This Document Contains Chapters 10 to 11 Chapter 10 Ethical Problems of Organizations Contents: (Please note: the Instructor Guide for every chapter will follow this structure.) 1. Chapter Outline 2. Teaching Notes 3. In-Class Exercises 4. Homework Assignments 5. Additional Resources Chapter Outline I Introduction II Managing Stakeholders III Ethics and Consumers A. Conflicts of Interest a. Enron b. Marsh & McLennan B. Product Safety a. Johnson & Johnson b. Toyota C. Advertising a. Pharmaceutical Companies IV Ethics and Employees A. Employee Safety a. Johns Manville b. McWane, Inc. B. Employee Downsizings a. Scott Paper b. Lincoln Electric V Ethics and Shareholders A. Salomon Brothers B. AIG VI Ethics and the Community A. EXXON VII Why Are These Ethical Issues? VIII Costs IX Conclusion X Discussion Questions XI Short Cases A. Conflict of Interest B. Product Safety C. Advertising D. Product Safety and Advertising E. Shareholders F. Community Teaching Notes - Discussion Questions 1. What factors contributed to Johns Manville's long silence on the dangers of asbestos? Chapter 3 may hold some clues as to why successive top managers at Manville kept quiet. They may have felt an "illusion of optimism" and believed that the problems wouldn't turn out to be as bad as they appeared to be. That illusion may have led to "escalation of commitment," where top managers kept getting more involved in stonewalling in an attempt to justify the original decisions made about nondisclosure. Hindsight being 20/20, it's still difficult to understand how this could have happened. 2. What role do you think the personality and other characteristics of a CEO plays in the handling of an ethical problem? The CEO's personality can play a tremendous role in how ethical dilemmas are handled. Executives with a background in marketing and communications (like James Burke, the former CEO of Johnson & Johnson) are more comfortable with the media and are knowledgeable about what it takes to sell a message. Technical or engineering types with little or no background in communications or media relations can have an extremely difficult time dealing with the public relations aspect of a crisis and can therefore appear to be stonewalling or unsympathetic to the press and the public. 3. When other firms in your industry are behaving unethically, how can you buck the trend and position your company to value ethical behavior? Why is that important? Will it damage your company’s competitiveness? It’s extremely difficult to buck a trend if an entire industry is engaged in unethical behavior. We’re reminded of a money management firm in New York that described the lavish entertaining of clients that was (and perhaps still is) typical in their industry. “We’ll have some state treasurer call and tell us when he’s landing, so that we can have a limo there to pick him up. Then he tells us where he wants to go to dinner and what shows he expects tickets to, etc.” The firm went onto say that they feel extremely uncomfortable complying with the demands of this customer. However, they believed that if they did not provide these little perks, other companies would be happy to do so. Apparently, a prior executive had refused such favors and had quickly lost a lot of business to other firms. After that, the company just went along with client demands. That said, we believe that there is a business advantage to bucking this kind of trend. One of the best ways to buck a trend is to start a new one. One of the reasons industry groups exist is to create standards that all companies can agree are important. If other industries can come together and agree to live by certain standards – the pharmaceutical, defense, and chemical industries are three we know of who have done this – then companies in the financial industry can do it, too. 4. Imagine that you're the CEO of a large firm like any of the ones described in this chapter. What concrete steps would you take to restore your company's reputation if it has been sullied? When disaster strikes, company lawyers generally urge caution and try to put a lid on communication. That may be a good approach from a legal standpoint, but it's disastrous from a public relations standpoint. Obviously, a company needs to find out exactly what happened as soon as possible. So, fact gathering is paramount after a disaster. Simultaneously, executives need to mobilize their public relations and communications professionals to begin the process of notifying and/or keeping the media and other stakeholder groups informed in order to maintain or regain credibility. The CEO needs to be accessible to the press, honest (if he or she doesn't know the answer to a question, admit it), provide plentiful and accurate information, admit mistakes if they've occurred, and promise restitution to any affected stakeholders. Probes to Stimulate Discussion • "What specific steps can a top manager take to restore credibility?" • "Can you develop a road map that could be used in any corporate disaster?" • "Are there three or four key steps that could be taken in any ethical debacle?" 5. How much testing is enough when launching a new product? It probably depends on the product. But, the decision-making guidelines that are adopted are extremely important. And, they should be adopted in advance, not during a financial crunch. For example, you might want to develop the “family member rule.” Ask yourself, “How much testing is enough if a member of my family were going to use this product, fly on this airplane, etc.?” However, it also can be extremely difficult for a company to know when “user error” morphs into “product defect.” Apparently, this was one of the issues behind Toyota’s slowness to address its issues regarding sudden vehicle acceleration. They heard reports about a problem, but assumed that it was a driver issue because they were confident of their quality controls. Every product has some issues and it is generally more art than science to ascertain when there really is a problem with a product.
Probes to Stimulate Discussion • "What safeguards could a company implement to ensure that new products are properly evaluated before they're released?" • "Should research and development professionals be allowed to participate in decisions to release a new product?" • "Does just one negative evaluation forever taint a product's reputation?" • “How can a company overcome a negative evaluation?" 6. How can the interests of multiple stakeholders be balanced? This is a key question that hasn’t been adequately addressed in the stakeholder literature yet. Recently, Mitchell, Agle, & Wood (Academy of Management Review, 1997, pp. 853-886), proposed that managers pay attention to stakeholders based upon something they termed stakeholder salience. Stakeholder salience is based upon stakeholder power, legitimacy, and the urgency of the stakeholder claim. These combine to make stakeholders’ claims more or less salient to managers. The approach is meant to be descriptive; it describes what managers actually do. But, we also need to think about what managers should do. What if a stakeholder has a morally legitimate claim, but is not powerful? For example, a poor community has a stake in not living next to a toxic waste dump, but little power to fight it. Shouldn’t managers still pay attention to this stakeholder’s needs? Somehow, managers need to combine the moral legitimacy of stakeholders’ claims with the realities of balancing multiple claims in a complex, competitive global business context. 