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International Management Phatak, Bhagat, and Kashlak McGraw-Hill/Irwin International Management © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 17 Ethics and Social Responsibility for International Firms McGraw-Hill/Irwin International Management © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-3 Learning Objectives Explain moral philosophies of relevance to business ethics. Define business ethics, and describe the relationships among host country laws, ethics and cultural relativism. Identify several international accords that address business ethics and ethical codes of conduct for international companies, and list five prominent issues on which they provide guidance. Discuss the issues of bribery and corruption, and their role in the international business arena. Explain how a company can effectively integrate ethics and business conduct among its managers and employees. 17-4 Chapter Topics Business Ethics and Corporate Social Responsibility Defined Moral Philosophies of Relevance to Business Ethics The Basic Moral Norms Incorporating Corporate Social Responsibility and Ethics into International Business Decisions International Ethical Codes of Conduct for International Companies What Companies Can Do to Integrate Ethics and Business Conduct 17-5 Drivers of Corporate Social Responsibility From a utilitarian perspective, corporate social responsibility is an instrument useful to help achieve its performance objectives defined in terms of profitability, return on investment, or sales volume The positive duty suggests that businesses may be selfmotivated to have a positive impact regardless of social pressures calling for social initiatives. When this positive duty is prevalent, corporate social responsibility principles are a component of the firm’s true identity, expressing values considered by organizational as central, enduring, and distinctive values to the firm 17-6 Drivers of Corporate Social Responsibility (contd.) From a negative duty approach, businesses are compelled to adopt social responsibility initiatives in order to conform to stakeholder norms defining appropriate behavior. When negative duty is prevalent, self-motivation is replaced by corporate social responsibility initiatives that are a reaction to what is expected from stakeholders 17-7 Moral Philosophy The set of principles or rules that people use to decide what is right or wrong. Moral philosophies help explain why a person believes that a certain choice among alternatives is ethically right or wrong. 17-8 Moral Philosophies of Relevance to Business Ethics Teleology: an action or behavior is acceptable or right if it is responsible for producing the desired outcomes. Two key teleological precepts that serve as guides for managerial decision-making are Egoism: it evaluates how right or acceptable a behavior is depending upon its consequences on the person Utilitarianism: it holds that actions should be judged by their consequences; however, unlike egoists, utilitarians claim that behaviors that are moral produce the greatest good for the greatest number of people 17-9 Moral Philosophies of Relevance to Business Ethics (contd.) Deontology: an ethical theory holding that acting from a sense of duty rather than concern for consequences is the basis for establishing our moral obligation The Theory of Justice: there are three fundamental guidelines that the theory of justice provides to managers in their decision-making: Be equitable Be fair Be impartial 17-10 Moral Philosophies of Relevance to Business Ethics (contd.) Cultural Relativism: It asserts that words such as “right,” “wrong,” “justice,” and “injustice” derive their meaning and value from the attitudes of a given culture. Thus, to a cultural relativist, ethical standards are culture-specific, and one should not be surprised to find that an act that is considered quite ethical in one culture might be looked upon with disdain in another 17-11 Fig 17-1: Ethical and Legal Distinctions in International Management China United States A Yes Alcohol Consumption Usury Women Drivers Alcohol Consumption Usury Women Drivers Yes Child Labor Facilitating Payments Legal Legal Prayer at Work Child Labor Facilitating Payments No Prayer at Work No No B No Ethical Ethical Yes Yes Islamic Countries Yes Facilitating Payments Prayer at Work Child Labor Legal Alcohol Consumption Usury Women Drivers No No Ethical Yes 17-12 Fig. 17-2: A Decision Tree Incorporating Ethics in International Decision Making Does the International Business Decision (IBD) create the greatest benefit for everyone affected? No (Teleology) Are there overriding factors that justify the suboptimization of the greatest NO benefits for everyone affected? YES Does the IBD respect the rights of all persons affected? (Deontology) NO Does the IBD respect the canons of justice? (Theory of Justice) NO Are there overriding factors that justify NO the abrogation of a right? YES Are there overriding factors that justify NO the violation of a canon of justice? YES Does the IBD respect the cultural norms of affected parties, both in home and host countries? (Cultural Relativism) Accept the IBD NO Are there overriding factors that justify NO ignoring the cultural norms of the affected parties? Reject the IBD 17-13 Table 17-1: Prominent International Accords Accord Year The United Nations Universal Declaration of Human Rights UDHR 1948 The European Convention on Human Rights ECHR 1950 The Helsinki Final Act Helsinki 1975 The OECD Guidelines for Multinational Enterprises OECD 1976 The International Labor Office Tripartite Declaration of Principles of Multinational Enterprises and Social Policy ILO 1977 The