Theory Session 6: Comparative Business Ethics Critical Reflection Course: BUS 430 Section: D100 Instructor: Rajiv Kohzikode Team 4: Katrina Cheney 301116363 Lina Liu 301135129 Xin Di Li 301091915 Herlinna Chung 301091048 Date of Submission: March 4, 2013 Introduction The issue of ethics is always controversial in the business world because it is not simply defined by law – at least by North American standards. The field of ethics is related to the moral standards of those involved in any given situation; therefore, it is common that people in different positions and/or in different countries have different values and perceive ethics in different ways. Our additional articles complement the assigned articles by delving further into the topic of business ethics to examine how a corporation can do business in an ethical way despite the complexity of ethical perceptions and explore how the Hofstede cultural dimensions can affect ethical decision-making in business. Overview of Article 1: Ethics and Entrepreneurs – An International Comparative Study Bucar (2002) argues that the characteristics of a society that encourages high levels of business ethics are “greater certainty of actions” and “lower costs of regulation and policing” (p. 261). To look at this further, he makes two hypotheses: (1) that people in the US will be more sensitive to ethical issues in business, followed by Slovenians, and then Russians (when comparing these three countries) and (2) Entrepreneurs will be more sensitive than managers to ethics in business within the same country. Bucar makes these assumptions based on the level of resources like education in each country (assumed to be the highest in the US) and on the idea that entrepreneurs assume more risk than managers and that they put pressure on themselves, while managers feel more pressure from external sources like top management. Moreover, because entrepreneurs are responsible for their own business, they feel more conflicted or troubled by unethical behavior occurring in their own domain. The findings and conclusions in the article suggest that while American and most Slovenian businesspeople reflect a high level of business ethics, the Russians have a rather low level of business ethical behaviors. For example, perhaps due to their “lack of tradition of market economics” (p. 279), Russians seem the least concerned with ethics (Bucar, 2002). Overall, the study found that in a business setting, entrepreneurs are slightly more attuned to ethics than managers in both the US and Slovenia. However, the study also concluded that Slovenians are more likely than Americans to ignore their strong ethical senses in order to benefit their business financially, possibly due to the fact that Slovenia is still transitioning toward a market that “[punishes] sellers for not caring enough for the wellbeing of customers” (p. 277) based on competition and customer knowledge about products (Bucar, 2002). Overall, after reading the article, our reflection on it is that all countries should be able to influence the ethical nature of business behavior by developing formal and informal institutions that are conductive to high ethical standards in the long-term. However, the gap missing in the article is how each company in the different countries should set up these institutions specifically for the purpose of increasing business ethical behavior commitment and what are the benefits. Reflection 1: How to Conduct Ethically for A Company-Baking Ethics into Company Culture As Bucar has provided a thorough analysis of how economic differences can affect ethical practices in different countries, he failed to recognize any corporate-level effects on ethical behaviour promotions. In our opinion, despite the economic differences among nations, corporations can take the initiative of influencing their internal ethical culture. With the globalization effect, more companies are expanding internationally. In this regard, multinational corporations can ensure ethical business behaviour by incorporating internal ethical programs. Multinational companies can rely on consistent internal ethics culture so that the impact of external economic differences can be mitigated. In this case, Russians are found to have comparatively less ethical emphasis in business practices due to its economic tradition, but by having corporative level ethics promotion, such risks can be reduced. The article Baking Ethics into Company Culture written by Christopher Bauer helps to examine how corporations can incorporate ethics as part of the company’s culture and what companies often neglect regarding ethical business behaviour. Bauer (2009) pointed out that while companies might be trying to promote ethical business behaviour, the result might not be significant due to strategic failures or misconceptions on the effects of ethical business guidelines. Companies often confuse rules of conduct with ethics as they believe that rules of conduct will restrict fraud and generate ethical business practices. However, according to Bauer(2009), the code of conduct can only provide specific regulations to employees while ethics codes are meant to guide behaviour when explicit rules do not exist, so ethics codes as written rules may be useless when promoting ethical corporate culture. Bauer (2009) also states that in order to ensure that employees are following rules, companies often have compliance programs to supervise and inspect business practices while such supervision cannot substitute ethics programs. According to Bauer (2009), this is because ethics programs function not only to prevent breaking rules, but more importantly, to spread company values and beliefs to employees to reduce ethical misdemeanor. Bauer(2009) further advises that when incorporating company ethics programs, “employees of all levels should participate and contribute ideas on promoting an ethical culture”(p. 20). If employees are involved in inputting ideas, ethical awareness would be raised and effectively implemented by every employee. In addition, Bauer(2009) points out that it is also essential to acknowledge and reward ethical behaviour in order to encourage the “adoption of