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DEFINITION:

CONSTITUENTS OF THE

BUSINESS ETHIC SCENARIO

BUSINESS MORAL

RESPONSIBILITY

The study of the nature, purpose, function and

justification of rules of right conduct within the context

of commerce; broadly conceived to include the

transaction of goods and services at the individual,

corporate, and international level of exchange.

1. Owners: Generally are persons who own the means

of production, resources, and capital that allow a

business to function. Owners are at times placed in

a precarious ethical position when their obligations

to their employees and/or shareholders conflict with

greater societal/environmental obligations.

2. Employees: Employees may also be placed into a

precarious ethical position when, even with limited

decision-making power, they are expected to carry

out work which is unethical in a societal dimension,

but may be profitable for the company. In such

cases, it is problematic to make a determination as to

the exact extent of the employee’s culpability in the

wrong-doing.

3. Management: Managers generally have moral and

legal duties to manage a company to promote the

interests of the owners/stockholders. Concurrently,

managers have obligations toward the security and

well-being of employees. This dual-responsibility

can often lead to conflicts and tensions in the owner-

manager-employee triad. This situation is

compounded by collateral ethical responsibilities to

the public and its safety.

4. Consumers: Although ordinarily the consumers

needs are paramount and may well dictate over-all

policy, this should be counter-balanced with long-

term societal/environmental responsibilities. For

instance, cheap lumber resulting from deforestation

will benefit the consumer, but its overall long-term

impact to the environment and society can be

devastating.

5. Marketing: Dubious marketing tactics can give rise

to a myriad of ethical problems, including false,

misleading, or deceptive advertising. More

significantly, pricing strategies may amount to price

gouging in cases where a product is critically needed

and a company has a monopoly on it – e.g., certain

drugs that are produced by only one pharmaceutical

company that holds patent rights. Lastly, omission

of product information can lead to serious breaches

of ethics where serious safety issues are

downplayed, minimized, suppressed or distorted by

the manufacturer.

6. Accounting: A company's accounting staff may be

placed in a compromised ethical stance in cases

where short-term accounting “irregularities,” though

beneficial to the profit margin – or the job security

of certain executives – may be unfair to

stockholders, or even illegal. In such instances, the

accountant may be in the unenviable position of

tolerating a cover-up (and possibly being held

criminally liable if discovered) or disclosing the

problem and likely losing their job.

1. The Economic Dimension: Large businesses can

affect the economy in a variety of ways; each affect

carries with it a social responsibility of the business

for the overall economy. Business may have political

power due to its economic power; also, issues

pertaining to monopolies, down-sizing, equal job

opportunity, unfair pricing practices, and

environmental impact all pertain to a business’

economic responsibility.

2. Competition and Responsibility: The greater the

competition between rival business factions, and the

greater the perceived risks associated with failure

(including the possible liquidation of the company),

the greater the likelihood that ethically questionable

business practices will be used. These include

sustained price cuts, discriminatory pricing to drive

small businesses out of business, and price wars. In

the case of pricing irregularities, it is often difficult

to initially discern whether a tactic is legitimate

competition that will enhance consumer welfare, or

will ultimately be detrimental to consumer welfare.

Cases of corporate espionage, insider trading, and

leveraged buy-outs provide somewhat more clear-

cut cases of unfair competition.

PRIMARY ETHICAL CONSTRUCTS

1. The Question of Generality: Can the rules of right

conduct that apply to individuals be generalized to

collective entities, such as corporations?

2. The Question of Responsibility: Can a corporation

have moral responsibility? If so, how is

responsibility to be diffused and distributed

throughout the corporate hierarchical structure?

3. The Question of Liability: Provided that

corporations can be meaningfully said to be morally

responsible, must their liability necessarily be

proportional to their responsibility?

4. The Question of Allegiance: Do the commonly

accepted personal virtues of loyalty, commitment,

and devotion have a place in the employer/

employee dichotomy? Does a corporation have an

obligation to provide for a worker based purely upon

that worker’s loyalty to the corporation over many

years – even if the continued employment of the

worker is counter-productive?

THE LEGAL DIMENSION

ETHICAL CONCEPTS IN BUSINESS

The legal arena of business social responsibility exists to

regulate business behavior. The prevailing overall view

is due to the severe potential of conflict of interests;

businesses cannot generally be trusted to be self-

regulating. Some have argued that over-regulation of

business stifles competition, research and development,

and ultimately is a disservice to the consumer.

