Ethics and Social
Responsibility
K. Praveen Parboteeah

Objectives
What is ethics and social responsibility?
How does national culture and social
institutions affect ethics?
Bribery and Foreign Corrupt Practices Act
What can be done about it?
When in Rome, do as the Romans?
Universal values
Ethics in Japan

Tobacco’s Industry Ethics
Few developing countries require health
warning on cigarette packages compared
to 95% of developed nations
Should tobacco company put warnings? Should
they advertise in LDC?
Cigarette consumption and production is
increasing at an alarming rate in LDC
Targeted at young people and women
Cigarettes in LDC contain more tar and
harmful chemicals
Should tobacco be cultivated?

Tobacco’s Industry Position
Tobacco cultivation in LDC grants higher
returns than alternative crops
More than 100 million people depend on
tobacco for survival
People in LDC have been cultivating and
smoking tobacco for centuries
Dilemma:
What weight should be given to human
freedom (freedom of farmers and smokers)
versus weight of human welfare?

Introduction
Multinational managers face
complex ethical issues all the time
With an understanding of key
ethical problems in multinational
management, managers can make
more informed ethical judgments

Ethics & Multinational Ethics
Ethics - the rules and values that
determine what goals and actions
people follow when dealing with
other human beings
Business ethics: all business
decisions with ethical consequences
The unique ethical problems faced
by managers conducting business
operations across national
boundaries

Social Responsibility
The responsibility businesses have
to society beyond making profits
Often reflects the ethical values
and decisions of the top
management team
Ethics and social responsibility- not
easily distinguished in practice

Research Evidence
Cullen, Parboteeah & Hoegl (2004)
shows that specific
cultural/institutional variables are
associated with justification of
unethical behaviors
Universalism, Pecuniary Materialism
lead to more unethical behavior
Industrialization, Family Weakness and
Education

Is American Capitalism Moral?
Marxist Critic
Exploitation of workers
Alienation of human beings
Protects the vested interest of few
Non-Marxist Critic
False needs and overproduction –
wasteful nature of the system
The Military-Industrial complex
Inequalities inherent in the system

In Defense of Capitalism
Great emphasis on the importance and
value of human freedom
Political freedom is only possible with
economic freedom
Enormous stride in the ability to produce
goods and services – very efficient
Redistribution of wealth
Although Bill Gates has become the richest man
in around 15-20 years, large number of other
people have benefited from the Microsoft wealth
No system is perfect

Approaches to Deal With International
Ethical Dilemmas
When in Rome do as the Romans do?
Only guide is what is legal and
appropriate in that country
Justification:
In some instances, laws and regulations may
be stricter (e.g., Europe have stricter
environmental laws)
If things are sufficiently different, then it is
(maybe) necessary to apply different
standards (e.g., US companies complied with
Arab firms not to post women and Jews for
fear of losing lucrative contracts)

Is the adage wholly justified?
No – because a country permits bribery,
unsafe working conditions, and violation
of human rights does not mean that these
practices are acceptable
Key issues
Questionable payments/Bribery
Employment
Environmental issues
Product safety

Bribery
Making a payment to a foreign official for
the purpose of “influencing any act or
decisions of such foreign official in his in his
official capacity or of inducing such foreign
official to do or omit to do any act in
violation of the lawful duty of such official”
A bribe is made with the intention to corrupt
Classic case of Lockheed Corporation – paid
Japanese officials $25million to win an
aircraft contract

What’s wrong with bribery?
Systematic and widespread
corruption inhibits the development
of fair and efficient markets
Does not provide open market access to
all competitors/individuals
Is not an efficient allocation of resources
– higher prices
Results in poverty and
underdevelopment
Violation of duty or trust by an
official

Foreign Corrupt Practices Act
Forbids U.S. companies to make or offer
payments or gifts to foreign government
officials to get or retain business
“Reason to know\" provision
Exceptions:
Grease payments – facilitating payments to expedite
routine governmental action
Reasonable expenditures to entertain a foreign official in
the course of doing business
Any laws that permits or requires payments in the
country – even if it is bribe
payments made under duress to avoid injury or
violence are acceptable

Key Issues
Some evidence that discontinuing bribes
does not reduce sales of the firm’s
products or services in that country
Some evidence that firms from other
countries continue to win business
through corrupt practices such as bribery
Recent formal agreement by many
industrialized nations to outlaw the
practice of bribing foreign government
officials

Criticisms of Multinationals
Multinationals operate in LDC to seek
cheap labor, available resources, tax
shelters and relief and new markets
Unfair competition of MNCS
Can borrow at great rates from local lenders
and do not carry fair share of social
development
Increase in tax rate
MNCs and impoverishment of LDCs
Take away scarce resource from locals

Other Criticisms of MNCs
Majority of stock owned by parent
company
MNCs reserve key managerial and
technical positions for expatriates
MNCs concentrate R&D activities at
home – limiting transfer of
technology
Rise in demand for luxury goods at
expense of essential goods

What can be done? Apply Universal
Codes
Countries and companies should
abide by suggested guidelines for
ethical behaviors
There is pressure now across the
world for ethical convergence

DeGeorge’s 7 principles
Multinationals (MNCs) should do no harm
MNCs should produce more good than bad for the
host country
MNCs should contribute by their activities to the host
country’s development
MNCs should respect the right of their employees
MNCs should pay their fair share of taxes
To the extent that the local culture does not violate
moral norms, MNCs should respect these norms
MNCs should cooperate with the local governments
in the development and enforcement of background
institutions

Best Practices for Enforcement of Code
of Ethics
Lead by example – international
executives should also adhere to the code
of ethics
Make ethics part of the corporate culture
Involve employees at all levels
Set and monitor goals
Effective integration in business processes
Open forum to discuss ethical issues

Ethics in Japan
Japanese cabinet member forced to
resign for receiving over $2 million from
Japanese corporations
Failure of banking system to take
corrective action regarding Japan’s
recession
Concealing customer complaints
Failure to inform car owners about
possible auto defects and maintenance of
two sets of customer complaint records

Ethics in Japan
Hostile work environment
Cultural expectations
Traditional role of females and female
employees
Sexual harassment may not be
considered a moral issue
Equal opportunity issues
Refusal to hire women or promote
them into management positions
Mitsubishi sued by U.S. EEOC

Conclusions
Multinational managers face ethical
challenges magnified by the
international context
Need to understand home ethical
codes and impact on ethics of
foreign culture/social institutions