Managing in international contexts (21717) Dr Anthony Fee Page 1 Ethical decision-making in an international context Culture & ethics are very closely linked; in fact, political scientist Francis Fukuyama (1996) defines culture as our ‘inherited ethical habits.’ Recall that at the start of the semester we defined ‘values’ as beliefs that we hold about what is right & wrong, and which influence our attitudes & behaviours. Some definitions of ethics are almost synonymous (see below). It is not surprising, therefore, that crossing cultural boundaries almost inevitably involves crossing ethical boundaries. Defining ethics Ethics in international business International business takes place in a ‘moral free space’ (Dunfee & Donaldson 1994) with many shades of grey. The ethical environment is complex & opaque; few absolutes exist. Managing in an environment like this requires great cognitive complexity. You could also argue that it amplifies the importance of having good decision-making skills & solid ethical foundations. Five reasons why ethical issues are more complex in a global context (can you think of examples to demonstrate each?) 1. Competitive global environment: Global business is competitive & the stakes are high. Reaching global markets requires larger investments, involves more risk & (potentially) greater reward. The temptation to behave on the margins of ethicality is magnified. 2. Multiple stakeholders: Managers in multinational enterprises (MNEs) are asked to make decisions that can influence many more, and more diverse, groups of stakeholders. Decisions made in a corporate headquarters in one nation can directly alter the lives of stakeholders thousands of kilometres away, most of whom are ‘out of mind & out of sight’ to the decision-maker. 3. Multiple legislative frameworks: Countries have their own legal frameworks to guide business activity. Many MNEs exploit different legal standards for profit (e.g. relocating to nations with lower environmental standards). What happens if an activity that is illegal in the firm’s home country is legal in a foreign country where the firm operates? Are minimum legal requirements sufficient? 4. Greater visibility & transparency: The activities of MNEs come under much more scrutiny than small businesses simply because the impact ‘an individual’s personal beliefs about whether a decision, behaviour or action is right or wrong’ (Griffin & Pustay 1999, International Business) ‘the codes of moral principles, values & rules that govern our decisions & actions with respect of what is right & wrong, good & bad’ (Buchanan & Huczynski 2010, OB 7th ed) ‘moral standards, often not governed by law, that focus on the human consequences of action ‘(or inaction) Managing in international contexts (21717) Dr Anthony Fee Page 2 of their actions is larger (also, many MNEs have poor track records on ethical issues). Monitoring MNEs is easier with digital technologies, which permit the rapid dissemination of evidence of unethical practices that, in the past, could be kept behind ‘closed doors’. 5. Cultural differences: Societies differ in how they view ethical issues, what issues are considered ethical, who should take responsibility for ethical behaviour (e.g. governments or individuals), and what decisions are made. Cultural values & level of economic development both have an influence on ethical attitudes. Out-group categorisation, moral exclusion & international ethics Our tendency to cognitively differentiate ‘us’ (in-group) from ‘them’ (out-group) can bias our perception of ethical behaviour. In general, we incorrectly tend to assume that members of our in-group are more moral, ethical & upstanding than out-group members. This tendency is known as moral exclusion (Opotow 1990). It is triggered by the in-group biases & attribution errors that we discussed earlier in the semester. A potential consequence of moral exclusion is that unethical behaviour can become self-fulfilling. If a manager from one country assumes that international competitors are offering bribes, not paying taxes, or not meeting environmental or safety standards, she may be more likely to justify her own unethical behaviour (‘Everyone else is doing it. We need to also … it is the only way that we can compete!’). Classic ethical perspectives Ethical conundrums appear different depending on the viewpoint of the observer. Some people have a tendency to evaluate the ethicality of a situation from a particular ‘ethical perspective’. The three most common ethical perspectives, known as the normative ethical perspectives, are summarised below: › INTENTIONS: Were your intentions good? From this perspective, ethical action requires virtuous intentions. The person’s behaviours & the outcomes of those behaviours are less relevant than the motivations for the behaviours. Being ethical necessitates a virtuous decisions (what would a virtuous person do in this situation?). › CONSEQUENCES (teleological or utilitarian): Were the consequences of your actions good? This is an outcome-oriented perspective. It provides an objective measure to evaluate an action (although the exact outcomes are difficult to predict at the time a decision is made). The most commonly used measure of impact is philosopher John Stuart Mill’s aspiration to achieve ‘the greatest good for greatest number of people’. Thus, if in moral doubt, calculate the greatest amount happiness that will result from your actions as the basis for a decision. › ACTIONS (deontological): Were your actions moral? From this perspective, the objective is to enact ‘correct’ behaviour. Philosopher Immanuel Kant argued for the application of a universal law whereby we should ‘Act only on rules (maxims) that you would be willing for everyone to follow.’ In other words, if everyone did this, would it be okay? Q: Which of these perspectives do you tend to agree most strongly with? In general, being able to view a situation from all three perspectives is probably of benefit to understanding others’ point of view. Managing in international contexts (21717) Dr Anthony Fee Page 3 Are you a relativist or a universalist? In addition to the three normative ethical perspectives, differences exist between cultural relativists & cultural universalists. › ABSOLUTE TRUTH (moral universalism): From this perspective, a single absolute truth exists. As humans, we all share ‘hyper-norms’ of moral conduct that can be applied to all societies. Universalists believe that it is possible to identify common ethical standards at a global level based on our shared humanity. Agreement does not require consensus (some members of a society may not agree) and standards may be difficult to articulate. However, universalists believe it is still possible & desirable to generalise moral conduct. In short, ‘You're either with us, or you are against us’. › CULTURALLY-RELVANT TRUTH (moral relativism): For moral relativists, no common ethical standards exist. What is considered ethical must be ‘socially approved’, and this can vary. Thus, there are no universal standards for ethical behaviour in a complex & changing world. Context is everything. From this perspective, even if was possible to identify generic morals, it would be inappropriate - ‘What is good or evil depends on the situation.’ As with the classical ethical perspectives, it makes sense to be able to understand both the universalist & relativist perspectives. Most cross- cultural researchers tend to feel that some very general hyper-norms do exist, but (a) how these are enacted may vary considerably, and (b) imposing prescriptive approaches can breed prejudice & conflict. International corporate social responsibility Corporate social responsibility (CSR) refers to organisational activities intended to create benefit for society & the environment, not just for profit. International CSR refers to the expectation that MNEs will consider the full social, environmental & economic impacts of their decisions (people, planet & profits). There are competing views about whether CSR is a good thing or not. Some business experts, including Nobel laureate Milton Friedman are against business engaging in any form of CSR. From this perspective, the social responsibility of business is to increase its shareholders’ value & act within the law; nothing more or less. Others, like Christopher Stone, argue that CSR is necessary. In short, stakeholders & communities (not just shareholders) are influenced by firms’ activities, so managers need to think beyond ‘shareholder value’. Most MNEs support (and publicise) some form of CSR initiatives. These tend to relate to six types of issues (e.g. Boatright 2003): 1. Environment (e.g. emissions, energy saving, recycling). 2. Equal opportunities (e.g. employment & advancement of minorities, support for minority businesses). 3. Personnel (e.g. employee health, safety & wellbeing). 4. Community involvement (e.g. charitable donations, support for education or the arts, community involvement). 5. Products (e.g. safety, quality, sustainability). 6. Suppliers (e.g. subcontractor code, fair terms of trade). ‘The business of business is business’ Managing in international contexts (21717) Dr Anthony Fee Page 4 A framework for ethical decision-making Given the many challenges of global ethics, how can international managers ensure that their decisions & actions are ‘ethical’? Over the years a number of tools have been developed to assist people to make ethical decisions. For instance, the Markkula Centre for Applied Ethics at Santa Clara University, USA, makes available a number of resources. [the Centre was established with an endowment from former CEO of Apple Computers Mike Markkula]. The reading article by Donaldson (1996) also provides sound ‘guidelines for ethical leadership’. It seems obvious, but being aware that a decision or action has ethical consequences is an important determinant of ethical behaviour (Tenbrunsel & Smith-Crowe 2008). Almost every decision has moral implications, from what we consume to how we communicate. Considering the ‘ethical frame’ of every decision helps you recognise its various moral components. At least then you might engage in a process that is more likely (but not guaranteed) to lead to an ethical outcome. The following seven-step framework, adapted from one developed by Helen Deresky, is a good practical example of a decision-making framework (also see Kaptein 2011). Several former students have reported how useful it is. Its beauty is that it outlines steps that progress from considering broad, high-level legal requirements (national & international law) to quite subjective, internal factors (personal ethical views). Any stage of the decision process can be the trigger to discontinue or adjust a line of action. Thus, these seven steps are handy ‘lines of defence’ that can be used to inform - and, importantly, to justify - an ethical decision. > STEP ONE: Legal obligations (home & away) Check your legal obligations in the parent country (where your organisation is based), your home country, and the host countries (all the countries in which decisions or activities will occur). Some domestic legislation makes provisions for being applied outside the home territory of the organisation (e.g. some occupational health and safety laws). Other laws apply to individuals irrespective of where they are or who they work for. For instance, it illegal for US citizens to bribe foreign officials anywhere in the world. Australia has a similar law. Ouch! Importantly, these laws seem to be effective. > STEP TWO: Industry codes of conduct Check any international, industry or professional codes of conduct that may exist. Examples of these might include frameworks provided by: • Organisation for Economic Cooperation & Development (OECD) • International Chamber of Commerce (ICC) • International Labour Organization (ILO) • United Nations Conference on Trade & Development (UNCTAD) Managing in international contexts (21717) Dr Anthony Fee Page 5 These frameworks are not legally binding. They do, however, represent industry or sector ‘norms’ & so should be a guide to what your competitors are doing and what is expected of people in your industry or profession. In general, you’d want to have a pretty persuasive rationale for consciously going against these guidelines. > STEP THREE: Code of ethics Consult your organisation’s code of ethics. This is a formal policy document that outlines the ethical standards the organisation sets. It is guided by statements about the organisation’s values & vision, and aims to: (a) raise awareness of common ethical issues, (b) prevent misconduct, and (c) help staff exercise strong moral judgment. In order to achieve these aims, ethical codes should be more than a list of ‘do’s’ and ‘don’ts’. Formal approaches to managing ethical behaviour like ethical guidelines & training appear to work best when there is a strong culture of unethicality. In general, a balance of clear (values-based) direction & discretion to execute judgment is best. A useful metaphor is the one used by Australian supermarket chain Woolworths for their staff to operate ‘between the flags’ (i.e. freedom to make judgments within boundaries). > STEP FOUR: Employee guidelines Consult other employee guidelines produced by the organisation, including the organisation’s ‘code of conduct’, which is more compliance- focused than the code of ethics & which tends to relate to a broader set of behaviours (not solely ethical decisions). > STEP FIVE: Superiors, colleagues & mentors Seek advice from a superior. It might be helpful to speak with managers from different business units or staff who have international experience. HR department sometimes employ specialists who can advise about ethical issues (or about how to interpret codes of ethics and conduct). Organisations like The Ethics Centre provide confidential hotlines from which counsel or support can be received. > STEP SIX: Personal ethical standards A strong understanding of the different ethical perspectives (see pp. 2-3 above), including culturally different views, is helpful when weighing up personal ethics. Donaldson’s guidelines are especially prescient. The Markkula Centre suggests asking yourself: • Which option produces the most good & does the least harm? (utilitarian perspective) • Which option best respects the rights of everyone? (a rights perspective) • Which option treats people proportionately? (a justice perspective) • Which option best serves the community as a whole, not just certain members? (the ‘common good’ perspective) • Which option leads me to act as the sort of person I want to be? (the virtue perspective) > STEP SEVEN: Evaluation & reflection Finally, after making a decision take steps to monitor, evaluate & reflect on the decision & its impacts (intended & unintended). This provides the foundations for a better decision-making process in the future. Managing in international contexts (21717) Dr Anthony Fee Page 6 Pre-class reflection: 1. Which of the three classical ethical perspectives do you most strongly agree with? Think of an ethical issue that might lead to different decisions depending on which ethical perspective you viewed it from. 2. Would you consider yourself an ethical universalist or an ethical relativist? Justify your response. 3. What is your view on corporate social responsibility: do you feel it is sufficient for firms to be ‘defensive’ (the minimum legal requirement; Ebert & Griffin 2007) or should they do more? What are the arguments for & against? 4. What role do individuals (i.e. you) play in encouraging ethical behaviour in organisations? 5. In your view, to what extent should global manufacturers like Apple or Samsung take responsibility for the ethical conduct of their supply chain (e.g. component manufacturers or assembly plants)? Use ideas from these Briefing Notes to justify your response. 6. ‘In some parts of the world, to be successful in business you have to pay bribes. It’s just a fact of life.’ Do you agree? If so, (when) is it acceptable? * The following ‘Facilitating a decision’ case is adapted from Adler 2008, International dimensions of organizational behaviour, 5th ed Ethical case study* Consider the following, based on a real case where one or more actors perceived unethical practice. Answer the questions below. Facilitating a decision You are a regional manager (Middle East & Africa) for a global construction company. Your company has tendered for a major government contract ($58 million) in Nairobi, Kenya. Your firm is keen to win the contract so it can establish a presence in East Africa. Yesterday, you were approached by the cousin of the government minister who will award the contract. This man suggested that he can help you to win the contract, for an ‘agent’s fee’ of $240,000. You would have to pay this amount in addition to the standard fees to your in-country agent. You know that with his help the chances of your company winning the contract would increase substantially. If you refuse, you feel sure that your competitor, a Qatari firm which has won the last three major construction contracts in Kenya, will pay the fee and so probably win the contract. Your company has not established a worldwide code of conduct yet, although it formed a committee some time ago to consider one. Your supervisor has told you that she does not want to become involved, but that the contract is very important to the firm’s global objectives. The decision is yours to make. Questions a. What decision would you personally make in this situation & why? b. What criteria you would use in making the decision? c. What additional information you would like to collect to help you make your decision? 7. How much does a Big Mac cost?