Business Ethics and Corporate governance by Mandal book cases

1. Prepared by Prof. Shirufi Purohit
Business Ethics &Corporate Governance:
Case Studies:
Chapter: 1
Case: 1
This is a story about the great fifth-century Geek Philosopher
Socrates. We learn this story from the writings of Plato, Apology,
Xenophon and others because Socrates left no writings of his own.
The story goes that when Socrates was unjustly thrown into prison
by the opponents, awaiting execution awarded on false charge of
charge of capital offence, his friends and pupils tried to persuade
him to escape from the prison rather than face unfair execution.
They had made a foolproof plan for the escape by bribing the
prison guards. But Socrates refused because he was convinced that
escaping would be morally wrong. Though he was awaiting death
for a crime that he did not commit, Socrates chose not to escape
from the prison because he was convinced that intentionally doing
something wrong would harm him more than suffering an unjust
death. His declared principle was: ‘I would rather die having
spoken in any manner, than speak in your manner and live’
This is the spirit of moral value which Socrates lived his life,
taught his pupils and became immortal. His moral values stands
are regarded as the foundation of modern ethics. (Page 2 of the
text book)
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Case: 2
Reportedly, during mid-2008, after drinking the milk supplied by
the Sanlu Group in China, six children died and nearly 300000
children fell sick. The milk had been intentionally laced with
melamine, a toxic industrial compound that can give a fake
positive on protein tests in milk. The officials at Sanlu, who were
aware of this contamination, neither made it public to warn the
consuming population nor recalled their product in time to prevent
the damage. On the contrary, as the report goes, the company
officials tried to cover up milk poisoning. However, thanks to the
hard work of ‘whistleblowers’, this heinous crime came in to the
open. It was proved a case of intentional food safety violation of
serious magnitude by a few individuals in Sanlu for the sake of
extra profit. Their condemnable act affected the life and safety of
innocent children. A Chinese court sentenced two of these
officials to death in September 2009, for their role in the
production and sale of melamine-tainted milk. (Page 2 of the text
book)
Summary: Case I illustrates the moral value one upholds even in
the face of gravest threat to one’s own life, whereas Case II shows
how individuals can flout the conscience of one’s morality and
moral responsibility, while handling company’s affairs
endangering the life and safety of children for some personal
gains. (Page 3 of the text book)
Chapter: 2
Case Study: 3
The Bhopal Gas 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
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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
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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. The maintenance supervisor position had been eliminated
and there was no maintenance supervisor. The period of safetytraining to workers in the MIC plant was brought down from 6
months to 15 days.
Scenario after 25 years:
Abstract:
December 3, 2009, marked the 25th anniversary of the world's
worst ever industrial disaster - the gas leak that occurred at Union
Carbide India Ltd's (UCIL) pesticide plant in Bhopal (Madhya
Pradesh, India). The tragedy that instantly killed more than 3,000
people and left thousands injured and affected for life, occurred
when water entered Methyl Isocyanate (MIC) storage tank No.
610 of the plant on December 3, 1984. MIC is one of the deadliest
gases produced in the chemical industry and is known to react
violently when it comes into contact with water or metal dust.
Though the plant was closed down soon, the after-affects of the
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accident left an estimated 25,000 people dead and around 600,000
people affected due to gas-related disorders.
What compounded the tragedy was that the victims failed to get
adequate compensation and the generation that followed continued
to suffer from health complications. However, the multinational
corporation responsible for the disaster still continued to evade
responsibility.
The US-based Union Carbide Corporation (UCC), the parent
company of UCIL, stuck to its outrageous argument that the
incident had occurred due to an act of sabotage by a disgruntled
worker. It, however, failed to name the worker. It downplayed the
health effects of MIC and discredited the victims and activists
fighting for justice. It tried to evade responsibility by shifting the
blame on to the Indian subsidiary and the Indian government.
UCC claimed that it did not have any say in the operations of its
subsidiary. The company engaged in lengthy litigation which led
to a delay in compensation being provided to the victims. Even the
people who obtained a paltry amount years later, as UCC agreed
to pay US$ 470 million, had to continue residing in the
surroundings of the plant that had not been cleaned up, exposed to
the toxic environment. Contrary to UCC's assertion, independent
experts believed that the disaster had occurred due to negligent
management practices and that corporate greed had played a role
in this. They also did not buy UCC's argument that the company
did not have operational control over its Indian subsidiary.