United Nations Code of Conduct on Transnational Corporations TNC Code 17-14 Table 17-2: Employment Practices and Policies (selected) Policy Organization MNCs should not contravene the manpower policies of host nations ILO MNCs should respect the right of employees to join trade unions and to bargain collectively ILO; OECD; UDHR MNCs should develop nondiscriminatory employment policies and promote equal job opportunities ILO; OECD; UDHR MNCs should provide equal pay for equal work ILO; UDHR MNCs should give advance notice of changes in operations, especially plant closings, and mitigate the adverse effects of these changes ILO; OECD MNCs should, minimally, pay basic living wages to employees ILO; UDHR MNCs operations should benefit lower-income groups of the host nation ILO 17-15 Table 17-3: Consumer Protection Policy Organization MNCs should respect host-country laws and policies regarding the protection of consumers OECD; TNC Code MNCs should safeguard the health and safety of consumers by various disclosures, safe packaging, proper labeling, and accurate advertising TNC Code 17-16 Table 17-4:Environmental Protection Policy Organization MNCs should respect host-country laws, goals, and priorities concerning protection of the environment OECD; TNC Code; Helsinki MNCs should preserve ecological balance, protect the environment, adopt preventive measures to avoid environmental harm, and rehabilitate environments damaged by operations OECD; TNC Code; Helsinki MNCs should disclose likely environmental harms and minimize risks of accidents that could cause environmental damage OECD; TNC Code MNCs should promote the development of international environmental standards TNC Code; Helsinki MNCs should control specific operations that contribute to pollution of air, water, and soils Helsinki MNCs should develop and use technology that can monitor, protect, and enhance the environment OECD; Helsinki 17-17 Table 17-5: Political Payments and Involvement Policy MNCs should not pay bribes or make improper payments to public officials Organization OECD; TNC Code MNCs should avoid improper or illegal involvement or interference in the OECD; TNC internal politics of host countries Code MNCs should not interfere in intergovernmental relations TNC Code 17-18 Table 17-6:Basic Human Rights and Fundamental Freedoms Policy Organization MNCs should respect the rights of all persons to life, liberty, security of person, and privacy UDHR; ECHR; Helsinki; ILO; TNC Code MNCs should respect the rights of all persons to equal protection of the law, work, choice of job, just and favorable working conditions, and protection against unemployment and discrimination UDHR; Helsinki; ILO; TNC Code MNCs should respect all persons’ freedom of thought, conscience, religion, opinion and expression, communication, peaceful assembly and association, and movement and residence within each state UDHR; ECHR; Helsinki; ILO; TNC Code MNCs should promote a standard of living to support the health and wellbeing of workers and their families UDHR; Helsinki; ILO; TNC Code MNCs should promote special care and assistance to motherhood and childhood UDHR; Helsinki; ILO; TNC Code 17-19 Ex. 17-1: Least Corrupt Countries Worldwide 9.7 9.7 9.6 9.5 9.5 9.5 9.4 10 = Least 9.4 Corrupt 9.3 9.3 9.2 9.1 Finland Denmark New Zealand Iceland Singapore 17-20 Ex. 17-2: Corruption in Western and Eastern Europe 9.7 10 9 8 7 6 6 5.2 10=Least Corrupt 5 4 3 2.1 2 1 0 Finland Italy Slovenia Moldova 17-21 Ex. 17-3: Corruption in North, Central, and South America 9 9 8 7.7 7.5 7 6 5 4.5 10=Least Corrupt 4 3.6 3 2.5 2 1.7 1 0 Canada USA Mexico Costa Rica Nicaragua Chile Paraguay 17-22 Ex. 17-4: Corruption in Middle East and Asia 10 9.3 9 8 7.3 7 6 10=Least Corrupt 5 4 3.4 3 2 1.2 1 0 Israel Egypt Singapore Bangladesh 17-23 Ex. 17-5: Corruption in Northern and Southern Africa 7 6.4 6 4.8 5 4 3.4 10=Least Corrupt 3 2 1.6 1 0 Tunisia Egypt Botswana Nigeria 17-24 Ex. 17-6: Worst Bribe Payer Countries 4.5 4.1 4 3.8 3.9 3.5 3.5 3.2 3 2.5 10=Least Corrupt 2 1.5 1 0.5 0 Russia China Taiwan South Korea Italy 17-25 Table 17-7: Factors Responsible for Bribes Home Country Factors Host Country Factors Competitors are giving bribes to obtain business Host government has control over business activities, permits and licenses. Government officials are required to conduct normal business functions There is constant pressure for higher levels of performance by top management and shareholders Government officials are poorly paid and use bribes to supplement salary This is an accepted practice in the host country. Cannot expect to get any business without conforming Bureaucratic delays can be costly for business (e.g., clear products through customs on time to meet delivery schedules) Tax laws of the country encourage bribery (e.g., some bribes can be written off as a business expense in Germany but not in the U.S.) Political pressures exists from to make contributions to political parties or favorite political organizations or causes 17-26 What Companies Can Do to Integrate Ethics and Business Conduct 1. 2. 3. 4. 5. 6. 7. The top management must be committed to the company’s ethics program A written company code that clearly communicates management’s expectations must be developed Provide an organizational identity to the ethics program A formal program must be in place to implement the ethics code The line managers, not consultants, do training in ethics Strict enforcement of codes is essential Actions speak louder than words 17-27 Key Terms and Concepts Ethics Corporate social responsibility Positive duty Negative duty Teleology Egoism Utilitarianism Deontology Theory of justice Cultural relativism Moral norms Social costs of bribery