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Chapter 4

Managing Ethical and Social


Responsibility Challenges in
Multinational Companies

Copyright 2007 Thomson Learning All rights reserved

Learning Objectives
Know
Know the
the definitions
definitions ofof international
international business
business ethics
ethics
and
and social
social responsibility
responsibility
Understand
Understand some
some basic
basic principles
principles ofof ethical
ethical philosophy
philosophy
relevant
relevant toto business
business ethics
ethics
Understand
Understand how
how social
social institutions
institutions and
and national
national culture
culture
affect
affect ethical
ethical decision
decision making
making and
and management
management

Copyright 2007 South-Western/Thomson Learning All rights reserved

Learning Objectives
Understand
Understand the
the implications
implications ofof using
using ethical
ethical relativism
relativism
and
and ethical
ethical universalism
universalism
Identify
Identify the
the basic
basic principles
principles and
and consequences
consequences ofof the
the
U.S.
U.S. Foreign
Foreign Corrupt
Corrupt Practices
PracticesAct
Act
Understand
Understand how
how international
international agreements
agreements affect
affect
international
international business
business ethics
ethics

Copyright 2007 South-Western/Thomson Learning All rights reserved

Learning Objectives
Understand
Understand the
the differences
differences among
among economic,
economic, legal,
legal,
and
and ethical
ethical analyses
analyses ofof business
business problems
problems
Develop
Develop skills
skills inin international
international decision
decision making
making with
with
ethical
ethical consequences
consequences

Copyright 2007 South-Western/Thomson Learning All rights reserved

International Business Ethics

Ethics
Ethics deal
deal with
with the
the oughts
oughts ofof life
life
Although
Although economics
economics dominate
dominate business
business decisiondecisionmaking,
making, business
business decisions
decisions also
also have
have consequences
consequences
for
for people
people
International
International business
business ethics:
ethics: unique
unique ethical
ethical problems
problems
faced
faced by
by managers
managers operating
operating across
across national
national
boundaries
boundaries
More
More complex
complex as
as different
different cultures
cultures do
do not
not agree
agree on
on
what
what one
one ought
ought toto do
do
Copyright 2007 South-Western/Thomson Learning All rights reserved

Corporate Social
Responsibility
Idea
Idea that
that businesses
businesses have
have aa responsibility
responsibility toto society
society
beyond
beyond making
making profits
profits
Closely
Closely related
related toto business
business ethics
ethics
Must
Must take
take into
into account
account the
the welfare
welfare ofof other
other
constituents
constituents inin addition
addition toto stockholders
stockholders

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.1: Areas of Ethical and Social


Responsibility Concerns for the
Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.1: Areas of Ethical and Social


Responsibility Concerns for the
Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Primary and Secondary


Stakeholders
Primary
Primary Stakeholders:
Stakeholders: directly
directly linked
linked toto aa companys
companys
survival
survival and
and include
include customers,
customers, suppliers,
suppliers, employees,
employees,
and
and shareholders
shareholders
Secondary
Secondary Stakeholders:
Stakeholders: less
less directly
directly linked
linked toto the
the
companys
companys survival
survival and
and include
include the
the media,
media, trade
trade
associations,
associations, and
and special-interest
special-interest groups
groups

Copyright 2007 South-Western/Thomson Learning All rights reserved

Ethical Philosophy
Two
Two ways
ways toto consider
consider ethical
ethical decision
decision making
making
Traditional
Traditional ethical
ethical philosophy
philosophy
Contemporary
Contemporary philosophy
philosophy

Copyright 2007 South-Western/Thomson Learning All rights reserved

Basic Systems of Ethical


Reasoning
Teleological
Teleological ethical
ethical theory
theory
Morality
Morality ofof an
an act
act or
or practice
practice comes
comes from
from its
its
consequences
consequences
Utilitarianism:
Utilitarianism: what
what isis good
good and
and moral
moral comes
comes from
from
acts
acts that
that produce
produce the
the greatest
greatest good
good for
for the
the greatest
greatest
number
number ofof people
people

Copyright 2007 South-Western/Thomson Learning All rights reserved

Deontological Ethical Theory


Actions
Actions have
have aa good
good or
or bad
bad morality
morality regardless
regardless ofof the
the
outcomes
outcomes they
they produce
produce

