CERTIFICATE

I, Prof. Nadirshaw K Dhondy, Advocate , Supreme court, have examined the thesis

of Prashant Kanade, the first year student enrolled in Lala Lajpatrai Institute of

Management for the three years part-time Masters Degree course in Management at

unique Roll no. 17 (MFM) for the academic year 2008-11 in the course content on

the topic of “Business Ethics – a Prescription for Resurgent India.”

He has taken this thesis in part fulfillment of the final exams evaluation.

He has been rated to receive _______ marks out of 40 (Forty).

Signature of the candidate Signature

( Prashant Kanade ) Mr. Nadirshaw Dhondy

Advocate, Supreme Court.

Date : 18th October, 2008.

Place : Mumbai.
 PROJECT REPORT ON

GOOD BUSINESS ETHICS :

A PRESCRIPTION FOR RESURGENT INDIA.

SUBMITTED BY :

NAME – PRASHANT M. KANADE

ROLL NO. 17

MASTER’S DEGREE IN FINANCIAL MANAGEMENT - 1ST YEAR

BATCH – 2008-2011

UNDER THE GUIDANCE OF

PROF. NADIRSHAW DHONDY.

LALA LAJPATRAI INSTITUTE OF MANAGEMENT.

MAHALAXMI, HAJIALI, MUMBAI – 400034.
 GOOD BUSINESS ETHICS :

A PRESCRIPTION FOR RESURGENT INDIA.

-- PRASHANT M. KANADE.
 CONTENTS

SR NO. PARTICULARS PAGE

1 Introduction. 6

2 Importance of studying 7
Business ethics.

3 Why study Business ethics? 8

Advantages of Business
Ethics.

4 Ethical Business , Unethical 10

& Unfair Business practices.

5 Exploring Values, Attitude 16

Skills – Business practices.

6 Business Ethics - Good 19

Corporate Governance &
Professionalism.

7 Business Ethics & Social 21

Ethics.

8 Role of Government & 23

Society.

9 Case Study 1: The Bhopal 24

Gas Tragedy.

10 Case Study 2 : The Bribery 27

Scandal At Siemens AG

10 Conclusion. 32

11 Cross Reference index 35

ACKNOWLEDGEMENT :
I would like to acknowledge and extend my heartfelt gratitude to Prof. Nadirshaw Dhondy for his

support, guidelines and encouragement which has made the completion of this project possible.

I would also like to thank the library staff of Lala Lajpatrai Institute of Management for the use of

their collections without which this thesis would have been most difficult.

Finally, I would like to thank my classmates & friends for providing their valuable advice,

guidance and support which made me complete this thesis efficiently.

BIBLIOGRAPHY :

(1) “ Business Ethics & Corpoarte Governance ” – Anita Bobade.

(2) “ Google.com ” – Website available through internet services.

INTRODUCTION :
 “ What is moral is what you feel good after and what is immoral is what
you feel bad after …..”
- Earnest Hemingway, Death in the Afternoon

In simple words any ethical conduct brings peace and harmony to the person and to the community

and unethical conduct brings pain misery. Ethics is also a normative science, it means it lays down

the norms or rules of what is good & what is bad so (do’s & don’t) it specify what we what we do

& what we not do. Business ethics is a branch of ethics which prescribes standards of how the

business is to be carried out. It gives guidelines for the companies response & accountability to its

various stake holders like shareholders, customers, employees, directors and management,

suppliers, regulatory bodies, government etc.

It has to maintained a fine balance & take care of the interest of shareholders on one hand &

employees, directors and the board on the other hand. At times there is clash for e.g.: To maximize

the shareholders wealth, more profits should be generated.: however, the customer demand it a

competitive price, the supplier who supplies at a competitive rate & the employees want a better

pay package.

Business ethics also deals with the responsibility of the managers & employees in a competitive

business environment. A manager has to resolve the conflicts of both the economy performance of

the organization measured by the total revenue & profit after tax & the social obligations of the

business providing goods & services at a fair price maintaining its quality. At times the manager

will resort to unethical practices like giving bribes, gifts so has to get business ethics has to deal

with such dilemma.

According to Thomas Donaldson “there is a growing realization all over the word that business

ethics is important for any business & the progress of any society. Ethics alone, neither

government nor laws can protect the society. An ethically responsible company is one which has
developed the culture of caring for people and the environment, a culture which flows throughout

the organization from the top managers & leaders.”

IMPORTANCE OF STUDYING BUSINESS ETHICS :

(1) Most of the managerial decisions are for reaching consequences or efforts. The decisions made

by the managers regarding his business organisation have impact on entire society. For e.g:

(a) Cost cutting measures have led to pollution and health hazards.

(b) Equipment and safety regulation if not properly monitored lead to a big accident like union

carbide case.

(c) Bribes becomes a way of life.

(d) Unsafe products destroys people’s life.

(2) Most ethical decisions have various alter natives solutions and the managers has to balance the

the economical goal of the organization and the social responsibility.

(3) Most ethical decisions have personal implications . Business ethics is not like a ISO principles

or quality standards that a company should maintain but it affects the life of people working for

the organisation & its community. Mr. Narayan Murti has always stood by his example that

integrity, sincerity are important for the business success & Infosys is the most successful

company all because of its of its business ethics.

WHY STUDY BUSINESS ETHICS :

(1) Business executives and budding managers study the various ethical theory, ethical principles
 and ethical judgements. Students understand the nature of ethical problems & critically analyse

it. Use conceptual tools and skills to resolve ethical dilemmas. A study of ethics also leads the

students to respecting opposite views & reflecting upon them.

