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Ethical Difficulties of MNC


1.      Introduction

Globalisation forces business to operate in a borderless world and therefore, multi-national corporation (MNC) faces more challenges than ever before in the contexts and different countries they operate.  Except economic performance, Leisinger (1995) argues that there are increasing non-economic demands due to social change with higher moral standard.  These demands can be social and environmental responsibility in a wider context according to Leisinger, but they can also be the working practices in an operational level.  Due to different ethical and moral standards among different countries, MNC is often under a dilemma situation with ethical difficulties in their decision-making process.  Successful MNC requires stability for development.  Yet, Bowie (in Beauchamp and Bowie, 1997) emphasises that such stability requires commonly accepted moral rules to be effective.

This paper focuses on the operational level about working practices of MNC.  First of all, it attempts to explain what ethical difficulties multi-national businesses can face in operating in several countries; and what the general principles are in order to resolve such ethical problems.  Then, one example of such a problem is used to illustrate the resolution.  Finally, a conclusion will be drawn at the end of the report.

2.      Ethical difficulties

Ethics is the system of moral principles; while moral is concerning principles of right and wrong behaviour (Shaw and Barry, 2000).  McNeil and Pedigo (2001) argue that business ethics is the fundamental part of the decision-making process within an organisation.  However, it is not easy to make sound ethical decisions and the complex is more evident in a global business environment.  MNC cannot impose the moral standards from its home country (usually from developed countries) on the rest of the world (host countries from developing countries).  Rather, some people contend that relativism is the only doctrine that guides the right or wrong and good or bad behaviour depends on one・s culture (Bowie in Beauchamp and Bowie, 1997).  Hence, there are clearly conflicts of differences such as standard, practices, ethics, laws, culture, customs, system of government and socio-economic system (Figure 1) that put MNC into ethical difficulties when operating in several countries.

2.1    Standard

Standard is .an accepted or approved example of something against which others are judged or measured・ (The Collins English Dictionary, 2000).  Many developing countries hold a lower standard than developed countries such as propriety, honesty and integrity.  Product quality is one of such examples.  McNeil and Pedigo (2001) define product quality as .the condition of products either being received or exported・.  The manufacturers from developing countries (host countries) representing MNC ship products in very poor condition most of the time.  It is because the people from the host countries are usually not well-educated so they would not see standard as an ethical problem.  Ethical difficulty is arisen whether MNC should tolerate a low standard to sacrifice its customer service for external stakeholders; or insist the standard and move production to higher cost countries but reduce profitability for internal stakeholders.

2.2    Practices

Practice is .a usual or customary action or proceeding・ (The Collins English Dictionary, 2000).  For example, gift giving is an accepted business practice in many cultures.  However, it is greatly restricted in the United States and is perceived as setting up a potential conflict of interest.  Kohls and Buller (cited in Buller et al, 1997) argue that gift giving implies two conflicts depend on the intention and situation.  In the first situation, the ethical conflict may be interpreted as minor because the intention of the gift is just business etiquette and not to influence the business decision.  The second situation is more severe and viewed as .bribe・ if the intention of the gift deals with more fundamental standards of fairness in business dealings (ie the gift is designed to sway the decision-maker toward making a judgment in one・s favour).  Hence, practices can be an ethical difficulty for MNC in these dealings: should MNC accept or reject a gift from its partners in the host country?  Is it really ethical to interpret the intention of the others as a bad one?

2.3    Ethics

All of the dilemmas mentioned in Figure 1 are about the ethics of the country.  It is very difficult to justify what is right or wrong due to different ethical perception from different countries.  Human rights hold that human beings are born free and equal in dignity and rights, for example freedom of speech.  These rights and freedoms exist without distinction of any kind.  They are understood as a common possession of humankind, not dependent on membership in any particular group, organisation, nation, or society (Frederick, 1991).  This is not always the case in developing countries, but the people there see this inequality as normal situation.  Ethical difficulty is therefore happened: should MNC follow the ethics of the host countries (depriving the human rights of its employees); or follow the code of ethics from its home country (this might be a violation to the ethical system of the host countries)?

2.4    Laws

Laws are .a rule or set of rules enforceable by the courts・ (The Collins English Dictionary, 2000).  The system of law in most developing countries cannot protect social equity.  For example, there is pay scale variance between men and women, racial and ethnic groups, professional and occupational groups.  Moreover, the wages of labour in developing countries are much lower than developed countries.  de George (1986) cites that most American companies have this ethical difficulty.  If they pay the going wage, which by American standards seems pitifully low, they are accused by Americans of exploiting the local workers.  If they pay well above the going wage, they are accused by local companies of stealing away their best workers and of attempting to drive wages up so as to put them out of business.

