WHY ETHICS ARE IMPORTANT OR NEEDED IN

INDIAN BUSINESS ?
1. Ethics lays the strategic decision-making. Leaders and workers of a business characterized
by ethical behavior make decisions that are socially acceptable. They allow all the stakeholders
to participate in the decision-making process.

2. They increase employee retention. Employees always want to stay longer in a business
where the employers value their rights and opinions. To them, their basic needs are satisfied.

3. An ethical business attracts investors. A business that promotes ethics in its management
and operations create an investment-friendly environment. Investors like putting their money
where they are sure it is safe.

4. Ethics minimizes costs. Fewer funds are spent in employee recruitment since most employees
are retained in the business.

5. Ethical practices help in building and maintaining reputation. A large part of ensuring
business success is down to maintaining a good reputation among your customers. One of the
main things that customers will scrutinize when they decide whether they trust or want to engage
with a business or not is that business’s ethics. If you can brand yourself explicitly as an ethical
business, so much the better!

6. An ethically oriented company is bound to avoid fines. They comply with the law, file their
tax returns in time, ensure quality of products and services, etc.

7. Ethics in a business attracts more employees. When your company is reputable, more
people will be interested to work for you.

8. Good Business ethics is the key to enhancing productivity. People will work harder at their
jobs if they believe that what they are doing is ethical. They will not be held back by moral
qualms, and they may feel extra motivated to work because they feel that by doing so they are
making the world a better place. So if you want to make a normal profit rise and rise until you
are making big bucks, you need to keep your business totally ethical.

9. Ethics create customer loyalty. A reputation build on good ethics helps create a positive
image in the marketplace. This, in turn, makes customers trust your products and services. They
also pass information to their friends and family, hence, creating more customers for you.

10. Ethics encourage teamwork. Employers and employees who trust one another work
together harmoniously and effectively.

11. A business that values ethics attracts more suppliers. A business without suppliers is as
good as a failed enterprise. Suppliers are attracted to a company that appreciates what they
supply and pay for them promptly.
12. Ethics in enhances partnerships. Partnerships in the business world are very crucial. They
help expand your marketplace and improve business relations. In order to get a good partner(s),
your reputation must be built on a strong business ethics foundation.

13. Ethics reduces business risks. As trust and loyalty are built on ethics, chances of losing
potential customers, suppliers, employees and even the company itself are minimal.

14. It improves a company’s bottom line (last line that shows profit or loss). The bottom line
of your business will increase since costs and risks are reduced.

15. Ethics increases business profits. The decrease in risks and costs mean that the output is
likely to be higher than the input hence the company makes a profit.

16. Ethics lead to sustainable growth in sales. An increase in customers leads to an increase in
demand. Therefore, more goods and services are sold. It may seem that a little selfishness might
help your business, however this is never the case. Selfish or unethical actions may seem to give
your business a temporary boost, but they will thwart your long term goals. Ethical action is the
key to sustainability and success in business.

17. Good ethics in a business boosts the morale of the employees. Good business ethics
involves rewarding your employees. When an employee is rewarded, he/she works harder
leading to more profits.

18. Ethics helps in building consumer confidence. Other than customer loyalty, business ethics
makes consumers believe in you even during difficult times. For example, when a company’s
product is found to be faulty and the company takes full responsibility, consumers are bound to
trust that it was just a mistake.

19. Ethics enable a company to make good use of the limited resources. Instead of wasting
the company’s resources on themselves, company leaders can put them to good use.

20. Ethics in business allows for healthy competitions. It is common to find two or more
companies that offer similar services and goods. A company characterized with ethical behavior
will not engage in malpractices such as spreading false information about the other company or
lowering their prices. Instead, they will allow the customers to choose where they like.

21. Ethics lead to long-term gains. A company that values ethics believes in small, but long-
term benefits rather than big, but short-term returns.

22. Ethics helps in maintaining quality. An ethical company will strive to deliver goods and
services of high quality to their customers even in times when the demand is higher than supply.

23. Ethics offers extra asset protection. Employees who abide by the business ethics are in a
position to respect and protect the business’s assets. For instance, they will not make long
personal calls using the business line.
24. Ethical practices foster community improvement. Ethics teaches the art of giving back.
Ethically oriented companies will help a community to be better through things like road
construction or schools construction.

