IBUS 380 Chapter 5

Facilitating Payments (involving corruption)

- known as "speed money" or "grease payments" - are payments to ensure receiving the standard treatment that a business should receive from a foreign government but might not due to the obstruction of a foreign official - *are not payments* to secure contracts or payments to obtain exclusive preferential treatment

Tragedy of the Commons (issue involving Environmental Pollution)

- occurs when a resource held in common by all but owned by no one is overused by individuals, resulting in its degradation - named by Garrett Hardin

Global Tragedy of the Commons (issue involving Environmental Pollution)

- occurs when corporations move production locations where they are free to pump pollutants into the atmosphere or dump them in oceans, harming valuable global commons - this action violates basic societal notions of ethics and corporate social responsibility (but is not necessary illegal)

Rights Theories

- recognize that human beings have fundamental rights and privileges that transcend national boundaries and cultures. - *rights establish* a minimum level of morally acceptable behavior - moral theorists argue that fundamental human rights form the basis for a moral compass that managers use in ethical decision making *along with rights come obligations* - obligations fall on any moral agent (person or institution that is capable of moral action) - EX: government or corporation

Ethical Strategy

- refers to a strategy, or course of action, that does not violate a company's business ethics

Noblesse Oblige

- refers to honorable and benevolent behavior considered the responsibility of people of high (noble) birth. In a business setting, it is taken to mean benevolent behavior that is the responsibility of successful enterprises.

Corporate Social Responsibility (CSR)

- refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions - should be in favor of decisions that have both good economic and social consequences.

Organizational Culture

- refers to the values and norms shared among an organization's employees - culture in some organizations does not encourage people to think through ethical consequences of decisions *third case of unethical behavior in businesses* - an organizational culture that emphasizes business ethics, reducing all decisions to the purely economic - *together values and norms* shape the culture of a business organization

Universal Declaration of Human Rights

- rights a United Nations document that lays down the basic principles of human rights that should be adhered to not matter national borders or cultures - adopted in 1948 and has been ratified by almost every country

Difference Principle (Justice Theories)

- states that inequalities are justified if they benefit the position of the least advantaged members of society

Convention on Combating Bribery of Foreign Public Official in International Business Transactions

- was adopted by the Organisation for Economic Cooperation and Development (OECD) in 1999 - obliges member states and other signatories to make the bribery of foreign officials a criminal offense.

How can Managers make Ethical Decisions?

*1. Hire and promote people with a well-grounded sense of personal ethics* - refrain from promoting individuals who have acted unethically - try to hire only people with strong ethics - prospective employees should find out as much as they can about the ethical climate of organization *2. Build an organizational culture that places a high value on ethical behavior* - articulate values that place a strong emphasis on ethical behavior - emphasize the importance of a code of ethics - implement a system of incentives that recognize people who engage in ethical behavior *3. Put decision-making processes in place that require people to consider the ethical dimension of business decisions* - does the decision fall within the accepted values of standards that typically apply in the organizational environment? - is there a willingness to see the decision communicated to all stakeholders affected by it? - would people close to me approve of the decision? *4. Institute ethical officers to* - assess the needs and risks that an ethics program must address - conduct training programs for employees - establish and maintain confidentiality of employees - comply with government laws and regulations - monitor and audit ethical conduct *5. Develop moral courage* - enables managers to walk away from a decision that is profitable but unethical *6. Make corporate social responsibility a cornerstone enterprise policy* - advocates that businesses need to recognize their noblesse oblige and give something back to the societies that have made their success *7. Pursue sustainable strategies* - core idea is that an organization's actions do not exert a negative impact on the ability of future generations to meet economic needs

5 Step Process to Think Through Ethical Problems

*Step 1:* Identify which stakeholders a decision would affect and in what ways. - *internal stakeholders*: are people who work for or own the business such as employees, directors, and stockholders. - *external stakeholders*: are individuals or groups that have some claim on a firm such as customers, suppliers, and unions. * Step 2:* Determine whether a proposed decision would violate the fundamental rights of any stakeholders *Step 3:* Establish moral intent - place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated *Step 4:* Engage in ethical behavior *Step 5:* Audit decisions to make sure they are consistent with ethical principles