(2) It will help build and groom a value based organisation. Ethical behaviour is important for the

business leaders as they influence the ethical climate for everyone else. In a value based

organisation there is a high degree of trust and integrity and it empowers all the stakeholders.

(3) It creates awareness about their social responsibility. A Business has to share part of its

prosperity with the community, by offering amenities and services not otherwise available to

the needy of the community.

(4) In making them better individuals, study of ethics practice of virtuous acts, resolving dilemmas

at the work place will go long way in their spiritual development. Such managers will not be

slaves of material possessions, they would not amass wealth our of selfish motive but as a

trustee of the community to which they belong. Such managers, who practice business ethics

would be led by divine thought within and through their relentless ethical conduct, lead a life

of dharma and realize godliness.

Thus as mentioned earlier, ethical conduct would be a self – realized conduct which

give a new version “ drishti ” of “ aham bramhasmi ” – “ I am bramhman. ”

ADVANTAGES :

(1) It builds a value based organisation ethical behaviour which is important for business dealers as
 they imbibe high degree of trust, integrity and empower all stakeholders there by buildings a

strong organisation which can complete in a globalised economy.

For e.g.: Tata group of company’s has a very good reputations of business ethics.

(2) It creates awareness about the corporates social responsibility of business.

A business is part of the society and it share its prosperity by offering various facilities

and services to its immediate community. It also funds important projects which are for welfare

of the community. For e.g. : building garden, hospitals, schools etc.

(3) Business ethics is a practice and the managers has to study the theory of business ethics and

practice in their professional life as they understand the nature of ethical dilemma and

analyzing it they are better equipped to practice business ethics.

(4) Practising ethics at work place makes the individual associated with the organisation aware

about their divine nature and brings peace and harmony to all of them.

ETHICAL BUSINESS:

One of the foremost important objective of ethical business is that none of the stakeholders

should feel cheated. It should be fair, transparent and clarity of objective. Such an ethical business
will maximize the economic gains on the social good.

Some of the characteristics or features of ethical business are :

(1) Clarity of Objective : The company should spell out very clearly its expectations from its

employers, suppliers, dealers, etc. so as to offer quality products and services at competitive

prices.

(2) Quality Norms : Follow stringent quality norms like AGMARK for agricultural goods, ISI

mark for industrial goods, ISO standards for various operations.

(3)Transparency in dealing : All the stakeholders should have information about everything

happening in the company. Performance appraisals, promotions of employee should be done on

merit & objectively.

(4) Speed in exploration & Imagination in Execution : the company should have the speed to

explore new business opportunities arising due to global economy and should use imagination

and creativity in delivering the good and services.

(5) Strong IT Base : The company should have an expert team of IT professional to capture the

global market through the web based online marketing system. Also the IT professional should

take preventive measures so as to reduce frauds.

(6) Sincerity and Truthfulness in Advertising and Promotion : The company should not make false

claims, regarding their product or service. Advertisement should be informative and not

misleading.
UNFAIR OR UNETHICAL BUSINESS PRACTICES :

(A) With respect to customer :

(1) Pricing : Differential pricing for different class of customers similarly low price identified
 as low quality. Special pricing factoring discounts are all forms of unfair business

practices.

(2) Advertisement : Marking false claims, using advertisement to confuse or confuse customer

with exaggerated claims & colorful copy.

(3) Product Promotion : Using sales promotional techniques like demo pack, free trial, buy

two get one free offers, etc . are used to lure the customers in purchasing the products.

Similarly in industrial goods giving bribe to get the order.

(4) Customer Service : Appointing female executives to get new business and then sending

recovery agents for outstanding dues is unfair business practice.

(5) Price Fixing : Collaborating with other companies and fixing prices which are on higher

side so that customers does not have any choice.

(B) Unethical business practice of employees :

(1) Job Switching : When an employee changes job, he must protect the information of his

previous employer. Similarly a huge amount of money is invested in training of employees

and he leaves the organization which has trained him and takes his experience with him.

(2) Disclose of confidential information : An employee has confidential information about

financial status, future projects etc. which he should not disclose to anyone. Investors buy

or sell shares of the company based on this sensitive information.

(3) Industrial Espionage : This is spying for either personal or companies benefit.

(4) Occupational Crimes : They are wrong actions of employees like :

a) Using office telephone or PC for personal use.

b) False claims made by sales executives.

c) Theft or pilferage.

d) Damaging the property of the company.

 e) Manufacturing, transporting, and selling products that are prohibited by law
e.g. : liquors and drug selling.

In order to develop a strong professional organisation, one needs values which are spelt, for an

organisation through the following :

(1) Vision.

(2) Mission.

(3) Code of conduct.

(1) Vision : Whenever an organisation is set up there should be a a very clear vision of how it is

strong to contribute to the immediate community without harming the physical environment.

The first task thus is to develop a realistic vision for the business which would present a picture

of the business in 3 to 5 years time in terms of its physical appearance, size and activities. Also

define the company’s markets, customers, processes, location, staffing etc.

Example : Shri JRD Tata is one of the greatest visionary, who became the chairman of

Tata sons Ltd. At the age of 34 and his visionary leadership and disciplines approach led the Tata

group to new heights. The Tata ventures grew from 13 to 80 diversified industries, encompassing

steel, tea, powers generation, engineering, hotels and IT to name a few. The name “TATA” bears

trust in the workmanship all due to the vision of Shri J R D Tata.