25. Good business ethics is an end in itself. Both inside and outside of business, having good
ethics is an end in itself, and something that we can derive satisfaction from in its own right. So,
if you want employees, vendors and consumers to feel satisfied, then running an ethical business
is very important. That way, when people go to work they will feel a sense of satisfaction at
doing something that is morally sound. And, when people buy your products or services, they
can do so safe in the knowledge that what they are doing is ethical.

Conclusion.
Having an ethical business is essential if you want your business to be a real success in the long
term. Good business ethics keep your customers satisfied, they encourage people to buy in to
your business.

ROOTS OF UNETHICAL BEHAVIOUR

People often wonder why employees indulge in unethical practices such as lying, bribery,
coercion, conflicting interest, etc. There are certain factors that make the employees think and act
in unethical ways.

Psychological traps are the root causes of unethical behavior.

Primary Traps

Primary traps are predominantly comprised of external stimuli. They are the main traps that
impel people to move in a certain direction without regard for ethical principles. “Obedience to
Authority” is a clear example of a primary trap. Children are primed to obey their parents their
survival depends upon it and in school, this conditioning continues. Students automatically know
that they must show deference to their teachers. Consequently, later in life, when the boss orders
an employee to do something, many people quickly obey without thinking.

Personality Traps

Personality traps consist exclusively of internal stimuli in the form of various personality traits
that can make people more vulnerable to wrongdoing. An example of a personality trap is the
“Need for Closure,” that is, “the desire for a definite answer on some topic, any answer, as
opposed to confusion and ambiguity.”[2] It is the tendency to jump on the first opinion that comes
to mind, rather than tolerating a state of uncertainty and taking the time to consider a problem or
judgment from many different angles.
Defensive Traps

Defensive traps are a very different category. Although some of them can, at times, be counted
as primary traps, defensive traps are basically attempts to find easy ways to reverse course after a
transgression has been committed. For the most part, defensive traps are maneuvers that are
reactions to two internal stimuli: guilt and shame. Guilt and especially shame are very painful
emotions because they call into question the positive view that people have of themselves.

Executive Tactics

How can a company create a corporate culture in which psychological traps are less likely to
nudge managers and employees toward unethical behavior? Let us focus on the three traps that
were used as examples: “Obedience to Authority,” “Need for Closure,” and the “False
Consensus Effect.”

Obedience to Authority

When trying to keep the trap of obedience to authority at bay, the most important thing an
executive can do is to hire a psychologist to be part of his or her ethics and compliance team.
Psychology can explain the nature of traps and often help structure the proper approach to
avoiding or remediating them.

Need for Closure

Psychological traps are insidious because they are often invisible. Managers with a high need for
closure, for instance, are usually neither aware of having such a trait nor that it might lead them
to disregard the unethical behavior of their coworkers. If managers know that they have a high
need for closure and are aware of its implications, they are more likely to avoid being trapped.

False Consensus Effect

This trap is easily identifiable it basically sounds like: “What I (or we) did is not bad; it’s
something that everybody does.” Once the company is aware of the false consensus effect, it is a
signal that a transgression has already been committed. In such cases, established reporting and
disciplinary procedures that are usually part of the company’s code of business conduct and
ethics should come into play

Some of the other influencing factors are

 pressure to balance work and family,

 poor communications,
 poor leadership,
 long work hours,
 heavy work load,
 lack of management support,
 pressure to meet sales or profit goals,
  little or no recognition of achievements,
 company politics,
 personal financial worries,
 insufficient resources’.

