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Chapter 5–Ethics in International Business

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
In the international business setting, what do the most common ethical issues involve?
-employment practices
-human rights
-environmental regulations
-moral obligation of multinational corporations
Employment Practices
-are standards of the host or home nation applied?
-Nike (women who worked with toxic materials 6 days a week for only 20 cents an hour @ a Vietnamese subcontractor)
—> Nike code of conduct for subcontractors and instituted annual monitoring by independent auditors

–>Levis terminating partnership with Tan Brothers

Human Rights
AFRICA Example:

1. GM –> Sullivan Principles in S. Africa in 1980s (company would not obey apartheid laws & company should do everything in its power to promote abolition of apartheid laws)

2. Eventual divestments within S.Africa. (after 10 ish years) [Exxon, GM, Kodak, IBM, Xerox]

3. Led to the introduction of democratic elections in 1994 within S. Africa

~~Thus adopting an ethical stance was argued to have helped improve human rights in South Africa~~

–Argued that: inward investment from MNEs can be a force for economic, political, and social progress that ultimately improves the rights of people in repressive regimes.

–Myanmar has a small economy and that divestment carries no great economic penalty for Western firms, unlike, for example, divestment from China.

Environmental Pollution
-Example: Lead sales within Mexico from batteries

–pollution regulations

–Polluting even if not regulated hurts all –>Tragedy of the Commons

Tragedy 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

–>outsourcing can lead to the contribution to the global tragedy of the commons

–Created by Garrett Hardin

-Example–Carl Kotchian, president of Lockheed, made a 12.6 million payment to Japanese agents an govt. officials to secure a large order for Lockheed’s TriStar jet from Nippon Air.

-Lockheed case was an impetus for the 1977 passing for the Foreign Corrupt Practices Act

–ethical implications of paying speed money are unclear (not covered in treaty or by OECD)

Several economist advocate–suggesting that in the context of pervasive and cumbersome regulations in developing countries, corruption may improve efficiency and help growth (130)

**Look up the 70 percent stat on page 130 middle of page

BP has a 0 tolerance policy approach toward facilitating payments.

Foreign Corrupt Practices Act
U.S. Law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions

Subsequently amended to allow for “facilitating payments.” Sometimes known as speed money or grease payments to secure contracts that would not otherwise be secured nor are they payments to obtain exclusive preferential treatment.

Convention on Combating Bribery of Foreign Officials in International Business Transactions
Into force in 1999
An OECD convention that establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective.
**convention excludes facilitating payments made to expedite routine government action from the convention.
Moral Obligations
Multinational corporations have power that comes from their control over resources and their ability to move production from country to country

with power comes social responsibility to give something back to the societies that enable them to prosper and grow

Example: British East India Company– grew to dominatethe entire indian subcontinent in the 19th century

Power itself is morally neutral; how power is used is what matters

BP —-> undertake “social investments” in the countries where it does business.

Social Responsibility
The idea that businesspeople should consider the social consequences of economic actions when making business decisions

there should be a presumption in favor of decisions that have both good economic and social consequences

Noblesse oblige
French term that refers to honorable and benevolent behavior considered the responsibility of the people of high birth
Ethical Dilemma
Def: A situation in which there is no ethically acceptable solution

–12 year old hired to work on the floor at a subsidiary; someone from the US comes in and sees that is “not ethical” and makes the subsidiary replace her. She is the bread winner for her family and 6 year old brother; she cannot find another job so she turns to prostitution and then dies 2 years later from AIDS.

–if the US man had understood the gravity of her situation would he still have made her be replaced?



Center: Ethical Behavior:

-Societal Culture:
-Decision-Making Processes
-Unrealistic Performance Goals
-Organizational Culture
-Personal Ethics

Personal Ethics:
Definition—-the generally accepted principles of right and wrong governing the conduct of individuals

Societal business ethics are not divorced from personal ethics

Home-country managers working abroad in multinational firms (expatriate managers) may experience more than the usual degree of pressure to violate their personal ethics

Decision-Making Processes
some people do not even realize they are making an unethical decision

The fault lies in the processes that do not incorporate ethical considerations into business decision making

Nikes decision to subcontract:
Those decisions were probably made based on good economic logic. Subcontractors were probably chosen based on business variables such as cost, delivery, and product quality, but the key managers simply failed to ask “how does this subcontractor treat its workforce?”

Organizational Culture
Definition: The values and norms shared among an organization’s employees

values–abstract ideas about what a group believes to be good , right

norms–are the social rules and guidelines that prescribe appropriate behavior in particular situations

Unrealistic Performance Expectations
pressure from the parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting in an unethical manner.

