Chap 4 Managing Ethical and Social Resp Challenges

7/31/2019 Chap 4 Managing Ethical and Social Resp Challenges

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CHAPTER - 4CHAPTER - 4

MANAGEING ETHICAL AND SOCIALMANAGEING ETHICAL AND SOCIALRESPONSIBILITY CHALLENGES INRESPONSIBILITY CHALLENGES IN

MULTINATIONAL COMPANIESMULTINATIONAL COMPANIES


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PreamblePreamble

Approximately 60,000 multinationals areApproximately 60,000 multinationals areoperating across country borders today.operating across country borders today.Majority of those and their 5,00,000Majority of those and their 5,00,000

subsidiaries are based in developingsubsidiaries are based in developingcountries (Woods,2006).countries (Woods,2006).

Governments in developing and developedGovernments in developing and developed

countries are not willing to regulatecountries are not willing to regulatemultinationals because of differentmultinationals because of differentreasons.reasons.

So, multinationals have growing social andSo, multinationals have growing social and

ethical responsibilities to their operations.ethical responsibilities to their operations.


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Concept of Ethics and SocialConcept of Ethics and Social

ResponsibilityResponsibility

1. Ethics (Singular) A system of moral1. Ethics (Singular) A system of moral

principles or rules of behaviour.principles or rules of behaviour.2. Ethics (Plural) Moral principles that2. Ethics (Plural) Moral principles that

govern or influence a persons behaviour.govern or influence a persons behaviour.

3. Ethics (Singular)- The branch of3. Ethics (Singular)- The branch ofphilosophy that deals with moralphilosophy that deals with moral

principles.principles.


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ContinuesContinues

It is derives from the Greeck word It is derives from the Greeck word

or or

means habit, custom, character ormeans habit, custom, character or

usage.usage.

means character.means character.


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ContinuesContinues

1. Ethics is the study of what is right or good in1. Ethics is the study of what is right or good inconduct. John S. Mackenzie.conduct. John S. Mackenzie.

2. Ethics is the general enquiry into what is2. Ethics is the general enquiry into what isgood.- G.E. Moore.good.- G.E. Moore.

3. Ethics is the philosophical enquiry into the3. Ethics is the philosophical enquiry into thenature and grounds of morality. Paul W. Taylor.nature and grounds of morality. Paul W. Taylor.

4. Ethics deals with the oughts of life- that is,4. Ethics deals with the oughts of life- that is,the rules and values that determine the goalsthe rules and values that determine the goalsand actions people ought to follow whenand actions people ought to follow whendealing with other human beings. Rogene A.dealing with other human beings. Rogene A.

Buchholz (1989)Buchholz (1989)


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ContinuesContinues

So, ethics is the normative science of theSo, ethics is the normative science of theconduct of human beings with reference toconduct of human beings with reference totheir rightness or wrongness, their tendencytheir rightness or wrongness, their tendency

to good or evil.to good or evil.ThusThusEthics is a code of rules.Ethics is a code of rules.

Ethics is a set of principles one lives by.Ethics is a set of principles one lives by.Ethics is the tudy of what is right or wrong.Ethics is the tudy of what is right or wrong.Ethics is a study that attempts to shed lightEthics is a study that attempts to shed light

on the question what should one do?on the question what should one do?


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Concept of Social ResponsibilityConcept of Social Responsibility

Social responsibility is the set ofSocial responsibility is the set ofobligations that an organisation has, toobligations that an organisation has, toprotect and enhance the societal contextprotect and enhance the societal context

in which it functions. Jerry W. Andersonin which it functions. Jerry W. Anderson(1986).(1986).

Social responsibility is the obligation of anSocial responsibility is the obligation of an

organization to seek actions that protectorganization to seek actions that protectand improve the welfare of society alongand improve the welfare of society alongwith its own interests.- Bartol and Martinwith its own interests.- Bartol and Martin(2008).(2008).


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Concept of International BusinessConcept of International Business

EthicsEthics

International business ethics pertain toInternational business ethics pertain to

the unique ethical problems faced bythe unique ethical problems faced by

mangers conducting business operationsmangers conducting business operations

across national boundaries.across national boundaries.

