978-0078112911 Chapter 5 Part 2

Global Business Today Ninth Edition Chapter 5

L) Justice theories focus on the attainment of a just distribution of economic goods and services.

A just distribution is one that is considered fair and equitable. There is no one theory of justice,

and several theories of justice conflict with each other in important ways. One important and

influential theory of justice was set forth by John Rawls who argued that all economic goods and

services should be distributed equally except when an unequal distribution would work to

everyone’s advantage.

M) Impartiality under Rawls’ theory is guaranteed by the veil of ignorance (everyone is imagined

to be ignorant of all his or her particular characteristics). Rawls suggests that under these

conditions, people would unanimously agree on two fundamental principles of justice. First, that

each person is permitted the maximum amount of basic liberty compatible with a similar liberty

for others, and second, that once equal basic liberty is assured, inequality in basic social goods is to

be allowed only if it benefits everyone.

N) Rawls formulates what he calls the difference principle, which is that inequalities are justified if

they benefit the position of the least advantaged person. The text provides examples of how

Rawls’ theory can be used as the moral compass that managers can use to help them navigate

through difficult ethical dilemmas.

FOCUS ON MANAGERIAL IMPLICATIONS

A) Five things an international business can do to make sure that ethical issues are considered in a

business decision are (1) favor hiring and promoting people with a well grounded sense of

personal ethics; (2) build an organizational culture that places a high value on ethical behavior; (3)

put decision making processes in place that require people to consider the ethical dimension of

business decisions; (4) institute ethical officers in the organization; (5) develop moral courage; (6)

make corporate social responsibility a cornerstone of the enterprise policy; (7) pursue strategies

that are sustainable.

Hiring and Promotion

B) Not only should businesses strive to identify and hire people with a strong sense of personal

ethics, but it is also in the interests of prospective employees to find out as much as they can about

the ethical climate in an organization.

Organization Culture and Leadership

C) To foster ethical behavior, businesses need to build an organization culture that places a high

value on ethical behavior. Three things are particularly important. First, the business must

explicitly articulate values that place a strong emphasis on ethical behavior, perhaps using a code

of ethics (a formal statement of the ethical priorities a business adheres to). Second, leaders in the

business should give life and meaning to the code of ethics by repeatedly emphasizing its

importance, and then acting on it. Third, the business should put in place a system of incentives

and rewards that recognize people who engage in ethical behavior and sanction those who do not.

Global Business Today Ninth Edition Chapter 5

Decision Making Processes

D) Business people need a moral compass to help determine whether a decision is ethical.

According to experts if a business person can answer “yes” to the following questions, the decision

is ethically acceptable. First, does my decision fall within the accepted values of standards that

typically apply in the organizational environment? Second, am I willing to see the decision

communicated to all stakeholders affected by it? Third, would the people with whom I have

significant personal relationships approve of the decision?

Video Note: Coca Cola has been criticized for its actions in India where it has been accused of

failing to act in a socially responsible way. To learn more, consider the video in the International

Business Library on Pinterest (http://www.pinterest.com/mheibvideos/) Indian Farmers, Coca-

Cola Vie for Scarce Water Supply.

E) Others have recommended a five step process to think through ethical problems. In Step 1,

business people should identify which stakeholders (the individuals or groups who have an

interest, stake, or claim in the actions and overall performance of a company) a decision would

affect and in what ways. Internal stakeholders include those who work for or who own the

business such as employees, the board of directors, and stockholders. External stakeholders are

the individuals or groups who have some claim on a firm such as customers, suppliers, and unions.

F) Step 2 involves judging the ethics of the proposed strategic decision given the information

gained in Step 1. Managers need to determine whether a proposed decision would violate the

fundamental rights of any stakeholders.

G) Step 3 requires managers to establish moral intent (the business must resolve to place moral

concerns ahead of other concerns in cases where either the fundamental rights of stakeholders or

key moral principles have been violated).

H) Step 4 requires the company to engage in ethical behavior. Step 5 requires the business to audit

its decisions, reviewing them to make sure that they are consistent with ethical principles.

Ethics Officers

I) To encourage ethical behavior in a business, a number of firms now have ethics officers who are

responsible for making sure all employees are trained to be ethically aware, that ethical

considerations enter the business decision-making process, and that the company’s code of ethics

is followed.

