Lecture 4

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Kwame Nkrumah University of

Science & Technology, Kumasi, Ghana

MCS 271

INTRODUCTION TO INTERNATIONAL BUSINESS

Unit 4
Ethics in International Business

Lecturer: Kwame Ohene Djan (PhD)


Learning Objectives
At the end of this lesson, the student will be able to:

1. Understand the ethical issues faces by


international businesses
2. Recognize an ethical dilemma.
3. Identify the causes of unethical behavior by
managers
4. Explain how managers can incorporate ethical
considerations into their decision making.

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INTRODUCTION
 Understanding the nature of ethical problems, and
deciding what action to pursue when confronted with
one, is a central theme in this unit.
• The term ethics refers to 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 are the accepted principles of right or
wrong governing the conduct of businesspeople,
• and an ethical strategy is a strategy, or course of action,
that does not violate these accepted principles.
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Ethical Issues in Int. Business
• Most ethical issues in IB are rooted in the fact that
political systems, law, economic development, and
culture vary significantly from nation to nation.

• What is considered normal practice in one nation may


be considered unethical in another.

• In the IB setting, the most common ethical issues


involve (i) employment practices, (ii) human rights, (iii)
environmental regulations, (iv) corruption, and (v) the
moral obligation of multinational corporations.
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(i) Employment Practices
• When work conditions in a host nation are clearly inferior
to those in a multinational’s home nation, what standards
should be applied?
• Those of the home nation, those of the host nation, or
something in between?
• 12-hour workdays, extremely low pay, and a failure to
protect workers against toxic chemicals may be common
in some developing nations, does this mean that it is OK
for a multinational to tolerate such working conditions in
its subsidiaries there, or to condone it by using local
subcontractors? E.g. Nike’s sweatshop in Vietnam (1990s)
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(ii) Human rights
• Basic human rights still are not respected in many
nations.
• Rights taken for granted in developed nations, such as
freedom of association, freedom of speech, freedom
of assembly, freedom of movement, freedom from
political repression, and so on, are by no means
universally accepted
 The apartheid system in South Africa which lasted until
1994 led several MNCs to divest their operations from
South Africa. Economic sanctions were also imposed by
gov’ts of the USA and other Western countries to curb it.
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 Also in Nigeria, Royal Dutch Shell was accused (in the
1990s) of using the Nigeria’s Mobile Police Force to attack
demonstrators who were protesting against Foreign oil
companies for polluting their environment with their
activities. Several people got killed in this process.

The general question that remains is…..

What is the responsibility of a foreign multinational when


operating in a country where basic human rights are
trampled on? Should the company be there at all, and if it
is there, what actions should it take to avoid the situation
Shell found itself in?
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(iii) Environmental pollution
Ethical 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, the dumping of
toxic chemicals, the use of toxic materials in the
workplace, and so on.

Those regulations are often lacking in developing


nations and the result can be higher levels of pollution
from the operations of multinationals than would be
allowed at home E.g. Shell’s activities in Nigeria
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iv. Corruption
There always have been and always will be corrupt
government officials. International businesses can and
have gained economic advantages by making payments
to those officials.

A classic example concerns a well-publicized incident in the


1970s. Carl Kotchian, the president of Lockheed, made a $12.5
million payment to Japanese agents and government officials to
secure a large order for Lockheed’s TriStar jet from Nippon Air.

Kotchian clearly engaged in unethical behavior, and to


argue that the payment was an “acceptable form of
doing business in Japan” was self-serving and incorrect.
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Corruption
The US Foreign Corrupt Practices act and the OECD
Convention on bribery both excludes the payment of
facilitation fees or speed monies.

Giving bribes, although a little evil, might be the price


that must be paid to do a greater good

The demand for speed money creates a genuine ethical


dilemma.
Yes, corruption is bad, and yes, it may harm a country’s
economic development, but yes, there are also cases
where side payments to government officials can remove
the bureaucratic barriers to investments that create jobs.
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V. Moral Obligation
MNCs have power that comes from their control over
resources and their ability to move production from
country to country.

Although that power is constrained not only by laws


and regulations, but also by the discipline of the market
and the competitive process, it is substantial.

Some moral philosophers argue that with power comes


the social responsibility for multinationals to give
something back to the societies that enable them to
prosper and grow.
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Moral Obligation
The concept of social responsibility refers to the idea
that businesspeople should consider the social
consequences of economic actions when making
business decisions, and that there should be a
presumption in favor of decisions that have both good
economic and social consequences.

Advocates of this approach argue that successful


businesses, need to recognize their noblesse oblige and
give something back to the societies that have made their
success possible.