7. Do you think long prison sentences will help deter corporate criminals? This is a tough question. Certainly a lot of senior executives, like most other people, have a hard time believing that they will ever get caught and go to jail. As a result, it may be naïve to think that an executive will be deterred from wrongdoing by thinking about Bernie Ebbers and his 25-year prison sentence. However, it’s not unreasonable to believe that the investing public needs the huge jail terms. In 2001 and 2002 – right after September 11 and when companies were being indicted right and left – U.S. investors (and indeed, investors around the world) suffered a huge loss of confidence in the integrity of the financial markets. Convictions and hefty jail sentences surely have played a role in the small increases of investor confidence over the last few years. That loss of confidence pales in comparison to what has happened to investors since the financial crisis of 2008. A significant portion of small investors have not reinvested since losing so much money in 2007 and 2008. They sit on the sidelines, not trusting the markets and the large investors who influence those markets. Perhaps one reason small investors are so gun-shy is that no one to date has been jailed because of the activities that brought the markets down in 2008. Probes to Stimulate Discussion • What message would be sent by the courts if executives convicted of fraud (or another corporate crime) were given probation or suspended sentences? • Aside from lengthy jail sentences, what other measures could be taken to deter corporate crime? • What other measures could be taken to increase investor confidence in the integrity of markets and large corporations? • Why has no one been charged with fraud as a result of the financial crisis of 2008? • Some experts claim that more than half of the small investors who were invested in the markets when they tanked in 2008 have yet to reenter the stock market. Do you think they would if some of the folks involved in the crisis were tried and convicted? 7. Do you trust technology giants like Google and Facebook to safeguard your personal data? Is posting online any safer than posting your personal information on a billboard along a busy highway? What kind of personal information would be OK to share with the world? What are the potential pitfalls for you personally of sharing sensitive information online? Internet privacy is a huge issue and many young people do not recognize the risks in posting their every move and thought on line and for pubic consumption. We know of students who have had job offers rescinded by employers who have checked students’ Facebook pages and Tweets. The New York Times featured a story that described how a college denied admittance to a student who otherwise qualified for admittance, but who had sent snarky tweets during a campus visit. Their rationale? Based on the student’s tweets, the school didn’t feel she would “fit” among the student body. (“They Loved Your GPA and Then They Saw Your Tweets,” Natasha Singer, the New York Times, Nov. 9, 2013) It would be a service to your class to help them understand that their personal information is public and identifiable once it is posted online. We also know of employers who have managed to get access to applicants’ Facebook pages. A great exercise for students would be to pair them up and ask them to assess each other’s pages (tweets, etc.) in terms of how a potential employer might react to their posts, pictures, etc. Probes to Stimulate Discussion • Are Facebook pages and Tweets a good barometer of how candidates might perform in the workplace? • Should employers search for the private musings of potential employees? • Of all the things you post online, which are private and which are public? • How can students protect themselves from unflattering attention from employers, security personnel, parents, and others whose opinions matter? 8. How does a company’s reputation play a role in your purchasing decisions? Who wants to buy something from a crook? If Enron still existed, who would want to buy their power? Who would go to Drexel Burnham Lambert or E.F. Hutton (once vibrant financial firms that were driven out of business by ethical debacles in the 1980s) for financial services or to Arthur Andersen for accounting services? Put simply: the marketplace has shown repeatedly that few companies can survive catastrophic ethical disasters. Consumers simply don’t trust them or their products. Probes to Stimulate Discussion • What kind of products and services would you continue to purchase from a company that has been involved in an ethical disaster? • What products and services would you NOT purchase from a company that had been involved in an ethical disaster? • What could a company do to get back in your good graces? • Is there a particular type of ethical misbehavior that is unforgivable? That would prevent you from ever being a company’s customer again? In-Class Exercises Case #1 -- Conflict of Interest: Big Company is a large manufacturer of health care products that is under fire from the government to lower costs. Big Company has an excellent reputation and is widely acknowledged as one of the best-managed companies in the country. In spite of its reputation, however, Wall Street has reacted negatively to government efforts to reform the health care industry as a whole, and Big Company's stock price has lost 30% of its value in the last year. To counter the effect of possible government intervention, Big Company has just purchased Little Company, a discount health care supplier. Wall Street has greeted the acquisition with enthusiasm and Big Company's stock price has rebounded by more than 10% since news of the acquisition was made public. While this acquisition could provide Big Company with a foothold in a growing part of the health care industry, a real problem lies in the mission of Little Company. Little has made its reputation by providing objective health care advice to its customers. Now that it's owned by Big Company, customers have expressed doubts about how objective Little can be in recommending health care products if it's owned by a health care giant. Will Little Company be pressured to recommend the products offered by Big Company, its parent? Or will Little Company’s advice remain objective? As the senior executive charged with bringing Little Company into the corporate fold, how do you proceed? What are your obligations to Big Company, Little Company, and the customers of both? What do you owe to shareholders and the financial community? Are there other stakeholders and what do you own to them? What provisions would you include in an ethics code for Little Company? Notes: As a senior executive, you should make every effort to ensure that the objectivity of Little is not compromised by the merger. You need to orient the Little employees into the Big Company fold, while making sure that Little employees know they are a separate entity. Your obligations to all stakeholders, including the ones mentioned, involve helping the companies and employees avoid conflicts of interest. You should be very specific in Little's ethics code that conflicts of interest are prohibited. You should also include verbiage reinforcing Little's independence. Case #2 -- Product Safety: As a brand manager at a large food manufacturer, you're positioning a new product for entry into the highly competitive snack food market. This product is low-fat and low-calorie, and should prove to be unusually successful, especially against the rapidly-growing pretzel market. You know that one of your leading competitors is preparing to launch a similar product at about the same time. Since market research suggests that the two products will be perceived as identical, the first product to be released should gain significant market share. A research report from a small, independent lab - Green Lab - indicates that your product causes dizziness in a small group of individuals. Green has an impressive reputation and their research has always been reliable in the past. However, the research reports from two other independent labs don't support Green's conclusion. Your director of research assures you that any claims of adverse effects are unfounded and the indication of dizziness is either extremely rare or the result of faulty research by Green Lab. Since your division has been losing revenue because of its emphasis on potato chips and other high-fat snack food, it