Tuesday, August 18, 2009

Values Based Decision Making

True story: One day a manager came into the office of a VP in his corporation. The manager said they’d run into a problem with a deal in Latin America selling equipment to a local government department. It was a big deal and represented about 10% of annual sales, and because lots of overhead had already been covered by other sales, the deal represented 25% of annual profit. This was important to the performance results of the corporation.

The manager reported that he’d run into an unacceptable situation and while they would not contemplate acquiescing to the demands, he wanted the VP’s thoughts on the issue. The deal was priced at $10 million. It had been agreed to and contracts were drawn up. Then the local representative announced that they needed to re-price the deal up to $11 million, and pretend costs had gone up. Then the local representative would make sure that the extra million was ‘distributed’ appropriately. The local representative indicated that this was how all deals were done with the government in his country, it was ‘normal’.

The manager said that obviously they would not pay the additional $1 million in bribes. and thus they would not re-price the deal and would stick with the original offer. However the VP said ‘No, I think we cannot do that. Clearly everyone who does business with this government must know that on deals this big, you’re expected to distribute this additional money to grease the wheels. We know competitors who’ve landed contracts, and we also know competitors who were unsuccessful in landing deals. Both these groups must know about the payola. As a result, we must completely withdraw the offer. Moreover, we must let it be known that we will not be bidding on any future business with this government.

Surprised, the manager asked if that wasn’t a bit extreme. But the VP said “Here is the issue. Everyone knows of this practice. If we go back and win the deal with the original $10 million price tag, everyone will just assume we paid the bribe. Our reputation would be tarnished. Likewise, if we ever did business with this government people would just assume we paid off the necessary officials. Our reputation would be damaged. Thus, we can never do business with this government.

Who was this VP. It was Robert Galvin, who later took the helm of that company, Motorola, and steered it with full wind powering it sails for 30 years. It was a decade after Galvin left the company that it ran aground.
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