Chapter Six

Creating an Ethical Organization

INTRODUCTION

Is it possible to create an ethical organization? Can we make a corporation realize its objective of catering to the interests of all its stakeholders and yet keep its activities unblemished? In the present context, it appears that it is a task laced with insurmountable problems. People seem to have lost faith in corporations and look suspiciously at their goals and deeds. They believe that the potential for organizations to behave unethically has no limits. In today’s business world unethical practices seem to be commonplace and almost taken for granted. People hear and read day after day that corporations suppress evidences of the ill effects of their products on consumer health, dump polluted chemical wastes into rivers, resort to price fixing and insider trading, use their financial clout with politicians to acquire thousands of acres of land at throwaway prices and make the poor owners deprived of their livelihood, and steal information from government and competitors. Such being the case, can anyone blame the public when they are cynical about the possibility of companies ever becoming ethical or when someone argues that notwithstanding all these unethical practices, corporations can still be made to act ethically?

THE PROBLEM IS NOT WITH CORPORATIONS, BUT THE PEOPLE WHO RUN THEM

Are the corporations themselves responsible for the numerous unethical practices indulged and frauds committed in their names? As artificial legal entities, they are mere abstractions. It is the persons behind them, the so-called “agents” of the stockholders who are responsible for either the corporations having an ethical conscience or behaving waywardly to use the system to enrich their coffers. Enron collapsed because its founder and Chairman, Kenneth Lay conspired to defraud gullible investors while making personal fortunes of millions of dollars by selling company stocks when it was in deep financial straits. He used a company credit line to shore up his personal finances, contributed millions of dollars of company money to fund presidential elections with a view to using political influence to curry favour and persuaded his employees who considered him as a father figure to invest in shares of Enron which he knew was collapsing. In his attempt to swindle the company’s funds, he had an able ally, Jeffrey K. Skilling, who though was paid fabulously for being the company’s CEO, did contribute his mite to the collapse of Enron. Both Lay and Skilling were responsible for creating a corporate culture devoid of an ethical conscience. The same was the case with other mega corporations like WorldCom and Waste Management that collapsed. It was always the vile men who were paid fabulously to run their companies who committed frauds and malfeasance, causing the companies to become bankrupt. In India, the Global Trust Bank collapsed because its founder Ramesh Gelli indulged in unethical and illegal activities which he knew fully well would cause its failure. On the other hand, J. R. D. Tata and N. R. Narayana Murthy had built ethical organizations under more adverse circumstances because they were men of ethics and were committed to the cause they espoused.¹ There are other innumerable instances, both negative and positive, to prove the point that a corporate is what its leader makes it to be.

FAT PAY DID NOT ENSURE BETTER GOVERNANCE

The above analysis indicates that by and large, the whole corporate sector has been infiltrated by malpractices, greed and unethical behaviour with a few honourable exceptions. For too often in recent times, both the print and electronic media have been full of accounts of corporate scandals and managerial misbehaviour. There are several striking evidences to show that managers of several mega corporations—some of which failed— amassed huge fortunes for themselves even while the organizations they were managing were heading for failure. Margit Osterloh et al.² point out that in 1970, an American CEO earned, on an average, 25 times as much as an industrial worker, while in 1996 the average CEO earned about 75 times as much, if we take into account only basic salaries and bonuses. However, if other incomes such as exercised stock options are included, the income differential reached an almost incredible level. In developing countries like India too, the monetary and off the record compensations that CEOs of family-owned companies received almost matched, if not surpassed, those of American CEOs. But the rub is that the receipt of such huge salaries has led some of these top executives to act in ways that proved detrimental to their firms. They have been working more for short-term gains than focusing on promoting long-term opportunities for their stockholders and other stakeholders. There are some analysts who hold the opinion that too much of pay and perquisites make corporate executives think that they are like government bureaucrats clothed with enormous powers and indulge in executive excesses that are detrimental to the interests of companies.

FRAUDULENT ACCOUNTING TOO PLAYED ITS DESTRUCTIVE ROLE

Apart from high executive compensations that have damaged the interests of corporations and consequently their stockholders, there is another factor that has played havoc with corporate performance, namely, fraudulent accounts. Once famous and successful companies such as Enron, WorldCom and Waste Management fell prey to this unethical practice of doctored accounts. In several cases, the very same CEOs who were paid fabulous compensations tampered with their companies’ accounts, like Enron’s Kenneth Lay and WorldCom’s Scott Sullivan (Cassidy). It is needless to stress that in all these accounting malpractices, these unethical men were diligently assisted by compromising accountants and auditors. If Arthur Andersen had refused to toe the lines of scamster CEOs, we would not have seen the collapse of mega corporations such as Enron and WorldCom. According to analysts, these scams caused severe damages not only to the affected companies, but also to the market economy as a whole through adverse market sentiments. The drop in stock prices has gained an added impetus and as a result of such misbehaviour investors have lost trust in managers.

INDEPENDENT DIRECTORS TOO DID NOT HELP REDUCE MALPRACTICES

Identifying the reasons as to why so many corporate scandals occur is a complex and difficult task. Proponents of corporate governance suggest that if the board of directors is proactive and provide professional guidance, it will help managers to run an organization on better and healthier lines. And to avoid the agency problem of vested interests in the board torpedoing stakeholders’ interests, they suggest that the board be made up of as many independent directors as possible. However, studies have shown that such practice too has not prevented malpractices in organizations. For instance, Enron had 80 per cent of its board consisting of independent directors, while Tyco had 65 per cent and WorldCom 45 per cent of such outside directors, and yet all of them had collapsed due to fraud and malfeasance. Dalton et al.³ argue that there was no statistical relationship between board independence and financial performance of organizations through a meta-analysis of 54 studies of board independence. Moreover, the firms were often audited by well-established professionals that included accountants, bankers and lawyers. For instance, as pointed by The Economist, Enron’s auditing committee was chaired by a distinguished accounting professor,⁴ while both the internal and external auditing of the firm was performed by one of the then world’s top five auditing firms, Arthur Andersen. In India, the earliest and the biggest mutual fund ‘The Unit Trust of India’ lost millions of rupees of investors’ money in spite of its board having non-executive directors and government’s own nominee directors. Many other boards of failed companies had independent directors, but almost all of them remained mute spectators in board meetings.

REASONS FOR THE FAILURE OF CONVENTIONAL MEASURES

Identifying the real villain in ethical infractions in mega corporations is still more difficult because their activities are characterized ‘by a high degree of complex interdependencies’, which not only creates a governance problem, but also a difficulty in identifying any particular actor when things go wrong.

