BUSINESS ETHICS

What is ETHICS?
Ethics means norms for the conduct of people in social groupings. Ethics is derived from Greek Word Ethos which means culture the prevalent behavior in the society. Thus it is a code of conduct which has social acceptance. Ethics has often been misunderstood to be conforming to law. !n the contrary ethics is about voluntarily conforming to what is good"acceptable"desirable behaviour without the force of any legal"social obligation. The key word here is VOLUNTARILY. #t is about choosing to do something that is not mandated by the law or not doing something that is permitted by the law but may cause harm to someone. Ethics are not universal. Ethics are derived from social values. Word Ethnicity is a derived word from Ethics which means relating to a specific social group. Thus a set of ethical values relate to certain group which may not completely match with other group. Ethics keep changing from place to place group to group country to country and time to time. What is considered ethical today may have been considered unethical a few centuries back. What is ethical in one religious group may be considered unethical in other group. $o ethics are time and space dependent. Ethics are what you have learnt from the society as right or wrong behaviour. %aw of the land might change from time to time but ethics remain relatively constant over a fairly long period of time. Whatever is bound by the law does not remain ethics any longer. &n ethical practice today might be coded into a law tomorrow. That practice would loose the high ground of ethics from that moment because ethics is about voluntarily conforming to a good behaviour. Ethics almost always appear on the fringes of the law. #t might often cross the boundaries either way by small margins. What it means is that something which is lawful could still be unethical and even vice versa. Ethics is what a true human being is e'pected to do in a certain situation without the binding of law. (o breach of law is committed by a person who accosts and demands his outstanding loan from his debtor in front of marriage party of the debtor)s daughter. *ut would any person support such an act+ #t would be termed outright unethical. (He should consider himself lucky if does not get beaten up by some
self appointed conscience keepers of the society). $imilarly many consider ,obin -ood to be perfectly

ethical though his acts were out rightly unlawful. #t is widely accepted norm that any act which achieves greater good for greater number of people is ethical. Even a refusal to forego one)s lawful right would be termed unethical if it is going to cause a disproportionate and catastrophic loss to other person.
.age 1 of 40

*usiness is as old as human civilisation. %aws came into e'istence much much later. *ut code of ethics began to take roots when man began to live in groups. %aws are nothing but formal codification of ethics of the society. *ut laws are constrained by the infinite contingencies and sub/ectivities of the situations to codify everything. Thus ethics will continue to be there to guide the mankind on to the right path. ,amayana is believed to be the oldest treatise on code of ethics. *hagwad Gita is similarly treated as most scholarly book on code of ethics. ,ole of ethics in business has been a perpetual issue. #t has been gaining importance in the recent times due to geographical spread growing si0e of businesses and their ever growing capability to impact the lives of millions and millions of people. #t has also been highlighted by the colossal scams in some businesses in recent times. The purpose of business is to earn profits. &nd almost every business tries to ma'imise its profits. *ut the 1uestion that arises here is how much profit and at what social and other costs+ #n a market place beyond a certain point one man)s profit is at the cost of loss to someone else. 2arket forces generally are able to balance the amount of profit among all participants in a trade. *ut situations arise when there is concentration of power legal or illegal in certain pockets which can be e'ploited to usurp unduly large share of profit to great detriment of others. &ny amount of law making cannot cover every contingency. &t such times a good corporate citi0en is e'pected to limit his greed and not indulge in irrational behaviour even though the e'isting laws may be helpless in curbing such practices. $ense of fair play should prevail. Take the case of T3$ #.!. The #.! was heavily oversubscribed at the upper band of offering. There was nothing stopping Tata management from charging ma'imum amount from its subscribers. 4et the management decided to charge ,s 56 less than it could have. #t was a profit the company left voluntarily for its prospective shareholders to encash. !n the other hand take the case of &llahabad *ank #.!. $hare prices /ust before the #.! were manipulated to almost twice its earlier prices and then sold at the ma'imum offering despite share prices having fallen at the time of actual allotment. &llahabad *ank cannot be nailed legally but were they ethical+ Tatas have been at the forefront in establishing and financing various institutions of social and national relevance like Tata #nstitute of 7undamental ,esearch Tata #nstitute of $ocial $ciences Tata 3ancer -ospital ##$c and so on. Tatas have no legal commitment to invest such huge sums in these esteemed centres of social and national cause. &nd yet they do it out of corporate ethics of considering it as their pay back to society. #n the western world oldest work on ethics is by Aristotle a Greek philosopher and student of .lato from 89: to 8;; *3. &nd the latest work is by English philosopher George Edward Moore who wrote about <6 years ago.
.age 2 of 40

*etween these two e'tremes was the German philosopher Emman el !ant who lived in =9th 3entury. -is idea of ethics was to think of an act and then trying to universalise it. >Each person committing that act?. 3heck if it leads to any contradiction. #f it leads to no contradiction it is ethical. #f it does it is not. 7or e'ample if every poor person is allowed to steal wheat from rich person a stage will eventually be reached when no rich would be left with any wheat to be stolen by remaining poor. This is a contradiction. Therefore it is not ethical. *ut a reverse stipulation does not lead to a situation where some people would be left who could not e'ercise the option. Thus not stealing is ethical. &nother closely related word is 2oral. The two are used almost as synonyms but there is subtle difference between the two. While ethics begin from the smallest issues morality generally addresses issues of grave conse1uences. &s per Webster ethics is the discipline that deals with that which is good or bad or with moral duty and obligation. #t is branch of philosophy considered as normative science. Thus ethics is a system of values relating to human conduct and motives. *usiness ethics are not different from ethics in normal sense. #t is ethics applied in conduct of business activity. &ccording to .eter @rucker there neither is a separate ethics of business nor is one needed. What is ethical in other walks of life is ethical in business and vice versa. 4et if a separate definition is needed for *usiness Ethics then 3ontrolling greed in the face of unrestricted profit opportunity is *usiness Ethics. 2any .harmaceutical companies have been often accused of unethical behaviour. They have been accused of profiteering in the face of human suffering by charging e'orbitant prices for their new formulations. *ut it is premature to make a /udgment in absence of concrete data about their investments risks and rewards etc.

aw and Ethics
The law is a formal set of rules and standards that is associated with significant legitimate power and authority >to inflict punishment? in society. Ethics on the other hand is far less formal sometimes not even written down set of values which are to be observed morally. $imply stated %aw is obedience to the enforceable whereas ethics is obedience to unenforceable
(from Module from International Trade Centre).

.age " of 40

ETHICAL #ILEMMAS
Ethical !ilemma
When all choices are deemed undesirable because of potentially negative ethical conse uences! or more than one choice appear correct making it difficult to select the course of action. Ethical dilemmas often arise when a person has responsibility towards more than one entity and they are on conflicting course. #n the day to day situations think of a man whose wife and mother are constantly on the war path. -e is e'pected to take care of his mother who has given him birth suffered unaccounted miseries and made innumerable sacrifices for years in bringing him up. *ut he also has responsibility towards his wife who has given up her entire clan of loved ones to be with him. Whose side does he take in this war+ Either way he is betraying one person. #t is an ethical dilemma that he faces on daily basis. & manager has responsibility towards his company his boss his mates society his family and so on. Auite often he finds his boss asking him to give him cover for some goofBup he may have committed or asked to pro/ect some inflated figures to allow boss pro/ect a better image of the department which will enable him a promotion. (ow if he follows boss)s orders he is betraying his company. #f he does not he is betraying his boss. $imilarly the company may want him to do something which may be against larger interests of the society. 3ompany may want him to spy on competitors. #f he does so he will be working against the societyC and if he does not then he is betraying the company. &nd when he betrays the company he will have to either resign or be fired and then his wife and children may suffer as a conse1uence of his action. Which side should he take+ Take the most classical case of Dalianwala *agh firing on =8 &pril =E=E. The order to fire on those peaceful innocent unarmed and unBwarned gathering of #ndian people was given by *ritish General !)@yer. -e wanted to 1uell the rebellion against his government among the #ndian masses through some e'emplary punishment to people who had dared to defy ban on assembly of people in &mritsar. *ut the soldiers who actually fired the bullets were all #ndians. Those #ndian soldiers had responsibility towards their *ritish masters and also towards their countrymen. *eing in the military where the philosophy is to @o or die but not to 1uestion why should they have refused the orders of General @yer which were against their country as well as humanity+

Or

.age 4 of 40

What choice did the &merican .ilots who dropped nuclear bombs on -iroshima and (agasaki two cities of Dapan on 6F and 6E &ug =E:5 have+ They were fully aware of human costs of their actions in terms of deaths of lakhs of innocent people. $hould they have refused in the name of their responsibility to humanity+

Common Ethical !ilemmas for "usiness #anagers

-onesty in advertising and in communications with superiors clients and government. .roblems relating to special gifts entertainment and kickbacks. !verlooking wrong doings of others

Criteria for Ethical !ecision #a$ing

Gtilitarian &pproach #ndividualism &pproach 2oralB,ights &pproach Dustice &pproach

%tilitarian &pproach $ 2oral behaviour that produces the greatest good for the greatest number. Individualism &pproach ' &cts are moral when they promote the individualHs best longBterm
interests >e.g. the golden rule?. This rule works on the principle that unethical approaches may lead to short term gains but harm the long term interest.

#oral()ights &pproach *ehaviour that acknowledges that every human being has some
fundamental rights >e.g. free consent privacy due process?

*ustice &pproach ' $tandards of e1uity fairness and impartiality. Teleological Theory ' 3onse1uence Theory. #t states that moral worth of an action"practice is
determined solely by the conse1uences of action or practice. #n simple words ethicality of an action is determined solely by the results it produces.

!eontological &pproach ' #t is e'act opposite of Teleological approach. #t believes that &ctions are
not /ustified by their conse1uences. 7actors other than good or bad outcomes determine the rightness or wrongness >ethicality? of actions or practices. #t believes that value of action lies in motives. (I
personally endorse this vie". We have all read the story of sparro" "ho decided not to fly south "hen "inters came. Ho" she "as revived from fro#en condition by "armth of co" dung and then ho" a cat pulled it out of co" dung!

