BUSS 5251

International Business
Course Coordinator and Facilitator
Professor Susan Freeman

Virtual Lecture 4: Ethics and CSR

Discussing questions – how to get
organised!
• (Listen to) Welcome Video and Assessment Video
• Course Outline
• Course Timetable
• Online Consultation; 15:30-16:30 Wednesdays
(Adelaide time) in teaching weeks
• Last half an hour of lecture devoted to Library
Information
– Helps with your Team Assignment: Lifang – Expert
Librarian!
Warming up!
DISCUSSION POINT

• What is an ethical dilemma?

Describe an example of a recent:

• international and local situation
– Economic, political, social, cultural, technological or
environmental disruption?
• You have heard of or observed where there is a
likely ethical dilemma?
Topic objectives
• Be familiar with the ethical and corporate social responsibility (CSR) issues
faced by international business

• Recognise an international business ethical dilemma

• Discuss the causes of unethical behaviour by managers

• Be familiar with the different philosophical approaches to ethics

• Know what managers can do to incorporate ethical considerations into their

decision making
Ethical issues in international business
• Ethical issues based on
differences in culture,
political systems,
economic development
in an economy

• Employment practices
• Human rights
• Environmental practices
• Corruption
Linking back to “National Differences”,
“Cultural Differences”
• Our topic this week – Week 4: Topic 4:
– Ethics and Corporate and Social Responsibility (CSR)
• What is ethics in international business?
• What is CSR? Examples in international business?

– What other topics can we link this key topic for the course
to?
– Linking back to Week 2 (Topic 2 ) - “Political, Legal and
Economic Environment”

– Week 3 (Topic 3 ) - “Cultural Differences”

– Why?
What Determines A Country’s Level
Of Economic Development?
• Nobel-prize winner Amartya Sen argues economic
development should be seen as a process of
expanding the real freedoms that people
experience
– Social development is equally important
– the removal of major impediments to freedom like
poverty, tyranny, and neglect of public facilities
– the presence of basic health care and basic education
• Amartya Sen also claims that economic progress
requires the democratization of political
communities to give citizens a voice
• Controversial position
– Is he right?
– What evidence do we have?
What Determines A Country’s Level
Of Economic Development?
• The United Nations used Sen’s ideas to develop
the Human Development Index (HDI) which is
based on
– life expectancy at birth
– educational attainment
– whether average incomes are sufficient to meet the
basic needs of life in a country

– We are looking at the quality of human life

How Does Political Economy
Influence Economic Progress?
• Innovation and entrepreneurship require
strong property rights
– without strong property rights, individuals and
businesses risk having their innovations and
potential profits stolen
• Economist Hernando de Soto claims that
inadequate property protection in many
developing and emerging nations limits
economic growth
• Examples?
How Does Political Economy
Influence Economic Progress?
Different points of VIEW:
• Democratic regimes are probably more conducive to
long-term economic growth than dictatorships, even the
benevolent kind
– property rights are only secure in well-functioning, mature democracies
• Subsequent economic growth often leads to the
establishment of democratic regimes
– South Korea
– Taiwan
– Ukraine
• But NOT always – e.g. Russia, China, Brazil, Indonesia?
– Think of others?
How Does Education Influence
Economic Development?
• Countries that invest in education have
higher growth rates because the workforce
is more productive
– countries in Southeast Asia have offset their
geographical disadvantages by investing in
education
• E.g. Indonesia, Malaysia, and Singapore
• But does Diversity (e.g. gender and culture?)
receive sufficient recognition?
• Are all parts of society recognized or provided for?
What is the Nature of
Economic Transformation?
• The shift toward a market-based system
involves
– deregulation – removing legal restrictions to
the free play of markets, the establishment of
private enterprises, and the manner in which
private enterprises operate
– privatization - transfers the ownership of state
property into the hands of private investors
– the creation of a legal system to safeguard
property rights
Ethics? CSR? – What are the links?

• Ethics? CSR? – What are the links to

– Week 2 (Topic 2 ) - “Political, Legal and

Economic Environment”
• Examples?
– Week 3 (Topic 3 ) - “Cultural Differences”
• Examples?
What Is Ethics?
• Ethics - accepted principles of right or wrong that
govern
– the conduct of a person
– the members of a profession
– the actions of an organization
• Business ethics - accepted principles of right or
wrong governing the conduct of business people
• Ethical strategy - a strategy, or course of action, that
does not violate these accepted principles
Which Ethical Issues Are Most Relevant To
International Firms?
• The most common ethical issues in business involve
1. employment practices
2. human rights
3. environmental pollution
4. corruption
5. moral obligations of multinational companies
6. moral obligations of nations (countries)
7. Moral obligations of global institutions (E.g. EU, IMF,
NATO, WTO)