Nonetheless, it is still necessary to regulate business on

several legal dimensions. These include:

1. Regulating Competition: The essence of these laws

is to promote procompetitive practices in order to

provide the consumer with the lowest possible price

for the best possible product. Contained in this intent

are anti-trust laws designed to prevent businesses

from holding monopolies in the market for their

particular product.

2. Consumer Protection: These laws function to foster

the safety and well being of the consumer by two

primary means: First, insuring that the product

manufactured is safe and complies with safety

regulations; second, providing consumers accurate

and understandable information so they can make

informed decisions in purchasing the product. This

last could include truth in advertising, proper

labeling of the contents and ingredients contained in

the product, and the clear disclosure of the terms and

conditions of contracts.

3. Environmental Protection: Given that a short-term

business profit can often be produced at a devastating

long-term environmental cost, laws preventing the

irresponsible use of natural resources have been

enacted. Such phenomenon as strip-mining, toxic

waste dumping, indiscriminate logging and

deforestation all cause tremendous long-term

environmental damage while netting the business

responsible a greater short-term profit than more

ecologically conscientious methods.

4. Workplace Safety: A business can often turn a

greater profit by keeping production costs to an

absolute minimum. This will often result in

compromising worker safety. The protection of

worker safety then becomes the paramount concern

for regulations designed to hold businesses

accountable for the safety of employees, and their

compensation in case of injury.

1. Conflict of Interest: A state of affairs is said to

constitute a conflict of interests – or potential

thereof – in a set of circumstances where the

individual has the capacity to influence decisions

that promote their self-interest but may have a

detrimental impact upon the organization they

belong to, or the well-being of some other group.

Crucial to a charge of a conflict of interest is the

reasonable expectation that some individuals in

similar circumstances may unfairly favor their own

self-interest at the expense of others (e.g., the group,

organization, or agency).

2. Honesty and Fairness: Honesty is a predisposition

to generally tell the truth and inspire trust. Fairness

is the ability to be objective relative to one’s own

self-interest and to treat the self-interest of others

justly and equitably. Impartiality to one’s own needs

is the hallmark of fairness.

3. Private and Public Morality: Private morality

pertains to actions encompassing an individual’s life

insofar as others are not significantly impacted.

Public morality (of which business morality is a

sub-category) pertains to actions encompassing a

group and its members as to how this significantly

affects others (i.e., other groups or individuals).

SOME MORAL THEORIES

RELEVANT TO BUSINESS ETHICS

1. Teleology: An act is judged to be right based upon

its propensity to produce certain kinds of

consequences. These consequences are often

judged, predicted, or estimated using empirically

gathered evidence.

2. Deontology: An act is judged to be right based upon

the subjective intentions of the agent committing the

act, independently of the prospective consequences

– good or bad – of the act. The intentions of the

agent are often motivated by some perceived

universal moral standard (e.g., the “Golden Rule”).

3. Relativism: All moral standards are relative to

person, place, time and/or culture. There is no

objective, immutable, universal moral standard.

4. Virtue Ethics: The view that the primary and

fundamental moral foundation is to be found in a

person’s character. Rather than rules of conduct to

which persons must adhere, an individual's

personality is cultivated so that by nature and habit

they will have a predisposition to behave in a

morally righteous way.

RECOGNIZING POTENTIAL

ETHICAL ISSUES

Corporate organizations are especially vulnerable to the

phenomenon of “ group-think ”–a group dysfunction

wherein the preservation of harmony becomes more

important than the critical evaluation of ideas. Corporate

groups are especially susceptible to this when the

drive to produce profits may overshadow and

minimize the possible ethical drawbacks of the

means to produce the profits. This can prompt a

situation where safety concerns may be overlooked or

dismissed in an effort to produce the greatest profit at the

least possible cost. To avoid this, a critical dialogue between

in-group and out-group members is often necessary. The

opinions of external observers, if taken seriously, may

suffice to overcome the myopia of group-think.

5. Workplace Equity: Laws enacted to insure equal

employment opportunity for previously marginalized

groups seek to enforce compliance to affirmative

action guidelines. These tactics are designed to foster

and cultivate a workplace demographic that

accurately reflects the racial, age, gender, and other

types of diversity found in the overall population.

