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  • Welcome to International Business, Seventh Edition, by Charles W.L. Hill.
  • Chapter 4: Ethics in International Business
  • Kdqt eng chap004

    1. 1. InternationalBusiness 7e by Charles W.L. HillMcGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
    2. 2. Chapter 4 Ethics in International Business
    3. 3. IntroductionEthics refers to accepted principles of right or wrong thatgovern the conduct of a person, the members of aprofession, or the actions of an organizationBusiness ethics are the accepted principles of right orwrong governing the conduct of business peopleEthical strategy is a strategy, or course of action, thatdoes not violate these accepted principles 4-3
    4. 4. Ethical Issues In International BusinessThe most common ethical issues in business involve:employment practiceshuman rightsenvironmental regulationscorruptionthe moral obligation of multinational companies 4-4
    5. 5. Employment PracticesIf work conditions in a host nation are clearly inferior tothose in a multinational’s home nation, should companiesapply:home country standardshost country standardssomething in between 4-5
    6. 6. Human RightsIn developed countries, basic human rights such asfreedom of association, freedom of speech, freedom ofassembly, and freedom of movement, are taken for grantedIn other countries, these rights may not exist 4-6
    7. 7. Environmental PollutionEthical issues arise when environmental regulations inhost nations are far inferior to those in the home nationEnvironmental questions take on added importancebecause some parts of the environment are a public goodthat no one owns, but anyone can despoilThe tragedy of the commons occurs when a resourceheld in common by all, but owned by no one, is overusedby individuals, resulting in its degradation 4-7
    8. 8. CorruptionThe U.S. Foreign Corrupt Practices Act outlawed thepractice of paying bribes to foreign government officials inorder to gain businessThe Convention on Combating Bribery of Foreign PublicOfficials in International Business Transactions adopted bythe Organization for Economic Cooperation andDevelopment (OECD), obliges member states to make thebribery of foreign public officials a criminal offense 4-8
    9. 9. CorruptionSome economists believe that in a country wherepreexisting political structures distort or limit the workings ofthe market mechanism, corruption in the form of black-marketeering, smuggling, and side payments togovernment bureaucrats to “speed up” approval forbusiness investments may actually enhance welfareOther economists have argued that corruption reducesthe returns on business investment and leads to loweconomic growth 4-9
    10. 10. Moral ObligationsSocial responsibility refers to the idea that businesspeople should take the social consequences of economicactions into account when making business decisions, andthat there should be a presumption in favor of decisionsthat have both good economic and good socialconsequencesSocial responsibility can be supported for its own sakesimply because it is the right way for a business to behaveAdvocates argue that businesses need to recognize theirnoblesse oblige (honorable and benevolent behavior that isthe responsibility of successful companies) and givesomething back to the societies that have made theirsuccess possible 4-10
    11. 11. Classroom Performance SystemWhich is not an area where multinational firms areconcerned about ethics?a) Human rightsb) Trade regulationsc) Environmental regulationsd) Corruption 4-11
    12. 12. Ethical DilemmasEthical dilemmas are situations in which none of theavailable alternatives seems ethically acceptableThe ethical obligations of a multinational corporationtoward employment conditions, human rights, corruption,environmental pollution, and the use of power are notalways clear cut 4-12
    13. 13. The Roots Of Unethical BehaviorThere is no clear cut reason why managers behaveunethicallyThe causes of unethical behavior are complex and reflect:Personal ethicsDecision-making processesLeadershipUnrealistic performance expectationsOrganizational culture 4-13
    14. 14. The Roots Of Unethical BehaviorFigure 4.1: Determinants of Ethical Behavior 4-14
    15. 15. Classroom Performance SystemAll of the following except ____ contribute to unethicalbehavior by international managers.a) Decision-making processesb) Leadershipc) Personal ethicsd) National culture 4-15