2.5    Culture

Culture is .the total of the inherited ideas, beliefs, values, and knowledge, which constitute the shared bases of social action・ (The Collins English Dictionary, 2000).  It is often a caution to observe and respect other・s cultural values.  Yet, racism is still a major problem in the context of MNC.  Racists prejudge other cultures based on generalisations made about that particular group (McNeil and Pedigo, 2002).  Even the people from developed countries are more educated, this problem remains as a result of individual perception.  Racism often happens implicitly in workplace, for example mistrust between different cultures.  This creates ethical difficulty as all people should be treated equally regardless of their race, while the truth is that it is very difficult to achieve indeed.

2.6    Customs

Customs is .the long-established habits or traditions of a society collectively・ (The Collins English Dictionary, 2000).  For example, women are viewed as inferior to men and are not protected under the customs of some developing countries.  Most women are also discriminated and sexual harassed in the workplace.  Many men in the workplace, whether intentionally or not, end up encouraging or condoning harassment.  They know their behaviour makes women uncomfortable but they feel this is right from their traditions.  Moreover, women in these countries do not receive equal opportunities.  According to Freeman and Gilbert (cited in Lucas, 2001), this is a conflict (ethical difficulty) between two principles: the cultural relativism versus legal/moral relativism.  Can MNC rectify this kind of tradition which is seen as .no problem・ in the host country; or follow the customs but this would definitely receive criticism from its home country for sex discrimination?

2.7    System of government

The system of government in many developing countries is bureaucracy and inefficient.  Bribery and grease payments are the major problems in these countries.  Bribe is .relatively large amounts of money given far the purpose of influencing officials to make decisions or take actions that they otherwise might not take・ (Carroll and Buchholtz, 2000).  The money is often given to high-ranking officials.  The purpose is to get these persons to purchase goods or services from the bribing firm, avoid taxes, forestall unfavourable government intervention, secure favourable treatment, etc.  On the other hand, grease payments is .relatively small sums of money given for the purpose of getting minor officials to do what they are supposed to be doing, or doing faster or sooner, or doing better than they would otherwise・ (Carroll and Buchholtz, 2000).  It is the money given to junior staffs for the purpose of expediting through red tape or administrative bureaucracies.

Under such environment, it is difficult for MNC to concern about ethical problem if they want to do business in the host country.  However, de George (1986) argues that the situation of the local business and MNC is very different.  Local business might have no choice but to operate within a corrupt system or not to operate at all.  But MNC has a very real option of not operating there at all, while continuing to operate everywhere else that it already does.

2.8    Socioeconomic system

The standard of living in many developing countries is still very low and therefore, it usually generates serious economic problem.  One of the examples is child labour.  Children are often forced to make growth-stunting sacrifices (Donaldson, 1989) as a result of ineffective socioeconomic system, for example high unemployment rate or political instability.  Developed countries generally have stricter labour laws dealing with employment of children or minors and limit the number of hours that employees are allowed to work.  However, there is less protection in the developing countries due to inferior law system.  MNC often views this as ethical difficulty.  If they employ child labour, they will be criticised by the people from their home country as they deprive the childhood of the children.  If they do not employ child labour, the families of these children might have problem to survive.

3.      General principles

The above shows that ethics is one of the restraints on international business.  However, ethical difficulties are inevitable in such a global context because of inconsistent cultural norms and conflicting interests among countries.  Beauchamp and Bowie (1997) identify four options (not all mutually exclusive) for MNC when they face ethical difficulties: (1) follow the norms of its home country because that is the patriotic thing to; (2) follow the norms of the host country to show proper respect for the host country・s culture; (3) follow whichever norm is most profitable; (4) follow whichever norm is morally best.  The authors also mention that there might be no one appropriate course of action for a multinational business to take.  So what general principles should MNC follow in order to resolve ethical problem as discussed above?

Caroll and Buchholtz (2000) suggest a framework for ethical choices as shown in Figure 2.  It is a blended of international codes of ethics (conduct) with a mix of home and host country standards as the application of ethical principles.  Using this framework as a basic, the general principles can be developed from several levels: personal, MNC, multi-national and international.

