Está en la página 1de 22

International Business Management

Unit 12

Unit 12

Ethics in International Business

Structure:
12.1 Introduction
Objectives
12.2 Business Ethics Factors
Importance of business ethics
12.3 International Business and Ethics
Managing ethics
Free market ethics
12.4 National Differences in Ethics
Negotiating across cultures
Ethical issues
12.5 Corporate Governance
Code of conduct for MNCs
Corporate ethical programmes
Social responsibility and ethics
12.6 Summary
12.7 Glossary
12.8 Terminal Questions
12.9 Answers
12.10 Caselet

12.1 Introduction
In the previous unit, you studied about the various aspects of human
resource management in an international organisation. You also came to
know about the organisational structure and managing expatriate. While
managing resources and earning profit is necessary for an organisation, we
should not forget that any business cannot run for long without following
ethical practices.
In this unit, we will discuss about ethics which is an important part of
managing an organisation. Ethics can be defined as the evaluation of moral
values, principles, and standards of human conduct and its application in
daily life to determine acceptable human behaviour.

Sikkim Manipal University

Page No. 245

International Business Management

Unit 12

Business ethics pertains to the application of ethics to business, and it is a


matter of concern in the corporate world. It is almost similar to the generally
accepted norms and principles. Behaviour that is considered unethical and
immoral in society, for example dishonesty, applies to business as well.
This unit covers various topics on workplace ethics, its importance and
application in a global business environment. It also gives a perspective of
business ethics practised in different countries. It includes the code of
ethics, policies and procedures, and the general code of conduct followed
by multinational companies.
Objectives:
After studying this unit, you should be able to:
explain business ethics.
evaluate the importance in an international context across cultures.
describe the national differences in ethics.
analyse the corporate governance of an international business.

12.2 Business Ethics Factors


During the mid 1960s and 1970s, social awareness movements raised
expectations of businesses to use their financial and social influence to
address social issues such as poverty, literacy, women rights, public health,
and environmental protection. It was argued that these businesses used
community resources and profits generated by public participation to
address social issues. Hence, there arose a need for managers to take up
the responsibility to understand and address social issues guided by high
ethical standards.
In this unit, let us learn the different factors that influence the ethics of a
business and its managers. Managers are influenced by three factors
affecting ethical values. These factors have unique value systems that have
varying degrees of control over managers.
Religion Religion is one of the oldest factors affecting ethics. Despite the
differences in religious teachings, all religions agree on the fundamental
principles and ethics. All major religions preach the need for high ethical
standards, an orderly social system, and stress on social responsibility as
contributing factors to the general well-being.
Sikkim Manipal University

Page No. 246

International Business Management

Unit 12

Culture Culture refers to a set of values and standards that defines


acceptable behaviour passed on to generations. These values and
standards are important because the code of conduct of people reflects on
the culture they belong to. Civilisation is the collective experience that
people have passed on through three distinct phases: the hunting and
gathering phase, agriculture phase, and the industrial phase. These phases
reflect the changing economic and social arrangements in human history.
Law Law refers to the rules of conduct, approved by the legal system of a
country or state that guides human behaviour. Laws change and evolve with
emerging and changing issues. Every organisation is expected to abide the
law, but in the pursuit of profit, laws are frequently violated. The most
common breach of law in business is tax evasion, producing inferior quality
goods, and disregard for environmental protection laws.
12.2.1 Importance of business ethics
Ethics is significant in all areas of business and plays an important role in
ensuring a successful business. The role of business ethics is evident from
the conception of an idea to the sale of a product. In an organisation, every
division such as sales and marketing, customer service, finance, and
accounting and taxation has to follow certain ethics.
Public image In order to gain public confidence and respect,
organisations must ascertain that they are honest in their transactions. The
services or products of a business affect the lives of thousands of people. It
is important for the top management to impart high ethical standards to their
employees, who develop these services or products.
A company that is ethically and socially responsible has a better public
image. People tend to favour the products and services of such
organisations. This in turn will help gain investors trusta company that
practices good ethical creates a positive impression among its stakeholders.
Managements credibility with employees Common goals and values
are developed when employees feel that the management is ethical and
genuine. Managements credibility with employees and the public are interrelated. Employees feel proud to be a part of an organisation that is
respected by the public. Generous compensations and effective business
strategies do not always guarantee employee loyalty, organisational ethics
Sikkim Manipal University

