First written on August 10, 2002 Revised and Updated Monday, October 06, 2008 Corporate Ethics and Governance Dear young ladies and distinguished faculty members, I am honored to be invited by all of you for addressing on the subject of "Corporate Ethics and Governance". I am also very happy to address all of you, as my daughter is an alumnus of your prestigious institution. You could not have chosen a better topic than this, as this is the burning topic today. Without wasting much of your time, I will come to the subject.    What is Ethics? " Satyameva Jayate" - Translated into English from Sanskrit - "Ultimately, Truth shall triumph" - Kato Upanishad " Vinasha Kale, Vipareetha Budhdhi" - Translated into English from Sanskrit - " When you are heading for extinction, your mind works dangerously" - Vedas Note for Western and Non Sanskrit knowing Readers: Sanskrit is an absolutely blemish less language and it is practically impossible to translate the implied meaning into English. We have tried our best to give the nearest meaning.   * According to Oxford dictionary, Ethics means science of morals in Human conduct or Moral Principles or Code. In fact, in the past, it was always focused on individuals but no one bothered about the conduct of businesses. Strangely, it was presumed that Corporates were beyond ethics, as it was assumed to be an individual subject. * Since, businesses have enormous impact on societies, the issue of Ethics and Corporate Governance has gained importance all over the world from the early part of the twentieth century, but implementation is very poor. What are the Issues in Corporate Ethics? 1. Bribery, Moral Debauchery and Corruption - During License Raj in India, All companies which had links at New Delhi grew rapidly. The former Chief IT Commissioner of Mumbai is accused of bribery and prosecuted in a court of law in 2001 2. Copyright and IPR infringements - It is similar to stealing a newspaper from a news-stand 3. Falsifying accounts and window dressing - Enron, WorldCom, Adelphia, Arthur Anderson et al., 99% companies do this and is the flavor of the times "Enron struck a sham energy deal with Merrill Lynch that let Enron book a $60 million profit in late December 1999, according to former Enron executives" - Headline in New York Times 4. False billing at the end of the year by producing bogus dispatch documents and showing material return in the next financial year - almost 99% companies do this.  5. Tax Evasion - a very well known problem resulting in a black parallel economy, which is equal to or more than GDP.  6. Favoritism & Nepotism - Very common in all organizations 7. Sexual harassment - Of late increasing in workplace and the problem is not reported. The most famous case in recent times is that of former US President Bill Clinton 8. Gender/Color/Racial Bias. In India it is called Caste problem. We have Parsi, Punjabi, Aiyer, Aiyengar, Chettiar, Marwari, Sindi and many more communities running so called professionally managed companies  9. Illegal trading of Strategic Information 10. Poaching of important people from competition with access to strategic information - A European Auto-major taking on the chief of purchase of GM a few years back  11. Engagement of Goons to collect dues - A MNC Bank started it in India and now it is a big industry  12. Insider Trading in stocks and shares - Every major transaction comes under this category, as it is difficult to prove. A large Indian Group wants to delist their finance company from the stock exchange. When it offered the IPO, it charged a premium on a paid up value of 10. This company has incurred enormous losses and the prices are depressed now. They mopped up the shares from the market when the prices fell. They are now offering par value to remaining shareholders, who are a minority 3% now. Where is Ethics? When shareholders questioned this, the owners got angry. Minority shareholders can do nothing as laws do not have any provision for this kind of transactions. Taking advantage of loopholes in laws is also a matter of Ethics, though you might fall within the framework of laws. In Ethics, we have only the right and the wrong. There are no gray areas. I would have appreciated, if the owners had offered the original issue price, as they are so rich and it would not matter to them and their credibility would have leaped by miles. It is a drop in the ocean for them but for small individual shareholders it means a lot. Even now it is not too late for the damage control exercise "Samuel D. Waksal, the former chief of ImClone Systems, was indicted on charges of insider trading, bank fraud, forging a signature and destroying records" - Headline in New York Times 13. Bugging of Competitors meetings and places, also called industrial espionage - Common in the West 14. Using pension/provident funds in the stock markets - Home Trade Scandal in India 15. Self indulgence on corporate expense account - 4 Barclays bank executives spent USD 64,000 for a dinner, according to a dispatch from New York Times. A top Indian IT company CEO has employed the son of an important top executive of TTD, so that he need not stand in queue for darshan of Lord Balaji. Corruption has reached even the places of Worship  16. Producing false vouchers and statements - Traveling by second class and claiming first class expense is the norm and people are asked to ignore this. It is matter of employee right now 17. Deducting TDS and PF from salaries but not paying the same to concerned authorities - Many companies have and are doing this. In 1997-98, IT department served notice on 10,000 companies including MNCs. On Friday, August 09, 2002, it was reported in the ET newspaper that such PF dues as at end December 2001 was INR20,000 Million.  