Copyright 2007 South-Western/Thomson Learning All rights reserved

Moral Languages
Basic
Basicways
waysthat
thatpeople
peopleuse
usetotomake
makeethical
ethicaldecisions
decisionsand
andtoto
explain
explaintheir
theirethical
ethicalchoices
choices
Six
Sixbasic
basicethical
ethicallanguages
languages
Virtue
Virtueand
andvice
vice
Self-control
Self-control
Maximizing
Maximizinghuman
humanwelfare
welfare
Avoiding
Avoidingharm
harm
Rights/duties
Rights/duties
Social
Socialcontract
contract
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National Differences in
Business Ethics and Social
Responsibility
National
National culture
culture and
and social
social institutions
institutions affect
affect ethical
ethical
behavior
behavior and
and social
social responsibility
responsibility

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.2: A Model of Institutional and


Cultural Effects on Business Ethics
Issues and Management

Copyright 2007 South-Western/Thomson Learning All rights reserved

Messner and Rosenfeld


Anomie Theory
Argue
Argue that
that specific
specific national
national culture
culture and
and social
social
institutions
institutions affect
affect ethics
ethics
National
National cultures:
cultures: high
high achievement,
achievement, high
high
individualism,
individualism, high
high universalism,
universalism, high
high materialism
materialism
are
are all
all related
related toto higher
higher deviance
deviance
Social
Social institutions:
institutions: high
high industrialization,
industrialization, capitalist
capitalist
systems,
systems, lower
lower family
family breakdown
breakdown and
and highly
highly
accessible
accessible educational
educational systems
systems should
should all
all
encourage
encourage deviance
deviance
Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.3: Comparison of Key Ethical


Issues Identified by Senior U.S. and EU
Managers

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.4: National Differences


Regarding Ethical Codes

Copyright 2007 South-Western/Thomson Learning All rights reserved

Questionable Payments
Questionable
Questionable payments
payments
Bribes
Bribes or
or gifts
gifts toto expedite
expedite government
government actions
actions or
or toto
gain
gain advantage
advantage inin business
business deals
deals
InIn many
many countries,
countries, people
people routinely
routinely offer
offer gifts
gifts ofof bribes
bribes

Copyright 2007 South-Western/Thomson Learning All rights reserved

Questionable Payments
Corruption
Corruption and
and bribery
bribery can
can have
have devastating
devastating effects
effects on
on
societies
societies
Companies
Companies routinely
routinely use
use poorer-quality
poorer-quality products
products or
or
materials
materials toto cover
cover for
for the
the bribe,
bribe, thus
thus resulting
resulting inin inferior
inferior
products
products
Corruption
Corruption can
can also
also result
result inin collusion
collusion among
among firms,
firms,
resulting
resulting inin even
even higher
higher prices
prices

Copyright 2007 South-Western/Thomson Learning All rights reserved

Questionable Payments
To
To understand
understand the
the level
level ofof corruption
corruption inin countries,
countries,
multinational
multinational companies
companies can
can rely
rely on
on the
the Corruption
Corruption
Perception
Perception Index
Index (CPI)
(CPI)
CPI
CPI developed
developed by
byTransparency
Transparency International,
International, gives
gives an
an
idea
idea ofof the
the levels
levels ofof perception
perception ofof corruption
corruption within
within
countries
countries

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.5: The CPI for


Selected Countries

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.6: Bribe Payers Index

Copyright 2007 South-Western/Thomson Learning All rights reserved

U.S. Foreign Corrupt Practices


Act (FCPA)
Forbids
Forbids illegal
illegal payments
payments or
or gifts
gifts toto officials
officials ofof foreign
foreign
governments
governments for
for the
the sake
sake ofof getting
getting or
or retaining
retaining
business
business

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.7: Excerpts from the Foreign


Corrupt Practices Act and Fines

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.7: Excerpts from the Foreign


Corrupt Practices Act and Fines

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.7: Excerpts from the Foreign


Corrupt Practices Act and Fines

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.7: Excerpts from the Foreign


