A couple of years ago, I decided to create a small business in Africa. I knew that it would be challenging, since the continent has a reputation of corruption, but I have strong moral values and I didn’t think it would be an issue. In fact, I planned on leading by example and hoped to instigate a good sense of ethic around me.

However, a few months after the beginning of the business activities, my partner and I received a call to meet with a member of the government. Unfortunately, the meeting had only one purpose: we were asked for a bribe. In that country specifically, it seemed that there was no way around it.  All companies, including the Fortune 500′s, were paying their “dues.”

What would you have done if you were in my place?

Contributed by MK.

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About John Hooker

T. Jerome Holleran Professor of Business Ethics and Social Responsibility Tepper School of Business Carnegie Mellon University

7 responses »

  1. JM says:

    While it may be the norm for public officials to bribe individuals seeking business opportunities within their country, particularly from international entrepreneurs, it does not mean that accepting the bribe is correct. On the one hand, government officials may use the bribe to develop the country’s infrastructure or allocate the bribe towards philanthropic good. On the other hand, the officials could retain the money for their own use. Complicating the dilemma is the fact that many other companies, including Fortune 500 countries, often engage in such bribes sending a message that it is OK to do so. If I were in your position, I would utilize the rational choice framework to evaluate the dilemma and determine if participating in such bribes was ethical.

    Deciding whether an action is ethical is a matter of rational choice. For a choice to be rational, it must be consistent with your goals, rationale, and integrity. To determine whether the choice is consistent with your rationale, you can use the generalization test. The generalization test states that everyone with the same reason(s) as you for the action acts in the same way. I assume that your reasons for providing a bribe would be: 1) to start your company and earn a profit; and 2) the fact that you most likely won’t get penalized for bribing public officials. To pass the generalization test, everyone with the same reasons for the action would accept the bribe, which would imply that bribery is OK. While many Fortune 500 companies may act in such a way, there are likely many businesses in the country that did not bribe officials or many individuals who sought to start a business but opted not to because they did not want to bribe public officials. Therefore, participating in a bribe fails the generalization test and is irrational.

    To examine whether bribery is consistent with your goals, we can use the utilitarian test. Utilitarianism seeks to achieve the greatest amount of good, and it is unethical to choose the option that generates the least utility. If your business was going to create great good for the local population, then one might argue that providing the bribe so that you could open the business and deliver the good would maximize utility. While this would achieve great good within the country, it would perpetuate a culture of corruption that could harm the greater population as well as those who interact with companies. It could also encourage other countries to engage in such corrupt practices and hinder commerce across the globe. There are more ethical ways—such as taxation of foreign businesses—that help distribute public goods equitably across a population.

    Finally, for a choice to be rational it must be consistent with your integrity. Humans’ purpose is to contribute virtues—such as those you possess: fairness and honesty—to the world. If you were to act in a way that jeopardized those virtues, then you would be acting irrationally.

    In conclusion, providing a bribe fails the generalization test, delivers less utility, and compromises your virtues. Therefore, it would be unethical to act in such a way. Rather than provide the bribe, I would seek alternative ways to establish the business without providing a bribe or consider establishing the business in another country where such corruption is not tolerated.

  2. AD says:

    Great question. I’ll run through the three tests to see if they provide any guidance.

    Generalization: The action (bribing authorities) is clearly generalizable, as it’s common knowledge that businesses that don’t comply with these unwritten rules simply don’t operate in that area. What’s interesting to consider, though, is whether not agreeing to a bribe is generalizable. If no companies paid off the government, then presumably no companies would operate there. However, at some point, you’d have to assume that after a sudden string of embarrassing rejections, the government officials would have to relent and allow non-paying businesses to operate without interference. Thus, no agreeing to a bribe would only accomplish your purpose if absolutely everyone pursued the same action under the same conditions. If anyone jumped ship and paid off the authorities, then they’d get the upper hand at the expense of everyone else. Offering a bribe therefore passes the generalization test in area where that is the standard operating procedure.

