Chapter 05 – Ethics, Corporate Social Responsibility, and Sustainability
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Ethics, Corporate Social Responsibility, and
Sustainability
Learning objectives
• Identify the causes of
unethical behavior by
managers.
• Describe the different
philosophical approaches
to ethics.
First, the chapter explores some of the more common
areas where ethical issues arise in international business,
such as employment practices, human rights,
environmental pollution, corruption, and moral
obligations. Then the discussion moves to ethical
dilemmas and the roots of ethical and unethical
decision-making. Next, the text examines basic
philosophical theories that offer a foundation for ethical
decision-making. Finally, the chapter presents the
5
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unethical means of avoiding taxes and that
they promote illegal activity.
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OUTLINE OF CHAPTER 5: ETHICS IN INTERNATIONAL BUSINESS
Opening Case: Making Toys Globally
Introduction
Ethical Issues in International Business
Employment Practices
Management Focus: Ethical Issues at Apple
Ethical Dilemmas
The Roots of Unethical Behavior
Personal Ethics
Decision-Making Processes
Philosophical Approaches to Ethics
Straw Men
Utilitarian and Kantian Ethics
Chapter Summary
Critical Thinking and Discussion Questions
CLASSROOM DISCUSSION POINT
Chapter 05 – Ethics, Corporate Social Responsibility, and Sustainability
Create a hypothetical business scenario, then ask students to consider the ethics involved.
For example, suppose a British manager pays a Saudi prince 1% of the contract he helps
negotiate in the Kingdom of Saudi Arabia.
OPENING CASE: Making Toys Globally
Summary
The opening case explores the prevalence of lead and other poisonous heavy metals in
children’s toys, particularly those made in China. Although the use of lead in house paint,
toys, and cookware was banned by the U.S. Consumer Product Safety Commission in
1978, China did not agree until 2007 to begin removing lead from toys it makes and
enforcement of the ban is difficult. Despite increasingly strict regulations and voluntary
limits on lead content by the toy industry, experts warn that rule violations are common
and that it can be nearly impossible to distinguish between safe and unsafe toys. With
over 80 percent of the toys sold in the United States being manufactured in China, lead
poisoning from contaminated toys remains a significant threat to children. Discussion of
the case can revolve around the following questions.
1. Why do U.S. toy companies continue to import potentially unsafe toys from China and
elsewhere? Discuss the advantages and disadvantages of importing toys from other
countries.
Because of low labor costs and relatively lax enforcement of safety regulations in China,
toys can be manufactured there for a much lower cost than in the United States. Toy
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2. Should U.S. businesses that import unsafe toys be held responsible for any harm
caused to children from ingesting lead or other heavy metals? Why or why not?
Student responses to this questions will vary. Some may argue that toy companies can
reasonably expect that foreign manufacturers will adhere to international regulations or
3. Do regulations against lead in imported toys work? What other measures might be
taken to improve the safety of children’s toys?
Although stricter regulations against lead in toys have brought increased attention and
scrutiny to the issue, evidence suggests that approximately one-third of all new toys
contain unsafe heavy metals. Governments in countries that export toys have little
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by
Slide 5-3 What Is Ethics?
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.
Slide 5-4 Ethical Issues in International Business
The most common ethical issues in business involve:
• employment practices
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• the moral obligations of multinational companies
Slides 5-5 and 5-6 Employment Practices
Often employment practices differ among nations. What is the MNC’s obligation?
Should home standards be followed, even in less developed countries? Should local
standards be embraced? What is the right basis for employment-related ethical
decisions?
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Slide 5-9 Environmental Pollution
Ethical issues arise when environmental regulations in host nations are far 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.
Slides 5-10 and 5-11 Corruption
The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to
foreign government officials in order to gain business.
Slides 5-12 and 5-13 Moral Obligations
Social responsibility refers to the idea that business people should take the social
Slide 5-14 Ethical Dilemmas
Ethical dilemmas are situations in which none of the available alternatives seems
ethically acceptable.
clear cut.
Slides 5-15 through 5-18 The Roots of Unethical Behavior
The causes of unethical behavior are complex and reflect:
• Personal ethics
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.
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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.
When there 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,
unethical behavior may result.
Slide 5-19 Philosophical Approaches to Ethics
There are several approaches to ethics including the straw men (the Friedman doctrine,
cultural relativism, righteous moralist, and the naïve immoralist), the Utilitarian
approach, the Kantian approach, and rights and justice theories.
Slides 5-20 and 5-21 Straw Men
Straw men approaches to business ethics are approaches that are raised by business ethics
Slides 5-22 and 5-23 Utilitarian and Kantian Ethics
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
Slide 5-24 Rights Theories
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.
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Slide 5-25 Justice Theories
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
Slide 26 Think Like a Manager: The Ethics of the Gig Economy
Slides 5-27 through 5-36 Ethical Decision Making
Five things an international business can do to make sure that ethical issues are
considered in a business decision are:
(1) Hire and promote people with a well grounded sense of personal ethics
(2) Build an organizational culture that places a high value on ethical behavior
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.
To foster ethical behavior, businesses need to build an organization culture that places a
high value on ethical behavior.
Business people need a moral compass to help determine whether a decision is ethical.
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CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 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?
ANSWER 1: This question, which illustrates a potentially very real ethical dilemma
facing managers working in foreign subsidiaries, is designed to stimulate class
QUESTION 2: Drawing upon John Rawls’s concept of the veil of ignorance, develop an
ethical code that will (a) guide the decisions of a large oil multinational toward
environmental protection, and (b) influence the policies of a clothing company in the
potential decision of outsourcing its manufacturing process.
ANSWER 2: John Rawls suggests that a decision is just and ethical if people would
QUESTION 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?
ANSWER 3: This question is likely to stimulate some lively discussion, particularly if
students have personally felt the impact of this practice. Many U.S. companies are
outsourcing not only blue collar work, but also white collar positions to the developing
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QUESTION 4: Do you think facilitating payments (speed payments) should be ethical?
ANSWER 4: Students will probably be divided on this question, and a lively debate
QUESTION 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 rundown neighborhood of the city where he was
born. What should the manager do?
ANSWER 5: Students will probably approach this question in very different ways. Some
QUESTION 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?
ANSWER 6: Student responses will vary. Friedman’s argument, also known as the
QUESTION 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?
ANSWER 7:
Chapter 05 – Ethics, Corporate Social Responsibility, and Sustainability
a. Unocal made its investment in Myanmar just as many other companies were leaving
the country in protest of the nation’s brutal military dictatorship. The company had