International Business Policy An Ethical Perspective

1. International Business PolicyAn Ethical Perspective Session 5: Values, Ethics and Rationality

2. My Intention… Is to empower individuals and companies to live a life they have reasons to value. In particular, I like to • Develop awareness of values, of their diversity, and of their importance • Analyze how values influence thinking, actions, and communication and how they can contribute to rationality • Identify strategies to anticipate ethical risks and nurture values-based leadership • Create credible communication strategies My ultimate goal is that you end up being more powerful in integrating your values into your decisions.

3. The Value of Values Values allow managerial coordination beyond command and control Values help to capture why we do things, why we choose some course of action over others, why we take our decisions Values shape choices and hence define our identity and the one of organizations

4. A Classification of Values • Instrumental values (egoism): Pursuing your self-interest. Causing good consequences to oneself: e.g. your salary (individual level); profit (corporate level) • Instrumental values (altruism): Pursuing others’ interest. Causing good consequences to others: e.g. your family, your boss (individual level; your employees, your customers, the society (corporate level) • Deontological values (idealism): Respecting rules and principles: e.g. your education; a code of conduct (individual level); the law, professional standards (corporate level) • Emotional values (virtue): Generating good feelings: e.g. sense of integrity, pride (individual level); positive ethical climate (corporate level)

5. Some Statement of Values “An inventor company to help shape the future and come up with innovations that benefit humankind” “As a company, and as individuals, we value integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect” “Our business practices shall be open and honest to protect the integrity of the company and of each employee” “To be reliable implies that we all live up to our commitments and deserve the confidence of our customers. We are reliable when we demonstrate fairness, honesty and professionalism in relation to customers, the general public and colleagues”

6. A change of business context and role? The majority of global opinion leaders believe that global business plays a role that no other institution can in addressing major social and environmental challenges.* Companies are expected to integrate human, social, and environmental values in their decisions. However, less than half of these opinion leaders trust that companies will actually do the right thing.* * Edelman Trust Barometer 2007

7. Beyond Statement of Values • There are the values we state we care about • There the values we know we care about • There the values upon which we actually act Who we think we are, who we say we are and what we actually do are not necessarily identical Beyond statement of values, actual behaviors in front of real situations, and in particular in front of conflict of values, are major determinants of individual and corporate identity

8. Self-interest Money Profit Growth Competitiveness Economic efficiency Market shares Technological innovation Tax optimization etc. Economic Values Two types of values • Integrity, fairness • Loyalty, respect for rules • Honesty • Human rights • Benevolence, care for others • Social responsibility • Respect for democracy • Environmental sustainability • etc. Ethical Values How to they combine?

9. Ethical Values Less ethical More Ethical Better Interest Worse First Discourse: Idealism Irrational Rational Some people will insist that ethical values should be the sole and unique criterion of choice

10. Ethical Values Less ethical More Ethical Better Economic Values Worse Second Discourse: Economic Rationality Rational Irrational Some people will insist that economic values should be the sole and unique criterion of rational choice in business

11. Ethical Values Less ethical More Ethical Better Interest Worse Third Discourse: Corporate Social Responsibility Rational Irrational Some people will insist that interest and ethics always combine and never conflict

12. Would you lie for a monetary gain? $ 1 000 Lying $ 1 Telling the truth According to economic rationality, you should lie whenever you have an interest to do so. According to idealism, you should never lie.

13. ? Should you pollute less? Continue Polluting Maintain profits Increase costs Pollute less According to economic rationality, you should not care about pollution beyond its expected negative impact on profits What do you think our children think about this logic?

14. ? Should a company respect the law? Violate the law $ - 100 000 (including the fine) $ - 150 000 Respect the law What is the value of the law beyond the cost of the punishment? Economic rationality answer is: zero! What about the value of the spirit of the law?

15. Should our supply-chain respect Human Rights? Violate Human Rights Economic Value Respect Human Rights Of course, companies do respect human rights even if it is costly. Don’t they?

16. Should we say everything? Hide the danger of a product or of an activity Avoid regulation, Maintain a market growth Favor regulation Threaten a market growth Reveal risks associated with a product or an activity We often have an interest in hiding potential risks Indeed, sincerity in communication can be very costly… Where is the limit between confidentiality and transparency?

17. Will you avoid corruption? Paying a bribe Winning a contract Losing a contract Paying no bribe Is corruption a necessary evil… …of economic competition?

18. What about conflicts of interest ? (1) Against the interest of the company In your own interest Against your own interest In the interest of the company Why would you act in the interest of the company?

19. What about conflicts of interest ? (2) Against your own interest In the interest of the company Against the interest of the company In your own interest Reciprocally, could a company be motivated to act in the interest of its employees even when this is against its self-interest?

