INTERNATIONAL BUSINESS MANAGEMENT TEST [6 HOURS DURATION]

WEEK10SLIDESETHICSANDCSRwithaudio.pptm

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Lecture 10:

Ethics and Corporate Social Responsibilities

MGW2351: International Business

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Learning objectives

Be familiar with the ethical and corporate responsibility issues faced by international businesses.

Recognise an ethical dilemma.

Discuss the causes of unethical behaviour by managers.

Know what managers can do to incorporate ethical considerations into their decision making.

To understand reasons behind variation in CSR practices globally

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Introduction

Ethics refers to accepted principles of right and wrong that govern the conduct of a person, the members of a profession or the actions of an organisation.

Business ethics are the accepted principles of right and wrong governing the conduct of business people.

Ethical strategy is a strategy, or course of action, that does not violate these accepted principles.

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Internet Extra: Consumers International (www.consumersinternational.org) is an organisation dedicated to protecting the rights of consumers worldwide. In doing so, it promotes ethical behaviour on the part of companies.

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

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

Ethical issues in international business

Common ethical issues in international business:

Corruption, employment practices, human rights, environmental regulations and the moral obligations of multinational companies.

Ethical issues in international business are rooted in the fact that political systems, law, economic development and culture vary significantly from nation to nation.

continued

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Ethical issues in IB: Bribery & Corruption

Bribery and corruption have been a problem in almost every society in history, and this remains the case today.

There always have been and always will be corrupt officials.

International businesses can and have gained economic advantages by making payments to those officials.

In the United States, the Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business.

https://www.youtube.com/watch?v=FhLcw8Im8Sk

continued

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Ethical issues in IB: Bribery & corruption

Some economists suggest that the practice of giving bribes might be the price that must be paid to do a greater good.

Other economists have argued that corruption reduces the returns on business investment and leads to low economic growth.

Others suggest that corruption actually ‘speeds up’ approval (i.e., India, Russia) for business investments and may actually enhance welfare.

In many countries, payoffs to government officials in the form of speed money appear to be part of life.

Senior managers of IKEA in Russia had agreed to pay bribes related to power supply to IKEA’s shopping center so as to operate business without interruption.

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Ethical issues in IB: Bribery & corruption

Facilitating payments are distinguished from bribes in that they are not payments businesses make to secure contracts they would not otherwise get or to obtain exclusive preferential treatment.

The Organisation for Economic Cooperation and Development (OECD) adopted a Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1997, which obliges member states to make the bribery of foreign public officials a criminal offence.

While facilitating payments, or speed money, are excluded from both the Foreign Corrupt Practices Act and the OECD convention on bribery, the ethical implications of making such payments are unclear.

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Ethical issues in IB: Employment practices

When work conditions in a host nation are clearly inferior to those in a multinational’s home nation, companies must decide which standards should be applied: those of the home nation, those of the host nation, or something in between.

ABB: standardized policies and practices

Foxconn that serves Apple and other big names – workers committed suicide

https://www.youtube.com/watch?v=aBoFxpM1UY0

http://www.telegraph.co.uk/finance/china-business/7773011/A-look-inside-the-Foxconn-suicide-factory.html

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Ethical issues in IB: Human rights

- Basic human rights taken for granted in the developed world such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and so on, are by no means universally accepted.

Saudi Arabia: Prior to 2012, women were not allowed to work.

2012: Due to lingerie business with male attendants to serve women, women are allowed to work in such stores

Female needs permission from male guardian (husband, father) to work and study;

Driving ban for women means guardians or the female worker’s son has to drive them to work.

Child labor in Bangladesh: Children’s right to receive education differs across countries

family needs money to survive  send kids to work; However, kids don’t have employment rights  girls as young as six were gang-raped; accidents  death.

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Ethical issues in IB: Human rights

- Other forms of human rights: The IKEA case

IKEA in China:

Young people, often with kids in tow, plop on chairs to watch videos on their smart phones. People aren't shy about kicking off their shoes and tucking into display beds for a nap  Policing the freeloaders ??

IKEA in Russia:

In 2013, IKEA has removed an article about female lesbian couple from Russian versions of the IKEA magazine due to fear of a legal backlash since Russia’s law bans promotion of homosexual content.

