Ethics in International Business - Research Paper Example

 Ethics in International Business Introduction: Trends in global markets change fast irrespective of free international trade or policy of protectionism. When ethical standards fall, corporate scandals rise, and this is true of international business. The business schools, of late, have begun to realize the importance of including ethics in their syllabus. At the production end in the factories, and at the receiving end in the market, there are human beings. Business is a social science and human values and ethics of individuals like justice, duty, rights and social order, in the various stages of decision making are important. Ethical development is more of an intrinsic process and it cannot be captured through the printed literature. Knowledge of ethical theories and practical experience enable an individual to face the critical situations, in personal life or in business situations and enable one to determine which ethical characteristics need to be adopted. Ethics in international business will not accrue through learning theory alone. A number of practicalities are involved as the international business platform is mostly volatile on many counts. But one thing is certain. It is in the interest of all concerned, international businessmen, policy makers and politicians involved in business decision making, to learn and execute ethical practices. Accountability and ethical principles need to go in tandem which will contribute to the overall welfare of the global business community in particular and global family of humankind in general. International business has the potential to enhance the country’s capacity to produce goods as well as to export or import them. The Friedman Doctrine is aptly described by Campbell Jones (2005). He dissects the doctrine into three parts and writes, “ First, Friedman explicitly recognizes that capitalism is marked by conflict of interest…this conflict of interest is clearly expressed between business and labor….increasing profit is the responsibility of business, and protecting the interests of labor is the responsibility of labor leaders. Between these two groups, there is an unassailable conflict of interest which is a matter of politics and this cannot be wished away by economists or business ethicists.”(p.98) Describing the position of the state and about social responsibility of the organizations, he elucidates, “ Second, Friedman does not think that the state is a bad thing that should be done away with, as if capitalism could continue without the state….Indeed, one of the reasons that Friedman is concerned about business people exercising functions of ‘social responsibility’ is that these business people have not been democratically elected for the purposes of representing the community at large, are therefore, unlikely to represent the broader interest.”(p.98) And on the ethical issues relating to business, he does the tight rope walking and states, “Third, Friedman expands on the earlier noting that business can engage in competition, ‘so long as it stays within the rules of the fame…the desire of business will be to make as much money as possible, ‘while confirming to the basic rules of society, both those embodied in law and those embodied in ethical custom.”(p.99) This coverage is comprehensive. Milton Friedman (1970) offers detailed comments and expands his arguments, “Presumably, the individuals who are to be responsible are businessmen, which mean individual proprietors or corporate executives. Most of the discussion of social responsibility is directed at corporations, so in what follows I shall mostly neglect the individual proprietors and speak of corporate executives.” (The New York Times)This needs further clarifications. A corporate executive is an employee of the owners of the business and his primary and direct responsibility is to them. He is expected to conduct business as per their desires and directions, which means to earn the maximum amount of profit for the company, with due regard for the basic rules of the society, as per law and as per ethical custom is his prime responsibility. He discharges his duties and responsibilities as per the provisions of law and as per the ethical custom. He walks as if on the razor’s edge. He cannot contribute to social responsibility at the cost of his employers. He cannot be expected to increase the price of the company’s product with the social objective of preventing inflation. For removing unemployment and poverty he cannot employ unskilled labor instead of qualified people whose services are in the best interests of the corporation. He has to strike a careful balance between these dual responsibilities. Milton Friedman argues, “There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (The New York Times)Profit at all times and profit at all costs seems to be a sound proposition. While formulating this assertion, Milton takes a balanced perspective of economic, political and philosophical angles. His position does not issue a free license to indulge in to go for profits in all fronts and secure it in terms of standard economics. Alyce Lomax argues, “The filter of interpretation can be dangerous, and I believe many individuals and corporate players rationalized that particular quote to justify doing anything and everything to profit, regardless of whether the actions were sound for the long term -- or even particularly ethical.”