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Chapter 2

MANAGING INTERDEPENDENCE

SOCIAL RESPONSIBILITY, ETHICS, AND SUSTAINABILITY

LECTURE OUTLINE

General Outline

Opening Profile: The Bangladesh Disaster: Can Companies Outsource Responsibility for

Workers in Its Supply Chain?

The Social Responsibility of MNCs

CSR: Global Consensus or Regional Variation?

MNC Responsibility toward Human Rights

Comparative Management in Focus: Doing Business in China: CSR and the Human Rights

Challenge

Ethics in Global Management

Ethics in Uses of Technology

Managing Interdependence

Foreign Subsidiaries in the United States

Managing Subsidiary–Host Country Interdependence

Managing Environmental Interdependence and Sustainability

Under the Lens: BP’s Sustainability Systems Under Fire

Management in Action: TerraCycle— Social Entrepreneurship Goes Global

Chapter Learning Objectives (see slide 2-2)

1. To understand the social responsibility of corporations toward their various constituencies

around the world, in particular their responsibilities toward human rights

2. To acknowledge the strategic role that ethics must play in global management and provide

guidance to managers to maintain ethical behavior amid the varying standards and practices

around the world

Opening Profile: The Bangladesh Disaster: Can Companies Outsource Responsibility? (see

slide 2-3)

To what extent was it ignorance or negligence on behalf of the global apparel industry that led to

the fire in the Tazreen Fashions Factory in Bangladesh that killed 1,127 workers in November

2012? The Bangladesh government blamed the Tazreen factory owner for negligence and unsafe

How should retailers balance their profitability against their responsibilities and reputation in

overseas contracting? Is the answer to move production to other countries? Would that solve the

sup- ply chain oversight problem? Moreover, how would that affect the 3.6 million workers in

the garment industry in Bangladesh? Who are the parties who should be held accountable for

these disasters? Who are the stakeholders in this kind of situation?

I. Chapter Learning Goals & The Social Responsibility of MNC’s (see slides 2-4 & 2-5)

A. Global interdependence is a compelling factor of the global business environment, creating

demands on international managers to take a positive stance on issues of social responsibility and

ethical behavior, economic development in host countries, and ecological protection around the

world. Managers today are usually quite sensitive to issues of social responsibility and ethical

behavior because of pressures from the public, interest groups, legal and governmental concerns,

and media coverage.

environment, consumer concerns, and employee safety and welfare.

D. The concept of international social responsibility is the expectation that MNCs concern

themselves about the social and the economic effects of their decisions regarding activities in

other countries.

Global Consensus or Regional Variation? (see slide 2-8)

A. With the growing awareness of the interdependence of the world’s socioeconomic systems,

global organizations are beginning to recognize the need to reach a consensus on what should

constitute moral and ethical behavior around the world. Some think a consensus is forming due

to the development of a global corporate culture (see slide 2-9)—“corporate activity should be

motivated in part by a concern for the welfare of some non-owners, and by an underlying

commitment to basic principles such as integrity, fairness, and respect for persons.”

C. Creating Shared Value (CSV)—that is, expanding the pool of economic and social

value—“leverages the unique resources and expertise of the company to create economic

value by creating social value. By viewing the growth, profitability, and sustainability of

the corporation as intermeshed with societal and economic progress in the markets in

which it operates, companies such as Walmart, Google, and Intel are creating shared

value by: “reconceiving products and markets; redefining productivity in the value chain;

Under the Lens: Nestlé Company Creates Shared Value Globally (see slide 2-11)

Among the increasing number of companies transitioning from corporate social respon-

sibility (CSR) to creating shared value (CSV), Nestlé Corporation stands out. Nestlé shows how

it has advanced the company strategy and resources to creating shared value with its stakeholders

in a long-term agenda. Nestlé has evolved from responding to outside conditions and pressures to

that of internal and community initiatives and integration.

