Chapter 2 Managing Interdependence: Social Responsibility and Ethics

Power Point by Kristopher BlanchardNorth Central University

Social ResponsibilityIncludes the expectation that corporations concern themselves with the social and economic effects of their decisionsThe only responsibility of a business is to make a profitBusiness should anticipate and try to solve problems in societyThe two extreme opinions related to social responsibility Domestic firms

Social Responsibility of Multinational CorporationsMore complex than domestic firms due to the complex issues related to global businessEconomic developmentCultural issuesAdditional stakeholdersLegal issues

Social Responsibility Integrated ApproachOrganizations agree what should constitute moral and ethical behaviorEmerging because of the development of a global corporate cultureResult of socioeconomic interdependence

Social Responsibility Integrated ApproachProvide a basis of judgment regarding decisions and situationsMoral UniversalismUnlikely to become a realityEthnocentric Relativism

Human RightsWhat constitutes human rights?Perceptions of peoplePriorities of peopleUS may say wages, education, freedomOther countries may say safety and shelter

Codes of ConductSA 8000s Proposed Global StandardsDo not use child or forced laborProvide a safe working environmentRespect workers rights to unionizeDo not regularly require more than 48-hour work weeksPay wages sufficient to meet workers basic needs

Ethics in Global ManagementGlobalization has multiplied the ethical problems facing organizationsBusiness ethics have not yet globalizedDifficult to reconcile consistent and acceptable behavior around the world

Ethics in Global ManagementThe term international business ethics refers to the business conduct or morals of MNCs in their relationships with individuals and entitiesBased on the cultural value systemBased on generally accepted ways of doing business in each country or society

Ethics in Global ManagementApproaching ethical dilemmas varies among MNCsAmerican approach is based upon general rulesJapan and Europe make decisions on shared values, social ties, and perception of their obligation

Limits of Ethical Standards for International ActivitiesThe laws of economically developed countries generally define the lowest common denominator of acceptable behavior for operations in those domestic markets. In an underdeveloped country or a developing country, it would be the actual degree of enforcement of the law that would, in practice, determine the lower limits of permissible behavior.

Laczniak and Naor

Questionable paymentsThis is a specific ethical issue for managers in the international arenapayments in question are political payments, extortion, bribes, sales commissions, or grease money payments to expedite routine transactionsAlso called: tokens of appreciation, la mordida, bastarella, and pot-de-vin

The Foreign Corrupt Practices ActThe 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.

Three Tests of Ethical Corporate Actions Is it legal?Does it work (in the long run)?Can it be talked about?

Ethical Behavior and Social Responsibility Guidelines Developed by MNCsDevelop worldwide codes of ethicsConsider ethical issues in strategy developmentGiven major, unsolvable, ethical problems, consider withdrawal from the problem marketDevelop periodic ethical impact statements

Making the Right DecisionHow 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 countriesConsult the International Codes of Conduct for MNEs (as shown in text Exhibit 2-2)Consult the companys code of ethicsConsult your superiorsUse your own moral code of ethicsFollow your own conscience

Managing InterdependenceBecause multinational firms represent global interdependency managers must recognize that what they do has long-term implications for the socioeconomic interdependence of nations

Foreign Subsidiaries in the USNumber of foreign subsidiaries in the US has grown dramaticallyFDI in the US is in many cases far more than US investment outwardOne different aspect of management in the US is corporate social responsibility

Host-Country InterdependenceInternational managers must go beyond general issues of social responsibility and deal with specific concerns of the MNC subsidiary Focus should be interdependence rather than independenceFocus should be cooperation rather than confrontationBenefits and costs to host countries

Criticisms of MNC Subsidiary ActivitiesMNCs 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.

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 R&D activities at home, restricting the transfer of modern technology and know-how to host countries.

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.

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.

Comparative Management in FocusNAFTABrought together three largely different economiesPromised that it would create millions of jobsPromised that it would curb illegal immigrationPromised that it would raise living standards

Comparative Management in FocusNAFTA United StatesOverall has enjoyed a growth in exportsCompanies have moved to Mexico for cheaper laborIncreased unemployment in many areasNAFTA MexicoPromised to close wage gaps and lower illegal immigrationGap in wages has increasedCompanies are moving to China for lower wages

Comparative Management in FocusNAFTA CanadaHas had mixed resultsBusinesses are more export-orientedCreated 500,000 new jobs last yearWe 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

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

Managing Environmental InterdependenceHandling exporting of hazardous wasteExporting pesticidesLooking for alternative raw materialsDeveloping new methods of recyclingExpanding the use of byproducts

Looking AheadChapter 3 Understanding the Role of CultureCulture and Its Effects on OrganizationsCultural VariablesCultural Value DimensionsDeveloping Cultural ProfilesCulture and Management Styles