7/29/2017debis.deu.edu.tr/userweb/ozge.ozgen/ckr_ib4_inppt_04_ppt (1).pdf•top management sets...

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1Copyright © 2017 Pearson Education, Inc.

International Business: The New Realities, 4th Edition

by

Cavusgil, Knight, and Riesenberger

Ethics, Corporate Social

Responsibility, Sustainability, and

Governance in International Business

Learning Objectives

4.1 Appreciate ethical behavior and its importance in

international business.

4.2 Recognize ethical challenges in international

business.

4.3 Understand corporate social responsibility.

4.4 Understand sustainability.

4.5 Know the role of corporate governance.

4.6 Learn about a framework for making ethical

decisions.4-2Copyright © 2017 Pearson Education, Inc.

Organizing Framework

Copyright © 2017 Pearson Education, Inc. 4-3

Key Concepts

• Ethics are moral principles and values that govern

the behavior of people, firms, and governments,

regarding right and wrong.

• Corruption is the abuse of power to achieve

illegitimate personal gain.

• Corruption is a major or severe concern in the global

activities of a large proportion of MNEs.

• Bribery is common and may take the form of grease

payments, small inducements intended to expedite

decisions and transactions, or gain favors. 4-4Copyright © 2017 Pearson Education, Inc.

Inappropriate Corporate Conduct Abroad

Examples: Firms may:

▪ Falsify or misrepresent contracts or official documents.

▪ Pay or accept bribes, kickbacks, or inappropriate gifts.

▪ Tolerate sweatshop conditions or abuse employees.

▪ Do false advertising or other deceptive marketing.

▪ Engage in deceptive or discriminatory pricing.

▪ Deceive or abuse intermediaries in the channel.

▪ Undertake activities that harm the natural environment.

4-5Copyright © 2017 Pearson Education, Inc.

Corruption Perceptions Index

Note: Countries with the highest scores have the lowest levels of corruption.

Sources: Adapted from Corruption Perceptions Index 2014. Transparency International: The Global Coalition Against

Corruption (2015), www.transparency.org. Copyright © 2017 Pearson Education, Inc. 4-6

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Improper Ethical Behavior May Result When:

• Top management sets goals and incentives aimed at

promoting good outcomes (e.g., profits) that instead

encourage bad behaviors.

• Employees overlook unethical behavior in others

because of peer pressure or self-interest.

• Managers tolerate lower ethical standards in value-

chain activities performed by suppliers or third-party

firms.

• Unethical practices are allowed to accumulate in the

firm slowly over time.

• Bad means are justified by good ends. 4-7Copyright © 2017 Pearson Education, Inc.

The Value of Ethical Behavior

• Ethical behavior is simply the right thing to do.

• Often prescribed within laws and regulations.

• Demanded by customers, governments, and the news

media. Unethical firms risk attracting unwanted attention.

• Ethical behavior is good business, leading to

enhanced corporate image and selling prospects.

The firm with a strong reputation is advantaged in

hiring and motivating employees, partnering, and

dealing with foreign governments.


Variation in Ethical Standards

• Ethical standards vary from country to country.

• Relativism is the belief that ethical truths are not

absolute but differ from group-to-group; according to

this perspective, a good rule is, “When in Rome, do

as the Romans do.”

• Normativism is a belief that

ethical behavioral standards

are universal, and firms and

individuals should seek to

uphold them consistently

around the world. 4-9Copyright © 2017 Pearson Education, Inc.

Variation in Ethical Standards (cont’d)

• In China, counterfeiters may publish translated

versions of imported books without compensating

the original publisher or authors.

• In parts of Africa, accepting expensive gifts from

suppliers is acceptable.

• In the United States, CEO compensation is often

100 times greater than that of low-ranking

subordinates.

• Finland and Sweden ban advertising aimed at

children, but the practice is accepted in other parts

of Europe.4-10Copyright © 2017 Pearson Education, Inc.

An Ethical Dilemma

• Imagine you are a manager and visit a factory

owned by an affiliate in Colombia, and discover the

use of child labor in the plant.

