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International Ethics

CHAPTER FOUR

INTERNATIONAL

BUSINESS

The Challenges of Globalization

Canadian Edition

Wild • Wild • Valladares Montemayor

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Explain ethics, ethical behaviour, ethical dilemmas, and codes of ethics.
Understand the different philosophies of ethics and how international business managers apply them to their decision making processes.
Explain corporate social responsibility, understand the concept of sustainability and sustainable practices, and provide examples of international businesses that apply these concepts.
Understand the principles of responsible investment.

Chapter Objectives

In this chapter, you will explore political and legal systems around the world.

You will also:

Learn how companies monitor and manage political risks.
Acquaint yourself with ethics and social responsibility issues in a global context.
Explore how relations among countries affects international business.

Ethics, Ethical Behaviour, and Ethical Dilemmas

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Photo: Gerry Taft, Mount Royal University

On this street in Bangkok, Thailand you could buy any “knocked – off” item imaginable. The policeman was looking to buy counterfeit DVD’s as opposed to enforcing any laws

Ethics is the moral obligation to separate right from wrong.

Ethical behaviour is personal behaviour in accordance with guidelines for good

conduct or morality.

Ethics is the moral obligation to separate right from wrong. Ethics can also be defined as the set of moral principles or values that defines right or wrong for a person or group. Ethics seeks to resolve questions dealing with human morality. Acts can be legal or illegal. While illegal acts should not be difficult to resolve through law enforcement, legal acts can sometimes present ethical challenges, meaning that an act can be legal but unethical.

Ethical Dilemmas

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Ethical dilemmas are situations where moral imperatives are in conflict; there is no right or wrong decision.

Photo: Gerry Taft, Mount Royal University

Russian Border Patrol

Ethics is the moral obligation to separate right from wrong.

• Ethical behaviour is personal behaviour in accordance with guidelines for good conduct or morality.

• Ethical dilemmas are situations where moral imperatives are in conflict; there is no right or wrong decision.

• The best advice for companies wanting to reduce ethical dilemmas is to start by selecting and hiring ethical employees. Companies should also establish codes of ethics, train their employees to make ethical decisions, and create an ethical climate.

• A code of ethics is a set of guidelines established by an organization to help their employees or members behave in accordance with the organization’s values and ethical standards.

• Companies include statements related to expected behaviour and values that are considered acceptable in their codes of ethics. Including statements prohibiting certain behaviours is recommended.

Some Guidelines and Questions to Help Resolve an Ethical Dilemma

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Is the proposed action legal?

Is the decision a fair and

balanced one?

Does the situation justify

the action?

How will this decision make

me feel about myself?

How would I feel if my decision were to be published in the newspaper? Or if my family found out about it?

Photo: Gerry Taft, Mount Royal University

This very curious dog in Siberia is spared most of the ethical dilemma’s we humans face.

There is no clear formula or model to resolve an ethical dilemma, but the following are some guidelines and questions to ask before making a decision.

● Is the proposed action legal?

● Is the decision a fair and balanced one? Consider this question not only in terms of the individual involved but also for all other stakeholders, both in the short and the long term.

● Does the situation justify the action?

● How will this decision make me feel about myself?

● How would I feel if my decision were to be published in the newspaper? Or if my family found out about it?

Philosophies of Business Ethics

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Friedman view

maximize profits

Cultural relativist view adopt local ethics

Righteous moralist view home-country ethics

Utilitarian view

maximize “good” outcomes and minimize “bad” outcomes

Photo: Gerry Taft, Mount Royal University

How could each of the views of Business Ethics be used to discuss the construction of new nuclear plants, such as this one in China?

PHILOSOPHIES OF ETHICS

There are four commonly cited philosophies of business ethics: the Friedman view, the cultural relativist view, the righteous moralist view, and the utilitarian view.

The Friedman view —named for its main supporter, the late economist Milton Friedman—says that a company’s sole responsibility is to maximize profits for its owners (or shareholders) while operating within the law.

The cultural relativist view says that a company should adopt local ethics wherever it operates because all belief systems are determined within a cultural context. Cultural relativism sees truth, itself, as relative and argues that right and wrong are determined within a specific situation.