(www.fool.com) That was not the intention of Friedman. The people who own corporations need to adopt ethical standards, discrimination and to moral strength to behave properly. The final results of business devoid of idealism will not fetch results of long-term significance to the free-market proponents. When businessmen are unable to hold them in check, being crazy to acquire more and more, regulation is the logical step. Something must intervene to check aggrandizement for wealth. No businessmen run his establishment to the detriment of the overall societal welfare. The investors need to have option to look out for truly good, healthy companies headed by great corporate leaders and reject the self-serving ones. Companies managed by responsible individuals share the concern of the shareholders and promise them long-term success. About one such company, Lomax writes, “Warren Buffett is a standout example. In a prescient 2006 memo, he warned his managers never to settle for the all-to-familiar excuse "everyone else is doing it." When assessing the morality of a proposed action, managers should instead ask themselves two questions: (1) Is this legal? And (2) Would I feel comfortable with this printed on the front page of our local paper?”(www.fool.com) As Buffett has noted before, "It takes 20 years to build a reputation and five minutes to ruin it."(www.fool.com) Comments on Milton Friedman: Economics and commerce are dynamic forces; no one can say the final word about their functioning. Profit maximization can be attempted by those companies that are in existence long enough to be profitable. But greed can destroy free market systems and may lead to the necessity of political bailouts. When Friedman speaks of long term goals, he does so in good faith. The goal of every organization is to generate profits, to the maximum extent possible. But no sane management of the company would like to enhance profits at the cost of reputation, as that would lead to long-term damaging consequences for the company. Friedman is perfectly right when he pleads the businessmen to adopt the middle course. When government interferes in the free market, where is that free market? Friedman’s quote cannot be contested as such. When government dictates terms, free market suffers. The failure of an individual and his shortcomings resulting in the failure of a transaction cannot be blamed by passing on the onus to someone else. Freidman is one of the finest economists of the 20th century. He is a proponent of freedom and capitalism. He is not mere a text book theorist, he reaches to Chines leaders to teach them free market Capitalism in 1980 and again in 1988. Friedman is pro-free market and strongly believes that freed market should be left free. When the incompetent regulators interfere, problems arise. Those corrupt people tinker with the economic realities, to further the cause of their short-sighted political goals. With faulty corrective measures, distortions occur and impractical incentives are put into place to remedy the situation. But unfortunately the remedy turns out to be worse than the disease. Utilitarian Ethics Our daily decisions are based on reasoning, as to what good will emerge from the action or the harm that it will prevent. Most of the businessmen, politicians and scientists will adopt this weighing scale of good and bad results. All conclusions have an ethical bearing, whether to float a public project or promote a pesticide to increase production in agriculture. Before deciding the course of action, one is inclined to think about the options available and their merits and harms. From the economic angle, the cost-benefit analysis will be made. Claire Andre and Manuel Velasquez write, “Utilitarianism offers a relatively straightforward method for deciding the morally right course of action for any particular situation we may find ourselves in.”(www.scu.edu) Historical development of principle of utilitarianism: This is traced to the writing of Jeremy Bentham of England, who lived in the 18-19th centuries. He being a lawyer, considered utilitarianism from the objective of finding an acceptable norm of laws the England administrators should enact. He concluded his arguments on the subject that the approach should serve "the greatest good for the greatest number." (www.scu.edu) Since his time, the concept of utilitarianism has expanded like the octopus that grows in all the directions. From pleasure and pain, it has reached up to satisfaction of personal preferences and economics. Utilitarianism is currently one of the accepted theories of ethics in the area of international business, but there are practical problems in it being accepted as the sole method for decision making. Business and marketing strategies have undergone rapid changes with the advancement of industrial and internet revolutions and the love of the people for materialistic civilization. Business transactions worth substantial amounts are made on the basis of confirmations/ discussions on the telephone. International business is conducted, transactions are put through, and money is credited on the basis of correspondence through e-mails. The importance of ethics needs to be judged from this aspect. Actions based on ethical principles generate tremendous business goodwill. “As John Stuart Mill, a famous utilitarian once wrote: The happiness which forms the utilitarian standard of what is right in conduct, is not... one's own happiness, but that of all concerned. As between his own happiness and that of others, utilitarianism requires him to be as strictly impartial as a disinterested and benevolent spectator.”