Controversy arises when businesses protest that they

should have the right to hire the most qualified

person for the job. This sometimes means that

certain types of individuals must be excluded from

consideration, resulting in the employee population

not reflecting the diversity of the overall society. For

instance, a religious educational institution may

demand the right to hire only staff of a particular

religious denomination.

6. The Problem of Sentencing Irregularities:

Sentencing of persons convicted of so-called “white-

collar crimes”—the typical domain of breaches in

business ethics—is often along more lenient

guidelines than those for criminal convictions such as

robbery. This disparity in the application of the law

has been brought into serious question. Why should

a banking industry executive who embezzles a

fortune be given a lesser punishment than a bank

robber – provided neither incident resulted in

physical harm to persons or property?

THE PHILANTHROPIC ARENA

D. Social Conscience: The scope of empathy is

expanded to include not only specific others, but

the society or community as a whole. A

preliminary rudiment of conscience begins to be

formed at this stage.

E. Social Contract and Rights: A tacit, or perhaps

explicit, recognition of the utility and

advantage of rights and contracts

characterize this stage. Rights, values, and

legal contracts to society are recognized as

worthy of respect and preservation.

F. Universal Ethical Principles: The scope of

individual rights and duties to others is expanded

to become the notion of universal inalienable

rights and ethical principles. These are held to be

true regardless of any particular society’s or

legislative body’s recognition.

3. The Role of Corporate Culture:

The prevailing corporate moral milieu can

significantly affect the moral decision-making of the

members of the organization. For instance, an

employee of a camping gear manufacturer may

become more environmentally conscientious as a

result of company campaigns that raise “ecological

awareness.” Conversely, the corporate culture of

organized crime may foster and cultivate an ethic of

callous disregard for law and law enforcement.

A. Significant Others: This group includes an

employee’s peers, managers and subordinates.

Of all the people in an organizational hierarchy,

significant others within the work group have the

greatest impact upon an employee’s decisions.

In the ethical arena, this is especially pertinent

since directives, memos, and seminars from

higher management may have little impact if the

significant others disagree with such

information.

B. Absolute of Responsibility: Employees

may feel exempt from responsibility for

unethical behavior in cases where they

were following directives from bosses and

managers. The degree to which subordinates

bear moral responsibility for the consequences of

unethical actions undertaken at the expressed

direction of their superiors is a difficult and

complex issue.

C. Incentives and Disincentives: Unethical

behavior may be fostered or discouraged within

the corporate culture by the system of positive

and negative reinforcement functioning within

the culture. For instance, if a large sale is made

using a system of bribes and kick-backs, and the

salesperson responsible for the unethical

business practice is not reprimanded, but may

indeed be commended, then the message is

implicit but clear: Unethical practices will be

tolerated (even rewarded), provided that they

increase sales.

D. Extraneous Factors Influencing Ethical

Decision-Making: Even in cases where an

employee may initially feel that they are being

required to carry out unethical directives,

compliance can be rationalized due to the

influence of extraneous factors, including low

self-esteem and the need to fit in, the need for

acceptance, the fear of losing their job, or the

fear of being demoted or not being promoted.

4. Interpersonal Influences on Ethical Decision

Making: The psychological aggregates of

interpersonal behavior and interaction at the

corporate level play a key role in determining

the capacity of the individual to make ethical

decisions. These factors can be organized via the

dynamics of group interaction, as well as analyzed at

the level of individual dominating personalities

within the group.

This arena encompasses business’ role as a

community member with commensurate obligations

to improve the well-being of the community. There is

an expectation that business should contribute to

improving the community. This may be realized by

subsidizing, promoting cultural events, fostering

educational programs or charitable donations.

1. The Compatibility Paradox: Oftentimes, the very

services and products consumers demand and

businesses attempt to supply, in their most

desirable form, may lead in the production process

to a decrease in the consumers' overall quality of

life. The methods of manufacturing that will bring

consumers the best possible product at the least

possible price may require manufacturing

techniques that have a negative impact upon the

consumer’s quality of life in the long run. E.g.,

ever faster and more ubiquitous information

technology gives rise to ever-increasing risks of

invasion of privacy and its attendant ethical

dilemmas. Frequently, the most consumer-

friendly production methods have the most

environmentally unfriendly impact. Balancing the

short-term convenience of the products’

advantages for the consumer with long-term

quality of life repercussions is a major challenge

for business and society.