Corrupt Practices Act and Fines

Copyright 2007 South-Western/Thomson Learning All rights reserved

U.S. Foreign Corrupt Practices


Act (FCPA)
Does
Does not
not prohibit
prohibit some
some forms
forms ofof payments
payments that
that may
may
occur
occur inin international
international business
business
Payments
Payments made
made under
under duress
duress toto avoid
avoid injury
injury or
or
violence
violence are
are acceptable
acceptable
Tricky
Tricky component
component isis the
the reason-to-know
reason-to-know component
component
Firms
Firms are
are liable
liable for
for bribes
bribes even
even ifif bribes
bribes are
are made
made
by
by agents
agents ofof company
company
Copyright 2007 South-Western/Thomson Learning All rights reserved

Ethics Gap
More
More coercive
coercive and
and normative
normative pressure
pressure for
for U.S.
U.S.
businesses
businesses toto follow
follow ethical
ethical standards
standards
Recent
Recent evidence
evidence suggests
suggests that
that FCPA
FCPAhas
has not
not
necessarily
necessarily caused
caused U.S.
U.S. business
business toto fall
fall behind.
behind.

Copyright 2007 South-Western/Thomson Learning All rights reserved

Toward Transnational Ethics


Ethical
Ethical convergence:
convergence: growing
growing pressure
pressure toto follow
follow the
the
same
same rules
rules inin managing
managing ethical
ethical behavior
behavior and
and social
social
responsibility
responsibility

Copyright 2007 South-Western/Thomson Learning All rights reserved

Four Basic Reasons for


Ethical Convergence
1.1.The
The growth
growth ofof international
international trade
trade and
and trading
trading blocks
blocks
2.2.Increased
Increased pressures
pressures toto imitate
imitate business
business practices
practices
3.3.Varied
Varied cultural
cultural background
background employees
employees require
require
common
common standards
standards
4.4.An
An increasing
increasing number
number ofof business
business watchdogs
watchdogs

Copyright 2007 South-Western/Thomson Learning All rights reserved

Prescriptive Ethics
Suggested
Suggested guidelines
guidelines for
for the
the ethical
ethical behavior
behavior ofof
multinational
multinational companies
companies
Three
Three moral
moral languages
languages
Avoiding
Avoiding harm
harm
Rights/duties
Rights/duties
Social
Social contract
contract
Three
Three languages
languages work
work irrespective
irrespective ofof national
national
backgrounds
backgrounds
Copyright 2007 South-Western/Thomson Learning All rights reserved

International Ethics Guideline


Sources
The
The United
United Nations
Nations Universal
Universal Declaration
Declaration ofof Human
Human
Rights
Rights
The
The United
United Nations
Nations Code
Code ofof Conduct
Conduct on
onTransnational
Transnational
Corporations
Corporations
The
The European
European Convention
Convention on
on Human
Human Rights
Rights
The
The International
International Chamber
Chamber ofof Commerce
Commerce Guidelines
Guidelines
for
for International
International Investment
Investment
Copyright 2007 South-Western/Thomson Learning All rights reserved

International Ethics Guideline


Sources
The
The Organization
Organization for
for Economic
Economic Cooperation
Cooperation and
and
Development
Development Guidelines
Guidelines for
for Multinational
Multinational Enterprises
Enterprises
The
The Helsinki
Helsinki Final
FinalAct
Act
The
The International
International Labor
Labor Office
OfficeTripartite
Tripartite Declarations
Declarations ofof
Principles
Principles Concerning
Concerning Multinational
Multinational Enterprises
Enterprises and
and
Social
Social Policy
Policy

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.8: A Code of Conduct for the


Multinational Company

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Exhibit 4.8: A Code of Conduct for the


Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.8: A Code of Conduct for the


Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.8: A Code of Conduct for the


Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.8: A Code of Conduct for the


Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.8: A Code of Conduct for the


Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Exhibit 4.8: A Code of Conduct for the


Multinational Company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Two Basic Rationales for the


Code of Conduct for the
Multinational
Basic
Basic deontological
deontological principles
principles dealing
dealing with
with human
human
rights
rights
History
History ofof experiences
experiences inin international
international business
business
interactions
interactions
However,
However, despite
despite the
the existence
existence ofof extensive
extensive
agreements,
agreements, multinationals
multinationals may
may not
not always
always follow
follow
ethical
ethical principles.
principles.