Margit Osterloh et al.⁵ argue that offering individual incentives to get things done in organizations characterized by a web of interdependencies has caused havoc to the corporate virtue. “In the case of Enron, people were paid like entrepreneurs. Short-term thinking and, at the same time, performance distortion were encouraged. They were even induced to resort to illegal actions”. When top management was dishonest, it obviously percolated down to the bottom through the several layers of the administration. “With Enron, for instance, it was revealed that the whole board, including its president and vice president, knew about the malpractice. It was also general knowledge among the firm’s employees”. In the case of WorldCom, it was a slightly different story, scandalous nonetheless. In WorldCom, “dishonesty was not confined to the accounting department; the sales staff also falsified the accounts”.⁶

SUGGESTIONS TO IMPROVE CORPORATE VIRTUE

Taking into account the reasons for the malpractices in the context of various studies that have been conducted, Margit Osterloh et al.⁷ have come to the conclusion that the means suggested through conventional wisdom enunciated by agency theorists and politicians to the malpractices do not work. Paying excessive compensations to top management and intensifying monitoring and sanctioning, according to them, tend to worsen the very problems they are designed to solve. Instead, they offer three alternatives: (i) Selection of managers should emphasize pro-social intrinsic preferences to ensure the conditional cooperation of other employees; (ii) stronger emphasis should be placed on fixed salaries to reduce the temptation to cheat; managers must be paid a fair market wage for their overall performance; and (iii) employees’ willingness to contribute to corporate virtue by identifying and admonishing anyone resorting to fraudulent accounting must be strengthened by participation possibilities and self governance. This promotes self-monitoring and sanctioning in an informal way, and to that extent, reduces the tendency to break rules.⁸

ROLE OF CORPORATE GOVERNANCE

Corporate governance can be viewed as a set of arrangements internal to the corporation that define the relationship between the owners and managers of the corporation. Corporate governance relates to the working arrangement between various participants in determining the direction and performance of corporations who are (i) the shareholders, (ii) the management and (iii) the board of directors.

The World Bank⁹ defines corporate governance from two different perspectives. From the standpoint of a corporation, the emphasis is put on the relations between the owners, management board and other stakeholders (employees, customers, suppliers, investors and communities). Another perspective in defining corporate governance is called ‘path dependence’ where initial historical conditions matter in determining the corporate governance structures that are prevalent today. So, a nation’s system of corporate governance can be seen as an institutional matrix that structures the relations among owners, boards, and top managers, and determines the goals pursued by the corporation.

The Organization for Economic Cooperation and Development’s (OECD)¹⁰ original definition is, “Corporate governance specifies the distribution of rights and responsibilities among different participants in the company, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making and monitoring decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance”.

Corporate governance plays a decisive and important role in creating the required values, virtues, commitments and corporate conscience for an ethical organization. Without corporate governance that is based on integrity, honesty, transparency, open communication, full financial disclosures and an uncompromising commitment to shareholder democracy, we cannot visualize an ethical organization. Corporate governance is needed to create a corporate culture of consciousness, transparency and openness. It refers to a combination of laws, rules, regulations, procedures and voluntary practices to enable companies to maximize shareholders’ long-term value. It should lead to increasing customer-satisfaction, shareholder value and wealth. With increasing government awareness, the focus is shifted from economic to the social sphere and an environment is being created to ensure greater transparency and accountability. It is integral to the very existence of a company.

The fundamental basis of corporate governance and responsibility in the value system of the corporation includes the following:

• its human resource principles—respect and dignity for all
• its dedication to accurate and transparent accounting and financial standards
• its concern for the environment, for good business ethics and conduct, and for social advancement
• its over-riding passion to serve customers and to guarantee its products and services
• its insistence on fair treatment of suppliers and competitors
• its uncompromising commitment to comply with government laws and regulations in all countries in which it operates; and
• its desire to work with others to lead the society to a better economic standard and quality of life.

Corporate governance enables corporations to perform efficiently by preventing fraud and malpractices. The ‘Code of Best Conduct’, policies and procedures governing the behaviour of individuals of a corporation form part of corporate governance. This enables a corporation to compete more efficiently in the business environment and prevents fraud and malpractices that destroy business from inside. Failure in management of best practice within a corporation has led to crises in many instances. The Japanese banks which made loans to property developers that created the bubble economy in the early 1990s, the foreign banks which granted loans to State-owned enterprises that became insolvent after the Asian financial crisis in 1997, and the demise of Barings bank are examples of managements not governing the behaviour of individuals in the corporation leading to their downfall.¹¹

With ennobling features and characteristics, corporate governance can thus be described as the basic foundation on which an ethical organization can be raised.

THE ROLE OF CORPORATE CULTURE

Ferrel et al.¹² define the term corporate culture as a set of values, beliefs, goals, norms and ways of solving problems by the members of an organization. Corporate culture can be created by a founder of the company based on his or her values and expectations. In the Indian context, Jamsetji Tata founded the Tata industrial conglomerate with his humanistic and philanthropic values, and till date his successors like J. R. D. Tata and Ratan Tata have followed his footsteps in evolving the distinctive Tata industrial ethos and culture. Likewise, N. R. Narayana Murthy of Infosys has seen that the information technology company he founded and nurtured embraced an ethical value system that made it one of the best organizations in the country even as it added feathers to its cap as one of the top and most successful IT companies in the country.

The importance of the top person’s influence can also be illustrated by another example, this time as one having a baneful effect on the organization. There was a well-known managing director in a south India-based public limited company which had diversified business interests that included plantations, textiles, fertilizers, electronics, non-banking finance business, chemicals and several subsidiaries dealing in safe deposits, stock broking and granite. The founder of the group had the reputation of promoting the corporate culture in the south in 1930s and was one of leading lights of the Madras Stock Exchange. In the early 1980s, the group of companies had business worth Rs 2,500 million which was then considered quite a large business. The managing director (MD) who inherited the mantle of the founder-father was a post-graduate, well read, widely travelled, very amiable and articulate person who could deliver a speech extempore on any subject at a moment’s notice, and a popular and respected personality in society. He headed several national and international business and government organizations by virtue of his excellent leadership qualities. He was also instrumental in promoting many educational and charitable organizations to which he could collect funds by using his charisma, wide-ranging influence and sophistry. However, he had one weakness, the enormous love for money. He would expect a ‘cut’ in every business deal and it was rumoured that he had stashed enormous amount of black money in unnumbered Swiss accounts. A couple of times his home and office were raided by sleuths from the Income Tax Department who found huge amounts of unaccounted money. However, he could escape without being imprisoned or held accountable for the money by paying a fine only through a ‘deal’ with politicians. To cut the story short, his unethical practices were followed by his executives as well, and some of whom, who were very poor at the time of joining the company, amassed huge wealth. The company saw its decline with the sale of its chemical unit for less than Rs 250 million, whereas to put up a state-of-the art plant like it would have cost no less than Rs 750 million at that point of time. One business after another failed and a few joint ventures with MNCs never took off for want of capital. An industrial empire he built on the foundations laid by his father collapsed one after another due to his avariciousness. He died unhappy and with a lot of unfulfilled ambitions. What he left behind was destroyed by his poorly equipped progeny. This is one case to illustrate how the unethical qualities of an industry leader infected the entire organization and caused the collapse of one of the most promising industrial conglomerates in the south, and with it resulted in a loss of substantial investments to its 40,000 shareholders.

If the MD or CEO sets the tone and tenor of corporate culture, it easily moves down to the lower level. People pick up the values and try their best to follow them. They know what is acceptable and what is not in the organization. It is reported that Azim Premji, founder and chairman of Wipro Technologies, emphasizes a great deal on the integrity of his employees and ensures that it pervades every sphere and work in the organization. He also sits for long hours with the top management consulting and motivating to ensure this. He spends a considerable amount of time along with his team to recruit senior executives whom he considers men of integrity through their thoughts and deeds. In most organizations, senior posts are filled by people who are home-grown and are imbibed with the culture of the company. Each firm tries to develop its own corporate culture based on the values its founder wants to transmit in the work place. Rank outsiders who have worked in other organizations may have acquired values that are different and may take a long time to acclimatize themselves to the new culture, or if they are senior enough in the organization may influence others working under them to form a sub-culture that may not gel with the overall culture of the organization. This is the logic behind ethically bent organizations generally preferring to nurture and grow men and women imbibed with values they cherish to staff their divisions.

