Managing Interdependence Social Responsibility and Ethics

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• Chapter 2
• Managing Interdependence Social Responsibility
  and Ethics

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(No Transcript)
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Social Responsibility
The two extreme opinions related to social
responsibility Domestic firms
The only responsibility of a business is to make
a profit
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
• 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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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 8000s Proposed Global Standards
• 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 workers 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

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Ethics in Global Management

• Approaching ethical dilemmas varies among MNCs
• American approach is based upon general rules
• Japan and Europe make decisions on shared values,
  social ties, and perception of their obligation

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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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CORRUPTION!
The 2006 Transparency International Corruption
Perceptions Index
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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 companys 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

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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 host-country personnel.
• MNCs do not adapt their technology to the
  conditions that exist in host countries.
• MNCs concentrate their RD 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
  countrys 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

• 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 elseAs 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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Socioeconomic Interdependence

• The world is linked through
• Securities markets
• Communication Networks
• Subsidiaries

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Ethnocentric vs. Relativism

• Ethnocentric
• Company applies the morality used in its home
  country regardless of the host countrys system
  of ethics

• Relativism
• Company adopts the local moral code in whatever
  country it is operating companies run into
  value conflicts with this approach

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A Moral Philosophy Model of Cross-Cultural
Societal Ethics