Module 3

Cultures, Ethics and Corporate

Governance

International Business Division

School of International Business and Marketing
UEH University
Learning Objectives

1. To understand the social responsibility of corporations toward their

various constituencies around the world, in particular their
responsibilities toward human rights
2. To acknowledge the strategic role that ethics must play in global
management and provide guidance to managers to maintain ethical
behavior amid the varying standards and practices around the world
3. To recognize the importance of managing interdependence and
include sustainability in their long-term plans
Business Ethics

• Ethics: Ethics is the study of morality and standards of conduct. Ethics

refers to the moral principles that govern how humans conduct
themselves at work and outside.

• Business ethics: Business ethics (also known as corporate ethics) is a form

of applied ethics or professional ethics, that examines ethical principles
and moral or ethical problems that can arise in a business environment. It
applies to all aspects of business conduct and is relevant to the conduct of
individuals and entire organizations. These ethics originate from
individuals, organizational statements or from the legal system.
Ethical philosophies and their application

• The utilitarian approach: Favours the greatest good for the greatest
number of people under a given set of constraints. Decisions are
ethical when the social benefits outweigh the costs of pursuing that
action; that is, ethical decisions are those that result in the highest
benefit for most people.
• The right approach: the best ethical action as that which protects the
rights of those affected by the action.

• What are articles stated in the Universal Declaration of Human

Rights? Are they legally binding in all UN member states?
Ethical philosophies and their application

• The justice approach: ethical principles should be chosen by free and

rational people and can be ensured by fairness in the society. Justice
can be achieved by impartiality, which means people are ignorant of
all personal characteristics of another
• Nationality, gender, intelligence, social class
• Legitimacy theory: the theory argues that a company can only
continue to operate where that society believes that it is operating
with a value system similar to the society’s own.
Pyramid of Corporate Social Responsibility

Philanthropic
Responsibilities:
Be a good corporate citizen
Contribute resources to the
community; improve quality of life

Ethical Responsibilities:
Be ethical
Obligation to do what is right, just and
fair. Avoid harm

Legal Responsibilities:
Obey the law
Law is societies codification of right and wrong. Play by the rules of game

Economic Responsibilities:
Be profitable
The Foundation on which all other rest

Source: Carroll, AB 1991, ‘The Pyramid of Corporate Social Responsibility: Towards the Moral Management of
Organizational Stakeholders’, Business Horizons, July-August, pp. 40-48.
 The Social Responsibility of MNCs

CSR Dilemma

MNCs should
Profit is
anticipate
MNC’s only
and solve
goal
social needs

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 MNC Stakeholders
Home
country Host
Owners Economy
Customers Employees
Employees Community
Unions Host
Suppliers
Distributors MNC Government
Consumers
Strategic Strategic
Allies Allies
Community Suppliers
Economy Distributors
Government
Society in General

Global interdependence/standard of living

Global environment and ecology
Sustainable resources
Population’s standard of living

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 Benefits of CSR
1. Improved access to capital
2. Secured license to operate
3. Revenue increase and cost and risk reduction
4. Improved brand value and reputation with
customer attraction and retention
5. Improved employee recruitment, motivation, and
retention

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 Corporate Sustainability Model

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 Are ethics culture free?

• Criteria for judging ethical behaviour

• Utilitarianism – greatest good for greatest number
• Rights – but how decided and enforced?
• What is shared (etic)?
•• What
hat is shared (etic)?
is culture specific (emic)?
• What is culture specific (emic)?
 Ethical differences
• Individual responsibility and accountability
• Consensual community based norms/standards
• Universalism and legalistic orientation
• Particularist orientation and informal social control
• Insider/outsider ethic
• Notions of reciprocity
• Legal context
• Roles of government, the media and stakeholders
 Managing Subsidiary—Host-Country
Interdependence
Common Criticism of MNC Subsidiary
Activities

1. MNCs locally raise their needed capital, contributing

to a rise in interest rates in host countries.
2. The majority of the stock of subsidiaries is owned by
the parent company. Host-country people have little
control over the operations within their borders.

