Chapter 03 – Ethics, Social Responsibility, and Sustainability
Chapter 3: Ethics, Social Responsibility, and Sustainability
Learning Objectives and Chapter Summary
1. EXAMINE ethics in international management and some of the major ethical issues
and problems confronting MNCs.
Ethics is the study of morality and standards of conduct. It is important in the study
of international management because ethical behavior often varies from one
Romans do.”
2. DISCUSS some of the pressures on and action being taken by selected
industrialized countries and companies to be more socially and environmentally
responsive to world problems.
During the years ahead, multinationals likely will become more concerned about
being socially responsible. NGOs are forcing the issue. Countries are passing laws
to regulate ethical practices and governance rules for MNCs. MNCs are being
sustainability in business objectives.
3. EXPLAIN some of the initiatives to bring greater accountability to corporate
conduct and limit the impacts of corruption around the world.
MNCs—in conjunction with government and NGOs—are also contributing to
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
The World of International Management: Sustaining Sustainable
Companies
1. Summary:
These vignettes demonstrate the changing focus of corporations from the traditional
emphasis on supply and demand models to now include social and environmental
advantage, which in the long term will produce positive financial results.
2. Suggested Class Discussion:
1. What effect will a corporation’s emphasis on environmental responsibility have
on its financial performance in both the short term and long term? Does this
contradict the notation of maximizing the wealth of its investors?
2. What is the perception of corporate initiatives to become more environmentally
friendly? Should these types of behaviors be widely publicized? Do you agree
with critics who claim that a given company has not gone far enough with its
commitment to be socially and environmentally responsible?
3. Related Internet Sites:
General Electric: {http:www.patagonia.com, http: www.philips.com and/or
http: www.usa.philips.com , http:www.teslamotors.com}.
Business Week: {http:www.businessweek.com}.
Chapter Outline with Lecture Notes and Teaching Tips
Ethics and Social Responsibility
1) The ethical behavior of business and broader social responsibilities of corporations have
become major issues in the United States and all countries around the world. Ethical
scandals and questionable business practices have received considerable media attention
and aroused the public’s concern about ethics in international business and attention to the
social impact of business operations.
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
Ethics and Social Responsibility in International Management
1) Ethics is the study of morality and standards of conduct.
Teaching Tip: The Institute for Global Ethics is an independent, nonprofit organization
dedicated to elevating public awareness and promoting the discussion of ethics in a global
context. The site provides links to a variety of ethics related material and is available at
{http://www.globalethics.org/}, the site for the Institute for Global Ethics. Another
excellent site is the Carnegie Council for Ethics in International Affairs at
{http://www.cceia.org/}.
Ethics Theories and Philosophy
1) There are a range of ethical theories and approaches around the world, including the
following.
a) Kantian philosophical traditions argue that individuals (and organizations) have
responsibilities based on a core set of moral principles that go beyond those of narrow
set of constraints.
d) Eastern philosophy views the individual as part of, rather than separate from, nature.
Teaching Tip: There is a fascinating website dealing with global business ethics at
{http://www.globalethics.org}. One of the ongoing features of the site is a set of real-life
ethical dilemmas that companies face in conducting business both domestically and
overseas. This site is well worth a visit to obtain interesting material for classroom
discussion.
Human Rights
1) Human rights issues present challenges for MNCs as there is currently no universally
adopted standard of what constitutes acceptable behavior.
a) Friction continues between countries with high and low human rights standards; low
standard countries include China, South Africa (now healing), and Russia.
b) Women’s rights and gender equity can be considered a subset of human rights. While
the number of women in the workplace has increased substantially worldwide, most
d) France, Germany, and Great Britain have seen an increase in the number of women
not only in the workforce but also in management positions.
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
Labor, Employment, and Business Practices
1) Political, economic, and cultural differences make it difficult to agree on a universal
foundation of employment practices. It does not make much sense to standardize
2) Ensuring that all contractors along the global supply chain are compliant with company
standards is an ongoing and challenging issue.
a) A fire at a Bangalore factory that killed 112 workers caused Walmart to sever ties with
suppliers who use sub-contractors without their knowledge and to require all overseas
factories to pass audits before approval to supply Walmart.
b) The government of Bangladesh also initiated reforms.
