Business
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Chapter5-EthicsCorporateSocialResponsibilityandSustainability.pptxGlobal Business Today 10e
by Charles W.L. Hill
and G. Tomas M. Hult
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Lecture Script 6-1
National Differences
Chapter 5: Ethics, Corporate Social Responsibility, and Sustainability
Source: © Ozdel/Anadolu Agency/Getty Images
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2
Main Learning Objectives
Disciplinary:
Identify how ethical differences, can and do influence, positively or negatively, how you can business abroad
Essential:
Explain the implications, as international business managers, of how you could leverage the ethical behaviors to benefit your globalization initiative
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Learning Objectives
LO 5-1 Understand the ethical issues faced by international businesses.
LO 5-2 Recognize an ethical dilemma.
LO 5-3 Identify the causes of unethical behavior by managers.
LO 5-4 Describe the different philosophical approaches to ethics.
LO 5-5 Explain how managers can incorporate ethical considerations into their decision making.
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Divide into Teams
Get to know your Company & Country of choice even more!
Research the company’s policy regarding:
Bribes, equality, inclusivity, sustainability, and SCR
How can you become change-agents to improve ethical behavior, SCR, and sustainability?
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Opening Case: UNCTAD Sustainable Development Goals
United Nations Conference on Trade and Development established in 1964
Ensuring countries’ domestic policies and international actions are mutually supportive to sustainable development
September 2015: many countries adopted 17 “sustainable development goals”
An opportunity to bring together countries, companies, and societies of all levels in an effort to improve lives everywhere
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The 17 SDGs include: (1) no poverty, (2) zero hunger, (3) good health and well-being, (4) quality education, (5) gender equality, (6) clean water and sanitation, (7) affordable and clean energy, (8) decent work and economic growth, (9) industry, innovation and infrastructure, (10) reduced inequalities, (11) sustainable cities and communities, (12) responsible consumption and production, (13) climate action, (14) life below water, (15) life on land, (16) peace, justice and strong institutions, and (17) partnerships for the goals.
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Lecture Script 6-6
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 businesspeople
Ethical strategy - a strategy, or course of action, that does not violate these accepted principles
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Lecture Script 6-7
Ethics, corporate social responsibility, and sustainability are intertwined issues facing countries, companies, and societies. These "social" issues arise frequently in international business, often because business practices and regulations differ from nation to nation.
Ethical Issues at VW
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Ethics and International Business 1 of 4
The most common ethical issues in business involve
Employment practices
Human rights
Environmental pollution
Corruption
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LO 5-1 Understand the ethical issues faced by international businesses.
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Lecture Script 6-9
Ethics and International Business 2 of 4
Employment Practices
What practices should be used when work conditions are inferior in the host nation?
Human Rights
What is the responsibility of a foreign multinational when operating in a country where basic human rights are not respected?
South Africa and apartheid
The Sullivan principles adopted by GM
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Lecture Script 6-10
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. Should Apple be responsible for ensuring that its suppliers are safeguarding the basic rights and dignity of their employees? How can Apple be sure that its suppliers do not employ sweatshop labor?
Discussion Points: Many students will probably agree that Apple should be responsible at least to some degree for ensuring that the factories where it sources its products are safe. Some students may suggest that to knowingly buy products from a company with substandard working conditions is a violation of basic human ethics. Other students however, may argue that Nike cannot force suppliers to adopt specific practices and policies toward labor. Students taking this perspective might further suggest that pushing American practices on Chinese companies is ethnocentric, and that for many Chinese the prospect of having a job, even in poor working conditions, is better than having no job at all. Many students may be surprised that Apple did not already have an audit policy in place prior to the accusations by the Chinese reporters, but will probably agree that the company handled the situation appropriately.
2. The allegations against Hongfujin Precision Industries were made by two Chinese reporters. Discuss the implications of this for other Chinese companies.
Discussion Points: Most students will probably agree that the fact that the allegations against Hongfujin Precision Industries were made by Chinese reporters who work for China Business News, a state run newspaper, could have interesting implications for other companies. Some students will probably suggest that it should serve as a signal to other companies that poor working conditions are unacceptable, and that while in the past, it may have been possible to hide them, it is no longer the case. Other students may suggest that the allegations may force companies to rethink their production and look for new ways to increase productivity. Some students may note that the very fact that the report was published is startling in some regards, and that companies should anticipate further scrutiny.
Lecture Note: Apple maintains that it requires its suppliers to practice responsible manufacturing. To learn more about Apple’s policies go to {http://www.apple.com/environment/}.
Lecture Note: To extend this case, consider exploring Apple’s recent troubles with allegations of sweatshop conditions in supplier factories that have prompted worker suicide. Go to {http://www.businessweek.com/news/2010-06-02/apple-is-all-over-foxconn-after-suicides-ceo-steve-jobs-says.html} and {http://www.businessweek.com/news/2010-05-26/apple-hp-dell-begin-probing-supplier-after-suicides-update2-.html} for more details.