Page No. 247

International Business Management

Unit 12

is equally significant. Thus, companies benefit from being ethical because


they attract and retain good and loyal employees.
Better decision-making Decisions made by an ethical management are
in the best interest of the organisation, its employees, and the public. Ethical
decisions take into account various social, economic and ethical factors.
Profit maximisation Companies that emphasise on ethical conduct are
successful in the long run, even though they lose money in the short run.
Hence, a business that is inspired by ethics is a profitable business. Costs
of audit and investigation are lower in an ethical company.
Protection of society In the absence of proper enforcement,
organisations are responsible to practice ethics and ensure mechanisms to
prevent unlawful events. Thus, by propagating ethical values, a business
organisation can save the resources of the government and protect the
society from exploitation.
Self Assessment Questions 1
1. The three factors governing ethical values are ____________,
___________, and ____________.
2. _______________ is the collective experience that people have passed
on through the hunting and gathering phase, agriculture phase, and the
industrial phase.
3. A company can maximise its profits by being ethical. (True/False)

12.3 International Business and Ethics


In the previous section, you learned about ethics and its importance in
business. Now let us discuss the effects of ethics in international business.
Most countries have similar ethical values, but are practiced differently. This
section deals with the way individuals in different countries approach ethical
issues, and their ethically acceptable behaviour. With the rise in global firms,
issues related to ethical values and traditions become more common. These
ethical issues create complications to Multi-National Companies (MNCs)
while dealing with other countries for business. Hence, many companies
have formulated well-designed codes of conduct to help their employees.

Sikkim Manipal University

Page No. 248

International Business Management

Unit 12

Two of the most prominent issues that managers in MNCs operating in


foreign countries face are bribery and corruption and worker compensation.
Bribery and corruption Bribery can be defined as the act of offering,
accepting, or soliciting something of value for the purpose of influencing the
action of officials in the discharge of their duties. Corruption is the abuse of
public office for personal gain. The issue arises when there are differences
in perception in different countries. For example, in the Middle East, it is
perfectly acceptable to gift an official, whereas in Britain it is considered as
an attempt to bribe the official, and hence, considered unlawful.
Worker compensation Businesses invest in production facilities abroad
because of the availability of low-cost labour, which enables them to offer
goods and services at a lower price than their competitors. The issue arises
when workers are exploited and are underpaid compared to the workers in
the parent country who are paid more for the same job. The disparity arises
due to the differences in the regulatory standards in the two countries.
12.3.1 Managing ethics
Earlier, ethics was considered to be the exclusive perquisite of individuals.
However, this view has changed now. Many companies encourage ethical
behaviour in the organisation with the help of appropriate management
techniques. Different techniques of managing ethics like practicing ethics at
the top level management, special training on ethics, forming committees to
oversee ethical issues, and defining and implementing code of ethics are
illustrated in figure 12.1.

Figure 12.1: Techniques of Managing Ethics

Sikkim Manipal University

Page No. 249

International Business Management

Unit 12

Let us discuss each technique in detail.


