CHAPTER 4 The Ethical and Social Environment CHAPTER SUMMARY This chapter explores the ethical and social context of management. The basic topics of discussion include ethics and ethical issues, the nature of social responsibility, the relationship between organizations and governments, and the management of social responsibility. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Discuss managerial ethics, three areas of special ethical concern for managers, and how organizations manage ethical behavior. 2. Identify and summarize key emerging ethical issues in organizations today. 3. Discuss the concept of social responsibility, specify to whom or what an organization might be considered responsible, and describe four types of organizational approaches to social responsibility. 4. Explain the relationship between the government and organizations regarding social responsibility. 5. Describe some of the activities that organizations may engage in to manage social responsibility. The concept of “Fair Trade” has caught on in international trade, though the concept does have its critics. According to this concept, buyers of various products (such as cocoa and coffee) should fund the institution of programs to ensure minimum wage, environmentally friendly policies, etc. so that workers of poor countries are not exploited. While the cost increase of the product to the end user is likely to be only minimal, critics argue that these would eventually affect prices and would be hard to monitor. Discussion Starter: There is a great deal of pressure on CEOs in recent years to use moral criteria in making decisions. Some observers are concerned that too much emphasis on ethics will lead to less aggressive and competitive behavior, which may adversely affect profitability. If you were the CEO of Hershey Foods, would you agree to the “Fair Trade” concept? LECTURE OUTLINE I. INDIVIDUAL ETHICS IN ORGANIZATIONS Ethics are an individual’s personal beliefs regarding right and wrong behavior. Ethical behavior is behavior that conforms to generally accepted social norms. Unethical behavior is behavior that does not conform to generally accepted social norms. Cross-Reference: Note that issues associated with ethics and social responsibility are reflected in the sociocultural dimension of an organization’s general environment, as discussed in Chapter 3. Discussion Starter: A debate that has plagued some business programs is the extent to which colleges can teach ethics. Some experts believe that ethics can indeed be taught, whereas other experts believe that ethics are formed much earlier and thus cannot be taught to people as they get older. Ask students for their opinions. A. Managerial Ethics Interesting Quote: “Moral character is shaped by family, church, and education long before an individual joins a company to make a living.” (Kenneth R. Andrews, Harvard Business Review, October 1989, 99.) Managerial ethics are standards for behavior that guide individual managers in their work. 1. How an organization treats its employees Managers’ ethical standards with respect to hiring, firing, wages, and working conditions must be high when dealing with employees. Discussion Starter: Ask students to provide examples in which an organization they worked for treated them in an ethical or an unethical fashion. Teaching Tip: Note that as organizations enter a period of cutbacks and downsizing, the potential for unethical treatment of employees tends to increase. 2. How employees treat the organization The ethical standards of an individual may conflict with the organization’s policies with respect to interest, secrecy, honesty, and expense accounts. Discussion Starter: Note that many recent corporate scandals, such as those at Tyco, Enron and WorldCom, are allegedly cases of individual misdeeds in defiance of corporate policies. Ask students whether they believe that an organization can distance itself from the actions of its workers or whether the organization must somehow be responsible for creating an environment in which unethical conduct can occur. 3. How employees and the organizations treat other economic agents Managers also must have high ethical standards when dealing with customers, competitors, stockholders, suppliers, dealers, and unions. It is important for managers to supply truthful, clear communications with these economic agents in order to behave ethically. Discussion Starter: Again, solicit student experiences regarding their treatment of another organization and/or the treatment of their employer toward another organization. Global Connection: The United States is not alone in having to deal with ethical scandals. For example, several scandals have plagued Japan in recent years. In one instance, several large investment houses were charged with providing illegal kickbacks to major clients to cover their investment losses. B. Ethics in an Organizational Context Unethical behavior by management and other employees sometimes occurs because the firm has an organizational context that is conducive to such behavior. Employees who work for firms that support and encourage unethical acts, though they are in the best interests of the firm, may find themselves in a conflict-of-interest situation. Discussion Starter: Ask students their opinion of the comment made by Wallner, a Hypercom executive, regarding a manager who is apparently committing unethical actions: “He [is] bringing in $70 million a year. Do you fire your number one rock star because he’s difficult?” Do the students agree? Why or why not? C. Managing Ethical Behavior Top managers are responsible for setting the ethical standards for an organization. Committees can be formed to investigate possible unethical activities internally, and employees can attend training sessions to learn to act more ethically when faced with certain situations. A code of ethics is a formal written statement of the values and ethical standards that guide the firm’s actions. Teaching Tip: If your school has a code of ethical conduct for students, it might be interesting to discuss it here. Note, for example, the similarities and differences that