A mid-sized American company wants to expand into a country where the payment of bribes is considered a normal part of doing business.
The systems and products of Alpha Wireless have been selling well in its existing markets in North America and Europe. Alpha Wireless is eager to grow the business. At a strategy session, the company CEO and division managers decide to explore the potential of expanding their business to Russia.
Initial research indicates that Russia is likely to develop into a huge market for mobile phones because the country has an expanding middle class and the government has made spending on wireless infrastructure a priority. Subsequent research does raise one concern for the managers at Alpha Wireless. They tell the CEO, "The Russian government allocates frequencies and makes franchise decisions. A payoff is usually required to get licenses."
The CEO says, "A lot of companies are doing business with Russia right now. How do they get around the problem?"
The managers reply, "We believe most other companies contract with agents to represent them in the country and get the licenses. What these contractors do is their own business, but apparently it works pretty well because the CEOs of all those companies are able to sign the disclosure statement required by U.S. law saying that they know of no instance where they paid a bribe to do business."
The CEO says. "I'm not comfortable with the idea of bribery. If we don't expand into Russia, how much business will we lose, potentially?" One manager responds, "The countries that expect payoffs have the fastest expanding markets. Russia alone represents $50 million of business per year. All things considered, we have a lot to gain. What will we really lose if our local contractors are forced to make payoffs every now and then?"
The CEO wants his company to succeed, and is committed to maximizing shareholder value. He wants to model ethical leadership. He has made an effort to build a corporate culture characterized not only by aggressive R&D and growth but also by integrity, honesty, teamwork, and respect for the individual (See the Values Statement below). As a result, the company enjoys an excellent reputation among its customers and suppliers, employee morale is high, and ethics is a priority at the company.
What should he decide in this case? Why?
Alpha Wireless Values Statement:
"Alpha Wireless has always placed a high premium on its relationship with its employees. Although the nature of our business and markets may change as the company evolves to meet different market conditions, a strong emphasis on ethical behavior and respect for each other will remain constant."
- What are the relevant facts?
- What are the ethical issues?
- Who are the primary stakeholders?
→ What are the rights of the stakeholders? (I.e. what is owed to the Stakeholders?)
→ What are the duties of the stakeholders?
→ Who derives the benefits of an unrealistic analysis?
→ Who bears the heaviest burden of an unrealistic analysis?
→ What is the most fair and equitable way to distribute the benefits and burdens across all stakeholders?
- What are the possible alternatives?
→ Which alternative is the most fair to all stakeholders?
- What are the ethics of the alternatives?
→ What is the cost and benefit of the alternatives?
→ Which alternative provides the greatest benefits or the fewest costs for all concerned?
- What are the practical constraints
- What action(s) should be taken?
What I will argue here is that the bribery issue is exaggerated and, to the extent that it exists, it is quite typical for that field. Russian corruption is improving, and new laws and enforcement mechanisms are all over the place. India, most of Asia, Africa and quite possible, the US are more corrupt in this field than Russia. China has instituted the death penalty for this crime they are so panicked about it - its the nature of the field right now.
What are the relevant facts?
One important issue is whether or not this is true. Bribery in India and Southeast Asia is far higher than in Russia. As of January 1, the Russian anti-bribery law became one of the strictest in the world. In fact, it is the strictest in the world, since Russian firms can be fined for failing to prevent bribes, hence making the entire firm liable. All firms must have a policy in place that is approved by the local government. The legal advisor to the U.S. Embassy in Moscow, Thomas Firestone, thinks Russian bribery a thing of the past.
Three major American businessmen Jack Arnoff, Thomas Dix, and Philip Owen, mostly in the financial and media sectors, reject the fact that corruption is greater in Russian than anywhere else.
Arnoff, in the financial sector states:
"I've been involved very actively in investing into Russia since 1998, mostly through listed securities, but I've had extensive contacts with people involved in private equity in Russia. And before the crisis we were managing substantial amounts of money and Russia has always been one of the main markets in the region. And probably one point I would like to make on the positive side and to dispel this perception that it's impossible to make money in Russia, it's very difficult to make money in Russia and your assets are always endangered by bureaucrats in the governments at very short notice. And that's clearly not the case."
Owen, a consultant at Volgatrader Company, when asked if he ever was asked to pay a bribe, stated:
"Not in recent years. At early stages, particularly when Yeltsin was still a president, the lack of payment to public officials led to lots of hints, not direct requests perhaps, but a lot of hints. I think there's a difference between extortion and corruption as well. I think Russia is full of a lot of people who are quite willing to accept corrupt payments if offered, but when it comes to extortion, I think there's a lower level of extortion in Russian than perhaps Greece or India."
Hence, this may be a non issue.
What are the ethical issues?
If there is no boundary between bureaucratic practices and informal regulation, then the ethics comes down to whether we can call this "bribery" or not. Several recent analysts have suggested that, instead of formal bureaucracy, Russians have an informal system. "Bribes" take the place of fees and other expenses in more formal societies. Hence, if this is the case, they are not bribes, but legitimate transactions that are not formalized.
Many of the studies cites that claim Russian bribery is everywhere rely on old data, and often, rely on data from political NGOs that Russia wishes to regulate. In the telecommunications industry, the level of reform shows that there is no reason to be concerned about ...
The solution discusses the products of Alpha Wireless.