.age % of 40

cleaned and ate it up. Morale of the story $ %very guy "ho thro"s shit at you is not your enemy and every guy "ho pulls you out of shit is not your friend).

+actors &ffecting Ethical Choice s

>a? +or the #anager
>i? %evel or stage of moral development >ii? %earned Ethics

>b? The ,rgani-ation

>i? $ystems >ii? 3ulture

.rocess of #oral !evelopment

2oral values are not born characteristics but are ac1uired gradually over a period of time. & newly born child has no moral values. -e learns them as he grows from his surroundings. $ome are taught to him by his family and teachers some he ac1uires from reading religious literature and some he learns by observing and feeling. This process can be broadly categorised into three distinct categoriesI B =. .re(Conventional evel $ .erson follows the dictates of law and good behavior out of fear of

punishment or e'pectation of reward. #n the early stage of childhood he is taught by mother father and teachers to follow certain rules and he does that more out of fear of punishment or for promised reward. This is preBethical stage or preparation stage for ethics ;. Conventional evel $ .erson conforms to the behavioural standards to meet the e'pectations of peers and society to avoid ridicule and gain acceptance. 8. .ost&Conventional '.rincipled( evel ' .erson develops a personal internal set of standards and values which he is not willing to compromise even in the face of threat or personal loss. -e sticks to these values for his own sake >&bout ;6J of adults reach this stage fully or partially?

/uidelines for !ealing with Ethical !ilemmas

=. @o you think it is right (&on't "orry about legal status. %verything legal is not ethical nor is every ethical decision legal. %thics transcends legality).

;. #s it beneficial+ To whom+ -ow much+ 8. #s it harmful+ To whom+ -ow much+

.age ) of 40

((ou should not be considering your o"n benefit)harm. (ou are out of this benefit)loss calculation. %thics are profit)loss neutral as far as you are concerned. When in dilemma! it is about people around you)

+urther /uidelines for !ealing with Ethical !ilemmas

=. Would you be willing to allow others to do to you what you are considering+ ;. Would you like your family to know+ 8. Would you like your decision printed in the newspaper+ :. -ave you consulted others who are ob/ective and knowledgeable+

Ethical )esponsibilities
To be ethical an organi0ation should seek a higher standard than merely obeying the lawI K &ct with e1uity fairness and impartiality K ,espect the rights of individuals K &ct for the common good

TRUSTEESHI* MANA+EMENT
/andhian .hilosophy o f Wealth #anagement
Trusteeship as applicable to the corporate world refers to the act of holding and managing resources on behalf of the stakeholders of the firm. What)s new about that one may 1uery. Given that the traditional take on wealth has almost always been tilted towards owners of corporations this concept brings in an element of e1uity by placing other stakeholders such as employees customers and society on the same rung as large and small shareholders. The idea is that all wealth including human financial and technological resources belongs to society and the rewards accruing from their use must revert to society at large. The principles of trusteeship can be traced to the concept of collective endeavour and community living. *riefly these areI ,esources must be held and utilised for the benefit of society. 2anagers are the trustees of the stakeholders and must work towards optimi0ing stakeholder value not merely ma*imising shareholder value. The small investor has as much a say in decisions as the large investor. Thus the overall approach is towards the macro and the longBterm perspective rather than the shortB term micro perspective which is often geared e'clusively to suit the shareholder and top management. &t first sight this seemingly idealistic concept invariably raises a few protests. The owner"s must be rewarded for bearing risks and supplying e'pertiseI @efinitely. *ut the reward must be in proportion to the skills and e'pertise supplied. The increasing instances of ethical transgressions on the part of leaders and 3E!s indicates the need for better balance in the riskBreward relationship. The Enron
.age , of 40

fiasco and the sale of shares worth over L<6m by erstwhile chief ,ebecca 2ark a few months before its bankruptcy is a case in point. 3orporations e'ist for profitsI They e'ist to fulfil the needs of society and in the process generate profits. 2oreover even if profits were to be the only determinant of policies trusteeship would still score over ine1uitable sharing of wealth since better wealth management automatically leads to more lasting and stable e1uations with stakeholders. This in turn leads to higher profits goodwill and trust. Trusteeship might lead to a disincentive for efficiency and effortsI When individual and group efforts are correctly aligned with social needs the possibility of deB motivation or deliberate inefficiency does not arise. 3onviction in the utility of the concept coupled with the commitment of top leadership would ensure efficiency as well as effectiveness. The Indian .erspectiveI The wisdom of the Medas and Gpanishads point towards holistic progress not fragmented movement in which one section gains at a cost to others. 2oreover the cycle of giveB andBtake is e'plained at great length. The &rthashastra of Nautilya and The Nural of Tiruvalluvar both describe the role of the king as trustee with respect to the citi0ens and the wealth of the land. #n the last century $wami Mivekananda taught that sustainable progress calls for progress for all members and components of society. 7ragmented progress is temporary and often illusory. #t is only when all elements of the environment are taken care of that an individual or organisation can hope to consistently succeed in its ventures. The /andhian .hilosophy of Wealth #anagement is based on the principle that a wealthy man does not truly have the right to hoard wealth solely for the selfC the only right he has is that to an honourable livelihood. #n an article called 3orporate *arbarism to 3orporate 3iti0enship carried in The Dournal of 3orporate 3iti0enship eminent academician and author @r $N 3hakraborty of ##2 3alcutta described the concept of lok sangraha oriented towards the common good. This is distinct from capitalistic economics with its attendant social ecological and psychological woes. Indian Corporate eaders and TrusteeshipI !ne of the most inspiring e'amples of corporate

trusteeship in recent times comes from #nfosys particularly from its former 3E! and current chief mentor (arayana 2urthy. -is rationale for creating this company along with a small group of people >better sharing of wealth in society? the involvement of employees in the company)s fortunes >through E$!.s? and his contentment with a mere <J of company stock >he prefers it that way? reflect a deepB rooted commitment towards trusteeship. !ther notable e'amples include the house of the Tatas with their corporati0ed initiatives for socioBcorporate benefitsC the W#.,! 3ares 7oundation with a targeted corpus of ,s =66 crore for primary educationC and the *irla foundation with its focus on socioB economic improvement in the lives of the people touched by the corporation. The possibility of feelB good e'ercises induced with an eye on the bottomBline cannot be ignored. 4et corporate boardrooms are increasingly discovering a match between the longBterm interests of the company and their
.age - of 40

willingness to e'pand focus to all categories of stakeholders. &s the roles of wealthy 3E!s and influential policyBmakers continue to gain public scrutiny the 1uestion that management must periodically ask themselves isI @oes our e'istence lead to any benefits for society+

CO#E O. ETHICS
These are statements of behavioural ideals e'hortations or prohibitions common to a culture religion traditional profession corporations and trade associations. 3odes combine philosophical with admonitions to avoid certain illegal actions and espouse certain moral principles especially those that elevate personal behaviour. The Ten 3ommandments is the most well known code of ethics known worldwide. #n addition we have all heard of 3ode of ethics in the form of -ippocratic !ath that all the @octors are supposed to take prior to being awarded permission to practice medicine.

Types of Codes of Ethics

.rinciple("ased ' @esigned to enable the employee to make ethical decisions based on appropriate values e.g. treat people fairly or don)t be dishonest .olicy("ased ' Guideline as to how to act in specific ethical dilemma situations >reducing the need for thinking? >a? 3onflicts of interest >b? @isseminating proprietary information >c? ,eceiving and giving political gifts >d? E1ual opportunities

,rgani-ational Structures to .romote Ethics

>a? Ethical ,mbudsman 3orporate conscience keeper is appointed who can be reported to for any ethical wrong doing by any employee in the company. >b? Ethics Committee ' Group appointed to monitor company ethics. >c? Ethics Training .rograms >d? Hot linesB Employees can report 1uestionable behaviour possible fraud waste or abuse > i.e. *low the Whistle? on those numbers.
.age / of 40

ETHICAL ISSUES IN STRATE+IC MANA+EMENT

Introduction
%et us revise definition of Ethics. Ethics is voluntarily conforming to what is good"desirable behaviour without the force of any legal obligation or fear of loss or threat. The key word here is M!%G(T&,#%4. #t is about choosing to do something that is not mandated by the law or not doing something that is permitted by the law because you believe it to be the right course of action. (ever mind that what you consider right may not be right as per my code of values. Ethics is choosing to follow the law even to your detriment when you could have avoided it. *uying a train ticket before boarding the train does not 1ualify for ethical high ground but buying the ticket and tearing it after completing the /ourney without getting caught is ethical conduct. Ethics is following the $.#,#T of law even when you could have taken a convenient shelter under the %ETTE, of the law. The purpose of business is to earn profits. &nd almost every business tries to ma'imise its profits. *ut the 1uestion that arises here is how much profit and at what social and other costs+ #n a market place beyond a certain point one man)s profit is at the cost of loss to someone else. 2arket forces generally are able to balance the amount of profit among all participants in a trade. *ut situations arise when there is concentration of power legal or illegal in certain pockets which can be e'ploited within the realm of letter of the law to generate unduly large share of profit to great detriment of others. &ny amount of law making can not cover every contingency. &t such times a good corporate citi0en is e'pected to limit his greed and not indulge in irrational behaviour even though the e'isting laws may be helpless in curbing such practices. $ense of fair play should prevail. (ow we derive the definition of business ethics from above discussionsC *usiness Ethics is voluntary self denial of a legal profit opportunity in business in favour of a behavioural standard that has not been bounded by the law.

