Chapter 8
Ethics and Corporate
Responsibility
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-1
Lecture/Chapter Topics
•
Definition of Ethics
•
Ethical Issues in International Business
•
Ethical Dilemmas
•
The Roots of Unethical Behaviour
•
Philosophical Approaches to Ethics
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Definition of Ethics
•
•
•
Ethics refers to accepted principles of right and
wrong that govern the conduct of a person, the
members of a profession, or the actions of an
organisation.
Business ethics are the accepted principles of right
and wrong governing the conduct of
businesspeople.
Ethical strategy is a strategy, or course of action,
that does not violate these accepted principles.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Ethical Issues in
International Business
•
•
The most common ethical issues in business
involve: Employment practices, human rights,
environmental regulations, corruption, and the moral
obligations of multinational companies.
Some of the ethical issues in international business
are rooted in the fact that political systems, law,
economic development and culture vary significantly
from nation to nation.
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Ethics Issues in
International Business
• Employment Practices
–
When work conditions in a host nation are clearly inferior
to those in a multinational’s home nation, companies must
decide which standards should be applied, those of the
home nation, those of the host nation, or something in
between.
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Ethical Issues in
International Business
• Human Rights
–
Basic human rights taken for granted in the developed
world such as freedom of association, freedom of speech,
freedom of assembly, freedom of movement, and so on,
are by no means universally accepted.
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Ethical Issues in
International Business
• Environmental Pollution
–
–
–
Issues arise when environmental regulations in host
nations are inferior to those in the home nation.
Many developed nations have substantial regulations
governing the emission of pollutants, but such regulations
are often lacking in developing nations.
Which country’s (host or home) regulations should
multinationals follow?
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Ethical Issues in
International Business
• Bribery and Corruption
–
–
–
Bribery and corruption have been a problem in almost
every society in history, and this remains the case today.
There always have been and always will be corrupt
officials.
International businesses can and have gained economic
advantages by making payments to those officials.
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Ethical Issues in
International Business
• Bribery and Corruption (Cont’d)
–
–
In the United States, the Foreign Corrupt Practices Act
outlawed the practice of paying bribes to foreign
government officials in order to gain business
Facilitating payments are distinguished from bribes in
that they are not payments businesses make to secure
contracts they would not otherwise get or to obtain
exclusive preferential treatment.
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Ethical Issues in
International Business
• Bribery and Corruption (Cont’d)
–
The Organization for Economic Cooperation and
Development (OECD) adopted a Convention on
Combating Bribery of Foreign Public Officials in
International Business Transactions in 1997, which
obliges member states to make the bribery of foreign
public officials a criminal offence.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-10
Ethical Issues in
International Business
• Bribery and Corruption (Cont’d)
–
–
The convention excludes facilitating payments made to
expedite routine government action.
Australia, New Zealand and some 34 other countries have
signed the convention, six of which are not OECD
members.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Ethical Issues in
International Business
• Bribery and Corruption (Cont’d)
–
–
Australia amended the Criminal Code Act 1995 in 1999
(Criminal Code Amendment (Bribery of Foreign Public
Officials) Act 1999, also called the Bribery Act) to make it
an offence to bribe a foreign official.
In New Zealand relevant domestic legislation includes the
Crimes Act 1961 and the Secret Commissions Act 1910.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-12
Ethical Issues in
International Business
• Bribery and Corruption (Cont’d)
–
–
While facilitating payments, or speed money, are excluded
from both the Foreign Corrupt Practices Act and the OECD
convention on bribery, the ethical implications of making
such payments are unclear.
In many countries, payoffs to government officials in the
form of speed money appear to be part of life.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-13
Ethical Issues in
International Business
• Bribery and Corruption (Cont’d)
–
–
Some economists suggest that the practice of giving bribes
might be the price that must be paid to do a greater good.
Other economists have argued that corruption reduces the
returns on business investment and leads to low economic
growth.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-14
Ethical Issues in
International Business
• Bribery and Corruption (Cont’d)
–
Some believe that in a country where pre-existing political
structures distort or limit the workings of the market
mechanism, corruption in the form of black-marketeering,
smuggling, and side payments to government bureaucrats
to ‘speed up’ approval for business investments may
actually enhance welfare.
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8-15
Ethical Issues in
International Business
• Moral Obligations
–
The concept of social responsibility refers to the idea that
businesspeople should take the social consequences of
economic actions into account when making business
decisions, and that there should be a presumption in favour
of decisions that have both good economic and good social
consequences.
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Ethical Issues in
International Business
• Moral Obligations (Cont’d)
–
–
In its purest form, social responsibility can be supported for
its own sake simply because it is the right way for a
business to behave.
Advocates of this approach argue that businesses need to
recognise their noblesse oblige (honorable and benevolent
behaviour that is the responsibility of successful
companies) and give something back to the societies that
have made their success possible.
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Ethics Dilemmas
•
•
•
Ethical dilemmas are situations in which none of
the available alternatives seems ethically
acceptable.
The ethical obligations of a multinational
corporation towards employment conditions,
human rights, corruption, environmental pollution
and the use of power are not always clear-cut.
From an international business perspective, some
argue that what is ethical depends upon one’s
cultural perspective.
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8-18
The Roots of Unethical Behaviour
• Personal Ethics
–
–
Business ethics reflect personal ethics (the generally
accepted principles of right and wrong governing the
conduct of individuals).
Expatriates may face pressure to violate their personal
ethics because they are away from their ordinary social
context and supporting culture, and they are
psychologically and geographically distant from the
parent company.
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8-19
The Roots of Unethical Behaviour
• Decision-Making Processes
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–
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Businesspeople may behave unethically because they fail
to ask the relevant question — is this decision or action
ethical?
Businesspeople may apply a straightforward business
calculation to what they perceive to be a business
decision, forgetting that the decision may also have an
important ethical dimension.
The fault lies in processes that do not incorporate ethical