ROLE OF CORPORATE SOCIAL RESPONSIBILITY

The corporate culture of a firm is evolved by its people imbibing values, good or bad, which its top executives want to transmit by their own example. If the top executives have an ethical and social conscience, then they will, by their thoughts and deeds, inspire their subordinates to exhibit these values, both inside and outside their work life. Corporate social responsibility (CSR) is one value that is both inspiring and infectious.

CSR refers to “an organisation’s obligation to maximise its positive impact and minimise its negative impact on society”.¹³ When an organization goes beyond its avowed economic goal of making profit to benefit its shareholders, reaches out to enrich social life through its philanthropic, environment-friendly, pro-poor and welfare activities, we say that it is socially responsible. Such philanthropic or social welfare activities are not required or normally expected of business, but these promote both goodwill and human welfare. CSR is a handmaid of business ethics. Figure 6.1 illustrates the place social responsibility occupies in the interconnected scheme of business ethics.

 

CSR comprises effective and ethical workplace practices, sustenance of depleting environmental resources, community welfare activities to narrow down the gulf between the rich and the poor and general exhibition of corporate citizenship.

In recent years, many companies have established separate departments to document the best practices of CSR and integrate them into the organizational fabric. They are investing huge amounts in creating special foundations for the implementation of these practices with a view to making a difference to the people around them. They are also drafting special policies to ensure better working conditions and promoting family welfare of their workforce.

The Tata group of companies, well-known for philanthropy and social concern, has involved all its units in some social initiative or the other. Their diverse approach towards CSR is designed to meet the needs of the environment as well as that of the community. They are more concerned in making an individual self-reliant rather than offering mere monetary assistance. Their offers of scholarships to meritorious students have encouraged many poor students to pursue their dreams of higher education. They have also created a relief committee to deal with eventualities, both natural and social. In addition, there are special programmes for the welfare of women, rehabilitation projects, etc.

GE Foundation of the General Electric Company stands as a testimony of the philanthropic commitment of the corporate sector in India. Such foundations are instrumental in funding health and educational facilities, uplifting the poor and enhancing the standard of living of the poor in the rural sector.

Infosys Foundation has done exceptional philanthropic work by providing shelter and assistance to destitute children and building libraries and science centres in several government schools run in remote areas. They are also providing financial assistance to artisans and their families in their endeavour to sustain and revive the disappearing art forms and the ethnic culture of rural India.¹⁴

Satyam Computer Services Ltd has a social vision and has set up several trusts to aid greater social equity and provide opportunities for the under-privileged. The company has set up two foundations called Byrraju Foundation and Satyam Foundation. While the former aims at rural transformation through enhancing health, education and living standards of close to a million people, the latter works in the area of urban transformation. Satyam also has revolutionalized the healthcare system in Andhra Pradesh and elsewhere by launching Emergency Management and Research Institute (EMRI) that offers one of the fastest ambulance services in the country.

The TVS group companies, notably TVS Motor Company Ltd and Sundaram Fasteners Ltd have formed an NGO, Srinivasan Services Trust that has been doing yeoman’s services to rural communities by providing education, employment-oriented technical training, social forestry and promotion of tribal welfare in the states of Tamil Nadu, Maharashtra, Karnataka and Gujarat. The Trust has been in the forefront of providing relief during the Gujarat earthquake and the tsunami disaster in Tamil Nadu.

Proponents of CSR argue that it offers several advantages, both within and without, to corporations engaged in social welfare projects. Within the organization, it cultivates a sense of trust and loyalty amongst the employees with organizational ethics. Still more significant is the fact that it offers a soothing diversion from the monotonous workplace routine and gives the involved employees a sense of satisfaction and fulfillment, in addition to offering a genuine meaning to their lives. Without, CSR enhances the positive image of the corporation amongst its immediate stakeholders and the larger society and earns a special respect amongst it peers.¹⁵

Another concept used in the context of ethical business and social responsibility is corporate citizenship. It is defined as “the extent to which businesses strategically meet the economic, legal, ethical and philanthropic responsibilities cast on them by their stakeholders”.¹⁶ It covers activities and various steps adopted by an organization to discharge its social responsibilities. Corporate citizenship implies a firm’s commitment and business focus to fulfil its social responsibilities as defined by its stakeholders. It involves the firm acting on its commitment of corporate citizenship philosophy and how it seeks to implement it.¹⁷ Several companies in India like Infosys, Tata Steel and Dr Reddy’s Laboratories have started developing a spirit of corporate citizenship. Loyola Institute of Business Administration (LIBA) confers The Mother Teresa Award for the Corporate Citizen every year to showcase a profitable listed company as a role model for commitment to the Corporate Citizenship, to management students and other corporations. It has so far chosen for the award, Titan Industries Ltd, Orchid Chemicals and Pharmaceuticals Ltd Tamilnadu Newsprints and Papers Ltd, Polaris Lab, Shriram Investments, TVS Motor Company Ltd, Tata Steel Ltd, and NTPC Ltd.

CSR, as we have seen, emanates from the sense of corporate citizenship, which in turn is meant to meet the economic, legal, ethical and philanthropic responsibilities of an organization. The economic aspect of social responsibility relates how business firms use the country’s scarce resources and respond to fluctuating trends in the economy with a view to maximizing stakeholder, especially its employees’ interests. The ethical aspects of corporate responsibility lie in balancing the conflicting interests of its stakeholders including its competitors. Organizations also observe their legal responsibility by complying with the law of the land established by governments to set minimum standards for responsible behaviour. Such laws relating to business are meant to regulate competition, protect employees and consumers, promote safety and equity in places of work, protect environment from capricious destruction, provide incentives and prevent misconduct. Perhaps the most visible and significant aspect of a firm’s social responsibility is philanthropy. This involves its commitment and contributions to the local community and society. Corporate philanthropy is set to get to society four advantages that include improvement in the quality of life, reduction in government intervention in the day-to-day business life, enhancing leadership skills of workers and above all promoting their morals.¹⁸ Philanthropic-minded companies contribute generously to education, public health, environmental causes, and provide support and succour to the poor and those affected by natural calamities. “Strategic philanthropy involves linking core business competencies to social and community needs”.¹⁹

Business ethics is another dimension of social responsibility. Business ethics would encompass such norms, standards, concerns and expectations of major stakeholders seen from the perspective of corporate social responsibility.²⁰ Only when firms incorporate ethical concerns in their value system and include ethics in their business strategy, can social responsibility as a value be factored in their daily decision making.

OTHER INFLUENCES IN CREATING AN ETHICAL ORGANIZATION

We have analysed various factors that contribute to the creation of an ethical organization such as corporate governance and corporate citizenship both of which are to some extent guided by outside influences including those of the government and regulators who not only provide guidelines but also penalties in case of infractions or wrongdoing. But there are certain steps that a corporate can initiate internally, which will go a long way in creating an ethical organization. Ethical or unethical behaviour of individual employees are influenced in the context of the workplace both by their own moral development and the influences that the organizational culture exerts on them. They are influenced by a plethora of forces that surround them—their peers, their supervisors and superiors, the reward system, group norms, company values and policies and the manner of their implementation. Ethical behaviour in companies can be encouraged by a number of ways. The human resources management (HRM) department of a company plays a pivotal role in ensuring this through its role in training, communication with workers, and in its manner of enforcing discipline in the organization.

