International Management

Phatak, Bhagat, and Kashlak

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
 Chapter 14

Ethics and Social Responsibility for

International Firms
 Chapter 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.
Discuss the process of formulating strategic corporate
responsibility programs in the organization.
Discuss the issues of bribery and corruption and their role in the
international business arena.
Discuss the ethics of child labor and sweatshops.
Explain how a company can effectively integrate ethics and
business conduct in its managers and employees.

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 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
Integrating Corporate Social Responsibility with Business
Operations
International Ethical Codes of Conduct for International
Companies
The Issues of Bribery and Corruption
What Companies Can Do to Integrate Ethics and Business
Conduct

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 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 approach suggests that businesses may be

self-motivated to have a positive impact regardless of social
pressures calling for social initiatives.

From a negative duty approach, businesses are compelled to

adopt social responsibility initiatives in order to conform to
stakeholder norms defining appropriate behavior.

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 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.

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 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

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 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

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 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

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Exhibit 14.1: Ethical and Legal Distinctions in
International Management
China
United States Alcohol Consumption
A Yes Usury
Yes Women Drivers
Alcohol Consumption
Usury
Child Labor
Women Drivers Legal Facilitating Payments
Legal
Prayer at Work
Child Labor No
Prayer at Work
Facilitating Payments
No
B No Ethical Yes
No Ethical Yes

Islamic Countries
Yes Facilitating Payments
Child Labor
Prayer at Work

Legal
Alcohol Consumption
Usury
Women Drivers
No
No Ethical Yes

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 Universally Applicable Moral Norms

No arbitrary killing of other members of the

community to which one belongs
Telling the truth and not lying
Respecting others’ property
Honoring contracts and exercising fairness in
transactions
Exercising fairness in business dealings
Functioning in a fair market
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 Exhibit 14.2: A Decision Tree Incorporating
Ethics in International Decision Making
Does the International Business Decision (IBD)
create the greatest benefit for everyone affected?
(Teleology)
Are there overriding factors that justify
the suboptimization of the greatest
No benefits for everyone affected? NO

YES

Does the IBD respect the rights of all persons NO Are there overriding factors that justify
affected? the abrogation of a right? NO
(Deontology) YES

Does the IBD respect the canons of justice? NO Are there overriding factors that
(Theory of Justice) justify the violation of a canon of NO
YES justice?

Does the IBD respect the cultural norms of NO Are there overriding factors that
affected parties, both in home and host justify ignoring the cultural norms of NO
countries? the affected parties?
(Cultural Relativism)

Accept the IBD Reject the IBD

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 Corporate Social Responsibility
Corporate social responsibility means a commitment to
developing policies that integrate responsible practices
into daily business operations. It refers to a concept
whereby companies consider the interests of society by
managing the business in a manner that accounts for
the social and environmental impacts created by its
operations.

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 Types of Corporate Social Responsibility

Responsive CSR views the community as an

entity in tension or conflict with the company,
rather than as a mutual partner with shared
values.
Strategic CSR attempts to assess and
implement the firm’s CSR activities in a manner
similar to its approach for other business
choices: as an attempt to build or maintain
competitive advantage and reach business goals.

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 Bribery and Corruption

Bribery may be defined as the payment

voluntarily offered for the purpose of inducing a
public official to do or omit to do something in
violation of his or her lawful duty or to exercise
his official discretion in favor of the payer’s
request for a contract, concession, or privilege on
some basis other than merit.

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 Table 14.1: 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 ILO; OECD;
bargain collectively UDHR
MNCs should develop nondiscriminatory employment policies and ILO; OECD;
promote equal job opportunities UDHR
MNCs should provide equal pay for equal work ILO; UDHR
MNCs should give advance notice of changes in operations, especially ILO; OECD
plant closings, and mitigate the adverse effects of these changes
MNCs should, minimally, pay basic living wages to employees ILO; UDHR
MNCs operations should benefit lower-income groups of the host nation ILO

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 Table 14.2: Factors Responsible for Bribes
Home Country Factors
Competitors are giving bribes to obtain business
There is constant pressure for higher levels of
performance by top management and
shareholders
This is an accepted practice in the host country.
Cannot expect to get any business without
conforming
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.)
Host Country Factors
Host government has control over business
activities, permits and licenses. Government
officials are required to conduct normal business
functions
Government officials are poorly paid and use
bribes to supplement salary
Bureaucratic delays can be costly for business
(e.g., clear products through customs on time to
meet delivery schedules)
Political pressures exists from to make
contributions to political parties or favorite
political organizations or causes
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 Major Types of Bribes

Facilitating payments: Disbursement of small

amounts of cash or kind as tips or gifts to minor
government officials to expedite clearance of
shipments, documents or other routine transactions.
Middlemen commissions: Appointment of
intermediaries (agents and consultants) to facilitate
sales in a nonroutine manner and payment to them of
excessive allowances and commissions, which are not
commensurate with the normal commercial services
they perform.
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 Major Types of Bribes
(Contd)
Political contributions: Contributions which can take
the form of extortion since they are in violation of local
law and custom. Also payments which, while not
illegal, are specifically made with the intent of winning
favors directly or indirectly.
Cash disbursements: Cash payments made to
important people through slush funds or in some other
way, usually in a third country (i.e., deposit in a Swiss
bank) for different reasons such as to obtain a tax break
or sales contract or to get preferential treatment over a
competitor.

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 What Companies Can Do to Integrate Ethics and
Business Conduct

1. The top management must be committed to the company’s

ethics program
2. A written company code that clearly communicates
management’s expectations must be developed
3. Provide an organizational identity to the ethics program
4. A formal program must be in place to implement the ethics
code
5. The line managers, not consultants, train employees in ethics
6. Strict enforcement of codes is essential
7. Actions speak louder than words

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 Key Terms and Concepts

Corporate social
Responsibility
Cultural relativism
Deontology
Egoism
Ethics
Moral norms
Negative duty approach
Positive duty approach
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 Key Terms and Concepts (Contd)

Responsive corporate social

Responsibility
Strategic corporate social
Responsibility
Social costs of bribery
Teleology
Theory of justice
Utilitarianism
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