    Utilitarian
    : I’m going to assume that your company performs a worthwhile service that is valued by customers, without creating overwhelmingly harmful externalities. With a bribe, everyone is a winner. The authorities are happy. The company gets to function (for a small price). And the customers are served. Bribes pass the utilitarian test with flying colors.

    Virtue: Is it virtuous to offer a bribe? No, it doesn’t seem very virtuous to secretly buy off powerful people in return for unfair advantages for your company. But you’re not offering them a bribe. You’re being strong-armed into paying a “tax” to avoid unfair scrutiny and interference by the authorities. The virtuous business leader would probably recognize the necessity of compliance in that situation, while also recognizing that they will likely have many more opportunities to influence the corrupt culture for the better by operating within the culture than by disqualifying to operate at all. It passes the virtue test in my estimation.

    It’s no wonder bribes are so common in many places. It’s incredibly difficult to counteract a culture that operates this way because it would require the collusion of companies, which itself is illegal and therefore unethical. These changes must happen gradually.

  3. UC says:

    Great question.

    Before we can look into whether or not this is unethical, I think there is a clear question to ask: Is it illegal? If, in this specific country, it is illegal to ask for and pay for bribes, then I would say it is also unethical to pay this bribe. Therefore, I personally would not do it because it is unethical and illegal.

    However, there are many countries which rely upon corruption in order to get things done. Therefore, if it is legal to ask for and pay for bribes, then we can try to apply the generalization test.

    If everyone trying to start a business paid out a bribe to the government, what would happen? The government would collect lots of money. In this sense, this bribe could be viewed as a form of a tax. In essence, paying the government a fee in order to conduct business – this happens in almost every country. This scenario would pass the test and would be ethical.

    Where I get confused is the Utilitarian test. Paying this bribe creates utility for all parties. The government gets the money and you get to run you business. However, by “just” running your business, are you happy? Or are you unhappy having to pay the bribe? I’m curious if there are any other thoughts on this.

    • MF says:

      Great question. UC and AD, terrific response. I’m going to take a devil’s advocate approach here in terms of applying some of the principals.

      Generalization: The action of bribing is clearly not generalizable per se. In Western culture if the government or powers that be applied mafia style enforcement raise money and keep order, that would be clearly not generalizable. However, MK was conducting business in a country where a corrupt government is the natural order of that specific country. In that specific country you can view bribing no different than paying a tax. Although a corrupt government is bad, it is better than the alternatives, which happen to be either no government or the mafia. Trying to guess what would happen if no one ever paid the bribe is risky territory.

      Furthermore, the corruption of the government is less of a function of everyday citizens paying bribes, and more to do with the lack of effort of people with resources to stop the corruption. These groups include other powerful factions within the country, the UN, and other foreign powers. In other words generalizing paying bribes may or may not change the overall utility of the country. If this government falls, they will fall to either a mafia, no government, or a different corrupt regime.

      Finally, you have to look at the end result. Africa in general is in need of nonprofit/charitable organizations such as MK’s. If no one ever paid the bribe, no one would ever be able to start charitable organizations within the current regime. As a result, the region would be worse off. I was just watching a CNN special exposing the gold trade in the Congo. Without paying bribes to the mafia, they would have never gotten access and been able to tell the truth of the region.

      In sum, if you view the bribe as a tax, this act would have been generalizable within that part of the world. That said it is a very dicey issue that is contingent on a plethora of complex assumptions. PS. Don’t roundhouse kick me if I’m wrong.

  4. RM says:

    To evaluate the situation, we look at the three tests discussed in class to determine whether giving a bribe would have been ethical or not:

    Utilitarian test – By offering the government official a bribe, it would facilitate you to continue doing business. In general, if you refuse to offer the bribe, the government official would likely create extreme barriers for you to continue doing business. If business continues as normal, the positive benefit to society that your business provides (i.e. products or services) outweighs the effects of if your business were to stop operation (and therefore providing nothing to society). Therefore, this passes the utility test.

