Explain how managers can incorporate ethical

Considerations into their decision making.

IMPLICATIONS FOR MANAGERS
LOS
What then is the best way for managers in a multinational firm to make sure
that
ethical considerations figure into international business decisions? How do
managers decide upon an ethical course of action when confronted with
decisions pertaining to working conditions, human rights, corruption, and
environmental pollution? From an ethical perspective, how do managers
determine the moral obligations that flow from the power of a multinational?
In many cases, there are no easy answers to these questions, for many of
the most vexing ethical problems arise because there are very real dilemmas
inherent in them and no obvious correct action. Nevertheless, managers can
and should
do many things to make sure that basic ethical principles are adhered to and
that ethical
issues are routinely inserted into international business decisions.
Here we focus on five things that an international business and its managers
can do to
make sure ethical issues are considered in business decisions. These are: (1)
favor hiring
and promoting people with a well-grounded sense of personal ethics; (2)
build an organizational culture that places a high value on ethical behavior;
(3) make sure that leaders
within the business not only articulate the rhetoric of ethical behavior, but
also act in a
manner that is consistent with that rhetoric; (4) put decision-making
processes in place
that require people to consider the ethical dimension of business decisions;
and
(5) develop moral courage.
HIRING AND PROMOTION
It seems obvious that businesses should strive to hire people who have a
strong sense
of personal ethics and would not engage in unethical or illegal behavior.
Similarly, you
would not expect a business to promote people, and perhaps to fire people,
whose behavior does not match generally accepted ethical standards.
However, actually doing so is
very difficult. How do you know that someone has a poor sense of personal
ethics? In our
society, we have an incentive to hide a lack of personal ethics from public
view. Once
people realize that you are unethical, they will no longer trust you.
Is there anything that businesses can do to make sure they do not hire
people who
subsequently turn out to have poor personal ethics, particularly given that
people have an
incentive to hide this from public view (indeed, the unethical person may lie
about his or
her nature) ? Businesses can give potential employees psychological tests to
try to discern their ethical predisposition, and they can check with prior
employees regarding
someone's reputation (e.g., by asking for letters of reference and talking to
people who
have worked with the prospective employee). The latter is common and does
influence
the hiring process. Promoting people who have displayed poor ethics should
not occur in
a company where the organization culture values the need for ethical
behavior and where
leaders act accordingly.
Not only should businesses strive to identify and hire people with a strong
sense of
personal ethics, but it also is in the interests of prospective employees to find
out as
much as they can about the ethical climate in an organization. Who wants to
work at a
multinational such as Enron, which ultimately entered bankruptcy because
unethical executives had established risky partnerships that were hidden
from public view and that
existed in part to enrich those same executives? Table 5.1 lists some
questions job seekers might want to ask a prospective employer.
ORGANIZATION CULTURE AND LEADERSHIP
To foster ethical behavior, businesses need to build an organization culture
that values
ethical behavior. Three things are particularly important in building an
organization culture
that emphasizes ethical behavior. First. the businesses must explicitly
articulate values
Some probing questions to ask about a prospective employer:

1. Is there a formal code of ethics? How widely is it distributed? Is it

reinforced in other
Formal ways such as through decision-making systems?

2. Are workers at all levels trained in ethical decision making? Are they
also encouraged
To take responsibility for their behavior or to question authority when asked
to do

Something they consider wrong?

3. Do employees have formal channels available to make their concerns

known
Confidentially? Is there a formal committee high in the organization that
considers
Ethical issues?

4. Is misconduct disciplined swiftly and justly within the organization?

5. Is integrity emphasized to new employees?

6. How are senior managers perceived by subordinates in terms of their

integrity? How

Do such leaders model ethical behavior?

That emphasize ethical behavior. Many companies now do this by drafting a

code of

Ethics, which is a formal statement of the ethical priorities a business

adheres to. Often,

The code of ethics draws heavily upon documents such as the UN Universal
Declaration

Of Human Rights, which itself is grounded in Kantian and rights-based

theories of moral
Philosophy. Others have incorporated ethical statements into documents that
articulate

The values or mission of the business. For example, the food and consumer
products

Multinational Unilever has a code of ethics that includes the following

points:44

Employees: Unilever is committed to diversity in a working environment

where

There is mutual trust and respect and where everyone feels responsible for
the

Performance and reputation of our company. We will recruit, employ, and

promote

Employees on the sole basis of the qualifications and abilities needed for the
work

To be performed. We are committed to safe and healthy working conditions

for all

Employees. We will not use any form of forced, compulsory, or child labor. We
are

Committed to working with employees to develop and enhance each

individual’s

Skills and capabilities. We respect the dignity of the individual and the right
of

Employees to freedom of association. We will maintain good communications

With employees through company-based information and consultation

Procedures.
Business Integrity: Unilever does not give or receive, whether directly or

Indirectly, bribes or other improper advantages for business or financial gain.

