IHRM Trends and Future

Challenges

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International Business Ethics
and HRM
 When business is conducted across borders, the ethics
program takes on added layers of complexity.
 Especially problematic when multinationals operate in
host countries that have:
 Different standards of business practice
 Economically impoverished
 Inadequate legal infrastructure
 Governments are corrupt, and
 Human rights are habitually violated
 The question arises not only in the context of different
home- and host-country employment practices but also
in the central operations and policies of multinationals.

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Ethical Relativism or Global
Values?
 Three main responses to the question:
 The ethical relativism believes that there are no
universal or international rights and wrongs, it all
depends on a particular culture’s values and beliefs -
when in Rome, do as the Romans do.
 The ethical absolutism believes that when in Rome,
one should do what one would do at home, regardless of
what the Romans do. This view of ethics gives primacy to
one’s own cultural values.
 In contrast, the ethical universalism believes that there
are fundamental principles of right and wrong which
transcend cultural boundaries and multinationals must
adhere to these fundamental principles or global values.

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Universal Ethical Principles
 Universal ethical principles can be seen in the agreements
among nations who are signatories to:
 The United Nations Declaration of Human Rights
 The OECD Guidelines for Multinational Enterprises (adopted by
the Organization of Economic Cooperation and Development)
 The Caux Roundtable Principles of Business
 They indicate the emergence of a trans-cultural corporate ethic
and provide guidelines that have direct applicability to a number
of the central operations and policies of multinationals including
the HRM activities of staffing, compensation, employee training
and occupational health and safety.
 However, there are a wide range of situations where variations in
business practice are permissible.

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Self-regulation Initiatives: International
Corporate Codes of Conduct
 The need for international accords and corporate codes
of conduct has grown commensurately with the spread
of international business.
 Translating ethical principles and values into practice in
the international business domain, even allowing for
some consensus within the international community, is
an enormous task in the absence of a supranational
legislative authority.
 A number of mechanisms to facilitate the incorporation
of ethical values into international business behavior
have been suggested.

IBUS 618, Dr. Yang 5

Caux Roundtable Principles for
Business Conduct
 The first international ethics code for business
 Developed in 1994 by Japanese, European and
North American business leaders meeting in Caux,
Switzerland
 Aimed to set a global benchmark against which
individual firms could write their own codes and
measure the behavior of their executives.
 The Caux Principles are grounded in two basic
ethical ideals: kyosei and human dignity.

IBUS 618, Dr. Yang 6

Caux Roundtable Principles for Business
Conduct (cont.)
 The Japanese concept of kyosei means living and
working together for the common good – enabling
cooperation and mutual prosperity to co-exist with healthy
and fair competition.
 Human dignity relates to the sacredness or value of each
person as an end, not simply as the means to the
fulfillment of others’ purposes or even majority
prescription.
 The Caux Principles aim to operationalize the twin
values of living and working together and human dignity
by promoting free trade, environmental and cultural
integrity and the prevention of bribery and corruption.

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Enforcement of Codes of Conduct
 The attitudes of senior management play a crucial role
in developing, implementing and sustaining high ethical
standards.
 HR professionals can help multinationals to
institutionalize adherence to ethics codes through a
range of HR activities including training and the
performance–reward system, e.g.
 Johnson and Johnson’s Credo meets the standards of the Caux
Principles, the UN’s Declaration of Human Rights and the
OECD Guidelines for Multinational Enterprises.
 Addressing the core human values of good citizenship, respect
for human dignity, respect for basic rights and justice, and using
them to define ethical behavior.

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Government Regulation:
 New global developments on the criminalization of
bribery
 Bribery and corruption top the list of the most
frequent ethical problems encountered by
international managers.
 The World Bank estimates that about $80 billion
annually goes to corrupt government officials.
(cont.)

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Is Bribery a Business Necessity?
 Bribery involves the payment of agents to do things that are
inconsistent with the purpose of their position or office in order
to gain an unfair advantage.
 Bribery can be distinguished from so-called gifts and
‘facilitating’ or ‘grease’ payments. The latter are payments to
motivate agents to complete a task they would routinely do in
the normal course of their duties.
 It is now generally agreed that bribery undermines equity,
efficiency and integrity in the public service, undercuts public
confidence in markets and aid programs, adds to the cost of
products and may affect the safety and economic well-being
of the general public.

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US Foreign Corrupt Practices Act
 The US Foreign Corrupt Practices Act, enacted in 1977
 Prohibits US-based firms and US nationals from making
bribery payments to foreign government officials.
 Payments to agents violate the Act if it is known that the
agent will use those payments to bribe a government official.
 Amended in 1988, to permit ‘facilitating’ payments but
mandates record-keeping provisions to help ensure that
illegal payments are not disguised as entertainment or
business expenses.
 The US lobbied other nation states for almost two decades
to enact uniform domestic government regulations

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Global Movement to Criminalize
Bribery
 The United Nations adopted the UN Declaration
Against Corruption and Bribery in International
Commercial Transactions, in December 1996.
 Committed UN members to criminalize bribery
and deny tax deductibility for bribes.

