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Global Business Today Ninth Edition Chapter 5
Ethics, Corporate Social
Responsibility, and Sustainability
Chapter Outline
OPENING CASE: Making Toys Globally
INTRODUCTION
ETHICAL ISSUES IN INTERNATIONAL BUSINESS
Employment Practices
Management Focus: Making Apple’s iPod
Human Rights
Environmental Pollution
Management Focus: Unocal in Myanmar
Corruption
Management Focus: Corruption at Daimler
ETHICAL DILEMMAS
THE ROOTS OF UNETHICAL BEHAVIOR
Personal Ethics
Decision Making Processes
Organizational Culture
Unrealistic Performance Goals
Leadership
Societal Culture
PHILOSOPHICAL APPROACHES TO ETHICS
Straw Men
Utilitarian and Kantian Ethics
Rights Theories
Justice Theories
FOCUS ON MANAGERIAL IMPLICATIONS
Hiring and Promotion
Organization Culture and Leadership
Decision-Making Processes
Global Business Today Ninth Edition Chapter 5
Ethics Officers
Moral Courage
Corporate Social Responsibility
Sustainability
Management Focus: Corporate Social Responsibility at Stora Enso
Management Focus: Sustainability at Umicore
SUMMARY
CRITICAL THINKING AND DISCUSSION QUESTIONS
CLOSING CASE: Bitcoin as an Ethical Dilemma
Learning Objectives
1. Understand the ethical issues faced by international businesses.
2. Recognize an ethical dilemma.
3. Identify the causes of unethical behavior by managers.
4. Describe the different philosophical approaches to ethics.
5. Explain how managers can incorporate ethical considerations into their decision making.
Chapter Summary
This chapter focuses on how ethical issues can and should be incorporated into decision making in
an international business. The chapter starts by looking at the source and nature of ethical issues
and dilemmas in an international business. Then, the reasons for poor ethical decision making in
international business are reviewed. Next, there is a discussion of different philosophical
approaches to business ethics. Finally, the chapter concludes with a review of the different
processes that managers can adopt to make sure that ethical considerations are incorporated into
decision making in an international business firm.
Opening Case: Making Toys Globally
Summary
The opening case explores the ethics of toy manufacturing and in particular, the safety of the
materials used to make toys. Lead, which is used in paint and also in the plastic that is used to
manufacture some toys, is of particular concern because of the health risks it poses especially for
children. Many countries, including the United States, have regulations in place in an effort to
ensure that toys are safe for children. The U.S. Consumer Products Safety Commission (CPSC)
Global Business Today Ninth Edition Chapter 5
for example, has the ability to recall toys that do not meet regulations. Perhaps most problematic
for consumers is that even reputable companies have sold toys that do not meet safety regulations,
and it is often virtually impossible to know whether a toy has a high lead content or other safety
problem related to its materials. The CPSC and China’s General Administration of Quality
Supervision, Inspection, and Quarantine (AQSIQ) have an agreement to eliminate the use of lead
in paint on toys made in China, where about 80 percent of the toys sold in the United States are
produced. Even so, this is just one step toward making toys safer for children. Studies show that
as much as one-third of the toys made in China contain heavy metals that are unsafe for children.
Discussion of the case can revolve around the following questions:
Suggested Discussion Questions
QUESTION 1: Currently, the use of lead in paint is prohibited for toys sold in the United States,
but companies are permitted to sell toys made of plastic that has been treated with lead to make it
more flexible even though research shows the toys may be harmful to children. As a CEO of a toy
company, what is your responsibility? Is it ethical to sell this type of plastic toy? Should a U.S.
distributor be held accountable for the safety of the toys it sources from China?
QUESTION 2: Suppose you know you are selling a plastic toy that could be potentially harmful
to children, but the cost of creating a safer toy would more than double its retail price. If
consumers are willing to buy the existing product should you change your manufacturing process
and raise your price? As a parent would you be willing to pay twice as much for a safer product?
Is it fair to consumers who have less disposable income if you do switch your manufacturing
process to produce the safer but more expensive toy?
