11: International Business and Ethics

Issues and Subfields; Ethics of Economic Systems; Theoretical Issues in Business Ethics; Ethics in an International Context; Ethical Absolutism and Ethical Relativism; The Growing Need for Global Ethics Initiative;Business Ethics Activities in a Global World

11.1.1 Issues and SubfieldsThe issues here are grouped together because they

involve a much wider, global view on business ethical matters.

While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade.

Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well.

11.1.2 Issues and Subfields Listed The search for universal values as a basis for international commercial behavior.

Issues such as globalization and cultural imperialism.

Comparison of business ethical traditions in different countries.

Varying global standards - e.g. the use of child labor.

Comparison of business ethical traditions from various religious perspectives

The permissibility of international commerce with pariah states.

Ethical issues arising out of international business transactions; e.g. bio-prospecting (searching for, collecting and deriving genetic materials from samples of biodiversity that can be commercialized) and bio-piracy in the pharmaceutical industry; the fair trade movement; transfer pricing.

The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centers) to low-wage countries.

11.1.3 Dumping: A Special IssueForeign countries often use dumping as a

competitive threat, selling products at prices lower than their normal value.

This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets.

In 2009, the International Trade Commission has been researching anti-dumping laws.

Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.

11.2 Ethics of Economic Systems

This vaguely defined area, perhaps not part of but only related to business ethics, is where business ethicists venture into the fields of political economy and political philosophy, focusing on the rights and wrongs of various systems for the distribution of economic benefits.

11.3. Theoretical Issues in Business Ethics

• Conflicting interests: from whose perspective to look at – employee, or the company

• Ethics – a strong basis for CSR• What to give priority – profit maximization or

the stakeholders’ interests?• Ethics in an international context – how home

grown values play in international market• ethical absolutism and ethical relativism

11.3.1 Conflicting Interests: from whose perspective to look at –

employee, or the company?Business ethics can be examined from various perspectives,

including the perspective of the employee, the commercial enterprise, and society as a whole.

Very often, situations arise in which there is conflict between one or more of the parties, such that serving the interest of one party is a detriment to the other(s).

For example, a particular outcome might be good for the employee, whereas, it would be bad for the company, society, or vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.

11.3.2 Ethics – a Strong Basis for CSR• Ethics encourages ethical behavior worldwide• Ethical behavior helps organizations adopt

external expectations• Ethics are grounded in a moral philosophy that

helps people discern between right and wrong• Ethics is the study of morally appropriate

behavior and decisions examining “what should be done”.

11.3.3.1 Profit Maximization or the Stakeholders’ Interests?

Some take the position that organizations are not capable of moral agency. Under this, ethical behavior is required of individual human beings, but not of the business or corporation.

According to these people, the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders and therefore, only those activities that increase profitability and shareholder value should be encouraged, because

(a) any other activities are a tax on profits and (b) the only companies that are likely to survive in a competitive

marketplace are those that place profit maximization above everything else.

However, some point out that self-interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation.

11.3.3.2 Profit Maximization or the Stakeholders’ Interests?

Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law.

They believe a business has moral responsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole.

Stakeholders can also be broken down into primary and secondary stakeholders. Primary stakeholders are people that are affected directly such as stockholders, where secondary stakeholders are people who are not affected directly such as the government. They would say that stakeholders have certain rights with regard to how the business operates, and some would suggest that this includes even rights of governance.

11.3.4 Social Contract Theory of BusinessSome theorists have adapted social contract theory to business, whereby

companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations.

This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the "quality movement" that emerged in the 1980s.

Prof. Thomas Donaldson and Prof. Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a "fair agreement" between the parties, using a combination of (a) macro-principles that all rational people would agree upon as universal principles, and, (b) micro-principles formulated by actual agreements among the interested parties.

Critics say that the proponents of contract theories miss a central point, namely, that a business is someone's property and not a mini-state or a means of distributing social justice.

11.3.5 Comply with Multiple StandardsEthical issues can arise when companies must comply with multiple

and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices.

The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the developing country in which it does business? To illustrate, United States law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business. Similar problems can occur with regard to child labor, employee safety, work hours, wages, discrimination, and environmental protection laws.

It is sometimes claimed that a Gresham's law of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in a competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits.

11.3.6 Ethics in an international context – how home grown values play in

international market• International business is in fact interaction of nations. Crossing

border means that the organizational leaders need to manage more difference, incorporate more diverse values into decision making process and take care of values of wider groups of stakeholders and diverse moral philosophy. These require that an organization going international needs to have strong ethical corporate culture.

• It is not right to assume that with accompany going international its values also automatically cross borders. They do cross but they may not be accepted. Ethical values and norms of one country cannot be expected to be treated well in another country.

• Firms often need to follow adaptive ethical paths when they go international. These paths are grouped as ethical absolutism and ethical relativism.

11.3.7 Ethical Absolutism

This approach means “they adapt to us” – an approach that puts home company interests first; employees of the host country/culture are to adapt to the cultural norms and values of the employer; such firms are called ethnocentric firms and ethical problems with ethnocentrism become noticeable when and host country cultures differ.

11.3.8 Ethical RelativismThis approach means “the company adapts” i.e., “when

you are in Rome, do as the Romans do”; sometimes may go extreme, if it is a standard practice in a host country (e.g., pay bribes or speed money);

Ethical relativism increases costs especially (a) to prepare and disseminate formal ethical guideline,(b) to implement the ethical guideline, and(c) to monitor behavior or organize compliance efforts

through assigned agencies.

11.3.8.1 Problems of Adopting Ethical Relativism

Ethical relativism have some challenges and problems:(a) managerial transfers requiring managers to develop

culturally relative values that change depending on place; a ‘true’ sense of ethics at one place may appear false in another one;

(b) the burden to write new rules that often requires a dense set of compliance statements and specialized legal language of each country; and

(c) one may adapt to rules and laws of a host country but adaptation may not help managers understand or learn about the culture and its underlying values’; legal compliance offers too little managerial insight; cultural ignorance prevent mangers from tracking activities in a nation.

11.4 The Growing Need for Global Ethics Initiative

International organization may sometimes like to operate in an ‘out of sight out of mind’ context.

But business are no more invisible now and there is a growing public concern about how businesses contribute to global problems, what the businesses can and should do to address the problems, including even those which they did not create.

Public now increasingly demand that businesses be socially responsible and ethical.

11.5 Business Ethics Activities in a Global World

Global businesses respond to global shifts and demands through a mechanism of internal integration.

Managers search for principles for action that transcend national borders and the cultural values and modes of operation that will achieve the broad purposes of the company on a long-term and sustainable basis.

However, universal ethical principles are not thick on the ground because people share few values worldwide i.e., values vary widely.