issues faced by international businesses.

  • 5-2: Recognize an ethical, CSR, and/or sustainability dilemma.

  • 5-3: Identify the causes of unethical behavior by managers as they relate to business, CSR, or sustainability.

  • 5-4: Describe the different philosophical approaches to business ethics that apply globally.

  • 5-5: Explain how global managers can incorporate ethical considerations into their decision making in general, as well as CSR and sustainability initiatives.

Opening Case: Who Stitched Your Designer Jeans?

  • Bangladesh is densely populated and is now the world’s second largest exporter of readymade garments.

  • Bangladesh accounts for about $20\%$ of its GDP and $80\%$ of its exports.

  • The garment industry has lifted Bangladesh out of poverty but rests on low labor costs and lax regulations.

  • Practices raise questions about child labor and safe working environments.

  • Visual cue: Soltan Frédéric/Getty Images

Introduction to Ethics

  • Ethics: Accepted principles of right or wrong that govern conduct of a person, a profession, or actions of an organization.

  • Business ethics: Accepted principles of right or wrong governing conduct of business people.

  • Ethical strategy: Strategy or course of action that does not violate these accepted principles.

Ethics and International Business: Common Ethical Issues

  • 1) Employment practices

  • 2) Human rights

  • 3) Environmental regulations

  • 4) Moral obligations

Ethics and International Business: Employment Practices

  • When work conditions are inferior in the host nation, questions arise about what practices should be used.

  • Human rights: What is the responsibility of a foreign multinational when basic human rights are not respected in the host country?

  • Example: South Africa and apartheid; Sullivan principles adopted by GM.

  • Note: Many oppressive regimes still exist around the world.

Ethics and International Business: Environmental Pollution

  • Should a multinational feel free to pollute in a developing nation if it does not violate local laws?

  • Concept: Tragedy of the commons.

  • Question: Is it legal but unethical to pollute when it harms others or the environment?

  • Visual cue: People wearing breathing masks in Beijing, China.

Ethics and International Business: Corruption

  • Is it ethical to make payments to government officials to secure business?

  • Legal frameworks: Foreign Corrupt Practices Act (FCPA); Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

  • Facilitating payments (speed money) are excluded from some prohibitions.

  • Debate: Some argue bribes may be the price of doing greater good; others argue corruption reduces investment returns and harms economic growth.

  • Many multinationals adopt a zero-tolerance policy.

Ethical Dilemmas

  • Situations where no available alternative seems ethically acceptable.

  • Real-world decisions are complex, difficult to frame, and involve consequences that are hard to quantify.

  • There is no universal worldwide agreement on what constitutes accepted ethical principles.

  • Cultural perspectives vary; international managers often face unclear courses of action.

Child Labor (Illustrative Case)

  • Image note: Child labor concerns appear in garments production contexts (e.g., Myanmar example shown).

Roots of Unethical Behavior 1: Managerial Behavior Influences

  • Determinants include:

    • Personal ethics

    • Decision-making processes

    • Organizational culture

    • Unrealistic performance goals

    • Leadership

    • Societal culture

Figure 5.1: Determinants of Ethical Behavior

  • Core factors (as a map):

    • Personal Ethics

    • Organizational Culture

    • Societal Culture

    • Decision-Making Processes

    • Leadership

    • Unrealistic Performance Goals

  • Outcome: Ethical Behavior

  • Note: These determinants interact to shape ethical or unethical actions.

Roots of Unethical Behavior 2: Personal Ethics

  • Business ethics reflect personal ethics; expatriates may face pressure to violate personal ethics.

  • Challenges arise when away from ordinary social context and supporting culture.

  • Expatriates are physically and psychologically distant from the parent company.

  • Decision-Making Processes: Businesspeople may act unethically if they fail to ask relevant questions; decisions may be driven by economic logic.

Roots of Unethical Behavior 3: Organizational Culture

  • Unethical behavior may exist in firms whose organizational culture does not emphasize business ethics.

  • Values and norms shape culture and influence decision making.

  • Unrealistic Performance Goals: Pressure from the parent company to meet goals that are unattainable without unethical action.

Roots of Unethical Behavior 4: Leadership and Societal Culture

  • Leadership: Leaders establish and exemplify the organizational culture; actions speak louder than words.

  • Societal Culture: Ethical policies vary by country.

  • Multinational Enterprises (MNEs) in countries with high individualism and low uncertainty avoidance tend to emphasize ethical behavior more.

  • MNEs in countries with high masculinity and high power distance are less likely to promote ethical behavior.

Philosophical Approaches to Ethics 1: Straw Men

  • Friedman doctrine: The social responsibility of business is to increase profits, as long as the company stays within the law.

  • Companies should do only what is mandated by law and what is required to run the business efficiently.

  • Cultural relativism: Ethics are culturally determined; firms should adopt the ethics of the cultures where they operate.

  • Some universal ideas of morality exist across cultures.

