National Differences
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Chapter 5: Ethics, Corporate Social Responsibility, and
Sustainability
Learning Objectives
LO 5-1 Understand the ethical issues faced by
international businesses.
LO 5-2
Recognize an ethical dilemma.
LO 5-3 Identify the causes of unethical behavior by
managers.
LO 5-4 Describe the different philosophical
approaches to ethics.
LO 5-5 Explain how managers can incorporate
ethical considerations into their decision making.
Opening Case:
UNCTAD Sustainable Development Goals
 United Nations Conference on Trade and
Development established in 1964
 Ensuring countries’ domestic policies and
international actions are mutually
supportive to sustainable development
 September 2015: many countries adopted
17 “sustainable development goals”
 An opportunity to bring together countries,
companies, and societies of all levels in an effort
to improve lives everywhere
Introduction
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
Ethics and International Business 1 of 4
The most common ethical issues in business
involve
 Employment practices
 Human rights
 Environmental pollution
 Corruption
Ethics and International Business 2 of 4
Employment Practices
 What practices should be used when work
conditions are inferior in the host nation?
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
Ethics and International Business 3 of 4
Environmental Pollution
 Should a multinational feel free to pollute in a
developing nation if doing so does not violate
laws?
 Tragedy of the commons
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
Ethics and International Business 4 of 4
Corruption
continued
 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
Should the United States have Jurisdiction over
Foreign Firms?
The Foreign Corrupt Practices Act (FCPA) is not just imposed on
U.S. companies with operations globally. It also has jurisdiction
over foreigners operating in the country. Settling a FCPA
investigation, Siemens—Europe’s largest engineering company
and the largest electronics company in the world—was fined
$800 million by the U.S. Department of Justice and the U.S.
Securities and Exchange Commission. Together with various
penalties imposed in Germany, Siemens’ home country, the
penalties total $1.6 billion. The settlement involved at least 4,200
allegedly corrupt payments totaling some $1.4 billion over six
years to foreign officials in numerous countries. Meetings,
negotiations, and bank account transfers were taking place in the
United States between Siemens and officials from other countries.
Is it appropriate that the U.S. government can use the FCPA
to investigate and fine foreign companies doing business in
other countries?
Sources: U.S. Department of Justice, www.justice.gov; “Siemens: A Giant Awakens,” The Economist,
September 10, 2010; J. Ewing, “Siemens Settlement: Relief, But Is It Over?” BusinessWeek,
December 15, 2008.
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
Child Labor
Child labor
is still
common in
many poor
nations.
Source: © Ata Mohammad Adnan/Moment/Getty Images
The Roots of Unethical Behavior 1 of 4
Managerial behavior is influenced by:
o Personal ethics
o Decision making processes
o Organizational culture
o Unrealistic performance goals
o Leadership
o Societal culture
Figure 5.1 Determinants of Ethical Behavior
The Roots of Unethical Behavior 2 of 4
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
Decision-Making Processes
 Business people may behave unethically
because they fail to ask the relevant questions
 Decisions made based on economic logic
The Roots of Unethical Behavior 3 of 4
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
Unrealistic Performance Goals
 Pressure from parent company to meet goals
that are unrealistic and can only be attained by
acting in an unethical manner
The Roots of Unethical Behavior 4 of 4
Leadership
 Employees often take cues from business
leaders
 Actions speak louder than words
Societal Culture
 Ethical policies differ by country
 MNEs located in countries where individualism
and uncertainty avoidance are strong are more
likely to emphasize ethical behavior
 MNEs located in countries with high masculinity
and high power distance are less likely to
promote ethical behavior
Philosophical Approaches to Ethics 1 of 7
 Straw men
 The Friedman doctrine
 Cultural relativism
 The righteous moralist
 The naïve immoralist
 Utilitarian and Kantian Ethics
 Rights theories
 Justice Theories
Are Human Rights a Moral Compass?
The Universal Declaration of Human Rights (UDHR) was
adopted by the United Nations General Assembly on
December 10, 1948, in Paris, France. The Preamble of
UDHR starts by stating that “Whereas recognition of the
inherent dignity and of the equal and inalienable rights of
all members of the human family is the foundation of
freedom, justice and peace in the world . . . .” The day on
which UDHR was adopted, December 10, is known as
“International Human Rights Day,” and this day is also the
one on which the Nobel Peace Prize is awarded annually.
One human right that we discuss in the text is the right to
free speech; by the same token, we have an obligation to
respect free speech. But are there issues, situations, or
reasons where free speech should not be granted?
