Business Ethics

REPORT
BBA V-A

Submitted by:
Haroon Ahmedi
Aimen Saeed
Onnera Abbas
Rao Umair waqar
Zarmeena Gauhar

Submitted to:
Sir Khalid Hussain

PSMC

Table of Contents
Executive Summary ......... ... 3
Introduction...4
History .......5
Vision Mission...6
Products..........7
Achievements.................9
Ethical Issues........................13
Challenges....15
Critical Analysis........... 17
Solution.........18
Conclusion....19
References.....21

PSMC

Executive Summary
In this report our group has used the case study of PSMC (Pakistan Steel Mills Corporation) to
find the issues and challenges related to this business. Although PSMC is considered as business
which gives importance to ethical issues such as responsibility to its employees, customers and
environment, we have discussed some of the major issue that we think are unethical in the
context of Business Ethics course that we are studying. This report also shows our level of
understanding and thinking at the end of each issue, where we have tried to assess the case in the
light of our knowledge and academic learning. Therefore, this report is not only descriptive but
also a good deal of thinking and reasoning has been incorporated to make this report meet the
requirements and criteria of a good report.

PSMC

Introduction
The real founders of Pakistan Steel Mills are Prof. Niaz Muhammad, Wahab Siddiqui and
Russian scientist Mickhail Koltokof. It was the hard work of Prof Niaz that thousands of
scientists and technical staff got trained by him. His inspirations and innovations got him the
highest award from president of Pakistan and also from Russian Government. The Government
of Pakistan has given him Pride of Performance. His nomination for Nobel Prize was biggest
respect of what Pakistan achieved.
Pakistan Steel is the country's largest industrial undertaking having a production capacity of 1.1
million tonnes of steel. The enormous dimensions of the project can be visualized from the
construction inputs which involved the use of 1.29 million cubic meters of concrete, 5.70 million
cubic meters of earth work (to Tarbela Dam), 330,000 tonnes of machinery, steel structures and
electrical equipment. It has an unloading and conveyor system at Port Qasim is the third largest
in the world and its industrial water reservoir with a capacity of 110 million gallons per day is
the largest in Asia. A 2.5km long sea water channel connects the sea water circulation system to
the plant site with a consumption of 216 million gallons of sea water per day.
The above figures illustrate the massive civil works, intricate erections, installations of
sophisticated electrical and mechanical equipment. With the completion of Pakistan Steel, the
local contractors gained the technical ability till then unknown, which they utilized later to
undertake million dollar projects both within the country and abroad especially the Middle East.

PSMC

History of PSMC
After independence in 1947, it did not take long for Pakistan to come to the realization that
progressive industrial and economical development would be impossible without the possession
of a self reliant iron and steel making plant. The dependence on imports would cause serious
setbacks to the country along with an extortionately high import bill which would be impossible
to support.
In 1968 besides other factors, it was considered by the Government of Pakistan that a basic steel
industry should be established in the public sector, as public sponsorship of the project would
enable integrated development of the steel industry in the country. In light of this, the
government decided that the Karachi Steel Project should be sponsored in the public sector for
which a separate Corporation under the Companies Act be formed. As a result on the 2nd of July,
1968 Pakistan Steel Mills Corporation was setup as a private limited company in the public
sector in accordance to the Companies Act of 1913, with the objective to establish and run steel
mills at Karachi and other places in Pakistan.
In January, 1969, Pakistan Steel concluded an agreement with V/O Tiajpro export of the then
USSR for the preparation of a feasibility report into the establishment of a steel mill at Karachi.
Subsequently in January, 1971 Pakistan and the USSR signed an agreement under which the
latter agreed to provide techno-financial assistance for the construction of a coastal based
integrated steel mill at Karachi.
The foundation stone for this gigantic project was laid on the 30th of December, 1973 by the
then Prime Minister Mr. Zulfikar Ali Bhutto. The mammoth construction and erection work of
the integrated steel mill, never experienced before in the country, was carried out by a
consortium of Pakistani construction companies under the supervision of Soviet experts.
Commissioning of Blast Furnace Number 1 on the 14th of August, 1981 marked Pakistan's entry
into the elite club of iron and steel producing nations. The project was completed at a capital cost
PSMC

of Rs. 24,700 million. The completion of the steel mill was formally launched by General ZiaUl-Haq the then President of Pakistan on the 15th of January 1985.

