Introduction
Business and ethics seem contradictory (Duska, 2000). However, in an era where the smallest flaws in behaviour are noticed and disclosed, businesses too should watch every step they take. While the public expects corporations to be selfishly trying to maximise profits at every stake, society also expect them to take responsibility for the environment as they have a great influence. Companies are coping with ethical dilemmas concerning their presence and activities in foreign countries. One wrong step will reach the public sooner or later, and it is often very costly to clean up the mess.
Crane and Matten (2016) provide the following definition of business ethics: “the study of business situations, activities, and decisions where issues of right and wrong are addressed” (p. 5). It is an important concept, as it is impossible to run a company with bad ethics. One can argue that laws impose guidelines for firms, but they are mostly national and do not include solutions for every ethical problem. For example, a certain activity is a requirement for doing business in country A, but is illegal in country B. To do business in country A, the activity must take place. What decision should a company, with its origins in country B, make? Research on business ethics is important to understand why firms make bad ethical decisions and to create a framework with possibilities in such cases (Crane & Matten, 2016; Enderle, 2015; Neiman, 2013; Wenzhong & Limin, 2012).
This essay will discuss the ethical dilemma that Siemens faced due to their expansion of activities abroad and argue that multiple theories should be used to make decisions concerning ethics.
Company Profile
Founded in 1847, Siemens developed into a multinational corporation that focuses on “electrification, automation and digitization” (Siemens, 2016a). They are active in more than 200 countries, and are therefore experiencing a broad number of cultural differences. When trying to establish a strong brand in every country, the multinational experienced some difficulties regarding these cultural differences.
Ethical Dilemma
Companies face ethical dilemmas in several ways. It can be due to internal and external factors: for example, how to treat employees or how to act towards an external supplier? As globalisation creates opportunities for corporations to expand to foreign markets, it adds dilemmas based on cross-cultural activities. Within this section, an ethical case regarding Siemens will be discussed.
Bribery Scandal
Crane and Matten (2016) examine how inter-organizational relationships can cause ethical issues. Bribery is one of these issues. In many Western countries, including the United States and Germany, bribery is illegal (Cornell University Law School, 2016; Oehmichen, 2016). Organisations like the Institute of Electrical and Electronics Engineers (IEEE) provide codes of ethics (IEEE, 2016), upon which members of the organisation agree to, for example, “reject bribery in all of its forms”.
Siemens, as a member of the IEEE since long before they got caught in 2007 (IEEE, 2011; Jester, 2002), broke the law and the code of conduct of their industry when they “engaged in a systematic practice of paying bribes to foreign government officials to obtain business” between 2001 and 2007 (U.S. Securities and Exchange Commission, 2008). The dilemma was caused by external factors: foreign officials. Bribery is illegal in its home country Germany, but common in the countries involved. The multinational tried to cover up their tracks by communicating these payments via post-its, which would later be destroyed. Besides that, the Commission states that they concealed the bribery by using so-called slush funds, off-book accounts and corrupt accountants and consultants. The internal corporate culture seemed to be open to the idea of bribery as well.
The media and scholars analysed the scandal in several ways. Schubert & Miller (2008) focused on the story of an executive at Siemens who was involved. The case study was further investigated a few years later (Dietz & Gillespie, 2012; Wenzhong & Limin, 2012). The people that were involved, were well aware of the act being illegal. The media and case study conclude that the bribery occured because of the pressure to grow. To be able to survive in the business, Siemens used money to stay ahead of its competitors, who would otherwise gain a greater market share and might have caused the company to shut down. Thus, the risk of losing market share and the possibility to grow caused the company to engage in illegal actions.
Theories
Business ethics serves ground for different theories. All these theories strive to explain why companies should act ethically, or why some fail to do so. Ethical relativism stresses that there are no moral rights or wrongs that are universally applicable, because of cultural differences (Crane & Matten, 2016; West, 2016). Well-known researchers and philosophers like Kant (1724 – 1804) explained that human beings are rational creatures that must decide themselves if an action is morally right or wrong. Ethical relativism implies that this depends on environmental factors like time, place and culture (West, 2016). Rather than to use a single theory to address the case of Siemens, this paper will discuss two normative theories: egoism and ethics of duties. These theories are designed to provide specific guidelines in every situation (Crane & Matten, 2016). The paper will first explain the theories, as they will later be used to analyse the ethical dilemma.
Egoism
Egoism is a consequentialist theory, as it focuses on outcomes that are caused by an action (Crane & Matten, 2016). The theory is based on information contributed by philosophers like Adam Smith and Hobbes. Thiroux and Krasemann (2016) suggest three versions of egoism. However, in this paper, the focus will be on universal ethical egoism as several countries are involved. This version suggests that everybody acts in his own self-interest. As Crane and Matten (2016) explain, it focuses on the results of activities and sets as condition that all decision-makers should be able to do so feely. We cannot predict the future completely and therefore cannot completely foresee what will happen because of our actions. We must act in a way that creates the most value for ourselves. Within business, Smith (1793) describes the ‘invisible hand’ that will guide everyone into taking ethically responsible actions. For example, an action can have a positive outcome in the short-term, but if it is not ethically right it will have a negative influence in the long-term. For example, the costs in the long-term may outweigh the short-term gains, and the action will therefore not be worthy and acted upon.
