Chapter12 - Ethics in The Global Environment

Chapter 12
ETHICS IN THE
GLOBAL
ENVIRONMENT
Learning Outcomes
At the end of the chapter, you should be able to:
Discuss the ethical conduct of multinational corporations

Analyse the different ethical theories in the context of
international business
Describe ethics in an international cross-cultural context
Explain the framework for ethical decision-making
Discuss the current ethical issues impacting the global
environment
Business Ethics All Rights Reserved

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Introduction
Due to globalization and the liberalization of various policies

around the world, there needs to be an adjustment in how
businesses address their strategies.
This has been brought about because of the change in
demographics, uncertainties in the market, a push for
diversity and increase in competition.
The various occurrences of globalization may cause
deterioration of the physical environment and pose many
ethical issues, such as exposure of toxic substances,
exploitation of workers and consumers, discrimination, urban
decay and other social problems.

Ethics in International Business
Wherever multinational corporations do business around the

world, managers must not only avoid breaking the law, they
should follow high ethical standards.
Companies encounter ethical challenges in a range of
international activities.
For some companies, being ethical goes beyond doing what
is right.
It also means being ethical in sourcing for the components
that make up the product.

Ethical Conduct of
Multinational Corporations
Multinational corporations (MNCs) are public companies that

operate on a global scale without significant ties to any nation or
region.
MNCs represent the highest level of international business
commitment and are characterized by a global strategy of focusing
on opportunities throughout the world.
Due to their size and financial power, MNCs have been the subject
of much ethical criticism, and their impact on the countries in which
they do business has been hotly debated.
Although MNCs are not inherently unethical, their size and power
often seem threatening to less-developed countries.
The ethical problems that MNCs face arise from the opposing
viewpoints inherent in multicultural situations.
Ethical Conduct of
Multinational Corporations
Texas Instruments three-level global approach to ethical integrity

Ethical Theories in the Context of
International Business
1 2 3 4 5 6
Cultural Moral Normative Dialogic Rights Justice

Relativism Imperialist Ethical Idealism Theories Theories
Standards

1 Cultural Relativism
Businesses should adhere to the ethical standards of the country
where they are doing business and they should accept that
different cultures hold different ethical beliefs.
Therefore no one should claim that the ethical standards of one
culture are better than those of another culture.
2 Moral Imperialist
This viewpoint argues that people should apply their own cultural
ethical principles when functioning anywhere around the world.
Although MNCs operating in another country must obey the rules
and regulations of the host country, they must also apply moral
standards justifiable to their home countries laws and principles.

3 Normative Ethical Standards

It is also known as universalism and provide procedures that go
beyond domestic boundaries and cultural differences.
These standards address issues from the global perspective, such
as basic human rights and freedom; environmental protection;
employment practices and policies; and political payments.
4 Dialogic Idealism
It is impossible to find or create tangible ethical doctrines that are
universally binding.
Many organizations may view global ethics as a set of finalized
codes or as a seal of approval that represents a final copy of the
ethical principles, rather than as a starting point with the view to
improve the codes as time goes by.

5 Rights Theories
The notion that human beings have fundamental rights and privileges
that go beyond national borders and cultures is the basis of rights
theories.
These rights are seen as the minimum level of morally acceptable
conduct. It can also be construed that these fundamental rights also take
precedence over a collective good.
6 Justice Theories
The theories of justice emphasize the realization of a just delivery of
economic goods and services, where it is considered fair and unbiased.
There are several theories of justice and we will concentrate on the
theory attributed to John Rawls who argued that all economic goods and
services should be disseminated equally, except when an unequal
distribution would work to everyones benefit.

Ethics in Cross-Cultural and
International Contexts
How an Organization Treats its

Employees
How Employees Treat the

Organization
How Employees and the

Organization Treat Other Economic
Agents

How an Organization Treats Its Employees

One important area of cross-cultural and international ethics is
the treatment of employees by the organization.
At one extreme, an organization can hire the best people, to
provide ample opportunity for skill and career development, to
provide appropriate compensation and benefits and to generally
respect the personal rights and dignity of each employee.
On the other end, a firm can
hire using prejudicial or preferential criteria,
intentionally limit development opportunities,
provide the minimum compensation allowable and
treat employees callously and with little regard to personal
dignity.
How Employees Treat the Organization

Numerous ethical issues also relate to how employees treat the
organization.
The central ethical issues in this relationship include conflicts of
interest; secrecy and confidentiality; and honesty.
A conflict of interest occurs when a decision potentially benefits
the individual to the possible detriment of the organization.
Ethical perceptions of the importance of conflicts of interest vary
from culture to culture.

How Employees and the Organization Treat Other Economic

Agents
The primary agents of interest include customers, competitors,
stockholders, suppliers, dealers and labour unions.
The behaviour between the organization and these agents may
be subject to ethical ambiguity, including in the areas of
advertising and promotions; financial disclosures; ordering and
purchasing; shipping and solicitations; bargaining and
negotiation; and other business relationships.

An Ethical Dilemma
Most firms attempt to satisfy ethical standards in their business

practices. However, there is often a grey area in which the best
course of action is not always clear cut.
Ethical problems arise when requirements are ambiguous or
inconsistent and are based on multiple legal or cultural aspects.
An ethical dilemma is a predicament with which determining the
most appropriate course of action is confounded by a set of
solutions that are equally justifiable and often equally imperfect.
Possible actions may be mutually exclusivethe choice of one
automatically negates the other(s).
Managers regularly face the challenge of determining appropriate
behaviour.