    16. 16. Personal EthicsPersonal ethics (the generally accepted principles of rightand wrong governing the conduct of individuals) influencebusiness ethicsExpatriates may face pressure to violate their personalethics because they are away from their ordinary socialcontext and supporting culture, and they arepsychologically and geographically distant from the parentcompany 4-16
    17. 17. Decision Making ProcessesPeople may behave unethically because they rely oneconomic analysis when making decisions and fail to askthe relevant question:Is this decision or action ethical? 4-17
    18. 18. Organizational CultureOrganization culture refers to the values and norms thatare shared among employees of an organizationIn firms with an organization culture that does notemphasize business culture, unethical behavior may exist 4-18
    19. 19. Unrealistic Performance ExpectationsWhen the parent company sets unrealistic performancegoals, managers may cut corners or act in an unethicalmannerOrganizational culture can legitimize unethical behavioror reinforce the need for ethical behavior 4-19
    20. 20. LeadershipLeaders help to establish the culture of an organization,and set the example that others followWhen leaders act unethically, subordinates may actunethically, too 4-20
    21. 21. Philosophical Approaches To EthicsThere are several different approaches to business ethicsSome approaches deny the value of business ethics orapply the concept in an unsatisfactory wayOthers are favored by moral philosophers and are thebasis for current models of ethical behavior 4-21
    22. 22. Straw MenStraw men approaches offer inappropriate guidelines for ethicaldecision making in a multinational enterpriseThere are four common straw men approaches:The Friedman doctrine suggests that the only social responsibility ofbusiness is to increase profits, so long as the company stays within therules of lawCultural relativism argues that ethics are culturally determined andthat firms should adopt the ethics of the cultures in which they operate,or in other words, “when in Rome, do as the Romans do”The righteous moralist approach claims that a multinational’s homecountry standards of ethics should be followed in foreign countries The naïve immoralist asserts that if a manager of a multinationalsees that firms from other nations are not following ethical norms in ahost nation, that manager should not either 4-22
    23. 23. Classroom Performance SystemAccording to ________, a company’s home-countrystandards of ethics are the appropriate ones to follow inforeign countries.a) the righteous moralistb) the naïve immoralistc) the Friedman doctrined) cultural relativism 4-23
    24. 24. Utilitarian And Kantian EthicsUtilitarian approaches to ethics hold that the moral worthof actions or practices is determined by their consequencesActions are desirable if they lead to the best possiblebalance of good consequences over bad consequencesProblems with utilitarianism include measuring thebenefits, costs, and risks of an action, and the fact that theapproach fails to consider justiceKantian ethics are based on the philosophy of ImmanuelKant who argued that people should be treated as endsand never purely as means to the ends of others 4-24
    25. 25. Rights TheoriesRights theories recognize that human beings havefundamental rights and privileges which transcend nationalboundaries and culturesRights theories establish a minimum level of morallyacceptable behaviorMoral theorists argue that fundamental human rightsform the basis for the moral compass that managers shouldnavigate by when making decisions which have an ethicalcomponent 4-25
    26. 26. Rights TheoriesThe Universal Declaration of Human Rights specifies thebasic principles that should always be adhered toirrespective of the culture in which one is doing businessThe declaration was prompted by the idea that somefundamental rights transcend national borders and cultures 4-26
    27. 27. Classroom Performance System________ recognize that human beings have fundamentalrights and privileges which transcend national boundariesand cultures.a) Kantian ethicsb) Utilitarian approachesc) Straw mend) Rights theories 4-27
    28. 28. Justice TheoriesJustice theories focus on the attainment of a justdistribution of economic goods and services A just distribution is one that is considered fair andequitableOne theory of justice that is particularly important wasproposed by John Rawls who argued that all economicgoods and services should be distributed equally exceptwhen an unequal distribution would work to everyone’sadvantage 4-28
