MGT3044/MU3 2214: BUSINESS ETHICS & SOCIAL

RESPONSIBILITY

NAME

STUDENT ID NUMBER

Chua Su Ean

13019286

Grace Garcia Lubraja Taufik

14070015

Maria Couronne

14020895

Nurul Afrina Bt. Ahmad Shukri

13035282

Vivian Chong Huishan

14070023

Assignment Title: Silvio Berlusconi says bribes are a 'necessary part

of business' and tells critics to 'stop moralising
Due Date: 24th October 2016
Lecturer: Mr. Rodney Toh Seong Yuen

Corruption in the corporate world is a complex issue and has been widely debated.
There is a widespread agreement that corruption is considered as a major problem around the
world. In the business context of bribery, which is considered as a form of corruption,
involves paying someone to act dishonestly and inconsistently with his or her official duties
(Byron, 1977). Some claim that bribery is sometimes beneficial but, the vast majority agrees
that the benefits are only short term and that the costs incurred are even higher. Regarded as
one of the main causes of poverty around the world, bribery explains the Gini differences
between developed and developing countries. In the last decade, there has been an increase in
the international policy communitys interest in corporate bribery with 35 countries that have
ratified the OECD combatting bribery (OECD, 2016). However, the implementation of such
laws have been problematic on the international scale due to the persisting perception that
some cultures foster bribery. Based on the recent bribery scandal of Berlusconi and Italian
corporations Finmeccanica and Enis subsidiary Saipem the issue of bribery will be
discussed.
Individual and corporate reasons for Bribery
The motives for people or corporations to bribe will be discussed in order to
understand their thinking and moral development. One of the issues in the case is that Mr
Berlusconi was accused for bribing his former tax Lawyer David Mills. He has acted such a
way to avoid conviction from corruption charges and to keep huge profits that was obtained
from illegal corporate actions (Hooper, 2009). Therefore, in terms of thinking, Mr Berlusconi
is at the pre-conventional level of morality and stage one of Kohlbergs moral development.
Stage one involves the obedience and punishment orientation and in this case Mr Berlusconi
is said to have bribed for his own personal benefit and avoidance of punishment (Practice and
Apr, 2007). Thus, the reason why people deliberately bribe is for pure self-interest and
involves encouraging the other party to look away from the violation of the law.
At the corporate level, advocates of bribery claims that to avoid the bureaucratic
inefficiencies of some governments, it helps to penetrate new markets and to grease the
wheel which can lead to economic growth of the country in the short term (Dumludag,
2012). In the case of Eni, where its subsidiary Saipem paid bribes to win contract in Algeria it
was done to help the company expand its operation in North Africa (Coats, 2016). Thus, it
helps businesses to enter new markets. In the globalised world where competition is rampant
and more widespread, top management are often involved in bribery cases for their business
to be more competitive and seize opportunities. Moreover, a common argument by

businessmen to undertake bribery is that the host country in which they are investing fosters
the culture of corruption (Eiras, 2003). For businessmen like in the case of the ex-CEO of
Finmeccanica Giuseppe Orsi, corruption may not be because of the lack of ethics but instead
shows a lack of economic freedom.
Case for Corporate Bribery
The fundamental question raised in this case is whether corruption such as bribery is
considered as morally unethical or on the other hand, as Mr. Berlusconi mentioned a
commission paid that is justifiable (Malm, 2013). On the basis of universal ethical egoism,
the approach to morality is self-interest and this should guide each persons decision making.
The belief is that mans own happiness is his moral purpose in life (Philosophy Edu, 2001).
Mr Berlusconis act can be said to be self-centred and self-motivated thus, based on ethical
egoism, it would be considered as morally acceptable.
Bribery in securing international contracts would be considered as acceptable
especially if it generates and maximises the utility of the majority of the people. As such the
utilitarian approach focusing on the consequences of an action and the greatest happiness for
all could be used to argue for bribery (Schefczyk, n.d.). In the case, the second issue a B2G
corruption involves the Ex-CEO of Finmeccanica who was accused of paying the Indian
Government to secure a helicopter contract. The contract was awarded to the company and
they could supply 12 VVIP helicopters to the Indian Government (Jolly, 2013). Finmeccanica
is Italys second largest industrial company with revenue of 17.5 billion in 2011 and nearly
70,000 employees worldwide. The company was burdened with a high debt of 4.8 billion at
the end of 2012 (Barry, 2013). It has been mentioned that at the firm level bribery is
positively related to the firm performance (Wenzhong and Limin, 2012). This implies that for
Finmeccanica's employees, the profit gained from the contract would have been
advantageous to them as it would have rebuilt the companys reputation and reduced its debt.
It is likely that the employees pay would have increased, bonus and allowance would have
been given and the employees working condition would have been improved. Thus, by
applying the utilitarian principle, Mr. Giuseppe Orsi took into consideration all the employees
that were affected by his decision to bribe the Indian government.

