Importance of Ethics Management in today’s context

But even Tatas have yielded to the temptation to become corrupt.  The Tata group was dragged into the 2G spectrum allocation controversy after the tapes of corporate lobbyist Nira Radia were leaked to the media. The three licenses of Tata Teleservices were among the 122 licenses cancelled by the Supreme Court in early 2012. 

Let us read what Ratan Tata said on the eve of his retirement. 

Tata group Chairman Ratan Tata confessed that he could not make the conglomerate a "truly open, flat, transparent organization". 

When specifically asked during a TV interview what he could not do that he wanted to during his tenure as the head of the Tata group, Ratan Tata replied, “Perhaps internally, I have not been able to create the truly open, flat, transparent organization that I had hoped we could do". 

He further said that though his group "a traditionally manufacturing company in a seller’s market"; it did not succeed in "really embracing the customers' values". 

However, Ratan Tata reiterated that he would be able to pass on the legacy to successfully move ahead without compromising value system and ethics. 

"I think what I want the legacy to be would be to say that we achieved the growth and the prosperity that the group has had with the value system and ethical standards that we have tried to retain and not succumb to the pressures of, the subjective pressures that exist to get things done," Tata said in a TV interview. 

The Hindu dated 9^th March 2013 reported that the World Bank barred Larsen & Toubro from doing any business with it or the projects funded by it for 6 months, after finding that a senior executive of the conglomerate had indulged in fraud. L & T is widely acknowledged to be one of the most highly regarded companies in India with respect to integrity and compliance. 

The above instances of Tatas and L & T would make us believe that there has been no ethical corporate governance even among the best “ethical” companies in India. 

The roles of many top corporate executives were investigated by CBI in the “2 G spectrum” case and some of them jailed during the course of investigation.  The telecom bandwidth tender was allegedly undervalued and offered to a preferred few on a dubious “First come first served” basis instead of a transparent auction system.  According to the charge-sheet filed by CBI, Shri Sanjay Chandra, MD of Unitech Group, one of the top most companies in India, bribed officials in the Telecom sector, though his company did not have precious telecom experience. 

An Associate Director of Standard Chartered Bank in Haryana, India was arrested by the Haryana Police for his role in embezzlement of bank funds to the extent of Rs.6.65 crores in March 2013.  The modus operandi adopted by him was not very complex but very simple.  He was working for the Disbursing Working Capital Demand Loan section of the bank in sanctioning loans for businessmen.  He scanned request letters from clients on their letter heads and forged the same without tampering the signatures of clients, only changing dates and amounts.  Such letters were sent to the loan section by fax and the loan amounts sanctioned.  Then he scanned and forged request letters from the same clients requesting bank to transfer the sanctioned loan amounts to his own personal account and such letters were also sent by fax. In no Public Sector banks, loans are being sanctioned through documents sent by fax. 

An international bank fraud which had its origin in Italy subsequently spread to other nations. The cyber criminals targeted and hacked the computers of wealthy individuals and a sum of around USD 78 million from 60 financial institutions was transferred to the accounts of these cyber criminals. These fraudulent transactions could not be detected by the anti-virus controls whose two stage authentication was circumvented by a special type of malware. The cyber criminals had overcome the stringent information security measures through their sophisticated operations. 

Due to incidence of various scams, the need for improving governance in Corporate India has never been felt as is being felt now.  The confidence of international investors and domestic entrepreneurs has been shaken to a great extent.  Cyber crimes, intellectual property (IP) fraud, piracy and counterfeiting and identify theft are being identified as major frauds being perpetuated in the cyber world in an unprecedented manner.  Conventional crimes of bribery and corruption have become a major concern in the Corporate India, especially in the private sector.  Other convention crimes reported are diversion/theft of funds or goods through false invoicing, fake claims, pilferage, etc.  According to India Fraud Survey, 2012 of KPMG, procurement function continues to be perceived as the most vulnerable area to fraud and financial services and information and entertainment sectors have been identified as most vulnerable to fraud, using technology. 

Companies, especially, in the private sector, need to take a long term, comprehensive view of Ethics Management and to undertake review of the existing frameworks to reduce fraud and corruption.  Apart from limited external regulatory control by government and limited law enforcement agencies’ role to expose fraud and corruption in the private sector, it was high time the private sector companies in India established Vigilance or Ethics Departments in their companies.  Instead of outsourcing this work to forensic audit firms, private sector companies should have their own forensic investigation wings to investigate complaints of fraud and corruption.  They should follow the systems introduced in the Central PSUs. The top managements should take a cue from their counterparts in America or European nations where many companies having business in third world countries have established compliance/ethics/fraud risk departments in their companies.  The World Bank has its Integrity Department to look into complaints of corruption against their own employees and against their business partners to whom they sanction loans.

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Kindly look for more blogs from authors on the following subjects:

(i) Foundations of corporate governance/governance

(ii) Sounding a death knell to Vigilance Management in Central Govt./Central PSUs - suggestions for revival.

(The author may be contacted on his email id: jobanbalagan@gmail.com)