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Numerous reports have shown that corruption is one of the most serious threats to industry and may have far-reaching consequences, including the full closure of a business. This vice is often perpetuated by an individual or a group of workers, administrators, and/or directors of a company in conflict with/or against third parties with the purpose of misappropriating money, abusing office rights, fraud, and misleading financial reporting. Corruption often tends to represent the needs of the individuals concerned rather than the interests of the company. Extortion, coercion, graft, and embezzlement are also examples of corruption. There is a majority consensus among business owners and leaders that corruption is a serious ethical problem that threatens the performance, performance and and success of business worldwide. This is the reason why a significant number of businesses work hard to build strong ethical reputation that discourages corruption, and instead emphasizes transparency, integrity and accountability in their operations. These efforts are designed to prevent corruption, or at least to mitigate its impacts on the business.
According to a World Bank report, corruption is widespread around the world with 68 % of countries having serious problem of corruption, and no single country in the world can claim to be totally corruption-free. The most common forms of corruption reported in business are money laundering, fraud, and bribery. These forms of corruption cut across all business sectors from technology, agriculture, retail, insurance, and finance sectors among many others. Corruption is a quantitative, unfortunate fact that runs very rampant worldwide. It is estimated that over one in every four people have engaged in one form of corruption every year, and it is also estimated that over $1 trillion is offered in corruption annually. This statistics demonstrates how corruption is deeply-entrenched in the world, a reality that poses enormous risks not only to businesses, but also to governments and individuals. Corruption does not only deny the citizens adequate provision of public goods by the government, but also creates problems such as unemployment which have the potential of resulting to political instability. Besides, proceeds of corruption may be used in financing acts such as terrorism and human trafficking which threaten international peace and security.
If not addressed effectively, the problem of corruption is likely to worsen. The globalization age makes it easy to perpetrate corruption as it is easier to transfer money and to even conceal the identities of the senders and the recipients. At the same time, the impact of corruption in the globalization age is largely evident, particularly in respect to eroding competitive advantage of some businesses and governments. However, it is apparent that corruption can give some businesses a competitive edge over the others thus “polluting” the business environment. As a consequence, the business playing field becomes unleveled causing a few businesses to thrive, while majority struggle to survive, it is against this background that it is important to understand corruption effects on business. In particular, it will discuss how bribery affects businesses. In addition, it will discuss the types of laws that are against them at state and federal level. In order to have a broader perspective on the subject of discussion, the paper will also raise two non-supporting positions and state why they are wrong regarding the matter.
How Bribery Affects Businesses
The first major effect of bribery on business is that it results to inefficiency. Bribery creates a situation whereby resources are interfered with and are used improperly causing business efficiency to suffer. Paying out bribery makes businesses to have insufficient resources for efficient and effective running if business operations. Lack of adequate resources tends to make business to function below their optimal operations level. Besides, since some employees are aware of the acts of bribery, their perception of the business and the need to uphold integrity in all their dealings diminishes and this affects their efficiency at work. Instead of focusing on activities that add value to business performance and success, employees spend valuable time in planning how to execute bribery acts.
The inefficiency effect is not only limited to the resources paid out as bribe; it also touches on the relationship among employees and how this has a bearing to their efficiency. Considering that there are vested interests among employees during the solicitation for bribe and payments, they tend to develop strained relationship among them, as each party seeks to gain the most from the vice. In the process, they spend their time in plotting how to “win big” from the bribe, while spending less time on enhancing their efficiency and that of the organization. In most cases, strained relationships amount to fallouts that bring further inefficiency in business because optimum collaboration and teamwork cannot be achieved. In extreme case, corrupt dealings in a business can be known to the public, prompting the business to allocate substantial resources in protecting its image rather than in boosting its bottom-line. Resulting public relations costs and legal penalties and fees require enormous resources; a business will thus be forced to reroute critical resources from the main business, thus leading to inefficiency of the use of company’s personnel and finances.