Case Against Corporate Bribery

However, Immanuel Kant moral philosophy of corruption would support the idea that
bribery is immoral based on reasoning and absolute ethical imperative. He advocates that an
action is deemed ethical if it can be accepted as a universal law by everyone (Makkreel &
Luft, 2010). This opposes the view of ethical egoism, the pursuit of self-interest. The first
maxim of Kantian view is do unto others what you would have them do unto you meaning
that when bribing someone the briber must consider whether it is universally acceptable. The
second maxim states do not use people to achieve ones end (Holzhey & Mudroch, 2005).
Thus, Mr Berlusconis duty as a public official was to uphold the law and to speak in favour
of the law (Sanders, 2013). Instead of doing so, he acted based on his own desire and not
rationality so as to conceal his actions by using his Lawyer David Mill. In the second issue,
Giuseppe Orsi the ex CEO of Finmeccanica should have considered whether bribery is
universally acceptable. Several anti-corruption rules and organizations like the Foreign
Corrupt Practices Act, the UK Bribery Act 2010, Transparency international and the
organization of Economic Co-operation and development have been established to
criminalize bribery. The law in Italy itself clearly states that bribery by executives is illegal
and that companies should have anti-corruption system to conform to the law (Sanders,
2013). Hence, by applying Kantian theory, Giuseppe Orsi actions is condemned and Mr.
Berlusconi defending bribery as well as using his lawyer is judged as unreasonable and
unethical.
The Virtue ethics also challenges corruption on the foundation that an individual
should develop a proper character. This involves developing moral habits and in the context
of corruption it focuses on the actors of bribery instead of the act itself (Everett, Neu and
Rahaman, 2006). The difficulty is to know what kind of right person one ought to be
especially when confronted with moral dilemmas. However, humans are endowed with
reasoning that guides ones decision making. Aristotles Virtue ethics derives on happiness
and this is regarded as the highest good to be achieved (Ross, 1999). Mr. Berlusconi lacked
the self-mastery of virtue to realize that being courageous to stand against corruption opposes
lying, cheating and stealing which leads to guiltiness. Corporations greediness to make more
money by bribing is an inappropriate response from the management like it has been the case
for Giuseppe Orsi whose responsibility was not only to act truthfully but also to feel that it is
a worthy practice not to bribe.

Effects of Bribery
The company
Corporate bribery negatively impacts on the company in the long term. As mentioned
before, the reason for corporate bribery is that it facilitates the entry in new markets and
avoids bureaucracy. However, it does not benefit the company due to the conditions attached
to it. Businessmen committing bribes are fully aware that most of the time revenue from the
investment will be claimed by corrupt officials (Mauro, 1997). The claims of some businesses
that bribery reduces bureaucracy can be counter argued since evidence shows that companies
that pay bribes result are heavily burdened and spend more time negotiating with bureaucrats
(Kuaffman and Wei, 1999). Moreover, corporate bribery brought to light tarnishes the firms
reputation (Forbes, 2013); this has been the case for Finmeccanica after the corruption
allegations they faced the risk of losing contracts and weakening their credibility (Barry,
2013). As a result, they had to undertake major changes in the organisation and top
management (The Indian Express, 2016). The effect of bribery on the company is devastating
and believing that paying bribes will help the company is a totally wrong belief and an airy
fairy claim to justify their actions.
The employees and CEO
Bribery results in high level of psychological issues on the briber where they are
trapped into a situation of secrecy and guilt (The Economist, 2010). When corruption is
brought to light, it further affects the CEO for example Mr. Giuseppe Orsi had to resign from
his position, incur huge legal cost to defend his case and was even incarcerated (Reuters,
2016). These type of complex situation were reported to have a negative impact on the
employees morale which further impacts on the firms performance (Healy and Sarefeim,
2016). In the case of Finmeccanica, to rebuild the companys reputation, Mr Moretti, the new
chief executive has to refocus the organization on its centre aviation business even at the cost
of contracting deals and cutting employments (Politi, 2016). Therefore, the impact on the
employees is that they may fear of losing their job thus a decrease in their performance.
The shareholders
Corporate corruption also affects shareholders who very often lose trust and
confidence in the business (Thompson and Medina, 2012). The allegations of corruption that

