National Differences Learning Objectives

LO 5-1 Understand the ethical issues faced by international

businesses.
LO 5-2 Recognize an ethical dilemma.
LO 5-3 Identify the causes of unethical behavior by managers.

Source: © Ozdel/Anadolu Agency/Getty Images

LO 5-4 Describe the different philosophical approaches to ethics.
LO 5-5 Explain how managers can incorporate ethical
considerations into their decision making.

Chapter 5: Ethics, Corporate Social Responsibility, and

Sustainability

©McGraw-Hill Education. ©McGraw-Hill Education.

1 2

Opening Case: Introduction

UNCTAD Sustainable Development Goals
Ethics - accepted principles of right or wrong that
 United Nations Conference on Trade and govern the conduct of a person, the members of a
Development established in 1964 profession, or the actions of an organization
 Ensuring countries’ domestic policies and  Business ethics - accepted principles of right or wrong
international actions are mutually supportive to governing the conduct of business people
sustainable development  Ethical strategy - a strategy, or course of action, that does
not violate these accepted principles
 September 2015: many countries adopted 17
“sustainable development goals”
 An opportunity to bring together countries, companies,
and societies of all levels in an effort to improve lives
everywhere

©McGraw-Hill Education. ©McGraw-Hill Education.

3 4

Ethics and International Business 1 of 4 Ethics and International Business 2 of 4

The most common ethical issues in business involve Employment Practices
 Employment practices  What practices should be used when work conditions are
inferior in the host nation?
 Human rights
 Environmental pollution Human Rights
 Corruption  What is the responsibility of a foreign multinational when
operating in a country where basic human rights are not
respected?
 South Africa and apartheid
 The Sullivan principles adopted by GM

©McGraw-Hill Education. ©McGraw-Hill Education.

5 6

Basic Marketing – Chapter 6

Handout 6-1
 Ethics and International Business 3 of 4 Ethics and International Business 4 of 4
Environmental Pollution Corruption continued
 Should a multinational feel free to pollute in a developing  Some argue that paying bribes might be the price of doing
nation if doing so does not violate laws? a greater good
 Tragedy of the commons  Where preexisting political structures distort or limit the workings
of the market mechanism, corruption -marketeering, smuggling,
Corruption and side payments to government bureaucrats to “speed up”
approval for business investments - may actually enhance welfare
 Is it ethical to make payments to government officials to
secure business?  Others argue that corruption reduces the returns on
 Foreign Corrupt Practices Act
business investment and leads to low economic growth
 Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions
 Facilitating payments/speed money excluded

©McGraw-Hill Education. ©McGraw-Hill Education.

7 8

Should the United States have Jurisdiction over Ethical Dilemmas

Foreign Firms?
 Managers often face situations where the
The Foreign Corrupt Practices Act (FCPA) is not just imposed on U.S.
companies with operations globally. It also has jurisdiction over
appropriate course of action is not clear
foreigners operating in the country. Settling a FCPA investigation,  Ethical dilemmas - situations in which none of the
Siemens—Europe’s largest engineering company and the largest
available alternatives seems ethically acceptable
electronics company in the world—was fined $800 million by the U.S.
Department of Justice and the U.S. Securities and Exchange Commission.  Exist because real world decisions are complex, difficult to
Together with various penalties imposed in Germany, Siemens’ home frame, and involve various consequences that are difficult
country, the penalties total $1.6 billion. The settlement involved at least to quantify
4,200 allegedly corrupt payments totaling some $1.4 billion over six
years to foreign officials in numerous countries. Meetings, negotiations,
and bank account transfers were taking place in the United States
between Siemens and officials from other countries. Is it appropriate
that the U.S. government can use the FCPA to investigate and fine
foreign companies doing business in other countries?
Sources: U.S. Department of Justice, www.justice.gov; “Siemens: A Giant Awakens,” The Economist, September 10,
2010; J. Ewing, “Siemens Settlement: Relief, But Is It Over?” BusinessWeek, December 15, 2008.
©McGraw-Hill Education. ©McGraw-Hill Education.

9 10

Child Labor The Roots of Unethical Behavior 1 of 4

Managerial behavior is influenced by:
o Personal ethics
o Decision making processes
Child labor
o Organizational culture
is still
common in o Unrealistic performance goals
many poor o Leadership
nations. o Societal culture

Source: © Ata Mohammad Adnan/Moment/Getty Images

©McGraw-Hill Education. ©McGraw-Hill Education.