Top management It is important that the senior management is
committed to ensure that the company is meeting the ethical standards. The
management must not engage in business practices that will be harmful to
the employees, or the society. The top management must focus on ethical
practices while informing employees of their intention.
Code of ethics Forming a corporate ethical statement and
communicating it within the company is one of the best practices for ethics.
This will help in enhancing the companys public image. Almost all Fortune
500 companies have such codes.
Ethics committee Ethics committees are formed to help the company
deal with and advise on issues related to professional ethics. The Chief
Executive Officer (CEO) can head the committee that includes the Board of
Directors. Such a committee answers employees queries, helps the
company to establish policies in uncertain areas, advises the Board on
ethical issues, and oversees the enforcement of the code of ethics.
Ethics hotline Many companies have ethical hotline to help the
employees report any ethical issues faced at work. The ethics committee
then investigates these issues. Such calls are treated confidentially, where
the callers identity is protected. This will encourage employees to bring
such issues to the managements notice.
The act of reporting illegal, immoral, or illegitimate practices by former or
current employees involving its employees is known as whistle-blowing.
Whistle-blowing is favourable to a company because employees can alert
the management on possibly irregular and unusual behaviour rather than
reporting it to the media, which adversely affects the company. A case of
whistle-blowing in Xerox corporation (a pioneer in copier machines), led its
Chief Financial Officer to be fined $ 5.5 million and be banned from
practicing accountancy after reports of falsified financial statements
emerged.
Ethics training programmes Most firms take ethics seriously and provide
training for its managers and employees. Such training programmes
demonstrate the use of official policies in everyday decision-making which
will help the employees become familiar with the policies. Ethics training is
Sikkim Manipal University

Page No. 250

International Business Management

Unit 12

most effective when conducted by managers and when focused on work


environment.
Ethics and law Both law and ethics, though different, focus on defining
the perfect human behaviour. Law is the governments attempt to formalise
rightful behaviour. But the written laws are hardly enforced. It depends on
individuals or business ethics to reduce unlawful incidents. Ethical concepts
are more complex than written rules since it deals with human dilemmas
that go beyond the formal language of law.
Legal rules seek to promote ethical behaviour in companies. The following
are some of the Acts which seek to ensure fair business practices in India:
Foreign Exchange Management Act (FEMA) of 1999 FEMA regulates
the cross border movement of foreign and local currencies.
Companies Act of 1956 Companies Act provides the complete legal
framework for the formation, running, and winding up of a company.
Consumer Protection Act of 1986 (CPA) CPA provides and regulates
the framework for the protection of consumer rights.
Essential Commodities Act of 1955 This act defines the goods and
services that are essential for the people at all times and provides a
legal framework for the uninterrupted supply of the same.
12.3.2 Free market ethics
In this section, we will discuss the ethical aspects of competition used to
explain free market ethics. Competition is an important element that
differentiates free market from command market. It is a mechanism for free
market production and distribution of goods and services that are in
demand. Competition in business is seen as an essential cultural trait of a
free market society. Most activities of the free market can be viewed as a
competitive contest in which businesses engage to provide products and
services for profit.
In addition to the economic nature of the free market system, there are
ethic-related issues as well. The three widely accepted factors of ethics in
the free market are market ethics, the protestant ethics, and the liberty
ethics. These three ethics set the stage for the industrial revolution and the
accompanying growth in business. During this period, industrial capitalists
were allowed to freely operate businesses, build large organisations, exploit
Sikkim Manipal University

Page No. 251

International Business Management

Unit 12

workers, and engage in fiercely competitive practices for profit and


economic expansion.
Market ethics Market ethics is the basic system of ethics followed by a
business in a free market scenario. It covers the entire spectrum of business
including sales, pricing, and competitor issues.
The protestant ethics The protestant ethics consider ideology as an
important factor along with the moral aspects in a capitalist scenario. As an
ideology, this ethic served to legitimise the capitalistic system by providing a
moral justification for the pursuit of profit and distribution of income.
Liberty ethics Liberty ethics encourages a person to play a participatory
role in the government, encourages private property, and introduces more
freedom and individualism in all spheres of life.
Self Assessment Questions 2
4. ________ is an example of whistle-blowing in corporations.
5. In an international business, _____________ and ____________ are
the prominent ethical issues
6. ___________ is an important element that differentiates free market
and command market.

