Global Dimensions of Business Mark McKenna BUS 1875, Fall 2008 Charles H. Hill, International Business: Competing in

1. Global Dimensions of Business Mark McKenna BUS 187(5), Fall 2008 Charles H. Hill, International Business: Competing in the Global Marketplace, 7th ed. (New York: McGraw-Hill/Irwin, 2009) Adapted from PowerPoint slides prepared for the text by Veronica Horton

2. WEEK 3 (Sept. 10) ETHICS IN INTERNATIONAL BUSINESS Hill, Chapter 4

3. Introduction Ethics refers to accepted principles of right or wrong that govern the conduct of a person or organization An ethical strategy is course of action that does not violate these accepted principles The most common ethical issues in business involve employment practices human rights environmental regulations corruption the moral obligation of multinational companies

4. Ethical Dilemmas If employment practices in a host nation are inconsistent with home country standards, which standards should a multinational company apply? If workers in a host nation do not enjoy freedom of association, should a multinational invest there because wages will be lower or not invest because there is a lack of protection of basic human rights? Is it acceptable for a multinational to use �dirtier� technologies in a country with weak environmental regulations than it would use at home?

5. Ethical Issues in International Business Many ethical issues and dilemmas in international business are rooted in the fact that political and legal systems, levels of economic development, and culture understandings and perspectives vary significantly from nation to nation Two different perspectives on business ethics Some approaches simply ignore national differences or deny the relevance of ethical concerns to business More useful approaches can be drawn from the ethical perspectives of moral philosophy

6. �Aethical� (Straw Man) Perspectives Some (not so useful) perspectives on ethics Friedman Doctrine � the only social responsibilities of business are to obey the law and increase profits Cultural Relativism � �when in Rome do as the Romans do�, i.e. always adopt local practices Na�ve Immoralism � when operating in a host country standards of behavior are determined by what other international or local firms do (or can get away with) Righteous Moralism � multinational corporations should follow the ethical standards of their home countries in their international business operations

7. Perspectives from Moral Philosophy Some (more useful) perspectives on ethics Utilitarianism � the moral worth of actions are determined by their consequences (Hume, Bentham, Mill) Kantian Ethics � human dignity demands that people be treated as ends in themselves and not as means to an end (Immanuel Kant) Rights Theories � human beings are born equal in dignity with both rights and duties (UDHR) Justice Theories � inequality is justified only if it is to everyone�s benefit (impartiality guaranteed by the veil of ignorance) (John Rawls)

9. The Roots of Unethical Behavior Expatriates lacking a clear personal ethics away slip into unethical behaviors away from their ordinary social context and supporting culture Unethical behavior may occur when decision-making processes prioritize economic analysis in weighing the consequences of actions or decisions Organizational cultures (and incentives) may condone or even encourage unethical behavior Unrealistic performance goals may result in managers cutting corners or acting unethically Leadership matters � when leaders act unethically, subordinates are more likely to act unethically, too

10. Corruption Corruption has been a problem in every society in history and continues to be a problem today International businesses have gained economic advantages by paying bribes to government officials Two economic perspectives on corruption Corruption enhances welfare by allowing actors to by-pass market restrictions, using prices to efficiently allocated resources, and redistributing income Corruption limits economic growth and undermines welfare by reducing return on investment (rent seeking is a form of tax), undermining investor confidence, and distorting the allocation of resources within a society

13. Responses to Corruption In 1977 the U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business In 1997, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions adopted by the Organization for Economic Cooperation and Development (OECD), obliges member states to make the bribing of foreign public officials a criminal offense In 2003, the UN adopted the Convention Against Corruption which came into force in December 2005

14. Power and Moral Obligations Multinational corporations have power that comes from their control over resources and their ability to move production from country to country Moral philosophers argue that with power comes the responsibility to give back to the societies that make it possible for companies to prosper and grow Socially responsible companies consider the social consequences of economic actions when making business decisions and make decisions that have both good economic and good social consequences

15. Ethical Decision Making To ensure ethical issues are considered in business decisions, firms should: hire and promote people with a well-grounded sense of personal ethics build an organizational culture that places a high value on ethical behavior, with realistic performance goals put in place decision-making processes that require consideration of the decision�s ethical dimension makes sure that leaders not only articulate the rhetoric of ethical behavior, but act accordingly support employees in developing moral courage

16. Moral Courage Moral courage does not come easily and employees have lost their jobs for acting courageously To support employees in developing moral courage, companies must reward, not punish, employees who walk away from a business opportunity that may have been profitable but was unethical have the strength to say no to a superior who instructs them to pursue actions they believe are unethical have the integrity to �blow the whistle� on persistent unethical behavior within the company, even if that means going public to the media

17. Other Steps to Foster Ethical Behavior Adopt a code of ethics that articulates values consistent with a strong emphasis on ethical behavior Appoint ethics officers to ensure employees are trained in ethics, the company�s code is followed, and ethical issues are considered in decision making Adopt a decision-making process that requires managers to consider whether they would be willing to have the decision communicated to all those affected by it, and whether persons which whom they have significant personal relationships would approve of their decision Put in place incentives and rewards that recognize ethical behavior and sanction unethical behavior