INTERNATIONAL ETHICS

DEFINITION

• Morality: A set of principles or ideals that help an individual to distinguish right from wrong, to act on this distinction, and to experience pride in virtuous conduct and guilt/shame over conduct that violates one's standards. The three main components of morality are: reasoning, behavior, and affect. Morality consists of concern for and the active promotion of the interests of others (altruism).
  • Moral designators
    • Right: Any action which is justified by and consistent with a moral or ethical framework; implies an obligation on anyone who accepts the system.
    • Wrong: Any action which fails to be justified or is inconsistent with a moral or ethical framework; an action forbidden to a anyone who accepts the system.
    • Permissible: Any action which is justified by and consistent with a moral or ethical framework but which does not imply an obligation.
• Ethics: The systematic philosophical investigation of moral systems. The system of moral principles and rules that becomes standards for a group or for professional conduct.
  • Normative ethics:  The systematic attempt to justify moral codes.
    • Consequentialism: The rightness (or 'goodness') of an action is in some way determined by the consequences which follow from the act. If an action produces good consequences, it is the 'right' action.
  • Non-normative ethics: The systematic investigation of the logic and language of moral systems, and the objectivity of moral systems.
    • Descriptivism: The investigation of the objectivity or relativity of the moral systems. The fundamental question of a descriptivist is, "Are moral
      principles objective features of the world, or are they relative to some particular individual, culture, or species?"
• Law: Rules established by a governing authority to institute and maintain orderly coexistence.
• International business ethics: Business ethics is a branch of applied ethics that deals with the relationship of what is good and right in business. This definition can be extended to cover global business ethics. It requires that business decisions should not be made exclusively from the narrow, economical perspective, but also the global social and ecological concerns should be taken into account. This means that people who work in the business life should consider how their economical decisions affect other people, environment or the society on the whole, not only in the home country but also the host country. In other words, it means that the interests of all the relevant parties, or "stakeholders" should be acknowledged and weighed. Having defined the term theoretically, it should be made clear that a uniform set of standards of business ethics, applicable to the global community as a whole, is yet to be defined.

CONNOTATIONS OF BUSINESS ETHICS

• Global business is a complex fabric of intercultural human and economic relationships created by the exchange of goods and services. It is also encompasses moral relationships.

• Questions concerning profit, growth, and technological advances in business have ethical dimensions. Some of these include the effects of pollution and depletion of natural resources on society at large, the quality and character of the environment, safety of customers, and overall well-being of the global community.

ETHICS, RELATIVISM, AND OTHER ISSUES

• Relativism with respect to ethics is the position which maintains that moral codes are the relative standards of a particular culture or society. But there are some normative issues concerning human rights, fairness, and justice that be applicable throughout the world.
• Normative issues cannot possibly be reduced to questions of statistically interpretable facts or to the determination of maximally efficient strategies for reaching ethical goals. They concern questions of human rights, fairness, and justice. Donaldson (1989) has identified ten universal human rights (more or less in line with the charter of human right promulgated by the United Nations) that both the multinational and domestic corporations should respect:
  • The right of freedom and physical movement.
  • The right of property ownership.
  • The right of freedom from torture.
  • The right to a fair trial.
  • The right to nondiscriminatory treatment (e.g. freedom from discrimination on the basis of race or sex).
  • The right to physical security.
  • The right of freedom of speech and association.
  • The right to minimal education.
  • The right to subsistence.
    • Assume that a large tract of land in a developing country is used for growing rice. The bulk of the land is owned by wealthy landowners. Poorer members of the community work the land and receive a share of the crop, barely sufficient to meet their nutritional needs. The owners intend to sell the property, in exchange of a handsome amount of money, to a construction company who wants to build a cement manufacturing plant in order to meet the cement requirement for a project they been commissioned to do in the country. If the company knows that a significant number of people in the community will suffer from malnutrition as a result of this event, then the company may be said to have failed in its correlative duty to protect the 'right to subsistence' of those people.
• The issue of questionable payments (QP) is very relevant in case of global business.
  • Some researchers use the theory of ethical relativism to explain the issue. It is often said that QPs in some cases are socially useful by helping to remove obstacles that themselves distort equity or inefficiency in a society. It is difficult to substantiate this position.
  • In general, QPs induce public officials to ignore established social priorities, or distort these priorities by allocating resources to purchases that are not the best, appropriate, or least expensive. The payments thus result in higher prices, lower level of responsiveness to consumers, and lower quality of goods and services (I have got scores of anecdotes to illustrate this point). It may finally result in deterioration of balance of payments and increased foreign borrowing (by developing countries).
  • Higher levels of corruption fosters broader levels of lawlessness.
  • QPs pave the way for authoritarian regimes, military takeover, and finally, totalitarianism.
  • Use of QP in a competitive setting may indicate that the company is too lazy or too inefficient to compete on the basis of price, quality, and service.
  • It definitely undermines the foreign policy of a country.
• Are ethical standards dictated by economic development?
  • Assume that a certain country permits higher levels of thermal pollution from electric power generating plants (and consequently allows the construction of power plants that do not meet the standards). The argument in favor of the action given by the country is that its level of economic development requires an ordering of priorities (and the action taken is not because higher standards are undesirable per se). In future, when it succeeds in elevating its economic standards, it may implement the specified standards for thermal pollution. Is it ethical?
  • In some countries, it is impossible to move materials and equipment through customs without paying the officials some money. Salaries of such officials are sufficiently low that one suspects that they are set with the prevalence of the practice in mind. The payments are relatively small, uniformly assessed, and accepted as standard practice. Are the payments ethically justifiable?