Damaged business image because of bribery has enduring negative effect on a business. Corruption can significantly dent the image of the affected business as the general public, and particularly the customers get a bad picture of the business. Most companies around the world survive not necessarily because of their products and services, but because of their strong brand image. Therefore, when the image is dented through acts such as bribery, a business faces a tough task of remaining afloat. Whereas it takes time to build a good image, and accompanying trust and loyalty from customers, it is easier to destroy this image. A good image is important for any business as it ensures that it not only retains the existing customers, but also attracts potential customers. The opposite is also true; a damaged business image results to the loss of a significant percentage of existing customers, and at the same time scare away potential customers. A bad business image may also make a business to lose key partners including suppliers and providers of auxiliary services. Rebuilding a damaged image and winning back trust can take a very long time, and in some cases, erasing the damaged image can be totally impossible.
The other major way through which bribery affects business is it results to losses. Apart from the previously mentioned diversion of resources from useful purposes of implementing business strategies, the vice may result to loss of customers who start losing faith in the business, and instead preferring rival organizations. Most customers tend to sever relationship with business that have been found or even alleged to be corrupt. The implication of this is that a business will earn fewer revenues due to reduced customer numbers, as well as reduced frequency of particular customers seeking their goods and services. Also, bribery may force a business to inflate the prices of its products in order to recover or compensate for the losses that have been spent to bribe. It is very likely for a business to feel the desire to make the consumers to pay the costs of bribery, or simply the need of raising prices with the aim of covering for their illegal operations. Business competitors can take advantage of this situation to outdo the affected business, and thus resulting to a drastic decline in market share of the former. Additionally, the affected business may also face losses as they try to implement strategies that are aimed at recapturing the lost market share or reassuring partners and members of the general public.
Bribery is a practice that has direct impact on the bottom line of any business, and as such, it has a potential of impacting key persons in the organization, particularly the investors and shareholders. Reports of any form of corruption including bribery can make investors and shareholders to lose confidence, faith and trust in the business. Bribery violates the principle of good faith and integrity that investors and shareholders believe the employees of their company uphold. Transparency and integrity are among the key principles that drive investors and shareholders to put their money in a business. Therefore, when these principles are violated, they are more likely to feel that it is important to either withdraw their investments or to reduce the size of their investments, substantially. Perpetuation of acts of corruption like bribery increases the risk of investors and shareholders to accrue losses due to reduced sales, along with inappropriate use of resources among other factors that negatively impact business performance. Bribery, as a form of corruption, discourages potential and existing investors from investing their resources in a business as they fear its failure and sustainability.
In addition, bribery weakens development of a business thereby causing it to fail to achieve set goals and objectives, especially in the long-term. Most investors are often skeptical of engaging in business with organizations that have been accused of corruption or they have been found guilty of corruption. As a consequence, a business will find it difficult to find willing investors if it has a corruption history. A business will thus lack the much-needed funding to expand its operations and to engage in business development programs like innovation. This impact has a different dimension as well; bribery and other forms of corruption in a business environment results to unfair competition that can make some businesses to thrive at the expense of others. Bribery defeats due diligence as enforcement of business regulations, laws, and policies are not uniform; instead they are applied in a skewed manner with those who have paid bribes getting favors while those who have not paid are facing challenges to enjoy favorable enforcement. Absence of due diligence has the potential of stifling growth and development of a business because the business environment becomes unfavorable, unjust and unfair.
Studies have further shown that bribery and other forms of corruption do not cause huge problem to a business’ reputation and regulatory aspects, but also it has the biggest effect on the morale of employees. It has a deeper negative impact on a business’ competitive landscape considering that employees are the single-most crucial component of business performance. This implies that the extent of the damage caused to a business can be huge among those who initiated the bribery, how the vice was detected, and the manner in which the firm and the external actors responded to the bribery, particularly how they responded to the employees through actions such as legal suits. When a company bribes its way to achieve its goals, employee morale tends to drop. Being a global phenomenon, employees tend to feel or realize its impact in various ways, although at varying magnitudes and extents. They know the actual repercussions of bribery at the personal and business level. As such, some employees either find incentive to engage in bribery to achieve certain per-determined goals at individual and business levels, or feel the need to prevent bribery from transpiring.