The expression “When in Rome, do as the Romans do” captures the essence of cultural relativism

The righteous moralist view says that a company should maintain its home-country ethics wherever it operates because the home-country’s view of ethics and responsibility is superior to others’ views

The utilitarian view says that a company should behave in a way that maximizes “good” outcomes and minimizes “bad” outcomes wherever it operates. The utilitarian manager asks the question, “What outcome should I aim for?” and answers, “That which produces the best outcome

for all affected parties.” In other words, utilitarian thinkers say the right behaviour is that which produces the greatest good for the greatest number.

Discussion Question

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You are the manager of an oil and gas company that is considering drilling in a wildlife preserve abroad.

You decide to go ahead with the project because the economic benefits of job creation outweigh the costs of environmental degradation.

Which philosophy are you using to justify your decision?

Photo: Gerry Taft, Mount Royal University

Q: You are the manager of an oil and gas company that is considering drilling in a wildlife preserve abroad. You decide to go ahead with the project because the economic benefits of job creation outweigh the costs of environmental degradation. Which philosophy are you using to justify your decision?

Answer to Discussion Question

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The Friedman says that a

company’s sole

responsibility is to

maximize

profits for its owners

(or shareholders)

while operating within the

law.

The utilitarian view says that a company should behave in a way that maximizes “good” outcomes and minimizes “bad” outcomes wherever it operates. Utilitarian thinkers say the right behaviour is that which produces the greatest good for the greatest number.

Photo: Gerry Taft, Mount Royal University

The Friedman view —named for its main supporter, the late economist Milton Friedman— says that a company’s sole

responsibility is to maximize profits for its owners (or shareholders) while operating within the law.

Possibly The utilitarian view says that a company should behave in a way that maximizes “good” outcomes and minimizes “bad” outcomes wherever it operates. The utilitarian manager asks the question, “What outcome should I aim for?” and answers, “That which produces the best outcome

for all affected parties.” In other words, utilitarian thinkers say the right behaviour is that which produces the greatest good for the greatest number.

Think – Pair - Share

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Photos: Gerry Taft, Mount Royal University

Does compliance with lax environmental regulations give companies the right to pollute the air and water, even if it shortens peoples lives?

In Naushki, Russia a large percentage of residents die before the age of 45.

Slide 7 is the first “Think-Pair-Share” in this chapter. These slides are intended to stimulate discussion between students. The activity requires students to consider the question individually, and then share their thoughts with one classmate or a small group. The goals of these slides are to 1) improve students’ conceptual understanding of the material, 2) hone critical thinking skills, and 3) improve problem solving.

In Naushki, Russia a large percentage of residents die before the age of 45. Does compliance with lax environmental regulations give companies the right to pollute the air and water, even if it shortens peoples’ lives?

The Friedman view would say that a company’s sole responsibility is to maximize profits for its owners (or shareholders) while operating within the law, and so this issue is of no relevance to the company.

Utilitarian thinkers say the right behaviour is that which produces the greatest good for the greatest number and as such this is a concern for the company

Corporate Social Responsibility and CSR Issues

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Practice of companies going beyond legal obligations to actively balance commitments to investors, customers,

other companies, and communities

An “automatic” recycling vending machine in Berlin, Germany. You put your cans in the machine, and it gives you an instant refund.

Photo: Gerry Taft, Mount Royal University

In addition to the need for individual managers to behave ethically, businesses are expected to exercise corporate social responsibility (CSR) —the practice of companies going beyond legal obligations to actively balance commitments to investors, customers, other companies, and communities.

Corporate social responsibility includes a wide variety of activities, including giving to the poor, building schools in developing countries, and protecting the global environment.

Bribery and Corruption

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Bribes can mean the difference between obtaining an important contract and being completely shut out of a market.

Corruption is detrimental to

society and business, it can send resources toward inefficient uses, hurt economic development, distort public policy, and damage national integrity

Photo Gerry Taft, Mount Royal University

In Mexico, fishing guides need to pay for a license to take customers. Some guides complain that a “mordita” (bribe) to government officials is necessary to get a license.

In certain countries, bribes are routinely paid to distributors and retailers to push a firm’s products through distribution channels. Bribes can mean the difference between obtaining an important contract and being completely shut out of a market. But corruption is detrimental to society and business. Among other things, corruption can send resources toward inefficient uses, hurt economic development, distort public policy, and damage national integrity

Labour Conditions and Human Rights

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Companies are monitoring the actions of their own employees

and

the employees of companies with whom they conduct business.