Case Study ( I
+et us take a small case study of t"o companies "ho actions "ere in e*act contrast to each other in t"o e*actly similar situations at around the same time. ,ug -../. Indian 0tock Market "as on fire. %very I12)312 "as getting oversubscribed. ,nd at such a time! Tata Consultancy 0ervices (TC0) launches its I12 through book building route. 1rice 4and "as 5s 667 to 8... ,t the upper band of 5s 8..! issue "as oversubscribed by almost 7 times. ,nd yet! the company decided not to charge the ma*imum rate of 5s 8.. per share. Company priced the shares at 5s 97. leaving 5s 7. on the table voluntarily for the investors. 5eferring to fi*ing the price at 5s 97. .age 10 of 40

despite the oversubscription at 5s 8.. per share! Tata said! :We priced the issue at this level to provide attractive upside to investors once the scrip is listed on the e*changes. 0hare! immediately after listing! rose to 5s ;/.. and since then has maintained that level despite a ;<; bonus issue (effective price appro* 5s -!/..). There "as no statute in any la" "hich could have forbidden the company management from charging full 5s 8.. per share. ,nd no one could have uestioned even at a later date given the performance of the company. (et! as verbalised by Mr Tata! company "anted to leave for its investors an attractive upside upon listing. ,nd =ust to let you kno" as to "hat "as the total sum that TC0 had foregone by its decision $ 5s -67 Cr. >o" contrast this "ith ,llahabad 4ank 312. ,pril -..7. ,llahabad 4ank launched its second public issue at a price band of 5s 67 to 5s 9-. 2n -7 ,pr -..7! management fi*ed the allotment price at the ma*imum rate of 5s 9- per shares despite the fact that share price on that day had fallen to 5s 9? per share from a high a 5s ;.7 during the subscription period. ,llahabad 4ank 0hares "ere trading at 5s @. on .; &ec ./ and had risen to 5s ;.7 during the subscription period. %ven today! despite >0% inde* having risen from ;8@. on -7 ,pr -..7 to ,ppro* /... today! share is still being uoted at 5s 66A 5s 7 belo" allotment price. %ven though there is enough circumstantial evidence of share price manipulation in the run up to the 312! company can not be nailed legally. ,bout ethical standards! lesser said the better.
(There is a possibility that ,llahabad 4ank management did not act unethically since! being a public sector bank! management had very little to gain from share price manipulations. Ho"ever! realising that share price "as on the do"nslide and almost touching the issue price levels! management should have prevailed upon the +ead Managers to the issue to reduce the allotment price. Thus! even though prima facie! it appears to be the act of stock market cartel of brokers! it is hard to give the bank management a clean chit).

3oncentration of power to generate large profits comes from sound business strategy. $trategy is after all a business plan to develop sustainable competitive advantage. @eception"decoy is the most important element of any strategy. @eception can be against competitors suppliers or customers. 2any companies price their products in a manner that customers are fooled into believing that product is very cheap where as it could be much costlier. !r they market their product to the customers who the companies are fully aware that do not re1uire it.

Case Study ( II
.age 11 of 40

There is nothing more precious in this "orld than your child's smile. Insurance Companies capitalise on this fact. They keep selling insurance policies to people in the name of their children. That poor father and mother eat a chapatti less every day and even deny their child a fe" things to be able to pay the insurance premium. 4ut of "hat use "ill that insurance claim money be to that poor heartbroken father "hen that smile is not thereB %very insurance company kno"s that the main purpose of life insurance is to replace lost income "hen a person dies. 4ut the child has no income. 0o! "hat is the purpose of child's life insuranceB Can "e call this business strategy of insurance companies an ethical strategyB ,nd if some here has a counter in mind that insurance provides a saving plan! let it be kno"n that the yield on an insurance premium is less than half of a bank deposit. When the interest)yield is compounded over a -. year period! "hich is the normal life insurance period! you are poorer by more than half of "hat you "ould have got if you "ere depositing the same insurance premium amount in a recurring deposit in the bank. ,nd if ta* saving is the purpose! then buy an additional policy for your self but not for child. 4ut no insurance company "ill ever tell you this because it is much easier for them to convince a father in the name of child than in his o"n name.

Case Study ' III

Cnlike many other companies "ho offer free home loan insurance! H&3C charges appro*imately 6D of the loan amount as insurance charge. If you e*amine the issue minutely! you "ould realise that such insurance is hardly re uired by borro"er. In case of unfortunate death of borro"er! bank is the biggest sufferer since! given the state of Indian Eudicial system! it is almost impossible to get the money from legal heirs despite the mortgage and all kinds of collateral securities. ,nd they convince you to sponsor that insurance for their convenience in the name of convenience for your loved ones. Is it an ethical strategyB

in$ing Strategy with Ethics

Ethical responsibilities of firm to $takeholders !wners"$hareholders E'pect good return on their investment Employees E'pect respect for their worth O devoting their energies to firm 3ustomers E'pect reliable safe product or service at fair prices $uppliers E'pect e1uitable relationship with firm 3ommunity E'pect businesses to be good citi0ens in their community

Thus on the face of it ethics and strategic management look like two banks of a river who can never meet. !n one hand you want to strategise your business to earn more profit >for shareholders sake? and on the other hand you want to surrender a legal opportunity to earn profit in the name of ethics >for other stakeholders sake?. What a parado'P *ut such parado'es are not impossible. There are many such parado'es which e'ist in real life and a fine balancing act is re1uired in such situations. Give the
.age 12 of 40

customer honest prices through efficiency in production and give the shareholder bumper profits through productivity and growth in business rather than ripBoff pricing. -onesty does not always mean bad business. $imilarly following business ethics does not always mean surrendering profits. !ften a profit opportunity surrendered in the short run becomes the key to the bigger door of profits in the long run. Ethical practices in strategic management create a new resource called $ocial 3apital through TrustC trust of society trust of customers trust of suppliers and so on. This capital manifest profits in terms of customer loyalty and increased sales lesser re1uirement for marketing effort higher leverage in dealings lesser employees turnover etc. $trategic 2anagement is the starting point for ethical conduct of a company. &s brought out earlier a company)s business plan the products it plans to offer its positioning market segmentation marketing strategy promotion pricing capital structuring etc are all decided at the strategy session. @eception and decoy being an integral part of the strategy dilemma lies in deciding their e'tent. The ethical challenge in companies is often triggered by financial problems. When financial problems occur it is tempting to do business with people you might not normally choose to do business with or in ways that you might not normally use. #t is very hard to consider ethical issues when a company is in trouble. $o as a general rule the best approach to avoiding temptation is try and make sure that the strategic approach of the company involves achieving early and fast success. $mall wins not only provide feedback to guide a company but also reinforce the strategic perspective of the company. The parado' surfaces here once again. Ethical approach is a slow path on the way to enduring success. ,arely does anyone get spectacular success in the initial phase of business through ethical means. .robably what this rule suggests is that achieve some early and fast success by maybe not so ethical means and once you have feet firmly planted on the terraBfirma of the business world turn ethical. 2any empirical studies have proved that companies following ethical practices have generally gained in the long term. #t is not to say that unethical companies have not gained ever. We have a few e'amples in our own country where a few most unethical companies have risen in corporate ladder to di00ying heights. *ut e'ceptions don)t make the rule.

Situations .romoting %nethical "ehaviour

%et us now see the situations in which ethical issues are set aside in strategic management processI B There are perhaps four basic situationsI
.age 1" of 40

=. ,ne(Time .roduct Sale & The product sold is a onetime sale and the life cycle of the product is such that it will be sold to many people before bad word of mouth kills the product. &n e'ample of this might be Tourist traps e.g. restaurants in tourist locations. There is always another new customer coming along. !ne could argue that when the stock market is high issuing of an #.! is very similar to the sale of a onetime product. &llahabad *ank #.! 1uoted in 3ase $tudy ## is one such e'ample. ;. !urable /oods & The 1uality of the product is poor but does not show up for some time. @uring the period of ade1uate performance people continue to buy. This tends to be an issue with durable products like consumer electronics e1uipment housing etc. 8. Survival Instincts & & company when faced with basic survival issues due to competitive pressures of various kinds is most likely to set aside ethics. :. Hubris0/reed & .erhaps the most remarkable e'amples of unethical behavior are the situations where the senior management team is making remarkably high amounts of money and they go even further into e'cess. The ,eliance e'ample wherein 2r. &nil &mbani had spilled the beans about his brother 2r. 2ukesh &mbani siphoning off ,s <666 3r of investor money is one such e'ample. Gnfortunately in a rotten political and legal system that we have their financial clout never allowed this issue to get the prominence that it deserved. #n G$ &delphia 3ommunications >7ounder Dohn ,igas was found guilty of siphoning off G$@ ;.8 billion from company and has been /ailed for 86 years? and Tyco #nternational >whose 3E! @ennis No0lowski was found guilty of stealing over G$@ =56 million from the company? appear to many to fall into this category. *y most people)s standards the senior e'ecutives involved in these cases seem to have been e'ceptionally well paid and yet they crossed a line that seems to defy rationale e'planation. -ubris is the only e'planation. &nd while taking decisions an organi0ation should base its decisions on two basic theories that enable an ethical approach to take strategic decisions. These are $takeholders) theory %oyalty and psychological contract and cultural relativism

Sta$eholders Theory
$takeholders Theory is a diametrically opposite view of 7riedman)s theory of =E<6. 7riedman thought that social responsibility was some kind of mask for socialism and called it a fundamentally subversive doctrine in a free society and has said that in such society there is one and only one social responsibility of business BBto use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game
.age 14 of 40

#n contrast $takeholders Theory basically recogni0es that the corporation has some duties in relation with groups other than stockholders >7reeman =EE<?. -owever the theory faces some significant problems for e'ample it is difficult to say where the limits to each groups) claims are. *esides this different groups are in different positions to defend their interestsC therefore balancing their claims seems to be a ma/or difficulty. @espite its problems the stakeholder)s theory has helped to communicate the idea that big corporations are not allowed to ignore the present historic circumstances because their actions have enormous impact on the entire society.

oyalty and .sychological Contract

What is psychological contract+ #n a employerBemployee conte't B The psychological contract is in essence the set of economic and normative e1pectations developed mutually between an employer and an employee when he or she enters the organi0ation. This contract which the participants ground in trust is a nebulous concept. .sychological contract is the bed rock of ethics. The gist of the psychological contract is as followsI The employee e'pects fair compensation for work performed. The employee e'pects respect and dignity from the employer. The employee e'pects consistent and /ust evaluations. The employee e'pects continual employment in e'change for meritorious /ob performance. The employer e'pects loyalty from the employee The employer e'pects employee to guard its business secrets which employee may be e'posed to. The employer e'pects employee to work towards benefit of the company & production worker who has no role in marketing of the product is e'pected to promote the company)s products when the opportunity arises. These tenets of psychological contracts have to be kept in mind during strategic planning. 4ou might feel that downsi0ing of the organisation is the right strategic move to improve profitability and think nothing before issuing .ink $lips the ne't day to employees who have been with you for last ;6 years. ,est assured that even those who escaped the pink slips will start looking for a new /ob from the ne't day. Even their loyalty is no more with you. They will ditch you when you need them most during the boom in business they will walk up to your competitor for a small rise.

