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Ethics in International Business

King's University College

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Ethics in International BusinessPremise for why Ethics in InternationalBusiness are so complicated:

1. Ethics are culturally and socially based2. Cultures and societies differ3. Ethics differ between cultures and societies

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Ethics in International Business Good ethics systems:1. Define company rights that transcend borders and

extend them to all stakeholders that are narrow but consistent with company strategy

2. Embrace moral absolutes developed by the organizational culture, which are independent of country norms and are applied to everyone equally and therefore may be at times, higher than what are embraced in a given country

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Ethics in International Business Integrity:

Having and demonstrating a strong commitment to personal morals and company standards

Reflects the need for absolute standards (separate from the company) and relative standards (reflecting what the company does).

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Ethics in International Business Integrity is demonstrated at two levels:

External interactions Activities through which the company is

represented to the outside world Internal interactions

Activities involving groups or individuals within the company

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External Interactions

Big challenge when there are large differences between the dominant local behaviours in a situation and what the manger’s judgement of what the behaviours should be given her/his ethics.

To avoid problems, managers must understand the ethics of the country in which they are operating and those of their company and how they differ

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External Interactions

Cultural relativism: You do what is appropriate in a given culture. If it is ok for members of a given society to do something, it is ok for you to do it.

Often used as an excuse but is it ethical?

External Interactions – Cultural Relativism

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OperatingStandards

Country 1 2 3

Ethical

Unethical

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External Interactions

If firm ethics are well defined, understood and strictly adhered to (i.e. go beyond values and norms – which differ between cultures) then cultural relativism is not an ethical perspective

What to do if acting ethically puts the firm at a competitive disadvantage?

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External Interactions

Three common areas of focus for setting ethical standards in external interactions: Ecological environmental impact

Pollution havens and toxic facilities Race to the bottom

Gifts and gratuities Bribes and facilitation payments

Worker’s rights Sweat shops, living/working conditions, fair wages

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External Interactions

Strategies that use the firm’s good reputation can be compromised by even the appearance of unethical practices: The Body Shop Nike Kathy Lee The Gap

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Internal Interactions

Since these actions are internal to the firm, external stakeholders are less likely to know about unethical practices and firms face less scrutiny and pressure to act ethically

However, companies still should have ethical standards that govern internal interactions

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Internal Interactions

Common internal ethical situations: Worker safety – less is cheaper Equity in hiring – hire the cheapest Equality of opportunity – only some get promoted Comparable compensation – sweat shops and

disproportionate pay Freedom of expression – why is it needed?

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Ethical Decision-making

Ethical decision-making depends upon three competencies:

1. Good observations skills – internally and externally

2. Asking tough questions3. Understanding what standards are core to

the company – knowing what NOT to compromise

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Ethical Decision-making

Determining what are core standards: Is it strategic – can we survive without it? Is the standard as high as possible? Are people (animals, the environment) being put

before the company?

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Ethical Decision-making

Non-coreto competitiveness

Core to competitiveness

GlobalStandards

LocalStandards

Morrison, 2001

For activities that are non-core to the success of the firm and do not go against the core standards – use local standards, otherwise, use global standards.

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Why Ethics are Important to International Business? When facing an ethical problem in a

country, there are three basic choices:1. Avoid doing business in the country2. Maintain standards and risk putting the firm

at a competitive disadvantage3. Change standards

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Why Ethics Are Important to International Business? From an ethics perspective only options 1 & 2

are ethical Option 3 is risky:

Reputation effects Stakeholder perceptions Impression management problems Boycotts etc. etc. …

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Ethics in International Business Integrity:

Having and demonstrating a strong commitment to personal morals and company standards

Reflects the need for absolute standards (separate from the company) and relative standards (reflecting what the company does).

Ethics in International Business The firm develops ethical standards that are

“absolute” by evaluating all the perspectives of stakeholders around the world to find the “highest” standard.

Members are then socialized to that standard (affects hiring and filtering mechanisms.

Standards are communicated and incentives are created.

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Ethics in International Business

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EthicalStandard

Country 1 2 3

World Average

Firm global Standard:based on “highest”levels within thefirm’s locations

Ethical

Unethical

Unethical

Highest inFirm

Lowest in Firm

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Why Ethics Are Important to International Business? Short-term gains not worth the long term pain

(losses) Information travels fast and it is difficult to hide Stakeholders have long memories – so do the

press Public perception is important (avoid, change

values, change perception, confront)