desperately needs a low-fat money maker. Since you were brought into the division to turn it around, your career at the company could depend on the success of this product. What are your alternatives? What is your obligation to consumers? Who are your other stakeholders and what do you own them? What is your obligation to your employer and to other employees at your company? What should your course of action be? How can you apply the due care theory to this case? Notes: There are a number of alternatives. You could hold the product until further testing is completed, release the product as planned, or perhaps even issue a consumer warning (such as the one on packs of cigarettes) on the product. (Obviously, that might place a real damper on sales.) Your obligation to your company and coworkers is to honestly evaluate the merits of a product and withhold it from the market if you think that's appropriate. In one large manufacturing company, management has taken steps to ensure the objectivity of such decision making. Management has established teams of employees from a range of disciplines to judge whether or not a product is ready for release. The key to the process is that no employee involved in the product's development is allowed to be part of the decision-making process (because of their likely bias). Interestingly, when this scenario is used with students and business people, the students are more likely to release the product than the business people are. The business people seem to favor some kind of "final" test in an effort to resolve the safety issue. Usually about half of any given student group wants to go ahead and release the product now with no further testing. Case # 3 -- Advertising: As a bottler of natural spring water, your advertising department has recently launched a campaign that emphasizes the purity of your product. The industry is highly competitive, and your organization has been badly hurt by a lengthy strike of unionized employees. The strike seriously disrupted production and distribution, and it caused your company to lose significant revenues and market share. Now that the strike is over, your company will have to struggle to recoup lost customers, and will have to pay for the increased wages and benefits called for in the new union contract. The company's financial situation is precarious to say the least. You and the entire senior management team have high hopes for the new ad campaign, and initial consumer response has been positive. You are shocked then, when your head of operations reports to you that an angry worker has sabotaged one of your bottling plants. The worker introduced a chemical into one of the machines, which in turn contaminated 120,000 bottles of the spring water. Fortunately, the chemical is present in extremely minute amounts - no consumer could possibly suffer harm unless he or she drank in excess of 10 gallons of the water per day over a long period of time. Since the machine has already been sterilized, any risk of long-term exposure has been virtually eliminated. But, of course, the claims made by your new ad campaign could not be more false. List all of the stakeholders involved in this situation. Do any stakeholder groups have more to gain or lose than others? Develop a strategy for dealing with the contamination. How much does a company's financial situation determine how ethical dilemmas are handled? Notes: The stakeholders in this scenario include not only consumers of the spring water, but also employees, the company shareholders, the community where the company is located, other bottlers of spring water, the press, and regulatory agencies. Since the chances of harm are so slim, the stakeholders with the most to lose are probably the employees, the shareholders, and other bottlers of spring water, who might see the image of their industry sullied. The company's financial situation would probably have a significant bearing on this situation, just as Beech-Nut's had a profound effect on its actions with the bogus apple juice concentrate. If a company is very profitable, it can afford to lose money on a noble gesture. If it's on the ropes because of a huge debt burden (like Beech-Nut), or struggling to survive after a strike as in this case, it's much harder to do the right thing. However, there's little choice in this case. The CEO has to recall the contaminated water, not only because it's the right thing to do (it would be dishonest to do otherwise), but also because the company's reputation would be dealt a crippling blow if the public ever discovered the problem. While the company might suffer in the short term by ignoring the problem, a recall is certainly the most sound management approach for the long term. The company might even come out ahead of the competition by announcing a recall -- "because this water isn't pure enough by our standards. It's almost impossible for any of our customers to be harmed by our water, but we won't risk hurting our customers for any reason." So, a good strategy might include asking the ad agency that developed the new ad campaign to design a strategy for the recall that would tie into the new ads. Case #4 – Product Safety and Advertising For years, arthritis sufferers have risked intestinal bleeding from consistently taking non-steroidal anti-inflammatory drugs (NSAIDs) like Advil, which are used to ease chronic joint pain. Your company, Big Pharma introduced a new type of painkiller, a COX-2 inhibitor that addressed the pain without these gastrointestinal effects. To get the word out to consumers, Big Pharma decided to market the new painkiller directly to consumers so that they could ask their doctors about it. The marketing was extraordinarily successful, ultimately creating a multi-billion dollar market. Over 100 million prescriptions were written in just five years and the drug was a big contributor to your company’s bottom line. Patients and doctors seemed grateful for the alternative and doctors began using it to treat all kinds of pain. Then, complaints began coming in about cardiovascular events (heart attacks) associated with taking the new drug. Early scientific studies were suggestive that there might be a problem but the science remained inconclusive. It appeared that many of these patients had other health problems that may have caused their heart attacks. So, your company undertook a more definitive double blind placebo controlled study (the only kind that can truly demonstrate cause and effect), which eventually showed a link between your drug and increased risk of cardiovascular events if the drug was taken consistently for more than 18 months. The Food and Drug Administration suggested a stronger black box warning on the drug packaging to warn of the potential for cardiovascular side effects from prolonged use. Your senior management team met to discuss what to do. Should you follow the FDA’s advice or do something else? The discussion included reference to your company’s values and strong commitment to integrity and human welfare. You also referred to the famous Johnson & Johnson Tylenol incident, and the success of their recall effort. After much discussion, you decided to recall the drug and cease manufacturing it. The negative reactions were instantaneous. In stinging press reports and Congressional hearings at which your CEO had to appear, your company was criticized for not recalling sooner based upon the earlier evidence. And, the lawsuits began. It seemed that anyone who had ever taken your company’s drug and then had a heart attack was bringing suit. Ironically, on the other side, patients and doctors who had been using the drug successfully also complained. They thought you should return the drug to the market with a stronger warning so that they could do their own risk assessment. Nothing else worked for some patients and they were suffering. But, after careful deliberation, you decided to stick to the recall decision and fight (rather than settle) the lawsuits. Early in the fight, your company