Executive summary.
The article discusses the most efficient ways to enhance ethics in cooperates within the United States of America. Good business are built and sustained by the reputation they have to the outsiders who include the shareholders, bondholders, the government, credit suppliers and the clients. The reputation the company has to the insider who include the employees both at the lowest, middle and top calibers .the article have discussed the causes of collapsing of the business ethics and what can be done to remedy this situation.
Introduction.
Today the world is being regarded as a global village and from this claim many business have decide to go global in a bid to expand their customer base as well as spread their influence far and wide. This has yield a lot of benefits to both the parent country and also the nations such businesses have extended their business. However this has led to a compromise of many business ethics which if left unsolved may lead to a total collapse of the way business are being operated in America and in the world.
This article have discussed extensively the issue of outside payments by many American cooperates with a bid to preserve their interest both locally and regionally. The topic of outside payment has greatly tainted the reputation of many businesses and thus calling for a rectification before the situation becomes untamable.
Understanding outside payment
Outside payment refers to the act of a business organization to transferring a significant amount of money or other asset of value to another party located else where so as to achieve certain benefits of higher value. Many organization have done this in disguise to avoid portraying it as form of bribe, they do so by declaring it as form of Aid or grants to another party as show of corporate responsibility. Increasing competition with competing interests have cost many businesses a lot as they have channeled huge amounts of cash flow where no returns are received eventually putting businesses in an awkward state of financial risk.
Causes of outside payments
There exists a number of drivers that steered many corporate to adopt this strategy, the drivers are:
- Retention of businesses in areas where their branches have persistently performed poorly.
As said earlier many cooperates are going global with a view to expand their market base with a view to full fill their dream of growing profits, however many corporate have found themselves in the trap of establishing branches in areas where their performance is very dismal. The parent companies instead of closing down such enterprises they decide to channel funds to such branches in disguise that such funds are intended for some fiscal assistance such as expansion of the businesses territories which is line with the growth agenda of the company as well as realization of the countries on increasing its foreign direct
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investments which will earn the country huge cash flows which can be used for developments projects in the home country or state.
- Political influence
Many states and the country have many a times liaised with a few of the huge corporation to extended the political influence to the regions of the world in order to have a stake in the running of the affairs of the country. This has been done by funding political campaigns of many candidates in the foreign countries in order to preserve certain interests in the incoming governments such as being considered for various development contracts and other related tenders.
Many corporations have channeled huge cash flows to stop entry of potential competitors in the market which would reduce its market share and affect its profits adversely. This is not in line with the spirit of increased investment in the country and in the constituent states. This restricts the creation of many employment opportunities as well as retarding the expansion of the sources of revenue to the government inform of tax.
- Tax evasion.
In a bid to reduce their tax liability many corporations have adopted the strategy of overstating their expenses which is balance with the cash which is transferred out in order to evade a significant proportion of tax on the cash transferred. The income becomes less and the tax liable is reduced.
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- Hedging tactic
Not at all times do such cooperation will make profits and therefore many corporations opt to hold back a significant share of their income in foreign accounts in anticipation of a down fall in their profitability .should a time come it makes little profits it will inflate the revenues by a significant amount of cash that can be transferred from their foreign accounts to reflects a false profit. The top management s does this in order to avoid being questioned of their managerial capability and thus they can retain their positions even though their performance remains wanting.
- Capital gains
Lots managers have adopted the strategy of making outside cash transfers in order to get some capital gains on exchange of the currency in order to generate some extra revenue to top up on the income of the corporation they manage. This is illegal as it’s is not an allowed business in the articles of association and memorandum of the company.
The above factors amount to business vices which corrode the ethics of business, this crisis have called for an overhaul of how businesses should be operated in this land.
Regardless of foreign invest policy remaining prime objective of the country, the opportunity have been abused by many corporations causing a melt down of the business ethics. This has necessitated the formulation of a policy to curb this menace that is threatening the business sector of the country.
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Effects of such collapsed business ethics.
