Business ethics consists of both written and unwritten rules that businesses are supposed to adhere to while conducting business in the market place. Business ethics, just like other forms of ethics are geared towards providing guidelines for businesses to avoid unconventional practices that may be hurtful to the businesses, competitors, employees or even the surrounding communities where the business is conducted. Ethics have more to do with the responsibilities of a business, and very little to do with the need to obey rules placed by governments or international trade organizations. This is because ethics are in some instances relative in terms of interpretation, and some of the laws outlined by regulating bodies might be vague or have inconsistent interpretations. Furthermore, some laws governing ethical business practices do not have strong basis for them to be enforced effectively. Apart from ethics outlined by most regulating bodies, businesses also have their own ethical standards that guide employees in all the activities conducted on behalf of the business.
Bribery Scandal at Siemens
The Siemens bribery scandals were a series of bribery cases that were discovered in the business practices of Siemens. One case was the move by several Siemens employees to gain competitive advantage over rivals by bribing officials in foreign countries in order to obtain contracts. Furthermore, the money that was used to bribe the officials was also obtained in questionable ways. The second case was when employees of Siemens Company bribed labor officials so that the policies that Siemens was formulating would be approved. The discovery of these unethical activities sparked off a series of investigations in Siemens offices in several other countries with the aim of unearthing further bribery cases. (Verschoor).
As pointed out by Ricks (144), “bribery is a practice that can be found in almost all cultures around the world.” The question that arises is the reason as to why such an unfair practice can gain popularity across different cultures. Surprisingly, different cultures use different terms to refer to bribery, but the basic definition is that it is money or incentive given to gain favor. In the United States under the Foreign Corrupt Practices Act which took force after President Carter signed in into law in 1977, bribing foreign officials to get contracts in foreign countries is considered illegal for American companies. The law further goes on to outline the various forms in which bribes can take place. The first category is where bribes are given in order to obtain special treatment while conducting illegal acts; the second category is where a company issues bribes to officials in order for the officials to make business easier for these companies. Usually, the activities conducted by these officials are not illegal and the bribe is only aimed at making the processes flow faster; the third category of bribes is where companies conducting business in foreign countries, may seek the services of an agent usually a native of that country who knows the dynamics of conducting business in that country. The agent may then make it easier for the company to seek audience with government officials and arrive at agreements. If the agent uses the fees paid to him/her by the company to bribe government officials with the knowledge of the company, then the act is considered a bribe. (Ricks et al 146).
Looking at the case of Siemens, it is observed that employees of Siemens were directly involved in bribing officials with the complete knowledge of what they were doing. First, the bribes issued by these employees to officials in foreign countries to gain contractual advantage over competitors, and second, issuing bribes to have their policies approved by labor officials were both ethically wrong not only to competitors but also to Siemens as a company. A bribery case concerning any company sends a negative message to stakeholders, to authorities and to consumers regarding the company. The bribery case reveals lack of confidence within a company regarding its capabilities and also reveals an aspect of dishonesty. It also reveals that the company has the capacity to go to great lengths just to gain profits regardless of the methodologies used, and this reflects on the lack of morals by a company. Bribery is also an unfair undertaking in the business world. For instance, when considering a situation where bribery was a lawful and ethical act, only the companies ready to part with the most money would be able to gain contracts and competitive advantage, regardless of whether the goods and services offered by these companies are of the highest quality and are the most cost effective. This would in turn hurt the very essence of business which is the provision of quality products at the fairest prices.
According to Henn, Ethics have other implications apart from the fact that they keep a business from breaking laws. Henn outlines that research has already established that businesses that have formulated and adhere to effective ethics have the capacity to perform better than businesses that do not adhere to ethics. (14). Therefore, if as assumed by other businesses that bribery is just a cost of doing business then the question that arises is the role played by bribery in terms of affecting performance. Siemens employees were therefore putting the very performance reputation of the company in terms of financial performance and quality assurance on the line when they decided to issue bribes. Henn (12), explains that companies that adhere to business ethics have higher chances of receiving awards of recognition from governments and these awards may be useful when the companies seeks other contracts. Nobody would want to do business with a dishonest person and Siemens is bound to lose business due to the scandal. An example of the consequences of bribery was the move by other countries to investigate for possible unethical conducts by Siemens. This portrayed a negative image upon Siemens. Therefore whether bribery issues sometimes depend on perception, the extent to which they hurt a company, competitors and business in general is ground enough for it to be considered unethical and illegal.