might exist between a university code and a business code. Extra Example: Other firms that have a code of ethics include Motorola, Coca-Cola, and Texas Instruments. Group Exercise: Ask students to identify what common themes and ideas are likely to be reflected in all corporate codes of ethics. Principles of ethical norms include utility, rights, justice, and caring. Utility asks whether the act optimizes outcomes for constituencies. Rights is concerned with whether an act respects the rights of the individuals involved. Justice means consistent and fair. Caring considers whether an act is consistent with people’s responsibilities to each other. Organizational justice refers to the perceptions of people in an organization regarding fairness. The four basic forms of organizational justice are: distributive , procedural, interpersonal, and informational. II. EMERGING ETHICAL ISSUES IN ORGANIZATIONS A. Ethical Leadership 1. Leaders set the ethical tone for the organization. 2. The Sarbanes-Oxley Act of 2002 requires top managers to personally vouch for the truthfulness of their firm’s financial disclosures and imposes significant penalties for violations. B. Ethical Issues in Corporate Governance To provide adequate corporate governance, boards of directors must be independent of management influence, as well as familiar with the firm and its industry. C. Ethical Issues in Information Technology Online privacy is an important emerging area of ethical concern. III. SOCIAL RESPONSIBILITY AND ORGANIZATIONS Social responsibility is the set of obligations an organization assumes to protect and enhance the society in which it functions. A. Areas of Social Responsibility 1. Organizational stakeholders—people and organizations that are directly affected by the practices of an organization and that have a stake in its performance. These stakeholders include customers, employees, the local community, and creditors, just to name a few. Any firm that ignores one of its constituents is asking for trouble. Dealings with various constituent groups is often grounds for ambiguity regarding ethical and socially responsible conduct. Cross-Reference: Note the similarities between the concept of constituents and that of task environments as discussed in Chapter 3. Group Exercise: Have students develop a “map” similar to Figure 4.3 that shows the constituents of another organization, such as your college or university, a local business, etc. 2. The natural environment—Laws now regulate how far a company can go with respect to the natural environment. Previously, companies dumped sewage, waste products, and trash anywhere they could. Although many of the problems have been reduced or eliminated, there are still major problems facing the natural environment. Global Connection: Note that environmental concerns are greater in some countries than they are in the United States. Germany, for example, has very strict environmental protection laws, and citizens there are generally interested in protecting the environment. In contrast to Germany, however, in other countries concerns for the environment are given low priority. The clearing of the rain forests in the Amazon basin is one significant example. Another is the continued destruction of animals facing extinction in parts of Africa. Extra Example: Organizations with significant commitment to the natural environment are discovering an unusual strategy—lobbying the government for stricter regulation. Examples include Honda, which makes an efficient and clean solar-electric car, and Stoneyfield Farm, the nation’s largest maker of pesticide-free organic yogurt. 3. General social welfare—Organizations also can promote the general social welfare by contributing to charities, philanthropic organizations, and not-for-profit foundations and associations, among other ways. B. Arguments For and Against Social Responsibility 1. Arguments for social responsibility—There are four main reasons to support social responsibility: a) Businesses create problems and therefore should be responsible for solving them. b) Corporations are citizens in our society, too, and should not avoid their obligations as citizens. c) Businesses have the resources to help. d) Businesses can profit from social responsibility if consumers are aware of their efforts. (Businesses can also lose profits if they are not socially responsible.) Discussion Starter: Ask students to help identify specific examples of how socially responsible behavior has had a positive impact. 2. Arguments against social responsibility—There are also four reasons often given against social responsibility: a) Businesses should simply focus on making a profit. b) Involvement in social programs gives businesses too much power. c) There is a potential for conflict of interest. d) Organizations lack the expertise to understand how to assess and make decisions about worthy social programs. Discussion Starter: Ask students to help identify examples of how socially responsible behavior may have negative effects. Discussion Starter: Ask students for their thoughts and opinions regarding the relative merits of the arguments for and against social responsibility. This can also be set up as a debate exercise with different teams arguing for and against social responsibility. C. Organizational Approaches to Social Responsibility Firms can adopt a number of different stances regarding social responsibility. 