12.4 National Differences in Ethics


In the previous section, we examined how ethics is significant
internationally. In this section, let us consider the differences in
understanding ethics across countries. The differences in national cultures
have an impact on the social and ethical practices of multinational firms.
Cultural norms and values that usually influence business practices are
attitudes towards women, minorities, bribery, and law. Religion and law are
the key social factors that influence the type of ethical issues.
In MNCs, managers play a key role in managing ethics. While working in a
foreign country, a manager may not have a comprehensive knowledge of
that countrys culture and social factors that affect business. Therefore, the
international manager needs to acquire adequate knowledge of a countrys
cultural, legal, and social scenarios to ascertain the important ethical issues
and to manage these issues. The approaches to understand national
Sikkim Manipal University

Page No. 252

International Business Management

Unit 12

differences in ethics are ethical relativism, ethical universalism, and ethical


convergence. Let us discuss each of them in detail.
Ethical relativism and ethical universalism
Ethical relativism means that each countrys outlook on ethics must be
considered valid and ethical. This implies that if bribery is not unethical in a
foreign country, then it is acceptable for an MNC to encourage bribery even
if it is illegal in its home country. Ethical relativism means when a company
deals with a host country for business, the international managers must
follow the ethical norms of the host country. Another example is the attitude
towards women employees in certain Arab countries. The attitude differs to
a large extent compared to western countries. In Saudi Arabia, women
employees are segregated from their male counterparts at the workplace.
All companies, MNCs or local, must comply with these rules.
The principle of ethical universalism states that there are basic moral
principles that are valid across all cultural and political boundaries. For
example, all countries forbid unethical accounting practices and tax evasion.
Both these principles have drawbacks when in international business.
Ethical relativism is a convenient way to indulge in unethical practices with
cultural differences as an excuse. The universal approach can be perceived
as cultural imperialism as business managers may regard business
practices in some countries as inferior or immoral.
Ethical convergence
Ethical convergence is defined as the practice of a uniform system of ethical
codes in different countries that are culturally and socially different.
There is a growing pressure on international business to follow a uniform set
of guidelines in managing ethical behaviour and social responsibility across
the countries in which they operate. Some of the advantages of ethical
convergence are:
The growth of international trading blocks, such as North American Free
Trade Agreement (NAFTA) and the European Union promotes common
ethical practices across national cultures and borders to reduce
institutional differences. Predictable interaction and behaviour among
trading partners from different countries makes trade more efficient.

Sikkim Manipal University

Page No. 253

International Business Management

Unit 12

People from different cultural backgrounds increase their interactions


and exposure to varying ethical traditions. They adopt, adjust to, and
imitate new behaviour and attitudes which leads to acceptance of best
practices.
International businesses have employees from different cultural
backgrounds. The companies rely on their corporate culture to provide
consistent norms and values that govern ethical issues to set common
standards for employees from different cultural backgrounds.

12.4.1 Negotiating across cultures


Negotiations in international businesses face cultural barriers. When people
from two different countries try to discuss commercial issues, they have to
understand and acknowledge any ethical issues that may come up. These
standards of conduct and moral judgement are the basis of an outcome.
They can create misunderstandings if the messages and views are
misinterpreted. The basic concepts of fairness, dependability, politeness,
and punctuality have to be followed at all times. Given below are the two
models of negotiating as presented by Solomon and Bertrand:
Linear model.
Encompassing model.
Linear model Linear model, illustrated by Figure 12.2, relates to the
Chinese culture. The first stage is the discussion of the goals and principles.
In China, this stage is emphasised so that foreigners understand their
commitments. The second stage deals with bargaining positions, which are
the offers that are proposed. The third stage clarifies details and the last
stage involves implementing the process.

