IN INTERNATIONAL

BUSINESS
Introduction

 Ethics - accepted principles of right or wrong that govern the

conduct of a person, the members of a profession, or 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
Importance of ethics in
international business

Ethical behavior combined with skills and professionalism is
able to ensure sustainable development, rather than a short-
term profit, which brings disastrous results after a certain period
of time. Ethical behavior ensures awareness and concern for
the future and for the right way of action in each particular
situation.

Ethical behavior establishes a healthy and pleasant cooperation
climate for all the parties involved in a deal, making them feel
comfortable with each other.

Acting in accordance with moral values is crucial for deserving
clients' attention and support and achieving a significant
competitive advantage in a particular market segment.
Ethical Issues in International
Business
 The most common ethical issues in business involve
 employment practices
 human rights
 environmental regulations
 corruption
 the moral obligation of multinational companies
• Employment Practices:
If work conditions in a host nation are
clearly inferior to those in a multinational’s
home nation, should companies apply:
- Home country standards
- Host country standards
- Something in between

Human Rights:
In developed countries, basic human
rights such as freedom of association,
freedom of speech, freedom of assembly,
and freedom of movement, are taken for
granted
In other countries, these rights may not
exist
 Environmental Pollution:
Ethical issues arise when environmental regulations in
host nations are far inferior to those in the home nation.
Environmental questions take on added importance
because 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.

Corruption

In the United States, the 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
 Moral Obligations:
Social responsibility refers to the idea that business people should
take the social consequences of economic actions into account
when making business decisions, and that there should be a
presumption in favor of decisions that have both good economic
and good social consequences .
People argue that businesses need to recognize their noblesse
oblige and give something back to the societies that have made
their success possible.

BP supports this notion, and has made it company policy to give back
to the community. For example, in Algeria the company built two
desalination plants to provide drinking water to residents in Salah.
 Ethical Dilemmas

 Managers often face situations where the appropriate course of

action is not clear
 Situations in which none of the available alternatives seems
ethically acceptable
 They exist because real world decisions are complex, difficult to
frame, and involve various consequences that are difficult to
quantify.
The Roots of Ethical/ Unethical
Behavior

DECISION
PERSONAL
MAKING
ETHICS PROCESS

UNREALISTIC
PERFORMANCE
LEADERSHIP EXPECTATIONS

SOCIETAL
ORGANISATION ETHICAL CULTURE
CULTURE BEHAVIOUR
Philosophical Approaches to
Ethics
Straw men approaches
There are four common straw men approaches:
 The Friedman doctrine suggests that the only social responsibility of
business is to increase profits, so long as the company stays within the
rules of law.
 Cultural relativism argues that ethics are culturally determined and that
firms should adopt the ethics of the cultures in which they operate, or in
other words, “when in Rome, do as the Romans do”.
 The righteous moralist approach claims that a multinational’s home
country standards of ethics should be followed in foreign countries.
 The naïve immoralist asserts that if a manager of a multinational sees
that firms from other nations are not following ethical norms in a host
nation, that manager should not either .
 Utilitarian and Kantian Ethics

 Utilitarian
approaches to ethics hold that the moral worth of actions or practices is
determined by their consequences.
Actions are desirable if they lead to the best possible balance of good
consequences over bad consequences
Problems with utilitarianism include measuring the benefits, costs, and
risks of an action, and the fact that the approach fails to consider
justice.

 Kantian
ethics are based on the philosophy of Immanuel Kant who argued that
people should be treated as ends and never purely as means to the
ends of others. People have dignity and need to be respected, they are
not machines.
 Rights theories

Rights theories recognize that human beings have fundamental

rights and privileges which transcend national boundaries and
cultures .
Rights theories establish a minimum level of morally acceptable
behavior.
Moral theorists argue that fundamental human rights form the basis
for the moral compass that managers should navigate by when
making decisions which have an ethical component.
The Universal Declaration of Human Rights specifies the basic
principles that should always be adhered to irrespective of the
culture in which one is doing business.
The declaration was prompted by the idea that some fundamental
rights transcend national borders and cultures.
 Justice theories

Justice theories focus on the attainment of a

just distribution of economic goods and services.
A just distribution is one that is considered fair and equitable.