2. Philanthropic Incentives: In many instances,

charitable donations produce indirect positive

dividends for a business. For example,

contributions for improving the educational

standards within a business’ community can be

beneficial because they increase the educational

level of the local workforce, thus saving the

company great expense in recruiting non-localized

labor.

THE ETHICAL DIMENSION

This pertains to areas of conduct within the corporation,

the community, or the society which, though not

regulated by law, are nonetheless governed by implicit

expectations and prohibitions regarding acceptable

behavior.

THE MAIN PROBLEM

Perhaps more crucial in business than any other area:

How is that which is beneficial at the societal level to be

made morally obligatory at the individual corporate

level, assuring that such compliance still allows the

primary goals of business (to wit, to make a profit) to be

sought, relatively unimpeded?

1. Are Ethics Adequate For Instilling Social

Responsibility? There is a divergence of opinion

whether ethical requirements that have no legal

ramifications are adequate for assuring compliance

with standards of social responsibility. Virtue theory

would hold that if the individuals that constitute a

corporation are of good character, then the

organization as a whole will be responsible, and

outside intervention and regulation would be an

unnecessary and superfluous intrusion. This leaves it

unresolved as to whether a corporation could

reasonably be expected to foster the virtues of social

responsibility, if this would significantly undercut

their profit margin.

2. To What Extent Should The Corporate Ethical

Direction Reflect Social Responsibility? A

business ordinarily gauges its responsibility primarily

in terms of maximizing the profit for investors and

shareholders; how can a business effectively replace

this focus with a paradigm where ethical decision

making, as this reflects the requirements of social

responsibility, becomes the core of business strategy?

3. Can Public Relations Promoting A Positive

Corporate Image Foster Social Responsibility? A

positive corporate image portraying the corporation

as socially responsible (e.g., by manufacturing

“environmentally friendly” products), can make the

corporation more profitable, if consumers favor the

values the corporation is promoting. Otherwise, with

a lack of profitability, the impetus for corporate

social responsibility would be lost.

THE DECISION-MAKING

SCENARIO

1 . Identifying The Ethical Issue: The first step in any

ethical decision is to identify the problematic issue.

Two factors in this process are the perceived

relevance of the issue to overall corporate strategy

and the perceived intensity or need for the

resolution of the issue at hand. Many obstacles can

impede this process, such as group-think, which

could distort perceptions so that the relevance of the

issue is minimized or entirely dismissed, and

insensitivity of the group to the general nuances of

the issue. This last in turn can be a function of the

moral development of group members.

2. Stages of Moral Development: Kohlberg identifies

six stages of cognitive moral development of the

individual, ideally maturing to the final stage during

their lifetime; the stages may be summarized as

follows:

A. Primitivism: Individual views right conduct

simplistically in terms of negative consequences

for bad conduct. The likelihood of getting

caught for transgressions, and ensuing

punishment for disobedience, dictates the

degree of obedience, making this a very

unreliable and inefficient system.

B. Reciprocity: Right behavior is determined by a

reciprocal and mutually beneficial arrangement

where each party's self-interests have been

equitably satisfied. Fairness becomes of

paramount importance in this stage.

C. Empathy: There is a vicarious identification

with the needs and interests of others in this

stage, such that the perception of right behavior

reflects their needs and interests.

DECISION-MAKING SCENARIO

INTRA-ORGANIZATIONAL

INFLUENCES ON ETHICAL

DECISION-MAKING:

CONFLICT & CONFLICT

RESOLUTION

1. Conflict: Conflict is the result of discord between an

individual’s values and those of the corporate

culture, significant others, or society, and it is

ambiguous as to which values should prevail.

Conflict can occur between two equally desirable

alternatives, as well as two undesirable alternatives.

Conflict can also span several dimensions of the

corporate structure.

A. Personal-Corporate Conflict: When there is

discord between an individual’s personal values

and corporate policy, there is the potential for

conflict. For instance, an advertising agency

may land an account for a lucrative campaign

advertising cigarettes. A top executive is put in

charge of the campaign, but may experience

conflict due to disapproval of the product,

because a parent recently died from lung cancer

caused by smoking.

B. Social-Personal Conflict: Disparity between

an individual’s values and the established social

norms can cause potential for conflict. For

instance, an individual with strong convictions

about the acceptability of alcohol consumption

may be in conflict with a society’s laws

restricting Sunday liquor sales.

