ETHICS IN

INTERNATIONAL
BUSINESS

LECTURE 5
Ethics, Law, and Corporate Governance
MGMT 566
Ethical Challenges in International
Business
• When different cultures meet, different moral frameworks
interact
– Gift giving in Japan
– Child labour in Pakistan
– Facilitation payments in the Congo
– Gender issues in the Persian Gulf

• The business person must discriminate between

competing values
International Business and Cultural Differences
• Communication
• Language
• Directness, Perspicuity
• Indirect, Euphemism
• Non-Verbal Communication, Handshaking, Kissing on the cheek

• Workplace Etiquette
• Formality of address
• Punctuality
• Working hours and commitment

• Organizational Hierarchy
• Speaking up in meetings
• Questioning senior decisions
• Expressing difference of opinion
• https://www.ctbusinesstravel.co.uk/news/blog/business-etiquette-around-t
he-world/
Jihad vs. McWorld
• Theory of Benjamin R Barber
• Jihad
• Increasing retribalization of large sections of the world

• McWorld
• Increasing cultural and even moral homogenization of the world
through the forces of globalization
• Internet, Television, Music
• McDonalds, Starbucks, Walmart, Mercedes Benz

• Divergence and Convergence

The Lexus and the Olive Tree
• Thomas Freidman

• The Lexus
• The power of our technological future and the drive for
modernization

• The Olive Tree

• The importance of our sense of identity, geography, ethnicity and
the past

• Great tension exists between these two forces

• Both forces must be acknowledged and respected in order

for the world and business to move forward successfully
Progress vs. Tradition

• Progress
• Technology
• Economic wealth and prosperity
• Globalization; internet, media, advertising, trade

• Tradition
• Cultural
• Religious
• Linguistic
Ethical Relativism Revisited

• Ethical Relativism
• No culture’s ethics are better than any other culture’s; thus there
are no international rights and wrongs.
• “When in Rome…”
• If an activity is considered acceptable with the culture in which it is
undertaken, it is acceptable regardless of its ethical implications in
any other culture.
Ethical Absolutism Revisited

• Ethical Absolutism
– There is a single set of truths that can be expressed with one set of
concepts
– Calls for exactly the same ethical behaviour around the world
– Clashes with the belief that different cultures and cultural traditions
must be respected
– Disregards differences in conceptual development across cultures;
rights, individualism, loyalty, etc.
– Disregards “context” in defining ethical solutions
Uniform Guiding Principles?
• Three principles guiding corporate ethical behaviour
internationally;

• Respect for core human values, which determine the

absolute moral threshold for all business activity
• The right to good health
• The right to strive for economic advancement and improved
standard of living
• The “Golden Rule”- recognized in all world religions

• Respect for local traditions

• The belief that context matters when deciding what is right

and what is wrong
Uniform Guiding Principles? (cont’d)
• Dalai Lama
– Compassion
– Empathy
– Consistent with “the golden rule”

• The United Nations

– Universal Declaration of Human Rights
• Best case scenario
• No country has achieved compliance
• Utopian view – set the bar high!
https://www.youtube.com/watch?v=5RR4VXNX3jA
https://www.youthforhumanrights.org/what-are-human-rights/universal-dec
laration-of-human-rights/articles-1-15.html
https://www.youthforhumanrights.org/what-are-human-rights/universal-dec
laration-of-human-rights/articles-16-30.html
Resolving Cross-Cultural Ethical Conflicts

• U.S. approach
– Transform ethics into laws

• Global approach
– OECD views corruption in developing countries to be
particularly harmful to their prospects for economic growth
– Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions
– Caux Round Table and the Conference Board standards
for global business ethics and social responsibility
Resolving Cross-Cultural Ethical Conflicts

• Develop and Implement Codes of Ethics

• Codify behavior that is unacceptable under certain conditions

• Reduce ambiguity by specifying appropriate behavior

https://i-sight.com/resources/18-of-the-best-code-of-conduct-exampl
es/
The Foreign Corrupt Practices Act
• The Foreign Corrupt Practices Act was originally designed to
address the controversy surrounding payments by US
corporations to foreign officials for the purposes of securing
business abroad.

