Chapter 20 Creating and Sustaining Ethical Capability in the Multinational Corporation

1. Chapter 20Creating and Sustaining Ethical Capability in the Multinational Corporation Paul F. Buller and Glenn M. McEvoy

2. Introduction • Ethics, the rightness or wrongness of certain business actions across cultures • Sound ethical practice is an overlooked potential source of competitive advantage to the MNC • The resource-based perspective of competitive advantage serves as the foundation that ethical capacity is a sustainable source of competitive advantage

3. Ethical Capability • Organization’s ability to identify and respond effectively to ethical issues in a global context • Involves firm-specific: • knowledge and skills to understand ethical frameworks and respond effectively to cross-cultural ethical situations • leadership, team work, and organizational culture that facilitate ongoing dialogue and learning about global ethics • human resource systems and other organizational practices that acquire, develop and sustain these capabilities

4. Ethical Capability • Resource-based perspective argues that firm-specific resources and capabilities are valuable, rare and inimitable are sustainable sources of competitive advantage

5. Frameworks for Examining Cross-Cultural Ethics • No simple answer to what is right and wrong across different national cultures • Two extreme positions • Relativist perspective: “when in Rome, do as the Romans do.” • Absolutist perspective: home country cultural values must be applied everywhere as they are at home • Core values define the moral imperatives and provide a moral compass: respect for human dignity, respect for basic rights, good citizenship

6. Frameworks for Examining Cross-Cultural Ethics • “Moral pluralism” MNC insisting on its own (home country) ethical principles • “Moral free space” allows for judgement based upon unique circumstances involved in a given situation • DeGeorge identified three types of ethical conflicts: pressures on individuals to violate personal norms, inconsistent cultural norms and host country versus home country interests and values

7. Frameworks for Examining Cross-Cultural Ethics • “Ethical displacement” development of sufficient policies, procedures, structures, rewards and background institutions to reinforce ethical practices • “Cosmopolitan” culture one that is sensitive to cross-cultural differences regarding ethics; based on ongoing education and collaboration among decision makers across cultures • Three possible general responses when faced with a cross-cultural ethical conflict: relativism (adopting the local norms), cosmopolitanism (identifying the common moral ground) and universalism (enforcing universal moral principles)

8. Ethical Capability as a Sustainable Source of Competitive Advantage • Resource-based perspective of competitive advantage • A firm is defined by the resources that it controls • If a firm has the organizational capability to exploit these resources, it possesses a sustainable competitive advantage • Three types of resources can be sources of competitive advantage: • physical capital • organizational capital • human capital

9. Ethical Capability as a Sustainable Source of Competitive Advantage • Three crucial resources for competitive advantage based on ethical capability: • Perceiving interdependence acknowledges that a firm that recognizes and effectively satisfies the diverse needs of its various stakeholders will be able to sustain its institutional legitimacy • Thinking ethically involves the resource of ethical awareness. Understanding various ethical frameworks’ sensitivity to the differences among ethical perspectives across cultures. The organizational learning that emerges can be a highly sustainable source of advantage • Responding effectively involves taking the appropriate ethical action in a timely manner. Assumes that the first two capabilities are in place

10. Ethical Capability as a Sustainable Source of Competitive Advantage • Human resource management as a key source of advantage • Strategic choices for the MNC include focusing primarily on multidomestic strategy (emphasis on meeting local needs), global strategy (emphasis on global efficiency), or transnational strategy (simultaneous emphasis on local responsiveness, global efficiency, and worldwide organizational learning) • Three possible MNC orientations regarding human resource management practices: adaptive (adapting to practices in the host country), exportive (imposing home country practices), or integrative (using some combination of best practices regardless of origin)

11. Ethical Capability as a Sustainable Source of Competitive Advantage • Table 20.1 p. 401 • Ethical capability would include firm-specific: • knowledge and skills to understand ethical frameworks and respond effectively to diverse ethical perspectives across cultures; • leadership, teamwork, and organizational culture that facilitates effective ongoing dialogue on ethical differences; and • human resource management and other organizational practices that create and sustain these capabilities

12. Creating and Sustaining Ethical Capability • Figure 20.1 p. 402 • Transformational leaders communicate the vision in a compelling way demonstrate consistent commitment to the vision over time: awakening, when the need for change is recognized; envisioning, a vision is created and employees become committed to it; and • re-architecting entails the creation of an organization to support the vision

13. Creating and Sustaining Ethical Capability • Enhancing organizational learning • “Shared mindsets” regarding its strategic goals and the processes to reach those goals • Conditions facilitating organizational learning: • Top managers provide leadership in recognizing the value of human resources and developing a broader cross-cultural understanding and sensitivity • MNC must engage its various international stakeholders in finding common ground with respect to human resources and ethical practices

14. Creating and Sustaining Ethical Capability • The outcome is a set of human resource practices that are adaptive, integrative and /or exportive, and a set of moral principles that are locally responsive, cosmopolitan, and/or universal in their application across different situations • Ultimate goals of organizational learning process: • establish a corporate code of ethics • create mechanisms for an ongoing process of organizational learning and responsiveness • create an ethical culture across all MNC operations

15. Creating and Sustaining Ethical Capability • Implementing specific HRM practices • An international code of ethics is a necessary, but not sufficient, step in building ethical capability • Employees must have the ability and motivation, and the organizational support, to understand and implement the code of ethics • Ethical capability must be further enhanced through developing specific human resource management practices linked to cross-cultural ethical competencies

16. Implementing specific HRM practices • Generating Competencies • Acquiring the necessary ethical values and behaviors through selection processes and/or developing values and behaviors through training and development • Selection criteria should include ethical competence, sensitivity to differences in ethics across cultures and ability to make sound decisions in situations when home and host country ethics collide • Staffing should be based on: thorough needs analysis to identify the specific jobs to be filled as well as the knowledge, skills and abilities needed for effective performance; careful screening of candidates (multiple structured interviews, realistic job previews, etc.)

17. Implementing specific HRM practices • Generating Competencies • Expand search for job candidates beyond the domestic labor pool to attract the best global talent • Training in firm-specific rather than general skills create greater potential for competitive advantage • Training and development activities can enhance several types of competencies

18. Implementing specific HRM practices • Reinforcing competencies • Through performance appraisal and compensation/rewards systems • Ethical standards should include both behavioral and outcome measures • Employees should receive timely and regular feedback • Trust, communication, shared mindset • Acceptable ethical standards should be jointly developed with suppliers and customers • Compensation and recognition systems should be: linked directly to ethical behaviors and outcomes; timely; visible; durable; and contribute to a shared mindset regarding ethical values and behaviors

19. Implementing specific HRM practices • Sustaining competencies • Organizational mechanisms: organization design, communication, ongoing capacity for change • Used to: allocate and coordinate key tasks • Identify key tasks and modify the reporting relationships, responsibilities and coordinating mechanisms to accomplish those tasks • Create partnerships with suppliers, customers and other organizations • Worldwide web, email, communication technologies

20. Implementing specific HRM practices • Sustaining competencies • A key task for transformational leaders is to instill in the organization an ongoing capacity for change: conducting periodic audits of the ethical and cultural climate; developing a vision and a plan for continually improving ethical capability; understanding and overcoming possible points of resistance to change; and identifying and implementing the right tasks, structures, processes, systems and other resources necessary to develop and sustain ethical capability

21. Summary • The organization can enhance its ability to exploit and sustain its ethical capability through transformational leadership, ongoing organizational learning and the design and implementation of its human resource management practices