Case: Mired in Corruption – Kellogg Brown & Root in Nigeria

Prepared by:
Marylet Ilagan
Mildred Zara Magnaye
Vernalyn Untalan
Nelvin Valles

Lyceum of the Philippines University – Batangas

Graduate School

Professor: Dr. Hermogenes B. Panganiban, DBE

Case: Mired in Corruption – Kellogg Brown & Root in Nigeria

Introduction

The “Mired in Corruption case - Kellogg Brown and Root in Nigeria” shows various
issues that affect the organization. Halliburton bought dresser industries in 1998. M.W Kellogg
was part of the dresser’s business. The Kellogg business was combined with the Halliburton
business and named Kellogg Brown and Root. KBR was supposed to build natural gas in
Nigeria. In order to build the natural gas, KBR was supposed to win a contract from the
government. The replacement of the minister forced the company to hire Tesler who is a British
lawyer. Tesler was supposed to ensure the company gets the contract. KBR trusted Tesler as
he had succeeded in a similar case.
Tesler managed to succeed in a similar condition in the country some years before.
Kellogg paid Tesler huge amounts of money in order to ensure the company gets the contract.
Tesler was supposed to use the money to bribe General Abacha and other government leaders
so as to make it easy for the company to get the contract. The company paid Tesler more
money several times. Later Tesler was paid $132.3 million by the consortium for writing various
contracts in the country from 1999 to 2004. Halliburton fired Jack Stanley in 2004 after people
realized the corruption.
It also   ended its relationship with Tesler. This did not help solve the issues in the
organization as most people saw the firm corrupt. Later, Halliburton decided to sell Kellogg
Brown and roots so as to overcome the issue. The Kellogg brown and Root Company can be
investigated using various tools used in strategic management. For instance, it can be
investigated using SWOT analysis tools and the PESTEL tools. The tools help analyze the
internal and external environments of the company.

Identification of Problems

There are various issues that affect performance in the organization.

1. The company does not have proper management and this has made it hard for the
company to achieve its strategic goals. – As evidence in the case, the management of
the organization is corrupt. It is evident that most of the top officials in the company
were involved in corruption. It is given in the case that the Kellogg executive Wojciech
Chodan was involved in the scandal. Wojciech discussed the amount that General
Abacha was going to give to Tesler. Other officials in the company were also part of the
scandal like Albert Jack. Albert jack who was the manager of the M.W Kellogg received
$5 million from Tesler.
a. The poor management in the organization has affected the progress of the
organization and its performance.
b. The company lacks effective strategies. The company does not have appropriate
strategies and plans. This has interfered with activities in the organization. The
management in the organization is not able to device the right strategies and
plans that are needed to venture into other markets and guide the firm in the
external environment.
 c. The managers are not able to allocate resources as needed. This has affected
productivity and competition in the firm. Failure to develop a strategic plan and
strategies has forced the firm to be involved in corrupt deals. The management in
the organization has misused resources by paying Tesler to help the firm gets
contracts.
d. The company also does not have any competitive advantages. This is due to lack
of proper competitive strategies. This has made it hard for the company to
perform well in the external environment and also compete with other forms in
the industry. Hence, the firm has opted to use bribes and other unethical
methods to get contracts.

2. Most of the leaders in the organization are corrupt. – It is stated in the case that the
head and executive are corrupt. Most of the contracts that the firm has secured have
been secured through bribery. The company had to bribe General Abacha and other
government officials for it to secure the contracts. In addition, the company paid Tesler
huge sums of money that were not equal to the kind of services he was offering. The
company paid Tesler $132.2 million as stated above to help the firm secure the
contracts. The corruption is also evinced by the series of notes written by Chodan to
Tesler and General Abacha.
a. Apart from corruption, the company faces ethical issues. For instance, the
company is not able to adhere to the rules that govern corruption in foreign
countries.
b. Corruption is a major issue in the organization.