In 2001, UCC tried to enter into oblivion by merging with the USbased Dow Chemical Company (Dow). After the merger, Dow too
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refused to take responsibility for the incident, arguing that it had
never operated the plant at Bhopal and that it had insulated itself
from UCC's Bhopal liabilities by virtue of how it had structured
the acquisition. Not only did it contend that the compensation
claim had been already settled by UCC much before it had
acquired the company, but it also continued to lobby the Indian
government to resolve the issue once and for all in its favor. The
Indian government too came in for criticism as it was viewed as
siding with the rich multinationals, more concerned about a
backlash from foreign investors who had become more important
players in the Indian economy following liberalization.
A quarter of a century later, toxic chemicals lay in the vicinity and
children who played near the site and livestock grazing on the
ground were fully exposed to it. In addition to the surroundings,
the walls of the plant and the roof remained covered with toxic
materials which far exceeded safety standards. Moreover, sacks of
chemicals and pesticides lay scattered around the abandoned
factory in a state of decomposition. The survivors residing near
the plant continued to depend on groundwater sources that were
highly contaminated as the heavy metals and solvents had seeped
into the ground after rainfall. Survivors and their next generation
continued to suffer from a number of ailments and cancers.
Children were still being born with birth defects and there was an
unusually high incidence of mental handicap and other ailments.
Critics felt that the situation in Bhopal only went to show how
multinational corporations had amassed disproportionate power
and influence in the global stage and showed contemporary
capitalism at its worst. The fact that UCC and then Dow had been
able to evade the real costs of compensation and clean-up, was
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viewed by critics as an example of the power and impunity
enjoyed by multinational corporations. The victims' struggle
against UCC, and then Dow, were recognized as the world's
longest running struggle against corporate excesses. Experts felt
that the outcome of this struggle would have huge implications for
globalization. And as such, the incident at Bhopal was not just an
industrial disaster from the past century, but a very important issue
of the new millennium of people's right, government
responsibility, and corporate accountability.
Issues:
» Analyze and understand the world's worst industrial disaster, its
reasons, and consequences (both short-term and long-term), and
why it is relevant even today.
» Discuss and debate the stance taken by the multinational
corporation, host government, and other stakeholders following
the disaster.
» Understand why this tragedy and the outcome reflect the dark
side of contemporary capitalism.
» Understand the transnational aspects of the ethical debate and
how multinational corporations can be held accountable for its
malpractices in a country other than its origin.
Source:
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Case Study: 4
A fire that broke out during the annual celebration (of the birthday
of the founder J. N. Tata) at the Jamshedpur Plant of Tata Steel,
the flagship company of Tata Group, on 3rd March 1989. An
accidental but devastating fire engulfed some galleries reserved
for employees and their relatives to witness the celebrations.
Flames spread rapidly through the wooden galleries and children
and women were trapped and severely burnt in the stampede that
followed. There were many casualties in the aftermath of this
horror and devastation. Within minutes, the entire management
team and employees got in to the action for the rescue operations.
Doctors arrived from the nearby company hospitals attended to the
victims, burn specialists were flown to the town from all over
country and special medicines were flown in from abroad for
emergency treatment. The company left no stone unturned to save
their victims. After initial shock and recovery period, critical
patients were taken to various burn specialty hospitals across the
country on the aero plane meant for the chief executives of the
company. The management extended full help and unlimited
financial support to ensure recovery of each patient. Special
family cells were formed to visit and counsel burn patients at the
hospitals and in their homes and to express solidarity and
encouragement for early recovery. Subsequently, jobs were
offered to near relations of each of the deceased, special air
conditioned residential accommodations were provided to
facilitate recovery of surviving victims, continuing medical
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treatment at the best hospital in the country was provided at the
company’s cost as long as it was needed, compensations were paid
to destitute loss, and a rehabilitation training and programs were
instituted for the long term benefits of surviving victims. All these
efforts of the company were spontaneous- not demanded by its
employees or trade union- and was hailed by the community as
most praiseworthy for the well-being of affected employees and
the community. Most personalities and social scientists observed
that these actions reflected the employer’s concern for care for the
employees, and were not merely guided by the need to fulfill
moral or legal obligations. The spirit was to respond positively to
the needs and desires of the society at a time of distress, to
preserve the value of relationship. (Reference Page 94 of the text
book)
Summary: This exemplary case stands out in sharp contrast with
the treatment meted out to the victims of toxic gas leakage at the
Union Carbide pesticide factory at Bhopal, in 1984, when
thousands died and many more were incapacitated due to
poisonous gas. The battle for fair compensation and proper
rehabilitation of the victims is still ongoing – even after 25 years
of the accident. There are many other examples while dealing with
helpless victims of flawed operational practices. Ethics of care go
beyond the responsibility of legal obligations, to provide care for
restitution, rehabilitation and growth. (Reference Page 95 of the
text book)
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Chapter: 3
Case study: 5
This is the story about Satyam Computer Services Limited (SCSL)
that no more exists as original entity as it was taken over by the
Mahindra Group during the worst phase in its life, the SCSL was
renamed as Mahindra Satyam Limited. The story narrates what
led Satyam Computer to a miserable end, which otherwise could
have been a big story in the Indian Corporate world. (Reference
Page 107 of the text book)
Summary: An analysis of case shows that:
(a).this business fraud was planned and systemically executed by
few individuals at the top.