1. Obstructionist stance—describes firms who do as little as possible in the social responsibility arena. If cited for unethical behavior, they deny it, cover it up, or try to hide it. 2. Defensive stance—describes firms who do only what is legally required and nothing more. 3. Accommodative stance—describes firms who not only do what is required by law, but on selected issues will do more. 4. Proactive stance—describes firms who do far more than is legally required in all situations. Teaching Tip: Be sure to stress that these four approaches represent points along a continuum, as shown in Figure 4.5. Thus, there are often fine gradations between different approaches to social responsibility. Discussion Starter: Ask students to help identify other examples to illustrate each of the four approaches to social responsibility. Teaching Tip: Note the relationship between the four approaches to social responsibility and the arguments for and against social responsibility. For example, a firm whose managers strongly oppose social responsibility will be more likely to take an obstructionist or a defensive approach, whereas a firm whose managers endorse social responsibility will be more likely to take an accommodative or a proactive approach. Discussion Question: Ask students whether they believe tobacco will ever be outlawed. Ask their thoughts on whether it should be banned. Teaching Tip: Stress the point that an organization’s approach to social responsibility may be inconsistent and/or contradictory. IV. THE GOVERNMENT AND SOCIAL RESPONSIBILITY A. How Government Influences Organizations 1. Direct regulation—the establishment of laws and rules that dictate what businesses can and cannot do in prescribed areas Teaching Tip: Describe how your local community regulates business through its zoning procedures. If relevant, describe a recent controversial zoning decision. 2. Indirect regulation—finding ways to influence firms to act in a socially responsible way without direct laws One way is to change the tax structure of organizations to make business act in a way that the government thinks is socially acceptable. B. How Organizations Influence Government 1. Personal contacts—relationships between business leaders and political leaders can be used by businesses to present their cases or positions. 2. Lobbying—the use of a formal representative, by either a single organization or a group of organizations, before political bodies on behalf of the organization or organizations. Extra Example: Organizations that rely heavily on lobbying differ widely on issues and political stances. For example, one website listed these organizations as the most powerful lobbying groups in Washington (in descending order): the American Association of Retired Persons, the National Federation of Independent Business (small-business owners), the American Israel Public Affair Committee, the NRA, and AFL-CIO. 3. Political action committees (PACs)—special organizations created to solicit money and then distribute it to political candidates. Extra Example: In the 2008 presidential election year, prominent PACs included the American Federation of Teachers, a labor union, and the American Medical Association, a physician’s union. 4. Favors—Organizations sometimes rely on favors and other influence tactics to gain support. The favors vary widely, such as offering free airline travel on corporate jets. Interesting Quote: “You just tend to listen more carefully to people who are helping you stay in office than to people who are not or are trying to harm you.” Representative Rick Lazio, a Republican from New York, quoted in Speaking Freely, 2nd Ed., by Larry Makinson (Center for Responsive Politics, 2003). V. MANAGING SOCIAL RESPONSIBILITY A. Formal Organizational Dimensions 1. Legal compliance—the extent to which the organization complies with local, state, federal, and international laws 2. Ethical compliance—the extent to which the firm and its members follow basic ethical standards of behavior 3. Philanthropic giving—the awarding of funds or other gifts to charities or other social programs Global Connection: As noted, international businesses have become frequent contributors in different countries where they do business. For example, UPS supports national Olympic teams in dozens of different countries. B. Informal Organizational Dimensions 1. Organization leadership and culture—The basic culture and leadership practices of an organization can define the social responsibility stance adopted by an organization and its members. Extra Example: Dave Thomas, former CEO of Wendy’s, gave millions of dollars to help needy children. He also donated large amounts of his time to help them learn to read and to provide adoption assistance. 2. Whistle blowing—occurs when an employee discloses illegal or unethical conduct by others within the organization. Discussion Starter: Several recent corporate scandals, including Enron’s, have been disclosed by whistle blowers. Ask students whether they agree that women tend to be more ethical than men. Discussion Starter: Solicit student opinions regarding whistle-blowing. In particular, ask how many of them would, in fact, “blow the whistle” themselves if it meant the possible loss of a job. Extra Example: A popular 1999 movie entitled The Insider (starring Russell Crowe and Al Pacino) tells of a research scientist employed by a tobacco firm who loses his job and is threatened for telling the truth about the health dangers of smoking. The movie was based on the true story of whistle blower Jeffrey Wigand, who was fired from cigarette maker Brown & Williamson in 1993. C. Evaluating Social Responsibility To evaluate a firm’s social performance, an organization can conduct a corporate social audit. This is a formal and thorough analysis of the effectiveness of the firm’s social performance. CHAPTER 5 The Global Environment CHAPTER SUMMARY This chapter focuses on international issues in management. After introducing students to the nature of international business, the chapter discusses the structure of the global economy. Various challenges regarding the economic, political/legal, and cultural environment of international business are described. The chapter concludes with a discussion of how firms compete in a global economy. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Describe the nature of international business, including its meaning, recent trends, management of globalization, and competition in a global market. 2. Discuss the structure of the global economy and describe the GATT and the WTO. 3. Identify and discuss the environmental challenges inherent in international management. 4. Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy. The United States’ embargo against Cuba means that, among other things, Cuban coffee cannot be sold in the United States. Paul Katzeff, founder and CEO of Thanksgiving Coffee Co. believes that the embargo is politically and morally unjust and is laying the foundations of a business relationship with that country once the embargo is lifted. The opening case presents both sides to the controversial embargo and also details how the embargo affects companies. Management Update: It appears as though President Barack Obama is listening to those who feel that the embargo against Cuba should be lifted, albeit gradually. In April 2009 he announced the easing of travel restrictions to Cuba. LECTURE OUTLINE I. THE NATURE OF INTERNATIONAL BUSINESS International business is a pervasive process that touches virtually every sector of the economy and every business in the world. People around the world use products on a daily basis that are imported from countries thousands of miles away. Group Exercise: Have students generate a list of the ten products they use most frequently. Then have them research the national origin of the companies that make them. Discussion Starter: Ask students to predict which products made in the United States are most likely and least likely to be successful abroad. A. The Meaning of International Business There are four forms of international business. 1. A domestic business acquires essentially all of its resources and sells all of its products or services within a single country. 2. An international business is primarily based in a single country but acquires some meaningful share of its resources or revenues from other countries. 3. A multinational business has a worldwide marketplace from which it can buy raw materials, borrow money, and manufacture products and to which it subsequently sells its products. 4. A global business transcends national boundaries and is not committed to a single home country. Teaching Tip: Stress for students that these four categories of international business fall along a continuum. B. Trends in International Business After World War II, U.S. firms dominated the markets for automobiles, electronic equipment, machine tools, and most other industrial products. However, after war-torn Germany and Japan rebuilt their factories, they began to invade the U.S. markets. U.S. firms are now finding that to be competitive, they must think globally. Extra Example: In 2011, based on revenue size, 133 the world’s largest 500 businesses were U.S. firms. Sixty-eight were Japanese and 35 were French. (Fortune’s Global 500 List, available at www.fortune.com) Extra Example: Wal-Mart Stores was the world’s biggest firm in 2011, with revenues in excess of $421 billion. C. Managing the Process of Globalization Firms that plan to increase their international business activity must plan their expansion into foreign markets very carefully. Several alternative approaches are possible. 1. Importing and exporting is the easiest way to enter a market with a small outlay of capital. Exporting involves making the product in the firm’s domestic marketplace and selling it in another country. Importing means that a good, service, or capital is brought into the home country from abroad. Teaching Tip: Stress for students that the difference in exporting versus importing is point-of-view. When Rolex markets its watches and ships them to U.S. jewelers, Rolex is exporting, but the stores who buy the watches for sale in the United States are importing them. Teaching Tip: Although the U.S. steel industry has declined greatly since the 1970s, today it is experiencing a revival by importing raw steel from Brazil and other makers and then transforming it into value-added customized products for American manufacturers. 2. Licensing is an arrangement whereby one company allows another to use its brand name, trademark, technology, patent, copyright, or other assets in exchange for a royalty based on sales. 3. Strategic alliances occur when two or more firms jointly cooperate for mutual gain. A joint venture is a special type of strategic alliance in which the partners share ownership in a new enterprise. Extra Example: One of the most successful strategic alliances is Cereal Partners Worldwide, or CPW. CPW is an alliance between General Mills and Nestlé (a Swiss firm). The two firms entered into the partnership to compete with Kellogg in Europe and other international markets. Kellogg dominated the European markets, so General Mills and Nestlé saw the strategic alliance as the best strategy. General Mills contributes its cereal names and technology, while Nestlé adds its recognized consumer brand name and handles distribution. CPW is number 1 in markets such as China, Poland, East and Central Europe. It is a strong second to Kelloggs in the U.K., Italy, France, and Mexico. 4. Direct investment occurs when a firm headquartered in one country builds or purchases operating facilities or subsidiaries in a foreign country. Maquiladoras are light-assembly plants built in northern Mexico close to the U.S. border. These plants receive tax breaks from the Mexican government, and there is a large population of workers willing to work for low wages. Global Connection: The passage of the North American Free Trade Agreement has increased the importance of maquiladoras to firms doing business in Mexico. Teaching Tip: Stress the fact that large firms use multiple methods of international business. For example, Ford ships cars made in the United States to Canada (exporting), contracts with Mazda to manufacture part of the Ford Escort (licensing), jointly develops the Mercury Villager minivan with Nissan (strategic alliance), and owns several manufacturing plants in other countries (direct investment). Teaching Tip: Use Table 5.1 to describe the advantages and disadvantages of the four different approaches to internationalization. D. Competing in a Global Market The functions performed by a firm are the same, whatever the level of international involvement. However, the complexity is greater for international firms. The key question is whether to operate as one global, integrated firm, or to allow each regional branch to operate more independently. Most multinational firms use both global and local activities