case srudy be & cg

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)

Business Ethics and Corporate Goverance


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. ( 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: 2Case 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 Isocyanate (MIC) storage tank No. 610. What followed was a nightmare.

Business Ethics and Corporate Goverance Page 2


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. The maintenance supervisor position had been eliminated and there was no maintenance supervisor. The period of safety-training 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 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 US-based Dow Chemical Company (Dow). After the merger, Dow too 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 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:

www.icmrindia.org/free % resources/case studies/ The % 2 0 Bhopal % 20 Gas htm.

www.icmrindia.org/case studies/catalogue/Business % 20 Ethics/BECG 115 htm.



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 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 4 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)



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 7 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 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 9 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: 7An 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 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: 9India’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?

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 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.

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, 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: 16The 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.

Case study: 17The 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.


case srudy be & cg

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