C. Corporate-Social Conflict: When a corporation's

values, or products, are in discord with societal

norms, there is potential for conflict. For example, a

videogame manufacturer might want to market an

especially violent video game at local arcades; the

societal norms might disapprove of this in the wake

of increased gang violence. Sometimes, dilemmas

may arise in such conflicts when the production of

a product may not conform to societal values, but its

continued production may greatly help the local

economy.

2. Guidelines for Conflict Management and

Resolution: Although conflict resolution, especially

under conditions of great ambiguity, is complex and

difficult, there are general guidelines in such

circumstances:

A. Personal Accountability: Individuals working

within the coporate environment can never be

fully absolved of personal responsibility for

their unethical actions. Excuses to the effect that

they were “just doing their job” or “following

orders” can only have limited validity. For

instance, a trucker who illegally dumps toxic

waste on the directive of upper-management is

still partly responsible for his actions – even if

he does need the bonus, the job, and has a large

family to support.

B. Long and Short-Term Corporate Interest:

Though unethical actions taken on a short-term

basis may be very profitable, on a long-term

basis they may lead to financial ruin. In conflict

resolution, it is important to be objective and

look at the big picture. For instance, a car

dealership may offer sub-standard, defective cars

at a very low price using deceptive advertising

tactics. Though sales may soar initially, once the

dealer acquires a bad reputation, it may lose

credibility and go bankrupt.

C. The Scope of Responsibility: The repercussions

of ethical decision-making are far ranging in

their impact. This may reverberate not only to

the immediate corporation and its

investors/shareholders, but also the surrounding

community, the environment, and the well-being

of future generations. In managing and

resolving conflict, it is important to be objective

and consider the overall situation.

Identifying

the Ethical

Issue

Stages of

Moral

Development

A. Leadership: The ability to assert positive

leadership is a vital part of inspiring subordinates

to ethical behavior. There are four factors which

play key roles in a leader’s effectiveness:

i. Explicit Positive Reinforcement/Reward:

Can take the form of praise from the leader in

private or public commendation and

recognition.

ii. Explicit Negative Reinforcement/Punishment:

May include reprimands, poor performance

reviews, demotions, or loss of pay.

iii. Implicit Positive Reinforcement/Reward:

Occurs when a leader will tacitly tolerate

and ignore the unethical behavior of

subordinates. By failing to take appropriate

action, the leader indirectly encourages the

unethical behavior.

iv. Implicit Negative Reinforcement/Punishment :

By displaying hostility, scorn, ridicule, or

harassment toward “whistle blowers” or employees

attempting to behave appropriately, a leader

indirectly punishes them.

B. Motivation: The ability to provide incentive for

employees to do a good job and work

productively toward company goals which are

important from both a leadership and

organizational perspective. The motivating

factors can change depending upon an

individual’s place in the corporate hierarchy. At

the rudimentary level, the worker may only need

job security and a steady paycheck; in middle

management, bonuses, recognition, and possible

promotion become motivating factors; at the

executive level, power, prestige, and recognition

become important.

C. Power: The power and influence of leaders and

significant others has a direct correlation with

their effectiveness and motivational ability. John

R. P. French and Bertram Ravin have identified

five sources of power that motivate people within

an organizational hierarchy:

i. Reward Power: A person’s or organization’s

ability to regulate behavior by the incentive of

desirable outcomes. These may include

bonuses, recognition, pay raises, or promotion.

ii. Coercive Power: The operative mechanism

here is fear and intimidation for failure to

comply or conform. The measures employed

could include coercion, harassment, threatened

or actual loss of job, and demotions. Coercion

almost always leads to resentment, conflict,

low employee morale, and is best avoided.

iii. Legitimate Power: When a leader has

inspired strong loyalty and is a recognized

authority with legitimate power, they will have

a great influence on subordinates. This

influence could extend to an enhanced ability

to motivate employees to unethical behavior.

iv. Expert Power: Can yield an extremely

powerful influence upon subordinates and

their willingness to abide by the expert’s

recommendations. Expertise may be

recognized due to experience and seniority on

the job, education, and general credibility.

v. Referent Power: When one individual

perceives another as having like goals and

aspirations, and has some degree of empathy

for the other, then a base of referent power can

be established. Thus, the two view their

cooperation as mutually beneficial.