No employee may offer, give, or receive any gift or payment which is, or may
be

Construed as being, a bribe. Any demand for, or offer of, a bribe must be
rejected

Immediately and reported to management. Unilever accounting records and

Supporting documents must accurately describe and reflect the nature of the

Underlying transactions. No undisclosed or unrecorded account, fund, or

asset will

Be established or maintained.

It is clear from these principles that among other things, Unilever will not
tolerate substandard working conditions, use child labor, or give bribes under
any circumstances.

Note also the reference to respecting the dignity of employees, a statement

that is

Grounded in Kantian ethics. Unilever’s principles send a very clear message

about appropriate ethics to managers and employees.

Having articulated values in a code of ethics or some other document,

leaders in the

Business must give life and meaning to those words by repeatedly

emphasizing their

Importance and then acting on them. This means using every relevant
opportunity to

Stress the importance of business ethics and making sure that key business
decisions
Not only make good economic sense but also are ethical. Many companies
have gone a

Step further, hiring independent auditors to make sure they are behaving in
a manner

Consistent with their ethical codes. Nike, for example, has hired independent
auditors to make sure that subcontractors used by the company are living up
to Nike’s code of

Conduct.

Finally, building an organization culture that places a high value on ethical

behavior

Requires incentive and reward systems, including promotions that reward

people who

Engage in ethical behavior and sanction those who do not. At General

Electric, for example, the former CEO Jack Welch has described how he
reviewed the performance of

Managers, dividing them into several different groups. These included over-
performers

Who displayed the right values and were singled out for advancement and
bonuses and

Over-performers who displayed the wrong values and were let go. Welch was
not willing

To tolerate leaders within the company who did not act in accordance with
the central

Values of the company, even if they were in all other respects skilled
managers.45

DECISION-MAKING PROCESSES
In addition to establishing the right kind of ethical culture in an organization,
businesspeople must be able to think through the ethical implications of
decisions in a systematic

Way. To do this, they need a moral compass, and both rights theories and
Rawls’s theory

Of justice help to provide such a compass. Beyond these theories, some

experts on ethics have proposed a straightforward practical guide-or ethical
algorithm-to determine

Whether a decision is ethical.46 According to these experts, a decision is

acceptable on

Ethical grounds if a businessperson can answer yes to each of these

questions:

• Does my decision fall within the accepted values or standards that typically
apply

In the organizational environment (as articulated in a code of ethics or some

other

Corporate statement)?

• Am I willing to see the decision communicated to all stakeholders affected

by itfor example, by having it reported in newspapers or on television?

• Would the people with whom I have a significant personal relationship,

such as

Family members, friends, or even managers in other businesses, approve of

the

Decision?

Others have recommended a five-step process to think through ethical

problems (this
Is another example of an ethical algorithm).47 In step 1, businesspeople
should identify

Which stakeholders a decision would affect and in what ways. A firm’s

stakeholders are

Individuals or groups that have an interest, claim, or stake in the company, in

what it

Does, and in how well it performs.48 They can be divided into internal
stakeholders and

External stakeholders. Internal stakeholders are individuals or groups who

work for or

Own the business. They include all employees, the board of directors, and
stockholders.

External stakeholders are all other individuals and groups that have some
claim on the

Firm. Typically, this group comprises customers, suppliers, lenders,

governments, unions,

Local communities, and the general public.

All stakeholders are in an exchange relationship with the company. Each

stakeholder

Group supplies the organization with important resources (or contributions),

and in exchange each expects its interests to be satisfied (by
inducements).49 For example, employees provide labor, skills, knowledge,
and time and in exchange expect commensurate

Income, job satisfaction, job security, and good working conditions.

Customers provide a

Company with its revenues and in exchange they want quality products that
represent
Value for money. Communities provide businesses with local infrastructure
and in exchange they want businesses that are responsible citizens and seek
some assurance that

The quality of life will be improved as a result of the business firm’s

existence.

Stakeholder analysis involves a certain amount of what has been called

moral imagination.50 This means standing in the shoes of a stakeholder and
asking how a proposed

Decision might impact that stakeholder. For example, when considering

outsourcing to
Subcontractors, managers might need to ask themselves how it might feel to
be working
Under substandard health conditions for long hours.
Step 2 involves judging the ethics of the proposed strategic decision, given
the information gained in step 1. Managers need to determine whether a
proposed decision

Would violate the fundamental rights of any stakeholders. For example, we

might argue

That the right to information about health risks in the workplace is a

fundamental entitlement of employees. Similarly, the right to know about
potentially dangerous features of a

Product is a fundamental entitlement of customers (something tobacco

companies violated when they did not reveal to their customers what they
knew about the health risks

Of smoking). Managers might also want to ask themselves whether they

would allow the

Proposed strategic decision if they were designing a system under Rawls’s

veil of ignorance. For example, if the issue under consideration was whether
to outsource work to a

Subcontractor with low pay and poor working conditions, managers might
want to ask
Themselves whether they would allow for such action if they were
considering it under a

Veil of ignorance, where they themselves might ultimately be the ones to

work for the

Subcontractor.