Our vision
To become a leading steel company in south Asia committed to serving stake holders by offering
quality products through an innovative and cost effective manner in accordance to
environmentally friendly conditions.

Our Mission
Pakistan Steel is committed to be a leader in steel industry by:
1
2
3
4
5
6
7
8
9
10

Greater response to customer's present & future needs.

Focus on productivity and Quality.
Facing Challenges of free Market Economy
Ensuring higher rate of return on invested capital
Developing Human resource and motivating employees through
.empowerment and hard consequences.
Safe Working and Environment friendly conditions.
Minimizing process wastages, rejections and recycling wastes.
Good Governance
Fulfilling Social Obligations
Improving Corporate Image

PSMC

Products
Pakistan Steel billets, are produced to tight tolerances, high
surface finish and superior quality.
Pakistan Steel's high quality billets are used for
Manufacturing plain, deformed, twisted and ribbed bars.
Manufacturing steel sections viz, rails, angles, joints, channels,
squares, flat bars, rods, wire rods, bailing hoops, tees and chains
etc.
Manufacturing seamless pipes.
Manufacturing of machine components.
Forging and stamping.
Manufacturing of spring steel flat bars.

Hot rolled carbon steel coils, sheets, strips and plates

are produced at our 1700mm Hot Rolling Strip Mill.
Uses.
Seam Welded Pipes for Gas/Water/Oil.
Storage Tanks, Vessels, Containers.
Ships/Barges, Launches & Floating Structures.
Fabricated Sections/Structures.
General Purpose Sheets/Plates.
Wheel Rims.
Formed Sections, Steel Flooring and Cold Rolled Products

Cold Rolled Sheets/Coils.

Uses.
Seam Welded Pipes for Gas/Water/Oil.
Storage Tanks, Vessels, Containers.
Ships/Barges, Launches & Floating Structures.
Fabricated Sections/Structures.
General Purpose Sheets/Plates.
Wheel Rims.
Formed Sections, Steel Flooring and Cold Rolled Products

PSMC

Galvanised products
USES

Automobiles,Roofing,Shuttering
Panelling Manufacture of buckets, utensils, cans, containers
Desert coolers, Air conditioners, Water coolers ,Fresh water tanks,
etcDomestic appliances

Pig iron
Pakistan Steel produces, two grades of Pig Iron - Foundry Grade
Pig Iron (F.P.I)and Conversion Grade Pig Iron (C.P.I).Normal
practice at Pakistan Steel is to produce Conversion Grade Pig
Iron (CPI).

Metallurgical Coke
Uses Widely used as a fuel by foundries in cupolas for melting iron
scrap and pig iron. In sugar mills employing the carbonising
process.
For making chemicals/calcium carbide.
Used in the pharmaceutical industries.
Coke breeze is used for steam
generation in boiler houses.
Used in Steel making for
carbon adjustment.

Granulated Blast furnace

Slag
PSMC

is produced as a result of the

reduction of iron oxide to iron.
It consists of silicates, the
alumina silicate of lime, a minor
percentage of ferric and
managanese oxide and sulphur.z

Achievements
Health & Safety
Pakistan Steel adheres to a strict, health and safety policy. We are committed to
providing a safe and healthy working environment to all our employees and work
continuously to incorporate safety in design. Our drive in the achievement of a safe
working environment with safe working practices has recently awarded us with OHSAS
18001 accreditation. We however, endeavor to continue our work in the field of safety and
continuously push safety practices and safety education and training across the whole
workforce.
This shows that Steel Mills of Pakistan is fully aware of its responsibility
towards its employees. They are determined to take every step in order to
provide better environment, pay and working conditions to its employees. This is comes
under the head of ethical arrangements taken care by the management of Steel Mills of
Pakistan. This endeavor by Steel Mills of Pakistan, showing courtesy to their employees
will improve not only the productivity of employees working in hazardous conditions of
steel manufacturing and improve the loyalty of employees.

