Chapter 5: Ethics

Lon Schiffbauer, PhD

5

Business ethics, also called corporate ethics, is a form of applied ethics or professional ethics that examines the ethical and moral principles and problems that arise in a business environment. It can also be defined as the written and unwritten codes of principles and values, determined by an organization’s culture, that govern decisions and actions within that organization. It applies to all aspects of business conduct on behalf of both individuals and the entire company. In the most basic terms, a definition for business ethics boils down to knowing the difference between right and wrong and choosing to do what is right.

Ethics and International Business

The importance of international business ethics has been rising steadily along with the growth of international business. Technologies like the Internet have made international business more viable, and many companies can only find the desirable growth and profit they seek by expanding into new markets. This means that just as business ethics domestically have grown in importance along with the power and significance of major businesses, so must international business ethics take center stage as a major concern of the modern era. It may be acceptable to discriminate in certain cultures, even if the people in that society know that it is not right or fair. In global business ethics, people try to understand what the ethical action is and what the normal practice might be. If these are not consistent, the focus is placed on how to encourage ethical actions.

Common Ethical Dilemmas in International Business

Ethical behavior also refers to behavior that is generally accepted within a specific culture. Some behaviors are universally accepted—for example, people shouldn’t physically hurt other people. Other actions are less clear, such as discrimination based on age, race, gender, or ethnicity.

Culture impacts how local values influence global business ethics. There are differences in how much importance cultures place on specific ethical behaviors. For example, bribery remains widespread in many countries, and while people may not approve of it, they accept it as a necessity of daily life. Each professional is influenced by the values, social programming, and experiences encountered from childhood on. These collective factors impact how a person perceives an issue and the related correct or incorrect behaviors. Even within a specific culture, individuals have different ideas of what constitutes ethical or unethical behavior.

Employment Practices

The role of ethics in management practices, particularly those practices involving human resources and employment, differs from culture to culture. Local culture impacts the way people view the employee-employer relationship. In many cultures, there are no clear social rules preventing discrimination against people based on age, race, gender, sexual preference, handicap, and so on. Even when there are formal rules or laws against discrimination, they may not be enforced, as normal practice may allow people and companies to act in accordance with local cultural and social practices.

In theory, most global firms have clear guidelines articulating antidiscrimination policies. Companies often determine whether a person—based on their gender, ethnicity, or race—can be effective in a specific culture based on the prevailing values in that culture. The largest and most respected global companies, typically the Fortune Global 500, can often make management and employment decisions regardless of local practices.

Human Rights

The United Nations Office of High Commissioner defines human rights as rights which are inherent to all human beings, whatever our nationality, place of residence, sex, national or ethnic origin, color, religion, language, or any other status. These rights reflect the basic requirements by which each human being is entitled to in order sustain and exist with dignity. As governments around the globe exercise control over the communities they represent, international law and standards is critical in the protection of human rights.

Environmental Concerns

As the world economy relies heavily on global trade, one of the greater considerations with international business are the effects such operations have on the environment. The physical and cultural boundaries on our planet are dynamic, as they have expanded and contracted throughout history. Only one element within our planet that remains static and that is its size. As humans become more closely connected through international commerce and consumption, the need to protect our natural resources becomes all the more important.

The by-product of increased demand on these resources are concerning, as the extraction of Earth’s material has more than tripled in the past forty years. According to the Worldwatch Institute’s Living Planet Index, which measures the health of our forests, oceans, freshwater and other naturals systems, the decline of the Earth’s ecological health has decrease by 35% since 1970. Sound, ethical decisions made on behalf of growing industries is key in slowing the debilitating degradation of our natural resources.

Corruption

Our modern understanding of business ethics notes that following culturally accepted norms is not always the ethical choice. What may be acceptable at certain points in history, such as racism or sexism, became unacceptable with the further development of society’s mind-set. What happens when cultures change but business practices don’t? Does that behavior become unethical, and is the person engaged in the behavior unethical? In some cultures, there may be conflicts with global business practices, such as in the area of gift giving, which has evolved into bribery—a form of corruption.

Paying bribes is relatively common in many countries, and bribes often take the form of grease payments, which are small inducements intended to expedite decisions and transactions. In India and Mexico, for example, a grease payment may help get your phones installed faster—at home or at work. Transparency International tracks illicit behavior, such as bribery and embezzlement, in the public sector in 180 countries by surveying international business executives. It assigns a CPI (Corruption Perceptions Index) rating to each country. New Zealand, Denmark, Singapore, and Sweden have the lowest levels of corruption, while the highest levels of corruption are seen in most African nations, Russia, Myanmar, and Afghanistan

Moral Obligations

A moral obligation is a duty which is owed and out to be performed, yet is not one that is legally bound to be fulfilled. These obligations are founded on the principle of another human’s natural rights and subsists in morality and conscience. As cultures vary greatly in their value systems, moral obligations can be subjective. In the consideration of natural rights, whether it be shelter, clean air and water, or to be treated with dignity, businesses hold accountability in upholding those rights, regardless of where they exist.

There are many corporations operating without governmental oversight and the effects of doing it, can cause loss and suffering. The Tata group, (a multi-billion dollar global enterprise headquartered in India), employees over one million laborers on tea plantations within India. In a gesture of good, corporate responsibility, the Tata group worked with a World Bank investment firm, ( the International Finance Corporation or IFC), in creating a separate company allowing oversight in the management plantation workers. Although the intention of improving the conditions for the laborers and their families was good, a study by the International Monetary Fund found that the most basic human needs and rights had been withheld.