considerations into business decision making.
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The Roots of Unethical Behaviour
•
Organisation Culture
– In firms with an organisation culture (the values and
norms that are shared among employees of an
organisation) that does not emphasise business culture,
unethical behaviour may exist.
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8-21
The Roots of Unethical Behaviour
• Unrealistic Performance Expectations
–
Pressure from the parent company to meet
performance goals that are unrealistic, and can only be
attained by cutting corners or acting in an unethical
manner, can cause unethical behaviour.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-22
The Roots of Unethical Behaviour
• Corporate Governance and Leadership
–
–
Another root cause of corporate failure is poor
corporate governance and unethical behaviour by the
leadership.
Leaders help establish the culture of an organisation,
and they set the example that others follow. If leaders
are not acting ethically, other employees may follow
suit.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-23
The Roots of Unethical Behaviour
• Corporate Governance and Leadership (Cont’d)
– In Australia, the Australian Stock Exchange has identified 10
essential corporate governance principles.
– In New Zealand, the Securities Commission has established
the ‘Corporate Governance in New Zealand Principles and
Guidelines’.
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The Roots of Unethical Behaviour
• Determinants of Ethical Behaviour
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8-25
Philosophical Approaches to Ethics
•
•
•
Four such approaches to business ethics are commonly
discussed in the literature.
These approaches can be characterised as the
Friedman doctrine, cultural relativism, righteous
moralism and naive immoralism.
All of these approaches have some inherent value, but
all are unsatisfactory in important ways.
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Philosophical Approaches to Ethics
• The Friedman Doctrine
–
Economist Milton Friedman’s position is that the only social
responsibility of business is to increase profits, so long as
the company stays within the rules of law.
• Cultural Relativism
–
Cultural relativism is the belief that ethics are culturally
determined and that firms should adopt the ethics of the
cultures in which they operate or, in other words, ‘when in
Rome, do as the Romans do’.
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Philosophical Approaches to Ethics
• The Righteous Moralist
–
The righteous moralist approach claims that a
multinational’s home country standards of ethics are the
appropriate ones for companies to follow in foreign
countries.
• The Naïve Immoralist
–
The naïve immoralist asserts that if a manager of a
multinational sees that firms from other nations are not
following ethical norms in a host nation, that manager
need not do so either.
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8-28
Philosophical Approaches to Ethics
• Utilitarian and Kantian Ethics
–
Utilitarian approaches to ethics hold that the moral worth
of actions or practices is determined by their
consequences.
–
An action is judged to be desirable if it leads to the best
possible balance of good consequences over bad
consequences.
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8-29
Philosophical Approaches to Ethics
•
Utilitarian and Kantian Ethics (Cont’d)
– Problems with the approach concern measuring the
benefits, costs and risks of a course of action, and the fact
that philosophy fails to consider justice.
– Kantian ethics are based on the philosophy of Immanuel
Kant who argued that people should be treated as ends and
never purely as means to the ends of others.
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8-30
Philosophical Approaches to Ethics
• Rights Theories
–
Rights theories recognise that human beings have
fundamental rights and privileges that transcend national
boundaries and culture.
–
Moral theorists argue that fundamental human rights form
the basis for the moral compass that managers should
navigate by when making decisions that have an ethical
component.
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8-31
Philosophical Approaches to Ethics
• Rights Theories (Cont’d)
– The idea that some fundamental rights transcend national
borders and cultures was the underlying motivation for the
UN’s Universal Declaration of Human Rights (specifies
the basic principles that should always be adhered to
irrespective of the culture in which one is doing business).
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8-32
Philosophical Approaches to Ethics
• Justice Theories
–
Justice theories focus on the attainment of a just
distribution of economic goods and services.
–
A just distribution is one that is considered fair and
equitable.
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8-33
Philosophical Approaches to Ethics
•
Justice Theories (Cont’d)
– One theory of justice was set forth by John Rawls, who
argued that all economic goods and services should be
distributed equally except when an unequal distribution
would work to everyone’s advantage.
– Rawls formulates the difference principle, which is that
inequalities are justified if they benefit the position of the
least advantaged person.
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8-34
Philosophical Approaches to Ethics
•
Justice Theories (Cont’d)
– Impartiality is guaranteed by the veil of ignorance
(everyone is imagined to be ignorant of all his or her
particular characteristics) where people would agree that
each person is permitted the maximum amount of basic
liberty compatible with a similar liberty for others, and that
once equal basic liberty is assured, inequalities in basic
social goods are to be allowed only if they benefit
everyone.
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8-35
Philosophical Approaches to Ethics
•
Ethical Decision Making
– Managers should examine the applicable code of ethics,
relevant national or international accords and laws.
– There are five other things that an international business
and its managers can do to make sure ethical issues are
considered in business decisions.
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8-36
Philosophical Approaches to Ethics
•
Ethical Decision Making (Cont’d)
1. Favour hiring and promoting people with a wellgrounded sense of personal ethics.
2. Build an organisation culture that places a high value on
ethical behaviour, and make sure that leaders within the
business not only articulate the rhetoric of ethical
behaviour but also act in a manner that is consistent
with that rhetoric.
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Philosophical Approaches to Ethics
•
Ethical Decision Making (Cont’d)
3. Put decision-making processes in place that require
people to consider the ethical dimension of business
decisions.
4. Hire ethics officers.
5. Develop moral courage.
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8-38
Philosophical Approaches to Ethics
•
Organisation Culture and Leadership
– Businesses need to build an organisation culture that
places a high value on ethical behaviour.
– The business must explicitly articulate values that place a
strong emphasis on ethical behaviour, perhaps using a
code of ethics (a formal statement of the ethical priorities
a business adheres to).
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8-39
Philosophical Approaches to Ethics
•
Organisation Culture and Leadership (Cont’d)
–
–
Leaders in the business should give life and meaning to
the code of ethics by repeatedly emphasising their
importance, and acting on them.
The business should put in place a system of incentives
and rewards that recognise people who engage in ethical
behaviour and sanction those who do not.
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8-40
Philosophical Approaches to Ethics
• Decision-Making Processes
– If a manager can answer ‘yes’ to the following questions, the
decision is ethically acceptable:



