The Effects of Bribery and Corruption on Multinational Corporations
Seminar in Multicultural Management (DDBA-8524)
October 26, 2013
Corruption can be defined as any abuse of a position of trust in order to gain an undue advantage. This involves the conduct of personalities on both sides, the person who abuses his position of trust as well as that of the person who seeks to gain an undue advantage by this abuse. Corruption does not stop at national borders, for multinational organizations also continuously bribed government officials for major business awards and contracts.
To stop these and other forms of cross-border corruption, there should be global solutions to this plight. In addition for any country to succeed in fighting corruption, it has to cooperate and coordinate with others. To this end, governments have to adopt global and regional anti-corruption conventions (UNCAC, 2013). The importance of corruption and bribery on the host countries and the multinational organizations cannot be over emphasized if these organizations want to increase their profits, expand, and be sustainable into the future.
How does the effects of bribery and corruption downgrade the progress, expansion and the sustainability of the multinational organizations?
Analysis of the state of corruption and bribery on multicultural organizations
Corruption impaired economies, weakened democracy and fuelled public distrust particularly where the rule of law was fragile and institutions were weak (Moon, 2012). Corruption has an adverse effect on distorting markets, driving up costs for companies and ultimately for consumers whereas prosperous societies are good for business. Multinational corporations have become richer and powerful due to illegal bribery and kickbacks to government officials to exploit new markets, illegally pollute countries and obtain large contracts at exorbitant costs. Many of these powerful multinational corporations are run by corporate greed and have exploited peoples’ resources, populations, businesses, and entire countries to maximize profits (Coomer, 2013).
State and provide background information for the effects of corruption and bribery on multinational organizations
Corruption in the public sector erodes tax compliance and leads to higher tax evasions. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents (Meschi, 2009). Generally, corruption discourages private investment, suggesting that corruption increases the costs of doing business while raising uncertainty over expected returns to capital.
This result supported the view that corruption hampers growth and call for institutional reforms to improve the quality of governance as a prerequisite for achieving investment-led growth. Corruption may also affect growth through public investment. The effect may be due to adverse election of public investment projects or bias in allocation of public finds towards large and capital‐intensive projects. Argandoña (2005) argued that making use of facilitating payments was widespread form of corruption. These consisted of small payments or gifts made to a public official or an employee of a private company in lure to obtain a favor, such as expediting an administrative process; obtaining a permit, license or service; or avoiding and the use of power.
Current theories and areas of debate for my topic
Corruption undermines the rule of law and democracy; it leads to the wasting of public funds; it distorts competition; it hampers trade and inhibits investments. In support of this I have a general view that corruption is a major evil and it destroys the fabric of economic developments of some countries. Some other school of thought also argued that corruption was not necessary an evil. However steps and efforts are being made to combat corruption internationally on all fronts.
The United Nations Convention against Corruption is the first and only global instrument designed to prevent and combat corruption (Web, 2005). Many countries have signed the United Nations Convention against corruption and formally adopted anti- corruption policies, strategies and laws. Anti-corruption strategy has moved to the center stage of corporate planning and strategy as links between corruption, poverty, crime, and the lack of sustainable development have led to a worldwide consensus criminalizing bribery in international transactions. This has resulted in a regulatory climate where multinational corporations (MNC’s) have to ensure that company activities are in line with minimum standards of compliance (Makinwa, 2011). Individual capacity-building efforts with some institutions or sectors will have caused some improvements as well.
Argandoña (2005) indicated that public opinion on small payment and gifts tends to condone with such payments because they are assumed to be unavoidable, were excused on the grounds of low wages, lack of professionalism among public officials and disorganization in government offices. Many companies that took the fight against grand corruption very seriously were inclined to overlook these transgressions, which were seen as the grease that made the wheels of the bureaucratic machine to turn more smoothly. My multicultural seminar topic which is the effects of bribery and corruption on multinational organizations will especially affect governments businesses in the third world countries and the multicultural organizations relocating to these countries.
Specific Areas for Future Research into multinational organizations’ corruption and bribery
Meschi (2009) analyzed the relationship between government corruption and the changes in the equity stake of foreign partners in international joint ventures (IJVs) formed with local firms in emerging Asian economies. The empirical results showed some attitudes of foreign firms toward government corruption in emerging economies. The first attitude on the government corruption was significantly related to the likelihood of foreign partners terminating the IJV. Meschi (2009) argued that there was evidences that the countries experience of foreign partners moderated the relationship between government corruption and the changes in the equity stake of foreign partners in IJVs in emerging Asian economies.