Ethics of Duties
Ethics of Duties obtains its roots from the work of the philosopher Immanuel Kant. As a non-consequentialist theory, it guides the reasoning towards the independent individual: what are the rights of the individual and what are his duties (Crane & Matten, 2016; Minkler, 1999)? Kant suggested that the human being is rational and therefore knows how to act morally right or wrong. He created a framework with rules that should help with making appropriate decisions in every situation, called the categorical imperative (Satkunanandan, 2011). The first rule is consistency: if actions are done by everybody in every setting without affecting someone or something in a negative way, it can be perceived as right. The second rule considers human dignity: “treat people as an end and never as a means only” (Crane & Matten, 2016, p. 101). The last rule, universality, implies that the action should be acceptable to every person in the world, as if it is an international law. This rule contradicts with ethical relativism (discussed before), as the latter states that universal rules are not possible. The contradiction shows the difficulty of business ethics and the necessity of using more theories. An action can be right when using one theory, but ethically wrong when using another. As the last rule does not take into account the environmental differences in the world that confront multinationals, this last rule will not be used in the discussion.
Discussion
The law provides companies a set of rules to which they must operate. However, where the law ends, there are still difficult ethical situations left. Some of these issues are situations where companies are expected to understand the effect they have on the environment. They publicly take responsibility when conducting business while considering environmental factors, also known as corporate social responsibility (CSR). Ethics and CSR are different concepts, but are interrelated. As discussed earlier, ethics considers rights and wrongs. There are many definitions for corporate social responsibility, but the main thought mostly remains untouched (Dahlsrud, 2008). In this essay, one of the most common definitions is used: “A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” (Commission of the European Communities, 2001). By implementing CSR, companies try to take ethical decisions. Within the current CSR announcement, Siemens claims to strive for sustainability for people, planet and profit. Besides, their statement reads “We operate an efficient and resilient supply chain through supplier code of conduct […] and we adhere to the highest compliance and anti-corruption standards” (Siemens, 2016b). By paying the bribes, Siemens violated their supplier code of conduct and the IEEE Code of Conduct (IEEE, 2014). To come clean and try to save their image, the multinational paid fines and included ‘fighting corruption and fraud’ in their new CSR report (Siemens, 2016c).
By paying the bribes, Siemens was fulfilling their self-interest and in the interest of the governments involved. In this perspective, the company was following the rules of egoism. However, when going to a foreign country, businesses should bring welfare, act truthfully, be transparent and endorse equal opportunity between competitors (Unger, 1997). The main actors in this case are therefore not only Siemens and the government, but also competitors. Egoism reads that actions must not be made on others expenses (Crane & Matten, 2016). Siemens unfairly gained contracts with the bribes, which is at the expense of its competitors. Another factor of egoism concerns the long-term vision. Bribery got the company short-term gains. Bribery being illegal in the home country, Siemens took a risk by engaging in bribery. Eventually, it resulted in a bad reputation and costed the company a lot of money. In this case, egoism would thus suggest not to bribe governments.
Consistency and human dignity, two rules from ethics of duties by Kant, provide further insights on how the situation created duality. Considering consistency, it should be imagined that everyone would pay bribes. In this setting, companies must ‘out-bribe’ each other, where the richest will win. This might sometimes already occur, but not at the amount of every possible player involved. Every company paying bribes would take away the intention of bribes and would eventually put smaller companies at risk of closing. When concerning human dignity, there is not enough information available to claim that Siemens disrespected people. They did use governments as means to get contracts, but the receivers of the money were not negatively influenced. Per this rule, the bribery could have been ethical.
Conclusion
In some countries, paying officials money is not considered bribery, but it is regular business. Cross-cultural management also stresses that, when coming across foreign cultures, one should respect them. One could argue that, by paying bribes when it is common in a specific country, he is being respectful. However, even though it can be a common act in several countries, even within these countries it can be viewed as improper (Unger, 1997).
One theory can never be universally applied. Therefore, to analyse the bribery case of Siemens, two ethical theories were used. Following the rules of egoism, it would suggest that bribery was not the action Siemens should undertake in any country. On the other hand, ethics of duties was discussed. The rule of universality was excluded, as it contradicts with ethical relativism and does not take differences in cultures in account. Even though the case could have been accepted regarding to the lack of threat to human dignity, bribery does not comply with the rule of consistency. A decision should adhere to all rules, and the act is therefore not ethical with either theory.
The argument used most to legitimise bribery concerns the idea that the company would have a disadvantage compared to competitors, or that they are not being able to do business at all. In such cases, companies should reconsider being so eager to do business in those countries (Unger, 1997). After Siemens was caught, they changed their CSR practices and started incorporating fighting bribery instead.
Implications
Theories are often simplified. The case of Siemens shows how complex ethical dilemmas can be and proves that multinational companies with a lot of foreign experience can still make unethical decisions to increase shareholder value. Besides that, ethics of duties requires human beings to be rational. In fact, however, people can act irrational. As a critic, Louden (2000) explains: “Being rational […] does not reveal whether I have moral character” (p. 82). Irrationality and ethical dilemmas make it difficult to conduct business in foreign countries. However, trying to understand the differences whilst taking ethics into account, companies should be able to do valuable business.