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|Ethical Issue Faced By IBM|
2.1 Case introduction………………………………………………
2.2 Bribery to foreign officials…………………………………
2.3 Business ethics and corporate social responsibility
2.4 Recovery actions recommended for IBM…………….
Nowadays, bribery is becoming a common crime activity, which is an act of implying money or gift giving that alters the behavior of the recipient. This group assessment will introduce a bribery case about IBM, and then will utilize business ethics theory and corporate social responsibility theory to evaluate and summarise what negative effects will be generated by the briery activities for IBM corporation. Finally, three useful recovery actions recommended for IBM will be pointed out to help the firm to overcome its damaged social reputation and image.
As The Wall Street Journal reported early in 2011, IBM paid $10 million to settle a lawsuit brought by the U.S. Securities and Exchange Commission, which it bribed South Korean and Chinese government officials for more than a decade to win contracts. SEC alleged that Managers at an IBM subsidiary and joint venture (LG-IBM) South Korea paid $207,000 in bribes to South Korean officials from 1998 to 2003. From 2004 until 2009, more than 100 IBM employees in China provided improper overseas trips, entertainment and other gifts for officials. All briberies were intended to win contracts in both countries. (www.globalethics.org )
2.2 Bribery to foreign officials
The UK 2010 bribery Act defines bribery to foreign officials as ‘committed where a person offers, promises or gives a financial or other advantage to a foreign public official with the intention of influencing the official in the performance of his or her official functions. The person offering, promising or giving the advantage must also intend to obtain or retain business or an advantage in the conduct of business by doing so.’ As referred to the case, bribing activities conducted by IBM employees is committed to be offences of bribery to foreign officials. The immediate victims of bribery include companies lose out unfairly and the wider victims of bribery include undermining of government and society by weakened rules and laws and damaged social and economic environments.
Business ethics are defined as the unique ethical problems faced by managers conducting business operations (Parboteeah and Cullen 2008, p103). In many cases, different cultures may lead people not to agree on what one ought to do. However, bribery is seen as universally unethical. As referred to the case, IBM employees had bribed South Korean and Chinese officials to win contracts and such action should be seen as unethical to managers. Managers should not corrupt foreign officials to win further cooperation because corruption is against global business moral. Moreover, Chinese and South Korean official should not accept bribery from IBM because government officials are responsible to its people and should act at behalf of its people. In addition, government officials should have higher ethics comparing to average citizens.
Social responsibility is characterized as a business’s obligation to minimize its negative impact and to maximize its positive impact on society (Ferrell et al, 2005). Although many people interchangeably use the terms ethics and social responsibility, they do not indicate the same thing.
Business ethics relates to an individual’s or a work group’s decisions, whereas social responsibility concerns the impact of the entire business’s activities on society. There are mainly three negative influences that bribery will bring to damage IBM’s corporate social responsibility. Firstly, Compte et al (2005) argues that firms make up by bribery usually increase the contract prices by the amount of bribery so many developing countries suffer by being charged higher prices. Secondly, Companies routinely use inferior raw materials or machines to make up for the bribe, thus producing poor quality goods (Ferrell et al, 2005).
Thirdly, corruptions and bribery also result in collusion among companies to push products and contracts prices even higher. (Ferrell et al, 2005) In all, bribery always leads to undermined competition, inefficiency of resources allocation, high public spending and low-quality production.
IBM has been fined $ 10 million in terms of the bribery but it does not mean that IBM will diminish bribing happening. IBM should not only remedy its damaged reputation, but also change its internal environment to make its directors, managers and employees believe that bribery is unethical and against IBM’s corporate social responsibility. Ethic awareness is one of the fundamental factors in decision-making and ethical decisions in an organization are influenced by three key factors: individual moral standards, the influence of managers and co-workers, and the code and compliance requirements. (Ferrell et al, 2005) IBM should modify its current situation from the three above essential elements.
Firstly, among the three factors, individual moral standards factor is the most difficult one to change but it is still the most efficient one that regulates people keep far away from unethical behaviours. Individual decision-making behaviour is rational if it is consistent with maximization of subjective expected utility. (Hausken, 1996) International companies such as IBM often have employees from all over the world: diversified cultural backgrounds make people have different ethical standards and it is very hard to change because ethic is one of the roots of culture. However, as employees of an international corporation–IBM, people have to adjust their ethics, especially business ethics, to adapt the organisational culture. Thus IBM should help its employees to adapt its moral standards.