(2) Mission Statement : The nature of a business is often expressed in terms of its mission. The

mission statement indicates the purpose of a business. For e.g. : The mission statement of

ICICI Bank, “To be preferred provider of comprehensive & world class investment and banking

solutions to the Financial institutions group (FIG) clients.” Thus the focus of ICICI Bank would

be to cater to the needs of the Domestic Financial Institutions and retail customers.

The best example of a well spelt one mission statement is that of Sony Corporation,
which was defined by the founding Chairman Mr. Akio Morita. He has made the mission

statement upto the year 2050.

(3) Code of Conduct : These are the Do’s & Don’t’s or the work culture in an organization. The

code of conduct defines the rights and duties of all the stakeholders starting from the Ceo Or

Managing Director, the Board of Directors, the managers, employees, Suppliers and the

Distributors and the customers and the shareholders.

The code of conduct is necessary for the following :

(a) For inspiration and Guidance : The code expresses a collective commitment of the

organization for the public good and thus guides and inspires all the stakeholders to

maintain it. For e.g.: Johnson & Johnson displays its “CREDO” or code of Best Business

practice at its office reception in all its office world wide.

(b) It Disciplines & Discourages Unethical Business practices : The code serve as a basis for

investigating any unethical action on part of the company officials.

(c) Education and Mutual Understanding : The code serves as a benchmark for developing a

shared understanding by employees, professionals, regulatory bodies like IRDA aid SEBI.

(d) Creates a Good Public Image : The code presents a positive image of a committed

professional and the brand image in the minds of the customer and general public.

(e) Quality standards : Quality standards are set which give us specifications regarding the

quality, safety and appropriate pricing of the product. Example : ISO 9000, 2000.
Code of Best Business Practices of Tata Group :

The 20 Billion dollar Tata Group symbolises leadership with Trust as its key asset has laid

down code for its various SBU’s (Strategic Business Units) and its over 2.5 million employees.
 Their focus is on five core values :

(i) Integrity : What you say, you do or honesty in all its business dealings ids the hallmark of Tata

code. They do not make any false claims. There is unity of thoughts, words and deeds in all its

communication.

(ii) Understanding : The Tata Group understand and can sense before their competitors what the

customer want. They have good customer relation and very harmonious labour relations. They

have pioneered vendor development using Information Technology which has minimized the

cost of the final product.

(iii) Excellence : Any Tata product or service has the finest quality, good workmanship and

competitive pricing. Tata group never compromises on quality.

(iv) Unity : Tata group is well diversified group, which respects independence of every SBU.

However, the group synergises the strengths of all and minimizes the weakness.

(v) Responsibilty : Tata group is known for their corporate social responsibility which includes the

well being of employees, customers, dealers, suppliers and the local communities. Tata group

has always supported social cause and helped in upliftment of local community.

Code of conduct for employees of Tata group includes :

(a) Utilize his or her knowledge and skills for the welfare of the organisation.

(b) To consider the interest of the organization in all its transactions while maintaining the dignity

and responsibility of ones office.

(c) To denounce all forms of commercial bribery for getting any orders.
(d) To apply knowledge and expertise with sincerity and honesty without comprising basic human

values.

(e) Maintain honesty and fairness in all their dealings.

(f) Avoid damage to the ecosystem and strive to maintain sustainable economic development.

ONE POSSIBLE SOLUTION :

Man is a social animal. Though rules of the nature control the humans as they control the other

living beings, the man himself has derived certain principles to govern his own individual and

group behaviour . These rules, in the form of behavioral standards, may differ across cultures and

times but their basic objectives are always mutual existence and peace within the community.

Ethics is defined as that characteristic which constitutes Good and Bad human conduct and that

which decides what is GOOD or BAD, RIGHT or WRONG and thus we OUGHT TO DO

OUGHT NOT TO DO. This is derived by a set of social values through which our action is tested.

In a social group, the ethical standards are set keeping the social values as the base.

Exploring Values, Skills, Attitude and Best Business Practices :

“We must not, obey those who urge us, because we are human and mortal, to think human and
mortal thoughts. In so far as we may, we should practice immortality and omit no effects to live in
accordance woth the best that is in us.”
 - Aristotle

To become – Good, Honest, Hard Workings, Creative person, we need values. Values are

internal compass which guide our actions. Values are our beliefs about what is good or bad, right

or wrong, desirable or worthwhile. Value system is the way one organizes and ranks or priorities

makes decisions based on these values. Values are enduring and permanent. They are “true north

principle” which guides our life. This is the foundation on which we made personal or professional

judgements and choices.

Different types of value :

(1) Knowledge based value : Value which enhances one’s knowledge . E.g. I value reading as it

gives me great insight in to life. I value traveling and meeting people from different religions &

culture as it gives me more knowledge about our and other culture and heritage.

(2) Aesthetic based value : Some thing is valued for its beauty. For e.g. : I love pastel shades as

they makes me fell vibrant and beautiful. I prefer classical music as it is more melodious than

the funky music.

(3) Instrumental value : Something is valued as having it leads to some goal. For e.g. : I value a to

degree in management as that would allow me to join a good organisation. I value and would

love have a two wheeler so that I can travel easily from place to place.

(4) Moral Value : In this, there is a moral judgement and something to support it. For e.g : I believe

it is wrong to lie because it shows disrespect for the other person. I believe it is right to express

your negative views in front oh the persons rather than behind him as it allows him to have a

healthy debate on our points of view.

As you can see, there is no mare rule is a moral rule or a judgment right or wrong good or

bad and something to justify that judgement.

