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International Business
BT-360
HILL CHAPTER 5
ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND SUSTAINABILITY
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Required for today

 Hill edition 11, Chapter 5, Ethics, Corporate Social Responsibility, and

Sustainability
 Core material, critical reading for comprehension
 Read through LO5-4, p147

 Supplemental Reading: The Milgram Experiment

 Core material, critical reading for comprehension
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Learning Objectives

 Understand the ethical issues faced by international businesses

 Recognize an ethical dilemma
 Identify the causes of unethical behavior by managers
 Describe the different philosophical approaches to ethics
 Explain how managers can incorporate ethical considerations into their
decision making
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What Is Ethics?

 Ethics - accepted principles of right or wrong that govern:

 the conduct of a person
 the members of a profession
 the actions of an organization
 Business ethics - accepted principles of right or wrong governing the
conduct of business people
 Ethical strategy - a strategy, or course of action, that does not violate
these accepted principles
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Relevant Ethical Issues

 The most common ethical issues in business involve LO5-1

1. employment practices
2. environmental pollution
3. corruption
4. human rights
5. moral obligations of multinational companies
 If there are national differences regarding these issues which standards
should apply?
 home country, host country, something in between?
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Relevant Ethical Issues
Employment Practices

1. Work conditions and wages in host nations are often inferior to those in
the multinational’s home nation
 These issues extend to sub-contractors as well
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Relevant Ethical Issues
Employment Practices

 Firms should
 establish minimal acceptable standards that safeguard the basic rights and
dignity of employees
 audit foreign subsidiaries and subcontractors regularly to ensure they are
meeting the standards
 take corrective action as necessary
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Relevant Ethical Issues
Environmental Pollution

2. Some parts of the environment are a public good that no one owns, but
anyone can despoil
 What happens when environmental regulations in host nations are far inferior to
those in the home nation?
 Is it permissible for multinationals to pollute in developing countries simply
because there are no regulations against it?
 legal versus ethical behavior
 The tragedy of the commons occurs when a resource held in common by
all, but owned by no one, is overused by individuals, resulting in its
degradation
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Relevant Ethical Issues
Corruption

3. The U.S. Foreign Corrupt Practices Act (FCPA) outlawed the practice
of paying bribes to foreign government officials in order to gain business
 amended to allow for ‘facilitating payments’
 The Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions was adopted by the Organization
for Economic Cooperation and Development (OECD)
 obliges member states to make the bribery of foreign public officials a
criminal offense
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Relevant Ethical Issues
Corruption

 But, is it permissible for multinationals to pay government officials

facilitating payments if doing so creates local income and jobs?
 is it ok to do a little evil in order to do a greater good?
 does grease money actually improve efficiency and help growth?
 More on this later
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Relevant Ethical Issues
Human Rights

4. Basic human rights taken for granted in developed countries:

 freedom of association
 freedom of speech
 freedom of assembly
 freedom of movement
 The previous ethical issues considered generally result in disadvantage for
individual people in one way or another
 Question: What are the responsibilities of firms in countries where basic
human rights are not respected?
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Relevant Ethical Issues
Human Rights

 Question: Is it ethical for companies to do business with countries with

repressive regimes?
 Myanmar (Unocal’s pipeline issue)
 Nigeria (No protection for toxic waste removal workers)
 Question: Does multinational investment actually help bring change to
these countries and ultimately improve the rights of citizens?
 China
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Relevant Ethical Issues
Moral Obligations

5. Social responsibility refers to the idea that managers should consider the
social consequences of economic actions when making business
decisions
 there should be a presumption in favor of decisions that have both good
economic and good social consequences
 it is the right way for a business to behave
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Relevant Ethical Issues
Moral Obligations

 Advocates argue that businesses need to recognize their noblesse oblige -

honorable and benevolent behavior that is the responsibility of successful
companies
 give something back to societies making their success possible
 But, are multinationals morally required to use their power to enhance local
welfare?
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Ethical Dilemmas

 Ethical dilemmas - situations in which none of the available alternatives LO5-2

seems ethically acceptable
 real-world decisions are complex, difficult to frame, and involve
consequences that are difficult to quantify
 the ethical obligations of an MNE toward employment conditions, human
rights, corruption, environmental pollution, and the use of power are not
always clear cut
 the right course of action is not always clear
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Why People Behave Unethically

 Ethics behavior is complex because it is impacted by many factors LO5-3

contributing to unethical behavior including:

1. Personal ethics
2. Societal culture
3. Leadership
4. Organization culture
5. Decision-making processes
6. Unrealistic performance expectations

McGraw-Hill Education
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Why People Behave Unethically
Personal Ethics

1. Personal ethics - the generally accepted principles of right and wrong

governing the conduct of individuals
 expatriates may face pressure to violate their personal ethics because they are
away from their ordinary social context and supporting culture
 managers fail to question whether a decision or action is ethical, and instead
rely on economic analysis when making decisions
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Why People Behave Unethically
2 Societal Culture

