As social media and technology have become commonplace globally, three business ethics topics—whistle-blowing, bribery, and workplace romance—have become important strategic issues facing companies. Missteps in any of these three areas can severely harm an organization.
Whistle-blowing refers to employees reporting any unethical violations they discover or see in the firm. Employees should practice whistle-blowing, and organizations should have policies that encourage whistle-blowing. Three individuals recently received $170 million for helping investigators obtain a record $16.65 billion penalty against Bank of America for inflating the value of mortgage properties and selling defective loans to investors. The whistle-blower payouts are among the highest ever in financial institution cases. Thousands of firms warn managers and employees that failing to report an ethical violation by others could bring discharge. The Securities and Exchange Commission (SEC) recently strengthened its whistle-blowing policies, virtually mandating that anyone seeing unethical activity report such behavior.
Whistle-blowers in the corporate world receive up to 25 percent of the proceeds of legal proceedings against firms for wrongdoing. Such payouts are becoming more and more common. J.p. Morgan chase employee Keith Edwards recently received a $63.9 million payout for his whistle-blowing tips that led J.p. Morgan to pay $614 million to the U.S. government for illegally approving thousands of FHA loans and hundreds of VA loans that did not meet underwriting requirements. The SEc recently paid $30 million to a non-U.S. citizen whistle-blower who reported an ongoing fraud matter. Sean McKessy, the SEc’s whistle-blower top executive, commented about the case, “Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
An accountant who recently tipped off the IRS that his employer was skimping on taxes received $4.5 million in the first IRS whistle-blower award. The accountant’s tip netted the IRS $20 million in taxes and interest from the errant financial-services firm. The award represented a 22 percent cut of the taxes recovered. The IRS program, designed to encourage tips in large-scale cases, mandates awards of 15 to 30 percent of the amount recouped. “It’s a win-win for both the government and taxpayers. These are dollars that are being returned to the U.S. Treasury that otherwise wouldn’t be,” said lawyer Eric Young.
Ethics training programs should include messages from the CEO or owner of the business, emphasizing ethical business practices, the development and discussion of codes of ethics, and procedures for discussing and reporting unethical behavior. Firms can align ethical and strategic decision making by incorporating ethical considerations into strategic planning, by integrating ethical decision making into the performance appraisal process, by encouraging whistle-blowing, and by monitoring departmental and corporate performance regarding ethical issues.
2. Avoid Bribery
Managers, employees, and firms must avoid bribery. Bribery is defined by Black’s Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in discharge of a public or legal duty. A bribe is a gift bestowed to influence a recipient’s conduct. The gift may be any money, goods, actions, property, preferment, privilege, emolument, object of value, advantage, or merely a promise or undertaking to induce or influence the action, vote, or influence of a person in an official or public capacity. Bribery is a crime in most countries of the world, including the United States.5 As indicated in the minicase near the end of this chapter, Avon products has been plagued by bribery charges over the last 8 years. French engineering firm Alstom SA recently pleaded guilty to criminal charges that the company paid tens of millions of dollars in a “widespread” bribery scheme to win energy contracts globally. Alstom paid a fine of $772 million for falsifying financial records and paying bribes to win contracts around the world.
The U.S. Foreign Corrupt Practices Act (FCPA) governs bribery in the United States and has stepped up enforcement. This act, and a new provision in the Dodd-Frank financial-regulation law, allows company employees or others who bring cases of financial fraud, such as bribery, to the government’s attention to receive up to 30 percent of any sum recovered. Bribery suits against a company also expose the firm to shareholder lawsuits. Hewlett-packard (Hp) recently paid $108 million to resolve bribery investigations in Russia, poland, and Mexico. The Hp bribery activities included the use of slush funds and shell companies to funnel monies to politicians, as well as free trips to Las Vegas with free cash to gamble.
A recent Wall Street Journal article titled “Bribery Law Dos and Don’ts” provides a synopsis of the recent 130-page document released by the U.S. Justice Department and the SEC to respond to complaints from companies that ambiguity in the FcpA has forced them to abandon business in high-risk countries and spend millions of dollars investigating themselves.6 Numerous examples of bribery are given, such as “providing a $12,000 birthday trip for a government official from Mexico that includes visits to wineries and museums” and “$10,000 spent on a government official for drinks, dinners, and entertainment.” The U.S. Justice Department and the SEC each file about 100 bribery cases annually.
The United Kingdom Bribery Law forbids any company doing any business in the United Kingdom from bribing foreign or domestic officials to gain competitive advantage. The British law is more stringent even than the similar U.S. FCPA. The British Bribery Law carries a maximum 10-year prison sentence for those convicted of bribery. The law stipulates that “failure to prevent bribery” is an offense and stipulates that facilitation payments, or payments to gain access, are not a valid defense to prevent bribery. The United Kingdom law applies even to bribes between private businesspersons, and if the individual who makes the payment does not realize the transaction was a bribe, he or she is still liable. the new bribery law is being enforced by Britain’s Serious Fraud office (SFo) and boosts the maximum penalty for bribery from 7 years to 10 years in prison, and sets no limits on fines. More and more nations are taking a tougher stance against corruption, and companies worldwide are installing elaborate programs to avoid running afoul of the FCPA or the SFO.
In some foreign countries, paying bribes and kickbacks has historically been acceptable. But now, antibribery and extortion initiatives are advocated by many organizations, including the World Bank, the International Monetary Fund, the European Union (EU), the Council of Europe, the Organization of American States, the Pacific Basin Economic Council, the Global Coalition for Africa, and the United Nations. Tipping is even now considered bribery in some countries. Taking business associates to lavish dinners and giving them expensive holiday gifts and even outright cash may have been expected in some countries, such as South Korea and China, but there is now stepped-up enforcement of bribery laws virtually everywhere. The world’s third- largest commercial aircraft manufacturer, Embraer SA, headquartered in Brazil, is currently being investigated for allegedly paying a $3.5 million bribe to a Dominican Republic Air Force colonel, who then pressured Dominican legislators to approve a $92 million contract for Embraer to provide attack planes to that country.
