Daniel Fordice and Matthew Marks MIE 306 Team Paper
Introduction:
Dilemma: If it would be profitable for an American business to operate in
Russia, but it must first pay a bribe to operate there, should the American business
pay the bribe?
This paper will focus on two different for-profit businesses that have
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confronted this dilemma, and how they proceeded
reviewed is Daimler
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The first company that shall be
The second company that shall be reviewed is IKEA
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Section 1: Description of the two businesses:
Daimler: Corporate Headquarters:
Daimler offers financial services, but the majority of its operations involve
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the production of luxury cars According to their company description on their
website, they are “the world’s biggest manufacturer of commercial vehicles with a
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global reach"
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Daimler sold 1 6 million vehicles in 2009, with a workforce of
256,000 employees
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In 2009, Daimler’s financial statements recorded revenues of €78 9 billion,
nearly half of which coming from sales in Western Europe, then NAFTA countries,
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and Asia
Sales markets in order of most to least being in Germany, USA, Italy,
UK, China, France, Spain, Canada, Japan, Belgium, South Africa, and Australia
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Daimler’s divisional distribution of sales are as follows: 51% from Mercedes-Benz
Cars, 21% from Daimler Trucks, 15% from Daimler Financial Services, 8% from
Mercedes-Benz vans, and 5% from Daimler Buses
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Most of Daimler’s suppliers are German-based companies, with the
occasional Japanese company; however they produce not only in Germany, but also
in the USA, South Africa, Brazil and France
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Daimler has equity interests of 22 5% in the European Aeronautics Defense
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and Space Company (EADS) and 28 4% in Tognum AG (one of the world’s leading
suppliers of engines, propulsion systems, and power solutions)
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IKEA: Corporate Headquarters: Owned by Inter IKEA Systems B V located in
Delft, The Netherlands (originating out of Stockholm, Sweden)
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According to the IKEA Group Facts & figures brochure, as of August 2009,
IKEA Group had 267 stores (not including some 34 stores owned and run by
franchisees outside of the IKEA Group) which all offer almost the same 9,500
different pieces of home furnishing, including cooking and eating, all types of
household storage, accessories, desks, chairs, sofas, tables, decorations, beds,
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textiles and flooring, lighting, and even TV solutions IKEA employs ~123,000
people
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IKEA’s stores are most prominently located in Europe as 192 of their 267 locations
are there
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They have 48 stores in the USA, 12 in Japan, 3 in Australia, and until
recently 12 stores in Russia
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IKEA also sells their products through a catalogue
total of 198 million of their catalogues were published
printed in 27 languages, and 56 editions
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A
The IKEA catalogue was
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IKEA’s sales for 2009 totaled €21 5 billion, 80% of which came from Europe:
Top 5 Sales Countries: Germany-16%, USA-11%, France-10%, UK-7%, Italy-7%
IKEA has 1,220 suppliers in 55 countries, and 31 trading service offices in 26
countries that allows them to be close to their 1,220 suppliers, so that they might
monitor production, test new ideas, negotiate prices and check quality while
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keeping an eye on social and working conditions IKEA also has 28 distribution
centers and 11 customer distribution centers in 16 countries
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Top 5 Purchasing Countries: China–20%, Poland–18%, Italy–8%, Germany–6%,
Sweden–5%
The Swedwood Group is a subsidiary company of IKEA on the supply side of
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their operations
Swedwood is the IKEA industrial group who produces wood-based
furniture and wooden components in 46 production units in 10 countries
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Section 2: Organizational culture encouraging ethical conduct and
commitment to compliance with the law:
Daimler’s organizational ethos has changed because they were caught bribing
officials in 22 different countries
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According to Daimler’s Code of Ethics,
“Each Senior Official should:
- Not seek competitive advantage through unlawful or unethical business
practices
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- Comply with the requirements of applicable accounting and auditing
standards and company policies in the maintenance of high standards of
accuracy and completeness in the company’s financial records
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They should also avoid:
- The receipt of any money, non-nominal gifts or excessive entertainment
from any company with which the company or its subsidiaries has current or
perspective business dealings
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Embedded in theses excerpts from Daimler’s Code of Conduct are the ethical
principles of Economic Efficiency, Government Requirements, Self-Interests, and
Personal Virtues
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According to IKEA’s 2008 Sustainability report, “IKEA is committed to the ten
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principles of the UN Global Compact As a signatory to the initiative we are
communicating how our work in the areas of human rights, labor standards,
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environment and anti-corruption is progressing ” It goes on to quote the tenth
principle, “Businesses should work against corruption in all its forms, including
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extortion and bribery ”
IWAY (the IKEA code of conduct, first introduced in 2000) specifies the
requirements that IKEA places on suppliers of products and services and details
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what they can expect in return from IKEA IKEA suppliers are responsible for