Why Should We Care?

As the world becomes more heavily involved in international trade, the ability for corporations to maximize profits has exploded. Corporations position themselves in regions that have a rich pool of resources, with the intention to benefit from those resources. Although there are many financial rewards for communities in this exchange, it is expected that businesses be committed to an ethical foundation as it relates to the environment, its employees, and the culture in which it exists. While many communities benefit financially by engaging in this exchange of assets, they also lose if the company investing in them operates without a reasonable code of ethics. It is imperative for those involved in international trade to be aware and accountable for the effects on the population in which they operate. While countries gain comparative advantage, there is an awareness that engaging in business without a certain code of ethics leads to greater harm to a population.

Rio Tinto, is an Australia based company with a heavy presence in Utah. Since its purchase of Kennecott Copper in 1989, Rio Tinto has boosted the Utah economy. In addition to employing 2400 people locally, it supports an additional 14,800 jobs indirectly. In 2009 alone, Rio Tinto’s economic impact on Utah was over 900 billion dollars. Their economic impact is without question, their environmental toll on Utah is troubling. According to the Environmental Protection Agency’s Toxic Release Inventory, the mine and its related operations account for 90% of listed emissions in Utah. When Rio Tinto’s emissions increase, Utah jumps on the list of “most toxic” states. In 2005, Utah ranked 17th on that list, and in 2015, jumped to 4th in our country. Air quality is a great concern in Utah and it is important to address whether Rio Tinto is being responsible in controlling these emissions. As corporations engage in business practices in our state, we rely on them to respond to concerns on how they operate. Whether their approach is based politically, socially, or environmentally, there is an expectation that their actions take in to account the well-being of all shareholders involved in their business.

Examples Here in Utah

The branch of business ethics, whether applied in a global context, requires business decisions that are not made exclusively from an economical perspective, rather others take into consideration the social and ecological concerns as well. Ideally, the interests of all stakeholders must be factored in to the operation with an expectation of the company doing what is right for all involved.

As Utah competes for international companies as their place of doing business, these expectations to protect our resources grows increasingly important. The revenue generated within Utah communities is enormous, as we have seen such multinational companies, such as Rio Tinto invest heavily into the Utah economy. The exchange for the privilege of mining our resources, shows that much harm has been done to the environment in the process. According to a U.S Copper Porphyry Mine Report published by Earthworks in 2012, failures in the mine resulted in a variety of environmental impacts, such as contamination of drinking water aquifers, contamination and loss of fish and wildlife and their habitat, and risks to public health. In some cases, water quality impacts are so severe that acid mine drainage will generate water pollution in perpetuity.

As the world becomes more heavily involved in international trade, the ability for corporations to maximize their profits has exploded. As corporations position themselves for expansion and growth they are drawn to a location by the rich pool of its resources, with the intention of benefitting from such resources. Although there are many financial rewards for the communities in this exchange, there is an expectation from all shareholders involved that these businesses be committed to operating on an ethical foundation as it relates to the environment, its employees, and the culture in which it exists. While many communities reap the financial benefits by engaging in this international exchange of assets, they also have much to lose if the company investing in them operates without an acceptable code of ethics. It is imperative for all those involved in international trade to have an awareness and accountability for the effects on the population in which they operate. While countries strive to gain comparative advantage, there is an awareness that engaging in business without a certain codes of ethics leads to greater harm to a population.

Rio Tinto, is an Australia based company with a heavy presence within the Utah economy. Since its purchase of Kennecott Utah Copper in 1989, Rio Tinto has invested billions of dollars in to the Utah economy. In addition to employing 2400 people locally, it supports an additional 14,800 jobs indirectly. In 2009 alone, Rio Tinto’s economic impact on Utah was over 900 billion dollars. While the economic impact is without question, the environmental toll on Utah’s environment is troubling. According to the Environmental Protection Agency’s Toxic Release Inventory, the copper mine and its related operations account for 90% of a TRI listed emissions in Utah. When Rio Tinto’s emissions increase, Utah jumps on the list of “most toxic” states. In 2005, Utah ranked 17th on that list, and in 2015, that ranking jumped to 4th in our country. With growing concerns for the air quality within our state, it is important to identify and address whether Rio Tinto is acting responsibly in controlling these emissions. As corporations engage in business practices within our state, we rely on them to demonstrate the appropriate responses to concerns in how they operate. Whether their approach is based politically, socially, or environmentally, there is an expectation that their actions take in to account the well-being of all shareholders involved in their business.

References

Lumen Learning. (2018, April 16). Introduction to Business. Retrieved from https://courses.lumenlearning.com/wmopen-introbusiness/chapter/outcome-business-ethics/

“Human Rights.” United Nations, United Nations, www.un.org/en/sections/issues-depth/human-rights/.

International Business Ethics – Business | Laws.com. (n.d.). Retrieved April 16, 2018, from https://business.laws.com/business-ethics/international-business-ethics

Penrod, E. (2017, November 22). Environmental risk is on the rise in Utah, but most emissions come from a single source. Retrieved April 16, 2018, from https://www.sltrib.com/news/environment/2017/11/22/so-the-epa-says-utah-is-rising-on-its-list-of-the-most-toxic-states-in-the-nation-should-you-be-worried/

“The State of Consumption Today.” The State of Consumption Today | Worldwatch Institute, Worldwatch Institute, www.worldwatch.org/node/810#3.

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