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Ethics in
International Business
 Ethics in International Business

INTRODUCTION

Ethics refers to 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 are the accepted principles of right or wrong
governing the conduct of business people.
Ethical strategy is a strategy, or course of action, that does not
violate these accepted principles.
 Ethics in International Business

ETHICAL ISSUES IN INTERNATIONAL BUSINESS

The most common ethical issues in business involve employment

practices, human rights, environmental regulations, corruption,
and the moral obligation of multinational companies.
 Ethics in International Business

CRITICAL THINKING AND DISCUSSION QUESTIONS

Under what conditions is it ethically defensible to outsource

production to producers in the developing world who have much
lower labor costs when such actions also involve laying off long
term employees in the firm’s home country?
 Ethics in International Business

Employment Practices

• When work conditions in a host nation are clearly inferior to

those in a multinational’s home nation, companies must decide
which standards should be applied, those of the home nation,
those of the host nation, or something in between
 Ethics in International Business

Human Rights

• Basic human rights taken for granted in the developed world

such as freedom of association, freedom of speech, freedom of
assembly, freedom of movement, and so on, are by no means
universally accepted
 Ethics in International Business

Environmental Pollution

• When environmental regulations in host nations are far inferior

to those in the home nation, ethical issues arise

• 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
 Ethics in International Business

Corruption

• In the United States, the Foreign Corrupt Practices Act

outlawed the practice of paying bribes to foreign government
officials in order to gain business
• The Organization for Economic Cooperation and Development
(OECD) adopted a Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions in 1997 which obliges member states to make the
bribery of foreign public officials a criminal offense
 Ethics in International Business

• Some economists suggest that the practice of giving bribes

might be the price that must be paid to do a greater good
• These economists believe that in a country where preexisting
political structures distort or limit the workings of the market
mechanism, corruption in the form of black-marketeering,
smuggling, and side payments to government bureaucrats to
“speed up” approval for business investments may actually
enhance welfare
• Other economists have argued that corruption reduces the
returns on business investment and leads to low economic growth
 Ethics in International Business
Moral Obligations

• The concept of social responsibility refers to the idea that business people
should take the social consequences of economic actions into account when
making business decisions, and that there should be a presumption in favor
of decisions that have both good economic and good social consequences

• In its purest form, social responsibility can be supported for its own sake
simply because it is the right way for a business to behave

• Advocates of this approach argue that businesses need to recognize their

noblesse oblige (honorable and benevolent behavior that is the responsibility
of successful companies) and give something back to the societies that have
made their success possible
 Ethics in International Business

ETHICAL DILEMMAS

Ethical dilemmas are situations in which none of the available

alternatives seems ethically acceptable.
 Ethics in International Business

CRITICAL THINKING AND DISCUSSION QUESTIONS

A visiting American executive finds that a foreign subsidiary in a

poor nation has hired a 12-year old girl to work on a factory
floor, in violation of the company’s prohibition on child labor.
He tells the local manager to replace the child and tell her to go
back to school. The local manager tells the American executive
that the child is an orphan with no other means of support, and
she will probably become a street child if she is denied work.
What should the American executive do?
 Ethics in international Business
The causes of unethical behavior
 Ethics in International Business

THE ROOTS OF UNETHICAL BEHAVIOR

Personal Ethics

• Business ethics reflect personal ethics (the generally accepted

principles of right and wrong governing the conduct of
individuals)
• Expatriates may face pressure to violate their personal ethics
because they are away from their ordinary social context and
supporting culture, and they are psychologically and
geographically distant from the parent company
 Ethics in International Business

Decision Making Processes

Studies show that business people may behave unethically

because they fail to ask the relevant question—is this decision or
action ethical?
 Ethics in International Business

Organization Culture

• In firms with an organization culture (the values and norms

that are shared among employees of an organization) that does
not emphasize business culture, unethical behavior may exist
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Unrealistic Performance Expectations

• Pressure from the parent company to meet performance goals

that are unrealistic, and can only be attained by cutting corners or
acting in an unethical manner can cause unethical behavior

Leadership

• If leaders are not acting ethically, other employees may not act
ethically
 Ethics in International Business

PHILOSOPHICAL APPROACHES TO ETHICS

Straw Men

Straw men approaches to business ethics are approaches that are

raised by business ethics scholars primarily for the purpose of
demonstrating that they offer inappropriate guidelines for ethical
decision making in a multinational enterprise.
Four such approaches are the Friedman doctrine, cultural
relativism, the righteous moralist, and the naïve immoralist.
 Ethics in International Business

The Friedman Doctrine

• Economist’s Milton Friedman’s position is that the only social

responsibility of business is to increase profits, so long as the company
stays within the rules of law

Cultural Relativism

• Cultural relativism is the belief that ethics are culturally determined

and that firms should adopt the ethics of the cultures in which they
operate, or in other words, “when in Rome, do as the Romans do”
 Ethics in International Business