won some lawsuits and lost some, but vowed to continue fighting them all because you were convinced that you had done nothing wrong. The fight was costly in dollars and reputation. Eventually, after several years and winning more lawsuits than you lost, you decided to settle all remaining lawsuits and move on, a decision that was considered to be wise in the business community. Your company’s financial performance took a big hit but it is now rebounding and the future looks more hopeful with some promising new treatments on the horizon. Who are the stakeholders in this situation? Experts claim that there is always a risk when people take prescription drugs. How much risk is too much? How widely do drug companies need to publicize the risks of prescription medications? Or, is that the doctor’s responsibility? Do consumers really understand these risks? Do drug companies have an obligation to ensure that doctors don’t overprescribe their drugs? Is that a reasonable expectation? Was direct to consumer marketing appropriate for this type of drug? When is it or is it not appropriate? Do drug companies have a bigger obligation to explain the risks of the drugs that they heavily market directly to consumers because such consumers are more likely to ask their doctors for these drugs? Why do you think the reaction to the decision to recall in this case was so different compared to the Tylenol situation? Should senior management have expected the reactions they got? Is there anything they could have done to change them? Notes: This is actually the Vioxx case that Merck dealt with for a number of years. In spite of its best efforts, there were still issues about this drug and its adverse reactions with some patients. Case #5 -- Shareholders: You work for an investment bank that provides advice to corporate clients. The deal team you work on also includes Pat, a marketing manager, and Joe, who serves as the credit manager for the team, as well as several other professionals. Just before your team is scheduled to present details of a new deal to senior management, Pat suggests to Joe that the deal would have a better chance of being approved if he withheld certain financials. "If you can't leave out this information," Pat says, "at least put a positive spin on it so they don't trash the whole deal." The other team members agree that the deal has tremendous potential, not only for the two clients, but also for your company. The financial information Pat objects to – though disturbing at first glance -- would most likely not seriously jeopardize the interest of any party involved. Joe objects and says that full disclosure is the right way to proceed, but that if all team members agree to the "positive spin," he'll go along with the decision. Team members vote and all agree to go along with Pat's suggestion -- you have the last vote. What do you do? In this hypothetical case, what is your obligation to the shareholders of your organization and to the shareholders of the two organizations that are considering a deal? Are shareholders a consideration in this case? Are customers? Are employees? Could the survival of any of the three companies be at stake in this case? In a situation like this one, how could you best protect the interests of key stakeholder groups? Notes: You and Joe should insist that full disclosure is the only alternative. Sr. management needs all of the information in order to make the best decision. If the others don't agree, politely but firmly insist that a senior manager make the decision. Case #6 -- Community: You have just been named CEO of a small chemical refinery in the Northeast. Shortly after you assume your new position, you discover that your three predecessors have kept a horrifying secret. Your headquarters location sits atop thirty, 5,000-gallon tanks that have held a variety of chemicals - from simple oil to highly toxic chemicals. Although the tanks were drained over 20 years ago, there's ample evidence that the tanks themselves have begun to rust and leech sludge from the various chemicals into the ground. Because your company is located in an area that supplies water to a large city over 100 miles away, the leeching sludge could already be causing major problems. The costs involved in a clean-up are estimated to be astronomical. Because the tanks are under the four-story headquarters building, the structure will have to be demolished before clean-up can begin. Then, all 30 tanks will have to be dug up, disposed of, and all of the soil around the area cleaned. You're frankly appalled that the last three CEOs didn't try to correct this situation when they were in charge. If the problem had been corrected 15 years ago, before the building had been erected, the costs would be substantially less than they will be now. However, as frustrated as you are, you're also committed to rectifying the situation. After lengthy discussions with your technical and financial people, you decide that a clean-up can begin in two years. Obviously, the longer you wait to begin a clean-up, the riskier it becomes to the water supply. Before you begin the clean-up, it's imperative that you raise capital, and a stock offering seems to be the best way to do it. However, if you disclose news of the dump problem now, the offering will likely be jeopardized. But the prospect of holding a news conference and explaining your role in keeping the dump a secret keeps you up at night. Who are the stakeholders in this situation? What strategy would you develop for dealing with the dump and its disclosure? Are you morally obligated to disclose the dump right away? How will Wall Street react to this news? Does your desire to correct the situation justify keeping it a secret for another two years? Think about the due care theory presented earlier in this chapter. Can we draw parallels between due care for the consumer and due care for the environment? What if the oil tank dump mentioned in the hypothetical case was located in a foreign subsidiary of a U.S. company and the country in which it was located had no laws against such a dump? Would the CEO be under any obligation to clean it up? Should American companies uphold U.S. laws concerning the environment in non-U.S. locations? How much protection is enough? Notes: Just as in the earlier case concerning contaminated spring water, this CEO doesn't have much of a choice. By the time his firm has enough capital to make the cleanup financially more "comfortable," the contaminated water might seriously harm countless people in the large city. The CEO needs to contact the proper authorities (the Environmental Protection Agency and local officials) and explain the problem. He or she needs to hire the best experts to assess the problem as best they can, to determine the extent of the damage and perhaps put a figure on the cost of the clean-up. With all of that information gathered, he or she can begin a relocation and clean-up strategy. If a CEO self-reports to the EPA, perhaps the EPA will make the news public with the company executives. The reputation of the company may not be damaged in such a scenario and a successful stock offering might be a real possibility. Investors in the past have been willing to take a chance on a company that has a sound plan for recovery from a difficult situation. For example, investors who bought Chrysler bonds when the company was on the ropes made out very well. Homework Assignments 1. Case Analysis One effective homework assignment is to have students analyze any of the short cases at the end of the chapter, which are also described under In-Class Exercises in this Instructor’s Manual. 