• Arguments in Favour
• The FCPA ensures ethical behaviour of US companies abroad.
• The FCPA removes ambiguity in decision-making where bribes or
facilitation payments may be required.
• Arguments Against
• Puts American business at a disadvantage.
• Domestically, FCPA adversely affects balance of payments,
employment, shareholder value.
• Disrespects cultural differences.
Donaldson’s Guidelines for Ethical Leadership in
International Business

• Treat corporate values and formal standards of conduct as

absolutes.
• Motorola in South America – walk away from bribery.
• Design and implement conditions of engagement for suppliers
and customers.
• Nike and their outsourced production facilities
• Allow foreign business units to help formulate ethical standards
and interpret ethical issues.
• Make use of local knowledge
• In host countries, support efforts to decrease institutional
corruption.
• Consistency and reputation
• Exercise moral imagination.
What is Moral Imagination?
• Finding solutions that accommodate host country and
home country ethical standards.

• Child labour in Pakistan

• Pay families to keep children in school
• Guaranteed employment at 14

• Community works in Vietnam

• Maintain local pay scales
• Give to community; hospitals, daycare, schools, etc.
Ethical Issues in International Business: Theft
and Corruption

• Theft of intellectual property

• China – piracy of software, cds and dvds

• Bribery and corruption

• The Lockheed scandal and the Foreign Corrupt Practices Act

• Intentionally selling dangerous products

• Drug testing and drug trials in Africa
• The Nestle baby formula scandal

• Intentional misrepresentation in negotiations

• Hidden costs, requests for facilitation payments, bait and switch
etc.
Ethical Issues in International Business: Political
Issues

• Sanctions
• South Africa, Iran, Iraq, Cuba, Burma (Myanmar)
• Who is really hurt by sanctions, corrupt governments or innocent
citizens?

• Profiting from war

• Selling weapons to both sides

• Doing business with evil regimes

• Selling to Saddam
• Should corporations sell to governments that are corrupt? That violate
Human Rights? That actively pollute?
• What about doing business with companies domiciled within an “evil”
regime
Ethical Issues in International Business: Local
Labour Issues

• Child labour
• Pakistan and child labour under 14 years of age
• At what age is it acceptable for a child to begin working?

• Low wages
• Community contributions
• Are local wages subsistence or above?

• Sweatshops
• Sweatshop? or local working conditions?

• Human rights
• Beware of local punishments (Saudi Arabia) – theft and execution
Ethical Issues in International Business:
Expatriate Labour Issues

• Sending employees to dangerous places

• Cost/benefit – informing employees of the dangers
• Is the risk of losing the employee worth the benefits to
be gained?
• Is the employee fully aware of the risks and willing to
accept them?

• The in-country vs out-country hiring decision

• What are the relative merits of hiring local managers vs
importing managers from the company’s home country?
Ethical Issues in International Business:
Environmental Issues
• Introduction of technology
• Union Carbide in Bhopal
• Are local skill levels high enough to ensure safe use of
technology and appropriate protection of the citizenry and the
environment?

• Environmental pollution
• Disposal of hazardous material
• pcp’s in Nigeria, asbestos in the Ukraine
• Whose standards should be applied?
• Home country standards (developed industrialized country)
• Developing country standards (often no policy infrastructure)
Ethical Issues in International Business: Other

• Gender Issues
• Gender roles
• Interactions with the opposite gender

• Social Customs
• Awareness of religious traditions
• Awareness of appropriate (and inappropriate) gestures or
behaviours
• HSBC
• Clash of cultures – “the football and the Saudi flag”

• Animal rights
• Attitudes differ among societies
Ethics as a Competitive Advantage in Global
Business
• Ethical capability related to perceiving
interdependence, thinking ethically, responding
effectively

• Trust as a value among multinational

corporations

• Globalization contributes to;

• Greater awareness of corporate reputation
• Increased consistency of corporate reputation
Toward a Model for International Business Ethics

Asgary and Mitschow (2002)

• Trust • Respect human rights and

• Fairness freedoms
• Do not cheat • Provide equal opportunity
• Honesty
• Uphold your company’s
integrity
• Full financial disclosure
• Respect all persons equally
• Responsibility for dealings
• Uphold environmental laws
• Respect national and standards
sovereignty • Be fair and do not
• Support host country discriminate
economic goals • Honor contracts and agreets