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BUSINESS ETHICS

An analysis on the meaning of corruption in International Business and its economic and moral impact

Essay written by Akua Serwaa Ansah MIB31 Group A

TOPIC: Bribes to government officials, side payments to sidekicks, facilitation payments, and donations to political parties before elections..When is corruption morally corrupt? Analyse critically the meaning of corruption in an international business setting and assess its economic and moral impact.

Definition of morality The concept of morality is a subject that always incites divergent points of view even among people from similar societal backgrounds. Due to the existence of different cultural traditions, religions and codes of conduct, the issue of corruption is often seen as relative: a moral value that may be true to one individual could mean the exact opposite for another. Many philosophical theorists have generally described morality as how individuals ought to relate to each other with fairness to ensure social harmony. According to Kohlberg (1927-1987) an individuals development of morality begins from childhood and is nurtured by the socialization with societal arrangements and cultural norms and conscience. However some of these principles allow certain injustices which often affect many people in societies. This essay seeks to analyze corruption in the international business setting from a moral point of view, and for this purpose the main definition that will be adopted is that, morality is a behavior exhibited by considering or conforming to the standards of what is right or just in that behavior1. Definition of corruption Life is a corrupting process from the time a child learns to play his mother off against his father in the politics of when to go to bed; he who fears corruption fears life. These were the words of Saul Alinsky (1972) a radical leftist whose main concern was the abuse of power possessed by individuals. From his statement it is evident that Corruption is a paradigm that has been deeply rooted in most societies over a long period. It is also one of the controversial phenomenon for which researchers have not been able to come to a consensus in finding a comprehensive definition (Sandholtz and Koetzle 2000). Therefore various explanations come from various sources with each focusing on certain aspects. Theology, Philosophy and religion bear the view that corruption is an evil norm that leads to a deviation from the ideal. This view places a magnitude of emphasis on the fact that it attaches no value to morality, human integrity and dignity, and can eventually be destructive to societies and nations. According to the Business Dictionary, Corruption is Wrongdoing on the part of
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Definition of morality provided by the Stanford online dictionary

an authority or powerful party through means that are illegitimate, immoral, or incompatible with ethical standards. This often results from patronage and is associated with bribery, kickbacks, economic espionage and even nepotism. This phenomenon continues to remain a growing concern in the world today and is the main focus of organizations like the Transparency International2 and the Organization for Economic Cooperation and Development (OECD)3. It is the objective of these bodies to collaborate with various governments to eliminate this global problem. However just as most corrupt practices are not considered as illegal, due to conflicting traditions and cultures the frequent term of corruption as an immoral practice is often not concurred by many societies which have accepted it as a norm. The general belief that corruption is immoral reflects even in the point of view of the Transparency International which states that Corruption is the abuse of entrusted power for private gain. It hurts everyone whose life, livelihood or happiness depends on the integrity of people in a position of authority (transparency.org). In spite of all these perceptions there is no critical understanding between philosophers and philosophical traditions on the ideal thing to do for the good of all people (Mark Santiago 2004)4. This according to research does not only result from conflicting traditions but the various practical situations that people encounter in everyday life which demands individuals to make decisions guided by different principles. Renowned Scholar C. S. Lewis highlights three levels by which morality affects the behavior of human beings as: the need to ensure fairness and harmony between individuals; the need to live as good people and preserve a good society; the need to maintain a good relationship with the Supreme power that created us. Recent research explains how religious commitment is one of the noteworthy factors which define a persons morality. The belief in God or a god sets principles and standards which guide people through their entire lives. One can therefore say that the beliefs of an individual play a major role in crafting behavior and distinguishing between the point at which corruption is morally corrupt and the point at which it is acceptable. When is corruption morally corrupt? In the international business realm, the perception about corruption is often determined by what is believed to be the moral responsibility of a company or members of a company. As Milton Friedman clearly states, the sole moral interest of a manager of a business is to maximize profits for the shareholders of the company5. From that point of view, one can deduce that the motive behind the corrupt practice can be used to determine the level of morality. One broad form of corruption which is
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The global civil society organization which is leading the fight against world corruption