2. Real Case Analysis or Classic Case Update Another homework assignment involves asking students to either choose a company that is currently going through an ethics crisis (Toyota, BP, Goldman Sachs, AIG, etc.) or to update one of the classic cases outlined in the chapter. Additional Resources: There are a number of videos available through YouTube on these various ethics disasters. Since some of these may not be available when you look for them, we are not providing links. To find available videos, go to YouTube and search for any of the disasters in this chapter. Chapter 11 Managing for Ethics and Social Responsibility in a Global Environment Contents: (Please note: the Instructor Guide for every chapter will follow this structure.) 1. Chapter Outline 2. Teaching Notes 3. In-Class Exercises 4. Homework Assignments 5. Additional Resources Chapter Outline I Introduction II Focus on the Individual Expatriate Manager A. The Difficulties of Foreign Business Assignments B. The Need for Structure, Training, and Guidance C. Foreign Language Proficiency D. Learning about the Culture E. Recognizing the Power of Selective Perception F. Assumption of Behavioral Consistency G. Assumption of Cultural Homogeneity H. Assumption of Similarity I. Ethics-Related Training and Guidance J. How Different Are Ethical Standards in Different Cultures – Really? K. Development of Corporate Guidelines and Policies for Global Business Ethics III The Organization in a Global Business Environment A. Deciding to Do Business in a Foreign Country B. Development of a Transcultural Corporate Ethic IV Conclusion V Discussion Questions VI Short Cases A. The Gift B. Selling Medical Ultrasound Technology in Asia C. Google Goes to China VII Appendix – Caux Roundtable Principles for Business Teaching Notes - Discussion Questions 1. If you were going on your first overseas business assignment, what would you do to ensure that you were prepared to deal with ethical dilemmas you would face? Possible Responses • Study the culture - Social, political and economic - Similarities and differences in relations to the U.S. - Cultural perspectives on business • Learn the language and cultural idioms – the US government has wonderful online resources for foreign service professionals that can be useful for business people venturing abroad. • Talk to employees who have been there before - Their perceptions of differences in business practices - Pitfalls to avoid • Talk to foreign nationals - Their perceptions of differences in business practices - Pitfalls to avoid • Learn business practices - Ethical issues typical of the culture - Negotiation tactics What questions would you ask your superiors in preparation for the trip? Possible Responses • What training is available to prepare me? • What are the guidelines for doing business ethically? • Specific job expectations • How job expectations and ethical guidelines align (Will you be rewarded for making ethical decisions even if company profit is not as great?) 2. Your firm is expanding globally and is sending executives overseas for the first time. What will you do to be sure these individuals are prepared to deal with the ethical dilemmas they will face? Possible Responses • Provide training (if you don’t have the expertise in-house, hire a consultant) - Nature of culture - Language - Business customs • Establish corporate guidelines for doing business • Adjust the reward system to reward ethical decision making 3. Imagine that someone from another culture asked you to provide information about business ethics when dealing with American managers. What would you say? Possible Responses • Describe the Foreign Corrupt Practices Act that U.S. corporations and their members must obey • Share that American managers prefer to follow U.S. and local laws • Emphasize the similarities in practices and point out the differences • Americans are eager to learn about the culture and business practices of partner nations • Suggest they explain the differences in business practices to the American managers - Americans expect you to look them in the eye - Americans are task, not process, oriented - Bluffing in negotiation is generally accepted - Americans sometimes withhold information because they think information is power • American law has become policy in other countries 4. Talk with someone from another culture. Ask for information that would be helpful to you if you had to do business in their culture. What did you learn that you didn't know before? How might you behave differently because of what you know? Examples of Cultural Differences • On a business trip to Japan one of the authors established a business relationship with a Japanese man who was educated in America. During her tenure in Japan, their interaction included business meals, joint travel and extended meetings. A year later when the Japanese man came to New York for business, the author greeted him with a kiss on the cheek, much to his embarrassment. It was a totally inappropriate greeting. • The other author encountered a Korean student who was not comfortable making eye contact during conversation. In Korea, whom you establish eye contact with and for how long is determined by gender, age and status. This can make negotiations difficult. 5. If you were planning to do business in a culture that was opposite from your own on the cultural dimensions of “power distance” and “individualism/collectivism,” what challenges would you expect to face? How would you prepare? With power distance, you would need to be sensitive to any hierarchical differences between you and your business partner and consider how those might impact your interactions. In doing business with someone from a high power distance culture, you may also need to understand that your partner will defer to those in higher positions. With individualism/collectivism, again you would need to be sensitive to the potential differences. Collectivists value harmony and the group while individualists value individual achievement and tend to be more aggressive. Collectivists also tend to engage in gift-giving and nepotism. So, you would need to be prepared for that and ready to respond in a sensitive manner, but one that is consistent with your company’s policies and values. 6. Imagine yourself in a situation where you had to bribe someone or lose the deal. How would you think about it? What do you think you would do? Why? What would you hope for from your employer? Possible Answers • Apply the "Eight Steps to Sound Ethical Decision Making in Business" that were introduced in Chapter 2 1. Gather the facts 2. Define the ethical issues 3. Identify the affected parties 4. Identify the consequences 5. Identify obligations 6. Consider your character and integrity 7. Think creatively about potential actions 8. Check your gut • Refer to the culture of your organization. What guidelines does it provide for decision making? (See Chapter 5 for a discussion of organizational culture.) • Recall the code of conduct or policy manual of your organization. What guidelines does it provide for decision making? (See Chapter 6 for a discussion of codes of conduct.) Probes to Stimulate Discussion • "What factors would you consider in weighing your options?" • "What are the options?" • "What criteria would influence your final decision?" • "What would be the short and long term ramifications of each option?" • What do you think you would do? Why? • “Explain your decision in terms of the factors you considered and the ramifications of your choice versus other options.” 7. Assume the role of corporate decision maker in a decision about whether to do business in a particular foreign country in the developing world. What criteria will you establish for making the decision from an ethics and social responsibility perspective? Why are these the most important criteria? What information will you use to help you make the decision? This question is designed to get students to think deeply about values and how those should drive decisions about whether to do business in a particular country. (See suggested assignment below as well as “Google Goes to China” case at the end of this Instructor’s Manual). Probes to Stimulate Discussion • “What core values will you establish for your firm?” • “What will you do if these core values cannot be satisfied in the country?” • “What information will you need in order to make the decision?” 