3. The company violated the Foreign Corrupt Practices Act by being involved in malicious
deals. -As a result of the increase in corruption and bribery in the company and among
other people linked to the company, the US justice department started an investigation.
The investigation was aimed to establish if the company had been involved in corruption
with government officials and other leaders. It was also aimed at examining if the
company infringed the foreign corrupt practices act.

Analysis of Alternative Solutions

Problem 1: The company does not have proper management and this has made it hard for the
company to achieve its strategic goals.

Alternative Solution 1: The company should improve the management in the organization.
Improving the management will help the company achieve its objective to gain competitive
advantage and improve its performance. Managers play an important role in strategic
management. In achieving the company’s objective, managers are supposed to ensure that
resources available are utilized well. This makes it easy for the company to perform well in its
external environment. The managers are supposed to state the company’s mission, vision and
objectives.
 They are also supposed to establish policies and plans that will serve as guide in
achieving the goals and allocate resources well. Changing the management in Kellogg Brown
and Root Company help the company compete with other firms in the industry. This is because
the management will be able to establish competitive strategies. For instance, the company will
be able to establish differentiation strategies and low cost advantage strategies to enhance
competitive advantage. There are other companies in the industry that offered similar service
and the company needs to differentiate its services so as to become competitive.
The differentiation focus strategy helps the company differentiate itself within a certain
target market. The company targets customers in a particular market segment and this makes it
easy for the company to offer services that meet the needs of the company. In low cost
advantage, the company should lower the cost of the services being offered. This will make it
easy for the company to achieve competitive advantage (Hill, 2009).Changing the management
will help improve allocation of resources and decision making in the organization. The company
has large amounts of operating capital and this gives the company an advantage.

Problem 2: Most of the leaders in the organization are corrupt.

Alternative Solution 2: Instead of relying on bribery, the managers should allocate the funds
well to help achieve their objectives. The company already wasted a lot of money on bribery
which could have been used to achieve the goals. The organization should establish policies to
curb unethical behaviors in the organization. For instance, it should have clear policies that
prohibit corruption in the organization. This will ensure the top officials in the company are not
involved in corruption. The organization should improve decision making and communication.

Problem 3: The company violated the Foreign Corrupt Practices Act by being involved in
malicious deals.

Alternative Solution 3: The management should involve other employees and stakeholders in
decision making so as to avoid making unethical decisions. This will ensure the managers do
not act in their own interest, but the interest of the stakeholders. Thus, eliminate corruption in
the organization. This will eventually improve the performance of the organization and prevent
the public image. Corruption in the organization results from poor management and poor
decision making.

SWOT
Strengths
The company has strengths that have led to improved performance. For example, the
company is considered the biggest non-union construction company in US. It has a large market
share in the industry than other firms. This has made them compete well with other firms.
Moreover, the company has various offices in different countries. It has the right human
resource and technology. This is evidenced by the ability to be able to develop natural gas in
various countries like Nigeria. It also has been involved in various construction projects in
different parts of the world because of its man power and technology. The huge amount of
capital of the company is considered as strength. It has a large amount of operating capital, but
it has not used it well. The operating capital will make it easy for the company to operate well
and compete with other forms if used well.

Weaknesses
The company’s weakness is the management system itself. The top management of the
company who is supposed to execute good leadership and example are involved in corruption
issues. As the corruption issue exists, the company’s image became low.

Threats
The company faces competition from other companies in the industry. For instance, the
company faces competition from Technip which is a French company that offers construction
services. The competition from other firms in the industry has resulted to poor profits in the
company and also loose of competitive advantages. In addition, the legal environment and
political environment in Nigeria are threats to the company activities. Most of the political
leaders in Nigeria are corrupt. This is a threat to the company because it affects the public
image of the company also its activities. Halliburton was forced to sell Kellogg Brown and Root
company so as to restore its public image. The corruption in the country affected the
performance of Kellogg Brown and Root company and Halliburton as they were not able to
complete their projects.