Moral Courage

J) It is important to recognize that employees in an international business may need significant

moral courage.

Corporate Social Responsibility

Global Business Today Ninth Edition Chapter 5

K) The concept of social responsibility refers to the idea that business people should take the

social consequences of economic actions into account when making business decisions, and that

there should be a presumption in favor of decisions that have both good economic and good social

consequences.

L) In its purest form, social responsibility can be supported for its own sake simply because it is

the right way for a business to behave. Advocates of this approach argue that businesses need to

recognize their noblesse oblige (honorable and benevolent behavior that is the responsibility of

successful companies) and give something back to the societies that have made their success

possible.

M) Some multinationals believe they have a moral obligation to enhance social welfare in

communities where they do business. The text provides examples of the social investments of

companies operating in Algeria and Finland.

Management Focus: Corporate Social Responsibility at Stora Enso

Summary

This feature explores Stora Enso’s sustainability strategy. Stora Enso, a Finnish pulp and paper

manufacturer, has made sustainability a central focus for the organization. The company clearly

outlines on its website and company reports its commitment to ensuring that it acts in a socially

responsible, environmentally friendly way. All decisions at Stora Enso are guided by this

commitment.

1. Why is a sustainable strategy so important to Stora Enso? What message does its publically

stated commitment to sustainability send? Consider your response from the perspective of various

stakeholders including investors and local communities.

2. As an employee of Stora Enso, what does its commitment to a sustainable strategy mean to you?

How does Stora Enso’s strategy affect its position in the global marketplace?

Global Business Today Ninth Edition Chapter 5

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negatively impact its employees. As such, it is likely to attract well-qualified employees and

create a loyal workforce. Students will probably recognize that a strong workforce will be

beneficial in the global marketplace, as will Stora Enso’s environmentally friendly approach to

doing business. Some students may also point out that as more local governments signal their

commitment to protecting the environment through policy decisions, companies like Stora Enso

stand to benefit.

Lecture Note: To extend this discussion, consider {http://www.businessweek.com/articles/2013-

12-12/corporate-social-responsibility-reports-in-china-progress-or-greenwashing}.

Teaching Tip: To learn more about Stora Enso go to {http://www.storaenso.com/}.

Sustainability

N) Sustainable strategies are strategies that not only help the multinational firm make good

profits, but that also do so without harming the environment while simultaneously ensuring that

the corporation acts in a socially responsible manner with regard to the stakeholders.

O) The basic idea of sustainability is that the organization does not exert a negative impact upon

the ability of future generations to meet their own economic needs and that its actions impart long-

run economic and social benefits to stakeholders.

P) Well thought out sustainable strategies can be good for shareholders, for the environment,

suppliers, local communities, employees, and customers. Business does not need to be a zero-sum

game.

Lecture Note: To extend this discussion, consider {http://www.businessweek.com/articles/2014-

07-01/business-schools-should-make-sustainability-a-mainstream-part-of-the-curriculum}.

Management Focus: Sustainability at Umicore

Summary

Umicore, a Belgian materials technology company, has been described as being the most

sustainable multinational company on the planet. Umicore has achieved this distinction by clearly

making sustainability a central focus across all areas of its business.

1. How can strategy at Umicore best be described – as a zero sum game or a positive-sum game?

Support your answer.

Discussion Points: Most students will probably suggest that Umicore is pursuing a strategy that

can best be described as a positive-sum game. Umicore is committed to ensuring it is generating

strong returns for its shareholders while at the same time protecting the environment and being a

good corporate citizen. Umicore also emphasizes employee safety and employee development.

Global Business Today Ninth Edition Chapter 5

2. Reflect on strategy at Umicore. Consider why Umicore has chosen to pursue a sustainability

strategy and why other companies in the industry may not share its passion for doing what’s good

for the planet. In your opinion, should all companies be required to take an approach similar to the

one that Umicore has chosen? What is the ethical responsibility of companies?

Teaching Tip: To learn more about Umicore, go to {http://www.umicore.com/en/}.

Critical Thinking and Discussion Questions

1. A visiting American executive finds that a foreign subsidiary in a poor nation has hired a 12-

year old girl to work on a factory floor, in violation of the company’s prohibition on child labor.

