Ethical dilemmas in international marketing and corporate conduct

Ethical Dilemmas & Marketing

Ethical Dilemmas

Ethical dilemmas in international marketing

Background of Marketing Ethics

Ethical Issues in Marketing

Modern Debate in Stakeholder Theory

Ethical Theories

Teleological Theories

Virtue Ethics

Ethics in Marketing

Ethical dilemmas in international marketing

Humanity has long struggled with the question of what constitutes ethical behavior. The answer to this question has not always been simple or easy especially in the midst of conflicting interests. Businesses desire and need to sell products to consumers but serious issues arise regarding the methods and effects of such marketing activities. This research paper is aimed at exploring the ethical dilemmas in international marketing by using previous studies as well as a detail discussion of different theories related to business and marketing ethics.

Background of Marketing Ethics

Business ethics awareness has increased greatly since the 1990s. A 1994 study of Fortune 500 industrials and 500 service corporations examined how these 1,000 U.S. companies incorporated ethics into their corporate policies, structure, activities, and personnel. It was found that 98% of the firms claimed to address issues of ethics and conduct in some kind of formal document. Of the 98%, 67% did so through regular policy manuals, and 78% did so through separate codes of ethics (Weaver, Trevino, & Cochran, 1999a, p. 285). Moreover, recent corporate scandals in America such as Enron, Worldcom, and Martha Stewart have increased public concern for ethical business activities (Byrne, 2002). Ethics awareness is increasing not only in America but in other countries as well. Asian countries after the 1997 financial crisis, and European countries fraught with financial scandals and bribery, asl have an interest in cleaning up the ethics of their business practices (Carrol & Meeks, 1999; Kwon, 2000; Spence, 2000).

In today's global markets, businesses are not limited to an own local region. In search of low labor costs, low cost of raw materials, and large untapped markets, businesses are looking to move into foreign countries, particularly less industrialized countries where these three conditions exist.

Increasingly, scholars and experts watch corporate business ethical performance, measuring variables such as corruption, bribery, integrity, and community volunteerism. In published journal articles and media broadcasts, business scandals and other poor business practices are gaining greater prominence, and corruption watch is gaining international scope. However, Transparency International (TI) currently considers itself to be the only global nongovernmental and nonprofit organization devoted to curbing corruption globally. Oncer per year, TI publishes Corruption Perceptions Index (CPI), which assigns a CPI number to each country and ranks all the countries based on this score. The score ranges from 0 (high corrupt) to 10(high clean), and indicates the country's degree of corruption as perceived by business and risk analysts.

Ethical Issues in Marketing

Marketers and manufacturers have typically faced two issues relating to products marketed and directly sold to customers - potentially harmful products and age appropriateness. Products that were potentially harmful may contributed to either negative behaviors or to poor health. Products may also be marketed towards consumers that are not appropriate for their age group. Some of the negative behaviors that were linked to direct marketing include sexuality, violence, and materialism.

The field of consumer psychology has been represented academically by the Society for Consumer Psychology which is Division 23 of the APA. According to the society's website, "Consumer psychology employs theoretical psychological approaches to understanding consumers" ("Society for Consumer Psychology Culture and Values," n.d.). Their publication, Journal of Consumer Research, has often published articles which discussed the application of psychology for the purpose of understanding children and adolescent consumer behavior (Kramer, 2006). Considerable attention in this publication has been given for brand recognition and often how to curb brand conscientiousness in children. Another journal dedicated to consumer psychology is the Journal of Consumer Research which "publishes scholarly research that describes and explains consumer behavior. Empirical, theoretical, and methodological articles spanning fields such as psychology, marketing, human communications, sociology, economics, and anthropology are featured" ("Journal of Consumer Research Description," 2009). Published by the University of Chicago Press, this journal features articles that apply psychological techniques to marketing issues and practices.

Businesses have significant financial interests in identifying ethical issues involving marketing. When industries fail to recognize and respond to perceived threats to consumers from business, regulation often follows. Consider the current worldwide childhood obesity crisis. Mueller (2007) stated that "Governments and health advocates worldwide are cracking down on the marketing tactics they blame for the explosion in childhood obesity" (p. 562). Velasquez (2006) concurred stating that customers will turn against a company if they perceive a "gross injustice" in its business practices (p. 40). Poor ethics represents a liability to the firm that may lead to increased government regulation, decreased customer loyalty, and an overall decline in public perception. This dynamic between unethical business practices and reciprocation increases in magnitude when consumers are involved.

Modern Debate in Stakeholder Theory

Based on all definitions of a stakeholder, customers are regarded as vital entities and must be considered in a business's strategic decisions. Stakeholder theory has its origins as a disruptive theory challenging the established view that the company's supreme role is to maximize shareholder wealth as articulated most famously by Milton Friedman (1962). Friedman contended that the primary function of managers was to maximize shareholder wealth. Shareholder theory became epitomized by Friedman's famous quote:

"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." (1962, p. 133).