One theory of justice that is particularly important was proposed

by John Rawls who argued that all economic goods and services
should be distributed equally except when an unequal distribution
would work to everyone’s advantage.
Legal foundations of ethical
behavior
Laws varies from country to country as moral values varies from
country to country.
EXTRATERRITORIALITY:
Home country governments may impose domestic legal and
ethical practices on the foreign subsidiaries of companies
headquartered in their jurisdictions.

LEGAL JUSTIFICATION THEORY:

An individual or a company can do anything that isn't illegal.
Pro: The law is a good basis for ethical behavior as it embodies
cultural values
Con: legal justification for behavior may not be sufficient
because not everything that is unethical is illegal.
 United National Global Compact, or the older UN Universal
Declaration of Human Rights, would be put forward as an
appropriate conduct guide for international business ethics. The
United Nations Global Compact encourages business
everywhere to advance and honor the internationally accepted
human rights, to uphold the right of collective bargaining, to avoid
being involved with human rights' abuses, to have no part in
compulsory human labor, to do away with child labor, to support
a caring and cautious approach to the environment, to reduce
any kind of employment discrimination, to encourage the creation
of technologies that are friendly to the environment, to encourage
more significant personal environmental responsibility, and to
work to stamp out corruption in all of its many ugly guises, such
as bribery and extortion.
Ethics and
Corporate
Bribery
Corruption & bribery

 Corruption is defined by the World Bank (2005) as ‘the extent to

which public power is exercised for private gain, including petty
and grand forms of corruption, as well as “capture” of the state
by elites and private interests.’
 Corporate corruption generally takes two forms: engaging in
bribe-making, usually as a supplier of bribes, and violations of
ethical and professional standards with the intent to deceive or
defraud investors. With respect to bribes, corporate corruption
could consist of a representative of the firm receiving bribes in
order to make a decision advantageous to the bribe-maker, or
as a bribe-giver, either to another private party or to a
representative of a domestic or foreign government.
Causes of corruption

 Personal
Personal greed
Decline of personal ethical sensitivity,
No sense of service when working in
public or private institutions
Low awareness or lack of courage to
denounce corrupt behavior
 Cultural
Cultural environments that
condone corruption
Lack of transparency, especially at
the institutional level
 Institutional

Regulations and inefficient controls.

Slow judicial processes.
 Organizational
Lack of moral criteria in promotions
Downplaying or reacting mildly to
corruption charges
 OECD Convention
 Organization for Economic Cooperation and Development-
Initially signed in 1977- In 2007 SA became the 37th signatory
and the first African member to enact anti bribery laws based
on this convention.
 It targets the supply side of corruption(activities of bribe
seekers) in cross border deals.
Eg: Suppose a European supplier of pharmaceuticals does a
deal with a minister of health from a developing country that
has received emergency funds from an aid agency to
purchase urgently required medicines. Instead of agreeing on
a purchase of new drugs, the minister and the supplier
conspire to use the aid funds to purchase out-of-date drugs,
which are far cheaper. The supplier consequently makes a
handsome profit and places a portion of it in an offshore bank
account set up by the minister. Many of those in the minister's
country who are sick receive the old, less effective drugs and
die
 Countries that have signed the convention are required to put in
place legislation that criminalizes the act of bribing a foreign public
official.
 The OECD has no authority to implement the convention, but
instead monitors implementation by participating countries.
 Countries are responsible for implementing laws and regulations
that conform to the convention and therefore provide for
enforcement.
 The OECD performs its monitoring function in a two-phased
examination process.
Phase I consists of a review of legislation implementing the
conventions in the member country with the goal of
evaluating the adequacy of the laws.
Phase 2 assesses the effectiveness with which the
legislation is applied.
UN Convention against Corruption
 December 4, 2000 : The General Assembly recognized that an effective
international legal instrument against corruption was desirable. United Nations
Convention against Corruption entered into force on 14 December 2005.
 The purposes of this Convention are:
To promote and strengthen measures to prevent and combat corruption more
efficiently and effectively;
To promote, facilitate and support international cooperation and technical
assistance in the prevention of and fight against corruption, including in asset
recovery;
Develop and implement or maintain effective, coordinated anti-corruption
policies that promote the participation of society and reflect the principles of
the rule of law, proper management of public affairs and public property,
integrity, transparency and accountability
Collaborate with each other and with relevant international and regional
organizations through participation in international programmes and projects
aimed at the prevention of corruption.
Industry Initiatives