3.1    Personal level

McNeil and Pedigo (2001) argue that integrity is the .essential・ to deal with ethical difficulty.  Integrity is .adherence to moral principles; honesty・ (The Collins English Dictionary, 2000).  It emphasise the importance of personal strength and beliefs for the correct ethical behaviour in dealing with person matters and international business.  It is also about the principle of personal virtue.  Virtues are traits of character that both help individuals achieve their goals and are beneficial to the larger community (Hoffman and Frederick, 1995).  Virtue is the choices that individuals make about how to respond to life events are informed and directed by their ethics (Johannesen, cited in Keyton and Rhodes, 1997).  It implies that integrity is important and MNC must train their managers and employees to make decisions based on correct personal virtues.

3.2    MNC level

de George (1986) contends that MNC should hold the general utilitarian principle by producing more good than bad for the host country.  Yet, Bowie (in Beauchamp and Bowie, 1997) argues that MNC should remain moral minimum in the sense that if these specific moral rules are not generally followed, then there will not be a society at all.  This view is aligned with Donaldson・s theory of social contract.  According to Donaldson (1989), there is a social contract for productive organisation (here referring to the MNC).  It is because MNC uses the land and natural resources from the society.  In return, society has the right to expect MNC to enhance the general interests of its stakeholders, and honour existing rights and limit their activities to accord with the bounds of justice. 

That means the social contract demands managers of MNC not only owe moral duties to shareholders, but also move beyond to what Donaldson calls .derivative obligations・ for business responsibility.  From a personal level, the manager is bound as an individual to respect the rights of others.  From a wider perspective, the manager is an agent of the MNC and bound by the social contract・s requirement, who and the MNC must respect rights and limit their actions to the bounds of justice.  If the MNC does not follow this moral minimum, they are in the position of benefiting from doing business with the society while at the same time engaging in activity that undermines the society.  Ultimately, this is just a self-defeating and the MNC will finally suffer from failure.

Most of companies have a code of conduct that guides workplace behaviours.  However, international transactions are particularly prone to .gray areas・ and difficult to make a .black or white・ decisions across cultures (England, 2003).  Yet, a formal corporate policy is still essential as a general guidance.  McNeil and Pedigo (2001) found that this kind of policy must be robust in both frequency and strength of the responses.  It involves pragmatic actions at the macro level: governed by documented rules and procedures which apply uniformly around the work and transcend cultural barriers; as well as micro level actions with more tactical in nature: uniform rules specifying levels of authority and limits of trade representation to avoid disputes.  The International Business Ethics institute (cited in England, 2003) creates a list of principles to guide the behaviour for corporations which is integration, implementation and internationalisation (Figure 3).

3.3    Multi-national level

It is an agreement that there are different cultural, ethical and moral standards among home and host countries for MNC.  Freeman and Gilbert (cited in Lucas, 2001) argue that cultural relativism is relative to a specific culture, society, or community, which means there are no standards or measures to judge morality of a particular culture.  Therefore, MNC should adopt a normative ethical relativism, which holds that people from two different cultures can hold opposite views and both be considered right while trying to avoid ethical imperialism (Lucas, 2001).  The goal of comparing cultural practices is to understand them, not to judge them as good or bad.  MNC must follow in the first priority the local laws, norms, morals, and practices associated with the country in which they are conducting business; while using standards from home country to achieve best ethical decisions to the most people. 

Moreover, Leisinger (1995) views unethical conduct is primarily unintelligent and occasionally even stupid behaviour that focuses on supposed short-term advantages (profitability) without considering mid- and long-term consequences (violating ethical concerns).  It is often happened in MNC because these actions are done in host countries so they are less likely discovered and criticised by the people from home country.  Hence, MNC must always bear in mind that they should promote intelligent thinking to reduce selfish tendencies.

3.4    International level

A list of international codes of ethics can be a basic reference for any appeals to justify practices of home country over host country or vice versa.  Asgary and Mitschow (2002) have produced such a list of International Business Code of Ethics (Figure 4), which is mostly aligned with Donaldson・s international rights and de George・s rules for international trade (Figure 5).  However, Donaldson (cited in Beauchamp and Bowie, 1997) argues that there is no such unlimited obligation for MNC, for example unlimited aid people in achieving their rights, unlimited provide food and education, etc.  Rather, MNC do have a duty to avoid depriving people of any of their fundamental rights as in Figure 5.