.age 1% of 40

Epilogue
Even though prima facie business and ethics appear like two banks of a river which can never meet ethics do play a strong role in business. Ethics may not yield positive results in short run but they do pay handsomely in the long run. 3apital of Trust created in the minds of consumer forms slowly but surely and pays rich dividends in the long run. The ease with which every stakeholder of 3orus agreed to take over by Tata $teel as against the dirty political battle faced by #spat Group of %( 2ittal is proof enough of benefit of *usiness Ethics.

0HISTLE&BLO0IN+
!efinition2
Whistle blowing is the voluntary act of disclosure of malpractices in his" her workplace by an insider at a level not generally e'pected of him. & Whistleblower is a person who reveals wrongdoings within an organi0ation to public or persons of authority.
(1lease note that not every act of "histle blo"ing is an act of ethical conduct. 2n the contrary! a large number of "histle blo"ings are motivated by desire to dra" revenge on boss or management. It is actually breach of psychological contract and a patently unethical conduct).

When can the whistle be blown?

&ny insider may wave the red flag when he witnesses the following in the organi0ation >a? 3rime >b? 3orruption >c? 3ivil offences >including negligence breach of contract etc? >d? -arassment >e? #n/ustice >f? @anger to health and safety or environment >g? 3over up of any of these

Whistleblower3s &ct
The whistle blowers act defines various terms relating to whistle blowing and lays down the legislative framework relating to this concept. *asically the act mandates a company to establish a whistleblowers policy. The policy supports and protects the rights of a whistleblower 2any countries have enacted the Whistleblower)s act like G$ has included the Whistle *lowers &ct as part of $arbanes !'ley &ct.
.age 1) of 40

What does a Whistle "lowers policy contain?

>a? & whistleblowers policy defines the scope of malpractices of an organi0ation. >b? #t lays down the procedure to report such allegations. >c? .olicy establishes an independent investigation team who would investigate these claims. &nd >d? 2ost importantly it defines the roles responsibilities and the rights of a whistleblower.

)oles4 )ights and )esponsibilities of Whistle "lowers

>a? & whistleblower must behave responsibly when he makes a claim under the policy. -e should make his report in confidence to the e'tent of the limitations of the law and the policy. -e must understand that his motive is irrelevant for the validity of the report and if it is found that there was an intentional filing of a false report which is improper he will be severely penali0ed depending upon the policy facts of the matter and the final decision of the independent committee. >b? &ll the employees of the company have a duty to cooperate with the investigations made thereon. >c? The whistleblower)s confidentiality is maintained. -owever in a breach in this in events wherein his identity to become known to select few is crucial he will be informed of this citing the reasons for doing so. -e also has a right to be protected from retaliation this could be in the form of harassment loss of /ob humiliation etc.

&dvantages of W" policy

The advantages of a whistle blowers policy are many. >a? #t acts as a very effective anti corruption tool as the insider has first hand fresh information and he is able to supply clinching evidence for pinning down the guilty. >b? #f done at early stages it can help check corruption. *y protecting the whistleblowers corrupt and misbehavior in others can be deterred. >c? #t also helps to place honest ethical employees right in the centre of administration unlike situations where they are helpless spectators or are bullied into acceptance by their corrupt colleagues who dominate the show. >d? 2aking whistle blowing official and acceptable would also obviate anonymous petitioning and unauthori0ed leaking of news to the media leading to the loss of reputation of the company. >e? Mery effective as antiB corruption tool as insider has first hand and fresh information ensuring clinching evidence.
.age 1, of 40

>f? 3an help check corruption if done at early stages >g? .rotecting Whistle *lowers may deter misbehavior by others >h? &lso helps in placing honest employees in centre of administration >i? 2aking policy official and acceptable would obviate anonymous petitioning and unauthori0ed leaks to media.

.roblems in Whistle "lowing

>a? & Qs1uealer) disrupts trust teamwork and open communication creating fear O suspicion >b? E'pectation of loyalty from every employee may face organi0ational ostracism >c? W* discourages corruption but can also discourage initiative willingness to take bold decisions and encourage negativism defensiveness >d? ,isk of W* used to blackmail colleagues or even bosses >e? 2ost often than not it is seen that the very few subordinates have the courage to blow the whistle on top officers. Gltimately it is these big game hunters go scotBfree and the poor small fish get caught and friedP

"alancing the .ros and Cons

#t is now necessary to balance the pros and cons that we looked at. >a? %egali0ation of whistle blowing could help in fanning out some problems. %ike stated earlier Whistle blowing does not have an unimpeachable moral basis and must be defined precisely and operationally. >b? This brings us to e'amine whether whistle blowing is a right or a duty+ !nce immunity is given to an employee does it not also mean that in cases where the whistle is not blown when it should be should it not be treated as connivance. !r what about cases where an employee is afraid to reveal a wrongdoing in fear that the wrongs he may have done in the past could come to light+

.age 1- of 40

>c? There are many other support systems re1uired to make a whistle blowing work effectively. &nd foremost among them is that 3ompanies need to put in place a value system and a leadership that sets an e'ample. 7ar too often employees are e'pected to be unethical in dealings outside the organi0ation but absolutely clean inside. $uch parado' does not work. >d? The policy can be reviewed and changed as per e'perience. #t could be started out as a pilot pro/ect in few sensitive departments and learn from e'perience before e'tending and modifying the policy. #nternal whistle blowing that is approaching higher levels in ones own department could be looked into before allowing access directly to the committee.

Whistle "lowing in the Indian Conte1t

>a? #ndia does not have a Whistleblower)s act. >b? %aw 2inistry is working on a Whistle *lowers bill for a while nowP >c? $E*# amended 3lause :E of %isting &greement listed companies to have a W* policy but this is not mandatoryP >d? 3ompanies like #nfosys Wipro Tata 2otors have a sound W* policy in place. >e? Great need for W* policy especially for companies working in global environments ,nd finally! all that is needed for evil to prevail is for good men to do nothingF

ENRON SCAN#AL
Enron a large -oustonBbased energy company long held the reputation as a great &merican innovator and was a stock market darling. -owever the company fell apart publicly in ;66=due to 1uestionable managerial decisions . Enron eventually was forced to lay off thousands of employees and to undergo the largest 3hapter == bankruptcy in G.$. history. 2eanwhile in early ;66; the $ecurities and E'change 3ommission and the G.$. Dustice @epartment began conducting criminal investigations surrounding allegations of fraudulent financial reports and manipulation of energy markets. WaistBdeep in the scandal was &ndersen Enron)s auditor. &ndersen was indicted by the @!D in 2arch ;66; when it came to light that the firm had destroyed thousands of Enron documents and assisted the company in covering up losses and other dubious financial dealings. Three months later a federal /ury found the firm guilty of obstruction of /ustice.
.age 1/ of 40

Granted &ndersen)s misdeeds lay with the accounting side of the firm and with a small number of people working out of one office at that. #n the court of public opinion though the resulting stigma potentially could rub off on anyone even remotely associated with the scandal. Who is likely to be affected+ There is of course &ndersen whose consulting arm while not accused of any wrongdoing garnered millions in fees from Enron. The *ig 7ive firm)s sea of troubles has been well documented and continues to make headlines even today. Then there is 2cNinsey a long time Enron adviser and former employer of the nowBnotorious Deffrey $killing the Enron e'ecutive primarily responsible for engineering many of the company)s shady reporting practices.

ETHICS IN A#VERTISIN+
G,dvertising is about as ethical as the ,merican public. ,bout as ethical as you and your neighbors. ,bout as selfish as you and your ac uaintances. It has about the same moral standards as the upper socioeconomic strata of society because it is created! approved and paid for by the upper echelons of modern C.0. society. IHll modify that to say that it is a little more ethical! a little more moral! than the upper economic strata of society. WhyB 4ecause advertising lives in a fish bo"l. It is the most visible of all commercial practices. It has -.. million critics. ,nd no business! no communications medium! no art form (or "hatever you "ant to call advertising)! no other enterprise has so many "atchdogs.I #orris Hite4 5uoted in A1man2 Morris Hite3s Met4o1s 5or 0innin6 t4e A1 +ame4 6788 $o like common public &dvertising too has its ethical values. &dvertising communications may be artfully presented facts with a dash of e'aggeration and drama to make an impact but the same are subservient to ethical principles. #n order to be consumer oriented an advertisement will have to be truthful and ethical. #t should not mislead the consumers. #f it so happens and word does get out the credibility is lost and the communication becomes ineffectiveC rather futile. &dvertisement)s truth should be viewed from the consumers) point of view and not in the narrow legalistic frame in order to find a loophole and to get out after an irresponsible action. 2any times a clear line of demarcation between truth and lies is difficult to establish. *ut the advertisement is as much /udged by its impact as by its acceptance by the consumers. What it promises must be there in the performance of products. &dvertisements should not be indecent and obscene. &s advertising is a social act it must honour the traditional norms of social behaviour and should not affront the moral senses of a society.
.age 20 of 40

Gambling or to encourage gambling is against ethical code. Endorsement of products by celebrities who are opinion leaders is also sometimes critici0ed for spreading falsehood. Especially if the word gets out that the celebrity has endorsed without actual personal e'perience it can have a very detrimental effect on consumers in an informed society like G$. *ut in a society of @emi Gods worshippers like #ndia it is the best known secret. We have seen the *ollywood heartthrobs attributing the secret of their beauty to soaps they would never allow in their homes. #n order to enforce an ethical code we in #ndia now have &dvertising $tandards 3ouncil of #ndiaC &$3#. #t is a nonBprofit organi0ation set up by :8 founder members who are involved with advertising in one way or the other. #t puts forward a regulating code. &$3# proposes to ad/udicate on whether an advertisements is offensive and its decision will be binding on its members. #t proposes to deal with government if there are any disputes.

