“How many of them were there? Were they armed? Did they confiscate any papers or disks?”
A version of this article appeared in the March 2005 issue of Harvard Business Review.
The Shakedown
A young American businessman in a developing country discovers that nothing gets done unless palms are greased. Should he play the game by his personal ethics—or the local rules?
Summary.
Reprint: R0503A
Customer Strategy Solutions, a California-based developer of order-fulfillment systems, is facing a shakedown. Six months after the firm’s CEO, Pavlo Zhuk, set up a software development center in Kiev, local bureaucrats say the company hasn’t filed all the tax schedules it should have. Moreover, Ukrainian tax officials claim that the company owes the government tax arrears. Zhuk is shocked; he and his colleagues have done everything by the book.
This isn’t the first time Zhuk has encountered trouble in Ukraine. In the process of getting the development center up and running, a state-owned telecommunications utility had made it difficult for Zhuk to get the phone lines his company needed. Senior telecom manager Vasyl Feodorovych Mylofienko had told Zhuk it would take three years to install the lines in his office—but for a certain price, Mylofienko had added, the lines could be functioning the following week.
Even as the picture of rampant bribery and corruption in Ukraine becomes clear, Zhuk still doesn’t want to pull out of the country. Of Ukrainian descent, he has dreams of helping to modernize the country. By paying his programmers more than they could make at any local company, he hopes to raise their standard of living so they can afford three meals a day without having to barter, stand in queues for hours, or moonlight. And yet, he isn’t sure he can keep compromising his principles for the sake of the greater good.
Should Customer Strategy Solutions pay off the Ukrainian tax officials? Commenting on this fictional case study are Alan L. Boeckmann, the chairman and CEO of Fluor Corporation; Rafael Di Tella, a professor at Harvard Business School; Thomas W. Dunfee, the Kolodny Professor of Social Responsibility and a professor of legal studies at Wharton; and Bozidar Djelic, the former finance and economy minister of Serbia.