2. Societal culture – firms headquartered in cultures where individualism

and uncertainty avoidance are strong are more likely to stress ethical
behavior than firms headquartered in cultures where masculinity and power
distance rank high
 These cultures have fundamentally different values regarding:
 Treatment of women and children
 Expectations regarding the use of power
 Freedom of religion
 Communitarianism
 These values impact what is thought to be ethical in that society
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Why People Behave Unethically
Leadership

3. Leadership - helps establish the culture of an organization, and set the

examples that others follow
 If leaders act unethically subordinates may also act unethically
 Leadership has the ability to change the tone of ethics for:
 Organizational culture, decision-making, performance expectations
 But it does require the leaders to have a sense of ethics
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Why People Behave Unethically
Organization Culture

4. Organization culture - organization culture can legitimize unethical

behavior or reinforce the need for ethical behavior
 Different from societal culture
 Discourse within a firm can create an atmosphere for dysfunctional ethical
behavior
 This is why proper dialogue must always be maintained and
 Inappropriate dialogue must be dealt with
 We see this idea societally right now regarding workplace sexual harassment
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Why People Behave Unethically
Decision-making Processes

5. Decision-making processes - the values and norms that are shared among
employees of an organization
 an organization culture that does not emphasize a proper business culture
encourages unethical behavior
 Use mentoring, training programs, posters, etc.
 Segmented decision-making disconnects decisions from people
 When people can’t see the big picture, they don’t always connect decisions to
impacts and consequences
 Make sure decision-makers have the full context
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Why People Behave Unethically
Unrealistic expectations

6. Unrealistic performance expectations - encourage managers to cut

corners or act in an unethical manner
 This is one of the greatest contributors to ethical problems
 It motivates people to focus on the goal, not the ethics
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Philosophical Ethics Approaches

There are several different approaches to business ethics LO5-4

 Straw men approaches deny the value of business ethics or apply the
concept in an unsatisfactory way
 Philosophical theories are favored by moral philosophers and are the
basis for current models of ethical behavior
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Philosophical Ethics Approaches Straw
Men

There are four common straw men approaches:

1. Friedman doctrine - the only social responsibility of business is to
increase profits, so long as the company stays within the rules of law
2. Cultural relativism - ethics are culturally determined and firms should
adopt the ethics of the cultures in which they operate
 “when in Rome, do as the Romans do”
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Philosophical Ethics Approaches Straw
Men

There are four common straw men approaches:

3. Righteous moralist - a multinational’s home country standards of ethics
should be followed in foreign countries
4. Naïve immoralist - if a manager of a multinational sees that firms from
other nations are not following ethical norms in a host nation, that
manager should not either
All these approaches offer inappropriate guidelines for ethical decision
making
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Philosophical Ethics Approaches
Utilitarian

 Utilitarian ethics - (David Hume, Jeremy Bentham, John Stuart Mill) -

the moral worth of actions or practices is determined by their
consequences
 actions are desirable if they lead to the best possible balance of good
consequences over bad consequences
 but, difficult to measure the benefits, costs, and risks of an action
 Also fails to consider justice
 Also violates a basic tenet of ethical behavior
 The ends NEVER justify the means. The means always stand alone
 This is part of the Kantian philosophy
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Philosophical Ethics Approaches
Kantian

 Kantian ethics - (Immanuel Kant) - people should be treated as ends and

never purely as means to the ends of others
 people have dignity and need to be respected
 people are not machines
 the criticism here is it doesn’t recognize emotion or sentiment
 but problems that cause such situations should be dealt with directly, not masked by
emotion or sentiment
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Philosophical Ethics Approaches
Rights Theories

 Rights theories - human beings have fundamental rights and privileges

which transcend national boundaries and cultures
 establish a minimum level of morally acceptable behavior
 the Universal Declaration of Human Rights - basic principles to be adhered to
irrespective of the culture in which one is doing business
 a problem with rights is that it implies obligations, & while this declaration declares
obligations, it only has 1 article out of 30 dedicated to that. As such rights theories may
have problems as well
 Moral theorists argue that fundamental human rights form the basis for
the moral compass that managers should navigate by when making
decisions which have an ethical component
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Philosophical Ethics Approaches
Justice Theories

 Justice theories focus on the attainment of a just distribution of economic

goods and services
 a just distribution is one that is considered fair and equitable
 John Rawls argued that 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, i.e., total objectivity
 everyone receives maximum freedom consistent with others’ freedom
 the least-advantage person is advantaged by any action
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Required for next class

 Hill edition 11, Chapter 5, Ethics, Corporate Social Responsibility, and

Sustainability
 Core material, critical reading for comprehension
 Read through end of chapter

 Case Study: HCL Technologies (A)

 Next page for instructions on this case
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HCL Technologies (A)

 This case is a capstone case study. It will include questions of:

 Government policy
 Core competency
 International strategy
 Market Entry
 Alliances
 Organizational design
 Culture
 And finally a unique look at ethics
 Not outward ethics, but inward ethics