as they search for the optimal answer to this question. II. THE STRUCTURE OF THE GLOBAL ECONOMY A. Mature Market Economies and Systems A market economy is based on the private ownership of business and allows market factors such as supply and demand to determine business strategy. The United States, Japan, and France, among others, have a market economy. Market systems are clusters of countries that engage in high levels of trade with each other. One mature market system is controlled by the North American Free Trade Agreement (NAFTA); another is controlled by the European Union. Group Exercise: Have students sketch a world map from memory with no aids. Then have them mark the approximate locations of each of the market systems discussed on the next several pages. Discussion Starter: Ask students for their opinion of NAFTA. For example, ask whether they think it is generally a good or a bad thing for each of the three major partners. Still another mature market system is Pacific Asia (Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, Hong Kong, the Philippines, and Australia). Discussion Starter: Ask students which countries in Europe and Asia they have visited. Then ask how similar to or different from the United States each country was. B. High Potential/High Growth Economies High potential/high growth economies are found in countries whose economies are just now beginning to emerge as important business centers. They are generally characterized as recently having weak industry, weak currency, and relatively poor consumers, but they are currently experiencing strong development and growth. China and India fall into this category today. Other examples of developing countries include Brazil and Vietnam. Global Connection: Although China and India represent the world’s two largest countries in terms of population, American firms experience a significant risk in moving into those markets based on political, economic, and cultural differences. C. Other Economies The Middle East and much of Africa cannot be classified as a market or developing economy due to their mixed models of resource allocation, property ownership, and development of an infrastructure. Additionally, the countries that are involved in political or ethnic violence (including Peru, Northern Ireland, Turkey, and Afghanistan) are poor business risks. III. ENVIRONMENTAL CHALLENGES OF INTERNATIONAL MANAGEMENT A. The Economic Environment 1. Economic system—Most countries are moving toward a market economy in which free choices made by firms and customers determine business success. Most countries have a mix of publicly and privately owned businesses. Cross-Reference: Point out that the principles of economics classes your students probably took as sophomores should have provided them with an in-depth understanding of the material introduced here. 2. Natural resources—Countries vary in the degree to which they have natural resources available for production purposes or for selling. Japan, for example, has relatively no natural resources, while the United States has a great variety of natural resources. Extra Example: Oil has been the foundation of the economies of the Middle Eastern countries for decades. In the United States, wood, minerals, and oil are key natural resources. 3. Infrastructure—Countries also vary in the degree to which they have developed their infrastructures: the schools, hospitals, power plants, railroads, highways, ports, communication systems, air fields, and commercial distribution systems. Extra Example: Alcoa had to build a school and a sewage treatment plant adjacent to a manufacturing plant it was constructing in Peru. Extra Example: Following its victory in Baghdad, American and coalition forces teamed up with local citizens to begin the task of rebuilding Iraq’s infrastructure. B. The Political/Legal Environment 1. Government stability can be viewed in two ways: as the ability of a given government to stay in power against other opposing factions in the country or as the permanence of government policies toward business. The more instability in the government, the riskier it is to do business with a country. In some very unstable economies, foreign businesses have been nationalized—taken over by the host country government. Extra Example: The political turmoil in African countries such as Somalia and Angola provide vivid examples of the resultant uncertainties that can affect the business community. Similar problems, albeit to a lesser degree, characterized much of Eastern Europe during the fall of communism. Extra Example: Although the government of Cuba has been relatively stable for years (under the regime of Fidel Castro first and now his brother, Raul), many observers believe that communism will eventually collapse in that country. Fidel Castro is getting on in years and there is no evidence of a strong second tier of leadership who will have the same impact as did Fidel Castro. Following a period of turmoil, Cuba is eventually expected to become an important market in the Caribbean. 2. Incentives for international trade—Many countries offer incentives to foreign businesses to attract them to these countries. Some examples of these incentives include free land or tax breaks. 3. Controls on international trade—A government can impose a variety of barriers to international trade to protect its country. A tariff is a tax collected on goods shipped across national boundaries. Teaching Tip: The stiff trade barriers employed by the government of Japan continue to be a point of contention between that country and the United States. U.S. firms, for example, argue that there are so many trade barriers in place in Japan, that it results in unfair competition for them. Quotas are a limit on the number or value of goods that can be traded. Export restraint agreements are agreements that convince other governments to voluntarily limit the volume or value of goods exported to a particular country. “Buy national” legislation gives preference to domestic producers through content or price restrictions. 