“The HP Way” — values, which shape the way business is conducted both within and by the corporation, have an important ethical component

employees take cues from their business leaders
Societal Culture
Studies indicated that there were significant differences among the ethical policies of firms headquartered in different countries

Companies HQ’ed in cultures where individualism and uncertainty avoidance are strong were more likely to emphasize the importance of behaving ethically than firms headquartered in cultures where masculinity and power distance are important cultural attributes.

either deny the value of business ethics or apply the concept in a very unsatisfactory way
The Friedman Doctrine
(Straw Men)

Freidman’s basic position is that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law.

“There is only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say that it engages in open and free competition with out deception or fraud.”

Critics argue that his arguements break down under examination
especially in international biz where the rules of the game differ from country to country and are often not well established

Cultural Relativism
The belief that ethics are culturally determined and that firms should adopt the ethics of the culture in which they operate

Which is the belief that ethics are nothing more than the reflection of a culture–all ethics are culturally determined–and that accordingly, a firm should adopt the ethics of the culture in which its operating

“when in rome, do as the romans do”

BP’s experiences suggest that companies should not use cultural relativism as an argument for justifying behavior that is clearly based upon suspect ethical grounds,even if that behavior is both legal and routinely accepted in the country where the company is doing business

Righteous Moralism
DEF—the belief that a multinational’s home-country standards of ethics are the appropriate one for companies to follow in foreign countries

*typically associated with managers from developed countries

italy tax example–the right thing to do is to follow the prevailing cultural norms, because there is a big penalty for not doing so

While there are some universal moral principles that should not be violated, it does not always follow that the appropriate thing to do is adopt home-country standards–EX strict us wages laws, should they also follow these wages in countries with lower wage rates?
–>Probably not because doing so might nullify the reason for investing in that country in the first place

Naive Immoralist
The belief that if a manager of a multinational sees that firm from other nations are not following ethical norms in a host nation, that manager should not either
The Naive Immoralist
**Classic example is the drug lord problem

paying off druglord to not be bombed is ethical because everyone is doing it.

1. to say that an action is ethically justified if everyone is doing it is not sufficient

2. the multinational must recognize that it does have the ability to change the prevailing practice in country.

Utilitarian Approaches to Ethics
Definition—These 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

as a philosophy for business ethics, it focuses on attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs.

–Cost Benefit Analysis
–Risk Assessment

PROBLEM ONE–measuring the benefits, costs, and risks of a course of action. In the case of considering drilling for oil in Alaska, how does one measure the potential harm done to the region’s ecosystem?

PROBLEM TWO–philosophy omits the consideration of justice. the action that produces the greatest good for the greatest number of people may result in the unjustified treatment of a minority. such action cannot be ethical, precisely because it is unjust.

Kantian Ethics
(from immanuel kant)

The belief that people should be treated as ends and never 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 for long hours for low pay in poor work conditions, is a violation of ethics, according to Kantian philosophy

Right Theories
20th century theory that recognizes that human beings have fundamental rights and privileges that transcend national boundaries and cultures
What do moral theorists argue?
Moral theorists argue that fundamental human righs form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component
What was the underlying motivation for the United Nations Universal Declaration of Human Rights
The Notion that there are fundamental rights that transcend national borders and culture was the underlying motivation for the United Nations Universal Declaration of Human rights,.
Universal Declaration of Human Rights
A United Nations Document that lays down the basic principles of human rights that should be adhered to.

which has been ratified by almost every country on the planet and lays down the basic principles that should always be adhered to irrespective of the culture in which one is doing business”

article 23 implies that it is unethical to employ child labor in sweatshop settings and pay less than subsistence wages, even if that happens to be a common practice in some countries

Justice Distribution
a distribution of goods and services that is considered fair and equitable
Justice Theories
focus on the attainment of a just distribution of economic goods and services
Veil of Ignorance

Under the veil of ignorance, everyone is imagined to be ignorant of all of his or her particular characteristics, for example, race, sex, intelligence, naionality, family backgrouund, and special talents. Rawls then asks what people would unanimously agree on two fundamental principles of justice.

1. each person be permitted the maximum amount of basic liberty compatible with a similar liberty for others.

2. once equal basic liberty is assured, inequality in basic social goods–such as income and wealth distribution, and opportunities–is to be allowed only if such inequalities benefit everyone

difference principle

inequalities are justified if they benefit the position of the least-advantaged person.

(read more on this — page 140)

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