The Righteous Moralist

• The righteous moralist approach claims that a multinational’s

home country standards of ethics are the appropriate ones for
companies to follow in foreign countries

The Naïve Immoralist

• The naïve immoralist asserts 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
 Ethics in International Business

Utilitarian and Kantian Ethics

• Utilitarian approaches to ethics hold that the moral worth of

actions or practices is determined by their consequences

• An action is judged to be desirable if it leads to the best possible

balance of good consequences over bad consequences
 Ethics in International Business

• Problems with the approach is measuring the benefits, costs,

and risks of a course of action, and the fact that philosophy fails
to consider justice

• Kantian ethics are based on the philosophy of Immanuel Kant

who argued that people should be treated as ends and never
purely as means to the ends of others
 Ethics in International Business
Rights Theories

• Rights theories recognize that human beings have fundamental

rights and privileges that transcend national boundaries and
culture
• Moral theorists argue that fundamental human rights form the
basis for the moral compass that managers should navigate by
when making decisions that have an ethical component
• The idea that some fundamental rights transcend national
borders and cultures was the underlying motivation for the UN’s
Universal Declaration of Human Rights (specifies the basic
principles that should always be adhered to irrespective of the
culture in which one is doing business)
 Universal Declaration of Human Rights
Article 1.
All human beings are born free and equal in dignity and rights. They are endowed
with reason and conscience and should act towards one another in a spirit of
brotherhood
Article 23.
(1) Everyone has the right to work, to free choice of employment, to just and
favourable conditions of work and to protection against unemployment.
(2) Everyone, without any discrimination, has the right to equal pay for equal
work.
(3) Everyone who works has the right to just and favourable remuneration
ensuring for himself and his family an existence worthy of human dignity, and
supplemented, if necessary, by other means of social protection.
(4) Everyone has the right to form and to join trade unions for the protection of
his interests
Article 29.
(1) Everyone has duties to the community in which alone the free and full
development of his personality is possible.
 Ethics in International Business

Justice Theories

• Justice theories focus on the attainment of a just distribution of

economic goods and services

• A just distribution is one that is considered fair and equitable

 Ethics in International Business
• One theory of justice was set forth by John Rawls who argued that 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) where people
would agree that each person is permitted the maximum amount of basic
liberty compatible with a similar liberty for others, and that once equal
basic liberty is assured, inequality in basic goods social goods are to be
allowed only if they benefit everyone

• Rawls formulates the difference principle, which is that inequalities are

justified if they benefit the position of the least advantaged person
 Ethics in International Business
IMPLICATIONS FOR MANAGERS

Firms that ensure ethical issues are considered in business decisions:

• 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
• makes sure that leaders within the business not only articulate the rhetoric of
ethical behavior, but also act in manner that is consistent with that rhetoric
• put decision making processes in place that require people to consider the
ethical dimension of business decisions
• develop moral courage
 Ethics in International Business

Hiring and Promotion

• Businesses should strive to identify and hire people with a

strong sense of personal ethics

• Prospective employees should find out as much as they can

about the ethical climate in an organization
 Ethics in International Business
Organization Culture and Leadership

Businesses need to build an organization culture that places a high value on

ethical behavior:
• the business must explicitly articulate values that place a strong emphasis
on ethical behavior, perhaps using a code of ethics (a formal statement of the
ethical priorities a business adheres to)
• leaders in the business should give life and meaning to the code of ethics by
repeatedly emphasizing their importance, and then acting on them
• the business should put in place a system of incentives and rewards that
recognize people who engage in ethical behavior and sanction those who do
not
 Ethics in International Business

Decision Making Processes

A moral compass can help determine whether a decision is

ethical. If a manager can answer “yes” to the following
questions, the decision is ethically acceptable.
• does my decision fall within the accepted values of standards
that typically apply in the organizational environment?
• am I willing to see the decision communicated to all
stakeholders affected by it?
• would the people with whom I have significant personal
relationships approve of the decision?
 Ethics in International Business
A five step process can also help managers think through ethical problems:
•1. business people should identify which stakeholders a decision would
affect and in what ways
•2. managers need to determine whether a proposed decision would violate
the fundamental rights of any stakeholders
•3. managers need to establish moral intent (the business must resolve to place
moral concerns ahead of other concerns in cases where either the fundamental
rights of stakeholders or key moral principles have been violated)
•4. the company should then engage in ethical behavior
•5. the business must audit its decisions, reviewing them to make sure that
they were consistent with ethical principles
 Ethics in International Business

Ethics Officers

• To ensure ethical behavior in a business, a number of firms now

have ethics officers

Moral Courage

• It is important to recognize that employees in an international

business may need significant moral courage that enables them to
walk away from a decision that is profitable, but unethical.
 Ethics in International Business

Summary of Managerial Actions

•In the end, there are clearly things that an international business
should do, and there are things that an international business
should not do, but there are also actions that present managers
with true dilemmas