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Chapter5EthicsCorporateSocialResponsibilityandSustainability.pptx

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Global Business Today 11e by Charles W.L. Hill and G. Tomas M. Hult

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Part 2: National Differences

Chapter 5: Ethics, Corporate Social Responsibility, and Sustainability

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Learning Objectives

5-1 Understand the ethical, corporate social responsibility, and sustainability issues faced by international business.

5-2 Recognize an ethical, corporate social responsibility, and/or sustainability dilemma.

5-3 Identify the causes of unethical behavior by managers as they relate to business, corporate social responsibility, or sustainability.

5-4 Describe the different philosophical approaches to business ethics that apply globally.

5-5 Explain how global managers can incorporate ethical considerations into their decision making in general and for corporate social responsibility and sustainability initiatives.

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Opening Case: Sustainability Initiatives at Natura, The Body Shop, and AESOP

Corporate Knights research company ranks world’s most sustainable companies using 17 key measures

Natura & Co, based in Brazil, has used sustainable development as its guiding principle since its founding

The Body Shop, based in the U.K., has been a leader in banning animal testing of cosmetic products worldwide

Aesop, based in Australia, became first publicly traded company to be a “Certified B Corporation”

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A Certified B Corporation is a company that focuses on two specific sustainability issues. First, it has reached a threshold standard for its impact on society and the environment. Second, the company must have committed to consider the impact of its business decisions on its wider stakeholders, not just its shareholders. Currently, only 2,200 B Corps exist worldwide, and their core sustainability focus is on the interdependence between society, environment, and economy.

Introduction

Ethics – accepted principles of right or wrong that govern conduct of a person, members of a profession, or actions of an organization

Business ethics: accepted principles of right or wrong governing conduct of business people

Ethical strategy: strategy, or course of action, that does not violate these accepted principles

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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.

Ethics and International Business 1

Most common ethical issues in business involve:

Employment practices

Human rights

Environmental regulations

Corruption

Moral obligations

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LO 5-1 Understand the ethical, corporate social responsibility, and sustainability issues faced by international businesses.

Ethics and International Business 2

Employment Practices

What practices should be used when work conditions are inferior in 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

Sullivan principles adopted by GM

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Sullivan argued that it was ethically justified for GM to operate in South Africa so long as two conditions were fulfilled. First, the company should not obey the apartheid laws in its own South African operations (a form of passive resistance). Second, the company should do everything within its power to promote the abolition of apartheid laws.

Ethics and International Business 3

Environmental Pollution

Should a multinational feel free to pollute in a developing nation if doing so does not violate laws?

Tragedy of the commons

Corruption

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

Foreign Corrupt Practices Act (FCPA)

Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

Facilitating payments, or speed money, excluded

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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 Chapter2. 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 Organization 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. 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

Corruption continued

Some argue paying bribes might be price of doing greater good

When preexisting political structures distort or limit the market mechanism, corruption may enhance welfare

Includes marketeering, smuggling, and side payments to government bureaucrats to “speed up” approval for business investments

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

Many multinationals have adopted a zero-tolerance policy

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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 appropriate course of action is not clear

Ethical dilemmas: situations in which no 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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LO 5-2 Recognize an ethical, corporate social responsibility, and/or sustainability dilemma.

Child Labor

Child labor still exists in some foreign countries.

Source: ©Angela N Perryman/Shutterstock

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Roots of Unethical Behavior 1

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 as they relate to business, corporate social responsibility, or sustainability.

Figure 5.1 Determinants of Ethical Behavior

Access the text alternative for these images.

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Roots of Unethical Behavior 2

Personal Ethics

Business ethics reflect personal ethics

Expatriates may face pressure to violate personal ethics

Away from ordinary social context and supporting culture

Psychologically and geographically distant from parent company

Decision-Making Processes

Business people may behave unethically because they fail to ask 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.

To improve ethical decision making in a multinational firm, the best starting point is to better understand how individuals make decisions that can be considered ethical or unethical in an organizational environment. Two assumptions must be taken into account. First, too often it is assumed that individuals in the workplace make ethical decisions in the same way as they would if they were home. Second, too often it is assumed that people from different cultures make ethical decisions following a similar process.

Both of these assumptions are problematic. First, within an organization, there are very few individuals who have the freedom (e.g., power) to decide ethical issues independent of pressures that may exist in an organizational setting (e.g., should we make a facilitating payment or resort to bribery?). Second, while the process for making an ethical decision may largely be the same in many countries, the relative emphasis on certain issues is unlikely to be the same.

Roots of Unethical Behavior 3

Organizational Culture

Unethical behavior may exist in firms with an organizational culture that does not emphasize business ethics

Values and norms shape 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 term organizational culture refers to the values and norms that are shared among employees of an organization.

Roots of Unethical Behavior 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 with strong individualism and uncertainty avoidance 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 to Ethics 1

Straw Men

The Friedman doctrine states that the social responsibility of business is to increase profits, so long as company stays within 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 ethics of the cultures in which they operate

“When in Rome, do as the Romans do”

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LO 5-4 Describe the different philosophical approaches to business ethics that apply globally.

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.

