International Business Policy

An Ethical Perspective

Session 5: Values, Ethics and Rationality

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.

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

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)

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”

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

A change of business context and role?

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

Two types of values Self-interest Money Profit Growth Competitiveness Economic efficiency Market shares Technological innovation Tax optimization etc.

EconomicValues

Integrity, fairness Loyalty, respect for rules Honesty Human rights Benevolence, care for others Social responsibility Respect for democracy Environmental sustainability etc.

EthicalValues

How to they combine?

First Discourse: Idealism

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Inte

rest

Rational

Some people will insist that ethical values should be the sole and unique criterion of choice

Irrational

Second Discourse: Economic Rationality

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Eco

nom

ic V

alue

s

Rational

Some people will insist that economic values should be the sole and unique criterion of rational choice in business

Irrational

Third Discourse: Corporate Social Responsibility

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Inte

rest

Rational

Some people will insist that interest and ethics always combine and never conflict

Irrational

Would you lie for a monetary gain?

Lying

Telling the truth

$ 1 000

$ 1

According to economic rationality, you should lie whenever you have an interest to do so.

According to idealism, you should never lie.

Should you pollute less?

Pollute less

Maintain profits

Increase costs

Continue Polluting

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?

?

Should a company respect the law?

Violate the law

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?

? $ - 100 000(including the fine)

$ - 150 000

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?

Should we say everything?

Reveal risks associated with a

product or an activity

Favor regulation Threaten a

market growth

Avoid regulation, Maintain a

market growth

Hide the danger of a product or of an

activity

We often have an interest in hiding potential risksIndeed, sincerity in communication can be very costly…

Where is the limit between confidentiality and transparency?

Will you avoid corruption?

Paying no bribe

Winning a contract

Losing a contract

Paying a bribe

Is corruption a necessary evil……of economic competition?

What about conflicts of interest ? (1)

In the interest of the company

In your own interest

Against your own interest

Against the interest of the company

Why would you act in the interest of the company?

What about conflicts of interest ? (2)

In the interest of the company

In your own interest

Against your own interest

Against the interest

of the company

Reciprocally, could a company be motivated to act in the interest of its employees even when this is

against its self-interest?

Ethical Dilemmas: tough choices

Less ethical

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

Best interest of the actor

Worse interest of the actor

Ethical Dilemmas: Priority to Interest

Less ethical

More ethical

Best interest of the actor

Worse interest of the actor

1. We resist admitting the ethical issue (denial)2. We insist on our good faith (justification)3. 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

?

Ethical Dilemmas: Priority to Ethics

Less ethical

More ethical

Best interest of the actor

Worse interest of the actor

?

1. We acknowledge the ethical dimension (Awareness)2. We anticipate the ethical risks (Prudence) 3. We construct the opportunity (Vision)

We face economic risks. In the best case, we win on both ethics and interest

?

Open Rationality

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Inte

rest

Ideal

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...

Irrational

Priorityto

interest

Priorityto

ethics

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

1. Economic Analysis

The rational actor (you, the team, the firm)1. Anticipates the consequences of the available actions2. Evaluates these consequences according to their interest for

the actor3. Identify the action that leads to the best consequence

Interest of the consequence

?

Step 1: What is the action that leads to the best consequence for you?

2. Ethical Analysis

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?

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!

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

3. Ethical DilemmaStep 3: Facing the extent to which there is a dilemma

Prudence: Could the unethical aspects lead to unexpected negative consequences?

?

Unethical aspects of behavior

More ethical alternative

Vision: Can you find a more ethical alternative?

Imagination: If the consequences of the alternative affect your interest, cannot they be improved?

?

?

4. Dynamics Analysis

Ideal

If you are in the ideal position,

you may not be lucky for very

long

Irrational

Priorityto

interest

Priorityto

ethics

Lack of transparencyLegal pressureLiabilitiesBad ReputationPR costsNegative motivationManagerial inertia

TransparencySocial involvement & supportNew scope of activitiesNew business processesLong term thinkingStrategic investmentPositive motivationLearning process

Increasing demands (legal, social)Credibility ambiguous Contentment, lack of vigilanceUnawareness, rationalization

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

Ethical credibility

Everyone communicates about ethical behavior. But not everybody is sincere.

Unfortunately, ambiguity of motives remain when ethics and interest combine.

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.

Ethical hypocrisy

Credible communication strategy (example)1. We acknowledge that working conditions in our

industry are unacceptable in most regions where we do business.

2. We have taken steps to tackle the issue, but these steps are unlikely to be sufficient.

3. We invite those who don’t believe our commitment is genuine to voice their opinion.

4. We know that reducing exploitation of our workers implies higher wages. We promote the formation of unions to increase the wages we pay.

A Credible Strategy…

We are likely to be more credible,And more motivated for change…

Visionary Leaders Welcome!

Ideal

Irrational

Priorityto

interest

Priorityto

ethics

A Framework of Ethical Rationality

1. Economic Analysis

2. Ethical Analysis

3. Ethical Dilemma

4. Communication and Dynamic Analysis

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