• You are told that without the children’s income,

their families might go hungry. If the children are

dismissed from the plant, they will likely turn to

other income sources, including prostitution or

street crime.

• What should you do? Make a fuss about the

immorality of child labor, or look the other way?


The Pyramid of Ethical Behavior


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Intellectual Property

• Intellectual property refers to ideas or works

created by individuals or firms and includes a variety

of proprietary, intangible assets: discoveries and

inventions; artistic, musical, and literary works; and

words, phrases, symbols, and designs.

• Intellectual property rights are the legal claim

through which proprietary assets are protected from

unauthorized use by other parties, via trademarks,

copyrights, and patents.


Top Counterfeit Commodities Seized, United States Borders, 2014

Source: “Intellectual Property Rights Seizure Statistics Fiscal Year 2014,” Washington, DC: Homeland Security, U.S. Customs

and Border Protection and U.S. Immigration and Customs Enforcement (2015), at www.cbp.gov/sites/default/

files/documents/2014%20IPR%20Stats.pdf.Copyright © 2017 Pearson Education, Inc. 4-14

Piracy and Counterfeiting Affect:

• International trade – exports of legitimate products

must compete with trade in counterfeit goods.

• Direct investment – firms avoid countries known for

widespread intellectual property violations.

• Company performance – sales, profits, and strategies

are harmed.

• Innovation – companies avoid doing research and

development where piracy is common.

• Tax revenues – pirates usually don’t pay taxes.


Piracy and Counterfeiting Affect: (cont’d)

• Criminal activity – often linked to organized crime.

• The natural environment – intellectual property

violators disregard environmental standards

• National prosperity and wellbeing – ultimately, job

prospects, prosperity, and moral standards in

affected nations are harmed.


Corporate Social Responsibility

• Corporate social responsibility (CSR): Operating a

business to meet or exceed the ethical, legal,

commercial, and public expectations of customers,

shareholders, employees, and communities.

• Helps recruit and keep good employees.

• Can help differentiate the firm and enhance its brands.

• Cuts costs, as when the firm reduces packaging,

recycles, cuts energy usage, and minimizes waste in

operations.

• Helps the firm avoid increased taxation, regulation, or

other legal actions by local government authorities. 4-17Copyright © 2017 Pearson Education, Inc.

Settings for CSR


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A Sampling of MNE Accomplishments


Sources: Pete Engardio, “Beyond the Green Corporation,” Business Week, January 29, 2007, pp. 50–64; Fisk Johnson, “How I Did It: SC Johnson’s

CEO on Doing the Right Thing, Even When It Hurts Business,” Harvard Business Review, April, 2015, pp. 33–36; Kasturi Rangan, Lisa Chase, and

Sohel Karim, “The Truth about CSR,” Harvard Business Review, January/February, 2015, pp. 40–49.

Sustainability

Meeting humanity’s needs without harming future

generations. The sustainable firm pursues three

types of interests:

1. Economic interests refer to the firm’s economic impact on the localities where it does business, such as regarding job creation, wages, and public works.

2. Social interests refer to how the firm performs relative to social justice, such as avoiding the use of child labor, sweatshops, as well as providing employee benefits.

3. Environmental interests refer to the extent of the firm’s impact and harm to the natural environment.


Example: Foxconn

Workers at a Foxconn factory in China, a leading supplier to Apple. Following charges about

poor working conditions at Foxconn plants, Apple and Foxconn took steps to improve the

work environment. Copyright © 2017 Pearson Education, Inc. 4-21

Source: epa european pressphoto agency b.v./Alamy

Examples of Sustainable Practices

• Beneficial agricultural practices that do no harm.

• Water conservation. Clean water is scarce

worldwide.

• Air quality protection.

• Reduced energy and fuel consumption.

• Increased use of solar and wind energy.

• Improved work processes that improve

sustainability reduce costs and support the natural

environment.4-22Copyright © 2017 Pearson Education, Inc.

Example: Coca-Cola

As water grows scarce in much the world, some multinational firms are conserving their use of this

critical resource. Coca-Cola, a major water consumer, conducts a water sustainability program to

address shortages in India.Copyright © 2017 Pearson Education, Inc.