This view remained entrenched in finance and economic classrooms and textbooks. However the competing stakeholder theory has been altered by supporters and attacked by critics. In 2003 Phillips, et al. (2003) offered "What Stakeholder Theory is Not" in response to the philosophical expansion of stakeholder theory. They defined stakeholder theory as "a theory of organizational management and ethics" (p. 480) and thus linked stakeholder theory to business ethics as primarily concerned with moral issues. Stakeholder theory was not designed to provide businesses with specific guidelines on how exactly to manage stakeholder interests since it would be impossible to form one model for all businesses given the variety of organization. Stakeholder theory was not intended to argue for the equal distribution of the firm's wealth (p. 486). Phillips, et al. (2003) argue that stakeholder theory is consistent with the goal of value maximization but this was different than maximizing shareholder wealth and that "an organization that is managed for stakeholders will distribute the fruits of organizational success (and failure) among all legitimate stakeholders" (p. 486).

This debate between shareholder and stakeholder theories was summarized effectively by H.Smith (2003) who stated that "the fundamental distinction is that the stakeholder theory demands that interests of all stakeholders be considered even if it reduces the company profitability" (p. 86). Smith effectively argues that both theories are often misrepresented by claiming shareholder theory encourages profits at all costs and stakeholder theory ignores the need for profit. Presented with competing theories, business leaders are forced to decide whose interests to further. While it may often be argued that both theories converge, this is not always the case. Enron served as a rallying cry for stakeholder theory and yet it was also clear that the corruption that destroyed the organization certainly did not maximize shareholder wealth when Enron's stock became worthless. However, Smith demonstrated that given a situation where a firm must decide to outsource labor or not, stakeholder and shareholder perspectives would generate different results. But the central point of contention has always been exactly how to distribute the wealth. Should wealth primarily be distributed to the owners of the firm under a shareholder perspective or distributed to other stakeholders? This serves also as the philosophical battleground pitting Rawlsian concepts of fairness and distributive justice against the rights of owners to maximize their own investments within the boundaries of law and ethics.

The expanse of the stakeholder web to include a myriad of groups and organizations coincided with the philosophical expansion by many to a Rawlsian view of distributive justice. O.C. And Linda Ferrell (2008) directly applied Rawl's (1971) "Difference Principle" which argues that inequality is permissible only if it is to everyone's advantage (Thiroux & Krasemann, 2009). Ferrell and Ferrell posited that

"The difference principle is connected to this discussion of stakeholder orientation in that it provides an ethical rationale for the problem of why organizations are obligated to consider claims of secondary stakeholders such as competitors, special interests groups, and vulnerable consumers such as children and the elderly." (p. 29)

Thus, the original admonition to recognize various stakeholder interests was transformed into an obligation. The argument is further made that "a stakeholder orientation utilizing DJ [distributive justice] principles can have an impact, one organization at a time, in the marketing system and in society" (p. 31). The desired impact in this case was to correct flaws in the market system which failed to protect certain groups from the activities of organizations.

Other theorists agree that stakeholder theory embraces Rawls' (1971) second principle of justice despite efforts by Freeman (Phillips,. 2003) to argue otherwise. Rawls (1971) argued that inequalities that exist in society between those who have and those who have not are only acceptable when such a difference results in the overall good of society. Rawls continues to call for the redistribution of wealth. James Stieb (2008) contends that Freeman's (2003) stakeholder theory aligns with such redistribution efforts despite Freeman's own insistence that stakeholder theory is rooted in libertarian principles (2002). Stieb (2008) argues that Freeman presents stakeholder theory as primarily an attempt to "redistribute benefits to stakeholders and redistribute important decision-making power to stakeholders" (p. 405). However, Stieb's charge is unsubstantiated by an examination of Freeman's own writing (Freeman & Phillips, 2002). In their "Stakeholder Theory: A Libertarian Defense," Freeman and Phillips contend that stakeholder theory upholds the basic libertarian principles of respecting the right to property. The difference is that stakeholder theory recognizes not only the rights of shareholders to their stocks, but customers to their purchases, employees to their labor, suppliers to their materials, and so on. Stakeholder theory makes no effort to dictate how each firm must redistribute the firm's wealth. It simply states that "to maximize shareholder value over an uncertain time frame, managers ought to pay attention to key stakeholder relationships" (p. 337). The ambiguity of terms such as "pay attention" as well as the potential expansion of the stakeholder web to include every person on the planet has invited considerable criticism.