4. Economic communities are sets of countries that have agreed to significantly reduce or eliminate trade barriers among its member nations. NAFTA, the European Union, the Latin American Integration Association (Bolivia, Brazil, Colombia, Chile, Argentina, and other South American countries), and the Caribbean Common Market (the Bahamas, Belize, Jamaica, Antigua, Barbados, and twelve other countries) are examples. Discussion Starter: Ask students why they think there is no Asian economic community with the strength and identity of the EU or NAFTA. C. The Cultural Environment 1. Values, symbols, beliefs, and language—When the countries in which a firm is manufacturing or selling a product or service have different cultures, problems can arise. For example, Barbie dolls (made by U.S.-based Mattel) are considered by many Muslim parents to be too sexual for young children, and so they are not popular products in Muslim countries. Discussion Starter: Ask students to think of common business practices in the United States that might seem odd or unusual in a foreign country. If you have any international students in class, you might ask them about business practices in their home countries that would seem odd or unusual in the United States. Extra Example: A current joint venture between IBM (a U.S. firm), Toshiba (a Japanese firm), and Siemens (a German firm) headquartered in New York has faced several problems stemming from cultural differences. For example, the Germans are unhappy that the offices do not have windows, while the Japanese are unhappy that the offices are too small for large groups to gather. Meanwhile, the U.S. managers are unhappy because they feel that the Germans and the Japanese speak their native languages too often rather than communicating with each other in English. Language can also be a barrier in international management. Not only the words that are spoken, but the nonverbal aspects of language can pose a problem to managers in a foreign country. Extra Example: Many firms today are adopting English as their “standard” language. For an informative—and amusing—take on this, see “World Speak English, Often None Too Well; Results Are Tragicomic,” The Wall Street Journal, March 22, 1995, A1, A15. 2. Individual behaviors across cultures Social orientation—a person’s beliefs about the relative importance of the individual versus groups to which the individual belongs. Two opposing beliefs are individualism and collectivism. Power orientation—a person’s beliefs about the appropriateness of power and authority differences in hierarchies. Power respect recognizes authority, while power tolerance suggests less emphasis on authority. Uncertainty orientation—feelings held by individuals about uncertain and ambiguous situations Goal orientation—manner in which people are motivated to work toward goals. Those with aggressive goal behavior seek money, possessions, and assertiveness, while passive goal behavior tends to value quality of life, relationships, and concern for others. Time orientation—extent to which individuals adopt a long-term versus a short-term outlook. IV. COMPETING IN A GLOBAL ECONOMY A. Globalization and Organization Size 1. Multinational corporations take a global perspective by transferring capital, technology, human resources, and inventory from one market to another. Teaching Tip: Note the diverse set of countries represented in Table 5.2. This is a list of the world’s 60 largest multinationals. Teaching Tip: Have your students locate the most recent list of the Global 500 (Fortune publishes the list each year around midsummer, or it is available online at www.fortune.com.). Compare new lists with this table and note the changes. 2. Medium-size organizations are still primarily domestic organizations that buy and sell products made abroad and compete with businesses from other countries in their own domestic market. Extra Example: Many medium-size firms are finding it relatively easy—and quite profitable—to export to foreign markets. 3. Small organizations are benefiting from a global economy by being able to sell their products and services to a much larger organization without having to change many, if any, of their current work procedures. B. Management Challenges in a Global Economy 4. Planning and decision making in a global economy Managers need a broad understanding of the environment and competition in a global economy in order to plan effectively. The amount of information required to make sound business decisions also is greater in a global economy. Cross-Reference: Note that the international implications for planning are integrated throughout Chapters 7–10. 5. Organizing in a global economy The degree of control allowed the local managers in a global economy will influence the difficulty of organizing. If little control is provided to managers, they must frequently travel to or communicate with the corporation in order to determine what to do; managers with more control can simply organize the business in the way they think it should be done. Cross-Reference: Note that the international implications for organizing are integrated throughout Chapters 11–14. 6. Leading in a global economy In order to lead effectively, managers must understand how cultural factors affect individuals with respect to motivation, communication, and leadership in general. Cross-Reference: Note that the international implications of leading are integrated throughout Chapters 15–19. 7. Controlling in a global economy The basic control issues for international managers include operations management, productivity, quality, technology, and information systems. Cross-Reference: Note that the international implications of controlling are integrated throughout Chapters 20–22. CHAPTER 6 The Multicultural Environment CHAPTER SUMMARY Chapter 6 discusses the nature of diversity and multiculturalism including current trends, the dimensions of diversity and multiculturalism, and their impact on organizations. Individual strategies and organizational approaches for managing diversity and multiculturalism are then explored, and the fully multicultural organization is described. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Describe the nature of diversity and multiculturalism. 