Ethics in International Business

1 January 2017

Ethics in International Business Introduction • Business ethics are the accepted principles of right or wrong governing the conduct of business people • An ethical strategy is a strategy or course of action that does not violate these accepted principles Ethical Issues in International Business • Many of the ethical issues and dilemmas in international business are rooted in the fact that political systems, law, economic development, and culture vary significantly from nation to nation • In the international business setting, the most common ethical issues involve

Employment practices Human rights – Environmental regulations – Corruption – Moral obligation of multinational corporations Employment Practices • Ethical issues associated with employment practices abroad include – When work conditions in a host nation are clearly inferior to those in a multinational’s home nation, what standards should be applied? – While few would suggest that pay and work conditions should be the same across nations, how much divergence is acceptable?

Human Rights Questions of human rights can arise in international business because basic human rights still are not respected in many nations – Rights that we take for granted in developed nations, such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, and freedom from political repression are by no means universally accepted • The question that must be asked of firms operating internationally is: ‘What is the responsibility of a foreign multinational when operating in a country where basic human rights are trampled on? ’

Environmental Pollution Ethical issues arise when environmental regulations in host nations are far inferior to those in the home nation – Developing nations often lack environmental regulations, and according to critics, the result can be higher levels of pollution from the operations of multinationals than would be allowed at home • Environmental questions take on added importance because some parts of the environment are a public good that no one owns, but anyone can despoil – The tragedy of the commons occurs when a resource held in common by all, but owned by no one, is overused by individuals, resulting in its degradation

Corruption • Corruption has been a problem in almost every society in history, and it continues to be one today • International businesses can, and have, gained economic advantages by making payments to government officials • The United States passed the Foreign Corrupt Practices Act to fight corruption – Outlawed the paying of bribes to foreign government officials to gain business • In 1997, the trade and finance ministers from the member states of the Organization for Economic Cooperation and Development (OECD) followed the U.S. lead and adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Obliges member states to make the bribery of foreign public officials a criminal offense Moral Obligations Multinational corporations have power that comes from their control over resources and their ability to move production from country to country • Moral philosophers argue that with power comes the social responsibility for corporations to give something back to the societies that enable them to prosper and grow – Social responsibility refers to the idea that businesspeople should consider the social consequences of economic actions when making business decisions – Advocates of this approach argue that businesses need to recognize their noblesse oblige (benevolent behavior that is the responsibility of successful enterprises) Ethical Dilemmas • Managers must confront very real ethical dilemmas.

The ethical obligations of a multinational corporation toward employment conditions, human rights, corruption, environmental pollution, and the use of power are not always clear cut – Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable The Roots of Unethical Behavior Why do managers behave in a manner that is unethical? – Business ethics are not divorced from personal ethics – Businesspeople sometimes do not realize they are behaving unethical because they fail to ask if the decision is ethical.

The climate in some businesses does not encourage people to think through the ethical consequences of business decisions – Pressure from the parent company to meet unrealistic performance goals that can be attained only by cutting corners or acting in an unethical manner – Leaders help to establish the culture of an organization and they set the example that others follow Philosophical Approaches to Ethics: Straw Man Straw man approaches to business ethics are raised by business ethics scholars primarily to demonstrate that they offer inappropriate guidelines for ethical decision making in a multinational enterprise – The Friedman Doctrine states that the only social responsibility of business is to increase profits, so long as the company stays within the rules of law.

Cultural Relativism believes that ethics are nothing more than the reflection of a culture (‘When in Rome, do as the Romans’) • The Righteous Moralist claims that a multinational’s home-country standards of ethics are the appropriate ones in all countries • The Naive Immoralist asserts that if a manager sees that firms from other nations are not following ethical norms in a host country then they should not either Philosophical Approaches to Ethics.

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