978-0078112911 Chapter 5 Part 1

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. 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