Tell(tale Signs of %nethical "ehaviour

"y anguage2
=. Everybody Else does it ;. #f we don)t do it somebody else will 8. That is the way it has always been done :. We will wait until the lawyers tell us it is wrong 5. #t does not hurt anyone F. The system is unfair <. # was /ust following orders "y category =. Taking things that don)t belong to you ;. $aying things you know are not true 8. Giving or allowing false impression :. *uying influence or engaging in conflict of interest 5. -iding or mutilating information F. Taking unfair advantage <. .erpetrating interpersonal abuse 9. .ermitting organi0ation abuse E. Miolating rules =6. 3ondoning unethical actions
.age 21 of 40

==. *alancing ethical dilemma

92 Can .rofitability : #orality co(e1ist?

&ns2 2any believe that *usiness Ethics is an !'ymoron >self contradictory? .hrase. *ut far from it the answer to this 1uestion is an emphatic ;ES and let me /ustify this resounding 4E$. (obel .ri0e winner 7riedman said There is one and only social responsibility of business and that is to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game which is to say engages in open and free competition without deception or fraud This one statement says it all. There is no denying the fact that a business is no charity and e'ists to earn profit. *ut profits should come in an honest way. There should be no deception or fraud in the pursuit of profits. -onest product at honest prices. .rofit Ms -onesty. & parado'+ There are many such parado'es which e'ist in real life and a fine balancing act is re1uired in such situations. Give the customer honest prices through efficiency in production and give the shareholder bumper profits through productivity and growth in business rather than ripBoff pricing. -onesty does not mean bad business. &dopting moral way of business does not mean surrendering profits. !ften a profit opportunity surrendered in the short run becomes the key to the bigger door of profits in the long run. 2oral practices in business create a new resource called $ocial 3apital through TrustC trust of society trust of customers trust of suppliers and so on. This capital manifest profits in terms of customer loyalty and increased sales lesser re1uirement for marketing effort higher leverage in dealings lesser employees turnover etc. We have a live e'ample of coBe'istence of morality and profitability. Tata $ons the most respected #ndustry -ouse of #ndia #nc is a living e'ample Tatas have been known to be conducting their business with morality. They have been offering honest products at honest prices. Dob in a Tata company is supposed to be as safe as Govt /ob. ,arely has any one ever been fired from a Tata company. @espite being the largest #ndian corporate house for almost whole of the last century hardly ever was it even suspected of any misdeed by the govt or the public or shareholders or employees and not even by competitors. Tatas have been at the forefront in establishing and financing various institutions of social and national relevance like Tata #nstitute of 7undamental ,esearch Tata #nstitute of $ocial $ciences Tata 3ancer
.age 22 of 40

-ospital #ndian #nstitute of $ciences *angalore and so on. $teel 3ity Damshedpur is a story of corporate indulgence in social matters like none other. Each of the Tata company has a commitment to adopt a social cause. @espite practicing 2orality like probably no other company in #ndia profits of the company have constantly grown. @o we need any further /ustification that morality and profits can coBe'ist+ $uccess of #nfosys and Wipro further /ustify the foregoing.

92 !iscuss #orality in &dvertising. &ns. &nyone who has worked in business organi0ations learns that the specific challenges thrown up
in the marketing area are amongst the most ta'ing. &dvertising is in effect attracting customers to buy your product by first informing of availability of the product and then promising them better value for their money. $hould advertising make the promises that product is not capable of delivering+ !r use means that are damaging to the society like indecent pictures or promoting harmful products among children etc. We have to admit that there is plenty of grey area in advertising. The distinction between misrepresentation! or making claims "hich are false and surreptitiously e*aggerated >believable by the gullible public? and transparent e*aggeration >which even idiots wont believe to be true? to make a commercial eye catching is too thin. %et us see it with a live e'ample. !n one hand we have gigantically e'aggerated claims like 7evicol ads (%*aggeration has been adopted as a theme by 3evicol. 1eople travelling 3evicoled to sides of the bus! or egg
not breaking by hammer because hen "as feeding from a 3evicol can! etc) where e'aggeration is transparent

enough for every viewer to know that it is e'aggeration for the sake of making the advertisement eye catching and driving the message home. (o one is even remotely likely to believe the suggestions in the advertisement as true. !n the other hand we get e'aggerated claims in the advertisement designed to be passed as truth. #t is most common in personal care segment and services sector. &n advertisement suggests that drinking a special brand of Whisky will transport one into a fairyland of delights. The unspoken preBsupposition here of course is that the potential customer will be not only resistant but also sensible and reasonable in assessing the claims for various goods and services and will not take it all absolutely literally. #t is in such areas particularly that regulation and monitoring of advertisements have an important social function by protecting the vulnerable in the society from being e'ploited. &nother more ethically
.age 2" of 40

interesting sphere in which advertising needs to be scrutini0ed is the pressure on individuals to make particular choices. There are many health care and insurance companies who create a fear psychosis through their advertisement to sell their product to people who might not need them. Take the case of child life insurance plans and water purification machines. (Child Insurance 1lan has already been discussed
in %thics and 0trategy Chapter). .eople in developing and under developed countries generally develop

fair amount of immunity to water borne diseases by virtue of being constantly e'posed to less than pure water. 2any doctors also advice against use of ultra pure water produced by machines like &1ua Guard. 2edical science believes that regular use of ultra pure water kills or hampers development of auto immunity by the body and e'poses the person to illness even with slightest impure water which is inevitable given that it is impossible to get ultra pure water everywhere. We have all heard how *ritish &ustralian and (ew Realand teams suffer from gastric problems whenever they travel to #ndian subcontinent despite taking all precautions. $ame is the case with breast milk supplements >tinned milk? being sold by pharma companies. Their advertisements push use of tinned milk against established wisdom of use of breast feed for infants. #n addition there are plenty of wrong and false allurements and promises like >a? &dvertising unhealthy products >3igarettes? >b? &dvertising to 3hildren >3ola adsSin/urious to a children)s health in the long run and >c? Gsing .uffery in advertising >7ree @ental #nsurance if you buy ,s. ;6 worth tooth paste. #n reality there are strings attachedP &nd finally there are cases of omitting certain facts about the product or being economical "ith the truth which is ethically wrong. *ut companies do it nevertheless. There have been cases of pharma companies pushing sales of certain drugs in poor countries even after their harmful effects were well documented and drugs had been banned in certain advanced countries.

92 Why good managers ma$e bad ethical decisions?

&ns. 2anagers at various levels have been found very fre1uently to be indulging in unethical practices. When 1uestioned they always have a reason for their conduct. 7ollowing are some of the reasons that are offered as e'planation for their conduct >a? # have to satisfy the inspector from the electricity board to maintain ade1uate power supplies in times of recurrent shortage. >b? # am obliged to entertain and enrich purchase manager of a high value customer to keep him from switching over to our competitor. >c? # have to fiddle around with yearBend inventories to show a higher profit figure to the board of directors.
.age 24 of 40

>d? # have to produce fake securities and bills receivable to procure ready cash. >e? # have to overBinvoice import bills and underBinvoice e'port bills to oblige overseas owners. >f? # have to sign the transfer order of an officer to satisfy the higherBlevel boss. >g? # have to arrange for cash payments to govt officials from ta' departments to keep them from creating trouble for the company. >h? # have to manipulate data when preparing the pro/ect report to meet the hurdle rate of financial institution. These are invoked to circumvent the conflict between the instant relative and enduring universal values >honesty responsibility etc?. This sideBstepping is also an e'cuse at times to subvert personal ethics in favour of company goals under the argument that personal values are inappropriate as standards for corporate decisions. .rimary reasons for bad decisions by good managers are as follows >a? <o Co(relation between #anagerial &bility and Ethics There is actually nothing surprising about good managers taking bad ethical decisions because there is not much coBrelation between two. 2anagerial ability is about planning organising developing"deploying"directing coBordinating and controlling a particular activity. -ardly do any of these functions re1uire ethical input. !n the contrary control function when dealing with human element often re1uires employment of cunning to e'tract best out of people in the short term. >b? /reed is one of the prime reasons for managers taking bad ethical decisions. 2aterial success is high on most managers) mind. @esire to achieve material success drives them towards unethical conduct. >c? Short term focus is another reason. Ethical conduct is a sure but slow way to success. 2anagers lack patience and take short cut of unethical way to achieve 1uick material success. -owever long term conse1uences of such unethical conduct are often disastrous. >d? Inade5uate moral development is another reason. 2any managers during their development process don)t get e'posed to don)t reach .ost Conventional evel (page @) of moral development and remain at .reBconventional level where they are guided in their actions by rewards and punishments. >e? #isplaced oyalty ' 2any managers fall due to their misplaced. These are people who are

perfectly ethical in their personal conduct. -owever they indulge in all sort of unethical practices as managers. That is because they attach more loyalty to their company rather than society. They take
.age 2% of 40

bad decisions in order to benefit the company. They are ethical in their own right but not in popular sentiments of society who are at receiving end of their skewed loyalty. General !)@yer was one such person. >f? .eer pressure is another reason. & man living in an environment where unethical decisions are routine among peers ethical conduct becomes a reason for ridicule and derision from the poor group. >g? Company3s .olicies are ne't reason. 2any companies give little importance to ethical issues in their business. .rofit is their only God. #n order to retain their livelihood in such companies many desperate managers succumb to the pressure.

92 .ersonal =alues ma$eth the man4 !iscuss.

&ns. Malues are part of the psychological traits of the person. .sychological traits are part inherited and part learned from the environment. $ome values are learned automatically by observation and e'periences from the surroundings while some values are instilled assiduously by the elders teachers and society. *oth managers and academics have often debated whether Malues"Ethics can be taught. & fre1uently stated view is that these are learned ("hether from one's parents and teachers or from surroundings) and fully formed in early life so that later efforts at teaching are really pointless. The final caveat however is that ethical conduct in business conte't can still be taught in the early stages of one)s working life.