He tells the local manager to replace the child and tell her to go back to school. The local manager

tells the American executive that the child is an orphan with no other means of support, and she

will probably become a street child if she is denied work. What should the American executive

do?

2. Drawing upon John Rawls’ concept, the veil of ignorance, develop an ethical code that will

(a) guide the decisions of a large oil multinational towards environmental protection, and

(b) influence the policies of a clothing company to outsource its manufacturing process.

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3. Under what conditions is it ethically defensible to outsource production to the developing world

where labor costs are lower when such actions also involve laying off long-term employees in the

firm’s home country?

4. Do you think facilitating payments (speed payments) should be ethical?

5. A manager from a developing country is overseeing a multinational’s operations in a country

where drug trafficking and lawlessness are rife. One day, a representative of a local “big man”

approaches the manager and asks for a “donation” to help the “big man” provide housing for the

poor. The representative tells the manager that in return for the donation, the “big man” will make

sure that the manager has a productive stay in his country. No threats are made, but the manager is

well aware that the “big man” heads a criminal organization that is engaged in drug trafficking.

He also knows that the big man does indeed help the poor in the run down neighborhood of the

city where he was born. What should the manager do?

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97

6. Milton Friedman stated in his famous article in The New York Times in 1970 that “the social

responsibility of business is to increase profits.” Do you agree? If not, do you prefer that

multinational corporations adopt a focus on corporate social responsibility or sustainability

practices?

7. Reread the Management focus feature on Unocal and answer the following questions:

a) Was it ethical for Unocal to enter into a partnership with a brutal military dictatorship for

financial gain?

b) What actions could Unocal have taken, short of not investing at all, to safeguard the human

rights of people impacted by the gas pipeline project?

Summary

Global Business Today Ninth Edition Chapter 5

The closing case explores the growing use of bitcoins. Bitcoin, an open-source, peer-to-peer

digital currency, came into circulation in 2009. Since then, it has become one of the most popular

forms of virtual currency, yet at the same time it has been widely criticized and been called “evil.”

Some governments have raised concerns that the bitcoin is being used to fund illegal activities

including drug and firearms purchases. Discussion of the case can revolve around the following

questions.

QUESTION 1: Do you think bitcoins are approaching being unethical monetary instruments

without technically carrying a value similar to “real” coins?

QUESTION 2: If bitcoins are used to buy drugs, firearms, or other products that are considered

illegal in the country in which bitcoins are being used, does that make bitcoins unethical?

QUESTION 3: Do you think the bitcoin system is “evil” as Paul Krugman suggested? Is it similar

to a Ponzi scheme?

QUESTION 4: Do you think bitcoins were created as a weapon intended to damage central

banking and money-issuing banks?

Global Business Today Ninth Edition Chapter 5

traditional currencies have been established using policies designed to preserve economic and

fiscal stability and that by circumventing these safeguards, the bitcoin is indeed unethical.

Lecture Note: To learn more about how bitcoin works and issues related to the virtual currency,

consider {https://bitcoin.org/en/how-it-works} and {http://www.businessweek.com/articles/2013-12-

12/bitcoin-needs-banks-for-wider-acceptance-as-regulatory-scrutiny-rises}.

Continuous Case Concept

The auto industry, as Continuous Case Concept in Chapter 1 demonstrated, is a global one.

Manufacturing takes place across the globe, and auto companies rely on suppliers around the

world to produce quality parts at a reasonable cost.

• Ask students whether the auto companies should run their foreign operations according to

the ethical standards in the host country or according to home country standards. The

recent recall of Japanese-made Takata airbags has affected many key players in the global

auto industry including Honda, Toyota, and General Motors. Discuss the responsibility of

those automakers to their consumers.

• The recall of Takata airbags is expected to involve some 12 million vehicles globally, but it

is just one of many recalls that seem to have become common-place in the industry. Audi,

for example, just announced a recall of airbags made by a different company. Ask students

how companies like Audi and General Motors can reconcile how their suppliers run their

operations with their own ethics policies. Do these companies have any responsibility to

ensure that suppliers make ethical decisions?