Does my decision fall within the accepted values or standards
that typically apply in the organisational 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?
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8-41
Philosophical Approaches to Ethics
• Decision-Making Processes (Cont’d)
– A five-step process can also help managers think through
ethical problems.
– Step 1

Businesspeople should identify which stakeholders (the
individuals or groups who have an interest, stake or claim in
the actions and overall performance of a company) a
decision would affect and in what ways.
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8-42
Philosophical Approaches to Ethics
• Decision-Making Processes (Cont’d)
– Step 1 (cont’d)


Internal stakeholders are people who work for or who own
the business such as employees, the board of directors and
stockholders.
External stakeholders are the individuals or groups who
have some claim on a firm such as customers, suppliers and
unions.
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Philosophical Approaches to Ethics
• Decision-Making Processes (Cont’d)
– Step 2

Managers need to determine whether a proposed decision
would violate the fundamental rights of any stakeholders.
– Step 3

Managers need to establish moral intent (the business must
resolve to place moral concerns ahead of other concerns in
cases where either the fundamental rights of stakeholders or
key moral principles have been violated).
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Philosophical Approaches to Ethics
• Decision-Making Processes (Cont’d)
– Step 4

The company should then engage in ethical behaviour.
– Step 5

The business must audit its decisions, reviewing them to
make sure that they were consistent with ethical principles.
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8-45
Philosophical Approaches to Ethics
• Ethics Officers
–
To ensure ethical behaviour in a business, a number of
firms now have ethics officers.
• Moral Courage
–
It is important to recognise that employees in an
international business may need significant moral
courage.
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8-46
Philosophical Approaches to Ethics
• Summary of Managerial Actions
– It must be recognised that not all ethical dilemmas have a
clean and obvious solution — this is what makes them
dilemmas.
– There are clearly things international businesses should not
do and things they should do, but there are also
circumstances that present managers with true dilemmas.
– Companies should place a premium on managers’ abilities to
make sense of complex situations and make balanced
decisions that are as just as possible.
Copyright  2007 McGraw-Hill Australia Pty Ltd
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8-47
Summary of Main Themes
• This chapter has discussed the source and nature of
ethical issues in international businesses, the
different philosophical approaches to business ethics
and the steps managers can take to ensure that
ethical issues are respected in international business
decisions.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
8-48