It has been found out that among the other impacts of bribery on business including relations with regulators and business relations, employee morale is by far the more greatly affected by this vice. Employee morale is directly related to the performance of a business. High morale among employees results to higher overall satisfaction with the organization and therefore experience stronger business performance compared to businesses with lower morale. Employees tend to feel the strain of bribery on their relationships with each other and external parties, and they are affected by manipulation, intimidation, and discrimination that emanate from bribery acts can hurt employee morale even in cases where no one outside the business finds about it. Employees know each other and talk with each other about issues such as bribery. It is often difficult to contain such information within a group of people. Constant sharing of information related to bribery affects employees’ perception of core values such as integrity, transparency and accountability and this not only reduces their morale, but also compromises their work ethics.
Apart from its negative impact at the micro-level affecting that directly affects business, bribery and other forms of corruption negatively affect businesses at the macro-level. It results to lack or inadequate quality in services that affect business performance. In societies where corruption is rampant, businesses may fail to get basic services such as water, garbage collection and electricity unless they pay bribes to the concerned agencies. Also, businesses may have to incur higher costs to provide medical cover to their employees because provision of quality and cheaper health services at public facilities is affected by corruption. Such societies may be facing high prevalence of diseases due to poor hygiene and health as corruption affects quality of food supply and drinking water. These factors have adverse impact on business performance since the population will be spending more money on their health and thus having reduced disposable income to purchase goods and services from businesses.
In addition, at the macro-level, bribery and other types of corruption increase the chances of unemployment in a society. Since public money is siphoned and diverted to few individuals and entities, there is less investment in public ventures that are crucial in increasing employment rates. When the growth in employment rates is hampered, more and more people are unable to earn descent income, a situation that affects their purchasing power. Businesses are thus forced to depend on a few people with purchasing and this affects their revenues and their growth and development. High unemployment rates in a society due to corruption bring with it other negative impact such as rise in crime. The trickle-down impacts of corruption often lead to creation of black markets which affect performance of businesses that are operating legally. Besides, corruption increases the prevalence of organized crime which infiltrates numerous business levels and affects their performance. While the impact of corruption on business is widespread in developing countries, it is evident in the developed countries as well where corruption fuels criminal enterprises growth, and ultimately affects the society within which businesses operate.
Performance and success of businesses is hinged not just on local dynamics; it is influenced by national economy and international trade factors as well. A society plagued with high levels of corruption tend to receive less Foreign Direct Investments (FDI) as foreign investors are reluctant or unwilling to invest their money in an economy where they may not obtain desired investment returns. This affects local business because the country is unable to enjoy benefits of FDI such as increased money circulation and technology transfer among others. In addition, bribery slows down growth in GDP of a country because money allocated for capital expenditures such as infrastructural development aimed at spurring growth is not utilized optimally for this purpose. It also affects setting up of industries because it delays clearances of passes and projects. Delays in investments and implementation of important projects hinder economic growth thereby hampering business performance.
Laws on Corruption
In the United States, like other countries worldwide, corruption hinders development, slows down economic growth, gives openings for criminal groups like terrorists and traffickers, undermines democracy, and has the potential of destabilizing the government. It is for this reason that the government at all levels has enacted laws aimed at fighting corruption and promoting transparency and accountability. Besides, these laws share four main characteristics. The first characteristic is that their application is equal to both the givers and receivers. The second characteristic is that these laws are comprehensive to everyone. Moreover, they treat bribery as a crime that may be committed by the giver although the recipient is not influenced. Finally, these laws treat cases of bribery as felonies.
State Laws on Corruption
State governments in the United States have enacted laws to address corruption within their jurisdictions and in the American society as a whole. It should be noted that while the laws in specific states differ from one another, they are largely similar in regard to their intention of fighting corruption in all its forms, as well as eliminating, or at least reducing its consequences in the society. Also, these laws have been drafted in such a manner that they are consistent with the United States constitution. This discussion will focus on several states and the laws relating to corruption within their jurisdictions, in a bid to demonstrate how states deal with various aspects of corruption and the penalties and punishment that they administer.
In the State of Alabama, the laws consider corruption as an intentional violation of ethics code for employees and public officials. This violation may include the use of office for individual gain and soliciting, accepting, or offering things of value from entities. In particular to bribery, the Alabama state laws define it as offering, agreeing to confer, or conferring anything of value with the intention that the other party will make decision in a favorable manner. This law considers bribery as a Class C felony whose penalty is a jail sentence of between 1 and 10 years and a maximum fine of $15,000. In the State of Alaska, the same definition of bribery suffices; however, it is classified as a Class B felony that can attract a maximum penalty of 10 years and a maximum fine penalty of $100,000. In Colorado, bribery is defined in the same manner as in Alabama and Alaska, but it is classified as a class 2 misdemeanor whose penalty is between 3 and 12 months and a fine penalty of between $250 and $1,000.
