CHAPTER - 4

MANAGEING ETHICAL AND SOCIAL RESPONSIBILITY CHALLENGES IN MULTINATIONAL COMPANIES

Preamble
Approximately

60,000 multinationals are operating across country borders today. Majority of those and their 5,00,000 subsidiaries are based in developing countries (Woods,2006). Governments in developing and developed countries are not willing to regulate multinationals because of different reasons. So, multinationals have growing social and ethical responsibilities to their operations.

Concept of Ethics and Social Responsibility

Dictionary

meaning of Ethics 1. Ethics (Singular) A system of moral principles or rules of behaviour. 2. Ethics (Plural) Moral principles that govern or influence a persons behaviour. 3. Ethics (Singular)- The branch of philosophy that deals with moral principles.

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Origin

of the word Ethics. It is derives from the Greeck word Ethos or Ethica. Ethos means habit, custom, character or usage. Ethica means character.

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Definition

of Ethics 1. Ethics is the study of what is right or good in conduct. John S. Mackenzie. 2. Ethics is the general enquiry into what is good.- G.E. Moore. 3. Ethics is the philosophical enquiry into the nature and grounds of morality. Paul W. Taylor. 4. Ethics deals with the oughts of life- that is, the rules and values that determine the goals and actions people ought to follow when dealing with other human beings. Rogene A. Buchholz (1989)

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So,

ethics is the normative science of the conduct of human beings with reference to their rightness or wrongness, their tendency to good or evil. Thus Ethics is a code of rules. Ethics is a set of principles one lives by. Ethics is the tudy of what is right or wrong. Ethics is a study that attempts to shed light on the question what should one do?

Concept of Social Responsibility

Social

responsibility is the set of obligations that an organisation has, to protect and enhance the societal context in which it functions. Jerry W. Anderson (1986). Social responsibility is the obligation of an organization to seek actions that protect and improve the welfare of society along with its own interests.- Bartol and Martin (2008).

Concept of International Business Ethics

International

business ethics pertain to the unique ethical problems faced by mangers conducting business operations across national boundaries. It differs from domestic business ethics in two counts 1. International business conducts crossnationally and different cultural values and institutional systems affects its operations.

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2.

It encounters a dilemma regarding how to use power while power of some forign countries is inferior to that of multinationals. International business social responsibility is the idea that businesses have a responsibility to society beyond making profits. That is, a company must take into account the welfare of other constituents ( customers, suppliers) in addition to stockholders.

Areas of Ethical and Social Responsibility of MNEs

Stakeholder affected
Customer

Ethical/Social responsibility
Product safety Fair price Proper disclosures and information. Fair ROI.

Stockholders Employees Fair wages, safety of working conditions, not use child labour, nondiscrimination by sex, race, coliour or creed;

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Stakeholder affected Host country Ethical/Social responsibility Following local laws, impact on local social institutions, environmental protection. Raw materials depletion.

Society in general

Ethical Philosophy
Two

approaches/ theories for ethical decision making. 1. Teleological ethical theories. It says that the morality of an act or practice comes from its consequences. It has two dimensions: A) Egoism. It says that an act is moral and good that produces own greatest pleasure. B) Utilitarianism. It says that an act is good and moral that produces greates good/benefit for the greatest number of people.

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2.

Deontological ethical theories. It says that morality or goodness of an action comes from the good or bad morality of the action itself, not of its outcomes. That is, if the action itself is good, that action is good and moral. A good source of deontological ethics is the Ten Commandments, the Quran, the Bible etc.

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Moral

Languages Thomas Donaldson (1992) in his article The Language of International Corporate Ethics (published in Business Ethics Quarterly) argues for moral languages that describe the basic ways people use to think about ethical decisions and to explain their ethical choices. He identifies Six basic ethical languages. They are:

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1.

Virtue and vice. The language shows that people are regarded as ethical who have virtuous characteristics disregarding what results from an action. 2. Self-control. The language tells about achieving perfection at controlling thoughts and actions, such as passion or control on appetites. 3. Maximising human welfare. 4. Avoiding harm.

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5.

Rights and duties. The language focuses on principles that guide ethical behaviour. It fits well in a legal context. 6. Social contract. This language structures ethics as a form of agreement among propel. So, the act is ethical that is consistent with our culture or organizational culture.

