Transcript Social Responsibility and Ethics

Chapter 2
Managing Interdependence –
Social Responsibility
and Ethics
© 2006 Prentice Hall
2-1
Social Responsibility
Includes the expectation that corporations
concern themselves with the social and
economic effects of their decisions
The two extreme opinions related to social
responsibility – Domestic firms
The only responsibility
of a business is to
make a profit
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Business should anticipate
and try to solve problems
in society
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Social Responsibility of
Multinational Corporations
More complex than domestic firms due to
the complex issues related to global
business
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Economic development
Cultural issues
Additional stakeholders
Legal issues
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Social Responsibility – Integrated
Approach
Organizations agree what should constitute
moral and ethical behavior
Emerging because of the development of a
global corporate culture
– Result of socioeconomic interdependence
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2-4
Social Responsibility – Integrated
Approach
Provide a basis of
judgment regarding
decisions and
situations
– Moral Universalism
Unlikely to become a
reality
– Ethnocentric
– Relativism
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Human Rights
What constitutes
‘human rights’?
– Perceptions of people
– Priorities of people
US may say wages,
education, freedom
Other countries may
say safety and shelter
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Codes of Conduct
SA 8000’s Proposed Global Standards
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Do not use child or forced labor
Provide a safe working environment
Respect workers’ rights to unionize
Do not regularly require more than 48-hour
work weeks
– Pay wages sufficient to meet worker’s basic
needs
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Ethics in Global Management
Globalization has multiplied the ethical
problems facing organizations
Business ethics have not yet globalized
Difficult to reconcile consistent and
acceptable behavior around the world
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Ethics in Global Management
The term international business ethics refers
to the business conduct or morals of MNCs
in their relationships with individuals and
entities
– Based on the cultural value system
– Based on generally accepted ways of doing
business in each country or society
Exhibit 2-3
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Ethics in Global Management
Approaching ethical
dilemmas varies among
MNC’s
– American approach is based
upon general rules
– Japan and Europe make
decisions on shared values,
social ties, and perception
of their obligation
2002 Corruption
Perceptions Index
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Limits of Ethical Standards for International
Activities
“The laws of economically developed countries
generally define the lowest common denominator
of acceptable behavior for operations in those
domestic markets. In an underdeveloped country
or a developing country, it would be the actual
degree of enforcement of the law that would, in
practice, determine the lower limits of permissible
behavior.”
Laczniak and Naor
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Questionable payments
This is a specific ethical issue for managers
in the international arena
payments in question are political
payments, extortion, bribes, sales
commissions, or “grease money” –
payments to expedite routine transactions
Also called: tokens of appreciation, ‘la
mordida’, ‘bastarella’, and ‘pot-de-vin’
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The Foreign Corrupt Practices Act
The Foreign Corrupt
Practices Act (FCPA),
enacted in 1977, prohibits
U.S. companies from
making illegal payments
or other gifts or political
contributions to foreign
government officials for
the purposes of
influencing them in
business transactions.
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Three Tests of Ethical Corporate Actions
Is it legal?
Does it work (in the long run)?
Can it be talked about?
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Ethical Behavior and Social Responsibility
Guidelines Developed by MNCs
Develop worldwide codes of ethics
Consider ethical issues in strategy development
Given major, unsolvable, ethical problems,
consider withdrawal from the problem market
Develop periodic “ethical impact” statements
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Making the Right Decision
How is a manager operating abroad to know what is the
“right” decision when faced with questionable or
unfamiliar circumstances of doing business? Here is a
suggested sequence:
– Consult the laws of both the home and the host countries
– Consult the International Codes of Conduct for MNEs (as shown in text
Exhibit 2-2)
– Consult the company’s code of ethics
– Consult your superiors
– Use your own moral code of ethics
– Follow your own conscience
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Managing Interdependence
Because multinational firms represent
global interdependency managers must
recognize that what they do has long-term
implications for the socioeconomic
interdependence of nations
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Foreign Subsidiaries in the US
Number of foreign subsidiaries in the US
has grown dramatically
FDI in the US is in many cases far more
than US investment outward
One different aspect of management in the
US is corporate social responsibility
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Host-Country Interdependence
International managers must go beyond
general issues of social responsibility and
deal with specific concerns of the MNC
subsidiary
Focus should be interdependence rather
than independence
Focus should be cooperation rather than
confrontation
Benefits and costs to host countries
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Criticisms of MNC Subsidiary Activities
MNCs raise their needed capital locally,
contributing to a rise in interest rates in host
countries.