COR*ORATE +OVERNANCE
3orporate Governance is acceptance by management to safeguard the rights of shareholders as true owner of the corporation and their role as trustees on behalf of the shareholders. 3orporate Governance is all about commitment to values about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company. 3orporate Governance emanates from business ethics. #t is about conducting the business in an honest and transparent manner where by every stake holder vi0 owners employees shareholders suppliers customers government society and even competitors gets its rightful share from the business and no single entity is able to corner disproportionate share of profits. Moluntary adherence to honest business practices has been eroding over the years as evident by recent e'posures. Enron"&rther &nderson Worldcom and Rero' are rather famous e'amples but there have been many in the recent past. Watergate scam of 96)s in G$ had led to formation of what is
.age 2) of 40

now popularly called 3adbury) 3ommittee. $ome very large multinational banks have failed in the last decade. 7ailure of *ank of 3redit and 3ommerce #nternational in =EE; being the largest and most rattling one. The malpractices were so heinous and rampant that it earned the epithet of *ank of 3rooks and 3riminals #nternational. *ut such happenings are not new. !nly their scale has grown due to globali0ation. *ut such failures of seemingly healthy businesses brought into focus the need for corporate governance. #t led to a feeling that many of the good business practices hitherto left as ethical choice need to be codified. &nd thus took the birth of concept of 3orporate Governance. #n #ndia the concept of 3orporate Governance took its birth after the $tock 2arket scams of E6s first led by -arshad 2ehta and later by Netan .arikh. $ecurities and E'change *oard of #ndia was formed in =EE; to check #rregularities and ensure smooth functioning of $tock E'changes. -owever even before it could get its act together -arshad 2ehta scam broke out. Even later there were large scale scams involving 3oBoperative *anks 7inance companies .lantation companies large $tock broking houses and so on. Even Gnit Trust of #ndia was not spared of the irregularities. *ut while so many companies turned sick and small investors lost billions of their hard earned money promoters continued to prosper nevertheless. $E*# constituted a committee on corporate governance under the 3hairmanship of 2r Numar 2angalam *irla a leading #ndustrialist and member of *oard of $E*#.

<eed for Corporate /overnance

=. (o information is given to investors regarding diversification e'pansion change in business loss of business etc and instead used by promoters and top management for insider trading at the cost of small investors. ;. 2any large companies are known to manipulate rules and even Govt .olicies with the help of bureaucracy and political meddling. 8. #f investors 7## and general public put their money they have every right to ask information about company.

,b>ective of Corporate /overnance

The fundamental ob/ective of 3orporate Governance is the enhancement of shareholder)s value keeping in view the interest of other stake holders. This harmonises the need to strike a balance at all

.age 2, of 40

times between the need to enhance shareholder)s wealth whilst not being too detrimental to the interests of other stakeholders in the company.

+actors Influencing Corporate /overnance2 7our factors which influence corporate governanceI
B =. The ownership structure of company ;. 7inancial $tructure 8. The structure of the company *oard :. The %egal political and regulatory environment within which company operates.

How to &chieve /ood Corporate /overnance?

$ince the voluntary compliance to sound corporate practices have failed in large measure there is a need to codify the good practices as law. There is a need to institute checks and balances in the functioning of the 2anagement and the *oard. Thus Numar 2angalam *irla 3ommittee was appointed by $E*# to make recommendations. The committee made number of recommendation some being for mandatory compliance (0uffi*ed "ith
GMJ in follo"ing te*t? and others being non mandatory (suffi*ed "ith GKJ).

Numar 2angalam *irla 3ommittee laid a great emphasis on *oard of @irectors for ensuring 3orporate Governance. Even among the directors it trusted independent directors to be the real watch dogs for ensuring corporate governance. #ndependence has been unambiguously defined in the report and following are the salient recommendations of *irla 3ommitteeI =. <umber of <on E1ecutive !irectors ?#@ ' The (onBE'ecutive @irectors bring e'ternal and wider perspective and independence to the decision making. 3ommittee recommended that minimum 56J of the directors should be none'ecutive directors. ;. Increasing the <umber of Independent !irectors ?#@ ' Even though non e'ecutive directors are e'pected to bring in better ob/ectivity and independence in decision making there is still ample room for bigotry since every non e'ecutive director is not an independent director >(ominee @irectors are not independent directors?. Therefore it recommended following minimum numbers of independent directors in the board >a? #n case 3hairman of the *oard of @irectors is a (on E'ecutive @irector one third of total @irectors should be #ndependent @irectors. >b? #f 3hairman is an E'ecutive @irector half the @irectors should be #ndependent @irectors.
.age 2- of 40

8. &ttractive +inancial )emuneration ?=@ $ 3ommittee recommended attractive financial remuneration to ensure that people of merit are attracted to take up the directorship of the companies. :. <ominee !irectors ?#@ $ (ominee directors do not represent their own company but also the general stakeholders as well. They thus have same responsibility and accountability towards general shareholders as any other director. They are therefore prohibited from communicating material information to any department of parent company which they could use to play in stock market. 5. &udit Committee ?#@ ' #t should consist of at least 8 members and all non e'ecutive directors with ma/ority being independent directors. The 3hairman should be an #ndependent @irector. The committee should meet at least thrice a year. 3ommittee has powers to investigate any activity within its terms of reference. F. +re5uency of "oard #eetings ?#@ The 3ommittee recommended that board meetings should be held at least four times in a year with a ma'imum time gap of four months between any two meetings. <. imit on <umber of !irectorships ?#@ ' The 3ommittee recommended that a director should not be a member in more than =6 committees or act as 3hairman of more than five committees across all companies in which he is a director. 9. Trans7aren89 in #e8larin6 Rem neration o5 all #ire8tors 'M(: E. &ccounting Standards and +inancial )eporting ?#@ ' >a? Consolidation of &ccounts of Subsidiaries The companies should be re1uired to give consolidated accounts in respect of all its subsidiaries in which they hold 5= J or more of the share capital >b? Segment )eporting 7inancial reporting in respect of each product segment should be available to shareholders and the market to obtain a complete financial picture of the company. >c? @isclosure and treatment of related party transactions =6. !isclosure of Interest by !irectors ?#@ The 3ommittee recommended that disclosures must be made by the management to the board relating to all material financial and commercial transactions where they have personal interest that may have a potential conflict with the interest of the company at large >for e.g. dealing in company shares commercial dealings with bodies which have shareholding of management and their relatives etc.?

.age 2/ of 40

==. )eport on Corporate /overnance ?#@ The 3ommittee recommended that there should be a separate section on 3orporate Governance in the &nnual ,eports of companies with a detailed compliance report on 3orporate Governance. Gnfortunately there is more of lip service than real intent in this field. The industry 3ompany %aw *oard $E*# and even Government have all been less than keen on achieving good corporate governance. @espite the reports on 3orporate Governance being available with every implementation agency for over =6 years little has been done to implement the recommendations. While there is talk of $E*# issuing a guideline increasing the number of independent directors there is virtually no talk in any 1uarter on the suggestion to introduce a random appointment of auditor from a selected pool of auditors.

CLAUSE 4/
The term Q3lause :E) refers to clause number :E of the %isting &greement between a company and the stock e'changes on which it is listed (the +isting ,greement is identical for all Indian stock e*changes! including
the >0% and 40%).

This clause was inserted as late as ;666 conse1uent to the recommendations of the Numar 2angalam *irla 3ommittee on 3orporate Governance constituted by the $ecurities E'change *oard of #ndia >$E*#? in =EEE. (Was modified later "ef .;..;.-..@ on the basis of >arayan Murthy Committee 5eport) 3lause :E when it was first added was intended to introduce some basic corporate governance practices in #ndian companies and brought in a number of key changes in governance and disclosures >many of which we take for granted today?. #t specified the minimum number of independent directors re1uired on the board of a company. The setting up of an &udit committee and a $hareholders) Grievance committee among others were made mandatory as were the 2anagement)s @iscussion and &nalysis >2@O&? section and the ,eport on 3orporate Governance in the &nnual ,eport and disclosures of fees paid to nonBe'ecutive directors. & limit was placed on the number of committees that a director could serve on. #n late ;66; $E*# constituted the (arayan 2urthy 3ommittee to assess the ade1uacy of current corporate governance practices and to suggest improvements. *ased on the recommendations of this committee $E*# issued a modified 3lause :E on !ctober ;E ;66: >the Qrevised 3lause :E)? which came into operation on Danuary = ;66F.

What3s new in Clause A7?

The revised 3lause :E has suitably pushed forward the original intent of protecting the interests of investors through enhanced governance practices and disclosures. 5 broad themes predominate. The
.age "0 of 40

independence criteria for directors have been clarified. The roles and responsibilities of the board have been enhanced. The 1uality and 1uantity of disclosures have improved. The roles and responsibilities of the audit committee in all matters relating to internal controls and financial reporting have been consolidated and the accountability of top managementSspecifically the 3E! and 37!Shas been enhanced.

INSI#ER TRA#IN+
(Courtesy 1resentations by Ms Eaya Mishra's and Te=bir's Lroups)

!efinition
#nsider Trading refers to the trading >buying as well as selling? of a company)s speculative financial instruments like shares bonds or stock options by the insiders such as officers directors or ma/or share holders >holding more than a specified percentage of the company)s shares? or any individual who has access to privileged nonBpublic information by virtue of his official duties. $uch individuals include Govt !fficials auditors etc.

egal and Illegal Insider Trading

#nsider trading based on material nonBpublic information is considered to be fraudulent since the insiders are benefiting themselves from information availed in the course of their duty at the cost of shareholders. $uch act is considered to be violation of the trust or the fiduciary duty towards the shareholders. -owever any insider trading which is not based on privileged nonBpublic information is perfectly legal. #n common parlance #nsider Trading has a negative resonance and invariably refers to illegal trading only.