The management at Pakistan Steel is fully committed to providing a high level of social
accountability to its entire workforce. It follows the philosophy that Pakistan Steel's
success comes from its people and the needs of the people are inseparable from the needs
PSMC

of the organ. In order to motivate its employees steel mills has developed an ideal
dwelling near the production facility, known as Steel Town. This again is an ethical
behavior as it provides the employees opportunity to live near, where they work and hence
saves the fuel cost to them, and travelling time which they can utilize in increasing
production levels. This also has bigger implications in the macro environment and helps
Pakistan reduce the cost of Petrol and Gas. This is ethical because efficiency is key in
solving problems of a calamity-hit nation like Pakistan.

Environment
Pakistan Steel has in place a strict environmental policy. We are committed to the
continuous improvement of our environmental performance. At Pakistan Steel we take our
environmental responsibilities seriously and environmental protection is integrated in all
our business and process activities. Adherence to our strict policies and undertaking work
consistent with international standards has enabled us to meet or exceed applicable legal
requirements. If we look at this statement from the lens of ethical reasoning, we will find
out that this is a good statement by Steel Mills of Pakistan, as responsibility of saving the
environment should be observed by each and every
company that burdens the natural environment in someway
or the other.
In the past two years Pakistan Steel has followed an active
reforestation program within and exceeding its 20,000
acres of responsibility. We our continuously setting new targets for waste reduction and
pollution prevention. We have carried out extensive work in water recirculation and
treatment and have improved the treatment of fresh water supply feed to lakes and
reservoirs for the benefit of our local communities.

PSMC

10

This again is a positive step taken by Steel Mills of Pakistan, as they are at least doing
something for the protection of the natural environment. We can apply utilitarian
perspective to this as we know that a company should indulge in things that are good for
the society and by saving the environment they are helping not only the current population
but also helping the future generations of Pakistan.

Educational Facilities
Pakistan Steel actively contributes towards the promotion and advancement of learning and
education. We manage a large number of educational institutions from primary school to college
level including a cadet college, a degree college, an intermediate college, 4 high schools and 2
primary schools. In addition to this we operate the two following institutes.
As we all know from our understanding of the course, that each action that a firm undertakes has
social costs and benefits. However, since education is a merit goods, it affects will help the
Pakistan to grow and become a better country. As a result, this action by PSMC is again an
ethical one.
Metallurgical Training Centre
The Metallurgical Training Centre (MTC) is designed to impart
training in 64 technical trades to 1600 students/workers
annually. The students who are trained from this institute
specialize in the fields of mechanical, chemical, electrical, metallurgical technologies. Since
inception in 1978 the MTC has provided training to
approximately 11846 people. In addition to this the centre has
introduced a three year diploma course in Metallurgy and
Electronics.
The centre is affiliated with the Sind Board of Technical
Education, Karachi. The UNIDO has declared the MTC as a centre of excellence. The MTC
PSMC

11

boast state of the art laboratories, academic research and teaching facilities, work shops, a
technical library, two large auditoriums and other facilities expected from a centre of
excellence.This is again a very good action by steel mills of Pakistan and one that can be
classified as ethical. Again we can apply the utilitarian theory to justify this action and it is not
going to help the steel mills but to the entire nation of Pakistan. This means that action imparts
more social benefits than social costs and hence is going to benefit one and all.
Institute Of Computer Science (ICS)
To develop, improve and broaden the scope of professional
knowledge in Computer Science, Pakistan Steel established
the Institute of Computer Science (ICS) in May 1994 at a
cost of Rs.3 million. The institute conducts short courses in
computer software and has introduced a diploma course in Computer Science.