International organization helping governments tackle the economic, social and governance challenges of a globalised economy.
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Second global conference, 2004: session 5 (a) Ethics, Morality and Corruption

The social responsibility of business is to increase its profits, article published in The New York Times magazine th on September 13 , 1970

usually considered as immoral is grand corruption which is often seen to have a more adverse effect on the company and/or the society. Therefore the form of corruption involving individuals or specifically managers of a company who engage in such acts with the aim of pursuing interests which are favorable to themselves to the detriment of the company and the shareholders is morally corrupt. This is because those tactics are aimed at deceiving and defrauding key investors, as the offender places loyalty to himself above his commitment to the company and its shareholders. In spite of all the differing views about morality one must admit that there is an underlying general belief in some kind of moral absolutes (Tabitha Thiemens 2007)6 which holds us accountable for certain actions, therefore promoting an individual interest without considering the repercussions of that action on others is immoral. To add to that there are corrupts practices which are usually aimed at maximizing profits for the business and its shareholders but however unjustly thwarts high level policies and rules of governments. Therefore the individual interest of one body is put before that of a whole nation without considering the repercussions of such decisions on the important sectors of the nation. Therefore cases which involve arrangements between international companies and government officials to enable the former purchase state owned properties below their actual value can be classified as immoral. On the other hand, most acts of petty corruption are usually seen as morally acceptable. Petty corruption refers to low level corrupt practices like greasing (Lambert Mogiliansky 2008), where a typical example is paying for the registration of a new firm as a legitimate business activity. The motive behind those actions is not necessarily to impede the progress of other companies but merely to gain favors that will facilitate operations. This is to say that if managers of a company decide to offer a bribe to speed up bureaucratic procedures of commencing business in a foreign country then it is not immoral since their main interest was to quicken the process. Indeed a recent publication in the Jakarta Post7 affirms this notion from the point of view of Farid Harianto, the office head of East Kalimanton prosecutors in Indonesia. He acclaimed that petty corruption is alright because a little markup should not cause any problems. Never the less there is a level of petty corruption which cannot be deemed as tolerable because those actions do not promote the welfare of the society. An example is seen in a case in Ghana where the owners of a foreign food company were alleged to have bribed health inspectors to alter their reports on health inspections for the company. This is unacceptable because the health conditions of numerous lives were at stake, considering the fact that after a thorough inspection it was found out that the company was reselling expired goods which were stored in their warehouse instead of being disposed off. The meaning of corruption in an international business setting.