 All our values whether moral or non-moral are judgement in nature and hence are called

“normative”. Your values are your beliefs about what is important life. Some value instruct you on

how one should act ( be honest, fair, self disciplined etc. ) while other values refer to one wants to

accomplish or obtain in life ( a lot of money, cars, bog house, friends, peace of mind etc.) A person

cannot “Have it all” or “be all things” and hence has to prioritize and make choice . To set

priorities one has to create a value hierarchy.

I have given below a list of value for the students :

(1) Sincerity

(2) Honesty

(3) Hard Work

(4) Fun

(5) Growth

(6) Support

(7) Creativity

(8) Friendship

If all the students were asked to give a ranking to these values, they would have to answer

like what is more important, hard work or fun? What would be the ranking preference ?

ATTITUDE :
Attitude is defined as a learned pre-disposition. An evaluative judgement about people or

events, attitude express favourable or unfavourable judgement e.g., Mumbai police are corrupt. Air

India always cancels flight, etc. when one buys products at a cheap rate one of the evaluation is it
is of a substantial quality. Examination always increase the tension both of the students and their

parents, Joining a reputed school will gives good placement. All these are instance Attitudes. If

there are two values honesty & friendship especially when one’s friend is being misled and often

lead to value conflicts. You want to have moral value and moral rules has a price we have to pay.

We have to choose between what we want to be and what we want or desire.

SKILLS:
For “doing” something we need a set of skills. For e.g. : driving, learning langauge are some

of the skills. They teach us the “HOW”. Skills are nit enduring or do not last a life time if not

practiced regularly.. During the 70’s one learnt typing as it was an important skill for doing office

correspondence, with the introduction of PC, apart from typing one has to know how to save and

retrieve a document from WORD programme. Before the Excel sheet came or Lotus package was

developed only calculations and human skills were used to answer complex table and problem.

Thus, skills can be upgraded, hence change with a passage of time.

The doctor is an expert as he has mastered the skill of diagnosis. There is an accomplished

dancer and she has perfected the art form of “Kathak’ dancing. Our car driver is an expert in

driving as since twenty years he has not done any accident and maintaining our car well.

Skills are thus something to be acquired unlike values, not something to be explored within

one self. Further values are functions of the creative “right” brain whereas acquiring a skill is the

function of the left brain.

Skills make a person expert and attitude are created over time and hence for “making” us

what we are not, attitude is responsible. Attitude is our internal perception of what we experience

and learn from people., objects and events. For example there are two students who failed in the

exam. One student tried to commit a suicide as he could not live with his experience while other

student concentrated on studying more to pass the exam in the next attempt. These are two
different perceptions and hence different attitude , one is positive and one is negative. Attitudes

are learned and unlearned and hence are not permanent or enduring. For e.g.: if I have an attitude

based on my past experience that Mumbai Police is corrupt and when I meet many honest and

sincere Police officers, then my attitude about Mumbai Police will change. Attitude is a function

of one’s perception and mind set and also a function of a right brain function.

VALUES SKILLS ATTITUDES

To ‘Be’ we need To ‘Do’ we need To ‘Make’ we need

value skill attitude

Values are internal Skills are External, Attitude is the ‘Internal

dealing with they need to be Perception of
purifying our heart learned and make a people,objects and
and exploring our person expert. events.It leads to
inner world. learned pre-
disposition.

Values are Skills are upgraded. Attitudes keep

permanent. changing.

Values are function Skills are function Attitudes are

of right brain. of left brain. function of right
brain.

Values bring about Skills bring about Attitudes bring

excellence and excellence at work. about a positive
universal good. mindset.

Do Business Ethics and Professionalism contribute to Good Corporate Governance?

The answer is definitely yes.

(i) Business Ethics is about what is perceived as good or bad in the business world.

If there is “good” Business Ethics, which is acceptable by the norms of a given society,
 (nowadays we have a global society) then this will definitely contribute to Good Corporate

Governance, which will be good corporate leadership to satisfy the norms of the society as

perceived by the very society.

(ii) Professionals apply their professionalism on corporations in order for such corporations to

realize their objectives.

The society, through its beliefs, norms and practices sets expectations to professional who in

turn inculcate such expectations into their professional ethics.

The professionals therefore are guided by their ethics as they apply their professionalism

into corporations.

The ethicalness upheld by such professionals, as they work for corporations, therefore

promotes good Corporate Governance.

Both business ethics and professionalism are founded on the sense of right and wrong, what is

fair and just, accountability and transparency.

Do Good Ethics Translate to Good Business and hence Business Sustainability?

A reputation for “sharp” business practices is not an asset at all to any business.

Customers and employees are value sensitive and require consistency.

consistency builds predictability and trust. And indeed all other stakeholders, be it the

Government, the suppliers, the neighbours and society at large value consistency in doing

right thing. Questions which touch on various issues are constantly asked by the

stakeholders which helps them to evaluate whether actions and practices of a given

corporation are good actions and therefore ethical.

It is on the basis of this decision that the corporation is viewed either as good and

Trustworthy one or not.

 Once a corporation is trusted by the stakeholders, the following benefits accrue:

(i) If there is a competitor, the consumers will prefer goods and/or services of the

trusted company.

(ii)The law enforcers will deal with the corporation positively and therefore it will not

be subjected to a lot of scrutiny in attempts to catch it on the “wrong-footing”.

(iii) Credit rating of such a corporation may increase, since it is a trusted company and

hence enable it to obtain favourable credit terms.

There are many more advantages including “the corporation being forgiven by the society for

any mis-deeds it does, even long before it argues its case”.