• Finally, reflect on the recent announcements by both Honda and Nissan of the creation of

new positions to oversee safety. At Honda, executives are taking pay cuts as a signal of

their responsibility and concern over performance and quality lapses. What do these

actions communicate to employees and other stakeholders?

This exercise is useful for expanding the discussion of Ethical Dilemmas, Philosophical

Approaches to Ethics, and Organizational Culture and Leadership. The exercise also works well

with the discussion of the role of leaders in ethical decision making, and with the material on

ethics officers.

globalEDGE Exercises

The resources for each exercise can be easily located by using the search box at the top of the

globalEDGE website at http://globalEDGE.msu.edu

Exercise 1

Global Business Today Ninth Edition Chapter 5

Search phrase: Country Reports on Human Rights Practices

Resource Name: U.S. Department of State: Country Reports on Human Rights Practices

Website: http://www.state.gov/j/drl/rls/hrrpt/

globalEDGE Category: Multi-Country

Additional Info:

Each report is drafted by the U.S. Department of State and outlines in detail the human rights

practices of each country in the world.

Exercise 2

Search phrase: Bribe Payers Index

Resource Name: Transparency International: Bribe Payers Index

Website: http://bpi.transparency.org/bpi2011/

globalEDGE Category: Corporate Governance

Additional Info:

Published every other year (odd years) by Transparency International, this index ranks the

likelihood of companies from 28 leading economies to win business abroad by paying bribes. You

can view the results by country, or also by sector (i.e., companies from which sectors are more or

less likely to bribe). Higher scores indicate a lower likelihood to engage in bribery.

Additional Readings and Sources of Information

Wal-Mart Taps a Start-Up for a Window Into Bangladesh Factories

http://www.businessweek.com/articles/2013-05-16/wal-mart-taps-a-startup-for-a-window-into-

bangladesh-factories

Ex-BizJet Official Pleads Guilty in Foreign Bribery Scheme

http://www.businessweek.com/news/2014-07-24/ex-bizjet-official-pleads-guilty-in-foreign-bribe-

scheme

Fifa has to change its culture – ethics investigator Michael Garcia

http://www.bbc.com/sport/0/football/29603170

Carney and Lagarde IMF Panel on Ethics and Finance

http://www.businessweek.com/videos/2014-10-12/carney-and-lagarde-imf-panel-on-ethics-and-

finance

Narrow Appoaches to Teaching Negotiation Have Resulted in a Generation of Leaders Who Make

Ethical Comprises

http://www.businessweek.com/articles/2014-05-15/narrow-approaches-to-teaching-negotiation-

have-resulted-in-a-generation-of-leaders-who-make-ethical-compromises

Global Business Today Ninth Edition Chapter 5

A Sustainable Business Model Pays Off

http://www.businessweek.com/articles/2013-11-26/a-sustainable-business-model-pays-off

How Big Data Can Simplify Sustainability

http://www.businessweek.com/videos/2014-06-18/how-big-data-can-simplify-sustainability

Mexico Purported Gulf Drug Cartel Leader Caught

http://www.businessweek.com/ap/2012-09-13/mexico-purported-gulf-drug-cartel-leader-caught

The U.S. Goes After Bribery on a Budget

http://www.businessweek.com/magazine/the-us-goes-after-bribery-on-a-budget-01192012.html

Judge in No Hurry to Hear Wal-Mart Bribery Lawsuit

http://www.businessweek.com/ap/2012-07-16/judge-in-no-rush-to-hear-wal-mart-bribery-lawsuit

News Summary: Pfizer Settles Bribery Allegations

http://www.washingtonexaminer.com/news-summary-pfizer-settles-bribery-

allegations/article/feed/2021335

Will Foxconn Findings Change Apple’s Supply Chain

http://www.businessweek.com/videos/2012-03-29/will-foxconn-findings-change-apples-supply-

chain

No Company Follows Apple’s Expanded China Factory Audits

http://www.businessweek.com/technology/no-company-follows-apples-expanded-china-factory-

audits-02272012.html

The Higher Costs of Bribery in China

http://www.businessweek.com/magazine/content/10_29/b4187011931530.htm

Toyota Recalls Mount as Automaker Faces More Scrutiny

http://www.businessweek.com/videos/2014-10-15/toyota-recalls-mount-as-automaker-faces-more-

scrutiny