Two Universal Declaration of Human Rights

*article 1* - all human being are born free and equal in dignity and rights. *article 23* - everyone has the right to work, to free choice of employment, to just and favorable conditions of work, and protection against unemployment - "just and favorable conditions of work", "equal pay for equal work", and "existence worthy of human dignity" *article 29* - Everyone has duties to the community in which alone the free and full development of his personality is possible

The Friedman Doctrine (Straw Men Approach)

- *basic position* is that, ""the social responsibility of business is to increase profits," so long as the company stays within the rules of law - milton friedman, *rejects the idea that businesses should undertake social expenditures beyond those*: (1) mandated by the law or (2) required for efficient running of a business

Human Rights (ethical issue of international business)

- *basic* human rights are not respected in a large # of nations - many repressive regimes still exist in the world, 1.6 billion or 23% of the worlds population have no say in how they are governed *Apartheid System in South Africa* - denied basic political rights to the majority non white population of South Africa - mandated segregation between whites and nonwhites - reserved certain occupations exclusively for whites - prohibit blacks from being placed in positions where they would manage whites - many businesses from developed countries questioned the ethics of doing business in South Africa (claiming that inward investment by foreign multinationals supported the repressive apartheid regime indirectly) *United Nations Sustainable Development Goals 2030* - idea that companies using ethical behavior as a core philosophy when competing for work

Ethical Dilemmas (ethical issue of international business)

- *ethical obligations of multinational corporation* toward employment conditions, human rights, corruption, and environmental pollution are *not always clear-cut* - managers and their companies are feeling more of marketplace pressure from customers and stakeholders to be transparent in ethical decision making - *no universal worldwide agreement* about what constitutes accepted ethical principles *ethical dilemmas* refers to situations in which there is no ethically acceptable solution

Ethical Implications of Corruption

- Are bribes the price to pay to do a greater good? - Do bribes reduce businesses incentive to invest?

To guard against Ethical Abuses of Employment Practices, Firm should

- Establish minimal acceptable standards that safeguard the basic rights and dignity of employees - Audit foreign subsidies and contractors regularly to ensure standards are being met - Take corrective action as necessary

Sullivan Principle (human rights)

- GM was the first to adopted the sullivan principle when doing business activities in South Africa (many US firms followed and adopted these principles) *sullivan principles two conditions* 1. Company should not obey the apartheid laws in its own South African operations (a form of passive resistance) 2. Company should do everything within its power to promote the abolition of apartheid laws - companies Exxon, General Motors, IBm, and Xerox diverted their operations, these divestments and the imposition of economic sanctions form the US contributed to the abandonment of white minority rule

US Foreign Corrupt Practice Act (involving corruption)

- a U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions. - *outlawed* the paying of bribes to foreign government officials to gain business (no matter if it was legal in other countries to do so) - act was amended to allow for facilitating payments

Ethics

- are accepted principles of right or wrong that govern (1) the conduct of a person (2) members of a profession (3) actions of an organization

Employment Practices (ethical issue of international business)

- issue occurs when the work conditions in a host nation are clearly inferior to those in a multinationals home nation - must decide which standard should apply (home or host nation, or something in between) *example* -NIKE uses of subcontractors was not breaking any laws, but raised questions regarding the ethics of using sweatshop labor -NIKE's case demonstrates an strong argument can be made that it is NOT appropriate for a multinational firm to tolerate poor working conditions in its foreign operations

Personal Ethics

- are generally accepted principles of right and wrong governing the conduct of individuals *sources of personal ethical code* - parents - schools - religion - media - personal ethical code has a large influence on the way we behave as businesspeople - *first step to establishing a strong sense of business ethics* is for society to emphasize strong personal ethics - *home country managers working abroad in multinational firms (expatriate managers)* may face pressure to violate their personal ethics bc they are away from their ordinary social context and culture - *parent company* may pressure managers to meet unrealistic goals that can only be fulfilled by acting unethically

Sustainable Strategies

- are strategies that not only help the multinational firm make good profits but that do so without harming the environment - ensuring that the corporation acts in a socially responsible manner with regard to its multiple stakeholders.