Environmental Protection and Development
1) Conservation of natural resources is another area of ethics and social responsibility in
which countries around the world differ widely in terms of their values and approach.
Many poor, developing countries are more concerned with improving the basic quality of
life for their citizens than worrying about endangered species or the quality of air or water.
2) The Environmental Kuznets Curve (EKC) hypothesizes that the relationship between per
capital income and the use of natural resources and/or emission of wastes increase with
income.
Globalization and Ethical Obligations of MNCs
1) How much responsibility do MNCs have in changing these practices?
a) Safety and quality problems can severely tarnish an MNC’s reputation.
centered than local employees tend to be.
Reconciling Ethical Differences across Cultures
1) Most MNCs try to adhere to a code of ethical conduct while doing business around the
world, but make some adjustments to respond to local norms and values.
2) The Integrative Social Contracts Theory (ISCT) attempts to navigate a moral position that
does not force decision makers to engage exclusively in relativism versus absolutism.
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
Corporate Social Responsibility and Sustainability
1) Socially Responsible Business Practices: Corporations are under increasing pressure to
contribute to the societies and communities in which they operate and to adopt more
socially responsible business practices throughout their entire range of operations
a) Corporate social responsibility (CSR) can be defined as the actions of a firm to benefit
such as poverty, social justice, education, health, and the environment.
2) Civil Society, NGOs, MNCs, and Ethical Balance: The emergence of organizational
civil society and NGOs has dramatically altered the business environment globally and the
role of MNCs within it.
3) Response to Social and Organizational Obligations: Agreements and codes of conduct
are established for MNCs to maintain certain standards in their domestic and global
operations. Examples include the UN Global Compact, the Global Reporting Initiative,
the social accountability “SA8000” standards, and the ISO14000 environmental quality
conservationist.
Corporate Governance
1) Corporate governance is the system by which business corporations are directed and
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
Corruption
1) Government corruption is a pervasive element in the international business environment.
Recently publicized scandals in Russia, China, Brazil, Pakistan, South Africa, Costa Rica,
2) Organization for Economic Cooperation and Development (OECD)―This marked a
victory for the United States, which outlawed foreign bribery two decades previously but
had not been persuade other countries to follow its lead.
a) The Transparent Agents Against Contracting Entities (TRACE) standard applies to
business intermediaries, including sales agents, consultants, suppliers, distributors,
Teaching Tip: Transparency International is a nonprofit organization, based in Berlin,
Germany, that monitors business corruption worldwide. The site is particularly
interesting because it provides a “European” point of view in regard to business ethics.
The site is available at {http://www.transparency.de/}. You can also explore
Transparency International at {http://www.transparency.org/}.
International Assistance
1) Top priorities for development assistance include controlling and preventing AIDS,
fighting malnutrition, reducing subsidies and trade restrictions, and controlling malaria
(see Table 3-2 in the text).
a) The United Nations Millennium Summit in September 2000, world leaders placed
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
The World of International Management―Revisited
Questions & Suggested Answers
1. Do governments and companies in developed countries have an ethical
responsibility to contribute to economic growth and social development in
developing countries?
Answer: Governments and companies in developed countries cannot possibly avoid
taking part in or having an impact on the economic and social development of
developing countries. If they decide to evade their social responsibilities and choose
to have no impact, they will inevitably cause harm, as most developing countries
2. Are governments, companies, or NGOs best equipped to provide this assistance?
Answer: None of these groups has a superior advantage over the others. However,
each is likely to be best equipped for certain roles and types of assistance. As we
resources at the individual country level.
3. Do corporations have the responsibility to use their “best” ethics and social
responsibility when they do business in other countries, even if those countries’
practices are different?
Answer: Answers may vary. Organizations have the obligation of being impartial in
implementing their business practices globally. In other words, corporate values and
standards should be established and followed, and taking advantage of cross-
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4. How can companies leverage their ethical reputation and social and environmental
responsibility to improve business performance?