11 12

Basic Marketing – Chapter 6

Handout 6-2
 Figure 5.1 Determinants of Ethical Behavior The Roots of Unethical Behavior 2 of 4
Personal Ethics
 Business ethics reflect personal ethics
 Expatriates may face pressure to violate their personal
ethics
 They are away from their ordinary social context and supporting
culture
 They are psychologically and geographically distant from the
parent company
Decision-Making Processes
 Business people may behave unethically because they fail
to ask the relevant questions
 Decisions made based on economic logic

©McGraw-Hill Education. ©McGraw-Hill Education.

13 14

The Roots of Unethical Behavior 3 of 4 The Roots of Unethical Behavior 4 of 4

Organizational Culture Leadership
 Unethical behavior may exist in firms with an  Employees often take cues from business leaders
organizational culture that does not emphasize business
ethics  Actions speak louder than words
 Values and norms shape the culture of a firm, and that Societal Culture
culture influences decision making
 Ethical policies differ by country
Unrealistic Performance Goals
 MNEs located in countries where individualism and
 Pressure from parent company to meet goals that are uncertainty avoidance are strong are more likely to
unrealistic and can only be attained by acting in an emphasize ethical behavior
unethical manner
 MNEs located in countries with high masculinity and high
power distance are less likely to promote ethical behavior

©McGraw-Hill Education. ©McGraw-Hill Education.

15 16

Philosophical Approaches to Ethics 1 of 7 Are Human Rights a Moral Compass?

 Straw men The Universal Declaration of Human Rights (UDHR) was adopted by the
United Nations General Assembly on December 10, 1948, in Paris,
 The Friedman doctrine France. The Preamble of UDHR starts by stating that “Whereas
recognition of the inherent dignity and of the equal and inalienable
 Cultural relativism
rights of all members of the human family is the foundation of
 The righteous moralist freedom, justice and peace in the world . . . .” The day on which UDHR
was adopted, December 10, is known as “International Human Rights
 The naïve immoralist Day,” and this day is also the one on which the Nobel Peace Prize is
awarded annually. One human right that we discuss in the text is the
 Utilitarian and Kantian Ethics right to free speech; by the same token, we have an obligation to
 Rights theories respect free speech. But are there issues, situations, or reasons where
free speech should not be granted?
 Justice Theories Sources: “The Universal Declaration of Human Rights,” United Nations, www.un. org/en/documents/udhr; the
official site of the Nobel Prize, www.nobelprize.org.

©McGraw-Hill Education. ©McGraw-Hill Education.

17 18

Basic Marketing – Chapter 6

Handout 6-3
 Philosophical Approaches to Ethics 2 of 7 Philosophical Approaches to Ethics 3 of 7
Straw Men Straw Men continued
 Friedman doctrine - the only social responsibility of  Righteous Moralist – an MNE’s home country standards of
business is to increase profits, so long as the company ethics are the appropriate ones for companies to follow in
stays within the rules of law foreign countries
 Companies should do only what is mandated by law and what is  Approach is common among managers from developed countries
required to run a business efficiently
 Naïve Immoralist - if a manager of an MNE sees that firms
 Cultural relativism - ethics are culturally determined and from other nations are not following ethical norms in a
firms should adopt the ethics of the cultures in which they host nation, that manager should not either
operate  Actions are ethically justified if everyone else is doing the same
 “When in Rome, do as the Romans do” thing

©McGraw-Hill Education. ©McGraw-Hill Education.

19 20

Philosophical Approaches to Ethics 4 of 7 Philosophical Approaches to Ethics 5 of 7

Utilitarian and Kantian Ethics
 Utilitarian approach - the moral worth of actions or
practices is determined by their consequences
 Actions have multiple consequences, some good, some not
 Actions are desirable if they lead to the best possible balance of
good consequences over bad consequences
 Kantian ethics – Immanuel Kant argued that people should
be treated as ends and never purely as means to the end
of others
 People have dignity and need to be respected, they are not
machines
Rights theories
 Human beings have fundamental rights and privileges that
transcend national boundaries and culture
 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

©McGraw-Hill Education. ©McGraw-Hill Education.

21 22

Philosophical Approaches to Ethics 6 of 7 Philosophical Approaches to Ethics 7 of 7

Justice theories
 Focus on the attainment of a just distribution (one that is
considered fair and equitable) of economic goods and
services
 John Rawls - 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
Justice theories continued
 Under Raul’s veil of ignorance would be a system where
people would agree that each person is permitted the
maximum of basic liberty compatible with similar liberty
for others
 Once equal liberty is assured, inequality in basic social
goods are to be allowed only if they benefit everyone
 The difference principle suggests that inequalities are
justified if they benefit the position of the least
advantaged person

©McGraw-Hill Education. ©McGraw-Hill Education.