A Framework for Ethical
Decision-Making
A four-step framework for arriving at ethical decisions

A Framework for Ethical
Decision-Making
Step 1: Recognize an ethical problem

The first step is to acknowledge the presence of an ethical problem.
Ask questions: Is there something wrong? Is an ethical dilemma
present? Is there a situation that might harm personnel, customers,
the community or the nation?
Step 2: Get the facts
Determine the nature and dimensions of the situation.
Step 3: Evaluate alternative courses of action
Identify potential courses of action and evaluate each one.
Step 4: Implement and evaluate your decision
Implement your decision. Then, evaluate it to see how effective it
was.

Current Ethical Issues in
Price
Discrimination
Bribery and Harmful

Corruption Products
Environmental Employment
Pollution Practices

Price
Discrimination
A major ethical issue in international business is how products

sold in other countries are priced.
When a firm charges different prices to different groups of
customers, the firm may be accused of price discrimination.
Differential pricing is legal if it does not substantially reduce
competition or if it can be justified on the basis of costs.
Price discrimination may become an ethical issue or even be
illegal, as shown in Figure 12.3.

Reasons that make price discrimination unethical or illegal

Harmful
Products
Governments in advanced industrialized nations have banned the

sale of certain products that are considered harmful.
However, some companies in those nations continue to sell such
products in other countries where they remain legal.
For example, many recent news stories have focused on the safety
of genetically engineered products, which have become very
controversial in the United States and Europe.
Some investors have also filed resolutions to prevent companies
from marketing genetically engineered products until long-term
safety testing has shown that they are not harmful to humans,
animals and the environment.
Employment
Practices
Employment practices vary across nations, and because of this, ethical

issues may arise.
What happens when employment conditions in the host nation is seen
to be far less satisfactory compared to the multinationals home
country?
Which standards should be applied in this situation, those of the home
country, those of the host country, or maybe a compromise?
In some instances, would it be acceptable for a multinational to tolerate
working conditions in their subsidiaries with very long working hours,
coupled with extremely low pay and dangerous working conditions?

Environmental
Pollution
In the case of environmental issues, the effects of abuses can be far-
reaching and long term.
For example, public concern over global warming has increased pressure
on companies to dramatically increase energy efficiency.
Pressure from environmentalists also encourages companies to
scrutinize wood and paper products suppliers to ensure that the trees are
not endangered species and these companies are harvesting products
using sustainable practices.
Many multinationals are working to create standards for environmental
responsibility.
Companies have also modified or halted the production and sale of
products that have a negative impact on the environment.
Bribery and
Corruption
One form of corruption is bribery. International businesses can gain and
have gained economic advantages by making payments to corrupt
government officials.
Corruption in the form of speed money or settlements to government
bureaucrats is the norm in many countries.
Many would argue that the payment would eventually be beneficial to
the local population in terms of income and job generation and should
not be frowned upon.
Companies that do business internationally should be aware that bribes
are an ethical issue and that the practice is more prevalent in some
countries than in others.

The Value of
Ethical Behaviour
Behaving ethically is important for several reasons:

Ethical behaviour is simply the right thing to do.
It is often prescribed within laws and regulations. Violating laws
and regulations has obvious legal consequences.
Ethical behaviour is demanded by customers, governments and
the news media.
Ethical behaviour is good business, leading to an enhanced
corporate image and selling prospects.

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Chapter 12

At the end of the chapter, you should be able to:

Discuss the ethical conduct of multinational corporations

Business Ethics All Rights Reserved

Due to globalization and the liberalization of various policies

Business Ethics All Rights Reserved

Wherever multinational corporations do business around the

Business Ethics All Rights Reserved

Multinational corporations (MNCs) are public companies that

Texas Instruments three-level global approach to ethical integrity

Business Ethics All Rights Reserved

Cultural Moral Normative Dialogic Rights Justice

Business Ethics All Rights Reserved

Business Ethics All Rights Reserved

3 Normative Ethical Standards

Business Ethics All Rights Reserved

Business Ethics All Rights Reserved

How an Organization Treats its

How Employees Treat the

How Employees and the

Business Ethics All Rights Reserved

How an Organization Treats Its Employees

How Employees Treat the Organization

Business Ethics All Rights Reserved

How Employees and the Organization Treat Other Economic

Business Ethics All Rights Reserved

Most firms attempt to satisfy ethical standards in their business

Business Ethics All Rights Reserved

A four-step framework for arriving at ethical decisions

Business Ethics All Rights Reserved

Step 1: Recognize an ethical problem

Business Ethics All Rights Reserved

Bribery and Harmful

Business Ethics All Rights Reserved

A major ethical issue in international business is how products

Business Ethics All Rights Reserved

Reasons that make price discrimination unethical or illegal

Business Ethics All Rights Reserved

Governments in advanced industrialized nations have banned the

Employment practices vary across nations, and because of this, ethical

Business Ethics All Rights Reserved

Business Ethics All Rights Reserved

Behaving ethically is important for several reasons:

Business Ethics All Rights Reserved

Business Ethics All Rights Reserved

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