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The Labyrinth of Global Ethics
November, 2003 by Gregg Marshall, MBA '94 Alumnus Gregg Marshall offers a cautionary tale of corruption and other dangers in today's business environment.Consider this: Fortified with your freshly awarded MBA, you arrive in a small but rapidly developing country to close a US$52 million infrastructure sale and oversee its implementation as the country manager of a Fortune 100 company. The client is a government-owned utility, and the project has been three years in the making. Your firm has spent over $2 million supporting the sale and won out in fierce competition over six eager, well-funded, and otherwise similar competitors from North America, Europe, and Japan. The decision maker on your deal is a government minister. You've yet to meet due to the Honorable Minister's frenzied campaigning for parliamentary elections to be held in less than one month, so you're delighted when his private secretary phones and instructs you to come over immediately. As you rush out the door your local assistant pulls you up and warns you to be careful. Careful? Yes. The minister was part of a group some of whose members were arrested overnight and charged with homicide in the beating death of an opposition party official in a far-off northern province. Moments later you're seated opposite the minister in his unrenovated British colonial chambers. It's mid-afternoon, but the curtains are drawn. A single lamp barely glows in a far-off corner. The room reeks of whiskey; the minister is drunk. But he wastes no time. "I would like you to sponsor $100,000 of campaign posters," he says. "We need the funds for printing immediately. We would like you to be able to carry out your project. I'm sure you can understand." Sound far-fetched? Scenes like this one in which I was the freshly minted MBA are repeated daily in capitals around the globe. It is difficult to write about, especially with names, because often there is no way to prove your version of events. However, many of us working in the global economy know that corruption and fraud are endemic and remain the biggest challenges facing business people working outside the richest countries. . Recent headlines suggest there also was plenty of corruption fueled by greed during the bubble economy of the nineties in the United States, perhaps on a scale that dwarfs the common gouging and extortion of the developing world. That has been written about in other issues of this magazine, and is beyond my expertise because I have been living and working abroad for 21 of the past 25 years. Stories like the one about the minister's request, in addition to raising the specter of corruption, typify the significant cross-cultural pitfalls that confront people working in social and legal environments outside their home country or other countries they may know well. And that, in our current era of full-throttle globalization, is greater and greater numbers of business "I've asked myself and others over the years why certain kinds of corrupt practices are so popular in poorer countries." In 2000, then Microsoft CEO Bill Gates spoke to business leaders in the Philippines about his vision for a better world, and how the information technology industry is making that world possible. The first question during the discussion that followed was penetrating. "In the Philippines," said one executive from a major information technology company, "a majority of the population does not have adequate shelter, food, clothing, or health care. How is IT going to provide that?" To Gates' credit, he replied that these things are indeed priorities, and that information technology can only really help people whose basic needs are covered. He has since donated an enormous chunk of his personal fortune to a foundation dedicated to improving living standards in the developing world. Some observers to the discussion with Gates took the position that corruption is not a large problem in the United States because Americans have evolved broad social agreement that it is not an acceptable practice to bribe people in order to get what you want. Several hundred years of rapid economic growth have demonstrated that win-win transactions in which everyone is entitled to their income and margin lead to the fastest economic growth and largest dispersion of wealth. In addition, the economic, social, and ethical cases against corruption are clear and well understood everywhere, including in the developing world. Politicians and business leaders are keenly aware of the role it plays in distorting trade by increasing costs, slowing procurement processes, and therefore rendering many projects unprofitable at best, and uneconomic as well as shoddy at worst. However, in many cultures, people's behavior conflicts with these beliefs: Broad social agreement recognizes that individuals can and even should ask for payments on the side in keeping with the significance of the goods or services they are delivering. Official policy drawn up by highly articulate government officials to help their country compete for global capital condemns side deals but cannot quickly overturn centuries-old norms and personal habits. Nor, as in the example of Gates, are those policies thought by many business people or officials to help put food on their own tables. In places with few resources and slim prospects, people believe in taking what they can get, when they can get it, because the opportunity might not come their way again. In lands of plenty, people have faith in rising prosperity; life does not seem so tenuous. But resources are scarce and always fleeting in poorer countries. For this reason, corrupt business practice remains common and shows no signs of abating. Why is this so? Despite widespread reform in places around the globe over the past decade, populations are increasing quickly in many poorer countries, and real incomes have actually dropped in a number of places over the past several decades. In such places, when people have a clear shot at money, they take it. Does this mean that when in Rome, you should always do as the Romans do? In general, yes, because it's the best way for an outsider to succeed like an insider. But definitely not in the case of corruption. If you acquiesce to our minister's request for campaign assistance, you will have violated the U.S. Foreign Corrupt Practices Act (FCPA) of 1977. This law, drawn up in the wake of a large scandal involving commercial airliner sales in Japan, prohibits Americans from bribing foreign government officials to win business. For a while this law placed Americans at a distinct disadvantage to their competitors from the European Union, who until 2000 could deduct from corporate taxes bribes paid to win business as a legitimate business expense. As a sign of how severe this issue has become, it is now standard practice for U.S. companies to require American employees operating offshore to sign an acknowledgment of the FCPA, and to be warned that any potentially illegal activity by the employee will be reported by the company itself to law enforcement officials. But what is the actual state of play beyond U.S. borders? The FCPA does not prohibit the payment of commissions, agent percentages, finder's fees or the like to private