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 World Corruption Index
Corruption Corruption
Top 10 most Top 10 least
perceptions perceptions
corrupt countries corrupt countries
index score index score
Bangladesh 1.2 Finland 9.7
Nigeria 1.6 Denmark 9.5
Paraguay 1.7 New Zealand 9.5
Madagascar 1.7 Iceland 9.4
Angola 1.7 Singapore 9.3
Kenya 1.9 Sweden 9.3
Indonesia 1.9 Canada 9.0
Azerbaijan 2.0 The Netherlands 9.0
Uganda 2.1 Luxembourg 9.0
Moldova 2.1 U.K. 8.7
Source: Adapted from the transparency International Corruption Perception Index 2002, Ranging from 10
(highly clean) and 1 (highly corrupt), www.transparency.or

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OCED Members’ Tax Treatment of Bribes
Members Denying Tax Members Allowing Tax Members Repealed Tax
Deductibility Deductibility Deductibility
Canada Australia Austria, 1998
Czech Republic Luxembourg Belgium, 1999
Finland New Zealand Denmark, 1998
Greece Sweden France, 1997
Hungary Switzerland Germany, 1997
Ireland Iceland, 1998
Italy Netherlands, 1997
Japan Norway, 1996
South Korea Portugal, 1997
Mexico
Poland
Turkey
U.K.
U.S
Source: OECD
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The Role of HR in Operationalizing
Corporate Ethics Programs
 HR has a special role to play in the formulation,
communication, monitoring, and enforcing an enterprise’s
ethics program.
 The US-based business ethics literature generally presents
the view that the HR function along with finance and law is
the appropriate locus of responsibility for an enterprise’s
ethics program.
 The 2003 SHRM/ERC survey found that 71% of HR
professionals are involved in formulating ethics policies for their
enterprises
 69% are a primary resource for their enterprise’s ethics initiative.
 However, the SHRM respondents did not regard ethics as the
sole responsibility of HR.
(cont.)

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The Role of HR in Operationalizing
Corporate Ethics Programs (cont)
 The findings suggest that responsibility for ethical leadership
should cut across all functions and managerial levels, including
line and senior managers.
 At the same time, HR is well positioned to make an important
contribution to creating, implementing and sustaining ethical
organizational behavior within a strategic HR paradigm.
 HR professionals have specialized expertise in the areas of
organizational culture, communication, training, performance
management, leadership, motivation, group dynamics,
organizational structure and change management – all of
which are key factors for integrating responsibility for ethics
into all aspects of organizational life.

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The Role of HR in Operationalizing
Corporate Ethics Programs (cont.)
 People involved in international business activities face many of the
same ethical issues as those in domestic business,
 The issues are more complex for IHRM because of the different
social, economic, political, cultural and legal environments in which
multinationals operate.
 Consequently, multinationals will need to develop self-regulatory
practices via codes of ethics and behavioral guidelines for expatriate,
TCN and local HCN staff.
 Firms which opt consciously or by default to leave ethical
considerations up to the individual not only contribute to the pressures
of operating in a foreign environment (e.g., poor performance or early
recall of the expatriate), but also allow internal inconsistencies that
affect total global performance.
(cont.)

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The Role of HR in Operationalizing
Corporate Ethics Programs (cont.)
 When recruiting and selecting expatriates, ability to manage with integrity could
be a job-relevant criterion.
 The pre-departure training of expatriates and the orientation program should
include an ethics component. This might include formal studies in ethical theory
and decision making as well as interactive discussion and role playing around
dilemmas which expatriates are likely to encounter.
 In an effort to sensitize managers to cultural diversity and to accept the point
that home practices are not necessarily the best or only practices, there has
been an emphasis in international business training on adapting to the way in
which other cultures do business.
 In designing training programs to meet the challenges of multinational business,
HR professionals must raise not only the issue of cultural relativities but also
the extent to which moral imperatives transcend national and cultural
boundaries. Insufficient attention may result in unacceptable ethical
compromises.
(cont.)

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The Role of HR in Operationalizing
Corporate Ethics Programs (cont.)
 It is also important for the HR department to monitor the social,
ethical performance of the expatriate managers to ensure that
as managers become familiar with the customs and practices
of competition in the host country, they do not backslide into the
rationalization that ‘everybody else does it’.
 There is not yet agreement about what should constitute a
global ethic to resolve the conflicts which arise in such a
community. However, there is an emerging consensus about
core human values which underlie cultural and national
differences and the content of guidelines and codes which help
to operationalize the ethical responsibilities of multinationals.

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Mode of Operation and HRM
 Emphasis on IJVs
 Contractual modes such as licensing and
management contracts present challenges
for IHRM that have yet to be fully identified
and explored
 International projects often involve host-
government agencies and present specific
HR challenges

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Ownership Issues
 Small and medium-sized firms (SMEs)
 International activities place stress on limited
resources especially staff
 Key individuals often represent the SME’s
stock of international competence
 Retaining key staff critical
 Converting tacit knowledge into organizational
knowledge a challenge

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Family-owned Firms
 Not just a sub-set of SMEs
 Management succession presents special HR
planning concerns
 The globalization of family-owned firms has
been a remote topic in international business
studies

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Non-Government Organizations
 As active internationally as for-profit firms,
yet receive less attention, e.g.
 Red Cross
 Greenpeace groups
 These organizations share similar
management and HR concerns
 Often operate in high risk areas of the globe
 Anti-globalization rallies and protest
 Global terrorism
 Broadening our focus of IHRM is important

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Research Issues
 The field of IHRM has been slow to develop
a rigorous body of theory
 Regarded as a marginal area
 International studies are more expensive to fund
 Major methodological problems
Defining culture and the emic-etic distinction
Static group comparisons
Translation and stimulus equivalence

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Theoretical Developments
 Possible to identify two streams of inquiry
 The micro-level
 The macro level
 Low response to surveys may be a factor of
 Culture
 Language used
 Lack of use of teams of researchers

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A Model of Strategic HRM in MNEs

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