The Role of

Corporate

Culture

Interpersonal

Influences on

Ethical Decision-

Making

A. Employee Conduct: Generally, employees will

transgress company policy in proportion to the

likelihood of getting caught. The extent and

severity of such transgressions can be

significantly amplified if the employee feels

mistreated, exploited, or treated unfairly by the

corporation. For instance, an employee who

feels exploited by a company will be more likely

to make unauthorized personal long-distance

calls.

B. Socialization: Socialization involves the process

of assimilation and adoption of the views,

attitudes, and values of a group to which the

individual becomes a part. As a result of this

process the individual may significantly alter

their ethical outlook in an effort to “fit in.”

C. Role-Functionality: The role a person adopts

within an organization may also significantly

impact their ethical stance and decisions. For

instance, being in a supervisory position can

make the individual less likely to behave

unethically because they are more accountable

for their behavior and know they are expected to

provide an inspiring and professional role model.

The role-functionality of the individual then

becomes the efficiency with which they function

in their assigned role and fulfill the requirements

of the role.

D. Process of Ethical Decision-Making: In a

typical situation, the flow of the decision-

making process is as follows:

i. Personal Ethics: The individual brings with

them certain pre-existing ethical presuppositions

about what is morally permissible.

ii. Challenge: A situation may be confronted that

challenges the individual's convictions when an

opportunity is presented for them to transgress, and

there is an incentive to do so.

iii. Significant Others: The influence exerted by

significant others seems to be the greatest

determinant in the individual's decision.

iv. Ethical Decision: As a result of the interaction

between personal beliefs, the challenge to abide by

them, and the input of significant others, a decision

to act is made.

v. Action: Precipitated by the previous factors, the

individual acts either ethically or unethically.

E. Differential Association: This is the process of

acquiring ethical or unethical behavior patterns

due to the interaction with close co-workers,

including peers, subordinates and superiors.

Employees are more likely to behave unethically

and rationalize it as acceptable when close co-

workers do so. For instance, a business person

who regularly observes a co-worker charging

personal expenses to their corporate account

with the rationalization that the company “owes

them” for all their overtime, may similarly justify

their own unethical behavior. The differential

association theory holds that had the person not

observed such behavior in a co-worker, they

would have been much less likely to transgress

company policy.

INTERNATIONAL BUSINESS

ETHICS

a “traditional custom.” In such circumstances, it can

be a problematic decision for the corporation. They

must determine how far they will go to

accommodate the traditions and culture of the

foreign host. Ethical conflict is likely in such

situations.

3. Multinational Corporations and Ethical Conflict:

Multinational corporations (MNCs) are corporate

entities that operate internationally without any

significant ties to any one country or region. The

method of operation of MNCs has raised many

questions about ethically dubious and controversial

practices undertaken by such corporations. Problem

areas include:

A . Transfer of Jobs: MNCs will sometimes

transfer jobs to overseas locations in an effort to

avoid local laws governing workman’s

compensation, worker’s rights to unionize, and

minimum wage. This often results in rising

unemployment at the local level. MNCs argue

that this practice raises the standard of living for

the labor hired overseas, and overall benefits the

consumer when the savings on labor result in a

less expensive product.

B. Resource Exploitation: Some MNCs have

been criticized for plundering local natural

resources by purchasing them at a very low

price, producing products from these resources

that are sold at a very high price, and returning

only a very small percentage of the profit to the

local economy.

4. Areas of Ethical Conflict: Both MNCs and

corporations doing international business can run

into ethical problems in the course of conducting

business on foreign soil. These areas include:

A. Discrimination: Racial, sexual, religious, or

ethnic discrimination may not only be tolerated

in certain cultures, but may be an expected part

of traditional customs and behaviors. If such

discrimination is not acceptable to a corporation

doing business abroad, this could easily mean the

failure of its enterprise. For instance, Middle

Eastern culture may exclude women from

participating in business transactions; an

American corporation that insisted on sending a

female executive to negotiate with a Middle

Eastern business interest could offend the

foreign parties and seriously jeopardize – or

completely destroy – its chances for finalizing a

contract.

B. Price Discrimination: This practice can take

one of two forms:

i. Price Gouging: Products sold abroad often

cost more than the same product sold locally

due to the added cost of tariffs, taxes,

transportation, and storage fees. Sometimes,

however, exorbitantly higher prices are

charged abroad – far higher than these

additional costs can justify. This is called

price gouging. Such practices are especially

controversial when the product is critically

needed, or essential; e.g., pharmaceuticals.

ii. Dumping: Occurs when a corporation will

sell its product abroad at a substantially lower

price than the cost of production. This may

occur as a tactic to drive competitors out of

business, and to create a monopoly in the

market for the product.