DEVELOPING AND EXECUTING A COMPREHENSIVE ETHICS PROGRAMME

Ethical behaviour in organizations can be encouraged in a number of ways, most of which are executed by the HRM department through its roles in training, communication and discipline. Some big corporations that are ethically committed, assign the primary task of managing and monitoring ethical behaviour to their HRM department. In some others, there may be ethics officers who are entrusted with the responsibility to bring in ethics in every endeavour of their organizations. Whichever agency is entrusted with the task of enforcing ethical behaviour in organizations, a sound ethics programme should include the following six components:²¹

1. formal codes of conduct;
2. ethics committees formed with a view to developing ethical policy for the organization and also investigating ethical infractions by employees;
3. ethics communication system that would include the facility for employees to post queries, get advice, or report any wrongdoing;
4. an ethics office with officer(s) to oversee the process and facilitate the communication of the policy to employees;
5. ethics training programmes meant to make workers conscious of ethical issues that are likely to arise at the place of work; and how to deal with them effectively; and
6. a disciplinary system that would ensure prompt, decisive and impartial dealings with violations.

We will deal with each of these six components of an effective corporate ethics programme in some detail.

CODES OF CONDUCT

Several companies that have vowed to implement ethical behaviour at their work places have started the process with developing and implementing codes of conduct for their employees. Codes of conduct are statements of organizational values that comprise three components, namely, a code of ethics, a code of conduct and a statement of values. A code of ethics is an exhortation to employees to observe ethical norms and forms the basis for rules of conduct. A code of ethics is often inspirational and comprehensive enough to cover the entire scheme of organizational ethics expected to be followed by everyone in the company. It usually ‘specifies methods for reporting violations, disciplinary action for violations and a structure of the due process’ to be followed. A code of conduct is a written document, inspirational in content and specifies clearly what is acceptable or unacceptable behaviour at the workplace and beyond, when employees represent their organizations outside. Generally, the code is worked out with the active involvement of top management. It should reflect the managements’ desire to incorporate the values, rules, and policies of the firm, the compliance of which will ensure an ethical environment in the organization.²² A statement of values is one that is conceived by the management to serve the general public, and normally addresses the stakeholder groups.

It should be emphasized here that though a distinction is normally made between these—a code of ethics, a code of conduct and statement of values—they are often used interchangeably.

In India, all major companies have developed their codes of conduct after the publication of A Desirable Code by the Confederation of Indian Industry (CII) in 1998. Tata group of companies, Infosys, Hindustan Lever Ltd, Wipro Technologies Ltd, ICICI, HDFC, Cummins India, Ranbaxy, Dr Reddy’s Lab, Polaris Lab, Orchid Chemicals and Pharmaceuticals Ltd and the Birla group of companies are some of the prominent corporations that have adopted codes of conduct for their employees.

ETHICS COMMITTEES

Ethics committees are formed in many organizations that are exclusively devoted to the pursuit of ethics at their work places. These committees may raise concerns of ethical nature, prepare or update codes of conduct and resolve ethical dilemmas in companies. These committees may formulate ethics policy, develop ethical standards, and in the context of these norms, evaluate the company’s compliance with them. Members of ethics committees should be well chosen, if they are to serve any useful purpose in organizations. They should be well posted with the knowledge of their industry, their codes of ethics and community standards.

There are a few constraints with regard to the organizing, development and usefulness of ethics committees. These are not as popular as they ought to be, as formalized structures to deal with ethical issues. Very few corporations have convinced themselves to appoint such committees, though almost all of them have ones to deal with finance, personnel, remuneration and even CSR. Another problem is their being misused by managements to serve their interests, or to legitimatize their ‘ethical’ standards on some issues. More often, selection of members to these committees may pose serious problems. Committee members should be selected for their objectivity and unwavering commitment to ethical standards and they should also be conscious of the corporate culture and ethical conscience of the organization.

ETHICS COMMUNICATION SYSTEMS

Ethics communication systems play a crucial role in making an ethics programme successful. If an organization keeps the various facets of the programme under the bushel as it were, it will serve no purpose. Ethics communication systems should allow employees to make enquiries, get advice if needed, or report wrongdoing. It is absolutely necessary to have a system in place to communicate and educate employees about the company’s ethical standards and policies. The objective of the ethics communication system should be to (i) communicate the company’s values and standards of ethical business conduct to employees; (ii) provide information to employees on the company’s policies and procedures regarding ethical business conduct; (iii) put in place processes to help employees obtain guidance and to resolve questions regarding compliance with the firm’s standards of conduct and values; and (iv) establish means of enquiry such as telephone hotlines, suggestion boxes and email facilities for employees to get in touch with and get advice from competent authorities. It is also ideal to have one of these facilities available to allow anonymous contact, where and when required.

Apart from these means of communication within the organization, there are other avenues that can be used to communicate a firm’s moral standards to its workforce. Top management people can communicate with managers at the operational level, such as in production, finance and marketing and enforce overall ethical standards within the organization. If the organization has a newsletter, it can be used to publicize the company’s code or statement of ethics. Since this internal medium of communication has an extensive reach within the organization, it is an effective means to get the message across. If the organization has an existing system of briefing groups and management meetings, these fora can also be used as means of communicating values. In recent times, companies publish attractive multi-coloured laminated posters with their ethics policies printed and place them at the most visible and accessible places such as meeting halls and canteens for all to see and remind them constantly what the company stands for in terms of values.

In some instances, there is a practice of making people sign their ‘allegiance’ to the organization and its values and goals. These firms require their employees to periodically sign a document reaffirming their commitment to the code of conduct. This practice, if done professionally and convincingly, is certainly one possible way of keeping the importance of ethical behaviour in front of people’s minds all the time. Some very big organizations also use the external media such as frontline newspapers and popular magazines to publish their ethical standards on special occasions like anniversaries both as a public relations exercise to project themselves as ethical organizations and as a means of getting across the message to external stakeholders. In such cases, however, special care should be taken to draft such media releases taking into account the most likely public responses when things go wrong.

Thus, communicating with the employees the moral standards an organization stands for is the most important exercise in creating an ethical organization. A firm may have worked out well-formulated ethical standards with a view to making it an ideal organization ethically, but if it does not reach its employees or fails to convince them of its importance, it fails in its very objective.

ETHICS OFFICE/OFFICERS

In the United States and Europe, the practice of setting up ethics offices or appointing ethics officers has become popular among organizations to oversee the process and to facilitate communication of ethics policies to employees. The ethics officer has become a recognized job title, and there is now a professional association for such individuals.²³ Ethics officers are usually “responsible for assessing the needs and risks that an organization-wide ethics programme must address, developing and distributing a code of conduct or ethics, conducting training programme for employees, establishing and maintaining a confidential service to answer employees’ questions about ethical issues, making sure that the company is in compliance with government regulation, monitoring and auditing ethical conduct, taking action on possible violations of the company’s code, and reviewing and updating code”.²⁴

The position of ethics office/officer is relatively new, hardly about two decades old in most organizations even in advanced countries. The Sarbanes-Oxley Act and similar regulatory enactments provided the incentives for corporations to take the initiative of appointing ethics officers, as they wanted to develop a reputation for credibility, integrity, honesty and responsibility through the establishment of such ethics monitoring bodies. Since the position of ethics officers itself is new, its functions are yet to be standardized; they are gradually evolving over time.