Copyright 2007 South-Western/Thomson Learning All rights reserved

Why Multinationals Might Not


Follow Ethical Principles

Governments
Governments make
make agreements
agreements
The
The agreements
agreements have
have only
only voluntary
voluntary compliance
compliance
Not
Not all
all governments
governments subscribe
subscribe toto the
the agreements
agreements
Each
Each agreement
agreement isis an
an incomplete
incomplete moral
moral guide
guide toto the
the
company
company

Copyright 2007 South-Western/Thomson Learning All rights reserved

Best Practices Steps

Leading
Leading by
by example
example
Making
Making ethics
ethics part
part ofof the
the corporate
corporate culture
culture
Involving
Involving employees
employees atat all
all levels
levels
Setting
Setting and
and monitoring
monitoring goals
goals
Effective
Effective integration
integration inin business
business processes
processes
Open
Open discussion
discussion ofof ethics
ethics and
and other
other ethical
ethical issues
issues
Governments
Governments make
make agreements
agreements
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The Ethical Dilemma in


Multinational Management:
How Will You Decide?
Ethical
Ethical relativism
relativism vs.
vs. Ethical
Ethical universalism
universalism
Ethical
Ethical relativism:
relativism: each
each societys
societys view
view ofof ethics
ethics must
must
be
be considered
considered legitimate
legitimate and
and ethical
ethical
Ethical
Ethical universalism:
universalism: basic
basic moral
moral principles
principles that
that
transcend
transcend cultural
cultural and
and national
national boundaries
boundaries
Difficulty
Difficulty inin following
following either
either ethical
ethical relativism
relativism or
or
universalism
universalism
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Convenient Relativism
Companies
Companies have
have aa higher
higher responsibility
responsibility than
than ethical
ethical
relativism
relativism
However,
However, some
some companies
companies use
use the
the logic
logic ofof ethical
ethical
relativism
relativism toto behave
behave any
any way
way they
they please
please
Use
Use the
the excuse
excuse ofof differences
differences inin cultures
cultures

Copyright 2007 South-Western/Thomson Learning All rights reserved

Individual Ethical Decision


Making for the Multinational
Manager
Forms
Forms ofof analyses
analyses
Economic
Economic analysis:
analysis: focuses
focuses on
on what
what isis the
the best
best
decision
decision for
for aa companys
companys profits
profits
Legal
Legal analysis:
analysis: focuses
focuses on
on only
only meeting
meeting legal
legal
requirements
requirements ofof host
host and
and parent
parent countries
countries
Ethical
Ethical analysis:
analysis: goes
goes beyond
beyond focusing
focusing on
on profit
profit
goals
goals and
and legal
legal regulations
regulations
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Exhibit 4.9: Decision Points of Ethical


Decision Making in Multinational
Management

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Exhibit 4.9: Decision Points of Ethical


Decision Making in Multinational
Management

Copyright 2007 South-Western/Thomson Learning All rights reserved

Individual Ethical Decision


Making
Purely
Purely ethical
ethical issues
issues must
must be
be weighed
weighed against
against
economic
economic and
and legal
legal analyses.
analyses.
However,
However, multinational
multinational managers
managers are
are guests
guests inin other
other
nations.
nations.
Ethical
Ethical decision
decision making
making must
must go
go beyond
beyond legal
legal
constraints.
constraints.

Copyright 2007 South-Western/Thomson Learning All rights reserved

Individual Ethical Decision


Making
There
There isis no
no single
single accepted
accepted ethical
ethical theory
theory that
that
managers
managers can
can use.
use.
There
There are
are generally
generally accepted
accepted theories
theories that
that can
can be
be
used
used as
as guides,
guides, however.
however.
Such
Such ethical
ethical analyses
analyses can
can help
help raise
raise managers
managers
awareness
awareness ofof ethical
ethical issues.
issues.

Copyright 2007 South-Western/Thomson Learning All rights reserved

Conclusion
Multinational
Multinational managers
managers face
face ethical
ethical dilemmas
dilemmas similar
similar
toto their
their domestic
domestic counterparts
counterparts
Chapter
Chapter provides
provides background
background on
on business
business ethics
ethics
Challenges
Challenges are
are magnified
magnified by
by the
the complexity
complexity ofof working
working
across
across different
different countries
countries and
and cultures
cultures

Copyright 2007 South-Western/Thomson Learning All rights reserved

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