Photo: Gerry Taft, Mount Royal University

Assume this business - currently on fire – in Pattaya Thailand, was producing goods for a Canadian company.

Under what circumstances could the Canadian company be criticised by human rights activists?

To fulfill their responsibilities to society, companies are monitoring the actions of their own employees and the employees of companies with whom they conduct business. Pressure from human rights activists drove conscientious apparel companies to introduce codes of conduct and monitoring mechanisms for their international suppliers

Fair Trade Practices

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Fair Trade Practices Seek:

greater equity in international trade

and

sustainable development

Second Cup coffees are primarily sourced from the Rainforest Alliance.

Farm workers on Rainforest Alliance certified farms benefit from safe working conditions, enjoy dignified housing and medical care, and have access to schools for their children.

A trading partnership, based on dialogue, transparency, and respect, that seeks greater equity in international trade and contributes to sustainable

development by offering better trading conditions to, and securing the rights of, marginalized producers and workers.

Second Cup ( www.mysecondcup.com ), headquartered in Mississauga, Ontario, with over 430 cafés in 18 countries, works hard to operate in a socially responsible manner by incorporating fair trade into its business practices. 13 The specialty coffee and café franchisor is a leader in the ethical sourcing of its supplies. Its coffees are primarily sourced from the Rainforest Alliance ( www.rainforest-alliance.org ), an international nonprofit organization that works to conserve biodiversity and promote the rights and well-being of workers, their families, and communities.

Farm workers on Rainforest Alliance certified farms benefit from safe working conditions, enjoy dignified housing and medical care, and have access to schools for their children.

Sustainability

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Comprised of three main pillars;

economic

development,

social equity,

and

environmental protection.

Photo: Gerry Taft, Mount Royal University

Sustainable seafood purchasing practices imply that the seafood caught or farmed will be maintained at healthy population levels, without harming international ecosystems. Do you think this trawler in Chon Buri, Thailand is following sustainable practices?

Concern for the environment and ecosystems is no longer left to government agencies and nongovernmental organizations. Today companies pursue “green” initiatives to reduce their toll on the environment and to reduce operating costs and boost profit margins.

Sustainable Development is development that meets the needs of the present without compromising the economy or the social and natural

environments for future generations.

Carbon Footprint

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The environmental impact of

greenhouse gases that results from

human activity.

Photo: Rolf Haid/Newscom

A man uses an electric cable to plug in a hybrid Toyota Prius at a charging station in Strasbourg, France. Besides car manufacturers, can you think of other types of companies that are working to become more environmentally responsible?

Carbon footprint is the environmental impact of greenhouse gases

(measured in units of carbon dioxide) that results from human activity. It consists of two components:

● Primary Footprint. Direct carbon dioxide emissions from the burning of fossil fuels, including

domestic energy consumption and transportation (such as electricity and gasoline).

● Secondary Footprint. Indirect carbon dioxide emissions from the whole life cycle of products

(from their manufacture to eventual breakdown).

Carbon Footprint

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Source: The Four Seasons

Employees of Four Seasons in Nevis planting trees as part of the 10 Million Trees program.

Trees play a vital role in the overall health of the planet, with deforestation causing an increase in the amount of carbon dioxide released into the atmosphere.

In 2011 the Four Seasons launched the 10 Million Trees program, committing the company to plant 10 million trees around the world. Already Four Seasons’ 35 000 employees worldwide are hard at work to meet this goal. Trees play a vital role in the overall health of the planet, with deforestation causing an increase in the amount of carbon dioxide released intothe atmosphere. Carbon dioxide emissions are linked to many environmental problems from global warming to severe changes in rainfall patterns and water levels. Planting trees will help offset these emissions, because trees store large amounts of carbon dioxide.

Discussion Question

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What is sustainability ?

Photo: Gerry Taft, Mount Royal University

Trash on the beach in Manila, The Philippines

What is sustainability ?

Answer to Discussion Question

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Development that meets the needs of the present without compromising the economy or the social and natural environments for future generations.