Philosophical Approaches to Ethics 2: Righteous Moralist and Naive Immoralist

  • Righteous moralist: MNEs’ home-country standards of ethics should be followed in foreign countries.

  • Common among managers from developed countries.

  • Critics say home-country standards are not always appropriate abroad.

  • Naive immoralist: If managers observe other nations not following ethical norms, they should not either; actions are justified if everyone else is doing the same.

Philosophical Approaches to Ethics 3: Utilitarian and Kantian Ethics

  • Utilitarian approach: Moral worth of actions is determined by consequences; aim to produce the greatest good for the greatest number.

  • Kantian ethics: People should be treated as ends in themselves, not merely as means to an end; respect for human dignity.

Philosophical Approaches to Ethics 4: Rights Theories

  • Human beings have fundamental rights and privileges transcending borders and cultures.

  • Human rights form the basis of a moral compass for decisions with ethical components.

  • The Universal Declaration of Human Rights influenced this approach.

Philosophical Approaches to Ethics 5: Universal Declaration of Human Rights

  • Rights to work and free choice of employment; just and favorable work conditions; protection against unemployment.

  • Right to equal pay for equal work without discrimination.

  • Right to just remuneration and a dignified existence; right to form and join trade unions.

Philosophical Approaches to Ethics 6: Justice Theories (Rawls)

  • Focus on just distribution of economic goods and services.

  • John Rawls: Economic goods should be distributed equally unless unequal distribution benefits everyone.

  • Veil of ignorance: Impartiality is guaranteed by imagining oneself ignorant of personal characteristics (e.g., race, sex, intelligence).

Philosophical Approaches to Ethics 7: Rawls’ Key Principles

  • Veil of ignorance: Each person is maximally free while ensuring equal liberty for others.

  • After ensuring equal basic liberty, inequalities are permissible only if they benefit everyone, especially the least-advantaged (Difference Principle).

360° View: Managerial Implications 1 — Making Ethical Decisions Internationally

  • 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.

  • Put decision-making processes in place that require consideration of ethical dimensions.

  • Institute ethical officers within the organization.

  • Develop moral courage among managers.

  • Make CSR a cornerstone of enterprise policy.

  • Pursue sustainable strategies.

360° View: Managerial Implications 2 — Hiring and Promotion

  • Hire individuals with strong personal ethics.

  • Prospective employees should research the organization’s ethical climate.

  • Organizational culture and leadership:

    • Articulate values that emphasize ethical behavior.

    • Repeatedly emphasize these values and translate them into action.

    • Code of ethics: formal statement of ethical priorities.

    • Provide incentives and rewards for ethical behavior.

360° View: Managerial Implications 3 — Decision-Making Processes

  • Ethical acceptability test: If you answer “yes” to these questions, the decision is more likely to be ethical:

    • Does the decision fall within accepted values or standards of the organization (as articulated in a code of ethics or corporate statements)?

    • Am I willing to have the decision publicly communicated to all stakeholders (e.g., via media) if necessary?

    • Would family, friends, or managers in other businesses approve of the decision?

360° View: Managerial Implications 4 — Five-Step Process for Ethical Issues

1) How would a decision affect stakeholders? (internal and external)
2) Judge the ethics of the proposed strategic decision.
3) Establish moral intent.
4) Engage in ethical behavior.
5) Audit decisions.

360° View: Managerial Implications 5 — Ethics Officers and Moral Courage

  • Ethics officers: Encourage ethical behavior; act as internal ombudsperson.

  • Moral courage: Managers must walk away from profitable but unethical decisions; firms must not retaliate against those exercising moral courage.

360° View: Managerial Implications 6 — Corporate Social Responsibility (CSR)

  • Multinationals should give back to the societies that enable them to prosper.

  • Businesses should consider social consequences of economic actions.

  • There should be a presumption in favor of decisions with both good economic and good social consequences.

  • Concept: Noblesse oblige (the obligation of the privileged to act with generosity and responsibility).

360° View: Managerial Implications 7 — Sustainability

  • Sustainability: Strategies that help MNEs profit without harming the environment while acting in a socially responsible manner for stakeholders.

  • Benefits: Good for shareholders, the environment, local communities, employees, and customers.

Summary

  • Explored ethical, CSR, and sustainability issues in international business.

  • Recognized ethical, CSR, and/or sustainability dilemmas.

  • Identified causes of unethical behavior by managers in relation to business, CSR, or sustainability.

  • Described diverse philosophical approaches to business ethics applicable globally.

  • Explained how managers can incorporate ethical considerations into decision-making, CSR, and sustainability initiatives.

Appendix: Text Alternatives and Visual Context

  • Figure 2.1 Rankings of Corruption by Country (2019) provides qualitative context for how corruption levels relate to ethical considerations.

  • The slide notes emphasize that ethical behavior comprises Unrealistic Performance Goals, Leadership, Decision-Making Processes, Societal Culture, Personal Ethics, and Organizational Culture.