Bribery and kickbacks in global business ethics

Bribery

The issue of business ethics is always at topic of interest for enterprises throughout the world. There are several business ethics issues that are frequently discussed. The purpose of this discussion is to examine bribery and kickbacks within the sphere of business. The research will also focus on the utilization of different ethical theories, namely teleology and deontology,

Bribery and Kickbacks

Bribery is defined as "money or favor given or promised in order to influence the judgment or conduct of a person in a position of trust… something that serves to induce or influence ("Bribery")." Kickbacks are defined as "a return of a part of a sum received often because of confidential agreement or coercion. ("kickback"). A kickback is slightly different from bribery but it is a form a bribery. Kickbacks can be particularly deceptive and in some circumstance present a danger to public health and security. Both bribery and kickbacks are present with the context of organizations regardless of whether or not they are public or private entities.

Within the context of business, bribery has different connotations depending on the region of the world in which business in being conducted. In general, in the West bribery takes place but they are generally frowned upon. However in other parts of the world bribery is considered to be an aspect of doing business and it is actually expected. In fact in China cultural and religious beliefs tend to applaud bribery as a practice. According to Whitcomb et al. (1998) Confucianism is the foundation upon which business dealing are based in China. The authors explain that there are four main ideas embraced by Confucianism. These four ideas are

(1) A stable society is dependent upon unequal relationships between people. That is there are leadership and subordinate roles (i.e. ruler/subject, husband/wife, father/son, and older friend/younger friend) (Whitcomb et al., 1998).

(2) The family structure serves as the archetype for every social organization (Whitcomb et al., 1998).

(3) Reciprocity is the foundation of virtuous behavior (Whitcomb et al., 1998).

(4) Virtuous behavior is inclusive of self-improvement through education, diligence, perseverance, and moderation in all things (Whitcomb et al., 1998).

Of the four characteristics of Confucianism, the idea of reciprocity being the root of virtuous behavior is the most relevant as it pertains to bribery and kickbacks (Whitcomb et al., 1998). In western countries bribery and kickbacks are believed to be unethical because they give a company an unfair advantage over the competition. However in societies in which Confucianism serves as a foundation, bribery and kickback are perceived as being a form of reciprocity which is the foundation of virtue (Whitcomb et al., 1998).

The author explains that even though the Confucian classification of society, into the hierarchal structures scholar administrator, farmer, artisan, and merchant, placed business as the lowest aspect of the structure, recent economic growth has changed some of Chinas ideas about the importance of business (Whitcomb et al., 1998). In addition there have been may studies that have a suggested a link between Confusion principles and the recent successes that china has experienced (Whitcomb et al., 1998). The author explains further that

"China represents a country in which the process of institutional transformation has left cultural values in a state of flux. After experiencing first a thorough denunciation of Confucianism followed by an overturn of Maoist values, the value system of the Chinese people has gone through a continual process of remaking.

The gradual shift throughout the 1980's from central planning to a market system has affected not just the way in which resources are allocated, but also Chinese

values and the way in which economic decisions are legitimized (Whitcomb et al.,

1998)."

Now that the China has shifted from central planning to a market-based system, the ideas and cultural norms of the society are still present in some ways. This is problematic for foreign firms that have invested in China because they have an obligation to abide by the laws of their host countries. While China has made some effort towards stopping bribery and kickbacks it is still very much a part of doing business in China and in many industries bribery and kickbacks are expected.

Indeed Chinese business executives and government officials are well aware of the power that China now has a result of the size of its population and economic growth in recent years. According to a survey involving both Chinese and American executives,

"Compared with the American respondents, the Chinese are at least equally, and sometimes more, motivated by profit. A typical Chinese respondent would be more willing than the Americans to accept business practices based on interpersonal relationships, and more likely than the Americans to use informal, in some cases illegal from the American point-of-view, means to achieve his/her profit objective (Whitcomb et al., 1998)."

This profit motivation seems to be a pivotal reason why bribery and kickback are so prevalent in China. For the Chinese who have experienced tremendous growth in recent years there is an increased desire to succeed and prosper. This motivation leads businesses and organizations to conduct business in ways that are unethical and even illegal. This is even the case when a company is fully aware of the consequences that may occur as a result of such actions. Companies that would never engage in bribery and kickbacks in their home countries often engage in such activities abroad. There are a separate set of rules depending on the market in which business is being conducted.

Indeed, the differences between the Western businesses and Eastern businesses as it pertains to bribery is a prime example of the difficulty that multinational businesses are confronted with. Should these companies conform to the traditions of the host country or should they continue to practice the business ethics policies of the home country?

In many instances western businesses conform to the norms of the host country. This has been particularly true in recent years as the economic situation in China has grown substantially.

"In interviews, China-based executives, sales agents and distributors for nine U.S.

multinational companies acknowledged that their firms routinely win sales by paying what could be considered bribes or kickbacks -- often in the form of extravagant entertainment and travel expenses -- to purchasing agents at government offices and state-owned businesses (Goodman, 2001, A01)."

According to the aforementioned China-based executives bribes or kickbacks are not paid directly. Instead they are distributed through public relations firms or distribution companies. Firms distribute bribes and kickbacks in the manner because it allows them to avoid prosecution that is likely to occur is the Justice Department or the securities and exchange Commission finds out about the bribery and kickbacks. These agencies are responsible for enforcing the U.S. Foreign Corrupt Practices Act.

