Harvard Business School:
Jextra Neighborhood Stores in Malaysia

Introduction
Tom Chong has several issues he needs to deal with in couple of weeks; however, some issues are more critical than others so he has to handle them accordingly. Chong has two major issues that must be resolved: one of the issues is a recent conversation between him and the mayor of Klang, a town in which Jextra would like to build a new store. The mayor informed Chong that Jextra's application approval process for rezoning would speed up if Jextra will support a new primary school building in Klang. The mayor also wants Jextra to help pay for a flyover at the road intersection near the proposed store site. Should Chong invest Jextra’s money in those projects? Chong's other issue involves the job performance of one of his category managers, Arif Alam. He is one of the top performing managers at Jextra. Chong could not stop wondering if Alam is accepting money and gifts from Jextra’s suppliers. Although Chong has no proof that the manager is acting inappropriately, there are many rumors floating around Jextra's office. Should Chong investigate Alam? By the way, who is Tom Chong? Tom Chong is the country manager in Malaysia for Jextra Stores (Jextra), a large Asian supermarket retailer based in Hong Kong and owned by Sim Lim Holdings – a large publicly traded industrial group. The company Jextra, operates ten Neighborhood supermarkets in Malaysia. This paper is to analyze how Chong will eradicate and mitigate those issues mentioned above.

Major Social, Ethical, or Legal Challenges Facing Jextra Here are some of the major social issues facing Jextra: the mayor of Klang in Kuala Lumpur suggesting that Jextra should help build an elementary school and also flyover. Even though Jextra has a social fund that is maintained and managed at the corporate office in Hong Kong, the Business Code of Conduct (BCC) clearly states that “employees could not offer benefits to third parties in connection with business matters” (Inkpen, 2010, p. 3).
The ethical issues facing Jextra is the alleged bribery that the country manager might be taking from suppliers. Another potential bribery on the pipeline might be the supporting of the school development fund and the flyover. It could be termed as bribery if the money does not go directly to the main courses – the school and flyover; instead, it might go into the pocket of politicians or government officials. Daniels et al (2013) states that U.S. government and other governments worldwide are starting to crack down harder on bribery (p. 194).
Chong might be facing legal matters if he circumvents Jextra’s social fund in order to contribute to the school fund. Jextra could also be facing legal charges if the contribution to the school fund is solely to speed up the zoning permit. It could be considered a bribe if the payment was made as a prerequisite to obtaining the permit (Inkpen, 2010, p. 3).
Kind of issues Chong should anticipate as a country manager?
Most definitely, these are the kind of issues that Chong should anticipate as a country manager and much more. Other factors like cultural, political, social, and legal systems of a country can influence a company’s decision on where, when, and how to do business in a foreign land.
Chong resolve the requests from the mayor of Klang? The initial course of action Chong should take is to investigate all laws and regulations of Malaysia more especially, Klang's. He would then compare the practices with Jextra's Business Conduct Code. He would definitely see discrepancies because Jetra's BCC which clearly states that "while it is not possible to list all policies and laws to be observed, or all conflicts of interest or prohibited business practices to be avoided, this Business Conduct Code details the company's expectations for associate conduct, and helps associates to make the right decisions (p. 6). Chong should then sit-down with the mayor of Klang and discuss Jextra's code of conduct along with any other concern(s) regarding contributions and support to a local government. If the end result means delaying the opening of the new neighbourhood store, then so be it as opposed to opening up the store unethically. According to Breuer and Khuzami, "good internal controls can prevent not only Foreign Corrupt Practice Act (FCPA) violations, but also other illegal or unethical conduct by the company, its subsidiaries, and its employees (p. 41).

