IB - Chapter 5: Ethics, Corporate Social Responsibility, and Sustainability

Naïve Immoralist

Naïve Immoralist - if a manager of an MNE sees that firms from other nations are not following ethical norms in a host nation, that manager should not either Actions are ethically justified if everyone else is doing the same thing

Personal Ethics

- Business ethics reflect personal ethics (expatriates may face pressure to violate their personal ethics) - They are away from their ordinary social context and supporting culture - They are psychologically and geographically distant from the parent company

Leadership

- Employees often take cues from business leaders - Actions speak louder than words

Societal Culture

- Ethical policies differ by country - MNEs located in countries where individualism and uncertainty avoidance are strong are more likely to emphasize ethical behavior - MNEs located in countries with high masculinity and high power distance are less likely to promote ethical behavior

Examples of bad Ehtics

- Falsify or misrepresent contracts or official documents. - Pay or accept bribes, kickbacks, or inappropriate gifts. - Tolerate sweatshop conditions or abuse employees. - Do false advertising or other deceptive marketing. - Engage in deceptive or discriminatory pricing. - Deceive or abuse intermediaries in the channel. - Undertake activities that harm the natural environment

Kantian Ethics

Kantian ethics holds that people should be treated as ends and never purely as means to the ends of others. People are not instruments, like a machine. People have dignity and need to be respected as such. Employing people in sweatshops, making them work long hours for low pay in poor working conditions, is a violation of ethics, according to Kantian philosophy, because it treats people as mere cogs in a machine and not as conscious moral beings that have dignity

tradgedy of the commons

The tragedy of the commons occurs when a resource held in common by all but owned by no one is overused by individuals, resulting in its degradation. Corporations can contribute to the global tragedy of the commons by moving production to locations where they are free to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons.

Corruption

is the misuse of power for private gain. - Is it ethical to make payments to government officials to secure business? - Foreign Corrupt Practices Act and Convention on Combating Bribery of Foreign Public Officials in International Business Transactions prohibit this - Facilitating payments/speed money excluded - Some argue that paying bribes might be the price of doing a greater good - Others argue that corruption reduces the returns on business investment and leads to low economic growth

Corporate Social Responsibility (CSR)

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

Ethics

the accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization - Business ethics: accepted principles of right or wrong governing the conduct of business people - Ethical strategy: a course of action that does not violate a company's business ethics

Sustainable Strategies

we refer to strategies that not only help the multinational firm make good profits, but that also do so without harming the environment while simultaneously ensuring that the corporation acts in a socially responsible manner with regard to its stakeholders.

Justice Theories

- Focus on the attainment of a just distribution (one that is considered fair and equitable) of economic goods and services - Philosopher John Rawls - all economic goods and services should be distributed equally except when an unequal distribution would work to everyone's advantage - Impartiality is guaranteed by the veil of ignorance - everyone is imagined to be ignorant of all his or her particular characteristics Rawl's Princples: 1. Under Rawl's veil of ignorance would be a system where people would agree that each person is permitted the maximum of basic liberty compatible with similar liberty for others. 2. Once equal liberty is assured, inequality in basic social goods are to be allowed only if they benefit everyone. The difference principle suggests that inequalities are justified if they benefit the position of the least advantaged person

Rights Theories

- Human beings have fundamental rights and privileges that transcend national boundaries and culture - A moral compass that managers should navigate by when making decisions that have an ethical component - Idea some fundamental rights transcend national borders and cultures

Moral Courage

- Important to recognize employees in IB may need significant moral courage - This allows managers to walk away from decisions that may be profitable but unethical - Moral courage gives employees strength to say no to a superior - Gives employees the integrity to go public to the media and blow the whistle on unethical behavior

Decision-Making Processes

- May behave unethically because of failure to ask the relevant questions, "Is this decision or action ethical?" - Decisions may be made based on good economic logic (yet omit some ethical calculus)

Determinants of Ethical Behavios

- Personal ethics - Decision making processes - Organizational Culture - Societal Culture - Unrealistic performance goals - Leadership

Improper Ethical Behavior May Result When:

- Top management sets goals and incentives aimed at promoting good outcomes (e.g., profits) that instead encourage bad behaviors. - Employees overlook unethical behavior in others because of peer pressure or self-interest. - Managers tolerate lower ethical standards in value-chain activities performed by suppliers or third-party firms. - Unethical practices are allowed to accumulate in the firm slowly over time. - Bad means are justified by good ends.

Organizational Culture

- Unethical behavior may exist in firms with an organizational culture that does not emphasize business ethics - Values and norms shape the culture of a firm, and that culture influences decision making

Utilitarian Approaches to Ethics

- hold that the moral worth of actions or practices is determined by their consequences. - An action is judged desirable if it leads to the best possible balance of good consequences over bad consequences. - Utilitarianism is committed to the maximization of good and the minimization of harm. **The best decisions, from a utilitarian perspective, are those that produce the greatest good for the greatest number of people.

Righteous Moralist

Righteous Moralist - an MNE's home country standards of ethics are the appropriate ones for companies to follow in foreign countries Approach is common among managers from developed countries

Ethical Dilemmas

Ethical dilemmas: situations in which none of the available alternatives seems ethically acceptable - Managers often face situations where the appropriate course of action is not clear - Decisions are complex, difficult to frame, and involve various consequences difficult to quantify

Environmental Pollution

Ethical issues arise when environmental regulations in host nations are inferior to those in the home nation. Many developed nations have substantial regulations governing emissions, dumping of chemicals, etc.

Human Rights

What is the responsibility of a foreign multinational when operating in a country where basic human rights are not respected? (e.g., South Africa during apartheid) The global Sullivan principles were designed to increase the active participation of corporations in the advancement of human rights and social justice at the international level.

Employment Pracitces

When work conditions in a host nation are clearly inferior to those in a multinational's home nation, which standards should be applied? Those of the home nation, those of the host nation, or something in between? Few would suggest that pay and work conditions should be the same across nations, how much divergence is acceptable?

Making Ethical Decisions Internationally

Actions managers can take to ensure ethics are considered: 1.Favor hiring and promoting people with a well grounded sense of personal ethics 2.Build an organizational culture that places a high value on ethical behavior 3.Put decision making processes in place that require people to consider the ethical dimension of business decisions 4.Institute ethical officers in the organization 5.Develop moral courage 6.Make corporate social responsibility a cornerstone of the enterprise policy 7.Pursue strategies that are sustainable

Organizing Framework

1. Corporate Governance: is the system of procedures and processes by which corporations are managed, directed, and controlled. -It provides the means through which firms undertake ethical behaviors, CSR, and sustainability. 2. Ethics 3. Corporate Social Responsibility (CSR) 4. Sustainability

Philosophical Approaches to Ethics

1. Straw-person, or Inappropriate Guidelines The Friedman Doctrine - Cultural Relativism - The Righteous Moralist - The Naïve Immoralist 2. Utilitarian and Kantian Ethics 3. Rights Theories 4. Justice Theories

In international business, the most common ethical issues involve...

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

A five-step process can also help managers think through ethical issues...

1.How would a decision affect stakeholders? 2.Would the proposed decision violate any stakeholders fundamental rights? 3.Establish moral intent—place moral concerns ahead of other concerns. 4.Step four requires the company to engage in ethical behavior. 5.Audit decisions, reviewing them to make sure that they were consistent with ethical principles.

Unrealistic Performance Goals

Pressure from parent company to meet goals that are unrealistic and can only be attained by acting in an unethical manner

Cultural Relativism

The belief that ethics are culturally determined and firms should adopt the ethics of the cultures in which they operate "When in Rome, do as the Romans do"