National Differences in Business Ethics and Social Responsibility

It

is obvious that national culture and social institutions affect managers of multinational enterprises working in different countries/cultures to perform ethical behaviour and social responsibility. Studies have justified this conclusion too. Cultural variations regarding acceptance of ethically suspect behaviours found in various researches are shown below:

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1.

Requesting money to smooth out business transactons is standard practice in many countries like Mexico, Russia, Thailand and Haiti. In USA such practices are frowned upon. 2. Austrians do not find it immoral for a male boss to promote only women who see him socially but US managers find it unethical. 3. Muslims ans Caucasian manager working in Malaysia had the highest regard for profits but Australian managers tend to be more socially considerate toward employees, customers and environment. 4. Hofstede study and GLOBE study give us same lessons.

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5.

Bribe , gift, kickback or questionable payments is accepted and routinely practiced in many countries to expedite government actions or to gain advantage in business deals. We can understand the level of corruption of various countries on the Corruption Perception Index (CPI) developed by the Transparency International. Countries are made law to curtail corruption. The Foreign Corrupt Practices Act (FCPA) 1977 of USA is such an act. But MNEs develop many ways and means to doe corrupt business practices avoiding such law to do business under competitive conditions.

Transnational Ethics
Globalization

creates pressure for ethical convergence and for transnational agreements among nations to govern business practices. World bodies have developed through different contracts and agreements among nations and cultures gives prescription of ethics for multinationals.

Sources of International ethics

The United Nations Universal Declaration of Human Rights. The United Nations Code of Conduct on Transnational Corporations. The European Convention on Human Rights. The International Chamber of Commerce Guidelines for international Investment. The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises. The Helsinki Final Act. The International Labour Office Tripartite Declarations of Principles Concerning Multinational Enterprises and Social Policy.

Codes of Conduct for the Multinational Company

Respect

Freedom -Respect fundamental human rights of life, liberty, security, and privacy. - Do not discriminate on the basis of race, colour, gender, religion, ethnic origin, or political affiliation. - Respect personal freedoms.

Basic Human Rights and

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Maintain

High Standards of Local Political Involvement -Avoid illegal involvement in local politics. -Dont pay bribes or other improper payments. -Do not interfere in local government internal relations. Transfer Technology -Enhance the transfer of technology to developing nations. -Adapt technologies to local needs. -Conduct local R & D when possoble. - Grant fair licenses to use technology.

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Protect

the Environment -Follow local environmental protection laws. -Actively protect the environment. -Repair damage to the environment done by company operations. -Help develop local standards. -Provide accurate assessment of environmental impact of the company. -Provide complete disclosure of the environmental effects of operations . Develop standards to monitor environmental effects.

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Employment

Practices - Follow relevant policies and employment laws of host nation. -Help create jobs in needed areas. -Increase local employment opportunities and standards. -Provide local workers stable employment and job security. -Promote equal employment opportunities. -Give priority to local natinao residents when possible.

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-Provide training opportunities at all levels for local employees. -Promote local nationals to management positions. -Respect local collective bargaining units. -Cooperate with local collective bargaining units. -Give notice of plant closings. -Do not use threat of leaving country in collective bargaining dealings. -Provide income protection to terminated workers. - Match or improve local standards of employment. - Protect employees with adequate health and safety standards. -Provide employees information on job related health hazards.

Ethical Dilemma in Multinational Management : How to decide?

There

is a dilemma between own countrys ethical system and that of host country. Here is a suggestion for multinational managers. Ethical Relativism versus Ethical Universalism Ethical Relativism means that a multinational manger consider each societys view of ethics as legitimate and ethical. So, it says that multinatinal managers should follow local ethical conventions.

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Ethical

Universalism holds that basic moral principles transcend cultural and national boundaries. Ethicists suggest for careful use of ethical relativism as there is a possibility of convenient relativism. Extreme moral universalism has pitfalls too as it is difficult to identify universal principles. So, dilemma remains.

Individual Ethical Decision Making for the Multinational Managers

Economic Analysis Legal Analysis Organisational Ethical Analysis Cultural Sensitivity Ethical Analysis

Personal Ethical Analysis

Finalise Decision and Action