Social Responsibility and Managerial Ethics A Focus on MNCs

Prepared by: Kidus G.Mehalu Addis Ababa Ethiopia August !"## Social Responsibility and Ethics of MNCs

$he !nd Peter %ruc&er's Challenge Social Responsibility and Managerial Ethics (A Focus on MNCs
. #.# )ntroductory Re*ar&s Managers today are usually quite sensitive to issues of social responsibility and ethical behavior because of pressures from the public, interest groups, legal and governmental concerns, and media coverage. It is less clear here to dra the line bet een socially responsible behavior and the corporation!s other concerns, or bet een the conflicting e"pectations of ethical behavior among different countries. #his essay on social responsibility and ethics set e"ternally to international managers and thus in a sense outside their realm of control, is the e"pectation of appropriate behavior. #his behavior is measured both in terms of social responsibility of the organi$ation as such, as ell as ethical behavior of individual managers. In addition to these e"pectations there is an onus on organi$ations and managers ali%e to manage the relationship ith the host country. &aving noted this, I shall no move on to the main issues this essay has set out to address in the follo ing manner' #.! Global )nterdependence (lobal interdependence is a compelling dimension of the global business environment, creating demands on international managers to ta%e a positive stance on issues of' ) + , social responsibility and ethical behaviour* economic development in host countries* and ecological protection around the orld.

Multinational corporations continue to be the centre of debate regarding the benefits versus harm rought by their operations around the orld. -ecause of their si$e and economic po er, the MNC ill be held to a higher standard of performance. -alancing the interests of the varied sta%eholders is an important consideration of top managers. Issues of social responsibility continue to be those of' ) + , . poverty and lac% of equal opportunity around the orld* the environment * consumer concern*and employees! safety and elfare.

Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu )Social Responsibility and

Ethics of MNCs

Multinational corporations constitute a po erful presence in the orld economy, and often have more leadership and capacity to induce change than many governments. Many argue that MNCs should play a proactive role in handling orld ide social and economic problems and should be concerned ith host country elfare. #.! Social Responsibility( )nternational #he concept of international social responsibility is the e"pectation that MNCs concern themselves about the social and the economic effects of their decisions regarding activities in other countries. +e,el o- Social Responsibility #he opinions on the level of social responsibility that a domestic firm should demonstrate range from t o e"tremes' Pro(acti,e and re(acti,e Social Responsibility /ro2active responsibility is here an organi$ation accepts responsibilities beyond its legal requirements and attempts to establish a positive association ith its interaction ith the environment ithin hich it functions. Re2active responsibilities are evident hen an organi$ation has breached the legal requirements and is brought to boo% 3held accountable4. In this situation the organi$ation only accepts responsibility for its behavior and impact after it has been held accountable and all escape options have been e"hausted. Carroll presents a three2dimensional model of corporate social responsibility 3Carroll, )5654. #he model presents the interaction bet een a company!s philosophy of responsiveness, social responsibility categories, and the social issues involved. Consensus 7ith the gro ing a areness of the interdependence of the orld!s socioeconomic systems, global organi$ations are beginning to recogni$e the need to reach a consensus on hat should constitute moral and ethical behavior around the orld. Some thin% a consensus is forming due to the development of a global corporate culture 8 an integration of the business environments in hich firms currently operate.
Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu +Social Responsibility and

