Question

You are tasked with opening a new factory for your business in another country. You speak the language and have spent some time living abroad so you are confident in your ability to work in anther culture. You are a skilled technical manager and believe you have a good team (mixed expatriates and local managers and employees). However, shortly after starting your project you realize that some things are not getting done - some of the contractors are slow to respond or slow to deliver. As you ponder this and get further behind schedule, one of your managers approaches you with a suggestion, namely: the contractors are expecting to be paid something under the table due to the high local tax rates. If they are not paid at least part of their money that way, they will continue to be slow in delivering goods and services.

What do you do?

Answer 1

The business culture varies across the world with different countries. This is not uncommon that government officials or private contractors openly ask for money or bribe in most of Asian countries like China and India. A stronger role of the government means a higher level of bureaucracy. The bureaucrats hold the power in execution and as they are poorly paid, so they ask for bribe from the corporates.
In this case, the tax rate in the country is quite high and so the contractors are demanding payments from improper channels to avoid the tax. They have slowed down the work and that is affecting the performance of the company. However, making such under the table payments is unethical. Once such practice of paying under the table is followed then it could become a way of doing business and may vitiate the company culture. This is major concern in terms of corporate governance also and auditors could question such payments which could tarnish the image of the company if the magnitude is bigger. The corporate giants such as Siemens, Xerox Corp, and British Aerospace had been through such scandals and they faced legal implications for that.

The manager should categorically deny making such payments and should discuss the way of managing tax within legal ambit. If that is not possible then the manager should replace those contractors or bring in foreign contractors.
However, in any case, he should not accept the demand for paying through improper channels.