    29. 29. Justice TheoriesAccording to Rawls, impartiality is guaranteed by the veilof ignorance (everyone is imagined to be ignorant of all hisor her particular characteristics)When these conditions exist:each person is permitted the maximum amount of basicliberty compatible with a similar liberty for othersonce equal basic liberty is assured, inequality in basicgoods social goods are to be allowed only if they benefiteveryone 4-29
    30. 30. Classroom Performance SystemThe _____ suggests that everyone is imagined to beignorant of all his or her particular characteristics.a) tragedy of the commonsb) veil of ignorancec) code of ethicsd) the Universal Declaration of Human Rights 4-30
    31. 31. Ethical Decision MakingTo ensure ethical issues are considered in business decisions, firmsshould:favor hiring and promoting people with a well grounded sense ofpersonal ethicsbuild an organizational culture that places a high value on ethicalbehaviormakes sure that leaders within the business not only articulate therhetoric of ethical behavior, but also act in manner that is consistentwith that rhetoricput decision making processes in place that require people toconsider the ethical dimension of business decisionsdevelop moral courage 4-31
    32. 32. Hiring And PromotionBusinesses should strive to identify and hire people witha strong sense of personal ethicsCompanies should refrain from promoting individuals whohave acted unethicallyProspective employees should find out as much as theycan about the ethical climate in an organization prior totaking a position 4-32
    33. 33. Organization Culture And LeadershipTo foster ethical behavior, businesses need to build anorganization culture where:the business explicitly articulates values that place astrong emphasis on ethical behavior, perhaps using a codeof ethics (a formal statement of the ethical priorities abusiness adheres to)leaders in the business give life and meaning to the codeof ethics by repeatedly emphasizing their importance, andthen acting on themthe business puts in place a system of incentives andrewards that recognize people who engage in ethicalbehavior and sanction those who do not 4-33
    34. 34. Classroom Performance SystemWhat is a company’s formal statement of ethical prioritiescalled?a) Mission statementb) Code of ethicsc) Code of valuesd) Organizational culture 4-34
    35. 35. Decision-Making ProcessTo determine if a decision is ethical, managers can ask:Does my decision fall within the accepted values ofstandards that typically apply in the organizationalenvironment?Am I willing to see the decision communicated to allstakeholders affected by it?Would the people with whom I have significant personalrelationships approve of the decision? 4-35
    36. 36. Decision-Making ProcessManagers can also use a five step process to think through ethicalproblems:Step1: Managers identify which stakeholders (the individuals or groupswho have an interest, stake, or claim in the actions and overallperformance of a company) a decision would affect and in what waysInternal stakeholders are people who work for or who own thebusiness such as employees, the board of directors, and stockholdersExternal stakeholders are the individuals or groups who have someclaim on a firm such as customers, suppliers, and unionsStep 2: Managers determine whether a proposed decision wouldviolate the fundamental rights of any stakeholders 4-36
    37. 37. Decision-Making ProcessStep 3: Managers establish moral intent (the business mustresolves to place moral concerns ahead of other concernsin cases where either the fundamental rights ofstakeholders or key moral principles have been violated)Step 4: The company engages in ethical behaviorStep 5: The business audits its decisions, reviewing themto make sure that they were consistent with ethicalprinciples 4-37
    38. 38. Ethics OfficersTo ensure ethical behavior in a business, a number offirms now have ethics officersEthics officers ensure:all employees are trained in ethicsethics is considered in the decision-making processthe company’s code of conduct is followed 4-38
    39. 39. Moral CourageMoral courage:enables managers to walk away from a decision that isprofitable, but unethicalgives an employee the strength to say no to a superiorwho instructs her to pursue actions that are unethicalgives employees the integrity to go public to the mediaand blow the whistle on persistent unethical behavior in acompanydoes not come easily and employees have lost their jobswhen acting on this courage 4-39
    40. 40. Summary of Decision-Making StepsIn the end, there are clearly things that an internationalbusiness should do, and there are things that aninternational business should not doBut, not all ethical dilemmas have a clean and obvioussolution 4-40