International Business Homework : Country Analysis Report

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Global Business Today 9e

by Charles W.L. Hill

and Tomas Hult

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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Chapter 5

Ethics, Corporate

Social Responsibility,

and Sustainability

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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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Introduction

Ethics - accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or 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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Internet Extra: Consumers International {http://www.consumersinternational.org/}is an organization dedicated to protecting the rights of consumers worldwide. In doing so, it promotes ethical behavior on the part of companies.

Go to the site and click on one of the organization’s current efforts. What are the issues that are being raised?

How do they affect companies? Do you agree with the organization’s position? Why or why not?

Ethical Issues in IB

The most common ethical issues in business involve:

Employment practices

Human rights

Environmental pollution

Corruption

Moral obligations

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Employment Practices

Question: When work conditions in a host

nations are clearly inferior to those in a multinational’s home nation, what standards should be applied?

Answer:

The standards of the home nation?

The standards of the host nation?

Something in between?

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Management Focus: Making Apple’s iPOD

Summary

This feature explores Apple’s experiences with employment practices at the Chinese factory that produces its iPOD. In 2006, two Chinese journalists reported that the working conditions at Hongfujin Precision Industries where Apple’s iPODs are produced, were substandard. According to the report, not only were workers at the plant poorly paid, but they were also forced to work overtime. Apple immediately responded to the allegations and audited the factory in question. However, managers at the factory filed a defamation lawsuit against the two journalists. Despite the fact that Apple’s audit did indeed show substandard working conditions at the factory, Hongfujin did not withdraw the lawsuit. Eventually the Reporters Without Borders group took up the case for the two reporters and the lawsuit was dropped.

Suggested Discussion Questions

1. Why did Unocal’s investment become so controversial? Did Unocal behave in an ethical manner?

Discussion Points: Unocal made its investment in Myanmar just as many other companies were leaving the country in protest of the nation’s brutal military dictatorship. The company had formed an agreement with the government that involved clearing a path for a new pipeline. The investment became controversial when, in order to fulfill the agreement, Myanmar’s army forcibly moved villagers and then forced them to work under slave-like conditions. Unocal claims it had no knowledge of what was occurring, but this claim was rejected by a judge who heard the case that was filed against Unocal on behalf of Myanmar villagers. Students will probably agree that the company failed to act in an ethical manner, and that while it may not have directly participated in the brutality, Unocal did have a responsibility to oversee what was going on and ensure that people were treated fairly.

2. A 1996 law suit against Unocal was dismissed on the grounds that the Unocal could not be held liable for the actions of a foreign government against its own people, although the judge noted that the company was aware of what was going on in the country. Discuss the difference between acting in an ethical manner and acting according to the law.

Discussion Points: Students will probably be familiar with the notion that even if something is not explicitly forbidden, it does not mean it is right. This concept would certainly seem to apply in this case. Ethical responsibility goes beyond the letter of the law to encompass the idea of behaving in a certain way simply because it is the right thing to do. It is worth noting that an appeal by the plaintiffs resulted in an out-of-court settlement in 2005, which would imply that Unocal was guilty at least to some extent.

Teaching Tip: Unocal is now part of Chevron. The company’s web page is {http://www.chevron.com/}.

Lecture Note: To extend this discussion, consider {http://news.bbc.co.uk/2/hi/europe/8600278.stm}.

Corruption

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

Answer:

The Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes to foreign government officials in order to gain business

The OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions obliges member states to make the bribery of foreign public officials a criminal offense

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Corruption (continued from Slide 5-9)

Some argue that paying bribes might be the price of doing a greater good

Where preexisting political structures distort or limit the workings of the market mechanism, corruption -marketeering, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments - may actually enhance welfare

Others argue that corruption reduces the returns on business investment and leads to low economic growth

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Ethical Dilemmas

Managers often face situations where the appropriate course of action is not clear

Ethical dilemmas - situations in which none of the available alternatives seems ethically acceptable

Exist because real world decisions are complex, difficult to frame, and involve various consequences that are difficult to quantify

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The Roots of Unethical Behavior

Question: Why do managers behave in an unethical manner?

Answer:

Managerial behavior is influenced by:

Personal ethics

Decision making processes

Organizational culture

Unrealistic performance expectations

Leadership

Societal culture

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The Roots of Unethical Behavior (continued from Slide 5-12)

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Determinants of Ethical Behavior

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Personal Ethics

Business ethics reflect personal ethics

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

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Personal ethics refer to the generally accepted principles of right and wrong governing the conduct of individuals.

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Decision Making Processes

Studies show that business people may behave unethically because they fail to ask the relevant question—is this decision or action ethical?

