978-1285428710 Section 6 SECTION 6A

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UNIT SIX – ETHICS IN INTERNATIONAL BUSINESS

SECTION 6A – CONFLICTS BETWEEN THE CORPORATION’S ETHICS

AND BUSINESS PRACTICES IN FOREIGN COUNTRIES

READING 6.1 – WHY AN INTERNATIONAL CODE OF ETHICS WOULD BE GOOD

FOR BUSINESS

Use PowerPoint Slide 245 (Figure 6.1) – “The Interdependence of Trust, Business, and Government”.

Also use PowerPoint Slides 246 – 254 to show corruption indexes.

Use PowerPoint Slides 255 – 258 to show universality of a simple ethical test.

Answers and Key Discussion Items

1. We may have more universal values then we realize. This categorical imperative/Golden Rule test

2. Without ethical standards, the nation becomes amoral and lawless. Murder in Brazil was not the

3. Corruption benefits the few at the expense of many. Economic development cannot occur in

4. Many companies use one standard internationally so that employees are clear on what to do. Some

feel “when in Rome” is correct, but the problems of corruption reveal its inherent injustice. Refer to the

CASE 6.2 – CHIQUITA BANANA AND MERCENARY PROTECTION

Use PowerPoint Slide 259 for summary of issues in case.

Answers and Key Discussion Items

1. The Laura Nash question is so important here because Chiquita failed to realize that while there was

money to be made in the Colombian operation, there were also risks. The risks were political and,

just generally, safety risks in a country that had civil wars and terrorist organizations that were thriving

from protection money. One of those organizations demanded protection money. Immediately,

Chiquita was cast into the either/or conundrum. Either we pay the protection money or our

2. “Technical violation” may be another one of those labels that helps us to justify conduct. We are not

really in violation of the law – ‘tis but a mere technical violation, something that makes it seem as if

the rule is not well grounded and that we have the judgment to step outside the rule. While Mr. Hills

3. Companies need policies that constitute a form of a credo for them: we do not pay protection money.

We have private security as a safety precaution, but we do not pay protection money. We also do not

violate the law, technically or otherwise. “I would never use my position in a company to contribute to

4. Through its sustainability initiative, Chiquita was exercising its social responsibility on safety for its

employees as well as education and quality of life issues. The initiative was a way of providing basic

human rights and dignity for those who were employed at Chiquita. One benefit companies gain from

social responsibility is that they are not subjected to the protests and boycotts heaped upon

Compare & Contrast

The clear position of the Justice Department is no payments, but the department also provides some

insight for companies that think they are indeed facing an either/or conundrum (either pay the money for

There is also a social responsibility issue here. Funding terrorist organizations allows them to plot and

plan attacks that can kill locally and globally. The goal is cutting off their sources of funds and one

CASE 6.3 – PIRATES! THE BANE OF TRANSNATIONAL SHIPPING

The following was a write-up I did for my students on this exercise to help them with their analysis. The

questions at the end of the case are answered in detail here with lists that you can walk through with your

students.

Some Thoughts on the Transnational Exercise

Remember, you are not just sitting around “I think”-ing – you are analyzing and taking the rich body of

science, theory, and case history that you now have and using it to help a company. Please also

remember that as you go into the final, it would be rare for anyone to have reached solid “A” standing.

Several of you went right off the cliff where you wrote what you think I want to hear, e.g., “Just pay the

ransom.” Remember, I don’t really care how you conclude, just need to see the solid thinking process

that got you there.

I was grading your papers on a flight and I had a “reader” next to me, i.e., someone who reads what you

are doing. He said he was “trying not to read everything, but I couldn’t help myself.” Good thing I do that

number/privacy deal. He then asked what I taught, and I said ethics, and he laughed. He said, “Well,

Time was limited on this, but I needed an exercise to be able to determine where we were in terms of

progress on the analysis. I should have the grades posted in the next week.

Here are some ideas on answering the question, which was to offer a list of advice, issues, and concerns.

I offer the following, all within the framework of what you have studied so far. Remember McNamara’s

thoughts on Vietnam, “We didn’t ask enough questions.” Those numbers:

$25 mil – not a great deal of scratch for an international shipping company to lay down – we don’t

these questions (see below).