Global Business Today Ninth Edition Chapter 5
eat the nonorganic produce. Some students may point out however, that because toys are
nonessential items, parents do have more flexibility in what they choose to buy.
Teaching Tip: Students can explore the Center for Disease Control (CDC) website which
addresses the issue of lead in toys at {http://www.cdc.gov/nceh/lead/tips/toys.htm}.
Lecture Note: Sunglasses with Disney and superhero motifs sold at various retail outlets including
CVS and K-Mart were recently recalled because of high levels of lead that could be harmful to
children. The sunglasses were produced in China. Go to
{http://www.usatoday.com/story/news/nation-now/2014/09/05/disney-childrens-sunglasses-
recalled-lead-paint-marvel/15158489}to learn more details.
Chapter Outline with Lecture Notes, Video Notes, and Teaching Tips
INTRODUCTION
A) This chapter focuses on the ethical issues that arise when companies do business in different
nations. Many of these ethical issues arise because of differences in economic development,
politics, legal systems, and culture.
B) The terms ethics refers to 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 are the
accepted principles of right or wrong governing the conduct of business people, and an ethical
strategy is a strategy, or course of action, that does not violate these accepted principles.
Teaching Tip: The Carnegie Council on Ethics and International Affairs’
{http://www.cceia.org/}publications reflect on many ethical issues in international business.
ETHICAL ISSUES IN INTERNATIONAL BUSINESS
A) In the international business setting, the most common ethical issues involve employment
practices, human rights, environmental regulations, corruption, and the moral obligation of
multinational companies.
Employment Practices
B) A critical ethical issue facing companies doing business in a foreign country involves
employment practices. When work conditions in a host nation are clearly inferior to those in a
multinational’s home nation, what standards should be applied, those of the home nation, those of
the host nation, or something in between? When human rights activists complained about the
sweatshop conditions at Nike’s subcontractors’ operations, Nike, even though it had not broken
any laws, was forced to institute a code of conduct for its subcontractors. More recently, Apple
faced similar challenges.
Management Focus: Making Apple’s iPOD
Global Business Today Ninth Edition Chapter 5
Summary
This feature explores Apple’s experiences with employment practices at the Chinese factory that
produces its iPOD. In 2006, two Chinese journalists reported that the working conditions at
Hongfujin Precision Industries, owned by Taiwanese conglomerate Foxconn, where Apple’s iPOD
is manufactured were substandard. According to the report, not only were workers at the plant
poorly paid, but they were also forced to work overtime. Apple immediately responded to the
allegations and audited the factory in question. However, managers at the factory filed a
defamation lawsuit against the two journalists. Despite the fact that Apple’s audit did indeed show
substandard working conditions at the factory, Hongfujin did not withdraw the lawsuit. Eventually
the Reporters Without Borders group took up the case for the two reporters and the lawsuit was
dropped.
Suggested Discussion Questions
1. Should Apple be responsible for ensuring that its suppliers are safeguarding the basic rights and
dignity of their employees? How can Apple be sure that its suppliers do not employ sweatshop
labor?
Discussion Points: Many students will probably agree that Apple should be responsible at least to
2. The allegations against Hongfujin Precision Industries were made by two Chinese reporters.
Discuss the implications of this for other Chinese companies.
Lecture Note: Apple maintains that it requires its suppliers to practice responsible manufacturing.
Global Business Today Ninth Edition Chapter 5
To learn more about Apple’s policies go to {http://www.apple.com/about//}.
Lecture Note: To extend this case, consider exploring Apple’s recent troubles with allegations of
sweatshop conditions in supplier factories that have prompted worker suicide. Go to
{http://www.businessweek.com/technology/no-company-follows-apples-expanded-china-factory-
audits-02272012.html}, and
{http://www.businessweek.com/magazine/content/11_20/b4228039775369.htm} for more details.
Video Note: To extend this case, consider , {http://www.businessweek.com/videos/2012-02-
13/foxconn-opens-doors-to-investigators}.
