Ethical Dilemma and Case Study

Read “Case Study 5.1: The Hidden, High Cost of Bribery” on pp. 279-282 in Ch. 5 of Meeting the Ethical Challenges of Leadership: Casting Light or Shadow.

Write a 250- to 300-word response to the following:

· Which of the bribery examples provided in this case study do you feel is most unethical and why?

· What do you feel is an appropriate consequence for bribery?

· What are some types of bribery that might occur in a learning organization and what should be the consequences?

Case 5.1The Hidden, High Cost of BriberyGlobal corporate bribery illustrates how difficult it is to anticipate the negative consequences of unethical behavior. The business costs of paying kickbacks are most evident. Bribes distort the market, giving an unfair advantage to some companies while keeping out competitors. However, the negative impact of bribery extends well beyond the marketplace. PBS Frontline producer and journalist David Montero highlights the many unanticipated consequences of corruption in his book Kickback: Exposing the Global Corporate Bribery Network. According to Montero, those who suffer most from bribery remain hidden. He provides the following examples of the high, hidden cost of bribery based on interviews with police officials, criminals, business executives, and corruption authorities from around the world:– Over 2,000 firms from 66 nations collectively paid Saddam Hussein $1.7 billion in bribes during the United Nations Oil-For-Food program prior to the Gulf War. Fortune 500 companies paying kickbacks included Johnson & Johnson, Chevron, and General Electric. Kickbacks helped Saddam avoid the consequences of international sanctions while the Iraqis (who were supposed to receive humanitarian aid under the program) continued to suffer. As one congressional investigator noted, “For every dollar that was kicked back to Saddam on a contract was a dollar that did not go to buy humanitarian goods, food or medicine or anything else, for the Iraqi people” (p. 52). A portion of the illegal payments funded the Iraqi insurgency, an insurgency that resulted in the deaths of American soldiers and civilians. Bribery funds may have also provided the start-up capital for ISIS.– The sales forces of Eli Lilly, Bristol-Myers Squibb, GlaxoSmithKline, Novartis, and other major pharmaceutical firms gave Chinese doctors cash, cigarettes, visits to strip clubs and Disneyland, and other gifts to convince them to prescribe their products. These payments boosted the costs of drugs, forcing patients to pay enormous medical bills. Kickbacks also encouraged overprescribing, as physicians were rewarded for the number of drugs they encouraged patients to take. As a result, an estimated 25% to 30% of China’s overall health care costs are spent on unnecessary drugs and services. Overprescribing antibiotics is particularly dangerous. One hundred fifty thousand died in one five-year period from severe adverse reactions to antibiotics. Antibiotic strains of tuberculosis and syphilis have developed. While the Chinese and U.S. governments have greatly reduced corruption in China’s pharmaceutical market, paying bribes is still a widespread practice.– Chevron and Shell Oil funneled money to Nigerian governor James Ibori by spending millions to rent houseboats from his company to serve as floating hostels for employees. To hide his ill-gotten gains, the strongman created a series of shell companies that deposited money in major overseas banks and purchased luxury properties in Houston, New York, and other cities. Bribery enriched Ibori and his family and cronies but left average Nigerians (who live above one of the largest oil fields in the world) impoverished.– Ericsson, Daimler, Siemens, Ferrostaal, and other companies paid kickbacks to government and military officials in Greece. These kickbacks grossly inflated costs of public works projects and weapons, leading to high debt and the subsequent collapse of that country’s economy. Millions of Greeks lost their jobs and pensions. The country was forced to slash its health costs (already inflated by kickbacks to doctors and hospitals) in order to receive a financial bail-out from the International Monetary Fund and the European Union. Since the cutbacks, cases of malaria have been reported for the first time in 40 years and stillborn deaths (due to less prenatal care) are rising.– Siemens bribed top officials in the Bangladesh government in order to win a telecommunications contract. Sons of a former prime minister, who are members of the Islamic National Party (BNP), used these funds to start a terrorist group which carries out assassinations, bombings and other attacks on those supporting secular values. Moderate citizens live in fear as extortion, explosions, and murders continue.Montero argues that penalties for bribery ought to consider the hidden victims of corruption. As it stands, regulators focus solely on the economic costs. A typical judgment matches the amount of the bribe plus an additional penalty. No money goes to the country where the bribery took place. Sanctions imposed by the Securities and Exchange Commission (SEC) in the United States, for instance, remain in the United States.Montero believes that bribery penalties should recognize the societal impact of the crime. The attorney general of Costa Rica, for example, sued French telecommunication giant Alcatel-Lucent for causing “social harm” by paying millions in bribes to high-level government officials, including two past presidents, to win national contracts. He argued that Alcatel bribes undermined the sound financial management that Costa Rican citizens had a right to expect; damaged the reputation of the country, which was called corrupt in the press; and undermined the political process because the populace may have lost faith in politicians and the government. Alcatel settled for $10 million.Suing for social damage would acknowledge the true impact of bribery, ending the disconnect between the crime and the damage it causes. Penalizing social harm would also increase the size of corruption fines, which would help deter violators. Currently bribes pay off, generating anywhere from $5.60 to $11.00 in benefit for each dollar spent. Even massive fines do little to deter bribery because they pale in comparison to the size of many multinationals. Siemens paid a record-breaking $1.8 billion to the U.S. and German governments. One billion dollars was forfeiture of the profit made from bribery and $800 million was the additional penalty. The $800 million fine was the equivalent of less than 1% of Siemen’s $100 billion market capitalization.Montero goes on to argue that penalties should be coupled with apologies and reparations. Requiring companies to publicly admit the damage they have done to foreign citizens would pose a greater threat to their reputations than paying a fine. Reparations would go to directly addressing the needs of victims, which has occasionally happened in the past. The U.S. Justice Department worked with World Bank officials and the government of Kazakhstan to establish a foundation to help the poor using money seized from an American businessman convicted of bribing Kazakhstan officials on behalf of major oil companies. Portions of settlements in the Oil-for-Food scandal in Iraq were directed to Iraqi reconstruction.In addition to highlighting the hidden costs of bribery, Montero also points out the benefits of shunning bribery. Organizations committed to anticorruption are often more profitable and innovative. They also benefit from a more committed workforce because engaging in bribery reduces employee morale. Montero concludes that, when it comes to kickbacks, the ethical course of action is the most profitable in the long run.