HOW ETHICS CAN MAKE CORPORATE GOVERNANCE MORE

MEANINGFUL

1. Corporate governance is meant to run companies ethically in a manner such that all
stakeholders—creditors, distributors, customers, employees, and even competitors, the society
at large and governments—are dealt with in a fair manner.
2. Good corporate governance should look at all stakeholders and not just shareholders alone.
Otherwise, a chemical company, for example, can maximize the profit of shareholders, but
completely violate all environment laws and make it impossible for the people around the area
even to lead a normal life. Ship-breaking at Valinokkam, near Arantangi in Tamil Nadu, leather
tanneries and hosiery units in Tirupur, have brought about too much of environmental
degradation, ...
3. Corporate governance is meant to run companies ethically in a manner such that all
stakeholders – creditors, distributors, customers, employees, the society at large and
governments are dealt in a fair manner.• Good corporate governance should look at all
stakeholders and not just shareholders along. Otherwise, a chemical company, for
example, can maximize the profit of shareholders, but completely violate all environment
laws and make it impossible for the people around the area to lead a normal life.•
Corporate governance is not something which regulators have to impose on a
management, it should come from within. There is no point in making statutory
provisions for enforcing ethical conduct.
4.There is a lot of provisions in the companies act, for example, in dealing with the
following issues:
(1) disclosing the interest of directors in contracts in which they are interested;
(2) abstaining from exercising voting rights in matters they are interested;
(3) statutory protection to auditors who are supposed to go into the details of the financial
management of the company and report the same to the shareholders of the company.
There is a number of grey areas where the law is silent or where regulatory framework is
weak, which are manipulate by unscrupulous persons

CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility (CSR) is a broad term used to describe a company’s efforts to
improve society in some way.These efforts can range from donating money to nonprofits to
implementing environmentally-friendly policies in the workplace CSR is important for
companies, nonprofits, and employees alike.Corporate social responsibility is not a mandated
practice in the United States; instead, it is something extra that companies do to improve their
local and global communities.

Importance of corporate social responsibility.

The term corporate social responsibility gives a chance to all the employees of an
organization to contribute towards the society, environment, country and so on. We all live
for ourselves but trust me living for others and doing something for them is a different feeling
altogether. Bringing a smile to people’s life just because your organization has pledged to
educate the poor children of a particular village not only gives a sense of inner satisfaction but
also pride and contentment. One should never forget the importance of society and environment
in our lives. It is indeed high time when we also start thinking about people around us who are
less privileged and fortunate than us. Corporate social responsibility gives an opportunity to
organizations to work towards the betterment of the society and make it a better place to live.

Corporate social responsibility goes a long way in creating a positive word of mouth for the
organization on the whole. Doing something for your society, stake holders, customers would
not only take your business to a higher level but also ensure long term growth and success.
Corporate social responsibility plays a crucial role in making your brand popular not only among
your competitors but also media, other organizations and most importantly people who are your
direct customers. People develop a positive feeling for a brand which takes the initiative of
educating poor children, planting more trees for a greener environment, bringing electricity to a
village, providing employment to people and so on. You really do not have to invest much in
corporate social responsibility activities. Do not undertake CSR activities only to gain publicity
but because you believe in the cause. There are many organizations which tap remote villages,
some of which are even unheard as an initiative of corporate social responsibility.

Corporate social responsibility also gives employees a feeling of unparalleled happiness.

Believe me, employees take pride in educating poor people or children who cannot afford
to go to regular schools and receive formal education. CSR activities strengthen the bond
among employees. People develop a habit of working together as a single unit to help
others.Infact they start enjoying work together and also become good friends in due course of
time. They also develop a sense of loyalty and attachment towards their organization which is at
least thinking for the society. Who does not like to work with an organization where
management is kind enough to take out time for the society and contribute in their own small
way? Ask yourselves, when is the last time you did something for your society, customers, stake
holders or environment? Corporate social responsibility also goes a long way in building a
positive image of the brand. Trust me, your brand becomes a “common man’s brand”. People
start believing in the brand and nothing can help you more than your customers trusting you and
your brand. Positive word of mouth eventually helps to generate more revenues for the
organization.
In today’s scenario of cut throat competition, everyone is so occupied in chasing targets and
handling the pressure at workplace that we actually forget that there is a world around us as well.
Have you ever thought about those who can’t even afford proper meal twice a day? If you can
take some time out of your busy schedule, please try to visit a village once. You would be
surprised to see how people manage their lives there. Corporate social responsibility in a way
also plays a crucial role in the progress of the society, which would at the end of the day benefit
us only.

