Discuss some of the dilemmas surrounding issues of corruption that MNC's may face

Discuss some of the dilemmas surrounding issues of corruption that MNC's may face

 

BUSINESS ETHICS ESSAY

 

 

ESSAY QUESTION

Discuss some of the dilemmas surrounding issues of corruption that multi-national corporations may face. To illustrate your discussion you should refer to at least one of the following: facilitation payments, corporate hospitality and nepotism.

 

Introduction

Multi-national corporations have to deal with different moral understanding of corruption and different practise of culture and religion. Such conflicts of understanding usually place international firms in dilemma with regard to what is the moral standard to follow in the home or host countries. One would argue if an international standard would be available to judge whether corporate actions have crossed the line of corruption. In many cases, firms are left on their own to make a judgement call.

Dilemmas surrounding issues of corruption that multi-national corporations may face

One of the common dilemmas faced by MNCs is facilitation payments. Facilitation payments are unofficial payments made to public officials in order to secure or expedite the performance of a routine or necessary action (UK Bribery Act, 2010). Sometimes referred to as 'grease' payments, they are usually made to obtain something to which the commercial organisation is already legally entitled, for example getting goods released from customs. Officials in African countries routinely take money to issue contracts according to Gary Busch, a logistics expert who has worked for companies that own and operate cargo vessels and aircraft in Africa. The dilemma in such situation is the economic benefit of getting projects approved or expedited compared to the spirit of fair competition and principal of moral uprightness. Furthermore, the amount of facilitation payment may differ in different countries. In countries such as India, it is common to bride officials for small amount to get documents signed or pass through the immigration for less than ten dollars. Such amount of bribery would hardly matter to the MNCs and may come from the pocket of the individuals. However, at a principal level, even a small amount of bribery is a violation of corruption. If the individual is paying the officials by themselves, they are still representing the corporate they work for in the foreign country and put the reputation of the firm at risk.

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Corporate hospitality is a more shady area for corporate corruption. Corporate hospitality is the entertaining of clients by companies in order to promote business, especially at sporting or other public events. Entertaining of clients or simply provide reception of clients are sometimes needed to promote more interaction for business purpose. Most of multi-national corporates have specific guidance with regard to the amount of entertainment acceptable to the employees. For example, CFA institute has specific rules for members going to client sites for business inspection and if they are responsible for paying the transportation and accommodation. However, even a well-defined code book by CFA leaves an amount of interpretation to the employee by saying the gift of entertainment should be prudent without specifying how much is prudent. Secondly, the amount of hospitality is interpreted differently and is regarded as an important signaling tool in some countries. Businesses in China usually regard a luxurious reception as a show of good business partnership. An MNC that fail to prepare a luxurious reception by the Chinese standard would run the risk of giving a signal of disrespect to their Chinese partners and causing unnecessary misunderstandings. Therefore, corporate hospitality has remained very much a grey area and the degree of entertainment is highly subjective.

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Nepotism is another form of corruption or favouritism that is difficult for MNCs to define even at a corporate level, not to mention across the countries they operate. Nepotism is a kinship based appointment or promotion to a position in private or public sector. Family-run businesses are very much run based on family relationships and closeness of blood. Some MNCs are transformed from an initial family business to a large corporate. The spirit of nepotism may still be around during the transformation process. Furthermore, to prevent nepotism to the extreme would also deny fair opportunities for those that are related in the corporates. An employee may be promoted purely based on his performance. But if he/she is related to a person involved in the decision process, the integrity of promotion is somehow regarded as compromised. In practice, most firms have tried to clearly define how nepotism can be prevented and the stigma of nepotism is keenly avoided. At an international level, nepotism is more challenging in cultures where family connection is highly valued. Being related to officials or people at power is regarded as important ways to establish business relationships and to guarantee credibility at the start of business partnership. At this moment, MNCs have not yet formed clear policy to prevent nepotism at an international level. Recent news on major banks, such as JP Morgan, hiring sons and daughters of Chinese officials has made the front page of newspaper. The reality is that such hiring practice is both an advantage to MNCs to operate in host country and an implicit form of corruption from officials to obtain favoured treatment for their family.

Conclusion

In conclusion, we have reviewed three cases of dilemmas of corruption for multi-national corporates. From clear violation of corruption, such as facilitation payment to less shady areas such as corporate hospitality, the challenge to MNCs is to establish a single standard of business conduct across different cultures to strike a balance between economic gains and business ethical standard. If MNCs do not treat the issue with high attention and allow corruption to creep in when dealing with foreign cultures, they also run the risk of gradual erosion of principal in their home country staff and the loss of reputation in their markets. They should be aware that they represent the value of their home country in the foreign markets. Nepotism is an issue that firms are still struggling to deal with at the moment. There is an apparent lack of awareness in this issue at an international level as shown in the JP Morgan case. Attention on MNCs’ foreign subsidiary has always been on facilitation payment and sometimes corporate hospitality that the issue of nepotism is placed at a lower tier and implicitly excused because it is a common practice in the host nation. After all, MNCs should strive to achieve an equal standard in both home and host countries. When there is a possible conflict of both standards, it is always wise to stick the stricter version and openly communicate the standard to the counterparties in a sensible way. MNCs can strive to be a role model to follow, which will be a plus for their international reputation.

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References

The Bribery Act, 2010. “Facilitation payments”. Available at: http://www.sfo.gov.uk/bribery--corruption/the-bribery-act/facilitation-payments.aspx

Reid, R., 2011. “The Bribery Act: Facilitation payments: A real dilemma”. Available at: http://www.shoosmiths.co.uk/client-resources/legal-updates/The-Bribery-Act-Facilitation-payments-A-real-dilemma-1794.aspx

Melik, J., 2010. “The dilemma of bribes: to pay or not to pay”. Published by BBC. Available at: http://www.bbc.co.uk/news/business-11957514

“The Ethics of Gifts and Hospitality”. Published by the Institute of Business Ethics, 2006. Available at: http://www.ibe.org.uk/userfiles/briefing_3.pdf

Hughes, J., 2012. “5 workplace ethical dilemmas”. Published by University of Phoenix. Available at: http://www.phoenix.edu/forward/careers/2012/10/5-workplace-ethical-dilemmas.html

Büyükarslan, A., 2011. “The overall outlook of favoritism in organizations: a literature review”. Published by International Journal of Business And Management Studies. Available at: http://www.academia.edu/1088480/THE_OVERALL_OUTLOOK_OF_FAVORITISM_IN_ORGANIZATIONS_A

Protess, B., 2013. “JPMorgan Tracked Business Linked to China Hiring”. New York Times. Available at: http://dealbook.nytimes.com/2013/12/07/bank-tabulated-business-linked-to-china-hiring/?_php=true&_type=blogs&_r=0

 

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