The position of ethics officers is slowly emerging in companies throughout the world. As of now, there is no specific cadre of trained ethics personnel companies can draw from to man their ethics offices. They often move into their positions from other jobs in their companies. The Ethics Officer Association (EOA) of the United States, which has currently around 1,000 members, is said to have one-third of its members with law degrees and one-fourth with financial backgrounds. In some cases, they have moved up from their companies’ ranks and were selected because of their knowledge of the company, communicative skills and their ability to develop training programmes.

In India, ethics officers are an emerging breed. Many ethically committed, professionally run corporate bodies have started appointing ethics officers whose functions in the Indian context are still evolving, though their basic job descriptions remain the same as found elsewhere.

ETHICS TRAINING PROGRAMMES

One of the important components of a corporate ethics programme is the training given to employees, aimed at ensuring their ethical behaviour in an organization. The basic objective of such a training programme is to offer assistance to employees to understand the ethical issues that are likely to arise in their work environment, and how to deal with such issues.

Mere mouthing of values and distribution of glossy brochures on company’s ethics policy at company meetings do not change employee behaviour to any significant degree. Reinforcement of the message on the importance of its espoused values will show that the company means business. One of the most powerful ways of achieving this objective is to ensure that the ethical principles the company believes in are incorporated in every aspect of employee training²⁵ with a view to sensitizing them on the need for ethical behaviour.

When new executives and workers are recruited, they should be made familiar with the company’s code of ethical behaviour and the importance of abiding by the code should be elaborately dealt with at the induction meeting. Additional facilitating factors such as a learning centre or special library of books, journals and films on business ethics and values could be helpful for employees.

Proper and well-developed training can educate employees about the firm’s policies and expectations, important and relevant laws and regulations and the need to comply with them. “Training programmes can make employees aware of available resources, support systems, and designated personnel who can assist them with ethical and legal advice. They can also empower employees to ask tough questions and make ethical decisions”.²⁶ Many firms are now incorporating ethics training into their employee and management training efforts both at the induction period and at their annual refresher courses.

Ferrel et al. stress the fact that ethical decision making in an organization is influenced by the corporate culture, by peer groups and by the opportunities available to engage in unethical behaviour.²⁷ Ethics training can affect all these factors. For instance, when employees are trained about the philosophy of management, rules and procedures, they will be aware of their importance. This will strengthen both the organizational culture and the ethical stance of peers and supervisors. If such awareness is sunk into their conscience, it will enable them to fight against unethical behaviour and reduce the potential for misconduct. If ethical training is thoughtfully and meaningfully worked out, it can ensure that everyone in the organization (i) recognizes situations that might require ethical decision making; (ii) understands the values and culture of the organization; and (iii) is able to evaluate the impact of ethical decisions on the company in the light of its value structure.²⁸

For the ethics training programme to be effective and fruitful, it is important that there is the full involvement of senior executives from every department in the organization. There must be a detailed and uninhibited discussion on the ethical code and philosophy with enough opportunities provided to employees to express their concerns, seek solutions to questions and be aware of consequences for ethical infractions. Employees also should be clearly informed of the difference between personal and organizational ethics and how ethical dilemmas can arise when they conflict, with possible solutions based preferably on real-life situations and experiences. An effective ethics training programme will ensure a better understanding of ethical issues by employees and their ability to identify them, and eventually reduce the number of ethical dilemmas in the workplace.

In the Indian context, ethics training has not assumed the importance it deserves to have. There are very few corporations in the country that have incorporated ethics training into their induction programmes for employees. Some amongst them invite outside speakers to talk to their employees on ethical issues as part of their employee improvement and welfare activities. Sometimes, priests or men of religion and morals may be invited to speak to employees about the importance of being good and ethical in one’s individual and group behaviour.

DISCIPLINARY SYSTEM

Just working out a code of conduct or of ethical behaviour will serve little purpose in an organization. If it is not properly enforced, it becomes mere window-dressing and will not help in achieving the company’s mission of enhancing ethical decisions and behaviour. It is absolutely necessary, therefore, for a corporation committed to ethics to establish a disciplinary system to deal with ethical infractions promptly and decisively. Workers in organizations generally desire such infractions to be dealt with severely. “Failure to respond to unethical behaviour may lead to feelings of inequity on the part of ethical employees and threaten the entire social system that supports ethical behaviour in the organization.”²⁹ Moreover, efforts to seriously curb unethical conduct are needed for companies to establish long-term relationships with their workers, customers, and community at large. “If the code of ethics is aggressively enforced and becomes part of corporate culture, it can effectively improve ethical behaviour within the organization”.³⁰

While enforcing disciplines, especially in large organizations, there is a likelihood that moral principles are enshrined into rules and regulations which, in course of time, become inflexible and inhuman. If applied too mechanically without humanitarian considerations, what is intended to be an instrument to ensure ethical behaviour may become an unethical straitjacket by itself. In the course of ensuring ethical conduct, companies should be (i) Consistent, that is, adopt a fair attitude towards everyone without any discrimination or bias. Companies should not only be fair, but also appear to be fair. But even here, there should be a balance maintained between fairness and the consideration of circumstances that led to ethical violations and their gravity. (ii) Investigate causes thoroughly, that is, sometimes there may be some hidden causes that are treatable, or have been the result of a faulty system in the organization. In such cases, it will be unfair to penalize the employee. (iii) Think of the consequences, that is, often disciplinary action results in not only unexpected consequences but also unintended outcome on multiple stakeholders. It is necessary for the company to know of the consequences on various stakeholders before disciplinary action is initiated against the wrong-doer according to the rulebook. (iv) Show due care, that is, the objective of disciplinary action should be to ensure correction and not destruction. Without letting the disciplinary system be ruined, care should be exercised to evaluate the situation humanely and see whether the individual can be helped to recover from wrongdoing, of course, when the offence happens to be not so significant to cause a dent in the ethical policy of the company.

An ethics programme, if it has to be effective and fruitful, may use a number of methods to monitor and measure its efficacy. Whether employees diligently pursue the ethical code can be monitored through keen observation by ethics officers, internal audits, surveys, investigations and reporting systems. Sometimes external audit and review of company activities may be used in benchmarking compliance.³¹ To have and maintain an effective ethics programme calls for a continuous monitoring of the tools used and results obtained. It should not be taken as a one-time affair. Consistent enforcement and pursuit of disciplinary system are necessary for achieving a sound and fruitful ethics programme.

While implementing an ethics programme, companies should follow a coordinated approach if they want it to bear the desired results. They should (i) be very clear about the goals and means of implementing the programme (ii) set realistic and easily observable objectives (iii) associate senior managers in the development and running of the programme (iv) develop programme literature that addresses the ethical dilemmas and concerns of the average employee (v) develop a programme exclusively for the particular work place and not try to duplicate it elsewhere, especially in locations in other countries where there could be different norms of ethical behaviour (vi) ensure that the programme is not a series of lectures (vii) monitor assiduously, evaluate the effectiveness of the programme and adopt corrective measures wherever necessary (viii) put in place an effective communication system to facilitate a two-way exchange of information (ix) ensure the existence of a disciplinary system that penalizes promptly and appropriately the wrongdoers while patting and rewarding the achievers and (x) create a machinery for continuous monitoring and evaluation, with a view to updating the programme and its methodology.