Numbers require you to go up and down and across the chain, so you have some numbers effects

that are not easily quantifiable. You can also do stakeholders here if you want and analyze cost and

stakeholders together.

Impact on Transnational’s costs going forward.

You can always pay, but there is always the next set of pirates and a new demand.

Once pirates know you pay, your negotiation power is somewhat reduced.

How long can Transnational continue to follow the “Just pay the ransom” approach to resolving

these pirate attacks? This is where the big numbers picture comes in. And your Donaldson

comes in here. With certain moral absolutes, where are you as a company? Given the reality of

pirates, does the company need a new business model? Does the company need new security

measures? Different routes? Different ways of training crews? Maybe new routes that avoid

high-risk pirate areas? Maybe revisiting the whole international business transport model?

Transnational undertook its business model without thinking through the real costs of this type of

The Law

International waters mean a certain degree of lawlessness.

If you call it a “ransom,” then there is no illegality.

If you call it a “bribe,” then Transnational may have issues as a U.S. company.

You have one of the areas in which no country has jurisdiction.

The US does have the right to protect its citizens in international waters, so there is the thought of

involving the U.S. government (something that was indeed done in the previous pirate attack that

Davis referred to).

Examine Categories

This is a classic “condoning unethical conduct” if you pay the pirates.

If you don’t pay the pirates, it is organizational abuse, because we probably all can agree that letting

employees get bumped off may not be a good morale booster or HR policy.

Underlying this will be hiding information – like Merck, Manville, Dow, company was aware of an issue

but took no action or steps to develop policies, processes, procedures, resolution prior to the time the

pressure of this situation hit.

Were we saving money by not having necessary precautions and security on board? Organizational

abuse.

There is also a classic balancing of ethical dilemmas here – 25 human lives at stake, but the

implications of payment are significant for so many others who will be affected.

Checks For Rationalization, Perception, Bias, Language

“Bribes” vs. “ransom”.

Davis sees his perspective.

Do we really understand the pirates and their motivation? Is there something in our ethnocentrism

that might provide some insights and answers about their behavior, choices, and willingness to

negotiate?

Employees believe the company credo on bribes is paramount.

Is it a “cut your losses” situation (i.e., loss aversion)?

Diagnosis bias – is the problem the pirates or was it the lack of training, lack of security procedures;

lack of security plan in place? If the cause is something other than just “bad pirates, evil pirates,”

there may be an effect on the decision.

The outcome is presumed—going both ways.

Is it possible that the rules of the high sea are different (Sadhu) and that everyone in shipping buys

into these risks?

“It’s a gray area.”

“Everybody else just pays the bribes.”

“This is the way we have been doing it.”

“If we don’t do it, another company will and we will have suffered because of our stance.”

Time pressure because of pirates’ deadline.

Sunk costs and the draw to recover them.

We can fix this; we always have in the past.

List Those Affected By Your Decision

Did a fairly good job as part of numbers (see above).

Transnational’s reputation.

Transnational’s shareholders.

Creditors for Transnational and the ability to raise capital.

Transnational’s employees – both those on the boat and otherwise.

Other shipping companies because decision here affects their ability to stop piracy, depending on

what Transnational does.

Employees who work international shipping company boats.

U.S. government’s foreign policy and diplomacy.

Military forces as decisions are made about deployment and use of force.

Insurers for company, cargo, and employees.

Effect on insurance industry.

Decide Your Role And The Role Of Business

Utilitarians – do the most good for the most people – losing 25 lives now could save millions.

Natural law – human life is paramount and policies on bribes take a back seat to preserving human

life.

Rights – there are the rights of the employees, but there are also the rights that exist in commerce.

Rand and self-interest – in whose self-interest is the death of the employees? In whose self-interest

is the preservation of their lives? There is great depth to be found in just exploring this issue.

Everybody knows the high seas are tough territory – all part of the game – and we bought into it,

employees, companies, etc. (Albert Carr).

Apply Questions

There is a slip into the either/or conundrum here – either we pay the bribe or we lose the lives.

Is there “wiggle room” here?

How does Transnational define itself? Is the no-bribes policy part of its credo? What about human

life?

The issue is framed only one way, “To pay or not to pay,” and that framing costs us the perspective of

options.

