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Local managers in the developing world are more disposed to good business ethics than is commonly thought, study suggests

January 1, 2008

For more information, contact: Benjamin Haimowitz, HHaimowitz@aol.com

When Yahoo and Google recently came under attack from human rights advocates for abetting political repression in China, it was only the latest episode in corporate America's long history of stumbling over ethics issues abroad, whether the lapses involved civil oppression, wholesale bribery, transgressions against worker or property rights, or environmental degradation.
 
Typically, firms blame such lapses on foreign cultures that tolerate or even approve of practices which, the companies say, they would shun at home.
 
Now new research calls into question the extent to which differences in cultural attitudes drive such unethical practices. The study, in the current issue of the Academy of Management Journal, compares ethical standards of U.S. and Russian managers and finds them surprisingly similar. True, there are differences in some norms, but on the most important ethical issues -- what management scholars call "hypernorms" -- the Russians and Americans appear to feel much the same.
 
"While international managers may observe behavioral differences across societies, our findings suggest they should not necessarily assume that all members of a host company have internalized values that endorse those behaviors," conclude Wendy Bailey and Andrew Spicer of the Moore School of Business at the University of South Carolina. "While an individual's national identity may provide a strong predictor of ethical attitudes in some situations, it may prove to be of little importance in others."
 
The authors see the study as a cause for optimism. Says Spicer, "Our findings suggest that, even in foreign environments uncongenial to ethical practice, local managers are inclined to it in a fundamental way. The prospects for corporate social responsibility may be brighter in the developing world than Americans and other Westerners commonly assume."
 
The study, along with an earlier report from the authors that also appeared in the Academy of Management Journal, breaks new ground in testing a philosophical approach to international business ethics that has developed over the past 10 or 15 years. Called "integrative social contracts theory," it seeks to find a middle way between two approaches that have traditionally dominated international management, universalism and relativism, the former emphasizing consistent ethical decision-making in all settings and the latter stressing the need to incorporate local moral standards into business management.
 
Undertaking one of the first tests of the feasibility of this integrative approach, the study finds that, as the theory suggests, there is "a common morality in ethical evaluations across borders, even in situations when society-level behavior seems to suggest otherwise."
 
To reach that conclusion, Bailey and Spicer surveyed 98 American managers participating in evening managerial education programs at two large U.S. business schools and 83 Russians attending a master's program in business education in Moscow. Participants were presented with six business scenarios common in Russia that Americans would likely perceive as deviating from normal management practice in the U.S., and were asked to evaluate the ethics of the scenario and whether they would behave in a similar way.
 
The scenarios were as follows:
 
-- A company fails to inform employees about physical risk from exposure to hazardous chemicals.
 
-- A firm invests money in capital equipment instead of paying employee wages in timely fashion.
 
-- A commercial real estate firms reneges on unambiguous contractual obligations in the face of changing circumstances.
 
-- A money-losing firm decides to keep a factory open in order to continue to provide employment in the town where it is located.
 
-- A company keeps two sets of books to enable it to hide information from both tax inspectors and mafia-like racketeers.
 
-- A firm makes a modest personal payment to a government official charged with awarding a contract.
 
 In response to the first three scenarios, all involving hypernorms, the two groups differed little in their ethical evaluations and in how they would react to the practices described. The Russians as well as the Americans felt that the practices were not "moral, fair or just" and indicated they would be unlikely to engage in them. This was in spite of the fact that 1) weaker environmental and employee law makes it easier to withhold information about environmental hazards from employees in Russia than it is in the United States; 2) payment of wages to employees is consistently late in Russia; and 3) deviations from legal contracts are more prevalent in Russia than in the United States.
 
These similar responses, the authors observe, suggest that "national identity did not matter in hypernorm-designated situations." In other words, the results reveal "common morality among members of different communities even if the business environments of those communities differ strongly."
 
In the response to the last three scenarios, however, differences between the two groups did emerge, with Russian managers significantly more inclined to consider the practices acceptable. These scenarios, the authors observe, involved "local norms," in which what was at stake fell short of basic human rights and moral prescriptions.
 
In a second experiment, Bailey and Spicer found much the same distinction between hypernorms and local norms to prevail within the community of American expatriate managers in Russia. Forty-six American managers who spent a lot of  free time with Russian friends had attitudes similar to Russian managers, while 52 American expatriates who spent relatively little free time with Russian friends responded to the scenarios in much the same way as their compatriots in the United States.
 
For the former group of expatriates, the professors write, "it was more important where they were than who they were." For the latter group, in contrast, "cultural heritage continued to play an important role in their decision-making."
 

The new study, entitled "When Does National Identity Matter?: Convergence and Divergence in International Business Ethics," is in the latest (December/January) issue of the Academy of Management Journal.  This peer-reviewed publication, now in its 51st year, is published every other month by the academy, which, with more than 17,000 members in 102 countries, is the largest organization in the world devoted to management research and teaching. The academy's other publications are the Academy of Management Review, Academy of Management Perspectives, and Academy of Management Learning and Education

Media Coverage:
BusinessWeek.com. It's an (Ethically) Small World, After All. (Friday, February 01, 2008).
ITAR-TASS (Russia). Ethical norms of businessmen in the U.S. and Russia do not differ as strongly as many believe. (Saturday, February 02, 2008).
U.S. News & World Report. Your Bribe Is His Investment. (Monday, February 18, 2008).

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