C. Bribery: In many cultures, bribery, euphemized

as “facilitating payments,” is standard business

practice. Oftentimes, there is a specific percent

of the total sale that is the understood rate of the

bribe, for expediting a specific transaction.

D. Dumping Hazardous Products: In some

instances, a corporation’s home country may

ban, severely restrict, or regulate its product. The

corporation may then try to sell the product in a

foreign market with much less stringent laws, or

where local officials are amenable to bribes and

“looking the other way.” For instance,

certain pesticides that have been banned in

the U.S. market because they are hazardous

to humans are marketed to foreign agricultural

concerns.

E. Compromised Worker Safety: Due to less

regulation of labor, worker’s rights, unionization,

minimum wage, and worker’s safety in many

developing nations, MNCs and corporations with

foreign interests will favor using such cheap,

unregulated labor. Severe ethical issues may be

raised when the labor performed is under

conditions that the home culture views as

abhorrent. For instance, child-labor, “sweat-

shops” and virtual “slave labor.” Businesses

often defend these practices with the argument

that as bad as conditions are, the jobs still afford

the people a significantly higher standard of

living than alternative employment (or lack of)

opportunities.

5. A Global Business Ethic: With the advent of the

Internet and ever more integrated international

business, it is foreseeable that a global business

ethic will eventually develop. Such a prediction

seems feasible in the face of ever-increasing inter-

dependency on international commerce and the

ever-increasing assimilation, cooperation, and

communication between previously isolated markets

and cultures.

The opportunity for conflict increases at the level of

international business interaction due to different

culturally defined standards of appropriate behavior in

matters of ethics, etiquette, and civility.

1. Cultural Factors: The tendency of people to perceive

their social milieu in terms of how their own group

differs from another is called the self-reference

criterion , or SRC for short. This criterion develops

as a function of an individual’s background and core

cultural base of socialization. Culture, broadly

conceived, comprises everything in a person’s

immediate surroundings, including shared concepts

and values peculiar to a given group. Cultural

differentiation may exist when two (or more)

cultures interact and experience incongruence and

disparity on many levels. These may include:

A. Language: There may be enormous

discrepancies in the meaning of words when

translation is attempted from one language to

another. This is especially the case with

advertising slogans which rely on vernacular,

colloquial, or slang expressions which may

translate awkwardly, or offensively, to another

language. For instance, to have the ability to fly

by “the seat of one’s pants” is a compliment to a

U.S. pilot, but the literal translation of this

expression would be an insult to a Russian.

B. Body Language: Everyday gestures and

mannerisms having a clear interpretation in one

culture may be completely misunderstood in

another. To nod one’s head up and down may

mean agreement, acknowledgment that the

speaker has been understood, or disagreement –

depending upon the culture. The amount of

personal space people find comfortable in face-

to-face interaction (i.e., the distance they prefer

to stand from one another) also varies greatly

based upon culture.

C. Punctuality: The acceptable margin of

tardiness may vary greatly from culture to

culture. Americans traditionally place great

importance on punctuality, but Greeks and South

Americans prefer a more relaxed approach.

D. Conversational Etiquette: The subject matter

and the length of time of a discussion can have

extreme cultural variation. For instance,

Americans prefer to “get down to business” right

away and immediately discuss the pertinent

issues. In some Middle Eastern cultures,

however, the convention is that the party who

first brings up business matters in a meeting has

the weaker negotiating posture, and is thus

expected to make more concessions.

E. Ethnocentrism: Is the often implicit,

sometimes explicit, notion that one’s own culture

is superior in some respect to another culture.

Clearly, such attitudes, if manifest, convey an

attitude of disrespect and can be extremely

counter-productive in cross-cultural business

dealings.

2. Cultural Relativism and Ethical Conflict:

Cultural relativism is the belief that there is no single

standard for appropriate behavior that applies to all

people, everywhere, all the time. Each culture’s

standard is as valid as any other. This stance is a clear

contrast to ethnocentrism. The problem arises when

a corporation attempts to conduct business abroad in

a culture whose practices are in great discord with

that of the corporation’s home culture. For instance,

the host culture may find bribery an acceptable

business practice and discrimination against women

CREDITS:

Author: Dr. Albert Lyngzeidetson

Layout: Eddy Pierre

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