23 24

Basic Marketing – Chapter 6

Handout 6-4
 Focus on Managerial Implications 1 of 8 Focus on Managerial Implications 2 of 8
MAKING ETHICAL DECISIONS INTERNATIONALLY Hiring and Promotion
Actions managers can take to ensure ethics are considered  Businesses should strive to identify and hire people with a
1. Favor hiring and promoting people with a well grounded sense of strong sense of personal ethics
personal ethics  Prospective employees should find out as much as they
2. Build an organizational culture that places a high value on ethical can about the ethical climate in an organization
behavior
3. Put decision making processes in place that require people to
Organizational Culture and Leadership
consider the ethical dimension of business decisions  Articulate values that emphasize ethical behavior,
4. Institute ethical officers in the organization repeatedly emphasize their importance, provide incentives
5. Develop moral courage and rewards
6. Make corporate social responsibility a cornerstone of the enterprise  Code of ethics
policy
7. Pursue strategies that are sustainable

©McGraw-Hill Education. ©McGraw-Hill Education.

25 26

Focus on Managerial Implications 3 of 8 Focus on Managerial Implications 4 of 8

Decision-Making Processes
 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?
Decision-Making Processes continued
 A five-step process can also help managers think through
ethical issues
 How would a decision affect stakeholders?
 Internal stakeholders - people who work for or who own the
business such as employees, the board of directors, and
stockholders
 External stakeholders - the individuals or groups who have some
claim on a firm such as customers, suppliers, and unions

©McGraw-Hill Education. ©McGraw-Hill Education.

27 28

Focus on Managerial Implications 5 of 8 Focus on Managerial Implications 6 of 8

Decision-Making Processes continued Ethics Officers
o Determine if a proposed decision violates the  To encourage ethical behavior in a business, a number of
fundamental rights of any stakeholders firms now have ethics officers
o Establish moral intent  Ethics officers ensure
o Engage in ethical behavior  Employees are trained to be ethically aware

o Audit decisions - reviewing them to make sure that they  Ethical considerations enter decision-making
were consistent with ethical principles  The company’s code of ethics is followed
Moral courage
 Managers must be able to walk away from decisions that
are profitable but unethical

©McGraw-Hill Education. ©McGraw-Hill Education.

29 30

Basic Marketing – Chapter 6

Handout 6-5
 Focus on Managerial Implications 7 of 8
Corporate social responsibility
 There should be a presumption in favor of decisions that
have both good economic and good social consequences
Focus on Managerial Implications 8 of 8
Sustainability
 Sustainable strategies – strategies that not only help the
MNC make good profits, but that also do so without
harming the environment while simultaneously ensuring
that the company operates in a socially responsible
manner with regard to its stakeholders
 Sustainable strategies can be good for shareholders, the
environment, local communities, employees, and
customers

©McGraw-Hill Education. ©McGraw-Hill Education.

31 32

Did You Know? Is Sustainability Bad for Profits?

Most customers prefer that the companies they buy products and services
Did you know corporate from engage in business-focused sustainability practices. Eighty-three percent
of the respondents in the Public Opinion Survey on Sustainability said that
social responsibility is they think companies should try to accomplish their performance goals while
not as new as it seems? also trying to improve society and the environment. At the same time,
multinational firms are overwhelmed about the varied stakeholder needs
they face. And, the Global Reporting Initiative, with its some 80 equally
important sustainability indicators, is not giving companies a clear set of
Click to play video sustainability proprieties. Meanwhile, sustainability executives in companies
have not exactly been elevated to the importance levels of other top
managers. If you had to pay more for a product, like gasoline for your
automobile, how much more would you be willing to pay to buy from a
highly rated sustainability-oriented company —5 percent, 10 percent, 25
percent, 40 percent?
Sources: Epstein-Reeves, J., “The Pain of Sustainability,” Forbes, January 18, 2012; “Consumers Expect Action
from Companies on Sustainability,” Second Annual Public Opinion Survey on Sustainability,
http://dowelldogood.net; Global Reporting Initiative.www.globalreporting.org.

©McGraw-Hill Education. ©McGraw-Hill Education.

33 34

Summary
In this chapter we have
 Explored the ethical issues faced by international
businesses.
 Recognized what is an ethical dilemma.
 Identified the causes of unethical behavior by managers.
 Described the different philosophical approaches to ethics.
 Explained how managers can incorporate ethical
considerations into their decision making.

©McGraw-Hill Education.

35

Basic Marketing – Chapter 6

Handout 6-6