Decisions are made based on economic logic, without consideration for ethics

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Organizational Culture

Unethical behavior may exist in firms with an organization culture (the values and norms that are shared among employees of an organization) that does not emphasize business ethics

Values and norms shape the culture of a firm, and that culture influences decision making

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Unrealistic Performance Expectations

Pressure from the parent company to meet performance goals that are unrealistic, and can only be attained by cutting corners or acting in an unethical manner can cause unethical behavior

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Leadership

If a firms leaders fail to act in an ethical manner, other employees may not act ethically

Actions speak louder than words

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Societal Culture

Ethical policies differ by country

MNEs located in countries where individualism and uncertainty avoidance are strong are more likely to emphasize ethical behavior

MNEs located in countries with high masculinity and high power distance are less likely to promote ethical behavior

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Philosophical Approaches

Approaches to business ethics include:

Straw men

The Friedman doctrine

Cultural relativism

The righteous moralist

The naïve immoralist

Utilitarian and Kantian

Rights theories

Justice Theories

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Straw Men

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 do only what is mandated by law and what is required to run a business efficiently

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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Straw men approaches are raised by business ethics scholars primarily for the purpose of demonstrating that they offer inappropriate guidelines for ethical decision making in a multinational enterprise.

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Straw Men (continued from Slide 5-21)

Naïve Immoralist - if a manager of an MNE 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

Righteous Moralist – an MNE’s home country standards of ethics are the appropriate ones for companies to follow in foreign countries

Approach is common among managers from developed countries

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Utilitarian and Kantian Ethics

Utilitarian approach - 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

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Utilitarian and Kantian Ethics (continued from Slide 5-23)

Kantian ethics - based on the philosophy of Immanuel Kant who argued that 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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Rights Theories

Rights theories - human beings have fundamental rights and privileges that transcend national boundaries and culture

Form the basis for the moral compass that managers should navigate by when making decisions that have an ethical component

The idea that some fundamental rights transcend national borders and cultures was the underlying motivation for the UN’s Universal Declaration of Human Rights

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The UN’s Universal Declaration of Human Rights specifies the basic principles that should always be adhered to irrespective of the culture in which one is doing business.

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Justice Theories

Justice theories focus on the attainment of a just distribution (one that is considered fair and equitable) of economic goods and services

John Rawls - 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

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Justice Theories (continued from Slide 5-26)

Question: What system would people design under a veil of ignorance?

Answer:

A system where people would agree that each person is permitted the maximum amount of basic liberty compatible with a similar liberty for others

Once equal basic liberty is assured, inequality in basic social goods are to be allowed only if they benefit everyone

The difference principle suggests that inequalities are justified if they benefit the position of the least advantaged person

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Implications for Managers

To ensure that ethical issues are considered in business decisions, managers should:

Favor hiring and promoting people with a well grounded sense of personal ethics

Build an organizational culture that places a high value on ethical behavior

Put decision making processes in place that require people to consider the ethical dimension of business decisions

Institute ethical officers in the organization

Develop moral courage

Make corporate social responsibility a cornerstone of the enterprise policy

Pursue strategies that are sustainable

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Hiring and Promotion

Businesses should strive to identify and hire people with a strong sense of personal ethics

Prospective employees should find out as much as they can about the ethical climate in an organization

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Org Culture and Leadership

Businesses need to build an organization culture that places a high value on ethical behavior

The business must explicitly articulate values that place a strong emphasis on ethical behavior

Code of ethics - a formal statement of the ethical priorities a business adheres to

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Leaders in the business should give life and meaning to the code of ethics by repeatedly emphasizing their importance, and then acting on them.

The business should put in place a system of incentives and rewards that recognize people who engage in ethical behavior and sanction those who do not.

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Decision-Making Processes

If a manager can answer “yes” to the following questions, the decision is ethically acceptable

Does my decision fall within the accepted values of standards that typically apply in the organizational environment?

Am I willing to see the decision communicated to all stakeholders affected by it?

Would the people with whom I have significant personal relationships approve of the decision?

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A moral compass can help determine whether a decision is ethical.

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Decision-Making Processes (continued from Slide 5-31)

A five-step process can also help managers think through ethical issues

1. How would a decision affect stakeholders

Internal stakeholders - people who work for or who own the business such as employees, the board of directors, and stockholders

External stakeholders - the individuals or groups who have some claim on a firm such as customers, suppliers, and unions

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Stakeholders refer to the individuals or groups who have an interest, stake, or claim in the actions and overall performance of a company.

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Decision-Making Processes (continued from Slide 5-32)

2. Determine if a proposed decision violates the fundamental rights of any stakeholders

3. Establish moral intent

4. Engage in ethical behavior

5. Audit decisions - reviewing them to make sure that they were consistent with ethical principles

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Moral intent refers to the business must resolve to place moral concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or key moral principles have been violated.