American companies are not the only ones engaging in this type of conduct abroad. A plethora of businesses from all over the world are now a part of the Chinese market. These companies have invested heavily in having a presence in China and they want to see a return on their investments. Many of these multinational corporations are governed by laws that are similar to the U.S. Foreign Corrupt Practices Act.

Although prosecution is a very real possibility it is a risk that many multinational corporations are willing to take. For the most part it is viewed as a necessary risk that must be taken if a company is going to succeed in the Chinese market. For instance, If American companies do not engage in the offering of bribes and kickbacks their foreign competitors that do engage in such offerings have an advantage over them. This competitive advantage might eventually force the American companies out of the market.

Goodman (2001) also explains that such kickbacks are "normal industry practice." In other words, everyone is doing it. The question then becomes: does the fact that everyone is engaging in this activity make it ethical? The answer to this question depends on who you ask. Some would argue that bribes and kickbacks are wrong regardless of why or where they are occurring. Others would argue that companies have a responsibility to get a return on their investment, even if it means acting in ways that contradict the rules that govern international business established by their home countries. Still others argue that engaging in the activity gives them the ability to remain in the market and that their presence in the market will eventually lead to more ethical business standards. However, it appears that American businesses are adapting Chinese practices instead the other way around. Goodman (2001) explains,

"American business leaders often describe their China operations idealistically, suggesting that their presence here will compel Chinese competitors to adopt more ethical business practices. But in one key regard, the dynamic operates in reverse, with U.S. companies adopting Chinese-style tactics to secure sales, as they compete in a market in which Communist Party officials routinely control businesses, and purchasing agents consider kickbacks part of their salary

(Goodman (2001) ."

If this is the case, how then can American companies effect change in China? The fact of the matter is that unless these companies take a stand and develop alternative ways of engaging the Chinese market, they will not be able to effect any change in China.

According to Goodman (2001) American companies recognize that a serious dilemma exist. On the one hand, the laws that govern international business for American companies have declared it illegal to provide bribes and kickbacks. Not only are the companies breaking the law but they are using deceitful tactics to break the law so that they will not get caught. On the other hand, "They are answerable to shareholders on Wall Street and home offices that demand a piece of an increasingly lucrative Chinese market (Goodman 2001) ." The author explains that in many cases shareholders have expectation that are not realistic. These expectations exist because of the size of the Chinese market and the rate of economic growth that has occurred in the country over the last decade.

This dilemma has proved to be a difficult one for multinational corporations. In the case of China, many have decided that the expectations of shareholders, the overall profitability of the company and remaining in the market are more important than the laws that have established the illegal nature of bribery and kickbacks.

In addition kickbacks are also a major problem. This is has been illustrated recently in cases involving government officials, and financial institutions. In these instances kickbacks were given to executives much to the chagrin of taxpayers who funded government bailouts to the same companies that are giving kickbacks.

Kickbacks occur on large and small scales. Kickbacks also involve many different types of organizations. For instance, just this month a former employee of home depot was charged with accepting kickbacks in return for purchasing certain supplies. The employee Anthony Tesvich

"was sentenced to 6 years and 6 months in federal prison on charges of conspiracy to commit wire fraud and filing false tax returns, the Justice Department said. The sentencing took place in Atlanta. Tesvich was also ordered to pay $8.29 million in restitution, the department said. Tesvich had pleaded guilty to taking kickbacks in exchange for putting some vendors' products in Home Depot stores and paying kickbacks to other employees both while he worked for Home Depot and after he left, the department said in a statement (Bartz, 2009)."

In this particular instance and in others the culprit was caught but there are other instances in which kickbacks are never found out. In another recent case a lawyer in Pennsylvania was charged with being involved in a $2.5 million kickback scheme with a two corrupt judges. This particular kickback was a cash-for-kids scheme involving a pair of juvenile court judges in Luzerne County. Powell's attorney requested the postponement Tuesday. According to federal prosecutors "Powell paid kickbacks to former judges Mark Ciavarella and Michael Conahan so they would place juvenile offenders in two private detention centers he owned (Bartz, 2009)." This is an instance where kickbacks involved public officials and juveniles who had committed crimes.

This particular form of kickbacks is problematic because it threatens the entire judicial system. These type of kickbacks undermine the judicial process because judges are no longer biased. When kickbacks are involved defendants, victims, the families of victims are not receiving fair justice.

Conclusion

The purpose of this discussion was to examine bribery and kickbacks within the sphere of business. The research suggest that bribery and kickbacks are routine internationally and domestically. Within the context of business, bribery has different meanings depending on the part of the world in which business in being conducted. For instance, in the West bribery takes place but they are generally frowned upon. However in other parts of the world bribery is considered to be an aspect of doing business and it is actually expected. For instance in China, bribery and kickbacks are viewed as nothing more than a reciprocal act that is correlated with virtuous behavior established by Confucianism.

The research also focused on the utilization of different ethical theories, namely teleology and deontology. The research indicates that many multinational corporations use teleology to determine the manner in which business is conducted. That is corporations tend to make business ethics decisions based on the perceived consequences. In the case of multinational corporations in China it is perceived that the corporation will receive more benefit from offering bribes and kickbacks than from obeying the law. This is true even though the company is also exposing itself to certain risk that can lead to prosecution.

The research asserts that companies should simply develop a code of ethics and simply abide by this code. Establishing such a code clearly defines the standards of the company and the activities that it will and will not participate in. The research also suggest that host countries and the international community should make more of a concerted effort to regulate business practices so that bribery and kickbacks do not continue to occur.