Huge cash outflows from the economy into non yielding activities not only puts the local businesses at risk but also worsens the rate of exchange of the local currency to other world currencies. Furthermore it reduces the amount of cash available locally as much of it is taken to foreign countries; such shortages may necessitate the Federal Reserve to print more money causing an increase in the expenditures of the government due to unworthy transaction happening in the business sectors.
Such transfers which aim at extending political influence else where have worsened the diplomatic relations with citizens of those countries as they feel that this great country has infringed on their democratic rights by dictating on the cause to follow with regard to their political governance.
Cash outflows from the nation that intended to restrict the entry in the market by anew competitor in order to retain monopoly powers are far much against the spirit of increased investment and employment, furthermore fair competitions ensures that customers needs such as high quality products and services are prioritized at the production level, it also enhances efficiency of management.
Cash transfers which aim at inflating the value of the company as well as profits are against the spirit of true and fair reflection of the business, furthermore where shareholders become aware of this they will easily lose confident with the company and may end up disposing their stocks which would send the company stocks to a trading crisis, the same applies to debt financiers to might abandon their funding role putting the business into financial risk.
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Finally poor management which is hidden behind the cash transfer which are used to cover up loses may eventually lead to collapsing of the business entity before their trick is known.
Alternative policy to prevent this unethical business operation.
As Bill's true north principle argues, “Great global organizations can be built only from a solid ethical foundation.” This cartels need to be stopped with a solid policy which will not necessary substitute the foreign direct investment policy of the country by will compliment it by strengthening it.
The government needs to ensure that it comes up with a policy of Integrated private and government audit policy.
The aims of the policy to:
Validate and control the huge cash transfers as long as they are being transferred on reasonable and agreeable terms. The question remains how the government will be able to so?
The various strategies the government should embrace in order to revive the spirit of business ethics in this area include:
- The government should ensure that all cash sent outside the country are properly authenticated and well supported by relevant documents which ascertain that the
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cash will be used for real development plans in the country they are being sent to and there is an expected cash return from the investment being made.
- The government should ensure that foreign branches and other establishments related to the corporations in question are thorough audited in order to ascertain their actual profitability position, and that any cash being directed to them is not aimed at sustaining them regardless of performing dismally.
- The government should institute tough measure to management teams of corporation who for one or other reason make transfer with an aim of creating political relations with governments of foreign countries so as to be unprofessionally preferred for certain contracts and tenders, such heights of corruption should be highly criminalized and punished by law.
- The government should restrict any payment by local corporations to foreign banks without the approval of federal reserve in order to curb the menace of reduced currency in the country which causes the government to incur huge loses in printing new currency to cover up the deficit.
- Any corporation that overstates its expenses which are written off against a certain amount of cash transfers in order to evade the legally viable tax liability should be highly penalized including the top team, the government through the revenue authority should cooperate with the independent private auditors who should give a true and fair of the financial statements of the company in order to ensure that the corporation honor their dues to the government.
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- The government should regularly hold seminars with heads of such huge corporations in order to share ideas that would see a reduction of such disallowed outside payment.
- Finally with an aim to ensure sanity in the business world wide the government should cooperate with other governments of the world to ensure fair competition with the multinational corporations from the diverse nations.
In conclusion business ethics are standards that must always be maintained without a compromise in order to ensure that the interests of all parties are safeguarded in the most acceptable ways.
Business ethics should be continuously monitored and revised in order to keep up with the dynamics of the business sector and when all this is done the most desired sanity and fairness in the businesses will be witnessed and enjoyed by all participants.
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References:
American management association.(2006).The unethical enterprises: Doing the right things in the right ways ,today and tomorrow. New York: Human resource institute.
Gabriel, F. (2008). leadership and business ethics. Ireland: Springer.
Robert, F. (2005). A companion to business ethics. Massachusetts: Blackwell publishers Inc.
William, H.S (2010).Business Ethics. Boston: Nelson education ltd.