2. Identify and describe the major trends and dimensions of diversity and multiculturalism in organizations. 3. Discuss the primary effects of diversity and multiculturalism in organizations. 4. Describe individual strategies for and organizational approaches to managing diversity and multiculturalism in organizations. 5. Discuss the characteristics of the fully multicultural organization. The opening case portrays the effects of the sub-prime mortgage crisis on blacks and Hispanics. Blacks and Hispanics accounted for 49 percent of the increase in homeowners between 1995 and 2006. They were, invariably, sold higher cost mortgages ostensibly because of their higher credit risk. In many cases, credit worthy customers belonging to these groups were sold higher rate mortgages even when they were eligible for lower rate ones. LECTURE OUTLINE I. THE NATURE OF DIVERSITY AND MULTICULTURALISM Multiculturalism—the broad issues associated with differences in values, beliefs, behaviors, customs, and attitudes held by people in different cultures. Diversity exists in a group or organization when its members differ from one another along one or more important dimensions such as age, gender, or ethnicity. Organization culture, multiculturalism, and diversity are closely related concepts. Discussion Starter: Ask students to debate the following question: “Are all organizations diverse?” One approach to answering that question is to think of organizational examples that support or contradict the students’ responses. Another approach would focus on the dimensions of diversity—the extent of diversity depends on how diversity is defined. II. DIVERSITY AND MULTICULTURALISM IN ORGANIZATIONS A. Trends in Diversity and Multiculturalism Organizations today are becoming more diverse due to a variety of reasons. 1. The demographics of the labor market are changing so that employees are more likely to be female, an ethnic minority, and older. 2. Organizations seek out more diverse employees because of an increased awareness that diversity improves the quality of the workforce. 3. Legislation and legal action have required organizations to be more diverse. 4. Globalization has contributed to more diversity in organizations as employees cross national boundaries more often. B. Dimensions of Diversity and Multiculturalism Teaching Tip: Note the various observable dimensions of diversity that are present in your classroom. Note the additional dimensions that may exist but that are not observable (i.e., religion, dietary preferences, political beliefs, etc.). Teaching Tip: Stress the fact that diversity is a continuum. No group will be absolutely diverse because people will always have something in common. At the same time, since no two people are exactly the same, some diversity will always be present in every group. Cross-Reference: Note that the topic of individual differences, a construct related to diversity, is discussed from other perspectives in Chapter 15. 1. Age distributions—The average age of the U.S. workforce is gradually and continually increasing due to declining birthrates, the aging of the baby-boomers, improved health care that extends workers’ productive life, and fewer legal restrictions on hiring older workers. 2. Gender—The number of females in the workforce is increasing while the number of males is shrinking. Women face special problems in the workforce such as glass ceilings. A glass ceiling is a barrier that keeps females from advancing to top management positions in many organizations. Extra Example: In the last several years, there has been an increasing number of women rising to the top ranks in large companies. Examples include CEOs Irene Rosenfeld of Kraft Foods and Ursula Burns of Xerox, as well as CEO Indra Nooyi of PepsiCo and COO Colleen Barrett of Southwest Airlines. 3. Ethnicity— refers to the ethnic composition of a group or organization. Ethnic diversity is increasing in the American labor pool, but minorities still face considerable barriers to advancement. 4. Other dimensions of diversity include handicaps, religion, single parents, dual-career marriages, alternative lifestyles, vegetarianism, and political ideologies. Teaching Tip: The Americans with Disabilities Act has made organizations even more concerned with disability status as a dimension of diversity. 5. Multicultural differences may manifest themselves in organizations as a result of immigration patterns and/or international expansion. Discussion Starter: Some people view diversity as a fundamental management issue today. Others see it as a faddish issue mostly relevant to ideas associated with political correctness. Ask students for their views. Interesting Quote: “The whole point of managing diversity is to draw on the uniqueness of each employee. If people feel that they must censor what they say and how they act, the major benefit of diversity is lost.” (Robert Lattimer, diversity consultant, Fortune, August 8, 1994, 80.) III. EFFECTS OF DIVERSITY AND MULTICULTURALISM IN ORGANIZATIONS A. Diversity, Multiculturalism, and Competitive Advantage Six arguments indicate how multiculturalism contributes to competitiveness: 1. The cost argument suggests that firms that learn to cope with diversity will generally have higher levels of productivity and lower levels of turnover and absenteeism. 2. The resource acquisition argument suggests that organizations that manage diversity effectively will become known among women and minorities as good places to work. 3. The marketing argument suggests that firms with diverse workforces will be better able to understand different market segments than those with less diverse ones. 4. The creativity argument suggests that organizations with diverse workforces will generally be more creative and innovative than those with less diversity. 5. The problem-solving argument suggests that diverse organizations have a better pool of information from which to draw in making decisions. 