    Generalization Test – The reason one would pay a bribe is to help the individual get ahead of others. However, if everyone paid bribes to get ahead, everyone would eventually be back on the same level (when all other things are equal) and the advantage would diminish. When this happens, more than a bribe would be required to get ahead. Therefore, this does not pass the generalization test.

    Virtues test- this appears to be the most relevant test in this case. Based on the presentation of the ethical dilemma, it appears that giving (or accepting) a bribe is not something that makes you the kind of person that you want to be. You would probably not feel ‘whole’ any more if you agree to give the bribe and therefore the situation fails the virtues test.

    Based on these tests, the bribe would not have been ethical.

  5. SA says:

    This is a really interesting question, and I know a number of great responses have been posted, but I would just like to weigh in myself as well.

    I agree that paying the bribe is generalizable. If other companies wanting a contract also offered bribes, bribes would act as bids and the contract would be awarded to the highest bidder. The contract would not disappear, everyone with the same reasons would act consistently to win the contract, and general adoption would not undermine the practice of winning contracts.

    However, I disagree with some posters on the utilitarian argument. The offerer and receiver certainly benefit, but I don’t think bribes maximize utility. I would suggest that they perpetuate a status quo, as only those that could afford offering the bribe would win the contract. Everyone else who may be just as or more qualified will be shut out of the transaction, making far more people worse off. From a Rawlsian perspective, if only those already well off are benefiting, the the utilitarian test does not pass.

    The virtue test is interesting to me, and I think this is where the difference is made in decisions. Although western companies have been involved in their fair share of bribery scandals, it seems they are more image conscious about the issue than others. Some even go so far as to sign “no bribery pledges” before entering foreign markets. I am not saying that western companies are more virtuous than other companies, but simply that the definition of virtue is different in different societies, and this is reflected in varying business practices. As someone caught between the two, I can see how this conflict could be amplified for you.

  6. John Hooker says:

    Let’s get the concepts straight first. Corruption is activity that tends to undermine (i.e., corrupt) the system on which it relies. Corruption occurs in all societies but takes different forms. Selling credit default swaps without adequate reserves is no less corrupt than taking bribes.

    One can identify corruption by applying a form of the generalization test. An activity is corrupt if its general practice would destroy the cultural system on which it relies to achieve its purposes. Widespread selling of credit default swaps without adequate reserves would undermine the Western financial system on which it relies, and it almost did.

    As AD points out, one can distinguish bribery from extortion. A bribe is a payment intended to influence a discretionary decision, while extortion is paid to obtain something to which one is already entitled. However, either can be unethical, depending on the circumstances (extortion payments are normally legal under the U.S. Foreign Corrupt Practices Act, but consult a lawyer on this).

    The case doesn’t provide nearly enough context to make a judgment. We don’t even know which country it is talking about, nor the reason for the bribe/extortion payment. However, one can say in general that in relationship-based
    cultures like essentially all those in Africa, bribery corrupts because it tends to undermine stable trust relationships on which the system relies to get things done. As John D. Rockefeller pointed out, people who are bought don’t “stay bought.” (I explain this further here.)

    Several comments identify payments with taxes or fees for services—i.e., they are “facilitating payments,” which are small extortion payments. We should say first of all that such payments can be corrupting even if they are widespread. Cheating on income tax is very widespread but corrupting nonetheless; enough of it would undermine the government on which everyone relies. However, there are cases in which extralegal payments are a functional part of the system. The system isn’t optimal, but as several commentators point out, a single payment can be utilitarian even if the general practice is not. Again, we can’t judge this until we know more about the case.

    Having lived in Zimbabwe, I should caution that people I know there would object strongly to the rather cavalier attitude toward payments that characterizes some of the comments. Many Africans see these payments as ruinous to their societies, and they lay much of the blame on Western corporations that are willing to take the path of least resistance.

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