Managing Ethical and Social Responsibility Challenges in Multinational Companies

15 Managing Ethical and Social Responsibility Challenges in Multinational Companies

Learning Objectives • Know the definitions of international business ethics and social responsibility • Understand some basic principles of ethical philosophy relevant to business ethics • Understand how social institutions and national culture affect ethical decision making and management

Learning Objectives • Understand the implications of using ethical relativism and ethical universalism • Identify the basic principles and consequences of the U.S. Foreign Corrupt Practices Act • Understand how international agreements affect international business ethics

Learning Objectives • Understand the differences among economic, legal, and ethical analyses of business problems • Develop skills in international decision making with ethical consequences

International Business Ethics • Ethics deal with the “oughts” of life • International business ethics: unique ethical problems faced by managers operating across national boundaries • More complex as different cultures do not agree on what one “ought” to do

Social Responsibility • Idea that businesses have a responsibility to society beyond making profits • Closely related to business ethics • Must take into account the welfare of other constituents in addition to stockholders

Exhibit 15.1: Areas of Ethical and Social Responsibility Concerns for the Multinational Company

Ethical Philosophy • Two ways to consider ethical decision making • Traditional ethical philosophy • Contemporary philosophy

Basic Systems of Ethical Reasoning • Teleological ethical theory • Morality of an act or practice comes from its consequences • Utilitarianism: what is good and moral comes from acts that produce the greatest good for the greatest number of people

Deontological Ethical Theory • Actions have a good or bad morality regardless of the outcomes they produce

Moral Languages • Basic ways that people use to make ethical decisions and to explain their ethical choices • Six basic ethical languages • Virtue and vice • Self-control • Maximizing human welfare • Avoiding harm • Rights/duties • Social contract

National Differences in Business Ethics and Social Responsibility • National culture and social institutions affect ethical behavior and social responsibility

Messner and Rosenfeld • Argue that specific national culture and social institutions affect ethics • National cultures: high achievement, high individualism, high universalism, high materialism are all related to higher deviance • Social institutions: high industrialization, capitalist systems, lower family breakdown and highly accessible educational systems should all encourage deviance

Exhibit 15.2: A Model of Institutional and Cultural Effects on Business Ethics Issues and Management

Exhibit 15.3: Comparison of Key Ethical Issues Identified by Senior U.S. and EU Managers

Exhibit 15.4: Management of Key Ethical Issues in U.S. and European Companies

Exhibit 15.5: National Differences in Beliefs Regarding Ethical Codes

Questionable Payments and U.S. Foreign Practices Act • Questionable payments • Bribes or gifts to expedite government actions or to gain advantage in business deals • In many countries, people routinely offer gifts of bribes.

Exhibit 15.6: Bribe Payers Index

U.S. Foreign Corrupt Practices Act (FCPA) • Forbids illegal payments or gifts to officials of foreign governments for the sake of getting or retaining business

Exhibit 15.7: Excerpts from the Foreign Corrupt Practices Act and Fines

U.S. Foreign Corrupt Practices Act (FCPA) • Does not prohibit some forms of payments that may occur in international business • Payments made under duress to avoid injury or violence are acceptable • Tricky component is the reason-to-know component • Firms are liable for bribes even if bribes are made by agents of company

Ethics Gap • More coercive and normative pressure for U.S. businesses to follow ethical standards • Recent evidence suggests that FCPA has not necessarily caused U.S. business to fall behind.

Toward Transnational Ethics • Ethical convergence: growing pressure to follow the same rules in managing ethical behavior and social responsibility

Four Basic Reasons for Ethical Convergence • The growth of international trade and trading blocks • Increased pressures to imitate business practices • Varied cultural background employees require common standards • An increasing number of business watchdogs

Prescriptive Ethics • Suggested guidelines for the ethical behavior of multinational companies • Three moral languages • Avoiding harm • Rights/duties • Social contract • Three languages work irrespective of national backgrounds

International Ethics Guideline Sources • The United Nations Universal Declaration of Human Rights • The United Nations Code of Conduct on Transnational Corporations • The European Convention on Human Rights • The International Chamber of Commerce Guidelines for International Investment

International Ethics Guideline Sources • The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises • The Helsinki Final Act • The International Labor Office Tripartite Declarations of Principles Concerning Multinational Enterprises and Social Policy

Exhibit 15.8: A Code of Conduct for the Multinational Company

Two Basic Rationales for the Code of Conduct for the Multinational • Basic deontological principles dealing with human rights • History of experiences in international business interactions • However, despite the existence of extensive agreements, multinationals may not always follow ethical principles.

Why Multinationals Might Not Follow Ethical Principles • Governments make agreements • The agreements have only voluntary compliance • Not all governments subscribe to the agreements • Each agreement is an incomplete moral guide to the company

“Best Practices” Steps • Leading by example • Making ethics part of the corporate culture • Involving employees at all levels • Setting and monitoring goals

“Best Practices” Steps • Effective integration in business processes • Open discussion of ethics and other ethical issues • Governments make agreements

The Ethical Dilemma in Multinational Management: How Will You Decide? • Ethical relativism vs. Ethical universalism • Ethical relativism: each society’s view of ethics must be considered legitimate and ethical • Ethical universalism: basic moral principles that transcend cultural and national boundaries • Difficulty in following either ethical relativism or universalism

Convenient Relativism • Companies have a higher responsibility than ethical relativism • However, some companies use the logic of ethical relativism to behave any way they please • Use the excuse of differences in cultures

Individual Ethical Decision Making for the Multinational Manager • Forms of analyses • Economic analysis: focuses on what is the best decision for a company’s profits • Legal analysis: focuses on only meeting legal requirements of host and parent countries • Ethical analysis: goes beyond focusing on profit goals and legal regulations

Exhibit 15.9: Decision Points of Ethical Decision Making in Multinational Management

Individual Ethical Decision Making • Purely ethical issues must be weighed against economic and legal analyses. • However, multinational managers are guests in other nations. • Ethical decision making must go beyond legal constraints.

Individual Ethical Decision Making • There is no single accepted ethical theory that managers can use. • There are generally accepted theories that can be used as guides, however. • Such ethical analyses can help raise managers’ awareness of ethical issues.

Managing Ethical and Social Responsibility Challenges in Multinational Companies