Lecture Note: To explore Apple’s recent issues with suppliers, consider
{http://www.businessweek.com/articles/2014-09-18/some-apple-suppliers-get-cut-off-must-
scramble-for-new-business}.
Human Rights
C) There are still many nations in the world where basic human rights are not respected. 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.
The text illustrates this point with examples of South Africa, China, and Myanmar.
Environmental Pollution
D) Ethical issues arise when environmental regulations in host nations are inferior to those in the
home nation. 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. Corporations can
contribute to the global tragedy of the commons by moving production to locations where they are
free to pump out pollutants into the environment, thereby harming these valuable global commons.
The question here is whether the decision to do so, while perhaps legal, is ethical.
Teaching Tip: Consumers International {http://www.consumersinternational.org/} is dedicated to
protecting the rights of consumers worldwide and promoting ethical behavior on the part of
companies.
Video Note: The video in the International Business Library on Pinterest
(http://www.pinterest.com/mheibvideos/)
India's Car Demands Eclipse Environmental Concerns explores the implications of the global auto
industry’s push to sell more cars in India on the country’s environment.
Management Focus: Unocal in Myanmar
Summary
This feature explores Unocal’s actions in Myanmar. Unocal, an American oil and gas enterprise,
Global Business Today Ninth Edition Chapter 5
formed a joint venture with a French company to build a pipeline from Myanmar to Thailand.
Unocal made that investment at a time when many other American companies were exiting the
country in protest of the local government’s policy of brutally suppressing internal dissent.
Suggested Discussion Questions
1. Why did Unocal’s investment become so controversial? Did Unocal behave in an ethical
manner?
2. A 1996 law suit against Unocal was dismissed on the grounds that the Unocal could not be held
liable for the actions of a foreign government against its own people although the judge noted that
the company was aware of what was going on in the country. Discuss the difference between
acting in an ethical manner and acting according to the law.
Teaching Tip: Unocal is now part of Chevron. The company’s web page is
{http://www.chevron.com/}.
Corruption
E) In the United States, the Foreign Corrupt Practices Act outlawed the practice of paying bribes
to foreign government officials in order to gain business (see Chapter 2). The Organization for
Economic Cooperation and Development (OECD) adopted a Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions in 1999. The convention
obliges member states to make the bribery of foreign public officials a criminal offense.
F) Some economists suggest that the practice of giving bribes might be the price that must be paid
to do a greater good. These economists believe that in a country where preexisting political
Global Business Today Ninth Edition Chapter 5
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.
G) In contrast, other economists have argued that corruption reduces the returns on business
investment and leads to low economic growth.
Lecture Note: To extend this discussion, consider {http://www.businessweek.com/news/2014-09-
29/avon-gets-suit-over-china-bribery-probe-statements-tossed} and
{http://www.businessweek.com/news/2013-11-26/weatherford-international-settles-foreign-
bribery-probes}.
Management Focus: Corruption at Daimler
Summary
This feature explores corruption at Daimler. After Chrysler merged with Daimler in 1998, it was
discovered that for years, Daimler had been paying bribes to government officials in various
countries in exchange for preferential treatment. In fact, the Securities and Exchange Commission
(SEC) described the payments by Daimler as “standard operating procedure” at the company.
1. Consider the corrupt culture at Daimler. Why do you think that the practice of making routine
bribes persisted for so many years? Why do you think no one blew the whistle on the practice?
2. Why did Daimler feel the need to make bribe payments? What advantages did the practice give
the company? Did Daimler act in an ethical manner?
Lecture Note: To extend this discussion, consider
Global Business Today Ninth Edition Chapter 5
{http://news.bbc.co.uk/2/hi/europe/8600278.stm}.
Teaching Tip: Daimler is no long part of Chrysler. To learn more go to
{http://www.daimler.com/company}.
ETHICAL DILEMMAS
A) From an international business perspective, some argue that what is ethical depends upon one’s
cultural perspective. Ethical dilemmas are situations in which none of the available alternatives
seems ethically acceptable.