The majority (sometimes even 100 percent) of the
stock of most subsidiaries is owned by the parent
company. Consequently, host-country people do
not have much control over the operations of
corporations within their borders.
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Criticisms of MNC Subsidiary Activities
(contd.)
MNCs usually reserve the key managerial and
technical positions for expatriates. As a result,
they do not contribute to the development of hostcountry personnel.
MNCs do not adapt their technology to the
conditions that exist in host countries.
MNCs concentrate their R&D activities at home,
restricting the transfer of modern technology and
know-how to host countries.
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Criticisms of MNC Subsidiary Activities
(contd.)
MNCs give rise to the demand for luxury goods in host
countries at the expense of essential consumer goods.
MNCs start their foreign operations by purchasing existing
firms rather than developing new productive facilities in
host countries.
MNCs dominate major industrial sectors, thus contributing
to inflation by stimulating demand for scarce resources and
earning excessively high profits and fees.
MNCs are not accountable to their host nations but only
respond to home-country governments; they are not
concerned with host-country plans for development.
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Recommendations for MNCs Operating in
Developing Countries
(Suggested by De George)
Do no international harm. This includes respect for the
integrity of the ecosystem and consumer safety.
Produce more good than harm for the host country.
Contribute by their activity to the host country’s
development.
Respect the human rights of their employees.
To the extent that local culture does not violate ethical
norms, MNCs should respect the local culture and work
with and not against it.
Pay their fair share of taxes.
Cooperate with the local government in developing and
enforcing just background (infrastructure) institutions (i.e.
laws, governmental regulations, unions, consumer groups)
which serve as a means of social control.
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Comparative Management in Focus
NAFTA
– Brought together three largely different
economies
– Promised that it would create millions of jobs
– Promised that it would curb illegal immigration
– Promised that it would raise living standards
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Comparative Management in Focus
NAFTA – United
States
– Overall has enjoyed a
growth in exports
– Companies have
moved to Mexico for
cheaper labor
– Increased
unemployment in
many areas
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NAFTA – Mexico
– Promised to close
wage gaps and lower
illegal immigration
– Gap in wages has
increased
– Companies are moving
to China for lower
wages
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Comparative Management in Focus
NAFTA – Canada
– Has had mixed results
– Businesses are more export-oriented
– Created 500,000 new jobs last year
We went from a Canadian company with a 30
million population market to a 300 million
market. We do not treat the boarder as a boarder.
- John Scarsella President and CEO Durham
Furniture
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Managing Environmental
Interdependence
“Now that mankind is in the process of completing
the colonization of the planet, learning to manage
it intelligently is an urgent imperative. [People]
must accept responsibility for the stewardship of
the earth. The word stewardship implies, of
course, management for the sake of someone
else…As we enter the global phase of human
evolution, it becomes obvious that each [person]
has two countries, his [or her] own and the planet
earth.” – Ward and Dubois
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Managing Environmental
Interdependence
Handling exporting of
hazardous waste
Exporting pesticides
Looking for alternative
raw materials
Developing new methods
of recycling
Expanding the use of
byproducts
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Looking Ahead
Chapter 3 Understanding the Role of
Culture
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Culture and Its Effects on Organizations
Cultural Variables
Cultural Value Dimensions
Developing Cultural Profiles
Culture and Management Styles
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MNC Stake Holders
Return
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2-30
Socioeconomic Interdependence
The world is linked
through
– Securities markets
– Communication
Networks
– Subsidiaries
Return
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Ethnocentric vs. Relativism
Ethnocentric
Relativism
– Company applies the
morality used in its
home country –
regardless of the host
country’s system of
ethics
– Company adopts the
local moral code in
whatever country it is
operating – companies
run into value conflicts
with this approach
Return
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A Moral Philosophy Model of CrossCultural Societal Ethics
Return
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2002 Corruption Perceptions Index
Return
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MNC Benefits and Costs to Host
Countries
Return
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