Answer: Being “green” is a new buzz word in business. Companies want to be
perceived as being socially and environmentally friendly. Accordingly, companies
are actively publicizing their efforts to be socially responsible and protect the
Key Terms
Corporate governance―The system by which business corporations are directed and
controlled
Corporate and social responsibility (CSR)―The actions of a firm to benefit society beyond
the requirements of the law and the direct interests of the firm
Ethics―The study of morality and standards of conduct
Fair trade―An organized social movement and market-based approach that aims to help
producers in developing countries obtain better trading conditions and promote sustainability
Nongovernmental organizations (NGOs)―Private, not-for-profit organizations that seek to
serve society’s interests by focusing on social, political, and economic issues such as poverty,
social justice, education, health, and the environment
Sustainability―Development that meets current needs without harming the future
Review and Discussion Questions
1. How might different ethical philosophies influence how managers make decisions
when it comes to offshoring of jobs?
Answer: The Kantian approach would suggest that offshoring decisions be made in
accordance with a set of principles that measure the decision against core tenets
2. What lessons can U.S. multinationals learn from the political and bribery scandals
in recent years, such as those affecting contractors doing business in Iraq
(Halliburton) as well as large MNCs such as Siemens, HP, and others? Discuss
two.
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
Answer: Despite efforts by governments to establish limits, bribery continues to be
a problem around the world. However, this may start to shift as new methods of
enforcement give governments more power. Siemens, for example, paid a record
3. In recent years, rules have tightened such that those who work for the U.S.
government in trade negotiations are now restricted from working for lobbyists for
foreign firms. Is this a good idea? Why or why not?
Answer: Prohibiting those who represent the U.S. government in trade negotiations
from working as lobbyists for foreign firms can minimize the conflict of interest
4. What are some strategies for overcoming the impact of counterfeiting? Which
strategies work best for discretionary (for instance, movies) versus nondiscretionary
(pharmaceutical) goods?
Answer: Counterfeiting continues to be a problem in many countries and especially
in China where, for example, up to 90 percent of the Windows operating systems in
5. Why are MNCs getting involved in corporate social responsibility? Are they
displaying a sense of social responsibility, or is this merely a matter of good
business? Defend your answer.
Answer: Multinational corporations (MNCs) are getting involved in corporate
social responsibility to build a positive public image. A proactive approach to
management is paramount to establishing social responsibility and demonstrating a
commitment to the stakeholders of the organization. It is important to have a
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Chapter 03 – Ethics, Social Responsibility, and Sustainability
Internet Exercise: Social Responsibility at Johnson & Johnson and
HP
Summary
1. Many firms, in addition to Johnson & Johnson and HP, are very proactive in terms
of social responsibility initiatives. Ask your students to search the web and find at
least three additional examples of firms that are heavily involved in social
responsibility initiatives. These initiatives are often referred to in a company’s
home page on the Internet.
2. Questions on Johnson and Johnson (See International Management in Action:
Johnson & Johnson’s Challenges with Ethical Business Practices.)
1. Which stakeholders are most important to J&J and why?
Those who use their products and services: high quality, reasonable prices
Employees: respect, fair compensation, good working conditions, etc.
Communities: support good works, pay taxes, maintain property, protect
environment and natural resources.
2. How does J&J ensure that all of its many operating companies adhere to the
credo?
3. What are the main areas of social responsibility activities for J&H, and how do
they relate to the credo?
3. Questions on Hewlett-Packard
1. What does it mean to be a global citizen at HP?
2. How does HP measure and evaluate its success in global citizenship?
3. What is the e-inclusion, and what are some specific examples of projects that
advance HP’s e-inclusion goals?
In the International Spotlight: Saudi Arabia
Questions & Suggested Answers
1. What are some current issues facing Saudi Arabia? What is the climate for doing
business in Saudi Arabia today?
Answer: Wars in the Gulf probably did not help Saudi Arabia. Even though it
received help from the U.S., the whole region has suffered. The same applies to the
U.S.-led wars against Iraq. On the economic front there is a shortage of Saudi
While rights for women have been extended, women still face many restrictions.
Many aspects of the Saudi economy appear vibrant, particularly in areas outside of
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