28
Ethics in International Business
Ethics in International
Business
Ethical issues in international business
Ethical issues arise because of differences in
political, economic, legal systems and
culture- what is considered normal in one
nation may be considered unethical in others
Many ethical principles are codified into law,
but many others are not (plagiarism)
Some activities clearly unethical, others pose
questions in different context
Reading time- Nike case study
Did Nike break the law?
Did Nike behave unethically?
“It was the subcontractor`s responsibility to
make sure local laws were followed, Nike
was right to believe that those laws
safeguarded the interests of the employees.”
Sources of ethical issues in int. business
Employment practices
Human rights
Environmental regulations
Corruption
Ethical dilemmas- situations in which none of
the available alternatives seems ethically
acceptable
Employment practices
A visiting American executive finds that a
foreign subsidiary in a poor nation has hired a
12-year-old girl to work on a factory floor, in
violation of the company’s prohibition on child
labor. He tells the local manager to replace the
child with an adult and tells her to go back to
school. The local manager tells the American
executive that the child is an orphan with no
other means of support, and she will probably
become a street child if she is denied work.
What should the American executive do?
Employment practices
When work conditions in a host nation are
inferior to those of the home nation, which
country`s standards should be applied?
The reason for investment might be the
divergence….How much divergence is
acceptable?
Employment practices
Establishing minimal acceptable standards that
safeguard the basic rights and dignity of
employees, auditing foreign subsidiaries and
subcontractors on a regular basis to make sure
those standards are met
Environmental pollution
If environmental regulations in host nations
are inferior to those in the home nation, which
country`s standards should be applied?
The reason for investment might be the
divergence….How much divergence is
acceptable? Is it ok to pollute to gain an
economic advantage?
Tragedy of the commons
Human rights Imagine that you are a CEO of a company, which has
investments in South Africa during the days of white rule
and apartheid (before 1994). Among other things the
apartheid system denies basic political rights to the majority
nonwhite population in South Africa, mandates segregation
between the whites and nonwhites, reserves certain
occupations exclusively for whites, and prohibits blacks
from being placed in positions where they would manage
whites. Despite the odious nature of the system, western
businesses operate in South Africa, but many question the
ethics of doing so. They argue that inward investments by
foreign multinationals, by boosting the South African
economy, supports the repressive apartheid regime. Would
you reconsider your investment/the way you operated in
the country under these circumstances? How would you
operate in South Africa?
Human rights
Basic human rights are not respected in many
nations- SA during apartheid (until 1994)
Many argued that the inward investment by the
MNEs boosted the economy and supported the
regime
Others- it was ethically ok if companies did not
obey the apartheid laws and actively promoted
their abolition
Divestment and sanctions- end of apartheid
Human rights
Is it ethical for multinationals to do business
in countries with repressive systems?
What is the responsibility of a foreign
multinational when operating in a country
where basic human rights are trampled on?
What actions should it take?
Human rights
Inward investment can be a force for
economic, political and social progress-
improves the rights of people (economic
progress- pressure for democratisation)
Some regimes are so repressive that
investment cannot be justified on ethical
grounds (Nigeria – military dictatorship)
Corruption
You are a CEO of a company, which has
investments in a developing country with high
corruption. You know that doing business in that
country requires paying bribes to government
officials to gain business/secure contracts and
paying so called facilitating payments. These are
sometimes known as speed money or grease
payments- payments to ensure receiving treatment
that a business ought to receive from foreign
government but might not due to the obstruction of
foreign officials. How would you operate under
these conditions?
Corruption
USA- Foreign Corrupt Practices Act- allows
facilitating payments (grease, speed money)-
are not payments to secure contracts, nor to
obtain exclusive preferential treatment. This
payments should secure standard treatment
OECD- Convention on combating bribery of
foreign public officials in international
business transactions
What are the ethical implications?
Corruption
“Giving bribes might be the price that must be
paid to do a greater good (investments create
jobs and income).”
“Corruption tends to corrupt both the bribe
giver and the bribe taker. Corruption feeds on
itself.”
A manager from a developing country is overseeing a
multinational’s operations in a country where drug
trafficking and lawlessness are rife. One day, a
representative of a local “big man” approaches the
manager and asks for a “donation” to help the “big man”
provide housing for the poor. The representative tells the
manager that in return for the donation, the “big man” will
make sure that the manager has a productive stay in his
country. No threats are made, but the manager is well
aware that the “big man” heads a criminal organization that
is engaged in drug trafficking. He also knows that the “big
man” does indeed help the poor in the run down
neighborhood of the city where he was born. What should
the manager do?
The main ethical questions in int.
business Invest or not?
Ignore the local practice or follow it?
Go an extra mile- social investment?
Straw men approaches to business
ethics The Friedman doctrine
Cultural relativism
Righteous moralist
Naïve immoralist
Friedman doctrine
The only social responsibility of business is to
increase profits, so long as the company
stays within the rules of law
Rejects the idea that business should
undertake social expenditures beyond those
mandated by law or required for the efficient
running of a business
If shareholders wish to make social
investment, it is their right
Cultural relativism
Ethics are nothing more than the reflection of
a culture, a firm should adopt the ethics of a
culture in which it is operating
Rejects the idea that universal notions of
morality transcend different cultures
Some business practices are ethical in one
country, but not another
The righteous moralist
Claims that a multinational`s home country
standards of ethics are the appropriate ones
for companies to follow in foreign countries
There are universal moral principles that
should not be violated
The naive immoralist
If a manager of a multinational sees that firms
from other nations are not following ethical
norms in a host nation, that manager should
not either.
Drug lord problem and protection money
Utilitarian ethics
The moral worth of actions is determined by
their consequences
An action is judged to be desirable if it leads
to the best possible balance of good
consequences over bad consequences
Maximisation of good and minimisation of
harm
Business- weight all social benefits and costs
of a business action and pursue only those
actions where the benefits outweigh the
costs- cost benefit analysis
Utilitarian ethics
Measuring the costs and benefits
(environment)
The action that produces the greatest good
may result in unjustified treatment (UK floods)
Kantian ethics
Categorical imperative
“Act only according to that maxim whereby
you can, at the same time, will that it should
become a universal law”
Acts are ethical only if you can make them a
law- how would the world function (would it
be a good thing) if everyone did that?
(examples- train; killer and a friend)
Rights theories
Human beings have fundamental rights and
privileges that transcend national boundaries
and cultures
Rights establish a minimum level of morally
acceptable behaviour
Universal declaration of human rights
With great power comes great responsibility.
Multinationals should give something back to
the societies that enable them to grow and
prosper