18. Not paying salaries to staff for months and asking them to go and take what is given, when they protest 19. Misleading and Vulgar advertisements targeting young people, especially 'Lifestyle' products - Whisky, Cellular, and Underwear using surrogate or culturally mismatching or vulgar advertising  20. Finally, honest people harassed and hounded out for stating the truth. The case of Mr. Y M Kale, former Senior Partner of AF Ferguson & Company Limited is the most recent example. There is no smoke without fire. Irrespective of whether Mr. Kale's report is fully right or partially right, he as an individual was doing his job and has been crucified for doing his duty. He might have erred in some of his findings, but it cannot be fully wrong because he was employed as a Senior Partner in a firm like AFF. If he is said to be incompetent, then the firm has no reason to exist and the choice was wrong. Both the parties are in a lose/lose situation. The winner is Mr. Kale and he lost his job for stating the truth. How do you expect people to carry out due diligence in Corporate Governance without fear ? He is a convenient scapegoat for both the groups involved. This is called arrogance of power. It is a matter of great regret that injustice has been done to an individual, without giving an opportunity to defend himself. In the eyes of the law, a man is presumed innocent till proven guilty. The credibility of both the groups involved, is at stake in this unfortunate and unsavory episode. It should also become a case study, to avoid such things happening in future. What are independent agencies like SEBI and ICAI doing ? I am not a Chartered Accountant or a member of ICAI, but feel ICAI should investigate and see justice is done for Mr. Kale, as otherwise no one will touch such cases in future.  I am saddened that the most respected and biggest group in India has got into another controversy after the VSNL take over imbroglio and it is time for an internal clean up. Even their PR has failed in their one page advertising blitz in the Economic Times. When you go through it, you do not have to be a genius to punch a lot of holes in their arguments. Best thing in such situations is to accept that mistakes have been made, stop making noise or getting defensive and go for a thorough internal clean up. Again I will end up with a quote: Every Saint has a past and every Sinner has a future What is the Solution ? People and Organizations should realize that Principles, Values, Ethics, Truth, Honesty and Integrity always prevails in the end, but it is a painful and extremely difficult journey. According to our estimate only 2 persons out of 100, meet the ethical yardsticks completely and since organizations consists of people, none of the biggies fall in this category. In the last 10 years, things have gone out of control and now the bubble has burst. The main reason is people have become too much money minded and want to get rich quickly. Thanks to IT and dotcom boom and bust, things have become out of control. In fact things have gone so bad that you cannot survive, leave alone prosper, if you follow ethical practices.   Good Corporate Governance involves Government, Organizations and People. An organization does not exist only to satisfy its shareholders. It exists to satisfy the interest of all stake holders. You might as well ask who are the stakeholders ? They are Customers, Employees, Suppliers, Government and lastly shareholders. Good corporate Governance means balancing the interests of all stake holders. While the legal redressal mechanism is the responsibility of the Government, if 98 out of 100 are morally corrupt in some form, then we have to change ourselves. Otherwise talking about corporate ethics and governance will serve no purpose. The future of our country and the world is in young hands like all of you and my request is, only you can change the corrupt system, if you want. That calls for courage, determination and ability to face hardships Thank you and I am now available to clarify any doubts on the subject,  Without Prejudice or Malice. Extract of address done on August 12, 2002. Prepared for MBA students of Ethiraj College For Women, a Deemed University, Chennai, India . MBA department is affiliated to the University of Madras. Prepared and written by Madhavan T Gopalachary, Managing Partner & CEO, Madras Management Group as a Guest Faculty. The views, opinions and interpretations are personal. Sponsorship does not mean that the sponsors endorse them. 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