Figure 12.2: Linear Model of Negotiation


Sikkim Manipal University

Page No. 254

International Business Management

Unit 12

Encompassing model The encompassing model, illustrated by Figure


12.3, is more descriptive and includes stages that are identical to the linear
model, but focusses on the extent to which each stage is presented. The
Chinese base their negotiations on improving their national goals which
include national development, growth, and improvement of the overall
quality of life in China. The western companies that operate in China are
expected to sacrifice their goals whenever necessary, so that the Chinese
goals are achieved.
Firms base their negotiations on corporate objectives such as product
quality, profit, and maximising shareholder value. Sacrificing such goals is
against corporate responsibility, hence is the main reason for negotiations.

Figure 12.3: Encompassing Model of Negotiation

12.4.2 Ethical issues


International business managers face ethical issues that vary based on the
market and geography. Some of these issues have been widely publicised
in the past. Most of these issues are related to the safety and compensation
practices of manufacturing plants in emerging countries. Ethical
considerations also tend to be connected to political situations. For example,
the decision to move a companys headquarters elsewhere to reduce taxes
becomes a political issue due to the potential loss of tax revenue for that
country.
Some other ethical issues are more subtle. Many firms forbid offering gifts in
their home countries. But in Japan, offering gifts and entertaining guests
Sikkim Manipal University

Page No. 255

International Business Management

Unit 12

play a key role in building trust and understanding with potential customers,
suppliers, and government officials.
While there will always be issues about moral and ethical appropriateness,
the boundary between ethical and unethical business practices is
reasonably clear in most societies. If the boundary is not clear, the law is
vague on a certain point, or firms act in an unacceptable manner, then
governments may have to take relevant actions against the erring parties.
Businesses must refrain from engaging in illegal activities, but the legislature
in some countries is not very clear and causes ambiguity. International
business managers find it difficult because legally and culturally acceptable
activities in the home country may be illegal and culturally unacceptable in
the foreign country. The international manager has to make prudent
decisions on such occasions.
MNCs deal with issues related to ethics in foreign country. Some of the
issues are the following:
Conduct business in a country where the government violates human
rights.
Market a product in a country that lacks adequate consumer protection
and product liability laws.
Sell products with harmful side effects, where there is a high level of
illiteracy that prevents the customers from following the directions for
safe usage of a product.
Be responsible for the end-user behaviour that may not be legal.
Bribe officials in a country where corruption is widespread.
Follow local laws in areas such as employee safety and environmental
protection that are not as strict as in the home country.
Change attitude towards female employees in a country where women
do not enjoy the same rights as men.
Use tax avoidance strategies.
Accomplish business goals with a firm engaged in practices that are
illegal in the home country.
Multinational firms should have a moral and ethical responsibility to ensure
safe, fair, environmentally sustainable, and legal work environment in
emerging markets irrespective of the local laws.
Sikkim Manipal University

Page No. 256

International Business Management

Unit 12

These are the issues that international businesses face when they conduct
business in other parts of the world, where the laws are different from their
home countries.
Ethical decision making
In the previous section, you learned about the various ethical issues to be
considered in an international scenario, let us discuss the process of ethical
decision making.
The competitive nature of business and the emphasis on profit causes
managers to violate business ethics. For example, employing workers in a
foreign country, where wages are low and working conditions are substandard. Ideally, a manager must consider all the choices available to him
and make a decision that does not violate the ethics of business.
There are many differences in opinion concerning business ethics. The
following are four approaches that help managers make the right decision.

Utilitarian Maximum benefit to the most number of people is the basis


of this approach. For example, in the case of low-wage foreign workers,
the cost saving helps the company perform better, but results in layoffs
in the home country. If the manager is not willing to employ low-wage
workers, the company becomes uncompetitive which in turn results in
both foreign and domestic workers being laid off. On the other hand,
lower wages tend to bring down the level of wages for everyone, which
decreases their purchasing power and affects the sale of the companys
goods.

Moral rights Morality is the basis of this approach without considering


the consequences. Paying someone extremely low wages is morally
wrong. Those who accept this approach believe that a business must
not exist if the workers are not paid adequately.