Lecture Note: To explore Apple’s recent issues with suppliers, consider {http://www.businessweek.com/articles/2014-09-18/some-apple-suppliers-get-cut-off-must-scramble-for-new-business}.
Ethics and International Business 3 of 4
Environmental Pollution
Should a multinational feel free to pollute in a developing nation if doing so does not violate laws?
Tragedy of the commons
Is it ethical to make payments to government officials to secure business?
Foreign Corrupt Practices Act
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
Facilitating payments/speed money excluded
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Lecture Script 6-11
The atmosphere and oceans can be viewed as a global commons from which everyone benefits but for which no one is specifically responsible. In such cases, a phenomenon known as the tragedy of the commons becomes applicable. 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.
Corporations can contribute to the global tragedy of the commons by moving production to locations where they are free to pump pollutants into the atmosphere or dump them in oceans or rivers, thereby harming these valuable global commons.
The Lockheed case was the impetus for the 1977 passage of the Foreign Corrupt Practices Act (FCPA) in the United States, discussed in Chapter 2. The act outlawed the paying of bribes to foreign government officials to gain business.
In 1997, the trade and finance ministers from the member states of the Organisation for Economic Co-operation and Development (OECD) followed the U.S. lead and adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.11 The convention, which went into force in 1999, obliges member states and other signatories to make the bribery of foreign public officials a criminal offense. The convention excludes facilitating payments made to expedite routine government action from the convention.
Ethics and International Business 4 of 4
Corruption continued
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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Lecture Script 6-12
Should the United States have Jurisdiction over Foreign Firms?
The Foreign Corrupt Practices Act (FCPA) is not just imposed on U.S. companies with operations globally. It also has jurisdiction over foreigners operating in the country. Settling a FCPA investigation, Siemens—Europe’s largest engineering company and the largest electronics company in the world—was fined $800 million by the U.S. Department of Justice and the U.S. Securities and Exchange Commission. Together with various penalties imposed in Germany, Siemens’ home country, the penalties total $1.6 billion. The settlement involved at least 4,200 allegedly corrupt payments totaling some $1.4 billion over six years to foreign officials in numerous countries. Meetings, negotiations, and bank account transfers were taking place in the United States between Siemens and officials from other countries. Is it appropriate that the U.S. government can use the FCPA to investigate and fine foreign companies doing business in other countries?
Sources: U.S. Department of Justice, www.justice.gov; “Siemens: A Giant Awakens,” The Economist, September 10, 2010; J. Ewing, “Siemens Settlement: Relief, But Is It Over?” BusinessWeek, December 15, 2008.
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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
The NEED for a moral compass
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LO 5-2 Recognize an ethical dilemma.
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Child Labor
Child labor is still common in many poor nations.
Source: © Ata Mohammad Adnan/Moment/Getty Images
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Is this an example of an unethical organizational culture?
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The Roots of Unethical Behavior 1 of 4
Managerial behavior is influenced by:
Personal ethics
Decision making processes
Organizational culture
Unrealistic performance goals
Leadership
Societal culture
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LO 5-3 Identify the causes of unethical behavior by managers.
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Lecture Script 6-17
Figure 5.1 Determinants of Ethical Behavior
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The Roots of Unethical Behavior 2 of 4
Personal Ethics
Business ethics reflect personal ethics
Expatriates may face pressure to violate their personal ethics
They are away from their ordinary social context and supporting culture
They are psychologically and geographically distant from the parent company
Decision-Making Processes
Businesspeople may behave unethically because they fail to ask the relevant questions
Decisions made based on economic logic
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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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The Roots of Unethical Behavior 3 of 4
Organizational Culture
Unethical behavior may exist in firms with an organizational culture that does not emphasize business ethics
Values and norms shape the culture of a firm, and that culture influences decision making
Unrealistic Performance Goals
Pressure from parent company to meet goals that are unrealistic and can only be attained by acting in an unethical manner
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The Roots of Unethical Behavior 4 of 4
Leadership
Employees often take cues from business leaders
Actions speak louder than words
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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Lecture Script 6-21
Hofstede - Cultural Dimensions Comparison
5-
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Philosophical Approaches to Ethics 1 of 7
Straw men
The Friedman doctrine
Cultural relativism
The righteous moralist
The naïve immoralist
Utilitarian and Kantian Ethics
Rights theories
Justice Theories
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LO 5-4 Describe the different philosophical approaches to ethics.
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Are Human Rights a Moral Compass?
The Universal Declaration of Human Rights (UDHR) was adopted by the United Nations General Assembly on December 10, 1948, in Paris, France. The Preamble of UDHR starts by stating that “Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world . . . .” The day on which UDHR was adopted, December 10, is known as “International Human Rights Day,” and this day is also the one on which the Nobel Peace Prize is awarded annually. One human right that we discuss in the text is the right to free speech; by the same token, we have an obligation to respect free speech. But are there issues, situations, or reasons where free speech should not be granted?