It is therefore apparent that Ethics translate to Good Business and hence business

sustainability as the customer and all other stakeholders will view the corporate body

positively which translates to advantages to the business in turn.

Are Societal Ethics and Business Ethics alienatable ?

The Societal Ethics are reflected in the business Ethics, since the business is part of the

larger society. In addition, the persons who help the business. The same constitute the business.

The same members of the society are the customers to the business, the government is part of the

same society, the suppliers of goods and materials come from the same society and therefore, if the

business pursues any principles which are repugnant to that of the society, which may not be easy,

then a friction will ensure and since business draw their power from the society, such a business

will definitely fail.

Can Legislation change codes of Ethics and Standards result to desired holistic
change ?

Legislation, Code of Ethics and Standards are guidelines by which if a person is accused on

an issue touching on any of them. Such a person will be judged based on the benchmarks set.
 It is disturbing to note that when subjects are forced through a legislation or some sort of a

set standard to observe a given behaviour, if such subjects are not willing to observe that desired

behaviour, they merely end up obeying the law by exhibiting actions that manifest the minimum

desired behaviour to avoid the penalties.

As stated earlier in this paper there is much more in a profession than a traditionally

dignified calling. If the Legislation, the code of ethics and standards are set by willing people then

such person, who do not necessarily set such benchmarks to convince others of existence of the

rules, then it would be expected that the players would go beyond their performance benchmarks

and excel quite well.

Therefore there is a lot of benefit of ownership of the values that people are expected to

exhibit and very little effort would be required to enforce such values.

It is important that Business and professional do act responsibly, transparently with

fairness. They should also be efficient and effective, because it is in the interest of the very society

they serve, who are their Masters, to do so.

It is inevitable not to have Codes of Ethics and Standards of practice so that they can be

used to net the deviants.

Altogether, these should be viewed as mere lines making the minimums, but professionals

and businesses alike, should endevour to achieve higher and higher performances in matters of

Ethics.

The Role of Government and the Society :

Every Government has a major duty to play if its citizens are going to benefit from Good

Corporate Governance.

In the first instance, the Government must be composed of people who are themselves
ethical, so that they can be listened to and emulated.

The society is the population which votes in governments and therefore it is a major

influencing agent of what kind of a government they end-up with, which in turn, sets the tone on

governance on citizens and indirectly on corporate bodies.

With Globalization, it is not possible to have major differences in levels of delivery and

expectations by the Society. People all-over the world are sharing information very quickly and

therefore, they are now able to tell whether the delivery of services and treatment they get be it

from the government or the corporations, measures to what their furthest counterparts in other

countries get.

It is even more serious that under the WTO treaties, professionals will be able to move

freely and deliver services anywhere in the world and hence this means that time has come for

professionals trained in different countries to unify their Ethical codes to meet the global society

expectations.

Case Study 1: The Bhopal Gas Tragedy

Period : 1980-2001
Organization : Union Carbide India Ltd.
Industry : Chemicals.
Country : India.
The case gives an overview of the Bhopal gas tragedy. On December 3, 1984, poisonous gas
leaked from Union Carbide India Limited (UCIL's) pesticide plant in Bhopal, which killed
thousands of people. The case brings out the ethical issues involved in the disaster.

It discusses in detail the reasons behind the disaster. The case discusses the role played by Union
Carbide Corporation after the disaster, which seemed to be unethical. It also talks about the role of
the GOI and Madhya Pradesh government in the disaster. The case is intended for MBA/PGDBM
level students as a part of the Business Ethics Curriculum.

From the case, students are expected to understand the ethical issues involved in the Bhopal gas
tragedy and the role played by the governments in the disaster. With the help of the Theory of
Image Restoration, students are expected to understand how Union Carbide responded to the
situation. They should also analyze how Union Carbide should have responded to the Bhopal gas
tragedy.

Issues:

» Bhopal Gas Tragedy.

» Reaction of the UCIL.
» Role of government in granting permission.
» Failure of safety measures.
» Delay in Justice.

Contents:

Introduction
The Journey from Virginia to Bhopal
All's Not Well with the Bhopal Plant
The Tragedy
Union Carbide Takes the Offensive
The Settlement

“The numerous safety systems with which this type of plant is equipped enable us to
control any of the MIC’s potentially dangerous reactions.”

- A Union Carbide official commenting on the safety systems in the Bhopal pesticide
plant.

“It’s not a deadly gas, just irritating, a sort of tear gas.”

- Dr Loya, Union Carbide’s official doctor in Bhopal, commenting on Methyl
Isocyanate, after the tragedy.

Introduction

In the early morning hours of December 3, 1984, a poisonous grey cloud (forty tons
of toxic gases) from Union Carbide India Limited (UCIL’s)1 pesticide plant at Bhopal
spread throughout the city. Water carrying catalytic material had entered Methyl
Isocyanate (MIC) storage tank No. 610. What followed was a nightmare.

The killer gas spread through the city, sending residents scurrying through the dark
streets. No alarm ever sounded a warning and no evacuation plan was prepared.
When victims arrived at hospitals breathless and blind, doctors did not know how to
treat them, as UCIL had not provided emergency information.

It was only when the sun rose the next morning that the magnitude of the devastation
was clear. Dead bodies of humans and animals blocked the streets, leaves turned
black, the smell of burning chilli peppers lingered in the air.

Estimates suggested that as many as 10,000 may have died immediately and 30,000
to 50,000 were too ill to ever return to their jobs.

