International Business

8e
By Charles W.L. Hill

Chapter 4 Ethics in International Business

McGraw-Hill"Irwin Copyright 2011 by the McGraw-Hill Companies, Inc. All rights reser e!.

What Is Ethics?
Ethics refers to accepted principles of right or wrong that govern
the conduct of a person the members of a profession the actions of an organi ation

Business ethics are the accepted principles of right or wrong governing the conduct of business people Ethical strategy is a strategy! or course of action! that does not violate these accepted principles
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 "he most common ethical issues in business involve

#. $. %. 4. &. employment practices human rights environmental regulations corruption the moral obligation of multinational companies
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Which Ethical Issues Are Most Relevant To International Firms?

How Are Ethics Relevant To Employment Practices?

'uppose wor( conditions in a host nation are clearly inferior to those in the multinational)s home nation Which standards should apply*
home country standards host country standards something in between

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How Are Ethics Relevant To Human Rights?

Basic human rights are ta(en for granted in developed countries
freedom freedom freedom freedom of of of of association speech assembly movement

What are the responsibilities of firms in countries where basic human rights are not respected*
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How Are Ethics Relevant To Environmental Regulations?

'ome parts of the environment are a public good that no one owns! but anyone can despoil "he trage y o! the commons occurs when a resource held in common by all! but owned by no one! is overused by individuals! resulting in its degradation What happens when environmental regulations in host nations are far inferior to those in the home nation* Is it permissible for multinationals to pollute in developing countries simply because there are no regulations against it* 4-7

How Are Ethics Relevant To "orruption?

"he +.'. Foreign "orrupt Practices Act outlawed the practice of paying bribes to foreign government officials in order to gain business "he "onvention on "om#ating Bri#ery o! Foreign Pu#lic $!!icials in International Business Transactions adopted by the ,rgani ation for -conomic Cooperation and .evelopment /,-C.0! obliges member states to ma(e the bribery of foreign public officials a criminal offense But! is it permissible for multinationals to pay government officials facilitating payments if doing so creates local income and 1obs*
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How Are Ethics Relevant To Moral $#ligations?

%ocial responsi#ility refers to the idea that managers should consider the social conse2uences of economic actions when ma(ing business decisions! and that there should be a presumption in favor of decisions that have both good economic and good social conse2uences
it is the right way for a business to behave

3dvocates argue that businesses need to recogni e their no#lesse o#lige 4 honorable and benevolent behavior that is the responsibility of successful companies
give something bac( to the societies that have made their success possible

But! are multinationals morally re2uired to use their power to enhance local welfare*

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What Are Ethical &ilemmas?

Ethical ilemmas are situations in which none of the available alternatives seems ethically acceptable "he ethical obligations of a multinational corporation toward employment conditions! human rights! corruption! environmental pollution! and the use of power are not always clear cut

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Why &o Managers Behave 'nethically?

'everal factors contribute to unethical behavior including () Personal ethics 4 the generally accepted principles of right and wrong governing the conduct of individuals
e5patriates may face pressure to violate their personal ethics because they are away from their ordinary social conte5t and supporting culture managers fail to 2uestion whether a decision or action is ethical! and instead rely on economic analysis when ma(ing decisions

*) &ecision+ma,ing processes 4 the values and norms that are shared among employees of an organi ation
organi ation culture that does not emphasi e business 4-11 culture encourages unethical behavior

Why &o Managers Behave 'nethically?

-) $rgani.ational culture 4 organi ational culture can legitimi e unethical behavior or reinforce the need for ethical behavior /) 'nrealistic per!ormance e0pectations 4 encourage managers to cut corners or act in an unethical manner 1) 2ea ership 4 helps establish the culture of an organi ation! and set the e5amples that others follow
when leaders act unethically! subordinates may act unethically! too
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Why &o Managers Behave 'nethically?

.eterminants of -thical Behavior

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What Are The Philosophical Approaches To Ethics?

"here are several different approaches to business ethics 'traw men approaches deny the value of business ethics or apply the concept in an unsatisfactory way ,thers approaches are favored by moral philosophers and are the basis for current models of ethical behavior
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What Are The %traw Men Approaches To Business Ethics? "here are four common straw men approaches
() Frie man octrine 4 the only social responsibility of business is to increase profits! so long as the company stays within the rules of law *) "ultural relativism 4 ethics are culturally determined and firms should adopt the ethics of the cultures in which they operate 6when in 7ome! do as the 7omans do8 -) Righteous moralist 4 a multinational)s home country standards of ethics should be followed in foreign countries /) 3a4ve immoralist 4 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 3ll approaches offer inappropriate guidelines for ethical

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What Are 'tilitarian An 5antian Approaches To Ethics? 'tilitarian ethics 4 the moral worth of
actions or practices is determined by their conse2uences
actions are desirable if they lead to the best possible balance of good conse2uences over bad conse2uences but! it is difficult to measure the benefits! costs! and ris(s of an action the approach fails to consider 1ustice

5antian ethics 4 /Immanuel 9ant0 4 people should be treated as ends and never purely as means to the ends of

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What Are Rights Theories?