The judgment at this stage should be guided by various moral principles that
should

Not be violated. The principles might be those articulated in a corporate code

of ethics

Or other company documents. In addition, certain moral principles that we

have adopted as members of society-for instance, the prohibition on
stealing-should not be

Violated. The judgment at this stage will also be guided by the decision rule
that is chosen to assess the proposed strategic decision. Although
maximizing long-run profitability is the decision rule that most businesses
stress, it should be applied subject to the

Constraint that no moral principles are violated-that the business behaves in

an ethical

Manner.

Step 3 requires managers to establish moral intent. This means the business
must

Resolve to place moral concerns ahead of other concerns in cases where

either the fundamental rights of stakeholders or key moral principles have
been violated. At this stage,

Input from top management might be particularly valuable. Without the

proactive encouragement of top managers, middle-level managers might
tend to place the narrow economic interests of the company before the
interests of stakeholders. They might do so in
The (usually erroneous) belief that top managers favor such an approach.

Step 4 requires the company to engage in ethical behavior. Step 5 requires

the business to audit its decisions, reviewing them to make sure they were
consistent with ethical principles, such as those stated in the company’s
code of ethics. This final step is

Critical and often overlooked. Without auditing past decisions,

businesspeople may not

Know if their decision process is working and if changes should be made to

ensure

Greater compliance with a code of ethics.

ETHICS OFFICERS

To make sure that a business behaves in an ethical manner, a number of

firms now

Have ethics officers. These individuals are responsible for making sure that
all employees are trained to be ethically aware, that ethical considerations
enter the business

Decision-making process, and that the company’s code of ethics is followed.

Ethics officers may also be responsible for auditing decisions to make sure
they are consistent

With this code. In many businesses, ethics officers act as an internal

ombudsperson

With responsibility for handling confidential inquiries from employees,

investigating

Complaints from employees or others, reporting findings, and making

recommendations for change.

For example, United Technologies, a multinational aerospace company with

worldwide
Revenues of more than $30 billion, has had a formal code of ethics since
1990.51 United

Technologies has some 160 business practice officers (the company’s name
for ethics

Officers). They are responsible for making sure the code is followed. United
Technologies

Also established an ombudsperson program in 1986 that lets employees

inquire

Anonymously about ethics issues. The program has received some 60,000
inquiries since

1986, and over 10,000 cases have been handled by an ombudsperson

MORAL COURAGE

Finally, it is important to recognize that employees in an international

business may need significant moral courage. Moral

Courage enables managers to walk away from a decision that

Is profitable but unethical. Moral courage gives an employee

The strength to say no to a superior who instructs her to pursue actions that
are unethical. Moral courage gives employees

The integrity to go public to the media and blow the whistle on

Persistent unethical behavior in a company. Moral courage

Does not come easily; there are well-known cases where individuals have
lost their jobs because they blew the whistle on

Corporate behaviors they thought unethical, telling the media

About what was occurring.52

United Technologies, the maker of Sikorsky helicopters,

Demonstrates commitment to ethical behavior by employing some 160

business practices officers.

However, companies can strengthen the moral courage of

Employees by committing themselves to not retaliate against

Employees who exercise moral courage, say no to superiors, or otherwise

complain

About unethical actions. For example, consider the following extract from
Unilever’s code

Of ethics:
Any breaches of the Code must be reported in accordance with the
procedures
Specified by the Joint Secretaries. The Board of Unilever will not criticize

Management for any loss of business resulting from adherence to these

principles
And other mandatory policies and instructions. The Board of Unilever expects
Employees to bring to their attention, or to that of senior management, any
breach
Or suspected breach of these principles. Provision has been made for
employees
To be able to report in confidence and no employee will suffer as a
consequence

Of doing so.53
This statement gives permission to employees to exercise moral courage.
Companies
Can also set up ethics hotlines, which allow employees to anonymously
register a complaint with a corporate ethics officer.

SUMMARY OF DECISION-MAKING STEPS

All the steps discussed here-hiring and promoting people based upon ethical
considerations as well as more traditional metrics of performance,
establishing an ethical
Culture in the organization, instituting ethical decision-making processes,
appointing
Ethics officers, and creating an environment that facilitates moral courage-
can help
To make sure that when making business decisions, managers are cognizant
of the
Ethical implications and do not violate basic ethical prescripts. At the same
time, it
Must be recognized that not all ethical dilemmas have a clean and obvious
solutionthat is why they are dilemmas. There are clearly things that
international businesses
Should not do and there are things that they should do but there are also
actions that
Present managers with true dilemmas. In these cases, a premium is placed
on managers’ ability to make sense out of complex situations and make
balanced decisions that
Are as just as possible.