Flaws in the “to pay or not to pay” are that you can’t really trust the people you cheat with; they will

throw you under the bus. These are pirates – even with payment you may not attain the release of

the employees.

Reframe to think of country assistance, military options, possibility of the release of some in exchange

for partial payment, a way to reduce the likelihood of employee injury if you do fire upon.

The headline test is awful no matter what (and the fact that you knew does not help either way).

You could discuss consequences here (WSJ).

Blanchard and Peale – the element of conscience – even with logic on your side, the loss of

employees will be tough to live with – see our discussion of Andrew Carnegie and his response to the

Homestead rebellion when the suppression of union activities cost employees their lives.

If I were one of the employees, how would I want this issue resolved?

Can I see alternatives or have I fallen into the either/or conundrum?

Classic Laura Nash – how did we get in this situation in the first place?

Rely On Cases And History

Facts give you information that this type of piracy has happened before – how was it resolved? What

strategies did that company use? Can we use them?

What do we risk if we do not see all of these issues?

Seems to be a failure to get input here.

What other companies have faced similar life-and-death dilemmas and how have they responded to

them?

Can we get help?

Have others developed a strategy?

The likelihood of all of our lack of ground work on this issue coming out is 100%.

If we assume our inaction will become public, how should we resolve this stand-off?

Explore alternative resolutions.

Recall Merck, Dow, Manville and the costs of their lack of candor – Transnational knew of issue but

took no action – problematic position no matter which way they turn.

Maybe this is an inherently dangerous activity that cannot be controlled, in which case, do they need

to reformulate where they are headed?

Incorporate Strategy

Thinking long term, what effect will this decision (regardless of what it is) have on the company?

Is this an isolated incident or is it part of an evolving problem that requires involvement of the

international community?

If I am working to resolve the problem internationally, can I proceed on a case-by-case basis until the

international community has a resolution, help, etc.?

Where do my individual positions and postures fit when there is movement in a different direction that

will eventually solve the issues?

Who is in charge here? Is this Transnational’s responsibility, and if it isn’t can they be excused from

their “no bribes” policy?

CASE 6.4 – THE FORMER SOVIET UNION: A STUDY OF THREE COMPANIES AND

VALUES IN CONFLICT

PwC and the Russian Tax Authorities

Answers and Key Discussion Items

1. The Laura Nash model of how did PwC get into this situation in the first place is very important. PwC

decided to expand its business into a country where it knew that corruption abounded. PwC has

been forced into a corner because of corrupt officials, but, nonetheless, the dilemma is real. The

2. The ease of entry into a country means that there are those waiting to also skim the cream from those

who are skimming the cream in a new market. The market is new, regulators are inexperienced, the

groundwork for economic freedom has not been laid, and the result is the kind of chaos PwC

3. The two values in conflict are the loyalty to the client and keeping the client’s records private. The

other duty is the obligation to make money, and if its license is revoked, this division of the company

Ikea and the Generators

Answers and Key Discussion Items

1. In finding a way to honor its values of not paying bribes, but also paying its employees and vendors,

2. The political stability of the country; an atmosphere that may run contra to Ikea’s basic values. Ikea

will constantly be facing issues in this country – visiting and revisiting the instability and values needs

AES and the Power Plant

Use PowerPoint Slide 260.

Answers and Key Discussion Items

1. The government is unstable. No one is clear what the rules are, how the rules change, how the

2. What is the political condition in the country? What systems are under government control? Utilities?

What is the foundation of government? How are disputes settled? What is the country’s culture on

3. The numbers must include the possibilities of: being shut down fully; having the government take

over operations; the unknowns of the tax structure; profit sharing with the government; the loss of

CASE 6.5 – PRODUCT DUMPING

Answers and Key Discussion Items

1. Is it legal to dump products? Yes, so long as the other country has not banned them. Is it balanced

to dump products? No, you are selling products without a full disclosure of their hazards and their

2. The inventory write-off or write-down needs to be analyzed over both the short term (20% income

reduction), and the long term (damage to reputation; possible accidents in those countries and