In 2005, 50 multinational construction and natural

resources companies signed “Zero tolerance pact”
against extortion by bribery- World Economic Forum
Partnering against Corruption Initiative
 the Partnering Against Corruption Initiative (PACI) was
established to level the playing field among industry
players and help consolidate industry efforts on the issue.
 Today, PACI brings together over 140 companies from
multiple industries and global locations, including industry
leaders from multiple sectors, regardless of their size or
affiliation with the World Economic Forum, to fight bribery
and corruption.
ETHICS AND
ENVIRONMENT
SUSTAINABILITY

Sustainability means meeting the needs of the

present without compromising the ability of
future generations to meet their own needs
while taking into account what’s best for both
people and environment
GLOBAL WARMING AND THE
KYOTO PROTOCOL

 At the core of the international treaty called

the Kyoto Protocol is the theory that global
warming is a result of an increase in carbon
dioxide
 If carbon dioxide emissions are not reduced
and controlled , rising temperature could
have catastrophic consequences
 THE KYOTO PROTOCOL

 It was an extension of the UN Framework Convention on

Climate Change of 1994
 It was signed in 1997 to require countries to cut their
green house gas emissions to 5.2 percent below 1990
levels between 2008 and 2012
 By June 2007, 175 nations and regional economic
organisations had ratified the protocol
 The US (25%), initially signed the agreement but
withdrew in 2001
 NATIONAL AND REGIONAL
INITIATIVES
 Reduce emissions or buy credits from
companies that have reduced emissions
below target levels
 MNE’s were forced to reconsider their global
strategies
 The EU has set a target of an 8 percent
reduction from 1990 levels
 The Germans set a target of 21 percent
 COMPANY-SPECIFIC
INITIATIVES
 The companies need to face the task of adapting to different
standards in different countries
 The legal approach to responsible corporate behaviour says
an MNE can settle for operating in accord with local laws
 Ethical approach, urges companies to go beyond the law to
do whatever is necessary and economically feasible to
reduce green house gas emissions
ETHICAL DILEMMAS AND
BUSINESS PRACTICES
Industry specific
Deal with issues that cross industries-
To demonstrate how companies have
to examine their ethical conduct as
they spread internationally
 Taking TRIPS for What Its Worth

WTO Agreement on Trade Related Aspects of

Intellectual Property Rights
*Producing generic products for local
consumption
*Importing generic products from other countries
 R&D and the Bottom Line

Developing drugs are lot more expensive in

developed countries
Unlicensed generic drugs
New patent protection law in 2005 with WTO
guidelines
 CORPORATE CODE OF
ETHICS
Motivations for Corporate responsibility

 Unethical and irresponsible behavior can result in legal

headaches
 Customer actions such as boycotts
 Unethical behavior can affect employee morale
 Bad publicity is going to cost the sales
 Developing a code of conduc

 External code of conduct is a set of

“guidelines, recommendations and rules
issued by entities within society with the
intent of affect the behavior of
international business entities within
society in order to enhance corporate
responsibility

 Internal code of conduct

 What Makes a Good Internal
Code of Conduct ?
It sets global policies with which everyone working
anywhere for the company must comply
It communicates company policies not only to all
employees but to all suppliers and sub-contractors as
well
It ensure that the policies laid out in the code are
carried out
It reports the results to external stakeholders