Is morality relative? Tabitha Thiemens, 2007. Timothy Ministries Online version of Indonesian newspaper published in English. Article was published on 21 July 2011
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Due to globalization several international and multinational companies today seek to operate in different emerging countries. According to World Bank data Multi national companies now account for about 40% of world trade (Bottelier).The constant emergence of cases of corruption has increased the efforts to fight against it to include various international conventions (Carr and Uthwaite 2008). Corruption is therefore a very important subject in the international business realm as many of these companies are important stakeholders. They tend to be both subject to anti-corruption efforts and also potentially contribute to the development of anti-corruption measures (Carr and Uthwaite 2008). Aside that it has also been noted that international business is often one of the main sources of corruption (George Soros)8. The existence of business transactions and trade relations with various nations with different regulations contributes to the growth of this problem everyday. According to research one of the key facilitators of corruption are institutional weaknesses. Underdeveloped institutions impede transparency which makes it difficult for these practices to be detected and even punished. We therefore see a lot of corruption in developing countries (Sharon Eicher 2009) which are now the target markets for most multinational companies. International businesses need to attach importance to the fact that they are susceptible to corruption which tends to be a very contagious problem especially in regions where its effects are understated. There are instances where there is a clear difficulty for a company to isolate itself as against these practices. The intent to follow the right bureaucratic procedures are made to be stressful and time consuming that companies are forced to comply to avoid disadvantages that come with the alternative. In the area of competition as well, some foreign companies engage in corrupt deals as the quest to conquer the market and increase profits supersedes all other social responsibilities. As Albert Carr indicated in his approach to ethics for the economic environment, business is like a game: morally ethical rules can be laid aside in order for the business to survive. In the international business setting this is a very significant statement as we see corrupt companies gain power and favors through connections with government officials. In this case a companys refusal to violate its corporate code of conduct and its home countrys legal norms by engaging in corruption faces the risk of withdrawal from the country of its operations. Corruption is therefore a very relevant issue for international business. According to data from the World Bank there is a very strong negative correlation between corruption and development. Due to the rapid evolution of many governments and bureaucratic systems, corruption most often leads to many more long-term disadvantages for companies, societies and economies as a whole (NHO)9. Adam Smiths approach comes to mind as he leans more towards the view that there should be rules in the market system which should guide all businesses to adopt the appropriate behaviors. In his view, in an ideal world if all businesses were to use the same right principles then everyone would be satisfied as if by an invisible hand. With reference to this one can say that if all corporations were to take a stand against corruption there would be no reinforcement for corrupt societies to continue these
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Renowned International Financier The Confederation of Norwegian Business and Industry. Report on the Norwegian standpoint against corruption

practices. International businesses therefore have to take critical note of this issue as corruption tends to have more adverse effects on these countries they engage with. Economic and moral impacts of corruption It is evident from various researches that corruption often has severe economic and moral impacts on societies and the businesses involved as well. This has led to the rise in anti-corruption activities over the past few decades (NHO). To begin with, corruption tends to incur a lot of additional costs for companies. A typical example is when in 2008, Siemens Atkiengesellschaft was charged in the United States for securing contracts through bribery and corruption. The company ended up paying a total of 1.6 billion U.S. dollars in disgorgement and fines. This was said to be the highest amount any company had ever had to pay for corruption related cases. The allegation indicated that Siemens had made 4,283 separate payments totaling 1.4 billion U.S. dollars to bribe government officials in companies throughout the world (Jurist Legal News Research). Many of these companies are always ready to submit to these corrupt practices because of the advantages they expect to enjoy in return, other companies on the other hand seem to be coerced into adhering to some of these unforeseen costs because they feel they have no other choice. No matter the circumstance this makes such companies very vulnerable and as a result exposes them to more risks. Commitment to these demands reinforces more demands in the future for other favors and even in the situation where the expectations of the company are not met, no legal procedures can be taken because of how some of these arrangements are not transparent. Secondly indulging in corruption could ruin the reputation of the company and lose the trust of its shareholders and investors. One would wonder why an action that is supposedly performed in the interest of the company mainly based on the maximization of profits for these shareholders would incite mistrust. This clearly shows how many see this to be immoral and could be interpreted to mean that the offenders could make a lot of sacrifices for money and control. To add to that modern markets have opened its arms to social responsibility and therefore many companies are expected to institute structures and work toward a goal that will improve development in the society in which they operate. Both consumers and investors are in these recent times more enlightened about this issue (Sarah Eicher) and therefore expect a level of good conduct from such industries. It is therefore very important for a company to maintain its good image which is also a very important factor for the companys survival. Aside that, corruption does not allow the business market to develop. It is realized that in corrupt societies the existence of fair competition among businesses is limited. Thus the success of businesses in such areas is not necessarily based on the quality of their services but due to how much money they can pay to connections and government officials to be able to win most contracts and have other advantages. Therefore the advantaged companies do not have it as their aim to provide quality but rather find more means to continue paying to stay at the top. All these situations do not create favorable environments for investment since investors have no guarantee of the benefits they would reap. It is therefore seen that certain companies have blacklisted some countries and other countries have been noted as no go areas or areas where investors and new entrants would have to tread cautiously.