Sources: “The Universal Declaration of Human Rights,” United Nations, www.un. org/en/documents/udhr; the official site of the Nobel Prize, www.nobelprize.org.
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Philosophical Approaches to Ethics 2 of 7
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.
Critics charge that Friedman’s arguments break down under examination. This is particularly true in international business, where the “rules of the game” are not well established and differ from country to county.
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Philosophical Approaches to Ethics 3 of 7
Straw Men continued
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
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
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Philosophical Approaches to Ethics 4 of 7
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
Kantian ethics – Immanuel Kant argued that people should be treated as ends and never purely as means to the end of others
People have dignity and need to be respected, they are not machines
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The utilitarian philosophy does have some serious drawbacks as an approach to business ethics. One problem is measuring the benefits, costs, and risks of a course of action. The second problem with utilitarianism is that the philosophy omits the consideration of justice.
Although contemporary moral philosophers tend to view Kant’s ethical philosophy as incomplete—for example, his system has no place for moral emotions or sentiments such as sympathy or caring—the notion that people should be respected and treated with dignity resonates in the modern world.
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Philosophical Approaches to Ethics 5 of 7
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.
It is important to note that along with rights come obligations. Because we have the right to free speech, we are also obligated to make sure that we respect the free speech of others
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Philosophical Approaches to Ethics 6 of 7
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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Philosophical Approaches to Ethics 7 of 7
Justice theories continued
Under Raul’s veil of ignorance would be a system where people would agree that each person is permitted the maximum of basic liberty compatible with similar liberty for others
Once equal 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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The first principle is that each person be permitted the maximum amount of basic liberty compatible with a similar liberty for others. Rawls takes these to be political liberty (e.g., the right to vote), freedom of speech and assembly, liberty of conscience and freedom of thought, the freedom and right to hold personal property, and freedom from arbitrary arrest and seizure.
The second principle is that once equal basic liberty is ensured, inequality in basic social goods—such as income and wealth distribution, and opportunities—is to be allowed only if such inequalities benefit everyone. Rawls accepts that inequalities can be just if the system that produces inequalities is to the advantage of everyone.
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Focus on Managerial Implications 1 of 8
Making Ethical Decisions Internationally
Actions managers can take to ensure ethics are considered
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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Focus on Managerial Implications 2 of 8
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
Organizational Culture and Leadership
Articulate values that emphasize ethical behavior, repeatedly emphasize their importance, provide incentives and rewards
Code of ethics
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a code of ethics, which is a formal statement of the ethical priorities a business adheres to
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How Can Managers Make Ethical Decisions in the country of your choice?
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LO 5-5: Explain how managers can incorporate ethical considerations into their decision-making.
Focus on Managerial Implications 3 of 8
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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Focus on Managerial Implications 4 of 8
Decision-Making Processes continued
A five-step process can also help managers think through ethical issues
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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A moral compass can help determine whether a decision is ethical.
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Focus on Managerial Implications 5 of 8
Decision-Making Processes continued
Determine if a proposed decision violates the fundamental rights of any stakeholders
Establish moral intent
Engage in ethical behavior
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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Focus on Managerial Implications 6 of 8
Ethics Officers…?
To encourage ethical behavior in a business, a number of firms now have ethics officers
Ethics officers ensure
Employees are trained to be ethically aware
Ethical considerations enter decision-making
The company’s code of ethics is followed
Moral courage
Managers must be able to walk away from decisions that are profitable but unethical
Will you be able to do this…?
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Focus on Managerial Implications 7 of 8
Corporate social responsibility
There should be a presumption in favor of decisions that have both good economic and good social consequences
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Focus on Managerial Implications 8 of 8
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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Lecture Script 6-39
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}.
C.S.R. (Do Well while doing Good)
5-40
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5-41
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Lecture Script 6-41
Did You Know?
Did you know corporate social responsibility is not as new as it seems?
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Is Sustainability Bad for Profits?
Most customers prefer that the companies they buy products and services from engage in business-focused sustainability practices. Eighty-three percent of the respondents in the Public Opinion Survey on Sustainability said that they think companies should try to accomplish their performance goals while also trying to improve society and the environment. At the same time, multinational firms are overwhelmed about the varied stakeholder needs they face. And, the Global Reporting Initiative, with its some 80 equally important sustainability indicators, is not giving companies a clear set of sustainability proprieties. Meanwhile, sustainability executives in companies have not exactly been elevated to the importance levels of other top managers. If you had to pay more for a product, like gasoline for your automobile, how much more would you be willing to pay to buy from a highly rated sustainability-oriented company —5 percent, 10 percent, 25 percent, 40 percent?
Sources: Epstein-Reeves, J., “The Pain of Sustainability,” Forbes, January 18, 2012; “Consumers Expect Action from Companies on Sustainability,” Second Annual Public Opinion Survey on Sustainability, http://dowelldogood.net; Global Reporting Initiative.www.globalreporting.org.
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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/}.