(www.scu.edu) John Stuart Mill (2004) defines utilitarianism as a theory based on the principle that "actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness."(p.11) He touches the portals of philosophy by such assertions. Mill’s theory of utilitarianism has received critical receptions. That it does not take into account protection needed for individual rights. It is difficult to measure everything by identical standard and happiness is a complex issue and the theory does not explain it satisfactorily. Mill has answered such criticisms and it must be noted that every logical argument has a logical counterargument. Many models relating to international business ethics have seen the light of the day. Manuel Velasquez,(1995) in his article, “International Business Ethics: The Aluminum Companies in Jamaica,” writes, “I evaluate the adequacy of the three models of international business ethics that have been recently proposed by Thomas Donaldson, Gerard Elfstrom and Richard De George. Using the example of the conduct of the aluminum companies in Jamaica, I argue that these three models fail to address the most important of the ethical issues encountered by multinationals because they focus too narrowly on human rights issues and on utilitarian considerations. In addition I argue that these models also evidence an inadequate understanding of microeconomic theory. I end by proposing that these defects can be remedied by a model of ethics that incorporates a theory of moral rights, a utilitarian-based theory of the market, and a theory of justice.”(Business Ethics…) Mill had broadly touched the subject of business ethics and he writes, “It is the business of ethics to tell us what are out duties.”(p.27) He further takes this aspect of business ethics to its logical conclusion and argues, “…when once the general happiness is recognized as the ethical standard, it will constitute the strength of the utilitarian morality…” (p.49) He thus clears the confusion about the scope of ethics. The Historical Evolution of Friedman Doctrine: Milton Friedman’s doctrine belongs to the 20th century. Before that in the 1930s, Keynesianism was a great reformation of economic thought. Friedman exploded into the economic scene like a volcano and his doctrine even influenced communist countries like China. The Historical Evolution of Utilitarian Ethics: The father of Utilitarianism philosophy was Jeremy Bentham (1748-1832) John Stuart Mill followed next (1806-1873) Joseph Fletcher contributed to the utilitarianism philosophy through his book, Situation Ethics: The New Morality (Philadelphia: Westminster, 1966). Conclusion: The issue of international business ethics is engaging attention at all levels of business organizations, economic and political forums. Its importance is furthered by high-profile examples of breaches in the accepted standards of ethical behavior. What model is followed by a particular business organization is not important. The letter and spirit in which they follow it matters much. Social responsibility and wealth generation can go hand in hand. The Chartered Accountants, the inspectors, and the auditors have a role to play to see that the ethical model adopted is implemented properly. Let it be the model best suited to the industry. The company owes its responsibility at various levels, primarily to shareholders and employees; ethical intervention has diverted their desirable attention towards customers, the local community, and the future generations, all have a stake, and how the company is run. Business ethics is a vital success component and customers develop brand loyalty with such companies. However, international business concerns are more complicated as compared to domestic business. International legal norms, human rights, environmental protection, and child labor are some of the important issues. Some companies do not engage in business, in countries that are known violators of human fights. Corporate codes needs to be so framed, taking into consideration the ethical standards to enable the organizations to operate equitably and with credibility. References Jones, Campbell Jones. (2005) Business Ethics: A Critical Approach. Rutledge Mill, John Stuart (2004). Utilitarianism. IndyPublish.com, United States, Boston, Massachusetts. Andre, Claire. Velasquez, Manuel. Calculating Consequences: The Utilitarian Approach to Ethics Retrieved on October 14, 2012 Friedman, Milton. The Social Responsibility of Business is to Increase its Profits. The New York Times Magazine, September 13, 1970 Lomax, Alyce. Trashing Milton Friedman, Milton Friedman and Ethical Business October 4, 2008 Retrieved on October 14, 2012 Velasquez, Manuel. (1995) International Business Ethics: The Aluminum Companies in Jamaica. Business Ethics Quarterly, Volume 5, Issue 4. ISSN 1052-150X.0865-0882 Read More