Lecture 4

1. Lecture 4 Ethics in International Business

2. 2 Outline Important Terms Ethical Issues in International Business Ethical Decision Making

3. 3 A. Important Terms Ethics Accepted principles of right or wrong governing the behavior of a person, the profession�s members, or an organization Business ethics Accepted principles of right or wrong governing the conduct of business people Ethical strategy A strategy that doesn�t violate the accepted principles

4. 4 B. Ethical Issues in International Business Arise most often in the context of:

5. 5 B. Ethical Issues in International Business: Employment Practices When work conditions in a host nation are clearly inferior to those in a multinational�s home nation, what standards could be applied? Host nation�s standards Home nation�s standards Both or other�s standards Example: Nike (Global Business Today: P.128�130)

6. 6 Rights (e.g. freedom of association, speech, assembly & movement) granted in the developed world are by no means universally accepted Example: No specific human rights in South Africa, Nigeria & Myanmar Examples Royal Dutch/Shell: Human Rights in Nigeria International Business (Competing in the Global Marketplace (5th edition): P.136) Child Labour in China http://www.china-labour.org.hk/iso/article_listings.adp?category_id=50 B. Ethical Issues in International Business: Human Rights

7. 7 B. Ethical Issues in International Business: Environmental Pollution Ethical issues arise when environmental regulations in host nations are far inferior to those in home nation Tragedy of the commons is a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole. Global tragedy of the commons occurs when corporations move production to locations where have less environmental regulations Harming valuable global commons

8. 8 B. Ethical Issues in International Business: Corruption Foreign Corrupt Practices Act A U.S. law regulating the conduct of international business in taking bribes or other unethical actions Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997) is adopted by Organization for Economic Cooperation & Development (OECD) obliges member states to make the bribery of foreign public officials a criminal offense

9. 9 B. Ethical Issues in International Business: Corruption Corruption (e.g. hoarding, smuggling, & side payments to government bureaucrats) occurs when preexisting political structures limit the workings of the market mechanism can speed up approval for business investments Conflicting viewpoints of economists towards corruption Stimulates economic growth Reduces the returns on business investment & leads to low economic growth Example: Corruption fears over China mooncakes http://news.bbc.co.uk/2/hi/asia-pacific/3695916.stm

10. 10 Social Responsibility Business decisions should be made after consideration of social consequences of economic actions Corporate Social Responsibility Firms make contributions to society by engaging in social activities Example: Environmental protection 3M company in US develops biodegradable products which cause less pollution collects the waste paper for recycling Example: Hiring and Promotion (discussed later) B. Ethical Issues in International Business: Moral Obligations

11. 11 C. Ethical Decision Making Ways to ensure ethical issues are considered in a business decision

12. 12 C. Ethical Decision Making:Hiring & Promotion Practices Businesses hire people with a strong sense of personal ethics Prospective employees find out the ethical climate in an organization Job seeker�s ethics audit Global Business Today: P.153 (Table 4.1)

13. 13 C. Ethical Decision Making:Hiring & Promotion Ethical issues Source: www.tdctrade.com/smemarketday/seminars/material/54 Dr Agatha.ppt

14. 14 C. Ethical Decision Making: Organization Culture & Leadership Building organization culture that places a high values in ethical behavior Methods Business must explicitly articulate values that emphasize on ethical behavior by using a code of ethics Business should place system to reward people who engage in ethical behavior & sanction those who do not

15. 15 C. Ethical Decision Making: Decision Making Processes Moral means to determine whether a decision is ethical Answering ethical questions 5-step process to think through ethical problems

16. 16 C. Ethical Decision Making: Decision Making Processes Answering ethical questions The decision is ethically accepted if a business person answer �yes� to the following questions

17. 17 C. Ethical Decision Making: Decision Making Processes Step 1 Identifying a decision which would affect stakeholders & in what ways Internal stakeholders People who work for or who own the business such as employees, the board of directors, & stockholders External stakeholders Individuals or groups who have some claims on a firm such as customers, suppliers, & unions

18. 18 C. Ethical Decision Making: Decision Making Processes Step 2 Judging the ethics of the proposed strategic decision i.e. whether a proposed decision would violate the fundamental rights of any stakeholders Step 3 Managers establish moral intent to resolve moral concerns where the fundamental rights of stakeholders or key moral principles have been violated

19. 19 C. Ethical Decision Making: Decision Making Processes Step 4 Requiring the company to engage in ethical behavior Step 5 Companies need to audit its decisions & ensure that they are consistent with ethical principles

20. 20 Case Studies on Unethical Business Practices Testing Drugs in the Developing World (Global Business Today: P.143) Etch-A-Sketch Ethics (Global Business Today: P.159-160)