8. What are the costs and benefits of developing a transcultural corporate ethic? Whose responsibility should it be to develop such an ethic - governments, corporations, intergovernmental organizations, all of these? Probes to Stimulate Discussion • “Could such an effort be seen as just a form of U.S. interference in other cultures?” • “How do you think American business people in general would react to it?” • “What countries would be most (least) amenable to such a development? 9. Choose a multinational company. Study its website and, in particular, its emphasis on business ethics and social responsibility (or lack thereof). What did you find? 10. If you had to create a global code of conduct for your company, what would you include? What core values would you state? How would you treat behaviors such as gift giving and nepotism? The code will depend somewhat on the countries you are in and the particular ethical issues that are of concern in those places. But, you would certainly deal with typical issues of dealing with bribery, working conditions (if that is an issue), protection of the natural environment, gift giving, nepotism, non-discrimination in hiring, etc. For how to treat gift giving and nepotism, see the section of the chapter on Tom Donaldson’s approach which we think is best. In-Class Exercises: 1. Case #1: The Gift You're an account executive with a multinational financial firm, and one of your biggest accounts is that of a shipping magnate in Greece. Several months after you've arranged a very complex financing to build a new fleet of oil tankers for this customer, he asks if you and your wife would attend the christening of the first tanker. You, of course agree to attend - it would be an insult to him if you didn't. When you arrive, he asks your wife to break the traditional champagne bottle over the bow of the tanker. Two weeks after the christening, your wife receives a package from your customer. In it is a gold bracelet with her initials and the date of the christening set in diamonds. To return the gift would insult your customer, but accepting it would clearly violate your company's policy. What should you do? Possible Answers • Go to the corporate counsel before you go to a foreign country and ask what to do in such a situation. • Return it and nicely explain the corporate policy. • Accept on behalf of the organization. Then sell it and give the proceeds to charity - but tell the magnate what you're doing and why. • Accept on behalf of the organization and buy it back from them. Case-based Questions 1. What kind of ethical issue is this? Possible Responses • Conflict of Interest - Subtle "bribes" - Influence 2. Why would it be against corporate policy to accept such a gift? Do you agree with the policy? Why or why not? • Could encourage blatant bribes in the future • Could be interpreted as a bribe • Very expensive gift Do you agree with the policy? Why or why not? 3. Put yourself in the "shoes" of each of the parties. How might they think about the issue? Shipping Magnate • Money to burn • Common practice to lavish gifts • Insulted if gift returned • Might understand if policy was explained Executive • Caught in the middle between following policy and not insulting the customer • Don't want to lose business, on the other hand the magnate needs our money to do business so he should follow our business practices Spouse • No harm done or insulted depending on perspective 4. Imagine that you are the corporate vice-president in charge of business ethics and conduct for your firm. Would you be willing to change this policy? Why or why not? • No - Policy is consistent with spirit of the Foreign Corrupt Practices Act and won't change it • No - Practice is turning away from "In Rome do what the Roman's do" to following customs of American business • Maybe - If situation is unique, if you've been careful to disclose and document all facts; policies can sometimes be flexible. It should be a rare occasion, however. 2. Case #2: Selling Medical Ultrasound Technology in Asia Notes: Frontline created a powerful video that you may want to show before discussing this case. It is called India: The Missing Girls http://www.pbs.org/frontlineworld/rough/2007/04/the_missing_gir.html Case Questions: 1. Should Pat raise this issue with management? If so, what should he say? This is a good example of an opportunity to voice one’s values (see Chapter 4). Pat will have to decide if this is a “spear in the sand” issue and, if so, how to raise it in a way that is likely to garner a positive response. Pat may want to educate management about the problem and talk in terms of potential risk to the company’s reputation if nothing is done. He may also want to bring in allies to raise the issue with him. You may want to role play this one. 2. What if he does raise the issue and the company does nothing? What should he do then? This becomes an ethical dilemma for Pat and can be analyzed using the ethical decision making frameworks provided in Chapter 2. For example, how much harm is being done to these societies in the long term (versus the medical benefit provided by the machines)? How do Pat’s personal values come into play? Does the disclosure rule help? 3. Does this use of the technology breach a core value? Or is this a case where the company should respect local cultural practice? Is there some compromise position in between? It seems to us that this does breach a core value of human rights, particularly for women. Think of all the girls who will never be born if this practice is allowed to continue. On the other hand, there is evidence that women feel pressured to engage in this practice so that they will have a son who will take care of them. If we think long-term the human rights of boys may also be at stake if we think of the opportunity to have a life partner to be a human right. If so, this right is seriously in jeopardy. Finally, the human right to the best health care may also be at stake, making this a really tough ethical issue. 4. Should the company be anticipating additional government regulation? The practice is already against the law in most countries but the law is generally not well enforced. Will increased enforcement be likely and, if so, does the company risk fines and other punishments? It’s hard to say. But, it’s generally good management practice to be out in front of government regulation. 5. What is the risk to the company’s reputation of doing nothing? Of doing something? Again, this is tough to anticipate. But, given the transparency in our interconnected world, one never knows who will pick up an issue and run with it. Management certainly needs to be concerned about getting a reputation for contributing to sex-selection abortions. On the other hand, taking strong action could have negative effects if they are seen as cultural imperialists. So, action will have to be taken with sensitivity to the local culture. 6. How might the company think about their responsibility from a supply-chain perspective? Might they learn anything from companies in other industries that have had to deal with this issue? For example, would it be appropriate to initiate a policy to engage with customers who certify that they will sell exclusively to authorized users? Even if the company did that, how could they be sure customers were complying? As other industries have had to do, this company is going to have to get more involved in relationships in the supply chain from an ethics perspective. They might want to obtain some legal document from customers certifying that they were complying, but as the question asks, it would be difficult to ensure compliance without putting an expensive monitoring system in place. And, given that many of these clinics are far flung, doing so would not be a simple matter. 