Since IBM is a US based company, it should adopt an ethical standard comparable to the US ethics. IBM could send its overseas employees to work in the US for a while to personally feel the US ethics so employees could understand the importance of having US ethical standards while working in IBM. Also, IBM could train its employees to adopt US ethics through induction and on work training to teach employee to have a better understanding of the importance and meaning of The US ethics standards.
Secondly, while people have great control over personal ethics outside the workplace, people’s colleagues and superiors exert significant control over individual choices at work through example and authority. Decisions people made will influence other people’s lives as well as themselves. (Dench, 2006) Employees usually are easily influenced by his or her co-workers and managers, especially new comers, to build up one’s own working style. So, positive influences of ethics from managers and colleagues are significant to companies such as IBM.
IBM is a global company but still work with American culture so influences from American employees and managers are particular crucial to people who work for IBM in other countries. IBM US employees and managers should conduct strictly with the US ethical standards and to make themselves ethic models to employees from other countries. Plus, some US IBM people could be sent to offshore IBM subsidiaries to spread the US ethic standards so overseas IBM employees can learn from them.
However, it is not enough to make employees and managers from other countries to just learn US moral standards from the American IBM people. Influences of local managers and colleagues are still very important. IBM should establish an ethical environment for its managers and employees to influence others interchangeably.
Thirdly, professional codes of ethics are established standards and rules that demonstrate what the company expects of its employees. The professional code includes a set of rules, standards and norms concerning professional conduct and everything related to it. (Bergenhenegouwen, 1996) Sometimes companies cannot just believe in people’s morality but make regulations to regulate people’s behaviours. It is difficult for employees to determine what conduct is acceptable and ethical within a company if the firm does not have established ethics code and compliance. Codes of ethics do not have to take into account every situation, but they should provide principles and guidelines that can help employees achieve organizational objectives and indicate risks. Code of ethics should be developed by works from a company’s board of directors, executives, legal staff and employees.
As the representatives of IBM pointed out that they already have a formalized code of ethics, but why bribery still happens? The only thing to consider is that the employees did and does not apply with it. IBM should clearly regulate that employees and managers who do not apply with code of Ethics should be punished financially or legally in the IBM and establish a compliance committee to monitor employees to have ethical decision making processes. In all, IBM should enhance the application of code of ethics to diminish ethical behaviors of managers and employees even directors of IBM.
This report has briefly described a financial briery activity brought by IBM, which bribed South Korean and Chinese government officials for more than a decade to win contracts. This bribery behaviour violated business ethics and corporate social responsibility, and as a result it would generate several social negative impacts for IBM corporate. Facing this challenge of decreasing social reputation, IBM corporate should take some measures to remedy its damaged image so that to minimize the profit lose. For example, send overseas employees to working and training in the US, establish internal ethic environment and develop and enhance the application of code of ethic.
Bergenhenegouwen, G.J. (1996). ‘Professional code and ethics for training professionals’. Journal of European Industrial Training. 20(4). 23 – 29.
Compte, O., Lambert-mogiliansky, A & Verdier, T (2005). ‘Corruption and competition in procurement actions’. The rand journal of economics. 36(1). 1-15.
Dench, S. (2006). ’How personal can ethics get?’. Journal of Management Development. 25(10). 1013 – 1017.
Ferrell, O. C., Fraedrich,J.& Ferrell,L. (2005). Business Ethics: Ethical Decision Making and Cases. (6th ed). Boston: Houghton Mifflin.
Hausken, K. (1996). ‘Ethics and efficiency in organizations’. International Journal of Social Economics. 23(9). 15 – 40.
‘IBM Settles Civil Bribery Case with U.S. Government’. (2011). [online]. 28 March, Available from: http://www.globalethics.org [Accessed 9 April 2012].
IBM. [Homepage of IBM]. [online]. 9 April 2012. Available from: http://www.ibm.com/us/en/ . [Accessed 9 April 2012].
Minister of Justice. (2010). The bribery Act 2010.
Parboteeah, K. P. & Cullen, J. B. (2008) Strategic international management. (5th ed). South-western GENGAGE learning.