Winning contracts in foreign countries present challenges to companies and as outlined by Malachowski (111), most Americans conducting businesses are worried of the fact that even without the intention of giving out bribes, most officials in foreign countries still expect to be bribed. The situation is challenging for American companies seeking contracts in foreign countries especially when bribing is a common practice in these countries. Therefore the only option that foreign companies have is to seek the services of credible agent that will not go bribing officials. If all companies can adhere to the basic rules of ethics then quality of products and pricing competitiveness will be the determinants of the winning company.
Despite the fact that a company is made up of different departments the operations of the company should be in harmony with each other and should portray the company positively. It is upon the managerial to ensure that all processes are conducted in accordance to the company’s policies to avoid situations where conflicts of interests arise. Therefore, the board at Siemens was right in failing to extend Kleinfied’s term even when his performance as a CEO was considered exceptional. It was upon Kleinfield to ensure that employees understood the ethics of the company and the consequences that may arise in case an employee violated the ethics. In the United States companies are required to take preventive measures in order to comply with the Foreign Corrupt Practices Act. These measures are geared towards preventing bribery cases before they occur or rescuing the situation at an early stage. According to Ricks (147), the measures require a company to:
- Establish a comprehensive anti-bribery policy that is supported and enforced by the managerial.
- Establish guidelines for sales persons and accountants of companies to follow when conducting business internationally.
- Establish a system of accounting that is in line with the anti-bribery policy as a preventive and discovery measure.
- Consult with governments regarding certain payments that the company suspects to being illegal.
- Establish rewarding and punitive methods based on the ability of employees to adhere to the anti-bribery rules.
Although these measures are applicable in the United States, a CEO who conducts business internationally should be at least aware of preventive measures to tackle bribery and implement them in the most effective way. Therefore, the board was right to discontinue Kleinfied’s contract because the bribery cases occurred because he failed to implement measures that would prevent such occurrences or at least discover them early enough. The fact that the bribery cases were discovered externally, also demonstrated incompetence on the part of the CEO of Siemens.
The departure of Kleinfield from the company would send a positive message to stakeholders and the authorities that the company was geared towards fighting the vice from within. His departure can also serve as a warning to employees who may be thinking of issuing bribes in future.
Siemens Company was completely at fault by being involved in bribery cases and there could be no excuse for a company of the caliber of Siemens to engage in such unethical acts. Most companies engage in bribery because it is the order of business in a particular environment and it is the only way that a company can be sure of operating in level grounds. However, just because other companies are doing it is not grounds enough for Siemens to have engaged in bribery. The long term implications of bribery as outlined earlier in the paper are not only injurious to a company, but also to business in general. Furthermore, there is no guarantee that a company will secure contracts or have its policies approved just by bribing a few officials. A company might end up losing either side.
Although ethics are relative and what might be ethical in one perspective may be unethical from a different perspective, an analysis of the situation is important to understand the implications of a particular act. Maybe the employees at Siemens had completely sincere motives when they were issuing the bribes in terms of establishing competitive advantage over rival companies. However, had they considered the long term implications of such actions via critical analysis they would have considered the implications to the companies in case they were caught. Bribery is illegal in most countries and the only difference is how different the countries define and perceive bribery. Therefore, the employees must have known that what they were doing was illegal. Because of their action the company lost its credibility not only in Germany but in most other countries. Just as outlined earlier, ethics have more to do with the convictions and responsibilities that a business feels, and very little to do with the need to obey rules placed by governments or international trade organizations. This is because ethics are in some instances relative in terms of interpretation, and some of the laws outlined by regulating bodies might be vague or have inconsistent interpretations. It is upon a company to establish proper ethical policies that are objective in nature.
- Henn, Stephen. Business Ethics: A Case Study Approach. New Jersey: John Wiley & Sons, 2009.
- Malachowski, Alan. Business Ethics: International and Environment Business Ethics. New York, NY: Routledge, 2001.
- Ricks, David, Punnet, Jane, and Mendenhall, Mark. Global Management. New York, NY: Blackwell, 1995.
- Verschoor, Curtis. Siemens AG is the Latest Fallen Ethics Idol. November 2007.