ethical business practices”(p. 20). However, companies might not recognize the return of building a corporate ethical culture. Bauer (2009) indicates that the Report to the Nation on Occupational Fraud and Abuse, conducted by the Association of Certified Fraud Examiners, has found “an average loss of 7% revenue generated from fraud and abuse in the sampled companies” (p. 21). Also, the Ethics Resource Center's National Business Ethics Survey has discovered that with proper ethics training programs, companies can decrease their fraud losses by more than 50 percentage (Bauer, 2009). These findings show that investing in promotion of ethical corporate culture does not only benefit in intangible ways such as improving company’s image and reputation, but also financially as decrease in fraud losses would result in substantial increase in company profitability. Overall, this article clarifies several misconceptions when building ethical corporate culture and proves the importance of building ethical corporate culture in terms of profitability. While Bucar’s article discusses ethical culture on a national and international level, Bauer examines in detail ethical culture on a corporate level. Overview of Article 2: Ethical Perceptions of Organizational Politics Ralston et al. (1994) state that unlike Americans, Hong Kong Chinese people believe that what is ethical is defined simply by the law, leading them to hypothesize that managers in Hong Kong will be more likely to accept situations that American managers would see as unethical. Specifically, there are several findings by Ralston et al (1994): 1)Hong Kong managers believe “destructive and/or illegal behaviours, like stealing business documents” (p. 992) to get ahead in the company is more plausible than do Americans; 2)while American workers will focus more on promoting their own self-images and working hard to exhibit their skills, Hong Kong Chinese workers will be more likely to get ahead in a private and discreet way; 3)Hong Kong Chinese view actions like keeping specific information private in order to become superior to others as more ethical than the self-promoting tactics of the Americans; 4)the Hong Kong Chinese allegedly accept things like blackmailing others to serve themselves more than Americans. Ralston et al. (1994) suggest that these differences occur due to the distinct cultural values of the two countries and gives the following examples. For instance, because US citizens are highly individualistic and tend to be more aggressive than those in Asian countries, they tend to selfpromote. This could also explain why they perceive ethics to be more than just legality: they tend to think more for and about themselves and therefore develop more advanced ideas about things like ethics. By contrast, Hong Kong Chinese are more collectivistic and are more willing to let another entity, such as the law, dictate the rules of ethics to them. Their consideration of others, and the way others view them, also explains why Hong Kong Chinese veer away from personal tactics that are not considered modest, like self-promotion. Ralston et al. (1994) also explains the Confucian view that Hong Kong Chinese respect tradition and dignity. They explain that “as long as one’s dignity is preserved in their actions, then the action is indeed ethical” (p. 993). In this way, one’s dignity is kept intact as long as one sticks to cultural values like humility and collectivism. We will delve further into this relationship between individualism, collectivism and ethics with our supplementary article. Reflection 2: How Culture Affects Ethical Decision Making-The Effects of Culture on Ethical Decision-making: An Application of Hofstede's Typology Ralston et al. (1994) finds that US managers consider public self-definition and self-promotion as more ethical while Hong Kong managers think tactics focusing on collectivism are more ethical. This shows perception of ethics is consistent with Americans’ and Hong Kong Chinese respective culture value (e.g. individualism vs. collectivism). It is interesting for us to further explore the effect of Hofstede's culture dimensions on ethical perception and decision-making. The additional article The effects of culture on ethical decision-making: An application of Hofstede's typology by Vitell et al tries to examine how cultures can lead to differences in the definition of business ethics by using the framework of Hofstede's cultural dimensions. Although it was written in 1993, the culture in a country would not change very fast and thus we consider the article’s analysis of the effect of culture on ethical decision making still valid nowadays. When examining the issue from individualism vs. collectivism perspective, Vitell et al. (1993) mentions that U.S. marketers are more willing to behave in an unethical way for personal gain rather than corporate gain. This explains the finding in Ralston’s article that U.S. managers regard public self-definition and self-promotion as more ethical than Hong Kong managers. Behaviour such as public self-definition and self-promotion wouldn’t be accepted as an ethical behaviour from Hong Kong managers’ point of view. With regard to power distance, Vitell et al (1993) first identifies differential association theory to aid the description of ethical or unethical behavior. According to Vitell et al (1993), differential association theory states that “behavior is learned through the process of interacting with persons who are a part of intimate personal groups” (p. 756). Vitell et al (1993) states that this is mostly true in a low power distance society where people value equality, so peer groups have a greater influence on one’s behaviour than people in a higher position. For example, as U.S. has a low power distance, a person is more likely to turn to his peers than his superiors for suggestion on proper behaviour, which means that in countries that have a low power distance, superiors’ influence can be reduced; on the contrary, if a country has a high power distance, superiors have more influence as they can act based on their own decision and they are less likely to discuss the issue with their subordinates (Vitell