SUMMARY

The foregoing analysis enumerates the series of measures and steps that are required to be initiated by the management of a corporation to create an ethical organization. It is apparent that the whole exercise appears forbidding, and unless the top brass is totally committed to the single-minded pursuit of its goal, the roadblocks on the way could thwart their attempt. Questions will be raised at every step: is it worth it? how much to invest in it? is the outcome worth the investments in efforts, men and materials? how long should one wait to taste the fruits of all these investments? is the investment commensurate with the result of just being called an ethical organization? all these questions are, of course, superficial and uncalled for once the top brass has taken the irretrievable decision and commitment to pursue the path of being an ethical organization. It is not merely because a virtue is its own reward. It has taken hundreds of years, thousands of corporate failures and collapses, and branding of them by society as Shylocks who fatten on the miseries of the poor for business to realize that ‘the business of business is ethical business’. To reinforce the conviction comes a series of research findings to demonstrate that there are innumerable corporations in the world, which have proved that investment in ethical business has brought each one of them profit, a fair name, long-term goodwill and reputation they could never have been earned otherwise!

At the same time, it must be emphasized that creating an ethical organization is not an easy affair. When hundreds of individuals with different moral standards assemble at a work place, creating its own ethical dilemmas and complex processes of decision making, it is not easy to be ethical in every aspect of such group behaviour. Those in authority with a tight grip over decision making process have to demonstrate their commitment to be ethical and ensure that such commitments percolates down to every layer of the organization. They have to demonstrate in their thoughts and deeds that they mean business, and the unwavering pursuit of their goal should be reflected in every work that is carried in the organization. The top brass, more than the employees, should show by their living example, that there is no divergence between the professions they make for public consumption and the way they practice ethics in life. Most mega corporations collapsed because of the divergences in professions and practices of their CEOs. Another important factor in the creation of an ethical organization is the need to institutionalize ethical practices in the structure and in every layer of the company. Most importantly, the management of the firm has to monitor ethical conduct of individuals at every stage through a well worked out system. Even in the best of organizations committed to ethical conduct, aberrations can arise. These aberrations have taken place at Infosys and ITC. Organizations should be careful enough to avoid them, develop a keen sense to anticipate them, tackle them well enough so that they do not harm the overall interests of the organization and more importantly, put in place systems and procedures to ensure that such aberrations do not repeat themselves. Eternal vigilance is the price a firm pays to ensure the ethical conduct of every one who constitutes the organization.

KEY WORDS

Ethical organization • Unethical practices • Commonplace • Corporate culture • Ethical conscience • Market economy • Fabulous compensations • Corporate scandals • Conventional measures • Web-architecture of interdependencies • Corporate virtue • The code of best conduct • Humanistic values • Tone and tenor of corporate culture • Corporate social responsibility • Handmaid of business ethics • Pro-poor welfare activities • Philanthropy • Social concern • Corporate citizenship • Ethics programme • Ethics committees • Disciplinary committees • Communication systems • Ethics training programmes • Ethical aberrations.

DISCUSSION QUESTIONS

1. Discuss the reasons why the conventional model of corporate governance failed to improve the ethical performance of companies. List the measures you would suggest to improve ethical corporate performance.
2. How are business ethics, corporate governance and corporate social responsibility interconnected? What are the underlying principles that run through these ethical threesome?
3. Explain how you would build an ethical organization, step by step. In such an endeavour, which of our Indian entrepreneurs would you choose as your role model, and why?

FURTHER READINGS

1. A. C. Fernando, Corporate Governance: Principles, Policies and Practices (New Delhi: Pearson Education, 2006).

2. Sarbanes-Oxley Act, 2002, available at www.klehr.com/Articles/Sarbanes_Oxley_Act2002.html

Case Study
WIPRO LIMITED: AN EARNEST EFFORT TO CREATE AN ETHICAL ORGANIZATION

(This case study is based on reports in the print and electronic media, and is meant for academic purpose only. The author has no intention to sully the image of the corporate or executives discussed.)

COMPANY PROFILE

Wipro was established in 1945 as a small vegetable oil company by Azim Premji’s father M. H. Hasham Premji. Azim Premji joined Wipro in 1966 and transformed it into one of the largest product development and services outsourcing companies in the world. In 1979, he began developing his own computer and in 1981 started selling the finished machine, going on to become India’s top-selling computer maker in two decades. In 1984, Wipro attempted to break into packaged software by developing a spreadsheet and word-processing package. This started the ball rolling and Wipro expanded its research and development initiatives for global clients. Presently, the company is the country’s third largest software exporter. Wipro’s 300-plus customers sound like a virtual ‘Who’s Who’ of the IT industry and include such illustrious companies such as Microsoft, Sony, ABN Amro, Ericsson, General Motors, National Grid Transco, who are serviced from one of the 30 offices worldwide. The company has grown at an average rate of 42 per cent in the last 12 years turning over US$ 900 million, employing 23,300 people and making Azim Premji not only the second richest Indian, but also one of the richest men in the world. Recently, Forbes business magazine has placed Premji as World’s sixth richest TechTitan with a net worth of US$ 13.3 billion.¹

Over 20 years, Wipro has built its services and expertise to deliver IT consulting in product design services, embedded systems software, control systems design and system integration. This includes

• package implementation;
• application development and maintenance;
• IT infrastructure outsourcing;
• remote processing applications including customer interaction services, business process outsourcing and knowledge services;
• total outsourcing; and
• hardware and software.

Wipro still retains a light-bulb business, toilet soap and edible oil division and a 12-year-old joint venture with GE Medical Systems to make diagnostic equipment. Together they produce 35 per cent of Wipro’s sales and will continue to operate keeping the Wipro brand in the public eye. It is expanding into areas such as research, and helping customers design their IT systems. It is also expanding its business process outsourcing (BPO) services and building up software expertise in health care, retail and energy. Today, Wipro BPO is the largest third party BPO outfit.

Wipro Limited is the first P CMM Level 5 and SEI CMM Level 5 certified IT services company globally. In the Indian market, Wipro is a leader in providing IT solutions and services for the corporate segment. In the Asia Pacific and Middle East markets, Wipro provides IT solutions and services for global corporations. Wipro’s ADSs are listed on the New York Stock Exchange, and its equity shares are listed in India on the Mumbai Stock Exchange, and the National Stock Exchange, among others.

COMPANY PERFORMANCE

Wipro Limited reported an 18 per cent rise in its net profit for the second quarter ended 30 September 2007, with a consolidated revenue of Rs 47,847 million representing a 35 per cent increase year-over-year (YoY), attributed to broad-based growth across verticals, services and geographies.²

BUSINESS STRATEGY

It has been commented that Wipro has been perhaps the most successful adapter among Indian corporations evolving with success from soap and consumer care to computer and services.³ However, the adaptation and evolution have not been smooth. There had been occasions when Wipro seemed to teeter on the brink. For instance, in the late 1990s, several senior executives left Wipro to start their own ventures. Everyone thought that this would put an end to the company’s onward march. However, Premji tided over the crisis by deftly capitalizing on the huge Y2K opportunity at that time. Capitalizing on the opportunity, Wipro branched into a new area, becoming a full-fledged service provider to several international customers. Thus, Wipro emerged from the crisis created by the exit of several top executives much stronger. Again, in 2001–2002, when the dotcom bust in the United States from where most of Wipro’s business came from, the company was hit hard. The crisis also revealed a critical weakness the company suffered from—Wipro had too many eggs into too few baskets. Taking cognizance of its weakness and to remedy the situation, Wipro proceeded fast to diversify the company’s product portfolio by acquiring companies with diverse portfolios. Wipro went on an acquisition spree to take over a ‘string of pearls’. In July 2002, Wipro acquired Spectramind for US$ 4.069 million, considered to be too high a price at that time. Today, Spectramind, renamed Wipro BPO, is a goldmine for the company, having added during the second quarter of 2006, 54 clients, 11 of whom are Global 500 or Fortune 1000 clients, apart from posting strong revenue growth and operating margin improvement, reinforcing Premji’s confidence that the Wipro BPO is moving in the right direction of delivering industry-leading growth rates.⁴ Wipro has added nine ‘pearls’ so far, amounting to a net profit of Rs 20,674 million in the financial year 2005–2006 and is now homing on still large acquisitions. These acquisitions have helped boost the company’s scale and recorded a total income of Rs 106,206 million against Rs. 816,980 a year ago.⁵