D. MNC responsibility toward human rights

1. What constitutes “human rights” is clouded by the perceptions and priorities of

people in different countries (Although the United States often takes the lead in the

charge against what they consider human rights violations around the world, other

and 12 other tech companies who have agreed on policies banning child labor,

excessive overtime, and so forth.

E. International Codes of Conduct (see slide 2-12)

1. A considerable number of organizations have developed their own codes of conduct;

some have gone further to group together with others around the world to establish

standards to improve the quality of life for workers around the world. Companies

such as Avon, Sainsbury Plc., Toys ‘R’ Us, and Otto Versand have joined with the

Teaching Tip: Send your students on an electronic scavenger hunt. Ask students to find firms’

statements on ethics or codes of conduct from corporate Websites. To make it more interesting

for students you may choose companies with operations near your school or those companies

that produce your students’ favorite brands. Have students assess the codes of conduct given the

guidelines in Exhibit 2-2.

2. There are four international codes of conduct that provide some consistent guidelines

for multinational enterprises (MNEs). These codes were developed by the

International Chamber of Commerce, the Organization for Economic Cooperation

Comparative Management Focus: Doing Business in China & (see slides 2-13 & 2-

14)

China’s growth engine continued to drive the global economy in 2015 (albeit more

slowly), . . . propelled by China’s $586 billion economic stimulus plan enacted during the

global economic downturn. However, although this growth has lifted millions of Chinese

out of poverty, many people and their basic rights remain largely behind, and there has

been a heavy cost to the environment as energy usage increases and causes pollution.

Teaching Tip: An interesting movie to explore Chinese culture is the Chinese

produced Beijing Bicycle (2001) directed by Wang Xiaoshuai.

II. Chapter Learning Goals (see slide 2-15)

A. Globalization has multiplied the ethical problems facing organizations. However,

business ethics have not yet been globalized. Attitudes toward ethics are rooted in culture

and business practices. For an MNC, it is difficult to reconcile consistent and acceptable

behavior around the world with home-country standards. One question, in fact, is whether

it should be reconciled. Perhaps more scrutiny should have been applied to those global

MNCs headquartered in the United States such as Enron and WorldCom that so greatly

defrauded their investors, employees, and all who had business with them.

D. The biggest single problem for MNCs in their attempt to define a corporate-wide ethical

posture is the great variation of standards of ethical behavior around the world. U.S.

companies are often caught between being placed at a disadvantage in doing business in

some countries by refusing to go along with accepted practices, or being subject to

criticism at home for going along with them to get the job done. Exhibit 2-3 (see slide 2-

17) provides a conceptual model explaining important elements of this challenge.

F. Chapter Learning Goals & Ethics in Uses of Technology (see slides 2-19 & 2-20)

1. The ethical use of technology around the world poses a considerable challenge for

companies to have consistent practices because of the varied expectations about the

use of technological devices and programs as they intersect with people’s private

lives. This conflict is illustrated by the electronic data privacy laws in Europe. The

EU Directive on Data Protection guarantees European citizens absolute control over

data concerning them. A U.S. company wanting personal information must get

G. To Bribe or NOT to Bribe? (see slide 2-21)

1. A specific ethical issue for managers in the international arena is that of questionable

payments. These are business payments that raise significant questions of appropriate

moral behavior either in the host nation or in other nations. Such questions arise out

of differences in laws, customs, and ethics in various countries, whether the payments

in question are political payments, extortion, bribes, sales commissions, or “grease

money”—payments to expedite routine transactions. For the sake of simplicity, the

text categorizes all these different types of questionable payments as some form of

bribery.

