The Shakedown

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Case Analysis: The Shakedown

I. Introduction

This case portrays the widely propagated and accepted phenomena of bribes and corruption in developing countries. Specifically how it affects every sector of the Ukrainian society, therefore making it difficult for the American investors to establish companies there and to prosper solely on doing good business. The case describes the types of obstacles and ethical dilemmas being created for the investors as a result of bribery and extortion.

Situation

In analyzing these issues, we will first present a brief introduction to the situation. Mr. Pavlo Zhuk, a young, but already well established, entrepreneur from California, is faced with a difficult ethical business decision concerning his recently incorporated company in Kiev, Ukraine. His company, Customer Strategy Solutions, is being targeted for money extortion by UTA (Ukraine Tax Authority) officials. The UTA, represented by Laryssa Ossipivna Simonenko, claims that the company owes the government close to $16, 000 in taxes due to unfiled schedules . But this is not an ordinary visit from the UTA to his development center in Kiev. Setting up his software development center in Ukraine means more to Zhuk than just business expansion to his company. He wants to make a difference. Zhuk, being himself of Ukrainian descent, sees this as an opportunity for him to invest in this country and therefore help its economy, to contribute to Ukrainian modernization by introducing new technology. He decides to train his employees in array of skills, to raise the standard of their living by providing higher salaries than the other local companies, to enable the people to buy homes, cars and consumer durables.1 But for Zhuk this is not the first difficulty he encountered since he started his company here. His first problem occurred when he tried to get telephone lines installed in his office. He learned firsthand how business is made in developing country, after his friend and head of the development center in Kiev, Kostya Hnatyuk, took him to Dnipro Telecom, a government-owned telecommunications utility. After meeting with Vasyl Feodorovich Mylofienko, a senior business manager at Dnipro Telecom, they were told that because of the current backlog of orders, it might take up to three years for the lines to be installed. But for a onetime fee of $5,000, they can have the software center up and running next week.1 It was clear to Zhuk at that moment that they need to bribe Mylofienko. And although such action is in direct contradiction with Zhuk’s moral beliefs, for the sake of his company and the programmers he already hired, he decides to make that call. Zhuk realizes that if he wants to keep his company in Ukraine and to generate profit in the future, he needs to keep compromising his ethical values. He knows that it is a never-ending process, and once he bribes a government official, more will follow. All this consequently leads Zhuk to the crossroads of decision making; should he stay true to his moral beliefs, close his company and return to the United States, or, should he stay in Ukraine, pay off the bureaucrats, and therefore walk over all ethical values he has?

II. Analysis

In this case the dilemma facing Zhuk is harshly straight forward and evident, but the yarns that weave together to create this mess of a fabric are quite complex. Like most situations where ethics are brought under fire the lines are blurred, and a host of factors can contribute.

Ethical Landscape

Let’s start by acknowledging the fact that Zhuk, while having Ukrainian blood running through his veins, is inevitably American. He must realize that mere good will is not enough to sustain one’s self let alone an organization when faced with the pressures of maneuvering in an environment he is far removed from and out of touch with. After all, Zhuk is the product of parents who fled the chaos of Ukraine post World War II and embraced, with arms wide...
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