3. In some cases, the evidence on safety is disputed. Some officials believe the product is safe and

others do not. Perhaps selling the product internationally is possible with new disclosures attached

about the debate regarding its safety. It is not the selling of the product itself that is unethical. It is the

selling of the product without disclosure of its previous history here. The element of conscience does

enter into these discussions because where there are children’s products involved, the shipping of

4. Full disclosure is a compromise on products with safety issues. If the problem of defect is known,

CASE 6.6 – BANGLADESH, SWEATSHOPS, SUICIDES, NIKE, APPLE, FOXCONN,

APPLE, AND CAMPUS BOYCOTTS

Answers and Key Discussion Items

1. The economic issues center on the comparisons between U.S. wages and wages in these countries.

The discussion must begin from the value of a dollar in those countries and the going wages. The

The points that many economists make is that these countries that are developing must go through

the same evolutionary process as was present in the United States before we had child labor laws.

While libertarian economics produces fascinating discussions, it does assume that both sides to the

transaction have full information and the capability to contract. These jobs and wages are negotiated

One way to look at the view that the jobs support the families is to ask if the jobs are so good, then

why don’t the adults in the families do them? Why are the children forced into the jobs? Reasonable

2. The legal issues of employing a 12-year-old are very different from the moral ones. The issue is no

different from Union Carbide and Bhopal. Yes, they were in compliance with the law, but what they

3. Some companies have actually improved the lives of children through school programs coupled with

4. How children are treated is also a question of ethics. Using the jobs as a means for them to get

5. The stories involving this big shoe company and a big star hit home and made people realize what

Compare & Contrast

The purpose of the economic background in this part of the case analysis is to help students see the

sweatshop issue beyond the emotional reaction. There are very real economic issues at play here and

there is a balancing of good outcomes here. There is a delicate balance to be struck. Once again, have

CASE 6.7 – BHOPAL: WHEN SAFETY STANDARDS DIFFER

Answers and Key Discussion Items

1. The U.S. policies on shanty towns would be markedly different. They would not be permitted to be

located anywhere near the chemical plants. Although the plant met Indian standards for safety, such

2. The issue of justice is one that enters into the question of how much is enough in terms of

3. Loss of reputation; increase in cost of capital because of increased risk; eventual end of the company

4. Dow’s position is that it has no responsibility – legally the company is correct, but the reputational

5. A great deal of the initial analysis of the Bhopal disaster centered on the fact that the standards for

plant operation and location were different from India. The shanty towns would never be located so

close to a plant in the United States and operational standards and processes were more stringent

CASE 6.8 – NESTLÉ: PRODUCTS THAT DON’T FIT CULTURES

Answers and Key Discussion Items

1. Nestlé, as an unassailable proposition, had a brilliant marketing program for infant formula. However,

social responsibility and the moral responsibility for the right of these young children to life, dictated

2. Nestlé suffered a twenty-year taint on its reputation because of the decisions made in the infant

3. A marketing program that satisfies not only WHO and AAP, but the ethical constraints as well, is one

that begins with the premise that in these third world nations, mother’s milk is best and should always

4. Those who made the decision to go forward with the program and were aware of the cultural, physical

5. The moratorium is voluntary but it is only a matter of time before regulation is imposed that would

prevent distribution of samples. The potential for harm is great when the samples are used and the

6. A discharge pack from a hospital with formula sends a signal of hospital approval. There is no

7. Some ads do read “Breast is best.” Many companies are exercising great ethical discretion in the

CASE 6.9 – THE INTERNET, CENSORSHIP, AND HUMAN RIGHTS IN CHINA

Emphasize again the importance of analyzing the issues a business will face in another country BEFORE

entering that country to do business.

Answers & Key Discussion Items

1. Yahoo and Google forgot the upfront analysis necessary before doing business in another country.

The overarching question is, “Are we able to conduct business in this country in a manner that is

2. Any of the questions listed in question #1 would have been appropriate and important for Yahoo and

3. Brin is focusing on the Blanchard/Peale question of, “How does it make me feel?” or the element of

Compare & Contrast

Point out to the students how these issues continue to arise in different countries and for different

reasons, but the analysis remains the same for the companies: Is it better to stay out of the country until

the human rights issues are resolved? Or is it better to go into the country and be an agent for change in

moving toward human rights? There is backlash for the latter, as Google and Yahoo experienced. Both