It differs from domestic business ethics inIt differs from domestic business ethics in

two counts-two counts-

1. International business conducts cross-1. International business conducts cross-

nationally and different cultural values andnationally and different cultural values and

institutional systems affects its operations.institutional systems affects its operations.


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ContinuesContinues

2. It encounters a dilemma regarding how2. It encounters a dilemma regarding howto use power while power of some forignto use power while power of some forigncountries is inferior to that ofcountries is inferior to that of

multinationals.multinationals.

is the idea that businessesis the idea that businesses

have a responsibility to society beyondhave a responsibility to society beyondmaking profits. That is, a company mustmaking profits. That is, a company musttake into account the welfare of othertake into account the welfare of otherconstituents ( customers, suppliers) inconstituents ( customers, suppliers) in

addition to stockholders.addition to stockholders.


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Areas of Ethical and SocialAreas of Ethical and Social

Responsibility of MNEsResponsibility of MNEs

Stakeholder affected Ethical/Socialresponsibility

Customer

Stockholders

Employees

Product safety

Fair price

Proper disclosures and information.

Fair ROI.

Fair wages, safety of workingconditions, not use child labour,nondiscrimination by sex, race,coliour or creed;


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Stakeholder affected Ethical/Socialresponsibility

Host country

Society in general

Following local laws,impact on local socialinstitutions,environmental protection.

Raw materials depletion.


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Ethical PhilosophyEthical Philosophy

Two approaches/ theories for ethical decisionTwo approaches/ theories for ethical decision

making.making.

It says that the morality of an act or practiceIt says that the morality of an act or practicecomes from its consequences.comes from its consequences.

It has two dimensions:It has two dimensions:

It says that an act is moral andIt says that an act is moral andgood that produces own greatest pleasure.good that produces own greatest pleasure.

It says that an act is goodIt says that an act is good

and moral that produces greates good/benefitand moral that produces greates good/benefit

for the greatest number of people.for the greatest number of people.


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ContinuesContinues

It says that morality or goodness of anIt says that morality or goodness of an

action comes from the good or badaction comes from the good or bad

morality of the action itself, not of itsmorality of the action itself, not of its

outcomes.outcomes.

That is, if the action itself is good, thatThat is, if the action itself is good, that

action is good and moral.action is good and moral.

A good source of deontological ethics isA good source of deontological ethics is

the Ten Commandments, the Quran, thethe Ten Commandments, the Quran, the

Bible etc.Bible etc.


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Thomas Donaldson (1992) in his articleThomas Donaldson (1992) in his article

The Language of International CorporateThe Language of International Corporate

Ethics (published in Business EthicsEthics (published in Business Ethics

Quarterly) argues for moral languagesQuarterly) argues for moral languages

that describe the basic ways people usethat describe the basic ways people use

to think about ethical decisions and toto think about ethical decisions and toexplain their ethical choices.explain their ethical choices.

He identifies Six basic ethical languages.He identifies Six basic ethical languages.

They are:They are:


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The language showsThe language shows

that people are regarded as ethical whothat people are regarded as ethical who

have virtuous characteristics disregardinghave virtuous characteristics disregarding

what results from an action.what results from an action. The language tells aboutThe language tells about

achieving perfection at controllingachieving perfection at controlling

thoughts and actions, such as passion orthoughts and actions, such as passion orcontrol on appetites.control on appetites.


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The languageThe language

focuses on principles that guide ethicalfocuses on principles that guide ethical

behaviour. It fits well in a legal context.behaviour. It fits well in a legal context.

This languageThis language

structures ethics as a form of agreementstructures ethics as a form of agreement

among propel. So, the act is ethical that isamong propel. So, the act is ethical that is

consistent with our culture orconsistent with our culture ororganizational culture.organizational culture.


