NOTES TOPIC 4 IB

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Lecture 4

Ethics in

International Business


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What is Ethics?

Ethicsrefers to 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 are the accepted principles of right

or wrong governing the conduct of business people

Ethical strategy is a strategy, or course of action, thatdoes not violate these accepted principles

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Which Ethical Issues are Most

Relevant to International Firms?

The most common ethical issues in businessinvolve

1. employment practices2. human rights

3. environmental regulations

4. corruption5. the moral obligation of multinational

companies


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How Are Ethics Relevant

To Employment Practices?

Suppose work conditions in a host nation are

clearly inferior to those in the multinationals

home nation

Which standards should apply?

home country standards

host country standards

something in between

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How are Ethics Relevant

to Human Rights?

Basic human rights are taken for granted in

developed countries

freedom of association

freedom of speechfreedom of assembly

freedom of movement

What are the responsibilities of firms incountries where basic human rights are notrespected?

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to Environmental Regulations?Question: Is it permissible for multinationals topollute in developing countries simply becausethere are no regulations against it?

Answer:

Some parts of the environment are a public goodthat no one owns, but anyone can despoil

When environmental regulations in host nationsare far inferior to those in the home nation, ethical

issues arise The tragedy of the commons occurs when a

resource held in common by all, but owned by noone, is overused by individuals, resulting in itsdegradation


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to Corruption?Question: Is it ethical to make payments togovernment officials to secure business?

Answer:

The U.S. Foreign Corrupt Practices Actoutlawed thepractice of paying bribes to foreign governmentofficials in order to gain business

The Convention on Combating Bribery of ForeignPublic Officials in International Business

Transactions adopted by the Organization forEconomic Cooperation and Development (OECD),obliges member states to make the bribery of foreignpublic officials a criminal offense


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Next

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Corruption

Some economists suggest that the practice ofgiving bribes might be the price that must be paid

to do a greater good

In countries where preexisting political structures

distort or limit the workings of the market mechanism,

corruption in the form of black-marketeering,

smuggling, and side payments to government

bureaucrats to speed up approval for business

investments may actually enhance welfare

However, other economists have argued that

corruption reduces the returns on business

investment and leads to low economic growth


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to Moral Obligations? Social responsibility refers to the idea that managers

should consider the social consequences of economicactions when making business decisions, and that thereshould 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

Advocates argue that businesses need to recognize theirnoblesse oblige - honorable and benevolent behavior thatis the responsibility of successful companies

give something back to the societies that have made their successpossible

But, are multinationals morally required to use theirpower to enhance local welfare?


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What are Ethical Dilemmas?

Ethical dilemmas are situations in which none

of the available alternatives seems ethically

acceptable

The ethical obligations of a multinational

corporation toward employment conditions,

human rights, corruption, environmental

pollution, and the use of power are not alwaysclear cut

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Why do Managers Behave

Unethically?

Several factors contribute to unethical behaviorincluding:

1. Personal ethics - the generally accepted principles ofright 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

they are psychologically and geographically distant

from the parent company

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 do Managers

Behave Unethically?

2. Decision Making Processes - the values and

norms that are shared among employees of an

organization

Studies show that business people may behaveunethically because they fail to ask the relevant

questionis this decision or action ethical?

decisions are made based on economic logic, without

consideration for ethics

Organization culturethat does not emphasizebusiness culture encourages unethical behavior


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Why do Managers

Behave Unethically?

3. Organizational culture - organizational culturecan legitimize unethical behavior or reinforcethe need for ethical behavior

4. Unrealistic performance expectations -encourage managers to cut corners or act in anunethical manner

5. Leadership - helps establish the culture of an

organization, and set the examples that othersfollow

when leaders act unethically, subordinates may actunethically, too


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Why do Managers

Behave Unethically?

Determinants of Ethical Behavior


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What are the Philosophical

Approaches to Ethics?

There are several different approaches to

business ethics

Straw men approaches deny the value ofbusiness ethics or apply the concept in an

unsatisfactory way

Others approaches are favored by moralphilosophers and are the basis for current

models of ethical behavior


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Philosophical Approaches to

Ethics

There are several approaches to business

ethics including

Straw men

the Friedman doctrine

cultural relativism

the righteous moralist

the nave immoralist

Utilitarian and Kantian

Rights theories

Justice Theories


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What are the Philosophical

Approaches to Ethics?

There are several different approaches to

business ethics

Straw men approaches deny the value ofbusiness ethics or apply the concept in an

unsatisfactory way

Others approaches are favored by moralphilosophers and are the basis for current

models of ethical behavior


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The Straw Men Approaches

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

companies should not undertake expendituresbeyond those mandated by law and those

required for the efficient running of a business

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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The Straw Men Approaches

3. Righteous moralist- a multinationals home country

standards of ethics should be followed in foreign

countries

approach is common among managers from developed countries

4. Nave 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

actions are ethically justified if everyone else is doing the same

thing

All approaches offer inappropriate guidelines for

ethical decision making

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Utilitarian and Kantian

Approaches Utilitarian ethics - 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

Problems with this approach

it is difficult to measure the benefits, costs, and risks of an

action

the approach fails to consider justice

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, they are not

machines


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What are Rights Theories?

Rights theories- human beings have fundamentalrights and privileges which transcend nationalboundaries and culturesestablish a minimum level of morally acceptable

behavior the Universal Declaration of Human Rights specifiesthe basic principles that should always be adhered toirrespective of the culture in which one is doingbusiness

Moral theorists argue that fundamental humanrights form the basis for the moral compass thatmanagers should navigate by when makingdecisions which have an ethical component


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What are Justice Theories?

Justice theories focus on the attainment of a justdistribution of economic goods and services

a just distribution is one that is considered fair andequitable

John Rawls argued that all economic goods andservices should be distributed equally exceptwhen an unequal distribution would work toeveryones advantage

impartiality is guaranteed by the veil of ignorance-everyone is imagined to be ignorant of all his or herparticular characteristics

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NOTES TOPIC 4 IB