ETHICS OF DOING BUSINESS

WHAT IS ETHICS

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 WHY IT IS HARD TO BE ETHICAL

Situational Pressures
 Decisions -
Complex
 Enslaved by
Results
 Competition –
Intense

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 WHY IT IS HARD TO BE ETHICAL

Opportunity
 Internal Controls –
Absent
 Culture –
bureaucratic
 Corporate
Governance - Missing

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 WHY IT IS HARD TO BE ETHICAL

Rationalization
 behaviour –
Everyone does it
 Abundance of
Inertia – That’s how
its always been
done

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 WHY IT IS HARD TO BE ETHICAL

Predominance of
Individualism

Reduced Moral
Sensitivity

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 TYPES OF UNETHICAL PRACTICES
Financial
Statement
Fraud
Misuse of
Violation of
company’s
Law
assets

Misbehavior Asset
with Misappropriati
consumers on

Unethical
Sexual Intellectual
Harassment Property Theft

Data
Consumer
Manipulation
Fraud
& Destruction

System Bribery &

Hacking Kickbacks

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2017 TOP MOST CORPORATE
SCANDALS

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Sexual Harassment Case
- former Uber employee
Susan Fowler alleged a
culture of sexual
harassment
Uber had been
hacked putting data
of some 57 million
users in danger

Criminal probe into Uber’s

alleged use of a software
dubbed “Greyball” to
avoid regulators in
geographic regions where
it was operating illegally – Uber’s users chose alternatives &
led to Kalanick’s ouster ceded part of its market share to Lyft,
Now controlling 74% of the U.S. market
against 84% last year with market
valuation of $48 Bn as against $68 Bn

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 One of the worst data
breaches in history in
Sept’17, with information
of some 145 million people,
about half of the U.S.
population, compromised
Probe still into whether
top Equifax executives
committed insider
trading when selling $1.8
billion shares just before
breach was disclosed.

• CEO Richard Smith stepped down,

along with CIO and CSO, amid
revelations that Equifax was aware of
system flaw since March.
• Firm waited a full two months before
disclosing when hack happen

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 • CEO Lee jae-Yong accused of
bribing $38 million South Korean
President Park Guen-hye,
• for government support for a
merger of two Samsung
affiliates in 2015 that helped him
inherit corporate control from his
incapacitated father

Lee was also accused of

committing perjury
insisted during a
parliamentary hearing
that he never bribed
Park.

• Lee Jae-yong facing five years (& potentially

12) in jail for bribe, embezzlement, and hiding
assets overseas
• Co-CEO Kwon Oh-hyun also resigned in
October, citing Samsung’s leadership woes

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 Charged around
570,000 consumers for
auto insurance that
they did not need

• uncovered 3.5 million

fake accounts
• created without
consumer permission
• Fired whistle-blowers who
spoke about it

• Paid $80 million in remediation

• Wells Fargo’s head of consumer banking
and some 70 senior managers in bank’s
retail banking segment were cut

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 Purposely slowed down older
iPhones:
• To compensate for
decaying batteries.
• when a new version came
out to force consumers to
upgrade

• apologized for slowing

down iPhones, calling it
a “misunderstanding,”
• offered to sell battery
replacements for $29
instead of usual $79..
• facing lawsuits for allegedly slowing down
the devices without first warning
consumers

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 JAPAN’S CORPORATE
GOVERNANCE WOES
Revealed falsified
information on items
sold to Boeing, Ford,
Toyota since 2007

Faked data on
auto & airplane
parts affecting
274 clients

Recalled 1.2 million

cars in 2017-
unqualified inspectors
allowed to vet cars
since decades
• Rs 14000 crore fraud
• branch staff issued
fake LoU (Letter of
understanding) for
buyer’s credit
• Biggest banking scam

• LoUs issued in favour of different exporters,

“without setting up any limit”
• Forex transaction vouchers not maintained
• SWIFT messages not entered in Core
Banking System (CBS)
• didn’t prepare credit appraisal report
• did not insist on payment of margin money
to cover for potential losses
• No inspection of inventory of imports • RBI directed PNB to pay
• securities kept by them were not checked entire Rs. 14000 crore to
lenders
• CBI Charge sheet
against key bank
officials

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FINANCIAL STATEMENT FRAUDS

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 HOW TO AVOID FRAUDS &
UNETHICAL BEHAVIOUR
1.Reduce Situational Reduce
1.Reduce Opportunity
Pressure Rationalization
• Avoid setting • Maintain accurate & • Strengthen
unachievable complete internal employee personal
financial goals accounting records integrity
• Eliminate external • Monitor business • Managers set an
pressures tempting transactions & example by
to prepare interpersonal promoting honesty
fraudulent financial relationships of • Management
statements suppliers, buyers, practice what it
• Remove operational sales reps, preaches
obstacles purchasing agents • Define honest &
• Establish clear & • Establish physical dishonest behaviour
uniform accounting security system in Code of Conduct
procedures • Maintain accurate
personnel records
• Segregation of
duties

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 HOW TO AVOID FRAUDS &
UNETHICAL BEHAVIOUR
1.Effective
Corporate 1.Internal Audits External Audit
Governance
• Board Oversight • Evaluate • Independently
• Audit adequacy & inspects &
Committee effectiveness of express opinion
independent Internal Controls on fairness of
control • Potential financial
• Formal CoC & exposure to statement as
Consequence fraud per GAAP or
of violating CoC IFRS
should be clear
• Formal Whistle-
blower policy or
Speak-up Lines

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 WHAT MAKES COMPANIES
ETHICAL
Top 5 factors that make companies ethical

1. Ethics & Compliance Program including:

• gifts received by employees
• resources for employees to report any misconduct

2. Ethics embedded into company’s culture from top to bottom

3. Corporate Citizenship & Responsibility

4. Corporate Governance –
• CEO & Board Chairman roles held by different persons
• increased focus on diversity in board & leadership positions

5. Leadership, Innovation & Reputation

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 WHY BEING ETHICAL PAYS

Strategic
Employee Attracts Building
Decision
Retention Investors Reputation
Making

Promotes
Customer Reduces Sustainable
Corporate
Loyalty Business Risk Growth
Governance

Fosters
Equality
Community
Workplace
Improvement

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As per the World Most Ethical
Companies Survey in 2018 by
Ethisphere –
• 135 listed companies from 23
countries & 57 industries
• Twelve 12 time honorees
• Fifteen first time honorees
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107 US companies
Companies RoW

2 Indian
Companies

Source: https://www.worldsmostethicalcompanies.com/honorees/ 21
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