Recreation
Pakistan Steel places great importance, in the welfare of its workforce and community. It have
invested highly in insuring the availability of state of the art facilities for our workforce and their
families. Recognizing that sports and leisure are imperative to the well being of our people, we
actively promote the participation of health related activities at all level.
Astro-Turf Hockey Pitch
Pakistan Steel takes great pride in leading the way in the
public sector in providing state of the art welfare facilities to

its

workforce. Our recently developed Astro-turf hockey pitch is

the only one of its kind in the public sector. Its level of
construction is at such a level that even the Pakistan national hockey team uses it for practice
sessions. Our own team has also gained immense benefit from this facility evidence of which is
confirmed by winning numerous tournaments giving great pride and immense moral to our
organization

PSMC

12

Football Pitch

Have recently invested highly in the restoration of a full size football pitch in

Steel Town. A newly turfed pitch with flood light facilities has
been completed for adults and children both to benefit from. A
very popular facility in the evenings for all staff, with regular
football tournaments arranged promoting participation from all
age group and sexes.

Quaid-i-Azam Park
Spread over an area of 45 acres, Quaid-i-Azam Park serves as an oasis in a industrial jungle.
With carefully planned and designed lush green lawns, artificial lakes, flower gardens, fountains,
a mini zoo, children's play area, mini train network and jogging track this provides the perfect
setting for families to escape the daily rigors of life. Originally designed for the workforce of
Pakistan Steel the park has proved so popular that now it has had to open its door to the public
looking for a perfect day's escape from the hassles of Karachi
city.

ETHICAL ISSUES
1) RECRUITMENT POLICIES:

We discussed the unethical issues that were prevalent in PSMC. The first thing he said that
PSMCs recruitment policies are the most common unethical issue in the company. He said that
the bureaucracy involved in the selection process of PSMCs employees is playing its parts in the
selection of people at high posts of top-management rather than skills or merit of the people.
PSMC

13

This can be easily related to the course. In one chapter, we studied about how firm discriminates
among people and we easily related his works to the text of the book. He said that whenever
government changes and new government comes, it changes the employees and bestow or gift
important people to their party members who are usually from the same ethnics groups of the
government. For example, when PPP comes, it fires people from Punjab side and employ Sindhis
and similarly, when PML (N) or any other party from Punjab comes, the structure of people who
make up the company also changes. This discrimination is not a good policy for any company
and PSMC is no different. Because of this discrimination many efficient people have been made
redundant and as a result PSMC has never reached the potential earning power that could be
attributed to such a firm.

2) PRIVATISATION OF STEELS MILLS OF PAKISTAN:

Dawn Newspaper writes about the privatization of PSMC as the biggest scam in the history of
Pakistan, by the political forces. The issue involved when government of Pakistan decided to
sell PSMC to private investors in second quarter of 2006. They were willing to sell major stakes
in the company. The major dilemma was that the government was selling this Corporation
despite it being the most profitable Business owned by the government of Pakistan.
Similarly, when the privatization process started the government did not arrange an auction in an
attempt to find the highest paying investor. However, they invited sealed proposals from
investors. This was a sign that something eerie is happening. By not holding the auction and
inviting press reporters in the selling process, it raised further eyebrows. However, later when the
news about the privatization was released to media by the government, it justified the suspicions
that people had about this privatision process.
Dawn, a leading newspaper of Pakistan, writes about privatization of Steel Mills in the following
words:
the government of General Musharraf privatized Pakistan Steel Mills. The
consortium involving Saudi Arabia-based Al Tuwairqi Group of Companies submitted a winning
bid of $362 million for a 75 per cent stake in Pakistan Steel Mills Corporation (PSMC) at an
open auction held in Islamabad. the consortium of Saudi Arabia-based Al Tuwairqi Group of
Companies, Russia's Magnitogorsk Iron & Steel Works and local firm Arif Habib Securities paid
PSMC