Benefits of corporate social investment for businesses

The potential benefits of CSR to companies include:

 better brand recognition

 positive business reputation
 increased sales and customer loyalty
 operational costs savings
 better financial performance
 greater ability to attract talent and retain staff
 organisational growth
 easier access to capital

Responsible business reputation

Corporate social investment can help you to build a reputation as a responsible business, which
can, in turn, lead to competitive advantage. Companies often favour suppliers who have
responsible policies, since this can reflect on how their customers see them. Some customers
don't just prefer to deal with responsible companies - they insist on it.

Costs savings

By reducing resource use, waste and emissions, you can help the environment and save money
too. With a few simple steps, you may be able to lower your utility bills and achieve savings for
your business.

Finding and keeping talented staff

Being a responsible, sustainable business may make it easier to recruit new employees or retain
existing ones. Employees may be motivated to stay longer, thus reducing the costs and disruption
of recruitment and retraining.
 ENRON FIASCO
The Enron scandal, publicized in October 2001, eventually led to the bankruptcy of the Enron
Corporation, an American energy company based in Houston, Texas, and the de facto dissolution
of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the
world. In addition to being the largest bankruptcy reorganization in American history at that
time, Enron was cited as the biggest audit failure.[1]

Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth.
Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that – by
the use of accounting loopholes, special purpose entities, and poor financial reporting – were
able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer
Andrew Fastow and other executives not only misled Enron's Board of Directors and Audit
Committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the
issues.

Enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a
high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November
2001.[2] The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival
Houston competitor Dynegy offered to purchase the company at a very low price. The deal
failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United
States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy
in U.S. history until WorldCom's bankruptcy the next year.[3]

Many executives at Enron were indicted for a variety of charges and some were later sentenced
to prison. Enron's auditor, Arthur Andersen, was found guilty in a United States District Court of
illegally destroying documents relevant to the SEC investigation which voided its license to audit
public companies, effectively closing the business. By the time the ruling was overturned at the
U.S. Supreme Court, the company had lost the majority of its customers and had ceased
operating. Enron employees and shareholders received limited returns in lawsuits, despite losing
billions in pensions and stock prices. As a consequence of the scandal, new regulations and
legislation were enacted to expand the accuracy of financial reporting for public companies. [4]
One piece of legislation, the Sarbanes–Oxley Act, increased penalties for destroying, altering, or
fabricating records in federal investigations or for attempting to defraud shareholders.[5] The act
also increased the accountability of auditing firms to remain unbiased and independent of their
clients.[4]

In 1985, Kenneth Lay merged the natural gas pipeline companies of Houston Natural Gas and
InterNorth to form Enron.[6] In the early 1990s, he helped to initiate the selling of electricity at
market prices, and soon after, the United States Congress approved legislation deregulating the
sale of natural gas. The resulting markets made it possible for traders such as Enron to sell
energy at higher prices, thereby significantly increasing its revenue.[7] After producers and local
governments decried the resultant price volatility and asked for increased regulation, strong
lobbying on the part of Enron and others prevented such regulation.[7][8]

As Enron became the largest seller of natural gas in North America by 1992, its trading of gas
contracts earned $122 million (before interest and taxes), the second largest contributor to the
company's net income. The November 1999 creation of the EnronOnline trading website allowed
the company to better manage its contracts trading business.[9]

In an attempt to achieve further growth, Enron pursued a diversification strategy. The company
owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper
plants, water plants, and broadband services across the globe. The corporation also gained
additional revenue by trading contracts for the same array of products and services with which it
was involved.[10] This included setting up power generation plants in developing countries and
emerging markets including The Philippines (Subic Bay), Indonesia and India (Dabhol).[11]

Enron's stock increased from the start of the 1990s until year-end 1998 by 311%, only modestly
higher than the average rate of growth in the Standard & Poor 500 index.[12] However, the stock
increased by 56% in 1999 and a further 87% in 2000, compared to a 20% increase and a 10%
decrease for the index during the same years. By December 31, 2000, Enron's stock was priced at
$83.13 and its market capitalization exceeded $60 billion, 70 times earnings and six times book
value, an indication of the stock market's high expectations about its future prospects. In
addition, Enron was rated the most innovative large company in America in Fortune's Most
Admired Companies survey.[12]