Ethics of MNCs

Moral .ni,ersalis* and Ethnocentris* 9lthough it is very difficult to implement a generali$ed code of morality and ethics in individual countries, such guidelines do provide a basis of :udgment regarding specific situations. -o ie used the term moral universalism to describe a moral standard that could be accepted by all cultures 3-o ie, )5;64. <nder the ethical approach of ethnocentrism, a company ould apply the morality used in its o n home country. 9 company subscribing to ethical relativism ould ta%e the local approach to morality appropriate in hatever country it is operating. MNC Responsibility to/ard 0u*an Rights 7hat constitutes =human rights> is clouded by the perceptions and priorities of people in different countries. 7hile the <nited States 3<S4 often ta%es the lead in the charge against hat they consider human rights violations around the orld, other countries point to the homelessness and high crime statistics in the <.S. #he best chance to gain some ground on human rights around the orld ould be for large MNCs and governments to ta%e a unified stance. 9 number of large, image2conscious companies have established corporate codes of conduct for their buyers, suppliers and contractors, and have instituted strict procedures for auditing their imports. Reebo% 3a multinational company manufacturing running shoes4 3http'?? .reebo%.com?static?global?initiatives?rights?pdf?Reebo%&R@AurCommitment.pdf4 has audited all of its suppliers in 9sia. Bevi Strauss 3a multinational company manufacturing denim clothing, in particular :eans4 3http'?? .levistrauss.com?responsibility4 announced this corporate policy' =7e should not initiate or rene contractual relationships in countries here there are pervasive violations of basic human rights.> 3Cachary, )55.4 Codes o- Conduct 9 considerable number of organi$ations have developed their o n codes of conduct. Some have gone further to group together ith others around the orld to establish standards to improve the quality of life for or%ers around the orld. Companies such as 9von 3cosmetics4, Sainsbury /lc. 3a food retailer in the <nited 1ingdom 3<144, #oys DR <s 3toy retailer4 and Atto Eersand 3clothing retailer4 have :oined ith the Council on Economic /riorities 3CE/4 to establish S9;FFF 3Social 9ccountability ;FFF, on the lines of the manufacturing quality standard ISA5FFF4 3Ghttp'?? .sa2intl.org?4. #heir proposed global labor standards ould be monitored by outside organi$ations to certify if plants are meeting those standards, among hich are the follo ing' ) + , . H 0o not use child or forced labour. /rovide a safe or%ing environment. Respect or%ers! rights to unionise. 0o not regularly require more than .;2hour or% ee%s. /ay ages sufficient to meet or%ers! basic needs.

Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu ,Social Responsibility and

Ethics of MNCs

#here are four international codes of conduct that provide some consistent guidelines for multinational enterprises 3MNEs4. #hese codes ere developed by the' ) + , . International Chamber of Commerce. Arganisation for Economic Cooperation and 0evelopment. International Babor Arganisation. <nited Nations Commission on #ransnational Corporations.

(et$ has integrated these four codes and organi$ed their common underlying principles, thereby establishing MNE behavior to ard governments, publics 3any group, ith some common characteristic ith hich an organi$ation needs to communicate4, and people 3(et$, )55F4. #a%ing all this into account, I shall proceed to e"plain the meaning of ethics and the role of managers for good management, the different vie s of ethics, I the factors that affect ethical behavior, follo ed by ethical issues in global management. #.1 Ethics and the Role Managers Ethics deals ith human action.It can be considered as philosophy,philosophical thin%ing about morality,moral problems and moral :udgements. Ethics can also be defined as a study of hat is good or right for human beings, hat goals people ought to pursue and hat actions they ought to perform. 7e are guided by our sense of maorality based on a combination of beliefs and values,stemming from individual and societal ideologies along ith the various eastern and estern religious cultures. 9ll managers need to be a are that hile they may be employed by an organi$ation as its representative or decision ma%er, they bring ith them entities* people,not organi$ations, ma%e decisions. Argani$ations e"ist ithin society and as such should be bound by the e"pectaions and moral codes of that society and contribute to its betterment as ell as furthering its o n interests. #.2 $he %i--erent 3ie/s o- Ethics ) .tilitarianis* J in this vie you approach an ethical problem using the question, =7hich course of action ill do the most good and the least harmK> #his vie is based on the ideas of Leremy -entham and Lohn Stuart Mill 3);th and )5th Century4. 9ctions are considered good or bad depending on the e"tent to hich they ma%e the greatest number of people happy. So suffering of a fe is A1 as long as it ma"imises the overall good. + Rights ,ie/ J in this vie you as% the question, =7hich alternative best serves other!s rightsK> #his vie is based on the ideas of #homas Lefferson!s 0eclaration of Independence 3<S94 and Lohn Boc%e and Immanuel 1ant. 9ctions here are :udged according to hether people!s rights have been served and may be seen in terms of %eeping ithin the Ba . 3e.g. shareholdersG rights are ritten in Ba 4.
Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu .Social Responsibility and