The State of Georgia offers a broader definition to bribery; it defines it as an indirect or direct acceptance, agreeing to accept, or soliciting for anything of value through inducement of a belief that such a move would influence a particular performance, or failure to perform by the other party. It is considered a felony in that state whose punishment is imprisonment of maximum of 20 years and a maximum fine penalty of $5,000. The State of Illinois applies the broader definition of bribery as Georgia, but considers it as a class 2 felony with a penalty of between 3 and 7 years imprisonment and a maximum fine penalty of $25,000. The State of Kansas defines bribery as the intentional requesting, agreeing to receive or receiving, indirectly or directly, any reward, consideration, or benefit with the aim of improperly influencing a person. It considers this a severity level 7, non-person felony; apart from imposing a maximum fine penalty of $100,000 and maximum imprisonment of 34 months, the state laws impose a penalty of office forfeiture implying forever disqualification from holding a public office.
Many other states define bribery in one of the aforementioned ways; however, it is their categorization of this offence and the nature of punishment that differs. In the state of New Jersey, for example, bribery is categorized based on the amount. A bribe of $200 or less is considered as a third degree crime attracting a punishment of between 3 and 5 years imprisonment and/or a maximum fine of $15,000. However, when a bribe is over $200, the crime is categorized as a second degree with a maximum imprisonment of between 5 and ten years, and/or a fine penalty not exceeding $150,000. In the New York State, bribery is a class B felony that attracts a maximum imprisonment of 25 years or fine not more than $5,000 or double the bribery gain initially received. The varying penalties and categorizations of the offense of bribery are based on the fact that some states have specified this offense as a criminal offence and therefore they impose the penalties accordingly. It is also due to the fact that other states, in addition to ethics law, they have statutes that are in state’s criminal or penal codes.
Federal Laws on Corruption
The federal law on bribery is wider in scope compared to the state laws. The federal laws deal with corruption at national and global levels. The federal agencies implementing these laws strive to prevent corruption, and at the same time increase accountability by assisting federal agencies and other countries to tackle corruption through strengthened democratic institutions, as well as development of new support to empower citizen advocates to hold companies and government agencies accountable. These laws further seek to strengthen enforcement of law across borders by working with international partners in enhancing cooperation in across borders, creating tools of recovering assets obtained through proceeds from corruption, and through improvement of data sharing among national and international law enforcement agencies. The federal laws have been designed in such a way that it focuses on key dimensions of corruption, particularly those related to security. They deal with corruption in the security realm by exposing how corruption impacts on national and international security. It also focuses on the corruption threats to the ability of the nation to protect its citizens, defend national sovereignty and to defeat terrorists.
In particular regard to bribery, it is dealt with under the federal bribery statute. This law criminalizes the promise of bribery or the actual transfer of anything of value aimed at influencing action or inaction towards a certain matter. This statute indicates that any person found guilty of the bribery offence shall be penalized through a fine that does not exceed three times the monetary equivalent of the bribe received, or will be imprisoned for a period not exceeding 15 years, or both. Also, this statute holds that such a person may be disqualified from taking or holding any office of profit, trust or honor within the United States.
The federal laws on corruption is not limited for acts within the United States borders only, but also covers its foreign entities. Through the Foreign Corrupt Practices Act of 1977 (FCPA), it is unlawful for particular classes of entities and persons to make payments to United States foreign government officials to help in retaining or obtaining business. In particular, this act contains provisions on anti-bribery that prohibits the intentional use of any means of instrumentality of commerce between countries to corruptly further any authorization, offer, promise of payment, or actual payment of anything of value with the aim of influencing decision or action of a foreign official. This provision seeks to prevent against improper advantage being conferred to a particular person or entity to obtain or retain business.