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Ethics Officers

To encourage ethical behavior in a business, a number of firms now have ethics officers

Ethics officers ensure that:

Employees are trained to be ethically aware

Ethical considerations enter decision-making

The company’s code of ethics is followed

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Moral Courage

Employees in an international business may need significant moral courage

Managers need to be able to walk away from decisions that are profitable, but unethical

Employees need to be able to say no to actions that are unethical

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Corporate Social Responsibility

Question: Do MNEs have a responsibility to give back to societies that enable them to grow and prosper?

Answer:

Corporate social responsibility - the idea that business people should take the social consequences of economic actions into account when making business decisions

There should be a presumption in favor of decisions that have both good economic and good social consequences

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Sustainability

Sustainable strategies – strategies that not only help the MNC make good profits, but that also do so without harming the environment while simultaneously ensuring that the company operates in a socially responsible manner with regard to its stakeholders

Sustainable strategies can be good for shareholders, the environment, local communities, employees, and customers

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Management Focus: Corporate Social Responsibility at Stora Enso

Summary

This feature explores Stora Enso’s sustainability strategy. Stora Enso, a Finnish pulp and paper manufacturer, has made sustainability a central focus for the organization. The company clearly outlines on its website and company reports its commitment to ensuring that it acts in a socially responsible, environmentally friendly way. All decisions at Stora Enso are guided by this commitment.

1. Why is a sustainable strategy so important to Stora Enso? What message does its publically stated commitment to sustainability send? Consider your response from the perspective of various stakeholders including investors and local communities.

Discussion Points: Stora Enso has clearly and publically stated its policy toward sustainability and reinforces this commitment by defining how it measures success in achieving a sustainable strategy. Most students will probably suggest that by being so open about how decisions are made at the company, Stora Enso is not only demonstrating its true dedication to sustainability, it is also letting shareholders and communities know what to expect. Students may note for example, that investors should recognize that Stora Enso may not always choose the lowest cost approach to doing business because doing so could compromise its commitment to preserving the environment. Similarly, communities may be more welcoming to the company because its policies on how it will operate are clearly stated, and emphasize good corporate citizenship.

2. As an employee of Stora Enso, what does its commitment to a sustainable strategy mean to you? How does Stora Enso’s strategy affect its position in the global marketplace?

Discussion Points: Many students will probably agree that Stora Enso’s commitment to a sustainable strategy indicates that the company will not knowingly pursue strategies that could negatively impact its employees. As such, it is likely to attract well-qualified employees and create a loyal workforce. Students will probably recognize that a strong workforce will be beneficial in the global marketplace, as will Stora Enso’s environmentally friendly approach to doing business. Some students may also point out that as more local governments signal their commitment to protecting the environment through policy decisions, companies like Stora Enso stand to benefit.

Teaching Tip: To learn more about Stora Enso go to {http://www.storaenso.com/}.

Lecture Note: To extend this discussion, consider {http://www.businessweek.com/articles/2013-12-12/corporate-social-responsibility-reports-in-china-progress-or-greenwashing}.

Summary

In this chapter we have:

Explored the ethical issues faced by international businesses.

Recognized what is an ethical dilemma.

Identified the causes of unethical behavior by managers.

Described the different philosophical approaches to ethics.

Explained how managers can incorporate ethical considerations into their decision making.

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Management Focus: Sustainability at Umicore

Summary

Umicore, a Belgian materials technology company, has been described as being the most sustainable multinational company on the planet. Umicore has achieved this distinction by clearly making sustainability a central focus across all areas of its business.

1. How can strategy at Umicore best be described – as a zero sum game or a positive-sum game? Support your answer.

Discussion Points: Most students will probably suggest that Umicore is pursuing a strategy that can best be described as a positive-sum game. Umicore is committed to ensuring it is generating strong returns for its shareholders while at the same time protecting the environment and being a good corporate citizen. Umicore also emphasizes employee safety and employee development.

2. Reflect on strategy at Umicore. Consider why Umicore has chosen to pursue a sustainability strategy and why other companies in the industry may not share its passion for doing what’s good for the planet. In your opinion, should all companies be required to take an approach similar to the one that Umicore has chosen? What is the ethical responsibility of companies?

Discussion Points: This question should generate considerable discussion among students. Students may wonder why, given that companies like Umicore have successfully found a way to pursue a sustainable strategy, other companies either have not been able to follow a similar model or have chosen not to. Some students may attribute the difference to leadership. Students taking this perspective may note for example that at Umicore, the commitment to a sustainable strategy clearly comes from the top and is then diffused throughout the organization. Other students may comment on pressure from investors that may push companies into decisions that generate greater profits, but may not be beneficial for the environment.

Teaching Tip: To learn more about Umicore, go to { http://www.umicore.com/en/}.