4-23

Source: Tim Gainey/Alamy

Air Pollution in Selected Cities

Source: World Bank, World Bank Development Indicators 2014, Washington DC: World Bank; World Bank, Clean Air and

Healthy Lungs: Enhancing the World Bank’s Approach to Air Quality Management (Washington DC: World Bank, February

2015). Copyright © 2017 Pearson Education, Inc. 4-24

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Corporate Governance

• The system of procedures and processes by which

corporations are managed, directed, and controlled.

• Provides the means through which firms undertake

ethical behaviors, CSR, and sustainability.

• Implementing appropriate conduct is challenging for

MNEs, especially when operating in many countries.

• A complicating factor is the use of third-party suppliers

and contractors, some of whom may behave badly.

• More firms incorporate ethics and CSR into their

mission, planning, strategy and everyday operations. 4-25Copyright © 2017 Pearson Education, Inc.

Embracing CSR and Sustainability

• Develop closer relations with foreign stakeholders to understand their needs and jointly develop solutions.

• Build capabilities to enhance the firm’s contribution to the local community and global environment.

• Ensure diverse voices by creating organizations that employ managers and workers from around the world.

• Develop global CSR standards and objectives, and that are communicated and implemented across the firm worldwide.

• Train managers in global CSR principles and integrate these into managerial responsibilities.


Ethical Standards for Corporate Governance

This approach

argues the best

ethical action is

the one that

provides the

most good or the

least harm. It

produces the

greatest balance

of good over

harm to

customers,

employees,

shareholders,

the community,

and the natural

environment.

This approach

instructs the

decision maker

to choose the

action that best

protects and

respects the

moral rights of

everyone

involved. It is

based on the

belief that,

regardless of

how you deal

with an ethical

dilemma, human

dignity must be

preserved.

This approach

advises that

everyone should

be treated

equally and

fairly. Workers

should be paid a

fair wage that

provides a

decent standard

of living, and

colleagues and

customers

should be

treated as we

would like to be

treated.

This approach

suggests that

actions should

be based on the

welfare of the

entire

community or

nation. It asks

which action

contributes most

to the quality of

life of all affected

people. Respect

and compassion

for all, especially

the vulnerable,

should be the

basis for

decision making.

This approach

advocates that

ethical actions

should be

consistent with

certain ideal

virtues that

provide for the

full development

of our humanity.

The most

important virtues

are truth,

courage,

compassion,

generosity,

tolerance, love,

integrity, and

prudence.

Virtue

Approach

Common Good

ApproachFairness

Approach

Rights

Approach

Utilitarian

Approach

Ethical Standards for Corporate Governance


A Global Consensus

• Various resources are available to assist

managers, including:

- United Nations “Global Compact” and “Declaration

against Corruption and Bribery in International

Commercial Transactions”.

- The Global Reporting Initiative.

- International Chamber of Commerce “Rules of

Conduct to Combat Extortion and Bribery”.

- The Organisation for Economic Co-operation and

Development (OECD) antibribery agreement.4-28Copyright © 2017 Pearson Education, Inc.

Benefits of Corporate Governance

• Increased employee commitment.

• Increased customer loyalty and sales.

• Improved reputation and brand image.

• Reduced likelihood of government intervention.

• Reduced business costs.

• Improved financial performance.


Ethical Connection


• Imagine you are a manager and visit a factory

owned by an affiliate in Colombia, and discover the

use of child labor in the plant.

• You are told that without the children’s income,

their families might go hungry. If the children are

dismissed from the plant, they will likely turn to

other income sources, including prostitution or

street crime.

• What should you do? Make a fuss about the

immorality of child labor, or look the other way?

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Framework for Making Ethical Decisions




You Can Do It: Javier Estrada (cont’d)

Javier’s Success Factors

• Extensive international travel and exerperience

• Independent spirit

• Hard work

• Management training

What’s Ahead?

• Javier is concerned about poverty in Latin America

• Javier went on to earn a master’s degree in social policy and planning

• He plans to work in business and development


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