Universalism There are two steps in this approach. Firstly, one needs
to decide if the action being considered has to apply to everyone under
all situations. Secondly, the same action must be applied to the
manager.

Cost-benefit The profitability of every action is analysed. For example,


the negative publicity of paying extremely low wages weighed against
being more competitive.

Sikkim Manipal University

Page No. 257

International Business Management

Unit 12

In conclusion, it is evident that a manager has several approaches to


choose. The manager must take time to analyse all the possibilities, in order
to make the right decision.
Self Assessment Questions 3
7. Ethical business practice in one country might differ from another
country in practice. (True/False)
8. _________ and ________ are the two models of negotiating.
9. _________ is defined as the practice of a uniform system of ethical
codes in different countries that are culturally and socially different.
10. Utilitarian, moral rights, universalism, and cost-benefit are approaches
to ____________.
Activity 1
Compare and describe the cultural differences between the US and India
that give rise to problems concerning business ethics.
Hint: Refer this link for guidance:
http://now2gether.org/submissions/Shen/DifferencebetweenAmerica&
India.pdf

12.5 Corporate Governance


Corporate governance refers to the mechanism to monitor managers of a
company to ensure that they fulfil the legal requirements of their role.
Governance rests solely with the Board of Directors, but the composition of
the Board differs across countries. Hence, various bodies from different
countries have suggested methods of constituting a board. Some of these
corporate bodies include the Cadbury Committee and the Veinot Report in
France.
Governance norms differ across countries, accounting standards,
employment laws, and legal framework. Table 12.1 illustrates the
differences in some of the important corporate governance issues in some
of the developed countries.

Sikkim Manipal University

Page No. 258

International Business Management

Unit 12

Table 12.1: Corporate governance practices in developed countries


Practices

Britain

Germany

Italy

Japan

USA

Yes

No

Yes

Yes

Yes

Every 57
years

No

Every 9
years

Every 7
years

Every 5
years

Advisory

No

Yes

Yes

No

No

No

Yes

Yes

No

Majority of
independent
directors on the
Board

Recommended

Recommended

No

No

Yes

Separate
Chairman and
CEO

Recommended

Yes

Voluntary

Voluntary

Voluntary

Independent
auditors
Rotation of
auditors
Executive pay on
shareholders
approval
Nomination of
independent
directors by
shareholders

12.5.1 Code of conduct for MNCs


The code of conduct for MNCs refers to a set of rules that guides corporate
behaviour. These rules prescribe the duties and limitations of all employees,
including the manager. The top management must communicate the code of
conduct to all members of the organisation along with their commitment in
enforcing the code.
Some of the ethical requirements for international companies are as follows:
Respect basic human rights.
Minimise any negative impact on local economic policies.
Maintain high standards of local political involvement.
Transfer technology.
Protect the environment.
Protect the consumer.
Employ labour practices that are not exploitative.
Sikkim Manipal University

Page No. 259

International Business Management

Unit 12

When a manager of an international firm faces an ethical problem, certain


models help in solving these ethical issues. Figure 12.4 depicts the process
flow for an ethical decision making in an MNC.
The first task is to consider the ethical and legal consequences of the issue
and whether the action or its consequences are in accordance with the law,
both in the home and host country.

Figure 12.4: Steps in Ethical Decision Making

The second task is to perform an ethical analysis, followed by a cultural and


a personal ethical analysis. An international manager begins with these
analyses at different stages, but at some point a personal moral judgement
is made. Iif the answer is negative to any of the first three questions, the
decision making is deferred.
12.5.2 Corporate ethical programmes
Multinational firms face a wide array of ethical challenges as a result of
increased competition due to globalisation. A formal corporate ethical
programme is important to any organisation. The following are some of the
elements used by a corporate ethical programme:
Sikkim Manipal University

Page No. 260

International Business Management

Unit 12

Formal ethical codes that articulate expectations about ethics.


