Final Exam Study Notes - Chapter 4-Ethics

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12 Oct 2010

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x Ethical issues can arise when doing business in different nations
x Often a function of differences in economic development, politics, legal systems, culture
x Should be auditing regularly to check labour practices
x Ethics ± accepted principles of right or wrong that govern the conduct of a person, the members of a profession,
or the action of an organization
x Business ethics ± accepted principles of right or wrong governing the conduct of businesspeople
x Ethical strategy ± strategy or course of action that does not violate these accepted principles
Ethical Issues in International Business
x Political systems, law, economic development, cultures vary significantly
o What is considered normal in one may be considered unethical in another
x Managers in a multinational firm need to be particularly sensitive to these differences when working
x Most common ethical issues in international business:
o Employment practices
o Human rights
o Environmental regulations
o Corruption
o Moral obligation of multinational corporations
Employment Practices
x Issue ± when work conditions in a host nation are inferior to those in the home nation, which standards should
be applied?
x ([1LNVSUREOHPLQ9LHWQDP± p. 125
o Outcome: establishment of a code of conduct for subcontractors, instituted annual monitoring by
independent auditors of all subcontractors
x Good way to guard against ethical issues:
o Establishing minimal acceptable standards that safeguard the basic rights and dignity of employees
o Auditing foreign subsidiaries and subcontractors on a regular basis to make sure those standards
are met
o Taking corrective action if they are not met
x Ex. Levi Strauss ± p. 125
o Outcome: ended a long-term contract with a large supplier after discovering it was forcing workers
to work 74 hours per week in guarded compounds
Human Rights
x Basic human rights are still not respected in many nations
x Freedom of association, freedom of speech, freedom of assembly, freedom of movement, freedom from political
repression, etc.
x Ex. apartheid in South Africa until 1994 ± p. 125
o Western businesses continued to operate there even though the ethics of it was questioned
o GM ± ³6XOOLYDQSULQFLSOHV´± argued that it was ethically justified to operate there as long as 1) do
not obey the apartheid laws in its own operations, 2) do everything in its power to promote the
abolition of apartheid laws
o These principles widely adopted in US firms operating in South Africa
o South African govt ignored their violation of the apartheid laws b/c wanted the foreign investment
o Determined that it was not doing enough so numerous huge companies exited their South African
operations, persuaded other companies to leave
o These divestments along with imposition of economic sanctions contributed to abandonment of
apartheid and introduction of democratic elections
o Helped improve human rights in South Africa
x Many repressive regimes still exist
x Argued that inward investment by a multinational can be a force for economic, political and social progress that
improves rights of people in repressive regimes
o Economic progress in a nation could create pressure for democratization
o Suggests that it is ethical for a multinational to do business in nations that lack the democratic
structures and human rights records of developed nations
o Ex. pressure on Chinese government for more participative government, political pluralism and
freedom of expression and speech
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x Some regimes are just too repressive that investment cannot be justified ± ex. Myanmar (Burma) ± p. 126
o Also see Nigeria p. 126
x Ethical questions
o What is the responsibility of a foreign multinational when operating in a country where basic human
rights are trampled on?
o Should the company be there at all, and if it is there, what actions should it take to avoid bad
Environmental Pollution
x Ethical issues arise when environmental regulations in host nations are inferior to those in the home nation
x Many developed nations have strong regulations governing emission of pollutants, dumping of toxic chemicals,
use of toxic materials in the workplace, etc.
o These regulations often lacking/nonexistent in developing nations
o Results in higher levels of pollution from operations of multinationals than they would be allowed at
x Should a multinational feel free to pollute in a developing nation? Æ not ethical
x Is there a danger that amoral management might move production to a developing nation just because costly
pollution controls are not required there, and the company is free to spoil the environment and endanger local
people in its quest to lower production costs and gain a competitive advantage?
x What is the right and moral thing to do ± pollute to gain an economic advantage, or make sure that foreign
subsidiaries adhere to common standards regarding pollution controls?
x PheQRPHQRQNQRZQDV³WUDJHG\RIWKHFRPPRQV´± environment, atmosphere, etc ± they are all public/common
goods from which everyone benefits but for which nobody is responsible.
o Tragedy of the commons ± when individuals overuse a resource held in common by all and owned
by no one, resulting in its degradation
x Corporations contribute to the global tragedy of the commons by moving production to locations where they are
free to dump pollutants into the atmosphere or oceans or rivers, harming these valuable global commons
o While this may be legal, is it ethical? Æ seems to violate basic societal notions of ethics and social
x Problem in almost every society in history, and continues to be a problem today.