IKEA in Saudi Arabia:

A standard picture in the magazine that portray the woman

/wife watching her husband attending to a child was

digitally removed  in 2012, Swedish

government criticized IKEA for this

action.

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Ethical issues in IB: Environmental pollution

Issues arise when environmental regulations in host nations are inferior to those in the home nation.

Many developed nations have substantial regulations governing the emission of pollutants, but such regulations are often lacking in developing nations.

Which country’s (host or home) regulations should multinationals follow?

A decade of dumping of hazardous waste in sewage systems by WalMart - $USD 81m fine!

https://www.youtube.com/watch?v=Gy5BJRnD9vk

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Ethical issues in IB: Moral obligations

- Social responsibility refers to the idea that

businesspeople should take the social consequences

of economic actions into account when making

business decisions, and that there should be a

presumption in favour of decisions that have both

good economic and good social consequences.

The right way for business to behave & the responsibility of successful companies.

DiGi: Green practice (e-billing, carbon emission reduction, green building & education

to staff & community).

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Ethical dilemmas

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

The ethical obligations of a multinational corporation towards employment conditions, human rights, child labour, corruption, environmental pollution and the use of power are not always clear-cut.

From an international business perspective, some argue that what is ethical depends upon one’s cultural perspective.

https://www.corporatecomplianceinsights.com/what-would-you-do/

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The Roots of Unethical Behavior

Determinants of Ethical Behavior

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The roots of unethical behaviour

Personal ethics

Business ethics reflect personal ethics (the generally accepted principles of right 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, and they are psychologically and geographically distant from the parent company.

U.S. expatriates often express their dilemma in their job in Malaysia that involves business deals.

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The roots of unethical behaviour

Decision-making processes

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

Business people may apply a straightforward business calculation to what they perceive to be a business decision, forgetting that the decision may also have an important ethical dimension.

The fault lies in processes that do not incorporate ethical considerations into business decision making.

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The roots of unethical behaviour: Decision-making processes

- Processes….

In 2004, many bus accidents by Mitsubishi Fuso prompted police investigation  Its top executives did not disclose info about faulty issues in 1995 (i.e., faulty bus clutches, brakes failed at high speed) of its bus models  They decided no recall for defects & did secret repairs (merely tightened screws) in 1996;

Sales in truck and passenger car segment dropped by 30%.

 President had to go to showrooms to apologize personally to Japanese customers & resigned in 2000 for the cover-ups.

 Executives: arrested in 2004  face 5 years in jail or Yen 500,000 fine (Kyodo News).

http://www.japantimes.co.jp/news/2004/05/21/national/fresh-coverup-scandal-rocks-mitsubishi-fuso/#.VTywtNKqqkp

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The roots of unethical behaviour

Organisation culture

In firms with an organisation culture (the values and norms that are shared among employees of an organisation) that does not emphasise business culture, unethical behaviour may exist.

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 behaviour.

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The roots of unethical behaviour

Corporate governance and leadership

Another root cause of corporate failure is poor corporate governance and unethical behaviour by the leadership.

In Australia, the Australian Securities Exchange has identified eight essential corporate governance principles.

In New Zealand, the Securities Commission has established the ‘Corporate Governance in New Zealand Principles and Guidelines’.

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Management Focus: Pfizer’s Drug-Testing Strategy in Nigeria

Summary

This feature raises questions as to whether pharmaceutical giant, Pfizer, acted ethically when testing a new drug. In 1996, Pfizer was seeking FDA approval for a new antibiotic. The company lacked the necessary test results to have the drug approved for children. The company saw an opportunity to quickly test the drug when an outbreak of bacterial meningitis hit a town in Nigeria. In 2003, two dozen Nigerian families sued Pfizer, arguing that their children either died or were injured as a result of the drug testing. They allege that Pfizer did not take the appropriate steps to properly test the drug and that the company acted in an unethical manner.

Suggested Discussion Questions

1. Was Pfizer irresponsible when it tested its experimental drug in Nigeria? How could the company have acted more ethically?

2. Pfizer saw the bacterial meningitis outbreak in Nigeria as a means of quickly getting a large pool of sick children on whom to test its new antibiotic. Consider the dilemma facing pharmaceutical companies. In order to get FDA approval to introduce their new drugs, numerous studies must demonstrate the efficacy of the drugs, studies that, as the Pfizer example demonstrates, can be difficult to complete. Would you have been tempted to follow Pfizer’s strategy? If you waited, and completed the testing in the United States, what might be the effect on your company’s bottom line? Would you be acting in the best interests of your stakeholders by waiting, or by testing in Nigeria?

