Eastern Problems

Horizon Trading Company: John Smith’s dilemma

Ethic’s Case found on Babson College website



John Smith is a new Regional Supervisor for Horizon, an American based company, in their Russian operations sector. Early in his introduction to these on-going operations he is presented with the “fact” that the company alters its sales accounts to avoid what are said to be the exorbitant state and local taxes imposed by different Russian agencies. He is asked to comply with the ongoing obfuscation by everyone involved with Horizon company management that he meets during his orientation. One day, a week after his arrival, when he is visiting a profitable Horizon retail outlet in Moscow he discovers that sales registers are turned off and paper sales receipts are used to lower the traceable income generated. He does nothing to alter this practice, but he stays to observe the activities in the store. While the store manager is at lunch a Russian agent from the state tax authority enters the shop and asks why the registers are turned off.

John Smith is met with the immediate challenge of whether or not to lie to the tax agent, and if he avoids this immediate situation he must decide what to do about the unofficial company tax avoidance policy. He has been told that if the company pays all of the taxes required that they will not be profitable and people will lose their jobs, information he took at face value. He feels a new manager’s sense of responsibility and does not want to jeopardize company operations or American personnel, or the livelihood of the Russian employees. He did not do any independent research to verify the information he was given.

Questions:  What should John Smith tell the Tax Agent?  What could John Smith have done to prevent his getting into this situation?  If the tax situation in Russia is as corrupt as he has been told, is John doing anything wrong by following expressed company policy?

Submitted by John White

Possibly related links: (automatically generated)

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5 Responses to Eastern Problems

  1. greenmba2008 says:

    In the short-term, John might tell the Tax Agent that he is following company policy and if there are further questions he can direct the agent to his supervisor for more information. He could have avoided this situation by learning more about the tax laws and deciding for himself how he felt about the potential “corruption” and where and how his values would play into covering up for his company. By digging deeper into his own values and questioning what felt right to him, he could make the decision whether or not he wants to work for the company and cover for them, leave the company, or be a whistle blower and help direct the company to implement legal solutions.

  2. greenmba2008 says:

    John should contemplate pretending he doesn’t speak or understand Russian. Once that is done he should refer the question over to the individual shop manager. It may be this is part of the pay off culture there. It also could end not trickling up the corperate latter. Second John should rush in a panic to corperate and explain to them they will need a really good lawyer. If he doesn’t do that then likely a consultant specializing in the cross-cultural challenges in doing buisness. Lastly John should either pack all this things and flea in the middle of the night for the Caspian coast or consider presenting a feasibility study of the tax effects state law is having upon his branch and how it is likely a barrier to other companies joining the market. This could be given to the state as it is my understanding today’s Russia is very welcoming of the open market system.

  3. greenmba2008 says:

    I know hindsight is 20/20, but is seems John should have seen a red flag the first time someone mentioned the “fact” that the company alters its sales accounts to avoid the high taxes state and government agencies impose. At this point he could have researched the finances of the branch to understand the profit/loss and tax implications and decide if he wanted to get involved in Horizon’s Russian operations. But he avoided confronting the situation, the way many do, and was caught unprepared to face the dilemma.

    John could tell the tax agent the truth; the store manager is out to lunch, she will be back shortly and that the sales clerks are using paper receipts to document sales. Short and sweet… Now John has a choice: to either bring this situation to his supervisor at corporate headquarters in the US, without investigating the situation or taking his supervisory role to the next step and analyzing Horizon’s income statements to better understand the tax implications. At this point John can work on a plan to legally increase profits in the Russian branches he supervises or look for answers from the home office in the US. I can’t see that John can morally just look the other way or just walk away. I believe this is the kind of corruption that becomes acceptable when citizens of a country feel they have no power or say in their government. They are working at surviving and corruption becomes their only option. I wonder if Horizon has ethical standards for their foreign branches, if not they might want to write them, these could be introduced with a financial plan that was more profitable and paid government taxes.

  4. The style of writing is quite familiar . Did you write guest posts for other bloggers?

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