The catastrophe raised some serious ethical issues. The pesticide factory was built in
the midst of densely populated settlements. UCIL chose to store and produce MIC,
one of the most deadly chemicals (permitted exposure levels in USA and Britain are
0.02 parts per million), in an area where nearly 120,000 people lived.

The MIC plant was not designed to handle a runaway reaction. When the
uncontrolled reaction started, MIC was flowing through the scrubber (meant to
neutralize MIC emissions) at more than 200 times its designed capacity. MIC in the
tank was filled to 87% of its capacity while the maximum permissible was 50%.
MIC was not stored at zero degree centigrade as prescribed and the refrigeration and
cooling systems had been shut down five months before the disaster, as part of
UCC’s global economy drive.

Vital gauges and indicators in the MIC tank were defective. The flare tower meant to
burn off MIC emissions was under repair at the time of the disaster and the scrubber
contained no caustic soda.

As part of UCC’s drive to cut costs, the work force in the Bhopal factory was brought
down by half from 1980 to 1984.

This had serious consequences on safety and maintenance. The size of the work crew
for the MIC plant was cut in half from twelve to six workers...

Excerpts
The Journey from Virginia to Bhopal

In the beginning of the 20th century, UCC was born of a merger of four US
companies producing batteries and arc lamps for street lighting and headlamps for
cars. By the second half of the 20th century, UCC had 130 subsidiaries in 40
countries, approximately 500 production sites and 120,000 employees...

All's Not Well with the Bhopal Plant

Since 1980, the Bhopal plant had caused death and injury to many. In December
1981, plant operator Mohammed Ashraf was killed by a phosgene gas leak. Two
other workers were injured. In May 1982, three American engineers from the
chemical products and household plastics division of UCC came to Bhopal...

Many Indian journalists pointed out the several defects in the design of the plant of
UCC. After the Bhopal incident, the Virginia plant was closed. It was also found that
the process used by UCC was banned in others parts of the world. Germany has
suggested an alternative process to manufacture the same product with much greater
safety.

The Tragedy

On the night of December 2, 1984, during routine maintenance operations at the

MIC plant, at about 9.30 p.m., a large quantity of water entered storage tank no. 610
containing over 40 tons of MIC. This triggered off a reaction, resulting in a
tremendous increase of temperature and pressure in the tank...

The Union Carbide officials in the U.S.A. denied that their firm was responsible for
the tragedy. The chairman of UCC suggested that the Indian firm should pay final
compensation for those killed & injured.

Union Carbide Takes the Offensive

Following the accident, the GoI filed a compensation lawsuit against the UCC for an
estimated US$3 billion. However, UCC felt that the GoI was to blame for the
disaster. In December 1986, UCC filed a countersuit against the GoI and the State of
Madhya Pradesh...

The Settlement

The Indian authorities denied the charges of negligence by Warren Anderson, the
chairman of Union Carbide. The case was going between the American & Indian
courts, Meanwhile, the suffering of the Bhopal victims continued. The Supreme
court in order to put an end to this problem awarded a damage of US $ 470 million
which the company paid. The judgement was not based on justice. The problem
remains an unsolved one.

Within months after the disaster, the GoI issued an ordinance appointing itself as the
sole representative of the victims for any legal dealings with UCC as regards
compensation. The ordinance was later replaced by the Bhopal Gas Leak (Processing
of Claims) Act, 1985…

Case Study 2:The Bribery Scandal at Siemens AG

Period : 2006-2007
Organization : Siemens AG
Industry : Diversified.
Country : Germany.

This case discusses the bribery scandals that were unearthed at Siemens AG (Siemens) in 2006 and
2007. There were a series of scandals that involved some of the company's employees bribing
foreign officials to gain contracts and creating slush funds for this purpose.

In another case, the company was accused of bribing labor representatives on the suprvisory board
in order to gain their support for its policies. After the German authorities conducted raids on
Siemens'offices in Germany, investigations were initiated on Siemens in several other countries
like the US, Greece, Italy and Switzerland for possible misconduct.
As a fallout of this scandal, the CEO of the company, Klaus Kleinfeld, and the chairman of the
supervisory board, Heinrich von Pierer, had to resign even though they were not directly
implicated.

With bribery scandals surfacing in Siemens and many other German companies like Volkswagen,
questions were also raised about the effectiveness of the Co-determination law in Germany, which
advocated a system in which a supervisory board governed the management board and at least half
the supervisory board seats had to be filled by labor representatives.

In such a system, critics contented that the management always needed the labor
representatives'support to be in job and gain support for company policies, which led to a
suspicious alliance between them. The case also highlights the opinions of several analysts on the
issues related to bribing by the German companies and Siemens in particular and the challenges the
new CEO is likely to face at Siemens.

Issues:
» Understand the impact of the bribery scandals unearthed at Siemens AG on the company and the
economic climate in Germany

» Analyze the steps taken by Siemens AG to prevent such incidents in future

» Discuss the role of the co-determination law in the bribery scandals that surfaced in German
companies

Contents:

Introduction
Background Note
A Series of Scandals Rocks Siemens
Repercussions of the Scandals
Initiatives at Siemens
Questions Relating to Ethics in Corporate Germany
Outlook
Based on our investigation so far, we have reason to suspect that Siemens ran ‘black accounts'...
that allowed it to open new markets through secret payments to potential and existing business
partners.”1
- Jeanette Balmer, a spokeswoman for the office of the Swiss federal prosecutor, in 2006.