Noblesse oblige is a French term that refers to honorable and benevolent


behavior considered the responsibility of people of high (noble) birth .
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Variations in Ethical Standards (1 of 3)

The ethical obligations of a MNC toward employment


conditions, human rights, corruption, environmental
pollution, and the use of power are not always clear-
cut.

There may be no agreement about accepted ethical


principles.
From an international business perspective, some argue
that what is ethical depends upon one’s cultural
perspective
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Variation in Ethical Standards (2 of3)
• Ethical standards vary from country to country.
• Relativism is the belief that ethical truths are not absolute but
differ from group-to-group; according to this perspective, a
good rule is, “When in Rome, do as the Romans do.”

• Normativism is a belief that ethical


behavioral standards are universal,
and firms and individuals should seek
to uphold them consistently around
the world.
Variation in Ethical Standards (3 of 3)

• In China, counterfeiters may publish translated versions


of imported books without compensating the original
publisher or authors.
• In parts of Africa, accepting expensive gifts from
suppliers is acceptable.
• In the United States, CEO compensation is often 100
times greater than that of low-ranking subordinates.
• Finland and Sweden ban advertising aimed at children,
but the practice is accepted in other parts of Europe.
An Ethical Dilemma
• Imagine you are a manager and visit a factory owned by
an affiliate in Colombia, and discover the use of child
labor in the plant.
• You are told that without the children’s income, their
families might go hungry. If the children are dismissed
from the plant, they will likely turn to other income
sources, including prostitution or street crime.
• What should you do? Make a fuss about the immorality of
child labor, or look the other way?
• There is no easy answer to these questions. That is the
nature of ethical dilemmas —they are situations in
which none of the available alternatives seems ethically
acceptable
The Roots of Unethical Behaviour

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Personal Ethics (PEs)
• PEs are the generally accepted principles of right and wrong
governing the conduct of individuals.
• As individuals, we are typically taught that it is wrong to lie and
cheat—it is unethical—and that it is right to behave with
integrity and honor, and to stand up for what we believe to be
right and true.
• The personal ethical code that guides our behavior comes
from a number of sources, including our parents, our schools,
our religion, and the media.
• Our personal ethical code exerts a profound influence on the
way we behave as businesspeople. An individual with a strong
sense of personal ethics is less likely to behave in an unethical
manner in a business setting.
Decision Making Processes
• Businesspeople sometimes do not realize they are behaving
unethically, primarily because they simply fail to ask, “Is this
decision or action ethical?”
• Instead, they apply a straightforward business calculus 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
• E.g. In making the decision to award subcontracts,
managers at Nike might have considered business variables
such as cost and quality BUT NOT how the subcontractor
treats employees
Organization Culture
• Just as societies have cultures, so do business
organizations.
• Organization culture refers to the values and norms that
are shared among employees of an organization .
• The climate in some businesses does not encourage people
to think through the ethical consequences of business
decisions.
• This brings us to the third cause of unethical behavior in
businesses—an organizational culture that deemphasizes
business ethics, reducing all decisions to the purely
economic.
Unrealistic Performance Expectations
• There can be pressure from the parent company to meet
unrealistic performance goals that can be attained only by
cutting corners or acting in an unethical manner
• The combination of an organizational culture that legitimizes
unethical behavior, or at least turns a blind eye to such
behavior, and unrealistic performance goals may be
particularly toxic.
• In such circumstances, there is a greater than average
probability that managers will violate their own personal
ethics and engage in unethical behavior.
Leadership
• Leaders help to establish the culture of an organization,
and they set the example that others follow
• Other employees in a business often take their cue from
business leaders, and if those leaders do not behave in an
ethical manner, they might not either.
• It is not just what leaders say that matters, but what they
do or do not do.
Societal Culture
• Societal culture may well have an impact on the propensity of
people, and organizations, to behave in an unethical manner.
• Using Hofstede’s dimensions of societal culture, the study
found that enterprises headquartered in cultures where
individualism and uncertainty avoidance are strong were more
likely to emphasize the importance of behaving ethically than
firms headquartered in cultures where masculinity and power
distance are important cultural attributes.
• Such analysis suggests that enterprises headquartered in a
country such as Russia, which scores high on masculinity and
power distance measures, and where corruption is endemic,
are more likely to engage in unethical behavior than enterprises
headquartered in Scandinavia
Implications for Managers
Here we focus on five things that an international business and its
managers can do to make sure ethical issues are considered in business
decisions. These are:
(1) favor hiring and promoting people with a well-grounded sense of
personal ethics;
(2) build an organizational culture that places a high value on ethical
behavior;
(3) make sure that leaders within the business not only articulate the
rhetoric of ethical behavior, but also act in a manner that is consistent
with that rhetoric;
(4) put decision-making processes in place that require people to
consider the ethical dimension of business decisions; and
(5) develop moral courage.

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