FACTORS BEHIND THE SUCCESS OF WIPRO

Wipro Ltd attribute their success (Fig. 6.2) to investing heavily in their employees, state-of-the-art technology, and applying strict ethical standards. Wipro steadfastly adheres to corporate governance in a country well known infamously for corrupt business practices. Wipro also has been enjoying competitive advantage by engaging highly skilled Indian talents, who are comparatively cheaper than their Western counterparts. Other factors that brought them success include the following:

• Unwavering commitment to excellence.
• Maintaining transparency in its business practices and accounts.
• Following a business model that showcases four core values—integrity, human values, innovation and value for money.
• Leading the market by focusing on work at the cutting edge of technology.
• Putting in place the concept of Six Sigma qualities. Wipro has pioneered and earned significant savings from this initiative, by reducing cycle time and defects in its products and services. Six Sigma initiatives form the basics for a defect-free environment across Wipro.
• Attracting, investing, developing and retaining the best talent.
• Recognizing customers as the key stakeholders and making and enabling business divisions to be more responsive to consumer needs.
• “Innovation has been successful in launching and sustaining a long-term initiative of building an IP (intellectual property) portfolio, which requires investments in people, Capex (capital expenditure) and marketing for a long-term gain. The Wipro Innovation initiative is directly under Azim Premji’s office to address this need”.⁶ Such initiative helps to identify ideas, concepts and areas that have potential marketability and prepare a suite of IPs and remedies that help the company create a differentiation with its competitors.

Wipro’s mission, quality mechanisms and approach to innovation reflect the above-mentioned key initiatives.⁶

CORPORATE SOCIAL RESPONSIBILITY

Wipro has used their wealth and standing to contribute to improvements in the community. One of the core values of Wipro is a strong sense of social responsibility and commitment to help people and communities. The company is actively involved in various community development programmes.

Wipro has set up ‘Wipro Applying Thought in Schools’ and ‘Wipro Cares’. The former is an initiative focused on improving quality of learning for the child through systemic transformation of the education system. This initiative provides teachers’ training, conducts workshop for school leaders and parents apart from providing a forum for exchange of ideas among the educationists in India. The initiative is also to establish learning standards and develop curricular support material. Over 2,000 teachers and principals from about 100 schools in 10 cities are covered under the programme. ‘Wipro Cares’ focuses on improving quality of life of the underprivileged people living in slums and rural areas.

In addition, Azim Premji personally funds the Azim H. Premji Foundation (AHF), which aims at building the future of India through transforming the lives of millions of children by promoting development of elementary education and bringing millions of poor into school. The Foundation works in around 4,000 villages across India, covering 550,000 children. In October 2006, the foundation was given the Corporate Citizen Award by The Economic Times.⁷

The Azim H. Premji Foundation, which focuses only on primary education, is funded entirely out of his personal wealth. Its annual spend is Rs 250 million. This is in addition to Wipro’s contribution of Rs 30 million every year. Premji firmly believes that “the education system should foster creativity rather than rote learning”.

Since 2000, this literacy mission has financed 7,000 schools in Karnataka, Andhra Pradesh, Tamil Nadu, Himachal Pradesh, Madhya Pradesh, Punjab and Rajasthan. More than 1.8 million young students and 29,000 teachers have benefited from this programme. The mission was recently extended to Uttaranchal at the invitation of the state government. Wipro and AHF say they will go to other states if the government is willing to work with them to improve the education system. To ensure that those who run the system have a stake in it, Wipro and the AHF—which put in 50 per cent of the cost—insist that their partner organizations cough up the rest. Wipro employees are also encouraged to participate in the company’s literacy mission.⁸

BUSINESS ETHICS

Wipro is perhaps the first Indian company to articulate a set of ‘beliefs’ to guide business conduct, as early as in the 1970s. The company has compiled an Integrity Manual, which is derived from the ‘Wipro Values’ and defines the way Wiproites should conduct business with their customers. The Integrity Manual guides Wiproites through the tough choices they may face in the daily execution of their role and helps create confidence in the mind of the customers, investors, suppliers and the society at large, with respect to Wipro’s dependability and sincerity.

Wipro has introduced a Wipro Helpline known as ‘WIPRO SOS’. This helpline comprises senior members of the company, like Chairman Azim Premji, who have helped mould the ‘Wipro Values’ and have influenced the development of corporate culture greatly. They are always available for guidance on any moral, legal or ethical issues that a Wiproite may face.

Wipro always believes that values are the guiding light of the organization and that it is these which energize each of their actions. It is the values that drive the organization, which reflects in its people. Wipro’s promise with four main values, is what makes one a true Wiproite.

Wipro’s Promise

With utmost respect to human values, Wipro promises to serve its customer with integrity, through innovative, value for money solutions, by applying thought, day after day.

Human Values

Their human values say, “We respect the unique needs of customers and employees. We are sensitive to their differing needs, in our interactions with them”.⁹ Values are what we get best out of the company’s employees.

Integrity

With integrity they promise to deliver what they commit, and carry out whatever they do with honesty, fairness, reliability and uprightness. Integrity ensures that the company stands upright against all odds, is truthful and stays committed to resolving internal conflicts. It helps them in being ethical.

Innovation

To Wiproites innovation means that they consistently offer novel and superior solutions to satisfy the needs of the customer. In this competitive world, there are innumerable innovations. But at Wipro they see to it that their innovations make a difference and lasts longer. It helps to focus on solutions, speedy executions and building a superior organization.

Value for Money

Everybody promises value for money, but in Wipro they deliver it through constant improvement in quality, cost and speed. They provide exactly what a customer wants—higher quality with better price. They concentrate more on the substance rather than anything else and that is what makes Wipro different. Along with the value for money Wipro provides them with confidence.

Wipro Presented Ethics in Business Award

Wipro has been awarded the Ethics in Good Business Award for the year 2002 by the Punjab, Haryana and Delhi Chamber of Commerce and Industry (PHDCCI). The award recognizes an organization’s ethics and value-based business performance.

Other Awards Won

• WIPRO ranked fifth in Asian Corporate Governance Association rating 2004.
• Wipro was the first entity to get Indian Credit Rating Agency’s (ICRA) highest category ‘SVG 1’ rating for stake-holders value creation and governance practices.
• IEEE award for software process excellence.
• Quality improvement by encouraging Six Sigma projects.
• World’s first SEI CMM Level 5 company.
• Ranked by Business Week among the top 100 technology companies globally.