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National Differences in BusinessNational Differences in Business

Ethics and Social ResponsibilityEthics and Social Responsibility

It is obvious that national culture andIt is obvious that national culture and

social institutions affect managers ofsocial institutions affect managers of

multinational enterprises working inmultinational enterprises working in

different countries/cultures to performdifferent countries/cultures to performethical behaviour and social responsibility.ethical behaviour and social responsibility.

Studies have justified this conclusion too.Studies have justified this conclusion too.

Cultural variations regarding acceptanceCultural variations regarding acceptance

of ethically suspect behaviours found inof ethically suspect behaviours found in

various researches are shown below:various researches are shown below:


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ContinuesContinues

1. Requesting money to smooth out business1. Requesting money to smooth out businesstransactons is standard practice in manytransactons is standard practice in manycountries like Mexico, Russia, Thailand and Haiti.countries like Mexico, Russia, Thailand and Haiti.In USA such practices are frowned upon.In USA such practices are frowned upon.

2. Austrians do not find it immoral for a male2. Austrians do not find it immoral for a maleboss to promote only women who see himboss to promote only women who see himsocially but US managers find it unethical.socially but US managers find it unethical.

3. Muslims ans Caucasian manager working in3. Muslims ans Caucasian manager working in

Malaysia had the highest regard for profits butMalaysia had the highest regard for profits butAustralian managers tend to be more sociallyAustralian managers tend to be more sociallyconsiderate toward employees, customers andconsiderate toward employees, customers andenvironment.environment.

4. Hofstede study and GLOBE study give us4. Hofstede study and GLOBE study give us

same lessons.same lessons.


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5. Bribe , gift, kickback or questionable5. Bribe , gift, kickback or questionablepayments is accepted and routinely practiced inpayments is accepted and routinely practiced inmany countries to expedite government actionsmany countries to expedite government actionsor to gain advantage in business deals.or to gain advantage in business deals.

We can understand the level of corruption ofWe can understand the level of corruption ofvarious countries on the Corruption Perceptionvarious countries on the Corruption PerceptionIndex (CPI) developed by the TransparencyIndex (CPI) developed by the TransparencyInternational.International.

Countries are made law to curtail corruption. TheCountries are made law to curtail corruption. TheForeign Corrupt Practices Act (FCPA) 1977 ofForeign Corrupt Practices Act (FCPA) 1977 ofUSA is such an act.USA is such an act.

But MNEs develop many ways and means toBut MNEs develop many ways and means todoe corrupt business practices avoiding such lawdoe corrupt business practices avoiding such law

to do business under competitive conditions.to do business under competitive conditions.


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Transnational EthicsTransnational Ethics

Globalization creates pressure for ethicalGlobalization creates pressure for ethical

convergence and for transnationalconvergence and for transnational

agreements among nations to governagreements among nations to govern

business practices.business practices.World bodies have developed throughWorld bodies have developed through

different contracts and agreements amongdifferent contracts and agreements among

nations and cultures gives prescription ofnations and cultures gives prescription ofethics for multinationals.ethics for multinationals.


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Sources of International ethicsSources of International ethics

The United Nations Universal Declaration of HumanThe United Nations Universal Declaration of HumanRights.Rights.

The United Nations Code of Conduct on TransnationalThe United Nations Code of Conduct on TransnationalCorporations.Corporations.

The European Convention on Human Rights.The European Convention on Human Rights. The International Chamber of Commerce Guidelines forThe International Chamber of Commerce Guidelines for

international Investment.international Investment. The Organization for Economic Cooperation andThe Organization for Economic Cooperation and

Development Guidelines for Multinational Enterprises.Development Guidelines for Multinational Enterprises. The Helsinki Final Act.The Helsinki Final Act. The International Labour Office Tripartite Declarations ofThe International Labour Office Tripartite Declarations of

Principles Concerning Multinational Enterprises and SocialPrinciples Concerning Multinational Enterprises and SocialPolicy.Policy.


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Codes of Conduct for theCodes of Conduct for the

Multinational CompanyMultinational Company

-Respect fundamental human rights of life,-Respect fundamental human rights of life,

liberty, security, and privacy.liberty, security, and privacy.