Frederick (1991) also holds that the declaration of human rights posits the Kantian person as the fundamental of moral authority.  According to Frederick, the human person is said to possess an inherent worth and dignity, as well as inalienable and equal rights and freedoms.  Therefore, correlative duties and obligations are imposed on everyone to respect and not to interfere with the rights of others.  As a principle, Frederick emphasises that human rights span and disregard cultural and national boundaries, class systems, ethnic groupings, economic levels, and other human arrangements which for a variety of reasons differentiate between individuals and groups.  Only with this principle, MNC can break out of their respective societal contexts and handle human rights in a trans-cultural manner.

4.      Example

The ethical difficulty about different remuneration practices is used as an example.  As mentioned above, the wages of labour in developing countries are much lower than developed countries.  So should the MNC pay the same wage as in their home country or same wage as in the host country?  The general principles discussed above are used to resolve this problem.

From the personal level, wage difference is justified with the test of personal integrity and virtue.  The manager of the MNC should ask her/himself whether the wage difference for the same position between home and host country is a correct ethical behaviour that achieves individual goals and beneficial to the larger community.  Does the manager pay a market rate of wage which is viewed as standard from the host country?  Of course it is unethical if the answer is .no・ as the manager does not make the decision with honesty.  If the answer is .yes・, it is not moral wrong because the manager pays the standard wage from the host country and recognises the differences from home country.  Saying it differently, it is impossible to pay this market rate of wage in the home country due to different standard.  So based on the test, the decision makes no harm to the manager and the MNC, as well as the employees in the host country.

The MNC level requires the consideration of the social contract and moral minimum to resolve the wage difference.  Moral minimum requires the MNC to preserve its very moral right and it is not necessary for the MNC to go beyond this minimum.  However, the fact shows that the market rate of wage in most developing countries is far below the standard of living.  This causes many people live under the level of poverty.  So does it mean paying the standard wage in the host country is moral minimum?  It is less likely as the social contract demands the MNC to make decisions with the bounds of justice.  Justice needs fair and reasonable treatment.  Therefore, no matter what the going wage, the MNC should pay at least wages that are sufficient for the worker to live at a standard of living considered acceptable in that country.  This is also what the moral minimum should refer to.  Yet, the MNC would be required to do certain researches for the correct wage to be paid before preparing its code of conduct for integration, implementation and internalisation.

The multi-national level requires MNC and its managers to adopt normative ethical relativism to respect cultural differences.  First of all, the wage paid to the employees of the host country must meet the local laws.  Other considerations such as norms, morals, practices, standards, etc can be used to justify the decision after satisfying the law requirement.  For example, there might be a minimum wage set under the law in the host country.  However, the market might also accept wage variation depends on individual experience and the industry the worker is in.  If there is no such market information, the MNC can use their standard from home country to adjust the wage such as experiences.  In order to avoid violating the culture, the MNC still needs to handle with care of the wage differences among the workers from the same host country.  Therefore, it is recommended that the manager of the MNC should be sensitive and understands the culture very well before making any decisions.  Meantime, the decisions must also consider the long-term benefits (mutual respect) rather than short-term advantages (profits) for the MNC.

Finally, the international level helps the MNC to resolve the wage difference problem if they cannot make the decision from the above three levels.  International code of ethics involves much about human rights that ethical difficulties can be resolved in a trans-cultural approach.  Recall that human rights hold that human beings are born free and equal in dignity and rights.  That is, all human beings have the same right to receive fair and non-discriminatory treatment regardless of its race.  The MNC should provide at least sufficient wage for the worker to live in accordance with general norms of human dignity.  Moreover, the approach also requires the MNC to provide other remuneration or benefits to treat the worker without discrimination as the practices in its home country, for example safe working environments, etc. 

5.      Conclusion

As a conclusion, the discussions above show that MNC often face ethical difficulties when operating in several countries.  It is because there are clearly conflicts of differences such as standard, practices, ethics, laws, culture, customs, system of government and socio-economic system between their home country and host countries.  This paper suggests that the MNC should use different principles for decision-making when there are such difficulties.  The principles include four levels: personal, MNC, multi-national and international. 

Although these approaches can guide the business behaviour, it is important to remember that what is considered ethical in one country might be viewed as unethical in another.  MNC should be sensitive for the cultural differences and handle every decision with care and respect.  Finally, globalisation forces MNC to be more concern for their moral rules or traits and these are often seen as competitive advantage.  MNC should try to fit into the ethical thinking for their decision-making process, while those who do not are less likely to survive in the new challenges.


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