Oracle Bribery: The Real Problem

Rob Enderle
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Customers Weigh In on Oracle Itanium Controversy

It's pretty clear that many IT organizations are dubious of Oracle's motives.

Oracle this week followed a long list of companies that have been accused and generally (this hasn't happened to Oracle yet) fined for bribery in countries where it is a way of doing business. I'm an ex-auditor and kind of a law enforcement fanatic, but even I think this is stupid because it puts the firm in a no-win situation. A global company has to be able to do business globally; some locations require bribery to function even while claiming it is illegal, and that puts the firm in a no-win situation. I think no-win situations are stupid because they promote illegal behavior and it is really hard to think that punishing someone for behavior that the situation requires is a reasonable response. As a result, this is kind of like a Russian Roulette tax in that you pay it when someone feels the need to make an example and it is your turn to be that example.

Let me explain.


At the root of the problem are practices that often go back not just years, or decades, but actually thousands of years where bureaucrats supplement their incredibly low salaries with bribes. In our country, this is kind of treated like tips are for waiters. Pretty much everyone gets that the large house and fancy car the bureaucrat drives couldn't be funded by the salary they make and bribery is generally illegal. But it is one of those things that pretty much, and this generally includes law enforcement, everyone does.

Now, if you don't bribe, then these same bureaucrats are motivated to teach you a lesson. You lose bids, you have site shutdown inspections, you have paperwork that gets stalled or lost, and you tend to incur costs that make the bribe look cheap by comparison. In short, the real choice you get is whether you are going to do business in the country or not, realizing your competitors will likely do this if you don't, particularly any that are in-country.

What often happens if firms want to avoid this problem is they outsource to an in-country partner who is at arms-length and can bribe without having to comply with U.S. laws, with the additional problem that many of these companies will over-inflate costs and under-report revenues as a practice. Not to mention they typically don't do as good a job in installation or service as you would typically require of your own folks.

So the most common fix is to outsource the bribery in exchange for a lower customer satisfaction and much higher costs. The alternative is for the in-country team to provide bribes through intermediaries (consultants) and provide the goods and services themselves. But the intermediary firms don't like this and are likely to report the activity and the bribery is then tracked back to you. In both cases, executive management is out of the loop even though you could generally argue they actually do know this is going on.

The result is fines that move from company to company based on which one got caught and the skill set that law enforcement is creating is the skill to avoid being caught, rather than actually eliminating the practice.

At the Core of the Problem

What has to be fixed to solve this problem are the folks who require the bribes, but they tend to become very powerful in country and generally share the wealth with enforcement agencies that move to protect rather than prosecute them (unless there is a regime change, then suddenly they go to prison by the dozen). In effect, and this is why I'm opposed to what is happening to Oracle, the practice forces companies to become competent at covering up crimes that can often lead them to other, more egregious mistakes. Forcing executives to develop a competency in breaking laws and not getting caught makes employees and customers less safe in the long term, in my view, and that seems to be what is going on here.

In short, the fines become a tax you avoid by not getting caught, reinforcing the belief that honesty and integrity have excessive costs associated with them. It manufactures criminals and is patently stupid at a government-policy level.

Wrapping Up: Oracle's Bum Rap

Much like it was for HP a few months back, this is a problematic charge for Oracle because the firm often seems to take hard rules as suggestions anyway. It promotes the wrong kind of behavior in large firms and the right thing likely would be to block firms from doing business in, and stop importing from, countries that require bribery. But without going after the cause of the problem definitively, all the U.S. is doing is making it harder for U.S. companies to compete overseas and it manufactures dishonest executives. Both are anti-strategic to the nation's future. In short, Oracle, like HP before it, got screwed and we are put at higher risk.

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