Horizon Trading Company Corporate Social Responsibility
There are many ethical issues in this situation. The Horizon Trading Company is involved in at least two unethical practices in their operations in Russia. First, they bribe Russian bureaucrats in exchange for contracts. And second, they are involved in various tax evasion schemes to avoid paying their dues to the Russian government. For John Smith, the new regional supervisor for the company, the ethical dilemma is whether to admit to the Russian inspector from the Ministry of Revenue the tax evasion scheme in their store. If he tells the truth, they will have to close shop and all 15 employees will lose their job.
Furthermore, the revelation that there is a tax evasion scheme in one of Horizon’s store would lead to an investigation into the whole company, which could lead to the closing of its Russian operations leaving its over 200 employees out of jobs. If he tells the truth, he would most likely be fired because it is known that the owner and CEO, Dan Du-Wong would immediately fire those who can’t follow his system. On the other hand, the company has a duty to the community where they operate to follow their laws. The tax laws, if we are to assume the sincerest motives from the government, were designed to generate funds for social welfare programs, which is greatly needed by the Russian people.
Who are the decision makers? The primary decision maker here is John. Whatever his answer to the inspector is would greatly affect the company and its employees. The Horizon executives also play a decision making role because they decide what will happen to John and the company following John’s actions. The Russian government is also a decision maker. It will decide what will be the punishment for Horizon. Who are the stakeholders? The stakeholders in this situation are John, the store’s 15 employees, the Horizon Trading Company, its executives, its over 200 Russian employees, the Russian government, and the Russian citizens. Why is this an ethical decision?
Business ethics should be guided by Corporate Social Responsibility. Corporate Social Responsibility is defined by Lord Holme and Richard Watts as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” (Corporate, Other definitions section, para. 1).
The community expects the company to be good corporate citizens in exchange for giving them permission to operate in their territory. As a foreign company in Russia, Horizon is expected to provide employment for Russian citizens and to follow its laws and customs. Businesses have been allowed by society to operate “according to the profit motive” but at the same time, society expects them to comply with their laws and regulations, in other words, operate within the “framework of the law” (Carroll, 1991, Legal responsibilities section, para. 1)
- Stakeholder Management – The Community
- What are the community stakeholders’ interests for each ethical issue or concern you identified in the Introduction?
The community stakeholders’ interest in this ethical dilemma is mostly on the employment provided by Horizon Trading Company. As Doug Howard said, the company employs over 200 Russian people. If they pay the high taxes the government is asking from them, the company won’t gain any profit. They would have to close down and the Russian nationals would lose their jobs in an economy where it is hard to find decent paying jobs.
On the other hand, the community stakeholders would also gain a lot if the right taxes are collected. The Russian government collects high taxes in order to be able to provide desperately needed social welfare programs for the citizens and to stabilize the economy.
- What are the community stakeholder responsibilities for each ethical issue or concern you identified in the Introduction?
Since the community benefits from the employment Horizon provides, they should be engaged in an effort to find mutually beneficial grounds for the company, the government and the community. This could be in the form of dialogues for compromise.
- What are the possible decisions the corporation could make for each ethical issue or concern, and what are the possible effects on the community?
If the company would subscribe to utilitarian ethics of right action as that which would produce “maximal pleasure and minimal pain” (Rees, Mill’s Act Utilitarian section), then they would continue with their tax evasion schemes because it will enable them to maintain business and provide employment for Russian nationals.
But if they will consider the first stage of Kohlberg’s levels of moral development, they would pay the right taxes to government. Their concern is to “unquestioningly obey” the “fixed set of rules” that “powerful authorities hand down” (Crain, Kohlberg’s Six Stages section, para. 1). They would pay the right taxes to government because they wouldn’t want to be punished. This action, although it means greater government revenue for social welfare programs, might result to the closing of Horizon’s operations in Russia and the 200 employees will be out of jobs.
- Conclusion and Recommendation
- What is your recommendation to the corporation based on all of the facts, issues, and concerns of this case?
As final recommendation, I think the corporation should start a dialogue with the government to realign the taxes it asks of corporations operating in Russia. They could offer that the company would engage in some philanthropic activities like donating to various government programs or initiating some of their own social welfare programs in exchange for lower taxes. They should also involve other corporations in their dialogue with the government. They should let the government know that the exceedingly high taxes would force the foreign companies to take their investments elsewhere, which would lead to hundreds of Russian nationals losing their jobs.
This compromise between the government and the corporation is recommended for these reasons:
1) it will allow Horizon to operate in Russia;
2) Horizon could continue to provide needed employment for the Russian citizens;
3) the new tax laws which would be the result of the dialogue between the government and the companies could be more attractive for other foreign corporations to invest in Russia;
4) more attractive tax laws and more foreign investments would help improve Russian economy; and
5) the proposed philanthropic activities of companies would help the government provide needed social welfare programs for its citizens.
- What are the positive implications of your recommendation?
By following the recommendation, the company would be able to continue operating in Russia and providing employment for Russian nationals. The company would also be able to help the government provide social welfare programs for Russian citizens.
- What are the negative implications of your recommendation?
The recommendation would still cost the company some revenues since they promise to engage in philanthropic activities in Russia.
- What will critics of your recommendation argue?
Critics might say the recommendation neglects the fact that the government would have to punish Horizon for its years of tax evasion schemes. If the government forces Horizon to pay all the taxes they owe, the company would still need to close down.
- How would you address your critics` concerns? How will you defend your recommendations?
The company should pay the taxes they owe the government but they could propose to pay them on an installment basis. The recommendation would provide more long-term solution for Russian economy than if they force Horizon to close down.
Carroll, A. B. (1991). The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders – balancing economic, legal, and social responsibilities. Business Horizons, July-August, 1991. Retrieved February 8, 2007 from http://findarticles.com/p/articles/mi_m1038/is_n4_v34/ai_11000639/print
Corporate Social Responsibility – What does it mean? (n.d.). Retrieved February 8, 2007 from http://www.mallenbaker.net/csr/CSRfiles/definition.html
Crain, W. C. (1985). Kohlberg’s Stages of Moral Development. Theories of Development
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Rees, C. (2005). John Stuart Mill & Utilitarianism. Retrieved February 2, 2007 from http://socrates.berkeley.edu/~cfrees/im-sj/mill-h.pdf