7. Should the company also be educating and training employees and clients on the ethical uses of the products? Or, would that be seen as ethical imperialism? The company has an obligation to do this but it will be difficult to do it in a way that is not seen as ethical imperialism. They may explain why they are doing it in terms of core values. Or, they may hire locals from the culture who agree with the company’s stance to conduct the training if they are willing to do so (remember – gender selection abortion is against the law in most of these countries – therefore one can likely find locals who agree with the company’s stance. 8. What should a sales representative do if he or she suspects that a client will be using the ultrasound equipment for sex-selective purposes? Hopefully, the sales representative has been trained and prepared to offer a carefully designed response that is consistent with company policy. The rep may actually stop the sales call and leave if it is clear that the machine is going to be used for that purpose. If there has been no direction from the company, the least the sales rep should do is to report this back to the company. 9. The company provides service for these machines. Might that be a way to monitor use? This may be the very best hope for getting a handle on this issue. The company might add labels to all machines making it clear that they should not be used to identify the sex of fetuses. They can also refuse to service machines that are being used for sex selection purposes. But, this will work only if no local competitors exist who can just move in and take over the service. 10. Can the company do anything to better understand the root cause of the problem and tackle that? Certainly, company representatives should do their best to understand the drivers of this problem so that they can attempt to arrive at creative solutions. They may work with governments and activists to attempt to do so. But, with this problem, there do not seem to be apparent solutions (such as building schools for children who are removed from factories with the child labor issue). Entire cultures would need to change in order to resolve this one other than perhaps to attempt to educate the public and make social investments that promote equality for girls. In fact, this is what GE has done. See below for a website that offers information about how GE is handling a similar problem http://files.gecompany.com/gecom/citizenship/pdfs/ge_ethical_ultrasound_use_india_casestudy.pdf 3. Case #3: Google Goes to China Case Questions 1. Why do you think so many American citizens and lawmakers reacted negatively to Google’s decision in 2006? First, Americans value free speech and freedom of the press because these are constitutionally protected values in the U.S. Thus, many saw China’s censorship as a breach of human rights. They also saw Google as hypocritical given their stated values and principles. 2. Does the fact that Google is an Internet company change societal expectations of it with regard to information openness? We think it does. The internet is associated with freedom of expression and the free movement of information around the globe. China’s censorship seems totally counter to the ethos of the internet. 3. Was Google facing an ethical dilemma (values in conflict) in 2006? Absolutely! This is a company that says it values freedom of information. But, it also values financial success and China is the fastest growing market in the world. At the time, the company seemed to compromise by saying that being in China (and continually bugging the government about its stance) would be more helpful than not. But, it doesn’t seem to have worked out that way. 4. Analyze the dilemma from consequentialist, deontological, virtue ethics perspectives (see Chapter 2). Based upon your analysis, what do you think is the right thing to do? Do you agree with Google’s CEO that the company made “a principled decision?” Why or why not? Consequentialist analysis would identify all the stakeholders and the harms and benefits to each of either staying in this market or not (or some creative alternative). Without a crystal ball, Google would not have been able to assess these harms and benefits very effectively and it does seem that they were wrong in their estimation of how powerful the Chinese censorship would continue to be. Deontological analysis would focus us right back on values. What are the company’s values and what are its duties and obligations as a responsible company in this situation? What about virtue ethics? What does it take to be viewed as a virtuous company in this situation? Obviously, many critics in the US Congress, the media, NGOs etc. did not view the company as very virtuous at the time. The “disclosure rule” suggested many critics were not very kind to the company, with criticisms that are outlined in the case. 5. Google’s motto is “Don’t Be Evil.” What does that mean? And, how does it apply in this situation? Is the company living up to its motto? Is it a good motto or would a more positive statement be better? This is a great topic for discussion. We think the motto means don’t do unethical things (if you can be clear about what those are). But, it clearly doesn’t say anything about doing good things or attempting to be an ethical leader in any way. Over time, it does seem that the company was attempting to live up to its motto. It continually reassessed the situation and eventually decided that it could no longer do business in China as it had. One interesting statement is the statement that “withdrawing the service would be a ‘greater evil.’” But, the company didn’t say it would do less evil. It says do “NO” evil. The question is did it live up to that motto? We don’t think so but others may disagree. 6. Consider Google’s other values related to democracy, not doing evil, focusing on the user, providing information, etc. Can Google do business in China and maintain these ideals? If so, how? If not, why not? It seems pretty hard to us. China is clearly not democratic, and it is impossible to say that the company is providing accurate information on certain topics when China engages in such powerful censorship. Also, the company clearly says things in its stated goals and values that it seems impossible to live up to in the Chinese environment. For example, “Google has refused to make any change that does not offer a benefit to the users who come to the site.” 7. In defense of its 2006 decision, Google said that it complies with the law in countries where it does business. But, the author of a book on IBM and the holocaust says that IBM used the same defense in the 1930s when it provided Adolf Hitler with the tools to keep “the wheels of the Holocaust running on time.” The author says “[they] want to be good Americans in the U.S. and good collaborators in China. They want it both ways but there are certain things we must not do” (Page, 2006). Do you agree with the company’s stance? If so, what changed in 2010? Complying with the law in countries where it does business creates a “floor” or minimum standard for ethical and socially responsible behavior. Remember the corporate social responsibility pyramid. Ethical behavior goes beyond just legal behavior and this is particularly important in foreign countries where the laws may be quite different in terms of human rights or care for the natural environment. Recall that we said that companies must start with their own core values and base decisions upon those. What if the law says it’s okay to kill workers who don’t work hard enough? Or, what if the law says that workers don’t need to wear protective gear despite harmful health effects of their work? Will the company comply with those laws and feel okay about what it’s doing??? 