International Business & Trade

1. LESSON 5

2. Ethics
- accepted principles of right or wrong
that govern the conduct of a person, the
members of a profession, or the actions
of an organization
• Business ethics - accepted principles
of right or wrong governing the
conduct of business people
• Ethical strategy - a strategy, or course
of action, that does not violate these
accepted principles

3. The most common ethical issues
in business involve
• Employment practices
• Human rights
• Environmental pollution
• Corruption
• Gardner: Also, transparency
(accurate information to public
and stockholders), product
pricing, recognition of
intellectual property, etc.

5. • What practices should be used when work conditions
are inferior in the host nation?
• Those of the home nation
• Those of the host nation
• Something in between
Employment Practice

6. • What practices should be used when work conditions
are inferior in the host nation?
• Those of the home nation
• Those of the host nation
• Something in between
Employment Practice

7. Human Rights
• What is the responsibility of a foreign multinational when
operating in a country where basic human rights are not
respected?
> South Africa and apartheid
> The Sullivan principles adopted by GM

8. Human Rights
• What is the responsibility of a foreign multinational when
operating in a country where basic human rights are not
respected?
> South Africa and apartheid
> The Sullivan principles adopted by GM

9. Leon Sullivan
Leon Sullivan ( 1922-2001 was a Baptist pastorAnd civil rights leader who was
appointed to theBoard of Directors of General Motors in 1971 – the first African-
America n to serve on the board of a major U.S. corporation. In 1977, he
developed a code of conduct for companies operating in South Africa to
oppose apartheid without complete disinvestment
• Non-segregation of the races in all eating, comfort, and work
facilities.
• Equal and fair employment practices for all employees.
• Equal pay for equal work.
• Training programs to prepare blacks and other nonwhites for
supervisory, administrative, clerical, and technical jobs.
• Increase the number of blacks and other nonwhites in management
and supervisory positions.
• Improve the quality of life for blacks and other nonwhites in such
areas as housing, transportation, school, recreation, and health
facilities.
• Work to eliminate laws and customs that impede social, economic,
and political justice. (added in 1984)

10. In 1999, six years after the end of apartheid, the Rev. Leon Sullivan and U.N.
Secretary General Kofi Annan unveiled the new "Global Sullivan Principles“
• Support for universal human rights.
• Equal opportunity for our employees at all levels of the
company.
• Respect employees’ voluntary freedom of association.
• Compensate employees to enable them to meet their basic
needs and improve their skill and capability to raise their social
and economic opportunities.
• Provide a safe and healthy workplace and promote
sustainable development.
• Promote fair competition including respect for intellectual and
other property rights, and not offer, pay or accept bribes.
• Work with governments and communities to improve the
quality of life in those communities.
• Promote the application of these principles with business
partners.

11. Environmental Pollution
• Should a multinational feel free to pollute in a developing
nation if doing so does not violate laws?Tragedy of the
commons
• Tragedy of the commons - occurs when individuals overuse
a resource held in common by all, but owned by no one,
resulting in its degradation

12. Corruption
• Is it ethical to make payments to government officials to
secure business?
• Foreign Corrupt Practices Act
• Convention on Combating Bribery of Foreign Public Officials
in International Business Transactions
> Facilitating payments/speed money excluded

13. FOREIGN CORRUPT PRACTICES ACT (Gardner)
• Signed into law by President Jimmy Carter in 1977 after the SEC found that
over 400 U.S. companies had made illegal payments in excess of $300
million to foreign government officials.
• Makes it unlawful for a U.S. person to make a payment to a foreign official
for the purpose of obtaining or retaining business. Violations are
punishable with imprisonment.
• Accounting provisions require publically-traded companies to maintain
and adhere to internal policies that manage risk and ensure that accurate
financial records are maintained. In a July 2017 settlement, Halliburton
agreed pay a $29.2 million fine for circumventing its own internal
accounting controls in an effort to gain business in Angola. No illegal
payment to a foreign official was ever proved.

14. FOREIGN CORRUPT PRACTICES ACT (Gardner)
• Speculation in the press suggests that Paul Manafort, President Trump’s
former campaign chief, may be charged under the FCPA
• Some argue that paying bribes might be the price of doing a greater good
> Where preexisting political structures distort or limit the workings of the
market mechanism, corruption -marketeering, smuggling, and side
payments to government bureaucrats to “speed up” approval for
business
investments - may actually enhance welfare
• Others argue that corruption reduces the returns on business investment
and leads to low economic growth

15. Moral Obligation
• Social responsibility refers to the idea
that businesspeople should consider
the social consequences of economic
actions when making business
decisions, and that there should be a
presumption in favor of decisions that
have both good economic and social
consequences

16. Ethical Dilemmas
• Managers often face situations where
the appropriate course of action is not
clear
• Ethical dilemmas - situations in which
none of the available alternatives
seems ethically acceptable
> Exist because real world decisions
are complex, difficult to frame,
and involve various consequences
that are difficult to quantify