Several pharmaceutical companies, including Merck, AstraZeneca PLC, Bristol-Myers Squibb, and GlaxoSmithKline PLC, are currently being investigated for allegedly paying bribes in certain foreign countries to boost sales and speed approvals. Four types of violations are being reviewed: bribing government-employed doctors to purchase drugs, paying company sales agents commissions that are passed along to government doctors, paying hospital committees to approve drug purchases, and paying regulators to win drug approvals. Johnson & Johnson recently paid $70 million to settle allegations that it paid bribes to doctors in Greece, Poland, and Romania to use their surgical implants and to prescribe its drugs. Pfizer paid $60 million to resolve similar probes to win business overseas.
3. Workplace Romance
Workplace romance is an intimate relationship between two consenting employees, as opposed to sexual harassment, which the Equal Employment Opportunity Commission (EEOC) defines broadly as unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature. Sexual harassment (and discrimination) is illegal, unethical, and detrimental to any organization and can result in expensive lawsuits, lower morale, and reduced productivity.
Workplace romance between two consenting employees simply happens, so the question is generally not whether to allow the practice, or even how to prevent it, but rather how best to manage the phenomena. An organization probably should not strictly forbid workplace romance because such a policy could be construed as an invasion of privacy, overbearing, or unnecessary. Some romances actually improve work performance, adding a dynamism and energy that translates into enhanced morale, communication, creativity, and productivity.7
However, it is important to note that workplace romance can be detrimental to workplace morale and productivity, for a number of reasons that include:
- Favoritism complaints can arise.
- Confidentiality of records can be breached.
- Reduced quality and quantity of work can become a problem.
- Personal arguments can lead to work arguments.
- Whispering secrets can lead to tensions and hostilities among coworkers.
- Sexual harassment (or discrimination) charges may ensue, either by the involved female or a third party.
- Conflicts of interest can arise, especially when well-being of the partner trumps well-being of the company.
In some states, such as California, managers can be held personally liable for damages that arise from workplace romance. Organizations should establish guidelines or policies that address workplace romance, for at least six reasons:
- Guidelines can enable the firm to better defend against and avoid sexual harassment or discrimination charges.
- Guidelines can specify reasons (such as the seven listed previously) why workplace romance may not be a good idea.
- guidelines can specify resultant penalties for romancing partners if problems arise.
- guidelines can promote a professional and fair work atmosphere.
- guidelines can help assure compliance with federal, state, and local laws and recent court cases.
- Lack of any guidelines sends a lackadaisical message throughout the firm.
Workplace romance guidelines should apply to all employees at all levels of the firm and should specify certain situations in which affairs are especially discouraged, such as supervisor and subordinate. company guidelines or policies in general should discourage workplace romance because “the downside risks generally exceed the upside benefits” for the firm. Best Buy cEo Brian Dunn recently resigned when directors learned of his inappropriate relationship with a young subordinate, which was a violation of that company’s code of ethics. Based in Fremont, california, IGate Corp. fired its CEO, Phaneesh Murthy, recently for allegedly failing to report a workplace romance relationship that turned into a sexual harassment issue with a subordinate.
Flirting is a step down from workplace romance, but a full-page Wall Street Journal article titled “The New Rules of Flirting” reveal the dos and don’ts of flirting.8 Flirting is defined by researchers as “romantic behavior that is ambiguous and goal oriented,” or said differently, “ambiguous behavior with potential sexual or romantic overtones that is goal-oriented.” A few flirting rules given in the article are:
- Do not flirt with someone you know is looking for a relationship if you are not interested in a new relationship.
- Do flirt within a relationship that you want to strengthen.
- Do not flirt to make your partner jealous because this is manipulative behavior.
- Flirting between power differences, such as boss and employee or professor and student, usually leads to trouble, as many defendants in sexual harassment complaints know.
- Do not make physical contact with the person you are flirting with, unless it is within a desired relationship.
Among colleges and universities, the federal office of civil Rights (ocR) has stepped up its investigation of sexual harassment cases brought forward by female students against professors. Numerous institutions are currently being investigated. At no charge to the student, the ocR will investigate a female student’s claim if evidence is compelling.
A Wall Street Journal article recapped U.S. standards regarding boss and subordinate love affairs at work.9 Only 5 percent of all firms sampled had no restrictions on such relationships; 80 percent of firms have policies that prohibit relationships between a supervisor and a subordinate. Only 4 percent of firms strictly prohibited such relationships, but 39 percent of firms had policies that required individuals to inform their supervisors whenever a romantic relationship begins with a coworker. Only 24 percent of firms required the two persons to be in different departments.
In Europe, romantic relationships at work are largely viewed as private matters and most firms have no policies on the practice. However, European firms are increasingly adopting explicit, U.S.-style sexual harassment laws. The U.S. military strictly bans officers from dating or having sexual relationships with enlistees. At the World Bank, sexual relations between a supervisor and an employee are considered “a de facto conflict of interest which must be resolved to avoid favoritism.” World Bank president Paul Wolfowitz recently was forced to resign as a result of a relationship he had with a bank staff person.
A recent Bloomberg Businessweek article reports that employees are filing sexual harassment complaints as a way to further their own job security. Many of these filings are increasingly third-party individuals not even directly involved in the relationship but alleging their own job was impacted. Largely the result of the rise of third-party discrimination claims, the EEOC recovers about $500 million on behalf of office romance victims.10
Source: David Fred, David Forest (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson (16th Edition).