Rights theories 4 human beings have fundamental rights and privileges which transcend national boundaries and cultures
establish a minimum level of morally acceptable behavior the 'niversal &eclaration o! Human Rights specifies the basic principles that should always be adhered to irrespective of the culture in which one is doing business

:oral theorists argue that fundamental human rights form the basis for the moral compass that managers should navigate by when ma(ing decisions which have an ethical component 4-17

What Are 6ustice Theories?

6ustice theories focus on the attainment of a 1ust distribution of economic goods and services
a 7ust istri#ution is one that is considered fair and e2uitable

;ohn 7awls argued that all economic goods and services should be distributed e2ually e5cept when an une2ual distribution would wor( to everyone)s advantage
impartiality is guaranteed by the veil o! ignorance 4 everyone is imagined to be ignorant of all his or her particular characteristics

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How "an Managers Ma,e Ethical &ecisions?

"o encourage ethical decision ma(ing! firms should #. Hire and promote people with a well grounded sense of personal ethics
refrain from promoting individuals who have acted unethically prospective employees should find out as much as they can about the ethical climate in an organi ation prior to ta(ing a position

$. Build an organi ational culture that places a high value on ethical behavior
articulate values that place a strong emphasis on ethical behavior emphasi e importance of co e o! ethics 4 formal statement of the ethical priorities a business adheres to implement a system of incentives and rewards that recogni e people who engage in ethical behavior and
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How "an Managers Ma,e Ethical &ecisions?

%. :a(e sure that leaders within the business articulate the rhetoric of ethical behavior and act in a manner that is consistent with that rhetoric 4. .evelop moral courage
enables managers to wal( away from a decision that is profitable! but unethical gives an employee the strength to say no to a superior who instructs her to pursue actions that are unethical gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company
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How "an Managers Ma,e Ethical &ecisions?

&. <ut decision ma(ing processes in place that re2uire people to consider the ethical dimension of business decisions
as( whether
decisions fall within the accepted values of standards that typically apply in the organi ational environment decisions can be communicated to all sta(eholders affected by it if colleagues would approve of decisions

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How "an Managers Ma,e Ethical &ecisions?

:anagers can also use a five step process to thin( through ethical problems= %tep(8 Identify which sta,ehol ers /the individuals or groups who have an interest! sta(e! or claim in the actions and overall performance of a company0 a decision would affect and in what ways
internal sta,ehol ers are people who wor( for or who own the business such as employees! the board of directors! and stoc(holders e0ternal sta,ehol ers are the individuals or groups who have some claim on a firm such as customers! suppliers! and unions

%tep *8 .etermine whether a proposed decision would violate the fundamental rights of any sta(eholders

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How "an Managers Ma,e Ethical &ecisions?

%tep -8 -stablish moral intent 4 place moral concerns ahead of other concerns in cases where either the fundamental rights of sta(eholders or (ey moral principles have been violated %tep /8 -ngage in ethical behavior %tep 18 3udit decisions and review them to ma(e sure that they are consistent with ethical principles
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What Is An Ethics $!!icer?

-thics officers ensure
all employees are trained in ethics ethics is considered in the decision4ma(ing process the company)s code of conduct is followed

In the end! there are clearly things that an international business should do! and there are things that an international business should not do But! not all ethical dilemmas have a clean and obvious solution
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7eview >uestion
3ll of the following e5cept ???? contribute to unethical behavior by international managers. a0 .ecision4ma(ing processes b0 Leadership c0 <ersonal ethics d0 @ational culture

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7eview >uestion
3ccording to ????????! a company)s home country standards of ethics are the appropriate ones to follow in foreign countries. a0 the righteous moralist b0 the naAve immoralist c0 the Briedman doctrine d0 cultural relativism
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7eview >uestion
???????? recogni e that human beings have fundamental rights and privileges which transcend national boundaries and cultures. a0 9antian ethics b0 +tilitarian approaches c0 'traw men

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7eview >uestion
"he ????? suggests that everyone is imagined to be ignorant of all his or her particular characteristics. a0 tragedy of the commons b0 veil of ignorance c0 code of ethics d0 the +niversal .eclaration of Human 4-28

7eview >uestion
What is a company)s formal statement of ethical priorities called* a0 :ission statement b0 Code of ethics c0 Code of values d0 ,rgani ational culture
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7eview >uestion
Which is not an area where multinational firms are concerned about ethics* a0 Human rights b0 "rade regulations c0 -nvironmental regulations d0 Corruption
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