Sources: “The Universal Declaration of Human Rights,” United Nations, www.un.
org/en/documents/udhr; the official site of the Nobel Prize, www.nobelprize.org.
Philosophical Approaches to Ethics 2 of 7
Straw Men
 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
 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”
Philosophical Approaches to Ethics 3 of 7
Straw Men
continued
 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
 Naïve Immoralist - if a manager of an MNE sees
that firms from other nations are not following
ethical norms in a host nation, that manager
should not either
 Actions are ethically justified if everyone else is doing
the same thing
Philosophical Approaches to Ethics 4 of 7
Utilitarian and Kantian Ethics
 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
 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
Philosophical Approaches to Ethics 5 of 7
Rights theories
 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
Philosophical Approaches to Ethics 6 of 7
Justice theories
 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
Philosophical Approaches to Ethics 7 of 7
Justice theories
continued
 Under Raul’s veil of ignorance would be a
system where people would agree that each
person is permitted the maximum of basic
liberty compatible with similar liberty for others
 Once equal liberty is assured, inequality in basic
social goods are to be allowed only if they benefit
everyone
 The difference principle suggests that
inequalities are justified if they benefit the
position of the least advantaged person
Focus on Managerial Implications 1 of 8
MAKING ETHICAL DECISIONS INTERNATIONALLY
Actions managers can take to ensure ethics are
considered
1.
2.
3.
4.
5.
6.
7.
Favor hiring and promoting people with a well grounded
sense of personal ethics
Build an organizational culture that places a high value on
ethical behavior
Put decision making processes in place that require people
to consider the ethical dimension of business decisions
Institute ethical officers in the organization
Develop moral courage
Make corporate social responsibility a cornerstone of the
enterprise policy
Pursue strategies that are sustainable
Focus on Managerial Implications 2 of 8
Hiring and 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
Organizational Culture and Leadership
 Articulate values that emphasize ethical
behavior, repeatedly emphasize their
importance, provide incentives and rewards
 Code of ethics
Focus on Managerial Implications 3 of 8
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 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?
Focus on Managerial Implications 4 of 8
Decision-Making Processes
continued
 A five-step process can also help managers
think through ethical issues
 How would a decision affect stakeholders?


Internal stakeholders - people who work for or who
own the business such as employees, the board of
directors, and stockholders
External stakeholders - the individuals or groups
who have some claim on a firm such as customers,
suppliers, and unions
Focus on Managerial Implications 5 of 8
Decision-Making Processes
continued
Determine if a proposed decision violates the
fundamental rights of any stakeholders
o Establish moral intent
o Engage in ethical behavior
o Audit decisions - reviewing them to make sure
that they were consistent with ethical principles
o
Focus on Managerial Implications 6 of 8
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
Moral courage
 Managers must be able to walk away from
decisions that are profitable but unethical
Focus on Managerial Implications 7 of 8
Corporate social responsibility
 There should be a presumption in favor of
decisions that have both good economic and
good social consequences
Focus on Managerial Implications 8 of 8
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
Is Sustainability Bad for Profits?
Most customers prefer that the companies they buy products and
services from engage in business-focused sustainability practices.
Eighty-three percent of the respondents in the Public Opinion
Survey on Sustainability said that they think companies should try
to accomplish their performance goals while also trying to improve
society and the environment. At the same time, multinational firms
are overwhelmed about the varied stakeholder needs they face.
And, the Global Reporting Initiative, with its some 80 equally
important sustainability indicators, is not giving companies a clear
set of sustainability proprieties. Meanwhile, sustainability
executives in companies have not exactly been elevated to the
importance levels of other top managers. If you had to pay more
for a product, like gasoline for your automobile, how much
more would you be willing to pay to buy from a highly rated
sustainability-oriented company —5 percent, 10 percent, 25
percent, 40 percent?
Sources: Epstein-Reeves, J., “The Pain of Sustainability,” Forbes, January 18, 2012; “Consumers
Expect Action from Companies on Sustainability,” Second Annual Public Opinion Survey on
Sustainability, http://dowelldogood.net; Global Reporting Initiative.www.globalreporting.org.
Summary
In this chapter we have
 Explored the ethical issues faced by
international businesses.
 Recognized what is an ethical dilemma.
 Identified the causes of unethical behavior by
managers.
 Described the different philosophical approaches
to ethics.
 Explained how managers can incorporate ethical
considerations into their decision making.