Chong and the rumors of bribery

Chong's other issue involves the job performance of one of his category managers, Arif Alam. He is one of the top performing managers at Jextra. Chong could not stop wondering if Alam is accepting money and gifts from Jextra’s suppliers. Although Chong has no proof that the category manager is acting inappropriately, there are many rumors floating around Jextra's office. Should Chong investigate Alam? Yes, Chong should investigate Alam secretly. The reason for the secrecy is just in case he is found to be innocent of the rumor but at the same time, Chong is clearing his conscience and diffusing all his suspicions about Alam. If employees are led to believe that when it comes to compensation and career advancement, all that counts is short-term profitability, and that cutting ethical corners is an acceptable way of getting there, they’ll perform to that measure (Breuer & Khuzami, 2012, p. 60). So, Chong should refer Alam back to Jextra’s Business Conduct Code for refresher.

Top managers and their responsibility when corruption is afoot This a tricky question to answer; so my answer to it is that it depends and I will explain. The assignments are given to employees by upper managements and in some cases; the employees are given authority to make decisions. Following the raid, the company (Siemens) itself announced it had uncovered $57 million in suspicious payments going back as far as the early 1990s (Daniels, Radebaugh & Sullivan DRS, 2010, p. 195). So my question is: how can a mere employee come in contact with such amount of money without the management being aware of it. It is impossible; however, there is a pressure on the management to perform well and come up with good results. Just like in Jextra, Alam is being rewarded for being one of the best category managers regardless of how he became the "best". It is only logical that when a good opportunity comes up, a good and loyal manager will do anything to take it, even if a little bribery is involved. Looking at the numbers of the bribery involved at Siemens Company, it is unbelievable that the CEO or CFO is not aware of it. That amount is huge to come-in or leave out un-noticed. Even though the Siemens bribery case happened in Germany, similar issues now happen in mostly emerging markets like India and Mexico due to the fact that they are experiencing industrialization, modernization and economic growth.

Individual or situational factors about the alleged bribery and kickbacks at Jextra

Arif Alam is the alleged category manager who is being accused of exploiting the suppliers for his personal gain. The suppliers could be giving Alam large products that could be sold on the black market. The category managers also travel to product presentations at luxurious hotels where he might be presented with small appliances as gifts. Suppliers could also provide gifts to the CM tied with performance and sales; these gifts could range from large appliances to jewelry and watches. Category Managers can also have his/her relatives supply to Jextra regardless of the conflict of interest. Like all those accusations weren’t enough, Alam allegedly had his father-in-law running an agency of suppliers that gets recommended to Jextra for a commission of 0.5 percent; and, Alam hardly not pick suppliers through that agency.
After all these rumors, Chong decided to do something about it but the troubling question is whether he should deal with Alam first or the mayor’s request from Jextra first.

Advise to staff when faced with local expectations of “payoffs” or “referral money”

I would advise my staff to follow our Code of Conduct and Ethical Rules. Using my current employer (District Department of Transportation – DDOT) as an example, the ethical rule basically states in regards to the above question that , “solicit or accept gifts in their official capacity from persons doing business or regulated by the District government” (DC.GOV). Our ethical rules detailed the “dos and don’ts” so my employees are expected to follow them judiciously without deviation. The FCPA outlaws bribery payments by U.S. firms to foreign officials, political parties, party officials, and public candidates (DRS, 2010, p. 193). So if I have employees outside of the United States, I would also make sure that they follow FCPA rules as well as the company’s code of conduct/ethics rules. Will Jextra “Business Conduct Code” help Chong

Even though Malaysian laws are vague when it comes to business payment for social purposes and it is widely acceptable in Malaysia too, Jextra’s Business Conduct Code clearly states that “ employees could not offer benefits to third parties in connection with business matters” (Inkpen, 2010, p. 3). So in this case, the BCC will help Chong in resolving this issue. On the issue of Alam allegedly taking bribery from suppliers, the BCC will also help Chong in resolving the issue because it clearly stipulates under bribery that, “it is illegal to pay or receive a bribe intended to influence business conduct or behavior” (Inkpen, 2010, p. 6). It also states under conflict of interests that, “associates must avoid any situation in which their personal interests conflict with the interest of Jextra” (Inkpen, 2010, p. 6). And finally, Chong will need to act on investigating Alam based on applicability which says that, “associates who supervise others have an important responsibility to lead by example and maintain the highest standards of behavior” (Inkpen, 2010, p. 6). All these Business Conduct Code will be determining factors in helping Chong decide and resolve all these hanging matters; if not, Chong will look like he is part of the dirty deal. What Chong needs to know about the potential jurisdiction of laws such as the U. S. FCPA or the U. K. Bribery Act