“Many people within Siemens knew about the method of payment. Getting a contract isn't easy.”2
- Horst Vigener, former Siemens employee convicted in a bribery case, in 2007.

“What hopefully will come out of the Siemens affair ... is that senior business leaders, when they
see what happens to Siemens in terms of fines and the lost reputation of individuals like von Pierer
or Kleinfeld, is that they will say ‘OK, we need to start taking this seriously'.”3
- Jermyn Brooks, director of private sector programs at Transparency International, in 2007.

Introduction

On May 14, 2007, a German court convicted two former managers of Siemens AG (Siemens) for
diverting the company's money to bribe employees of Enel SpA4 (Enel), an Italian energy
company.5

Both the former managers admitted that they had bribed employees at Enel who had demanded
money in return for contracts.

They also said that they had not done anything wrong as they did it for the benefit of the company
and not for any personal gain. Moreover, there was no other way to win contracts in several
countries abroad where bribing for contracts was a common practice, they said.
Earlier, in late 2006, another scandal had surfaced in the telecommunications division of Siemens
involving slush funds6 created to bribe foreign officials to secure contracts abroad

In still another case, Siemens was accused by IG Metall7, a dominant labor union in Germany, of
having tried to bribe a small union called AUB to gain support for its policies. Siemens was also
being probed in several other countries like Italy, Switzerland, Greece, and the US for possible
misconduct.

Analysts said that the bribery scandals at Siemens reflected the ethical costs of intense competition
in global markets. Companies were resorting to underhand payments to win contracts. In several
developing countries it was common practice to take money from companies in return for
contracts, it was said. The companies themselves considered it as a business cost.

In the light of the number of scandals that rocked Siemens in a short span of time, questions were
raised as to how the top management had failed to notice such a deep network of embezzlement
involving huge amounts of money. The crisis ultimately led to the exit of the chairman of
Siemens'supervisory board, Heinrich von Pierer (von Pierer) and it's CEO, Klaus Kleinfeld
(Kleinfeld). Though they were not directly implicated in the scandals, the new board chairman said
that the leadership change had been made to give the company a clean break from the past. Critics
felt that Kleinfeld should not have been replaced since he had been instrumental in bringing back
Siemens into profit
Kleinfeld had often been dubbed as the Jack Welch of Germany, and his exit raised questions
about the role of supervisory boards in the management of German companies.

According to the Co-determination law or Mitbestimmung in Germany (Refer to Exhibit I for a

note on Germany's Co-determination law or Mitbestimmung), every company had to have a two-
tier system of management, in which the supervisory board consisting of labor representatives
oversaw the management board. This system often led to collusion between management and labor
representatives, and some critics felt it needed a thorough overhauling.

Background Note

Siemens was initially started as Telegraphen-Bauanstalt von Siemens & Halske (Siemens &
Halske) in 1847 by Werner von Siemens (Werner) and a mechanical engineer, Johann Georg
Halske (Halske). In 1853, the company won its first international contract to build a telegraph
network that stretched around 10,000 kilometers and provide maintenance services for it, in
Russia. In 1855, Werner set up subsidiaries in Russia and Britain to serve the growing
opportunities for the company outside Germany and entrusted their responsibility to his brothers.
In 1865, the British subsidiary was renamed Siemens Brothers.
In 1866, Werner discovered the dynamo-electric principle and got the necessary patents in
Germany and Britain to enable the company to cash in on the invention. In the late 1870s, power
engineering began to develop rapidly in Germany with the advent of electric railways, electric
street lighting, electric elevators, electric tramways, etc.

In order to prepare the company to meet these growing business opportunities, Siemens & Halske
concentrated on retaining qualified and reliable employees. The company shared its profits with its
employees through stock options. A pension fund was created for the benefit of employees and
their families. The company introduced the concept of fixed working hours per day. It also started
focusing on training its employees for specific jobs and career progression...

Excerpts

A Series of Scandals Rocks Siemens

Slush funds to win contracts abroad

On November 15, 2006, around 30 offices and private homes related to Siemens and its employees
were raided by some 200 police officers, tax inspectors and prosecutors in Munich, and other cities
of Germany, to probe suspicions of bribery, embezzlement of company funds and tax evasion. Five
Siemens employees were taken into custody in connection with the case...

Siemens charged for bribing employee representatives

On February 14, 2007, authorities in Nuremberg, Germany, raided several Siemens offices
following allegations that the company was involved in bribing employee representatives to secure
their support for its policies...

Former Siemens managers convicted of bribing foreign officials

On May 14, 2007, a German court convicted two former managers of Siemens, Andreas Kley
(Kley) and Horst Vigener (Vigener), for embezzling the company funds to bribe employees of an
Italian energy company, Enel. Though they were not accused of corruption intended for personal
enrichment, both the former employees admitted to having paid 6 million euros of Siemens funds
to managers of Enel in order to win orders for gas turbines between 1999 and 2002...

Repercussions of the Scandals

The series of bribery allegations came in the aftermath of Siemens'sale of its loss-making mobile
handset unit in 2005, to a Taiwanese company, BenQ. Here too, Siemens did not cover itself in
glory as it was seen as having got rid of the unit because it could not easily lay off its employees.
With BenQ eventually filing for insolvency, the ex-Siemens workers lost their jobs, and some
people felt that Siemens ought to have foreseen this and been more responsible towards its long-
time employees. Siemens was urged to take on the responsibility of compensating the workers, and
it was forced to delay its planned hefty pay hikes for its top management and compensate the
employees who lost jobs...