Philosophical Approaches to Ethics 2

Straw Men continued

Righteous moralist: MNE’s home country standards of ethics are appropriate for companies to follow in foreign countries

Approach is common among managers from developed countries

Critics say it is not always appropriate to adopt home-country standards

Naïve immoralist: if a manager of MNE sees firms from other nations not following ethical norms in 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 3

Utilitarian and Kantian Ethics

Utilitarian approach: moral worth of actions or practices is determined by their consequences

Actions have multiple consequences, some good, some not

Actions are desirable that produce greatest good for greatest number of people

Kantian ethics: Immanuel Kant argued that people should be treated as ends and never purely as means to 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.

Philosophical Approaches to Ethics 4

Rights Theories

Human beings have fundamental rights and privileges that transcend national boundaries and culture

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

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

Certain people or institutions are obligated to provide benefits or services that secure rights of others

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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.

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/universal-declaration-human-rights/index.html; the official site of the Nobel Prize, www.nobelprize.org.

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Philosophical Approaches to Ethics 5

Justice Theories

Focus on 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 unequal distribution would work to everyone’s advantage

Impartiality is guaranteed by veil of ignorance – everyone is imagined to be ignorant of all his or her particular characteristics

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Philosophical Approaches to Ethics 6

Justice Theories continued

Under Rawl’s veil of ignorance, each person is permitted the maximum amount of basic liberty compatible with a similar liberty for others

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

The difference principle suggests that inequalities are justified if they benefit the position of 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.

Focus on Managerial Implications 1

Making Ethical Decisions Internationally

Actions managers can take to ensure ethics are considered:

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

Build organizational culture that places high value on ethical behavior

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

Institute ethical officers in organization

Develop moral courage

Make corporate social responsibility cornerstone of enterprise policy

Pursue sustainable strategies

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LO 5-5 Explain how global managers can incorporate ethical considerations into their decision making in general and for corporate social responsibility and sustainability initiatives.

Focus on Managerial Implications 2

Making Ethical Decisions Internationally continued

Hiring and Promotion

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

Prospective employees should find out about ethical climate in an organization

Organizational Culture and Leadership

Code of ethics

Articulate values that emphasize ethical behavior, repeatedly emphasize their importance, and then act on them

Provide incentives and rewards to those who engage in ethical behavior

A code of ethics is a formal statement of the ethical priorities a business adheres to.

Focus on Managerial Implications 3

Making Ethical Decisions Internationally continued

Decision-Making Processes

If manager answers “yes” to following questions, the decision is ethically acceptable:

Does my decision fall within the accepted values or standards that typically apply in the organizational environment (as articulated in a code of ethics or some other corporate statement)?

Am I willing to see the decision communicated to all stakeholders affected by it—for example, by having it reported in newspapers, on television, or via social media?

Would the people with whom I have a significant personal relationship, such as family members, friends, or even managers in other businesses, approve of the decision?

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

Focus on Managerial Implications 4

Decision-Making Processes continued

Five-step process helps 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, board of directors, and stockholders

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

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

Stakeholder analysis involves a certain amount of what has been called moral imagination. This means standing in the shoes of a stakeholder and asking how a proposed decision might impact that stakeholder. For example, when considering outsourcing to subcontractors, managers might need to ask themselves how it might feel to be working under substandard health conditions for long hours.

Focus on Managerial Implications 5

Decision-Making Processes continued

Judge ethics of proposed strategic decision

Determine if proposed decision violates fundamental rights of any stakeholders

Establish moral intent

Engage in ethical behavior

Audit decisions

Review to make sure they were consistent with ethical principles

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.

Focus on Managerial Implications 6

Ethics officers

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

Act as an internal ombudsperson

Moral courage

Managers must walk away from decisions that are profitable but unethical

Requires moral courage

It is the jobs of the ethics officer to:

Assess needs and risks that ethics program must address

Develop and distribute code of ethics

Conduct training programs

Establish confidential service to address employee questions

Make sure company in compliance with laws

Monitor and audit ethical conduct

Take action on possible violations

Review and update code of ethics periodically

Focus on Managerial Implications 7

Corporate social responsibility (CSR)

Multinationals need to give something back to the societies that enable them to prosper and grow

Businesses should consider social consequences of economic actions

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

Noblesse oblige

Noblesse oblige is a French term that refers to honorable and benevolent behavior considered the responsibility of people of high (noble) birth.

Focus on Managerial Implications 8

Sustainability

Sustainable strategies: strategies that help MNCs make profits without harming environment and while ensuring company operates in a socially responsible manner with regard to its stakeholders

Good for shareholders, environment, local communities, employees, and customers

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; Global Reporting Initiative.www.globalreporting.org.

Summary

In this chapter, we have

Explored ethical, corporate social responsibility, and sustainability issues faced by international businesses.

Recognized ethical, corporate social responsibility, and/or sustainability dilemma.

Identified causes of unethical behavior by managers as they relate to business, corporate social responsibility, or sustainability.

Described different philosophical approaches to business ethics that apply globally.

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

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Figure 5.1 Determinants of Ethical Behavior, Text Alternative

The determinants of ethical behavior are societal culture, decision-making processes, leadership, unrealistic performance goals, organizational culture, and personal ethics.

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