3. Americans must be able to distinguish between harmless practices and actual bribery,

between genuine relationships and those used as a cover up. To help them make this

distinction, the Foreign Corrupt Practices Act (FCPA) of 1977 (see slide 2-22) was

established, which prohibits U.S. companies from making illegal payments or other

gifts or political contributions to foreign government officials for the purposes of

influencing them in business transactions. The goal was to stop MNCs from

contributing to corruption in foreign government and to upgrade the image of the

Under the Lens: Rolls-Royce Accused of Bribery (see slide 2- 25)

Rolls-Royce has been accused of involvement in a multibillion-dollar bribery and kickback

scheme at Petrobras, Brazil’s state-controlled oil producer, as more foreign companies are

dragged into the corruption scandal. The British engineering company, which makes gas turbines

for Petrobras oil platforms, allegedly paid bribes via an agent in exchange for a $100m contract

as part of a scheme in operation during much of the past decade, according to testimony from a

H. Steps to an Ethical Decision & The Process for Companies to Combat Corruption and to

Minimize the Risk of Prosecution (see slides 2-26 & 2-27)

1. What is the right decision for a manager operating abroad when faced with

questionable circumstances of doing business? The first step would be to consult the

laws of both the home and host countries. If legal consultation does not provide you

III. Managing Interdependence

A. Because multinational firms (or other organizations, such as the Red Cross) represent

global interdependency, their managers at all levels must recognize that what they do, in

the aggregate, has long-term implications for the socioeconomic interdependence of

B. Foreign subsidiaries in the United States

1. Much of the preceding discussion has related to U.S. subsidiaries around the world.

However, to highlight the growing interdependence and changing balance of business

power globally, we should also consider foreign subsidiaries in America.

2. The number of foreign subsidiaries in the United States has grown and continues to

grow dramatically; foreign direct investment (FDI) in the United States by other

C. Managing Subsidiary-Host-Country Interdependence (see slide 2-28)

1. When managing interdependence, international managers must go beyond general

issues of social responsibility and deal with specific concerns of the MNC subsidiary–

host country relationship.

3. Most criticisms of MNC subsidiary activities, whether in less-developed or more-

developed countries, are along these lines:

Teaching Tip: Remind students of some of the basic tests for making ethical decisions:

Would you be comfortable saying what you did 1) in a widely broadcasted television

interview? 2) to colleagues in your company? 3) to your parents or grandparents?

a. MNCs raise capital locally.

b. The majority of the venture’s stock is usually held by the parent company.

c. MNCs usually reserve key management positions for expatriates. (see slide 2-29)

Exhibit 2-5 summarizes the benefits and costs (see slide 2-32) to host countries of

MNCs in three areas: capital market effects, technology and production effects, and

employment effects.

4. Numerous conflicts arise between MNC companies or subsidiaries and host countries,

including conflicting goals (both economic and noneconomic) and conflicting

concerns, such as the security of proprietary technology, patents, or information.

Overall, the resulting tradeoffs create an interdependent relationship between the

subsidiary and the host government, based on relative bargaining power.

5. MNCs (see slide 2-33) run the risk of their assets becoming hostage to host control,

which may take the form of nationalism, protectionism, or governmentalism. With

nationalism, public opinion is rallied in favor of national goals and against foreign

influences. Under protectionism, the host institutes a partial or complete closing of

borders to withstand competitive foreign products by using tariff and nontariff

barriers. In governmentalism, the government uses its policy setting role to favor

national interests rather than relying on market forces.

E. Managing environmental interdependence and sustainability

1. International managers can no longer afford to ignore the impact of their activities on

the environment. The demand for corporations to consider sustainability in the CSR

3. Existing literature generally agrees on three dimensions of sustainability: (1)

economic, (2) social, and (3) environmental. A sustainable business has to take into

account “the interests of future generations, biodiversity, animal protection, human

rights, life cycle impacts, and principles like equity accountability, transparency,

6. While most executives agree that sustainability is important to the financial success of

their companies, less than half of them are making serious commitments to integrate

the necessary steps into their business systems. Reasons include a lack of clear view

on what sustainability comprises, and the difficulty in allocating responsibility in the

company for the vast and overlapping concerns of environmental, social, and

governance issues. As a result, sustainability often does not get internalized in the

culture or systems of the company, and competing priorities, such as short-term

profits, intervene.

