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Chapter 5

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McMaster University
Linda Stockton

Chapter 5 The Nature of Ethics and Social Responsibility in International Business o The goal of most decisions made on behalf of a business or an individual within a business it to increase income and/or reduce expenses o In recent years it seems that the incidence of unacceptable behaviours on behalf of businesses has increased o Ethics: individual’s personal beliefs about whether a decision, behaviors or action is right or wrong o Ethical behavior: usually refers to behavior that conforms to generally accepted social norms o Unethical behavior: behavior that does not conform to generally accepted social norms o Values: things a person feels to be important  Culture has direct impact on value system  Values affect how individuals define ethical versus unethical behavior Ethics in Cross-Cultural and International Contexts How and Organization Treats its Employees o Areas most susceptible to ethical variation include hiring and firing practices, wages and working conditions and employee privacy and respect  In some countries both ethical and legal guidelines suggest that hiring and firing decisions should be based solely on an individual’s ability to perform the job  In other countries it is legitimate to give preferential treatment to individuals based on gender, ethnicity, age or other non-work related factors o Wages and working conditions are an area for potential controversy  A manager paying an employee less than they deserve because the manager knows the employee cannot afford to quit and will not risk losing the job by complaining  unethical o Myriad ethical dilemmas posed by practice of outsourcing production to overseas locations  Can be argued that firms are ethically bound to move jobs wherever they can be performed for the least cost  Some critics would argue that it is unethical, for it devalues the workers’ numerous contributions to the firm and ignores the hardships imposed on displaced workers How Employees Treat the Organization o Conflicts of interest, secrecy and confidentiality and honesty o Conflict of interest happens when a decision potentially benefits the individual to the possible detriment of the organization o Many companies have policies that forbid their buyers from accepting gifts from suppliers  employee can begin to favor the supplier that offers best gift rather than supplier whose product is best for firm o Business in China is conducted through guanxi  reciprocal exchanges of favors  North American and European firms operating in China face a difficult task in adapting norms of Chinese business culture while continuing to honour company policy regarding conflict of interest  High context, collectivist and power-respecting culture  gift exchange is more important than in low- context, individualistic and power-tolerant cultures o Employees who work for businesses in highly competitive industries might be tempted to sell info about manufacturer How Employees and the Organization Treat Other Economic Agents o Primary agents of interest include customers, competitors, stockholders, suppliers, dealers and labor unions o Behaviors subject to ethical ambiguity: advertising and promotions, financial disclosures, ordering and purchasing, shipping and solicitations, bargaining and negotiation and other business relationships o In some countries small bribes and side payments are a normal and customary part of doing business o China  local journalists expect their cab fare to be paid if they are to cover a business-sponsored news conference o Indonesia  normal time for a foreigner to get a drivers’ license is over a year but it can be expedited for an extra 100$ Managing Ethical Behavior across Borders Guidelines and Codes of Ethics o Many large multinationals have written guidelines that detail how employees are to treat suppliers, customers, competitors and other constituents and others have developed formal codes of ethics o Must be backed up by organizational practices to ensure ethical behavior o Firm must make a decision as to whether to establish one overarching code for all of its global units or to tailor each one to its local context o If firm acquires new foreign subsidiary it must decide whether to impose its corporate code on subsidiary or allow it to retain the one it may have already been following Ethics Training o Boeing  line managers lead training sessions for other employees and the company also has an ethics committee that reports directly to the board of directors o Training sessions involve discussions of different ethical dilemmas that employees might face and how they might best handle those dilemmas Organizational Practices and the Corporate Culture o If top leaders appear to exempt themselves from ethical standards or choose to ignore or trivialize unethical behaviors then they are saying that it is acceptable to do something that is unethical if you can get away with it o Russian, Chinese, Taiwanese and South Korean firms found bribery to be relatively acceptable but Australia, Sweden, Switzerland, Austria and Canada found in unacceptable o Kenya  bribery is a way of life o Costs of corruption have wiped out the equivalent of 13 to 16% of the country’s GDP (China) Social Responsibility in Cross-Cultural and International Contexts o Social responsibility is the set of obligations an organization undertakes to protect and enhance the society in which it functions o Complexities  balancing ideal of a global stance on social responsibility against the local conditions that may compel differential approaches in the various countries where the firm does business o USA, South Africa, UK  tobacco companies are limited in their ability to advertise cigarettes and required to post health warnings on packages Areas of Social Responsibility Organizational Stakeholders o People and organizations that are directly affected by the practices of an organization and that have a stake in its performance o Organizations that are responsible to their customers strive to treat them fairly and honestly  pledge to charge fair prices, honor product warranties, meet delivery commitments, and stand behind the quality of the products they sell o Organizations that are socially responsible in their dealings with employees treat their workers fairly, make them a part of the team and respect their dignity and basic human needs o To maintain a socially responsible stance toward investors, managers should follow proper accounting procedures, provides appropriate information to shareholders about the financial performance of the firm and manage the organization to protect shareholder rights and investments  Should be accurate and candid in their assessment of future growth and profitability The Natural Environment o Many laws regulate disposal of waste materials o Companies themselves have become more socially responsible in their release of pollutants and general treatment of the environment o Lumber retailers like Home Depot have agreed to sell only wood products certified as having been harvested using environment-friendly techniques o Procter and Gamble  industry leader in using recycled materials for containers o Starbucks pays its coffee suppliers a premium of ten cents additional per pound if they demonstrate a commitment to protect the environment o E-commerce  reduces energy costs and pollution General Social Welfare o Making contributions to charities, philanth
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