14

a total Rs21.6 billion ($362 million), or Rs16.8 per share, to take control of Pakistan's largest
steel manufacturing plant.
Tuwairqi Group of Companies, one of the Ieading business concerns in Saudi Arabia, also
launched a $300 million steel mills project at Bin Qasim. The group will set up Tuwairqi Steel
Mills (TSM), a state-of-the-art steel-making plant in the southern port city of Pakistan..
(DAWN, May 2006)

The selling price of the PSMC was set far below the assets that the company had at that time. To
top it all that, the company was making huge profits at that time, and it should have asked for
heavy goodwill for being a profitable business and being a monopoly in its operations. However,
later it was revealed that around 20 politicians including ministers have been benefitted from this
privatization. This meant that the private investor, which was buying PSMC, have given gifts,
exhortations and bribes to these individuals in an attempt to get PSMC at a less than market
price. Later some sense prevailed and Chief Justice of Pakistan, Justice Ifthikar Mohammad
Chaudhary revoked the privatization process and government again took over the control of their
most profitable business, among the mix. However, the issue did not end there and later agitated
government minister who were making million of Rupees from the sale of PSMC started another
controversy by having Chief Justice removed from his seat by Special Powers of the President.
This part of the issue is irrelevant to the case study of Steel Mills that we are doing but in the end
it became a movement and Chief Justice was restored and with his coming back on his seat, it
meant that the government now cannot privatize the PSMC, for the benefits of its officials and
will have to command the right price from investors if they want to sell it.

3) STAFF IS NOT LOYAL:

The people who are controlling PSMC are not loyal to their firm and are not running it in the
way which is best for the company but are looking for their own benefits. The employees PSMC
are not observing their duties to the firm and taking bribes and gift. Extortions are also common
in the functioning of PSMC. All these are prevalent in PSMC that give a bad name to PSMC and
can be classified as unethical issues.
PSMC

15

CHALLENGES:

1) Less than target production and sales with heavy losses:

The countrys single largest steel producer Pakistan Steel Mills Corporation (PSMC) has posted a
historical loss of Rs 22 billion in fiscal year 2008-09, for the first time in nine years. The state
owned PSMC was profitable organization till fiscal year 2007-08 making enough profit since
fiscal year 2000-01 however, during last year its profit rotated into massive losses.
Magnitude of losses
According to the PSMCs provisional financial documents, for the period ending June 30, 2009.
PSMC revealed a loss of 22.143 billion during the June-July compared to a profit of Rs 2.375
billion in fiscal year 2007-08.After an eight year profitability the steel mills started posting its
losses from august 2008, just after the new chairman Moeen Aftab took over.
DATE

LOSS/RS

Aug 2008

55 million

Sept 2008

200 million

Oct 2008

660 million

Nov 2008

4.1 billion

Dec 2008

2.5 billion

Jan 2009

2.0 billion

Feb 2009

2.0 billion

Mar 2009

2.1 billion

2) Import of raw materials at high rates:

PSMC

16

During the tenure of Chairman Moeen Aftab steel products were sold under costs as special
favors to some selected vendors. This was done despite Rs. 5000 premium per ton on the supply
of billet offered by some re-rolling mills.
PSMC made a purchase agreement of iron ore in April 2008 when the pieces were at peak .later
the price of iron ore declined sharply in the world market.

3) Ineffective policies & Non-technical management:

The management adopted inefficient marketing policy that raised the losses, aiming to reduce the
inventory and enhance the sales; the management sold some products under costs which also
raised the losses of corporation,

4) Global economic crisis:

According to the managing director PSMC he added that earlier they were compelled to sale
products under cost due to slow economic activities (Global economic crisis) and decline in
international steel prices, he said the prices of steel declined from $80-90 dollar per ton from
$110-120 per ton, while the shipping freight had reduced from $114 to $34 per ton.
Ms Billet is one of the major products of PSMC that was being sold at around Rs 30,000 per ton
less than the cost to release the inventory and earn revenue for daily expenses.

cCritical Analysis
1) RECRUITMENT POLICIES:

After the case stud we analyze that PSMCs recruitment policies are the most common unethical
issue in the company as bureaucracy involved in the selection process of PSMCs employees is
PSMC