7. A report in 2011 from a survey by McKinsey consultants of 3,203 executives

representing the full range of industries and geographic regions shows that many

companies are actively integrating sustainability principles into their businesses, and

they are doing so by pursuing goals that go far beyond earlier concern for reputation

Under the Lens: BP’s Sustainability Systems Under Fire (see slide 2-34)

9. It is clear that MNCs must take the lead in dealing with ecological interdependence by i

integrating those factors with strategic planning. At least MNC managers must deal with

the increasing scarcity of natural resources in the next few decades by (1) looking for

alternate raw materials; (2) developing new methods of recycling or disposing of used

materials; and (3) expanding the use of by-products.

Management in Action: TerraCycle – Social Entrepreneurship Goes Global

TerraCycle is an example of a “social purpose venture.” Each exists because of a social,

specifically environmental mission, but seeks to achieve profitability and growth. Regardless of

the terminology, it is clear that social entrepreneurs such as Skazy provide “the engine of

positive, systemic change that will alter what we do, how we do it, and why it matters.” In

addition, by partnering with companies and institutions around the world, TerraCycle is

providing a stimulus and outlet for the CSR of those entities and a direct source of initiatives for

environmental sustainability.

F. Corporate Sustainability Model (see slide 2-35)

1. Effective implementation of sustainability strategies, according to Epstein and Buhovac,

requires companies to have both formal and informal systems in place: “Companies need

the processes, performance measurement, and reward systems (formal systems) to measure

2. Recommendations for MNCs Operating in and Doing Business with Developing Countries

(see slides 2-36 & 2-37)

a. Do no intentional harm.

b. Produce more good than harm for the host country.

Internet Resources

Chapter Discussion Questions

2-1. Discuss the concept of corporate social responsibility. What role does it play in the

relationship between a company and its host country? How does CSV move beyond

CSR?

Learning Objective: 1; AACSB: Ethical understanding and reasoning

International social responsibility is the expectation that MNCs concern themselves with the

social and the economic effects of their decisions regarding activities in other countries. An

MNC’s stance on international social responsibility determines how harmonious and

2-2. Discuss the criticisms which have been levied against MNCs in the past regarding their

activities in less-developed countries. What counter-arguments are there to those

criticisms?

Learning Objective 2; AACSB: Ethical understanding and reasoning

MNCs have been criticized for disrupting the social, technological, and political climates in

host nations. Governments often have a “love–hate” relationship with MNCs because they

2-3. What does moral universalism mean? Discuss your perspective on this concept. Do you

think the goal of moral universalism is possible? Is it advisable?

Learning Objective: 2; AACSB: Ethical understanding and reasoning

This means to address the need for a moral standard that is accepted by all cultures. Class

discussion is likely to be divided on this issue. Some students will argue that there are or

should be moral absolutes. Others will argue that morals are culturally driven and will,

2-4. What do you think should be the role of MNCs toward human rights issues in other

countries? What are the major human rights concerns at this time? What ideas do you

have for dealing with those problems? What is the role of corporate codes of conduct in

dealing with these concerns?

Learning Objective: 1; AACSB: Analytic skills

MNCs must be very careful not to become instruments of political change or policy making,

because they are economic institutions. However, where MNCs can unite with the

international community in opposing human rights violations, the legitimate policies of

2-5. What is meant by international business ethics? Should the local culture affect ethical

practices? What are the implications of such local norms for ethical decisions by MNC

managers?

Learning Objective: 2; AACSB: Ethical understanding and reasoning

International business ethics refers to the business conduct or morals of MNCs in their

relationships to all individuals and entities with whom they come into contact. Because local

2-6. As a manager in a foreign subsidiary, how can you reconcile local expectations of

questionable payments with the corporate code of ethics and the Foreign Corrupt

Practices Act? What is your stance on the problem of “payoffs”? How does the degree

of law enforcement in a particular country affect ethical behavior in business?