- Do not discriminate on the basis of race,- Do not discriminate on the basis of race,colour, gender, religion, ethnic origin, orcolour, gender, religion, ethnic origin, or

political affiliation.political affiliation.

- Respect personal freedoms.- Respect personal freedoms.


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-Avoid illegal involvement in local politics.-Avoid illegal involvement in local politics. -Dont pay bribes or other improper payments.-Dont pay bribes or other improper payments. -Do not interfere in local government internal-Do not interfere in local government internal

relations.relations.

-Enhance the transfer of technology to-Enhance the transfer of technology todeveloping nations.developing nations.

-Adapt technologies to local needs.-Adapt technologies to local needs. -Conduct local R & D when possoble.-Conduct local R & D when possoble.

- Grant fair licenses to use technology.- Grant fair licenses to use technology.


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-Follow local environmental protection laws.-Follow local environmental protection laws. -Actively protect the environment.-Actively protect the environment.

-Repair damage to the environment done by-Repair damage to the environment done bycompany operations.company operations. -Help develop local standards.-Help develop local standards. -Provide accurate assessment of environmental-Provide accurate assessment of environmental

impact of the company.impact of the company. -Provide complete disclosure of the-Provide complete disclosure of the

environmental effects of operations .environmental effects of operations . Develop standards to monitor environmentalDevelop standards to monitor environmental

effects.effects.


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- Follow relevant policies and employment laws- Follow relevant policies and employment lawsof host nation.of host nation.

-Help create jobs in needed areas.-Help create jobs in needed areas. -Increase local employment opportunities and-Increase local employment opportunities and

standards.standards. -Provide local workers stable employment and-Provide local workers stable employment and

job security.job security. -Promote equal employment opportunities.-Promote equal employment opportunities. -Give priority to local natinao residents when-Give priority to local natinao residents when

possible.possible.


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-Provide training opportunities at all levels for local-Provide training opportunities at all levels for local

employees.employees. -Promote local nationals to management positions.-Promote local nationals to management positions. -Respect local collective bargaining units.-Respect local collective bargaining units. -Cooperate with local collective bargaining units.-Cooperate with local collective bargaining units.

-Give notice of plant closings.-Give notice of plant closings. -Do not use threat of leaving country in collective-Do not use threat of leaving country in collective

bargaining dealings.bargaining dealings. -Provide income protection to terminated workers.-Provide income protection to terminated workers.

- Match or improve local standards of employment.- Match or improve local standards of employment. - Protect employees with adequate health and safety- Protect employees with adequate health and safety

standards.standards. -Provide employees information on job related health-Provide employees information on job related health

hazards.hazards.


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Ethical Dilemma in MultinationalEthical Dilemma in Multinational

Management : How to decide?Management : How to decide?

There is a dilemma between own countrysThere is a dilemma between own countrys

ethical system and that of host country. Here isethical system and that of host country. Here is

a suggestion for multinational managers.a suggestion for multinational managers.

means that a multinationalmeans that a multinational

manger consider each societys view of ethics asmanger consider each societys view of ethics as

legitimate and ethical. So, it says thatlegitimate and ethical. So, it says that

multinatinal managers should follow local ethicalmultinatinal managers should follow local ethical

conventions.conventions.


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holds that basicholds that basicmoral principles transcend cultural andmoral principles transcend cultural and

national boundaries.national boundaries.

Ethicists suggest for careful use of ethicalEthicists suggest for careful use of ethicalrelativism as there is a possibility ofrelativism as there is a possibility of

convenient relativism.convenient relativism.

Extreme moral universalismExtreme moral universalism has pitfallshas pitfallstoo as it is difficult to identify universaltoo as it is difficult to identify universal

principles.principles.

So, dilemma remains.So, dilemma remains.


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Individual Ethical Decision Making forIndividual Ethical Decision Making for

the Multinational Managersthe Multinational Managers

Economic Analysis

Legal Analysis

Organisational Ethical Analysis

Personal Ethical Analysis

Cultural Sensitivity Ethical Analysis

Finalise Decision and Action


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Chap 4 Managing Ethical and Social Resp Challenges

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