Ethics of MNCs

$heory o- 4ustice ,ie/ J in this vie you as% the question, =7hat plan can I live ith hich is consistent ith the basic values and commitments of the community in hich I liveK> #his vie is based on the ideas of Lohn Ra ls and 9lasdair MacIntyre 3late +Fth century4. 9ctions are :udged according to the enforcement of idely2held vie s of :ustice and virtue. 3e.g. protecting the needy, loo%ing after the community4. + )ntegrati,e social contracts theory J in this vie you ould as% the question, =7hat course of action is possible in the orld as it is no K> #his vie is based on the ideas of Machiavelli in hich actions are :udged according to pragmatic consideration and practicalities. 0ecisions are made according to the current situation and ith reference to hat ought to be done. So you ould be both pragmatic and idealistic as the need arose. #.5 Factors that A--ect Ethical 6eha,ior ) Stage o- *oral de,elop*ent 31ohlberg4 J Stage one J pre2conventional, rule follo ing. Stage t o J Conventional, living up to e"pectations of others. Stage three J /rincipled, follo ing self2chosen path and respecting others. + )ndi,idual characteristics J values, %no ing right from rong. Ego strength, the po er of your convictions. Bocus of control, an internal locus of control means that you believe you control your o n destiny, an e"ternal locus of control means you believe you have no control. , Structural -actors J an organisation!s structure affects people!s ethical behaviour 3e.g. clear ethical statements, policies and regulations4. . 7rganisational culture J this is made up of the values and norms shared by people or%ing for an organisation. 9 strong culture ill e"ert more influence than a ea% one. H )ssue intensity J this refers to ho important an issue is. Something not so important 3e.g. ma%ing private local calls4 has different ethical implications to something very large 3e.g. embe$$ling M) million4. #he act is the same 3theft4 but the intensity of the issue is different. #.8 Ethical )ssues in Global Manage*ent Ethical Problems (lobali$ation has multiplied the ethical problems facing organi$ations. 7hile domestic 9merican companies may use general guidelines for appropriate behavior based on federal la and the value structure rooted in the nation!s Ludeo2Christian heritage, such guidelines are not consistently applicable overseas. International Business Ethics International business ethics refers to the business conduct or morals of MNCs in their relationships ith all individuals and entities. Such behavior for MNCs is based largely on the cultural value system and the generally accepted ays of doing business in each
Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu HSocial Responsibility and

Ethics of MNCs

country or society. #hose norms are based on broadly accepted guidelines in religion, philosophy, the professions, and the legal system. Rules and Values #he 9merican approach is to treat everyone the same by ma%ing moral :udgments based on general rules. Managers in Lapan and Europe tend to ma%e such decisions based on shared values, social ties and their perception of obligations. Variation of Standards #he biggest single problem for MNCs in their attempt to define a corporate2 posture is the great variation of standards of ethical behavior around the companies are often caught bet een being placed at a disadvantage in doing some countries by refusing to go along ith accepted practices, or being sub:ect at home for going along ith them to get the :ob done. Ethical Limits 7hereas the upper li*its of codes of ethics for international activities are set at any given time by the individual standards of certain leading companies, it is more difficult to set the lo/er li*its of those standards. Bac$nia% and Naor e"plain' #he la s of economically developed countries generally define the lo est common denominator of acceptable behavior for operations in those domestic mar%ets. In an underdeveloped country or a developing country, it ould be the actual degree of enforcement of the la that ould, in practice, determine the lo er limit of permissible behavior. 3Bac$nia% and Naor, )5;H4 9uestionable Pay*ents 9 specific ethical issue for managers in the international arena is that of questionable payments. #hese are business payments that raise significant questions of appropriate moral behavior either in the host nation or in other nations. Such questions arise out of differences in la s, customs and ethics in various countries 2 hether the payments in question are political payments, e"tortion, bribes, sales commissions or =grease money> 3payments to e"pedite routine transactions4. Making the Right Decision 7hat is the right decision for a manager operating abroad circumstances of doing businessK hen faced ith questionable ide ethical orld. <.S. business in to criticism

Richard Rhodes discusses the ethical issues he has faced ith his business, Rhodes 9rchitectural Stone, Inc., as he conducts business in 9frica, China, India and Indonesia. &e e"plains that his business has had to clearly establish =blac% and hite> 3http'?? .entre orld.com?Content?Entre-yline.cfmKColumnI0N..H4 operating
Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu OSocial Responsibility and

Ethics of MNCs

principles, and the company ill not pay bribes. #his sometimes requires al%ing a ay from a deal. Rhodes offers the follo ing advice hen pondering an ethical situation' ) + , 7ho am IK &o do I feel about this situationK Can I sleep at night if I engage in this behaviourK