Chong needs to know that the FCPA U.S. legislation makes bribery illegal. FCPA applies to domestic or foreign operations and to company employees as well as their agents overseas and also foreign companies quoted on any stock exchange in the Unites States (DRS, 2010, p. 194).
Guidance, either within or outside your company organization

Within my organization, I can always rely on the organization’s Code of Conduct/Ethics. This code of conduct should provide ethics/conduct rules that should be followed, along with the repercussions that must be abided by if the code is violated. All employees should also be given ethics training on an annual basis. This training will reinforce the code of conduct and ensure that employees are reminded of their duties to uphold the code of conduct/ethics on a daily basis.

What would you do other than guidance

In the absence of guidance, the company should establish an anonymous hot line whereby employees can report unethical actions without being identified. Employees should be able to call this hot line with confidence that confidentiality code of ethic will be adhered to in all circumstances. Establishing and enforcing a code of conduct would aid reduction in the risks of future unethical behaviors while assisting employees in understanding why some actions are considered unethical, even if they are part of the business culture of that foreign country. This would help eliminate employees when they feel they cannot freely talk to management due to apprehension of retaliation from other employees. Steps Chong can recommend to Jextra to help build its corporate culture

The most important action is to establish clear and strict laws regarding corporation’s unethical behaviors. These laws should be written in a manner where there is no doubt as to whether or not certain actions can be described as ethical competence. Establishing a mixed legal system may be beneficial for countries that want to keep certain standards of conducting business, while at the same time ensuring that all actions are ethical. According to Daniels et al (2013), a mixed legal system emerges when a nation uses two or more of the preceding legal systems (p.113). The types of legal systems that can comprise a mixed system are common law, civil law, theocratic law, and customary law. Once these laws are established, the company should arrange checks and balances in order to ensure that they are being followed. This means periodically auditing the financial statements of the company and its employees in order to identify any unethical components while establishing consequences for the individuals that do not abide by the law.

Actions recommend to Chong - mitigation/elimination

The actions that I recommended would helped Chong to mitigate and eliminate most of his problems in this case study. First of all, if a mixed legal system is established in Malaysia, the mayor would have referred to the law before tying Jextra’s application approval process with the support of a new school building and a flyover. By strictly following Jextra’s Business Conduct Code, Chong would eliminate and mitigate Alam’s alleged bribery case.

Conclusion

In conclusion, it is necessary to conduct periodic investigations and even incorporate audits to ensure all departments of the company are in compliant with the ethical standards that Jextra has set forth. It is Chong’s duty as a country manager to know and understand the ethical climate of business operations in Malaysia before even stepping his foot there.

References

A resource guide to the U. S. Foreign Corrupt Practices Act. Retrieved from: http://www.justice.gov/criminal/fraud/fcpa/guide.pdf
Daniels, J. D., Radebaugh, L. H. & Sullivan, D. P. International business. (14th ed.)
Ethical Standard FAQs. 2013. Retrieved from: http://oag.dc.gov/DC/OAG/Information+to+Help+You/Ethical+Standards+for+DC+Government+Workers/Ethical+Standards+FAQs#2 Emerging Markets—Spotlight on India and Mexico,” (8:07 min), “The New Global Challengers,” (10:37 min)
Inkpen, A. C. (2010). Jextra Neighbourhood Stores in Malaysia.
The extraterritorial reach of the FCPA and the UK Bribery Act: Implications for international business,” Arnold & Porter Advisory, March 2012.