8. Google and other companies routinely comply with government rules to censor other types of material, especially pornography, but also hate speech and other moral matters such as sexual images in Islamic countries. Are some forms of censorship acceptable? If so, where/how would you draw the line? This question will require much ethical deliberation and companies may want to bring in ethics experts to help when matters such as these come before them. Core values can help to the extent that one can decide whether any of these breach a core company value. For example, if human dignity is a core value, it might seem permissible to censor pornography. If harm to people is an issue, the decision is even clearer. For example, most of us can agree that child pornography is harmful to the children involved and can have other harmful effects. We can ask questions such as, is hate speech likely to cause harm to the targets of the hate? 9. Tom Donaldson rejects ethical relativism (“when in Rome”) and ethical absolutism (insisting on the same exact standards everywhere for every situation). Instead, he recommends that companies operating overseas adopt an ethical threshold based upon core values such as the golden rule and respect for human rights. Those must then be translated into specific guidelines. Do you think Google’s 2006 operating standards were consistent or inconsistent with Donaldson’s recommendations? If you were going to recommend a set of standards for Google, what would they say and why? We think that Google went against its core values in this case. But, we also think Google has more work to do to develop a set of core values that can truly guide company behavior in situations like this. Don’t be evil doesn’t seem to do it. 10. Every transcultural set of ethics standards for global business practice includes the principle of human rights. For example, the UN global compact says that companies should protect internationally proclaimed human rights and not be complicit in human rights abuses. The Caux Roundtable Principles state that businesses should contribute to human rights in the countries in which they operate. Is Google’s behavior consistent with these expectations? Do you agree that the company “negotiated away users’ human rights” in 2006? We are critical of Google’s 2006 stance. The company seemed to naively conclude that the company could come in and change the culture of a country like China. There have been examples of that as when companies entered South Africa, abiding by the Sullivan Principles. Some argue that they helped to change the country for the better. Although this is still debated, this was a country already in transition and very different from China. We think Google learned a powerful lesson from this experience. But management is still trying to navigate these difficult waters. 11. What about the company’s threat to pull out of China in 2010 if its users could not conduct censorship free searches? Do you agree with it? If so, why was it the right decision at that moment? How might it affect other companies doing business in China? Does it change how you think about the company’s original decision? We agree with the decision. The company’s action was precipitated by concerns for human rights activists in China whose email accounts were apparently hacked by the government. This is a government that takes its censorship and repression of dissent very seriously and the company felt that it could no longer protect user security. But, we wonder about Google’s more recent actions. Have they given up the fight? Homework Assignments 1. Assignment: Research a Country Assign students (as individuals or in teams) to research specific countries. What information will they look for in trying to decide whether to do business there or not. What criteria will they use? The following are excellent on-line resources for completing such an assignment. It would be interesting to then discuss what students or teams learned. Country Information Resources: The Library of Congress country studies: http://lcweb2.loc.gov/frd/cs.cshome.html Political Risk Yearbook, a subscription database: http://www.libraries.psu.edu/business/online.htm (despite its title, this is an excellent resource!) Additional Resources: 1. Exercise: Bafa Bafa Bafa is a tried and true cross-cultural simulation exercise. It requires two facilitators, takes two hours and works best with about 35 students. Students are divided into two groups. Each group learns its "culture" (alpha or beta) from audiotaped instructions and practice. The cultures are designed to be quite different. In fact, the "betas" even learn a different language. (It's easy to learn, but hard to figure out.) Then, the groups exchange visitors who don't try to interact, but do try to understand the other culture. They return with information for their respective group. Then, the cultures trade visitors who actually try to understand the other culture they are visiting. They inevitably make cultural mistakes, and some are even asked to leave. After all students have had an opportunity to visit and interact, the entire group is brought together for debriefing. The experience teaches: • The power of culture • The discomfort associated with being in a culture where you don't know the rules • The comfort of being at "home" • What one needs to do to have a successful cross-cultural experience? Bafa Bafa is available from Simile II, P.O. Box 910, Delmar, CA 92014, 619-755-0272. 2. Discussion: Parable of the Sadhu This is another good place to use the Harvard Business Review case, “The Parable of the Sadhu.” Discussing it at this point in the course allows you to revisit many of the major themes in the course: values, values in conflict, ethical decision making frameworks, moral awareness, goals, leadership, rewards, cross-cultural issues, etc. Note: It is difficult, if not impossible, to obtain the video version of “The Parable of the Sadhu.” However, the print version is readily available through Harvard. 3. Supplementary Cases With this chapter, we have successfully used a couple of Harvard cases. One is the IKEA case, with a focus on child labor. We recommend a video also available through Harvard called “The Carpet” that shows the worst kind of child labor, bonded labor. Harvard also sells a video of the managers in the case, including the CEO, talking about their actions. It’s too long, and is hard to start and stop, but it’s good for students to hear what they have to say. The IKEA case gets into the complexities of child labor and the need to address root causes. IKEA’s commitment to “always do what’s in the best interest of the child” is extremely laudable. Another Harvard case is the Siemens bribery case. It’s one of Harvard’s new interactive cases that includes all kinds of materials including online videos of managers talking about what happened at Siemens and how they are changing the culture. The case brings together many of the concepts from the book all in one place and in the context of an international business ethics issue. 4. Suggested Final Exam An idea for a final exam that has worked very well for us is to have students analyze a film using the various concepts from the course. Select a film such as Wall Street, Dead Poet’s Society, Top Gun, or The Insider. (Lots of films would work but we prefer films that are somewhat complex and not completely negative because we don’t want to leave the students with a negative view of business). Instruct students that they can watch the film as often as they would like and they can discuss the film with others. However, they must analyze the film on their own using concepts they have learned from the course. In most of these films we have identified well over 20 concepts. One professor who uses the book lets the students watch the film as much as they want to. She then holds the exam in a computer lab and gives the students questions to answer about course concepts as they apply in the film. She finds this kind of exam easier to grade and it takes care of some concerns about collaboration. We would suggest providing students with a single sheet with names of characters, actors, etc. so that students don’t have to memorize those. Let us know how it goes! Instructor Manual for Managing Business Ethics: Straight Talk about How to Do It Right Linda K. Trevino, Katherine A. Nelson 9781118582671
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