The fate of many companies, CEOs and even western governments has been shaped by the eruption of corruption scandals linked to foreign investment. Only in 2011 the UK’s parliament passed The Bribery Act (1)which holds a “commercial organization” liable for “failure … to prevent bribery” and it is partly inspired by the American Foreign Corrupt Practices Act of 1977 (2), which was the first piece of legislation enacted to fight corruption in foreign investment projects. Despite the enactment of new legislation, foreign corruption remains rampant: might it be the only way to do business in some parts of the world?
There is strong evidence from economic statistics that two of the least developed regions in the world – namely Africa and, albeit decreasingly, Asia – correspond with the areas where corruption and opaque regulation are the most widespread (3). It is often the case that western companies face the choice of either “facilitating” the completion of a project through paying monetary compensation or not getting involved at all. In some cultures, corruption is seen more as a culturally embedded phenomenon rather than a dishonest appropriation of public funds (4).This serves as a strong argument against the current western anti-corruption legislation: companies should adhere only to local legal standards, hence increasing the opportunity of securing foreign contracts.
Following a utilitarian approach, it can be argued that taking any kind of measure that helps decrease barriers in international trade is ethically acceptable. It is well recognised among experts that increased levels of FDI (Foreign Direct Investment) have been largely positive for the world economy. Especially in less developed economies, that often have limited productivity and technological know-how, the influx of foreign capital has fuelled economic growth and human development. In fact, research has shown that foreign investment translates into higher growth, depending on a country’s ability to efficiently use foreign capital (5). Some papers even go as far to say that there is a positive correlation between corruption and FDI, denoting that corruption can, in some cases, increase interest for FDI (6).
Aside from the standing traditions and governmental structure, another ethical reason for companies to adhere to local legal standards is the progression of human rights and labour laws. As previously mentioned, adhering to local legal standards would break down trade barriers, increasing FDI as a result. With this in mind, studies find that there is a positive correlation between FDI and workers’ rights (7). This is shown to be particularly true in the manufacturing sector (8) with local workers’ rights held to the standards of foreign investors. This process is a cycle, with foreign investors outlining higher standards of work, to those standards being attractive to future FDI.
With the theme of positive change in the host country, from workers’ rights to long term benefits of FDI on the community (9), a Utilitarian approach can be argued for deciding upon the ethics of corruption. With the mentioned FDI benefits to the local workers, population, authorities and the hired company, it is possible to argue that allowing corruption and as a result the increased FDI, does in fact do the greatest good for the greatest number of people.
However, in the UK and most western nations, corruption and bribery regulations exist in order to protect the interests of customers and ensure fair competition. This legislation encompasses all layers of administration: an employee of an engineering firm will agree to a code of conduct with a clause against bribery; governing bodies such as the IMechE warrant that members “take steps to prevent corrupt practices” (10); and governments have outlawed bribery of foreign officials, with sizeable penalties for companies found to be non-complying. These regulations are necessary to uphold a fair tendering process in which all parties are treated as equals, benefiting business.
A further argument against “turning a blind eye” to corruption in developing countries is that it completely contravenes the trading standards that the western world has been trying to impose on the developing world for decades. It would be hypocritical for western organizations, proclaiming themselves as upholders of the free market, to suborn bribery out of self-interest. This is ironic considering the defamation of “fantastically corrupt countries”, as PM David Cameron let slip during an anti-corruption summit in 2016 (11).
Moreover, contracts obtained through corruption may not be given to the most capable firm, and thus may be offered at inflated prices or at a lower quality. In 2016 Brazilian firm Odebrecht were fined over $2.6bn for bribery of around 200 politicians and officials (12). It is claimed that the company “rigg[ed] bids and pa[id] bribes to secure contracts at inflated prices” (13) and Brazil’s state-owned oil company “lost about $14bn through over-pricing.” (13). Essentially it is difficult to ensure that contracts obtained through corruption are not exploitative, as self-interest of officials can often pervert the tendering process.
Businesses embroiled in corruption scandals can additionally suffer from loss of reputation. Siemens faced huge fines when it was discovered in 2006 that slush funds and bribes were used to obtain contracts globally (14). In addition to $1.6bn in fines, Siemens suffered a near 8% drop in share price, and the brand was severely tarnished. Staff spoke of a “corporate culture tolerant of bribes” where they were “not only acceptable but implicitly encouraged” (15). Siemens worked hard to regain their lost status: they retrained/replaced staff and updated business practices, but regaining public trust was an uphill struggle lasting over two years.
Finally, it is widely accepted that corruption is always morally unjust, in accordance with Kantian ethics (16). Rather than contracts being awarded based on merit, for a party to cheat and benefit themselves to the detriment of others seems simply wrong. To equate corruption to petty theft would be diminishing: while a common thief has no authority over the property they steal, a corrupt official in a position of authority betrays the trust of their people for selfish motives. Thus for western companies to partake in such activities and fuel this corruption is unacceptable.
Having considered both arguments, the initial conclusion drawn is that corruption – even as the only method of securing contracts – is never excusable and should not be tolerated.
- Cover Image https://www.mirror.co.uk/news/uk-news/bungling-david-cameron-caught-out-7938482
- Cartoon by Dr Jack Swanepoel for the Sunday Times 1997