communicating the content of the IKEA code of conduct to their employees and
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sub-suppliers
However, this was not clearly communicated to their own employees as in
2009, IKEA became aware of a bribery scandal in Russia, where their stores were
forced to bribe a power generator company so that they could have power for their
grand openings of new stores
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business they had in Russia
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IKEA’s reaction was to withdrawal from any and all
Next they added this small insert into their code of
conduct regarding bribery, “IKEA does not accept corruption in any form, whether
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direct or indirect, and works proactively to prevent it We clarify our position to
suppliers through a vendor letter, signed by the supplier and an IKEA
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representative We have a corruption policy, Rules of Prevention of Corruption, and
an investigation policy, which describes how co-workers should proceed if they
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suspect fraud, corruption, theft and other illegal behavior Firm policies and
continuous training together with a strong corporate culture, helps to minimize the
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risk of illegal behavior in the IKEA organization ”
IKEA’s president and CEO, Mikael Ohlsson, said, “We are conscious of our impact on
people and the environment, so we feel duty bound to act responsibly in all that we
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do every day The need to economize on resources conforms well to the IKEA
corporate culture and our constant quest to reduce costs
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...
Embedded in these excerpts from IKEA’s Code of Conduct (a k a IWAY) are
the ethical principles of Economic Efficiency, Government Requirements, Self-
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Interests, Integrity, and Accountability
Section 3: Advantages for each business in this dilemma:
The advantages of staying away from corrupt practices and bribery in
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business are numerous
By implementing anti-corruption and anti-bribery codes in
the ethical governances of companies one would create a more conservative
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approach towards profit making
One of the advantages to having these codes is
the strength in stakeholders trust especially the large investors
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If an investor
cannot trust a company and trust that they are abiding by the law, why would an
investor take that risk? Also, according to the OECD corruption destroys confidence
in markets leading to potential dips in the economy
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Also by avoiding bribery
companies are staying away from get rich quick strategies, therefore supporting
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sustainable growth, the best way to build a company
Another advantage of
staying away from corrupt practices is the ability to avoid having to cover up
accounting fraud and protecting itself from the SEC and potential fines
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Despite
losing potential profit from corrupt practices, in the end a company will not have to
worry about suffering large fines
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Daimler Benz suffered the consequences of
having corrupt practices but learned from their mistakes
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Investors’ trust has only
increased since Benz put a stop to their corrupt practices and their profits have
soared not only because of their engineering but also because of the increased
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integrity
With the increased integrity Daimler Benz will be able to move forward
with proud ethics governance and will be able to increase their profit in the long run
by being conservative with their decisions
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IKEA was in the same situation where
they were not teaching their code of conduct or monitoring their employees’
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actions
This too resulted in them suffering a large amount of financial loses
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However IKEA’s incident in Russia helped them to fix and mend their code of
conduct to specify the proper and improper actions so that they should not happen
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again
This, like with Daimler, helped to improve stakeholder trust
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Section 4: Disadvantages of each business in this dilemma:
For Daimler, they no longer have connections with the government anymore,
thus losing out on possible profitable contracts
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For IKEA, they are no longer doing any business in Russia which is a lose of
market share in a decently large market
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Also their evolved ethos might prevent
them from continuing business with certain suppliers of theirs, causing them to
further lose more capital in having to find and negotiate contracts with new
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suppliers
This lose of capital might be misunderstood by investors who look
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purely at profit
Section 5: Practical recommendations for revising the excerpts:
It is our practical recommendations that both companies’ anti-corruption
sections of their code of ethics be more defined and specific, as they both seem to
“beat around the bush”, as in are lacking a clear definition of corrupt practices;
specifically bribery, such as not to create a vague and un-transparent standard for
which critical and non-critical stakeholders can come to trust these organizations
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Required Citations:
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http://www daimler com/company
http://www daimler com/dccom/0-5-1259480-1-1224418-1-0-0-0-0-0-36-7145-0-
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0-0-0-0-0-0 html
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de_of_Ethics.pdf
http://www daimler com/Projects/c2c/channel/documents/1069927_20071217_Co
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http://www ikea com/ms/en_US/about_ikea/facts_and_figures/index html
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http://www ikea com/ms/en_US/about_ikea/pdf/sustainability_Report_2009 pdf