6. The systems flexibility argument suggests that firms must become flexible as a way of managing a diverse workforce, causing the overall organization to be more flexible. B. Diversity, Multiculturalism, and Conflict There are various ways in which diversity can lead to conflict. Some of these include the perception of favoritism, misunderstood interactions, differences in culture causing embarrassment or uneasy feelings, fear of individuals who are different, and personal prejudices. Global Connection: Fear and prejudice related to multiculturalism can, at the extreme, lead to violence. A 2001 CIA analysis of demographic trends cites Afghanistan, Colombia, Iraq, Pakistan, and Yemen as examples of poor, politically unstable countries where unemployed and misinformed youth “provide exceptional fodder” for terrorist organizations. Discussion Starter: If you don’t mind controversy, ask students for examples of conflict they have experienced that resulted from diversity. Group Exercise: Have students watch a movie like Philadelphia, Working Girl, Men of Honor, Legally Blonde, Remember the Titans, My Family, or Bend It Like Beckham. Have them note the causes and consequences of diversity-related conflict. Cross-Reference: We discuss conflict in more detail in Chapter 19. IV. MANAGING DIVERSITY AND MULTICULTURALISM IN ORGANIZATIONS Discussion Starter: Ask students how they might better prepare themselves in college for working in a diverse work setting. Ask if they anticipate any problems being able to do so. A. Individual Strategies 1. First, a manager must understand the nature and meaning of diversity. Differences cause people to act differently, and managers must be aware of this fact. 2. People in diverse organizations should try to understand and empathize with the perspectives of others. 3. Tolerance is needed when a behavior of people from other cultures is not enjoyed by others who must witness it. 4. Open communication is needed between all members of the organization. Discussion Starter: Ask the students to critically evaluate each of these individual strategies for managing diversity. Under what circumstances is one likely to be more effective than the others? Global Connection: Given the trend toward globalization, there is a very high probability that many of your students will, at some point in their careers, work for a foreign company and/or have a boss and/or subordinates from another country. Discussion Starter: Ask students if they can identify any other individual methods for managing diversity. B. Organizational Approaches 1. Organizational policies that affect how people are treated as well as policies that arise from problems caused by diversity will influence how employees perceive the organization’s approach to managing diversity. Formally stated policies about workplace diversity can be included in the mission statement. 2. Organizational practices can also be used to manage diversity. The more flexible the practices, the more easily diversity can be managed. 3. Diversity and multicultural training can allows members of an organization to better function in a diverse workplace. Extra Example: Exxon requires that every employee in the firm participate in a diversity training program. Extra Example: U.S. Army officers must attend one “diversity event” every three months. Events might include a seminar, presentation, or activity such as a party celebrating diverse groups. 4. An organization culture that values diversity is also an important element of diversity management. Interesting Quote: “People must be managed on an individual-by-individual basis. That’s the only way with integrity to manage diversity. You can’t manage as a group or you will continue to stereotype.” (Barbara Jerich, executive at Honeywell, HR Magazine, April 1991, 35.) Extra Example: Some firms designate a top executive to be responsible for diversity. For example, Xerox, the U.S. Postal Service, IBM, Exxon, and Union Carbide all have managers who play this role. In some cases, diversity is only one part of the manager’s charge, while in other cases it is the manager’s sole responsibility. Discussion Starter: Ask students if they have encountered any specific organizational policy or practice that seemed to facilitate or inhibit diversity in the organization. Global Connection: IBM has used its diversity savvy very effectively in Japan. A few years ago the firm was finding it difficult to attract and retain qualified employees for its Japanese operations. IBM began recruiting from an untapped source of employees: older women who had left the workforce to start a family. At the time, it was traditional in Japan for such women not to return to work. IBM found that many were actually interested in restarting their careers if offered the chance. Discussion Starter: Ask students if they think that diversity-related issues can be handled via the hierarchy, by mandate, and by similar bureaucratic means. V. TOWARD THE MULTICULTURAL ORGANIZATION The multicultural organization is one that has achieved high levels of diversity, is able to fully capitalize on the advantages of the diversity, and has few diversity-related problems. A. A multicultural organization has six basic characteristics: 1. Pluralism—Every group in the organization will work to understand every other group. 2. Full structural integration—Diversity within an organization will be a complete and accurate reflection of the organization’s external labor market. 3. Full integration of the informal networks—No barriers to entry and participation in any informal organizational activity, such as mentoring or socializing, will exist. 4. Absence of prejudice and discrimination—All people will be valued and respected, and personal attributes will not be held against anyone. 5. No gap in organizational identification based on cultural identity groups—Stereotypic roles will not exist; all groups will be appropriately represented in all areas and at all levels of the organization. 6. Low levels of intergroup conflict—Groups will work together smoothly, and any conflict that arises will be restricted to work-related issues as opposed to personal ones. Instructor Manual for Management Ricky W. Griffin 9781111969714
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