CHAPTER 4

MANAGING
ETHICAL
AND
SOCIAL
RESPONSIBILITY
CHANGES
IN
MULTINATIONAL
COMPANIES
 INTRODUCTION

• Multinational managers face

complex ethical issues
• With an understanding of key
ethical problems in multinational
management, managers can make
more informed ethical judgments
 BUSINESS ETHICS

• Ethics - the rules and values that

determine what goals and actions
people follow when dealing with
other human beings
• Business ethics: all business
decisions with ethical
consequences
 INTERNATIONAL
BUSINESS ETHICS

• The unique ethical problems

faced by managers conducting
business operations across
national boundaries
 SOCIAL
RESPONSIBILITY

• The responsibility businesses have

to society beyond making profits
• Often reflects the ethical values
and decisions of the top
management team
• Ethics and social responsibility-
not easily distinguished in practice
 Excepts from Exhibit 4.1
show examples of
ethical/social responsibility
issues faced by MNCs
 Stakeholder Ethical/Social Example Problem For the
Affected Responsibility MNC
Issue

Should an MNC delete

safety features to make a
Customer Product safety
product more affordable for
people in a poorer nation?

If a product is banned
because it is unsafe in one
Fair return on country, should it be sold in
Stockholders country where it is not
investment
banned to maintain profit
margins?
Should an MNC use child
Employees Child Labor labor if it is legal in the
country of their location?
Should an MNC follow local
Following Local laws that violate home
Host Country
Laws country laws against
discrimination?
Is an MNC obligated to
Protection of
Society in control its hazardous waste
the
General to a degree higher than
Environment
local laws require?
ETHICAL PHILOSOPHY
 TRADITIONAL
VIEWS

• Two basic systems of ethical

reasoning
– Deontological
– Teleological
 DEONTOLOGICAL
THEORIES

• Actions have a good or bad morality

regardless of the outcomes they
produce
 TELEOLOCIAL

• Morality from the consequences

of an act
– utilitarianism
 MORAL LANGUAGES

• Basic ways that people use to

make ethical decisions and
explain ethical choices
– a contemporary view
 SIX BASIC ETHICAL
LANGUAGES

• Virtue and vice

• Self control
• Maximize human welfare
• Avoiding harm
• Rights/duties
• Social contract
 NATIONAL
DIFFERENCES

• National culture and social

institutions affect ethical
behavior/social responsibility
 EX 4.2 INSTITUTIONAL AND CULTURAL
EFFECTS ON BUSINESS ETHICS ISSUES AND
MANAGEMENT
KEY SOCIAL
INSTITUTIONS
Religion
Laws and Legal
System

MANAGEMENT
IMPORTANT ETHICAL PRACTICES TO
ISSUES FOR MONITOR AND
BUSINESS CONTROL ETHICAL
(e.g., equal rights for BEHAVIOR IN
women) ORGANIZATIONS
(e.g., codes of ethics)

CULTURAL
NORMS AND
VALUES
(e.g., norms for
gift giving)
 EX 4.3 ETHICAL
ISSUES IDENTIFIED BY
SENIOR U.S. AND
EUROPEAN MANAGERS

Political and
Local
Involvement
Personnel
Issues

Use of
Information

-100 -50 0 50

Relative Frequency of Concern

0 = mean
 EX 4.4 THE
MANAGEMENT OF
KEY ETHICAL ISSUES

0 = Mean
-15 -10 -5 0 5

Ethical Issues Addressed in Training

Ethical Issues Addressed in Written Policies
 EX 4.5 BELIEFS
REGARDING ETHICAL
CODES
Violate if not Detected

Define Limits

Aid to Refuse

Raise Ethical Level

0 1 2 3 4
5=Agree
French German U.S. 3=Neutral
1=Disagree
 FOREIGN CORRUPT
PRACTICES ACT

• Forbids U.S. companies to make

or offer payments or gifts to
foreign government officials to
get or retain business
– “Reason to know" provision
• See Exhibit 4.7
• FCPA does not prohibit some forms
of payments that may occur in
international business
– payments made under duress to
avoid injury or violence are
acceptable
 EFFECTS OF THE
“ETHICS GAP”

• FCPA and proliferation of ethical

codes in US are creating and ethics
gap
• FCPA blocked some gains in export
market share and FDI
• Pressure on other countries to follow
US rules
 TOWARD
TRANSNATIONAL
ETHICS
 ETHICAL
CONVERGENCE

• In spite of wide differences in

cultures and social institutions,
growing pressures for multinationals
to follow same rules
 PRESSURES FOR
ETHICAL
CONVERGENCE
• Growth of international trade
– creates pressures for
uniformity
• Increased cross national imitation
• Mixed cultural background
employees
 PRESCRIPTIVE
ETHICS FOR THE
MULTINATIONAL
• Donaldson suggests
– guides based on the moral
languages of avoiding harm,
right/duties, and the social
contract
– specified in contracts and
international laws
 INTERNATIONAL
CODES OF CONDUCT

• For moral language to work, there

must be codes of conduct
• Current codes exist based on
codes from international
governing bodies (UN, ILO) and
international agreements (Exhibit
4.8)
 MULTINATIONALS
DO NOT ALWAYS
FOLLOW ETHICAL
AGREEMENTS
• Governments make agreements
• Compliance voluntary
• Not all governments subscribe
• Each guide is an incomplete moral
guide
HOW SHOULD THE
MANAGER DECIDE?
 ETHICAL
RELATIVISM VS
ETHICAL
UNIVERSALISM
• Ethical relativism - each society's
view of ethics considered
legitimate and ethical
• Ethical universalism - basic moral
principles transcend
cultural/national boundaries
 PRACTICAL
PROBLEMS OF
FOLLOWING
EITHER

• Convenient relativism - companies

use ethical relativism to behave
any way they please
• Cultural imperialism with ethical
universalism
 BALANCING THE
NEEDS OF THE
COMPANY WITH
ETHICAL
CONSEQUENCES

• Managers must weigh and balance

the economic, legal, and ethical
consequences of their decisions
 FORMS OF ANALYSES

• Economic
• Legal
• Ethical
 IS THE BEHAVIOR OR ITS CONSEQUENCE:
Violates Host
or Home
Country
Yes STOP!
Laws?
Legal
No
Analysis
Violates
MNC's Code Yes STOP!
of Conduct?

No

In
Violation of
the Company's
Yes STOP!
Ethical Code?
Organizational
Ethical No
Analysis
Consistent
with Company No STOP!
Culture?

Yes
Consistent
Cultural Sensitivity with Local
No STOP!
Ethical Analysis Cultural
Norms?

Yes
Personal Ethical Analysis
Consistent
Do It! Yes with Personal No STOP!
Moral Beliefs?
 CONCLUSIONS

• Multinational managers face ethical

challenges magnified by the
international context
• Need to understand home ethical
codes and impact on ethics of foreign
culture/social institutions