E1ample of Illegal Insider Trading

The 3E! sells holding of his stock in company before releasing news to the public that company is likely to lose a massive lawsuit or its supply contract with a ma/or customer will not be renewed upon e'piry ne't month. The 3E!Hs son sells the company stock after learning from his dad about the imminent fall in share prices due to negative development in the company. -owever in this case it is not the 3E!)s son but 3E! himself who is guilty of insider trading since he has ti77e1 his son of nonB public information.

.age "1 of 40

The Dudge dealing with the lawsuit reali0es that the company will lose the lawsuit and therefore sells the stock before the pronouncement of /udgment. -owever catching insider trading is difficult without installing software which can maintain database of holding of shares by insiders track their trades and report any large transaction prior to large movement in stock prices. Even then proving insider trading can be difficult because traders often hide behind pro'ies. 2ost trading by promoters is actually never known and is therefore never reported or investigated. #n some recent cases where trading was done in own name offenders got away scotBfree due to inability of prosecutors to establish the offence beyond doubt.

aws on Inside Trading ' %nited States

Gnited $tates $tock 2arket is the single largest stock market as also one of the best regulated markets in the world. #t has been actively pursuing against illegal insider trading. %ike $E*# in #ndia $ecurities E'change 3ommission is the regulatory body in G$. $E3 prohibits shortBswing profits >from any purchases and sales within any si' month period? made by corporate directors officers or stockholders owning more than =6J of a firm)s shares. $tiff penalties for illegal #nsider Trading which can be as high as three times the profit gained or the loss avoided from the illegal trading.

aws on Inside Trading ' India

The $ecurities and E'change *oard of #ndia >.rohibition of #nsider Trading? ,egulations =EE; was amended on ;;nd 7ebruary ;66; which mandates every company to frame a 3ode of 3onduct for prevention of insider trading. Employees including @irectors when in possession of any unpublished price sensitive information as defined in the ,egulations pertaining to the 3ompany shall notI *uy"sell securities of the 3ompany either on their own behalf or on behalf of any other person. 3ommunicate counsel or procure any unpublished price sensitive information to " from any person The @esignated Employees shall cover the followingI @irectors E'ecutive and (onBE'ecutiveC 2anagers at %evels = O ; or its e1uivalentC Employees in 7inance and $ecretarial functions located at the 3orporate -ead1uartersC and $uch other employees as may be determined by the 323 from time to time.

.age "2 of 40

@esignated Employees shall not buy " sell securities of the 3ompany during 3losure of the HTrading WindowH i.e. the period during which trading in the securities of the 3ompany is prohibited

Trading Window shall be closed during the following periodsI 7rom =5th 2arch up to twentyBfour hours after the announcement of the annual financial results >and dividend if any? to the $tock E'changes. 7rom =5th Dune up to twentyBfour hours after the announcement of the first 1uarter financial results to the $tock E'changes. 7rom =5th $eptember up to twentyBfour hours after the announcement of the second 1uarter and halfByearly financial results to the $tock E'changes. 7rom =5th @ecember up to twentyBfour hours after the announcement of the third 1uarter financial results to the $tock E'changes. 7rom the date of circulation of the agenda for the meeting of the *oard of @irectors in which any material price sensitive and unpublished event including public"rights"bonus issues e'pansion plans 2O& plans disposal of part or whole of undertaking are proposed. The closure of the Trading Window for these events will be advised by the 3ompliance !fficer appointed by the *oard of @irectors for the purpose of this code.

@esignated Employees shall make the following disclosures of shares and other securities held in the 3ompany by them and their dependant family members to the 3ompliance !fficer #nitial disclosure of number of shares and other securities held as on 8= st 2arch ;66;. This disclosure shall be made by 86th &pril ;66;. &nnual disclosure of number of shares and other securities held as on 8= st 2arch including details of purchase " sale of shares and other securities during the financial year. This disclosure shall be made within 86 days from the close of each financial year. 3hanges in shareholding when such change e'ceeds 56 666 shares. This disclosure shall be made within : working days of such change.

@isclosure shall also be made of the number of shares and other securities held upon becoming a @esignated Employee at any point of time. This disclosure shall be made within : working days of becoming a @esignated Employee.

Case Study ' Samir &rora

@igital Global soft and -. #$! were planning a merger in ;668. $amir &rora was the head of e1uity investments in #ndia for &lliance 2utual 7und. $amir was aware of the impending merger announcement and sold shares of @igital Global thereby saving the loss to his company.
.age "" of 40

&dded to this before selling he made statements of promising returns from the scrip. $E*# ruled $amir &rora guilty of insider trading. -owever when $amir &rora appealed $&T overruled $E*# on following groundsI B >a? $amir could not have known the e'change ratio as it was given in sealed cover. >b? 7urther $amir sold many other scrips along with Global $oft. >c? !ther research houses had downgraded @igital $oft and recommended sale. >d? 2ere fact that 2@ of Global $oft and $amir were good friends does not lead one to believe that $amir had all the inside information. @espite all the circumstantial evidences $amir &rora got scotBfree because of legalities. There will not be many cases with better evidences than this case. #f the law enforcement agencies are going to take such lenient view of the offences this law will also become as many other laws are like a .omeranian @og ("hich barks a lot but never bites and is used only as a decorative pet "ithout any real use)! without any conviction to their credit.

CASE STU#IES
Case St 19 1 $ T4e *ara;le o5 t4e #ar< C4il1 o5 Nar4i&La The events of three weeks at far away (arhiB%a had a deep significance for 3handra in understanding and resolving the ethical discord he was having with his organi0ation for the past two years. -e was the e'port manager of 2ansukhani $arkar O 3o who was in the business of handlooms and handicrafts. They had e'clusive bouti1ues in several urban centres in #ndia and a few abroad and all making large profits. Their two directors 2rs. 2ansukhani and 2rs. $arkar had close connections with politicians and were therefore able to garner a lot of government support for their company in the form of subsidies and other benefits. Whereas they pro/ected themselves as great social workers helping the preservation of ancient crafts and skills of the country when it came to sharing profits with the primary producers 3handra felt that they were harsh and unethical. 7urther they operated through middlemen who they knew took big cuts before paying the primary producers. 2rs. $arkar also has an embarrassing habit of lifting items she liked from the showroom of the middlemen and not ever paying for them. $ome of them complained to 3handra but did not pursue the matter as 2rs. $arkar had powerful politician friends. 3handra often felt like resigning from his /ob. *ut his wife always dissuaded him. 4ou cannot e'pect every person in the organi0ation to have e'emplary ethics. &s long as they are doing good overall you should turn a blind eye to their faults she said. 3handra was not sure if she said so only to prevent him from taking any disastrous course which would hurt her and their children. #t was however true that the company gave him considerable freedom to develop a network of artisans in the deserts of Nutch in Gu/arat and in the poverty stricken
.age "4 of 40

Erode district of Tamil (adu. 2rs. $arkar was invaluable in getting contracts from abroad and the company was free with its finances and could support a large turnover with sufficient credit arrangements. &dmittedly this large number of artisans who manufactured for e'ports through 2ansukhani O $arkar was much better off than other artists of the area. & couple of them even managed a free trip abroad with government support and high profile publicity. 3handra was in the last stages of clinching a long term contract with an &merican .arty. -e had sent those samples and a 1uotation. *efore he went abroad to negotiate with them he thought he should undertake a -imalayan trek to spiritually recharge himself away from his mundane life at 2ansukhani O $arkar. The trip had une'pected conse1uences. The group had a mi'ed crowd geographers from Dapan a black &merican medical technician a (orwegian /ournalist 3handra and @r. Gulati a pediatrician from @elhi. They were to assemble at Tehridun at Gttarakhand transported 856 km by /eep to Dyoti 2ath and then trek to (arhiB%a =56 km away. &fter acclimati0ation at (arhiB%a they had to go to the 3hinese border. (arhiB%a had a scanty population of 86 mostly the aged. The able bodied had all gone to the plants. 7ive year old %akhan was one of the few children whose parents had gone to the plants for work leaving him in the care of his old grandmother. Gnusually dark for a child from (arhiB%a he was held in reverence by the villagers as in their mythology the gods when they came to earth were dark. The team members became great friends with %akhan. The weeks trek along the border was spiritually elevating for all the members of the team. They reflected on the follies of humanity inflicting violence on each other. The spirit of the mountains seemed to help them in communicating with each other without words and without language. *ack at (arhiB%a they were horrified to find %akhan in 3oma due to high fever. %akhan)s grandmother was wailing. The whole village was in panic. The team was rudely awakened from their spiritual euphoria to the realities of the world. #t seemed the spiritual centre of their world was now in (arhiB%a. Everyone)s first inclination was to see %akhan through his difficult days and leave only after he was well. *ut each had second thoughts. -ow could @r. Gulati miss his sisterBinBlaw)s wedding+ -ow could the Dapanese miss the conference at *ei/ing+ where they hoped to present an important paper. -ow could the &merican leave his wife for so long when she was battling with the task of looking after his old mother+ 3handra had this most important meeting in (ew 4ork which was the fruition of ; years effort to get a good deal for his artisans. The (orwegian had little more time as he could mail his story a little later. *ut what could he do sitting there and watching the child die. 3handra found that everyone had devious ways of
.age "% of 40