Azim Premji, Chairman and Managing Director of Wipro

Following are the awards conferred on Azim Premji:

• was conferred an honorary doctorate by the Manipal Academy of Higher Education;
• was adjudged the Businessman of the Year 2000 by Business India;
• is a member of the Prime Minister Advisory Committee for Information Technology in India.
• is the second richest Indian, next only to Mukesh Ambani of Reliance Industries.
• Azim Premji Foundation was conferred the Corporate Citizenship Award by The Economic Times in October 2006.

Wipro’s Ombudsprocess

On 15 August 2003, Wipro introduced a process called the Wipro’s Ombudsprocess. Through this process if an employee discovers information which he or she believes shows serious malpractice, impropriety, abuse or wrongdoing within the organization, this information would be disclosed internally without fear of reprisal. There are arrangements to enable this to be done independently of line management (although in relatively minor instances the line manager would be the appropriate person to be informed).

According to the study carried out by the All India Management Association (AIMA),¹⁰ these are the findings which were brought into limelight about Wipro:

1. ‘Simplicity and character’ in the style of top management leadership, and almost austerity in their personal life and work situations.
2. Sustained leadership and nurturance of leadership and talent across the organization. The top management saw their term only as one part of the relay race, in which they were keen about the success of the company and their successor.
3. Passion and commitment for ambitious goals and urge for supremacy across the organization as the driving and energizing force.
4. Principle-centred paradigm, reflected in strongly held and explicitly articulated values and business philosophy, for doing business in a unique and ethical way.
5. Internationalization of all operations as the means for developing competencies for competitiveness in the global and domestic markets, benchmarking the productivity and quality parameters with world-class organizations.
6. Centrality of outstanding implementation skills and superior logistics as competitive advantage.
7. Quick response to changed business environment for maintaining strategic superiority.
8. Institutionalization of superior streamlined processes, systems and standard operating procedures for high level of productivity, efficiency, and quality, for performance management and alignment of activities and goals across different functions and regions.
9. ‘Win-win’ paradigm in relationship with the employees, suppliers, distributors, and other value contributors, almost like an extended family in the Indian ethos.
10. Balancing of interests of different stakeholders to mutually share the gains.
11. Openness, transparency, meritocracy, and professionalism in management and governance.
12. Sensing and creation of business opportunities, constant adaptation, pro-action, and change by the firm as an open social-technical-economic organic system. Co-evolving with its business environment; creating and sharing value and wealth; and sensitive to its relevant societal issues.
13. Distinct institutional identity and culture, with deeply ingrained shared values, and a well-defined purpose that create a sense of belonging and pride among the organization members, and endow the organization with a brand equity, cohesiveness and longevity.

It is this addiction to ethical values that saw a senior general manager of the company leaving because he had inflated a travel bill. The amount involved was not very large. Nor was the general manager’s contribution to the organization insignificant. And yet, he was leaving because of one act of misdemeanour. It was a question of principle, of values. Premji said he was coming clean with the truth because he did not want any rumours doing the rounds about the general manager’s departure. He further clarified that the organization would come down with an equally heavy hand on anyone who sought to belittle the individual.

BUSINESS PRACTICES NOT SO ETHICAL

1. Capital One terminates its relationship with Spectramind: On April 1 2004, one of India’s largest call centre service providers, Wipro Spectramind, announced that U.S. credit card provider Capital One terminated a telemarketing contract after agents were allegedly caught misleading customers during sales calls. Though there had been mounting criticism of the service quality of offshore outsourcing companies, this situation was not a cultural problem but a management issue according to analysts.

   “Call agents had been advised by team leaders and group leaders to make false claims about free gifts and membership fees while making their sales pitch”, according to Parvathy Ullatil. The story explained that Wipro’s quality assurance team, which evaluates agent performance, was “asked to stand back for two weeks every month so the agents could carry on undetected”.¹¹

   An audit at Wipro on Capital One’s request reported the findings leading to the non-renewal of its telemarketing contract for outbound calls.¹² Wipro stated that of the 250 Wipro agents working at its Navi Mumbai and New Delhi centres for Capital One, 65 resigned. However, the company maintained that Capital One continued to work with Wipro to handle inbound calls. Wipro also confirmed that the revenue guidance for its current quarter would remain unchanged.

   The contract termination proves to be yet another blow to Wipro, which lost a help desk contract with Lehman Brothers following complaints about the quality of service. Some analysts, however, say that Wipro is not entirely to blame: “If you’re going to put [agents] under too much pressure on the financial side, they will start behaving this way,” says Lior Arussy, President of Strativity Group, a call centre consultancy in Livingston, New Jersey. “This is a classic case of aggressive sales incentive programs, starving [agents] on the base [salary], keeping ethical codes vague, and not monitoring behaviour”.¹³

2. Another instance of an adverse ethical situation with regard to Wipro is the fact that Azim Premji holds 82 per cent stake in Wipro Limited, whereas SEBI’s guideline stipulates 25 per cent floating shares. Floating shares are the shares that are held by non-promoters.¹⁴
3. Yet another not altogether happy corporate governance situation at Wipro is the question of management succession. Wipro had high turnover of Vice Chairmen (four in 6 years) and the prominent among them are the high-profile Vivek Paul, Raman Roy and Ashok Soota. A report by Lehman Brothers suggests these exits are the result of “the high level of ownership and control by the Chairman”.¹⁵ No one in the management has any stake in the company and stock options are limited. This is one reason why even senior executives leave Wipro to work for rivals or launch start-ups. There are rumours that Azim Premji might induct his elder son, Rishad on to the company’s board.

CONCLUSION

The above analysis shows that both ethical as well unethical practices may co-exist in a company. But as far as the studies and researches that have been carried out, Wipro seems to be on the right track, focusing clearly on ethical issues and implementing a process in place to curb non-ethical issues, making it come up to the top five companies in India. Wipro is credited to have thousands of skilled, well-paid jobs and provided ample opportunity for Indians to develop their expertise and skills. Their enterprise demonstrates that it is possible to create success and build prosperity among the poverty prevalent within India. The personal commitment of Azim Premji to CSR, ethical business and corporate governance need to be commended and applauded.

DISCUSSION QUESTIONS

1. Account for the stupendous growth achieved by Wipro in a very short period of time.
2. Applying the various yardsticks that are listed in this chapter, would you be able to call Wipro an ethical organization? If not, list the flaws in the organization that fail the test.

FURTHER READINGS

1. Shankar Aiyar, “Inside Inc ’s Global Leap,” India Today, 18 July 2005; “Indian MNCs,” India Today, 6 November 2006.

2. Bureau, “Wipro Net Rises 46 pc on All-Round Growth,” Business Line, 19 October 2006, available at www.thehindubusinessline.com/2006/10/19/stories/2006101904460100.htm

3. “Get, Set, Grow: Wipro, India’s Best Managed Company,” Business Today, 27 March 2005.

4. http://sebiedifar.nic.in/

5. “Premji Foundation Chosen Corporate Citizen, 2005,” The Economic Times, 9 October 2006, available at www.wipro.org/aboutus/azim_profile.htm

6. “Premji Is Sixth Richest TechTitan,” The Economic Times, 24 August 2006, available at http://economictimes.indiatimes.com/articleshow/1921236.cms

7. S. H. Venkatramani, “Morals in Management,” 2007, available at www.yahind.com/articles/morals.shtml

8. WIPRO Annual Report 2005.

9. WIPRO Company Presentation for Investors, Apri1 2005.

10. WIPRO Corporate Governance Report 2005.