Ethics committees that are empowered with developing policy and
evaluating actions of the company and its employees.
Ethics communication systems where the employees report any
misconduct.
Ethics officers charged with coordinating policies, educating employees
on ethics and investigating allegations.
Training programmes aimed at helping employees recognise and
respond to ethical issues.

Given the broad range of potential ethical issues a multinational firm may
encounter, the code of conduct must meet the expectations of various
parties involved. The code of conduct must fulfil the following requirements:
Be economically viable.
Address major issues that are important to the companys stakeholders.
Engage important stakeholders in formulation and implementation.
Specify performance standards that can be measured.
12.5.3 Social responsibility and ethics
International businesses face many challenges while undertaking social
actions as part of their corporate strategy. Corporate social strategy helps
overcome such challenges. Starting a corporate social strategy includes the
following:
Be socially responsible.
Be responsive to stakeholders in each country.
Be able to treat employees, customers, suppliers. and the local
community in a fair and just way.
Abide by the host governments regulations and policies.
Ensure that the employees and personnel of the company follow
corporate policies.
Recognise emerging issues in the host countries and communities.
Conduct business in accordance with the values, customs, and moral
principles of society.
Organisations that adhere to these strategies are better equipped to react to
global challenges and corporate responsibilities. They are better prepared to

Sikkim Manipal University

Page No. 261

International Business Management

Unit 12

prevent crises, anticipate changes, and avoid situations that compromise


the values and principles of the organisation.
Self Assessment Questions 4
11. Social responsibility is an integral part of business ethics. (True/False)
12. Respecting human rights is not a basic ethical requirement for an MNC.
(True/False)
13. Corporate _________ rests solely with Board of Directors.
Activity 2
Devise a model for corporate governance for an Indian company that
does business outside India, keeping in mind the current challenges that
businesses face.
Hint: Refer section 12.5.

12.6 Summary
Now let us summarise the salient features in this unit on ethics in
international business:
Ethics is significant in all areas of business and plays an important role
in ensuring a successful business. People tend to favour the products
and services of a company that is ethically and socially responsible. The
different factors that influence the ethics of a business and its
management are religion, culture, and law.
With rise in global firms, issues related to ethical values and traditions
have become more common. Bribery, corruption, and worker
compensation related issues are the most common ethical issues that
MNCs face.
Negotiations across countries include the linear model where the
principles are first agreed upon, then the various positions are
negotiated and details of the agreement are finalised, followed by the
process of implementation. The other model for negotiations is the
encompassing model, which is more descriptive and includes the same
stages as the linear model, but focuses on the extent to which each
stage is presented.

Sikkim Manipal University

Page No. 262

International Business Management

Unit 12

Four approaches that help managers make ethical decision include


utilitarian, moral rights, universalism, and cost benefit approaches. The
code of conduct for MNCs, refers to a set of rules that guides corporate
behaviour. These rules prescribe the duties and limitations of a
manager.
Organisations that follow corporate social strategies like treating
customers in the home and foreign country alike, recognising potential
issues, and abiding by the host government regulations are better
equipped to react to global challenges and corporate responsibilities.

12.7 Glossary
Bribery: The financial inducement offered to persuade someone to act
improperly in favour of the person offering the bribe.
Whistle-blowing: The act of reporting a wrongdoing by a current or former
employee of a company.

12.8 Terminal Questions


1.
2.
3.
4.
5.

Discuss the business ethic factors.


Explain the importance of business ethics.
Describe different techniques for managing ethics.
Analyse different models of negotiating.
Explain various steps involved in the ethical decision making process of
an MNC.