Ethics and transparency #he standards of performance include ethical behavior. Pou should therefore e"hibit the highest standards of ethical behavior, avoid dual standards 3for e"ample, tolerating behavior in one country that ould not be tolerated in another4, and clearly communicate e"pectations about ho your personnel should behave8that is, clearly and consistently communicate your values. These actions are, of course, integral to being a good leader, and these leadership responsibilities are likely to become more rather than less important in the future. What all this, in turn, suggests to us is that the question of the legitimacy of management and the ground for its power-a code of responsibility and a focus of accountability. #.: Managing )nterdependence Implications -ecause multinational firms 3or other organi$ations such as the Red Cross4 represent global interdependency, their managers at all levels must recogni$e that hat they do, in the aggregate, has long2term implications for the socioeconomic interdependence of nations. Simply to describe ethical issues as part of the general environment does not stress the fact that managers need to control their activities at all levels for the long2term benefit of all concerned. #he po erful long2term effects of MNC activities should be considered as an area for managerial planning and control, not as hapha$ard side effects of business. Managing Subsidiary-Host ountry Interdependence 7hen managing interdependence, international managers must go beyond general issues of social responsibility and deal ith specific concerns of the MNC subsidiary?host country relationship. E"hibit +2O 30eres%y page .54 summari$es the benefits and costs to host countries of MNCs in three areas' Capital mar%et effects, technology and production effects, and employment effects.
Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu 6Social Responsibility and

Ethics of MNCs

!oing green " Managing Ecological Interdependence (oing green refers to the recognition by a business that there is a close lin% bet een its activities and decisions and the impact they have on the environment, and the effects this ill have on the future performance of the business. Many companies have no recogni$ed that going green means a healthier =bottom line>, better customer relations, increased sales, an assured long2term future and very little possibility of legal or government action against them. It is clear that MNCs must ta%e the lead in dealing ith ecological interdependence by integrating those factors ith strategic planning. 9t the least MNC managers must deal ith the increasing scarcity of natural resources in the ne"t fe decades by' ) + , Boo%ing for alternate ra materials* 0eveloping ne methods of recycling or disposing of used materials*and E"panding the use of by2products.

#.; 0o/ Managers can Shape the Future( Managing Parado<es 9s a good manager, you ill be dealing ith a comple" and faster2changing orld. Pou ill need to bring intellect and passion to bear on your or%. 7hile you must strategies, you must also inspire* hile you must implement, you must also be visionary* hile you must be creative, you must also be ethical* hile you must simplify, you must also cope ith great comple"ity. #hese are the challenges that ill test your mettle. 7hile these requirements may seem parado"ical, they constitute the gauntlet 3challenge4 that has been cast in front of you. 9 fulfilling and e"citing opportunity a aits those ho can meet the challenge. #.= Concluding Re*ar&s Ethics concerns itself ith human conduct or activity that is done %no ingly or consciously. Ethics does have applicability to organi$ational life. Argani$ations do not ma%e decisions, individuals acting in the interests of the organi$ations do. It is their responsibility to ensure that they understand the consequences of their actions and business decisions, not :ust in terms of the impact on the organi$ation but also on society. No company today, regardless of si$e, is isolated from the impact of globali$ation. It your reality' prepare for it, relish it, and sei$e the opportunities it ill present. Ethics of MNCs ill be

Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu ;Social Responsibility and

References -o ie, N. 3)5;64, =#he Moral Abligations of Multinational Corporations,> roblems of !nternational "ustice, ed. BuperQay 3Ne Por%' 7estvie /ress4 56 2)),. Carroll, 9. -. 3)5654, =9 three2dimensional model of corporate performance>, #cademy of Management Re$iew, .3.4, .562HFH. (et$, 1.9. 3)55F4, >International Codes of Conduct' 9n 9nalysis of Ethical Reasoning>, "ournal of %usiness &thics, 5 pp HO62H66. (raedel, #.E and 9llenby, -.R. 3)5;H4, !ndustrial &cology, <pper Saddle River, NL' /rentice &all. Bac$nia%, (.R and Naor L. 3)5;H4 =(lobal ethics' 7restling ith the Corporate Conscience,> %usiness, Luly29ugust2September, )H+. /eter Q. 0ruc%er 3+FF64,/eople and /erformance' #he -est Af /eter 0ruc%er An Management, &arvard -usiness /ress Cachary, (./. 3)55.4, =Bevi tries to ma%e sure contract plants in 9sia treat or%ers ell.> Wall 'treet "ournal, Luly +;. Essay /repared for the +nd /eter 0ruc%er!s Challenge by 1idus (.Mehalu 5