20. Ethical Dilemmas: tough choices Best interest of the actor Less ethical Worse interest of the actor More ethical An Ethical Dilemma arises when the action that best favors the interest of the actor conflicts with the action that is the most ethical

21. ? Ethical Dilemmas: Priority to Interest Best interest of the actor Less ethical Worse interest of the actor More ethical • We resist admitting the ethical issue (denial) • We insist on our good faith (justification) • We discard any alternative and tend to blame others (absence of freedom, inability to do otherwise) • We face the ethical risks. In the worst case, we lose on both ethics and interest

22. ? ? Ethical Dilemmas: Priority to Ethics Best interest of the actor Less ethical Worse interest of the actor More ethical • We acknowledge the ethical dimension (Awareness) • We anticipate the ethical risks (Prudence) • We construct the opportunity (Vision) • We face economic risks. In the best case, we win on both ethics and interest

23. Ethical Values Less ethical More Ethical Better Interest Worse Open Rationality Priority to interest Ideal Priority to ethics Irrational Rational choices between interest and ethics are often kept hidden, but they are the most difficult. It does not help much to have our head in the sand...

24. Beyond the first layer of discourses • Explicitly and/or implicitly, you may be taught that interest is the (only) criterion for rationality • Lying, deception, pollution, human rights violations, law infringement, corruption, exploitation, etc are issues difficult to address during a MBA • We do not choose the less ethical action because it is a pleasure, but because we perceive an interest in doing so • When we do so, we are inevitably tempted to deny the dilemma, the justify our action, and to pass the responsibility to others

25. ? Interest of the consequence 1. Economic Analysis Step 1: What is the action that leads to the best consequence for you? The rational actor (you, the team, the firm) 1. Anticipates the consequences of the available actions 2. Evaluates these consequences according to their interest for the actor 3. Identify the action that leads to the best consequence

26. To which extent is it ethical? Emotions/Virtue: Do I feel good? Is this a natural way to act? Deontology/Idealism: What sort of principle, rule or norm do I respect? What happens if everybody does the same? What happens if I always act like this? Utilitarianism/Consequentialism: What are the good consequences for others? Would I like these consequences for myself? What are the good consequences for the environment? Would the children of my children like these consequences? To which extent is it unethical? Emotions/Virtue: Do I feel bad? Is this an unnatural way to act? Deontology/Idealism: What sort of principle, rule or norm do I violate? What happens if everybody does the same? What happens if I always act like this? Utilitarianism/Consequentialism: What are the bad consequences for others? Would I suffer these consequences for myself? What are the bad consequences for the environment? Would the children of my children dislike these consequences? ? 2. Ethical Analysis Step 2: What is the ethics of the action that leads to the best consequence for you? Here you raise an ethical dilemma! Here you justify your interest!

27. Watch the Ethical Blind Spot • Do I harm? (Consequences) e.g. an action is unethical to the extent it harms others or the environment • Is this wrong? (Rules) e.g. an action is unethical to the extent it violates an ethical rule, norm, principle, law or code, in the letter or in the spirit • Does it feel bad? (Emotions) e.g. an unethical action produces a bad feeling that acts as an early warning signal Clarifying our ethical blind spot to better know ourselves, and to better understand and anticipate others attitudes and behaviors towards us

28. Unethical aspects of behavior ? ? ? 3. Ethical Dilemma Step 3: Facing the extent to which there is a dilemma More ethical alternative Prudence: Could the unethical aspects lead to unexpected negative consequences? Vision: Can you find a more ethical alternative? Imagination: If the consequences of the alternative affect your interest, cannot they be improved?

29. Transparency Social involvement & support New scope of activities New business processes Long term thinking Strategic investment Positive motivation Learning process Lack of transparency Legal pressure Liabilities Bad Reputation PR costs Negative motivation Managerial inertia 4. Dynamics Analysis If you are in the ideal position, you may not be lucky for very long Increasing demands (legal, social) Credibility ambiguous Contentment, lack of vigilance Unawareness, rationalization Priority to interest Ideal Priority to ethics Irrational If you give priority to interest, you will need reactive strategies to survive If you give priority to ethics, you may find help for your proactive strategies

30. Ethical credibility Everyone communicates about ethical behavior. But not everybody is sincere. Unfortunately, ambiguity of motives remain when ethics and interest combine.

31. Ethical hypocrisy By closing profitable plants in Europe and opening more profitable ones in low-cost countries, we are helping these countries to develop. Would this company help this country to develop if it were more costly to do so? Some value statements may be true, but they would never motivate a sacrifice in interest. They have no credibility and create no trust.

32. Credible communication strategy (example) • We acknowledge that working conditions in our industry are unacceptable in most regions where we do business. • We have taken steps to tackle the issue, but these steps are unlikely to be sufficient. • We invite those who don’t believe our commitment is genuine to voice their opinion. • We know that reducing exploitation of our workers implies higher wages. We promote the formation of unions to increase the wages we pay.

33. A Credible Strategy… Priority to interest Ideal Priority to ethics Irrational We are likely to be more credible, And more motivated for change… Visionary Leaders Welcome!

34. A Framework of Ethical Rationality • Economic Analysis • Ethical Analysis • Ethical Dilemma • Communication and Dynamic Analysis

35. Conclusions • It is easy not to see ethical dilemmas: you just have to find a good justification for the action leading to the best consequence! • It is not easy to see ethical dilemmas: it questions ourselves and it does not look fun… • It can be rational to be ethical sacrificing your interest, or to sacrifice ethics for your interest: the choice remains yours • It is difficult, but helpful, to search for ethical dilemmas beforehand if you want to have a chance not to be trapped by them and anticipate their dynamics