What Is Ethics?
Ethics refers to accepted principles of right or wrong that govern:
o the conduct of a person
o the members of a profession
o the actions of an organization
Business ethics are the accepted principles of right or wrong governing the conduct of
business people.
Ethical strategy is a strategy, or course of action, that does not violate these accepted
principles.
Which Ethical Issues Are Most Relevant to International Firms?
The most common ethical issues in business involve:
1. Employment practices
2. Human rights
3. Environmental regulations
4. Corruption
5. The moral obligation of multinational companies
How Are Ethics Relevant to Employment Practices?
Suppose work conditions in a host nation are clearly inferior to those in the
multinational’s home nation.
Which standards should apply?
o Home country standards
o Host country standards
o Something in between
Example:
o A U.S. electronics company outsources to a factory in Vietnam where workers
earn $7 per day. This meets local law but is far below U.S. standards.
Question to discuss:
o Discuss whether the company should apply U.S. standards or accept the local
norm.
How Are Ethics Relevant to Human Rights?
Basic human rights are taken for granted in developed countries:
o Freedom of association
o Freedom of speech
o Freedom of assembly
o Freedom of movement
What are the responsibilities of firms in countries where basic human rights are
not respected?
Example:
o A European clothing brand opens stores in a country that restricts women from
working without male permission.
Question to discuss:
o Should the company promote employment equality or respect cultural norms?
What if its silence implies support for inequality?
Basic human rights are taken for granted in developed countries:
o Freedom of association
o Freedom of speech
o Freedom of assembly
o Freedom of movement
What are the responsibilities of firms in countries where basic human rights are
not respected?
How Are Ethics Relevant to Environmental Regulations?
Some parts of the environment are a public good that no one owns, but anyone can
despoil.
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.
What happens when environmental regulations in host nations are far inferior to those
in the home nation?
Is it permissible for multinationals to pollute in developing countries simply because
there are no regulations against it?
Example:
A mining firm from Canada operates in South America, dumping waste into rivers
where environmental laws are poorly enforced.
Question to discuss:
Should the company follow home-country environmental standards or exploit legal
gaps?
How Are Ethics Relevant to Corruption?
The U.S. Foreign Corrupt Practices Act outlawed the practice of paying bribes to
foreign government officials in order to gain business.
The Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions, adopted by the Organization for Economic
Cooperation and Development (OECD), obliges member states to make the bribery of
foreign public officials a criminal offense.
But, is it permissible for multinationals to pay government officials facilitating
payments if doing so creates local income and jobs?
How Are Ethics Relevant to Corruption?
Example:
A French logistics firm must pay an “unofficial fee” to clear customs in Nigeria or
face weeks of delay.
Question to discuss: Evaluate the fine line between bribes and facilitation payments,
and the long-term risk of feeding corruption vs. short-term operational needs.
Scenario: A European construction company is bidding for a government infrastructure
project in a Southeast Asian country. A local official hints that the company will need to
"facilitate" the process with a cash payment.
Is this considered bribery or just a cultural norm?
Should companies adhere to their home country’s ethical standards or adapt to local
practices?
What are the legal and reputational risks of making the payment?
How Are Ethics Relevant to Moral Obligations?
Social responsibility refers to the idea that managers should consider the social
consequences of economic actions when making business decisions.
o In favor of decisions that have both good economic and good social
consequences.
Advocates argue that businesses need to recognize their noblesse oblige – honorable
and benevolent behavior that is the responsibility of successful firms.
o Give something back to the societies that have made their success possible.
But, are multinationals morally required to use their power to enhance local welfare?