Mr. Berlusconi was involved in such as money laundering, tax evasion and bribery of
politicians has caused shareholders and investors to lose their confidence and trust in their
business (The Economist, 2001). As seen, Finmeccanicas shares dropped to 8.4% in the
Milan Trading (Politi, 2014) after the bribery allegations. The same situation occurred for Eni
Group where their share price fell by 4.6 percent (Vasarri, 2013). Applying the narrow view,
Milton Friedman stated that the businesss responsibility is to make money for its
shareholders however bribery does not align this duty.
The Government
In the Social Contract Theory, according to Locke people give up their rights to the
sovereign authority to enforce the law of nature. This is to ensure a stable and comfortable
living of societys life, estate and liberty (McGee and Benk, 2014). However, this social
contract that exists between the government and society is being breached with corruption so,
in this situation bribery is deemed to be unethical. Based on the case, the Indian government
signed off a contract for the VVIP helicopter with Bruno Spagnolini, the chief operating
officer of AgustaWestland (Datt, 2013). According to the Government Defence AntiCorruption Index (2016), the governments of Italy and India do not implement a strong anticorruption system for companies. The implication for the government is that there will be a
lack of trust in them especially if they themselves accept kickbacks in exchange for giving
contracts. It may also lead to the reduction of the legitimacy of democratic governments and
further result in the immoral upbringing of undemocratic leaders (Nichols, 2009). Since India
is a democratic country, the constitution and the law stating that bribery is illegal and
government officials banned from doing so, governs the social contract and the will of the
people. Therefore, in this case there has been a non-adherence to the social contract principle
of Locke by the Indian government and they have failed to act in the best interests of the
society.
The country
Over the long term, the downside of corruption is that it distorts the market and results
in economic inefficiency and misallocation of resources in these host countries. It is further
supported that corruption decreases the countrys competitiveness and reduces competition
(Huang, 2012). In the second issue the alleged bribery of Giuseppe Orsi occurred in India, Mr
Berlusconi mentions that they are not crimes. However, one of the reasons why India is

struggling in becoming a developed economy is because of these types of corruption acting as

a major roadblock (KPMG, 2011). Moreover, corruption is said to be negatively related to the
investment rate and lowers the economic growth of the country (Mauro, 1995). If the country
is known for corruption, it is characterised as unstable and unpredictable (Dumludag, 2012).
Therefore, foreign investors would be unwilling to take the risk to invest in these countries
(Thiemann, 2014). This has been the case for third world countries like Malawi in Africa
where corruption is considered as one of the key reasons why very few foreign investors are
attracted yearly (Anti-corruption International, 2015). Consequently, Mr. Berlusconi stating
that bribes are necessary to deal with third world countries has great implications and cannot
be supported.
The society
The impacts of corruption on society are all around recorded. Politically it speaks to a
hindrance to majority rules system and the lead of law; monetarily it exhausts a nation's
riches, regularly occupying it to degenerate authorities' pockets and, at its central, it
destabilises the way that business is done (Kemp, 2014). According to Huang (2012), the
vicious circle of corruption like bribery and tax evasion affects society as it increases the
income inequality in the country and leads to an increasing level of poverty (Gupta, Davoodi
and Terme, 1998). Corruption is said to destroy society as a whole (Nichols, 2009) and thus
on based the broader perspective that the role of corporations is to act in societys best
interest and bribery is said to be an unethical practice.
Cultural Perspective On Corporate Bribery
Although the world is shrinking, cultures between humans are worlds apart. Theory of
cultural relativism said that our way of thinking is culturally determined which means that
culture shapes the way we see things around us in terms of visual and concepts. Therefore,
the same word/object can be interpreted differently by people different cultural background
(Mulkeen, 2016). Nevertheless, cultural relativism should not be mistaken with universality
of moral standards. For example, the word gift implies changes from culture to culture, that
does not suggest that any of its implications and suggestions ought to be characterized as
social and acknowledged.
In spite of the fact that plainly gift is an unacceptable business practice and unlawful
in numerous views, it reflects whether the idea of bribery is the same in all nations or if, for

