Reference no: EM131271775

Read the case which follows and answer the questions at the end.

The air-conditioning was on in the hotel room, but Matthew Kwong could not stop sweating.  Here he was on his first sales trip to the Middle East, about to lose a $2.7 million deal, and the public works minister's assistant had just asked for a payoff.

Matthew, in his mid-30s, was a salesperson for Certec Limited, a Canadian high technology firm that designed computerized traffic flow management systems for large cities.  The modernizing Middle East was a potentially rich market for the company, and Matthew knew it would be a "feather in his cap" if he could secure this contract.

Certec had hired a local law firm to act as its agent, but Matthew decided to negotiate the final contract details directly with the ministry of public works.  All the company's systems were custom-designed, and Matthew knew the government would be making its decision based as much on Certec's ability to provide personal attention as on price.

Matthew arrived in the capital late on a Wednesday afternoon and met with the ministry's technical advisors on Thursday.  They were clearly impressed with the plans the company had presented months earlier.  What few questions they had, Matthew was able to resolve with a few faxes from Certec's head office in Montréal.

Then came his final negotiating session with the minister's advisor, an immaculately dressed man about the same age as himself.  Surprisingly, he showed little interest in discussing the contract.  He and Matthew talked about everything else - flight times to London, Canadian winters, and so on - except price.  Matthew was relieved when the advisor finally said, "Save your numbers for this evening.  We'll talk business over dinner."

The dinner went flawlessly.  The advisor negotiated only $75,000 off the contract price.  In fact, after he learned that Matthew was an avid soccer fan, he seemed to show more enthusiasm for comparing notes on the players' performance in last World Cup.

The two spent the rest of the evening touring the city in a limousine and visiting illegal nightclubs.  By 2:00 A.M. they were firmly cemented by the bonds of alcohol and their common interest in the game of soccer.  Matthew was sure he had solidified the deal.  However, just as the limousine pulled up to Matthew's hotel, the advisor turned to him, flashed his most charming smile, and said, "Oh, yes, I forgot to check, but you did include the normal commission for government personnel in your price, didn't you?  The German and the Italian vendors did."

Alarm bells went off in Matthew's head.  "Commission?" he thought, "what commission?"  He told the advisor he would check and get back to him tomorrow.

After a sleepless night, Matthew telephoned Certec's local agent.  The lawyer said simply, "It is pretty standard procedure.  I think about $12,000 is right for a contract this size.  You can channel it through our legal fee if you wish.  That is what most of our clients do."

Matthew was really distressed - for many reasons.  Of course, he felt foolish in the eyes of his agent, so Matthew's first reaction was one of embarrassment.  As well, he was annoyed at himself for being so naïve.  He reminded himself, though, that this was his first sales negotiation with government officials outside the boundaries of western industrialized countries.  He shrugged his shoulders and concluded that he still had a lot to learn.

There were a several aspects of this situation that still concerned him, though.  For one thing, he did not know his firm's position on paying this sort of "commission."  He felt a bit of resentment that his sales manager had not briefed him more thoroughly prior to his departure for the Middle East.  Matthew was aware that his firm did have a formal policy of refusing to participate in sales deals of this sort - but, then, many firms had similar policies and chose to ignore them, as necessary.  This was quite standard among firms dealing with foreign government contracts despite the fact that the Canadian Parliament had ratified the OECD rules concerning bribery and corruption.

Matthew also reviewed his conversations with both his sales manager and the vice president of sales.  He knew they both considered this particular sale as totally achievable and were counting on Matthew to close it.  The words of the vice president rang in his ears: "Do whatever it takes, Matthew.  This is a really important sale for us.  Not only is it highly profitable by itself, but we expect it to open all sorts of doors for us in other countries in the Middle East."

Finally, Matthew had a twinge or two of moral anxiety.  The whole thing just did not feel right.  It seemed so unsavory to just "nod and wink" and pass the money quietly to the lawyer.

Questions

1. Should he pay the "commission" and, if so, to whom?  Explain your reasoning.  If he pays, how should he handle the situation with the sales manager and the vice president of sales?  In your answer, include a discussion of the arguments in favour of paying and the arguments in favour of not paying.

2. Regardless of how you answered Question 1, is there a way he can avoid paying and yet still manage to salvage the deal?

3. Briefly, what does the OECD stipulate about member nations' obligations regarding bribery and corruption?  Since Canada has ratified the OECD guidelines, what are the implications for Canadian business people selling to foreign governments?