Corrupt Business Practices An Analysis Of Managerial And Legal Dimensions

Corrupt Business Practices An Analysis Of Managerial And Legal Dimensions

Corruption can be defined as misuse of power of official position for private benefit or advantage. It can take the form of money, special treatment, promotion, and even protection. It can be said that the crux of the legal definition of corruption is taking or giving of money or money’s worth for performance or non performance of a bureaucratic duty, governmental duty or other duties. Corruption may include bribery, extortion and nepotism. It may be Lubrications which involves a relatively small sum of cash as gift, or a service made to a low ranking official. Subornation, whereas involves large sums of money designed to entice an official to commit an illegal act.

Strict enforcement of law by the local enforcement agencies does not deter the foreign corporations from paying to locals to obtain the favour done

Corruption In Private Sector

Corruption and other form of white-collar offences such as cheating, extortions and criminal breach of trust, which occurs in private sectors including in multinationals companies, are done in a very secretive manner. It is clear that even with a strict enforcement of law by the local enforcement agencies it does not deter the foreign corporations from paying to locals to obtain the favor done.

The reasons why corrupt practices are being carried out or exist in private sectors, including large corporations, are :-

Tax Deductibility  In some countries such as the Federal Republic of Germany, if the bribe changes hands abroad and if it is declared in the Income Tax Return, it is still tax deductible.

Companies With Uncom- petitive Products, and which are ailing and sick and which have uncompetitive products and services. They indulge in corrupt practices for the sake of survival.

Local Customs In countries where corruption is part and parcel of the way of life and where bribery payments are customary, it would be very difficult for a company to escape such practices.

Expedite Transactions Since without bribing, they would not be able to get things done faster. And any delay means cost.

The effect of Corruption on Corporate Sectors are –

Long Term Business Risks The payee cannot complain if they do not get what they have paid for. The first payment would lead to continuous demand and  if they try to break of a corrupt relationship, they may face a variety of threats including violence.

Corruption Distorts Market In cases of bidding for contract, the least cost firm should win the bid, but other firm may pay the big bribe to get the contract.,

Corruption Can Have A Direct Influence On Business Success Corruption leads to wastage of resources. It increases cost of production of a product.

Corruption Leads To Monopolies Corruption is generally detrimental to the free operation of the market forces and the cost of corruption would be ultimately passed  on to the customers at large.

Legislation and Regulations In Fighting Business Corruption

Most of the countries in the world have anti-corruption legislation which state that it is an offence to solicit or accept bribes for a public servant or any other person, including companies, but the only country which enacted a Foreign Corrupt Practices Act (FCPA) is the United States of America. The FCPA applies to all Americans and to their multinational corporations.  US corporation and its employees may be held accountable under this act . In addition, U.S. corporations and their employees may be accountable where the 3rd party makes illegal payments on their behalf. Even though the FCPA does create some competitive disadvantage to US firms who are bidding on projects or contracts abroad versus their rivals, who do not face such legislation, as in Japan and Western Europe.

Changing Corporate Policies in India

The system being corrupt is a huge point and it’s certainly no state secret that it’s an even bigger problem in India. It’s a field in which this country has consistently scored high in every Corruption Index in the past decade. The buzz-phrase of Corporate Governance- preaching good citizenship, self-discipline and corporate honesty – is one of the most sorely needed exercises in India.

Recently, Indian companies have realized the need for ethical behavior and an end to corrupt government practices. In1995, the federation of Indian Chambers of Commerce and Industry issued a ten point declaration of “Norms and Business Ethics” for Indian companies to follow. The following summarizes the intent of this declaration: –

Business must maintain the highest standards of behavior for the benefit of industry,  employees, customers, shareholders, and society.

Goods and services must conform to the commitment promised to customers.

Businesses must be realistic and truthful in stating claims.

Customers must be given the best possible services and treated with respect and Fairness.

Businesses must understand and respect the needs, concerns, and welfare of the community and society. They should use knowledge and experience to increase the quality of life and business endeavors must combine the qualities of private excellence for the public good.

The purpose of this document was to promote high standards of business practices through self regulation.

It was an important step in the development of Indian business because it was the first time that the subject of ethical behavior was linked to a mission statement and the core values of companies .An additional change in the way Indians are doing business is the structure of the board of directors, especially in privately run companies. There is an awareness that to run a company effectively, outside members are needed for impartiality. At a minimum companies are striving for a 30 % outsider quota. One prominent family run company, the Eicher Group, has recently restructured its board. The founder and CEO named a professional manager to succeed him as CEO rather than promoting one of his own children. This goes away from the traditional family/clan value system where jobs are given to family members, regardless of their ability.

Changing the Global Intellectual Climate on Corruption

The purpose of this document was to promote high standards of business practices through self regulation Corruption is a global problem that requires international solutions. Bribery is common in international business transactions involving developing country governments, including international government procurement to be successful efforts to reduce this kind of corruption must deal at the source, in developed as well as developing countries. Work along these lines is being carried out by international, particularly regional, organizations, and by international business groups. The World Bank is collaborating with the OECD, the European Union, the United Nations, the Council of  Europe, as well as the International Chamber of Commerce, to curb transnational bribery and money laundering. Coordination with the IMF in such areas as expenditure policy and management, tax policy and Administration, banking  reform  , trade policy, government financial management, and measures to increase transparency in government operations is particularly important.

Corruption is a serious evil and it must be controlled The fight against corruption should be an integrated approach combining legal, ethical, moral, and cultural and other good business practices. The efforts should be made not only at the national level but also at the international level. The rules, laws and other standards should be honestly and effectively implemented. One of the main planks of our mission should be “to be a good corporate citizen”.

– Dr. Inder Jeet Dagar

Comment ( 1 )
  1. Raghav Dutta, Lawyer
    January 14, 2016 at 5:47 pm

    After gone through this article i must say Dr. Inderjeet Dagar has well written. In my view also -corruption is the most biggest evil that has taken place in our our society and systems. Its like a virus to the computer system (country’s system) which damages the whole working mechanism.
    Maybe we can’t prevent it to happen but take some steps to control it.

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