Critics have suggested that stakeholder theory fails to provide a mechanism for managers to adjudicate the conflicting interests of the stakeholders. Joseph Heath (2006) posited that the issue of corporate governance is a significant challenge to stakeholder theory. If managers are to rule on the various interests of competing stakeholders, then they would require the legal freedom to balance these claims. It would not be easy to measure management's success. As Heath notes:

"It is difficult enough for shareholders to determine whether managers are actually maximizing profits, given available resources. But when profits can be traded off against myriad other objectives as they see fit, then there is really no alternative but to trust the word of managers when they say that they are doing the best they can." (p. 543)

Shareholders must indeed rely on the judgment of managers to further their interests as they weigh and balance a variety of conflicting interests. This is true even if they reject the concept of stakeholders. For failure to do so will invariably harm profits in the short-term or in the long-term. Heath argues that the increase in regulation observed in Europe and the United States is not the social recognition of stakeholder claims but attempts to correct market failures. Thus his solution is a shareholder approach which sets limits on the corporation to avoid exploiting market failures. Heath's arguments are illustrative of attempts to avoid the problems of extreme stakeholder and shareholder approaches. However, these attempts when analyzed still fall along the same spectrum. The question becomes a matter of degrees in terms of how much recognition various interested parties are due. Even staunch supporters of the shareholder view of the firm recognize that the interests of other parties such as customers and employees directly impact the interests of the shareholders.

Stakeholder theory began as a challenge to shareholder theory which argued shareholder wealth maximization as the ultimate goal of the firm. R. Edward Freeman's (1983) stakeholder model argued that shareholders were but only one group with a stake in the success and failure of the firm and managers should consider the other relationships as well. The flexibility and often ambiguity of stakeholder theory helped to propel it as a serious normative management theory. Attempts to lock stakeholder theory into one philosophical perspective have fallen short. Indeed there isn't a single stakeholder theory in practice but several that share a common belief that profit maximization for shareholders is not the sole function of business. Agle. (2008) found that

"Of 100 companies drawn from the Fortune 500 found that only ten companies espoused the 'pure stockholder' focus of value maximization for stockholders, and twenty-two espoused a 'legally and ethically bounded' stockholder focus, while sixty-four embraced approaches to 'maximize the well-being of all stakeholders." (p. 153)

Thus stakeholder theory enjoys a prominent place in business today and indeed modern society in general. A search of the term stakeholder in Google's search engine reveals 8,340,000 entries indicating the widespread use of the term in today's language.

Laplume, Sonpar, and Litz (2008) conducted a review of stakeholder literature that developed between 1984 and 2007. The review focused on 179 articles that directly dealt with Freeman's (1983) stakeholder theory utilizing content analysis protocols. They identified several themes in the literature including stakeholder definition, firm actions and responses, stakeholder actions and responses, firm performance, and theory debates (p. 1160). These major themes were representative of both theoretical and empirical studies. The authors noted that in the area of theory debate there were 50 articles based on conceptual arguments and only 5 based on empirical research indicating a general lack of support for much of the theoretical debate regarding stakeholder theory. Indeed this lack of support is one reason why stakeholder theory is popular but has not eliminated shareholder wealth maximization as an operational paradigm. Laplume, conclude "we find an emerging consensus on the need to be cognizant of stakeholders, for both strategic and moral reasons" (p. 1180). Stakeholder theory provides a conceptual framework for understanding the relationships between various interests of the organization. It thus serves as a framework for organizations to understand their relationships with consumers if it can be established that they represent stakeholders whose interests and actions are critical for the sustainable success of the firm

Ethical Theories

Stakeholder theory is essentially normative in nature (Donaldson & Preston, 1995). Management's decisions impact the various stakeholders of the firm and their interests must be considered as part of the decision process. To understand the moral reasoning behind executive decisions related to marketing, a discussion of the major ethical perspectives is warranted. A review of the most significant theoretical foundations for ethics is followed by the specific application of ethical thought to the business setting. Similarly, a philosophical understanding of ethics is required to understand the ethical perceptions of psychologists as they relate to the phenomenon of utilizing child psychologists in child marketing. Thus, a review of the most influential ethical theories is presented followed by a review of how these theories are applied to business and psychology.

Ethical theories have been developed and advanced since the times of ancient Greece. Historically, ethics has been considered one of the three major branches of philosophy along with epistemology and metaphysics. Ethics is essentially the study of what is right or moral. Though the field of thought includes descriptive ethics which focuses on what individuals and groups consider to be moral, the ethical theories which apply to this research is normative in nature and seek to answer how individuals and groups should act. The beauty of ethical theory is its amazing ability to apply the same reasoning to virtually any field of human endeavor which includes business and psychology. As with most attempts to review ethical theory, a discussion is presented organized among categories of theories including teleological, deontological, virtue, justice, and rights theories. A description of the major approaches within each of these categories is presented followed by an evaluation of strengths and weaknesses.