ETHICAL STANDARDS AND GIFT GIVING

• Gift giving is an integral part of both international and domestic business. It is a means of promoting ones products and services by strengthening the relationships with clients. Executives dealing with international clients generally face an increasingly complex situation related to the issue of business gift giving. It may lead to problems ranging from minor embarrassment to failure in securing business if the concept is not properly understood.
• Ethical relativism may be used to understand the issue of gift giving (and receiving) in different cultures. In some cultures, business gifts are expected and highly appreciated; in some others, it may not be the case. High context cultures reportedly tend to view gift giving as an important social obligation and a meaningful activity. In most low context cultures, it is an optional activity. In fact, in some countries people do not feel comfortable accepting gifts because they do not like being obligated.
• Literature indicates (Wibbon et al., 1994) that legal restrictions related to gift giving are more stringent and numerous in low context cultures than those in high context cultures.
  • Expensive business gifts of high value are discouraged in low context cultures and are usually not accepted by business executives.
  • Gifts of high value are perceived by the receiver as a form of hard sell or even as a bribe.

FOREIGN CORRUPT PRACTICES ACT (FCPA)

• The Foreign Corrupt Practices Act (FCPA) promulgated by the US government covers corrupt practices involving foreign officials. It is applicable to all U.S. citizens and all U.S. corporations and their employees. While the Act does not apply to foreign corporations, U.S. corporations and their employees may be held accountable under the Act for the actions of their non-U.S. affiliates. In addition, U.S. corporations and their employees may be accountable where the illegal payment is made by a third party, such as a sales representative or distributor.
• The act is a by-product of the Watergate investigations into illegal political contributions and money-laundering. The revelation of questionable payments by U.S. corporations to foreign officials to gain business advantages was the driving force behind passage of the FCPA in 1977.
• The Foreign Corrupt Practices Act prohibits payment if the purpose of the payment is to obtain or retain business.
• There are some exceptions. "Facilitating" or "expediting" payments to a government official or other prohibited payee are specifically permitted if the purpose of the payment is "to expedite or to secure the performance of a routine government action." Routine government action includes obtaining permits, licenses or the like to qualify to do business, processing visas and work orders, obtaining services such as police protection, mail pick-up and delivery, phone service, power and water, loading and unloading of cargo, protection of perishable products or the like.
• The Foreign Corrupt Practices Act also makes an exception for expenditures incurred by or on behalf of a foreign official that are related to the promotion, demonstration or explanation of products or services, or that are related to the execution or performance of a contract with a foreign government. Thus, it is permissible to pay the expenses of bringing officials to the United States for plant tours, production demonstrations, and business meetings. Reimbursed expenses may include the reasonable cost of an official's meals and lodging and a reasonable amount for entertainment.
• Violation of the Foreign Corrupt Practices Act can result in severe criminal and civil sanctions:
  • For corporations, the maximum criminal penalty is a $2,000,000 fine.
  • For individuals, the maximum criminal penalty is $100,000 fine and five years imprisonment.
  • For corporations and individuals, civil fines of up to $10,000 may be imposed.
• One doesn't have to actually make the bribe to be in violation of the Foreign Corrupt Practices Act - offering, promising or authorizing a bribe is sufficient. The illegal bribe can be money or anything of value. Bribes can take many forms, such as purchase of a foreign official's property or services at inflated prices, extravagant entertainment, or payment to a designated person or entity if the ultimate beneficiary of the payment will be a foreign official.
• The Foreign Corrupt Practices Act defines "foreign official" as "any officer or employee of a foreign government or any department agency or instrumentality thereof, or any person acting in an official capacity for or on behalf of any such government or department, agency or instrumentality." The definition of "foreign official" includes persons who are not employed by a government but are merely acting "for or on behalf of" a government. Such persons could include private architects, engineers or consultants retained by a government to assist with specific projects.
• Individuals or corporations will be held liable for payments, or promises of payments, made to third parties if the payments or promises are made "while knowing that all or a portion" of the payment will be given or promised to a foreign official, to a foreign political party or an official thereof, or to a candidate for foreign political office.

References:

Donaldson, T. (1989).  The ethics of international business. Oxford University Press: New York.

Wibbon, et al. (1994). Cross-cultural business gift giving. International Marketing Review, 11(4), pp. 44-55.