The recent amendments to the FCPA have included anti-bribery provisions to apply to foreign persons and firms who directly or indirectly cause an act of furthering corrupt payments within the United States territory. The expanded scope of this act contains provisions that require companies that have been listed in the United States to comply with the accounting standards provisions. These provisions are designed to operate in line with the FCPA’s provisions on anti-bribery that requires companies under these provisions to: develop and maintain sufficient internal accounting controls system; and make and keep records and books that fairly and accurately reflect their transactions.
Implications of State and Federal Laws on Business
It has been established that the state and federal laws have been instrumental in reducing the business risk in the United States, as evidenced by the fact that most businesses do not consider this problem as among the major obstacles to their operations. These laws have provided US businesses with a competitive edge and substantial business opportunities over businesses from countries with rampant corruption and weak anti-corruption laws. These laws have enabled other government agencies to offer significant support to the growth and development of businesses. Since these laws relate largely to government agencies and officials, businesses face reduced risks from them. For example, corruption in the judiciary and the policy are low-risk for business; in fact, they perceive the judicial system in the country to be efficient and independent. This perception has provided investors with higher confidence in investing their resources in US businesses because of the guarantee that their investments will be protected. Similarly, it is less likely for businesses in the United States to encounter corruption with the police. Businesses have a positive perception of the reliability of the police in protecting them from crime and other security threats.
Additionally, the federal and state laws have played important role in enabling the businesses to thrive by reducing the corruption risks in the public services. The administrative requirements of obtaining business services and permits are not affected by bribery and other forms of corruption because the anti-corruption laws impose stiff penalties on those found guilty of this offence. This has made the costs for start-ups to be minimal compared to other countries. These laws have streamlined land administration thus easing business start-ups, transfers and overall performance. Corruption is not among the reported risks, particularly the foreign companies seeking to set businesses in the country. They content that obtaining construction permits takes less time. For example, in the Los Angeles it takes 20 days and in New York it takes 12 days. The same positive impact is reported in the tax administration. The state and federal ant-corruption laws have made the risk on tax administration in the United States to be moderate. However, there is still huge challenge with the complex corporate tax laws which most businesses still consider to be among the most challenging factors in doing business in the United States.
While these laws have proved to be effective in reducing the business risk and significantly preventing rampant corruption in the country, they present different forms of challenges to the business. In particular, businesses have to deal with a relatively complex bureaucracy because of the decentralized nature and structure, as well as business activities governed by the municipal, state and federal laws. The extensive and comprehensive anti-corruption laws tend to increase the costs of doing business in the country. This challenge is further compounded by the tough requirements related to internal controls and compliance. All forms of corruption including bribery, money laundering, extortion, and abuse of office are prohibited by these laws. Therefore, businesses should be aware that the United States government effectively and actively enforces established regulations and laws on anti-corruption, including the FCPA. As earlier indicated, FCPA offers a narrow exception for bribery payments. The combined application of these laws is crucial in continued and enhanced support of business performance and success in the United States.
It is evident from the above discussion that corruption is among the biggest enemies of business and can lead to far-reaching effects including complete closure of businesses. As has been noted, corruption is widespread around the world with 68 percent of countries having serious problem of corruption, and no single country in the world can claim to be totally corruption-free. The most common forms of corruption reported in business are money laundering, fraud, and bribery. These forms of corruption cut across all business sectors from technology, agriculture, retail, insurance, and finance sectors among many others. Corruption is a quantitative, unfortunate fact that runs very rampant worldwide. It is estimated that over one in every four people have engaged in one form of corruption every year, and it is also estimated that over $1 trillion is offered in corruption annually. Businesses are affected largely by acts of corruption such as bribery. The effects include: increased inefficiency, reduced shareholders and investors’ confidence and trust, loss of resources, damaged business image, and weakened business development among other negative effects.
It is against the huge negative effects of bribery and other forms of corruption that the federal and state governments have enacted anti-corruption laws aimed at reducing or even eliminate the business risks associated with this vice. It is evident that these laws have proved to be effective in reducing the business risk and significantly preventing rampant corruption in the country. These laws have provided US businesses with a competitive edge and substantial business opportunities over businesses from countries with rampant corruption and weak anti-corruption laws. However, they have presented different forms of challenges to the business. In particular, businesses have to deal with a relatively complex bureaucracy because of the decentralized nature and structure, as well as business activities governed by the municipal, state and federal laws.
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