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 Common Criticism of MNC Subsidiary Activities
Cont.
1. MNCs reserve the key managerial and technical
positions for expatriates, instead of developing
host-country personnel.
2. MNCs do not adapt technology to the
conditions in host countries.
3. MNCs concentrate research and development
activities at home, restricting technology
transfer and know-how to host countries.
4. MNCs create a demand for luxury goods in host
countries at the expense of consumer goods.

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 Common Criticism of MNC Subsidiary Activities
Cont.
1. MNCs start foreign operations by purchasing existing firms, not by
developing new facilities in host countries.
2. MNCs dominate major industrial sectors, contributing to inflation, by
stimulating demand for scarce resources and earning excessively high
profits and fees.
3. MNCs are not accountable to host nations but only respond to home-
country governments; they are not concerned with host-country plans
for development.

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MNEs: Corporate Social Responsibility

• Global CSR approach: Transcends national boundaries and societal differences,

thereby manifesting a universal standard of corporate ethical behaviour

• Local CSR approach: ‘Companies seek to behave in a socially desirable manner as

defined by the local majority for each country where they have operations’

• Transnational CSR approach: ‘Balances a need to retain local identity with the
acknowledgement of values that transcend individual communities’
 Corporate Social Responsibility

Transnational
Global approach Local approach Approach
Competencies required for Global
+ Local CSR plus…

Strong commitment to head Strong commitment to local Dual citizenship

office subsidiary
Understanding of global Global mindset
stakeholder’s needs Understanding of local
stakeholders needs
Ability to balance
Big picture thinking
contradictions and paradoxes
Non-judgemental and open
to different views
Helicopter view Tolerance of uncertainty
Intercultural sensitivity and
Understanding of universal perspective taking skills
ethical standards Multicultural identity

Integrity and behavioural Adaptability and

consistency behavioural flexibility Moral imagination
 General Guidelines for Code of Morality
and Ethics in Individual Countries
• Addressing the need for a moral standard that is
Moral accepted by all cultures
Universalism

• Applying the morality used in home country—

Ethnocentric regardless of the host country’s system of ethics
Approach

• Adopting the local moral code of whatever

country in which a firm is operating
Ethical
Relativism

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 Comparative Management in Focus:
Doing Business in China
 The attraction of doing business in China:
 Cheap labor cost
 An expanding market
 A growing economy with growth in
higher skilled jobs and services
 Continuing concerns
 Uncertain legal environment
 Protecting IP

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 Policies to Help MNCs to Confront Concerns About
Ethical Behavior and Social Responsibility
1. Develop worldwide code of ethics.
2. Build ethical policies into strategy development.
3. Plan regular assessment of the company’s ethical
posture.
4. If ethical problems cannot be resolved, withdraw
from that market.

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 Steps to an Ethical Decision

Consult the International Codes of Conduct for MNEs Consult

the company’s code of ethics and established norms

Consult the laws of both the home and the host countries

Weigh shareholders rights

Follow your own conscience and moral code.

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 The Process for Companies to Combat Corruption
and to Minimize the Risk of Prosecution
1. Having a global compliance system which shows
that employees have understood, and signed off on,
the legal obligations regarding bribery and
corruption in the countries where they do business
2. Making employees aware of the penalties and
ramifications for lone actions, such as criminal
sanctions
3. Having a system in place to investigate any foreign
agents and overseas partners who will be
negotiating contracts
4. Keeping an effective whistle-blowing system in place

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 Managing Subsidiary—Host-Country
Interdependence

Require managers to go beyond issues of CSR to

deal with specific concerns of MNC and host-
country relationship.

MNCs must learn to accommodate the needs of

other organizations and countries.

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 Recommendations for MNCs Operating in and
Doing Business in Asia

1. Do no intentional harm. This includes respect for

the integrity of the ecosystem and consumer
safety.
2. Produce more good than harm for the host
country.
3. Contribute by their activity to the host country’s
development.
4. Respect the human rights of their employees.

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 Recommendations for MNCs Operating in and
Doing Business in Asia

1. To the extent that local culture does not violate ethical

norms, respect the local culture and work with and not
against it.
2. Pay their fare share of taxes.
3. Cooperate with the local government in developing and
enforcing just background institutions.

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