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 -A straw man (or strawman) is a form of argument and an informal fallacy based on giving the impression of refuting an opponent's argument

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

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

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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Ethical decision making in international business

Managers should examine the applicable code of ethics, relevant national or international accords and laws.

There are five other things that an international business and its managers can do to make sure ethical issues are considered in business decisions.

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Ethical decision making in international business

These are:

Favour hiring and promoting people with a well-grounded sense of personal ethics.

Build an organisation culture that places a high value on ethical behaviour, and make sure that leaders within the business not only articulate the rhetoric of ethical behaviour but also act in a manner that is consistent with that rhetoric.

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

Hire ethics officers.

Develop moral courage: whistle blower.

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Summary of main themes

We examined the source of ethical issues in international business.

International businesses face a range of ethical issues and dilemmas.

Sometimes there is not an obvious solution.

International managers faced with complex situations need to make the ‘best decision’ with ethical issues in mind.

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Corporate Social Responsibility

Corporate social responsibility (CSR)

Obligation toward society assumed by business.

Triple bottom line

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Corporate Social Responsibility

Economic responsibilities

To produce goods and services that society wants at a price that perpetuates the business and satisfies its obligations to investors.

Legal responsibilities

To obey local, state, federal, and relevant international laws

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Corporate Social Responsibility

Ethical responsibilities

Meeting other social expectations, not written as law.

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Corporate Social Responsibility

Philanthropic responsibilities

Additional behaviors and activities that society finds desirable and that the values of the business support.

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Pyramid of Global Corporate Social Responsibility and Performance

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Corporate Social Responsibility

Why should a firm adopt CSR initiatives?

Institutional perspective

Stakeholder perspective

Strategic management Perspective

Moral intent

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Corporate Social Responsibility

Why should a firm adopt CSR initiatives?

Institutional perspective

-Institutions are divided into formal (written rules) and informal (unwritten rules – normative, cognitive) institutions.

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Corporate Social Responsibility

Why should a firm adopt CSR initiatives?

Institutional perspective

-Formal Rules (coercive pressure from government regulations) will subject firms to adopt CSR –but rules may differ in different countries

Informal Rules (normative pressure – norms, values, industry standards) and (mimetic pressure )

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Corporate Social Responsibility

Why should a firm adopt CSR initiatives?

Institutional perspective

Coercive pressure involves the influence of formal pressures from other organizations such as regulatory agencies.

Mimetic pressure refers to companies’ efforts to imitate successful organizations (internal vs external)

Finally, normative pressure refers to companies’ propensity to adapt to professionalization through training and networks (Haberberg et al., 2007; Kim, 2011)

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Corporate Social Responsibility

Why should a firm adopt CSR initiatives?

Stakeholder perspective

Stakeholder theory (Freeman, 1984) highlights firms’ obligations beyond their economic responsibility to maximize profit (Stout, 2012) and focuses on their key role in society in terms of their responses to the social requirements of various stakeholder groups.

Stakeholder groups include the government, employees, suppliers, consumers, local communities, media, and NGOs (Chiu & Wang, 2015; Freeman, 1984).

This theory emphasizes that companies must account for the interests of internal and external stakeholder groups, in addition to the interests of shareholders, to achieve their business goals.

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Corporate Social Responsibility

Why should a firm adopt CSR initiatives?

Strategic management Perspective(win win)

By taking a strategic approach, companies can determine what activities they have the resources to devote to being socially responsible and can choose that which will strengthen their competitive advantage.

By planning out CSR as part of a company’s over all plan, organizations can ensure that profits and increasing shareholder value don’t overshadow the need to behave ethically to their stakeholders.

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Corporate Social Responsibility

Why should a firm adopt CSR initiatives?

Strategic management Perspective

The Link Between Competitive Advantage and. Corporate Social Responsibility by Michael E. Porter and Mark R. Kramer Harvard Business Review (2006)

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Corporate Social Responsibility

Why is there variation in CSR practices globally among subsidiaries?

Institutional factors

Stakeholder influence

Firm specific factors

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