et al., 1993). To analyze the effect of uncertainty avoidance dimension on one’s ethical decision making, Vitell et al (1993) introduces Ouchi's theory which contains that people in Japanese (high uncertainty avoidance country) are closely associated and tend to do things for their common benefit. There is another study’s finding mentioned by Vitell et al (1993) that when no formal codes of conduct exists to guide one’s behaviour, business people in U.S. is more acceptive to unethical behaviour than people in a Japanese firm because people in a high uncertainty country is less likely to accept the difference from organization norms. This is consistent with the finding in Ralston(1994) that Hong Kong managers more willing to accept things such as legal/destructive and illegal behaviours that American managers see as less ethical. As shown from the Figure 1 below, U.S. has a lower uncertainty avoidance than Japan while Hong Kong has a lower uncertainty avoidance than the U.S. Figure 1: Note. Adapted from “Japan in Comparison with The Below” and "Hong Kong in Comparison with The Below”. Copyright 2013 by the Hofstede Centre. Vitell et al (1993) also argue that a high masculinity society can contribute to people’s involvement in unethical behaviour as such a society advocates man being ambitious, competitive and pursuing material gain. Vitell et al (1993) give example of Sweden with feminine culture and U.S. with masculine culture. As Sweden have similar roles for male and female, neither men or women is required to be ambitious. Behaviour such as hard selling is widely accepted in a society with high masculinity but regarded as unethical in one with high femininity because such behaviour is not considered to be related with ethics by masculine culture. Conclusions 1. The differences in ethical attitudes happen at different scales, either nationally or internationally. There are differences in ethical attitudes between entrepreneurs and managers in the same country and entrepreneurs have different ethical attitudes in different countries. 2.In order to effectively enforce a certain culture or some ethical rules, all employees of all levels should participate in and contribute to ethics programs as ethics programs publicize company values and help to reduce probabilities of ethical problems such as not obeying rules happening from the beginning. 3. As people from different cultures have different perception of ethics, managers in multinational enterprises are suggested to take those different perceptions into account when they train people from diverse cultures. 4. Hofstede’s cultural dimensions can have an effect on ethical decision making. Those cultural dimensions are related with tendency to behave unethically for personal gain, superiors’ influence, acceptance of unethical deviation from organization norms, etc. Factbook Application Based on the discussion of articles above, there are several questions that are applicable to the our Factbook on tourism industry of Portugal and Ireland. What kind of ethical guidelines can tourism companies establish to minimize potential problems. The degree of acknowledgment/recognition towards ethical business practices in Portugal and Ireland. What are the ethical perception differences between Portugal and Ireland? How does these differences guide business behaviours and customer expectations in the tourism industry? Industry Application We will apply the theories discussed in the hotel industry. Our argument is that employees who work in an ethical hotel environment will be more satisfied with their job and more loyal than employees who work in an unethical environment. As such, hotels that conduct their businesses in an ethical and more responsible manner should enjoy all the benefits derived from their efforts: higher profits and higher ratings. For instances, some most frequent reported ethical issues in the hotel industry are: employee thefts, the lack of regulation on the use of recreational drugs, guest abuses, and racial conflicts. Moreover, considering a broader aspect, other unethical issues may include the asymmetric price competition on room rates with neighbor hotels, the personal relationships with hotel suppliers which may put pressure on other hotels when making pricing decisions, and the disclosure of customer’s confidential information to someone else both intentionally or unintentionally. In this regard, hotels that are conscious of these issues will have an advantage over other hotels on its reputations and will attract more guests who prefer to stay in a hotel that fosters business ethics. We will look at the Marriott Hotel Group originated in the United States as a successful instance where programs and departments are established to address ethical conducts. As such, their business ethics training program seek to reinforce the importance of corporate values and ethical responsibility to the continued success of the travel and tourism industry(Marriott Information, 1996). Its Internal Audit Department will conduct Legal and Ethical Conduct survey of a broad cross section of associates, including all officers and senior managers, to determine compliance with the company’s Ethical Conduct policy annually (Marriott Information, 1996). References Bauer, C. (2009). Baking ethics into company culture. Financial Executive, 25(4), 18-21. Bucar, B., Glas, M., & Hisrich, R. D. 2003. Ethics and entrepreneurs: An international comparative study. Journal of Business Venturing, 18: 261-281. The Hofstede center: Hong Kong. [Web Graphic]. Retrieved from http://geerthofstede.com/hong-kong.html The Hofstede center: Japan. [Web Graphic]. Retrieved from http://geert- hofstede.com/hongkong.html Marriott. (1996, March 07). Business Values: Ethical and Legal Standards. Retreived from http://www.marriott.com/default.mi Ralston, D. A., Giacalone, R. A, & Terpstra, R. H. 1994. Ethical perceptions of organizational politics: A comparative evaluation of American and Hong Kong Managers. Journal of Business Ethics, 13: 989-999. Vitell, S. J. (1993). The effects of culture on ethical decision-making: An application of Hofstede's typology. Journal of Business Ethics, 12(10), 753-760.