(b). laws and regulations in the country not only failed to prevent a
crime of such high magnitude, but the company could also on such
unethical and illegal.
(c). People both internal and external auditors who are supposed to
check and verify good practices ignored their role and chose to
propagate the fraud in exchange of personal gains.
This case clearly illustrates that regulations and laws do not
guarantee fair conduct and ethical governance in the business if
people behind it choose to be immoral and corrupt.
Case study: 6
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A company recruits a female engineer through an open
advertisement, and appoints her at a salary that is much lesser than
other male engineers with similar experience and working with
similar type of job responsibility. (Reference Page 119 of the text
book)
Summary: In countries, where there is no legal protection against
gender discrimination, the ethical standards of the company can
helping ensuring balance between fairness, justice and equity.
Chapter: 4
Case study: 7
An industrial unit, in eastern India had been closed for over three
months under the notice for ‘Suspension of Work’- (Reference
Page 164 of the text book)
Summary: The duties and responsibilities of individuals in the
organizations are dependent on the purpose, goals and means of
business in an organization where choices of the individuals could
be guided by their moral understanding and moral reasoning. In
this context, an organization ought to be transparent and ethical in
order to avoid conflicts in business and management process.
There may be no ideal situation to all problems in business, but
ethics and ethical approach to governance can certainly strike a
balance for the best results. Educating individuals about the merits
of ethics, making people in the organization aware about their
duties and responsibilities, installing transparent process of
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decision-making and administration, and firmly and uniformly
drawing line that separates morally legitimate rights and those that
are unethical have been recommended by the management experts
to ensure ethical duties and responsibility in the organization.
Case study: 8
A worker’s leave application for daughter’s marriage, which was
organized out of town was rejected- (Reference Page 175 of the
text book)
Summary: A simple case that could have been handled better
using ethics of care become a point of conflict and power play
between the union and the management.
Case Study: 9
India’s apparel industry employs female and children below 14
years of age for cheap labor to stitch and prepare garments.
(Reference Page 178-179 of the text book)
Summary: The questions pertain to such rampant unethical
behaviour are:
(1).Is the use of underpaid and child labor which is illegal in many
countries ethical in gaining economic advantage?
(2). Should the corporate ethics policy remain silent about such
unfair practices and continue to enjoy the economic benefits thus
reaped?
(3). Is it ethical that parents allow their children to work as
industry labor-knowing fully well that it is illegal and that they are
being exploited? and
(4). To what extent are children themselves are responsible for
violating the law in being thus employed?
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Each one will have his or her say in the matter. The root cause of
this evil practice is socio-economic inequality in a society and
what matters to these people is struggle for existence and not
adherence to ethics and laws. The real responsibility and solution
for such social evils remain elusive.
Chapter: 9
Case study: 10
The real reasons Enron Failed- Lessons for Directors. (Reference
Page 334 of the text book.
Summary: This case study views the infamous Enron scandal
differently pointing out that the company collapsed chiefly
because its managers were paid to aim at wrong financial
measures, and consequently, its internal system of financial
controls was a shambles. Corporate governance failure creates
serious troubles, such as faulty organization design, hazy business
goals and faulty business practices- leading to the collapse of
industrial giants. This is clear case of bad corporate governance
where no respect was shown to the principles of governance and
care for investors.
