978-0077862213 Chapter 1 Case Solution Part 10

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Case 1-10

Telecommunications, Inc.

Telecommunications, Inc., is a U.S. company, a global leader in information technology, and it specializes

in building data network systems. The company is a major player in the industry, although it is no match for

companies like Cisco Systems. Recently, however, it has been more successful in securing contracts to

build and support data network systems outside the United States. In one recent competitive bidding

situation with companies from two other countries, the Latin American country of Bolumbia awarded

Telecommunications a multimillion-dollar contract to develop a network for the corporate community. The

job went so well that Telecommunications believes it will have a leg up on other companies in bidding for

future contracts.

Telecommunications was the prime contractor on that job. It was responsible for the selection of

subcontractors to perform the work that Telecommunications did not want to do, or when the company

believed it was advantageous to use a local contractor. According to the company’s contract with Bolumbia,

only Latin American companies could be selected for subcontract work. In a recent competitive bidding

selection process, Bolumbia National Communications (BNC), S.A.1 was chosen to assist in infrastructure

connectivity. BNC wasn’t as well established as other companies such as Telefonica, the Spanish

multinational company that operates throughout the Spanish- and Portuguese-speaking world, but it had

submitted a bid that met all the specifications of the job including some that were unusual requests.

Telefonica did not include these items in its subcontractor bid.

Ed Keller is employed as an engineer for Telecommunications, Inc. Keller recently graduated with a

master’s degree in engineering and joined the company six months ago. Keller had a 3.92 grade point

average and could have worked for a variety of engineering firms. He chose Telecommunications because

of the opportunity it afforded to travel around the world and as a result of its reputation for quality service

and high moral standards.

During lunch at the office one day, Keller was talking to several of the more senior members of the

engineering staff of Telecommunications, who told him about their recent trip to Bolumbia. They visited

1S.A., Sociedad Anonima, is the designation for a Spanish company.

four cities and a resort in one week, and all their expenses were paid for by BNC. Keller knew that BNC

had just completed its work on the contract for infrastructure connectivity. Out of curiosity Keller

questioned the engineering staff about the propriety of accepting an all-expenses-paid trip from a major

subcontractor. Keller was told that it was common practice for Latin American companies to make gestures

of gratitude, such as free travel and entertainment, in certain situations. Keller is told by one of the senior

engineers that the culture in Bolumbia is one where the rules are not necessarily followed. Moreover,

“There’s nothing wrong with accepting such gratuities. After all, the offer of free travel was made after the

decision to accept the bid of BNC and the completion of the job. We were not responsible for making the

selection decision. All we did was to establish the engineering specifications for the job.”

Keller viewed this as an opportunity to learn more about the bidding process so he approached Sam

Jennings, the head of the internal audit department of Telecommunications. Keller grew up with Jennings’s

son and Sam Jennings has been a close friend of the Keller family for many years.

Keller asked Jennings to have lunch with him one day. Jennings was curious about the request since they

hadn’t had lunch during the six months that Keller worked for Telecommunications. Keller said he had

some questions about reporting expenses on trips that he might be assigned to in the future. Since it was a

work-related request and their families go back a long time, Jennings cleared his calendar and agreed to

have lunch with Keller.

During the lunch, Keller raised the issue of whether there was a conflict of interest when members of the

senior engineering staff, such as those who worked on developing specifications for the BNC job, accept

free travel and entertainment from a subcontractor. At first, Jennings was furious because Keller had misled

him about the purpose of the lunch, but he gave Keller the benefit of the doubt and proceeded to answer the

question.

Jennings informed Keller that the relationship between the engineers in question and BNC, and whether

there was any inappropriate influence one way or the other, had been examined because of the company’s

concern about a possible violation of the Foreign Corrupt Practices Act (FCPA). Jennings went on to

explain that the act prohibits U.S. multinationals or their agents from making payments that improperly

influence government officials in another country, or their representatives, in the normal course of carrying

out their responsibilities. Jennings told Keller that no evidence existed that the awarding of the contract was

a prepayment for the promise of later free travel and entertainment, as Keller had expected. Moreover,

explained Jennings, the decision to accept the BNC bid was made by Richard Kimble, the engineering

division manager, and Bob Gerard, the vice president for engineering, and neither of them received any free

travel or lodging. The fact was, according to Jennings, the rejected bids, while lower than BNC’s, were

inadequate and did not meet the specifications of the contract. Only BNC’s proposal could do that.

Keller felt better about the situation after discussing it with Jennings. Still, he wondered about the values

of a company that condones accepting free travel and entertainment from a subcontractor, as well as the

value system of the engineers, who should be beyond reproach in carrying out their responsibilities.

NOTES

Ethical Issues

An important issue in this case is whether the engineers’ acceptance of all-expense-paid

trips affected their judgment in developing the engineering specifications for the job. One

of the senior engineers, Mike Stone, states that “the offer of free travel was made after the

decision to accept the bid of BNC and the completion of the job.” The engineers used

poor judgment in this case. If the offer of free travel innocently occurred after the

selection process, then the engineers should have at least reported it to their immediate

supervisor and sought advice on handling the matter.

Questions

1. An important issue in conducting business overseas is whether a company should follow

their home country’s ethical standards or those of the host country. The ancient world

adage “When in Rome, do as the Romans do” is quite instructive on this matter. The

argument in favor of behaving according to host country socially accepted morals shows

respect both to the citizens and the culture of the hosting country in which the business

is conducting affairs. Evaluate these statements and the implications for conducting

business outside’s one’s home country from an ethical relativistic point of view.

A company should determine the values for operations, no matter which country in which it is doing

business. Using deontology, if a value meets the universal criteria, then it should be a value no matter what

2. Some research into the effects of cultural variables on the application of ethical standards

in a given society have shown that people in individualistic cultures tend to be more

pervasive in applying their ethical standards to all, while people in collectivistic cultures

tend to be more particularistic, applying differential ethical value standards to

members of their in-groups and out-groups. We might conclude based on this research

that people from different nations have distinct conceptions of ethical and unethical

behavior. Assume the scores on Hofstede’s scale for Individualism in Bolumbia is 13

while in the U.S. it is 91; the score for Uncertainty Avoidance is 80 and 46, respectively.

How might these cultural differences influence your judgment whether it is acceptable

for the engineers to have accepted the gratuities?

The Bolumbia’s Hofstede’s score for Uncertainty Avoidance indicates that the culture tends to have strict

rules and regulations about what can and cannot be done by multinational companies. The score for

The U.S. scores on Individualism and Uncertainty Avoidance indicate a culture that has more tolerance for

a variety of opinions, less rules and regulations, and tend to treat all groups (both in- and out-groups)

3. Assume that the engineers of Telecommunications did influence the decision-making

process by establishing engineering specifications that only BNC could meet. The

engineers received free travel and lodging from BNC but only after the job was

completed. Is there anything wrong with this picture? Consider the ethical values of

objectivity and integrity in answering the question.

Receiving gifts and influence could add extra cost to owners and customers; is unfair to competitors; and

causes possible reputation damage. The giving and receiving of gifts and influence is deceitful to both

The actions of the engineers reflect their personal values and not universal ethical values such as honesty,

fairness, and respect for the rights of others. By emphasizing self-interest and personal values such as