Virtue Ethics

The philosophical tradition of virtue ethical theory places it apart from the consequentialist vs. non-consequentialist debate. Whereas Mill places emphasis on the utility of an action and Kant focuses on duty and respect for people as moral agents, virtue theory focuses on the character of individuals. Virtue ethics traces its origins to Aristotle's Nicomachean Ethics (Aristotle, trans. 1893). Named after his son, Aristotle's work is teleological in the sense that it seeks to achieve a good end but the consequences of actions are only the end results of a person's virtue or vice. Aristotle argued that like other areas of life, the key to developing moral strength resides in training and practice. What is virtuous is presented as a matter of balance between extremes. A quality is virtuous in moderation but a vice in excess. For example, ambition is regarded as a virtue but when taken too far it becomes obsession and thus a vice. The key to virtue ethics is the development of character that will gravitate towards the proper mean. Too much courage becomes rashness, not enough becomes cowardice.

Ethics in Marketing

Like business ethics, marketing ethics can trace its roots to ancient Greece with Aristotle and Cicero offering philosophical advice relating to marketing issues more than two thousand years ago (Nill & Schibrowsky, 2007). Marketing as a discipline developed as a branch of applied economics. Shaw and Jones (2005) note that during the 20th century, marketing developed along side of management as subfields of economics. The modern development of marketing ethics occurred in conjunction with two developments in the marketing discipline that Shaw and Jones refer to as "Paradigm Broadening" during the mid 1970s (p.243). Philip Kotler's (1972) concept of marketing mix transformed the view of marketing and also took marketing beyond the traditional organization and into non-profit organizations. Shaw and Jones (2005) also note that it was during this time researchers from the field of psychology began entering marketing and applying their research techniques to the marketing mix. Interestingly, the level of interest regarding marketing ethics greatly increased during the 1980s and 1990s and corresponds to the general increased interest in business ethics as an academic discipline. As marketing developed and mastered the science and art of persuasion, ethical issues began to develop within the field of marketing which was answered by ethicists who integrated normative philosophical ethics and developing stakeholder theory (Hunt & Vitell, 2006).

Many of the same concerns and tools used in business ethics were brought to bear in the more focused scope of marketing ethics. Indeed marketing issues continue to play an important role in business ethics discussions. Marketing ethics tends to focus on descriptive or prescriptive issues. This follows traditional philosophical ethics which develops along positive or normative lines. Descriptive marketing ethics tends to focus on explaining or predicting ethically relevant phenomenon in marketing while prescriptive focuses on what marketers should do in order to remain ethical and avoid ethical failings (Nill & Schibrowsky, 2007). For example, arguments relating to whether or not companies should sell certain products to children and how they should sell them would be prescriptive ethics.

A literature review of marketing ethics articles appearing in academic journals by Nill and Schibrowsky (2007) revealed significant information regarding the frequency and subject of the articles. The researchers limited their scope to 58 journal publications over a 25-year period. It was noted that frequency of articles related to marketing ethics increased from 21 in the five-year period between 1981 to 1985 to 147 articles published from 2001 to 2005 (p. 262). In fact, it was noted that 35% of all marketing articles were published between 2002 and 2007 indicating that the field is still developing. The surprising finding of this literature review is the ratio of positive articles to normative. Nill and Schibrowsky found that 63% were positive and only 37% were normative with the trend of a widening gap. Thus the majority of marketing ethics literature aims to explain what the ethical issues are in marketing rather than what specific actions should be taken or avoided to foster sound ethics. The most common form of article represented quantitative research on ethics-related issues such as differences in values. Nill and Schibrowsky also noted that "Which ethical responsibilities do marketers have (or which should they have) towards their stakeholders? -- received little attention over the whole period of investigation, with an approximate 5% of all identified topics" (p. 270).

Laczniak and Murphy (2006) argue that the AMA's "Statement of Ethics" plainly calls for ethical standards that exceed legal requirements. The law serves as baseline for marketing activity but marketing ethics reflect both society and professional standards. The daunting task for marketers is to understand just what exactly those societal standards are in a pluralistic society. For "while basic theories of ethics do not change over time, the norms and values that are clearly embraced by society, or by a profession at any period in time are subject to slow shift" (p. 159). It is possible that the targeting of children directly by marketers may be the focus of such a societal shift in expectations. The authors further note that ethics is often a precursor to changes in the law. For when "an ethical issue is first called to the attention of marketers, there are likely to be several possible solutions to the problem. But as negative public opinion grows, regulators may impose their singular solutions upon marketers" (p. 160). Laczniak and Murphy cite the example of alcohol and tobacco marketers who were asked to refrain from using cartoons appeal to children before regulator forced them to comply with society's demands. Issues relating to children immediately raise concerns in society. When those concerns are linked with the powerful tool of psychology, the marketing ethical questions become complex and potentially dangerous for organizations.