18. Personal Ethics
• Business ethics reflect personal ethics
• Expatriates may face pressure to violate their personal ethics
> They are away from their ordinary social context and
supporting culture
> They are psychologically and geographically distant from
the parent company

19. Decision Making Process
• Business people may behave unethically because they fail
to ask the relevant questions
• Decisions made based on economic logic

20. Organizational Culture
• Unethical behavior may exist in firms with an organizational
culture that does not emphasize business ethics
• Values and norms shape the culture of a firm, and that
culture influences decision making

21. Unrealistic Performance Goals
• Pressure from parent company to meet goals that are
unrealistic and can only be attained by acting in an
unethical manner

22. Leadership
• Employees often take cues from business leaders
• Actions speak louder than words

23. • Straw Men
• Utilitarian and Kantian Ethics
• Right Theories
• Justice Theories

24. • Friedman doctrine
• Cultural relativism
• Righteous moralist
• Naive immoralist.

25. Friedman Doctrine
• The only social responsibility of business is to increase
profits, so long as the company stays within the rules of law
> Companies should do only what is mandated by law
and what is required to run a business efficiently

26. Cultural Relativism
• Ethics are culturally determined and firms should adopt the
ethics of the cultures in which they operate
> “When in Rome, do as the Romans do”

27. Righteous Moralist
• An MNE’s home country standards of ethics are the
appropriate ones for companies to follow in foreign
countries
> Approach is common among managers from
developed countries

28. Utilitarian Approach
• The moral worth of actions or practices is determined by their
consequences
> Actions have multiple consequences, some good, some
not
> Actions are desirable if they lead to the best possible
balance of good consequences over bad consequences

29. Kantian Ethics
• Immanuel Kant argued that people should be treated as ends
and never purely as means to the end of others
> People have dignity and need to be respected, they are
not machines
> Gardner – Kant also said that virtuous/immoral acts are
often an end in themselves; not merely a means to some
other end. Murder, for example, is immoral in itself, even if
the murder would somehow contribute to the “greater good”

30. • Human beings have fundamental rights and privileges that
transcend national boundaries and culture
• Form the basis for the moral compass that managers should
navigate by when making decisions that have an ethical
component
• The idea that some fundamental rights transcend national
borders and cultures was the underlying motivation for the UN’s
Universal Declaration of Human Rights

31. • Focus on the attainment of a just distribution (one that is
considered fair and equitable) of economic goods and services
• John Rawls - all economic goods and services should be
distributed equally except when an unequal distribution would
work to everyone’s advantage
• Impartiality is guaranteed by the veil of ignorance - everyone is
imagined to be ignorant of all his or her particular characteristics

32. • Hiring and Promotions
• Organizational Culture and
Leadership
• Decision Making Process
• Ethics Officers
• Moral courage
• Corporate Social Responsibility
• Sustainability

33. Hiring & Promotion
• Businesses should strive to identify and hire people with a strong
sense of personal ethics
• Prospective employees should find out as much as they can
about the ethical climate in an organization

34. Organizational Culture & Leadership
• Articulate values that emphasize ethical behavior, repeatedly
emphasize their importance, provide incentives and rewards
• Code of ethics

35. Decision Making Process
• If a manager can answer “yes” to the following questions, the decision
is probably ethically acceptable
> Does my decision fall within the accepted values of standards
that typically apply in the organizational environment?
> Am I willing to see the decision communicated to all
stakeholders affected by it?
> Would the people with whom I have significant personal
relationships approve of the decision?
> A moral compass can help determine whether a decision is ethical.

36. Decision Making Process
• A five-step process can also help managers think through ethical
issues.
• Businesspeople should identify which stakeholders a decision would
affect and in what ways.
• Determine if a proposed decision violates the fundamental rights of
any stakeholders
• Establish moral intent
• Engage in ethical behavior
• Audit decisions - reviewing them to make sure that they were
consistent with ethical principles

37. Ethics Officers
• To encourage ethical behavior in a business, a number of firms now
have ethics officers
• Ethics officers ensure
> Employees are trained to be ethically aware
> Ethical considerations enter decision-making
> The company’s code of ethics is followed

38. Moral Courage
• Managers must be able to walk away from decisions
that are profitable but unethical

39. Corporate Social Responsibility
• There should be a presumption in favor of decisions
that have both good economic and good social
consequences

40. Sustainability
• Sustainable strategies – strategies that not only help the MNC make good
profits, but that also do so without harming the environment while
simultaneously ensuring that the company operates in a socially
responsible manner with regard to its stakeholders
• Sustainable strategies can be good for shareholders, the environment,
local communities, employees, and customers
• Gardner – From Tech Crunch -- “Levi’s is … pushing the boundaries of
environmental stewardship by sharing learnings with competitors. When
Levi’s discovered a method to reduce the water used in garment finishing
processes by 96%, saving over 1 billion gallons of water since 2011, the
company not only open sourced their innovation but provided their entire
staff with water conservation training.”