Global Business Today Eleventh Edition Chapter 5
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Ethics, Corporate Social Responsibility, and
Sustainability
Table of Contents
Learning Objectives
Chapter Summary
Chapter Opening Activity
Chapter Outline
Opening Case: Sustainability Initiatives at Natura, the Bodyshop, and Aesop
Introduction
End-of-Chapter Resources
Critical Thinking and Discussion Questions
globalEDGE™ Research Task
Closing Case: Woolworths’ Corporate Responsibility Strategy
Continuous Case Concept
Additional Readings and Sources of Information
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Learning Objectives
5-1 Understand the ethical, corporate social responsibility, and sustainability issues faced by
international businesses.
5-2 Recognize an ethical, corporate social responsibility, and/or sustainability dilemma.
5-3 Identify the causes of unethical behavior by managers as they relate to business, corporate
social responsibility, or sustainability.
5-4 Describe the different philosophical approaches to business ethics that apply globally.
5-5 Explain how managers can incorporate ethical considerations into their decision-making in
general and for corporate social responsibility and sustainability initiatives.
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.
Chapter Opening Activity
In small groups, ask students to select an African country and a non-African country. Next, they
should research how corrupt each country is, using databases. Use globaledge.msu.edu and
search the World Bank, Euromonitor Passport, and others. After about 10 minutes, students
should share their findings, and discuss two points:
• Source credibility. This is a chance to discuss the superior credibility of more scholarly
sources found on globalEdge, such as Transparency International, the World Bank, and
the CIA World Factbook, compared to Google and Wikipedia searches.
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Chapter Outline
Sustainability Initiatives at Natura, the Bodyshop, and Aesop
opening case
Summary
The opening case explores the strategic initiatives at Natura Cosmetics, The Body Shop, and
Aesop. The three companies come together under the umbrella of Brazil’s Natura & Co, SA, but
they run largely as independent companies. A common theme between them, however, is the
strong commitment to sustainability in everything they do. In 2014, Natura gained the distinction
of being the first publicly traded company to earn the status of Certified B Corporation, a
distinction given to just 2,200 companies around the world that have demonstrated commitment
to the interdependence between society, environment, and economy.
Discussion Questions
1. Reflect on the Natura’s commitment to sustainability. How does that commitment act as a
competitive advantage for the company? Does Natura’s commitment to sustainability force
competitors to be more sustainable as well? Does a company’s record on sustainability influence
your buying decision?
2. Discuss how Natura, The Body Shop, and Aesop make sustainability an integral part of their
business. Does this approach make it easier for these companies to be good corporate citizens?
How could the commitment to sustainability make being a good corporate citizen more difficult
for these companies?
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Lecture Note: To extend the discussion, consider exploring ongoing changes at The Body
Shop—changes that are designed to make the company more appealing to younger people and a
louder voice on sustainability. To learn more, go to
https://www.bloomberg.com/news/articles/2018-03-15/the-body-shop-s-getting-a-facelift-natura-
chairman-says.
Introduction
A) This chapter begins with a look at how three companies, Natura, and its subsidiaries Natura
Cosmetics, the Bodyshop, and Aesop are meeting demands for ethical behavior, corporate social
responsibility, and sustainability within their global strategies. Natura believes that sustainability
is not a one-off issue, but rather something that should be incorporated into everything it does.
B) The term ethics refers to accepted principles of right or wrong that govern the conduct of a
Ethics and 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?
management FOCUS: “Emissiongate” at Volkswagen
Summary
This feature follows the scandal at Volkswagen when it was discovered that the German
automaker had been deliberately tampering with the emissions on its cars sold in the United
States in order to meet U.S. Environmental Protection Agency (EPA) regulations. Interestingly,
the investigation into the situation revealed that upper-level managers were unaware of the
tampering, and that knowledge of it was limited to a few managers close to the problem. The
scandal cost Volkswagen large sums in fines, and also the trust and loyalty of many of its
customers.