individuals, and in the quarter-century since the FCPA's passage many government-owned companies around the world have been privatized. This removed government officials from moral hazard, but they have been replaced by other decision makers who also frequently view foreign companies as milk cows. The response by many—if not most—U.S. companies working in corrupt environments is in fact to team up with a local partner, a sales agent, or representative, or to subcontract portions of a project through local entities that do the dirty work of placating powerful people who hold their hands out. As these kinds of arm's length transactions are not prohibited by the FCPA, they have become usual and customary. Typically, a local agent receives some percentage of revenue on a contract, perhaps 5 to 25 percent of revenue on a deal's successful completion. What happens to that money is the agent's decision alone, but there is plenty of incentive to get the deal done. Not surprisingly, in many places where use of local representatives is common practice, accounting and reporting standards are also lax, cash is still king, and brown bags change hands regularly. Theoretically, the payment of bribes and kickbacks happens out of sight and out of mind. Yet Americans working abroad in large companies often find themselves caught between company pressure to achieve quarterly revenue and profit goals, the long arm of the law, and their own beliefs about the deleterious effects of bribery in the short and long run. Agents offer the prospect of closing successful business and creating plausible deniability before the law. Running afoul of the FCPA is nothing, however, compared to what can happen if you get entangled in a dodgy legal system. The case of Jude Shao, MBA '93 (reported in the August issue), is not unusual in most of the world's jurisdictions. Shao is imprisoned near Shanghai and serving a 16-year sentence for two tax-related offenses, crimes he hotly denies committing. He says a tax auditor offered to return his import company's books and drop an audit if the company posted a $60,000 bond. Shao saw the offer as a thinly disguised demand for a bribe and refused. Many postcolonial countries labor under remnants of legal systems put in place by their former occupiers early in the last century, and in others the legal system is a rubber stamp for whatever political or ideological decision already has been made by people in power. Shao was not granted what are considered basic protections against judicial abuse, including the right to prepare and conduct his own defense; to confront his accusers; to have access to records—including his own—that would bear on accusations made against him; to outside legal counsel and representation; to appeal; and perhaps most important, to be judged by his peers rather than a judge who may or may not be impartial. As an entrepreneur, he also did not have the resources or clout of a large multinational company behind him that could bring immediate pressure at high levels to secure his release So, if you are the one seated in front of the minister looking for campaign finance, how do you react? And how will this all unfold? If you blow him off—big temptation—you will have committed a social faux pas sure to ripple out and stigmatize you with future customers. Inside your own company, you may be perceived as having blown a major deal, even though you did the right, ethical thing. Patience is often the wisest counsel. First, ask for his. Say you will have to check with your predecessor on what was promised, and also notify your superiors of this urgent need. Take your leave graciously, and always be soft-spoken and polite. Not many world cultures are confrontational. Besides, you need to stall only for a month. The minister, his reputation soiled, will be voted out of office at the election. In his place comes a reform-minded young technocrat. Unfortunately, he decides to rebid your project, and the whole cycle starts again. |
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Are Your Papers in Order, Sir?Corruption is not the only way to be placed in harm's way when overseas. You may—wittingly or not—break any number of laws and find yourself before the bench. An American journalist recently was tried in Indonesia for breaking immigration law and sentenced to 40 days in jail and barred from the country for a year. His crime was entering Indonesia under a tourist visa. Indonesian immigration law requires working journalists who plan to report from the country to apply for a press visa, and they take this very seriously. Press visas are frequently denied, especially for access to a war zone like Aceh in North Sumatra. A defense based on ignorance, especially when you are filing dispatches while on a tourist visa, rarely wins such a case. Through the Internet it is now possible to review online many countries' laws and their implementing regulations, even those of the most far-flung. You'll be expected to have done your homework and to keep your documents on hand and in order. Other perils are similar to those you would face in the United States. Don't discount these, because Murphy can and will strike when you least expect it. Chances are, for example, that you will travel in an automobile no matter where you go on business. Your risk of getting into an automobile or other accident that causes serious injury may be lower in much of Europe than the United States, but it is certainly higher in the developing world. If you suffer a serious personal injury in a poor country, you may not receive adequate medical attention even at the nation's best facility, nor safe blood if you require a transfusion. In some countries drivers are automatically arrested if they cause a fatal accident, and in others, particularly remote areas, they may be beaten or killed on the spot by angry locals, particularly if a child's life is lost in the crash. Always travel with insurance that guarantees immediate medical evacuation in case of emergency to a location with world-class medical facilities. Try not to be the driver in unfamiliar places. And obtain a policy rider that pays for legal assistance wherever you may be. If you travel abroad on business, and certainly if you live and work abroad, you will want to entertain yourself after hours. While many urban areas in the developing world are far less dangerous than a handful of notorious city neighborhoods in North America, some seemingly harmless amusements can land you in the morgue. A South Korean diplomat was found dead last year in one of Asia's favorite fleshpots. He had been drugged in a bar, robbed, and dumped by the side of the road, where he asphyxiated in his own fluids. Stories of expatriates who try to score illicit drugs locally are also legion. Hundreds are in jails around the world serving sentences up to life, and in a number of jurisdictions—including many rich countries—the mandatory penalty for drug possession or use is death. You do not want to end up in a poor country's hoosegow. Conditions are frequently so crowded you may not be able to lie down to sleep. In many such places food is provided to inmates by their families or not at all. The U.S. government can and will do little to help. ABOUT THE AUTHOR
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