Business Ethics

Class 5

Addiopizzo

• Dealing with complex and corrupted environments:  there are no places/companies/countries immune to corruption. So, moving from corrupted environments based on the hope of find uncorrupted environment it is just an illusion. This is not the solution.

• How to understand corruption? Very pragmatic topic!

Corruption: it is the abuse of entrusted power for private gain. It hurts everyone who depends on the integrity of people in a position of authority/power. The most famous ones are: Bribery, extortion and embezzlement.  

Cost of Corruption

• It destroys trust and legality
• It introduces a lack of transparency in the market

• Government official accepts money to speed up the issuing of licenses – its economic cost is 3% to 5% premium above licensing fee passed on to consumer.
• Organized crime controls the marketplace – Its economic cost is 15% to 20% extra cost on consumers.
• Government official overpays in exchange for a kickback – its economic cost is that public goods and services are priced 20% to 100% higher than necessary.
• Underreported taxes for a bribe – Its economic cost is that income tax revenue can be reduced by up to 50%.

• There is a strong correlation between underdevelopment/poverty and corruption.

Types of corruption:

• Bribery: An action in which someone gives cash, a gift or some other benefit such as an emolument or privilege, to alter the behaviours of the recipients to obtain an unjust advantage (an unjust judgment, a vote or some type of behaviours) by someone in a position of trust.

Those who receive a bribe take advantage of their position of power for personal benefit and act against the duties of their position.

[pic 1]

How to recognize bribery?

1. Intention of the gift-giver: is the intention to gain an additional advantage or is this just a way to maintain good business relationship?
2. Impact on the receiver: is the evaluation influenced by the gift? Is the gift causing unfair competition?
3. Perception of others: how would competitors and other players interpret the gift? [pic 2]

We have to recognize the cultural, and context of the specific situation; but we cannot believe in good intentions and we have to consider the basic ethical standards

The ultimate question: Am I acting in the best interest of my company?

• Extortion: It takes place when someone (the extortionist) demands money or some other gift to which he or she is not entitled, through intimidation or undue exercise of authority.

It comes from those with decision-making power over something that affects the victim of the extortion.

Extortion vs. Bribery

Offering a bribe is ALWAYS illicit as:

- It involves inducing someone to perform a disloyal and unjust act

Accepting a bribe is ALWAYS a moral illicit action as:

-It is an action of disloyalty

-It is an action of injustice as the recipients are not entitled to the remuneration they receive

-It causes unfair competition

-It contributes to the spreading of a culture of corruption

Extortion vs. Bribery

Extortion is ALWAYS illicit as:

-It causes disloyalty and injustice against the organization to which one belongs

-Injustice is done to the person from whom money are extorted

-Injustice may be done to third parties

-It could also give raise to a scandal insofar

-It may encourage others to do likewise thus reducing the sense of solidarity in society

For the morality of giving in to extortion a DISTINCTION should be drawn!

-Under certain conditions it may be licit to give in to extortion in order to obtain a right

When:

-There are NO viable alternatives

- One truly behaves with rectitude

-Third parties are not involved

-There is a moral reason (e.g. continuity of employment) proportional to the indirect negative effects caused by the extortionist’s action [pic 3]

- Moral scandal is avoided

Example: After Addiopizzo it is not more moral acceptable (dependent on the reasons)

How to fight against corrupted environments: traditional approaches

• Professional and moral competencies
• Organizational policies and code of conducts
• Run away
• Regulation
• External institutional help

Show the payoff of not being corrupted

• Simbolic and Substancial Actions:

[pic 4]

Symbolic actions are not enough > we need to send very clear message in order to make clear that we are doing something to change this environment > we could use symbolic and substantial action not only to change our actions but also to influence the overall actions of society and this was what Addiopizzo was capable to do

• Social Enterprise: Hybrid organizations

First definition: Are organizations that combine aspects of nonprofits and for-profits by primarily pursuing a social mission relying substantially on commercial revenue to sustain operations (Battilana and Lee, 2012)