Case study: 11
More Satyams in the Pipeline (Reference Page 335 of the text
book)
Summary: This case highlights the need for ethics in corporate
governance in India to curb the widespread accounting lapses in
the company. The report implies that many companies in India are
operating on the basis of ‘pump and dump’ and ‘blab and grab’ in
loosely regulated business burses, and thereby, putting thousands
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of business investors and public at great risk. The Satyam scandal,
according to the Noble Group, is one such case among many. If
these unethical corporate governance practices go unchecked in
Indian business, there could be many more Satyam-like
occurrences. Such a business environment does not serve the
purpose of business,it is highly risky and puts the country’s
economy and well-being in jeopardy.
Chapter: 10
Case study: 12
2010- The year of Indian Scam (Reference Page 374 of the text
book)
The Satyam case brought to sharp focus several critical corporate
governance issues in India. Some of these issues are listed below:
1. The sorry state of ethics in governance of the Indian
corporations and other agencies including government
machineries in the public domain.
2. Ineffectiveness of the regulatory authorities for governance and
administration who either could not detect or turned blind eye on
so many scams in recent years.
3. The role and responsibility of independent (non-executive)
directors in the board.
4. The role and responsibility of auditors, who in accordance with
their professional code of conduct are supposed to and empowered
to protect the investors from such wrongdoings.
5. The importance of ‘Whistle-blower’ in unearthing corporate
governance wrong doing of scam, and their near absence in the
country.
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The Indian corporate governance is not ailed on account of
absence of laws and regulations, but the motives of few business
faces and ineffective implementation and administration of
regulations.
Chapter: 11
Case study: 13
In his article on CSR entitled ‘The real meaning of CSR
(Reference Page 409 of the text book)
Summary: This case illustrates clear and objective thinking of
public limited company coupled with a creative attitude in
governance with a view to accomplish desired results and
corporate excellence. MSIL did it successfully notwithstanding the
regulations of a public sector company.
Case study: 14
Mr. Sudheer Thaakur, Professor of Strategy and Corporate
Governance, BITS, Pilani in his article, ‘Time to revisit Corporate
Governance’ (Reference page 410 of the text book)
Summary:
This case depicts the current state of affairs in corporate
governance in India. The management representing a small
fraction of voting rights successfully masquerade as sole and lone
owners because the bulk of shareholders are spread thin amongst
professional money managers. The truth of corporate governance
is not about complying with some regulatory provisions on the
paper, but about fulfilling obligations to all direct stakeholders,
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and ethical environmental obligations to the society for sustained
growth and well-being.
Case study: 15
The Annual conference on ‘Ethics in Business: Corporate Culture
and Spirituality’
(Reference Page 410-411 of the text book)
Summary: This case is a strong reminder to the basics of business:
Sustainable development is possible only with sustainable ethics.
It illustrates how business, when in partying mood in good times,
are oblivious to their duties and responsibilities towards society
and stakeholders. It also warns of crises that are engulfing the
world, because of the absence of equity and presence of selfish
approach in business.
Chapter: 12
Case study: 16
The fall of high-flying corporation (Enron, US, in 2001) and IT
superstar (Satyam, India, in 2009)
(Reference Page 444 of the text book)
Summary: This case illustrates how the quality of persons at the
helm of business is important if the business has to serve its
rightful purpose and endure sustainability. Scams at Enron and
Satyam revealed the urgent need for change in the way of
measuring the success of business and purpose of business.
Thousands of unsuspecting investors had invested their lives’
savings and lost all, thousands of employees and other
stakeholders staked their future to these companies in vain. In all
such cases, a few people were able to influence some others in the
business community e.g. directors in the board, senior executives,
auditors and regulators etc. to commit crime.
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Case study: 17
The sub-prime crises in the US and UK, and the global financial
crises of 2008 paved the way for the G-20 Leaders summit
(Reference page 444-445 of the text book)
Summary: Hope that economic reform would plug the loopholes
through which the so-called ‘smart operators’ had exploited the
system, and innovative regulatory measures will stop future
abuses of financial business is perhaps receding away is indicated
by this case study. With the slightest sign of recovery in the US
and Europe, G-20 leaders appeared to be forgiving the crime and
failures. G-20 governments are banking more on financial stimuli
for correction than the reform of the economic system and
governance codes for creation of a fair and fraud free business
world. Contrary to the principles of good corporate governance,
these measures are meant to serve the short-term goal of staving
off the crises than targeting the long-term goal of bringing fair
play and ethics in business.
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