instance, businessmen in China and Russia have different impression of what may be
considered bribery as gift giving is a vital in building business connections. However, it is
interpreted as bribery in the UK. In the Western culture, practices that may seem to be
questionable would be functional in different culture; or practices and actions that are
acceptable in the West may be unacceptable in different cultures. This does not mean that one
culture is less ethical compared to the other, but that every culture has its own thinking and
way of its functioning (Hooker, 2008).
Western
In the Western business culture, the ethical standard of a firm is the priority of the
firm and not the personal interest of the employee. Western companies often award the bidder
that has the best quality and the transparency of the financial status of the company. For an
example, if an employee would purchase an item for the company that has a higher cost from
a close friend, it is considered corrupted (Protective Intelligence, 2009). Western business
culture mostly revolves around a contract that is drawn up as an agreement and is supported
by a legal system. In the business context of the Italian culture, gift giving is not considered a
common gesture (Business Culture, 2014). Western businesses often go by the Kantian
deontology principle whereby it stresses that an issue is only considered as ethical if it could
be accepted by every individual as a universal law (Holzhey, and Mudroch, 2005). Based on
the case, Mr. Berlusconi was arrested in the context of the western believes that all things
related to bribery is unethical. The Italian government has a strict rule on corruption as they
are a part of 4 European Union (EU) conventions that are aim to combat corruption
(Transparency International, 2010).
Asian
Rule-based cultures are universalist precisely because they are rule-based. While
relationship-based cultures invest authority in human beings, rule-based cultures respect the
rules for their own sake. Rulers derive their authority from the rules they enforce and by
which they are chosen, not from who they are. Rules can command this kind of respect only
if they are seen as inherently logical and reasonable. But logic is universal, and rules worthy
of observance are therefore viewed as universally valid. These ideas are further developed in
(Hooker, 2008).
In India, bribery is a fact of life. As a country that practices relationship based culture,
it is seen that things only can get done through social networks. As the society is being tied

with strong personal relationship, even the transparency-based political discussion and free
market options could not win in such a communal debate. Bribery in India could worsen
social stability as it disrupts the traditional networking (Hooker, 2008). Procedure of
facilitating payment is a norm although the citizens regard it as an inconvenience.
However, those who benefited from it regards it as just and acts as supplementary for their
inadequate salary. One may argue that the payment is as equivalent as the Westerners misuses
resources on lavish advertising and salesperson, it still acts as an operating cost for the market
system. Therefore, it forces to undercut the grease payment practices as it has already been
part of the functional relationship-based system. In fact, sometimes the payment has no
functional role in speeding the process as many would progress well without it.
Moreover, there are some situations where such payments are necessary fees where it
cannot be regarded as bribes (Hooker, 2008). It is still uncertain how it threatens the system
because the historical structured of huge gap between the power and wealth. According to
John Rawls principle of justice, he proposed principle regarding the unequal distribution of
power and wealth which everyone is entitled of fully adequate of basic rights as long as
others are allowed to have the same rights (Rawls, 2005). The approach holds that a society is
in an agreement of within that society. However, it can be argued that what kind of
arrangement would the society wants? Will they accept the bribery system? As there is no
such perfect particular social, therefore, the basic structure of society lies in justice as
fairness. Firstly, each person should have equal rights to the most extensive liberties with
regards that others are enjoying the same liberties. In this context, everyone is allowed to
bribe no matter the rich or poor, as long as others share the same benefits. Secondly, any
inequalities must be organized so that nobody would be restricted from entitled any position.
This principle implied by the equality of opportunity but more attention given to those who
are in less favourable social positions. In relation to this case, Mr Berlusconi regarded his
actions as it is necessary to bribe when doing business with India (a third world country) due
to its relationship based culture. A poor country more probably will participate in degenerate
practices for example paying off the government with bribes to keep away taxes or to make
other financial benefits. Quoting what he said these are not crimes. Were talking about
paying a commission to someone in that country. Why, because those are the rules in that
country. It is seen that India is practicing ethical relativism as whether the action is right or
wrong depends on the moral norms that cohere to ones culture (Steele, 2000).