Video Note: The Companies doing business in countries where Ebola is a threat are facing an
ethical dilemma: close factories to keep workers safe, but put workers on leave or keep factories
open, but put employees at risk. To learn more consider the video in the International Business
Library on (http://www.pinterest.com/mheibvideos/) Ebola in Ghana Would Have “Major
Impact”:Nestle.
THE ROOTS OF UNETHICAL BEHAVIOR
A) The determinants of ethical behavior include personal ethics, decision making processes,
leadership, unrealistic performance expectations, and organizational culture.
Personal Ethics
B) Business ethics reflect personal ethics (the generally accepted principles of right and wrong
governing the conduct of individuals). The personal ethical code that guides our behavior comes
from a number of sources, including our parents, our schools, our religion, and the media.
C) Home country managers working abroad in multinational firms may experience more than the
usual degree of 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.
Decision Making Processes
D) Many studies of unethical behavior in a business setting have come to the conclusion that
business people sometimes do not realize that they are behaving unethically simply because they
fail to ask the relevant question—is this decision or action ethical?
Organization Culture
E) The third cause of unethical behavior in business is an organizational culture that de-
emphasizes business ethics, reducing all decisions to the purely economic. The term organization
culture refers to the values and norms that are shared among employees of an organization (see
Global Business Today Ninth Edition Chapter 5
the discussion of culture in Chapter 4).
Unrealistic Performance Expectations
F) The fourth cause of unethical behavior is 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.
Leadership
G) The fifth root cause of unethical behavior is leadership. Leaders are vital in helping a firm
establish its organization culture, and setting examples. If leaders are not acting ethically, other
employees may not act ethically.
Societal Culture
H) Companies headquartered in countries where individualism and uncertainty avoidance are
dominant (see the discussion of Hofstede’s cultural dimensions in Chapter 4) are more likely to
emphasize ethical behavior than companies that are located in countries where masculinity and
power distance are important.
PHILOSOPHICAL APPROACHES TO ETHICS
A) There are several different philosophical approaches to ethics. Some deny the value of business
ethics entirely, or apply it in an unsatisfactory way. Others form the basis for business ethics that
is used by many companies today.
Straw Men
B) Straw men approaches to business ethics are approaches that are raised by business ethics
scholars primarily for the purpose of demonstrating that they offer inappropriate guidelines for
ethical decision making in a multinational enterprise. Four such approaches are the Friedman
doctrine, cultural relativism, the righteous moralist, and the naïve immoralist.
The Friedman Doctrine
C) Nobel Prize winning economist’s Milton Friedman’s classic position on business ethics is that
the only social responsibility of business is to increase profits, so long as the company stays within
the rules of law. He rejects the idea that businesses should undertake social expenditures beyond
those mandated by the law and required for the efficient running of a business. Friedman argues
that it is acceptable for shareholders to choose to use firm profits to make social investments, but
that managers should not make that decision for them.
Cultural Relativism
Global Business Today Ninth Edition Chapter 5
D) 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.”
The Righteous Moralist
E) The righteous moralist approach to business ethics claims that a multinational’s home country
standards of ethics are the appropriate ones for companies to follow in foreign countries. The
main criticism of the righteous moralist approach is that its proponents go too far, and that in some
cases, adopting home country standards may not be appropriate.
The Naïve Immoralist
F) 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 should not either.
Utilitarian and Kantian Ethics
G) In contrast to the straw men, most moral philosophers see value in utilitarian and Kantian
approaches to business ethics. The utilitarian approach to business ethics dates back to
philosophers such as David Hume, Jeremy Bentham, and John Stuart Mill. 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.
H) One problem with the utilitarian approach is measuring the benefits, costs, and risks of a course
of action. A second problem is that the philosophy fails to consider justice.
I) 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.
Rights Theories
J) Rights theories recognize 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.
K) The notion that there are fundamental rights that transcend national borders and cultures was
the underlying motivation for the United Nations’ Universal Declaration of Human Rights
which specifies the basic principles that should always be adhered to irrespective of the culture in
which one is doing business.
Justice Theories
