Sudha Aravindan has taught high school Math and professional development in Information Technology for over 10 years. Sudha has a Doctorate of Education degree in Mathematics Education from the University of Delaware, USA, a Masters degree in English Literature from the University of Kerala, India, a Bachelor of Education degree in Teaching of Math from the University of Kerala, India, and a Bachelor of Science degree in Math, Physics and Statistics from the University of Kerala, India. Sudha has a certificate in Java programming and Statistical Analysis.
In the business world, stories of bribery are all too common. The term bribery means to give gifts of money, in cash or kind, to someone in order to persuade them to make favorable and biased decisions for business gains. In the U.S., bribery is considered an unfair business practice and is, therefore, illegal. However, in many countries, bribery may not be considered corrupt and is viewed as the normal way business is conducted.
So what happens when American companies do business in countries that are more tolerant of bribery? In 2012, the New York Times published an article about how Walmart was paying bribes to get permits and gain market share in Mexico. The story ignited several investigations and left the company scrambling to repair its reputation. To gain a deeper understanding of how companies may end up in a similar situation, let's examine a case study.
The Starnes-Brenner Case Study
The fictional Starnes-Brenner Machine Tool Company is an American company that has a sales office in a Latin-American country. Bill is sent abroad to replace Frank, a long-time salesman nearing retirement. During training, Bill discovers that Frank had been bribing the engineer, who is a government official, to the tune of $1,200 per machine to certify that the machines were not flawed. He also paid bribes to the dock boss to speed up the transfer of machines. Frank also routinely paid bribes to promote sales.
Bill is shocked and points out that paying a government official is illegal as per the Foreign Corrupt Practices Act (or the FCPA). The FCPA is a United States federal law that makes it illegal for U.S. businesses, citizens, and people of American nationality to influence foreign government officials by paying bribes. This is considered a corrupt practice and is punishable by prison time. Frank responds by saying that the bribery costs are small in comparison to the sales. After living abroad for ten years, Frank justifies the bribes he paid with the following reasons:
- Everyone pays a bribe there, and when in Rome you should do as the Romans do.
- Even in the U.S. there are bribes, albeit in different forms, like campaign donations to political candidates who can advance the company's objectives.
Bill doesn't believe that the ends justifies the means, and the two men agree to disagree.
Types of Bribes
Not all forms of bribery are created equal. Each example of bribery that Frank engaged in has different implications. Let's look at some of these in more detail.
One of the more common forms of bribery is lubrication. This is a small amount of cash given a low-ranking person to speed-up the execution of a task. Frank's transaction with the dock boss was a form of lubrication. Many countries outside the U.S. don't expressly forbid this practice.
However, the bribe Frank paid to the government official that was rather high, $1,200 per machine, would be considered subornation, which involves a larger sum of unaccounted money. Since the bribe was paid to a government official, it becomes an illegal act.
Extortion involves using threats to get bribes or money. Even though there was no explicit extortion, and Frank was not verbally threatened, the engineer made it clear that the machines would be found defective unless the money was paid. Since he was not in immediate danger, Frank could have alerted the proper authorities rather than paying the bribe.
Bribery Dilemmas & Justifications
Paying a bribe always raises questions about ethical and legal dilemmas. The ethical dilemmas of bribery are difficult to define. By U.S. standards, the bribes Frank paid would be considered unethical. However, by Latin American standards, can it be considered unethical because this was the common practice?
At least one of the bribes that Frank paid to the government official puts him in a legal dilemma and is a punishable offence by U.S. federal law. Frank had no option but to pay the government official, or so he thought. What if he had simply refused to pay and instead educated the government official about the Corrupt Practices Act? Would this mean Frank would not have been able to get the machines certified and suffered a business loss? Or, would the foreign official have complied once he was made aware of the legalities of the situation?
Despite all that, some might argue that bribery is par for the course when working in certain countries. As Frank states, it is best when in Rome to do as the Romans do. However, others believe that it's up to American businesses to serve as role-models and uphold anti-corruption policies. If companies refuse to do business with corrupt officials, it may pressure them to comply with the law.
All right, let's take a moment or two to review. As we learned in this lesson, bribery is the practice of giving money or gifts in cash or kind in order to benefit a business proposition and influence someone to make a favorable decision. Three types of bribery are lubrication, subornation, and extortion. Subornation involves paying a rather large sum of money to a government official and is illegal. Lubrication is smaller amounts of money paid simply to motivate the people to keep the process going smoothly. However, with extortion, things become more serious; it involves using threats to get bribes or money, and with extortion, a company risks losing goods or business if they don't pay.
The ethical dilemma of bribery is that even though it is unethical in the U.S. citizen to offer money for business gains, in many countries, bribery is the standard and accepted as a common business practice. The legal dilemma is more serious because if a U.S. citizen pays a bribe to a foreign government official, it is a federal offence and punishable by prison time.
To unlock this lesson you must be a Study.com Member.
Create your account
Register to view this lesson
Unlock Your Education
See for yourself why 30 million people use Study.com
Become a Study.com member and start learning now.Become a Member
Already a member? Log InBack