Initiatives at Siemens

After the bribery scandals were unearthed at Siemens, the company started many initiatives to
strengthen its corporate governance and compliance controls. A law firm Debevoise & Plimpton
LLP (Debevoise & Plimpton) was appointed to conduct an independent and comprehensive
investigation into the company's compliance and control system with the help of the independent
auditor for Siemens, KPMG

Questions Relating to Ethics in Corporate Germany

Around the same time as the Siemens cases came out, unethical practices surfaced in other German
companies including Volkswagen AG (Volkswagen), Deutsche Telekom AG, Deutsche Bahn AG
and Deutsche Post AG.

At Volkswagen, a senior executive was fined 576,000 euros and received a suspended prison
sentence in January 2007 for bribing labor representatives with money, foreign trips and
prostitutes. Since several of the corruption scandals involved the bribing of labor representatives on
the boards of German companies, some analysts felt that the Co-determination law or
Mitbestimmung in Germany was flawed.
According to the Co-determination law, the supervisory board of a company had to have 20
members, of whom 10 were to be labor representatives. This led to a suspicious alliance between
the management and the labor representatives, which could never set a stage for proper discussions
during the board meetings...

Outlook

Analysts opined that on account of increasing competition, companies were resorting to illegal
payments to win international contracts especially in some emerging economies where the practice
was common.

Siemens along with many other companies was found guilty of paying bribes to secure contracts
abroad. That the company officials had resorted to bribing was not in question, but the remaining
questions were even more worrying - how deep were the scandals rooted in the company and to
what extent was the board aware of the fraud...

CONCLUSION :

Since time immemorial, volumes have been written on what is ethical and what is unethical

and what is fair & what is appropriate in a given situation.. In simple words, ethics is self-

realization. Our hypothesis is that man is divine in nature. However, it does not mean, that it is the

end of all endeavors. God is not in man in such a obvious fashion that he can posses HIM

absentmindedly and without any efforts or struggle. God is present in every in every human beings
as a potential and a possibility. Though the individual is born with a divine spark, he is a not

wholly divine. He is part of God, aspiring to be whole. If man in his ignorance, identifies himself

with his selfishness, animal instincts , cravings & passions. If he is lead by the ambitions of the

ego. The lust of the animal self he would never be able to reach the highest realization oh his self.

In short, Man’s aim as a spiritual being, is to blend in love and be united with the divine

principle. Thus moral or ethical conduct is a SELF- REALISED conduct.

One does not have to go to any school to learn ethics. In order to know what is ethical- one

needs to introspect and ask a simple question. If any one of my action, thoughts, spoken words

create a guilt, sorrow & regret after it is performed or expressed? If the answer is Yes, then it is a

unethical conduct. Further does my action thoughts or spoken words generate confusion, anxiety

and indecisiveness before I perform it or express it- then – yes then once again it is unethical

conduct. When any of my action, thought or spoken words result in joy, happiness and satisfaction

to me and others it is undoubtedly a ethical conduct. If before performing the action, or express my

Thoughts or speak. I feel calm serene, composed and full of compassion then it leads to ethical

conduct.

It is only through the power of discrimination- viveka that a man can choose between two

selves : One which is driven by the animal instincts – a self which is eternally craving for

abstentious pleasures in having and possessing and the other is the spiritual self which believes in
being which is serene, composed and eternally blissful. Ethics gives us the vision to discriminate

and decide on a course of action.

Ethics is a normative science. It means it lays down the norms or standards of what is good and

what is bad. It specifies what we ought to do and what we ought to do & what we ought we not to

do, in a certain situation.

Business ethics is a branch of ethics which prescribes standards of how the business is to be
carried out. It lays down guidelines for the company’s response and accountability to its various

stakeholder, It has to maintain a fine balance and take care of the interest of the shareholders on
one hand and other like the employees. Suppliers, customers and community at large on the other

hand. All the stakeholders have different objectives of what they export from the company and at

times these objectives may be conflicting in nature. For instance maximizing shareholders wealth

is one of the important objective of nay company. In order to serve this objective, the company

should not neglect or objectives of other stakeholders- like employees need a fair remuneration

and good working condition. Customers would demand quality products at reasonable prices and

society at large would be looking forward to the company to provide employment opportunities to

as many people as possible. Besides this, funds development projects as a social responsibility and

follow financial discipline and transparency in all its dealings. Business ethics would tell us what

is “RIGHT” and what is “JUST” in a globalised world where the survival of the corporation is

decided by the market place.

Business ethics also deal with the behaviours and response of a manager in a given situation. A

manager in his professional life at times faces dilemma – as there is a conflict between an

organisation economic performance ( measured by revenue & profit after tax ) and its social

performance/ stated in terms of obligation to all stakeholders.

These dilemmas cost both, the organisation, which is evaluated by financial standards and

managers, who are subject to performance appraisal. The sales manager who would bribe to get

orders will have higher sales, commission and would be appraised the best than the one who

refuses to succumb to such a pressure may have to leave the job as his performance was not good.

Business ethics would who deal with such dilemmas and strikes a “ fair ” balance between the

economic performance and the social performance of an organisation.

Cross Reference Index :

1) Intro to Business Ethics – 6-7

2) Advantages of Business ethics – 9

3) Best Business Practices – 12-15

4) Exploring Attitude, Values, Skills – 16-19

5) Ethical Business – 10
6) Good corporate Governance & professionalism - 20

7) Importance of Business ethics – 7

8) Legislation & Business ethics – 22

9) Role of government & the society – 23

10) Social ethics & Business ethics – 21

11) Unfair or Unethical Business practices – 11