Business Ethics

- are the accepted principles of right or wrong governing the conduct of business people

Naive Immoralist (Straw Men Approach)

- assert 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. EXAMPLE: drug lord problem

Kantian Ethics

- based on the philosophy of Immanuel Kant - *states* that people should be treated as ends and never as purely means to the ends of others - people have dignity and need to be respected (people are not instruments, like machines) *contemporary moral philosophers view as incomplete* - system has no place for moral sentiments such as sympathy/caring

Decision-Making Processes

- businesspeople may act unethically when they fail to ask "Is this decision or action ethical?" - this problem arise in processes that do not incorporate ethical considerations into business decision making *to improve ethical decision making* - you must better understand how individuals make decisions that can be considered ethical or unethical in an organizational environment

Righteous Moralist (Straw Men Approach)

- claims that a multinational home country standards of ethics are the appropriate ones for companies to follow in foreign countries. - typically associated with managers from developed nations *main criticism: is that its proponents go too far* - while some universal moral principles that should not be violated, it does not always follow that appropriate thing to do is adopted homecoming standards

Societal Culture

- cultures that emphasize individualism and uncertainty avoidance are more likely to stress ethical behavior than cultures where masculinity and power distance are emphasized

Drawbacks to Utilitarian Ethics

- difficult to measure benefits, costs, and risks of an action - it fails to consider justice

Environmental Pollution (ethical issue of international business)

- ethical issues arise when environmental regulations in host nations are inferior to those in the home nation - *developed nations* have substantial regulations governing emission of pollutants, dumping of toxic chemicals, use of toxic materials in the workplace. (*developing nations* lack these regulations) *result of imbalances in environmental regulations* - higher levels of pollution from the operations of multinationals than would be allowed at home - *if the issue becomes* the degree of pollution instead of preventing pollution, the argument is about the acceptable amount of pollution and not what to do to prevent pollution *problematic part of measuring pollution* - no one owns the atmosphere or the oceans

Justice Theories

- focus on the attainment of a just distribution (one considered fair and equitable) of economic goods and services - there is no one theory of justice *John Rawls argued* - all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage - he believes that valid principles of justice are those with which all persons would agree if they could freely consider the situation

Veil of Ignorance (Justice Theories)

- guarantees impartiality - everyone is imagined to be ignorant of all his or her particular characteristics

Corruption (ethical issue of international business)

- has been a problem in almost every society in history and continues to be today -*international business* has gained economic advantages by making payments to officials (ex of corruption) - corruptive actions resulted in the creation of the US Foreign Corrupt Practice Act (FCPA) - corruption reduces the return on business investments and leads to low economic growth

Leadership

- helps to establish the culture of an organization and set the examples, rules, and guidelines that others follow - creates the structure and processes for operating strategically in daily operations - employees operate within a mindset similar to the overall culture of the organization that employees them - employees take their cue from business leaders (meaning if a business leader misbehaves most likely will their employees)

Utilitarian Approaches to Ethics

- hold that the moral worth of actions or practices is determined by their consequences - created by Philosophers David Hume, Jeremy Bentham, and John Stuart Mill - *actions are desirable* if they lead to the best possible balance of good consequences over bad consequences -*utilitarianism* is committed to maximization of good and the minimization of harm -"best decisions are those that produce the greatest good for the greatest number of people"

Straw Men

- is a philosophical approach to ethics - this approach offers inappropriate guidelines for ethical decision making in a multinational enterprise

Cultural Relativism (Straw Men Approach)

- is the belief that ethics are nothing more than the reflection of a culture - all ethics are culturally determined and that firms should adopt the ethics of the cultures in which they operate - "when in Rome, do as the Romans" -*rejects* the idea that universal notions of morality transcend different cultures

Unrealistic Performance Goals

- is the pressure from the parents company to meet unrealistic performance goals that can be obtained only by cutting corners or acting in an unethical manner - bribery may be viewed as a way to hit performance goals

Rights Taken for Granted in Developed Nations

1. Freedom of association 2. Freedom of speech 3. Freedom of assembly 4. Freedom of movement 5. Freedom from political repression

Determinants of Ethical Behavior

1. Personal Ethics 2. Organizational Culture 3. Unrealistic Performance Goals 4. Leadership 5. Decision-Making Processes 6. Societal Culture

Most *common ethical issues* in international business involve

1. employment practices 2. human rights 3. environmental regulations 4. corruption 5. moral obligations of multinational corporation