12.9 Answers
Self Assessment Questions 1
1. Law, religion, and culture
2. Civilisation
3. True
Self Assessment Questions 2
4. Xerox
5. Bribery and corruption and worker compensation
6. Competition
Sikkim Manipal University

Page No. 263

International Business Management

Unit 12

Self Assessment Questions 3


7. True
8. Linear and encompassing model
9. Ethical convergence
10. Ethical decision making
Self Assessment Questions 4
11. True
12. False
13. Governance
Terminal Questions
1. Ethics is the system of moral values and principles of human conduct
and its application in life. Religion, culture and law are the main factors
governing business ethics. These are explained in sub-section 12.2.1
of this unit. Refer the same for details.
2. Business ethics is important to an organisation because it leads to
better public image, increased credibility of management, helps in
better decision making, and profit maximisation. These are explained in
sub-section 12.2.1 of this unit. Refer the same for details.
3. The techniques that can be used for managing ethics at workplace
include formation of ethics committee, implementation of code of
ethics, setting up an ethics hotline and training programmes on ethics
and so on. These are explained in sub-section 12.3.1 of this unit. Refer
the same for details.
4. There are two types of negotiations widely used in business linear
and encompassing model. These are explained in sub-section 12.4.1 of
this unit. Refer the same for details.
5. Legal aspects are considered in the first step of decision making
followed by a companys ethical code, cultural analysis and personal
moral judgement. These are explained in sub-section 12.5.1 of this
unit. Refer the same for details.

Sikkim Manipal University

Page No. 264

International Business Management

Unit 12

12.10 Caselet
Satyam Computer Services Ltd.
In December 2008, Satyam announced acquisition of two companies
Maytas Properties and Maytas Infrastructure owned by the family
members of Satyam's founder and Chairman Ramalinga Raju. Within a
day of the announcement, the deal was withdrawn because of the
adverse reaction from institutional investors and stock markets. Issues
were raised on corporate governance practices of Satyam, with investors
seeking answers from the Board about the acquisition because the
transaction was evidently made within the promoters family.
After the deal was aborted, four of the prominent independent directors
resigned from the board of the company. In early January 2009,
Ramalinga Raju confessed that the revenue and profit figures of Satyam
had been inflated for the past several years. The revelation further
deepened the concerns about poor corporate governance practices in the
company.
After this debacle, questions were raised about the corporate governance
structure in Satyam, its code of conduct, roles and responsibilities of
different committees under the Board, whistle-blower policy and so on.
Several industry bodies questioned the role played by the independent
directors of Satyam in approving the Maytas deal.
The events that unfolded after Mr. Rajus confessions to his illegal
activities placed the future of thousands of employees and the well-being
of their dependents at risk, jeopardised projects worth millions of dollars,
and portrayed Indian companies inherently corrupted. Regulators and
several Indian corporate companies acted quickly to persuade clients and
the business community to prove that Satyams case was an isolated
event. People with vast experience and knowledge of Indian business
processes were brought in to assist in preventing a total collapse of
Satyam Computers, which was later bought by Tech Mahindra.
Discussion Questions
1. Analyse the instances where the ethics system failed in preventing
the fraud. (Hint: Auditing)
2. Formulate a sample code of conduct for Satyam Computers.
(Hint: Refer discussions in Section 12.4 of this unit)
Sikkim Manipal University

Page No. 265

International Business Management

Unit 12

References:

Bhalla V. K. and Shiva Ramu S. (2008). International Business


Environment and Management, Anmol Publications.
Bhatia SK. (2004). Business Ethics and Corporate Governance, Deep
and Deep Publications Ltd.
Chauhan PL, KakkadRatish, Patel Rupal H. (2006). International
Business, ShanthiPrakashan.
Cherunilam Francis. (2010). International Business Environment,
Himalaya Publishing House.
K. Aswathappa. (2010). International Business, Tata McGraw-Hill
Publications Co Ltd.
McDonald Frank and Burton Fred. (2002) International Business,
International Thomson Computer Press.
Weiss Joseph. (2009). Business Ethics Concepts and Cases, Cengage
Delmar learning India Pvt. Ltd.

E-References:

www.managementhelp.org/ethics/ethics.htm, retrieved on 3rd October


2010

Sikkim Manipal University

Page No. 266

También podría gustarte