Causes of downfall
Enron's complex financial statements were confusing to shareholders and analysts.[13][14] In
addition, its complex business model and unethical practices required that the company use
accounting limitations to misrepresent earnings and modify the balance sheet to indicate
favorable performance.[15]

The combination of these issues later resulted in the bankruptcy of the company, and the
majority of them were perpetuated by the indirect knowledge or direct actions of Kenneth Lay,
Jeffrey Skilling, Andrew Fastow, and other executives such as Rebecca Mark. Lay served as the
chairman of the company in its last few years, and approved of the actions of Skilling and
Fastow although he did not always inquire about the details. Skilling constantly focused on
meeting Wall Street expectations, advocated the use of mark-to-market accounting (accounting
based on market value, which was then inflated) and pressured Enron executives to find new
ways to hide its debt. Fastow and other executives "created off-balance-sheet vehicles, complex
financing structures, and deals so bewildering that few people could understand them."
 TVS GROUP BREAK UP
T.V. Sundaram started the TVS Group with a small transport business in Chennai in 1911. Over
the years, the group diversified into two-wheelers, automotive components, automotive spares,
computer peripherals and financial services.

However, the group was particularly successful in its automotive component and two-wheeler
businesses. By 2001, with around 25 companies in its fold, TVS emerged as one of India's
leading two-wheeler manufacturers. Sundaram Clayton was the flagship company of the group
and owned a controlling stake in TVS. Suzuki's history dates back to 1903, when Michio Suzuki
founded Suzuki Loom Works in Hamamatsu in Shizuoka, Japan. For the first 30 years, the
company focused on the development and production of complex machines for Japan's silk
industry. In 1937, the company diversified into manufacturing cars for the Japanese market. It
stopped the production of cars and concentrated on the manufacture of the looms during the
Second World War.

The end of the war and the collapse of the cotton market in 1951 drove the company back to
automobiles. In 1952, it manufactured its first motorized bicycle called 'Power Free.'

By 1954, the company was producing around 6,000 cars per month and in the same year its
name was changed to Suzuki Motor Co. Ltd. By March 2001, Suzuki's net sales were ¥ 1,600
trillion2 and it was one of the top 5 automobile manufacturers of the world. The company had
57 production centres spread over 26 countries all over the world and its vehicles were sold
through 134 distributors in 175 countries. (Refer Exhibit I). Suzuki entered India through the
TVS Suzuki joint venture, originally incorporated as Indian Motorcycles Pvt. Ltd in 1982.3
The company came out with a public issue in 1984 and was named as TVS Suzuki. In the
same year, the company launched its first 100-cc motorcycle, Ind Suzuki,4 which was
received well by the market...

In September 2001, Sundaram Clayton (of the TVS group of companies) and Japanese
automobile major Suzuki Motor Corporation (SMC), partners in the joint venture TVS Suzuki
(TVS Suzuki), India's second largest motorcycle company, announced their decision to break-
up.

TVS bought the 25.97% stake of Suzuki for Rs 90 million, increasing its stake to 58.43%.1

Suzuki signed an agreement with TVS, according to which the existing licensing arrangement
was to continue for 30 months. TVS agreed to pay royalty to Suzuki for this period. The break
up did not come as a surprise to industry observers, as rumors about the straining relations
between TVS and Suzuki had surfaced in the early 1990s itself.

Though both TVS and Suzuki refused to comment, their differences over the issues of
management control and ownership had become well-known.

Suzuki's departure evoked mixed reactions from industry watchers about the future of TVS
Suzuki.

Analysts commented that TVS' in-house product development was not good. Moreover, it
had a string of failures between 1994 and 2001 such as the Shogun, Shoalin, Supra and Supra
SS.

With competition being extremely fierce in the Indian motorcycle market, the fact that TVS
did not have any successful four-stroke models besides the Fiero did not augur too well.
Analysts claimed that the breakup had severely eroded the brand equity of TVS Suzuki's
products.

Leading two-wheeler manufacturer Kinetic's Joint Managing Director, Sulajja Firodia

Motwani said, "The new TVS will be weaker both in motorbikes and scooters