Any others?
What are ethics?
Ethics
• Accepted principles of right
and wrong governing the
conduct of a person, a
profession or actions of an
organisation

Business ethics
• Accepted principles of right
and wrong governing the
conduct of business

Ethical strategy
• Course of strategic action that
does not violate these
accepted principles
Ethical issues in international business
Employment practices
Relevant if host-country practices vary from
home-country practices

Human rights
Basic human rights not universally the same

Environmental pollution
Environmental regulations in host countries
different from home-country regulations

Which should the company follow? Home or

host practices?
Bribery and corruption
• ‘Facilitating payments’ (or ‘speed
money’)
• Different from bribes which secure
contracts

• Convention on Combating Bribery of

Foreign Public Officials in International
Business Transactions
– OECD Convention 1997
• Bribery of foreign public officials a
criminal offence in member states

• Examples?
– Is the same in all economies?
Why?
Bribery and corruption
Economists argue:

Bribes necessary to do a greater good

or

Corruption reduces the returns on investment

and low growth
or

Corruption ‘speeds up’ approval and enhances

welfare

Are economists correct?

For whom?
Why? Why not?
Corporate Social Responsibility (CSR)
Social consequences of economic actions

• Presumption favouring good economic

and social decisions

• Considers both ‘right’ (i.e. ethical or

moral) way for business to behave as well
as the profitable one
– Examples?

Noblesse oblige
• Privilege brings greater social
responsibility
• Honourable and benevolent behaviour
responsibility of successful companies
What Are Ethical Dilemmas?
• Situations where no
alternatives ethically
acceptable

• Ethical obligations towards

employment conditions,
human rights, child labour,
corruption, environmental
pollution and use of power not
clear

• Some argue that ethics is

culturally determined
What Are Ethical Dilemmas?
➢ Ethical dilemmas - situations in which none of the
available alternatives seems ethically acceptable
➢ real-world decisions are complex, difficult to frame, and
involve consequences that are difficult to quantify
➢ E.g. is the use of child labour ever justified?
➢ the ethical obligations of an MNE toward employment
conditions, human rights, corruption, environmental
pollution, and the use of power are not always clear cut
➢ the right course of action is not always clear
The roots of unethical behaviour
Personal ethics
• Business ethics reflection of personal
ethics
• Expatriates pressured to violate
personal ethics

Decision-making processes
• No consideration of question ‘Is this
decision or action ethical?’
• Consideration not part of process of
decision making

Organisation culture
• Values and norms shared among
company employees
The roots of unethical behaviour
Unrealistic performance expectations
• Pressure from parent company
to meet unrealistic performance
goals, by cutting corners or
acting in an unethical manner

Corporate governance and leadership

• Unethical leadership and faulty
corporate governance
structures

Examples?
Why Do Managers Behave
Unethically?
➢ Several factors contribute to unethical behavior
including
1. Personal ethics - the generally accepted
principles of right and wrong governing the
conduct of individuals
➢ expatriates may face pressure to violate their
personal ethics because they are away from their
ordinary social context and supporting culture
➢ managers fail to question whether a decision or
action is ethical, and instead rely on economic
analysis when making decisions
➢ Examples of CEOs and Companies behaving badly?
Why Do Managers Behave
Unethically?
2. Decision-making processes - the values and norms
that are shared among employees of an
organization
➢ organization culture that does not emphasize
business culture encourages unethical behavior
3. Organization culture - organization culture can
legitimize unethical behavior or reinforce the need
for ethical behavior
4. Unrealistic performance expectations - encourage
managers to cut corners or act in an unethical
manner
Why Do Managers Behave
Unethically?
5. Leadership - helps establish the culture of an
organization, and set the examples that others
follow
– when leaders act unethically, subordinates may act
unethically, too!
• Examples?

6. Societal culture – firms headquartered in cultures

where individualism and uncertainty avoidance are
strong are more likely to stress ethical behaviour
than firms headquartered in cultures where
masculinity and power distance rank high
WHY?
Why Do Managers Behave
Unethically?
Determinants of Ethical Behavior
Four philosophical approaches to
business ethics
• The Friedman doctrine
• Cultural relativism
• Righteous moralism
• Naive immoralism

All of these approaches have

some inherent value, but all are
incomplete in important ways.
Philosophical approaches to ethics

The Friedman doctrine

Legal increase in profits only social responsibility
of a company

Cultural relativism
Belief ethics culturally determined
‘When in Rome, do as the Romans do.’