Opportunities
The company has many opportunities to expand its business. For example, the company
has an opportunity to develop natural gas in different countries like Nigeria. The technology and
human resource in the company have enabled the company to acquire various contracts in
different countries. For example, the company has been awarded several contracts in Nigeria
because of its services. The changes in social economic needs in the society also give the
company a chance to develop. The increase in demand of natural gas in different nations has
given the company an opportunity to grow or expand to other countries.

External analysis of the company

Political environment
The political environment is not favorable for the company. The company’s activities
have been influenced by political factors in the country. For instance, the company’s activities
have been influenced by the replacement of oil minister in Nigeria. The company opted to use
influence to acquire contracts after the oil minister was replaced. In addition, the company’s
activities have been affected by the corruption in the government. Most of the government
officials have been involved in malicious activities in the country.
For instance, General Abacha has been involved in malicious deals with the Kellogg
Brown and Root Company. Other officials have been involved in corruption with Tesler as he
has been channeling money to their accounts. This is also shown by other foreign firms in the
country like Technip which have been involved in corruption with consortium officials. The
corruption in the country has affected the public image of the company negatively as stated
above.
Economic environment
 The economic environment is good. The economic growth in the home country and the
foreign country present an opportunity for the company to expand its services.
Social
The social changes in Nigeria allow the company to expand its business. Like other
countries, Nigeria has adapted natural gas as an alternative source of energy.
Technology
The advances in technology in the country have made it easy for the company to provide
services. The company has acquired the right technology to help in the provision of the
services.
Legal
The legal environment in the country is not well developed. This is the country that has
not established policies and laws to curb corruption among the government officials and foreign
firms. Most of the people have used corruption to get what they want. In addition, the country
does not have laws to govern the venturing of new firms in the country and acquisition of
contracts. This has led to increase in corruption among foreign firms.
Majority of the foreign firms in the country rely on corruption and favoritism to get contracts and
conduct business. For example, the leaders in Kellogg Brown and Root used Tesler to get
contracts. Tesler had helped the company secure contracts and succeed in other deals before.
Though there are policies that govern unethical actions carried out by foreign firms like
corruption, most companies in the industry are not able to adhere to the policies. The
companies have been accused of corruption and other ethical issues.

Recommended Solutions

Alternative Solution 1: The company should improve the management in the organization.
Recommendation/s:
To achieve the company’s objectives and goals, the organization should strive to
improve its management. The managers should be open to new ideas not just from the
management level but also from their subordinates. They should be gathering data to help them
in decision-making. Management should prioritize identified opportunities for improvement.
Determine which problems should be addressed first based on what will help further key firm
goals. Create a plan that lays out what processes will be analyzed for improvement.
Management should publicize positive results gained by process improvement efforts both
internally and externally. Clients will be pleased that the firm they hired to help them is working
to improve processes.

Alternative Solution 2: The managers should allocate the funds well to help achieve their
objectives instead of relying on bribery.