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Discussion Questions
1. Upper-level managers at Volkswagen were apparently unaware of the tampering that was
going on in order to ensure that Volkswagen vehicles sold in the United States met EPA
regulations. What does this situation tell you about the corporate culture at Volkswagen?
2. Reflect on the ethics of the managers who tampered with the emissions systems of the cars
sold in the United States. Why do you think they made the choices they did? Did Volkswagen
do the right thing when it disciplined the managers?
Lecture Note: To extend the discussion of Volkswagen to include sustainability, consider
exploring Volkswagen’s recent announcement of its plans to introduce a full line of electric cars
by 2030 at https://www.bbc.com/news/business-41231766.
HUMAN RIGHTS
C) There are still many nations in the world where basic human rights are not respected. Rights
taken for granted in the developed world such as freedom of association, freedom of speech,
freedom of assembly, freedom of movement, and so on, are by no means universally accepted.
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ENVIRONMENTAL POLLUTION
D) Ethical issues arise when environmental regulations in host nations are 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. Corporations can
contribute to the global tragedy of the commons by moving production to locations where they
are free to pump pollutants into the environment, thereby harming these valuable global
commons. The question here is whether the decision to do so, while perhaps legal, is ethical.
Video Note: To explore Austria’s response to environmental concerns, consider Vienna’s
Carbon Neutral Neighborhood in the International Business Library at
http://bit.ly/MHEIBVideo. Click “Ctrl+F” on your keyboard to search for the video title.
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.
Lecture Note: To extend this discussion, consider exploring the Foreign Corrupt Practices Act
in more depth at https://www.business-anti-corruption.com/anti-corruption-legislation/fcpa-
foreign-corrupt-practices-act, and to further explore bribery in the business environment,
consider https://www.forbes.com/sites/alexandrawrage/2017/01/25/bribery-is-bad-for-
business/#78ae051c4a42 and https://mexiconewsdaily.com/news/bribery-necessary-for-business-
success.
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.
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Video Note: The companies doing business in countries where Ebola is a threat are facing an
ethical dilemma: close factories to keep workers safe, or put workers on leave or keep factories
open, and put employees at risk. To learn more, consider Ebola in Ghana Would Have “Major
Impact”: Nestle in the International Business Library at http://bit.ly/MHEIBVideo. Click
“Ctrl+F” on your keyboard to search for the video title.
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.
DECISION-MAKING PROCESSES
C) 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?
ORGANIZATIONAL CULTURE
D) The third cause of unethical behavior in business is an organizational culture that
UNREALISTIC PERFORMANCE GOALS
E) 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
F) The fifth root cause of unethical behavior is leadership. Leaders are vital in helping a firm
establish its organizational culture and setting examples. If leaders are not acting ethically, other
employees may not act ethically.
SOCIETAL CULTURE
G) 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.
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CONNECT
Click and Drag
Ethics in the Workplace
Summary
This activity focuses on ethics in the workplace. Personal ethics influence business ethics and the
decisions managers make.
Philosophical Approaches to Ethics
A) There are several different philosophical approaches to ethics.
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
Cultural Relativism
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.
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The Naive Immoralist
F) The naive 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) 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.
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
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.
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
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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
Making Ethical Decisions Internationally
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
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.
Organizational Culture and Leadership
C) To foster ethical behavior, businesses need to build an organizational 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.
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?
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
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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.
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
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 bias in favor of decisions that have both good economic and good social
consequences.
CONNECT
Video Case
Corporate Social Responsibility
Summary
This activity explores corporate social responsibility and whether it is a responsibility of an
organization to give back to the communities in which they operate.
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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.
CONNECT
Video Case
VW Says It’s Going Full Steam on Electric Vehicles
Summary
This activity explores corporate social responsibility and sustainable strategies. Managers need to
ensure that the strategies they adopt make good economic sense as well as good sense for the
environment.
Did You Know Video Clip
The video clip asks: “Did you know corporate social responsibility is not as new as it seems?”
Discussion Questions
1. When did the first companies start to practice CSR in the United States?
2. Why would companies allocate some of their resources to social causes?