Righteous moralism
Home-country ethical standards appropriate for
host-country operations

Naive immoralism
Manager need not follow ethical norms if violated
in host country
What Are The Straw Men Approaches To
Business Ethics?
➢ There are four common straw men approaches
1. Friedman doctrine - the only social responsibility
of business is to increase profits, so long as the
company stays within the rules of law
2. Cultural relativism - ethics are culturally
determined and firms should adopt the ethics of
the cultures in which they operate
➢ “when in Rome, do as the Romans do”
What Are The Straw Men Approaches To
Business Ethics?
3. Righteous moralist - a multinational’s home
country standards of ethics should be followed in
foreign countries
4. Naïve immoralist - 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
➢ All approaches offer inappropriate guidelines for
ethical decision making
Broader philosophical approaches to
ethics Utilitarian ethics
• Moral worth of actions and
practices determined by
consequences
• Desirable if best balance of good
over bad consequences
• Limitations – measuring benefits,
cost, risks and no concept of
justice

Kantian ethics
• People treated as ends in
themselves
• Never purely as means to the
ends of others

• Valid but incomplete approach

e.g. no consideration of subjective
things such as emotions
What Are Utilitarian And
Kantian Approaches To Ethics?
• Utilitarian ethics - (David Hume, Jeremy Bentham,
John Stuart Mill) - 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 on average over bad
consequences
– but it is difficult to measure the benefits, costs, and risks of
an action
– the approach fails to consider justice
Broader philosophical approaches to
ethics
Rights theories
• Fundamental rights and
privileges of humans
transcending national
boundaries and culture

• UN Universal Declaration of
Human Rights specifies
fundamental rights that
should always be adhered
to when doing international
business
What Are Rights Theories?
• Rights theories - human beings have fundamental
rights and privileges which transcend national
boundaries and cultures
– establish a minimum level of morally acceptable behavior
– the Universal Declaration of Human Rights - basic
principles that should always be adhered to irrespective of
the culture in which one is doing business

• 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
Broader philosophical approaches to
ethics
Justice theories
Attainment of ‘just’
distribution of
economic goods and
services

Rawlsian justice
Difference principle -
unequal order at least
benefit the least
advantaged person
What Are 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

➢ John Rawls argued that all economic goods and services

should be distributed equally except when an unequal
distribution would work to everyone’s advantage
➢ impartiality is guaranteed by the veil of ignorance - everyone is
imagined to be ignorant of all his or her particular characteristics

➢ But when is ignorance culpable?

How Can Managers
Make Ethical Decisions?
• Managers can also use various processes to think
through ethical problems:
Steps: Identify which stakeholders (the individuals
or groups who have an interest, stake, or
claim in the actions and overall
performance of a company) a decision
would affect and in what ways
• internal stakeholders are people who work for or who own the
business such as employees, the board of directors, and
stockholders
• external stakeholders are the individuals or groups who have
some claim on a firm such as customers, suppliers, and unions
Critical Thinking
• Is critical thinking important? Why? To whom?
– Who are some thought leaders in this area?

• Why do we need to take time to identify problems?

• Who are stakeholders? Why should we bother?

Ethical decision-making

Five things international managers could do:

1. Hire and promote people with good sense of personal ethics

2. Build organisation culture which places a high value on ethical

behaviour, especially leaders who lead by example

3. Introduce processes requiring ethical consideration

4. Hire ethics officers

5. Develop moral courage

Think of any examples?

Organisational culture and leadership

• Articulate values with strong emphasis on ethical

behaviour, perhaps using a code of ethics

• Meaning to code of ethics by leaders acting on it

• Incentives and rewards for recognition of ethical

behaviour and sanctions for unethical behaviour

• Examples?
Five-step process to consider ethical
problems – quick summary!
1. Identify internal and external stakeholders
affected
2. Determine if decision violates rights of any
stakeholders
3. Establish moral intent
4. Engage in ethical behaviour
5. Periodically audit decisions for consistency with
ethical principles
Ethics officers and moral courage

Ethics officers
Appointment of ethics officers to ensure all employees are ethically aware and
follow code of conduct

Moral courage
Courage to do what is right in difficult circumstances
‘Stand in the shoes of’ an affected stakeholder. Often key to moral courage.

• How might companies achieve this?

• What is a whistle blower?
• Examples?
Summary of main themes
• International businesses face a range of ethical issues

• Sometimes there is not an obvious solution

• Managers need to make the ‘best’ decision with ethical

issues in mind and practise CSR

• Various philosophical approaches exist to guide such

decisions

• Ethical corporate culture, ethics officers and codes of

conduct are all key elements of CSR
Discussion Questions
1. Think of an ethical dilemma you once faced. Apply different
philosophical approaches to the situation -
a) Do any of the approaches give you guidance as to how to proceed?
b) Are any of the approaches useful in a practical situation?

2. Imagine you are a manager of an Australian business in a South

American country where bribery is the norm.
The company has warned you about the legal consequences of bribery
but this is the only way you can achieve the outcome expected by the
company. Discuss your options and how you might proceed.