legitimi0ing their ethical stand of not wanting to go full length in their ethical duty. They were however willing to do their best within their selfBimposed constraints. The Dapanese rummaged their rucksack and brought out some medicines luckily good enough for @r. Gulati to revive the child. @r. Gulati remembered he had a friend at Tehridun who was a good pediatrician. The (orwegian said his wait would be worthwhile if he could carry the child to Tehridun first on his back to Dyoti math and thereafter by motor transport. The &merican remembered he had noted the telephone number of a medical laboratory at Dyoti 2ath where some help may be available. 3handra would monitor the entire operations by telephone from (ew 4ork and *ombay and support it with 2oney. &ll the team members gave whatever money they could spare. Everyone seemed a little relieved but not entirely free from a feeling of guilt. *ut the plan worked. %akhan was nearly cured when the (orwegian left him at Tehridun in the care of the doctor. 3handra came back after a successful trip from the G$& and organi0ed the shipment. -e then went to Tehridun picked up %akhan and dropped him back to (arhiB%a. -e felt the entire episode was a clear answer to his worries he had had with the ethics of 2ansukhani O $arkar. WH&T !, ;,% THI<B W&S THE &<SWE) WHICH CH&<!)& +,%<! I< THIS E.IS,!E? Case St 19 2 & T4e *orta;le Ultrasono6ra74 (ever before has it happened in my life. We have failed in our public relations bemoaned Mir/i $uratwala 3hairman of Gniversal Electronics as he watched the small group headed by @r. &rulnayagam >hereafter referred to as the doctor? fasting in front of his factory gates. Their banners proclaimed to the whole world that QGniversal Electronics are mercenary murderers of innocent babies). &s they caught a glimpse of his face they roared lustily. The doctor was protesting against the latest Gniversal Electronics product a much vaunted revolutionary technology in ultra sonography brought into the country in collaboration with a world famous &merican multinational. The product was a small si0ed portable ultra scan sonographic recorder small enough to be packed in a briefcase. The foetus tests would become much easier and could be carried out even at home. 7or a year the doctor had tried every other means to persuade Gniversal Electronics not to make this product. .icketing was his last desperate step to stop them. The doctor felt that in #ndia it could have only one effect. #t would dramatically increase the number of female foeticides as it would be easier to determine the se' of the child. #f it was a girl it would be aborted. 7or their complicity in this unethical outcome he branded GE as the most unethical company in #ndia. .arado'ically both GE and the &merican multinational with whom they were collaborating prided themselves as being ultra ethical. *oth the companies had won many international awards for
.age ") of 40

ethical e'cellence. #ronically the &merican company had also provided that the #ndian company should distribute along with the machine a note by a known &merican doctor on the ethics of using the ultraBscan machine. #t said that the chances of a baby girl being mistaken for a baby boy were <J in the first ;6 weeks of pregnancy and therefore it would be unethical for parents with a history of haemophilia to abort a child identified as male /ust because the chances of males getting the disease were high. *ut the notes ignored that baby boys can never be mistaken for baby girls. #t frivolously also added that one might as well wait for the baby to be born before deciding if the nursery walls should be colored pink or blue. GE had been chosen after a long search for an ethically strong #ndian 3ompany. Mir/i still recalled the demeaning ethical e'amination he was put to by the foreign multinational. Q&s if all #ndians are crooks and all &mericans are angels) he remarked. We have given up crores of rupees of profits because we refused to offer bribes and everyone knows that in this industry bribery is most rampant he added. -e was speaking the absolute truth. -e had ensured that the induction program for his new recruits drilled them on ethics. The slightest fall in standards would mean the sack. 7or him unethicality only meant corruption. This perception of unethicality was also shared by the foreign collaborator. Mir/i)s legal advisors first disputed the doctor)s statistics. *ut that was a fruitless approach. -e was a well respected public health statistician. -e could back his statistics to the hilt. Then the ., line harped on the woman)s right to abort abnormal foetuses. The doctor then detailed case histories to show that in most of the decisions the new portable instrument could be used secretively. The family seniors could overrule the mother. $ocial activists had little opportunity to intervene. !therwise they could at least park themselves in front of the sonography clinics. The abortion usually pushed mothers to months of intense depression. GEs ne't line of defence was that the instrument did nothing more than make the currently used technology more efficient and cost effective. The machine could easily be moved into labour rooms in hospitals and used concurrently with the delivery of the child. #f sonographs were right portable sonographs too were right. The doctor countered this by saying that the new portable technology was like giving users a pistol with a silencer to kill a person and destroy evidence. %astly GE stated that the instrument was only a means of ascertaining the medical facts correctly and could have many other positive uses other than determining the se' of the child. #t could detect foetal abnormalities. #f used for criminal purposes the perpetrators of the crime were both the mother and those who forced her or her doctor and not GE. They 1uoted the provisions of the prenatal diagnostic Techni1ues act =EE: under which communicating the se' of the foetus to the mother is an offence punishable with a three year sentence and the doctor concerned can be struck off the membership of the state medical council. The mother and the other family members can also be punished. &ll users of
.age ", of 40

such machines had to be registered under the act. GE thought they had clinched the legal angle. The doctor had no patience for legal or ethical analysis. -e said that he was not doing a right or wrong analysis but with or without analysis. With the instrument babies were killed. Mir/i)s world was crumbling. -is company)s ethical image was being mercilessly shaken up. -e was convinced that GE was not being unethical but he doubted if others would look at it the same way. #f only # had persuaded the doctor before his views had got hardened everything would have been fine. #t was a failure of my ., and not ethics he said and cursed his fate. #f he now went back on the pro/ect GE would lose at least ,s.;6 3rores. I+ ;,% &)E I< THE .,SITI,< ,+ =I)*I S%)&TW& & H,W W,% ! ;,% S, =E THE .)," E#? Case St 19 $ " & T4e 8om7 ter 04i=&!i1

@r. .. ,a/arathnam >hereafter called ,athnam a name by which he was popularly known? had a wide variety of 1ualifications that included a doctorate in petroleum engineering and a master)s degree in computer science. -e was a wellBknown authority in the application of knowledge engineering in the field of petroleum refining. -e was a professor at the Gniversity of Te'ico in Te'as. #n =E9F a team of high level e'ecutives from 3olorado .etroleum #ncorporated >3.#? an oil company in the Gulf was on a study tour of the school of petroleum engineering at Te'ico. They were highly impressed with the work of ,athnam particularly in the field of knowledge engineering applications to solve process problems associated with petroleum refineries. The se1uel was a fantastic offer of appointment by 3.# to ,athnam which he accepted little reali0ing the master plan of his new employers. ,athnam was the chief e'ecutive engineer of their computer installations which were primarily used for geological analysis planning drilling programmes and troubleshooting refinery problems. $oon after /oining he was introduced to @r. $ 3 *ose the chief geologist who became his close friend. They freely e'changed e'periences over many hours of professional discussions. *ose was a true scientist who did not hold back any knowledge. ,athnam knew all about *ose)s methods of investigation and developed an e'pert system that embodied this knowledge. The top management of 3.# supported this pro/ect beyond the e'pectations of the two scientists. The news that 3.# had decided to give *ose the golden handshake was a terrible moral shock to ,athnam who had no difficulty in identifying the cause the much regarded knowledge base of his own creation. ,athnam pleaded with the top management to change their minds. -e reminded them that *ose was a heart patient and would find it impossible to another good /ob and also that this action of theirs would result in many brilliant persons shying away from the company)s employment. They did take him seriously. 2uch to their shock ,athnam resigned from his /ob.
.age "- of 40

&s a permanent resident of the G$& ,athnam could have returned there after his stint with 3.#. *ut he did not intend to return to Te'ico though he was welcome there. -e had /ust turned 5F and he could have worked as professor for at least another =6 years. -e chose to come back to #ndia in spite of the offers from several Gniversities in the G$& as he e'pected to be more comfortable with the ethical climate in #ndia. ,athnam had offers from several institutes of management in #ndia. -e decided to make his choice only after ac1uainting himself with each of them for a period of two to three days. -e told them all that he would like to belong to the growing segment of early retirees who spent their time and e'pertise to serve the society at large and educational institutions are the best media he would prefer. -owever ,athnam soon started showing signs of disapproval of the things happening in #ndia. The #ndian world seems to have changed from my student days and # see much petty dishonesty and a permissive ethical climate though not as ruthless as 3.# but saddening nevertheless he said. -e was disturbed by three problems. There was large scale use of pirated software this weighed on his conscience. $econd there was hardly any spirit of knowledgeBsharing among computer professionals. Third #ndian systems had little protection for ensuring privacy of #nformation. &dmittedly this would re1uire very high cost but he felt that the price was worth paying. #n one of the institutes he had heartBtoBheart discussions with .rofessor Nulkarni who belonged to his generation. ,athnam was further bewildered by Nulkarni)s views. Nulkarni felt that the ethics of piracy must also be seen in the light of the ethics in fair pricing by foreign software manufacturers. *ut it seemed that the #ndian 3opyright &ct was now tightened and foreign manufacturers had posted representatives who could help police raids to capture evidences of .iracy. Greater liberali0ation had also provided greater opportunities for e1uable bargains by educational institutions. $ome others felt that the #ndian legal system was une1ual to the task of regulating piracy as corruption could destroy all semblances of law and order. &s for the reluctance of many #ndians to share their knowledge he found most heads of institutions unable to do anything about it as computer personnel were in short supply with a high turnover. -e had hoped that the #ndian culture would have been able to reassure persons that organi0ations would not behave in the manner that 3.# had with @r. *ose after getting all his knowledge. *ut nowhere did he find such a relationship of trust. %astly he found most institutions unwilling to go all out to ensure privacy of information using foolproof systems they attempted to ensure this only by a better code of ethics among computer professionals.
.age "/ of 40

*ut with shortage of personnel in the field strict enforcement of this code was not always possible. ,athnam was wondering if he had indeed taken a wrong decision in returning to #ndia or whether he should now give up his earlier ambition of Qserving the society at large through educational institutions). -e could also go in for business to avoid all these hassles. !r maybe his entire rationali0ation had been a faTade to cover his overwhelming selfBrighteousness and inability to view ethics as a means of larger good than the application of rigid codes of conduct.

6. I+ ;,% WE)E )&TH<&# WH&T W,% ! ;,% !,? C. !, ;,% THI<B .),+ESSI,<& C,!ES +,) C,#.%TE) .),+ESSI,<& <EE! T, "E !I++E)E<T I< THE %S& &<! I<!I&?

Issues in business
=. 3an profitability and morality go together+ ;. @o companies have conscious+ 8. $ales representation O product launches how ethical can it be+ 2orality and advertising 8&)s &llurement &dvantage :. -ow bureaucrat can shape the life of people 5. .ersonal value of ethics F. #ndian system western system O comparison *hakti @evotion B mother taking care of child. 4ukti .ath of skill relation between student and leader saam daam dand bhed 2ukti .ath of salvation #ndirect method used by company <. *usiness O business ethics

.age 40 of 40