Furthermore this phenomenon retards economic growth. The corrupt and the corrupted in the interest of enriching themselves do not take into consideration the short term and long term effects it has on the economy and the people especially the poor and vulnerable. Mismanagement of public resources for the benefit of a few people has adverse effects on the development of countries and such countries are unable to attract foreign investment which is a great contributing factor to the improvement of many economies. In the process local industries are also blocked from having the chance of developing and becoming competitive in the business market. Conclusion Although many cultures and societies possess different views about morality, it is difficult to deny the existence of moral absolutes which holds us responsible to promote the good of the society. There is always one common factor which holds us all accountable to one universal rule: the conscience of an individual. And this clearly opens our eyes to what is right and what is wrong and what is done underneath the table and what is put out in the open. The subject of corruption may also have different meanings all over the world; however, from the impacts listed above, it is evident that the acculturation of any society to any form of corruption will not have good effects on the society. Governments and companies should therefore be more vigilant and institute and implement clear sanctions to deter the corrupt and the corruptible from indulging in these practices. From an ethical perspective, to help question the morality of corrupt practices whether petty or grand one should always take a moment to ask oneself if it would be a problem if that act was reported or made public; if that action is according to the company standards and would be easy to report to those in authority; if one would feel disappointed or hurt if others were to engage in a similar act; and finally and most importantly how it would hurt the society if everyone was to do the same thing. Corruption affects the good of an entire society; all individuals must therefore join hands in the battle against this cancer.

References Deutse Welle, 2006. German business image tarnished by wave of corruption cases. (Online) Availabe at: <http://www.dw-world.de/dw/article/0,,2249252,00.html> Ethics in Business. The New York Times Magazine, 1970. An executive summary- The social responsibility of business is to increase its profits by Milton Friedman. (Online) Available at: <http://www.ethicsinbusiness.net/case-studies/the-social-responsibility-of-business-is-to-increase-itsprofits/> George Clarke, 2008. How petty is petty corruption? Evidence from firm survey in Africa. MPRA Paper No. 15073. NHO Standpoint Corruption. (Online) Available at : <http://www.nho.no/files/Standpoint_Corruption2_1.pdf> (Accessed 28 November 2011) Pieter Bottelier, 1999. Presentation on Corruption International Business and Development , Vancouver B.C (online) Available at: <http://www.icclr.law.ubc.ca/Publications/Reports/BottelierP.PDF> (Accessed 28 November 2011) Sharon Eicher, 2008. Corruption in International Business: the challenge of legal and cultural diversity. Stanford Encyclopedia of Philosophy. Corruption. (Online) Available at: <http://171.67.193.20/entries/corruption/> (Accessed 28 November 2011) Tabitha Thiemens, 2007. Is morality relative? Timothy Ministries. (Online) Available at: <http://tmin.org/pdfs/relativism.pdf> The Guardian, 2011. Governments must address corporate corruption, says report. (Online) Available at: <http://www.guardian.co.uk/global-development/2011/oct/24/governments-must-address-corporatecorruption> (Accessed 28 November 2011) The World Bank, 2011. Anticorruption Chapter 2: The economic and social consequences of corruption in transition countries. (Online) Available at: <http://siteresources.worldbank.org/ECAEXT/Resources/Anticorruption/chapter2.pdf> Transparency Ethiopia, 2011. What are the effects of corruption? (Online) Available at: <http://transparencyethiopia.org/index.php?option=com_content&view=article&id=17%3Awhat-arethe-effects-of-corruption&catid=7%3Afaq&Itemid=7&lang=en>

Want To know. Info. Corporate corruption news articles. (Online) Available at: <http://www.wanttoknow.info/corporatecorruptionnewsarticles> Youth for Good Governance distance learning programme. Module III. Introduction to corruption. (Online) Available at: <http://img.modernghana.com/images/content/report_content/youthforgoodgovernance.pdf>