Recommendation/s:
The management should be guided with their procedure frameworks to prevent bribery.
This will include:
  A Code of Conduct or Statement of Business Principles: This applies to all operations
and business partners and commits the organization to conduct its business fairly, with
integrity and with transparency; and refrain from taking or offering bribes, whether
directly or indirectly .
 Rules on gifts: This applies to what can be given and what can be accepted. These rules
must be communicated and understood, not only by company personnel but also by
business partners.
 A company policy governing charitable donations and sponsorships: Payments of
donations and sponsorships should always be paid directly to an organization and not an
individual. Make sure there is a proper review of the legitimacy of the organizations to
which donations and sponsorships are given. Personnel should be alerted to the fact
that requests for donations and sponsorships by government officials could be disguised
solicitations for bribes
 A company policy for political contributions: Some companies simply do not allow any
company sponsored political contributions. However, if a company chooses to contribute
to political parties, there should be clear rules as to how contributions are made. At a
minimum these should include review and approval of the contribution by more than one
individual in a company (e.g., legal counsel, the Board of Directors, senior management
team); contributions should be paid to political organizations and not to individuals;
restrictions on the timing of contributions – they should not coincide with negotiations,
contract or approval processes with government; and provisions for transparency –
political donations should be reported to the Board of Directors, shareholders and the
public
 Recording and reviewing the results of the due diligence process from time to time, to
see if anything has changed or if new information has come to the attention of the
company
 Including provisions in contracts that require compliance with the company’s Code of
Conduct, and also making provision for: expressly prohibiting payment of bribes;
terminating the agreement if the Code of Conduct is not followed (e.g., bribes are paid or
accepted); the right of the company to audit its business partners; and regular reporting
of activities and their monitoring by a company employee
 Keeping clear records of commissions, payments and instructions given to business
partners
 Reviewing commission payments to check that they are in proportion to the services
provided to the company’s business

Alternative Solution 3: The management should involve other employees and stakeholders in
decision making so as to avoid making unethical decisions.
Recommendation/s:
  Project due diligence: To understand the risks of corruption and how those risks can be
mitigated, the following should be completed:
 Determine whether the country and location where the company will be operating
represents a high risk of corruption.
 Review the operations and activities and identify the areas where the potential for
extortion or demands for bribes may occur. In a high risk environment, a careful
examination of any aspects of the project where the company requires government
approvals or services is highly recommended.
 Identify and take the time to understand the applicable laws and regulations related to
bribery and political contributions
 Determine what checks and balances the company will need to ensure the integrity of
others conducting activities on the company’s behalf such as agents, suppliers, partners,
and contractors.
 Reasonable measures to protect against the unethical conduct of business partners.
This should include the following: Establishing a company policy to hire only those
agents that are reputable and that demonstrate personal integrity and personal
competence; Discussing company expectations of ethical behaviour upfront, when
negotiating business relationships; Conducting simple due diligence process prior to
selecting business partners to check that they are legitimate and do not have a record of
unethical activity. This due diligence may include interviews and appropriate background
checks into the following aspects of the organization: structure and ownership; financial
position; reputation with members of the local community, other business partners,
business leaders, international firms and the local embassy; and policies and positions
on bribery and corruption; Establishing mechanisms so that personnel and business
partners are comfortable reporting violations of the Code of Conduct and concerns about
corruption without fear of reprisal
 Establish policies that set the ground rules for responsible political engagement, or
integrate requirements into the company’s code of conduct. Policies need not be
elaborate, but should include: responsible lobbying practices; transparency related to
political engagement activities; how political donations are handled by the company; and
how the company deals with conflict of interest in public policy issues, hiring government
officials to management or executive positions, or participating in government-led
initiatives
 Be open and transparent about the political engagement, to the extent that it is possible
within legal constraints and commercial confidentiality. Disclosure should include: the
organizations of which the company and its operating subsidiaries are members, if they
engage in lobbying; formal public policy positions, such as submissions to regulators and
lawmakers and position on key industry issues; political donations – to whom they went
and how much; and decision-making processes for political donations

Conclusion
There are various issues that affect performance and competitiveness of the Kellogg
Brown and Root Company as evidenced in the mired corruption case. The management in the
organization is poor and this has affected decision making and allocation of resources. Most of
the managers exploit the organizational resources. Corruption is the main problem in the
organization. Most of the officials in the company are corrupt.
The company has gotten contracts through favoritism and corruption. It also does not
have a competitive advantage as it is not able to compete with other firms in the industry. The
company has various strengths. That is huge operating capital, technology and economic
opportunities. The threats include the political, legal environment and the competitors in the
industry. The management should be changed so as to enhance performance and competitive
advantage. It will also help eliminate corruption.

Source:

Hill, Charles (2007). International Business: Competing in the Global Marketplace. Boston:
McGraw-Hill

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