Learning Objective: 2; AACSB: Ethical understanding and reasoning

Managers must be able to distinguish between harmless practices and actual bribery,

between genuine relationships and those used as a cover up. The fact of the matter is many

2-7. What do you think are the responsibilities of MNCs toward the global environment?

Give some examples of MNC activities which run counter to the concept of ecological

interdependence and responsibility.

Learning Objective: 3; AACSB: Dynamics of the global economy

The management of environmental interdependence includes the need to consider ecological

interdependence, as well as economic and social implications of MNC activities. Examples

2-8. Discuss the ethical issues that have developed regarding the use of IT in cross-border

transactions. What new conflicts have developed since the printing of this book? What

solutions can you suggest?

Learning Objective 3; AACSB: Use of information technology

Information technology has increased the ability of firms to engage people throughout the

world. Although most of this engagement is seen as positive, such as increasing consumer

Application Exercises Learning Objective: 2; AACSB: Ethical understanding and

reasoning

2-9. This is an interesting and instructive exercise. It would be perhaps most useful if students

could select two companies from the same industry for comparison. If this isn’t possible, it

will still be useful to see the differences in codes of conduct across industries and to have

them comment on the usefulness of those codes.

Experiential Exercise

Learning Objective: 2; AACSB: Ethical understanding and reasoning

This exercise will require students to address a difficult and relevant situation concerning

questionable payments. Because this is not an American company, the Foreign Corrupt

End-of-Chapter Case Study: Levi Looks to Cut Its Cloth Differently by Rewarding

Responsible Suppliers

Discussion Questions

2-10. Consider what happened in Bangladesh (see the opening profile). To what extent do

you think the efforts by Levi Strauss can resolve the kinds of problems that led to

that disaster?  

Learning Objective; 1; AACSB: Dynamics of the global economy

The project sprang out of conversations at the International Finance Corporation (IFC)

following the 2013 Rana Plaza factory collapse in Bangladesh, which left more than

2-11. What other people and factors are involved? Who are the stakeholders, and how

are they affected? Consider the process and what steps are necessary to make this

good idea happen

Learning Objective; 1; AACSB: Dynamics of the global economy

In addition to being socially responsive to internal stakeholders such as domestic

employees, the organization also views its impact on suppliers, regulators, investors, and

2-12. How do these types of incentives relate to the overall goal of sustainability for the

company?

Learning Objective: 3; AACSB: Dynamics of the global economy

Through the IFC, Levi Strauss suppliers will have access to cheaper capital than

Student Stimulation

Group or Class Learning Activities

1. Environmental Policies: Ask teams to choose two firms. They should then find the

environmental policies for these firms on the company Website. Working in teams, have

students evaluate the policies. Consider these issues when evaluating the policies: a) What

impact do you think the environmental policy of each firm has on its bottom line? b) Do you

2. Code of Ethics: Working in teams, develop a code of ethics and social responsibility for your

college or university in regard to its foreign students. Your ethics code should cover such

areas as recruiting, degree completion times, scholarship availability, work study issues,

language, culture, on-site versus off-site instruction, and any other issues you feel are

important. After each team presents its ethics code, you may wish to ask the following

discussion questions:

a. What ethical issues do you see in cross-border education?

Additional Stimulation Discussion Questions

1. Do you feel profit is a sufficient goal for companies that operate across national borders?

2. To what extent do you feel codes of ethics and social responsibility are culturally derived?

3. Should MNCs have lower standards of ethics and social responsibility in developing nations,

given that developing nations need jobs so badly and have lower standards of living? In other

words, to what extent do you feel ethical standards are a function of economic development?

4. Given that there are no agreed upon universal codes of ethics in international business,

should companies follow the adage: “When in Rome, do as the Romans do?”