Frequent ethical issues in

business
Professional Business Ethics session 6

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 “Even with the best possible framework
of codes, principles, compensation
schemes and market discipline,
financiers must constantly challenge
themselves to the standards they
uphold”

Mark Carney
Former governor of the Bank of England, 2014
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 Siemens corruption scandal between 2000 to 2007 involved more
than $1.4 billion in bribes to government officials in Asia, Africa,
Europe, the Middle East and the Americas.

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 Siemens colossal corruption scandal
Prior to the corruption scandal, the reputation of
Siemens was extremely good
Siemens has been a world leader in electronic
engineering and electronics for over 150 years
One of the outstanding German multinational
companies giving employment to 450,000 people and
is present in 190 countries
Market capitalization around 85 bn euros
For years the company had pretended to do business
according to the highest ethical and legal standards.

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Siemens colossal corruption scandal
Before 1999, bribes were deductible as business expenses
under the German tax code, and paying off a foreign
official was not a criminal offense.
This changed in 1999 when the country brought its law
into line with the 1999 OECD Convention on Combating
Bribery. This made it illegal to bribe foreign officials for a
German company.
On July 5th 2000, Siemens issued a new corporate
circular:
No employee may directly or indirectly offer or grant
unjustified advantages to others in connection with
business dealings, neither in monetary form nor as
some other advantage
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Siemens colossal corruption scandal
Since 2000 Siemens began to be hit with accusations of
bribery
All over the word – from Bangladesh, Vietnam, Russia, and
Mexico to Greece, Norway Iraq and Nigeria – Siemens paid
bribes to government officials and civil servants.
Over many decades bribes became the accepted business
norm at Siemens. They were channelled through hidden bank
accounts, obscure intermediaries and pseudo “consultants”.
Seniors manager were convicted by German court for bribery
and corruption
A Siemens employee said: We all knew that what we were
doing was illegal. Paying a bribe was customary in practically
all business units at Siemens AG.
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Siemens colossal corruption scandal
Following the US and German prosecutions, Siemens
paid more than $1.6 billion in fines, penalties and
disgorgement of profits, including $800 million to US
authorities.
 Employees justified themselves: they did not act for
personal gain but in the best interests of their
company
In April 2007, the Siemens CEO stepped down along
with the chairman of the board
Peter Loscher, first CEO coming from outside, was
hired to change Siemens ´rotten culture.
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Siemens colossal corruption scandal

What short-term and long-term consequences can the

bribery bring about?

What would you recommend the new Siemens CEO to

help clean up the company´s institutional culture?

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 Combat corruption to boost recovery
Can companies be trusted to comply with their
declared codes of ethical conduct when business
survival may be at stake?

Some 694 executives, mainly in the UK, were asked

does your organization have adequate policies in place
to prevent bribery?(Source: Eversheds 2010)
46% Don´t know 34% Yes 20% No

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Bribery and corruption were partly to blame for the global economic crisis (TI 2010)

“It is up to companies themselves to stamp out

malpractice and corruption” (Dr. Robert Barrington TI
UK´s director)

“With the correct organisational tone, well-though-

out policies and rigorous controls, the possibility of
bribery or corruption can be reduced enormously”
(Hugh Mathew-Jones head of forensic services and
corporate finance)
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 America´s Foreign Corrupt Practices Act
(FCPA)

Bosses can be sent to prison for up to 20 years

They could be jailed because a staff member at a
foreign subsidiary bribed an official without their
knowledge
 In 2018 16 companies paid a record $2.89 billion to
resolve FCPA cases including Petrobras ($1.78 bn),
SocGen ($585 mn), and Panasonic ($280 mn).

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 OECD Anti-Bribery Convention 1999

UK 2010 Bribery Act

 Failing to prevent bribery by individuals acting on
behalf of an organization is a corporate offence
 Maximum penalty under the Act is a ten-year jail
sentence
 The only defense is if the company can demonstrate
that it had adequate procedures in place to prevent
such illegal activities

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 SFO´s guidance on corporate hospitality

Corporate hospitality is acceptable if it is reasonable

and proportionate
It will evaluate company's polices on gifts and
hospitality
Whether the scale of expenditure was permitted by
the company's policy or whether special permission
had been sought among senior management

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General Motors- Sullivan Principles and gift-
giving policy
Global Sullivan Principles were incorporated by GM´s
Public Policy Center and also adopted by many
corporation based in USA
Principle 6: “We will promote fair competition
including respect for intellectual and other property
rights, and not offer, pay or accept bribes”
In accordance with Principle 6, in 1996 GM revised its
policy on gifts, entertainment and gratuities

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 GM´s strict gift-giving policy
Employees must keep their integrity and restrain from
offering, paying and accepting bribes
Only items valued less than $25 were permitted
The best course is to decline any gift, entertainment or
gratuity from supplier
Entertainment can be accepted if offered by non-
supplier on condition that this is not lavish or
frequent, and does not create a sense of obligation to
the host
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 Business Contracts
Contracts are the skeleton of business relationships:
honoring them is crucial for the entire field of
economic activity
The validity of a contract, and the consequence moral
duty, require three conditions:
1) Capacity of the parties
2) Appropriate matter
3) Fair agreement

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 Ethical issues regarding business contracts

Breaching a legitimate contract

Making illicit or illegal agreements
Entering into a contract with misrepresentation and
lack of good faith
Contracting with substantial errors
Acting with duress and undue influence

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 Misappropriation and fraud
An intentional usurpation of the property or funds of
another for one´s own use or another unauthorized
purpose
Infringement of intellectual property
Industrial or corporate espionage
Fraud
Counterfeit or imitation
Embezzlement

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 Tax Evasion and Tax Avoidance

Tax evasion refers to avoiding the payment of taxes

lawfully due

Tax avoidance is making use of legal methods to one´s

advantage in order to reduce the amount payable

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 Trade Secrets
Moral duty to keep trade secrets
Employees sign agreements containing the specific
commitment to non-disclosure of such information
Non-competition contract, not to work for a
competitor for certain period if they leave the firm
What about connections or contacts? Do these
connections belong to the firm or to the employee?

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 Categories of information
Nature of Implied Duty not Implied Duty not
Information to use during to use after
Employment? Employment?
Non-confidental NO NO

Confidential but YES NO

not Trade Secret

Trade Secret YES YES

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 Insider trading
Trading on material nonpublic information

Information is “material”:
1) if its disclosure would likely have an impact on the
price of a security or
2) if reasonable investors would want to know the
information before making an investment decision

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 Conflicts of interest
 Conflicts can occur between:

1) the interests of clients

2) the interests of employers
3) employees´ own personal interest

 When conflicts cannot be avoided, disclosure of their

existence is necessary

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 Disclose conflicts of interest

Stakeholders
interest

Personal
interest

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 Resilience
The ability of person to maintain his core
purpose and integrity in the face of
dramatically changed circumstances

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 Professionalism in business means that
employees understand their duty to uphold the
purpose of the firm and demonstrate integrity,
honesty and competency regardless of their job or
position

Competency is focusing Integrity refers to

on skills, expertise, individual value system,
knowledge and emotional virtues and personal
intelligence character.

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