Chapter Three

Ethics and
Social Responsibility

McGraw-Hill/Irwin

Copyright 2012 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Ethics and Social Responsibility

The specific objectives of this chapter are to

1. EXAMINE ethics in international management
and some of the major ethical issues and problems
confronting MNCs in selected countries.
2. DISCUSS some of the pressures on and action
being taken by selected industrialized countries and
companies to be more socially and environmentally
responsive to world problems.
3. EXPLAIN some of the initiatives to bring greater
accountability to corporate conduct and limit the
impacts of corruption around the world.
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Ethics and Social Responsibility in

International Management
Ethics
Study of morality and standards of conduct.

Dilemmas arising from conflicts between

ethical standards between countries most
evident in employment practices
Inferring right vs. wrong in legal sense

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Ethics and Social Responsibility in

International Management
Corporate Social Responsibility (CSR)
Involves the voluntary actions of a firm to benefit
society beyond requirements of law and direct
interests of firm
Closely related to ethics
CSR concerns include working conditions in
factories and service centers as well as
environmental impacts of corporate activities

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Ethics Theories and Philosophy

Kantian philosophical traditions
Individuals have responsibilities based on a core set of moral
principles that go beyond those of narrow self-interest.

Aristotelian virtue ethics

Focus on core, individual behaviors and actions and how they
express and form individual character.

Utilitarianism
Favors the greatest good for the greatest number of people
under a given set of constraints.

Eastern philosophy
Views the individual as part of rather than separate from
nature.
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Human Rights
Human rights issues challenge MNCs
Currently no universally adopted standards for what
is acceptable behavior
A great deal of subjectivity and culturally biased
viewpoints exist
Some basic rights: life, freedom from slavery or
torture, freedom of opinion and expression, general
ambiance of nondiscriminatory practices
Human rights violations still rampant globally
Tiananmen Square and apartheid
Womens rights
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Ethics and Social Responsibility

Around the World: JAPAN
Equal opportunity issues
Refusal to hire women or promote them into
management positions
Hostile work environment
Traditional role of females and female employees
Sexual harassment may not be considered a moral
issue

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Ethics and Social Responsibility

Around the World: EUROPE
Equal employment opportunity
Glass ceiling pervasive throughout the world
France, Germany, Great Britain have seen increase
in number of women in management, but tend to
represent only lower levels

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Labor, Employment and Business

Practices
Employment and business practices
Difficult to establish a universal foundation of
employment practices
Difficult dilemmas in deciding working conditions,
expected consecutive work hours, and labor
regulations
Offshoring due to differences in labor costs

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Ethics and Social Responsibility

Around the World: CHINA
Workers not well paid
Often forced to work 12 hours a day, 7 days a week
2010 factory worker suicides

Human rights violations

Use of child labor

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Environmental Protection
and Development
Countries approach the issue of conservation
of natural resources differently
Poor countries are more focused on improving the
welfare of their citizens rather than improving the
environment
Environmental Kuznets Curve

Many companies violate laws and jeopardize

the environment
2010 BP Gulf explosion

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The Environmental Kuznets Curve

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Globalization and Ethical

Obligations of MNCs
Should the MNC adopt the regulations in the
country of origin or those in the country of
operation?
Doing the right thing is not always easy
Levi Strauss in Bangladesh

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Reconciling Ethical Differences

across Cultures
Integrative Social Contracts Theory
Helps companies avoid relativism versus
absolutism
Gives managers a framework to use when they
face a gap between the moral and ethical values in
the home country and in the host country

Corporate Social Responsibility

Sustainability
Development that meets humanitys needs without
harming future generations
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Corporate Social Responsibility

and Sustainability
Nongovernmental organization (NGO)
Private, not-for-profit organization that seeks to serve
societys interests by focusing on social, political, and
economic issues such as poverty, social justice, education,
health and the environment.

NGOs have grown in number, power, influence

NGOs have urged MNCs to be more responsive to range of
social needs in developing countries

NGO activism has caused major changes in corporate

behavior
NGOs have been active in promoting fair trade products

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Corporate Social Responsibility

and Sustainability
NGOs in U.S. and globally
Save the Children
Oxfam
CARE
World Wildlife Fund
Conservation International

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Corporate Response to Social

and Organizational Obligations
Agreements and codes of conduct committing
MNCs to maintain certain standards
U.N. Global Compact

Codes help offset real or perceived concern

that companies move jobs to avoid higher
labor or environmental standards in their home
markets
Contribute to raising of standard in developing
world by exporting higher standard to local firms in
these countries
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Principles of the Global Compact

Human Rights
Labor
Environment
Anti-Corruption

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Principles of the Global Compact

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Corporate Governance
Corporate governance
The system by which business corporations are
directed and controlled.
Distribution of rights and responsibilities
Stakeholder management
Spells out rules and procedures
Makes decisions

Becoming more important after numerous

scandals
Arthur Anderson, Enron, UnitedHealthcare
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Corporate Governance
Many continental European countries are
insider systems
Ownership more concentrated
Shares owned by holding companies, families or
banks

Rules and regulations differ among countries

and regions
U.K. and U.S. systems are outsider systems

Dispersed ownership of equity

Large number of outside investors
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Corruption
Corruption
Government corruption is a pervasive element in
international business environment
Scandals in Russia, China, Pakistan, Lesotho, South
Africa, Costa Rica, Egypt and elsewhere

Some evidence that discontinuing bribes does

not reduce sales of the firms products or
services in that country

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Selected Countries Ranked in

Transparency International Corruption
Perception Index

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Global Initiatives to Increase

Accountability and Limit Corruption
Foreign Corrupt Practices Act
makes it illegal for U.S. companies and their
managers to attempt to influence foreign officials
through personal payments or political contributions
Entertainment expenses
Consulting fees

Organization of American States InterAmerican Convention Against Corruption

Foreign Corrupt Practices Act

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Corruption and
Foreign Corrupt Practices Act
Recent formal agreement by many
industrialized nations to outlaw the practice of
bribing foreign government officials
Organization for Economic Cooperation and
Development
29 members plus several other countries have
signed on
Fails to outlaw most payments to political party
leaders
Does indicate growing support for anti-bribery
initiatives
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International Assistance
Governments and corporations are
collaborating to provide assistance to
communities and locales through global
partnerships
Best investments
Controlling and preventing AIDS
Fighting malnutrition
Reducing subsidies and trade restrictions
Controlling malaria

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Copenhagen Consensus
Development Priorities

3-27

The U.N. Millennium

Development Goals

3-28