It is hard to establish bribe. Through the guidelines provided by Organisation for

Economic Co-operation and Development (OECD), small "facilitation" payments to obtain
licences in a foreign nation cannot sensibly be sought after, in spite of the fact that it declines
to set a size point of confinement (Melndez-Ortiz, Bellmann and Mendoza, 2012). At the
point when a business commission adds up to a quarter or half of an agreement's value, it
rings the bells of suspicion. Such payments cannot be rectified if auditing procedures require
them to be clarified. India has taken the commitment to tackle the issue of bribery by signing
the G-20 Anti-corruption plan. Yet, change can only be done by taking concrete steps in the
enforcement of existing provisions under law. In December 2000, Italy endorsed the OECD
convention regarding Combating Bribery of Foreign Public Officials in International
Business Transactions which requires each signatory country declared foreign bribery as
crime as tool to restraint the export of corruption widely because 39 signatory countries are
managing for two-thirds of world exports and three-quarters of foreign investment (Sanders,
2013).
African culture
Corruption is said to be introduced to the Africans through colonization and slowly as
time passes, it evolves into the modern times and civilisation of countries in Africa (Munyae
and Gwen, 1998). Based on a survey, there were 22% of Africans admitted that they paid
bribery when they had contact with the public services (The Economist, 2015). Corruption in
African countries are mostly based on egoism and utilitarian principles. Egoism as they take
on kickbacks for their own greed as humans have unlimited needs and wants. Some argue
that bribery is done under the utilitarian principle where a gift could benefit the majority
(Africa Renewal, 2010). Algeria is a country under the African continent and they practice
nepotism and they utilize connections to get what they want. Corruption and bribery is a
social norm in the business world as they see it as a form of gift giving rather than an offense
(Business Anti-Corruption, 2016). Based on the National Opinion, corruption is the basis
build-up of Algerias economy (Cheref, 2016). It is said that in order for foreign corporations
to do businesses with the Algerian, they must offer some kind of gift or incentive in order
to win a contract. There are laws in Algeria that prevents bribery from happening; however,
out of 2000 corruption cases investigated in 2012, there were hardly any convictions
(Freedom House, 2016). From the case, it is stated that in order to do business in bribes are
necessary and it is a business rule if a company wants to get a contract.

Based on the case, Mr. Berlusconi worked for Finmeccanica, an Italian company. Italy
is a country that is against bribery and it is not a norm to exchange gifts for contracts which is
unlike the African culture or the Asian culture. As mentioned above, different countries view
bribery in different light and one may see it as unethical and the other would see it as a
common practice. The issue here is that should businesses follow the famous quote When in
Rome, do what the Roman do which means that should foreign companies do businesses the
same way as the host country even though it is against their ethical beliefs? Should
companies that perform bribery in a country like Algeria or India, where briberies are seen as
a common practice be charge for carrying out kickbacks?
Ethical relativism is a theory that decides if an act is morally right or wrong
depending on the culture of a society (Shomali, 2001). An action that would be seen ethical in
one culture might not reflect the same in another culture and this theory does not see the same
way as Kantian deontology does, where the only ethical action is when it is a universal law
and no other matters are of concern (Jennings, 2008). Most ethicists reject this theory as some
claim that while moral practices in different society differs, the underlying fundamental
principles do not. Societies may differ in application of fundamental moral principles,
however agrees on principle (Velasquez et al., 1992). Based on cultural relativism, there is no
cultures ethics that is better than the rest; therefore, there is no rigid international rule of
rights and wrongs. For an example, when Indonesians tolerate bribery with their public
officials, it does not make any difference to people in Singapore who refuses to offer or
accept the bribe. This being said that the attitude of both countries whether or not there was
intention to bribe does not make any of them better or worse. Similar example is when
Belgians failed to find insider trading as morally unacceptable; by not enforcing such laws is
equal to enforcing bribery (Donaldson, 1996).
Conclusion
In conclusion, companies that are dealing with international businesses should follow
the common moral practices in that country, as said by Mr. Berlusconi if strict universal
moralism was applied, no one can be an entrepreneur on a global scale. There are
fundamental values in cross cultures that must be held. Ethics are being taught in our
particular culture, yet the power in the principles lies within how are we going to express it. It
is the responsibility of every country to learn and understand the cross cultures in business
with the country that they are dealing with by keeping themselves updated with widely