Photo: Gerry Taft, Mount Royal University

Lake Baikal, Siberia

Development that meets the needs of the present without compromising the

economy or the social and natural environments for future generations.

The Principles of Responsible Investment

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Principles created to protect the world’s assets by applying social

responsibility to investments.

Photo: Gerry Taft, Mount Royal University

Victory Park in Berlin is a stunning example of natural beauty and environmental stewardship.

The Principles of Responsible Investment (PRI) , a set of socially responsible investment

principles created in 2006, is another instrument to encourage companies to behave ethically.

The main objectives of the PRI are to protect the world’s assets by applying social responsibility

to investments and to assist investors to achieve better long-term investments and create sustainable

markets.

The Six Principles of Responsible Investment

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Principle 1: We will incorporate ESG issues into investment analysis and decisionmaking processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

Principle 6: We will each report on our activities and progress towards implementing the Principles.

There are six principles, each defining specific actions. They were designed to be applied by all investors, with a special focus on fiduciary institutions with long-term perspectives. The six principles are:

Principle 1: We will incorporate ESG issues into investment analysis and decisionmaking processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

Principle 6: We will each report on our activities and progress towards implementing the Principles.

Bottom Line for Business

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What Ethics Philosophy Should

a Company Use?

Photo: Gerry Taft, Mount Royal University

Don’t get “gored” by making unethical decisions!

What Ethics Philosophy Should a Company Use?

Canadian companies operating abroad need to be aware of the ethics philosophy normally applied in the country where they want to conduct business. However, a company should not blindly follow the behaviour of other companies in that country without understanding the consequences. If a business person from a Canadian company is caught bribing a public official abroad, he or she can be prosecuted in Canada. Bribery is a criminal offence in Canada, and Canadians (and Canadian companies) are subject to Canadian law.

Bottom Line for Business

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Implications of Ethical Issues for Companies

Companies need to

train their managers and employees in ethical decision making to prepare them for the ethical dilemmas they will face in new circumstances.

Photo: Gerry Taft, Mount Royal University

Las Vegas, testing ethics and morals for generations!

Probably every international company of at least moderate size has a policy for corporate social responsibility (CSR). Bribery and corruption are major issues for businesses in the international arena. According to the Corruption Perception Index, Canada is perceived as one of the least corrupt countries in the world. Canadian businesses planning to invest or establish operations abroad will most likely have to deal with higher levels of corruption almost anywhere they decide to go

Bottom Line for Business

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Implications of the Principles of Responsible Investment for Companies

Investors will increasing require the company to disclose its commitment

to environmental, social, and governance (ESG) issues

Photo: Gerry Taft, Mount Royal University

This “three season” scooter in Paris, France, offers urban transportation with a smaller environmental footprint than a car.

The Principles of Responsible Investment (PRI) have been in operation for seven years. There are currently over 1200 signatories from 50 countries, with total assets under management in excess of $32 trillion Implications of the Principles of Responsible Investment for Companies

If a company is looking for an investor to expand its operations globally, investors will increasing require the company to disclose its commitment

to environmental, social, and governance (ESG) issues

Think - Pair - Share

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“A company’s sole responsibility is to maximize profits for

its owners while operating within the law.” Discuss the benefits and drawbacks of applying this philosophy.

(Opposing arguments should focus on CSR and sustainability.)

Photo: Gerry Taft, Mount Royal University

A “silent spring” where human activity has caused severe damage

“A company’s sole responsibility is to maximize profits for its owners while operating within the law.” Do you agree with this statement? Why or why not? Hold a debate in class on the benefits and drawbacks of applying this philosophy. Opposing arguments should focus on CSR and sustainability

Slide 20 is the second “Think-Pair-Share” in this chapter. These slides are intended to stimulate discussion between students. The activity requires students to consider the question individually, and then share their thoughts with one classmate or a small group. The goals of these slides are to 1) improve students’ conceptual understanding of the material, 2) hone critical thinking skills, and 3) improve problem solving.

This is another question relating to the Friedman view of ethics, however this time the class can incorporate the concept and tests of Corporate Social Responsibility and the Principles of Responsible Investment.

Thanking You for Your Ethical Behaviour

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Photo: Gerry Taft, Mount Royal University

A sign in a public washroom in China