McKinney & Moore (2008) supportively analyzed the attitudes of United States business professionals toward the issue of international bribery and considered whether or not having a written code of ethics has an effect on these attitudes. The results from the study revealed that the respondents from the firms having a written code of ethics were significantly less likely to find international bribery acceptable. In addition, firms that generated revenues from international operations were more likely to have a written code of ethics than firms which did not generate revenues from international operations. Organizations will then have the choice of being global players meeting all the risks and also have the ability to conduct business on a larger scope internationally to provide much needed products to consumers. From the above arguments, it would be beneficial to further research into the relationships of multinational organizations’ and their local counterparts stand on corruption and bribery.
Potential Impact of corruption and bribery on multinational organizations’ for the next five years
Heymans & Lipietz (2011) revealed some negative impacts on corruption and bribery as distorting public spending, discouraging investment and growth, undermining efficiency, the quality of governance and placed participants at risk of castigation by the international Community. The investigative or forensic accounting can positively play a role in the public sector honesty and accountability. Kasum (2009) postulated that the financial crimes in developing economies associated with fraud and corruption has negatively affected the lives of citizens of third world countries. Some other authors’ have also recommended the strengthening of forensic accounting institutions and the utilization of their services in public sector of developing national economies.
Targeted sanctions can also be used or directed at individuals, companies and organizations. Also far-fetched trade restriction in key commodities can compel entities to change from corrupted and bribery behaviors. Furthermore, the following instruments can be applied; financial sanctions (freezing of funds and other financial assets, ban on transactions, investment restrictions), trade and travel restrictions. However, comprehensive economic sanctions can have an indiscriminate impact on a country and severely impact the civilian populations in the third countries.
Blackburn, Bose & Haque (2011) presented a dynamic general equilibrium analysis of public sector corruption and economic growth. They indicated that in an economy with government intervention and capital accumulation, state-appointed bureaucrats were responsible for procuring public goods, which contributed to productive efficiency. They also suggested that corruption arose because of an opportunity for the bureaucrats to appropriate public funds by misinforming the government about the cost and quality of public goods provision. I have contended that good incentives for the multinational organizations’ management and the local government bureaucrats can dissuade them from corruptions and bribes. In conclusion, introducing investigative accounting principles and written code of conducts into the government machineries and the multinational organizations will help to reduce corruptions and bribery to some extent.
Argandoña, A. (2005). Corruption and companies: The use of facilitating payments.
Journal of Business Ethics, 60, (3), 251-264. doi: 10.1007/s10551-005-0133-4
Blackburn K. Bose, N. & Haque, M. E. (2011). Public expenditures, bureaucratic corruption and economic development. The Manchester School, 79: 405–428. doi: 10.1111/j.1467 9957.2009.02168. X
Coomer, J. S. (2013). Multinational corporation illegal kickbacks and international bribes can be the basis of SEC bounty actions. Retrieved from http://www.federalgovernmentcontractorfraud.com/multinationalcorporationillegalactlawsuits.htm.
Heymans, C. & Lipietz, B. (2011). Corruption and development some perspectives. Economic Reforms, 40, Jul-2011. Retrieved from www. http://hdl.handle.net/123456789/31621
Kasum, A. S. (2009). The relevance of forensic accounting to financial crimes in private and public sectors of third world economies: A study from Nigeria. Retrieved from http://scholar.google.com/scholar?start=30&q=malpractices+and+corruption+in+international+financing&hl=en&as_sdt=0,5
McKinney, J. A. & Moore, C. W. (2008). International bribery: Does a written code of ethics make a difference in perceptions of business professionals. Journal of Business Ethics, 79, (1-2), 103-111. doi: 10.1007/s10551-007-9395-3
Meschi, P. (2009). Government corruption and foreign stakes in international joint ventures in emerging economies. Asia Pacific Journal of Management (impact factor: 3.06); 26(2):241-261. doi: 10.1007/s10490-007-9067-y
UNCAC (2013). Retrieved from
Webb, P. (2005). The United Nations Convention against Corruption: Global Achievement or Missed Opportunities. Journal of International Economic Law, 8(1), 191–229. doi:10.1093/jielaw/jgi009
- Quote paper
- Franklin Atadja (Author), 2013, The Effects of Bribery and Corruption on Multinational Corporations, Munich, GRIN Verlag, https://www.grin.com/document/340648