recognized lists of moral principles like the United Nations Universal Declaration of Human
Rights which covers on cultural and religious traditions (United Nations, n.d.). Setting a core
value is important to what extent, what is acceptable and what not. Code of conduct must be
explicitly stated, however, businessman should use their judgement in relation to any cultural
sensitivity. Limits in its scope and intention that makes gift giving practice to be acceptable.
With that being said, there is still a need to have certain limit to the size of the gift a
company is offering as human are made up of unwanted needs and wants and if there were no
law or rules to control the size of the gift, it would most probably get out of hand. One thing
will lead to another thing and a small bribery would have a snowball effect and grow into a
bigger problem due to human greed. Bribery has caused a huge impact on the internal and
external environments. Internal environmental factors that occurs within an organization such
as the employees, shareholders and the CEO as well as the external environment that happens
outside the organization such as the government, society and the country itself. Bribery can
cause a corrosive impact on the development of the economy. In addition, it damages the
image of the company, leads to loss of investment opportunities and people losing their jobs.
That being said, bribery is unethical as it only does more harm than good. Companies should
make their decisions based on the code of ethics that is established regardless of the cultural
boundaries.

(Transparency International, 2015) Source: Transparency International. (2015). The Global

Anti-Corruption Coalition. [online] Available at: http://www.transparency.org/cpi2015
[Accessed 18 Oct. 2016].

Reflection
Ethical dilemmas like bribery are certainly complex issues to deal with. As bribery
can be viewed differently from different perspective. One person might say that bribery is
ethical however, another person may say that it is unethical. As a team we debated on the
various problems and situations that corporations faced when it comes to bribery. This is
because we all come from different backgrounds and cultures. It was difficult to come up
with a common ground but we learned together as a group to understand the different ethical
theories and wider readings on corruption. Bribery rises income inequality and poverty
through biased tax systems favouring the rich, use of wealth by the well-to-do to lobby
government for favourable policies that propagate inequality in asset ownership, and low
financial development. We realized how bribery is actually linked to poverty and income
inequality in countries as poor people will be economically exploited. Poverty will then
attract corruption while corruption will increase poverty and thus lead to reduction income.
There are different ideas or concept on the term bribery. Different cultural
background has different meaning although it does not mean that bribery should be culturally
accepted. For example, from an Asian perspective, in India, corruption is a fact of life. After
understanding the theories deeper, we decided to take a stand against bribery which is
unethical and even unacceptable. Although it is clear that bribery is unethical in business,
there are still many countries that practices it. As they think that paying bribe is a cost of
doing business. However, companies need to established code of ethics in them in order to
have consistent standard of business operation. There is a saying Good ethics is good
business. Other than that, if companies bribe, they may win now, but what other tomorrow?
Company may be able to secure a contract with other investors now but it would be damaging
their company reputation in a long run.
As future graduates who will be in the corporate world, one day we may be
confronted with these situations but we have to remember the virtues of life like happiness
and courage. Courage to stand against bribery and denounce it. If we can sleep well at night
and do not feel the guilt we know that our actions are right. We should stand firm in our
beliefs that bribery is a crime and is unethical.

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