17

playing its parts in the selection of people at high posts of top-management rather than skills or
merit of the people. They discriminate among people of different provinces because of this
discrimination many efficient people have been made redundant and as a result PSMC has never
reached the potential earning power that could be attributed to such a firm.
When the privatization process started the government did not arrange an auction in an attempt
to find the highest paying investor. However, they invited sealed proposals from investors. This
was a sign that something eerie is happening. By not holding the auction and inviting press
reporters in the selling process, it raised further eyebrows. However, later when the news about
the privatization was released to media by the government, it justified the suspicions that people
had about this privatizing process. The selling price of the PSMC was set far below the assets
that the company had at that time. To top it all that, the company was making huge profits at that
time, and it should have asked for heavy goodwill for being a profitable business and being a
monopoly in its operations. The people who are controlling PSMC are not loyal to their firm and
are not running it in the way which is best for the company but are looking for their own
benefits. The employees PSMC are not observing their duties to the firm and taking bribes and
gift. Extortions are also common in the functioning of PSMC. All these are prevalent in PSMC
that give a bad name to PSMC and can be classified as unethical issues.

SOLUTIONS:
PMSC faced a number of problems over the period of time; following approaches could be used
to resolve them properly:

1) The use of Utilitarian approach:

The management should stop being egoistic and think about the organization and its
people first. As people are the most important asset of an organization so they should be
given most importance. Maximum benefit should be given to maximum people of the
society by providing them quality products and services. If the top managers will become
selfish and only work to increase their profit, the share holders and employees will get

PSMC

18

negatively affected by this practice. They should make sure that the stakeholders and
customers are provided with the right kind of information at the right time.

2) Integrated culture:
While selecting the people for employment, nepotism and other unfair means should be
avoided. People and their work both should be given high importance while recruitment
of employees. Giving all the benefits to the top management and stakeholder will result
in a negative impact on the environment of the organization. A balance should be
maintained in the performance and caring culture for people, decentralized ways are to be
implemented.

3) Value base culture:

Value base and flexible culture should be followed in the organization so that new and
innovative ideas can be practiced. The values of the organization should be given due
importance in decision making process and mission statement should clearly indicate that
profit maximization id not the only goal of the company. High value should be given to
customers in order to earn their interests and respect in such competitive environment.

4) Role of the leader:

The leader should act as a role model for all the staff and management personal. He
should implement ethical decision in the organization so that the people can work
efficiently and effectively. Encouragement of whistle blowing should be given to
employees so that no illegal, unethical or immoral practice or behaviour is being
implemented in the company.

CONCLUSION:
After the examination of the above issue, one can easily relate it to the course that we are
studying, Business Ethics. We can quite clearly see that Steel Mills is far from being a
Rational Organization and currently its structure can be best described as being near to
Political Organization. The benefits that result from it being an unethical organization are there
such as Job Discrimination, Selection on the basis of Political Affiliation than on Merit, PSMC is
far away from being a right-sized firm which hinders its efficiency. However, the unethical issues
in PSMC are more than that occur due to firm being a political organization. These issues
involve, Unethical Behavior of the workers of PSMC, Political Corruptions and Controversies,
PSMC

19

Instable Policies and corruption from the level of janitors to the Chairman. All these give a bad
name to PSMC and are hindering its development process.
However, in the midst of dismal conditions under which PSMC is operating, there is some silver
lining as well. The firm is fully aware of its Corporate Responsibility which can seen from the
initial part of our reports which talks about the environment, training, education and employees
responsibility statements that PSMC talks about.

All of this shows that though PSMC is a firm which needs right-sizing, right structure, right
management and right attitude of the employees. If all these rights get incorporated in PSMC, we
can be sure that this firm will make big progress in the development of not only PSMC but also
in the development of Pakistan.

PSMC

20

REFERENCES
Dawn Newspaper
Pulse magazine
www.pakistansteelmills.org.pk

PSMC

21