x International businesses have gained economic advantages by making payments to corrupt officials
x Ex. Lockheed in Japan ± bribe payment thought to be acceptable there turned out not to be, ended in serious
repercussions for the Japanese involved as well as for Lockheed
x Foreign Corrupt Practices Act ± outlawed paying bribes to foreign officials to gain business
o US businesses argued it would put them at a competitive disadvantage
o $FWDPHQGHGWRDOORZ³IDFLOLWDWLQJSD\PHQWV´³VSHHGPRQH\´± payments to ensure receiving the
standard treatment that a business ought to receive from a foreign government, but might not
receive due to the obstruction of a foreign official
Only legal when used for transactions that have already been accepted, not to be used as
a bribe to get transactions accepted when they otherwise might not have been.
x Convention on Combating Bribery of Foreign Public Officials in International Business Transactions ± obliges
member states and other signatories to make the bribery of foreign public officials a criminal offense
o Excludes facilitating payments made to expedite routine government action
x Ethical implications of facilitating payments/speed money is still questionable
o Sometimes it can help countries by getting a foreign firm the permission to open facilities there,
giving the locals jobs and income
o Also can be argued that corruption reduces the returns on business investment and leads to low
economic growth ± in a country where corruption is common, unproductive bureaucrats who
demand payments for granting permission to operate may siphon off profits from a business,
x Ethical case for not engaging in corruption ± once you begin, it affects the bribe giver and the bribe receiver,
pulling back from this road may be difficult or impossible
x Many multinationals accept this argument and have zero-tolerance approaches to facilitating payments, written
into their code of ethics
Moral Obligations
x Multinational corporations have power from their control over resources and their ability to move production
from country to country
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x Power is constrained not only by laws and regulations but also by the discipline of the market and the
competitive process
x Argued that with the power comes the social responsibility for multinationals to give something back to the
societies that enable them to prosper and grow
x Social responsibility ± the idea that businesspeople should consider the social consequences of economic
actions when making business decisions, and that there should be a presumption in favour of decisions that
have both good economic and social consequences
o Noblesse oblige ± large successful businesses need to recognize this and give something back to
the societies that have made their success possible. It refers to honourable and benevolent
behaviour considered to be the responsibility of high (noble) birth, or in a business setting it means
benevolent behaviour that is responsibility of successful enterprises
o Social investments designed to enhance the welfare of the communities in which businesses
x Some multinationals have abused their power for private gain ± ex. British East India Company (p. 130) ±
company had 40 warships, largest army in the world, ruler of millions of Indians, and had its own church
bishops and dominance in the spiritual realm
x Power is morally neutral ± how power is used is what matters ± can be used positively to increase social
welfare, or in a manner that is ethically and morally suspect
x Some multinationals have acknowledged a moral obligation to use their power to enhance social welfare in the
communities where they do business ± ex. BP (oil co) ± PDGHLWSDUWRIWKHFRPSDQ\VSROLF\WRXQGHUWDNH
x Small actions for multinationals can make very important differences for local communities
Ethical Dilemmas
x Ethical obligations of a multinational corporation toward employment conditions, human rights, corruption,
environmental pollution and the use of power are not always clear-cut
x May be no agreement about accepted ethical principles
x Ex. an American manager visits its foreign subsidiary and finds a young girl working in the factory, he tells the
manager to replace her with an adult so the manager does, however the girl is an orphan and has no other way
had known this, would he have requested her replacement because it is company policy or left her because it is
the status quo in that country and she needed the money? ± no right answer
x Ethical dilemmas ± situations in which none of the available alternatives seems ethically acceptable
o In the above example, child labour was not acceptable but neither was denying the child her only
source of income
The Roots of Unethical Behaviour
Personal Ethics
x Business ethics are part of personal ethics ± generally accepted principles of right and wrong governing the
conduct of individuals
x Individuals are generally taught that it is wrong to lie and cheat, and that it is right to behave with integrity and
honour and to stand up for what we believe to be right ± generally true across societies
x Personal ethical code that guides our behaviour comes from parents, schools, religion, media
x Exerts a profound influence on how we behave as businesspeople
x An individual with a strong sense of personal ethics is less likely to behave in an unethical manner in a business
x First step to establishing a strong sense of business ethics is for a society to emphasize strong personal ethics
x Home-country managers working abroad may experience more than normal pressure to violate their personal
ethics ± may be in a culture that does not place the same value on ethical norms that are important to the
x Parent company may put pressure on these managers to meet unrealistic goals that can only be met by cutting
corners or acting unethically
x Because of the geographical distance between the parents company and the foreign managers, it is hard for the
company to know how these managers are meeting their goals or choose not to see, allowing this behaviour to
flourish and persist
Decision-Making Processes
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